THE INVESTMENT STRATEGY PYRAMID
As a Franklin Valuemark Life policy owner, you can invest in up to nine
investment options at one time. When selecting an option, there are two things
you may wish to consider: 1) your investment objective; and 2) the degree of
risk with which you feel comfortable. Before you make these decisions, you may
want to review the investment strategy pyramid pictured below. The base of the
pyramid represents investments emphasizing stability and preservation of
capital. Moving up the pyramid, the categories reflect a greater focus on
potential investment return -- categories that generally entail a greater degree
of investment risk as well. Of course, you should review the Franklin Valuemark
Funds prospectus for more information about a specific option.
Capital Growth Fund
Mutual Discovery Securities Fund
Precious Metals Fund*
Small Cap Fund
Templeton Developing Markets
Equity Fund
Templeton Global Growth Fund
Templeton International Equity Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund+
U.S. Gov't. Securities Fund
Three Zero Coupon Funds
maturing in 2000, 2005, 2010
Money Market Fund
*The Board has approved for policy owner consideration changes in the investment
objective and industry concentration policy of the Precious Metals Fund to those
of a fund which invests primarily in natural resources industries. Policy owners
of record as of January 21, 1997, are entitled to vote at the April 4, 1997,
meeting. If approved, the change would take effect on May 1, 1997.
+Effective May 1, 1996, the Global Income Fund's name changed to the Templeton
Global Income Securities Fund. The portfolio's objective and investment strategy
remain unchanged.
For service regarding your contract, please contact your investment
representative. You may also call 1-800/624-0197 (Valuemark deferred variable
annuity), 1-800/774-5001 (VIP), or 1-800/342-FUND (Franklin Valuemark Funds). To
ensure the highest quality of service, telephone calls to or from a Valuemark
service center may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
LETTER TO POLICY OWNERS
Table of Contents Page
Letter to Policy Owners 1
Economic Overview 3
Change in Unit Prices 5
Portfolio Objectives 6
Portfolio Profiles
Portfolios Seeking Capital Growth
Capital Growth Fund 10
Mutual Discovery Securities Fund 10
Precious Metals Fund 11
Small Cap Fund 12
Templeton Developing Markets Equity Fund 13
Templeton Global Growth Fund 13
Templeton International Equity Fund 15
Templeton International
Smaller Companies Fund 15
Templeton Pacific Growth Fund 16
Portfolios Seeking Growth and Income
Growth and Income Fund 17
Income Securities Fund 18
Mutual Shares Securities Fund 19
Real Estate Securities Fund 19
Rising Dividends Fund 21
Templeton Global Asset Allocation Fund 22
Utility Equity Fund 23
Portfolios Seeking Current Income
High Income Fund 24
Templeton Global Income Securities Fund 24
U.S. Government Securities Fund 25
Zero Coupon Funds 26
Portfolio Seeking Capital Preservation and Income
Money Market Fund 27
Index Comparisons 28
Index Definitions 36
Allianz Life Variable Account A
Financial Statements and Notes 38
Franklin Valuemark Funds
Statement of Investments 70
Financial Statements and Notes 165
February 14, 1997
Dear Policy Owner:
This annual report covers the year ended December 31, 1996, for Franklin
Valuemark(R) Life, Allianz ValueLife, and the Franklin Valuemark Funds.*
*As of December 31, 1996, Franklin Valuemark(R) Life is not available in the
following states: Washington D.C., New Jersey, New York, Pennsylvania, and
Vermont. As of December 31, 1996, Allianz ValueLife is not available for sale in
the following states: Washington D.C., Maine, New Jersey and New York.
We introduced two new Valuemark portfolios over the reporting period. On
November 8, 1996, we added the Mutual Discovery Securities Fund and the Mutual
Shares Securities Fund. Mutual Discovery seeks capital appreciation through a
policy of investing in domestic and foreign equity securities. Mutual Shares
seeks capital appreciation, with current income as a secondary objective.
On October 25, 1996, shares of the Adjustable U.S. Government Fund and the
Investment Grade Intermediate Bond Fund were replaced by shares of the U.S.
Government Securities Fund. The substitution is designed to benefit policy
owners by consolidating the assets of portfolios with similar investment
objectives, strategies and risks, thereby potentially lowering operating
expenses.
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 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 Executive Vice President
Franklin Valuemark Funds
Lowell C. Anderson
Chairman of the Board
Allianz Life Insurance Company
of North America
Mutual Series Managers
Come to Valuemark
In November 1996, Heine Securities Corporation, advisers of the Mutual Series
Funds, joined forces with the Franklin Templeton Group. What's more, as of
November 8, 1996, Franklin Valuemark began offering models of two Mutual Series
Funds -- Mutual Discovery and Mutual Shares -- to existing policy owners.
Although the new Valuemark portfolios will perform differently than the public
funds due to differences in size, investments held, and other factors, they will
be managed by Michael Price and his team, using the same value investment
approach.
ECONOMIC OVERVIEW FOR 1996
A Strong U.S. Economy
At the end of 1995, the U.S. economy appeared to be stalled and on the verge of
a recession. At that time, few could accurately predict the record-setting climb
of the stock market that would occur in the 12 months to follow. Consistent
employment growth, strong personal income and rising financial asset values
helped consumer spending rebound in the first and second quarters of 1996. Gross
Domestic Product (GDP) grew at an annualized rate of 4.7% during the second
quarter. As the third quarter ended, the national unemployment rate remained
low, leading many bond investors to speculate that economic growth could
accelerate and lead to increased inflation. A saving grace came in the third
quarter when consumers didn't open their wallets as often as they had earlier in
the year (growth fell to an annualized rate of 2.2% by September 30, 1996). But
fourth quarter economic reports showed that activity in key sectors had picked
up, reviving inflation expectations and pushing interest rates -- and bond
yields -- higher. The 30-year U.S. Treasury bond finished the year yielding
6.65%, significantly higher than its 5.96% yield on December 31, 1995.
U.S. Equities Post Banner Year
Record amounts of capital poured into mutual funds in 1996, and the Dow Jones
Industrial Average(R) (the Dow) set an unprecedented 44 records -- including
closing above the 6000 point mark for the first time on October 14, 1996.
Despite its strong upward movement throughout the year, the Dow suffered two
measurable sell-offs in the first half of 1996. It tumbled 171.24 points on
March 8, recovered quickly and advanced to a new high of 5778.00 on May 22, only
to slide to 5346.55 by July 23. The Dow closed the reporting period at 6448.27,
a 26% increase from December 31, 1995.*
*Dow Jones Industrial Average total return calculated by Wilshire Associates,
Inc.
Foreign Equities Booked Strong Gains, Too. . . .
Patient investors of global equity markets enjoyed 1996, especially since
foreign markets experienced positive gains. Due to declining European interest
rates and increased participation in European equities by American investors,
many European stocks performed well, with most major European stock exchanges
posting gains of more than 15% (measured in local currencies). Some European
fixed-income and currency markets started the year in a promising fashion, but
couldn't deliver the goods. This was especially evident in Germany, where the
economy continued to move at a snail's pace. Indications were that the German
economy was starting to recover in early September, but some of the optimism
might have been a bit premature since the 1997 budget includes plans for fiscal
tightening. With this in mind, and with the overtones of the European Monetary
Union (EMU) in the background, we believe the Deutschmark will most likely
continue to weaken against the U.S. dollar and other foreign currencies.
Boasting an influx of investors who reaped the benefits of favorable returns
(quite a change from 1995's dramatic sell-off), most emerging market stocks
posted a banner year. Particularly strong performances came from Brazil, Poland
and Russia. Another buoyant market was Hong Kong, which has managed to attract
significant capital inflows despite the upcoming reversion to Chinese rule.
Consumer and business confidence in Japan are improving but still have some
distance to go. In fact, a recent Tankan economic report suggested that while
Japan's equity market produced a positive return for the year, the economy has
yet to turn. This, coupled with a questionable banking system, indicates that
Japan's economy may remain on shaky ground for some time.
On into 1997
Chances are that despite Federal Reserve Chairman Alan Greenspan's recent
comment that the U.S. market may be overpriced, we believe the Dow could
continue to rise and give equity investments another good year. It also appears
to us that U.S. economic growth may continue at a moderate pace, accompanied
with low inflation -- a scenario we think is already priced into the domestic
bond market. Still, a couple of things lurk in the shadows that could
potentially cause the bond market some grief, including continued entitlement
program reforms and their potential impact on the federal budget. Additionally,
should strong growth resume in Asian and European countries, pressure could be
put on the dollar relative to foreign currencies -- perhaps negatively impacting
U.S. interest rates and forcing the Fed to reconsider its stance on domestic
monetary policy.
There are no promises that 1997's market can match that of 1996 -- market
corrections may occur after good years, causing relatively short but sometimes
sharp declines in stock prices. While market volatility and the possibility of
corrections can be unsettling, it is a reminder to investors that security
prices don't always move upward. History has shown that, over the long term,
stocks and bonds have delivered impressive results when left to compound -- even
through market downturns. For this reason, you are encouraged to periodically
review your investment program and focus on your continuing long-term goals.
Variable Account A
Change in Unit Prices
<TABLE>
<CAPTION>
% Change
Unit Price*Unit Price* in Unit Price
Portfolio Name 12/31/95 12/31/96 12/31/95 to 12/31/96
<S> <C> <C> <C>
Capital Growth Fund $10.00** $11.30 13.03%
Growth and Income Fund $27.70 $31.39 13.33%
High Income Fund $19.63 $22.19 13.04%
Income Securities Fund $19.69 $21.75 10.44%
Money Market Fund $14.90 $15.55 4.37%
Mutual Discovery Securities Fund++ N/A+ $10.19 N/A
Mutual Shares Securities Fund N/A+ $10.34 N/A
Precious Metals Fund $15.21 $15.70 3.22%
Real Estate Securities Fund $20.91 $27.57 31.82%
Rising Dividends Fund $12.82 $15.80 23.25%
Small Cap Fund $10.16 $13.01 28.10%
Templeton Developing Markets Equity Fund $ 9.36 $11.29 20.68%
Templeton Global Asset Allocation Fund $10.64 $12.65 18.93%
Templeton Global Growth Fund $11.07 $13.32 20.37%
Templeton Global Income Securities Fund++++ $15.35 $16.70 8.82%
Templeton International Equity Fund $13.60 $16.60 22.05%
Templeton International Smaller Companies Fund $10.00** $11.19 11.94%
Templeton Pacific Growth Fund $13.98 $15.41 10.27%
U.S. Government Securities Fund $19.97 $20.53 2.83%
Utility Equity Fund $23.35 $24.82 6.26%
Zero Coupon Fund - 2000++ $23.49 $23.88 1.65%
Zero Coupon Fund - 2005++ $27.23 $26.89 -1.25%
Zero Coupon Fund - 2010++ $30.99 $29.93 -3.42%
</TABLE>
*The unit prices have been rounded to the nearest hundredth. Percent change is
calculated using actual unit prices.
**Unit price at inception on May 1, 1996.
+Figures for this time period are not available due to the funds' recent
inception dates.
++Zero Coupon Funds and the Mutual Discovery Securities Fund are not available
in Allianz ValueLife.
++++Effective May 1, 1996, the Global
Income Fund's name changed to the Templeton Global Income Securities Fund. The
portfolio's objective and investment strategy remain unchanged.
Note: The unit value for each subaccount that invests in a particular portfolio
is the total value of assets in the subaccount (net assets of the portfolio),
minus the daily charges for mortality and expense risk and administrative
expenses (annualized at .75% of the account's average daily net assets), plus or
minus a charge or credit for any tax provisions, divided by the total number of
outstanding units for that subaccount at the end of the valuation period.
The unit value does NOT include certain charges deducted from the Policy Account
or from premium payments. These charges and deductions can have a significant
effect on policy account, insurance benefit, and cash surrender values. See the
policy prospectus for a complete description of these charges, including
applicable sales charges.
Past performance is not indicative of future performance. Unit price and return
vary, so that investors may have a gain or loss when they surrender their policy
or make a partial withdrawal. This information is for policy owners only and may
not be used as sales literature.
PORTFOLIO OBJECTIVES
Portfolio Description
Portfolios Seeking Capital Growth
Capital Growth Fund
Seeks capital appreciation with current income as a secondary
consideration. The portfolio invests primarily in equity
securities, including common stocks and securitiesconvertible
into common stocks.
Mutual Discovery Securities Fund
Seeks capital appreciation by investing in domestic and foreign
equity securities, including securities of small cap companies as
well as debt obligations of any quality. The portfolio also seeks
to invest in securities of domestic and foreign companies and
reorganizations, as well as distressed/bankruptcy investments.
Precious Metals Fund
Seeks capital appreciation through concentration of its
investments in securities of issuers, including those in
developing markets, engaged in mining, processing or dealing in
gold and other precious metals. The portfolio's secondary
objective is to provide current income return through the receipt
of dividends or interest from its investments.
Small Cap Fund
Seeks long-term capital growth. Under normal market conditions,
the portfolio invests primarily in equity securities of small
capitalization growth companies.
Templeton Developing Markets Equity Fund
Seeks long-term capital appreciation. The portfolio seeks to
achieve this objective by investing primarily in equity
securities of issuers in countries having developing markets
under normal market conditions.
Templeton Global Growth Fund
Seeks long-term capital growth; any income realized will be
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 under normal market conditions.
Templeton International Equity Fund
Seeks long-term capital growth. Under normal market conditions,
the portfolio will invest at least 65% of its 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.
Portfolios Seeking Capital Growth (continued)
Templeton International
Smaller Companies Fund
Seeks long-term capital appreciation. The portfolio seeks to
achieve this objective by investing primarily in equity
securities of smaller companies outside the U.S., including
developing markets under normal market conditions.
Templeton Pacific Growth Fund
Seeks long-term capital growth. Under normal conditions, the
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 are Australia, Hong
Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Singapore
and Thailand.
Portfolios Seeking Growth and Income
Growth and Income Fund
Seeks capital appreciation. The portfolio's secondary 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 Fund
Seeks to maximize income while maintaining prospects for 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.
Mutual Shares Securities Fund
Seeks capital appreciation with income as a secondary objective.
The portfolio may invest in domestic and foreign equity
securities, as well as debt obligations of any quality. The
portfolio also seeks to invest in securities of companies
involved in mergers and reorganizations, as well as
distressed/bankruptcy investments.
Portfolios Seeking Growth and Income (continued)
Real Estate Securities Fund
Seeks capital appreciation, with a secondary objective of earning
current income on its investments. The portfolio pursues its
principal objective by investing primarily in securities of
companies in the real estate industry, primarily equity real
estate investment trusts (REITs).
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.
Templeton Global Asset Allocation Fund
Seeks a high level of total return through a flexible policy 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.
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.
Portfolios Seeking Current Income
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.
Templeton Global Income
Securities Fund+
(Formerly Global Income Fund)
Seeks high current income, consistent with preservation of
capital, with capital appreciation as a secondary 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.
U.S. Government Securities Fund
Seeks to earn income through investments in a portfolio 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.
Three Zero Coupon Funds (maturity dates: 2000, 2005, 2010)
Seek to provide as high an investment return as is consistent
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.
Portfolio Seeking Preservation of Capital and Income
Money Market Fund
Seeks to obtain as high a level of high current income (in the
context of the type of investment available to the portfolio)
consistent with capital preservation and liquidity. 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.
+Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remain unchanged.
PORTFOLIO PROFILES -- 1996
Portfolios Seeking Capital Growth
Capital Growth Fund
The Capital Growth Fund portfolio consists of what we consider to be good
quality growth companies, generally large-capitalization and mid-capitalization
stocks. Our investment objective of capital appreciation is achieved through a
long-term "buy and hold" strategy. Our aim is to provide investors with the
potential for solid growth over time, instead of jockeying for short-term,
overnight gains. Some of our top sectors at year end included software, data
networking, healthcare, semiconductors, financials, energy, and consumer
products. By maintaining exposure to a number of industries, we seek to reduce
the impact that a single, poorly performing sector could have on your
investment.
We expect that the market may become more volatile in the coming years (unlike
the relatively low volatility that has been present over the last several
years). This expectation stems in part from concerns for sustained earnings
growth of individual companies. It is our belief that the S&P 500(R) will not
produce double-digit earnings growth in 1997 as it has in each of the last four
years. 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 up -- a
condition which we believe should benefit many of your portfolio holdings.
Our long-term outlook for the domestic stock market remains bullish for a
variety of reasons. First, a significant demographic trend shows the aging "baby
boom" generation is shifting from a "consumption" mode to a "savings" mode --
investing more for retirement. Consequently, new money flows remained solid
during 1996, pushing markets higher. A second reason for our optimism is that a
number of major world economies are in either a growth or recovery phase. This
benefits a number of multinational firms that sell products or services abroad.
Third, as we live in an ever-increasing global economy, many
domestically-domiciled firms -- with an enhanced focus on shareholder value and
improving profitability -- are proving to be highly productive on a worldwide
basis. We feel that this favorable trend may persist for some time.
NEW! Mutual Discovery Securities Fund
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Discovery Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 0.7% in fixed-income securities, and the remaining 36.8% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
Precious Metals Fund
The year ending December 31, 1996, may have signaled the breakout from the
previous two years of a tight trading range for bullion, with the majority of
the volatility occurring in the first and fourth quarters. The overall tone of
the bullion market was negative, as both private and official sectors'
disinvestment drove prices down.
In addition, the strong dollar drove down gold prices in most foreign
currencies, except the South African Rand. As a result, even though the physical
supply and demand factors were neutral, the bullion price showed little
strength.
Because of the attractive valuations of gold securities relative to other
precious metals, we increased our holdings of gold-producing companies over the
reporting period. Consequently, we decreased our exposure to platinum and
diversified metals. We focused on mining companies with attractive reserve,
production and growth profiles, and smaller companies with international
exploration and mining potential. Specifically, we initiated new positions in
the following: Getchell Gold, an intermediate low-cost gold producer in Nevada;
Equinox, an Australian exploration company; and Orogen Minerals, a diversified
mining and energy company with significant assets in Papua, New Guinea. We also
added to existing holdings with prospects for future growth, and trimmed or
eliminated positions with limited upside potential.
While there are three issues that could negatively affect bullion prices in the
near term, we believe that much of the downside risks are already in the price.
These risks are 1) that speculative selling by investors continues, 2) that the
European Central Bank continues to sell in order to meet the standards of the
European Monetary Union, and 3) that producer forward-selling could increase.
Looking forward, we remain optimistic about the long-term prospects for gold and
the portfolio. With demand continuing to exceed supply, gold fundamentals should
support a gradual increase in gold prices. We believe that a gold bullion price
range of $360 to $390 per ounce could prevail for 1997. Given this outlook, we
intend to maintain our emphasis on those mining companies we feel are capable of
increasing reserves, production, cash flow, and earnings over the long term.
Small Cap Fund
Supported by a growing economy and low inflation, the U.S. equity markets
reached new highs during the year ended December 31, 1996. While nearly all
indices showed substantial gains during the year, larger capitalization stocks
performed better than small cap stocks. The difference in performance was at
least partially a result of investor concerns over market volatility and the
perception that large cap stocks were more immune to market swings. Despite this
bias toward large cap stocks, the portfolio performed well during the year.
Much of our success can be attributed to stock selection: We continue to look
for small companies in their emerging growth phase, focusing on companies with
an identifiable and, we believe, sustainable competitive advantage, which can
often lead to superior earnings and revenue growth. Over the period, our
research led us to investments in a number of different industries, including
many outside the traditional growth sectors. In fact, the portfolio was helped
by the strong performance of our energy stocks (6.1% of total net assets on
December 31, 1996), including Barrett Resources and Abacan Resources, and also
by our holdings in REITs (5.3%), particularly Bay Apartments and FelCor Suites
Hotels, Inc.
While we remain broadly diversified, we continue to find many of the fastest
growing companies in the technology sector (21.6% of the fund's portfolio on
December 31, 1996). Technology stocks led a sharp market decline in June and
July, and we took advantage of this weakness to purchase shares in high quality
companies. Some of the names in which we initiated a position were C-Cube
Microsystems, a leading provider of digital video compression technology, and
Broderbund Software, a top developer of computer software. Many technology names
recovered quickly in August and September, and just as we took advantage of the
earlier market weakness to buy, we took advantage of the strength to sell
positions we believed had limited appreciation potential. Among those we sold
over the reporting period was Shiva Corp., a provider of telecommunications
hard- ware and software.
The U.S. economy continues to show signs of strength and, for now, there appears
to us to be little evidence of inflationary pressure. We believe these
conditions will continue to provide attractive opportunities for small growth
companies to develop. At the same time, small cap stocks have underperformed
and, in our opinion, have become attractively valued relative to the overall
market. Because of these factors, we are optimistic about the prospects for the
portfolio and small cap stocks in general.
Templeton Developing Markets Equity Fund
The emerging markets team places particular emphasis on choosing stocks of
companies with good management and strong expected earnings growth over the next
five years. Selecting these stocks is a very intensive process and we are
expanding our analytical capability to meet the challenges in an ever-expanding
emerging markets universe.
On December 31, 1996, the portfolio was invested in 24 countries, with Hong Kong
as the largest country holding (13.3% of total net assets), followed by Mexico
(10.7%) and Argentina (10.4%). Many investors are still concerned about the
economic prospects for Hong Kong after its reversion to China in 1997. Although
we have considered the possibility of economic disaster in Hong Kong after the
handover, we believe that it is more likely the Hong Kong economy will continue
to prosper. The signs are good. The Chinese government has made public
announcements that funds will be made available to protect the Hong Kong stock
market, and that the economic and social status quo will be maintained after the
reversion. This year, the Hong Kong market rallied, buoyed by broad economic
recovery -- particularly in the important retail and property sectors. Concerns
in Hong Kong's capital market appear to be easing and evidence of that can be
found in the narrowing of the gap in valuations between Hong Kong stocks and
those of other Asian markets. It is also encouraging to see that China B shares
- -- which are intended for foreign investors -- rallied sharply since the
beginning of November due to expectations of higher company earnings.
Overall, our outlook for Hong Kong, and emerging markets in general, is
positive. We will continue to visit the companies in which we invest, searching
for potential investment bargains and stocks with strong growth and stability in
a volatile market.
Templeton Global Growth Fund
In many countries around the world, financial returns to equity investors
accelerated over the past year, adding to the gains accumulated since the start
of this bull market. Among the developed stock markets tracked in the Morgan
Stanley Capital International(R)* (MSCI) World Index, only Singapore and Japan
posted negative returns in U.S. dollar terms for 1996. Others, such as Finland
and Spain, rocketed upward, returning 35% and 42%, respectively.
*Registered trademark of Morgan Stanley & Co., Inc.
The U.S. was among the better performing markets over the reporting period, and
it remains the portfolio's largest country exposure even though our weighting
declined from 34% to 29% of total net assets by December 31, 1996. This decline
resulted from our disciplined global value approach, which focuses on individual
company fundamentals. Quite simply, some of our holdings in the U.S. reached our
sell targets, and we found more bargains overseas. Included in our sales of U.S.
stocks were energy companies like Texaco and Mobil, whose share prices climbed
on the back of rising oil prices. Similarly, shares in Travellers and Nike
posted substantial returns and no longer appeared undervalued to us. We did find
new investments in the telecommunications sector, particularly in U.S. West
Communications, where competitive threats appear overly discounted.
Our European holdings, in general, performed well over the year. In France, our
second largest country weighting (6.7%), energy companies improved their
returns, just as their U.S. counterparts did. Many French companies, however,
performed poorly. We continue to believe the potential for cost cutting and
restructuring is not reflected in the share prices of the banks and insurance
companies we hold in this area.
For the first three quarters of last year, the U.K. was an economic laggard;
surprisingly, its market still yields on average nearly twice that of the U.S.
As we uncovered new investments in the U.K. over the period, we doubled its
weighting in the portfolio from 3.1% at the end of last year to 6.3% on December
31. Among these new investments are two companies with new management teams that
have been repositioned through internal changes: BICC and BTR, Plc. We also
invested in companies addressing competitive positions through external
maneuvers; among these was British Telecommunications, PLC., which announced its
intention to merge with MCI.
We maintained a relatively low weighting in Japan over the year (2.0%) compared
to the MSCI World Index. The Japanese economy continued to languish and its
banking sector is still suffering the effects of the collapse in asset values.
More important, from our perspective valuation levels still appear high and
bargain investments remain scarce.
Emerging markets together with Hong Kong comprised approximately 15% of the
portfolio's total net assets on December 31, 1996. Their performance last year
was mixed, with Chinese markets exploding in the second half of 1996 to finish
up over 30% while Thailand and South Korea slumped -- both losing over a third
of their value. Additionally, new opportunities found in South Africa and
Ecuador increased the diversity of the portfolio, which is now invested in 33
countries.
We remain comfortable with the long-term outlook for our existing holdings, and
also expect to take advantage of the weakness experienced in some of these
countries in the coming year.
Templeton International Equity Fund
During the year ended December 31, 1996, the Templeton International Equity Fund
enjoyed strong performance as foreign markets rebounded from a generally
lackluster 1995. At year end, the portfolio's largest country allocations were
in the United Kingdom (11.9% of total net assets), Sweden (10.4%), the
Netherlands (7.9%), and Hong Kong (6.8%). Approximatley 61% of the portfolio's
total net assets was invested in European stocks, 9% in Asian stocks, 5% in
Latin American stocks, 11% in other stocks and the remaining 12% was in cash and
equivalents.
Throughout 1996, we added to our positions in the United Kingdom, Switzerland
and Finland. Our exposure to Finland increased with our purchase of Nokia AB, a
telecommunications group. We were able to purchase Nokia at what we believe are
very attractive levels, identifying the long-term value of the company despite
near-term earnings disappointments. We reduced holdings in Hong Kong, Spain and
the Netherlands which we felt had achieved fair value, and we added to or
initiated positions in stocks that our analysts believed were selling at bargain
prices.
As value investors, we buy stocks that we believe are selling at significant
discounts to their underlying value. Our analysts around the globe scour local
markets for what we think are mispriced stocks. We recognize that value often
takes time to show itself in the form of higher prices and, for this reason, we
are long-term investors -- typically holding stocks for about five years.
Templeton International Smaller Companies Fund
Nineteen ninety-six was the first year of operation for the Templeton
International Smaller Companies Fund, which invests in small cap companies
outside the U.S. We employ a long-term, value-oriented approach when selecting
stocks for our portfolio. Our analysts search for stocks that are selling at
what we believe to be bargain prices; as there are many investors who buy and
sell based on current results, a short-term disruption can evoke a wave of
investor selling, often pushing a stock's price down to a level well below its
intrinsic value. Since we determine a company's value by looking at long-term
operating fundamentals, we are often able to buy out-of-favor companies at what
we feel are attractive prices.
At year end, the portfolio held approximately 41% of its total net assets in
European stocks, 12% in Asian stocks, 4% in Latin American stocks, 4% in other
stocks, and -- reflecting the newness of the portfolio -- the remaining 38% in
cash. Our largest positions, by country, were United Kingdom (8.4%), Netherlands
(8.2%), Spain (6.9%), Hong Kong (6.8%), and Sweden (5.9%).
Our large European holding reflects the bargains our analysts uncovered in that
region. We continue to believe that many European stocks, particularly those of
smaller companies, offer compelling value. For instance, we initiated a position
in McBride (United Kingdom) -- the largest manufacturer of private label
household goods and personal care products in Europe. Private label products are
winning a position in Europe, as large retailers expand their private label
product lines, and we believe McBride stands to benefit from this trend.
On a relative basis, European and Asian stocks appear to offer better values
than those available from North American stocks. Overall, we remain cautiously
optimistic for world markets in 1997.
Templeton Pacific Growth Fund
On December 31, 1996, the portfolio's top five geographic allocations were Hong
Kong (20.6% of total net assets), Japan (17.6%), Australia (17.3%), Singapore
(9.1%), and Malaysia (6.9%).
During the reporting period, the Hong Kong stock market rose substantially,
posting large gains in the financial and real estate sectors. Our holdings of
Cheung Kong Holdings, Ltd. and New World Development Co., Ltd. appreciated in
value and, taking advantage of rising stock prices, we sold our shares of Hong
Kong Land Holdings Co. for a profit.
Due to a stronger currency and higher commodity prices, Australia's stock market
performed well over the year and Brambles Industries Inc., our largest
Australian holding, benefited greatly. The Chinese, Thai, Pakistani and Indian
stock markets did not fare as well as other Pacific Rim markets. However, we
sought to take advantage of price declines in China by purchasing shares of
Guangshen Railway, which operates the only railroad between Guangzhou and
Shenzhen, the two largest cities in Guangchong Province.
We remain optimistic about the Pacific Rim equity markets. In our opinion, this
region continues to offer a variety of investment opportunities in
industrialized nations such as Hong Kong, and in nations like Australia, rich
with natural resources.
Portfolios Seeking Growth and Income
Growth and Income Fund
In keeping with its fundamental investment approach, the fund seeks to invest in
stocks with attractive valuations -- that is, stocks selling at bargain prices
according to measurements such as relative dividend yield, book value, revenues
and normalized earnings. We often find such stocks in companies that appear to
us to be fundamentally strong but have experienced temporary earnings
disappointments, or in companies or industries with uncertain prospects for
near-term earnings growth.
During the reporting period, we found many utility stocks that met our criteria,
including telephone and electric companies. In the electric utility sector, we
initiated several new positions over the period, including Unicom, an
Illinois-based utility that offered a 6.5% dividend yield and traded at eight
times our calculations of estimated earnings. In the telephone utility sector,
we increased our holdings in GTE Corp., U.S. West Communications Group, NYNEX
Corp., and Southern New England Telecommunications Group. These four telephone
companies were all trading at attractive valuations at the time of purchase and
we think they appear to be well-positioned for an increasingly competitive
environment.
Energy stocks continue to be a major investment focus. Newly purchased Amoco and
Occidental Petroleum, combined with additions to current holdings, made the
energy & resources sector the portfolio's largest on December 31, 1996 (16.4% of
total net assets). Stocks in which we increased our investments included
Atlantic Richfield, Texaco, and Exxon, which were among the fund's 10 largest
positions.
We also initiated new investments in foreign securities as we believed stocks of
many foreign companies traded at more attractive valuations than those of
comparable U.S.-based companies. During the period we purchased British Steel
and Glaxo Wellcome, bringing foreign holdings to 13.3% of total net assets at
the close of the fiscal year.
During the reporting period, we reduced our holdings in certain stocks that
reached our price objectives, selling Marsh & McLennan (insurance), B.F.
Goodrich (basic materials), Baxter (health care), and Pharmacia Upjohn (health
care) at significant gains. On the other hand, certain stocks did not perform up
to expectations. Most notably, the stock price of H&R Block came under
significant pressure with the deteriorating fundamentals of its subsidiary
company, Compuserve. Because we had become increasingly concerned that the
company might reduce its dividend, we decided to sell our position at a loss.
This allowed us to invest the proceeds in stocks we felt offered better
total-return potential.
Looking forward, we will remain committed to our disciplined, value-oriented
investment approach, which has produced consistent and favorable long-term
results.
Income Securities Fund
During 1996, the broader stock market generally strengthened, driven by moderate
economic growth, low inflation and healthy corporate earnings. The over-all bond
market did not fare as well during the period under review, however. Several
sectors of the fund performed well over this period, although the general rise
in interest rates caused some weakness. On December 31, 1996, 53.0% of the
portfolio's total net assets were in bonds, 41.1% in stocks, and 5.9% in cash.
The rise in interest rates provided us with several opportunities to invest a
large portion of the portfolio's cash position in securities that we found
presented good value, bringing our cash position down from 13.3% on December 31,
1995.
Corporate bonds, which continued to represent our largest fixed-income weighting
(26.7%), performed relatively well over the period given the overall increase in
interest rates. This performance highlights the benefit of including corporate
bonds in the portfolio. Typically, when the economy strengthens, increased
interest rate risk is frequently offset by stronger revenue, operating cash flow
and higher credit ratings for the issuing corporations. We utilized our
extensive credit research to seek out corporate bonds with attractive yields and
capital appreciation potential, and initiated several new positions during the
period. These included Collins & Aikman (automotive), Packaging Resources
(containers & packaging), and Smith's Food & Drug (food chains).
The portfolio's other fixed-income holdings consisted of foreign and U.S.
Treasury bonds. As indications of stronger U.S. economic growth led to rising
long-term interest rates, we increased our U.S. Treasury exposure from 2.8% at
the start of the period to 7.1% of total net assets on December 31, 1996.
Similarly, we took advantage of the bond market sell-off in February and
initiated positions in dollar-denominated Brazilian and Ecuadorian Brady bonds.
Our Latin American Brady bonds were subsequently one of the portfolio's top
performing sectors. At the end of the year, we sold our Ecuadorian Brady bonds
due to higher political risk following mid-year elections.
Several of the portfolio's equity positions performed well during the period.
Our pharmaceutical stocks rose significantly, but believing that their
appreciation potential was limited, we reduced our exposure to this sector from
4.3% to 1.6% of total net assets by December 31, 1996. Due to rising oil and
natural gas prices during the period, energy stocks also increased in value. We
initiated several positions that benefited from the increase in energy prices,
including Athabasca Oil Sands Trust, Canadian Oil Sands Trust, Devon Energy, and
Enron Oil & Gas.
Prices of utilities stocks retreated in January as interest rates began to rise.
We took this opportunity to add to several existing holdings and initiate new
positions in Peco Energy and Western Resources, increasing our weighting in the
utility sector from 17.6% at the start of the year to 20.6% of total net assets
by year end.
During the July U.S. stock market sell-off, we initiated two convertible bond
positions in Altera Corp. and Xilinx, Inc., two leading semiconductor design
companies. We invested in the technology sector for the first time in several
years as weakness in technology stock prices caused valuations to return to what
we believe were more attractive levels. We also initiated positions in other
convertible securities, most notably Exide Corp. (automotive), FelCor Suite
Hotels, Inc. (REIT), Host Marriott (REIT), and Nortel (telecommunications --
Argentina).
With the stock market near all-time highs, we remain selective and opportunistic
as we search for attractive investments. We are comfortable with the portfolio's
5.9% cash position, and feel that it should provide us with the ability to take
advantage of investment opportunities as they arise.
NEW! Mutual Shares Securities Fund
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Shares Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 1.5% in fixed-income securities, and 36.0% in short-term and other
securities. Of course, these holdings will change as conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
Real Estate Securities Fund
The Real Estate Securities Fund's strong performance over the 12 month period
was driven in part by the continued recovery of the real estate industry, which
was behind the powerful move in real estate stocks during 1996. U.S. real estate
fundamentals, in general, steadily improved across most property types and
geographic regions during the 12-month reporting period. The healthy economy
continued to fuel strong demand for commercial and residential real estate,
leading to rising occupancy and rental rates. At the same time, the industry
remained disciplined in terms of new property development, only breaking ground
when construction was warranted by high demand and limited supply. As a result,
equity REITs and real estate operating companies generated strong cash flow
growth from their operations. This positive operating performance, combined with
solid industry fundamentals, continued to attract investors to the real estate
securities market.
Throughout the reporting period, we remained committed to our long-term
investment strategy: Focusing on property types and geographic regions with
strong supply and demand fundamentals. Within each property sector, we targeted
stocks which, in our opinion, had significant growth prospects and attractive
valuations. As a result, we maintained the majority of the portfolio's
investments in the apartment, hotel, office, industrial and self-storage
property types, where we anticipated the strongest cash flow growth and most
favorable supply and demand fundamentals.
The largest property-type weighting continued to be in the apartment sector
(20.1% of total net assets on December 31, 1996). Valuations in this segment
remained attractive because of consistent cash flow growth and disciplined
development activity. Our core holdings included Equity Residential Properties
Trust and Security Capital Pacific Trust. We also maintained our large positions
in Bay Apartment Communities, Inc. and Irvine Apartment Communities Inc. -- two
California-based equity REITs that continued to benefit from California's
on-going economic recovery. Additionally, we initiated a position during the
period in Security Capital Atlantic, Inc., a southeastern apartment operator.
Our strongest performing sector continued to be the hotel property type, where
we held 17.9% of net assets on December 31, 1996. Consolidation played an
important role in this sector's performance as many public companies acquired
properties from private holders and purchased other publicly-traded companies.
We benefited from this activity when one of our holdings, Red Lion Hotels, Inc.,
was purchased by Doubletree Corp. at a significant premium above its market
price. Consequently, we sold our Red Lion position, along with several other
hotel positions where valuations were excessive relative to growth prospects.
During the reporting period, we initiated a position in CapStar Hotel Co., and
added to such core positions as FelCor Suites Hotels, Inc., Winston Hotels,
Inc., Starwood Lodging Trust, and Host Marriott Corp.
Although the retail property sector struggled with the dynamics of the retail
industry and provided mixed returns this year, specific segments of this sector
offered attractive investment opportunities. During the reporting period, we
established a position in Pacific Retail Trust, an equity REIT that focuses on a
highly-specialized retail shopping center niche: Shopping centers anchored by
grocery stores. As a result, our exposure to the retail property sector rose
from 10.9% of total net assets on December 31, 1995, to 12.0% by the end of the
reporting period. Our other investments in this sector remain concentrated in
the industry's leading companies and several specific situations such as Pacific
Retail Trust, which we believe will be in a position to grow by acquiring
properties from distressed sellers.
We also initiated several other positions in equity REITs over the period: Arden
Realty Group, a California-based equity REIT focused on the ownership and
operation of suburban office properties; Meridian Industrial Trust, with a
portfolio of high quality industrial/warehouse buildings; Glenborough Realty
Trust, Inc., which has a diversified portfolio of real estate properties and two
manufactured-home builders focused on southeastern markets; Belmont Homes, Inc.
and Clayton Homes Inc. We believe these securities are attractively valued and
could experience above-average cash flow growth.
Looking forward, we believe that the U.S. real estate industry should experience
growing demand and limited supply. We will continue to concentrate on
identifying those property types and geographic areas exhibiting the most
favorable supply and demand fundamentals. Within each sector, our individual
security selection process will remain focused on what we believe are
well-managed companies generating strong cash flow and dividend growth while
trading at attractive valuations.
Rising Dividends Fund
Our investment strategy is based on our belief that companies with consistently
rising dividends should, over time, realize increases in their share 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 investors.
Our financial stock holdings performed well this year, despite slightly rising
interest rates in 1996. Investors focused on the consistent earnings growth of
these companies as well as their relatively modest valuations. Strong performers
included Allied Group, RLI Corp., State Street Boston Corp., and CoreStates
Financial. A number of non-financial companies also did well as business
strategies implemented in recent years led to strong operating performance.
These companies included Family Dollar Stores, DIMON, Harper Group, and
Monsanto.
Significant additions to the portfolio this year included Dover Corp., Wallace
Computer Services, Inc., Nucor Corp., and Millipore Corp. All four companies
have increased their dividends each year for more than 20 years. Additionally,
their dividends have grown at a ten-year average annual rate of at least 10%.
These companies are leaders in their respective industries, and the fund
acquired the stocks at price/earnings ratios below their 10-year averages.
Notable dividend increases during the fiscal year came from Allied Group Inc.
(+32.4%), W.H. Brady Co. (+30%), Hewlett-Packard Co. (+20%), MMI Companies Inc.
(+20%), Mercury General Corp. (+20%), Philip Morris Cos. (+20%), and Wallace
Computer Services, Inc. (+30.2%).
The portfolio's top 10 holdings on December 31, 1996, were: Family Dollar
Stores, Inc. (3.0% of total net assets), Allied Group Inc. (2.9%), Millipore
Corp. (2.8%), DIMON, Inc. (2.8%), Harper Group, Inc. (2.5%), Wallace Computer
Services, Inc. (2.4%), MMI Companies, Inc. (2.4%), Federal National Mortgage
Association (2.2%), General Electric Co. (2.2%), and Royal Dutch Petro- leum Co.
(2.1%).
It is interesting to note how these 10 companies would, in the aggregate, meet
the portfolio's screening criteria based on a simple average of statistical
measures. On average, these companies have raised their dividends for 15
consecutive years and by 253% in the last ten years (excluding Fannie Mae's
2736% increase), have long-term debt that is only 14% of capital, and sell at a
price/earnings ratio of 14.7. We think 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,
will be superior builders of wealth.
Templeton Global Asset Allocation Fund
On December 31, 1996, equities (including convertible and preferred securities)
accounted for 58.0% of the portfolio's total net assets, with 27.1% in
fixed-income and 14.9% in short-term and other obligations.
The portfolio's investment strategies are reflected in the major allocation
changes that occurred over the course of the annual year. For example, exposure
to German and French markets were reduced, and we limited our equity positions
in Hong Kong. This is, however, no reflection of our outlook in either of these
markets and we remain optimistic about both. Our exposure in the U.S. market has
remained fairly constant on the equity side, increasing slightly on the bond
side. We also increased our bond holdings in other dollar-bloc countries
(countries whose currency is dollar denominated) such as Canada, Australia and
New Zealand during the period. Additionally, we shifted our investment focus
away from the core European markets (Germany and France) and directed our
attention toward the markets of Italy, Spain, Sweden and the United Kingdom.
Regarding industry weightings within the equity side of the portfolio, real
estate remains the highest at 6.2% of total net assets, and performance within
this sector remains strong. Sizable holdings in Hong Kong-based Hon Kwok Land
and U.S.-based Rouse Company and Post Properties Realty have posted good
performance for the year. Hon Kowk's return on December 31, 1996, was 57.6%,
Rouse's was 45.4%, and Post Properties 29.8%.
Looking forward, we feel that volatility is likely to be present in bond,
currency and equity markets around the world. Our investment philosophy is to
seek out those investments which we feel are most undervalued and we will
continue to search globally for companies and securities that fit our investment
criteria.
Utility Equity Fund
Throughout the portfolio's fiscal year, the utility market underperformed the
S&P 500 for a number of reasons -- among these was investor uncertainty
regarding regulatory reforms within the industry, and a stronger-than-expected
economy which led investors away from utilities to other equity securities. We
believe this weakness in the utility sector created selective investment
opportunities. As a result, we used proactive asset allocation strategies,
seeking both foreign and domestic markets that we believed were most attractive
on a fundamental valuation basis.
Our emphasis during the fiscal year was on electric utility stocks, with
approximately 72% of total net assets invested in this sector on December 31,
1996. In addition to these stocks, we also sought investment opportunities in
telephone utility stocks (20%) and natural gas utilities (8%). These investments
offer many of the same characteristics that we look for in our electric utility
investments: Consistent, predictable earnings growth and steady demand
fundamentals. During the reporting period, we took advantage of opportunities in
foreign markets to build a small, but growing, foreign component into the
portfolio. On December 31, 1996, 17.8% of the portfolio's total net assets were
represented by foreign utility stocks, compared to 7.4% a year ago. Over the
year, we initiated positions in Endesa (Chile), NTT (Japan), BSES (India), and
Korea Mobile Telecom (Korea), and added to several of our European utility
positions. Our foreign holdings enable us to participate in what we believe will
be high growth opportunities outside the U.S. while adding diversification to
the portfolio.
We remain committed to our primary investment philosophy that utilities provide
services that are an essential part of life around the world. We believe that
these stocks will continue to play an important role in a well-diversified
portfolio and remain committed to our long-term objective of maximizing total
return through investment in utility stocks.
Portfolios Seeking Current Income
High Income Fund
Over the last 12 months, the portfolio performed relatively well within the
context of fixed-income markets, due primarily to moderate economic growth and
low inflation. The high yield market, in particular, vastly outperformed
comparable maturity Treasury securities. Improving corporate profiles and strong
demand for high yield securities were additional factors contributing to this
sector's strong performance.
During the year, we made several industry allocation changes in the portfolio.
We decreased our weighting in the transportation, food retailing, health care
services and forest & paper products sectors while adding telecommunications and
wireless communications services. We elected to decrease transportation and
forest & paper products due to profit taking and the cyclical nature of these
industries. We pared back food retailing because of changing competitive
dynamics, and health care services was reduced in light of an uncertain
legislative outlook for 1997. Our portfolio weighting in telecommunications and
wireless communications increased as we adopted a more favorable industry
outlook due to the passage of the Telecommunications Act of 1996. These
industries performed well during the year, thanks in large part to economies of
scale and increased market penetration.
Within the telecommunication and wireless sectors, Sprint Spectrum, IntelCom
Group, Inc., and Teleport Communications Group, Inc. performed well. Other names
which drove portfolio performance included IMC Global Inc., Repap, and MFS
Communications Co., Inc. IMC Global, an international fertilizer company, was
upgraded to investment grade status as a result of improving fundamentals. Repap
and MFS benefited from mergers with larger, well-capitalized companies.
With an eye toward the future, we improved the portfolio's credit quality
ratings over the year. The average credit rating, as measured by Moody's Credit
Ratings, improved from B2 on December 31, 1995, to B1 on December 31, 1996. This
strategic move toward higher quality issues was made in recognition of the fact
that the economy is in its sixth straight year of expansion. We believe this is
a prudent investment strategy for the long term.
Given the moderate growth environment and continued low inflation, we anticipate
the outlook for the high yield bond market to be positive.
Templeton Global Income Securities Fund
(Formerly Global Income Fund)
During the 12-month period, we employed three primary investment strategies:
First, generated by our expectation of stable interest rates in the U.S.
relative to the rest of the world, we slightly increased our U.S. holdings along
with our positions in the other dollar-bloc countries (Canada, Australia, and
New Zealand). Second, we decreased our exposure to foreign currency-denominated
bonds in accordance with our belief that most foreign currencies were likely to
decline relative to the U.S. dollar. Third, we reallocated assets within Europe,
shifting away from the core markets of Germany and France to what we think are
the higher-yielding markets of Italy, Spain, Sweden and the United Kingdom. We
felt that the improved domestic policies undertaken in the higher-yielding
markets would generate higher returns than those available in the core markets.
Our investment strategies are reflected in the major allocation changes that
occurred over the course of the annual period. We reduced exposure to the German
and French bond markets -- totaling 17.9% and 7.3%, respectively, one year ago
- -- to 2.0% and 0%, respectively, by December 31, 1996. For the same period,
allocations to Italy and Spain -- totaling 4.0% and 4.8%, respectively, on
December 31, 1995 -- increased to 10.6% and 6.1%. The United Kingdom also
increased over the year, from 3.0% to 10.1%.
Looking forward, we believe that volatility is likely to remain in individual
bond and currency markets around the world, and that global bond portfolios are
attractive vehicles to help soften this volatility and capture total return
opportunities wherever they may appear. We do not feel that inflation is a major
threat to interest rates and the deflationary trends present in Europe and Japan
should help bring the overall level of global interest rates down. We feel
opportunities for improved returns remain attractive, particularly in the
slow-growth economies of Europe and in selective emerging market countries.
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 mortgage passthroughs as our largest positions. Some other
issuers held by the portfolio over the reporting period were Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation passthroughs and
debentures issued by the Financing Corporation and the Tennessee Valley
Authority. On December 31, 1996, the portfolio's investments consisted of 68.5%
of total net assets in mortgage-backed securities (of which approximately 40.1%
were Ginnie Maes), and 33.1% in other U.S. government and agency securities and
short-term investments. Of course, these holdings will change as market
conditions warrant.
The U.S. Government Securities Fund experienced positive performance in 1996 as
the portfolio's investments in U.S. agency mortgage passthrough securities did
well. The agency mortgage passthrough market experienced lower prepayment risk
as yields were higher during most of 1996. This helped the mortgage passthrough
performance relative to other government bonds as investors benefited from the
added yield these securities provided. With 1996 interest rates movements being
less volatile than those of 1994 and 1995, investors were not exposed to the
variability in average life that these securities tend to exhibit during periods
of rate volatility.
Our investment approach, which emphasizes low portfolio turnover, added value to
the portfolio's shares by reducing unnecessary transaction costs, which are
ultimately borne by shareholders. During the one-year reporting period, we made
purchases in various sectors of the government bond market. In addition, we
gained assets due to the substitution of the portfolio's shares for the
Investment Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund.
Because those portfolios carried similar investment risk, the overall portfolio
risk profile of the U.S. Government Securities Fund was not appreciably altered
with the substitution.
We employ a consistent, disciplined and conservative approach to investing in
the U.S. government bond market. Over the reporting period, the agency
passthrough market became increasingly subdivided into sectors based on the
seasoning of the underlying pools of mortgage loans. These pools, with varying
degrees of risk exposure to interest rate movement and housing cycles, exhibit
different prepayment patterns based in part on the issuance year of the
underlying securities. The emergence of these subsets provided us with increased
opportunity to add quality securities to the portfolio.
Going forward, we anticipate that the trend toward lower interest rate
volatility will continue to provide shareholders of the portfolio with
competitive returns.
Three Zero Coupon Funds
(maturity dates: 2000, 2005, 2010)
Rising interest rates adversely affected the Franklin Valuemark Zero Coupon
portfolios during the one-year reporting period. We began 1996 optimistic: there
was a good chance for a balanced budget, economic growth appeared relatively
slow, and interest rates were below 6% for the 30-year U.S. Treasury Bond
(short-term rates were below 5%). Although good progress was made in reducing
the budget deficit, bond investors were disappointed when Washington fell short
of a balanced budget. Additionally, economic activity picked up (peaking in the
second quarter of 1996 at an annualized rate of 4.7%) and interest rates rose,
with the 30-year U.S. Treasury Bond at 6.65% on December 31, 1996, significantly
higher than at the start of the year.
Despite this economic growth, inflation apparently remains subdued. With all its
accepted biases, the Consumer Price Index is up 3.3% on a year-over-year basis.
We think productivity gains through technological advances and a globally
competitive market should work together to keep inflation low, and current
interest rates offer investors an opportunity to lock in attractive real rates
of return.
Volatility is a concern to investors of zero coupon securities. We aim to
maintain investments as close to the target maturities as practically possible,
so there is no realistic way for the portfolios to avoid swings in unit value
from changes in interest rates. With four years to maturity in the 2000
portfolio, this portfolio could possibly see an approximate 4% swing in value
for every 100 basis point swing in interest rates. Likewise, the 2005 portfolio
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 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 primarily hold only top-rated 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
The economy started the reporting period on a weak note, as winter storms and an
auto workers' strike detracted from economic growth, and continued to lose
momentum during the first quarter of 1996. With prospects for slower growth and
low inflation, the Federal Reserve Board (the Fed) lowered the federal funds
rate in late January 1996, from 5.50% to 5.25%. Since that point, the economy
seemed to regain its footing somewhat and achieved moderate growth with
apparently little threat of inflation. This appeared to eliminate the need for
further Fed actions and, as a result, short-term interest rates ended the period
slightly lower than at the start.
Since we maintained a relatively neutral weighted average maturity during the
reporting period, trends in the federal funds rate were reflected in the
portfolio's seven-day yield. It began the period at 5.43% and finished at 5.04%.
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 involve undue risk.
INDEX COMPARISONS
Indices measure a variety of values -- the Dow Jones Industrial Average(R) and
the Consumer Price Index are two well-known examples. On the following pages, we
have compared the performance of each Valuemark fund with an appropriate index
or indices. On pages 36 and 37, we have also included definitions of all the
indices used.
When reviewing the comparisons, please keep in mind that indices have a number
of inherent performance differentials over the Valuemark funds. First, unlike
the Valuemark portfolios, which must hold a minimum amount of cash to maintain
liquidity, indices do not have a cash component. Second, the Valuemark
portfolios are actively managed and, thus, are subject to management fees to
cover salaries to securities analysts or portfolio managers in addition to other
expenses. Indices are unmanaged and do not include any commissions or other
expenses typically asso- ciated with investing in securities. Third, indices
often contain a different mix of securities than the fund to which they are
compared. For instance, the Valuemark U.S. Government Securities Fund is
compared to the Lehman Brothers Intermediate Government Index. While the index
and the fund both hold fixed-rate obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, the fund consists primarily of
mortgage-backed securities (almost 70% of the fund's total net assets on
December 31, 1996). The index, on the other hand, holds no mortgage-backed
securities at all.
Additionally, please remember that indices are simply a measure of performance
and cannot be invested in directly.
Franklin Valuemark Funds
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
Performance shown in the graph reflects all fund operating expenses but does not
include any Variable Account fees, charges or expenses imposed by the variable
annuity and life insur- ance contracts that use the Franklin Valuemark Funds. If
they had been included, performance would have been lower. See the contract
prospectus for a complete description of the Variable Account expenses,
including any applicable sales charges. Because of the complexity of certain
contracts, the prospectus may also include a hypothetical illustration intended
to show how the contract works and the effect of such Variable Account expenses
on performance.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
Since Inception
13.60%
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
14.19% 12.20% 10.09%
Franklin Valuemark Funds
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
Performance shown in the graph reflects all fund operating expenses but does not
include any Variable Account fees, charges or expenses imposed by the variable
annuity and life insur- ance contracts that use the Franklin Valuemark Funds. If
they had been included, performance would have been lower. See the contract
prospectus for a complete description of the Variable Account expenses,
including any applicable sales charges. Because of the complexity of certain
contracts, the prospectus may also include a hypothetical illustration intended
to show how the contract works and the effect of such Variable Account expenses
on performance.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
13.90% 12.49% 10.21%
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
11.28% 11.52% 11.75%
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
4.00% 8.75% 6.23%
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 3-year Since Inception
24.18% 15.62% 10.53%
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
32.82% 17.30% 13.04%
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year Since Inception
29.07% 26.91%
Franklin Valuemark Funds
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
Performance shown in the graph reflects all fund operating expenses but does not
include any Variable Account fees, charges or expenses imposed by the variable
annuity and life insur- ance contracts that use the Franklin Valuemark Funds. If
they had been included, performance would have been lower. See the contract
prospectus for a complete description of the Variable Account expenses,
including any applicable sales charges. Because of the complexity of certain
contracts, the prospectus may also include a hypothetical illustration intended
to show how the contract works and the effect of such Variable Account expenses
on performance.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year Since Inception
21.59% 6.56%
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year Since Inception
19.84% 16.06%
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year Since Inception
21.28% 13.07%
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 3-year Since Inception
22.98% 11.10% 11.64%
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
9.64% 6.59% 8.10%
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
Since Inception
12.50%
Franklin Valuemark Funds
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
Performance shown in the graph reflects all fund operating expenses but does not
include any Variable Account fees, charges or expenses imposed by the variable
annuity and life insur- ance contracts that use the Franklin Valuemark Funds. If
they had been included, performance would have been lower. See the contract
prospectus for a complete description of the Variable Account expenses,
including any applicable sales charges. Because of the complexity of certain
contracts, the prospectus may also include a hypothetical illustration intended
to show how the contract works and the effect of such Variable Account expenses
on performance.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 3-year Since Inception
11.10% 3.03% 9.98%
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
3.62% 6.90% 8.19%
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
7.07% 8.35% 10.95%
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
-0.50% 10.04% 11.08%
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
2.43% 8.07% 9.67%
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
1-year 5-year Since Inception
-2.69% 11.33% 11.59%
INDEX DEFINITIONS
Index Definition
Consumer Price Index
Measure of the average change in prices for a fixed basket of
goods and services regularly bought by consumers in the United
States published by the U.S. Bureau of Labor Statistics.
First Boston High Yield
Unmanaged, trader-priced portfolio constructed to mirror the
public high yield debt market (revisions to the index are
effected weekly). The index has several modules representing
different sectors of the high yield market including a
cash-paying module, a zero-fix module, a pay-in-kind module, and
a defaulted module. The index is also divided into other
categories including industry, rating, seniority, liquidity,
market value, security price range, yield range, and other sector
divisions.
International Finance Corporation's (IFC)
Investable Composite Index
Emerging markets index that includes 1225 stocks from 26
countries including Mexico, South Korea, Brazil, Jordan, and
Turkey.
JP Morgan Global Bond Index (Unhedged)
A total return index that tracks the traded sovereign issues of
13 international markets. Each market is weighted according to
its traded market capitalization in U.S. dollar terms, and all
issues included in the index are liquid with remaining maturities
of greater than 13 months.
Lehman Brothers Government/ Corporate Bond Index
Includes fixed-rate debt that is rated investment grade or higher
by Moody's, Standard & Poor's, or Fitch. Debt is issued by the
U.S. government and its agencies, domestic corporations, and
foreign dollar-denominated securities.
Lehman Brothers Intermediate
Includes fixed-rate debt that is rated investment grade or
Government Index higher by Moody's, Standard & Poor's, or Fitch.
Debt is issued by the U.S. government and its agencies, and has a
maturity of one to ten years.
Lipper Income Average
Consists of 21 equity funds that normally seek a high level of
current income through investing in income-producing stocks,
bonds, and money-market instruments.
Merrill Lynch Treasury Zero
Coupon Five, Ten and Twenty Year Indices
Includes five-, ten- and twenty-year zero coupon bonds,
respectively, which pay no interest and are issued at a discount
from redemption price.
Morgan Stanley Capital International Europe
Australia Far East (EAFE) Index
Includes approximately 1000 companies representing the stock
markets of 20 countries in Europe, Australia, New Zealand, and
the Far East. The average company has a market capitalization of
over $3 billion. This is a total return index in U.S. dollars,
with gross dividends reinvested.
Morgan Stanley Capital International (MSCI) Pacific Basin Index
Includes over 400 companies and the five countries of Australia,
Hong Kong, Japan, New Zealand, and Singapore/Malaysia. This is a
total return index in U.S. dollars, with gross dividends
reinvested.
Morgan Stanley Capital International (MSCI) World Index
Includes approximately 1500 companies listed on the stock
exchanges of 22 countries including the U.S., Europe, Canada,
Australia, New Zealand, and the Far East. The average company in
the index has a market capitalization of about $3.5 billion. This
is a total return index in U.S. dollars, with gross dividends
reinvested.
Russell 2500 Index(R)
An index consisting of 2,500 companies with small market
capitalizations.
Salomon Brothers World Government Hedged Index
Currency-hedged index uses rolling one-month forward exchange
contracts as hedging instruments. Total return in U.S. dollars.
Six-Month CD rates
Estimated monthly return averaging the top rates paid by major
New York banks on primary new issues of negotiable CDs. Published
by Micropal.
Standard & Poor's(R) 500 (S&P(R) 500)
Consists of 500 widely held common stocks within four sectors
(industrials, utilities, financial, and transportation). This
index, calculated by Standard & Poor's, is a total return index
with dividends reinvested.
Wilshire Midcap Growth Index
Overlaps both the top 750 and the next 1750 of the Wilshire 2500
universe. Includes companies that have market capitalizations
ranging from $300 million to $1.3 billion.
Wilshire Real Estate Securities Index
A market capitalization weighted index of publicly traded real
estate securities such as Real Estate Investment Trusts (REITs),
Real Estate Operating Companies (REOCs), and partnerships. The
index is comprised of companies whose charter is the equity
ownership and operation of commercial real estate.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Country* Amount Templeton Global Income Securities Fund (Note 1)
Bonds 93.8%
Argentina 4.3%
<S> <C> <C> <C>
US $ 2,500,000b Hidroelectrica Alicura, SA, 8.375%, 03/15/99 ................................... $ 2,487,500
US 2,895,000 Republic of Argentina, 10.95%, 11/01/99 ........................................ 3,068,700
US 3,620,000 Republic of Argentina, 8.375%, 12/20/03 ........................................ 3,402,800
US 920,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 .......................... 586,500
------------
9,545,500
------------
Australia 7.1%
AU 17,340,000 Government of Australia, 10.00%, 10/15/02 ...................................... 15,640,319
------------
Brazil 1.8%
US 2,580,000 Government of Brazil, 6.50%, 04/15/24 .......................................... 1,991,438
US 2,650,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ................... 2,015,656
------------
4,007,094
------------
Canada 4.6%
CA 11,397,000 Government of Canada, 10.25%, 02/01/04 ......................................... 10,290,628
------------
Denmark 7.2%
DK 25,917,000 Government of Denmark, 8.00%, 05/15/03 ......................................... 4,874,896
DK 43,000,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................ 8,104,941
DK 15,310,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................ 2,962,429
------------
15,942,266
------------
Germany 2.0%
DD 5,800,000 Federal Republic of Germany, Unity, 8.75%, 08/20/01 ............................ 4,387,039
------------
Irish Republic 1.2%
IR 1,600,000 Republic of Ireland, 6.25%, 10/18/04 ........................................... 2,676,514
------------
Italy 10.6%
IT 15,705,000,000 Buoni Poliennali del Tes, 10.50%, 09/01/05 ..................................... 12,379,601
IT 3,335,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ..................................... 2,482,331
IT 11,620,000,000 Government of Italy, 10.50%, 07/15/00 .......................................... 8,587,763
------------
23,449,695
------------
Mexico 4.8%
US 300,000 United Mexican States, 7.101560%, FRN, 03/31/08 ................................ 297,938
US 9,715,000 United Mexican States, 9.75%, 02/06/01 ......................................... 10,055,025
US 400,000 United Mexican States, Series D, 6.35156%, FRN, 12/31/19 ....................... 345,000
------------
10,697,963
------------
New Zealand 4.2%
NZ 11,810,000 Government of New Zealand, 10.00%, 03/15/02 .................................... 9,380,924
------------
Spain 6.1%
ES 779,230,000 Government of Spain, 12.25%, 03/25/00 .......................................... 7,114,957
ES 233,950,000 Government of Spain, 10.15%, 01/31/06 .......................................... 2,136,140
ES 462,400,000 Government of Spain,11.30%, 01/15/02 ........................................... 4,305,048
------------
13,556,145
------------
Sweden 3.1%
SE 15,300,000 Government of Sweden, 6.00%, 02/09/05 .......................................... 2,174,128
SE 12,300,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................ 2,200,610
SE 12,100,000 Kingdom of Sweden, 13.00%, 06/15/01 ............................................ 2,274,029
SE 1,100,000 Sweden National Housing Finance Corp., 12.50%, 01/23/97 ........................ 161,892
------------
6,810,659
------------
United Kingdom 10.1%
GB $ 3,245,000 United Kingdom, 8.00%, 12/07/00 ................................................ $ 5,711,854
GB 5,835,000 United Kingdom, 10.00%, 09/08/03 ............................................... 11,339,086
GB 2,905,000 United Kingdom, 10.50%, 05/19/99 ............................................... 5,349,770
------------
22,400,710
------------
United States 26.7%
US 9,610,000 U.S. Treasury Bonds, 6.375%, 08/15/02 .......................................... 9,676,078
US 21,180,000 U.S. Treasury Notes, 6.25%, 08/31/00 ........................................... 21,266,054
US 28,235,000 U.S. Treasury Notes, 6.125%, 07/31/00 .......................................... 28,243,838
------------
59,185,970
------------
Total Bonds (Cost $201,946,322)........................................... 207,971,426
------------
hReceivables from Repurchase Agreements 3.3%
US 7,060,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,279,729) (Cost $7,277,000)
Collateral: U.S. Treasury Notes, 7.75%, 11/30/99 .............................. 7,277,000
------------
Total Investments (Cost $209,223,322) 97.1%.......................... 215,248,426
Other Assets and Liabilities, Net 2.9%............................... 6,474,043
------------
Net Assets 100.0%.................................................... $221,722,469
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $209,223,322 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost..................................... $ 6,468,474
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value..................................... (443,370)
------------
Net unrealized appreciation................................................... $ 6,025,104
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IR - Irish Republic
IT - Italy
NZ - New Zealand
SE - Sweden
US - United States of America
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants High Income Fund (Note 1)
a Common Stocks & Warrants 0.1%
<C> <S> <C>
33,568 Bucyrus-Erie Co............................................................................... $ 293,720
6,900 Empire Gas Corp., warrants.................................................................... 20,700
70 Foodmaker, Inc., warrants .................................................................... 1,668
5,000 Gulf States Steel, warrants .................................................................. 25,000
7,800 International Wireless Holding Co., warrants.................................................. 70
6,500 Nextel Communications, warrants............................................................... 65
395 Thermadyne Holdings Corp...................................................................... 11,258
------------
Total Common Stocks & Warrants (Cost $610,440).......................................... 352,481
------------
Preferred Stocks 3.3%
1,300 Fresenius Medical Care A.G., 9.00%, pfd....................................................... 1,322,750
8,702 PanAmSat Corp., 12.75%, pfd., PIK............................................................. 10,965,106
2,258 Time Warner, Inc., 10.25%, pfd., Series M .................................................... 2,461,685
------------
Total Preferred Stocks (Cost $12,510,654)............................................... 14,749,541
------------
Total Common Stocks & Warrants, and Preferred Stocks (Cost $13,121,094)................. 15,102,022
------------
Face
Amount
Bonds 91.9%
Automotive 1.6%
$ 700,000b Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 ...................................... 754,250
1,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................... 1,093,750
4,500,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................................... 5,040,000
------------
6,888,000
------------
Cable Television 11.0%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 .............................. 4,247,380
1,500,000 Cablevision System Corp., senior sub. deb., 9.25%, 11/01/05 .................................. 1,488,750
3,000,000 Cablevision System Corp., senior sub. deb., 10.50%, 05/15/16 ................................. 3,120,000
4,500,000 Cablevision System Corp., senior sub. deb., 9.875%, 04/01/23 ................................. 4,410,000
5,000,000 Century Communications Corp., senior sub. notes, 11.875%, 10/15/03 ........................... 5,300,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 ............................................ 2,055,000
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................................. 2,080,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .................................. 1,722,687
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 ............................ 1,143,034
2,700,000 Diamond Cable Communications Co., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............................... 1,933,875
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 .................................... 2,436,500
4,500,000 cRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 .................... 3,220,036
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .................................. 1,586,250
8,000,000 Telewest Plc., senior deb., zero coupon to 10/01/00, (original accretion rate 11.00%),11.00%
thereafter, 10/01/07 ........................................................................ 5,600,000
1,500,000 Time Warner, Inc., senior notes, 10.15%, 05/01/12 ............................................ 1,808,997
1,500,000 Time Warner, Inc., sub. deb., 9.125%, 01/15/13 ............................................... 1,635,000
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 .............................. 2,994,594
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 ................................................................. 2,449,999
------------
49,232,102
------------
Chemicals 6.3%
3,750,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 ....................... 3,965,625
8,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............................. 8,920,000
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 ........................ 2,600,000
Chemicals (cont.)
$ 3,000,000 IMC Global, Inc., senior notes, 9.25%, 10/01/00 .............................................. $ 3,250,920
1,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ............................................... 1,894,478
1,200,000 IMC Global, Inc., senior notes, 10.125%, 06/15/01 ............................................ 1,307,851
2,425,000 IMC Global, Inc., senior notes, 10.75%, 06/15/03 ............................................. 2,663,382
4,000,000 UCC Investors, Inc., disc. notes, zero coupon to 05/01/98, (original accretion rate 12.00%), 12.00%
thereafter, 05/01/05 ........................................................................ 3,480,000
------------
28,082,256
------------
Consumer Products 2.8%
4,250,000 Coleman Holdings, Inc., senior secured disc. notes, (original accretion rate 10.875%), 0.00%,
05/27/98 .................................................................................... 3,564,688
5,800,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............................ 5,814,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .................................................... 3,041,250
------------
12,420,438
------------
Containers & Packaging 3.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 .................................... 3,806,250
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 ..................................... 1,047,500
2,500,000 bPlastic Containers, Inc., senior notes, 10.00%, 12/15/06 .................................... 2,575,000
5,000,000 bRadnor Holdings Corp., senior notes, 10.00%, 12/01/03 ....................................... 5,100,000
------------
13,578,750
------------
Energy 1.4%
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% coupon to 07/15/99, 12.875% thereafter,
07/15/04 .................................................................................... 4,250,000
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ......................................... 834,000
1,800,000 Mesa Operating Co., senior sub. notes, zero coupon to 07/01/01, (original accretion rate 11.625%),
11.625% thereafter, 07/01/06 ................................................................ 1,251,000
------------
6,335,000
------------
Food & Beverage 4.0%
3,000,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 ................. 3,060,000
700,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................... 728,000
1,124,010 n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................... 1,124,010
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 sub. notes, 10.25%, 02/15/00 ......................... 260,625
1,600,000b International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 ......................... 1,668,000
4,700,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........................ 4,876,250
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............................... 3,045,000
------------
17,941,885
------------
Food Retailing 4.7%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ................................. 1,895,500
3,691,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................... 3,930,915
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................................... 3,850,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................................... 1,025,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................................. 2,482,500
1,500,000 Penn Traffic Co., senior sub. notes, 9.625%, 04/15/05 ........................................ 866,250
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................................... 4,003,125
2,500,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 ..................................... 2,775,000
------------
20,828,290
------------
Forest & Paper Products 5.0%
$ 7,700,000 Four M Corp., senior notes, 12.00%, 06/01/06 ................................................. $ 8,085,000
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 .............................. 3,315,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 ........................ 2,100,000
3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ................................. 3,052,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ............................... 2,495,500
3,500,000 Tembec Finance Corp., senior notes, 9.875%. 09/30/05 ......................................... 3,316,250
------------
22,364,250
------------
Gaming & Leisure 7.0%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................................. 3,210,000
1,000,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ................................ 1,060,000
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................................. 5,892,625
3,000,000 Rio Hotel and Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................. 3,165,000
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................................... 8,287,500
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 ................................................................. 4,687,500
5,000,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................................. 5,037,500
------------
31,340,125
------------
Health Care Services 7.0%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............................. 8,158,500
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ............................... 5,417,500
2,000,000b Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 ......................... 2,090,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........................... 1,012,500
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 ... 5,307,500
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................................... 935,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................................... 2,550,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................................. 3,774,000
3,150,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................................. 2,157,750
------------
31,402,750
------------
Industrial Products 6.4%
2,500,000b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ........................... 2,644,688
8,500,000 American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98, (original accretion rate
10.50%), 10.50% thereafter, 06/01/05 ........................................................ 8,011,250
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................................ 1,055,000
6,500,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................................ 6,597,500
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 .............................. 3,312,000
1,200,000 bIntertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 ................................. 1,254,000
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................................ 5,568,750
------------
28,443,188
------------
Lodging 1.1%
1,000,000 John Q. Hammons Hotels L.P., first mortgage, 8.875%, 02/15/04 ................................ 997,500
1,500,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................................. 1,530,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .......................................... 2,344,650
------------
4,872,150
------------
Media & Broadcasting 6.4%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ............................... 1,810,500
2,500,000 Benedek Broadcasting, senior secured notes, 11.875%, 03/01/05 ................................ 2,731,250
6,500,000 Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 05/15/05 ................... 6,711,250
925,000 Infinity Broadcasting Corp., senior sub. notes, 10.375%, 03/15/02 ............................ 985,125
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 .................... 1,026,250
Media & Broadcasting (cont.)
$ 2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ................................... $ 2,631,250
5,000,000c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 .............................. 3,767,983
4,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ................................... 4,300,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 ........................ 2,110,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .......................... 2,559,375
------------
28,632,983
------------
Metals & Mining 3.2%
4,000,000b AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ....................................... 4,100,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................................ 4,320,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .......................................... 4,750,000
1,110,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 ................. 1,283,438
------------
14,453,438
------------
Technology & Information Systems 3.2%
6,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................................ 6,427,500
1,400,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ........................................................................ 1,025,500
2,450,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................................. 2,492,875
800,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................................... 850,000
1,150,000 bCelestica International, Inc., senior sub. notes, 10.50%, 12/31/06 .......................... 1,207,500
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ........................... 2,130,000
------------
14,133,375
------------
Telecommunications 3.0%
2,000,000 Intelecom Group, Inc., senior disc. notes, zero coupon to 05/01/01, (original accretion rate 12.50%),
12.50% thereafter, 05/01/06 ................................................................. 1,311,460
10,400,000 MFS Communications Co., Inc., senior disc. notes, zero coupon to 01/15/01, (original accretion rate
8.875%), 8.875% thereafter, 01/15/06 ........................................................ 7,709,000
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 ................................................. 4,485,000
------------
13,505,460
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ............................... 5,830,000
144,200a,l Forstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................... 72,821
------------
5,902,821
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ................................ 1,630,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................................... 4,927,500
------------
6,557,500
------------
Utilities 2.0%
3,000,000 CMS Energy Corp., senior notes, Series B, zero coupon to 10/01/95, (original accretion rate 9.875%),
9.875% thereafter, 10/01/99 ................................................................. 3,135,000
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ........................................ 2,650,000
2,715,363 Midland CoGeneration Venture, S.F., deb., Series C, 10.33%, 07/23/02 ......................... 2,905,439
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 .............................. 2,163
------------
8,692,602
------------
Wireless Communication 9.9%
$ 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 ................................................. $ 3,457,500
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 ................................................... 4,663,750
7,800,000 bInternational Wireless Communications, Inc., senior disc. notes, zero coupon to 08/15/01 .... 4,290,000
9,300,000 Millicom International Cellular, S.A., senior disc. notes, zero coupon to 06/01/01, (original accretion
rate 13.50%), 13.50% thereafter, 06/01/06.................................................... 5,766,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ................................... 4,835,125
4,500,000 bPaging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ................................... 4,578,750
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ............................. 3,172,500
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.................................................................. 6,775,000
6,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ........................................ 6,695,000
------------
44,233,625
------------
Total Bonds (Cost $393,587,025) ........................................................ 409,840,988
------------
Total Investments before Repurchase Agreements (Cost $406,708,119) ..................... 424,943,010
------------
h,iReceivables from Repurchase Agreements 3.0%
13,235,089 Joint Repurchase Agreements, 6.59%, 01/02/97, (Maturity Value $13,468,397) (Cost $13,463,468)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,653,685)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 13,463,468
------------
Total Investments (Cost $420,171,587) 98.3% ....................................... 438,406,478
Other Assets and Liabilities, Net 1.7%............................................. 7,689,047
------------
Net Assets 100.0% ................................................................. $446,095,525
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$420,171,587 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 22,104,944
Aggregate gross unrealized depreciation for all investments in which
here was an excess of tax cost over value .................................................... (3,870,053)
------------
Net unrealized appreciation ................................................................ $ 18,234,891
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Country* Warrants Precious Metals Fund (Note 1)
Common Stocks & Warrants 95.7%
Gold & Diversified Resources 14.4%
<S> <C> <C> <C>
AU 780,000a Equinox Resources, N.L. ............................................................ $ 638,582
US 160,718 Freeport-McMoRan Copper & Gold, Inc. ............................................... 4,520,194
AU 201,800 Great Central Mines, Ltd. .......................................................... 574,234
CA 110,000a Pangea Goldfields, Inc. ............................................................ 514,037
GB 318,429 RTZ Corp., Plc. .................................................................... 5,108,589
CA 159,100 Teck Corp., Class B ................................................................ 3,688,383
CA 510,600a Williams Resources, Inc. ........................................................... 525,681
CA 188,600 Williams Resources, Inc., Legend Shares ............................................ 194,170
------------
15,763,870
------------
Long Life Gold Mines 45.7%
US 210,700b Ashanti Goldfields Co., Ltd., ADS .................................................. 2,607,413
US 235,595 Barrick Gold Corp. ................................................................. 6,773,356
CA 194,920 Battle Mountain Canada, Inc. ....................................................... 1,352,079
ZA 125,000 Beatrix Mines, Ltd. ................................................................ 781,500
PE 37,404 Compania de Minas Buenaventura, SA ................................................. 308,656
PE 112,068 Compania de Minas Buenaventura, SA, Class C ........................................ 815,352
US 67,000b Compania de Minas Buenaventura, SA, Sponsored ADR .................................. 1,143,188
US 249,500 Driefontein Consolidated Mines, Ltd., ADR .......................................... 2,495,000
US 226,700 Hartebeestfontein Gold Mining Co., Ltd., ADR ....................................... 463,942
US 139,488 Homestake Mining Co. ............................................................... 1,987,704
US 95,400 Kloof Gold Mining Co., Ltd., ADR ................................................... 745,313
AU 820,260a Leo Shield Exploration, N.L. ....................................................... 436,829
US 82,400 Newmont Gold Co. ................................................................... 3,605,000
US 99,755 Newmont Mining Corp. ............................................................... 4,464,036
US 327,500 Placer Dome, Inc. .................................................................. 7,123,125
ZA 340,000 Randgold & Exploration Co., Ltd. ................................................... 2,307,363
US 257,901 Santa Fe Pacific Gold Corp. ........................................................ 3,965,228
CA 522,000a TVX Gold, Inc. ..................................................................... 4,078,274
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ..................................... 2,097,563
US 41,068 Western Areas Gold Mining, ADR ..................................................... 566,193
ZA 143,888 Western Areas Gold Mining Co., Ltd. ................................................ 1,983,708
------------
50,100,822
------------
Medium Life Gold Mines 23.5%
AU 1,243,600a Acacia Resources, Ltd. ............................................................. 2,421,763
CA 66,500a Bre-X Minerals, Ltd. ............................................................... 1,053,667
CA 6,650a Bro-X Minerals, Ltd. ............................................................... 11,653
US 209,000a Campbell Resources, Inc., warrants ................................................. 84,917
US 210,000a Canyon Resources Corp. ............................................................. 551,250
CA 151,200a Dayton Mining Corp. ................................................................ 1,004,651
CA 155,300 Euro-Nevada Mining Corp. ........................................................... 4,637,852
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ............................................ 447,957
CA 90,800 Franco-Nevada Mining Corp., Ltd. ................................................... 4,160,272
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares .................................... 114,545
CA 234,600a Geomaque Explorations, Ltd. ........................................................ 565,281
US 18,500a Getchell Gold Corp. ................................................................ 709,938
CA 86,200 Golden Knight Resources ............................................................ 415,407
CA 170,900a Greenstone Resources, Ltd. ......................................................... 1,990,329
AU 329,500a Lihir Gold, Ltd. ................................................................... 628,567
AU 271,500 Newcrest Mining, Ltd. .............................................................. 1,079,008
Medium Life Gold Mines (cont.)
AU 632,500 Plutonic Resources, Ltd. ........................................................... $ 2,941,042
AU 505,900 Sons Of Gwalia , Ltd. .............................................................. 2,987,709
------------
25,805,808
------------
Mining Finance Companies 6.5%
US 15,000 Anglo American Corp. of South Africa Ltd., Unsponsored ADR ......................... 817,500
US 113,700 DeBeers Consolidated Mines, Ltd., ADR .............................................. 3,212,025
AU 1,535,571 Normandy Mining, Ltd. .............................................................. 2,123,753
AU 230,000a Orogen Minerals, Ltd. .............................................................. 535,649
US 17,200a,b Orogen Minerals, Ltd., GDR ......................................................... 400,573
------------
7,089,500
------------
Platinum Companies 5.6%
AU 495,000a Helix Resources, N.L. .............................................................. 1,475,439
ZA 72,900 Impala Platinum Holdings, Ltd. ..................................................... 728,455
US 21,200 Impala Platinum Holdings, Ltd., ADR ................................................ 211,841
US 168,466 Rustenburg Platinum Holdings, Ltd., ADR ............................................ 2,304,547
US 82,300a,b Stillwater Mining Co. .............................................................. 1,378,524
------------
6,098,806
------------
Total Common Stocks & Warrants (Cost $99,595,951)............................. 104,858,806
------------
Face
Amount
Convertible Bonds 0.4%
US $ 270,000b Randgold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 ................. 270,000
CA 200,000 Williams Resources, Inc., cvt. sub. notes, 8.50%, 11/22/01 ......................... 154,794
------------
Total Convertible Bonds (Cost $419,740) ...................................... 424,794
------------
Total Long Term Investments (Cost $100,015,691) .............................. 105,283,600
------------
h,i Receivables from Repurchase Agreements 3.1%
US 3,409,181 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $3,468,619)
(Cost $3,467,349)
Aubrey G. Lanston & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $434,676)
Collateral: U. S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $425,887)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ............... 3,467,349
------------
Total Investments (Cost $103,483,040) 99.2%.............................. 108,750,949
Other Assets and Liabilities, Net 0.8%................................... 827,636
------------
Net Assets 100.0% ....................................................... $109,578,585
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $103,483,040 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 14,289,001
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................................ (9,021,092)
------------
Net unrealized appreciation ...................................................... $ 5,267,909
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kindom
PE - Peru
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants Real Estate Securities Fund (Note 1)
Common Stocks & Warrants 91.6%
<S> <C> <C>
Equity REIT - Apartments 20.0%
170,000 Amli Residential Properties Trust ............................................................ $ 3,973,750
295,000 Bay Apartment Communities, Inc................................................................ 10,620,000
110,000 Camden Property Trust ........................................................................ 3,148,750
205,000 Equity Residential Properties Trust .......................................................... 8,456,250
212,000 Evans Withycombe Residential, Inc. ........................................................... 4,452,000
155,000 Gables Residential Trust ..................................................................... 4,495,000
145,000 Irvine Apartment Communities, Inc............................................................. 3,625,000
215,000 Oasis Residential, Inc........................................................................ 4,891,250
100,000 Post Properties, Inc. ........................................................................ 4,025,000
120,000 Security Capital Atlantic, Inc................................................................ 2,940,000
275,000 Security Capital Pacific Trust ............................................................... 6,290,625
220,000 South West Property Trust .................................................................... 3,712,500
175,000 Summit Properties, Inc........................................................................ 3,871,875
------------
64,502,000
------------
Equity REIT - Health Care 3.7%
90,000 Health Care Property Investors, Inc. ......................................................... 3,150,000
150,000 Nationwide Health Properties, Inc............................................................. 3,637,500
158,000 Omega Healthcare Investors, Inc. ............................................................. 5,253,500
------------
12,041,000
------------
Equity REIT - Hotels 12.4%
500,000 Equity Inns, Inc. ............................................................................ 6,500,000
267,000 FelCor Suite Hotels, Inc...................................................................... 9,445,125
140,000 Patriot American Hospitality, Inc. ........................................................... 6,037,500
176,700 Starwood Lodging Trust ....................................................................... 9,740,588
605,000 Winston Hotels, Inc. ......................................................................... 8,243,125
------------
39,966,338
------------
Equity REIT - Industrial 8.9%
112,500 Duke Realty Investments, Inc. ................................................................ 4,331,250
195,000 Liberty Property Trust ....................................................................... 5,021,250
250,700 Meridian Industrial Trust, Inc................................................................ 5,264,700
327,473 Security Capital Industrial Trust ............................................................ 6,999,735
100,000 Spieker Properties, Inc....................................................................... 3,600,000
110,000 Weeks Corp. .................................................................................. 3,657,500
------------
28,874,435
------------
Equity REIT - Mixed Property Type 2.1%
115,000 Colonial Properties Trust .................................................................... 3,493,125
190,000 Glenborough Realty Trust, Inc................................................................. 3,348,750
------------
6,841,875
------------
Equity REIT - Office 7.9%
243,800 Arden Realty Group, Inc....................................................................... 6,765,450
135,000 Beacon Properties Corp. ...................................................................... 4,944,375
125,000 Crescent Real Estate Equities, Co. ........................................................... 6,593,750
210,000 Highwoods Properties, Inc..................................................................... 7,087,500
------------
25,391,075
------------
Equity REIT - Residential Communities 3.8%
185,000 Manufactured Home Communities, Inc. .......................................................... $ 4,301,250
125,000 ROC Communities, Inc.......................................................................... 3,468,750
130,000 Sun Communities, Inc.......................................................................... 4,485,000
------------
12,255,000
------------
Equity REIT - Retail - Community Centers 5.4%
102,000 Developers Diversified Realty Corp. .......................................................... 3,786,750
97,500 Kimco Realty Corp. ........................................................................... 3,400,313
511,400n Pacific Retail Trust ......................................................................... 5,625,400
90,000 Vornado Realty Trust ......................................................................... 4,725,000
------------
17,537,463
------------
Equity REIT - Retail - Outlet Centers 1.5%
75,000 Chelsea GCA Realty, Inc. ..................................................................... 2,596,875
80,000 Tanger Factory Outlet Centers, Inc............................................................ 2,170,000
------------
4,766,875
------------
Equity REIT - Retail - Regional Malls 4.9%
250,000 Simon DeBartolo Group, Inc.................................................................... 7,750,000
170,000 The Macerich Co. ............................................................................. 4,441,250
155,000 The Mills Corp. .............................................................................. 3,700,625
------------
15,891,875
------------
Equity REIT - Storage 7.3%
280,000 Public Storage, Inc........................................................................... 8,680,000
370,000 Storage Trust Realty ......................................................................... 9,990,000
130,000 Storage USA, Inc.............................................................................. 4,891,250
------------
23,561,250
------------
Home Builders 6.4%
100,000a Beazer Homes USA, Inc......................................................................... 1,850,000
306,100a Belmont Homes, Inc............................................................................ 2,946,213
75,000 Centex Corp. ................................................................................. 2,821,875
281,250 Clayton Homes, Inc............................................................................ 3,796,874
85,000 Kaufman & Broad Home Corp. ................................................................... 1,094,375
70,000 Lennar Corp. ................................................................................. 1,907,500
300,000a NVR, Inc. .................................................................................... 3,900,000
193,100a Southern Energy Homes, Inc.................................................................... 2,220,650
------------
20,537,487
------------
Hotels 5.3%
325,000a Candlewood Hotel Co., Inc..................................................................... 3,128,125
250,000a CapStar Hotel Co. ............................................................................ 4,906,250
44,122a Homestead Village, Inc........................................................................ 794,196
29,600a Homestead Village, Inc., warrants............................................................. 240,500
505,000a Host Marriott Corp. .......................................................................... 8,080,000
------------
17,149,071
------------
Mixed Property Type 2.0%
500,000 Security Capital US Realty ................................................................... 6,400,000
------------
Total Common Stocks & Warrants (Cost $216,018,176) ..................................... 295,715,744
------------
Convertible Preferred Stocks 0.4%
20,000b Catellus Development Corp., $3.625 cvt. pfd., Series B (Cost $1,000,000)...................... 1,190,000
------------
Bonds 0.6%...................................................................................
$ 2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000)............................ $ 1,937,500
------------
Total Long Term Investments (Cost $218,988,176)......................................... 298,843,244
------------
h,iReceivables from Repurchase Agreements 7.2%
22,726,825 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $23,127,905) (Cost $23,119,441)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,839,700)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 23,119,441
------------
Total Investments (Cost $242,107,617) 99.8% ....................................... 321,962,685
------------
Other Assets and Liabilities, Net 0.2%............................................. 758,510
------------
Net Assets 100.0 % ................................................................ $322,721,195
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$242,107,617 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 81,200,237
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (1,345,169)
------------
Net unrealized appreciation ................................................................ $ 79,855,068
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
REIT - Real Estate Investment Trust
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Securities Fund (Note 1)
Mortgage-Backed Securities 68.5%
Government National Mortgage Association (GNMA) - Fixed Rate 38.7%
<C> <S> <C>
$ 12,909,358 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ...................................................... $ 11,997,637
2,240,248 GNMA II, 6.00%, 01/20/24 - 10/20/24 ......................................................... 2,068,031
57,198,297 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ...................................................... 54,642,340
3,866,893 GNMA II, 6.50%, 01/20/26 .................................................................... 3,669,925
8,696,408 GNMA, PL, 6.50%, 09/15/28 ................................................................... 8,264,310
56,855,632 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ...................................................... 55,700,850
14,520,927 GNMA II, 7.00%, 01/20/24 - 12/01/26 ......................................................... 14,135,225
15,000,000k GNMA II, 7.00%, 12/01/26 .................................................................... 14,617,968
1,983,040 GNMA I, SF, 7.25%, 11/15/25 ................................................................. 1,964,759
2,242,805 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ........................................................ 2,210,915
42,539,615 GNMA I, SF, 7.50%, 02/15/17 - 06/15/23 ...................................................... 42,619,423
33,125,704 GNMA II, 7.50%, 11/20/16 - 12/01/26 ......................................................... 32,980,790
5,000,000k GNMA II, 7.50%, 12/01/26 .................................................................... 4,980,469
29,391,221 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ...................................................... 30,015,829
3,371,055 GNMA II, 8.00%, 02/20/16 - 08/20/26 ......................................................... 3,417,411
2,589,263 GNMA I, SF, 8.25%, 04/15/25 ................................................................. 2,664,516
11,529,600 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ...................................................... 11,954,773
4,261,726 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ...................................................... 4,496,145
10,571,472 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ...................................................... 11,433,761
2,227,999 GNMA II, 9.50%, 04/20/25 .................................................................... 2,387,442
8,657,430 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ..................................................... 9,504,241
297,054 GNMA II, 10.00%, 07/20/19 - 02/20/21 ........................................................ 323,139
------------
326,049,899
------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.4%
3,775,571 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 ..................... 3,854,443
3,477,477 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 ...................... 3,583,819
4,528,182 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 01/20/16 ...................... 4,593,071
------------
12,031,333
------------
Federal National Mortgage Association (FNMA) - Fixed Rate 8.8%
7,013,467 FNMA, 6.00%, 10/01/23 - 04/01/24 ............................................................ 6,520,340
15,000,000 FNMA, 6.05%, 11/10/97 ....................................................................... 15,046,605
16,442,305 FNMA, 6.50%, 01/01/24 - 06/01/24 ............................................................ 15,707,553
1,943,398 FNMA, 7.00%, 05/01/24 ....................................................................... 1,903,924
8,077,380 FNMA, PL, 7.00%, 03/17/35 ................................................................... 7,774,479
11,946,917 FNMA, 7.50%, 04/01/23 - 08/01/25 ............................................................ 11,958,127
13,480,634 FNMA, 8.00%, 07/01/16 - 02/01/25 ............................................................ 13,755,022
1,079,387 FNMA, 8.50%, 10/01/19 - 03/01/22 ............................................................ 1,118,856
173,288 FNMA, 9.00%, 09/01/18 - 03/01/21 ............................................................ 182,821
99,393 FNMA, 9.50%, 07/01/19 - 08/01/20 ............................................................ 107,346
36,255 FNMA, 10.00%, 10/01/20 ...................................................................... 39,768
------------
74,114,841
------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 7.0%
6,945,255 FNMA, Cap 12.22%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.963%, 06/01/18 ......... 7,070,687
5,056,806 FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.693%, 02/01/19 ..................... 5,266,714
2,473,734 FNMA, Cap 12.786%, Margin 1.25% + COFI, Resets Monthly, 6.084%, 02/01/03 .................... 2,462,009
6,699,164 FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.701%, 09/01/18 ................... 6,996,071
4,370,458 FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.662%, 07/01/19 ................... 4,561,273
13,893,832 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.599%, 01/01/18 ................... 14,470,563
1,129,917 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.796%, 07/01/24 ......... 1,126,675
433,585 FNMA, Cap 13.721%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 02/01/17 .................... 430,715
Federal National Mortgage Association (FNMA) - Adjustable Rate (cont.)
$ 885,440 FNMA, Cap 14.071%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 12/01/18 .................... $ 879,578
1,317,468 FNMA, Cap 14.428%, Margin 2.125% + CMT, Resets Annually, 7.25%, 04/01/19 .................... 1,365,556
6,050,539 FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 06/01/02 .................... 6,018,048
3,103,864 FNMA, Cap 14.808%, Margin 1.825% + 3CMT, Resets Tri-Annually, 8.489%, 07/01/20 .............. 3,219,110
5,122,820 FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.453%, 03/01/20 .............. 5,337,108
------------
59,204,107
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.5%
23,032,840 FHLMC, 6.50%, 06/01/08 - 01/01/24 ........................................................... 22,141,263
17,405,760 FHLMC, 7.00%, 04/01/24 ...................................................................... 17,101,159
19,790,154 FHLMC, PL, 7.00%, 09/17/31 .................................................................. 19,233,655
6,026,449 FHLMC, 7.50%, 11/01/22 - 05/01/24 ........................................................... 6,041,520
4,368,802 FHLMC, 8.00%, 05/01/16 - 05/01/22 ........................................................... 4,457,553
1,327,636 FHLMC, 8.50%, 04/01/18 - 03/01/22 ........................................................... 1,377,012
1,141,617 FHLMC, 9.00%, 03/01/03 - 01/01/21 ........................................................... 1,196,861
259,097 FHLMC, 9.50%, 06/01/16 - 08/01/20 ........................................................... 278,530
192,483 FHLMC, 10.00%, 08/01/20 - 10/01/20 .......................................................... 209,807
------------
72,037,360
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate 4.1%
5,058,120 FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annnually, 7.651%, 06/01/22 ................. 5,263,379
2,606,296 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.582%, 09/01/19 ................... 2,697,525
3,402,647 FHLMC, Cap 13.125%, Margin 2.00% + CMT, Resets Annually, 7.297%, 07/01/18 ................... 3,509,831
613,638 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.583%, 07/01/19 .................. 635,719
7,457,638 FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.751%, 02/01/19 .................. 7,749,381
5,556,893 FHLMC, Cap 13.50%, Margin 2.03% + CMT, Resets Annually, 7.496%, 05/01/18 .................... 5,751,107
1,781,078 FHLMC, Cap 13.605%, Margin 2.20% + CMT, Resets Annually, 7.557%, 02/01/19 ................... 1,843,897
7,092,294 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.628%, 04/01/18 .................. 7,355,701
------------
34,806,540
------------
Total Mortgage-Backed Securities (Cost $575,480,640) .................................. 578,244,080
------------
Other Government & Agency Securities 23.6%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 ......................................... 2,014,030
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 ................................................... 4,780,810
10,000,000 Federal Farm Credit Bank, 7.95%, 04/01/02 ................................................... 10,062,349
13,220,804 FHA Project Loan, 6.875%, 11/01/23 .......................................................... 12,592,825
8,168,028 FHA Project Loan, 7.00%, 02/01/29 ........................................................... 7,871,937
3,876,000 FICO Strips, 0.00%, 11/11/01 ................................................................ 2,857,360
1,925,000 FICO Strips, 0.00%, 05/11/02 ................................................................ 1,372,525
10,000,000 FICO Strips, 0.00%, 05/11/13 ................................................................ 3,174,609
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ...................................................... 13,008,989
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ...................................................... 754,011
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ..................................................... 4,684,361
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ..................................................... 4,530,025
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ..................................................... 7,217,839
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ..................................................... 1,383,526
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ..................................................... 1,835,446
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ...................................................... 900,325
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ...................................................... 5,203,176
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ..................................... 5,109,699
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ..................................... 5,112,735
4,851,066 Small Business Administration, 6.45%, 12/01/15 .............................................. 4,594,348
5,000,000 Small Business Administration, 6.70%, 12/01/16 .............................................. 4,906,300
$ 8,338,041 Small Business Administration, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 7.75%,
03/25/19 ................................................................................... $ 8,651,469
8,003,940 Small Business Administration, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 7.85%,
06/25/19................................................................................... 8,344,108
9,471,172 Small Business Administration, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.125%,
03/25/18 ................................................................................... 10,039,442
5,000,000 Student Loan Marketing Association, 5.64%, 11/26/97 ......................................... 4,992,895
5,000,000 Student Loan Marketing Association, 6.16%, 12/02/99 ......................................... 4,973,475
15,000,000 Student Loan Marketing Association, 0.00%, 05/15/14 ......................................... 3,807,193
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ................................................. 6,700,249
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ................................................. 1,986,977
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ................................................. 5,074,360
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ................................................ 4,868,629
12,000,000 Tennessee Valley Authority, 6.235%, 07/15/45 ................................................ 12,039,490
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ................................................. 9,759,050
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ................................................ 1,056,509
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ................................................ 12,859,246
------------
Total Other Agency Government Securities (Cost $194,604,937) .......................... 199,120,317
------------
U.S. Government Securities 8.0%
5,000,000 U.S. Treasury Notes, 5.125%, 04/30/98 ....................................................... 4,950,005
10,000,000 U.S. Treasury Notes, 5.125%, 06/30/98 ....................................................... 9,893,759
8,000,000 U.S. Treasury Notes, 5.25%, 12/31/97 ........................................................ 7,950,007
15,000,000 U.S. Treasury Notes, 5.625%, 06/30/97 ....................................................... 15,004,694
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ........................................................ 4,851,565
5,000,000 U.S. Treasury Notes, 5.875%, 08/15/98 ....................................................... 4,995,315
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 ....................................................... 4,993,755
10,000,000 U.S. Treasury Notes, 6.125%, 05/31/97 ....................................................... 10,018,759
5,000,000 U.S. Treasury Notes, 6.50%, 04/30/97 ........................................................ 5,015,630
------------
Total U.S. Government Securities (Cost $67,905,861) ................................... 67,673,489
------------
Total Long Term Investments (Cost $837,991,438) ....................................... 845,037,886
------------
h,iReceivables from Repurchase Agreements 1.5%
12,403,581 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $12,622,265) (Cost $12,617,646)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 5.125% - 8.750%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,581,782)
U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities, Corp., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,549,791)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.75% 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.50% 06/30/98 - 05/31/01 .......................... 12,617,646
------------
Total Investments (Cost $850,609,084) 101.6%...................................... 857,655,532
Liabilities in Excess of Other Assets (1.6%)...................................... (13,798,015)
------------
Net Assets 100.0%................................................................. $843,857,517
============
At December 31, 1996 the net unrealized appreciation based on
the cost of investments for income tax purposes of
$850,609,084 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 14,804,148
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................. (7,757,700)
------------
Net unrealized appreciation ............................................................... $ 7,046,448
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
FHA - Federal Housing Authority
FICO - Financing Corp.
L.L.C. - Limited Liability Corp.
PL - Project Loan
SF - Single Family
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2000 (Note 1)
Long Term Investments 100%
Government & Agency Securities 98.6%
<C> <S> <C>
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ...................................................... $ 5,845,212
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ...................................................... 2,155,250
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ...................................................... 336,363
16,175,000 FHLMC, notes, 0.00%, 05/15/00 ................................................................. 13,143,125
9,023,000 FICO Strips, 0.00%, 03/26/01 .................................................................. 6,932,100
2,000,000 FICO Strips, 0.00%, 04/06/01 .................................................................. 1,533,606
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ........................................................ 896,755
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ........................................................ 775,514
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ....................................................... 13,629,516
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ....................................................... 4,549,980
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ....................................................... 3,021,744
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ....................................................... 117,895
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ....................................................... 3,854,720
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ....................................................... 4,656,037
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ....................................................... 4,912,737
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ........................................................ 3,941,584
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ........................................................ 4,304,102
3,800,000 FNMA Strips, 0.00%, 11/22/99 .................................................................. 3,183,066
1,000,000 FNMA Strips, 0.00%, 02/12/02 .................................................................. 723,947
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ........................................................ 412,619
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ........................................................ 1,452,887
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ........................................................ 725,364
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ........................................................ 2,244,114
9,195,000 REFCO Strips, 0.00%, 01/15/01 ................................................................. 7,194,369
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ................................................... 2,673,204
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ................................................... 1,980,827
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ................................................... 50,315
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ................................................... 8,051,577
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ................................................... 718,045
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 ......................................................... 875,190
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 2,154,740
15,000,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 11,682,779
11,615,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 9,060,779
------------
127,790,062
------------
Other Securities - "AAA" Rated 1.4%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ............................................... 171,499
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 ........................ 334,189
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 ........................ 754,667
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 ........................ 567,527
------------
1,827,882
------------
Total Long Term Investments (Cost $122,571,579).......................................... 129,617,944
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 69,031 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value 69,902) (Cost $69,876)
Aubrey G. Lanston & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $8,582)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01.......................... $ 69,876
------------
Total Investments (Cost $122,641,455) 100.1% ....................................... 129,687,820
Liabilities in Excess of Other Assets (0.1%) ....................................... (86,878)
------------
Net Assets 100.0% .................................................................. $129,600,942
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $122,641,455
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,210,715
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (164,350)
------------
Net unrealized appreciation ................................................................. $ 7,046,365
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financial Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2005 (Note 1)
Long Term Investments 100.0%
Government & Agency Securities 96.8%
<C> <S> <C>
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ...................................................... $ 699,815
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ...................................................... 503,905
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 ..................................................... 5,738,216
11,400,000 FICO Strips, 0.00%, 10/06/05 .................................................................. 6,367,880
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ........................................................ 2,012,076
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ........................................................ 459,821
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ........................................................ 1,949,804
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ....................................................... 6,100,281
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ....................................................... 1,513,663
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ....................................................... 1,472,026
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ....................................................... 3,231,737
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ....................................................... 5,518,120
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ........................................................ 3,805,631
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ........................................................ 951,371
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ........................................................ 2,902,869
120,000 FNMA Strips, 0.00%, 02/12/08 .................................................................. 56,347
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ........................................................ 273,785
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ........................................................ 585,338
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ........................................................ 493,262
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ........................................................ 2,344,967
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ........................................................ 135,809
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ........................................................ 814,219
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ........................................................ 3,519,881
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ........................................................ 278,378
6,500,000 REFCO Strips, 0.00%, 01/15/06 ................................................................. 3,607,694
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ....................................................... 1,636,467
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ................................................... 3,732,126
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ................................................... 1,311,114
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ................................................... 559,871
31,140,000 U.S. Treasury Strips, 0.00%, 02/15/06 ......................................................... 17,361,605
------------
79,938,078
------------
Other Securities - "AAA" Rated 3.2%
1,500,000 Exxon Corp., 0.00%, 11/15/04 .................................................................. 902,553
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 ........................ 271,911
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 ........................ 1,210,182
459,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/07 .............. 230,360
------------
2,615,006
------------
Total Long Term Investments (Cost $75,820,587) .......................................... 82,553,084
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 92,564 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $93,893) (Cost $93,859)
Aubrey G. Lanston & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $11,531)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 93,859
------------
Total Investments (Cost $75,914,446) 100.1%......................................... 82,646,943
Liabilities in Excess of Other Assets (0.1%) ....................................... (43,474)
------------
Net Assets 100.0% ................................................................. $82,603,469
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $75,918,614
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,286,935
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (558,606)
------------
Net unrealized appreciation ................................................................. $ 6,728,329
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Face Value
Amount Zero Coupon Fund - 2010 (Note 1)
Long Term Investments 100.6%
Government & Agency Securities 95.6%
<C> <S> <C>
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 .......................................................... $ 880,432
4,040,000 FICO Strips, 0.00%, 10/06/10 .................................................................. 1,562,417
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ........................................................ 6,237,261
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ........................................................ 793,794
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ........................................................ 590,934
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ........................................................ 1,183,316
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ....................................................... 1,068,198
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ....................................................... 1,941,589
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ....................................................... 2,863,694
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ....................................................... 1,189,191
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ....................................................... 794,198
7,000,000 FICO Strips, Series A, 0.00%. 08/08/10 ........................................................ 2,739,079
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ........................................................ 345,907
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ........................................................ 1,491,532
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ........................................................ 4,774,101
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ........................................................ 333,308
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ........................................................ 1,999,718
1,975,000 FNMA Strips, 0.00%, 08/12/09 .................................................................. 828,751
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ........................................................ 2,025,210
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ........................................................ 3,217,598
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ........................................................ 478,632
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ........................................................ 1,668,785
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 .............................................................. 1,139,196
20,000,000 REFCO Strips, 0.00%, 10/15/10 ................................................................. 7,897,418
8,000,000 REFCO Strips, 0.00%, 01/15/11 ................................................................. 3,098,639
8,650,000 SLMA, 0.00%, 05/15/14 ......................................................................... 2,195,481
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ................................................... 164,396
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ................................................... 4,824,119
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ................................................... 511,051
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ................................................... 3,545,833
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ................................................... 2,613,959
25,790,000 U.S. Treasury Strips, 0.00%, 11/15/10 ......................................................... 10,299,236
------------
75,296,973
------------
Other Securities - "AAA" Rated 5.0%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 ........................ 516,948
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 ........................ 963,572
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 ........................ 1,046,150
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 ........................ 1,257,355
500,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/11 .............. 185,686
------------
3,969,711
------------
Total Long Term Investments (Cost $69,789,913)........................................... 79,266,684
------------
h,i Receivables from Repurchase Agreements 0.2%
$ 142,768 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $145,815) (Cost $145,762)
Aubrey G. Lanston & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $17,904)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 145,762
------------
Total Investments (Cost $69,935,675) 100.8% ....................................... 79,412,446
Liabilities in Excess of Other Assets (0.8%)....................................... (596,700)
------------
Net Assets 100.0% ................................................................. $78,815,746
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $70,249,878
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.................................................... $ 9,241,575
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (79,007)
------------
Net unrealized appreciation ................................................................. $ 9,162,568
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Money Market Fund (Note 1)
f Short Term Investments 98.7%
Certificates of Deposit 8.8%
<C> <S> <C>
$10,000,000 Bank of Nova Scotia, Portland Branch, 5.8%, 03/05/97 ........................................... $ 10,000,000
6,000,000 Commerzbank, AG, New York Branch, 5.41%, 02/03/97 .............................................. 6,000,186
10,000,000 Dresdner Bank, AG, New York Branch, 4.94%, 01/06/97 ............................................ 9,999,086
10,000,000 Svenska Handelsbanken, Inc., New York Branch, 5.375%, 02/25/97 ................................. 10,000,139
------------
Total Certificates of Deposit (Cost $35,999,411).......................................... 35,999,411
------------
Commercial Paper 73.5%
10,000,000 AT&T Corp., 5.37%, 3/10/97 - 3/11/97 ........................................................... 9,897,821
16,000,000 Abbey National North America, 5.32% - 5.41%, 03/10/97 - 04/02/97 ............................... 15,833,178
20,000,000 American Express Credit Corp., 5.27%, 03/20/97 - 03/21/97 ...................................... 19,770,170
20,000,000 Associates Corp. of North America, 5.32%, 01/14/97 - 01/15/97 .................................. 19,960,100
15,000,000 Bellsouth Telecommunications, Inc., 5.35%, 03/03/97 ............................................ 14,864,021
15,000,000 BIL North America, Inc., 5.33%, 01/07/97 - 01/23/97 ............................................ 14,974,831
11,000,000 Commonwealth Bank of Australia, 5.325% - 5.37%, 01/21/97 - 04/29/97 ............................ 10,952,815
20,000,000 General Electric Capital Corp., 5.30% - 5.32%, 01/16/97 - 03/31/97 ............................. 19,846,805
1,200,000 General Electric Capital Corp., 7.625%, 01/10/97 ............................................... 1,200,552
10,000,000 Generale Bank, Inc., 5.30%, 03/14/97 ........................................................... 9,894,000
15,000,000 Goldman Sachs Group L.P., 5.34% - 5.35%, 03/11/97 - 03/14/97 ................................... 14,841,729
7,000,000 H.J. Heinz Corp., 5.50%, 02/07/97 .............................................................. 6,960,431
10,000,000 Halifax Building Society, 5.30%, 04/16/97 ...................................................... 9,845,417
20,000,000 Kingdom of Sweden, 5.30% - 5.32%, 01/17/97 - 02/20/97 .......................................... 19,902,555
20,000,000 MetLife Funding, Inc., 5.30%, 01/24/97 - 01/27/97 .............................................. 19,927,861
20,000,000 Merrill Lynch & Co., Inc., 5.32% - 5.33%, 01/17/97 - 03/13/97 .................................. 19,855,796
15,000,000 Morgan Stanley Group, Inc., 5.32%, 03/06/97 - 03/07/97 ......................................... 14,856,655
17,750,000 National Rural Utilities Cooperative Finance Corp., 5.30%, 01/22/97 - 02/03/97 ................. 17,681,431
20,000,000 Prudential Funding Corp., 5.30% - 5.33%, 01/13/97 - 01/28/97 ................................... 19,942,483
10,000,000 Schering Corp., 5.23%, 05/20/97 ................................................................ 9,798,064
10,000,000 Wool International, 5.55%, 03/04/97 ............................................................ 9,904,416
------------
Total Commercial Paper (Cost $300,711,131)................................................ 300,711,131
------------
Total Investments Before Repurchase Agreement (Cost $336,710,542)......................... 336,710,542
------------
h Receivables from Repurchase Agreements 16.4%
19,750,000 CIBC Wood Gundy Securities Corp., 6.70%, 01/02/97, (Maturity Value $20,007,444)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .............................................. 20,000,000
28,487,000 SBC Warburg, Inc., 5.50%, 01/02/97, (Maturity Value $26,903,218)
Collateral: U.S. Treasury Bills, 09/18/97 ..................................................... 26,895,000
20,400,000 UBS Securities, L.L.C., 6.75%, 01/02/97, (Maturity Value $20,007,500)
Collateral: U.S. Treasury Notes, 5.375%, 05/31/98 ............................................. 20,000,000
------------
Total Receivables From Repurchase Agreements (Cost $66,895,000)........................... 66,895,000
------------
Total Investments (Cost $403,605,542) 98.7%......................................... 403,605,542
Other Assets and Liabilities, Net 1.3%.............................................. 5,324,271
------------
Net Assets 100%..................................................................... $408,929,813
============
</TABLE>
At December 31, 1996, 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
fCertain 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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Growth and Income Fund (Note 1)
Common Stocks 94.6%
Automobile 1.2%
<C> <S> <C>
397,000 Chrysler Corp. .............................................................................. $ 13,101,000
------------
Chemicals, Basic 2.4%
197,300 Dow Chemical Co. ............................................................................ 15,463,388
53,000 Du Pont, (E.I.), De Nemours & Co. ........................................................... 5,001,875
328,570 Millennium Chemicals, Inc. .................................................................. 5,832,118
------------
26,297,381
------------
Commercial Services 1.0%
548,600 Ogden Corp. ................................................................................. 10,286,250
------------
Consumer Products 1.4%
391,800 Dial Corp. .................................................................................. 5,779,050
237,900 Tambrands, Inc. ............................................................................. 9,724,163
------------
15,503,213
------------
Electrical Equipment 1.3%
141,100 General Electric Co. ........................................................................ 13,951,263
------------
Financial Services 9.0%
115,500 Bank of Boston Corp. ........................................................................ 7,420,875
195,800b Christiania Bank Og Kreditkasse, ADR......................................................... 6,201,260
1,393,400d Christiania Bank Og Kreditkasse (Norway) .................................................... 4,413,089
102,400d Credit Communal Holding/Dexia (Belgium) ..................................................... 9,343,566
357,000 Great Western Financial Corp. ............................................................... 10,353,000
115,900 J. P. Morgan & Co., Inc. .................................................................... 11,314,738
270,000 National City Corp. ......................................................................... 12,116,250
134,500d Nordbanken AB (Sweden) ...................................................................... 4,072,560
119,700b Nordbanken AB, Sponsored ADR................................................................. 7,248,852
379,900 PNC Bank Corp. .............................................................................. 14,293,738
510,000 Roosevelt Financial Corp. ................................................................... 10,710,000
------------
97,487,928
------------
Forest Products & Paper 4.7%
119,000 Georgia-Pacific Corp. ....................................................................... 8,568,000
1,020,000b Portucel Industrial, SA...................................................................... 5,920,692
339,700 Potlatch Corp. .............................................................................. 14,607,100
220,000 Union Camp Corp. ............................................................................ 10,505,000
235,000 Weyerhaeuser Co. ............................................................................ 11,133,124
------------
50,733,916
------------
Insurance 3.5%
324,400 Lincoln National Corp. ...................................................................... 17,031,000
279,000d Scor, SA (France)............................................................................ 9,820,154
131,000 St. Paul Cos., Inc. ......................................................................... 7,679,875
121,500 Zenith National Insurance ................................................................... 3,326,062
------------
37,857,091
------------
Miscellaneous Manufacturing 4.1%
390,000 British Steel, Plc., Sponsored ADR........................................................... 10,725,000
167,300 Cooper Industries, Inc. ..................................................................... 7,047,513
1,310,000 Hanson, Plc., ADR ........................................................................... 8,842,500
213,500 Minnesota Mining & Manufacturing Co. ........................................................ 17,693,813
------------
44,308,826
------------
Oil/Gas Transmission 3.9%
229,000 Consolidated Natural Gas Co. ................................................................ $ 12,652,250
302,400 National Fuel Gas Co. ....................................................................... 12,474,000
547,800 Pacific Enterprises ......................................................................... 16,639,425
------------
41,765,675
------------
Petroleum, Integrated 16.4%
233,700 Amoco Corp. ................................................................................. 18,812,850
192,000 Atlantic Richfield Co. ...................................................................... 25,440,000
305,000 Chevron Corp. ............................................................................... 19,825,000
213,500 Exxon Corp. ................................................................................. 20,923,000
128,000 Mobil Corp. ................................................................................. 15,648,000
285,000 Occidental Petroleum Corp. .................................................................. 6,661,875
79,900 Royal Dutch Petroleum Co., ADR............................................................... 13,642,925
256,200 Texaco, Inc. ................................................................................ 25,139,625
336,900 Ultramar Corp. .............................................................................. 10,654,462
775,000 YPF Sociedad Anonima, ADS ................................................................... 19,568,750
------------
176,316,487
------------
Pharmaceuticals 3.5%
78,000 American Home Products Corp. ................................................................ 4,572,750
208,500 Bristol-Myers Squibb Co. .................................................................... 22,674,375
343,800 Glaxo Wellcome, Plc., Sponsored ADR.......................................................... 10,915,650
------------
38,162,775
------------
Printing, Publishing & Media 1.8%
315,000a Cognizant Corp. ............................................................................. 10,395,000
375,000 Dun & Bradstreet Corp. ...................................................................... 8,906,250
------------
19,301,250
------------
Real Estate Investment Trust 4.0%
395,300 Equity Residential Properties Trust ......................................................... 16,306,125
450,000 FelCor Suite Hotels, Inc. ................................................................... 15,918,750
221,400 Oasis Residential, Inc. ..................................................................... 5,036,850
175,700 Simon DeBartolo Group, Inc. ................................................................. 5,446,700
------------
42,708,425
------------
Retail 2.0%
465,900 Penney (J.C.) Co., Inc. ..................................................................... 22,712,625
------------
Telecommunications 12.3%
72,000 Ameritech Corp. ............................................................................. 4,365,000
115,800 BellSouth Corp. ............................................................................. 4,675,425
118,300 British Telecom, Plc., Sponsored ADR......................................................... 8,118,338
524,500 GTE Corp. ................................................................................... 23,864,750
4,470,000d Hong Kong Telecommunications, Ltd. (Hong Kong)............................................... 7,195,229
495,000 NYNEX Corp. ................................................................................. 23,821,875
531,900 Southern New England Telecommunications Corp. ............................................... 20,677,613
106,400 Sprint Corp. ................................................................................ 4,242,700
360,000 Telefonos de Mexico, SA, ADR................................................................. 11,880,000
723,100 US West Communications Group ................................................................ 23,319,974
------------
132,160,904
------------
Tobacco 6.7%
345,100 American Brands, Inc. ....................................................................... 17,125,588
427,500 Imperial Tobacco Group, Plc., Sponsored ADR.................................................. 5,521,889
Tobacco (cont.)
198,600 Philip Morris Cos., Inc. .................................................................... $ 22,367,325
363,560 RJR Nabisco Holdings Corp. .................................................................. 12,361,040
445,000 UST, Inc. ................................................................................... 14,406,874
------------
71,782,716
------------
Utilities 15.4%
541,100 Central & South West Corp. .................................................................. 13,865,688
467,000 CINergy Corp. ............................................................................... 15,586,125
417,000 Dominion Resources, Inc. .................................................................... 16,054,500
590,000 Enova Corp. ................................................................................. 13,422,500
425,300 General Public Utilities Corp. .............................................................. 14,300,713
471,400 New England Electric System ................................................................. 16,440,075
403,000 Oklahoma Gas & Electric Co. ................................................................. 16,825,250
310,700 Pacific Gas & Electric Co. .................................................................. 6,524,700
520,000 PacifiCorp .................................................................................. 10,660,000
424,900 PECO Energy Co. ............................................................................. 10,728,725
338,000 Public Service Co. of Colorado .............................................................. 13,139,750
200,000 Public Service Enterprise Group, Inc. ....................................................... 5,450,000
120,000 Texas Utilities Co. ......................................................................... 4,890,000
278,500 Unicom Corp. ................................................................................ 7,554,312
------------
165,442,338
------------
Total Long Term Investments (Cost $864,711,520) ....................................... 1,019,880,063
------------
Face
Amount
h,i Receivables from Repurchase Agreements 4.8%
$ 50,897,670 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $51,795,240) (Cost $51,776,284)
Aubrey G. Lanston & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $6,359,549)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 51,776,284
------------
Total Investments (Cost $916,487,804) 99.4%....................................... 1,071,656,347
Other Assets and Liabilities, Net 0.6%............................................ 6,332,661
------------
Net Assets 100.0%................................................................. $1,077,989,008
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$916,497,581 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 170,313,985
Aggregate gross unrealized depreciation for all investments in which
there was an excessof tax cost over value .................................................. (15,155,219)
------------
Net unrealized appreciation ............................................................... $ 155,158,766
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Income Securities Fund (Note 1)
Common Stocks 32.2%
Apparel/Textiles 0.2%
<C> <S> <C>
419,424 a,n Bibb Co. .................................................................................. $ 3,171,894
------------
Computer/Technology 0.1%
190,223 a,j Anacomp, Inc. ............................................................................. 1,616,895
------------
Conglomerates 0.2%
380,000 Hanson, Plc., ADR ......................................................................... 2,565,000
------------
Consumer Products 1.7%
95,000 Imperial Tobacco Group, Plc., ADR ......................................................... 1,227,086
195,000 Phillip Morris Cos., Inc. ................................................................. 21,961,875
93,750 a,bSpecialty Foods Corp. ..................................................................... 23,438
------------
23,212,399
------------
Energy 2.5%
576,500 d Athabasca Oil Sands Trust (Canada) ........................................................ 8,397,777
30,000 Atlantic Richfield Co. .................................................................... 3,975,000
50,000 BP Prudhoe Bay Royalty Trust .............................................................. 850,000
500,000 b,dCanadian Oil Sands Trust - Units (Canada) ................................................. 7,484,210
427,805 Noble Drilling Corp. ...................................................................... 8,502,624
125,000 Ultramar Diamond Shamrock Corp. ........................................................... 3,953,125
------------
33,162,736
------------
Home Builders
2,000a NVR, Inc. ................................................................................. 26,000
------------
Metals 1.4%
185,200 Driefontein Consolidated Mines, Ltd., ADR ................................................. 1,852,000
60,000 Evander Gold Mines, Ltd., ADR ............................................................. 512,982
390,000 Free State Consolidated Gold Mines, Ltd., ADR ............................................. 2,803,125
91,872 Freeport-McMoRan Copper & Gold, Inc., Class A ............................................. 2,583,900
620,000 Hartebeestfontein Gold Mining Co., Ltd., ADR .............................................. 1,268,830
216,500 Impala Platinum Holdings, Ltd., ADR ....................................................... 2,163,376
221,523 Rustenburg Platinum Holdings, Ltd., ADR ................................................... 3,030,346
19,000 St. Helena Gold Mines, Ltd., ADR .......................................................... 109,250
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ............................................ 1,584,000
102,500 Western Deep Levels, Ltd., ADR ............................................................ 3,075,000
------------
18,982,809
------------
Miscellaneous 0.1%
27,142 Millennium Chemicals, Inc. ................................................................ 481,770
15,600 a Echelon International Corp., Inc. ......................................................... 243,750
------------
725,520
------------
Pharmaceuticals 1.6%
100,000 American Home Products Corp. .............................................................. 5,862,500
45,000 Bristol-Myers Squibb Co. .................................................................. 4,893,750
100,000 Merck & Co., Inc. ......................................................................... 7,925,000
85,000 Pharmacia & Upjohn, Inc. .................................................................. 3,368,125
------------
22,049,375
------------
Real Estate Investment Trust 2.9%
150,000 Equity Residential Properties Trust, Inc. ................................................. 6,187,500
275,000 FelCor Suite Hotels, Inc. ................................................................. 9,728,125
150,000 Gables Residential Trust .................................................................. 4,350,000
145,000 Meditrust Corp. ........................................................................... 5,800,000
Real Estate Investment Trust (cont.)
102,900 Simon DeBartolo Group, Inc. ............................................................... $ 3,189,900
360,400 j Tanger Factory Outlet Centers, Inc. ....................................................... 9,775,850
------------
39,031,375
------------
Telecommunications 0.9%
360,000 US West Communications Group .............................................................. 11,610,000
------------
Utilities 20.6%
390,000 American Electric Power Co., Inc. ......................................................... 16,038,750
650,000 Central & South West Corp. ................................................................ 16,656,250
511,000 CINergy Corp. ............................................................................. 17,054,625
500,000 Delmarva Power & Light Co. ................................................................ 10,187,500
340,000 Dominion Resources, Inc. .................................................................. 13,090,000
610,000 Edison International ...................................................................... 12,123,750
505,000 Enova Corp. ............................................................................... 11,488,750
460,000 Entergy Corp. ............................................................................. 12,765,000
365,000 Florida Progress Corp. .................................................................... 11,771,250
240,000 FPL Group, Inc. ........................................................................... 11,040,000
320,000 General Public Utilities Corp. ............................................................ 10,760,000
142,000 Hawaiian Electric Industries, Inc. ........................................................ 5,129,750
300,000 Houston Industries, Inc. .................................................................. 6,787,500
400,000 Long Island Lighting Co. .................................................................. 8,850,000
175,000 Nevada Power Co. .......................................................................... 3,587,500
330,000 New England Electric System ............................................................... 11,508,750
300,000 New York State Electric & Gas Corp. ....................................................... 6,487,500
385,000 Ohio Edison Co. ........................................................................... 8,758,750
610,000 Pacific Gas & Electric Co. ................................................................ 12,810,000
120,000 PacifiCorp. ............................................................................... 2,460,000
305,000 PECO Energy Co. ........................................................................... 7,701,250
210,000 Potomac Electric Power Co. ................................................................ 5,407,500
385,000 Public Service Enterprise Group, Inc. ..................................................... 10,491,250
135,000 SCANA Corp. ............................................................................... 3,611,250
460,000 Southern Co. .............................................................................. 10,407,500
400,000 Southwestern Public Services Co. .......................................................... 14,150,000
320,000 Texas Utilities Co. ....................................................................... 13,040,000
150,000 Western Resources, Inc. ................................................................... 4,631,250
------------
278,795,625
------------
Total Common Stocks (Cost $392,582,748).............................................. 434,949,628
------------
Preferred Stocks 0.5%
Automotive
16,726 Harvard Industries, Inc., 14.25% pfd., PIK ................................................ 266,571
------------
Cable Systems 0.4%
33,036 Cablevision Systems Corp., 11.125% pfd., PIK, Series L .................................... 2,981,488
2,579 Time Warner, Inc., 10.25% pfd., Series K .................................................. 2,811,597
------------
5,793,085
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B ................................................ 1,105,500
------------
Total Preferred Stocks (Cost $7,296,709) ............................................ 7,165,156
------------
Convertible Preferred Stocks 8.4%.........................................................
Apparel/Textile 0.1%
44,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A ........................................ $ 1,710,500
------------
Cable Systems 0.4%
265,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I ...................................... 5,432,500
------------
Consumer Products 0.2%
300,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C ................................... 2,025,000
------------
Energy 3.2%
65,000 Devon Financing Trust, $3.25 cvt. pfd. .................................................... 4,273,750
250,000 Enron Corp., 6.25%, cvt. pfd. ............................................................. 6,000,000
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C ................................. 8,959,375
31,900 Nuevo Financing, Inc., 5.75% cvt. pfd., Series A .......................................... 1,710,638
75,000 b Occidental Petroleum Corp., $3.875 cvt. pfd. .............................................. 4,293,750
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd. ................................................. 11,262,500
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd. .................................................. 1,175,869
300,000 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. .......................................... 3,675,000
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd. ................................................... 2,425,000
------------
43,775,882
------------
Metals 2.5%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B ................................................ 7,893,750
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A .............................................. 2,811,250
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd. ................................................. 3,250,000
185,000 Coeur D' Alene Mines Corp, 7.00% cvt. pfd. ................................................ 3,237,500
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A ................................................ 2,963,125
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd. ................................ 3,481,600
60,000b Freeport-McMoRan, Inc., 4.375% cvt. exch. pfd. ............................................ 3,510,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B ............................................... 3,080,000
65,500b Titanium Metals, 6.625% cvt. pfd. ......................................................... 3,586,125
------------
33,813,350
------------
Real Estate Investment Trust 1.6%
100,000 bHost Marriott Financial Trust, 6.75% cvt. pfd. ............................................ 5,350,000
135,000 Security Capital Industrial, 7.00%, cvt. pfd. ............................................. 3,678,750
400,000 Security Capital Pacific Trust, 1.75% cvt. pfd., Series A ................................. 12,250,000
------------
21,278,750
------------
Telecommunications 0.4%
145,000 Nortel Inversora, SA, 10.00% cvt. pfd. (Argentina) ........................................ 5,945,000
------------
Total Convertible Preferred Stocks (Cost $110,532,379) .............................. 113,980,982
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477) ................................................... 23,111
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,and
Miscellaneous Securities (Cost $510,422,313) ............................................. 556,118,877
------------
Face
Amount
Corporate Bonds 26.7%
Apparel/Textiles 1.9%
$ 10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ...................... 10,050,000
175,000 a,lForstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................ 88,375
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ...................................... 8,383,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 ................... 1,078,750
Apparel/Textiles (cont.)
500,000 bThe William Carter Co., senior sub. notes, 10.375%, 12/01/06 .............................. $ 517,500
5,000,00 1WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/06 ............................... 5,175,000
------------
25,292,625
------------
Automotive 0.7%
4,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................ 4,375,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................................... 420,000
5,000,000 Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 ................................. 4,212,500
------------
9,007,500
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 .................................. 9,481,250
------------
Cable Systems 1.9%
150,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 .............................. 158,606
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ............................. 3,920,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............................... 9,187,664
7,300,000 Helicon Group L.P. Corp., S.F., senior secured notes, Series B, 11.00%, 11/01/03 .......... 7,482,500
5,000,000 Storer Communiciations, Inc., sub. deb., 10.00%, 05/15/03 ................................. 5,087,500
------------
25,836,270
------------
Chemicals 1.3%
8,000,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 .................... 8,460,000
3,250,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ...................... 3,569,481
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........................... 779,375
4,150,000 Uniroyal Chemical Co. Investors, senior notes, 11.00%, 05/01/03 ........................... 4,419,750
------------
17,228,606
------------
Computer/Technology 0.3%
3,534,737 Anacomp, Inc., senior sub. notes, PIK, 13.00%, 06/04/02 ................................... 3,640,779
------------
Consumer Products 2.5%
500,000 bE&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 .................................. 525,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................................... 8,292,500
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ......................................... 5,353,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ......................... 8,020,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes, Series B, 10.50%, 02/15/03 .............. 5,262,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ................................................. 5,068,750
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................................... 1,170,125
------------
33,691,875
------------
Containers and Packaging 0.4%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............................... 2,541,875
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ................................ 2,110,000
1,000,000 bPrintpack, Inc., senior sub. notes, 10.625%, 08/15/06 ..................................... 1,040,000
300,000 bU.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ...................................... 315,000
------------
6,006,875
------------
Energy 1.3%
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................................... 3,534,375
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 .............................. 10,744,738
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............................... 1,080,000
1,000,000 Mesa Operating Co., guaranteed, 10.625%, 07/01/06 ......................................... 1,087,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............................... 1,075,000
------------
17,521,613
------------
Entertainment 0.1%
$ 650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 .............................................. $ 689,000
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 ............................. 542,500
------------
Food & Beverages 2.2%
5,000,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................ 5,200,000
3,781,280n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................ 3,781,280
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 sub. notes, 10.25%, 02/15/00 ...................... 1,052,925
3,100,000b International Home Foods Corp., senior sub. notes, 10.375%, 11/01/06 ...................... 3,231,750
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ................................ 6,588,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ...................... 3,060,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ................. 3,760,000
------------
29,854,080
------------
Food Chains 2.9%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 ..................................... 1,025,000
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ............................ 9,517,500
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ........................................ 6,390,000
7,000,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................ 7,455,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................................... 10,575,000
4,000,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 .................................. 4,440,000
------------
39,402,500
------------
Gaming & Leisure 1.5%
9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 .......................................... 8,730,000
500,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ............................. 530,000
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ............................. 2,321,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................ 8,440,000
------------
20,021,000
------------
Health Care Services 0.6%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ............................ 3,240,000
1,500,000 OrNda Healthcorp., Inc., senior sub. notes, 12.25%, 05/15/02 .............................. 1,601,250
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 3,860,000
------------
8,701,250
------------
Industrial Products 2.0%
8,650,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ..................................... 8,779,750
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ......................................... 2,025,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ............................................ 8,175,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................................... 5,030,000
2,696,000 Thermadyne Industries, Inc., notes, 10.75%, 11/01/03 ...................................... 2,756,660
246,000 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 ............................... 252,150
------------
27,018,560
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 ..................................... 2,185,000
------------
Metals 1.0%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ........................................ 1,052,500
6,020,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................................... 6,170,500
Metals (cont.)
$ 6,000,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 ............................... $ 5,655,000
815,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 .............. 942,344
------------
13,820,344
------------
Paper & Forest Products 1.0%
600,000 Four M Corp., senior notes, 12.00%, 06/01/06 .............................................. 630,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........................... 7,735,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 ............................. 4,650,000
------------
13,015,000
------------
Publishing 0.1%
1,600,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 .................................... 1,700,000
------------
Restaurants 0.3%
10,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 .................................. 4,050,000
------------
Retail 0.7%
9,940,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................................... 9,542,400
------------
Telecommunications 0.4%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ...................................... 5,325,000
------------
Utilities 2.7%
195,782,500c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)................................ 30,628,024
3,879,091 Midland CoGeneration Venture, S.F., sub. deb., Series C, 10.33%, 07/23/02 ................. 4,150,627
2,000,000 Texas New Mexico Power, secured deb., 10.75%, 09/15/03 .................................... 2,134,996
------------
36,913,647
------------
Total Corporate Bonds (Cost $358,395,796)............................................ 360,487,674
------------
Convertible Corporate Bonds 4.9%
Automotive 0.2%
4,000,000b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ...................................... 2,410,000
------------
Biotechnology 0.1%
2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ................................ 1,970,000
------------
Computer/Technology 0.7%
3,200,000b Altera Corp., cvt. sub. notes, 5.75%, 06/15/02 ............................................ 4,964,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 ............................................. 1,928,275
3,000,000b Xilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02 ............................................ 3,015,000
------------
9,907,275
------------
Energy 1.4%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 .......................................... 8,730,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ........................................ 7,546,875
3,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ........................................ 3,292,500
------------
19,569,375
------------
Health Care Services 0.3%
3,000,000 Grancare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ........................................... 3,075,000
1,000,000b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ......................... 1,045,000
------------
4,120,000
------------
Industrial Products 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ......................................... 8,040,000
------------
Metals 1.3%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ........................................ 4,350,000
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ......................... 91,000
Metals (cont.)
$ 6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............................... $ 5,610,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 .............................. 1,728,000
5,850,000b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ..................................... 5,645,250
------------
17,424,250
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ............................. 3,140,700
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ...................................... 952,850
------------
Total Convertible Corporate Bonds (Cost $63,974,931)................................. 67,534,450
------------
Zero Coupon/Step-up Bonds 3.1%
3,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01, (original accretion rate
12.25%), 12.25%, 03/15/06 ................................................................ 1,980,000
10,000,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ..................................................................... 7,325,000
2,600,000 Dr Pepper Bottling Holdings Co., S.F., senior sub. disc. notes, zero coupon to 02/15/98, (original
accretion rate 11.625%), 11.625% thereafter, 02/15/03 .................................... 2,444,000
1,000,000 Exide Corp., senior sub. notes, zero coupon to 12/15/97, (original accretion rate 12.25%), 12.25%
thereafter, 12/15/04 ..................................................................... 915,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%), 13.625% thereafter,
07/15/05 ................................................................................. 6,300,000
1,300,000 L.F.C. Holding Corp., senior deb., zero coupon to 06/15/97, (original accretion rate 15.00%),
15.00% thereafter, 06/15/02 .............................................................. 845,000
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 ..................................................... 10,115,000
1,300,000 Mesa Operating Co., company guaranteed, zero coupon to 07/01/01, (original accretion rate
11.625%), 11.625% thereafter, 07/01/06 ................................................... 903,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B, (original accretion rate 12.00%),
0.00%, 03/15/98 .......................................................................... 6,980,000
6,250,000 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 ...................................... 2,218,750
1,500,000 Uniroyal Chemical Co. Investors, senior notes, zero coupon to 05/01/98, (original accretion rate
12.00%), 12.00% thereafter, 05/01/05...................................................... 1,305,000
------------
Total Zero Coupon/Step-up Bonds (Cost $40,850,428)................................... 41,331,250
------------
U.S. Government Securities 7.1%
75,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 .................................. 71,375,069
24,390,000 U.S. Treasury Notes, 6.00% - 6.875%, 04/30/97 - 08/15/02 .................................. 24,480,479
------------
Total U.S. Government Securities (Cost $96,265,219).................................. 95,855,548
------------
Foreign Government & Agency Securities 11.2%
14,000,000c Canadian Government, first coupon deb., 8.00%, 06/01/23 ................................... 11,367,237
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 .......................................... 70,125,000
22,067,500 Republic of Brazil, 6.6875%, 01/01/01 ..................................................... 21,405,475
39,000,000 Republic of Brazil, 5.00%, 04/15/24 ....................................................... 24,570,000
25,000,000c Republic of South Africa, 12.00%, 02/28/05 ................................................ 4,368,920
26,000,000 United Mexican States, Series B, 6.25%, 12/31/19 .......................................... 19,077,500
------------
Total Foreign Government & Agency Securities (Cost $124,799,698)..................... 150,914,132
------------
Total Long Term Investments (Cost $1,194,708,385).................................... 1,272,241,931
------------
h,i Receivables from Repurchase Agreements 4.7%...............................................
$ 61,763,747 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $62,853,192) (Cost $62,830,189)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $7,717,272)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ...................... $ 62,830,189
------------
Total Investments (Cost $1,257,538,574) 98.8% ................................. 1,335,072,120
Other Assets and Liabilities 1.2%............................................... 15,587,300
------------
Net Assets 100.0%............................................................... $1,350,659,420
============
At December 31, 1996, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$1,257,538,574 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................................... $ 128,810,299
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value................................................ (51,276,753)
------------
Net unrealized appreciation.............................................................. $ 77,533,546
============
</TABLE>
PORTFOLIO ABBRIVIATIONS:
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 traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
jSee Note 8 regarding holdings of 5% or more of voting securities.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton International Equity Fund (Note 1)
Common Stocks, Rights & Warrants 85.6%
Argentina 1.8%
<S> <C> <C> <C>
AR 647,568a Ciadea, SA ........................................................................ $ 3,076,504
US 221,700 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 2,715,825
AR 56,000 YPF Sociedad Anonima .............................................................. 1,414,255
US 495,000 YPF Sociedad Anonima, ADR ......................................................... 12,498,750
------------
19,705,334
------------
Australia 4.4%
AU 1,400,341 Email, Ltd. ....................................................................... 4,530,155
AU 1,549,241 GIO Austrailia Holdings, Ltd. ..................................................... 3,965,151
AU 1,003,000 National Foods, Ltd. .............................................................. 1,275,574
AU 6,527,766 Pacific Dunlop, Ltd. .............................................................. 16,603,490
AU 7,462,117 Pioneer International, Ltd. ....................................................... 22,242,221
------------
48,616,591
------------
Austria 0.6%
AT 33,000 Boehler Uddeholm, AG .............................................................. 2,361,387
US 27,055b Boehler Uddeholm, AG .............................................................. 1,935,979
AT 39,400a Mayr-Melnhof Karton, AG ........................................................... 1,928,073
------------
6,225,439
------------
Belgium 0.5%
BE 9,054 Solvay, SA ........................................................................ 5,543,265
------------
Bermuda 2.7%
US 506,000 ACE, Ltd. ......................................................................... 30,423,250
------------
Brazil 0.7%
US 276,365 Companhia Siderurgica Nacional, ADR ............................................... 7,845,989
------------
Canada 1.6%
CA 132,800 Bank of Montreal .................................................................. 4,227,724
CA 357,000 Hudson Bay Co. .................................................................... 5,969,333
CA 254,000 London Insurance Group, Inc. ...................................................... 3,375,415
CA 447,000 National Bank of Canada ........................................................... 4,520,426
------------
18,092,898
------------
China 0.8%
HK 6,960,000 Maanshan Iron & Steel Co., Ltd., Class H .......................................... 1,493,775
US 338,300 Shandong Huaneng Power, ADR ....................................................... 3,298,425
HK 8,400,000 Shanghai Hai Xing Shipping Co., Class H ........................................... 977,439
HK 14,790,200 Yizheng Chemical Fibre Co. Ltd., Class H .......................................... 3,595,006
------------
9,364,645
------------
Czech Republic 0.3%
US 120,000b Komercni Banka, AS, GDR ........................................................... 3,290,400
------------
Ecuador 0.2%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 6,840b La Cemento Nacional CA, GDR ....................................................... 1,566,360
------------
1,657,960
------------
Finland 3.7%
FI 111,562 American Group, Ltd., Class A ..................................................... 2,303,998
FI 1,754,300a Enso Oy, Class R .................................................................. 14,225,085
FI 1,890,000a Merita, Ltd., Class A ............................................................. 5,875,435
Finland (cont.)
FI 270,000 Nokia, AB, Class A ................................................................ $ 15,671,739
FI 171,000 Outokumpu Oy, Class A ............................................................. 2,918,152
------------
40,994,409
------------
France 4.8%
FR 27,323 Alcatel Alsthom, SA ............................................................... 2,196,379
FR 13,292 Cie de Saint Gobain ............................................................... 1,881,645
FR 55,849 Marine Wendel ..................................................................... 5,127,121
FR 366,481 Pechiney, SA, Class A ............................................................. 15,366,050
FR 468,980 Regie Nationale des Usines Renault, SA ............................................ 10,085,105
FR 148,024 Societe Elf Aquitane, SA .......................................................... 13,483,459
FR 62,039 Total, SA, Class B ................................................................ 5,049,269
------------
53,189,028
------------
Germany 1.7%
DD 407,000 Deutsche Bank, AG ................................................................. 19,020,669
------------
Greece 0.5%
US 32,410 Alpha Credit Bank ................................................................. 2,062,490
GR 69,970 Ergo Bank, SA ..................................................................... 3,546,572
------------
5,609,062
------------
Hong Kong 6.8%
HK 7,134,100 C.P. Pokphand Co., Ltd. ........................................................... 2,790,181
HK 623,000 Cheung Kong Holdings, Ltd. ........................................................ 5,537,688
HK 2,389,100 Consolidated Electric Power Asia, Ltd. ............................................ 5,606,331
HK 9,576,543 Dairy Farm International Holdings, Ltd. ........................................... 7,709,117
HK 10,109,207 Great Wall Electronic International, Ltd. ......................................... 1,254,747
HK 779,000 Hang Lung Development Co., Ltd. ................................................... 1,712,199
HK 1,257,708 Jardine Matheson Holdings, Ltd. ................................................... 8,300,873
HK 2,864,250 Jardine Strategic Holdings, Ltd. .................................................. 10,397,228
HK 318,250a Jardine Strategic Holdings, Ltd., warrants ........................................ 127,300
HK 873,700 Melco International Development, Ltd. ............................................. 304,996
HK 121,900a Oriental Press Group, Ltd., warrants .............................................. 8,668
HK 7,155,000 Peregrine Investments Holdings, Ltd. .............................................. 12,257,256
HK 715,500a Peregrine Investments Holdings, Ltd., warrants .................................... 228,956
HK 17,474,000 Shun Tak Holdings ................................................................. 11,635,025
HK 3,172,400 Sing Tao Holdings, Ltd. ........................................................... 1,384,298
HK 3,287,600 Swire Pacific, Ltd., Class B ...................................................... 4,973,162
HK 1,974,000 Yue Yuen Industrial Holdings, Ltd. ................................................ 752,899
------------
74,980,924
------------
India
US 109,700b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR ................................. 301,675
------------
Indonesia 0.4%
ID 167,500 PT Barito Pacific Timber, fgn. .................................................... 102,826
ID 5,118,053 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 3,737,782
ID 503,250a PT Indah Kiat Pulp & Paper Corp., warrants ........................................ 154,469
------------
3,995,077
------------
Italy 2.1%
IT 148,000 Banco di Sardegna, SPA, di Risp ................................................... 1,249,604
IT 696,200 Cartiere Burgo, SPA ............................................................... 3,214,644
IT 1,555,000 Fiat, SPA ......................................................................... 4,688,592
Italy (cont.)
IT 904,000 Sasib, SpA, di Risp ............................................................... $ 1,688,142
IT 1,833,800 Sirti, SpA ........................................................................ 11,271,338
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp ................................ 1,205,193
------------
23,317,513
------------
Luxembourg 0.1%
LU 10,650 Arbed, SA ......................................................................... 1,158,065
------------
Mexico 1.2%
MX 559,000a Grupo Mexico, SA de CV, Class B ................................................... 1,739,774
US 275,600 Telefonos de Mexico, SA, ADR ...................................................... 9,094,800
MX 1,274,640 Vitro, SA ......................................................................... 2,315,466
------------
13,150,040
------------
Netherlands 7.9%
NL 49,467 ABN AMRO, NV ...................................................................... 3,220,441
NL 32,300 Akzo Nobel, NV .................................................................... 4,415,175
NL 85,700 DSM, NV ........................................................................... 8,458,315
NL 688,885 Ing Groep, NV ..................................................................... 24,818,214
NL 240,308 Internatio-Mueller, NV ............................................................ 6,040,757
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) ............................................ 10,665,248
NL 504,000 NV Holdingsmij de Telegraaf ....................................................... 10,625,891
NL 476,307 Philips Electronics, NV ........................................................... 19,311,607
------------
87,555,648
------------
New Zealand 1.8%
NZ 1,659,000 Carter Holt Harvey, Ltd. .......................................................... 3,764,777
NZ 1,321,124 Fisher & Paykel, Ltd. ............................................................. 5,183,516
NZ 6,020,000 Fletcher Challenge, Ltd., Forestry Division ....................................... 10,086,318
US 47,765a Tranz Rail Holdings, Ltd., ADR .................................................... 844,843
------------
19,879,454
------------
Norway 3.3%
NO 13,200 Elkem, AS ......................................................................... 217,310
NO 143,000 Fokus Bank, AS .................................................................... 982,032
NO 176,200 Fokus Bank, AS .................................................................... 1,210,028
NO 705,960 Hafslund, ASA, Class B ............................................................ 4,837,010
NO 134,000 Helikopter Services Group, ASA .................................................... 1,743,807
NO 141,000a Nycomed, ASA, Class A ............................................................. 2,155,456
NO 1,005,660a Nycomed, ASA, Class B ............................................................. 15,452,286
NO 199,000 Union Bank of Norway, Primary Capital Certificate ................................. 6,224,600
NO 295,000 Unitor, AS ........................................................................ 3,792,725
------------
36,615,254
------------
Peru 0.8%
PE 2,445,602 Telefonica del Peru, SA, Class B .................................................. 4,551,264
US 251,900 Telefonica del Peru, SA, Class B, ADR ............................................. 4,754,613
------------
9,305,877
------------
Portugal 0.6%
PT 122,351a BPI Socieda de Gestora de Participacoes Socias .................................... 1,444,065
PT 321,978 BPI Socieda de Gestora de Participacoes Socias, SA ................................ 4,007,853
US 239,400b Portucel Industrial Empresa Product de Celulose, ADR .............................. 1,389,616
------------
6,841,534
------------
South Africa 0.9%
ZA 288,500 Rustenburg Platinum Holdings, Ltd. ................................................ $ 3,946,564
ZA 710,000 Sappi, Ltd. ....................................................................... 6,373,838
------------
10,320,402
------------
South Korea 1.0%
KR 15,604a Byucksan Corp., rights ............................................................ 7,387
KR 44,500 Byucksan Development Co., Ltd. .................................................... 537,160
KR 109,900 Daegu Bank Co., Ltd. .............................................................. 1,312,284
KR 30,600 Daehan Synthetic Fiber Co., Ltd. .................................................. 2,661,657
KR 19,110 Keumkang Co., Ltd. ................................................................ 870,692
KR 39,000 Korea Chemical Co., Ltd ........................................................... 2,532,738
KR 155,990 Pacific Chemical Co., Ltd. ........................................................ 3,082,879
KR 7,870 Pohang Iron & Steel Co., Ltd. ..................................................... 488,371
------------
11,493,168
------------
Spain 6.6%
ES 132,300 Banco Bilbao Vizcaya .............................................................. 7,143,640
ES 15,600 Banco Popular Espanol, SA ......................................................... 3,064,125
ES 246,970 Compania Sevillana de Electricidad ................................................ 2,805,937
ES 378,000 Dragados y Construcciones, SA ..................................................... 5,823,224
ES 132,425a Huarte, SA ........................................................................ 219,306
ES 1,677,800 Iberdrola, SA ..................................................................... 23,779,334
ES 1,238,100 Telefonica de Espana, SA .......................................................... 28,753,102
ES 52,200 Unipapel, SA ...................................................................... 969,012
------------
72,557,680
------------
Sweden 10.4%
SE 80,600 Asea, AB, Class A ................................................................. 9,100,200
SE 515,500a Celsius, AB, Class B .............................................................. 8,125,729
SE 382,000 Electrolux, AB, Class B ........................................................... 22,181,133
SE 422,100a Enator, AB, Class B ............................................................... 10,800,304
SE 158,500 Esselte, AB, Class B .............................................................. 3,509,388
SE 1,490a Fastighets, AB Tornet, Class A .................................................... 22,722
SE 31,180a Fastighets Naeckebro, AB, Class A ................................................. 534,918
SE 210,000 Marieberg Tidnings, AB, Class A ................................................... 5,142,342
SE 163,000 Sparbanken Sverige, AB, Class A ................................................... 2,796,396
US 14,900b Sparbanken Sverige, AB, Class A ................................................... 255,621
SE 77,000 Stadshypotek, AB, Class A ......................................................... 2,111,337
US 176,000b Stadsyhpotek, AS, Class A ......................................................... 4,825,913
SE 1,288,000 Stena Line, AB, Class B, free ..................................................... 5,760,244
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B .......................................... 10,967,287
SE 311,800 Svenska Handelsbanken, Class A .................................................... 8,961,018
SE 922,000 Volvo, AB, Class B ................................................................ 20,346,635
------------
115,441,187
------------
Switzerland 5.3%
FR 51,189a Adecco, SA ........................................................................ 12,962,615
CH 3,690 Baloise-Holding ................................................................... 7,415,839
CH 12,800 Bucher Holding, AG ................................................................ 8,797,908
CH 3,570 Kuoni Reisen Holding, AG, Class B ................................................. 8,668,285
CH 10,027a Novartis, AG ...................................................................... 11,483,653
CH 15,400 SMH, AG ........................................................................... 9,491,969
------------
58,820,269
------------
Thailand
TH 17,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. $ 64,911
------------
Turkey 0.2%
US 13,125,825a Tofas Turk Otomobil Fabrikasi, AS, GDR ............................................ 2,428,278
------------
United Kingdom 11.9%
GB 6,312,400 Albert Fisher Group, Plc. ......................................................... 4,541,762
GB 2,536,000 Anglian Group, Plc. ............................................................... 9,405,626
GB 1,290,000 British Gas, Plc. ................................................................. 4,961,198
GB 1,446,000 British Telecommunications, Plc. .................................................. 9,772,279
GB 3,025,900 BTR, Plc. ......................................................................... 14,721,547
GB 7,123,000a Cordiant, Plc. .................................................................... 12,568,421
GB 1,181,500 Harrisons & Crosfield, Plc. ....................................................... 2,702,063
GB 2,493,900 Hillsdown Holdings, Plc. .......................................................... 8,544,558
GB 1,330,900 Kwik Save Group, Plc. ............................................................. 7,318,650
GB 902,000 Lex Service, Plc. ................................................................. 4,913,763
GB 1,890,000 London Pacific Group, Ltd. ........................................................ 6,783,071
GB 1,000,000 McBride, Plc. ..................................................................... 2,329,804
GB 2,687,610 Meggitt, Plc. ..................................................................... 4,742,245
GB 641,668 National Westminster Bank, Plc. ................................................... 7,535,263
GB 824,500 Railtrack Group, Plc. ............................................................. 5,473,220
GB 6,171,300a Raine, Plc. ....................................................................... 1,374,360
GB 1,676,312 Safeway, Plc. ..................................................................... 11,601,570
GB 958,900 Thames Water Group, Plc. .......................................................... 10,061,436
GB 1,306,000 Wace Group, Plc. .................................................................. 2,349,160
------------
131,699,996
------------
Total Common Stocks & Warrants (Cost $815,060,064)........................... 949,505,891
------------
Preferred Stocks 2.0%
Australia 1.1%
AU 2,639,385 News Corp., Ltd. .................................................................. 11,748,316
------------
Brazil 0.4%
US 57,300 Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR ............................... 4,383,450
------------
Colombia 0.3%
US 159,000 Banco Ganadero, SA, ADR, Class C .................................................. 3,418,500
------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............................... 1,829,544
------------
Netherlands
NL 6,910 Ballast Nedam NV, certificate, cvt., pfd. ......................................... 336,595
------------
Total Preferred Stocks (Cost $21,867,007) ................................... 21,716,405
------------
Total Common Stocks & Warrants, and Preferred Stocks
(Cost $836,927,071) .............................................................. 971,222,296
------------
Face
Amount
Convertible Bonds 0.3%
Finland 0.3%
US $ 3,050,000 American Group, Ltd., 6.25%, cvt., 06/15/03 (Cost $3,007,216) ..................... 3,034,750
------------
Total Long Term Investments (Cost $839,934,287) ............................. 974,257,046
------------
h Receivables from Repurchase Agreements 11.9%......................................
US $47,332,000 Aubrey G. Lanston & Co., 5.75%, 01/02/97, (Maturity Value $49,841,917)
Collateral: U.S. Treasury Notes, 8.25%, 07/15/98 ................................. $ 49,826,000
US 35,210,000 Lehman Securities, Inc., 6.75%, 01/02/97, (Maturity Value $35,269,221)
Collateral: U.S. Treasury Notes, 8.50%, 05/15/97 ................................. 35,256,000
US 47,890,000 UBS Securities, Inc., 6.75%, 01/02/97, (Maturity Value $46,381,387)
Collateral: U.S. Treasury Notes, 5.125%, 12/31/98 ................................ 46,364,000
------------
Total Receivables from Repurchase Agreements (Cost $131,446,000) ............ 131,446,000
------------
Total Investments (Cost $971,380,287) 99.8% ............................ 1,105,703,046
Other Assets and Liabilities, Net 0.2% ................................. 2,396,328
------------
Net Assets 100.0%....................................................... $1,108,099,374
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $975,370,514 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 203,669,564
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (73,337,032)
------------
Net unrealized appreciation ..................................................... $ 130,332,532
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
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
LU - Luxembourg
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton Pacific Growth Fund (Note 1)
Common Stocks & Warrants 97.6%
Australia 17.3%
<S> <C> <C> <C>
AU 1,000,000 Australia & New Zealand Banking Group Ltd. ......................................... $ 6,303,156
AU 1,706,264 Australian Gas & Light Co. ......................................................... 9,710,556
AU 680,000 Brambles Industries, Ltd. .......................................................... 13,269,216
AU 1,981,000 Capral Aluminium, Ltd. ............................................................. 6,298,386
AU 1,080,000 Coles Myer, Ltd., Class A .......................................................... 4,446,705
AU 875,000 Email, Ltd. ........................................................................ 2,830,657
AU 2,399,145 Gio Austrailia Holdings, Ltd. ...................................................... 6,140,408
AU 919,000 Mayne Nickless, Ltd., Class A ...................................................... 6,282,013
AU 3,547,000 National Foods, Ltd. ............................................................... 4,510,929
US 118,100b Qantas Airways, Ltd., ADR .......................................................... 1,933,888
------------
61,725,914
------------
China 2.4%
US 181,500a Guangshen Railway Co., Ltd., ADR ................................................... 3,743,438
HK 3,216,000 Maanshan Iron & Steel Co. Ltd., Class H ............................................ 690,227
US 225,000 Shandong Huaneng Power ............................................................. 2,193,750
HK 17,658,000 Shanghai Hai Xing Shipping Co., Class H ............................................ 2,054,716
------------
8,682,131
------------
Hong Kong 20.6%
HK 3,000,000 Cathay Pacific Airways, Ltd. ....................................................... 4,732,045
HK 800,000 Cheung Kong Holdings, Ltd. ......................................................... 7,110,996
HK 931,000 China Light & Power Co., Ltd. ...................................................... 4,140,720
US 4,197,727 Dairy Farm International Holdings, Ltd. ............................................ 3,379,170
HK 5,415,000 Grand Hotel Holdings, Ltd. ......................................................... 2,275,357
HK 169,800a Hang Lung Development Co., Ltd., warrants .......................................... 50,493
HK 5,400,399 Hon Kwok Land Investment Co., Ltd. ................................................. 2,094,667
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. ................................................. 1,454,457
HK 2,376,800 Hong Kong Telecommunications, Ltd. ................................................. 3,825,866
HK 216,200 HSBC Holdings, Plc. ................................................................ 4,626,168
HK 496,000 Hualing Holdings, Ltd. ............................................................. 55,150
HK 632,031 Jardine Matheson Holdings, Ltd. .................................................... 4,171,405
HK 284,600a Lai Sun Development Co., Ltd., warrants ............................................ 36,796
HK 3,860,000 National Mutual Asia, Ltd. ......................................................... 3,668,110
HK 1,574,667 New World Development Co., Ltd. .................................................... 10,637,579
HK 105,000a Peregrine Investments Holdings, Ltd., warrants ..................................... 33,599
HK 3,210,000 Shun Tak Holdings .................................................................. 2,137,372
HK 57,100 Sing Tao Holdings, Ltd. ............................................................ 24,916
HK 4,888,000 South China Morning Post (Holdings), Ltd. .......................................... 4,044,631
HK 645,000 Swire Pacific, Ltd., Class A ....................................................... 6,150,204
HK 3,100,000 Wheelock & Co., Ltd. ............................................................... 8,837,675
------------
73,487,376
------------
India 0.2%
US 156,100 Great Eastern Shipping Co., Ltd., GDR .............................................. 874,160
------------
Indonesia 5.0%
US 300,000a Asia Pacific Resources International, Class A ...................................... 1,687,500
ID 1,567,000 PT Bank Bali, fgn. ................................................................. 3,914,183
ID 950,000 PT Barito Pacific Timber, fgn. ..................................................... 583,192
ID 3,657,384 PT Indorama Synthetics, fgn. ....................................................... 3,483,960
US 149,400 PT Indosat, ADR .................................................................... 4,089,825
ID 129,000 PT Inti Indorayon Utama, fgn. ...................................................... 94,210
ID 771,526 PT Pabrik Kertas Tjiwi Kimia, fgn. ................................................. 767,607
Indonesia (cont.)
ID 3,423,000 PT Panasia Indosyntec, fgn. ........................................................ $ 833,287
ID 2,060,875 PT Panin Bank, fgn. ................................................................ 2,355,784
------------
17,809,548
------------
Japan 17.6%
JP 1,011,000 Daicel Chemical Industries Ltd. .................................................... 4,740,290
JP 409,000 Daito Trust Construction Co., Ltd. ................................................. 4,555,824
JP 1,200 East Japan Railway ................................................................. 5,398,498
JP 582,800 Hitachi, Ltd. ...................................................................... 5,434,971
JP 254,000 Hokuetsu Paper Mills, Ltd. ......................................................... 1,471,669
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................................... 5,026,509
JP 824,000 Mitsubishi Heavy Industries, Ltd. .................................................. 6,545,894
JP 250,000 Mitsubishi Oil Co., Ltd. ........................................................... 1,495,985
JP 10,800 Nintendo Co., Ltd. ................................................................. 769,364
JP 821 Nippon Telegraph & Telephone Corp. ................................................. 6,224,316
JP 700,000 Nisshinbo Industries, Inc........................................................... 5,452,034
JP 220,000 Nittetsu Mining Co., Ltd. .......................................................... 1,669,804
JP 550,000 Rengo Co., Ltd. .................................................................... 3,124,946
JP 50,000 Sony Corp. ......................................................................... 3,276,919
JP 70,000 Tenma Corp. ........................................................................ 1,142,388
JP 371,000 Toda Corp. ......................................................................... 2,819,100
JP 330,000 Wacoal Corp. ....................................................................... 3,647,353
------------
62,795,864
------------
Malaysia 6.9%
MY 655,000 Commerce Asset-Holding Bhd., fgn. .................................................. 4,927,737
MY 16,667a Commerce Asset-Holding Bhd., fgn., warrants ........................................ 80,514
MY 1,415,000 Golden Hope Plantations Bhd., fgn. ................................................. 2,409,226
MY 3,342,667 Malaysian International Shipping Corp., Bhd., fgn. ................................. 9,926,748
MY 193,000 Public Finance Bhd., fgn. .......................................................... 336,250
MY 1,798,800 Sime Darby Bhd., fgn. .............................................................. 7,086,937
------------
24,767,412
------------
New Zealand 2.4%
NZ 894,353 Brierley Investments, Ltd. ......................................................... 828,263
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................................... 5,473,110
NZ 192,500 Fletcher Challenge Building, Ltd. .................................................. 591,981
NZ 192,500 Fletcher Challenge Energy, Ltd. .................................................... 557,959
NZ 111,031 Fletcher Challenge, Ltd., Forestry Division ........................................ 186,029
NZ 385,000 Fletcher Challenge Paper, Ltd. ..................................................... 792,030
------------
8,429,372
------------
Pakistan 2.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ......................................................... 4,409,068
US 91,000a Hub Power Co., Ltd., GDR, reg.S .................................................... 1,797,250
PK 6,300,000a Pakistan Telecom Corp., PTC ........................................................ 3,945,369
------------
10,151,687
------------
Philippines 3.0%
PH 7,916,000a Filinvest Land, Inc. ............................................................... 2,468,106
PH 700,000a Philippine National Bank ........................................................... 8,317,491
------------
10,785,597
------------
Singapore 9.1%
SG 888,600 City Developments, Ltd., fgn. ...................................................... $ 8,001,401
SG 518,000 Development Bank of Singapore, Ltd., fgn. .......................................... 6,996,498
US 68,000 G.P. Batteries International, Ltd. ................................................. 225,760
SG 357,000 Inchcape Bhd., fgn. ................................................................ 1,239,920
SG 393,800 Overseas Union Bank, Ltd., fgn. .................................................... 3,039,405
SG 1,217,000 Parkway Holdings, Ltd., fgn. ....................................................... 4,783,463
SG 882,000 Singapore Airlines, Ltd., fgn. ..................................................... 8,005,003
------------
32,291,450
------------
South Korea 0.6%
KR 99,030 Pacific Chemical Co., Ltd. ......................................................... 1,957,161
------------
Thailand 6.2%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ................................................ 6,014,817
TH 829,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................................... 3,009,463
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ......................................... 7,433,698
TH 51,750 Oriental Hotel (Thailand) Public Co., Ltd., fgn. ................................... 233,063
TH 262,500 Robinson Department Store Public Co., Ltd., fgn. ................................... 509,217
TH 36,570 Thai Farmers Bank Public Co., Ltd. ................................................. 178,244
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................................... 4,575,778
TH 91,680a Thai Farmers Bank Public Co., Ltd., fgn., warrants ................................. 72,390
------------
22,026,670
------------
United States 3.5%
US 35,000 American International Group, Inc. ................................................. 3,788,750
US 150,000 APL, Ltd. .......................................................................... 3,543,750
US 85,000 Motorola, Inc. ..................................................................... 5,216,875
------------
12,549,375
------------
Total Common Stocks & Warrants (Cost $307,123,252)............................ 348,333,717
------------
Face
Amount
Convertible Bonds 0.3%
US $ 31,000 Dairy Farm International Holdings, Ltd., 6.50%, cvt., 05/10/49 ..................... 23,095
US 22,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., 05/07/49 ............................ 26,290
US 1,307,000 MDX Public Co., Ltd., 4.75%, cvt., 09/17/03 ........................................ 503,195
US 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 ..................................... 423,000
------------
Total Convertible Bonds (Cost $1,994,721) .................................... 975,580
------------
Total Long Term Investments ($309,117,973) ................................... 349,309,297
------------
h Receivables from Repurchase Agreements 2.5%
US 8,765,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $8,874,327) (Cost $8,871,000)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .................................. 8,871,000
------------
Total Investments (Cost $317,988,973) 100.4% ............................. 358,180,297
Liabilities in Excess of Other Assets (0.4%) ............................ (1,421,139)
------------
Net Assets 100.0%........................................................ $356,759,158
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $321,544,212 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 70,017,052
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value......................................... (33,380,967)
------------
Net unrealized appreciation....................................................... $ 36,636,085
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan KR South Korea
MY - Malaysia
NZ - New Zealand
PK - Pakistan
PH - Philippines
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Rising Dividends Fund (Note 1)
Common Stocks 97.3%
Banks 11.7%
<C> <C> <C>
177,400 CoreStates Financial Corp. ................................................................... $ 9,202,625
144,000 First Union Corp. ............................................................................ 10,656,000
279,650 Mercantile Bankshares Corp. .................................................................. 8,948,800
218,000 National Commerce Bancorp. ................................................................... 8,338,500
166,600 State Street Boston Corp. .................................................................... 10,745,700
594,228 TrustCo Bank Corp., New York.................................................................. 12,701,624
232,000 Wilmington Trust Corp. ....................................................................... 9,164,000
------------
69,757,249
------------
Business Services 4.7%
468,200 Ennis Business Forms ......................................................................... 5,267,250
253,900 Standard Register Co. ........................................................................ 8,251,750
420,500 Wallace Computer Services, Inc. .............................................................. 14,507,250
------------
28,026,250
------------
Consumer Products 13.6%
258,100 Alberto-Culver Co., Class A .................................................................. 10,646,625
93,833 Block Drug Co., Inc., Class A ................................................................ 4,316,318
720,000 Dimon, Inc. .................................................................................. 16,650,000
330,700 Newell Co. ................................................................................... 10,417,050
113,000 Philip Morris Cos., Inc. ..................................................................... 12,726,625
349,900 Stanhome, Inc. ............................................................................... 9,272,350
325,000 Universal Corp. .............................................................................. 10,440,625
205,500 UST, Inc. .................................................................................... 6,653,063
------------
81,122,656
------------
Electronic Technology 6.5%
164,700 Cohu, Inc. ................................................................................... 3,829,275
130,600 General Electric Co. ......................................................................... 12,913,075
236,500 Hewlett-Packard Co. .......................................................................... 11,884,125
165,700 Rockwell International Corp. ................................................................. 10,086,988
------------
38,713,463
------------
Energy 2.1%
75,000 Royal Dutch Petroleum Co., New York Shares, ADR............................................... 12,806,250
------------
Financial Services 2.2%
353,000 Federal National Mortgage Association ........................................................ 13,149,250
------------
Health Care Services 5.7%
354,000 Bard (C.R.), Inc. ............................................................................ 9,912,000
26,400 Becton Dickinson & Co. ....................................................................... 1,145,100
71,500 Bristol-Myers Squibb Co. ..................................................................... 7,775,625
95,000 Merck & Co., Inc. ............................................................................ 7,528,750
42,500 Pfizer, Inc. ................................................................................. 3,522,188
141,400 West Co., Inc. ............................................................................... 3,994,550
------------
33,878,213
------------
Industrial 22.6%
232,400 Avery Dennison Corp. ......................................................................... 8,221,150
18,500 Baldor Electric Co. .......................................................................... 455,563
427,100 Brady (W.H.) Co. ............................................................................. 10,517,338
26,500 Donaldson Co., Inc. .......................................................................... 887,750
230,600 Dover Corp. .................................................................................. 11,587,650
140,500 Duriron Co., Inc. ............................................................................ 3,811,063
Industrial (cont.)
390,800 Hanna (M.A.) Co. ............................................................................. $ 8,548,750
129,500 Kaydon Corp. ................................................................................. 6,102,688
219,800 Kimball International, Inc., Class B.......................................................... 9,094,225
90,300 Leggett & Platt, Inc. ........................................................................ 3,126,638
128,700 Loctite Corp. ................................................................................ 7,834,613
402,900 Millipore Corp. .............................................................................. 16,669,988
259,500 Monsanto Co. ................................................................................. 10,088,063
339,600 Myers Industries, Inc. ....................................................................... 5,730,750
207,200 Nucor Corp. .................................................................................. 10,567,200
323,300 Superior Industries International, Inc. ...................................................... 7,476,313
194,300 Superior Surgical Manufacturing Co., Inc. .................................................... 2,623,050
6,959 The Boeing Co. ............................................................................... 740,264
468,800 Watts Industries, Inc., Class A .............................................................. 11,192,600
------------
135,275,656
------------
Insurance - Property Casualty 15.4%
522,300 Allied Group, Inc. ........................................................................... 17,040,038
53,700 American International Group, Inc. ........................................................... 5,813,024
206,200 Chubb Corp. .................................................................................. 11,083,250
51,640 Cincinnati Financial Corp. ................................................................... 3,350,144
230,000 Mercury General Corp. ........................................................................ 12,075,000
444,600 MMI Cos., Inc. ............................................................................... 14,227,200
367,025 RLI Corp. .................................................................................... 12,249,458
167,800 SAFECO Corp. ................................................................................. 6,617,612
168,500 St. Paul Cos., Inc. .......................................................................... 9,878,312
------------
92,334,038
------------
Retail 8.9%
868,600 Family Dollar Stores, Inc. ................................................................... 17,697,724
155,000 Gap, Inc. .................................................................................... 4,669,374
307,000 Rite Aid Corp. ............................................................................... 12,203,250
80,300 The Limited, Inc. ............................................................................ 1,475,512
119,000 Walgreen Co. ................................................................................. 4,760,000
539,200 Wal-Mart Stores, Inc. ........................................................................ 12,334,200
------------
53,140,060
------------
Transportation 3.9%
500,000 Arnold Industries, Inc. ...................................................................... 7,937,500
640,000 Harper Group, Inc. ........................................................................... 15,200,000
------------
23,137,500
------------
Total Long Term Investments (Cost $431,060,996)......................................... 581,340,585
------------
h,i Receivables from Repurchase Agreements 2.8%
$ 16,521,896 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,813,176) (Cost $16,807,023)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,064,365)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securites, L.L.C., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... $ 16,807,023
------------
Total Investments (Cost $447,868,019) 100.1%....................................... 598,147,608
Liabilities in Excess of Other Assets (0.1%) ...................................... (723,907)
------------
Net Assets 100.0% ................................................................. $597,423,701
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$448,164,135 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $152,946,524
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (2,963,051)
------------
Net unrealized appreciation ................................................................ $149,983,473
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Utility Equity Fund (Note 1)
Common Stocks 97.7%
<S> <C> <C> <C>
US 516,000 aAES Corp. ........................................................................ $ 23,994,000
US 946,100 aAirTouch Communications, Inc. .................................................... 23,889,025
US 1,000,000 Allegheny Power System, Inc. ...................................................... 30,375,000
US 770,230 American Electric Power Co., Inc. ................................................. 31,675,709
US 100,000 Ameritech Corp. ................................................................... 6,062,500
US 360,000 AT&T Corp. ........................................................................ 15,660,000
US 158,600 a,bBSES, Ltd., GDR ................................................................ 3,271,125
US 1,496,700 Central & South West Corp. ........................................................ 38,352,938
US 1,223,900 CINergy Corp. ..................................................................... 40,847,663
US 200,000 aCompania Anonima Nacional Telefonos de Venezeula, ADR............................. 5,625,000
ES 208,141 Compania Sevillana de Electricidad, SA............................................. 2,364,783
HK 969,500 Consolidated Electric Power Asia, Ltd. ............................................ 2,275,057
US 505,000 Dominion Resources, Inc. .......................................................... 19,442,500
US 716,000 DPL, Inc. ......................................................................... 17,542,000
US 900,000 Duke Power Co. .................................................................... 41,625,000
US 49,500 aEchelon International Corp., Inc. ................................................ 773,433
US 763,600 Edison International............................................................... 15,176,550
US 978,800 Empresa Nacional Electricidad, SA, ADR............................................. 15,171,400
US 1,032,560 Enova Corp. ....................................................................... 23,490,740
US 1,040,000 Enron Corp. ....................................................................... 44,850,000
US 992,300 Enron Global Power & Pipelines, L.L.C. ............................................ 26,792,100
US 1,654,000 Entergy Corp. ..................................................................... 45,898,500
US 195,000 Espoon Sahko Oy.................................................................... 4,323,911
US 1,133,000 Florida Progress Corp. ............................................................ 36,539,250
US 1,001,300 FPL Group, Inc. ................................................................... 46,059,800
US 951,100 General Public Utilities Corp. .................................................... 31,980,738
MX 55,600 aGrupo Iusacell, SA, Series D...................................................... 31,275
US 144,440 aGrupo Iusacell, SA, Series L, ADR................................................. 1,101,355
US 590,840 GTE Corp. ......................................................................... 26,883,220
GR 400,000 Hellenic Tellecommunication Organization, SA....................................... 6,833,935
HK 2,500,000 Hongkong Electric Holdings, Ltd. .................................................. 8,306,936
US 138,000 aHuaneng Power International, Inc., ADR ........................................... 3,105,000
US 1,380,000 aICG Communications, Inc. ......................................................... 24,322,500
US 211,400 aItron, Inc. ...................................................................... 3,752,350
KR 290,000 Korea Electric Power Corp. ........................................................ 8,579,796
KR 440 Korea Mobile Telecommunications Corp. ............................................. 445,801
US 116,670 Lucent Technologies, Inc. ......................................................... 5,395,988
US 255,100 MidAmerican Energy Holdings Co. ................................................... 4,049,713
NO 468,600 aNetCom, ASA....................................................................... 4,481,750
US 382,450 New England Electric System........................................................ 13,337,944
US 24,200 New Jersey Resources Corp. ........................................................ 707,850
JP 2,870 Nippon Telegraph & Telephone Corp. ................................................ 21,758,570
US 649,900 NIPSCO Industries, Inc. ........................................................... 25,752,288
US 323,000 aNynex CableComms Group, ADR ...................................................... 5,854,375
US 223,100 Oklahoma Gas & Electric Co. ....................................................... 9,314,425
US 229,600 Pacific Enterprises................................................................ 6,974,100
US 1,123,150 Pacific Gas & Electric Co. ........................................................ 23,586,150
US 1,075,000 PacifiCorp......................................................................... 22,037,500
US 349,100 PanEnergy Corp. ................................................................... 15,709,500
US 166,600 PECO Energy Co. ................................................................... 4,206,650
US 843,000 Pinnacle West Capital Corp. ....................................................... 26,765,250
US 189,500 Public Service Co. of Colorado..................................................... 7,366,813
US 104,200 Public Service Enterprise Group, Inc. ............................................. 2,839,450
US 100,000 SBC Communications, Inc. .......................................................... $ 5,175,000
US 1,345,844 SCANA Corp. ....................................................................... 36,001,325
GB 590,000 Scottish Power, Plc. .............................................................. 3,557,748
GB 198,300 Southern Electric, Plc. ........................................................... 2,704,060
US 1,966,790 Southern Co. ...................................................................... 44,498,624
US 442,700 Southwestern Public Services Co. .................................................. 15,660,513
US 1,800,000 TECO Energy, Inc. ................................................................. 43,425,000
US 315,000 Tele Danmark, A/S, ADR............................................................. 8,583,750
PT 60,000 aTelecel-Comunicacaoes Pessoais, SA................................................ 3,831,022
US 230,000 Telecom de Argentina, SA, ADR...................................................... 9,286,250
US 103,500 Telecomunicacoes Brasileiras, SA (Telebras), ADR................................... 7,917,750
IT 11,000,000 Telecom Italia, SpA ............................................................... 21,876,649
US 29,000 Telefonica del Peru, SA, ADR....................................................... 547,375
US 170,000 Telefonos de Mexico, SA, ADR....................................................... 5,610,000
US 69,000 aTeleWest Communications, Plc., ADR................................................ 1,431,750
US 1,239,850 Texas Utilities Co. ............................................................... 50,523,888
US 73,600 Total Access Communication Plc. ................................................... 507,840
US 370,000 Transportadora de Gas del Sur, SA, ADR............................................. 4,532,500
US 884,800 US West Communications Group....................................................... 28,534,800
DD 7,515 aViag AG........................................................................... 2,945,431
------------
Total Common Stocks (Cost $1,122,249,327) .................................. 1,174,710,481
------------
Convertible Preferred Stocks 0.8%
US 240,000 Nortel Inversora, SA, cvt. pfd. (Argentina) (Cost $9,333,247) ..................... 9,840,000
------------
Total Long Term Investments (Cost $1,131,582,574) ........................... 1,184,550,481
------------
Face
Amount
Receivables from Repurchase Agreements 1.4%
US $16,195,569 h,iJoint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,480,699)
(Cost $16,474,667)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear Sterns & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.875, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,543)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01............... 16,474,667
------------
Total Investments (Cost $1,148,057,241) 99.9%........................... 1,201,025,148
Other Assets and Liabilities, Net 0.1%.................................. 1,265,172
------------
Net Assets 100%......................................................... $1,202,290,320
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $1,148,057,241 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 118,802,417
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (65,834,510)
------------
Net unrealized appreciation ..................................................... $ 52,967,907
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
DD - Germany
ES - Spain
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
US - United States
PORTFOLIO ABBREVIATION:
L.L.C. -Limited Liability Corp.
*Securities traded in foreign currency and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee note 1(h) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton Developing Markets Equity Fund (Note 1)
Common Stocks, Rights & Warrants 82.5%
Argentina 10.4%
<S> <C> <C> <C>
AR 180,876 Aluar Aluminio Argentino, SA, Class B.............................................. $ 455,890
AR 561,180 Astra Cia Argentina de Petroleo, SA................................................ 1,072,047
AR 530,163 aanor Cia Nacional Para la Industria Quimica, SA, Class D.......................... 768,875
AR 103,702 aBanco Bansud, SA, Class B......................................................... 1,242,574
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B....................................... 3,657,568
AR 86,333 Banco Frances del Rio de la Plata, SA.............................................. 807,357
US 56,200 aBuenos Aires Embotelladora, SA, ADR............................................... 210,750
AR 15,555 Capex, SA, Class A................................................................. 128,352
AR 310,746 aCiadea, SA........................................................................ 1,476,308
AR 44,010 Juan Minetti, SA................................................................... 183,115
AR 6,000 Juan Minetti, SA, conv............................................................. 6,001
AR 999,359 Molinos Rio de Plata, SA, Class B.................................................. 3,558,359
AR 23,430 Nobleza Piccardo Sdad Industrial Comercial y Financial............................. 89,050
AR 705,968 Perez Companc, SA, Class B......................................................... 4,963,849
AR 122,000 Quilmes Industrial, SA............................................................. 1,113,250
AR 4,000 Quilmes Industrial, SA, reg........................................................ 32,000
AR 381,203 aSevel Argentina, SA, Class C...................................................... 960,805
AR 22,230 Siderar, Class A................................................................... 64,034
AR 1,290,000 aSociedad Comercial del Plata Cadelplata Come...................................... 3,302,995
AR 126,224 Transportadora de Gas del Sur, SA, Class B......................................... 310,567
US 153,410 YPF Sociedad Anonima, ADR.......................................................... 3,873,603
AR 2,840 aZanella Hermanos, SA.............................................................. 625
------------
28,277,974
------------
Brazil 2.7%
BR 77,613,291 Banco Bradesco, SA................................................................. 526,584
BR 78,492,976 aBanco do Brasil, SA............................................................... 679,854
BR 36,132,595 aBanco do Brasil, SA, warrants, Class A............................................ 57,028
BR 54,198,893 aBanco do Brasil, SA, warrants, Class B............................................ 83,455
BR 90,331,488 aBanco do Brasil, SA, warrants, Class C............................................ 121,705
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA...................................... 3,573,577
BR 2,124,000 Mannesmann, SA..................................................................... 288,664
BR 29,560,000 Telebras-Telecomunicacoes Brasileiras, SA.......................................... 2,119,353
------------
7,450,220
------------
China 3.6%
CN 1,666,340 China Southern Glass Co., Ltd., Class B............................................ 1,034,124
CN 1,286,000 Chiwan Wharf Holdings Ltd., Class B ............................................... 914,474
CN 1,519,000 Guangzhou Shipyard International Co., Ltd., Class H ............................... 384,930
CN 1,169,000 Luoyang Glass Co., Ltd., Class H................................................... 358,960
CN 96,500 Shandong Huaneng Power............................................................. 940,875
CN 1,269,000 Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ................................. 352,782
CN 520,000 Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B.............................. 429,520
CN 252,000 aShanghai Industrial Sewing Machine Corp........................................... 47,880
CN 1,732,500 aShanghai Jin Jiang Tower Co., Ltd., Class B ...................................... 526,680
CN 410,000 Shanghai Jinqiao Export Processing Zone Development, Class B....................... 221,400
CN 634,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd., Class B.................. 618,393
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B......................................... 68,452
CN 2,304,000 Shanghai Pechemical Co., Ltd., Class H............................................. 700,032
CN 489,600 Shanghai Refrigerator Compressor Co., Ltd., Class B ............................... 266,342
CN 450,000 aShanghai Shangling Electric Appliance, Class B.................................... 195,300
CN 1,481,000 aShanghai Tyre & Rubber Co., Ltd., Class B......................................... 627,944
CN 1,890,361 aShanghai Vacuum Electron Devices Co., Ltd., Class B............................... 366,730
China (cont.)
CN 682,000 aShanghai Yaohua Pilkington Glass, Class B......................................... $ 324,632
CN 1,881,173 Shenzhen Vanke Co., Ltd., Class B.................................................. 1,330,405
------------
9,709,855
------------
Czech Republic 1.8%
CS 14,600 aCEZ............................................................................... 525,609
US 65,330 aCEZ, GDR.......................................................................... 2,351,880
CS 19,358 Chemopetrol Group, AS.............................................................. 839,981
CS 17 Elektrarny Opatovice, AS........................................................... 2,742
CS 1,000 Komercni Banka, AS................................................................. 83,327
CS 7,000 aSPT Telecom, AS................................................................... 871,589
CS 630 Tabak, AS.......................................................................... 158,693
------------
4,833,821
------------
Ghana 0.4%
US 85,000 Ashanti Goldfields Co., Ltd., GDR.................................................. 1,051,875
------------
Greece 3.7%
GR 38,666 Alpha Credit Bank.................................................................. 2,460,606
GR 32,000 Alpha Leasing, SA.................................................................. 622,593
GR 63,000 Delta Dairy, SA.................................................................... 720,117
GR 2,000 Elais Oleaginous Products Co., SA ................................................. 57,112
GR 13,000 Ergo Bank, SA ..................................................................... 658,932
GR 32,200 Etba Leasing....................................................................... 371,323
GR 31,250 Hellas Can - Container Manufacturers............................................... 437,634
GR 16,450 Hellenic Telecommunications Organizations OTE...................................... 281,046
US 154,000 bHellenic Telecommunications Organizations OTE..................................... 2,631,065
GR 29,000 Intracom, SA, reg.................................................................. 652,385
GR 5,170 National Bank of Greece, SA........................................................ 329,006
GR 17,170 Titan Cement Co., reg.............................................................. 933,629
------------
10,155,448
------------
Hong Kong 13.3%
HK 582,000 Cheung Kong Holdings Ltd........................................................... 5,173,250
HK 3,642,000 China Overseas Land & Investment Ltd. ............................................. 1,848,193
HK 81,000 Cross Harbour Tunnel Co., Ltd. .................................................... 176,463
HK 271,258 Dairy Farm International Holdings Ltd.............................................. 218,363
HK 6,000 Dickson Concepts (International) Ltd............................................... 22,497
HK 1,154,000 aEast Asiatic Co. (Hong Kong), Ltd. (The).......................................... 119,361
HK 1,904,000 aFu Hui Jewellery Co. (H.K.), Ltd.................................................. 177,242
HK 530,679 Great Wall Electronic International Ltd. .......................................... 65,867
HK 1,284,000 Hang Lung Development Co., Ltd. ................................................... 2,822,160
HK 770,000 Hongkong Electric Holdings Ltd. ................................................... 2,558,536
HK 776,951 Hopewell Holdings Ltd. ............................................................ 502,263
HK 214,241 HSBC Holdings, Plc ................................................................ 4,584,251
HK 42,000 IMC Holdings Ltd. ................................................................. 22,264
HK 34,000 Jardine Matheson Holdings, Ltd..................................................... 224,400
HK 194,625 Jardine Strategic Holdings, Ltd.................................................... 704,543
HK 21,625 aJardine Strategic Holdings Ltd., warrants......................................... 8,650
HK 119,000 JCG Holdings, Ltd.................................................................. 116,161
HK 2,109,297 K Wah International Holdings, Ltd. ................................................ 520,881
HK 187,320 aK Wah International Holdings, Ltd., warrants...................................... 12,109
HK 1,203,600 Lai Sun Development Co., Ltd. ..................................................... 1,820,689
HK 216,200 aLai Sun Development Co., Ltd., warrants........................................... 27,953
Hong Kong (cont.)
HK 379,000 Lai Sun Garment International Ltd.................................................. $ 602,715
HK 1,450,000 Laws International Holdings Ltd.................................................... 226,841
HK 700,000 aLuks Industrial Co., Ltd.......................................................... 68,783
HK 140,000 aLuks Industrial Co., Ltd., warrants............................................... 5,159
HK 754,886 New World Development Co., Ltd. ................................................... 5,099,592
HK 456,000 NG Fund Hong Ltd................................................................... 409,749
HK 1,626,000 aS. Megga International Holdings Ltd............................................... 107,216
HK 324,598 Semi-Tech (Global) Co., Ltd........................................................ 537,185
HK 1,891,400 Sun Hung Kai & Co., Ltd. .......................................................... 484,191
HK 319,000 Sun Hung Kai Properties Ltd. ...................................................... 3,907,848
HK 155,000 Swire Pacific, Ltd., Class B ...................................................... 234,469
HK 2,123,000 Tian An China Investments Co., Ltd................................................. 304,678
HK 1,364,000 Tungtex (Holdings) Co., Ltd........................................................ 149,900
HK 294,000 Wheelock & Co., Ltd................................................................ 838,154
HK 1,228,000 Wing Shan International, Ltd....................................................... 169,883
HK 3,582,000 aWo Kee Hong Holdings, Ltd......................................................... 291,765
HK 716,400 aWo Kee Hong Holdings, Ltd., warrants.............................................. 7,966
HK 300,000 aYaohan Hongkong Corp., Ltd........................................................ 12,024
HK 2,298,000 Yue Yuen Industrial (Holdings), Ltd................................................ 876,476
------------
36,060,690
------------
India 1.6%
IN 74,000 Arvind Mills, Ltd.................................................................. 250,794
IN 4,000 Bharat Petroleum Corp., Ltd........................................................ 33,250
IN 1,300 Bombay Dyeing & Manufacturing Co., Ltd............................................. 4,007
IN 9,000 Bses, Ltd.......................................................................... 51,841
IN 51,950 Cochin Refineries, Ltd............................................................. 143,460
IN 18,350 Grasim Industries, Ltd., Ord INR10................................................. 214,083
IN 73,200 Great Eastern Shipping Co., Ltd.................................................... 69,422
IN 4,775 Hindalco Industries................................................................ 87,442
IN 21,300 Hindustan Organic Chemicals, Ltd................................................... 18,121
IN 44,000 Hindustan Petroleum Corp., Ltd..................................................... 407,475
IN 35,000 aIndia Cements, Ltd................................................................ 87,866
US 10,000 India Cements, Ltd., GDR........................................................... 25,000
IN 20,000 Indian Aluminium Co., Ltd.......................................................... 84,937
IN 55,000 Indian Petrochemicals Corp., Ltd................................................... 184,484
IN 18,350 Indian Rayon and Industries, Ltd................................................... 153,556
IN 88,500 Indo Gulf Fertilisers & Chemicals Corp., Ltd....................................... 71,590
IN 135,050 Industrial Credit & Inv. Corp. of India (ICICI).................................... 221,316
IN 159,300 Industrial Development Bank of India............................................... 386,585
IN 66,700 ITC Bhadrachalam Paperboards, Ltd.................................................. 109,771
IN 45,000 Larsen and Toubro, Ltd............................................................. 274,582
IN 105,300 National Aluminium Co., Ltd........................................................ 91,054
IN 19,200 Oriental Bank of Commerce.......................................................... 41,640
IN 41,600 Reliance Industries, Ltd........................................................... 235,849
IN 157,500 Shipping Corporation of India, Ltd................................................. 112,029
IN 133,000 Steel Authority of India, Ltd...................................................... 68,633
US 45,000 Steel Authority of India Ltd., GDR, reg. S......................................... 432,585
IN 9,100 aSterlite Industries (India), Ltd.................................................. 49,434
IN 34,150 Tata Chemicals, Ltd................................................................ 164,082
India (cont.)
IN 33,000 Tata Iron & Steel Co., Ltd......................................................... $ 150,732
IN 2,000 Wockhardt.......................................................................... 11,367
------------
4,236,987
------------
Indonesia 5.2%
US 46,000 aAsia Pulp & Paper Co., Ltd., ADR.................................................. 523,250
ID 506,000 PT Bank Dagang Nasional Indonesia, fgn............................................. 514,141
ID 81,000 PT Bank Danamon, fgn............................................................... 76,302
ID 371,000 PT Bank PDFCI, fgn. ............................................................... 345,555
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................................... 1,386,770
ID 150,000 PT BBL Dharmala Finance, fgn. ..................................................... 184,166
ID 997,500 aPT Charoen Pokphand Indonesia, fgn................................................ 1,103,289
ID 449,000 PT Dharmala Intiland, fgn.......................................................... 665,326
ID 2,085,000 PT Gadjah Tunggal, fgn............................................................. 904,795
ID 201,000 PT Gajah Surya Multi Finance, fgn.................................................. 121,264
ID 829,600 PT Ganda Wangsa Utama, fgn......................................................... 298,544
ID 104,000 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 75,953
ID 12,000 PT Inter-Pacific Bank, fgn......................................................... 8,510
ID 880,000 PT Jakarta International Hotel & Development, fgn.................................. 633,362
ID 337,500 PT Japfa Comfeed Indonesia, fgn. .................................................. 214,331
ID 441,750 PT Multibreeder Adirama, fgn....................................................... 163,646
ID 376,630 PT Pabrik Kertas Tjiwi Kimia, fgn.................................................. 374,717
ID 766,900 PT Panasia Indosyntec, fgn......................................................... 186,692
ID 350,000 PT Polysindo Eka Perkasa, fgn...................................................... 200,042
ID 1,310,400 PT Pudjiadi Prestige, Ltd., fgn.................................................... 471,566
ID 621,500 PT Sinar Mas Agro Resources & Technology Corp., fgn................................ 440,733
ID 3,099,250 PT Sinar Mas Multi Artha, fgn...................................................... 2,591,456
ID 349,000 PT Sumalindo Lestari Jaya, fgn..................................................... 258,573
ID 658,320 PT Summarecon Agung, fgn. ......................................................... 222,970
ID 430,000 PT Tambang Timah (Persero), fgn.................................................... 782,811
ID 292,000 PT Ultra Jaya Milk, fgn............................................................ 135,986
ID 68,200 PT Unggul Indah Corp., fgn......................................................... 69,297
ID 583,000 PT United Tractors, fgn............................................................ 1,221,782
------------
14,175,829
------------
Israel 1.5%
IL 34,730 Agis Industries, Ltd............................................................... 254,357
IL 569,083 Bank Hapoalim BM................................................................... 901,636
IL 280,327 Clal Industries, Ltd............................................................... 1,340,198
IL 16,748 Discount Investment Corp........................................................... 1,073,995
IL 4,732 First International Bank of Israel................................................. 545,955
IL 265a Koor Industries, Ltd............................................................... 23,090
------------
4,139,231
------------
Malaysia 3.0%
MY 628,000a Aokam Perdana, Bhd................................................................. 743,504
MY 418,000 Berjaya Singer, Bhd................................................................ 628,945
MY 89,000 Berjaya Singer, Bhd., fgn.......................................................... 133,914
MY 154,000 Boustead Holdings, Bhd., fgn....................................................... 344,526
MY 50,000 Federal Flour Mills, Bhd. ......................................................... 124,728
MY 152,000 Hong Leong Industries, Bhd......................................................... 517,600
MY 91,200a Hong Leong Industries, Bhd., new................................................... 308,755
MY 38,000a Hong Leong Industries, Bhd., warrants, fgn......................................... 9,028
Malaysia (cont.)
MY 44,000 Island & Peninsula, Bhd., fgn...................................................... $ 147,218
MY 179,000 Leader Universal Holdings, Bhd..................................................... 375,648
MY 282,666 Malaysian International Shipping Corp., Bhd., fgn.................................. 839,436
MY 529,000 MBF Capital, Bhd................................................................... 858,800
MY 237,500 Perlis Plantations, Bhd., fgn...................................................... 738,220
MY 796,000 Renong, Bhd........................................................................ 1,412,029
MY 16,750a Renong, Bhd., warrants............................................................. 8,224
MY 26,800 Renong, 4%, conv., 9/9/01.......................................................... 11,248
MY 732,000 Shangri-La Hotels (Malaysia), Bhd.................................................. 689,828
MY 123,000 Shangri La Hotels (Malaysia), Bhd., fgn............................................ 115,914
------------
8,007,565
------------
Mexico 10.7%
MX 1,524,000 Cementos Mexicanos, SA de CV (Cemex), Class B...................................... 5,943,445
MX 3,341,085a Cifra, SA, Class C ................................................................ 4,074,494
US 38,400 Coca Cola Femsa, SA de CV, ADR..................................................... 1,108,800
MX 181,938 Cydea, SA de CV.................................................................... 327,035
MX 110,034a DESC, SA, Class B.................................................................. 601,050
MX 2,292a DESC, SA, Class C.................................................................. 12,505
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B...................................... 857,470
MX 13,429 Grupo Carso, SA de CV.............................................................. 70,796
MX 899,000a Grupo Financiero Banamex Accival, SA, Class B...................................... 1,898,041
MX 894,137a Grupo Financiero Banamex Accival, SA, Class L...................................... 1,760,559
MX 5,650,000a Grupo Financiero Bancomer, SA de CV, Class B....................................... 2,260,861
MX 941,259a Grupo Financiero Bancomer, SA de CV, Class L....................................... 316,862
MX 1,882,816a Grupo Financiero Serfin, SA, Class B............................................... 648,175
MX 97,000 Telmex-Telefonos de Mexico, SA, Class L............................................ 159,942
US 228,200 Telmex-Telefonos de Mexico, SA, Class L, ADR....................................... 7,530,600
MX 905,849 Vitro, SA ......................................................................... 1,645,534
------------
29,216,169
------------
Philippines 0.2%
PH 600,000a Keppel Philippine Holdings, Inc., Class B.......................................... 66,160
PH 2,198,000a Philex Minning Corp., Class B ..................................................... 250,722
PH 20,000a Philippine National Bank .......................................................... 237,643
PH 435,000 RFM Corp. ......................................................................... 74,430
------------
628,955
------------
Poland 0.9%
PL 64,955 Bank Gdanski, SA................................................................... 844,954
PL 69,000a Bank Inicjatyw Gospodarczch, SA, Class G........................................... 96,254
PL 13,638 Bank Przemyslowo-Handlowy, SA...................................................... 879,902
PL 9,000 Elektrim Towarzystwo Handlowe, SA.................................................. 81,607
PL 18,000 Mostostal Export, SA............................................................... 42,687
PL 17,410 Polifarb Ceiszyu, SA............................................................... 96,540
PL 10,000a Raciborska Fabryka Kotlow, SA...................................................... 56,846
PL 10,000 Warta, SA.......................................................................... 162,168
PL 1,242 Wielkopolski Bank Kredytowy, SA.................................................... 8,403
PL 11,072 Zaklady Cementowo Wapiennicze Gorazdze Chorula..................................... 276,086
------------
2,545,447
------------
Portugal 4.3%
PT 386,194 Banco Comercial Portugues, SA...................................................... $ 5,093,626
PT 162,680 Banco Espirito Santo e Comercial de Lisboa......................................... 2,862,245
PT 63,454 Banco Totta & Acores, SA........................................................... 1,196,643
PT 13,774a BPI Socieda de Gestora de Participacoes Socias .................................... 162,570
PT 36,248 BPI Socieda de Gestora de Participacoes Socias, SA................................. 451,201
US 99,840 Espirito Santo Financial Holding, SA, ADR.......................................... 1,322,880
PT 75,000 Portucel Industrial Empresa Product de Celulose, SA................................ 435,343
PT 3,000 Portugal Telecom, SA............................................................... 85,521
PT 7,010a Sociedade Portuguesa de Celulose, SA............................................... 187,174
------------
11,797,203
------------
Singapore 3.1%
SG 246,000 Acer Computer International, Ltd................................................... 423,120
SG 22,000a Acer Computer International, Ltd., warrants........................................ 10,340
SG 184,000 Acma, Ltd., fgn.................................................................... 397,113
SG 46,000a Acma, Ltd., fgn., warrants......................................................... 29,422
SG 18,000 British American Tobacco, Ltd...................................................... 77,181
SG 109,000 First Capital Corp., Ltd........................................................... 328,722
SG 238,000 First Capital Corp., Ltd., fgn..................................................... 717,759
SG 72,000 GP Batteries International, Ltd. .................................................. 239,040
SG 18,000a GP Batteries International, Ltd., warrants......................................... 22,860
SG 1,172,000 Hai Sun Hup Group, Ltd............................................................. 862,688
SG 167,000 Hinds Hotels International, Ltd.................................................... 213,628
SG 191,000 Hinds Hotels International, Ltd., fgn.............................................. 244,329
SG 100,000 Hour Glass, Ltd. .................................................................. 72,894
SG 241,000 Inchcape, Bhd., fgn................................................................ 837,033
SG 107,500 Isetan (Singapore), Ltd., fgn...................................................... 232,393
SG 194,000 Jurong Shipyard, fgn............................................................... 977,417
SG 78,000 Natsteel, Ltd. .................................................................... 177,260
SG 476,000 Natsteel, Ltd., fgn................................................................ 1,081,741
SG 177,000a Osprey Maritime, Ltd............................................................... 269,428
SG 142,000 Sembawang Corp., Ltd............................................................... 750,947
SG 148,000 WBL Corp., Ltd..................................................................... 346,916
------------
8,312,231
------------
Slovak Republic 0.2%
SS 3,600 Nafta Gbely, AS.................................................................... 179,649
SS 19,010 Slovnaft, AS....................................................................... 462,754
------------
642,403
------------
South Africa 3.3%
ZA 10,685 Anglo American Industrial Corp., Ltd............................................... 387,113
ZA 21,497 Anglo American Platinum Corp., Ltd................................................. 127,507
ZA 13,000 Anglovaal Industried, Ltd.......................................................... 58,769
ZA 715a Anglovaal Industries, Ltd., rights................................................. 55
ZA 538,000 BTR Dunlop, Ltd.................................................................... 583,595
ZA 1,127,300 Del Monte Royal Foods, Ltd......................................................... 1,132,480
ZA 319,029 Engen, Ltd......................................................................... 1,704,759
ZA 33,600 First National Bank Holdings, Ltd.................................................. 164,463
ZA 10,000 Kersaf Investments, Ltd............................................................ 91,643
ZA 32,100 Malbak, Ltd........................................................................ 140,654
ZA 40,000a McCarthy Retail, Ltd............................................................... 102,597
ZA 24,000 McCarthy Retail, zero, conv., 9/30/03 ............................................. 56,428
South Africa (cont.)
ZA 107,000 Palabora Mining Co., Ltd........................................................... $ 1,749,599
ZA 10,234 Potgietersrust Platinums, Ltd...................................................... 50,311
ZA 311,500a Rainbow Chicken, Ltd............................................................... 58,591
ZA 118,070 Rembrandt Group, Ltd............................................................... 1,053,633
ZA 7,800 Reunert, Ltd....................................................................... 25,842
ZA 58,318 Sappi, Ltd......................................................................... 523,534
ZA 3,000 South African Breweries, Ltd....................................................... 75,986
ZA 876,201 South African Iron & Steel Industrial Corp., Ltd................................... 625,523
ZA 430,685 Sun International, Ltd............................................................. 345,211
------------
9,058,293
------------
South Korea 2.4%
KR 12,000 Asia Cement Co., Ltd............................................................... 301,065
KR 50,000 Boram Bank Co., Ltd................................................................ 414,201
KR 5,430a Boram Bank Co., Ltd., new.......................................................... 42,091
KR 1,050 BYC Co., Ltd....................................................................... 111,834
KR 27,375 Central Banking Corp............................................................... 421,154
KR 5,677 Dae Duck Electronics Co., Ltd...................................................... 274,780
KR 58,682 Daegu Bank Co., Ltd................................................................ 700,705
KR 510 Daehan Synthetic Fiber Co., Ltd. .................................................. 44,361
KR 21,000 Dongkuk Steel Mill Co., Ltd........................................................ 415,030
KR 1,000 Hae In Corp., Ltd.................................................................. 44,734
US 28,902a Hana Bank, GDR..................................................................... 437,287
KR 3,950 Hankook Cosmetics Co., Ltd......................................................... 88,817
KR 44,390 Korea First Bank................................................................... 224,839
KR 54,000 Korea Kumho Petrochemical.......................................................... 447,337
KR 25,810 Kyong Nam Bank..................................................................... 283,146
KR 1,000 Moon Bae Steel Co., Ltd............................................................ 23,077
KR 75,000 Ssangyong Oil Refining Co., Ltd.................................................... 1,642,012
KR 41,447 Tong Yang Merchant Bank............................................................ 465,972
------------
6,382,442
------------
Sri Lanka
LK 36,000 Associated Motorways, Ltd. ........................................................ 17,134
LK 8,000 John Keells Holdings, Ltd.......................................................... 27,675
------------
44,809
------------
Taiwan
ZU 62,000a United Microelectronics Corp....................................................... 87,927
------------
Thailand 2.2%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn......................... 408,329
TH 3,900 Ayudhya Insurance Public Co., Ltd.................................................. 30,110
TH 43,600 Ayudhya Insurance Public Co., Ltd., fgn............................................ 336,614
TH 15,000 Bangkok Bank Public Co., Ltd....................................................... 111,713
TH 4,900 Bangkok Insurance, fgn............................................................. 69,547
TH 3,300 Bangkok Land Public Co., Ltd....................................................... 1,383
TH 580,500 Bangkok Land Public Co., Ltd., fgn................................................. 645,101
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd.......................................... 430,476
TH 253,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn.................................... 917,453
TH 16,000 Hua Thai Manufacturing Public Co., Ltd............................................. 42,424
TH 124,650 Karat Sanitaryware Public Co., Ltd., fgn........................................... 145,205
TH 50,700 Kian Gwan Public Co., Ltd., fgn.................................................... 137,396
Thailand (cont.)
TH 13,000a Land and House Public Co., Ltd..................................................... $ 88,201
TH 53,000 Regional Container Lines Public Co., Ltd., fgn..................................... 512,517
TH 313,500a Royal Ceramic Industry Public Co., Ltd., fgn....................................... 226,146
TH 80,700 Saha Pathanapibul Public Co., Ltd., fgn............................................ 188,801
TH 168,600 Saha Union Public Co., Ltd......................................................... 144,631
TH 390,000 Saha Union Public Co., Ltd., fgn................................................... 349,762
TH 42,600 Sanyo Universal Electric Public Co., Ltd........................................... 134,547
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn..................................... 16,424
TH 2,900 Siam Cement Co., Ltd.(The), fgn.................................................... 90,915
TH 150,000 Siam City Bank Public Co., Ltd., fgn............................................... 140,373
TH 8,000a Siam Commercial Bank, Ltd., loc. .................................................. 52,406
TH 23,200 Sino-Thai Engineering & Construction Public Co..................................... 60,610
TH 87,100 Sino-Thai Engineering & Construction Public Co., fgn............................... 227,548
TH 116,410 Thai Asahi Glass Public Co., Ltd................................................... 130,499
TH 18,000 Thai Farmers Bank Public Co., Ltd.................................................. 87,733
TH 43,000 Thai Rayon Public Co., Ltd......................................................... 163,476
TH 2,300 Thai Rayon Public Co., Ltd., fgn................................................... 12,556
TH 26,400 Thai Wacoal Public Co., Ltd., fgn.................................................. 116,580
TH 8,450 Thai Wah Public Co., Ltd., fgn..................................................... 5,107
TH 4,500 United Motor Works (Siam) Public Co., Ltd.......................................... 15,002
------------
6,039,585
------------
Turkey 5.3%
TR 37,837,500 Akbank............................................................................. 5,146,179
TR 1,704,000a Alarko Sanayii ve Ticaret, SA...................................................... 235,685
TR 2,075,000a Alcatel Teletas Endustri Tic, AS................................................... 147,326
TR 4,688,000 Anadolu Anonim Turk Sigorta Sirketi................................................ 207,491
TR 4,324,971 Arcelik, AS ....................................................................... 438,678
TR 312,000 Bagfas............................................................................. 70,484
TR 4,348,086 Beko Elektronik, AS................................................................ 410,953
TR 1,580,000 Borusan, AS........................................................................ 99,069
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS.......................................... 341,773
TR 1,515,000 Cimsa Cimento Sanayi ve Ticaret, AS................................................ 139,696
TR 201,000 Erciyas Biracilik.................................................................. 21,777
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ............................................. 2,082,757
TR 1,970,571 Izocam Ticaret ve Sanayii, AS...................................................... 130,826
TR 4,291,666 Koc Holding, AS.................................................................... 751,882
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS.................................... 659,485
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS................................................ 124,024
TR 1,958,000 Netas Northern Electric Telekomunic Asyon, AS...................................... 442,333
TR 699,200 Otosan Otomobil Sanayii, AS ....................................................... 283,677
TR 280,000 Petkim Petrokimya Holding, AS...................................................... 112,310
TR 1,907,865 Tat Konserve Sanayii, AS........................................................... 285,872
TR 15,009,350a Tofas Turk Otomobil Fabrikasi, AS.................................................. 588,195
TR 2,584,450 Trakya Cam Sanayii, AS............................................................. 131,069
TR 4,169,996 Turk Demir Dokum................................................................... 376,818
TR 23,861,400 Turkiye Garanti Bankasi, AS ....................................................... 1,078,108
TR 2,141,344 Vakif Finansal Kiralama, AS ....................................................... 82,929
------------
14,389,396
------------
Venezuela 2.5%
VE 256,080 Ceramica Carabobo CA, Class A...................................................... $ 279,601
US 154,000 Ceramica Carabobo CA, Class A, ADR................................................. 168,145
VE 2,765,696 Consolidada Carabobo, Class B...................................................... 112,658
VE 1,198,018 Electricidad de Caracas............................................................ 1,214,986
VE 60,000 Industrias Ventane................................................................. 40,063
VE 10,000a Manufacturera de Aparatos Domesticos, SA........................................... 11,045
US 387,000 Mavesa, SA, ADR.................................................................... 2,591,349
VE 50,000 Siderurgica Venezolana Sivensa Saica Svs........................................... 37,585
US 241,650 Siderurgica Venezolana Sivensa Saica Svs., ADR..................................... 908,238
US 22,878b Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new....................... 78,661
VE 361,600 Vencemos de Cementos, SA........................................................... 987,034
VE 110,240 Venezolana de Cementos-Vencemos #2................................................. 293,970
------------
6,723,335
------------
Zimbabwe 0.2%
ZW 14,000 Delta Corp......................................................................... 49,057
ZW 25,000 Ta Holdings........................................................................ 4,034
ZW 587,000 Transarchipel Shipping, Ltd.- TSL.................................................. 378,902
ZW 2,646 Zimbabwe Sun, Ltd.................................................................. 988
------------
432,981
------------
Total Common Stocks, Rights and Warrants (Cost $205,898,556)................. 224,400,671
------------
Preferred Stocks 7.5%
Brazil 7.4%
BR 110,000,000a Banco do Brazil, SA, pfd........................................................... 952,748
BR 264,298,700a Banespa-Banco do Estado de Sao Paulo, SA, pfd...................................... 1,271,767
BR 4,496,000 Brasmotor, SA, pfd................................................................. 1,248,288
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, Class A, pfd.................................. 1,145,491
BR 50,115,800 Duratex, SA, pfd................................................................... 1,880,970
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, Class B, pfd........................ 4,282,739
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd................................................. 1,114,114
BR 362,700a Mannesmann, SA, pfd................................................................ 52,358
BR 46,537,000 Petrobras-Petroleo Brasileiro, SA, pfd............................................. 7,412,062
BR 30,878,000 Unibanco-Uniao de Bancos Brasileiros, SA, pfd...................................... 1,007,376
------------
20,367,913
------------
South Africa 0.1%
ZA 747,600a Rainbow Chicken Ltd., conv., pfd................................................... 153,403
------------
Total Preferred Stocks (Cost $19,127,504).................................... 20,521,316
------------
Total Long Term Investments (Cost $225,026,060).............................. 244,921,987
------------
Face
Amount
Short Term Investments 10.1%
US $27,804,000 U S Treasury Bills, with maturities through 3/27/97 (Cost $27,567,030)............. 27,569,514
------------
Total Investments 100.1% (Cost $252,593,090) ........................... 272,491,501
Liabilities in Excess of Other Assets (0.1%) ........................... (393,080)
------------
Net Assets 100.0% ...................................................... $272,098,421
============
At December 31, 1996, the net unrealized
depreciation based on the cost of investments for
income tax purposes of $252,696,690 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 46,909,792
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (27,114,981)
------------
Net unrealized appreciation ..................................................... $ 19,794,811
============
</TABLE>
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
ZU - Taiwan
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.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Rights Templeton Global Growth Fund (Note 1)
Common Stocks & Rights 85.1%
Argentina 2.2%
<S> <C> <C> <C>
AR 681,655 Inversiones y Representacion....................................................... $ 2,188,506
US 1,400b Inversiones y Representacion, GDR.................................................. 44,625
US 50,000 Telecom Argentina Stet France, SA, ADR............................................. 2,018,750
US 386,900 Transportadora de Gas del Sur, SA, Class B, ADR.................................... 4,739,525
US 155,000 YPF Sociedad Anonima, ADR.......................................................... 3,913,750
------------
12,905,156
------------
Australia 3.2%
AU 1,070,707 Coles Myer, Ltd., Class A.......................................................... 4,408,443
AU 2,129,730 HIH Winterthur International Holdings, Ltd......................................... 5,332,366
AU 34,179 Pacific BBA, Ltd................................................................... 120,350
AU 2,149,000 Pacific Dunlop, Ltd. .............................................................. 5,466,020
AU 712,750 RGC, Ltd........................................................................... 3,166,897
------------
18,494,076
------------
Austria 1.6%
AT 30,000 Boehler Uddeholm, AG............................................................... 2,146,715
AT 35,400 Evn Energie-Versorgung Niederoesterreich, AG....................................... 5,327,732
AT 13,000 VA Technologies, AG, Bearer certificate............................................ 2,039,934
------------
9,514,381
------------
Bermuda 2.3%
US 80,000 Ace, Ltd........................................................................... 4,810,000
US 255,000 Partnerre, Ltd..................................................................... 8,670,000
------------
13,480,000
------------
Brazil 0.6%
BR 129,100,000 Companhia Siderurgica Nacional..................................................... 3,665,143
------------
Canada 0.9%
CA 119,700 Intrawest Corp..................................................................... 2,141,324
CA 74,000a Newbridge Networks Corp............................................................ 2,090,500
CA 195,000 Primex Forest Products, Ltd. ...................................................... 1,124,822
------------
5,356,646
------------
China 1.0%
CN 23,000,000 Shanghai Hai Xing Shipping Co., Class H............................................ 2,676,320
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H.......................................... 3,246,400
------------
5,922,720
------------
Czech Republic 1.0%
US 171,000b Komercni Banka, AS, GDR............................................................ 4,688,820
CZ 9,000a SPT Telecom, AS.................................................................... 1,120,615
------------
5,809,435
------------
Denmark 1.0%
DK 110,200 Tele Danmark, AS, Class B.......................................................... 6,081,678
------------
Ecuador 0.2%
US 400b La Cemento Nacional CA, GDR........................................................ 91,600
US 3,600b La Cemento Nacional CA, GDR........................................................ 824,400
------------
916,000
------------
Finland 2.4%
FI 145,000a Enso OY, Class R................................................................... 1,175,761
FI 270,000 Metsa Serla OY, Class B............................................................ 2,025,000
FI 130,000 Nokia, AB, Class A................................................................. 7,545,652
Finland (cont.)
FI 65,000 Outokumpu OY, Class A ............................................................. $ 1,109,239
FI 88,000a UPM-Kymmene Corp. ................................................................. 1,846,087
------------
13,701,739
------------
France 6.7%
FR 30,490 Alcatel Alsthom, SA ............................................................... 2,450,961
FR 157,102 AXA, SA ........................................................................... 9,998,777
FR 126,500 Banque Nationale de Paris ......................................................... 4,898,978
FR 23,792 Compagnie Generale D' Industrie Et de Participati ................................. 6,566,317
US 112,708 Pechiney, SA, ADR ................................................................. 2,254,160
FR 83,000 Pechiney, SA, Class A ............................................................. 3,480,077
FR 5,388a Sa des Galeries Lafayette ......................................................... 1,918,273
FR 41,972 Societe Elf Aquitane, SA .......................................................... 3,823,216
FR 32,029 Union du Credit Bail Immobilier Unibail ........................................... 3,187,457
------------
38,578,216
------------
Germany 0.4%
DD 6,300 Volkswagen, AG .................................................................... 2,616,640
------------
Greece 0.5%
GR 36,266 Alpha Credit Bank ................................................................. 2,307,876
US 5,867 Alpha Credit Bank, ADR............................................................. 373,340
------------
2,681,216
------------
Hong Kong 4.3%
HK 800,000 Cheung Kong Holdings, Ltd. ........................................................ 7,110,996
HK 1,608,500 Hongkong Electric Holdings, Ltd. .................................................. 5,344,683
HK 278,149 HSBC Holdings, Plc. ............................................................... 5,951,730
HK 800,000 Jardine Strategic Holdings, Ltd. .................................................. 2,896,000
HK 3,600,000 Shun Tak Holdings ................................................................. 2,397,052
HK 150,000 Swire Pacific, Ltd., Class A ...................................................... 1,430,280
HK 75,000 Swire Pacific, Ltd., Class B ...................................................... 113,453
------------
25,244,194
------------
Hungary 0.6%
US 256,358b MOL Magyar Olay - Es Gazipari RT, GDS ............................................. 3,204,475
------------
India 0.3%
GB 720,000a India Fund, (The), Class B ........................................................ 1,060,746
US 37,000b Larsen and Toubro, Ltd., GDR ...................................................... 539,275
------------
1,600,021
------------
Indonesia 0.3%
ID 305,700a Asia Pacific Resources International, Class A ..................................... 1,719,563
------------
Italy 1.6%
IT 896,800 Banca Fideuram, SPA ............................................................... 1,971,067
IT 1,745,200 Fiat, SpA ......................................................................... 5,262,077
IT 962,290 Telecom Italia, SPA, di Risp ...................................................... 1,913,789
------------
9,146,933
------------
Japan 2.0%
JP 230,000 Daito Trust Construction Co., Ltd. ................................................ 2,561,955
JP 603,500 Hitachi, Ltd. ..................................................................... 5,628,011
JP 200,000 Matsushita Electric Industrial Co., Ltd. .......................................... 3,263,967
------------
11,453,933
------------
Mexico 1.7%
MX 176,000 Alfa, SA de CV, Class A ........................................................... $ 812,703
US 901,000a Alfa, SA de CV, Class A, ADR ...................................................... 4,160,487
MX 1,900,000a Cifra, SA, Class B ................................................................ 2,317,073
US 86,400 Telefonos de Mexico, SA, Class L, ADR ............................................. 2,851,200
------------
10,141,463
------------
Netherlands 1.5%
NL 56,500 European Vinyls Corp., International, NV .......................................... 1,793,339
NL 105,188 Ing Groep, NV ..................................................................... 3,789,571
NL 50,000 Koninklijke Frans Maas Groep, NV .................................................. 2,056,183
NL 40,000 Koninklijke Nedlloyd, NV .......................................................... 1,098,175
------------
8,737,268
------------
New Zealand 0.4%
NZ 583,873 Fisher & Paykel, Ltd. ............................................................. 2,290,864
------------
Norway 0.5%
NO 180,600 Helikopter Services Group, ASA .................................................... 2,350,235
NO 45,000a Nycomed, AS, Class B .............................................................. 691,439
------------
3,041,674
------------
Philippines 0.9%
PH 19,923,321 Metro Pacific Corp., MDI .......................................................... 4,924,015
------------
South Africa 0.5%
ZA 200,000 Rustenburg Platinum Holdings, Ltd. ................................................ 2,735,920
------------
South Korea 1.1%
KR 5,961a Byuck San Corp., rights ........................................................... 2,822
KR 17,000 Byucksan Development Co., Ltd. .................................................... 205,207
KR 11,227 Keumkang Co., Ltd. ................................................................ 511,526
KR 100,000 Pacific Chemical Co., Ltd. ........................................................ 1,976,331
KR 19,560 Pohang Iron & Steel Co., Ltd. ..................................................... 1,213,791
KR 123,920 Shinhan Bank Co., Ltd. ............................................................ 1,983,728
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................................... 331,953
------------
6,225,358
------------
Spain 2.9%
ES 4,400 Banco Popular Espanol, SA ......................................................... 864,240
ES 75,000 Banco Santander, SA ............................................................... 4,800,693
ES 63,900 Cristaleria Espanola, SA .......................................................... 5,020,451
ES 450,000 Iberdrola, SA ..................................................................... 6,377,816
------------
17,063,200
------------
Sweden 4.1%
SE 35,000 Asea, AB, Class A ................................................................. 3,951,700
SE 192,100 Assidomaen, AB .................................................................... 5,351,877
SE 722,500 Munksjo, AB ....................................................................... 7,309,911
SE 12,400b Nordbanken, AB .................................................................... 375,463
SE 190,000 Skandia Foersaekrings, AB, free ................................................... 5,376,951
SE 68,000 Volvo, AB, Class B ................................................................ 1,500,620
------------
23,866,522
------------
Switzerland 3.0%
CH 2,200 Kuoni Reisen Holding, AG, Class B ................................................. $ 5,341,801
CH 4,160a Novartis, AG ...................................................................... 4,764,494
CH 3,000 Societe Generale de Surveillance Holdings, Ltd., bearer certificate ............... 7,373,926
------------
17,480,221
------------
Thailand
TH 26,800a MDX Public Co., Ltd. .............................................................. 20,639
------------
United Kingdom 6.3%
GB 121,606 BICC .............................................................................. 1,397,983
US 655,100a,b British Energy, Ltd., ADR ......................................................... 1,649,702
GB 1,376,200 British Gas, Plc. ................................................................. 5,292,714
GB 1,074,500 British Telecommunications, Plc. .................................................. 7,261,628
GB 1,180,000 BTR, Plc. ......................................................................... 5,740,912
GB 135,000 BTR, Plc., Class A ................................................................ 620,221
GB 1,455,000a Cordiant, Plc. .................................................................... 2,567,324
GB 1,396,100 Dawson International, Plc. ........................................................ 1,375,197
GB 466,666 Lex Service, Plc. ................................................................. 2,542,224
GB 256,000 London Pacific Group, Ltd. ........................................................ 918,765
GB 249,000 McBride, Plc. ..................................................................... 580,121
GB 320,554 National Power, Plc. .............................................................. 2,685,286
GB 225,493 Safeway, Plc. ..................................................................... 1,560,612
GB 275,300 W.H. Smith Group .................................................................. 2,025,582
------------
36,218,271
------------
United States 29.1%
US 85,000 A T & T Corp. ..................................................................... 3,697,500
US 97,400 A.G. Edwards, Inc. ................................................................ 3,275,075
US 294,000 Archer Daniels Midland Co. ........................................................ 6,468,000
US 339,000a Banner Aerospace, Inc. ............................................................ 2,923,875
US 230,000a Bay Networks, Inc. ................................................................ 4,801,250
US 27,000 Citicorp .......................................................................... 2,781,000
US 169,500 Dayton-Hudson Corp. ............................................................... 6,652,875
US 109,300 Dean Witter Discover & Co. ........................................................ 7,241,125
US 84,800a DSC Communications Corp. .......................................................... 1,515,800
US 58,500 Entergy Corp. ..................................................................... 1,623,375
US 156,000 Federal National Mortgage Association ............................................. 5,811,000
US 90,000 Ford Motor Co. .................................................................... 2,868,750
US 136,500a Fruit of the Loom, Inc., Class A .................................................. 5,169,938
US 89,000 General Growth Properties ......................................................... 2,870,250
US 60,000 General Motors Corp. .............................................................. 3,345,000
US 66,000 General Motors Corp., Class H ..................................................... 3,712,500
US 34,000 Georgia-Pacific Corp. ............................................................. 2,448,000
US 70,000 Goodyear Tire & Rubber Co. ........................................................ 3,596,250
US 269,000 Highwood Properties, Inc., REIT ................................................... 9,078,750
US 34,700 Horizon Group Inc. ................................................................ 689,663
US 52,800 Houghton Mifflin Co. .............................................................. 2,989,800
US 250,000a Humana, Inc. ...................................................................... 4,781,250
US 14,600 IBP, Inc. ......................................................................... 354,050
US 35,200 International Business Machines Corp. ............................................. 5,315,200
US 48,900a Landstar System, Inc. ............................................................. 1,136,925
US 97,902 Limited, Inc. ..................................................................... 1,798,949
US 27,547 Lucent Technologies Inc. .......................................................... 1,274,049
United States (cont.)
US 42,000 Merrill Lynch & Co., Inc. ......................................................... $ 3,423,000
US 100,000 Motorola, Inc. .................................................................... 6,137,500
US 32,000 National Health Investors, Inc. ................................................... 1,212,000
US 157,000a OMI Corp. ......................................................................... 1,373,750
US 50,000 Owens Corning ..................................................................... 2,131,250
US 70,000 PECO Energy Co. ................................................................... 1,767,500
US 151,700 Pharmacia & Upjohn ................................................................ 6,011,113
US 150,000a Pinnacle Systems Inc. ............................................................. 1,575,000
US 150,000 Post Properties Inc. .............................................................. 6,037,500
US 24,000 Reliastar Financial Corp. ......................................................... 1,386,000
US 80,000 Rouse Co. ......................................................................... 2,540,000
US 130,000a Syms Corp. ........................................................................ 1,105,000
US 120,000 Torchmark Corp. ................................................................... 6,060,000
US 127,467 Travelers, Inc. ................................................................... 5,783,800
US 172,200 U.S. West Communications Group .................................................... 5,553,450
US 114,200 UNUM Corp. ........................................................................ 8,250,950
US 81,000 Valero Energy Corp. ............................................................... 2,318,625
US 115,000 Weeks Corp. ....................................................................... 3,823,750
US 240,000 Wheelabrator Technologies, Inc. ................................................... 3,900,000
------------
168,610,387
------------
Total Common Stocks & Rights (cost $409,794,932)............................. 493,447,967
------------
Preferred Stocks 4.4%
Australia 0.8%
AU 1,093,400 News Corp. Ltd. ................................................................... 4,866,895
------------
Brazil 2.3%
BR 258,441,822 Banco Bradesco, SA, pfd. .......................................................... 1,872,839
BR 151,938,238 Cemig-Cia Energetica de Minas Gerais, pfd.......................................... 5,176,223
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ........................................ 622,946
US 75,000 Telebras-Telecomunicacoes Brasileiras, SA, pfd., ADR .............................. 5,737,500
------------
13,409,508
------------
Greece 0.4%
GR 374,380 Michaniki, SA, pfd. ............................................................... 2,481,096
------------
Italy 0.8%
IT 2,203,300 Concessioni e Costruzioni Autostrade, SpA, Class B, pfd. .......................... 4,331,025
------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 5/15/98, cvt. pfd. ............................... 221,000
------------
Total Preferred Stocks (Cost $20,478,167) ................................... 25,309,524
------------
Total Common Stocks, Rights & Preferred Stocks (Cost $430,273,099) .......... 518,757,491
------------
Face
Amount
Convertible Bonds 1.3%
Italy 0.8%
US $ 4,950,000 Government of Italy, cvt., 5.00%, 6/28/01 ......................................... 4,888,125
------------
Mexico 0.2%
US 1,210,000 Empresas ICA Sociedad Controladora, SA, cvt., 5.00%, 3/15/04 ...................... 840,950
------------
Switzerland 0.1%
US 365,000 C.S. Holding Finance BV, cvt., 4.875%, 11/19/02 ................................... 573,050
------------
Thailand 0.2%
US $ 3,602,000 MDX Public Co., Ltd., cvt., 4.75%, 9/17/03 ........................................ $ 1,386,770
------------
Total Convertible Bonds (Cost $7,798,236) ................................... 7,688,895
------------
Total Long Term Investments (Cost $438,071,335) ............................. 526,446,386
------------
h Receivables from Repurchase Agreements 10.7%
44,353,000 Aubrey G. Lanston & Co., 6.75%, 01/02/97, (Maturity Value $45,728,142)
(Cost $61,988,000)
Collateral: U.S. Treasury Notes, 6.875%, 7/31/99 ................................. 45,711,000
16,075,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $16,283,104)
Collateral: U.S. Treasury Notes, 6.25%, 7/31/98 .................................. 16,277,000
------------
Total Receivables From Repurchase Agreements ............................... 61,988,000
------------
Total Investments (Cost $500,059,335) 101.5% ........................... 588,434,386
Liabilities in Excess of Other Assets (1.5%) ........................... (8,556,999)
------------
Net Assets 100.0%....................................................... $579,877,387
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $500,072,682 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $110,740,401
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (22,378,697)
------------
Net unrealized appreciation ..................................................... $ 88,361,704
============
</TABLE>
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
IN - India
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Templeton Global Asset Allocation Fund (Note 1)
Common Stocks 55.5%
Argentina 0.3%
<S> <C> <C> <C>
US 2,000 Telecom Argentina Stet France, SA, ADR ............................................ $ 80,750
US 6,900 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 84,525
------------
165,275
------------
Australia 1.2%
AU 60,707 Coles Myer, Ltd., Class A ......................................................... 249,950
AU 95,654 HIH Winterthur International Holdings, Ltd. ....................................... 239,496
AU 42,439 Pacific BBA, Ltd. ................................................................. 149,435
AU 2,550 Pacific Dunlop, Ltd. .............................................................. 6,486
AU 10,182 RGC, Ltd. ......................................................................... 45,241
------------
690,608
------------
Austria 0.9%
AT 1,060b Boehler Uddeholm, AG .............................................................. 75,851
AT 3,000 Evn Energie-Versorgung Niederoesterreich, AG ...................................... 451,503
------------
527,354
------------
Bermuda 1.9%
US 8,400 Ace, Ltd. ......................................................................... 505,050
US 17,500 Partnerre, Ltd. ................................................................... 595,000
------------
1,100,050
------------
Brazil 2.0%
US 7,500 Cia Energetica de Minas Gerais, ADR ............................................... 255,510
BR 16,300,000 Companhia Siderurgica Nacional .................................................... 462,756
US 7,700 Companhia Siderurgica Nacional, ADR ............................................... 218,603
US 12,600 Lojas Americanas, SA, ADR ......................................................... 166,125
------------
1,102,994
------------
Canada 1.1%
CA 20,200 Hudsons Bay Co. ................................................................... 337,761
CA 15,200 Intrawest Corp. ................................................................... 271,914
------------
609,675
------------
Chile 0.2%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR ............................................ 116,400
------------
China 0.7%
HK 286,000 Shanghai Pechemical Co., Ltd., Class H ............................................ 86,896
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ......................................... 323,765
------------
410,661
------------
Colombia 0.1%
US 5,000a,b Cementos Paz del Rio, SA, ADR ..................................................... 63,750
------------
Czech Republic 0.4%
CZ 2,000a SPT Telecom, AS ................................................................... 249,026
------------
Denmark 0.4%
DK 4,000 Tele Danmark, AS, Class B ......................................................... 220,751
------------
Ecuador 0.7%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 1,400b La Cemento Nacional CA, GDR ....................................................... 320,600
------------
412,200
------------
Egypt 0.9%
EG 31,299a Suez Cement Co. ................................................................... 507,367
------------
Finland 0.9%
FI 10,000a Enso OY, Class R .................................................................. $ 81,087
FI 3,750 Metsa Serla OY, Class B ........................................................... 28,125
FI 5,000 Nokia, AB, Class A ................................................................ 290,217
FI 4,200a UPM-Kymmene Corp. ................................................................. 88,109
------------
487,538
------------
France 4.0%
FR 12,331 AXA, SA ........................................................................... 784,808
FR 9,000 Banque Nationale de Paris ......................................................... 348,544
FR 7,418 Regie Nationale des Usines Renault, SA ............................................ 159,519
FR 9,700 Rhone-Poulenc, SA, Class A ........................................................ 330,941
FR 1,805 Societe Elf Aquitane, SA .......................................................... 164,417
FR 2,556 Total, SA, Class B ................................................................ 208,029
FR 2,500 Union du Credit Bail Immobilier Unibail ........................................... 248,795
------------
2,245,053
------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................................... 149,522
------------
Greece 0.3%
GR 3,066 Alpha Credit Bank ................................................................. 195,112
------------
Hong Kong 2.2%
HK 32,000 Cheung Kong Holdings, Ltd. ........................................................ 284,440
HK 111,000 Grand Hotel Holdings, Ltd. ........................................................ 46,642
HK 1,114,960 Hon Kwok Land Investment Co., Ltd. ................................................ 432,462
HK 7,963 Peregrine Investments Holdings, Ltd. .............................................. 13,641
HK 244,000 Shun Tak Holdings ................................................................. 162,467
HK 774,000 Yue Yuen Industrial (Holdings), Ltd. .............................................. 295,210
------------
1,234,862
------------
Hungary 0.3%
US 12,107b MOL Magyar Olay - Es Gazipari, RT, GDS ............................................ 151,337
------------
Indonesia 0.5%
US 19,300a Asia Pacific Resources International, Class A ..................................... 108,562
ID 1,000 PT Bank Bali, fgn. ................................................................ 2,498
ID 154,000 PT Lippo Bank, fgn. ............................................................... 149,958
------------
261,018
------------
Irish Republic 0.7%
GB 42,733 Bank of Ireland ................................................................... 390,552
------------
Italy 0.4%
IT 74,700 Banca Fideuram, SpA ............................................................... 164,182
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ..................................... 45,468
------------
209,650
------------
Japan 0.8%
JP 12,000 Daito Trust Construction Co., Ltd. ................................................ 133,667
JP 5,000 Matsushita Electric Industrial Co., Ltd. .......................................... 81,599
JP 3,500 Nintendo Co., Ltd. ................................................................ 249,331
------------
464,597
------------
Mexico 1.4%
MX 26,800 Alfa, SA de CV, Class A ........................................................... 123,753
MX 58,000a,b Alfa, SA de CV, Class A ........................................................... 267,823
Mexico (cont.)
MX 96,200a Cifra, SA, Class B ................................................................ $ 117,317
US 3,000a Empresas ICA Sociedad Controladora, SA, ADR ....................................... 43,875
US 6,709 Telmex-Telefonos de Mexico, SA, Class L, ADR ...................................... 221,397
------------
774,165
------------
Netherlands 0.5%
NL 5,097 Ing Groep, NV ..................................................................... 183,628
NL 2,900 Philips Electronics, NV ........................................................... 117,579
------------
301,207
------------
New Zealand 0.4%
NZ 51,300 Ceramico Corp., Ltd. .............................................................. 48,960
US 9,000a Tranz Rail Holdings, Ltd., ADR .................................................... 159,187
------------
208,147
------------
Norway 0.5%
NO 14,800 Elkem, AS ......................................................................... 243,650
NO 1,700 Hafslund, ASA, Class B ............................................................ 11,648
NO 1,700a Nycomed, ASA, Class B ............................................................. 26,121
------------
281,419
------------
Russia 0.5%
US 10,000b Mosenergo, ADR .................................................................... 308,000
------------
South Africa
ZA 400 Rustenburg Platinum Holdings, Ltd. ................................................ 5,472
------------
South Korea 0.4%
KR 9,000 Korea Long Term Credit Bank ....................................................... 158,557
KR 940 Pohang Iron & Steel Co., Ltd. ..................................................... 58,331
------------
216,888
------------
Spain 0.9%
ES 9,500 Dragados y Construcciones, SA ..................................................... 146,351
ES 20,500 Iberdrola, SA ..................................................................... 290,545
ES 1,750 Telefonica de Espana, SA .......................................................... 40,641
------------
477,537
------------
Sweden 2.7%
SE 2,300 Electrolux, AB, Class B ........................................................... 133,551
SE 165a Fastighets Naeckebro, AB, Class A ................................................. 2,831
SE 5,000 Marieberg Tidnings, AB, Class A ................................................... 122,437
SE 9,575 Mo Och Domsjoe, AB, Class B ....................................................... 269,566
SE 18,000b Nordbanken, AB..................................................................... 545,027
SE 13,800 Skandia Foersaekrings, AB ......................................................... 390,536
SE 1,650 Svenska Handelsbanken, Class A .................................................... 47,420
------------
1,511,368
------------
Switzerland 1.6%
CH 4,085 CS Holding ........................................................................ 419,640
CH 70 Kuoni Reisen Holding, AG, Class B ................................................. 169,966
CH 115 Societe Generale de Surveillance Holdings, Ltd. ................................... 282,667
------------
872,273
------------
Thailand 0.2%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. 108,789
------------
United Kingdom 4.4%
GB 66,780 British Energy, Ltd. .............................................................. $ 168,168
US 47,700a,b British Energy, Ltd., ADR ......................................................... 120,120
GB 40,000 British Gas, Plc. ................................................................. 153,836
GB 65,000 British Telecommunications, Plc. .................................................. 439,279
GB 23,400 BTR, Plc. ......................................................................... 113,845
GB 45,000a Cordiant, Plc. .................................................................... 79,402
GB 13,500 Dawson International, Plc. ........................................................ 13,298
GB 76,100 Invesco, Plc. ..................................................................... 338,300
GB 21,666 Lex Service, Plc. ................................................................. 118,028
GB 118,414 Railtrack Group, Plc. ............................................................. 786,059
US 7,000 Sea Containers, Ltd., Class A ..................................................... 109,375
GB 2,200 W.H. Smith Group .................................................................. 16,187
------------
2,455,897
------------
United States 20.8%
US 7,000 AT&T Corp. ........................................................................ 304,500
US 1,100 A.G. Edwards, Inc. ................................................................ 36,987
US 2,860 AK Steel Holding Corp., REIT ...................................................... 113,327
US 16,800 Archer Daniels Midland Co. ........................................................ 369,600
US 33,026a Bay Networks, Inc. ................................................................ 689,418
US 5,900 Beacon Properties Corp. ........................................................... 216,087
US 6,800 Carramerica Realty Corp. .......................................................... 198,900
US 2,400 Citicorp .......................................................................... 247,200
US 5,000 Crescent Real Estate Equities Co., REIT ........................................... 263,750
US 11,100 Dayton-Hudson Corp. ............................................................... 435,675
US 10,000 Dean Witter Discover & Co. ........................................................ 662,500
US 15,200 Entergy Corp. ..................................................................... 421,800
US 12,450a Fruit of the Loom, Inc., Class A .................................................. 471,544
US 2,700 General Motors Corp. .............................................................. 150,525
US 3,100 General Motors Corp., Class H ..................................................... 174,375
US 2,500 Georgia-Pacific Corp. ............................................................. 180,000
US 3,600 Goodyear Tire & Rubber Co. ........................................................ 184,950
US 12,200a Healthsource, Inc. ................................................................ 160,125
US 16,600 Highwoods Properties, Inc., REIT .................................................. 560,250
US 12,000 Horizon Group, Inc. ............................................................... 238,500
US 9,500 Houghton Mifflin Co. .............................................................. 537,938
US 18,200a Humana, Inc. ...................................................................... 348,075
US 3,500 International Business Machines Corp. ............................................. 528,500
US 13,000a Landstar System, Inc. ............................................................. 302,250
US 2,268 Lucent Technologies, Inc. ......................................................... 104,895
US 2,000 Merrill Lynch & Co., Inc. ......................................................... 163,000
US 5,300 Motorola, Inc. .................................................................... 325,287
US 8,000 Oregon Steel Mills, Inc. .......................................................... 134,000
US 1,800 PECO Energy Co. ................................................................... 45,450
US 5,200a Pinnacle Systems, Inc. ............................................................ 54,600
US 7,600 Post Properties, Inc., REIT ....................................................... 305,900
US 12,000 Presidential Life Corp. ........................................................... 144,750
US 13,500 Rouse Co. ......................................................................... 428,625
US 15,000 Summit Properties, Inc., REIT ..................................................... 331,875
US 17,500 Sun Co., Inc. ..................................................................... 426,563
US 1,400 Texas Utilties Co. ................................................................ 57,050
US 7,000 Torchmark Corp. ................................................................... 353,500
United States (cont.)
US 4,000 UNUM Corp. ........................................................................ $ 289,000
US 1,000 U.S. West Communications Group .................................................... 32,250
US 2,400 Valero Energy Corp. ............................................................... 68,700
US 7,100 Walbro Corp. ...................................................................... 129,575
US 7,500 Weeks Corp. ....................................................................... 249,375
US 17,000 Wheelabrator Technologies, Inc. ................................................... 276,250
------------
11,717,421
------------
Total Common Stocks (Cost $26,378,839) ...................................... 31,203,935
------------
Preferred Stocks 1.5%
Argentina 1.2%
US 4,700 Cia de Inversiones en Telecomunicaciones, SA, pfd. cvt. ........................... 246,750
US 7,800b Cia Inversiones Telecomunicaciones, SA, pfd., cvt. ................................ 409,500
------------
656,250
------------
Greece 0.3%
GR 29,990 Michaniki, SA, pfd. ............................................................... 198,750
------------
Total Preferred Stocks (Cost $921,813)....................................... 855,000
------------
Total Common Stocks and Preferred Stocks (Cost $27,300,652).................. 32,058,935
------------
Face
Amount
Bonds 28.1%
Argentina 1.4%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 ............................................ 107,750
US 100,000b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............................... 103,000
US 100,000 Republic of Argentina, 6.375%, FRN, 03/31/23 ...................................... 77,125
US 160,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 ............................. 102,000
US 200,000 Republic of Argentina, 11.00%, 10/09/06 ........................................... 211,000
US 200,000 Republic of Argentina, 9.25%, 02/23/01 ............................................ 202,000
------------
802,875
------------
Australia 2.1%
AU 1,240,000 Government of Australia, 10.00%, 10/15/02 ......................................... 1,118,454
AU 7,971 HIH Winterthur International Holdings, Ltd., 8.00%, 11/02/01 ...................... 33,706
------------
1,152,160
------------
Brazil 1.3%
US 150,000b Centrais Electricas Brasileiras, SA, 10.00%, 10/30/98 ............................. 156,000
US 100,000 Government of Brazil, 5.00%, 04/15/24 ............................................. 63,000
US 250,000 Government of Brazil, 6.50%, 04/15/24 ............................................. 192,969
US 430,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ...................... 327,069
------------
739,038
------------
Canada 0.8%
CA 480,000 Government of Canada, 10.25%, 02/01/04 ............................................ 433,404
------------
Denmark 1.2%
DK 235,000 Government of Denmark, 8.00%, 05/15/03 ............................................ 44,203
DK 1,320,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................... 248,803
DK 2,000,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................... 386,993
------------
679,999
------------
Ecuador 0.5%
US 400,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................................... 276,000
------------
Germany 0.4%
DD $ 100,000 Deutsche Bundespost, 7.75%, 10/01/04 .............................................. $ 72,993
DD 65,000 Federal Republic of Germany, 6.50%, 07/15/03 ...................................... 44,928
DD 80,000 Federal Republic of Germany, Bundes, 8.25%, 09/20/01 .............................. 59,533
DD 85,000 Federal Republic of Germany, Bundesobl, 6.625%, 01/20/98 .......................... 57,160
------------
234,614
------------
Indonesia 0.2%
US 87,000 PT Polysindo International Finance Co., Series B, 11.375%, 06/15/06 ............... 93,851
------------
Irish Republic 0.1%
IR 35,000 Republic of Ireland, 6.25%, 10/18/04 .............................................. 58,549
------------
Italy 3.4%
IT 490,000,000 Buoni Poliennali del Tes, 10.50%, 09/1/05.......................................... 386,247
IT 640,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ........................................ 476,369
US 490,000 Government of Italy, 5.00%, 06/28/01, cvt.......................................... 483,875
IT 780,000,000 Government of Italy, 10.50%, 07/15/00 ............................................. 576,459
------------
1,922,950
------------
Mexico 2.5%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ..................................................... 130,162
US 200,000b Cemex, SA, 10.75%, 07/15/00 ....................................................... 211,750
US 1,000,000 United Mexican States, 11.375%, 09/15/16 .......................................... 1,053,750
------------
1,395,662
------------
Netherlands 0.6%
NL 500,000 Netherlands Govt., 7.00%, 03/15/99, 1 & 2.......................................... 309,875
------------
New Zealand 1.0%
NZ 690,000 Government of New Zealand, 10.00%, 03/15/02 ....................................... 548,081
------------
Philippines 0.5%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ........................... 288,900
------------
Poland 0.7%
US 400,000b Poland Communications Inc., 9.875%, 11/01/03 ...................................... 397,500
------------
Spain 1.1%
ES 55,020,000 Government of Spain, 12.25%, 03/25/00 ............................................. 502,374
ES 13,580,000 Spain Govt., 10.15%, 01/31/06 ..................................................... 123,996
------------
626,370
------------
Sweden 1.2%
SE 500,000 Government of Sweden, 6.00%, 02/09/05 ............................................. 71,050
SE 1,900,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................... 339,932
SE 19,020,000 Kingdom of Sweden, 11.30%, 01/15/02 ............................................... 177,080
SE 300,000 Sweden Kingdom, 13.00%, 06/15/01 .................................................. 56,381
------------
644,443
------------
Trinidad and Tobago 0.3%
US 170,000b Sei Holdings IX Inc., 11.00%, 11/30/00 ............................................ 182,750
------------
United Kingdom 1.8%
GB 235,000 United Kingdom, 8.00%, 12/07/00 ................................................... 413,647
GB 80,000 United Kingdom, stk., 10.00%, 09/08/03 ............................................ 155,463
GB 235,000 United Kingdom, stk., 10.50%, 05/19/99 ............................................ 432,770
------------
1,001,880
------------
United States 5.7%
US $ 405,000 U.S. Treasury Bonds, 6.375%, 08/15/02 ............................................. $ 407,785
US 380,000 U.S. Treasury Notes, 7.875%, 11/15/99 ............................................. 398,288
US 380,000 U.S. Treasury Notes, 8.50%, 02/15/00 .............................................. 405,888
US 1,000,000 U.S. Treasury Notes, 6.125%, 07/31/00 ............................................. 1,000,313
US 1,010,000 U.S. Treasury Notes, 6.25%, 08/31/00 .............................................. 1,014,104
------------
3,226,378
------------
Venezuela 1.4%
US 250,000 Republic of Venezuela, 6.75%, 03/31/20, Par Bond, Series B......................... 191,250
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 .................................. 382,500
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................................... 220,312
------------
794,062
------------
Total Bonds (Cost $15,552,515)............................................... 15,809,341
------------
Total Long Term Investments (Cost $42,853,167)............................... 47,868,276
------------
h Receivables From Repurchase Agreements 13.9%
US 7,830,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,840,939) (Cost $7,838,000)
Collateral: U.S. Treasury Notes, 6.75%, 05/15/97 ................................. 7,838,000
------------
Total Investments (Cost $50,691,167) 99.0%.............................. 55,706,276
Other Assets and Liabilities, Net 1.0%.................................. 567,850
------------
Net Assets 100.0% ...................................................... $56,274,126
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $50,691,167 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 5,912,883
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value ....................................... (897,774)
------------
Net unrealized appreciation ..................................................... $ 5,015,109
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CZ - Czech Republic
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IR - Irish Republic
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
REIT - Real Estate Investment Trust
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Small Cap Fund (Note 1)
Common Stocks 91.0%
Commercial Services 1.5%
<C> <S> <C>
46,150a Labor Ready, Inc. ............................................................................ $ 623,025
72,200 Norrell Corp. ................................................................................ 1,967,450
------------
2,590,475
------------
Consumer Products Durables 4.6%
56,650a Belmont Homes, Inc. .......................................................................... 545,256
80,000a Cannondale Corp. ............................................................................. 1,800,000
106,250 Clayton Homes, Inc. .......................................................................... 1,434,375
79,500a Galoob Toys, Inc. ............................................................................ 1,113,000
75,000a K2, Inc. ..................................................................................... 2,062,500
21,700a RockShox, Inc. ............................................................................... 314,650
49,500a Southern Energy Homes, Inc. .................................................................. 569,250
------------
7,839,031
------------
Consumer Products Non-Durables 3.8%
3,200a Consolidated Cigar Holdings, Inc. ............................................................ 79,200
79,000a Designer Holdings, Ltd. ...................................................................... 1,273,875
100,000a Donna Karan International, Inc. .............................................................. 1,412,500
26,000a Scholastic Corp. ............................................................................. 1,748,500
41,000a Tommy Hilfiger Corp. ......................................................................... 1,968,000
------------
6,482,075
------------
Consumer Services 2.9%
95,000a CapStar Hotel Co. ............................................................................ 1,864,375
105,000a Prime Hospitality Corp. ...................................................................... 1,693,125
45,900a Starbucks Corp. .............................................................................. 1,313,888
10,100a Veterinary Centers of America, Inc. .......................................................... 111,100
------------
4,982,488
------------
Electronic Technology 8.4%
61,300a Komag, Inc. .................................................................................. 1,662,763
35,000a Lexmark International Group, Inc., Class A ................................................... 966,875
51,400 Logicon, Inc. ................................................................................ 1,876,100
54,000a Natural Microsystems Corp. ................................................................... 1,701,000
42,000a Newbridge Networks Corp. ..................................................................... 1,186,500
55,000a Quantum Corp. ................................................................................ 1,574,375
183,000a Spectralink Corp. ............................................................................ 480,375
98,300a Tekelec....................................................................................... 1,548,225
90,000a Tracor, Inc. ................................................................................. 1,912,500
25,000a Verilink Corp. ............................................................................... 831,250
150,000a Visioneer, Inc. .............................................................................. 675,000
------------
14,414,963
------------
Energy & Minerals 6.1%
140,000a,d Abacan Resource Corp. (Canada)................................................................ 1,216,250
49,000a Barrett Resources Corp. ...................................................................... 2,088,625
146,400a Cairn Energy USA, Inc. ....................................................................... 1,464,000
53,000 Devon Energy Corp. ........................................................................... 1,841,750
32,000a Input/Output, Inc. ........................................................................... 592,000
7,900a National-Oilwell, Inc. ....................................................................... 242,925
40,700a Parallel Petroleum Corp. ..................................................................... 190,781
74,000a Titan Exploration, Inc. ...................................................................... 888,000
81,600a Varco International, Inc. .................................................................... 1,887,000
------------
10,411,331
------------
Financial Services 7.5%
64,800a AmeriCredit Corp. ............................................................................ $ 1,328,400
46,300 Chartwell Re Corp. ........................................................................... 1,238,525
6,100a Delta Financial Corp. ........................................................................ 109,800
65,000a EVEREN Capital Corp. ......................................................................... 1,454,375
19,400 Executive Risk Inc. .......................................................................... 717,800
80,000 IPC Holdings Ltd. ............................................................................ 1,790,000
125,000a Risk Capital Holdings, Inc. .................................................................. 2,421,875
56,600d Scor, SA (France)............................................................................. 1,992,189
56,200a Silicon Valley Bancshares..................................................................... 1,812,450
------------
12,865,414
------------
Health Care Services 6.7%
38,600a Access Health, Inc. .......................................................................... 1,727,350
95,000a Amisys Managed Care Systems................................................................... 1,615,000
153,900a Capstone Pharmacy Services, Inc. ............................................................. 1,750,613
31,000a Health Systems International, Inc., Class A .................................................. 767,250
41,100a Medic Computer Systems, Inc. ................................................................. 1,656,844
219,000a Transition Systems, Inc. ..................................................................... 3,093,375
90,000a U.S. Diagnostic Labs, Inc. ................................................................... 832,500
------------
11,442,932
------------
Health Technology 5.3%
70,900a,k DepoTech Corp. ............................................................................... 1,160,988
12,400a Heartport, Inc. .............................................................................. 283,650
80,000 Mentor Corp. ................................................................................. 2,360,000
210,000a Neurobiological Technologies, Inc. ........................................................... 787,500
70,600a Noven Pharmaceuticals, Inc. .................................................................. 988,400
245,000a OrthoLogic Corp. ............................................................................. 1,378,125
50,700a Penederm, Inc. ............................................................................... 627,413
26,400a Pharmacopeia, Inc. ........................................................................... 511,500
24,300a Serologicals Corp. ........................................................................... 859,613
------------
8,957,189
------------
Industrial Services 1.0%
22,400a American Buildings Co. ....................................................................... 534,800
25,600 Butler Manufacturing Co. ..................................................................... 1,036,800
6,600a Waters Corp. ................................................................................. 200,475
------------
1,772,075
------------
Non-Energy Minerals 1.1%
57,400a Century Aluminum Co. ......................................................................... 990,150
47,900a Steel Dynamics, Inc. ......................................................................... 916,088
------------
1,906,238
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. .................................................................................. 459,025
106,400a Gentex Corp. ................................................................................. 2,141,300
38,000 Pittston Brink's Group........................................................................ 1,026,000
43,700 Roper Industries, Inc. ....................................................................... 1,709,763
56,100a UCAR International, Inc. ..................................................................... 2,110,763
------------
7,446,851
------------
Real Estate Investment Trust 5.3%
53,200a Arden Realty Group, Inc. ..................................................................... $ 1,476,300
45,000 Bay Apartment Communities, Inc. .............................................................. 1,620,000
90,300 Equity Inns, Inc. ............................................................................ 1,173,900
50,000 FelCor Suite Hotels, Inc. .................................................................... 1,768,750
27,400 Omega Healthcare Investors, Inc. ............................................................. 911,050
26,000 Storage Trust Realty.......................................................................... 702,000
98,000 Winston Hotels, Inc. ......................................................................... 1,335,250
------------
8,987,250
------------
Retail 1.9%
3,200a Abercrobmbie & Fitch Co. ..................................................................... 52,800
75,000a AnnTaylor Stores Corp. ....................................................................... 1,312,500
25,500a Borders Group, Inc. .......................................................................... 914,813
100,000a Rent-Way, Inc. ............................................................................... 962,500
------------
3,242,613
------------
Semiconductors 10.2%
48,000a Adaptec, Inc. ................................................................................ 1,920,000
20,000a Altera Corp. ................................................................................. 1,453,750
33,000a C-Cube Microsystems, Inc. .................................................................... 1,218,938
45,500a Etec Systems, Inc. ........................................................................... 1,740,375
12,700a Exar Corp. ................................................................................... 196,850
56,100a Lattice Semiconductor Corp. .................................................................. 2,580,600
55,000 Linear Technology Corp. ...................................................................... 2,413,125
87,600a Micro Linear Corp. ........................................................................... 755,550
110,000a Sierra Semiconductor Corp. ................................................................... 1,650,000
38,200a Uniphase Corp. ............................................................................... 2,005,500
41,000a Xilinx, Inc. ................................................................................. 1,509,313
------------
17,444,001
------------
Technology Services 11.4%
49,800a Affiliated Computer Services, Inc. ........................................................... 1,481,550
25,000a Broderbund Software, Inc. .................................................................... 743,750
94,700a Business Objects SA, ADR...................................................................... 1,278,450
47,200a First USA Paymentech, Inc. ................................................................... 1,598,900
12,400a Forrester Research, Inc. ..................................................................... 319,300
25,700a Fractal Design Corp. ......................................................................... 269,850
47,400a HNC Software, Inc. ........................................................................... 1,487,175
134,000a Integrated Systems, Inc. ..................................................................... 3,484,000
61,000a Mercury Interactive Corp. .................................................................... 793,000
122,500a Phoenix Technologies, Ltd. ................................................................... 1,975,313
20,000a Rainbow Technologies, Inc. ................................................................... 372,500
28,000a Sapient Corp. ................................................................................ 1,179,500
10,000a SS&C Technologies, Inc. ...................................................................... 63,750
29,463a Sterling Commerce, Inc. ...................................................................... 1,038,571
48,500a Sterling Software, Inc. ...................................................................... 1,533,813
52,000a Symantec Corp. ............................................................................... 754,000
19,000a Synopsys, Inc. ............................................................................... 878,750
4,100a Versatility Inc. ............................................................................. 61,500
4,900a West TeleServices Corp. ...................................................................... 111,475
12,400a White Pine Software, Inc. .................................................................... 89,900
------------
19,515,047
------------
Transportation 3.5%
50,000 Air Express International Corp. .............................................................. $ 1,612,500
51,000a Atlantic Coast Airlines, Inc. ................................................................ 624,750
60,000 Expeditors International of Washington, Inc. ................................................. 1,380,000
51,000 Harper Group, Inc. ........................................................................... 1,211,250
46,000a Landstar System, Inc. ........................................................................ 1,069,500
------------
5,898,000
------------
Utilities/Communications 5.4%
68,400a Bell Cablemedia Plc. ......................................................................... 1,060,200
36,000a CommNet Cellular.............................................................................. 1,003,500
64,500 HSN, Inc. .................................................................................... 1,531,875
120,000a ICG Communications, Inc. ..................................................................... 2,115,000
92,900a Primus Telecommunications Group, Inc. ........................................................ 1,184,475
92,500a Rural Cellular Corp. ......................................................................... 890,313
109,600a Western Wireless Corp. ....................................................................... 1,520,700
------------
9,306,063
------------
Total Common Stock (Cost $145,043,670).................................................. 155,504,036
------------
Face
Amount
Convertible Corporate Bonds 0.6%
$ 825,000b US Diagnostic Labs, Inc., cvt. sub. deb., 9.00%, 03/31/03 (Cost $1,062,035)................... 1,014,742
------------
Total Long Term Investments (Cost $146,105,705)......................................... 156,518,778
------------
h,i Receivables from Repurchase Agreements 9.6%
16,198,707 Joint Repurchase Agreements, 6.59%, 01/02/97 Maturity Value $16,483,763) (Cost $16,477,730)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,919)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 16,477,730
------------
Total Investments (Cost $162,583,435) 101.2%....................................... 172,996,508
Liabilities in Excess of Other Assets (1.2%)....................................... (2,027,538)
------------
Net Assets 100%.................................................................... $170,968,970
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$162,646,140 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 19,710,416
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (9,355,635)
------------
Net unrealized appreciation ................................................................ $ 10,354,781
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Capital Growth Fund (Note 1)
Common Stocks 84.5%
Commercial Services 2.3%
<C> <S> <C>
15,000 Equifax, Inc. .................................................................................. $ 459,375
16,000a Robert Half International, Inc.................................................................. 550,000
------------
1,009,375
------------
Consumer Products - Durables 2.5%
7,000 Duracell International, Inc..................................................................... 489,125
22,000 Mattel, Inc..................................................................................... 610,500
------------
1,099,625
------------
Consumer Products - Non-Durables 5.9%
5,000 Campbell Soup Co................................................................................ 401,250
35,000a Donna Karan International, Inc.................................................................. 494,375
8,000 Hershey Foods Corp.............................................................................. 350,000
25,000 PepsiCo, Inc.................................................................................... 731,250
3,500 Proctor & Gamble Co............................................................................. 376,250
6,000 The Coca-Cola Co................................................................................ 315,750
------------
2,668,875
------------
Consumer Services 3.3%
15,000a CUC International, Inc.......................................................................... 356,250
6,000 Disney (Walt) Co................................................................................ 417,750
33,000a Mirage Resorts, Inc............................................................................. 713,625
------------
1,487,625
------------
Electronic Technology 14.1%
6,500a 3Com Corp....................................................................................... 476,938
8,000a Ascend Communications, Inc...................................................................... 497,000
10,000a Bay Networks.................................................................................... 208,750
20,000a Cabletron Systems, Inc.......................................................................... 665,000
14,500a Cisco Systems, Inc.............................................................................. 922,563
4,000a Compaq Computer Corp............................................................................ 297,000
8,000 Hewlett-Packard Co.............................................................................. 402,000
10,000a Imation Corp.................................................................................... 281,250
10,000 Molex, Inc...................................................................................... 391,250
18,000a Newbridge Networks Corp......................................................................... 508,500
15,000a Silicon Graphics, Inc........................................................................... 382,500
6,000 United Technologies Corp........................................................................ 396,000
12,000a U.S. Robotics Corp.............................................................................. 864,000
------------
6,292,751
------------
Energy & Minerals 4.3%
15,000a Barrett Resources Corp.......................................................................... 639,375
27,000 Enron Oil & Gas Co.............................................................................. 681,750
3,500 Royal Dutch Petroleum Co., New York Shares, ADR................................................. 597,625
------------
1,918,750
------------
Financial Services 5.9%
5,000 American International Group, Inc............................................................... 541,250
5,000 Citicorp ....................................................................................... 515,000
13,000 Federal National Mortgage Association........................................................... 484,250
18,000 Schwab (Charles) Corp........................................................................... 576,000
2,000 Wells Fargo & Co................................................................................ 539,500
------------
2,656,000
------------
Health Care Services 2.0%
5,500a Oxford Health Plans, Inc........................................................................ $ 322,094
7,000a Pacificare Health Systems, Inc., Class B........................................................ 596,750
------------
918,844
------------
Health Technology 11.9%
10,000 Abbott Laboratories............................................................................. 511,250
12,000 Allergan, Inc................................................................................... 427,500
7,000 American Home Products Corp..................................................................... 410,375
10,000a Amgen, Inc...................................................................................... 543,750
12,000 Baxter International, Inc....................................................................... 492,000
7,000a Boston Scientific Corp.......................................................................... 420,000
15,000 Johnson & Johnson............................................................................... 746,250
7,000 Lilly (Eli) & Co................................................................................ 511,000
27,000 Mentor Corp..................................................................................... 796,500
6,000 Merck & Co., Inc................................................................................ 475,500
------------
5,334,125
------------
Industrial Services 0.7%
3,000 Schlumberger, Ltd............................................................................... 299,625
------------
Process Industries 2.9%
6,000 Air Products and Chemicals, Inc................................................................. 414,750
11,000 Millipore Corp.................................................................................. 455,125
7,000 Sigma-Aldrich Corp.............................................................................. 437,063
------------
1,306,938
------------
Producer Manufacturing 3.3%
5,000 Emerson Electric Co............................................................................. 483,750
6,000 Minnesota Mining & Manufacturing Co............................................................. 497,250
15,000a U.S. Filter Corp................................................................................ 476,250
------------
1,457,250
------------
Retail 1.1%
10,000 McDonald's Corp................................................................................. 452,500
------------
Semiconductors 3.4%
5,000 Intel Corp...................................................................................... 654,688
10,000 Linear Technology Corp.......................................................................... 438,750
12,000a Xilinx, Inc..................................................................................... 441,750
------------
1,535,188
------------
Software/Technology Services 14.1%
15,000 Adobe Systems, Inc.............................................................................. 560,625
14,000 Automatic Data Processing, Inc.................................................................. 600,250
15,000a Broderbund Software, Inc........................................................................ 446,250
17,000 Electronic Data Systems Corp. .................................................................. 735,250
22,000 First Data Corp................................................................................. 803,000
22,000a Informix Corp................................................................................... 448,250
20,000a Intuit, Inc..................................................................................... 630,000
2,400a Microsoft Corp.................................................................................. 198,300
12,000a Oracle Corp..................................................................................... 501,000
21,000a Sabre Group Holdings, Inc....................................................................... 585,375
10,000a Sterling Commerce, Inc.......................................................................... 352,500
Software/Technology Services (cont.)
13,000a Sterling Software, Inc.......................................................................... $ 411,124
1,200a West TeleServices Corp.......................................................................... 27,300
------------
6,299,224
------------
Transportation 2.7%
22,000 Air Express International Corp.................................................................. 709,500
22,000 Southwest Airlines Co........................................................................... 486,750
------------
1,196,250
------------
Utilities 4.1%
12,000a AES Corp........................................................................................ 558,000
25,000a AirTouch Communications, Inc.................................................................... 631,250
7,000d Deutsche Telekom (Germany) ..................................................................... 147,187
11,000 GTE Corp........................................................................................ 500,500
------------
1,836,937
------------
Total Long Term Investments (Cost $35,787,432)............................................ 37,769,882
------------
Face
Amount
h,iReceivables from Repurchase Agreements 17.7%
$ 7,767,535 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $7,904,293) (Cost $7,901,400)
Aubrey G. Lanston & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $970,506)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................... 7,901,400
------------
Total Investments (Cost $43,688,832) 102.2%.......................................... 45,671,282
Liabilities in Excess of Other Assets (2.2%)......................................... (1,004,571)
------------
Net Assets 100.0% ................................................................... $44,666,711
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $43,688,832
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 2,753,332
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (770,882)
------------
Net unrealized appreciation .................................................................. $ 1,982,450
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton International Smaller Companies Fund (Note 1)
Common Stocks & Warrants 58.5%
Argentina 0.8%
<S> <C> <C> <C>
US 100 Comercial Industrial Financiera Inmobiliari Agropecuaria, ADR ....................... $ 195
US 24,300a,b Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR ..................... 47,385
US 7,000 Transportadora de Gas del Sur, SA, Class B, ADR ..................................... 85,750
------------
133,330
------------
Australia 0.9%
AU 6,000 Davids, Ltd. ........................................................................ 8,441
AU 44,000 Email, Ltd. ......................................................................... 145,460
------------
153,901
------------
Austria 1.5%
AT 3,453 Boehler Uddeholm, AG ................................................................ 247,087
------------
Canada 0.2%
CA 1,480 Hudson Bay Co. ...................................................................... 24,747
------------
China 2.3%
CN 40,000 China International Marine Containers, Class B ...................................... 46,545
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H .................................... 62,486
US 92,000b Guangdong Electric Power Development Co., Ltd., Class B ............................. 81,360
US 40,000b Guangdong Kelon Electrical Holdings, Ltd., Class H, ADR ............................. 25,858
CN 92,000 Guangdong Kelon Electrical Holdings, Ltd., Class H .................................. 59,474
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ..................................... 101,430
------------
377,153
------------
Denmark 2.4%
DK 2,252 Det Danske Traelastkompagni, AS ..................................................... 206,883
DK 7,200 ISS International Service System, AS, Class B ....................................... 189,506
------------
396,389
------------
Ecuador 0.9%
US 625b La Cemento Nacional CA, GDR ......................................................... 143,125
------------
France 2.1%
FR 38 Eramet, SA .......................................................................... 1,993
FR 1,283 Marine Wendel ....................................................................... 117,784
FR 294a Sa des Galeries Lafayette ........................................................... 104,672
FR 2,356 Vallourec ........................................................................... 124,957
------------
349,406
------------
Germany 0.6%
DD 1,686 Moebel Walther, AG .................................................................. 93,149
------------
Hong Kong 6.8%
HK 904,000 Baltrans Holdings, Ltd. ............................................................. 122,723
HK 432,100 C.P. Pokphand Co., Ltd. ............................................................. 168,996
HK 79,000 Giordano International, Ltd. ........................................................ 67,412
HK 125,052 Hung Hing Printing Group, Ltd. ...................................................... 45,271
HK 153,000 Kumagai Gumi Hong Kong, Ltd. ........................................................ 178,033
HK 7,800a Kumagai Gumi Hong Kong, Ltd., warrants .............................................. 3,328
HK 77,000 Li & Fung, Ltd. ..................................................................... 68,195
HK 26,000 Orient Overseas International, Ltd. ................................................. 16,976
HK 1,225 Peregrine Investments Holdings, Ltd. ................................................ 2,099
HK 535,000 Sinocan Holdings, Ltd. .............................................................. 262,848
HK 23,000 Swank International Manufacturing Co., Ltd. ......................................... 3,479
Hong Kong (cont.)
HK 741,000 Techtronic Industries Co., Ltd. ..................................................... $ 110,175
HK 12,000 Wing Hang Bank ...................................................................... 54,457
------------
1,103,992
------------
Hungary 0.4%
US 5,560a,b Tiszai Vegyi Kombinat RT, GDR ....................................................... 62,828
------------
Indonesia 2.3%
ID 144,100 PT Steady Safe, fgn. ................................................................ 184,548
ID 106,000 PT Tambang Timah (Persero), fgn. .................................................... 192,972
------------
377,520
------------
Italy 1.0%
IT 9,566 Cartiere Burgo, SPA ................................................................ 44,170
US 3,600a,b Esaote Biomedica, SPA, ADR .......................................................... 113,580
------------
157,750
------------
Mexico 0.6%
MX 151,800a Empaques Ponderosa, SA de CV, Class B ............................................... 93,911
------------
Netherlands 7.0%
NL 1,223 Crown-Van Gelder Papier, SA ......................................................... 109,868
NL 3,096 De Boer Winkelbedrijven, NV ......................................................... 217,877
NL 3,000 Gamma Holdings, NV .................................................................. 144,917
NL 960 Hollandsche Beton Groep, NV ......................................................... 199,006
NL 3,744 Internatio-Mueller, NV .............................................................. 94,115
NL 1,850a Nagron Nationaal Grondbezit, NV ..................................................... 180,017
NL 4,850 Schuttersveld Holding................................................................ 196,079
------------
1,141,879
------------
New Zealand 2.6%
NZ 6,625 Fisher & Paykel, Ltd. ............................................................... 25,994
NZ 66,054 Fletcher Challenge, Ltd., Forestry Division ......................................... 110,671
NZ 70,500 Tourism Holdings, Ltd. .............................................................. 134,568
NZ 8,900a Tranz Rail Holdings, Ltd., ADR ...................................................... 157,419
------------
428,652
------------
Norway 2.3%
NO 12,300 Helikopter Services Group, ASA ...................................................... 160,066
NO 600 Norske Skogindustrier, AS, Class A .................................................. 20,179
NO 6,300 Union Bank of Norway, Primary Capital Certificate ................................... 197,060
------------
377,305
------------
South Africa 0.8%
ZA 12,400 Impala Platinum Holdings, Ltd. ...................................................... 123,907
------------
Spain 6.9%
ES 3,272 Banco de Valencia, SA ............................................................... 63,890
ES 4,000 Banco Pastor, SA .................................................................... 256,345
ES 1,291 Cristaleria Espanola, SA ............................................................ 101,430
ES 1,250 Cubiertas y Mzov, SA ................................................................ 96,283
ES 5,755 Dragados y Construcciones, SA ....................................................... 88,658
ES 1,500 Electricas Reunidas de Zaragoza ..................................................... 60,081
ES 34,500 Energia e Industrias Aragonesas Eia S ............................................... 191,334
Spain (cont.)
ES 3,700 Gesa-Gas y Electricidad, SA ......................................................... $ 236,549
ES 3,323 Uralita, SA ......................................................................... 25,980
------------
1,120,550
------------
Sweden 5.9%
SE 8,000 Catena, Class A ..................................................................... 100,882
SE 4,000a Celsius, AB, Class B ................................................................ 63,051
SE 4,800a Dahl International, AB .............................................................. 100,999
US 6,300a,b Dahl International, AB, ADR ......................................................... 132,562
SE 5,800 Foreningsbanken, AB, Class A ........................................................ 29,171
SE 8,060 Marieberg Tidnings, AB, Class A ..................................................... 197,368
SE 12,995 Munksjo, AB ......................................................................... 131,477
SE 18,145 Scribona, AB, Class B ............................................................... 203,537
SE 1,200 Stena Line, AB, Class B, free ....................................................... 5,367
------------
964,414
------------
Switzerland 1.2%
CH 52 Sarna Kunststoff Holding, AG ........................................................ 49,145
CH 200 Swisslog Holding, AG ................................................................ 55,136
CH 245 Zehnder Holding, AG ................................................................. 84,199
------------
188,480
------------
Thailand 0.5%
TH 9,400a Alphatec Electronics Public Co., Ltd., fgn. ......................................... 72,206
TH 4,800 Robinson Depart. Store Public Co., Ltd., fgn. ....................................... 9,311
------------
81,517
------------
Turkey 0.1%
US 98,875a Tofas Turk Otomobil Fabrikasi, AS, GDR .............................................. 18,292
------------
United Kingdom 8.4%
GB 35,337 Albert Fisher Group, Plc. ........................................................... 25,425
GB 182,524 Apv, Plc. ........................................................................... 240,764
GB 124,400 Hazlewood Foods, Plc. ............................................................... 229,092
GB 200,500 Howden Group, Plc. .................................................................. 266,193
GB 45,500 Lex Service, Plc. ................................................................... 247,867
GB 64,100 McBride, Plc. ....................................................................... 149,340
GB 500 Sea Containers Ltd., Class A ........................................................ 7,813
GB 66,700 Wace Group, Plc. .................................................................... 119,976
GB 11,200a Wagon Industrial Holdings, Plc. ..................................................... 57,560
------------
1,344,030
------------
Total Common Stocks & Warrants (Cost $8,383,250) .............................. 9,503,314
------------
Preferred Stocks 3.0%
Brazil 1.8%
BR 5,207,000 Bombril, SA ......................................................................... 85,188
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ........................................... 12,229
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. .......................................... 106,909
BR 205,000 Weg, SA, pfd. ....................................................................... 96,670
------------
300,996
------------
Netherlands 1.2%
NL 4,025 Ballast Nedam, NV, ctf., conv., pfd. ................................................ $ 196,063
------------
Total Preferred Stocks (Cost $513,051) ........................................ 497,059
------------
Total Long Term Investments (Cost $8,896,301) ................................. 10,000,373
------------
Face
Amount
h Receivables from Repurchase Agreements 39.0%
US $1,955,000 Aubrey G Lanston & Co., 6.75%, 01/02/97, (Maturity Value $2,040,531)
Collateral: U.S. Treasury Notes, 7.25%, 02/15/98 ................................... 2,000,000
US 1,960,000 UBS Securities Inc., 6.75%, 01/02/97, (Maturity Value $2,040,850)
Collateral: U.S. Treasury, 6.375%, 01/15/00 ........................................ 2,000,000
US 2,370,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $2,386,572)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98 ................................... 2,338,000
------------
Total Receivables from Repurchase Agreements (Cost $6,338,000) ................ 6,338,000
------------
Total Investments (Cost $15,234,301) 100.5% .............................. 16,338,373
Liabilities in Excess of Other Assets (0.5%) ............................. (83,335)
------------
Net Assets 100.0% ........................................................ $16,255,038
============
At December 31, 1996, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $15,234,301 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.......................................... $ 1,284,614
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ......................................... (180,542)
------------
Net unrealized appreciation ....................................................... $ 1,104,072
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
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 transactions; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Mutual Shares Securities Fund (Note 1)
Common Stocks & Warrants 61.5%
Aerospace 1.6%
<C> <S> <C>
8,000 General Motors Corp., Class H................................................................. $ 450,000
------------
Automobile 1.8%
9,000 General Motors Corp. ......................................................................... 501,750
------------
Banking 0.7%
3,500a Standard Federal Bancorporation .............................................................. 199,063
------------
Chemicals 3.1%
3,000d BASF AG ...................................................................................... 115,437
2,000d DSM NV ....................................................................................... 197,394
14,500 Olin Corp..................................................................................... 545,562
------------
858,393
------------
Conglomerates 3.3%
10,000a American Standard Cos., Inc. ................................................................. 382,500
65,000d BTR, Plc. .................................................................................... 316,237
5,000a,d Investor, AB, Class B ........................................................................ 221,046
------------
919,783
------------
Construction & Housing 1.3%
14,800 Martin Marietta Materials, Inc................................................................ 344,100
------------
Consumer Products 3.2%
6,000 American Brands, Inc.......................................................................... 297,750
25,000d BAT Industries, Plc........................................................................... 207,498
25,000 Dial Corp. ................................................................................... 368,750
------------
873,998
------------
Electrical & Electronics 1.6%
8,500 Xerox Corp. .................................................................................. 447,313
------------
Energy 5.2%
11,700 Ashland, Inc.................................................................................. 513,338
29,300d Saga Petroleum, AS, Class B................................................................... 459,392
26,100d Shell Transport & Trading Co., Plc. .......................................................... 452,259
------------
1,424,989
------------
Financial Services 2.2%
2,000 Beneficial Corp. ............................................................................. 126,750
40,000 Mercury Finance Co. .......................................................................... 490,000
------------
616,750
------------
Food & Beverages 1.6%
53,000d Cadbury Schweppes, Plc........................................................................ 447,160
------------
Health Care Services 5.2%
24,000a Beverly Enterprises .......................................................................... 306,000
5,200a Foundation Health Corp. ...................................................................... 165,100
15,000a Mid-Atlantic Medical Services ................................................................ 200,625
17,600a Tenet Healthcare Corp. ....................................................................... 385,000
13,400 Imation Corp ................................................................................. 376,875
------------
1,433,600
------------
Industrial Components 7.8%
15,000 ITT Industries ............................................................................... $ 367,500
16,000d Lagardere Sca ................................................................................ 439,421
80,000a,d Lucas Varity, Plc............................................................................. 304,930
7,800a Owens-Illinois, Inc........................................................................... 177,450
19,000 Federal Mogul Corp. .......................................................................... 418,000
21,500a New Holland NV ............................................................................... 448,813
------------
2,156,114
------------
Insurance 7.3%
25,000 20th Century Industries ...................................................................... 421,875
1,500a Alleghany Corp. .............................................................................. 318,000
4,000 AON Corp. .................................................................................... 248,500
8,000 Argonaut Group ............................................................................... 246,000
7,500 Home Beneficial Corp., Class B ............................................................... 284,063
8,900a ITT Hartford Group, Inc. ..................................................................... 386,038
3,000 Selective Insurance Group .................................................................... 114,000
------------
2,018,476
------------
Metals & Mining 2.8%
25,000a LTV Corp. .................................................................................... 296,875
8,500 Reynolds Metals Co. .......................................................................... 479,188
------------
776,063
------------
Printing, Publishing & Media 5.1%
20,000 Comcast Corp., Class A........................................................................ 356,250
14,000 Dun & Bradstreet Corp. ....................................................................... 332,500
7,500 Knight-Ridder, Inc............................................................................ 286,875
12,500 Scripps (EW) Co., Class A..................................................................... 437,500
------------
1,413,125
------------
Retail 2.4%
13,600 Dillard Dept. Stores, Inc., Class A........................................................... 419,900
4,000a Vons Companies, Inc........................................................................... 239,500
------------
659,400
------------
Telecommunications 3.2%
7,600 AT&T Corp. ................................................................................... 330,600
4,000 MCI Communications Corp. ..................................................................... 130,750
12,000 Telephone & Data Systems, Inc................................................................. 435,000
------------
869,350
------------
Transportation 2.1%
2,000 Burlington Northern Santa Fe Corp. ........................................................... 172,750
8,000 Ryder Systems, Inc............................................................................ 225,000
4,300 Xtra Corp. ................................................................................... 186,513
------------
584,263
------------
Total Common Stocks (Cost $16,461,251).................................................. 17,020,690
------------
Options 1.0%
12,000a,n Cityscape Financial Corp., January/20/Call (Cost $240,000).................................... 283,500
------------
Total Common Stocks & Options (Cost $16,701,251)........................................ 17,304,190
------------
Face
Amount
Bonds 1.5%...................................................................................
$ 100,000 Comcast Cellular, 0.0% 03/05/00 .............................................................. $ 72,375
175,000 Consorcio G Grupo Dina, SA, 8.00%, 8/08/04 ................................................... 145,250
100,000 Consorcio G Grupo Dina, SA, 8.00%, 11/15/02 .................................................. 63,000
150,000b Uniforet, Inc., 11.125%, 10/15/06 ............................................................ 140,250
------------
Total Bonds (Cost $411,314)............................................................. 420,875
------------
Total Long Term Investments (Cost $17,112,565).......................................... 17,725,065
------------
f Short Term Investments 40.1%
Federal National Mortgage Association,
4,700,000 5.50%, 1/08/97 ............................................................................. 4,696,660
2,400,000 5.50%, 1/13/97 ............................................................................. 2,395,950
4,000,000 5.50%, 1/14/97 ............................................................................. 3,992,640
------------
Total Short Term Investments (Cost $11,080,933)..................................... 11,085,250
------------
Total Investments (Cost $28,193,498) 104.1%........................................ 28,810,315
Liabilities in Excess of Other Assets, Net (4.1%)................................. (1,133,393)
------------
Net Assets 100.0% ................................................................ $27,676,922
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$28,193,498 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 718,006
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (101,189)
------------
Net unrealized appreciation ................................................................ $ 616,817
============
</TABLE>
aNon-income producing.
bPurchased in private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Warrants Mutual Discovery Securities Fund (Note 1)
Common Stocks 60.9%
Aerospace 0.6%
<S> <C> <C>
3,000a,d Thomson CSF .................................................................................... $ 97,377
------------
Automobile 1.1%
3,000 General Motors Corp. ........................................................................... 167,250
------------
Banking 0.6%
1,500a Standard Federal Bancorporation, Inc............................................................ 85,313
------------
Chemicals 3.3%
1,700d BASF AG ........................................................................................ 65,414
4,000a Chemfirst, Inc.................................................................................. 92,500
1,336a Mississippi Chemical Corp. ..................................................................... 32,064
6,600 Olin Corp. ..................................................................................... 248,325
2,000d Rhone-Poulenc, SA, Class A...................................................................... 68,235
------------
506,538
------------
Conglomerates 7.1%
30,000d BTR, Plc........................................................................................ 145,955
80a,d Cie Financiere Richemont AG, Class A............................................................ 112,365
2,600d Empire Co. Ltd., Class A........................................................................ 25,154
210,000d Hanson, Plc..................................................................................... 293,196
3,000a,d Investor AB, Class B............................................................................ 132,628
9,000a,d Kinnevik AB, Class B............................................................................ 248,099
30,000d Tomkins, Plc.................................................................................... 137,990
------------
1,095,387
------------
Construction & Housing 0.8%
5,200 Martin Marietta Materials, Inc.................................................................. 120,900
------------
Consumer Products 0.9%
16,000d BAT Industries, Plc............................................................................. 132,799
------------
Electrical & Electronics 2.1%
1,500a Amphenol Corp., Class A......................................................................... 33,375
14,500 Wang Labs, Inc.................................................................................. 293,625
------------
327,000
------------
Energy 6.7%
10,000 ENSERCH Corp. .................................................................................. 230,000
16,600d Saga Petroleum, AS, Class B..................................................................... 260,270
14,800d Shell Transport & Trading Co., Plc. ............................................................ 256,453
1,450d Societe Elf Aquitane, SA ....................................................................... 132,080
8,000 Southwest Gas Corp ............................................................................. 154,000
------------
1,032,803
------------
Financial Services 2.9%
7,600a,d Compagnie de Suez, SA........................................................................... 323,348
8,000a SPS Transaction Services, Inc................................................................... 122,000
------------
445,348
------------
Food & Beverage 1.6%
30,000d Cadbury Schweppes, Plc.......................................................................... 253,109
------------
Health Care Services 6.4%
18,000a Apria Healthcare Group, Inc..................................................................... 337,500
4,000a Beverly Enterprises ............................................................................ 51,000
3,200a Foundation Health Corp. ........................................................................ 101,600
7,600 Imation Corp. .................................................................................. 213,750
Health Care Services (cont.)
5,000a Mid Atlantic Medical Services .................................................................. $ 66,875
9,700a Tenet Healthcare Corp. ......................................................................... 212,187
------------
982,912
------------
Industrial Components 4.3%
2,500d Aker, A/S, Class A.............................................................................. 55,660
10,000 Federal Mogul Corp. ............................................................................ 220,000
9,000d Lagardere Sca .................................................................................. 247,175
1,570 Lyonnais des Eaux SA ........................................................................... 146,220
------------
669,055
------------
Insurance 3.5%
2,500 20th Century Industries ........................................................................ 42,187
7,000 Arthur J Gallagher Co. ......................................................................... 217,000
1,000d Axa, SA......................................................................................... 63,645
3,000 Home Beneficial Corp., Class B.................................................................. 113,625
3,000 PXRE Corp. ..................................................................................... 74,250
500 Reliable Life Insurance Co., Class A............................................................ 34,250
------------
544,957
------------
Metals & Mining 0.9%
16,000a WHX Corp. ...................................................................................... 142,000
------------
Printing, Publishing & Media 9.6%
6,000 Comcast Corp., Class A.......................................................................... 106,875
12,000a,d De Telegraaf Holding NV ........................................................................ 252,997
4,800 Dun & Bradstreet Corp. ......................................................................... 114,000
3,000d EMI Group, Plc.................................................................................. 70,922
500a,d Pathe, SA....................................................................................... 120,540
20,600a,d Pearson, Plc.................................................................................... 264,496
25,000d Southam, Inc.................................................................................... 347,742
11,000d United News & Media, Plc........................................................................ 131,060
2,000a Young Broadcasting Corp., Class A............................................................... 58,500
------------
1,467,132
------------
Retail 3.5%
27,400d Vendome Luxury Group, Plc....................................................................... 249,949
11,000a Waban, Inc. .................................................................................... 286,000
------------
535,949
------------
Telecommunications 2.1%
1,600 AT&T Corp. ..................................................................................... 69,600
2,000 MCI Communications Corp. ....................................................................... 65,375
19,500a United States Satelite Broadcasting Co., Inc., Class A.......................................... 195,000
------------
329,975
------------
Transportation 2.9%
20,000a Fritz Companies ................................................................................ 255,000
8,000a M.S. Carriers, Inc.............................................................................. 128,000
2,500 Ryder Systems, Inc.............................................................................. 70,313
------------
453,313
------------
Total Common Stocks (Cost $9,174,523)..................................................... 9,389,117
------------
Option 1.2%
8,000a,n Cityscape Financial Corp., January/20/Call (Cost $160,000)...................................... $ 189,000
------------
Preferred Stock 0.4%
1,000 Granite Broadcasting Corp., cvt., pfd. (Cost $62,000)........................................... 56,500
------------
Total Common Stocks & Options & Preferred Stock (Cost $9,396,523)......................... 9,634,617
------------
Face
Amount
Bonds 0.7%
$ 100,000 Consorcio G Grupo Dina, SA, 11/15/02............................................................ 83,000
50,000 Consorcio G. Grupo Dina, SA, 8.00%, 08/08/04.................................................... 31,500
------------
Total Bonds (Cost $113,930)............................................................... 114,500
------------
Total Long Term Investments (Cost $9,510,453)............................................. 9,749,117
------------
f Short Term Investments 44.7%
Federal National Mortgage Association,
2,800,000 5.50%, 01/08/97 .............................................................................. 2,798,013
1,600,000 5.50%, 01/13/97 .............................................................................. 1,597,300
2,500,000 5.50%, 01/14/97 .............................................................................. 2,495,400
------------
Total Short Term Investments (Cost $6,888,053)............................................. 6,890,713
------------
Total Investments 107.9% (Cost $16,398,506)........................................... 16,639,830
Liabilities in Excess of Other Assets, Net (7.9%)..................................... (1,222,100)
------------
Net Assets 100.0% .................................................................... $15,417,730
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $16,398,506
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 326,363
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (85,039)
------------
Net unrealized appreciation .................................................................. $ 241,324
============
</TABLE>
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................. $201,946,322 $406,708,119 $100,015,691 $218,988,176 $837,991,438
========== ========== ========== ========== ==========
At value............................................ 207,971,426 424,943,010 105,283,600 298,843,244 845,037,886
Receivables from repurchase agreements, at value
and cost............................................. 7,277,000 13,463,468 3,467,349 23,119,441 12,617,646
Cash................................................. 71 78,643 812,903 -- 6,673
Receivables:
Dividends and interest.............................. 6,037,134 7,813,047 88,045 1,974,322 6,569,453
Investment securities sold.......................... -- -- -- -- 459,215
Capital shares sold................................. -- -- -- 243,911 77,178
Unrealized gain on forward foreign currency contracts
(Note 2)............................................. 750,169 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total assets.................................... 222,035,800 446,298,168 109,651,897 324,180,918 864,768,051
---------- ---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................... -- -- -- 220,928 --
Delayed delivery (Note 1).......................... -- -- -- -- 19,808,854
Capital shares repurchased.......................... 84,774 -- -- 1,093,736 731,274
Management fees..................................... 101,580 188,287 56,939 136,471 347,440
Accrued expenses and other liabilities............... 39,611 14,356 16,373 8,588 22,966
Unrealized loss on forward foreign currency contracts
(Note 2)............................................. 87,366 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total liabilities............................... 313,331 202,643 73,312 1,459,723 20,910,534
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................. $ 12,596,126 $ 37,005,221 $ 1,214,989 $ 11,259,725 $ 42,920,983
Net unrealized appreciation on investments and
translation of assets and liabilities denominated in
foreign currencies................................... 6,671,970 18,234,139 5,273,371 79,855,068 7,046,448
Accumulated net realized gain (loss) from investments (4,045,845) 1,211,890 (146,066) 5,025,389 (15,868,007)
Capital shares....................................... 206,500,218 389,644,275 103,236,291 226,581,013 809,758,093
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Shares outstanding.................................... 16,287,427 31,511,357 7,668,120 14,568,012 62,667,403
========== ========== ========== ========== ==========
Net asset value per share............................. $13.61 $14.16 $14.29 $22.15 $13.47
========== ========== ========== ========== ==========
Representative computation of net asset value of Templeton Global Income
Securities Fund:
Net asset value, offering and redemption price
per share ($221,722,469 / 16,287,427)................ $13.61
==========
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
---------- --------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................... $122,571,579 $75,820,587 $69,789,913 $336,710,542 $ 864,711,520
========== ========= ========= ========== ===========
At value.............................................. 129,617,944 82,553,084 79,266,684 336,710,542 1,019,880,063
Receivables from repurchase agreements, at value
and cost............................................... 69,876 93,859 145,762 66,895,000 51,776,284
Cash................................................... -- -- -- 4,700,658 --
Receivables:
Dividends and interest................................ -- -- -- 794,346 3,785,038
Investment securities sold............................ -- -- -- -- 3,512,869
Capital shares sold................................... -- 629 57,497 -- 404,277
---------- --------- --------- ---------- -----------
Total assets...................................... 129,687,820 82,647,572 79,469,943 409,100,546 1,079,358,531
---------- --------- --------- ---------- -----------
Liabilities:
Payables:
Capital shares repurchased............................ 36,555 10,245 545,466 -- 896,804
Management fees....................................... 44,259 29,399 16,569 154,541 433,613
Accrued expenses and other liabilities................. 6,064 4,459 92,162 16,192 39,106
---------- --------- --------- ---------- -----------
Total liabilities................................. 86,878 44,103 654,197 170,733 1,369,523
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................... $ 8,152,316 $ 4,939,715 $ 4,878,360 $-- $ 39,442,227
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies.................................. 7,046,365 6,732,497 9,476,771 -- 155,168,751
Accumulated net realized gain (loss) from investments . 183,688 12,553 (380,118) -- 37,740,141
Capital shares......................................... 114,218,573 70,918,704 64,840,733 408,929,813 845,637,889
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Shares outstanding...................................... 8,530,236 5,052,522 4,839,072 408,929,813 61,406,730
========== ========= ========= ========== ===========
Net asset value per share............................... $15.19 $16.35 $16.29 $1.00 $17.55
========== ========= ========= ========== ===========
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
----------- ----------- ---------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.............................. $1,194,708,385 $ 839,934,287 $309,117,973 $431,060,996 $1,131,582,574
=========== =========== ========== ========== ===========
At value........................................ 1,272,241,931 974,257,046 349,309,297 581,340,585 1,184,550,481
Receivables from repurchase agreements, at value
and cost......................................... 62,830,189 131,446,000 8,871,000 16,807,023 16,474,667
Cash............................................. -- 931 264 172,383 --
Receivables:
Dividends and interest.......................... 17,104,906 2,561,987 861,231 1,332,043 3,051,664
Investment securities sold...................... 33,385 2,714,857 17,048 -- 57,430
Capital shares sold............................. 414,835 16,643 1,008 -- 25,004
----------- ----------- ---------- ---------- -----------
Total assets................................ 1,352,625,246 1,110,997,464 359,059,848 599,652,034 1,204,159,246
----------- ----------- ---------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased ................ 517,007 1,250,875 29,588 1,853,351 --
Capital shares repurchased...................... 839,779 684,914 1,886,006 -- 1,325,847
Management fees................................. 536,436 727,438 274,863 359,607 479,904
Accrued expenses and other liabilities........... 72,604 234,863 110,233 15,375 63,175
----------- ----------- ---------- ---------- -----------
Total liabilities........................... 1,965,826 2,898,090 2,300,690 2,228,333 1,868,926
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Net assets consist of:
Undistributed net investment income.............. $ 99,623,131 $ 27,747,634 $ 2,026,130 $ 9,954,026 $ 54,346,789
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies................ 77,529,713 134,322,759 40,191,324 150,279,589 52,967,907
Accumulated net realized gain (loss) from
investments ..................................... 21,370,923 49,651,484 (4,936,835) 16,701,690 75,189,259
Capital shares................................... 1,152,135,653 896,377,497 319,478,539 420,488,396 1,019,786,365
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Shares outstanding................................ 78,493,846 71,718,408 24,170,761 38,791,704 66,144,551
=========== =========== ========== ========== ===========
Net asset value per share......................... $17.21 $15.45 $14.76 $15.40 $18.18
=========== =========== ========== ========== ===========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $252,593,090 $438,071,335 $42,853,167 $146,105,705
========== ========== ========== ==========
At value............................................................ 272,491,501 526,446,386 47,868,276 156,518,778
Receivables from repurchase agreements, at value and cost............ -- 61,988,000 7,838,000 16,477,730
Foreign currencies at value and cost................................. 911,992 -- -- --
Receivables:
Dividends and interest.............................................. 450,226 965,456 503,823 165,102
Investment securities sold.......................................... 336,287 -- 3,607 --
Capital shares sold................................................. 87,314 36,592 151,967 146,290
Unrealized gain on forward foreign currency contracts (Note 2)....... -- -- 5,521 --
---------- ---------- ---------- ----------
Total assets.................................................... 274,277,320 589,436,434 56,371,194 173,307,900
---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................................... 1,715,562 1,381,875 47,880 855,122
Delayed delivery (Note 1).......................................... -- -- -- 957,150
Capital shares repurchased.......................................... -- 1,252,510 -- 420,130
Management fees..................................................... 280,632 411,384 36,558 102,293
Accrued expenses and other liabilities............................... 180,903 99,487 10,556 4,235
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 438 --
Bank overdraft....................................................... 1,802 3,206,834 1,636 --
Foreign currency overdraft, at value and cost ....................... -- 3,206,957 -- --
---------- ---------- ---------- ----------
Total liabilities............................................... 2,178,899 9,559,047 97,068 2,338,930
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................................. $ 3,577,713 $ 10,394,157 $ 1,460,392 $ 578,335
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 19,898,411 88,375,051 5,020,163 10,413,073
Accumulated net realized gain from investments ...................... 6,190,238 3,595,964 428,295 6,732,932
Capital shares....................................................... 242,432,059 477,512,215 49,365,276 153,244,630
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Shares outstanding.................................................... 23,468,431 42,027,864 4,469,291 12,956,069
========== ========== ========== ==========
Net asset value per share............................................. $11.59 $13.80 $12.59 $13.20
========== ========== ========== ==========
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund Fund Securities Fund Securities Fund
--------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $35,787,432 $ 8,896,301 $28,193,498 $16,398,506
========= ========= ========== ===========
At value............................................................ 37,769,882 10,000,373 28,810,315 16,639,830
Receivables from repurchase agreements, at value and cost............ 7,901,400 6,338,000 -- --
Cash................................................................. 7,564 -- 1,254,546 1,021,497
Receivables:
Dividends and interest.............................................. 23,370 19,810 11,166 5,787
Investment securities sold.......................................... -- 1,859 -- --
Capital shares sold................................................. -- -- 706,560 745,417
--------- --------- ---------- -----------
Total assets.................................................... 45,702,216 16,360,042 30,782,587 18,412,531
--------- --------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased..................................... 1,007,236 39,162 3,037,354 2,925,519
Capital shares repurchased.......................................... -- 46,704 -- --
Management fees..................................................... 26,296 12,961 11,822 11,033
Accrued expenses and other liabilities............................... 1,973 5,824 8,015 4,775
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 48,474 53,474
Bank overdraft....................................................... -- 353 -- --
--------- --------- ---------- -----------
Total liabilities............................................... 1,035,505 105,004 3,105,665 2,994,801
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................................. $ 109,751 $ 132,644 $ 50,601 $ 26,147
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 1,982,450 1,104,072 568,343 187,850
Accumulated net realized gain (loss) from investments ............... (139,950) -- (3,049) --
Capital shares....................................................... 42,714,460 15,018,322 27,061,027 15,203,733
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Shares outstanding.................................................... 3,930,828 1,445,259 2,673,901 1,510,497
========= ========= ========== ===========
Net asset value per share............................................. $11.36 $11.25 $10.35 $10.21
========= ========= ========== ===========
Statements of Operations
for the year ended December 31, 1996
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- -------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest1 .............................................. $17,957,900 $37,434,091 $ 642,007 $ 1,025,568 $46,276,568
Dividends2.............................................. -- 1,642,821 1,428,329 11,995,963 --
---------- ---------- -------- ---------- ----------
Total income....................................... 17,957,900 39,076,912 2,070,336 13,021,531 46,276,568
---------- ---------- -------- ---------- ----------
Expenses:
Management fees (Note 6)................................ 1,262,055 1,985,566 754,383 1,335,653 3,162,073
Custodian fees.......................................... 92,550 10,891 33,402 4,603 13,156
Reports to shareholders................................. 27,051 47,540 15,643 29,351 80,954
Professional fees....................................... 8,600 12,280 5,846 8,956 18,945
Trustees' fees and expenses............................. 1,582 2,608 867 1,631 4,491
Other................................................... 434 9,299 2,663 2,987 9,291
---------- ---------- -------- ---------- ----------
Total expenses..................................... 1,392,272 2,068,184 812,804 1,383,181 3,288,910
---------- ---------- -------- ---------- ----------
Net investment income............................. 16,565,628 37,008,728 1,257,532 11,638,350 42,987,658
---------- ---------- -------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................... 473,472 1,214,007 (146,066) 5,460,333 (158,758)
Foreign currency transactions......................... (53,884) (3,507) (42,500) -- --
Net unrealized appreciation (depreciation) on:
Investments........................................... 2,679,931 13,293,126 930,235 57,769,186 (18,937,072)
Translation of assets and liabilities denominated in
foreign currencies...................................... 641,631 1,095 5,671 -- --
---------- ---------- -------- ---------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................. 3,741,150 14,504,721 747,340 63,229,519 (19,095,830)
---------- ---------- -------- ---------- ----------
Net increase in net assets resulting from operations..... $20,306,778 $51,513,449 $2,004,872 $74,867,869 $23,891,828
========== ========== ======== ========== ==========
1Net of foreign taxes withheld of $250,973 for the Templeton Global Income Securities Fund.
2Net of foreign taxes and fees withheld of $112,509 for the Precious Metals Fund.
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
--------- --------- --------- --------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest ................................................. $8,677,417 $5,259,243 $5,189,484 $23,914,246 $ 3,725,065
Dividends3................................................ -- -- -- -- 40,633,786
--------- --------- --------- --------- ----------
Total income......................................... 8,677,417 5,259,243 5,189,484 23,914,246 44,358,851
--------- --------- --------- --------- ----------
Expenses:
Management fees (Note 6).................................. 790,492 503,611 490,108 2,225,389 4,643,546
Custodian fees............................................ 3,562 1,981 1,672 7,843 29,893
Reports to shareholders................................... 16,797 10,045 9,850 54,419 122,636
Professional fees......................................... 5,359 3,716 3,882 16,411 30,140
Trustees' fees and expenses............................... 914 553 543 3,020 6,670
Other..................................................... 3,801 3,118 3,331 7,018 12,562
Management fees waived by manager (Note 6)................ (295,543) (203,897) (198,310) (443,587) --
--------- --------- --------- --------- ----------
Total expenses....................................... 525,382 319,127 311,076 1,870,513 4,845,447
--------- --------- --------- --------- ----------
Net investment income............................... 8,152,035 4,940,116 4,878,408 22,043,733 39,513,404
--------- --------- --------- --------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments............................................. 183,983 19,477 (191,720) -- 37,891,245
Foreign currency transactions........................... -- -- -- -- (79,533)
Net unrealized appreciation (depreciation) on:
Investments............................................. (5,248,940) (5,309,151) (6,860,589) -- 55,138,044
Translation of assets and liabilities denominated in
foreign currencies........................................ -- -- -- -- 208
--------- --------- --------- --------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................... (5,064,957) (5,289,674) (7,052,309) -- 92,949,964
--------- --------- --------- --------- ----------
Net increase (decrease) in net assets resulting from
operations................................................ $3,087,078 $ (349,558) $(2,173,901) $22,043,733 $132,463,368
========= ========= ========= ========= ==========
3Net of foreign taxes and fees withheld of $643,185 for the Growth and Income Fund.
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
---------- ---------- --------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest .............................................. $ 78,393,845 $ 10,234,709 $ 815,560 $ 2,406,978 $ 1,627,033
Dividends4............................................. 31,792,041 28,746,834 8,545,807 11,431,537 59,257,031
---------- ---------- --------- ---------- ----------
Total income...................................... 110,185,886 38,981,543 9,361,367 13,838,515 60,884,064
---------- ---------- --------- ---------- ----------
Expenses:
Management fees (Note 6)............................... 6,130,804 7,945,053 3,343,850 3,785,807 6,097,507
Custodian fees......................................... 123,304 621,312 280,490 10,356 90,468
Reports to shareholders................................ 162,107 113,833 44,916 61,635 162,864
Professional fees...................................... 42,708 27,750 13,100 15,517 42,547
Trustees' fees and expenses............................ 9,005 7,019 2,562 3,442 9,093
Registration fees...................................... -- 10,014 10,009 -- 10,000
Other.................................................. 19,260 29,802 5,288 6,178 17,533
---------- ---------- --------- ---------- ----------
Total expenses.................................... 6,487,188 8,754,783 3,700,215 3,882,935 6,430,012
---------- ---------- --------- ---------- ----------
Net investment income............................ 103,698,698 30,226,760 5,661,152 9,955,580 54,454,052
---------- ---------- --------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments.......................................... 20,229,599 49,779,857 (4,377,500) 31,514,069 82,705,077
Foreign currency transactions........................ (419,290) (482,587) 64,831 (102,562)
Net unrealized appreciation (depreciation) on:
Investments.......................................... 16,701,514 122,637,885 36,732,857 71,866,460 (53,556,922)
Translation of assets and liabilities denominated in
foreign currencies..................................... 45,771 -- -- -- (551)
---------- ---------- --------- ---------- ----------
Net realized and unrealized gain from investments and
foreign currencies..................................... 36,557,594 171,935,155 32,420,188 103,380,529 29,045,042
---------- ---------- --------- ---------- ----------
Net increase in net assets resulting from operations.... $140,256,292 $202,161,915 $38,081,340 $113,336,109 $83,499,094
========== ========== ========= ========== ==========
4Net of foreign taxes and fees withheld of $170,500, $3,296,423, $608,294,
$62,834 and $633,448 for the Income Securities Fund, Templeton International
Equity Fund, Templeton Pacific Growth Fund, Rising Dividends Fund, and Utility
Equity Fund, respectively.
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
--------- --------- ---------- ---------
Investment income:
<S> <C> <C> <C> <C>
Interest5 ............................................................. $ 1,272,781 $ 3,337,722 $1,192,888 $ 807,636
Dividends6............................................................. 6,041,537 10,977,393 540,763 494,208
--------- --------- ---------- ---------
Total income...................................................... 7,314,318 14,315,115 1,733,651 1,301,844
--------- --------- ---------- ---------
Expenses:
Management fees (Note 6)............................................... 2,887,400 4,016,061 272,732 694,975
Custodian fees......................................................... 530,000 191,073 14,227 978
Reports to shareholders................................................ 15,500 24,723 1,834 9,310
Professional fees...................................................... 4,100 17,273 3,600 8,338
Trustees' fees and expenses............................................ 500 -- 29 563
Other.................................................................. 2,751 522 3,033 2,195
--------- --------- ---------- ---------
Total expenses.................................................... 3,440,251 4,249,652 295,455 716,359
--------- --------- ---------- ---------
Net investment income............................................ 3,874,067 10,065,463 1,438,196 585,485
--------- --------- ---------- ---------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................................... 6,444,991 5,369,864 489,252 6,732,905
Foreign currency transactions......................................... (198,551) (252,340) (12,228) (6,723)
Net unrealized appreciation (depreciation) on:
Investments........................................................... 29,643,653 73,557,750 4,638,458 10,251,252
Translation of assets and liabilities denominated in foreign currencies 48,919 -- (456) --
--------- --------- ---------- ---------
Net realized and unrealized gain from investments and foreign currencies 35,939,012 78,675,274 5,115,026
16,977,434
--------- --------- ---------- ---------
Net increase in net assets resulting from operations.................... $39,813,079 $88,740,737 $6,553,222 $17,562,919
========= ========= ========== =========
5Net of foreign taxes withheld of $8,478 for the Templeton Global Asset
Allocation Fund. 6Net of foreign taxes withheld of $355,057, $825,578, $36,004
for the Templeton Developing Markets Equity Fund, Templeton Global Growth Fund,
and Templeton Global Asset Allocation Fund, respectively.
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund* Fund* Securities Fund** Securities Fund**
--------- --------- ----------- -----------
Investment income:
<S> <C> <C> <C> <C>
Interest ............................................................ $ 114,799 $ 122,487 $ 62,029 $ 34,509
Dividends7........................................................... 84,201 84,349 8,410 5,586
--------- --------- ----------- -----------
Total income.................................................... 199,000 206,836 70,439 40,095
--------- --------- ----------- -----------
Expenses:
Management fees (Note 6)............................................. 86,028 56,389 11,822 11,033
Custodian fees....................................................... 96 4,830 3,400 3,200
Reports to shareholders.............................................. 536 1,500 2,971 --
Professional fees.................................................... 1,770 1,150 1,560 1,560
Trustees' fees and expenses.......................................... 49 150 -- 15
Registration fees.................................................... -- 1,300 -- --
Other................................................................ 307 152 85 --
--------- --------- ----------- -----------
Total expenses.................................................. 88,786 65,471 19,838 15,808
--------- --------- ----------- -----------
Net investment income......................................... 110,214 141,365 50,601 24,287
--------- --------- ----------- -----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments......................................................... (139,950) 904 (3,049) 1,860
Foreign currency transactions....................................... (463) (9,625) -- --
Net unrealized appreciation on investments........................... 1,982,450 1,104,072 568,343 187,850
--------- --------- ----------- -----------
Net realized and unrealized gain from investments and foreign currencies 1,842,037 1,095,351 565,294 189,710
--------- --------- ----------- -----------
Net increase in net assets resulting from operations.................. $ 1,952,251 $ 1,236,716 $ 615,895 $ 213,997
========= ========= =========== ===========
7Net of foreign taxes withheld of $1,034, $9,526 and $508 for the Capital Growth
Fund, Templeton International Smaller Companies Fund, and Mutual Discovery
Securities Fund, respectively.
*May 1, 1996 (effective date) to December 31, 1996
**November 8, 1996 (effective date) to December 31, 1996
Statements of Changes in Net Assets
for the years ended December 31, 1996 and 1995
Templeton Global Income
Securities Fund High Income Fund Precious Metals Fund
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 16,565,628 $ 18,687,112 $ 37,008,728 $ 31,021,484 $ 1,257,532 $ 1,615,339
Net realized gain (loss) from
investments and foreign currency
transactions...................... 419,588 (7,995,904) 1,210,500 1,770,719 (188,566) 1,438,861
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in foreign
currencies........................ 3,321,562 22,864,210 13,294,221 22,884,579 935,906 (1,361,730)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 20,306,778 33,555,418 51,513,449 55,676,782 2,004,872 1,692,470
Distributions to shareholders from:
Undistributed net investment
income............................ (17,028,466) (9,275,583) (31,018,152) (21,305,944) (1,593,439) (1,664,388)
Undistributed net realized capital
gains............................. -- -- (1,646,547) -- (1,460,667) (1,232,041)
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... (24,749,927) (35,396,559) 66,343,229 71,496,259 5,519,005 (18,765,586)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets..................... (21,471,615) (11,116,724) 85,191,979 105,867,097 4,469,771 (19,969,545)
Net assets:
Beginning of year................. 243,194,084 254,310,808 360,903,546 255,036,449 105,108,814 125,078,359
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $221,722,469 $243,194,084 $446,095,525 $360,903,546 $109,578,585 $105,108,814
========== ========== ========== ========== ========== ==========
Undistributed net investment
income included in net assets:
Beginning of year................ $ 14,271,863 $ 20,717,930 $ 31,020,827 $ 21,367,505 $ 1,615,202 $ 1,682,044
========== ========== ========== ========== ========== ==========
End of year...................... $ 12,596,126 $ 14,271,863 $ 37,005,221 $ 31,020,827 $ 1,214,989 $ 1,615,202
========== ========== ========== ========== ========== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 11,638,350 $ 9,336,142 $ 42,987,658 $ 41,653,906 $ 8,152,035 $ 7,341,344
Net realized gain (loss) from
investments ...................... 5,460,333 1,068,152 (158,758) (891,143) 183,983 72,202
Net unrealized appreciation
(depreciation) on investments .... 57,769,186 21,851,218 (18,937,072) 68,885,320 (5,248,940) 14,631,144
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 74,867,869 32,255,512 23,891,828 109,648,083 3,087,078 22,044,690
Distributions to shareholders from:
Undistributed net investment
income............................ (9,713,587) (6,411,953) (41,654,771) (43,440,615) (7,341,063) (5,282,540)
Undistributed net realized capital
gains............................. -- -- -- -- (72,481) --
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... 44,093,562 (8,066,883) 218,454,989 (2,081,082) (3,429,313) 26,364,407
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets........................ 109,247,844 17,776,676 200,692,046 64,126,386 (7,755,779) 43,126,557
Net assets:
Beginning of year................. 213,473,351 195,696,675 643,165,471 579,039,085 137,356,721 94,230,164
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $322,721,195 $213,473,351 $843,857,517 $643,165,471 $129,600,942 $137,356,721
========== ========== ========== ========== ========== ==========
Undistributed net investment income included in net assets:
Beginning of year................ $ 9,334,962 $ 6,410,773 $ 41,588,096 $ 43,374,805 $ 7,341,344 $ 5,282,540
========== ========== ========== ========== ========== ==========
End of year...................... $ 11,259,725 $ 9,334,962 $ 42,920,983 $ 41,588,096 $ 8,152,316 $ 7,341,344
========== ========== ========== ========== ========== ==========
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- ------------------- ----------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- ---------- -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................... $ 4,940,116 $ 4,217,941 $ 4,878,408 $ 4,092,137 $ 22,043,733 $ 25,363,309
Net realized gain (loss) from investments
and foreign currency transactions........ 19,477 27,440 (191,720) 1,268,380 -- 289
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies............................... (5,309,151) 14,450,466 (6,860,589) 17,390,706 -- --
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................ (349,558) 18,695,847 (2,173,901) 22,751,223 22,043,733 25,363,598
Distributions to shareholders from:
Undistributed net investment income...... (4,218,190) (2,941,626) (4,092,016) (2,074,389) (22,043,733) (25,363,598)+
Undistributed net realized capital gains. -- -- (1,109,315) -- -- --
Increase (decrease) in net assets from
capital share transactions (Note 3)...... 3,949,514 15,968,605 558,186 19,594,876 (20,617,040) (89,071,533)
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net
assets................................... (618,234) 31,722,826 (6,817,046) 40,271,710 (20,617,040) (89,071,533)
Net assets:
Beginning of year........................ 83,221,703 51,498,877 85,632,792 45,361,082 429,546,853 518,618,386
--------- --------- --------- --------- ---------- -----------
End of year.............................. $82,603,469 $83,221,703 $78,815,746 $85,632,792 $408,929,813 $429,546,853
========= ========= ========= ========= ========== ===========
Undistributed net investment income included in net assets:
Beginning of year....................... $ 4,217,789 $ 2,941,474 $ 4,091,968 $ 2,074,248 $-- $--
========= ========= ========= ========= ========== ===========
End of year............................. $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968 $-- $--
========= ========= ========= ========= ========== ===========
+Distributions were increased by a net realized gain from security transactions of $289.
Templeton International
Growth and Income Fund Income Securities Fund Equity Fund
----------------------- ------------------------ -----------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ------------ ----------
Increase (decrease) in net assets:
Operations:
Net investment income....... $ 39,513,404 $ 22,234,234 $ 103,698,698 $ 91,009,891 $ 30,226,760 $ 23,458,911
Net realized gain (loss) from
investments and foreign
currency transactions........ 37,811,712 79,239,315 19,810,309 (15,464,708) 49,297,270 30,984,955
Net unrealized appreciation
on investments and
translation of assets and
liabilities denominated in
foreign currencies........... 55,138,252 91,264,881 16,747,285 152,006,805 122,637,885 26,564,752
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets resulting from
operations................... 132,463,368 192,738,430 140,256,292 227,551,988 202,161,915 81,008,618
Distributions to shareholders
from:
Undistributed net investment
income....................... (22,230,774) (8,012,262) (66,927,738) (63,454,170) (25,386,301) (13,634,404)
Undistributed net realized
capital gains................ (78,714,626) (17,435,234) (11,125,807) (5,103,693) (31,064,815) (16,891,097)
Increase in net assets from
capital share transactions
(Note 3)..................... 156,983,572 204,319,488 21,919,171 107,540,999 112,271,953 14,509,031
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets....................... 188,501,540 371,610,422 84,121,918 266,535,124 257,982,752 64,992,148
Net assets:
Beginning of year............ 889,487,468 517,877,046 1,266,537,502 1,000,002,378 850,116,622 785,124,474
----------- ---------- ----------- ----------- ------------ ----------
End of year.................. $1,077,989,008 $889,487,468 $1,350,659,420 $1,266,537,502 $1,108,099,374 $850,116,622
=========== ========== =========== =========== ============ ==========
Undistributed net investment income included in net assets:
Beginning of year........... $ 22,239,184 $ 8,017,077 $ 91,003,300 $ 67,603,145 $ 23,389,762 $ 13,466,616
=========== ========== =========== =========== ============ ==========
End of year................. $ 39,442,227 $ 22,239,184 $ 99,623,131 $ 91,003,300 $ 27,747,634 $ 23,389,762
=========== ========== =========== =========== ============ ==========
Templeton
Pacific Growth Fund Rising Dividends Fund Utility Equity Fund
---------------------- ---------------------- -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ------------ -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income........... $ 5,661,152 $ 7,241,924 $ 9,955,580 $ 10,367,695 $ 54,454,052 $ 65,692,968
Net realized gain (loss) from
investments and foreign
currency transactions............ (4,312,669) 6,009,137 31,514,069 251,515 82,602,515 2,816,631
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies............... 36,732,857 12,826,175 71,866,460 88,320,864 (53,557,473) 282,539,662
---------- ---------- ---------- ---------- ------------ -----------
Net increase in net assets
resulting from operations........ 38,081,340 26,077,236 113,336,109 98,940,074 83,499,094 351,049,261
Distributions to shareholders from:
Undistributed net investment
income........................... (10,991,812) (6,625,094) (10,368,611) (8,063,908) (65,540,030) (70,961,297)
Undistributed net realized capital
gains............................ (6,370,262) (2,753,036) -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3)......................... 4,104,011 (60,595,295) 31,202,926 62,448,084 (239,114,944) (11,752,253)
---------- ---------- ---------- ---------- ------------ -----------
Net increase (decrease) in
net assets....................... 24,823,277 (43,896,189) 134,170,424 153,324,250 (221,155,880) 268,335,711
Net assets:
Beginning of year................ 331,935,881 375,832,070 463,253,277 309,929,027 1,423,446,200 1,155,110,489
---------- ---------- ---------- ---------- ------------ -----------
End of year...................... $356,759,158 $331,935,881 $597,423,701 $463,253,277 $1,202,290,320 $1,423,446,200
========== ========== ========== ========== ============ ===========
Undistributed net investment income included in net assets:
Beginning of year............... $ 7,402,137 $ 6,796,802 $ 10,367,057 $ 8,063,270 $ 65,687,973 $ 70,953,514
========== ========== ========== ========== ============ ===========
End of year..................... $ 2,026,130 $ 7,402,137 $ 9,954,026 $ 10,367,057 $ 54,346,789 $ 65,687,973
========== ========== ========== ========== ============ ===========
for the years ended December 31, 1996 and 1995 (except as noted)
Templeton Developing Templeton Global Templeton Global
Markets Equity Fund Growth Fund Asset Allocation Fund
--------------------- ---------------------- --------------------
1996 1995 1996 1995 1996 1995*
---------- ---------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................. $ 3,874,067 $ 2,632,898 $ 10,065,463 $ 6,108,912 $ 1,438,196 $ 251,964
Net realized gain from investments
and foreign currency transactions...... 6,246,440 3,236,155 5,117,524 7,733,119 477,024 11,985
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies..................... 29,692,572 (2,382,349) 73,557,750 15,482,583 4,638,002 382,161
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets
resulting from operations.............. 39,813,079 3,486,704 88,740,737 29,324,614 6,553,222 646,110
Distributions to shareholders from:
Undistributed net investment income.... (2,182,460) (489,978) (7,356,652) (1,324,712) (14,806) (246,062)
Undistributed net realized capital gains (4,037,551) (115,132) (7,356,653) -- (29,614) --
Increase in net assets from capital share
transactions (Note 3).................. 80,421,511 57,013,367 167,094,838 151,899,127 35,036,621 13,828,655
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets........ 114,014,579 59,894,961 241,122,270 179,899,029 41,545,423 14,228,703
Net assets:
Beginning of year...................... 158,083,842 98,188,881 338,755,117 158,856,088 14,728,703 500,000
---------- ---------- ---------- ---------- ---------- ---------
End of year............................ $272,098,421 $158,083,842 $579,877,387 $338,755,117 $56,274,126 $14,728,703
========== ========== ========== ========== ========== =========
Undistributed net investment income included in net assets:
Beginning of year..................... $ 2,084,657 $ 758,368 $ 5,816,563 $ 1,454,896 $ (6,078) $--
========== ========== ========== ========== ========== =========
End of year........................... $ 3,577,713 $ 2,084,657 $ 10,394,157 $ 5,816,563 $ 1,460,392 $ (6,078)
========== ========== ========== ========== ========== =========
*April 19, 1995 (effective date) to December 31, 1995.
Templeton
International Mutual Mutual
Smaller Shares Discovery
Capital Companies Securities Securities
Small Cap Fund Growth Fund Fund Fund Fund
--------------------- --------- --------- --------- ---------
1996 1995** 1996*** 1996*** 1996**** 1996****
---------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income...................... $ 585,485 $ 33,213 $ 110,214 $ 141,365 $ 50,601 $ 24,287
Net realized gain (loss) from investments
and foreign currency transactions........... 6,726,182 2,754 (140,413) (8,721) (3,049) 1,860
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies........... 10,251,252 161,821 1,982,450 1,104,072 568,343 187,850
---------- --------- --------- --------- --------- ---------
Net increase in net assets resulting
from operations............................. 17,562,919 197,788 1,952,251 1,236,716 615,895 213,997
Distributions to shareholders from:
Undistributed net investment income......... (33,640) -- -- -- -- --
Undistributed net realized capital gains.... (2,727) -- -- -- -- --
Increase in net assets from capital share
transactions (Note 3)....................... 140,140,940 12,853,690 42,714,460 15,018,322 27,061,027 15,203,733
---------- --------- --------- --------- --------- ---------
Net increase in net assets............. 157,667,492 13,051,478 44,666,711 16,255,038 27,676,922 15,417,730
Net assets:
Beginning of year........................... 13,301,478 250,000 -- -- -- --
---------- --------- --------- --------- --------- ---------
End of year................................. $170,968,970 $13,301,478 $44,666,711 $16,255,038 $27,676,922 $15,417,730
========== ========= ========= ========= ========= =========
Undistributed net investment income included in net assets:
Beginning of year.......................... $ 33,213 $-- $-- $-- $-- $--
========== ========= ========= ========= ========= =========
End of year................................ $ 578,335 $ 33,213 $ 109,751 $ 132,644 $ 50,601 $ 26,147
========== ========= ========= ========= ========= =========
**November 1, 1995 (effective date) to December 31, 1995.
***May 1, 1996 (effective date) to December 31, 1996.
****November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements
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>
Capital Preservation
Capital Growth Growth and Income High Current Income and Income
----------------------- --------------------- ------------------ --------------
<S> <C> <C> <C>
Precious Metals Fund Growth and Income Fund Templeton Global Income Money Market Fund
Templeton Developing Income Securities Fund Securities Fund
Markets Equity Fund Real Estate Securities Fund High Income Fund
Templeton Global Growth Fund Rising Dividends Fund The U.S. Government
Templeton International Templeton Global Asset Securities Fund
Equity Fund Allocation Fund Zero Coupon Fund - 2000
Templeton Pacific Growth Fund Utility Equity Fund Zero Coupon Fund - 2005
Small Cap Fund Mutual Shares Securities Fund Zero Coupon Fund - 2010
Capital Growth Fund
Templeton International
Smaller Companies Fund
Mutual Discovery Securities 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
Mutual Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remained unchanged.
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 Advisor. 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
For the Money Market Fund, 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 declared and
reinvested daily in additional shares of the Fund at net asset value.
A portion of the distributions received by the funds 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 passive
foreign investment company (PFIC) shares, 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 passive foreign investment company (PFIC) shares, differing treatment
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.
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 Fund, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. At December 31, 1996, all outstanding repurchase agreements held by
the Funds, had been entered into on that date.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may purchase 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.
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.
k. Options:
The Mutual Shares Securities Fund and the Mutual Discovery Securities Fund may
buy listed call options on securities which it intends to purchase in order to
limit the risk of a substantial increase in the market price of such securities.
A call option gives the Funds the right to buy the underlying securities from
the option writer at a stated exercise price. Any losses realized by the Funds
upon expiration of the call options are limited to the premiums paid for the
purchase of such options, plus any transaction costs.
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 Templeton Global Income Securities Fund, Templeton Global Asset Allocation
Fund, Mutual Shares Securities Fund and Mutual Discovery 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.
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 December 31, 1996, the Templeton Global Income Securities Fund had the
following forward currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- --------
<C> <S> <C> <C> <C>
21,500,000 Deutsche Mark........... U.S. $13,925,321 02/03/97 U.S. $ (81,144)
21,500,000 Deutsche Mark........... 14,001,954 02/05/97 (6,222)
--------- --------
U.S. $27,927,275 U.S. $ (87,366)
--------- --------
Unrealized gain on offsetting forward exchange contracts..................... 750,169
Net unrealized gain on forward exchange contracts........................... $662,803
========
The Templeton Global Asset Allocation Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
110,000 Deutsche Mark........... U.S. $ 71,246 02/03/97 U.S. $ (411)
110,000 Deutsche Mark........... 71,638 02/05/97 (27)
--------- -------
U.S. $142,884 U.S. $ (438)
--------- -------
Unrealized gain on offsetting forward exchange contracts..................... 5,521
Net unrealized gain on forward exchange contracts........................... $5,083
=======
2. FORWARD FOREIGN CURRENCY CONTRACTS (cont.)
The Mutual Shares Securities Fund had the following forward currency contracts
outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Loss
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
949,850 Great British Pounds.... U.S. $1,583,138 02/18/97 U.S. $(42,217)
1,043,371 French Francs........... 199,539 02/28/97 (2,374)
1,936,392 Norwegian Krone......... 300,705 03/10/97 (3,883)
--------- -------
U.S. $2,083,382 U.S. $(48,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(48,474)
=======
The Mutual Discovery Securities Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
908,457 Great British Pounds.... U.S. $1,505,580 02/18/97 U.S. $(48,947)
202,980 Canadian Dollars........ 150,702 05/30/97 1,133
104,068 Great British Pounds.... 171,554 08/18/97 (5,556)
1,281,396 French Francs........... 247,871 02/28/97 (104)
--------- -------
U.S. $2,075,707 U.S. $(53,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(53,474)
=======
3. TRUST SHARES
At December 31, 1996, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended December 31, 1996 and 1995 were as follows:
Templeton Global
Income Securities Fund High Income Fund Precious Metals Fund
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 1,774,907 $23,229,506 14,886,206 $203,832,754 5,826,772 $92,609,906
Shares issued in reinvestment of distributions 1,374,371 17,028,466 2,553,925 32,664,699 200,533 3,054,106
Shares redeemed.............................. (4,932,897) (65,007,899) (12,349,882) (170,154,224) (5,826,876) (90,145,007)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (1,783,619) $(24,749,927) 5,090,249 $ 66,343,229 200,429 $ 5,519,005
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,178,751 $14,989,802 3,955,751 $ 52,494,118 836,229 $11,648,578
Shares issued in reinvestment of distributions 732,090 9,275,583 1,649,067 21,305,944 205,566 2,896,429
Shares redeemed.............................. (2,840,995) (36,191,941) (4,087,131) (54,161,612) (1,102,540) (15,328,334)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (1,862,284) (23,470,003) 4,012,012 51,857,809 (1,350,012) (17,982,259)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (2,792,438) $(35,396,559) 5,529,699 $ 71,496,259 (1,410,757) $(18,765,586)
======== ========== ========= =========== ======== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 4,215,417 $80,007,020 4,777,016 $ 64,263,777 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 541,263 9,713,587 3,298,082 41,654,771 517,344 7,413,544
Shares redeemed.............................. (2,455,248) (45,627,045) (13,383,651) (179,598,763) (2,064,008) (31,249,490)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... 2,301,432 $44,093,562 16,722,759 $218,454,989 (199,913) $ (3,429,313)
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,340,093 $20,990,418 4,057,377 $ 54,748,439 1,413,875 $20,777,927
Shares issued in reinvestment of distributions 417,717 6,411,953 3,278,537 43,440,615 354,296 5,282,548
Shares redeemed.............................. (1,401,583) (22,032,486) (7,126,939) (95,628,635) (1,003,208) (14,976,357)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (874,485) (13,436,768) (340,030) (4,641,501) 1,045,976 15,280,289
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (518,258) $ (8,066,883) (131,055) $ (2,081,082) 1,810,939 $26,364,407
======== ========== ========= =========== ======== ==========
3. TRUST SHARES (cont.)
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- -------------------- ----------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- ---------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 1,047,318 $16,865,102 2,638,570 $42,320,073 624,484,193 $624,484,193
Shares issued in reinvestment of distributions 282,342 4,218,190 361,957 5,201,331 22,025,506 22,025,506
Shares redeemed............................. (1,065,563) (17,133,778) (2,908,691) (46,963,218) (667,126,739) (667,126,739)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 264,097 $ 3,949,514 91,836 $ 558,186 (20,617,040) $ (20,617,040)
======== ========== ======== ========== ========== ===========
1995
Shares sold................................. 942,223 $14,600,167 909,048 $13,837,665 202,376,630 $202,376,630
Shares issued in reinvestment of distributions 185,240 2,941,626 129,812 2,074,389 25,427,564 25,427,564
Shares redeemed............................. (421,198) (6,606,649) (493,484) (7,588,835) (146,409,205) (146,409,205)
Net shares sold (redeemed) from exercise of
exchange privilege.......................... 338,466 5,033,461 718,072 11,271,657 (170,466,522) (170,466,522)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 1,044,731 $15,968,605 1,263,448 $19,594,876 (89,071,533) $ (89,071,533)
======== ========== ======== ========== ========== ===========
Templeton
Growth and Income Fund Income Securities Fund International Equity Fund
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................. 17,103,384 $291,261,819 12,978,656 $215,025,216 16,304,017 $233,298,562
Shares issued in reinvestment of
distributions........................... 6,313,033 100,945,400 4,981,081 78,053,545 4,023,601 56,451,117
Shares redeemed......................... (13,907,925) (235,223,647) (16,378,905) (271,159,590) (12,410,252) (177,477,726)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 9,508,492 $156,983,572 1,580,832 $ 21,919,171 7,917,366 $112,271,953
========= =========== ========= =========== ========= ===========
1995
Shares sold............................. 7,137,692 $109,151,094 10,113,056 $155,712,027 8,219,451 $106,471,518
Shares issued in reinvestment of
distributions........................... 1,706,740 25,447,497 4,534,250 68,557,863 2,362,655 30,525,501
Shares redeemed......................... (5,978,524) (90,725,782) (10,094,332) (154,925,002) (7,007,432) (90,959,162)
Net shares sold (redeemed) from
exercise of exchange privilege.......... 10,428,442 160,446,679 2,479,081 38,196,111 (2,536,715) (31,528,826)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 13,294,350 $204,319,488 7,032,055 $107,540,999 1,037,959 $ 14,509,031
========= =========== ========= =========== ========= ===========
Templeton Rising
Pacific Growth Fund Dividends Fund Utility Equity Fund
--------------------- -------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................. 11,017,347 $162,907,832 9,416,748 $128,553,979 4,951,179 $ 87,970,395
Shares issued in reinvestment of
distributions............................ 1,175,496 17,362,074 776,095 10,368,611 3,882,703 65,540,030
Shares redeemed.......................... (11,892,182) (176,165,895) (7,989,700) (107,719,664) (22,222,999) (392,625,369)
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... 300,661 $ 4,104,011 2,203,143 $ 31,202,926 (13,389,117) $(239,114,944)
========= =========== ======== =========== ========= ===========
1995
Shares sold.............................. 2,230,611 $ 29,634,248 4,053,853 $ 46,217,013 5,042,256 $ 79,723,893
Shares issued in reinvestment of
distributions............................ 711,543 9,378,130 726,478 8,063,909 4,578,148 70,961,297
Shares redeemed.......................... (3,306,122) (43,982,761) (3,959,378) (44,968,613) (10,979,441) (173,993,280)
Net shares sold (redeemed) from exercise
of exchange privilege.................... (4,156,691) (55,624,912) 4,683,755 53,135,775 787,401 11,555,837
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... (4,520,659) $ (60,595,295) 5,504,708 $ 62,448,084 (571,636) $ (11,752,253)
========= =========== ======== =========== ========= ===========
3. TRUST SHARES (cont.)
Templeton Developing Templeton Templeton Global Asset
Markets Equity Fund Global Growth Fund Allocation Fund*
-------------------- -------------------- ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ---------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................... 12,008,203 $131,040,673 16,172,059 $204,037,772 3,324,255 $37,900,419
Shares issued in reinvestment of distributions. 568,038 6,220,011 1,172,375 14,713,305 3,931 44,420
Shares redeemed................................ (5,266,029) (56,839,173) (4,156,855) (51,656,239) (258,845) (2,908,218)
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 7,310,212 $ 80,421,511 13,187,579 $167,094,838 3,069,341 $35,036,621
========= ========== ========= ========== ======== ==========
1995
Shares sold.................................... 4,586,720 $ 44,019,390 11,202,768 $124,502,270 514,807 $ 5,313,984
Shares issued in reinvestment of distributions. 61,746 605,110 119,022 1,324,712 23,479 246,062
Shares redeemed................................ (1,121,485) (10,897,349) (1,972,050) (22,039,520) (213,358) (2,230,197)
Net shares sold (redeemed) from exercise of
exchange privilege............................. 2,365,581 23,286,216 4,330,050 48,111,665 1,025,022 10,498,806
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 5,892,562 $ 57,013,367 13,679,790 $151,899,127 1,349,950 $13,828,655
========= ========== ========= ========== ======== ==========
Templeton
International Smaller
Small Cap Fund** Capital Growth Fund*** Companies Fund***
-------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- -------- --------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................................... 17,929,579 $214,314,899 4,551,652 $49,307,053 1,887,934 $19,652,954
Shares issued in reinvestment of distributions... 2,914 36,368 -- -- -- --
Shares redeemed.................................. (6,275,212) (74,210,327) (620,824) (6,592,593) (442,675) (4,634,632)
--------- ---------- -------- --------- -------- ----------
Net increase...................................... 11,657,281 $140,140,940 3,930,828 $42,714,460 1,445,259 $15,018,322
========= ========== ======== ========= ======== ==========
1995
Shares sold...................................... 190,530 $ 1,922,288
Shares redeemed.................................. (5,971) (60,260)
Net shares sold (redeemed) from exercise of
exchange privilege............................... 1,089,229 10,991,662
--------- ----------
Net increase...................................... 1,273,788 $ 12,853,690
========= ==========
Mutual Shares Mutual Discoveries
Securities Fund**** Securities Fund****
------------------ -----------------
Shares Amount Shares Amount
-------- --------- ------- ---------
1996
<S> <C> <C> <C> <C>
Shares sold................................................................... 2,673,916 $27,061,180 1,510,497 $15,203,733
Shares redeemed............................................................... (15) (153) -- --
-------- --------- ------- ---------
Net increase................................................................... 2,673,901 $27,061,027 1,510,497 $15,203,733
======== ========= ======= =========
*For the period April 19, 1995 (effective date) to December 31, 1995. **For the
period November 1, 1995 (effective date) to December 31, 1995. ***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 Funds had accumulated net realized
capital gains or capital loss carryovers as follows:
High Real Estate Zero Coupon Zero Coupon Zero Coupon
Income FundSecurities Fund Fund - 2000 Fund - 2005 Fund - 2010
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ................................. $1,211,890 $5,025,389 $183,688 $16,721 $38,764
======== ========== ======== ======== ========
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)
Templeton
Growth and Income International Rising Utility
Income FundSecurities Fund Equity Fund Dividends Fund Equity Fund
--------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ............................. $37,745,691 $21,370,923 $49,651,484 $16,997,806 $75,189,259
========= ========== ======== ========== =========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth FundAllocation Fund Cap Fund
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Accumulated net realized gains .............................................. $6,195,420 $3,597,282 $428,295 $6,794,002
======== ======== ========== ========
Templeton Templeton
Precious U.S. Government Money Capital Global Income Pacific
Metals FundSecurities Fund Market Fund Growth FundSecurities FundGrowth Fund
-------- ----------- -------- -------- ---------- --------
Capital loss carryovers
Expiring in:1999 $ -- $ -- $ -- $ -- $-- $ --
2000.................................. -- -- 418 -- -- --
2001.................................. -- -- 523 -- -- --
2002.................................. -- 14,789,560 7,568 -- -- 402,770
2003.................................. -- 826,481 -- -- -- 3,643,075
2004.................................. 146,066 -- -- 52,275 1,767,518 --
-------- ----------- -------- -------- ---------- --------
$146,066 $15,616,041 $8,509 $52,275 $1,767,518 $4,045,845
======== =========== ======== ======== ========== ========
</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 December 31, 1996 by $4,168 in Zero Coupon Fund - 2005,
$314,203 in Zero Coupon Fund - 2010, $9,777 in Growth and Income Fund,
$3,990,227 in Templeton International Equity Fund, $103,600 in Templeton
Developing Markets Equity Fund, $3,555,239 in Templeton Pacific Growth Fund,
$296,116 in Rising Dividends Fund, $13,347 in Templeton Global Growth Fund and
$62,705 in Small Cap Fund.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government Zero Coupon
Securities Fund Income Fund Metals FundSecurities FundSecurities Fund***Fund - 2000
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases ................................. $303,821,574 $157,706,146 $33,953,802 $60,858,072 $76,112,140 $ 764,880
Sales ..................................... $329,230,918 $ 99,365,626 $24,601,239 $23,484,427 $88,321,362 $10,968,281
Income Templeton Templeton
Zero Coupon Zero Coupon Growth and Securities International Pacific
Fund - 2005 Fund - 2010 Income Fund Fund Equity Fund Growth Fund
-------- --------- ---------- ---------- ---------- ---------
Purchases .................................... $2,227,312 $12,568,420 $331,534,066 $317,604,964 $254,455,666 $46,046,765
Sales ........................................ $1,654,344 $14,093,296 $207,828,875 $175,661,249 $236,211,877 $47,657,087
Templeton
Developing Templeton Templeton
Rising Utility Markets Global Global Asset Small
Dividends Fund Equity Fund Equity Fund Growth Fund Allocation Fund* Cap Fund
---------- ---------- --------- ---------- ----------- ----------
Purchases ................................ $203,203,223 $375,683,901 $96,882,928 $186,654,274 $42,047,805 $182,121,699
Sales .................................... $130,165,631 $515,672,768 $25,351,495 $ 50,224,188 $13,415,348 $ 50,911,175
Templeton Mutual Mutual
International Shares Discovery
Capital Smaller Companies Securities Securities
Growth Fund* Fund* Fund** Fund**
--------- ------------ --------- --------
Purchases .............................................................. $36,587,181 $8,897,257 $17,263,507 $9,516,603
Sales .................................................................. $ 659,799 $ 1,860 $ 147,893 $ 8,010
</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.
***Excludes purchase and sales related to the liquidaton of the Investment Grade
Intermediate Bond Fund and the Adjustable U.S. Government Fund and mortgage
dollar roll transactions.
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 Templeton International Equity Fund, the
Templeton Pacific Growth Fund, the Rising Dividends Fund, the Templeton
International Smaller Companies Fund, the Templeton Global Growth Fund, the
Templeton Developing Markets Equity Fund, the Templeton Global Asset Allocation
Fund, the Small Cap Fund, Capital Growth Fund, the Mutual Discovery Securities
Fund, and the Mutual Shares Securities 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 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 Small Cap Fund and
Capital Growth 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 advisor 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.
TGAL serves as the investment advisor 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
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
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
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment advisor 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 Rising Dividends Fund, the Templeton International Smaller Companies
Fund, the Templeton Global Growth Fund, the Templeton Developing Markets Equity
Fund, the Templeton Global Asset Allocation Fund, the Mutual Discovery
Securities Fund and the Mutual Shares Securities 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.
Franklin Templeton Services, Inc., (FT Services) serves as the business manager
for the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, the Mutual Discovery Fund and the Mutual Shares 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.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the Templeton International Equity Fund and 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 a portion of the management fees for the
Zero Coupon Fund - 2000, Zero Coupon Fund - 2005, Zero Coupon Fund - 2010, and
Money Market Fund, aggregating $1,141,337.
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.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Shareholder Services Agreement:
Franklin/Templeton Investors Services, Inc. (Investors Services), under the
terms of an agreement, performs shareholder servicing for the Funds and is not
paid by the Funds for the service.
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 and the Income Securities Fund have 85.7% and 41.1%,
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 yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer.
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 in the period in which the default
occurs.
At December 31, 1996, the High Income Fund held one defaulted security issued by
one company with a value aggregating $72,821 representing .02% of the Fund's net
assets. The Income Securities Fund held one defaulted security issued by one
company with a value aggregating $88,375 representing .01% of the Fund's net
assets.
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 Templeton International Equity Fund has investments in excess of 10% of
its net assets in Sweden and United Kingdom.
The Templeton Pacific Growth Fund has investments in excess of 10% of its
net assets in Australia, Hong Kong and Japan.
The Templeton Developing Markets Equity Fund has investments in excess of
10% of its net assets in Argentina, Hong Kong and Mexico.
The High Income Fund has investments in excess of 10% of its net assets in
Cable Television industry.
The Templeton Global Income Securities Fund has investments in excess of
10% of its net assets in Italy and United Kingdom.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES Investment of 5% or
more of an issuer's outstanding voting securities held by any of the Funds are
defined in the Investment Company Act of 1940 as affiliated companies. The
investments in such companies at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Purchase Market Dividend
Fund Affiliate Cost Value Income
------------------------------ -------------------------- -------- -------- -------
<S> <C> <C> <C> <C>
Income Securities Fund .................. Tanger Factory Outlet Centers, Inc. $9,718,888 $9,775,850 $742,424
Income Securities Fund .................. Anacomp, Inc. ..................... 1,902,683 1,616,895 0
</TABLE>
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 December 31, 1996, the Funds held
restricted securities as follows:
Real Estate Securities Fund (1.7% of net assets)
<TABLE>
<CAPTION>
Shares Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
511,400 Pacific Retail Trust ........................... 08/30/96 $5,625,400 $5,625,400
Income Securities Fund (0.5% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
419,424 Bibb Co. ....................................... 03/30/93 - $6,112,066 $3,171,894
09/08/94
9. RESTRICTED SECURITIES (cont.)
Income Securities Fund (0.5% of net assets)
Face Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
3,781,280 Del Monte Corp. ................................ 09/11/96 $3,935,678 $3,781,280
High Income Fund (0.2% of net assets)
Face
------- ------------------------------------- ---------- -------- --------
1,124,010 Del Monte Corp. ................................ 09/11/96 $1,124,010 $1,124,010
Mutual Shares Securities Fund (1.0% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
12,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 240,000 $ 283,500
Mutual Discovery Securities Fund (1.2% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
8,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 160,000 $ 189,000
</TABLE>
10. OTHER CONSIDERATIONS
As the Investment Advisor of the High Income Fund and 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 committee for Forstmann Textile, Inc. and therefore may be
in possession of certain material non-public information. Advisers has 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.
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.
Goverment 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:
<TABLE>
<CAPTION>
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
---------- -------------
<S> <C> <C>
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
========== =============
</TABLE>
12. 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
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Templeton Global Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.59$ .260$ (.293) $ (.033) $(.404) $(.153) $ (.557) $12.00 (.40)% $ 75,062 .67% 4.72% 92.22% --
1993 12.00 .500 1.471 1.971 (.499) (.162) (.661) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .860 (1.520) (.660) (.326) (.134) (.460) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .290 1.469 1.759 (.489) -- (.489) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.018 .167 1.185 (1.035) -- (1.035) 13.61 9.56 221,722 .61 7.30 140.96 --
High Income Fund
1992 10.62 .380 1.306 1.686 (.536) -- (.536) 11.77 16.21 67,991 .68 9.76 33.36 --
1993 11.77 .370 1.446 1.816 (.456) -- (.456) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .880 (1.180) (.300) (.546) (.074) (.620) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.060 1.301 2.361 (.911) -- (.911) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.200 .564 1.764 (1.200) (.064) (1.264) 14.16 13.90 446,096 .54 9.63 27.16 --
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Precious Metals Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $10.71$ .100 $(1.140) $(1.040) $(.310) $--$ (.310) $ 9.36 (10.13)% $ 13,827 .69% 2.23% -- % --
1993 9.36 .030 5.159 5.189 (.089) -- (.089) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .160 (.453) (.293) (.077) -- (.077) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .220 .111 .331 (.196) (.145) (.341) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .150 .436 .586 (.196) (.180) (.376) 14.29 4.00 109,579 .65 1.00 21.77 .0221
Real Estate Securities Fund
1992 11.65 .140 1.244 1.384 (.244) -- (.244) $12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .090 2.329 2.419 (.169) -- (.169) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .380 .060 .440 (.170) -- (.170) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .780 1.833 2.613 (.523) -- (.523) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .789 4.738 5.527 (.777) -- (.777) 22.15 32.82 322,721 .57 4.80 10.32 .0519
U.S. Government Securities Fund
1992 12.72 .520 .434 .954 (.425) (.009) (.434) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .500 .771 1.271 (.512) (.079) (.591) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .960 (1.590) (.630) (.668) (.052) (.720) 12.57 (4.55) 579,039 .53 6.87 18.25*** --
1995 12.57 .930 1.461 2.391 (.961) -- (.961) 14.00 19.46 643,165 .52 6.72 18.68*** --
1996 14.00 .750 (.308) .442 (.972) -- (.972) 13.47 3.62 843,858 .51 6.66 12.93***
Zero Coupon Fund - 2000
1992 13.26 .570 .577 1.147 (.527) -- (.527) 13.88 9.04 48,217 .257 6.97 9.10 --
1993 13.88 .660 1.549 2.209 (.618) (.031) (.649) 15.44 16.15 76,916 .377 5.88 7.02 --
1994 15.44 .680 (1.710) (1.030) (.691) (.099) (.790) 13.62 (6.76) 94,230 .407 6.37 -- --
1995 13.62 .750 2.029 2.779 (.669) -- (.669) 15.73 20.67 137,357 .407 6.14 1.63 --
1996 15.73 .980 (.650) .330 (.861) (.009) (.870) 15.19 2.43 129,601 .407 6.14 .58 --
Zero Coupon Fund - 2005
1992 12.91 .650 .670 1.320 (.610) -- (.610) 13.62 10.81 18,295 .257 7.46 19.48 --
1993 13.62 .440 2.547 2.987 (.521) (.006) (.527) 16.08 22.21 42,998 .377 5.67 16.59 --
1994 16.08 .710 (2.240) (1.530) (.602) (.188) (.790) 13.76 (9.60) 51,499 .407 6.53 2.00 --
1995 13.76 .780 3.525 4.305 (.685) -- (.685) 17.38 31.76 83,222 .407 6.19 1.72 --
1996 17.38 .958 (1.127) (.169) (.861) -- (.861) 16.35 (0.50) 82,603 .407 6.15 2.06 --
Zero Coupon Fund - 2010
1992 12.84 1.210 .026 1.236 (.726) -- (.726) 13.35 10.31 13,431 .257 7.64 54.50 --
1993 13.35 .500 2.805 3.305 (.937) (.038) (.975) 15.68 25.47 29,189 .257 5.89 36.63 --
1994 15.68 .550 (2.270) (1.720) (.632) (.308) (.940) 13.02 (10.97) 45,361 .407 6.57 4.34 --
1995 13.02 .760 4.749 5.509 (.489) -- (.489) 18.04 42.79 85,633 .407 6.41 31.45 --
1996 18.04 1.024 (1.658) (.634) (.878) (.238) (1.116) 16.29 (2.69) 78,816 .407 6.24 16.10 --
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 .467 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .407 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .437 5.04 -- --
Growth and Income Fund
1992 12.11 .080 .721 .801 (.121) -- (.121) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .090 1.221 1.311 (.111) -- (.111) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .190 (.470) (.280) (.094) (.196) (.290) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .410 3.915 4.325 (.196) (.409) (.605) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .620 1.633 2.253 (.406) (1.437) (1.843) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.82$ .400 $ 1.266 $1.666$ (.592)$ (.244)$ (.836) $13.65 13.20% $ 182,993 .67% 7.44% 12.59% --
1993 13.65 .330 2.177 2.507 (.312) (.045) (.357) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .820 (1.799) (.979) (.444) (.067) (.511) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.160 1.960 3.120 (.888) (.072) (.960) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.320 .438 1.758 (.873) (.145) (1.018) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
Templeton International Equity Fund
19921 10.00 .140 (.380) (.240) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .180 2.598 2.778 (.038) -- (.038) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .190 (.080) .110 (.035) (.065) (.100) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .370 .939 1.309 (.223) (.276) (.499) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .400 2.575 2.975 (.380) (.465) (.845) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
Templeton Pacific Growth Fund
19921 10.00 -- (.120) (.120) -- -- -- 9.88 (1.20) 5,788 1.317 -- 8.41 --
1993 9.88 .050 4.680 4.730 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .220 (1.500) (1.280) (.031) (.059) (.090) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .330 .705 1.035 (.258) (.107) (.365) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .214 1.331 1.545 (.440) (.255) (.695) 14.76 11.10 356,759 .99 1.51 12.85 .0092
Rising Dividends Fund
19921 10.00 .060 .920 .980 -- -- -- 10.98 9.80 97,687 .677 2.11* 5.22 --
1993 10.98 .140 (.522) (.382) (.028) -- (.028) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .260 (.690) (.430) (.170) -- (.170) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .270 2.661 2.931 (.241) -- (.241) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .250 2.769 3.019 (.279) -- (.279) 15.40 24.18 597,424 .76 1.96 27.97 .0505
Utility Equity Fund
1992 14.86 .350 .915 1.265 (.305) -- (.305) 15.82 8.69 667,118 .55 5.18 .13 --
1993 15.82 .380 1.279 1.659 (.338) (.001) (.339) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .950 (2.940) (1.990) (.620) (.110) (.730) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .840 3.542 4.382 (.902) -- (.902) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .910 .285 1.195 (.915) -- (.915) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
Templeton Developing Markets Equity Fund
19942 10.00 .070 (.510) (.440) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .090 .180 .270 (.040) (.010) (.050) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .123 1.972 2.095 (.100) (.185) (.285) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
Templeton Global Growth Fund
19942 10.15 .070 .260 .330 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .160 1.170 1.330 (.060) -- (.060) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .251 2.209 2.460 (.205) (.205) (.410) 13.80 21.28 579,877 .93 2.20 12.32 .0096
Templeton Global Asset Allocation Fund
19953 10.00 .180 .520 .700 (.180) -- (.180) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .336 1.749 2.085 (.005) (.010) (.015) 12.59 19.84 56,269 .86 4.21 52.35 .0028
Small Cap Fund
19954 10.00 .030 .210 .240 -- -- -- 10.24 2.30 13,301 .90* 2.70* 16.04 --
1996 10.24 .023 2.941 2.964 (.004) -- (.004) 13.20 28.95 170,969 .77 .63 63.72 .0518
Capital Growth Fund
19965 10.00 .030 1.330 1.360 -- -- -- 11.36 13.60 44,667 .77* .96* 3.91 .0567
Templeton International Smaller Companies Fund
19965 10.00 .091 1.159 1.250 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Mutual Shares Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19966 $10.00$ .019$ .331 $ .350 $-- $-- $-- $10.35 3.50% $ 27,677 1.00%* 2.56%* 1.31% .0410
Mutual Discovery Securities Fund
19966 10.00 .016 .192 .210 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
</TABLE>
*Annualized
***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.
++Per share amounts have been calculated using the average shares outstanding
during the period.
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.
7During 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:
Ratio of Expenses
to average net assets
Adjustable U.S. Government Fund
1992 0.62%
Zero Coupon Fund - 2000
1992 0.68
1993 0.67
1994 0.66
1995 0.63
1996 0.62
Zero Coupon Fund - 2005
1992 0.69
1993 0.67
1994 0.68
1995 0.66
1996 0.65
Ratio of Expenses
to average net assets
Zero Coupon Fund - 2010
1992 0.69%
1993 0.68
1994 0.68
1995 0.66
1996 0.65
Money Market Fund
1994 0.54
1995 0.53
1996 0.53
Templeton Pacific Growth Fund
19921 2.57*
Rising Dividends Fund
19921 0.76*
FRANKLIN VALUEMARK FUNDS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Valuemark Funds:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-three funds comprising the Franklin Valuemark Funds, including each
Fund's statement of investments in securities and net assets, as of December 31,
1996, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds comprising the Franklin Valuemark Funds as of December 31, 1996,
the results of their operations, changes in their net assets and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P
San Francisco, California
February 4, 1997
Franklin Valuemark Annual Report December 31, 1996.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 1000 Index and the S&P 500, based on a $10,000
investment from 5/1/96 to 12/31/96.
Period Ending Fund Index Index
5/1/96 $10,000 $10,000 $10,000
5/31/96 $10,220 $10,258 $10,240
6/30/96 $10,180 $10,297 $10,251
7/31/96 $ 9,790 $9,842 $9,757
8/31/96 $10,180 $10,050 $10,023
9/30/96 $10,910 $10,615 $10,586
10/31/96 $10,880 $10,908 $10,820
11/30/96 $11,750 $11,733 $11,618
12/31/96 $11,360 $11,501 $11,430
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,280 $11,101 $10,234
6/30/89 $9,990 $11,038 $10,259
7/31/89 $10,530 $12,035 $10,283
8/31/89 $11,020 $12,271 $10,300
9/30/89 $10,680 $12,220 $10,333
10/31/89 $10,040 $11,937 $10,382
11/30/89 $10,110 $12,180 $10,407
12/31/89 $10,290 $12,473 $10,424
1/31/90 $9,760 $11,636 $10,531
2/28/90 $9,920 $11,786 $10,581
3/31/90 $10,159 $12,098 $10,639
4/30/90 $9,958 $11,797 $10,656
5/31/90 $10,824 $12,947 $10,680
6/30/90 $10,693 $12,860 $10,738
7/31/90 $10,623 $12,819 $10,779
8/31/90 $9,736 $11,660 $10,878
9/30/90 $9,343 $11,093 $10,969
10/31/90 $9,242 $11,045 $11,035
11/30/90 $9,776 $11,758 $11,060
12/31/90 $10,048 $12,086 $11,060
1/31/91 $10,683 $12,613 $11,126
2/28/91 $11,127 $13,515 $11,143
3/31/91 $11,147 $13,842 $11,159
4/30/91 $11,177 $13,876 $11,176
5/31/91 $11,600 $14,474 $11,210
6/30/91 $10,853 $13,811 $11,242
7/31/91 $11,243 $14,454 $11,259
8/31/91 $11,623 $14,797 $11,292
9/30/91 $11,541 $14,550 $11,341
10/31/91 $11,664 $14,745 $11,358
11/30/91 $11,161 $14,150 $11,391
12/31/91 $12,054 $15,769 $11,399
1/31/92 $12,577 $15,476 $11,416
2/29/92 $12,587 $15,676 $11,457
3/31/92 $12,125 $15,370 $11,516
4/30/92 $12,146 $15,822 $11,532
5/31/92 $12,218 $15,899 $11,548
6/30/92 $11,943 $15,662 $11,590
7/31/92 $12,295 $16,303 $11,614
8/31/92 $12,119 $15,969 $11,647
9/30/92 $12,420 $16,156 $11,679
10/31/92 $12,658 $16,211 $11,720
11/30/92 $13,135 $16,762 $11,736
12/31/92 $13,260 $16,968 $11,728
1/31/93 $13,363 $17,110 $11,786
2/28/93 $13,280 $17,343 $11,827
3/31/93 $13,653 $17,709 $11,868
4/30/93 $13,477 $17,281 $11,902
5/31/93 $13,840 $17,742 $11,918
6/30/93 $13,676 $17,793 $11,935
7/31/93 $13,477 $17,722 $11,935
8/31/93 $13,979 $18,394 $11,968
9/30/93 $13,896 $18,252 $11,993
10/31/93 $14,105 $18,630 $12,043
11/30/93 $13,990 $18,453 $12,051
12/31/93 $14,627 $18,676 $12,051
1/31/94 $15,453 $19,311 $12,084
2/28/94 $15,255 $18,788 $12,125
3/31/94 $14,345 $7,969 $12,166
4/30/94 $14,429 $18,199 $12,183
5/31/94 $14,471 $18,497 $12,191
6/30/94 $13,815 $18,044 $12,233
7/31/94 $14,215 $18,636 $12,266
8/31/94 $14,689 $19,400 $12,315
9/30/94 $14,257 $18,927 $12,348
10/31/94 $14,457 $19,353 $12,357
11/30/94 $13,920 $18,648 $12,373
12/31/94 $14,131 $18,924 $12,373
1/31/95 $14,246 $19,414 $12,422
2/28/95 $14,815 $20,171 $12,472
3/31/95 $15,236 $20,766 $12,513
4/30/95 $15,689 $21,377 $12,555
5/31/95 $16,173 $22,232 $12,580
6/30/95 $16,273 $22,748 $12,605
7/31/95 $16,547 $23,503 $12,605
8/31/95 $16,744 $23,562 $12,638
9/30/95 $17,467 $24,556 $12,663
10/31/95 $17,335 $24,468 $12,705
11/30/95 $18,014 $25,542 $12,696
12/31/95 $18,770 $26,035 $12,687
1/31/96 $19,153 $26,920 $12,762
2/29/96 $18,956 $27,170 $12,803
3/31/96 $19,153 $27,431 $12,869
4/30/96 $19,252 $27,834 $12,919
5/31/96 $19,449 $28,553 $12,944
6/30/96 $19,810 $28,661 $12,952
7/31/96 $19,077 $27,394 $12,976
8/31/96 $19,346 $27,972 $13,001
9/30/96 $19,859 $29,547 $13,043
10/31/96 $20,445 $30,363 $13,084
11/30/96 $21,422 $32,658 $13,109
12/31/96 $21,434 $32,011 $13,109
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
shares with the CS First Boston High Yield Index and the CPI, based on a $10,000
investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,045 $10,011
2/28/89 $10,080 $10,091 $10,052
3/31/89 $10,150 $10,019 $10,110
4/30/89 $10,220 $9,995 $10,176
5/31/89 $10,290 $10,232 $10,234
6/30/89 $10,300 $10,380 $10,259
7/31/89 $10,330 $10,403 $10,283
8/31/89 $10,370 $10,402 $10,300
9/30/89 $10,300 $10,165 $10,333
10/31/89 $10,070 $9,911 $10,382
11/30/89 $10,050 $9,931 $10,407
12/31/89 $10,130 $9,886 $10,424
1/31/90 $9,920 $9,538 $10,531
2/28/90 $9,770 $9,362 $10,581
3/31/90 $9,924 $9,632 $10,639
4/30/90 $9,831 $9,672 $10,656
5/31/90 $9,893 $9,873 $10,680
6/30/90 $10,152 $10,184 $10,738
7/31/90 $10,379 $10,513 $10,779
8/31/90 $9,893 $10,027 $10,878
9/30/90 $9,251 $9,262 $10,969
10/31/90 $8,879 $9,030 $11,035
11/30/90 $9,076 $9,211 $11,060
12/31/90 $9,251 $9,256 $11,060
1/31/91 $9,345 $9,509 $11,126
2/28/91 $9,934 $10,330 $11,143
3/31/91 $10,286 $10,970 $11,159
4/30/91 $10,566 $11,426 $11,176
5/31/91 $10,659 $11,483 $11,210
6/30/91 $10,907 $11,784 $11,242
7/31/91 $11,168 $12,182 $11,259
8/31/91 $11,372 $12,404 $11,292
9/30/91 $11,519 $12,685 $11,341
10/31/91 $11,803 $13,105 $11,358
11/30/91 $11,939 $13,210 $11,391
12/31/91 $12,007 $13,306 $11,399
1/31/92 $12,392 $13,848 $11,416
2/29/92 $12,608 $14,184 $11,457
3/31/92 $12,778 $14,396 $11,516
4/30/92 $12,857 $14,407 $11,532
5/31/92 $13,039 $14,603 $11,548
6/30/92 $13,161 $14,748 $11,590
7/31/92 $13,411 $14,975 $11,614
8/31/92 $13,637 $15,181 $11,647
9/30/92 $13,744 $15,280 $11,679
10/31/92 $13,577 $15,121 $11,720
11/30/92 $13,839 $15,348 $11,736
12/31/92 $13,993 $15,521 $11,728
1/31/93 $14,255 $15,945 $11,786
2/28/93 $14,481 $16,261 $11,827
3/31/93 $14,695 $16,604 $11,868
4/30/93 $14,754 $16,699 $11,902
5/31/93 $14,897 $16,942 $11,918
6/30/93 $15,206 $17,249 $11,935
7/31/93 $15,317 $17,428 $11,935
8/31/93 $15,403 $17,577 $11,968
9/30/93 $15,403 $17,677 $11,993
10/31/93 $15,921 $18,000 $12,043
11/30/93 $16,020 $18,227 $12,051
12/31/93 $16,192 $18,457 $12,051
1/31/94 $16,537 $18,785 $12,084
2/28/94 $16,414 $18,813 $12,125
3/31/94 $15,637 $18,260 $12,166
4/30/94 $15,415 $18,016 $12,183
5/31/94 $15,465 $18,118 $12,191
6/30/94 $15,619 $17,997 $12,233
7/31/94 $15,593 $18,082 $12,266
8/31/94 $15,710 $18,212 $12,315
9/30/94 $15,762 $18,285 $12,348
10/31/94 $15,788 $18,297 $12,357
11/30/94 $15,684 $18,085 $12,373
12/31/94 $15,853 $18,277 $12,373
1/31/95 $16,112 $18,469 $12,422
2/28/95 $16,735 $18,923 $12,472
3/31/95 $16,904 $19,137 $12,513
4/30/95 $17,398 $19,562 $12,555
5/31/95 $17,878 $20,113 $12,580
6/30/95 $17,971 $20,246 $12,605
7/31/95 $18,221 $20,560 $12,605
8/31/95 $18,277 $20,617 $12,638
9/30/95 $18,471 $20,855 $12,663
10/31/95 $18,721 $21,086 $12,705
11/30/95 $18,666 $21,185 $12,696
12/31/95 $18,985 $21,454 $12,687
1/31/96 $19,347 $21,862 $12,762
2/29/96 $19,541 $21,978 $12,803
3/31/96 $19,402 $21,918 $12,869
4/30/96 $19,500 $22,037 $12,919
5/31/96 $19,652 $22,215 $12,944
6/30/96 $19,701 $22,264 $12,952
7/31/96 $19,899 $22,465 $12,976
8/31/96 $20,250 $22,709 $13,001
9/30/96 $20,739 $23,100 $13,043
10/31/96 $20,938 $23,294 $13,084
11/30/96 $21,319 $23,657 $13,109
12/31/96 $21,625 $24,119 $13,109
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Government/Corporate Bond Index, the S&P 500,
and the Lipper Income Average, based on a $10,000 investment from 1/24/89 to
12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000 $10,000
3/31/89 $10,150 $10,080 $10,520 $10,263
6/30/89 $10,280 $10,890 $11,449 $10,895
9/30/89 $10,460 $10,993 $12,675 $11,230
12/31/89 $10,900 $11,390 $12,936 $11,409
3/31/90 $10,693 $11,260 $12,547 $11,007
6/30/90 $11,030 $11,665 $13,336 $11,256
9/30/90 $10,101 $11,735 $11,504 $10,389
12/31/90 $10,091 $12,334 $12,535 $10,495
3/31/91 $11,754 $12,665 $14,355 $11,287
6/30/91 $12,452 $12,857 $14,323 $11,417
9/30/91 $13,448 $13,596 $15,088 $12,209
12/31/91 $13,999 $14,321 $16,354 $12,885
3/31/92 $14,935 $14,106 $15,941 $12,885
6/30/92 $15,515 $14,678 $16,243 $13,258
9/30/92 $15,855 $15,395 $16,755 $13,762
12/31/92 $15,983 $15,406 $17,599 $14,051
3/31/93 $16,979 $16,123 $18,368 $14,832
6/30/93 $17,671 $16,609 $18,457 $15,160
9/30/93 $18,367 $17,160 $18,934 $15,651
12/31/93 $18,954 $17,110 $19,373 $15,832
3/31/94 $18,151 $16,571 $18,638 $15,349
6/30/94 $17,816 $16,366 $18,717 $15,306
9/30/94 $18,175 $16,448 $19,632 $15,629
12/31/94 $17,729 $16,509 $19,628 $15,403
3/31/95 $18,460 $17,331 $21,540 $16,290
6/30/95 $19,869 $18,454 $23,597 $17,267
9/30/95 $20,804 $18,806 $25,473 $18,081
12/31/95 $21,700 $19,683 $27,006 $18,892
3/31/96 $21,938 $19,222 $28,457 $19,255
6/30/96 $22,576 $19,312 $29,734 $19,606
9/30/96 $22,955 $19,654 $30,653 $19,990
12/31/96 $24,148 $20,256 $33,210 $20,933
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500, based on a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index
01/24/89 $10,000 $10,000
01/31/89 $10,020 $10,165
02/28/89 $10,080 $9,912
03/31/89 $10,150 $10,143
04/30/89 $10,220 $10,669
05/31/89 $10,090 $11,101
06/30/89 $10,360 $11,038
07/31/89 $10,500 $12,035
08/31/89 $10,750 $12,271
09/30/89 $11,110 $12,220
10/31/89 $11,180 $11,937
11/30/89 $12,230 $12,180
12/31/89 $12,430 $12,473
01/31/90 $12,920 $11,636
02/28/90 $12,180 $11,786
03/31/90 $12,038 $12,098
04/30/90 $11,258 $11,797
05/31/90 $11,947 $12,947
06/30/90 $11,380 $12,860
07/31/90 $12,038 $12,819
08/31/90 $11,694 $11,660
09/30/90 $11,501 $11,093
10/31/90 $10,448 $11,045
11/30/90 $10,185 $11,758
12/31/90 $10,651 $12,086
01/31/91 $9,831 $12,613
02/28/91 $10,701 $13,515
03/31/91 $10,610 $13,842
04/30/91 $10,560 $13,876
05/31/91 $10,853 $14,474
06/30/91 $11,258 $13,811
07/31/91 $11,382 $14,454
08/31/91 $10,814 $14,797
09/30/91 $10,834 $14,550
10/31/91 $11,227 $14,745
11/30/91 $11,361 $14,150
12/31/91 $10,617 $15,769
01/31/92 $11,340 $15,476
02/29/92 $11,165 $15,676
03/31/92 $10,752 $15,370
04/30/92 $10,607 $15,822
05/31/92 $11,123 $15,899
06/30/92 $11,407 $15,662
07/31/92 $11,492 $16,303
08/31/92 $11,120 $15,969
09/30/92 $10,982 $16,156
10/31/92 $10,313 $16,211
11/30/92 $9,612 $16,762
12/31/92 $9,941 $16,968
01/31/93 $9,867 $17,110
02/28/93 $10,355 $17,343
03/31/93 $11,343 $17,709
04/30/93 $12,108 $17,281
05/31/93 $13,658 $17,742
06/30/93 $13,737 $17,793
07/31/93 $14,957 $17,722
08/31/93 $13,823 $18,394
09/30/93 $12,689 $18,252
10/31/93 $13,887 $18,630
11/30/93 $13,769 $18,453
12/31/93 $15,471 $18,676
01/31/94 $15,578 $19,311
02/28/94 $14,925 $18,788
03/31/94 $15,096 $17,969
04/30/94 $14,390 $18,199
05/31/94 $14,861 $18,497
06/30/94 $14,559 $18,044
07/31/94 $14,839 $18,636
08/31/94 $15,495 $19,400
09/30/94 $16,508 $18,927
10/31/94 $15,915 $19,353
11/30/94 $14,645 $18,648
12/31/94 $15,172 $18,924
01/31/95 $13,385 $19,414
02/28/95 $13,988 $20,171
03/31/95 $15,291 $20,766
04/30/95 $15,442 $21,377
05/31/95 $15,334 $22,232
06/30/95 $15,319 $22,748
07/31/95 $15,815 $23,503
08/31/95 $15,716 $23,562
09/30/95 $15,782 $24,556
10/31/95 $14,018 $24,468
11/30/95 $15,242 $25,542
12/31/95 $15,529 $26,035
1/31/96 $18,098 $26,920
2/29/96 $18,231 $27,170
3/31/96 $18,319 $27,431
4/30/96 $18,418 $27,834
5/31/96 $19,124 $28,553
6/30/96 $16,862 $28,661
7/31/96 $16,512 $27,394
8/31/96 $17,144 $27,972
9/30/96 $16,184 $29,547
10/31/96 $16,297 $30,363
11/30/96 $16,150 $32,658
12/31/96 $16,150 $32,011
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire Real Estate Securities Index and the S&P 500, based on
a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,037
2/28/89 $10,080 $9,912 $10,063
3/31/89 $10,150 $10,143 $10,134
4/30/89 $10,220 $10,669 $10,318
5/31/89 $10,290 $11,101 $10,495
6/30/89 $10,540 $11,038 $10,613
7/31/89 $10,850 $12,035 $10,948
8/31/89 $10,990 $12,271 $10,832
9/30/89 $10,750 $12,220 $10,808
10/31/89 $10,450 $11,937 $10,268
11/30/89 $10,490 $12,180 $10,115
12/31/89 $10,480 $12,473 $10,111
1/31/90 $10,170 $11,636 $9,635
2/28/90 $10,150 $11,786 $9,631
3/31/90 $10,249 $12,098 $9,609
4/30/90 $10,107 $11,797 $9,422
5/31/90 $10,178 $12,947 $9,381
6/30/90 $10,259 $12,860 $9,399
7/31/90 $10,137 $12,819 $9,039
8/31/90 $9,427 $11,660 $7,983
9/30/90 $8,808 $11,093 $7,058
10/31/90 $8,564 $11,045 $6,550
11/30/90 $9,102 $11,758 $6,816
12/31/90 $9,224 $12,086 $6,728
1/31/91 $10,158 $12,613 $7,383
2/28/91 $10,381 $13,515 $7,817
3/31/91 $11,081 $13,842 $8,514
4/30/91 $11,274 $13,876 $8,445
5/31/91 $11,406 $14,474 $8,575
6/30/91 $11,096 $13,811 $8,153
7/31/91 $11,233 $14,454 $8,118
8/31/91 $11,191 $14,797 $8,020
9/30/91 $11,413 $14,550 $7,929
10/31/91 $11,265 $14,745 $7,750
11/30/91 $11,180 $14,150 $7,493
12/31/91 $11,909 $15,769 $8,076
1/31/92 $12,987 $15,476 $8,456
2/29/92 $12,628 $15,676 $8,435
3/31/92 $12,396 $15,370 $8,253
4/30/92 $12,216 $15,822 $8,116
5/31/92 $12,501 $15,899 $8,149
6/30/92 $12,390 $15,662 $7,903
7/31/92 $12,886 $16,303 $7,933
8/31/92 $12,746 $15,969 $7,813
9/30/92 $12,929 $16,156 $8,110
10/31/92 $13,135 $16,211 $8,196
11/30/92 $13,286 $16,762 $8,267
12/31/92 $13,804 $16,968 $8,674
1/31/93 $14,365 $17,110 $9,276
2/28/93 $14,883 $17,343 $9,725
3/31/93 $15,854 $17,709 $10,378
4/30/93 $15,228 $17,281 $9,790
5/31/93 $15,099 $17,742 $9,636
6/30/93 $15,619 $17,793 $9,888
7/31/93 $15,925 $17,722 $10,089
8/31/93 $16,351 $18,394 $10,299
9/30/93 $17,192 $18,252 $10,765
10/31/93 $17,072 $18,630 $10,463
11/30/93 $16,013 $18,453 $10,007
12/31/93 $16,428 $18,676 $9,995
1/31/94 $16,723 $19,311 $10,295
2/28/94 $17,411 $18,788 $10,716
3/31/94 $16,799 $17,969 $10,220
4/30/94 $17,072 $18,199 $10,334
5/31/94 $17,334 $18,497 $10,549
6/30/94 $17,010 $18,044 $10,341
7/31/94 $16,976 $18,636 $10,365
8/31/94 $16,921 $19,400 $10,358
9/30/94 $16,644 $18,927 $10,185
10/31/94 $16,047 $19,353 $9,812
11/30/94 $15,471 $18,648 $9,428
12/31/94 $16,943 $18,924 $10,159
1/31/95 $16,323 $19,414 $9,831
2/28/95 $16,611 $20,171 $10,139
3/31/95 $16,733 $20,766 $10,197
4/30/95 $16,689 $21,377 $10,124
5/31/95 $17,364 $22,232 $10,459
6/30/95 $17,658 $22,748 $10,641
7/31/95 $18,024 $23,503 $10,812
8/31/95 $18,413 $23,562 $10,944
9/30/95 $18,940 $24,556 $11,146
10/31/95 $18,551 $24,468 $10,800
11/30/95 $18,860 $25,542 $10,912
12/31/95 $19,912 $26,035 $11,545
1/31/96 $20,359 $26,920 $11,705
2/29/96 $20,622 $27,170 $11,936
3/31/96 $20,645 $27,431 $12,033
4/30/96 $20,702 $27,834 $12,087
5/31/96 $21,114 $28,553 $12,357
6/30/96 $21,341 $28,661 $12,604
7/31/96 $21,174 $27,394 $12,492
8/31/96 $22,188 $27,972 $13,023
9/30/96 $22,889 $29,547 $13,348
10/31/96 $23,343 $30,363 $13,710
11/30/96 $24,107 $32,658 $14,279
12/31/96 $26,448 $32,011 $15,802
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire MidCap Growth Index, based on a $10,000 investment from
1/27/92 to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $10,039
2/29/92 $10,000 $10,209
3/31/92 $9,930 $9,801
4/30/92 $9,980 $9,568
5/31/92 $10,130 $9,448
6/30/92 $9,990 $9,020
7/31/92 $10,350 $9,514
8/31/92 $10,240 $9,315
9/30/92 $10,410 $9,478
10/31/92 $10,540 $9,865
11/30/92 $10,860 $10,620
12/31/92 $10,980 $10,945
1/31/93 $10,860 $11,193
2/28/93 $10,670 $10,815
3/31/93 $10,760 $11,147
4/30/93 $10,390 $10,681
5/31/93 $10,530 $11,290
6/30/93 $10,418 $11,365
7/31/93 $10,418 $11,264
8/31/93 $10,588 $11,835
9/30/93 $10,588 $12,132
10/31/93 $10,749 $12,196
11/30/93 $10,478 $12,006
12/31/93 $10,598 $12,670
1/31/94 $10,739 $13,117
2/28/94 $10,378 $13,187
3/31/94 $9,916 $12,402
4/30/94 $9,936 $12,452
5/31/94 $10,077 $12,261
6/30/94 $10,054 $11,643
7/31/94 $10,156 $11,927
8/31/94 $10,584 $12,948
9/30/94 $10,340 $12,846
10/31/94 $10,309 $13,159
11/30/94 $10,064 $12,576
12/31/94 $10,166 $12,785
1/31/95 $10,442 $12,788
2/28/95 $10,748 $13,555
3/31/95 $10,982 $14,055
4/30/95 $11,064 $14,265
5/31/95 $11,441 $14,498
6/30/95 $11,565 $15,410
7/31/95 $11,815 $16,705
8/31/95 $12,013 $16,960
9/30/95 $12,409 $17,434
10/31/95 $12,304 $16,820
11/30/95 $12,940 $17,703
12/31/95 $13,190 $17,767
1/31/96 $13,451 $18,074
2/29/96 $13,648 $18,750
3/31/96 $13,648 $18,977
4/30/96 $13,617 $20,102
5/31/96 $13,992 $20,703
6/30/96 $14,146 $19,575
7/31/96 $13,731 $17,899
8/31/96 $14,008 $19,204
9/30/96 $14,731 $20,113
10/31/96 $15,167 $19,544
11/30/96 $16,220 $20,644
12/31/96 $16,379 $20,371
GRAPHIC MATERIAL (8)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 2500 Index and the S&P 500, based on a $10,000
investment from 11/1/95 to 12/31/96.
Period Ending Fund Index Index
11/1/95 $10,000 $10,000 $10,000
11/30/95 $9,700 $10,439 $10,427
12/31/95 $10,230 $10,640 $10,605
1/31/96 $10,370 $11,002 $10,681
2/29/96 $10,850 $11,105 $11,002
3/31/96 $11,140 $11,211 $11,227
4/30/96 $12,250 $11,376 $11,745
5/31/96 $12,760 $11,669 $12,063
6/30/96 $12,154 $11,714 $11,693
7/31/96 $11,054 $11,196 $10,837
8/31/96 $12,114 $11,432 $11,460
9/30/96 $12,654 $12,076 $11,957
10/31/96 $12,404 $12,409 $11,878
11/30/96 $12,964 $13,347 $12,451
12/31/96 $13,204 $13,083 $12,622
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the IFC Investable Composite Index, based
on a $10,000 investment from 3/15/94 to 12/31/96.
Period Ending Fund Index Index
3/15/94 $10,000 $10,000 $10,000
3/31/94 $10,000 $9,779 $9,478
4/30/94 $10,060 $10,083 $9,298
5/31/94 $10,040 $10,110 $9,518
6/30/94 $9,990 $10,083 $9,179
7/31/94 $10,250 $10,276 $9,839
8/31/94 $10,530 $10,587 $11,098
9/30/94 $10,520 $10,310 $11,378
10/31/94 $10,410 $10,606 $11,003
11/30/94 $10,000 $10,148 $10,581
12/31/94 $9,560 $10,248 $9,442
1/31/95 $8,910 $10,097 $8,197
2/28/95 $8,780 $10,246 $8,090
3/31/95 $9,150 $10,742 $8,073
4/30/95 $9,540 $11,119 $8,410
5/31/95 $9,800 $11,216 $8,724
6/30/95 $9,855 $11,215 $8,775
7/31/95 $10,438 $11,778 $9,047
8/31/95 $10,167 $11,517 $8,805
9/30/95 $10,096 $11,855 $8,738
10/31/95 $9,735 $11,670 $8,406
11/30/95 $9,664 $12,077 $8,364
12/31/95 $9,825 $12,432 $8,655
1/31/96 $10,880 $12,660 $9,386
2/29/96 $10,659 $12,740 $9,168
3/31/96 $10,860 $12,954 $9,300
4/30/96 $11,222 $13,261 $9,676
5/31/96 $11,382 $13,274 $9,590
6/30/96 $11,390 $13,343 $9,702
7/31/96 $10,782 $12,873 $9,066
8/31/96 $10,957 $13,024 $9,347
9/30/96 $11,194 $13,536 $9,485
10/31/96 $11,184 $13,633 $9,281
11/30/96 $11,617 $14,399 $9,419
12/31/96 $11,947 $14,172 $9,460
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the JP Morgan Global Bond Unhedged Index,
based on a $10,000 investment from 5/1/95 to 12/31/96.
Period Ending Fund Index Index
5/01/95 $10,000 $10,000 $10,000
5/31/95 $10,070 $10,087 $10,279
6/30/95 $10,130 $10,086 $10,344
7/31/95 $10,340 $10,592 $10,392
8/31/95 $10,290 $10,358 $10,103
9/30/95 $10,390 $10,662 $10,331
10/31/95 $10,320 $10,495 $10,432
11/30/95 $10,430 $10,862 $10,549
12/31/95 $10,701 $11,181 $10,680
1/31/96 $11,077 $11,386 $10,570
2/29/96 $11,148 $11,457 $10,508
3/31/96 $11,219 $11,650 $10,493
4/30/96 $11,423 $11,926 $10,454
5/31/96 $11,525 $11,938 $10,464
6/30/96 $11,581 $12,000 $10,555
7/31/96 $11,407 $11,578 $10,749
8/31/96 $11,652 $11,713 $10,795
9/30/96 $11,927 $12,173 $10,854
10/31/96 $12,059 $12,261 $11,070
11/30/96 $12,599 $12,950 $11,162
12/31/96 $12,823 $12,745 $11,151
GRAPHIC MATERIAL (11)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index, based on a $10,000 investment from 3/15/94 to
12/31/96.
Period Ending Fund Index
3/15/94 $10,000 $10,000
3/31/94 $10,030 $9,779
4/30/94 $10,079 $10,083
5/31/94 $10,118 $10,110
6/30/94 $10,020 $10,083
7/31/94 $10,295 $10,276
8/31/94 $10,551 $10,587
9/30/94 $10,482 $10,310
10/31/94 $10,492 $10,606
11/30/94 $10,285 $10,148
12/31/94 $10,315 $10,248
1/31/95 $10,226 $10,097
2/28/95 $10,335 $10,246
3/31/95 $10,335 $10,742
4/30/95 $10,630 $11,119
5/31/95 $10,896 $11,216
6/30/95 $11,053 $11,215
7/31/95 $11,498 $11,778
8/31/95 $11,399 $11,517
9/30/95 $11,617 $11,855
10/31/95 $11,231 $11,670
11/30/95 $11,310 $12,077
12/31/95 $11,627 $12,432
1/31/96 $12,132 $12,660
2/29/96 $12,181 $12,740
3/31/96 $12,379 $12,954
4/30/96 $12,706 $13,261
5/31/96 $12,894 $13,274
6/30/96 $12,886 $13,343
7/31/96 $12,416 $12,873
8/31/96 $12,814 $13,024
9/30/96 $12,988 $13,536
10/31/96 $13,080 $13,633
11/30/96 $13,672 $14,399
12/31/96 $14,102 $14,172
GRAPHIC MATERIAL (12)
The following line graph hypothetically compares the performance of the fund's
shares with the JP Morgan Globa Bond (Unhedged)Index and the CPI, based on a
$10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $9,978 $10,011
2/28/89 $10,080 $9,962 $10,052
3/31/89 $10,150 $9,877 $10,110
4/30/89 $10,220 $10,040 $10,176
5/31/89 $10,290 $9,932 $10,234
6/30/89 $10,330 $10,157 $10,259
7/31/89 $10,510 $10,562 $10,283
8/31/89 $10,610 $10,249 $10,300
9/30/89 $10,600 $10,411 $10,333
10/31/89 $10,570 $10,545 $10,382
11/30/89 $10,760 $10,639 $10,407
12/31/89 $10,930 $10,764 $10,424
1/31/90 $10,920 $10,603 $10,531
2/28/90 $10,850 $10,489 $10,581
3/31/90 $10,965 $10,425 $10,639
4/30/90 $10,944 $10,384 $10,656
5/31/90 $11,138 $10,716 $10,680
6/30/90 $11,454 $10,910 $10,738
7/31/90 $11,729 $11,231 $10,779
8/31/90 $11,627 $11,143 $10,878
9/30/90 $11,617 $11,248 $10,969
10/31/90 $11,688 $11,692 $11,035
11/30/90 $11,882 $11,898 $11,060
12/31/90 $12,004 $12,030 $11,060
1/31/91 $12,147 $12,303 $11,126
2/28/91 $12,412 $12,316 $11,143
3/31/91 $12,147 $11,931 $11,159
4/30/91 $12,320 $12,076 $11,176
5/31/91 $12,463 $12,087 $11,210
6/30/91 $12,359 $11,925 $11,242
7/31/91 $12,605 $12,176 $11,259
8/31/91 $12,648 $12,430 $11,292
9/30/91 $12,982 $12,883 $11,341
10/31/91 $13,154 $13,011 $11,358
11/30/91 $13,132 $13,223 $11,391
12/31/91 $13,486 $13,891 $11,399
1/31/92 $13,454 $13,618 $11,416
2/29/92 $13,464 $13,579 $11,457
3/31/92 $13,475 $13,454 $11,516
4/30/92 $13,604 $13,566 $11,532
5/31/92 $13,871 $13,951 $11,548
6/30/92 $13,868 $14,332 $11,590
7/31/92 $14,014 $14,647 $11,614
8/31/92 $13,846 $15,037 $11,647
9/30/92 $13,197 $15,022 $11,679
10/31/92 $13,477 $14,646 $11,720
11/30/92 $13,253 $14,387 $11,736
12/31/92 $13,432 $14,524 $11,728
1/31/93 $13,533 $14,771 $11,786
2/28/93 $13,734 $15,008 $11,827
3/31/93 $14,148 $15,239 $11,868
4/30/93 $14,574 $15,517 $11,902
5/31/93 $14,809 $15,615 $11,918
6/30/93 $14,778 $15,627 $11,935
7/31/93 $14,825 $15,633 $11,935
8/31/93 $15,155 $16,096 $11,968
9/30/93 $15,107 $16,267 $11,993
10/31/93 $15,461 $16,259 $12,043
11/30/93 $15,155 $16,140 $12,051
12/31/93 $15,673 $16,304 $12,051
1/31/94 $15,967 $16,458 $12,084
2/28/94 $15,602 $16,277 $12,125
3/31/94 $15,131 $16,202 $12,166
4/30/94 $15,119 $16,189 $12,183
5/31/94 $15,178 $16,054 $12,191
6/30/94 $14,440 $16,246 $12,233
7/31/94 $14,670 $16,398 $12,266
8/31/94 $14,791 $16,356 $12,315
9/30/94 $14,779 $16,436 $12,348
10/31/94 $14,864 $16,682 $12,357
11/30/94 $14,864 $16,472 $12,373
12/31/94 $14,755 $16,510 $12,373
1/31/95 $14,658 $16,843 $12,422
2/28/95 $14,888 $17,278 $12,472
3/31/95 $15,155 $18,157 $12,513
4/30/95 $15,494 $18,446 $12,555
5/31/95 $15,869 $18,961 $12,580
6/30/95 $15,940 $19,080 $12,605
7/31/95 $16,041 $19,170 $12,605
8/31/95 $15,839 $18,637 $12,638
9/30/95 $16,191 $19,056 $12,663
10/31/95 $16,455 $19,243 $12,705
11/30/95 $16,594 $19,459 $12,696
12/31/95 $16,921 $19,700 $12,687
1/31/96 $16,845 $19,497 $12,762
2/29/96 $16,644 $19,384 $12,803
3/31/96 $16,694 $19,355 $12,869
4/30/96 $16,820 $19,283 $12,919
5/31/96 $16,908 $19,303 $12,944
6/30/96 $17,135 $19,470 $12,952
7/31/96 $17,204 $19,829 $12,976
8/31/96 $17,421 $19,912 $13,001
9/30/96 $17,694 $20,022 $13,043
10/31/96 $18,048 $20,420 $13,084
11/30/96 $18,484 $20,589 $13,109
12/31/96 $18,552 $20,569 $13,109
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 1/27/92 to
12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,973
2/29/92 $10,000 $9,619
3/31/92 $10,000 $8,987
4/30/92 $10,010 $9,032
5/31/92 $10,270 $9,639
6/30/92 $10,040 $9,185
7/31/92 $9,760 $8,952
8/31/92 $9,860 $9,517
9/30/92 $9,740 $9,332
10/31/92 $9,570 $8,845
11/30/92 $9,670 $8,931
12/31/92 $9,760 $8,980
1/31/93 $9,630 $8,982
2/28/93 $9,770 $9,256
3/31/93 $9,930 $10,066
4/30/93 $10,200 $11,024
5/31/93 $10,410 $11,260
6/30/93 $10,218 $11,087
7/31/93 $10,419 $11,477
8/31/93 $11,132 $12,099
9/30/93 $11,042 $11,829
10/31/93 $11,694 $12,196
11/30/93 $11,403 $11,132
12/31/93 $12,547 $11,938
1/31/94 $13,461 $12,951
2/28/94 $13,230 $12,917
3/31/94 $12,748 $12,363
4/30/94 $12,868 $12,891
5/31/94 $12,939 $12,820
6/30/94 $12,601 $13,003
7/31/94 $13,117 $13,132
8/31/94 $13,512 $13,446
9/30/94 $13,249 $13,025
10/31/94 $13,461 $13,461
11/30/94 $12,885 $12,818
12/31/94 $12,652 $12,901
1/31/95 $12,389 $12,408
2/28/95 $12,571 $12,376
3/31/95 $12,531 $13,152
4/30/95 $13,087 $13,651
5/31/95 $13,330 $13,492
6/30/95 $13,624 $13,259
7/31/95 $14,202 $14,087
8/31/95 $13,897 $13,554
9/30/95 $14,202 $13,822
10/31/95 $13,792 $13,454
11/30/95 $13,824 $13,832
12/31/95 $13,992 $14,392
1/31/96 $14,464 $14,454
2/29/96 $14,801 $14,506
3/31/96 $15,032 $14,818
4/30/96 $15,473 $15,252
5/31/96 $15,693 $14,975
6/30/96 $15,714 $15,063
7/31/96 $15,235 $14,626
8/31/96 $15,692 $14,662
9/30/96 $15,848 $15,054
10/31/96 $16,137 $14,904
11/30/96 $16,750 $15,500
12/31/96 $17,207 $15,305
GRAPHIC MATERIAL (14)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 5/1/96 to
12/31/96.
Period Ending Fund Index
5/1/96 $10,000 $10,000
5/31/96 $10,150 $9,818
6/30/96 $10,330 $9,876
7/31/96 $10,210 $9,590
8/31/96 $10,330 $9,613
9/30/96 $10,410 $9,870
10/31/96 $10,690 $9,771
11/30/96 $10,890 $10,162
12/31/96 $11,250 $10,034
GRAPHIC MATERIAL (15)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI Pacific Index, based on a $10,000 investment from 1/27/92
to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,950
2/29/92 $10,000 $9,254
3/31/92 $10,000 $8,376
4/30/92 $10,010 $7,994
5/31/92 $10,210 $8,619
6/30/92 $10,450 $7,944
7/31/92 $9,900 $7,835
8/31/92 $9,570 $8,910
9/30/92 $9,790 $8,708
10/31/92 $10,230 $8,402
11/30/92 $10,110 $8,562
12/31/92 $9,880 $8,466
1/31/93 $9,980 $8,452
2/28/93 $10,330 $8,864
3/31/93 $10,270 $9,936
4/30/93 $10,920 $11,521
5/31/93 $11,290 $11,859
6/30/93 $11,100 $11,666
7/31/93 $11,230 $12,358
8/31/93 $11,770 $12,725
9/30/93 $11,840 $12,251
10/31/93 $13,110 $12,525
11/30/93 $12,970 $10,760
12/31/93 $14,610 $11,512
1/31/94 $14,720 $12,847
2/28/94 $14,300 $13,180
3/31/94 $13,330 $12,453
4/30/94 $13,520 $12,994
5/31/94 $14,080 $13,304
6/30/94 $13,704 $13,742
7/31/94 $13,956 $13,449
8/31/94 $14,549 $13,685
9/30/94 $14,006 $13,344
10/31/94 $14,097 $13,683
11/30/94 $13,191 $12,921
12/31/94 $13,322 $13,010
1/31/95 $12,356 $12,190
2/28/95 $12,869 $11,890
3/31/95 $13,191 $12,806
4/30/95 $13,372 $13,353
5/31/95 $13,895 $12,821
6/30/95 $13,639 $12,280
7/31/95 $14,166 $13,168
8/31/95 $14,001 $12,674
9/30/95 $14,259 $12,793
10/31/95 $13,691 $12,173
11/30/95 $13,763 $12,773
12/31/95 $14,384 $13,399
1/31/96 $15,552 $13,424
2/29/96 $15,500 $13,275
3/31/96 $15,531 $13,684
4/30/96 $16,224 $14,384
5/31/96 $16,276 $13,761
6/30/96 $16,132 $13,766
7/31/96 $15,255 $13,136
8/31/96 $15,634 $12,792
9/30/96 $15,862 $13,211
10/31/96 $15,353 $12,600
11/30/96 $16,176 $12,940
12/31/96 $15,981 $12,267
GRAPHIC MATERIAL (16)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Intermediate Government Bond Index and the CPI,
based on a $10,000 investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,026 $10,032
4/30/89 $10,000 $10,229 $10,097
5/31/89 $10,000 $10,426 $10,155
6/30/89 $10,050 $10,692 $10,179
7/31/89 $10,190 $10,909 $10,203
8/31/89 $10,080 $10,762 $10,220
9/30/89 $10,140 $10,813 $10,252
10/31/89 $10,370 $11,040 $10,302
11/30/89 $10,470 $11,150 $10,326
12/31/89 $10,540 $11,182 $10,343
1/31/90 $10,420 $11,113 $10,449
2/28/90 $10,480 $11,154 $10,498
3/31/90 $10,510 $11,167 $10,556
4/30/90 $10,398 $11,130 $10,573
5/31/90 $10,671 $11,368 $10,597
6/30/90 $10,793 $11,519 $10,655
7/31/90 $10,964 $11,680 $10,695
8/31/90 $10,894 $11,638 $10,794
9/30/90 $10,974 $11,741 $10,884
10/31/90 $11,096 $11,905 $10,950
11/30/90 $11,318 $12,084 $10,974
12/31/90 $11,480 $12,251 $10,974
1/31/91 $11,652 $12,377 $11,039
2/28/91 $11,753 $12,453 $11,056
3/31/91 $11,813 $12,521 $11,073
4/30/91 $11,904 $12,650 $11,089
5/31/91 $11,995 $12,721 $11,122
6/30/91 $12,011 $12,731 $11,155
7/31/91 $12,178 $12,869 $11,171
8/31/91 $12,398 $13,113 $11,204
9/30/91 $12,649 $13,336 $11,253
10/31/91 $12,806 $13,488 $11,270
11/30/91 $12,890 $13,646 $11,303
12/31/91 $13,235 $13,978 $11,311
1/31/92 $13,046 $13,843 $11,328
2/29/92 $13,162 $13,886 $11,368
3/31/92 $13,067 $13,831 $11,426
4/30/92 $13,172 $13,955 $11,442
5/31/92 $13,465 $14,163 $11,458
6/30/92 $13,672 $14,367 $11,500
7/31/92 $13,953 $14,643 $11,524
8/31/92 $14,116 $14,792 $11,556
9/30/92 $14,278 $14,996 $11,588
10/31/92 $14,040 $14,816 $11,629
11/30/92 $14,072 $14,756 $11,645
12/31/92 $14,332 $14,946 $11,637
1/31/93 $14,635 $15,224 $11,694
2/28/93 $14,895 $15,448 $11,735
3/31/93 $14,971 $15,505 $11,776
4/30/93 $15,057 $15,626 $11,809
5/31/93 $15,101 $15,584 $11,826
6/30/93 $15,374 $15,810 $11,842
7/31/93 $15,476 $15,841 $11,842
8/31/93 $15,702 $16,077 $11,875
9/30/93 $15,702 $16,143 $11,900
10/31/93 $15,781 $16,182 $11,949
11/30/93 $15,577 $16,103 $11,957
12/31/93 $15,724 $16,169 $11,957
1/31/94 $15,928 $16,329 $11,990
2/28/94 $15,611 $16,105 $12,030
3/31/94 $15,058 $15,870 $12,071
4/30/94 $14,911 $15,767 $12,088
5/31/94 $14,934 $15,778 $12,097
6/30/94 $14,761 $15,781 $12,138
7/31/94 $15,129 $15,988 $12,171
8/31/94 $15,118 $16,034 $12,219
9/30/94 $14,809 $15,901 $12,252
10/31/94 $14,738 $15,904 $12,261
11/30/94 $14,738 $15,834 $12,277
12/31/94 $14,928 $15,887 $12,277
1/31/95 $15,260 $16,145 $12,326
2/28/95 $15,676 $16,457 $12,375
3/31/95 $15,759 $16,548 $12,416
4/30/95 $15,996 $16,740 $12,457
5/31/95 $16,697 $17,212 $12,482
6/30/95 $16,788 $17,322 $12,507
7/31/95 $16,737 $17,330 $12,507
8/31/95 $16,953 $17,473 $12,539
9/30/95 $17,132 $17,590 $12,565
10/31/95 $17,361 $17,783 $12,606
11/30/95 $17,590 $18,000 $12,597
12/31/95 $17,832 $18,178 $12,588
1/31/96 $17,947 $18,331 $12,663
2/29/96 $17,641 $18,137 $12,703
3/31/96 $17,514 $18,053 $12,769
4/30/96 $17,399 $18,001 $12,819
5/31/96 $17,323 $17,992 $12,843
6/30/96 $17,571 $18,175 $12,851
7/31/96 $17,613 $18,232 $12,875
8/31/96 $17,585 $18,252 $12,900
9/30/96 $17,928 $18,487 $12,941
10/31/96 $18,312 $18,790 $12,983
11/30/96 $18,587 $19,018 $13,007
12/31/96 $18,477 $18,915 $13,007
GRAPHIC MATERIAL (17)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,610 $11,101 $10,234
6/30/89 $10,730 $11,038 $10,259
7/31/89 $11,260 $12,035 $10,283
8/31/89 $11,100 $12,271 $10,300
9/30/89 $11,160 $12,220 $10,333
10/31/89 $11,260 $11,937 $10,382
11/30/89 $11,500 $12,180 $10,407
12/31/89 $12,140 $12,473 $10,424
1/31/90 $11,680 $11,636 $10,531
2/28/90 $11,750 $11,786 $10,581
3/31/90 $11,668 $12,098 $10,639
4/30/90 $11,153 $11,797 $10,656
5/31/90 $11,607 $12,947 $10,680
6/30/90 $11,678 $12,860 $10,738
7/31/90 $11,839 $12,819 $10,779
8/31/90 $11,103 $11,660 $10,878
9/30/90 $11,113 $11,093 $10,969
10/31/90 $11,899 $11,045 $11,035
11/30/90 $12,192 $11,758 $11,060
12/31/90 $12,363 $12,086 $11,060
1/31/91 $12,232 $12,613 $11,126
2/28/91 $12,676 $13,515 $11,143
3/31/91 $12,888 $13,842 $11,159
4/30/91 $12,989 $13,876 $11,176
5/31/91 $12,968 $14,474 $11,210
6/30/91 $12,871 $13,811 $11,242
7/31/91 $13,379 $14,454 $11,259
8/31/91 $13,742 $14,797 $11,292
9/30/91 $14,218 $14,550 $11,341
10/31/91 $14,426 $14,745 $11,358
11/30/91 $14,706 $14,150 $11,391
12/31/91 $15,275 $15,769 $11,399
1/31/92 $14,757 $15,476 $11,416
2/29/92 $14,726 $15,676 $11,457
3/31/92 $14,633 $15,370 $11,516
4/30/92 $15,068 $15,822 $11,532
5/31/92 $15,358 $15,899 $11,548
6/30/92 $15,543 $15,662 $11,590
7/31/92 $16,378 $16,303 $11,614
8/31/92 $16,315 $15,969 $11,647
9/30/92 $16,389 $16,156 $11,679
10/31/92 $16,283 $16,211 $11,720
11/30/92 $16,304 $16,762 $11,736
12/31/92 $16,738 $16,968 $11,728
1/31/93 $17,003 $17,110 $11,786
2/28/93 $17,923 $17,343 $11,827
3/31/93 $18,082 $17,709 $11,868
4/30/93 $18,092 $17,281 $11,902
5/31/93 $18,018 $17,742 $11,918
6/30/93 $18,459 $17,793 $11,935
7/31/93 $18,826 $17,722 $11,935
8/31/93 $19,344 $18,394 $11,968
9/30/93 $19,247 $18,252 $11,993
10/31/93 $19,128 $18,630 $12,043
11/30/93 $18,221 $18,453 $12,051
12/31/93 $18,502 $18,676 $12,051
1/31/94 $18,124 $19,311 $12,084
2/28/94 $17,206 $18,788 $12,125
3/31/94 $16,602 $17,969 $12,166
4/30/94 $16,991 $18,199 $12,183
5/31/94 $16,105 $18,497 $12,191
6/30/94 $15,354 $18,044 $12,233
7/31/94 $16,142 $18,636 $12,266
8/31/94 $16,299 $19,400 $12,315
9/30/94 $15,894 $18,927 $12,348
10/31/94 $16,198 $19,353 $12,357
11/30/94 $16,288 $18,648 $12,373
12/31/94 $16,220 $18,924 $12,373
1/31/95 $17,165 $19,414 $12,422
2/28/95 $17,233 $20,171 $12,472
3/31/95 $16,985 $20,766 $12,513
4/30/95 $17,345 $21,377 $12,555
5/31/95 $18,301 $22,232 $12,580
6/30/95 $18,283 $22,748 $12,605
7/31/95 $18,319 $23,503 $12,605
8/31/95 $18,497 $23,562 $12,638
9/30/95 $19,545 $24,556 $12,663
10/31/95 $19,985 $24,468 $12,705
11/30/95 $20,318 $25,542 $12,696
12/31/95 $21,306 $26,035 $12,687
1/31/96 $21,687 $26,920 $12,762
2/29/96 $21,294 $27,170 $12,803
3/31/96 $21,282 $27,431 $12,869
4/30/96 $20,842 $27,834 $12,919
5/31/96 $21,306 $28,553 $12,944
6/30/96 $22,248 $28,661 $12,952
7/31/96 $21,081 $27,394 $12,976
8/31/96 $21,533 $27,972 $13,001
9/30/96 $21,658 $29,547 $13,043
10/31/96 $22,361 $30,363 $13,084
11/30/96 $22,763 $32,658 $13,109
12/31/96 $22,813 $32,011 $13,109
GRAPHIC MATERIAL (18)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 5-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,040 $10,032
4/30/89 $10,000 $10,257 $10,097
5/31/89 $9,990 $10,571 $10,155
6/30/89 $10,560 $10,951 $10,179
7/31/89 $10,790 $11,344 $10,203
8/31/89 $10,460 $11,021 $10,220
9/30/89 $10,480 $11,066 $10,252
10/31/89 $10,910 $11,389 $10,302
11/30/89 $11,010 $11,534 $10,326
12/31/89 $11,080 $11,543 $10,343
1/31/90 $10,610 $11,346 $10,449
2/28/90 $10,600 $11,357 $10,498
3/31/90 $10,592 $11,356 $10,556
4/30/90 $10,170 $11,240 $10,573
5/31/90 $10,664 $11,582 $10,597
6/30/90 $10,932 $11,771 $10,655
7/31/90 $11,076 $11,979 $10,695
8/31/90 $10,582 $11,822 $10,794
9/30/90 $10,715 $11,935 $10,884
10/31/90 $10,973 $12,179 $10,950
11/30/90 $11,518 $12,504 $10,974
12/31/90 $11,734 $12,721 $10,974
1/31/91 $11,868 $12,850 $11,039
2/28/91 $11,889 $12,895 $11,056
3/31/91 $11,868 $12,943 $11,073
4/30/91 $12,064 $13,149 $11,089
5/31/91 $12,054 $13,190 $11,122
6/30/91 $11,987 $13,162 $11,155
7/31/91 $12,147 $13,350 $11,171
8/31/91 $12,615 $13,748 $11,204
9/30/91 $13,072 $14,100 $11,253
10/31/91 $13,157 $14,321 $11,270
11/30/91 $13,338 $14,566 $11,303
12/31/91 $13,933 $14,914 $11,311
1/31/92 $13,487 $14,668 $11,328
2/29/92 $13,572 $14,693 $11,368
3/31/92 $13,465 $14,546 $11,426
4/30/92 $13,519 $14,670 $11,442
5/31/92 $13,848 $15,035 $11,458
6/30/92 $14,249 $15,363 $11,500
7/31/92 $14,880 $15,802 $11,524
8/31/92 $15,080 $16,060 $11,556
9/30/92 $15,501 $16,410 $11,588
10/31/92 $15,102 $16,049 $11,629
11/30/92 $14,947 $15,869 $11,645
12/31/92 $15,379 $16,164 $11,637
1/31/93 $15,789 $16,659 $11,694
2/28/93 $16,387 $17,051 $11,735
3/31/93 $16,587 $17,124 $11,776
4/30/93 $16,664 $17,328 $11,809
5/31/93 $16,653 $17,239 $11,826
6/30/93 $17,308 $17,631 $11,842
7/31/93 $17,412 $17,645 $11,842
8/31/93 $17,863 $18,059 $11,875
9/30/93 $17,979 $18,148 $11,900
10/31/93 $18,129 $18,157 $11,949
11/30/93 $17,701 $17,974 $11,957
12/31/93 $17,863 $18,069 $11,957
1/31/94 $18,176 $18,324 $11,990
2/28/94 $17,528 $17,895 $12,030
3/31/94 $16,938 $17,433 $12,071
4/30/94 $16,729 $17,220 $12,088
5/31/94 $16,729 $17,233 $12,097
6/30/94 $16,694 $17,196 $12,138
7/31/94 $17,023 $17,513 $12,171
8/31/94 $17,023 $17,571 $12,219
9/30/94 $16,694 $17,272 $12,252
10/31/94 $16,596 $17,236 $12,261
11/30/94 $16,511 $17,101 $12,277
12/31/94 $16,621 $17,255 $12,277
1/31/95 $16,950 $17,422 $12,326
2/28/95 $17,475 $17,924 $12,375
3/31/95 $17,573 $17,998 $12,416
4/30/95 $17,829 $18,278 $12,457
5/31/95 $18,756 $19,149 $12,482
6/30/95 $18,909 $19,306 $12,507
7/31/95 $18,781 $19,211 $12,507
8/31/95 $18,998 $19,395 $12,539
9/30/95 $19,138 $19,543 $12,565
10/31/95 $19,482 $19,850 $12,606
11/30/95 $19,814 $20,219 $12,597
12/31/95 $20,056 $20,474 $12,588
1/31/96 $20,286 $20,697 $12,663
2/29/96 $19,890 $20,303 $12,703
3/31/96 $19,648 $20,046 $12,769
4/30/96 $19,495 $19,819 $12,819
5/31/96 $19,406 $19,722 $12,843
6/30/96 $19,637 $20,012 $12,851
7/31/96 $19,691 $19,694 $12,875
8/31/96 $19,664 $19,962 $12,900
9/30/96 $19,988 $20,331 $12,941
10/31/96 $20,435 $20,853 $12,983
11/30/96 $20,746 $21,214 $13,007
12/31/96 $20,543 $20,940 $13,007
GRAPHIC MATERIAL (19)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 10-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,064 $10,032
4/30/89 $10,000 $10,339 $10,097
5/31/89 $10,070 $10,762 $10,155
6/30/89 $11,310 $11,405 $10,179
7/31/89 $11,290 $11,714 $10,203
8/31/89 $10,850 $11,360 $10,220
9/30/89 $10,870 $11,408 $10,252
10/31/89 $11,500 $11,874 $10,302
11/30/89 $11,580 $11,973 $10,326
12/31/89 $11,530 $11,972 $10,343
1/31/90 $10,630 $11,486 $10,449
2/28/90 $10,640 $11,460 $10,498
3/31/90 $10,598 $11,451 $10,556
4/30/90 $10,024 $11,131 $10,573
5/31/90 $10,746 $11,663 $10,597
6/30/90 $11,065 $11,939 $10,655
7/31/90 $11,171 $12,069 $10,695
8/31/90 $10,290 $11,498 $10,794
9/30/90 $10,502 $11,629 $10,884
10/31/90 $10,746 $12,005 $10,950
11/30/90 $11,521 $12,527 $10,974
12/31/90 $11,840 $12,809 $10,974
1/31/91 $11,978 $12,938 $11,039
2/28/91 $11,978 $12,955 $11,056
3/31/91 $11,893 $13,047 $11,073
4/30/91 $12,127 $13,260 $11,089
5/31/91 $11,999 $13,244 $11,122
6/30/91 $11,857 $13,151 $11,155
7/31/91 $12,066 $13,383 $11,171
8/31/91 $12,663 $13,914 $11,204
9/30/91 $13,292 $14,393 $11,253
10/31/91 $13,237 $14,462 $11,270
11/30/91 $13,303 $14,666 $11,303
12/31/91 $14,065 $15,468 $11,311
1/31/92 $13,579 $14,821 $11,328
2/29/92 $13,612 $14,910 $11,368
3/31/92 $13,513 $14,718 $11,426
4/30/92 $13,480 $14,658 $11,442
5/31/92 $13,976 $15,084 $11,458
6/30/92 $14,216 $15,437 $11,500
7/31/92 $15,016 $16,152 $11,524
8/31/92 $15,132 $16,334 $11,556
9/30/92 $15,711 $16,792 $11,588
10/31/92 $15,143 $16,303 $11,629
11/30/92 $15,271 $16,288 $11,645
12/31/92 $15,793 $16,852 $11,637
1/31/93 $16,291 $17,524 $11,694
2/28/93 $17,196 $18,210 $11,735
3/31/93 $17,358 $18,261 $11,776
4/30/93 $17,346 $18,516 $11,809
5/31/93 $17,346 $18,414 $11,826
6/30/93 $18,520 $19,425 $11,842
7/31/93 $18,724 $19,585 $11,842
8/31/93 $19,360 $20,333 $11,875
9/30/93 $19,564 $20,575 $11,900
10/31/93 $19,840 $20,661 $11,949
11/30/93 $19,084 $19,973 $11,957
12/31/93 $19,300 $20,149 $11,957
1/31/94 $19,864 $20,737 $11,990
2/28/94 $18,748 $19,748 $12,030
3/31/94 $17,728 $18,733 $12,071
4/30/94 $17,452 $18,439 $12,088
5/31/94 $17,416 $18,347 $12,097
6/30/94 $17,163 $18,209 $12,138
7/31/94 $17,691 $18,732 $12,171
8/31/94 $17,641 $18,764 $12,219
9/30/94 $16,999 $18,088 $12,252
10/31/94 $16,899 $17,956 $12,261
11/30/94 $16,999 $18,042 $12,277
12/31/94 $17,314 $18,356 $12,277
1/31/95 $17,704 $18,841 $12,326
2/28/95 $18,295 $19,566 $12,375
3/31/95 $18,446 $19,701 $12,416
4/30/95 $18,862 $20,085 $12,457
5/31/95 $20,497 $21,768 $12,482
6/30/95 $20,647 $22,056 $12,507
7/31/95 $20,279 $21,692 $12,507
8/31/95 $20,712 $22,121 $12,539
9/30/95 $21,080 $22,486 $12,565
10/31/95 $21,657 $23,055 $12,606
11/30/95 $22,248 $23,761 $12,597
12/31/95 $22,812 $24,341 $12,588
1/31/96 $22,891 $24,392 $12,663
2/29/96 $21,802 $23,233 $12,703
3/31/96 $21,461 $22,787 $12,769
4/30/96 $21,067 $22,251 $12,819
5/31/96 $20,830 $22,109 $12,843
6/30/96 $21,295 $22,604 $12,851
7/31/96 $21,295 $22,598 $12,875
8/31/96 $21,101 $22,353 $12,900
9/30/96 $21,670 $23,017 $12,941
10/31/96 $22,531 $23,959 $12,983
11/30/96 $23,197 $24,776 $13,007
12/31/96 $22,698 $24,129 $13,007
GRAPHIC MATERIAL (20)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 20-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,109 $10,032
4/30/89 $10,000 $10,494 $10,097
5/31/89 $10,000 $11,218 $10,155
6/30/89 $11,290 $12,388 $10,179
7/31/89 $11,250 $12,458 $10,203
8/31/89 $10,790 $11,840 $10,220
9/30/89 $10,860 $11,945 $10,252
10/31/89 $11,630 $12,745 $10,302
11/30/89 $11,720 $12,972 $10,326
12/31/89 $11,610 $12,904 $10,343
1/31/90 $10,580 $11,934 $10,449
2/28/90 $10,530 $11,668 $10,498
3/31/90 $10,400 $11,557 $10,556
4/30/90 $9,652 $10,869 $10,573
5/31/90 $10,617 $11,932 $10,597
6/30/90 $11,064 $12,425 $10,655
7/31/90 $11,136 $12,374 $10,695
8/31/90 $9,912 $11,011 $10,794
9/30/90 $10,150 $11,240 $10,884
10/31/90 $10,358 $11,566 $10,950
11/30/90 $11,271 $12,608 $10,974
12/31/90 $11,676 $12,940 $10,974
1/31/91 $11,853 $13,206 $11,039
2/28/91 $11,811 $13,087 $11,056
3/31/91 $11,666 $13,182 $11,073
4/30/91 $11,946 $13,421 $11,089
5/31/91 $11,686 $13,267 $11,122
6/30/91 $11,412 $13,000 $11,155
7/31/91 $11,619 $13,273 $11,171
8/31/91 $12,362 $14,056 $11,204
9/30/91 $13,061 $14,781 $11,253
10/31/91 $12,864 $14,549 $11,270
11/30/91 $12,744 $14,670 $11,303
12/31/91 $13,749 $15,854 $11,311
1/31/92 $13,246 $15,164 $11,328
2/29/92 $13,290 $15,233 $11,368
3/31/92 $13,235 $14,986 $11,426
4/30/92 $13,050 $14,715 $11,442
5/31/92 $13,759 $15,337 $11,458
6/30/92 $13,776 $15,380 $11,500
7/31/92 $14,598 $16,413 $11,524
8/31/92 $14,679 $16,359 $11,556
9/30/92 $14,923 $16,307 $11,588
10/31/92 $14,378 $15,968 $11,629
11/30/92 $14,772 $16,341 $11,645
12/31/92 $15,467 $17,034 $11,637
1/31/93 $15,792 $17,595 $11,694
2/28/93 $16,707 $18,677 $11,735
3/31/93 $17,054 $18,546 $11,776
4/30/93 $16,881 $18,774 $11,809
5/31/93 $16,985 $18,956 $11,826
6/30/93 $18,058 $20,442 $11,842
7/31/93 $18,664 $21,338 $11,842
8/31/93 $19,617 $22,712 $11,875
9/30/93 $19,778 $22,639 $11,900
10/31/93 $20,162 $23,054 $11,949
11/30/93 $19,332 $22,125 $11,957
12/31/93 $19,407 $22,047 $11,957
1/31/94 $20,186 $22,929 $11,990
2/28/94 $18,788 $21,356 $12,030
3/31/94 $17,662 $20,013 $12,071
4/30/94 $17,365 $19,496 $12,088
5/31/94 $17,092 $18,900 $12,097
6/30/94 $16,534 $18,599 $12,138
7/31/94 $17,392 $19,779 $12,171
8/31/94 $17,041 $19,179 $12,219
9/30/94 $16,248 $18,101 $12,252
10/31/94 $16,131 $17,996 $12,261
11/30/94 $16,417 $18,436 $12,277
12/31/94 $16,924 $19,119 $12,277
1/31/95 $17,366 $19,856 $12,326
2/28/95 $17,886 $20,479 $12,375
3/31/95 $18,068 $20,733 $12,416
4/30/95 $18,561 $21,191 $12,457
5/31/95 $20,862 $24,264 $12,482
6/30/95 $20,964 $24,591 $12,507
7/31/95 $20,415 $23,898 $12,507
8/31/95 $21,018 $24,842 $12,539
9/30/95 $21,527 $25,562 $12,565
10/31/95 $22,532 $26,984 $12,606
11/30/95 $23,295 $27,998 $12,597
12/31/95 $24,166 $29,297 $12,588
1/31/96 $24,112 $29,016 $12,663
2/29/96 $22,264 $26,341 $12,703
3/31/96 $21,728 $25,335 $12,769
4/30/96 $21,152 $24,417 $12,819
5/31/96 $20,951 $24,420 $12,843
6/30/96 $21,596 $25,270 $12,851
7/31/96 $21,553 $25,204 $12,875
8/31/96 $21,077 $24,370 $12,900
9/30/96 $21,928 $25,583 $12,941
10/31/96 $23,155 $27,320 $12,983
11/30/96 $24,224 $28,946 $13,007
12/31/96 $23,516 $27,643 $13,007
THE INVESTMENT STRATEGY PYRAMID
As a Franklin Valuemark contract owner, you can invest in up to nine investment
options at one time. When selecting an option, there are two things you may wish
to consider: 1) your investment objective; and 2) the degree of risk with which
you feel comfortable. Before you make these decisions, you may want to review
the investment strategy pyramid pictured below. The base of the pyramid
represents investments emphasizing stability and preservation of capital. Moving
up the pyramid, the categories reflect a greater focus on potential investment
return -- categories that generally entail a greater degree of investment risk
as well. Of course, you should review the Franklin Valuemark Funds prospectus
for more information about a specific option.
GRAPH OMITTED
Capital Growth Fund+
Mutual Discovery Securities Fund+
Precious Metals Fund*
Small Cap Fund+
Templeton Developing Markets Equity Fund+
Templeton Global Growth Fund+
Templeton International Equity Fund+
Templeton International Smaller Companies Fund+
Templeton Pacific Growth Fund+
Growth and Income Fund+
Income Securities Fund+
Mutual Shares Securities Fund+
Real Estate Securities Fund
Rising Dividends Fund+
Templeton Global Asset Allocation Fund+
Utility Equity Fund+
High Income Fund
Templeton Global Income Securities Fund++++
U.S. Gov't. Securities Fund
Three Zero Coupon Funds
maturing in 2000, 2005, 2010
Money Market Fund+
Allianz Life Fixed Account++
*The Board has approved for contract owner consideration changes in the
investment objective and industry concentration policy of the Precious Metals
Fund to those of a fund which invests primarily in natural resources industries.
Contract owners of record as of January 21, 1997, are entitled to vote at the
April 4, 1997, meeting. If approved, the change would take effect on May 1,
1997.
+Investment options available under Valuemark Income Plus (VIP).
++As of December 31, 1996, the Fixed Account is not available in Washington.
++++Effective May 1, 1996, the Global Income Fund's name changed to the
Templeton Global Income Securities Fund. The portfolio's objective and
investment strategy remain unchanged.
For service regarding your contract, please contact your investment
representative. You may also call 1-800/624-0197 (Valuemark deferred variable
annuity), 1-800/774-5001 (VIP), or 1-800/342-FUND (Franklin Valuemark Funds). To
ensure the highest quality of service, telephone calls to or from a Valuemark
service center may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
LETTER TO CONTRACT OWNERS
TABLE OF CONTENTS PAGE
LETTER TO CONTRACT OWNERS 1
ECONOMIC OVERVIEW 3
CHANGE IN UNIT PRICES 5
FRANKLIN VALUEMARK TOTAL RETURNS 6
PORTFOLIO OBJECTIVES 10
PORTFOLIO PROFILES
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund 14
GRAPHICS OMITTED
Mutual Discovery Securities Fund 14
Precious Metals Fund 15
Small Cap Fund 16
Templeton Developing Markets Equity Fund 17
Templeton Global Growth Fund 17
Templeton International Equity Fund 19
Templeton International
Smaller Companies Fund 19
Templeton Pacific Growth Fund 20
PORTFOLIOS SEEKING GROWTH AND INCOME
Growth and Income Fund 21
Income Securities Fund 22
GRAPHICS OMITTED
Mutual Shares Securities Fund 23
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 VARIABLE ACCOUNT B
Financial Statements and Notes 42
FRANKLIN VALUEMARK FUNDS
Statement of Investments 69
Financial Statements and Notes 164
February 14, 1997
Dear Contract Owner:
This annual report covers the year ended December 31, 1996, for the Franklin
Valuemark flexible premium deferred variable annuity, Franklin Templeton
Valuemark 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.
We introduced two new investment options over the reporting period. On November
8, 1996, we added the Mutual Discovery Securities Fund and the Mutual Shares
Securities Fund. Mutual Discovery seeks capital appreciation through a policy of
investing in domestic and foreign equity securities. Mutual Shares seeks capital
appreciation, with current income as a secondary objective.
On October 25, 1996, shares of the Adjustable U.S. Government Fund and the
Investment Grade Intermediate Bond Fund were replaced by shares of the U.S.
Government Securities Fund. The substitution is designed to benefit contract
owners by consolidating the assets of portfolios with similar investment
objectives, strategies, and risks, thereby potentially lowering operating costs.
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 through 9, 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,
SIGNATURE OMITTED
Rupert H. Johnson, Jr.
Director and Executive Vice President
Franklin Valuemark Funds
SIGNATURE OMITTED
Lowell C. Anderson
Chairman of the Board
Allianz Life Insurance Company
of North America
MUTUAL SERIES PORTFOLIO MANAGERS
COME TO VALUEMARK
IN NOVEMBER 1996, HEINE SECURITIES CORPORATION, ADVISERS OF THE PUBLIC MUTUAL
SERIES FUNDS, INC. JOINED FORCES WITH FRANKLIN TEMPLETON. WHAT'S MORE, AS OF
NOVEMBER 8, 1996, FRANKLIN VALUEMARK BEGAN OFFERING MODELS OF TWO MUTUAL SERIES
FUNDS -- MUTUAL DISCOVERY SECURITIES FUND AND MUTUAL SHARES SECURITIES FUND --
TO CONTRACT OWNERS.
ALTHOUGH THE NEW VALUEMARK PORTFOLIOS WILL PERFORM DIFFERENTLY THAN THE PUBLIC
FUNDS DUE TO DIFFERENCES IN SIZE, INVESTMENTS HELD, AND OTHER FACTORS, THEY WILL
BE MANAGED BY MICHAEL PRICE AND HIS TEAM, USING THE SAME VALUE INVESTMENT
APPROACH.
ECONOMIC OVERVIEW FOR 1996
A STRONG U.S. ECONOMY
At the end of 1995, the U.S. economy appeared to be stalled and on the verge of
a recession. At that time, few could accurately predict the record-setting climb
of the stock market that would occur in the 12 months to follow. Consistent
employment growth, strong personal income and rising financial asset values
helped consumer spending rebound in the first and second quarters of 1996. Gross
Domestic Product (GDP) grew at an annualized rate of 4.7% during the second
quarter. As the third quarter ended, the national unemployment rate remained
low, leading many bond investors to speculate that economic growth could
accelerate and lead to increased inflation. A saving grace came in the third
quarter when consumers didn't open their wallets as often as they had earlier in
the year (growth fell to an annualized rate of 2.2% by September 30, 1996). But
fourth quarter economic reports showed that activity in key sectors had picked
up, reviving inflation expectations and pushing interest rates -- and bond
yields -- higher. The 30-year U.S. Treasury bond finished the year yielding
6.65%, significantly higher than its 5.96% yield on December 31, 1995.
U.S. EQUITIES POST BANNER YEAR
Record amounts of capital poured into mutual funds in 1996, and the Dow Jones
Industrial Average(R) (the Dow) set an unprecedented 44 records -- including
closing above the 6000 point mark for the first time on October 14, 1996.
Despite its strong upward movement throughout the year, the Dow suffered two
measurable sell-offs in the first half of 1996. It tumbled 171.24 points on
March 8, recovered quickly and advanced to a new high of 5778.00 on May 22, only
to slide to 5346.55 by July 23. The Dow closed the reporting period at 6448.27,
a 26% increase from December 31, 1995.*
FOREIGN EQUITIES BOOKED STRONG GAINS, TOO. . . .
Patient investors of global equity markets enjoyed 1996, especially since
foreign markets experienced positive gains. Due to declining European interest
rates and increased participation in European equities by American investors,
many European stocks performed well, with most major European stock exchanges
posting gains of more than 15% (measured in local currencies). Some European
fixed-income and currency markets started the year in a promising fashion, but
couldn't deliver the goods. This was especially evident in Germany, where the
economy continued to move at a snail's pace. Indications were that the German
economy was starting to recover in early September, but some of the optimism
might have been a bit premature since the 1997 budget includes plans for fiscal
tightening. With this in mind, and with the overtones of the European Monetary
Union (EMU) in the background, we believe the Deutschmark will most likely
continue to weaken against the U.S. dollar and other foreign currencies.
*Dow Jones Industrial Average total return calculated by Wilshire Associates,
Inc.
Boasting an influx of investors who reaped the benefits of favorable returns
(quite a change from 1995's dramatic sell-off), most emerging market stocks
posted a banner year. Particularly strong performances came from Brazil, Poland
and Russia. Another buoyant market was Hong Kong, which has managed to attract
significant capital inflows despite the upcoming reversion to Chinese rule.
Consumer and business confidence in Japan are improving but still have some
distance to go. In fact, a recent Tankan economic report suggested that while
Japan's equity market produced a positive return for the year, the economy has
yet to turn. This, coupled with a questionable banking system, indicates that
Japan's economy may remain on shaky ground for some time.
ON INTO 1997
Chances are that despite Federal Reserve Chairman Alan Greenspan's recent
comment that the U.S. market may be overpriced, we believe the Dow could
continue to rise and give equity investments another good year. It also appears
to us that U.S. economic growth may continue at a moderate pace, accompanied
with low inflation -- a scenario we think is already priced into the domestic
bond market. Still, a couple of things lurk in the shadows that could
potentially cause the bond market some grief, including continued entitlement
program reforms and their potential impact on the federal budget. Additionally,
should strong growth resume in Asian and European countries, pressure could be
put on the dollar relative to foreign currencies -- perhaps negatively impacting
U.S. interest rates and forcingthe Fed to reconsider its stance on domestic
monetary policy.
There are no promises that 1997's market can match that of 1996 -- market
corrections may occur after good years, causing relatively short but sometimes
sharp declines in stock prices. While market volatility and the possibility of
corrections can be unsettling, it is a reminder to investors that security
prices don't always move upward. History has shown that, over the long term,
stocks and bonds have delivered impressive results when left to compound -- even
through market downturns. For this reason, you are encouraged to periodically
review your investment program and focus on your continuing long-term goals.
- ------------------------------------------------------------------------------
FRANKLIN VALUEMARK VARIABLE ANNUITY
CHANGE IN UNIT PRICES
- -------------------------------------------------------------------------------
% Change % Change
Unit Price* Unit Price* in Unit Price
Portfolio Name 12/31/95 12/31/96 12/31/95 to 12/31/96
- -------------------------------------------------------------------------------
Capital Growth Fund $10.00** $11.25 12.54%
Growth and Income Fund $17.31 $19.49 12.59%
High Income Fund $17.25 $19.37 12.31%
Income Securities Fund $19.79 $21.71 9.72%
Money Market Fund $12.88 $13.36 3.69%
Mutual Discovery
Securities Fund N/A++ $10.18 N/A
Mutual Shares
Securities Fund N/A++ $10.33 N/A
Precious Metals Fund $14.11 $14.47 2.54%
Real Estate Securities Fund $18.07 $23.67 30.96%
Rising Dividends Fund $12.50 $15.30 22.44%
Small Cap Fund $10.15 $12.91 27.26%
Templeton Developing
Markets Equity Fund $ 9.58 $11.49 19.89%
Templeton Global
Asset Allocation Fund $10.59 $12.51 18.16%
Templeton Global Growth Fund $11.34 $13.56 19.58%
Templeton Global Income
Securities Fund++ $15.52 $16.78 8.10%
Templeton International
Equity Fund $13.26 $16.08 21.25%
Templeton International
Smaller Companies Fund $10.00** $11.15 11.45%
Templeton Pacific Growth Fund $13.63 $14.93 9.55%
U.S. Government Securities Fund $16.30 $16.65 2.16%
Utility Equity Fund $19.56 $20.65 5.57%
Zero Coupon Fund - 2000 $18.29 $18.47 0.99%
Zero Coupon Fund - 2005 $20.91 $20.52 -1.90%
Zero Coupon Fund - 2010 $22.43 $21.52 -4.05%
*The unit prices have been rounded to the nearest hundredth. Percent
change is calculated using actual unit prices.
**Unit price at inception on May 1, 1996.
++Figures for this time period are not available due to the funds'
recent inception dates.
+++Effective May 1, 1996, the Global Income Fund's name changed to the Templeton
Global Income Securities Fund. The portfolio's objective and investment strategy
remain unchanged.
Note: The unit value for each subaccount that invests in a particular portfolio
is the total value of assets of the subaccount (net assets of the portfolio),
minus the daily charges for mortality and expense risk and administrative
expenses (annualized at 1.4% of the account's average daily net assets), plus or
minus a charge or credit for any taxes reserved, divided by the total number of
outstanding units for the fund at the end of the valuation period. The unit
value does not take into account the contingent deferred sales charge that
declines from 6% to 1.5% over five years for Valuemark III, and 5% to 1.5% over
five years for Valuemark II, or the annual contract maintenance fee of $30. Past
performance is not indicative of future performance. Unit price and return vary,
so that investors may have a gain or loss when they sell their units. This
information is for Valuemark contract owners only and may not be used as sales
literature.
- ------------------------------------------------------------------------------
VALUEMARK II
STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCEPTION SINCE
PORTFOLIO NAME DATE 1-YEAR 5-YEAR INCEPTION
----------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund+ 5/1/96 N/A N/A N/A
Growth and Income Fund* 1/24/89 8.24% 10.14% 8.68%
High Income Fund* 1/24/89 7.96% 10.70% 8.60%
Income Securities Fund* 1/24/89 5.37% 9.70% 10.18%
Money Market Fund** 1/24/89 -0.66% 2.45% 3.63%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A
Precious Metals Fund* 1/24/89 -1.81% 6.20% 4.67%
Real Estate Securities Fund* 1/24/89 26.61% 14.72% 11.38%
Rising Dividends Fund 1/27/92 18.09% N/A 8.86%
Small Cap Fund 11/1/95 22.91% N/A 21.42%
Templeton Developing Markets Equity Fund* 3/15/94 15.54% N/A 4.24%
Templeton Global Asset Allocation Fund 5/1/95 13.81% N/A 12.32%
Templeton Global Growth Fund* 3/15/94 15.23% N/A 10.74%
Templeton Global Income Securities Fund* 1/24/89 3.75% 5.14% 6.66%
Templeton International Equity Fund 1/27/92 16.90% N/A 9.97%
Templeton International Smaller Companies Fund+ 5/1/96 N/A N/A N/A
Templeton Pacific Growth Fund 1/27/92 5.20% N/A 8.33%
U.S. Government Securities Fund 3/14/89 -2.19% 5.25% 6.67%
Utility Equity Fund 1/24/89 1.22% 6.71% 9.49%
Zero Coupon - 2000** 3/14/89 -3.36% 6.22% 8.10%
Zero Coupon - 2005** 3/14/89 -6.25% 8.27% 9.57%
Zero Coupon - 2010** 3/14/89 -8.40% 9.67% 10.24%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. They are based on a $1,000 hypothetical
investments and represent the average annual change in value of an investment
over the indicated periods. They reflect the deduction of an annual asset charge
of 1.4%, fund charges, an annual contract maintenance charge of $30 (prorated,
based on an approximate average contract size of $30,000), and applicable
declining contingent deferred sales charges, assuming the account is liquidated
at the end of the reporting period, according to the following schedule:
YEARS SINCE DEPOSIT: 1 2 3 4 5 6
CHARGE: 5% 5% 4% 3% 1.5% 0%
The figures also assume reinvestment of dividends and capital gains and reflect
the application of an annual 15% cumulative free withdrawal privilege.
Investment return and principal value will fluctuate with market conditions and
you may have a gain or loss when units are sold. Past performance does not
guarantee future results.
*Past expense reductions by the portfolio's manager increased the portfolio's
total returns.
**The manager agreed in advance to waive a portion of management fees and to
assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees. For
the Zero Coupon Funds, until at least December 31, 1997, the manager has agreed
to keep total expenses to a maximum of 0.40% of each portfolio's average monthly
net assets, which has the effect of increasing total return to contract holders.
+Figures for these time periods are not available due to the portfolio's recent
inception date.
VALUEMARK II
NON-STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITHOUT CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL RETURN CUMULATIVE TOTAL RETURN
---------------------------------------------------
INCEPTION SINCE SINCE
PORTFOLIO NAME DATE 1-YEAR 5-YEAR INCEPTION 3-YEAR 5-YEAR INCEPTION
----------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund+ 5/1/96 N/A N/A N/A N/A N/A 12.54%
Growth and Income Fund* 1/24/89 12.59% 10.28% 8.77% 42.50% 63.10% 94.90%
High Income Fund* 1/24/89 12.31% 10.84% 8.69% 27.84% 67.27% 93.75%
Income Securities Fund* 1/24/89 9.72% 9.84% 10.25% 22.41% 59.85% 117.08%
Money Market Fund** 1/24/89 3.69% 2.61% 3.72% 10.72% 13.78% 33.59%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 1.80%
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 3.30%
Precious Metals Fund* 1/24/89 2.54% 6.35% 4.76% 0.03% 36.04% 44.67%
Real Estate Securities Fund* 1/24/89 30.96% 14.84% 11.46% 54.00% 99.76% 136.68%
Rising Dividends Fund 1/27/92 22.44% N/A 9.01% 48.18% N/A 53.03%
Small Cap Fund 11/1/95 27.26% N/A 24.49% 27.26% N/A 29.13%
Templeton Developing Markets Equity Fund* 3/15/94 19.89% N/A 5.08% N/A N/A 14.87%
Templeton Global Asset Allocation Fund 5/1/95 18.16% N/A 14.36% N/A N/A 25.14%
Templeton Global Growth Fund* 3/15/94 19.58% N/A 11.49% N/A N/A 35.60%
Templeton Global Income Securities Fund* 1/24/89 8.10% 5.30% 6.74% 14.54% 29.46% 67.81%
Templeton International Equity Fund 1/27/92 21.25% N/A 10.11% 31.54% N/A 60.81%
Templeton International
Smaller Companies Fund+ 5/1/96 N/A N/A N/A N/A N/A 11.45%
Templeton Pacific Growth Fund 1/27/92 9.55% N/A 8.47% 4.91% N/A 49.32%
U.S. Government Securities Fund 3/14/89 2.16% 5.40% 6.75% 13.28% 30.10% 66.50%
Utility Equity Fund 1/24/89 5.57% 6.86% 9.57% 19.26% 39.35% 106.54%
Zero Coupon - 2000** 3/14/89 0.99% 6.36% 8.18% 10.51% 36.14% 84.75%
Zero Coupon - 2005** 3/14/89 -1.90% 8.40% 9.64% 13.67% 49.70% 105.17%
Zero Coupon - 2010** 3/14/89 -4.05% 9.81% 10.32% 18.62% 59.63% 115.22%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. Total return is the cumulative or average
annual percent change in the unit price of the subaccount, assuming reinvestment
of dividends and capital gains. These figures assume the contract owner is still
invested at the end of the reporting period. Past performance is not indicative
of future performance.
Standardized performance data and other important disclosures are on page 6.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past expense reductions by the portfolio's manager increased the portfolio's
total returns.
**The manager agreed in advance to waive a portion of management fees and to
assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees. For
the Zero Coupon Funds, until at least December 31, 1997, the manager has agreed
to keep total expenses to a maximum of 0.40% of each portfolio's average monthly
net assets, which has the effect of increasing total return to contract holders.
+Figures for these time periods are not available due to portfolios' recent
inception dates.
- -------------------------------------------------------------------------------
VALUEMARK III
STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
INCEPTION SINCE
PORTFOLIO NAME DATE 1-YEAR 5-YEAR INCEPTION
CAPITAL GROWTH FUND+ 5/1/96 N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth and Income Fund* 1/24/89 7.39% 10.14% 8.68%
High Income Fund* 1/24/89 7.11% 10.70% 8.60%
Income Securities Fund* 1/24/89 4.52% 9.70% 10.18%
Money Market Fund** 1/24/89 -1.51% 2.45% 3.63%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A
Precious Metals Fund* 1/24/89 -2.66% 6.20% 4.67%
Real Estate Securities Fund* 1/24/89 25.76% 14.72% 11.38%
Rising Dividends Fund 1/27/92 17.24% N/A 8.86%
Small Cap Fund 11/1/95 22.06% N/A 21.42%
Templeton Developing Markets Equity Fund* 3/15/94 14.69% N/A 4.24%
Templeton Global Asset Allocation Fund 5/1/95 12.96% N/A 12.32%
Templeton Global Growth Fund* 3/15/94 14.38% N/A 10.74%
Templeton Global Income Securities Fund* 1/24/89 2.90% 5.14% 6.66%
Templeton International Equity Fund 1/27/92 16.05% N/A 9.97%
Templeton International Smaller Companies Fund+ 5/1/96 N/A N/A N/A
Templeton Pacific Growth Fund 1/27/92 4.35% N/A 8.33%
U.S. Government Securities Fund 3/14/89 -3.04% 5.25% 6.67%
Utility Equity Fund 1/24/89 0.37% 6.71% 9.49%
Zero Coupon - 2000** 3/14/89 -4.21% 6.22% 8.10%
Zero Coupon - 2005** 3/14/89 -7.10% 8.27% 9.57%
Zero Coupon - 2010** 3/14/89 -9.25% 9.67% 10.24%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. They are based on a $1,000 hypothetical
investments and represent the average annual change in value of an investment
over the indicated periods. They reflect the deduction of an annual asset charge
of 1.4%, fund charges, an annual contract maintenance charge of $30 (prorated,
based on an approximate average contract size of $30,000), and applicable
declining contingent deferred sales charges, assuming the account is liquidated
at the end of the reporting period, according to the following schedule:
YEARS SINCE DEPOSIT: 1 2 3 4 5 6
CHARGE: 6% 5% 4% 3% 1.5% 0%
The figures also assume reinvestment of dividends and capital gains and reflect
the application of an annual 15% cumulative free withdrawal privilege.
Investment return and principal value will fluctuate with market conditions and
you may have a gain or loss when units are sold. Past performance does not
guarantee future results.
*Past expense reductions by the portfolio's manager
increased the portfolio's total returns.
**The manager agreed in advance to waive a portion of management fees and to
assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees. For
the Zero Coupon Funds, until at least December 31, 1997, the manager has agreed
to keep total expenses to a maximum of 0.40% of each portfolio's average monthly
net assets, which has the effect of increasing total return to contract holders.
+Figures for these time periods are not available due to the portfolio's recent
inception date.
- -------------------------------------------------------------------------------
VALUEMARK III
NON-STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITHOUT CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL RETURN CUMULATIVE TOTAL RETURNS
--------------------------------------------------
INCEPTION SINCE SINCE
PORTFOLIO NAME DATE 1-YEAR 5-YEAR INCEPTION 3-YEAR 5-YEAR INCEPTION
---------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund+ 5/1/96 N/A N/A N/A N/A N/A 12.54%
Growth and Income Fund* 1/24/89 12.59% 10.28% 8.77% 42.50% 63.10% 94.90%
High Income Fund* 1/24/89 12.31% 10.84% 8.69% 27.84% 67.27% 93.75%
Income Securities Fund* 1/24/89 9.72% 9.84% 10.25% 22.41% 59.85% 117.08%
Money Market Fund** 1/24/89 3.69% 2.61% 3.72% 10.72% 13.78% 33.59%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 1.80%
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 3.30%
Precious Metals Fund* 1/24/89 2.54% 6.35% 4.76% 0.03% 36.04% 44.67%
Real Estate Securities Fund* 1/24/89 30.96% 14.84% 11.46% 54.00% 99.76% 136.68%
Rising Dividends Fund 1/27/92 22.44% N/A 9.01% 48.18% N/A 53.03%
Small Cap Fund 11/1/95 27.26% N/A 24.49% 27.26% N/A 29.13%
Templeton Developing Markets Equity Fund* 3/15/94 19.89% N/A 5.08% N/A N/A 14.87%
Templeton Global Asset Allocation Fund 5/1/95 18.16% N/A 14.36% N/A N/A 25.14%
Templeton Global Growth Fund* 3/15/94 19.58% N/A 11.49% N/A N/A 35.60%
Templeton Global Income Securities Fund* 1/24/89 8.10% 5.30% 6.74% 14.54% 29.46% 67.81%
Templeton International Equity Fund 1/27/92 21.25% N/A 10.11% 31.54% N/A 60.81%
Templeton International
Smaller Companies Fund+ 5/1/96 N/A N/A N/A N/A N/A 11.45%
Templeton Pacific Growth Fund 1/27/92 9.55% N/A 8.47% 4.91% N/A 49.32%
U.S. Government Securities Fund 3/14/89 2.16% 5.40% 6.75% 13.28% 30.10% 66.50%
Utility Equity Fund 1/24/89 5.57% 6.86% 9.57% 19.26% 39.35% 106.54%
Zero Coupon - 2000** 3/14/89 0.99% 6.36% 8.18% 10.51% 36.14% 84.75%
Zero Coupon - 2005** 3/14/89 -1.90% 8.40% 9.64% 13.67% 49.70% 105.17%
Zero Coupon - 2010** 3/14/89 -4.05% 9.81% 10.32% 18.62% 59.63% 115.22%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. Total return is the cumulative or average
annual percent change in the unit price of the subaccount, assuming reinvestment
of dividends and capital gains. These figures assume the contract owner is still
invested at the end of the reporting period. Past performance is not indicative
of future performance.
Standardized performance data and other important disclosures are on page 8.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past expense reductions by the portfolio's manager increased the portfolio's
total returns.
**The manager agreed in advance to waive a portion of management fees
and to assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees.
For the Zero Coupon Funds, until at least December 31, 1997, the manager has
agreed to keep total expenses to a maximum of 0.40% of each portfolio's average
monthly net assets, which has the effect of increasing total return to
contract holders. +Figures for these time periods are not available due to
portfolios' recent inception dates.
- -------------------------------------------------------------------------------
PORTFOLIO OBJECTIVES
PORTFOLIO DESCRIPTION
- -------------------------------------------------------------------------------
PORTFOLIOS SEEKING CAPITAL GROWTH
CAPITAL GROWTH FUND
Seeks capital appreciation with current income as a secondary consideration.
The portfolio invests primarily in equity securities, including common stocks
and securitiesconvertible into common stocks.
MUTUAL DISCOVERY SECURITIES FUND
Seeks capital appreciation by investing in domestic and foreign equity
securities, including securities of small cap companies as well as debt
obligations of any quality. The portfolio also seeks to invest in securities
of domestic and foreign companies and reorganizations, as well as
distressed/bankruptcy investments.
PRECIOUS METALS FUND
Seeks capital appreciation through concentration of its investments in
securities of issuers, including those in developing markets, engaged
in mining, processing or dealing in gold and other precious metals. The
portfolio's secondary objective is to provide current income return
through the receipt of dividends or interest from its investments.
Small Cap Fund
Seeks long-term capital growth.Under normal market conditions, the portfolio
invests primarily in equity securities of small capitalization growth
companies.
TEMPLETON DEVELOPING
MARKETS EQUITY FUND
Seeks long-term capital
appreciation. The portfolio seeks to achieve this objective by investing
primarily in equity securities of issuers in countries having developing
markets under normal market conditions.
TEMPLETON GLOBAL GROWTH FUND
Seeks long-term capital growth; any income realized will be 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 under normal market conditions.
TEMPLETON INTERNATIONAL EQUITY FUND
Seeks long-term capital growth. Under
normal market conditions, the portfolio will invest at least 65% of its 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.
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
Seeks long-term capital appreciation. The portfolio seeks to achieve this
objective by investing primarily in equity securities of smaller companies
outside the U.S., including developing markets under normal market
conditions.
TEMPLETON PACIFIC GROWTH FUND
Seeks long-term capital growth. Under normal conditions, the 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 are Australia,
Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Singapore
and Thailand.
PORTFOLIOS SEEKING GROWTH AND INCOME
GROWTH AND INCOME FUND
Seeks capital appreciation. The portfolio's secondary 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 FUND
Seeks to maximize income while maintaining prospects for 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.
MUTUAL SHARES SECURITIES FUND
Seeks capital appreciation with income as a secondary objective. The
portfolio may invest in domestic and foreign equity securities, as well as
debt obligations of any quality. The portfolio also seeks to invest in
securities of companies involved in mergers and reorganizations, as well as
distressed/bankruptcy investments.
REAL ESTATE SECURITIES FUND
Seeks capital appreciation, with a secondary objective of
earning current income on its investments. The portfolio pursues its
principal objective by investing primarily in securities of companies in the
real estate industry, primarily equity real estate investment trusts (REITs).
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.
TEMPLETON GLOBAL
ASSET ALLOCATION FUND
Seeks a high level of total return through a flexible policy 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.
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.
PORTFOLIOS SEEKING CURRENT INCOME
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.
TEMPLETON GLOBAL INCOME
SECURITIES FUND+
(FORMERLY GLOBAL INCOME FUND)
Seeks high current income, consistent with preservation of capital, with
capital appreciation as a secondary 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.
U.S. GOVERNMENT SECURITIES FUND
Seek to earn income through investments in a portfolio 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.
THREE ZERO COUPON FUNDS
(MATURITY DATES: 2000, 2005, 2010)
Seeks to provide as high an investment return as is consistent 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.
PORTFOLIO SEEKING PRESERVATION OF CAPITAL AND INCOME
MoNEY MARKET FUND
Seeks to obtain as high a level of high current income (in the context of the
type of investment available to the portfolio) consistent with capital
preservation and liquidity. 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.
+Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remain unchanged.
PORTFOLIO PROFILES -- 1996
PORTFOLIOS SEEKING CAPITAL GROWTH
CAPITAL GROWTH FUND
The Capital Growth Fund portfolio consists of what we consider to be good
quality growth companies, generally large-capitalization and mid-capitalization
stocks. Our investment objective of capital appreciation is achieved through a
long-term "buy and hold" strategy. Our aim is to provide investors with the
potential for solid growth over time, instead of jockeying for short-term,
overnight gains. Some of our top sectors at year end included software, data
networking, healthcare, semiconductors, financials, energy, and consumer
products. By maintaining exposure to a number of industries, we seek to reduce
the impact that a single, poorly performing sector could have on your
investment.
We expect that the market may become more volatile in the coming years (unlike
the relatively low volatility that has been present over the last several
years). This expectation stems in part from concerns for sustained earnings
growth of individual companies. It is our belief that the S&P 500(R) will not
produce double-digit earnings growth in 1997 as it has in each of the last four
years. 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 up -- a
condition which we believe should benefit many of your portfolio holdings.
Our long-term outlook for the domestic stock market remains bullish for a
variety of reasons. First, a significant demographic trend shows the aging "baby
boom" generation is shifting from a "consumption" mode to a "savings" mode --
investing more for retirement. Consequently, new money flows remained solid
during 1996, pushing markets higher. A second reason for our optimism is that a
number of major world economies are in either a growth or recovery phase. This
benefits a number of multinational firms that sell products or services abroad.
Third, as we live in an ever-increasing global economy, many
domestically-domiciled firms -- with an enhanced focus on shareholder value and
improving profitability -- are proving to be highly productive on a worldwide
basis. We feel that this favorable trend may persist for some time.
NEW! MUTUAL DISCOVERY SECURITIES FUND
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Discovery Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 0.7% in fixed-income securities, and the remaining 36.8% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
PRECIOUS METALS FUND
The year ending December 31, 1996, may have signaled the breakout from the
previous two years of a tight trading range for bullion, with the majority of
the volatility occurring in the first and fourth quarters. The overall tone of
the bullion market was negative, as both private and official sectors'
disinvestment drove prices down. In addition, the strong dollar drove
down gold prices in most foreign currencies, except the South African Rand.
As a result, even though the physical supply and demand factors were
neutral, the bullion price showed little strength.
Because of the attractive valuations of gold securities relative to other
precious metals, we increased our holdings of gold-producing companies over the
reporting period. Consequently, we decreased our exposure to platinum and
diversified metals. We focused on mining companies with attractive reserve,
production and growth profiles, and smaller companies with international
exploration and mining potential. Specifically, we initiated new positions in
the following: Getchell Gold, an intermediate low-cost gold producer in Nevada;
Equinox, an Australian exploration company; and Orogen Minerals, a diversified
mining and energy company with significant assets in Papua, New Guinea. We also
added to existing holdings with prospects for future growth, and trimmed or
eliminated positions with limited upside potential.
While there are three issues that could negatively affect bullion prices in the
near term, we believe that much of the downside risks are already in the price.
These risks are 1) that speculative selling by investors continues, 2) that the
European Central Bank continues to sell in order to meet the standards of the
European Monetary Union, and 3) that producer forward-selling could increase.
Looking forward, we remain optimistic about the long-term prospects for gold and
the portfolio. With demand continuing to exceed supply, gold fundamentals should
support a gradual increase in gold prices. We believe that a gold bullion price
range of $360 to $390 per ounce could prevail for 1997. Given this outlook, we
intend to maintain our emphasis on those mining companies we feel are capable of
increasing reserves, production, cash flow, and earnings over the long term.
SMALL CAP FUND
Supported by a growing economy and low inflation, the U.S. equity markets
reached new highs during the year ended December 31, 1996. While nearly all
indices showed substantial gains during the year, larger capitalization stocks
performed better than small cap stocks. The difference in performance was at
least partially a result of investor concerns over market volatility and the
perception that large cap stocks were more immune to market swings. Despite this
bias toward large cap stocks, the portfolio performed well during the year.
Much of our success can be attributed to stock selection: We continue to look
for small companies in their emerging growth phase, focusing on companies with
an identifiable and, we believe, sustainable competitive advantage, which can
often lead to superior earnings and revenue growth. Over the period, our
research led us to investments in a number of different industries, including
many outside the traditional growth sectors. In fact, the portfolio was helped
by the strong performance of our energy stocks (6.1% of total net assets on
December 31, 1996), including Barrett Resources and Abacan Resources, and also
by our holdings in REITs (5.3%), particularly Bay Apartments and FelCor Suites
Hotels, Inc.
While we remain broadly diversified, we continue to find many of the fastest
growing companies in the technology sector (21.6% of the fund's portfolio on
December 31, 1996). Technology stocks led a sharp market decline in June and
July, and we took advantage of this weakness to purchase shares in high quality
companies. Some of the names in which we initiated a position were C-Cube
Microsystems, a leading provider of digital video compression technology, and
Broderbund Software, a top developer of computer software. Many technology names
recovered quickly in August and September, and just as we took advantage of the
earlier market weakness to buy, we took advantage of the strength to sell
positions we believed had limited appreciation potential. Among those we sold
over the reporting period was Shiva Corp., a provider of telecommunications
hard- ware and software.
The U.S. economy continues to show signs of strength and, for now, there appears
to us to be little evidence of inflationary pressure. We believe these
conditions will continue to provide attractive opportunities for small growth
companies to develop. At the same time, small cap stocks have underperformed
and, in our opinion, have become attractively valued relative to the overall
market. Because of these factors, we are optimistic about the prospects for the
portfolio and small cap stocks in general.
TEMPLETON DEVELOPING MARKETS EQUITY FUND
The emerging markets team places particular emphasis on choosing stocks of
companies with good management and strong expected earnings growth over the next
five years. Selecting these stocks is a very intensive process and we are
expanding our analytical capability to meet the challenges in an ever-expanding
emerging markets universe.
On December 31, 1996, the portfolio was invested in 24 countries, with Hong Kong
as the largest country holding (13.3% of total net assets), followed by Mexico
(10.7%) and Argentina (10.4%). Many investors are still concerned about the
economic prospects for Hong Kong after its reversion to China in 1997. Although
we have considered the possibility of economic disaster in Hong Kong after the
handover, we believe that it is more likely the Hong Kong economy will continue
to prosper. The signs are good. The Chinese government has made public
announcements that funds will be made available to protect the Hong Kong stock
market, and that the economic and social status quo will be maintained after the
reversion. This year, the Hong Kong market rallied, buoyed by broad economic
recovery -- particularly in the important retail and property sectors. Concerns
in Hong Kong's capital market appear to be easing and evidence of that can be
found in the narrowing of the gap in valuations between Hong Kong stocks and
those of other Asian markets. It is also encouraging to see that China B shares
- -- which are intended for foreign investors -- rallied sharply since the
beginning of November due to expectations of higher company earnings.
Overall, our outlook for Hong Kong, and emerging markets in general, is
positive. We will continue to visit the companies in which we invest, searching
for potential investment bargains and stocks with strong growth and stability in
a volatile market.
TEMPLETON GLOBAL GROWTH FUND
In many countries around the world, financial returns to equity investors
accelerated over the past year, adding to the gains accumulated since the start
of this bull market. Among the developed stock markets tracked in the Morgan
Stanley Capital International(R)* (MSCI) World Index, only Singapore and Japan
posted negative returns in U.S. dollar terms for 1996. Others, such as Finland
and Spain, rocketed upward, returning 35% and 42%, respectively.
The U.S. was among the better performing markets over the reporting period, and
it remains the portfolio's largest country exposure even though our weighting
declined from 34% to 29% of total net assets by December 31, 1996. This decline
resulted from our disciplined global value approach, which focuses on individual
company fundamentals. Quite simply, some of our holdings in the U.S. reached our
sell targets, and we found more bargains overseas. Included in our sales of U.S.
stocks were energy companies like Texaco and Mobil, whose share prices climbed
on the back of rising oil prices. Similarly, shares in Travellers and Nike
posted substantial returns and no longer appeared undervalued to us. We did find
new investments in the telecommunications sector, particularly in U.S. West
Communications, where competitive threats appear overly discounted.
Our European holdings, in general, performed well over the year. In France, our
second largest country weighting (6.7%), energy companies improved their
returns, just as their U.S. counterparts did. Many French companies, however,
performed poorly. We continue to believe the potential for cost cutting and
restructuring is not reflected in the share prices of the banks and insurance
companies we hold in this area.
For the first three quarters of last year, the U.K. was an economic laggard;
surprisingly, its market still yields on average nearly twice that of the U.S.
As we uncovered new investments in the U.K. over the period, we doubled its
weighting in the portfolio from 3.1% at the end of last year to 6.3% on December
31. Among these new investments are two companies with new management teams that
have been repositioned through internal changes: BICC and BTR, Plc. We also
invested in companies addressing competitive positions through external
maneuvers; among these was British Telecommunications, PLC., which announced its
intention to merge with MCI.
We maintained a relatively low weighting in Japan over the year (2.0%) compared
to the MSCI World Index. The Japanese economy continued to languish and its
banking sector is still suffering the effects of the collapse in asset values.
More important, from our perspective valuation levels still appear high and
bargain investments remain scarce.
Emerging markets together with Hong Kong comprised approximately 15% of the
portfolio's total net assets on December 31, 1996. Their performance last year
was mixed, with Chinese markets exploding in the second half of 1996 to finish
up over 30% while Thailand and South Korea slumped -- both losing over a third
of their value. Additionally, new opportunities found in South Africa and
Ecuador increased the diversity of the portfolio, which is now invested in 33
countries.
*Registered trademark of Morgan Stanley & Co., Inc.
We remain comfortable with the long-term outlook for our existing holdings, and
also expect to take advantage of the weakness experienced in some of these
countries in the coming year.
TEMPLETON INTERNATIONAL EQUITY FUND
During the year ended December 31, 1996, the Templeton International Equity Fund
enjoyed strong performance as foreign markets rebounded from a generally
lackluster 1995. At year end, the portfolio's largest country allocations were
in the United Kingdom (11.9% of total net assets), Sweden (10.4%), the
Netherlands (7.9%), and Hong Kong (6.8%). Approximatley 61% of the portfolio's
total net assets was invested in European stocks, 9% in Asian stocks, 5% in
Latin American stocks, 11% in other stocks and the remaining 12% was in cash and
equivalents.
Throughout 1996, we added to our positions in the United Kingdom, Switzerland
and Finland. Our exposure to Finland increased with our purchase of Nokia AB, a
telecommunications group. We were able to purchase Nokia at what we believe are
very attractive levels, identifying the long-term value of the company despite
near-term earnings disappointments. We reduced holdings in Hong Kong, Spain and
the Netherlands which we felt had achieved fair value, and we added to or
initiated positions in stocks that our analysts believed were selling at bargain
prices.
As value investors, we buy stocks that we believe are selling at significant
discounts to their underlying value. Our analysts around the globe scour local
markets for what we think are mispriced stocks. We recognize that value often
takes time to show itself in the form of higher prices and, for this reason, we
are long-term investors -- typically holding stocks for about five years.
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Nineteen ninety-six was the first year of operation for the Templeton
International Smaller Companies Fund, which invests in small cap companies
outside the U.S. We employ a long-term, value-oriented approach when selecting
stocks for our portfolio. Our analysts search for stocks that are selling at
what we believe to be bargain prices; as there are many investors who buy and
sell based on current results, a short-term disruption can evoke a wave of
investor selling, often pushing a stock's price down to a level well below its
intrinsic value. Since we determine a company's value by looking at long-term
operating fundamentals, we are often able to buy out-of-favor companies at what
we feel are attractive prices.
At year end, the portfolio held approximately 41% of its total net assets in
European stocks, 12% in Asian stocks, 4% in Latin American stocks, 4% in other
stocks, and -- reflecting the newness of the portfolio -- the remaining 38% in
cash. Our largest positions, by country, were United Kingdom (8.4%), Netherlands
(8.2%), Spain (6.9%), Hong Kong (6.8%), and Sweden (5.9%).
Our large European holding reflects the bargains our analysts uncovered in that
region. We continue to believe that many European stocks, particularly those of
smaller companies, offer compelling value. For instance, we initiated a position
in McBride (United Kingdom) -- the largest manufacturer of private label
household goods and personal care products in Europe. Private label products are
winning a position in Europe, as large retailers expand their private label
product lines, and we believe McBride stands to benefit from this trend.
On a relative basis, European and Asian stocks appear to offer better values
than those available from North American stocks. Overall, we remain cautiously
optimistic for world markets in 1997.
TEMPLETON PACIFIC GROWTH FUND
On December 31, 1996, the portfolio's top five geographic allocations were Hong
Kong (20.6% of total net assets), Japan (17.6%), Australia (17.3%), Singapore
(9.1%), and Malaysia (6.9%).
During the reporting period, the Hong Kong stock market rose substantially,
posting large gains in the financial and real estate sectors. Our holdings of
Cheung Kong Holdings, Ltd. and New World Development Co., Ltd. appreciated in
value and, taking advantage of rising stock prices, we sold our shares of Hong
Kong Land Holdings Co. for a profit.
Due to a stronger currency and higher commodity prices, Australia's stock market
performed well over the year and Brambles Industries Inc., our largest
Australian holding, benefited greatly. The Chinese, Thai, Pakistani and Indian
stock markets did not fare as well as other Pacific Rim markets. However, we
sought to take advantage of price declines in China by purchasing shares
of Guangshen Railway, which operates the only railroad between Guangzhou and
Shenzhen, the two largest cities in Guangchong Province.
We remain optimistic about the Pacific Rim equity markets. In our opinion, this
region continues to offer a variety of investment opportunities in
industrialized nations such as Hong Kong, and in nations like Australia, rich
with natural resources.
PORTFOLIOS SEEKING GROWTH AND INCOME
GROWTH AND INCOME FUND
In keeping with its fundamental investment approach, the fund seeks to invest in
stocks with attractive valuations -- that is, stocks selling at bargain prices
according to measurements such as relative dividend yield, book value, revenues
and normalized earnings. We often find such stocks in companies that appear to
us to be fundamentally strong but have experienced temporary earnings
disappointments, or in companies or industries with uncertain prospects for
near-term earnings growth.
During the reporting period, we found many utility stocks that met our criteria,
including telephone and electric companies. In the electric utility sector, we
initiated several new positions over the period, including Unicom, an
Illinois-based utility that offered a 6.5% dividend yield and traded at eight
times our calculations of estimated earnings. In the telephone utility sector,
we increased our holdings in GTE Corp., U.S. West Communications Group, NYNEX
Corp., and Southern New England Telecommunications Group. These four telephone
companies were all trading at attractive valuations at the time of purchase and
we think they appear to be well-positioned for an increasingly competitive
environment.
Energy stocks continue to be a major investment focus. Newly purchased Amoco and
Occidental Petroleum, combined with additions to current holdings, made the
energy & resources sector the portfolio's largest on December 31, 1996 (16.4% of
total net assets). Stocks in which we increased our investments included
Atlantic Richfield, Texaco, and Exxon, which were among the fund's 10 largest
positions.
We also initiated new investments in foreign securities as we believed stocks of
many foreign companies traded at more attractive valuations than those of
comparable U.S.-based companies. During the period we purchased British Steel
and Glaxo Wellcome, bringing foreign holdings to 13.3% of total net assets at
the close of the fiscal year.
During the reporting period, we reduced our holdings in certain stocks that
reached our price objectives, selling Marsh & McLennan (insurance), B.F.
Goodrich (basic materials), Baxter (health care), and Pharmacia Upjohn (health
care) at significant gains. On the other hand, certain stocks did not perform up
to expectations. Most notably, the stock price of H&R Block came under
significant pressure with the deteriorating fundamentals of its subsidiary
company, Compuserve. Because we had become increasingly concerned that the
company might reduce its dividend, we decided to sell our position at a loss.
This allowed us to invest the proceeds in stocks we felt offered better
total-return potential.
Looking forward, we will remain committed to our disciplined, value-oriented
investment approach, which has produced consistent and favorable long-term
results.
INCOME SECURITIES FUND
During 1996, the broader stock market generally strengthened, driven by moderate
economic growth, low inflation and healthy corporate earnings. The over-all bond
market did not fare as well during the period under review, however. Several
sectors of the fund performed well over this period, although the general rise
in interest rates caused some weakness. On December 31, 1996, 53.0% of the
portfolio's total net assets were in bonds, 41.1% in stocks, and 5.9% in cash.
The rise in interest rates provided us with several opportunities to invest a
large portion of the portfolio's cash position in securities that we found
presented good value, bringing our cash position down from 13.3% on December 31,
1995.
Corporate bonds, which continued to represent our largest fixed-income weighting
(26.7%), performed relatively well over the period given the overall increase in
interest rates. This performance highlights the benefit of including corporate
bonds in the portfolio. Typically, when the economy strengthens, increased
interest rate risk is frequently offset by stronger revenue, operating cash flow
and higher credit ratings for the issuing corporations. We utilized our
extensive credit research to seek out corporate bonds with attractive yields and
capital appreciation potential, and initiated several new positions during the
period. These included Collins & Aikman (automotive), Packaging Resources
(containers & packaging), and Smith's Food & Drug (food chains).
The portfolio's other fixed-income holdings consisted of foreign and U.S.
Treasury bonds. As indications of stronger U.S. economic growth led to rising
long-term interest rates, we increased our U.S. Treasury exposure from 2.8% at
the start of the period to 7.1% of total net assets on December 31, 1996.
Similarly, we took advantage of the bond market sell-off in February and
initiated positions in dollar-denominated Brazilian and Ecuadorian Brady bonds.
Our Latin American Brady bonds were subsequently one of the portfolio's top
performing sectors. At the end of the year, we sold our Ecuadorian Brady bonds
due to higher political risk following mid-year elections.
Several of the portfolio's equity positions performed well during the period.
Our pharmaceutical stocks rose significantly, but believing that their
appreciation potential was limited, we reduced our exposure to this sector from
4.3% to 1.6% of total net assets by December 31, 1996. Due to rising oil and
natural gas prices during the period, energy stocks also increased in value. We
initiated several positions that benefited from the increase in energy prices,
including Athabasca Oil Sands Trust, Canadian Oil Sands Trust, Devon Energy, and
Enron Oil & Gas.
Prices of utilities stocks retreated in January as interest rates began to rise.
We took this opportunity to add to several existing holdings and initiate new
positions in Peco Energy and Western Resources, increasing our weighting in the
utility sector from 17.6% at the start of the year to 20.6% of total net assets
by year end.
During the July U.S. stock market sell-off, we initiated two convertible bond
positions in Altera Corp. and Xilinx, Inc., two leading semiconductor design
companies. We invested in the technology sector for the first time in several
years as weakness in technology stock prices caused valuations to return to what
we believe were more attractive levels. We also initiated positions in other
convertible securities, most notably Exide Corp. (automotive), FelCor Suite
Hotels, Inc. (REIT), Host Marriott (REIT), and Nortel (telecommunications --
Argentina).
With the stock market near all-time highs, we remain selective and opportunistic
as we search for attractive investments. We are comfortable with the portfolio's
5.9% cash position, and feel that it should provide us with the ability to take
advantage of investment opportunities as they arise.
NEW! MUTUAL SHARES SECURITIES FUND
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Shares Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 1.5% in fixed-income securities, and 36.0% in short-term and other
securities. Of course, these holdings will change as conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
REAL ESTATE SECURITIES FUND
The Real Estate Securities Fund's strong performance over the 12 month period
was driven in part by the continued recovery of the real estate industry, which
was behind the powerful move in real estate stocks during 1996. U.S. real estate
fundamentals, in general, steadily improved across most property types and
geographic regions during the 12-month reporting period. The healthy economy
continued to fuel strong demand for commercial and residential real estate,
leading to rising occupancy and rental rates. At the same time, the industry
remained disciplined in terms of new property development, only breaking ground
when construction was warranted by high demand and limited supply. As a result,
equity REITs and real estate operating companies generated strong cash flow
growth from their operations. This positive operating performance, combined with
solid industry fundamentals, continued to attract investors to the real estate
securities market.
Throughout the reporting period, we remained committed to our long-term
investment strategy: Focusing on property types and geographic regions with
strong supply and demand fundamentals. Within each property sector, we targeted
stocks which, in our opinion, had significant growth prospects and attractive
valuations. As a result, we maintained the majority of the portfolio's
investments in the apartment, hotel, office, industrial and self-storage
property types, where we anticipated the strongest cash flow growth and most
favorable supply and demand fundamentals.
The largest property-type weighting continued to be in the apartment sector
(20.1% of total net assets on December 31, 1996). Valuations in this segment
remained attractive because of consistent cash flow growth and disciplined
development activity. Our core holdings included Equity Residential Properties
Trust and Security Capital Pacific Trust. We also maintained our large positions
in Bay Apartment Communities, Inc. and Irvine Apartment Communities Inc. -- two
California-based equity REITs that continued to benefit from California's
on-going economic recovery. Additionally, we initiated a position during the
period in Security Capital Atlantic, Inc., a southeastern apartment operator.
Our strongest performing sector continued to be the hotel property type, where
we held 17.9% of net assets on December 31, 1996. Consolidation played an
important role in this sector's performance as many public companies acquired
properties from private holders and purchased other publicly-traded companies.
We benefited from this activity when one of our holdings, Red Lion Hotels, Inc.,
was purchased by Doubletree Corp. at a significant premium above its market
price. Consequently, we sold our Red Lion position, along with several other
hotel positions where valuations were excessive relative to growth prospects.
During the reporting period, we initiated a position in CapStar Hotel Co., and
added to such core positions as FelCor Suites Hotels, Inc., Winston Hotels,
Inc., Starwood Lodging Trust, and Host Marriott Corp.
Although the retail property sector struggled with the dynamics of the retail
industry and provided mixed returns this year, specific segments of this sector
offered attractive investment opportunities. During the reporting period, we
established a position in Pacific Retail Trust, an equity REIT that focuses on a
highly-specialized retail shopping center niche: Shopping centers anchored by
grocery stores. As a result, our exposure to the retail property sector rose
from 10.9% of total net assets on December 31, 1995, to 12.0% by the end of the
reporting period. Our other investments in this sector remain concentrated in
the industry's leading companies and several specific situations such as Pacific
Retail Trust, which we believe will be in a position to grow by acquiring
properties from distressed sellers.
We also initiated several other positions in equity REITs over the period: Arden
Realty Group, a California-based equity REIT focused on the ownership and
operation of suburban office properties; Meridian Industrial Trust, with a
portfolio of high quality industrial/warehouse buildings; Glenborough Realty
Trust, Inc., which has a diversified portfolio of real estate properties and two
manufactured-home builders focused on southeastern markets; Belmont Homes, Inc.
and Clayton Homes Inc. We believe these securities are attractively valued and
could experience above-average cash flow growth.
Looking forward, we believe that the U.S. real estate industry should experience
growing demand and limited supply. We will continue to concentrate on
identifying those property types and geographic areas exhibiting the most
favorable supply and demand fundamentals. Within each sector, our individual
security selection process will remain focused on what we believe are
well-managed companies generating strong cash flow and dividend growth while
trading at attractive valuations.
RISING DIVIDENDS FUND
Our investment strategy is based on our belief that companies with consistently
rising dividends should, over time, realize increases in their share 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 investors.
Our financial stock holdings performed well this year, despite slightly rising
interest rates in 1996. Investors focused on the consistent earnings growth of
these companies as well as their relatively modest valuations. Strong performers
included Allied Group, RLI Corp., State Street Boston Corp., and CoreStates
Financial.
A number of non-financial companies also did well as business strategies
implemented in recent years led to strong operating performance. These companies
included Family Dollar Stores, DIMON, Harper Group, and Monsanto.
Significant additions to the portfolio this year included Dover Corp., Wallace
Computer Services, Inc., Nucor Corp., and Millipore Corp. All four companies
have increased their dividends each year for more than 20 years. Additionally,
their dividends have grown at a ten-year average annual rate of at least 10%.
These companies are leaders in their respective industries, and the fund
acquired the stocks at price/earnings ratios below their 10-year averages.
Notable dividend increases during the fiscal year came from Allied Group Inc.
(+32.4%), W.H. Brady Co. (+30%), Hewlett-Packard Co. (+20%), MMI Companies Inc.
(+20%), Mercury General Corp. (+20%), Philip Morris Cos. (+20%), and Wallace
Computer Services, Inc. (+30.2%).
The portfolio's top 10 holdings on December 31, 1996, were: Family Dollar
Stores, Inc. (3.0% of total net assets), Allied Group Inc. (2.9%), Millipore
Corp. (2.8%), DIMON, Inc. (2.8%), Harper Group, Inc. (2.5%), Wallace Computer
Services, Inc. (2.4%), MMI Companies, Inc. (2.4%), Federal National Mortgage
Association (2.2%), General Electric Co. (2.2%), and Royal Dutch Petroleum Co.
(2.1%).
It is interesting to note how these 10 companies would, in the aggregate, meet
the portfolio's screening criteria based on a simple average of statistical
measures. On average, these companies have raised their dividends for 15
consecutive years and by 253% in the last ten years (excluding Fannie Mae's
2736% increase), have long-term debt that is only 14% of capital, and sell at a
price/earnings ratio of 14.7. We think 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,
will be superior builders of wealth.
TEMPLETON GLOBAL ASSET ALLOCATION FUND
On December 31, 1996, equities (including convertible and preferred securities)
accounted for 58.0% of the portfolio's total net assets, with 27.1% in
fixed-income and 14.9% in short-term and other obligations.
The portfolio's investment strategies are reflected in the major allocation
changes that occurred over the course of the annual year. For example, exposure
to German and French markets were reduced, and we limited our equity positions
in Hong Kong. This is, however, no reflection of our outlook in either of these
markets and we remain optimistic about both. Our exposure in the U.S. market has
remained fairly constant on the equity side, increasing slightly on the bond
side. We also increased our bond holdings in other dollar-bloc countries
(countries whose currency is dollar denominated) such as Canada, Australia and
New Zealand during the period. Additionally, we shifted our investment focus
away from the core European markets (Germany and France) and directed our
attention toward the markets of Italy, Spain, Sweden and the United Kingdom.
Regarding industry weightings within the equity side of the portfolio, real
estate remains the highest at 6.2% of total net assets, and performance within
this sector remains strong. Sizable holdings in Hong Kong-based Hon Kwok Land
and U.S.-based Rouse Company and Post Properties Realty have posted good
performance for the year. Hon Kowk's return on December 31, 1996, was 57.6%,
Rouse's was 45.4%, and Post Properties 29.8%.
Looking forward, we feel that volatility is likely to be present in bond,
currency and equity markets around the world. Our investment philosophy is to
seek out those investments which we feel are most undervalued and we will
continue to search globally for companies and securities that fit our investment
criteria.
UTILITY EQUITY FUND
Throughout the portfolio's fiscal year, the utility market underperformed the
S&P 500 for a number of reasons -- among these was investor uncertainty
regarding regulatory reforms within the industry, and a stronger-than-expected
economy which led investors away from utilities to other equity securities. We
believe this weakness in the utility sector created selective investment
opportunities. As a result, we used proactive asset allocation strategies,
seeking both foreign and domestic markets that we believed were most attractive
on a fundamental valuation basis.
Our emphasis during the fiscal year was on electric utility stocks, with
approximately 72% of total net assets invested in this sector on December 31,
1996. In addition to these stocks, we also sought investment opportunities in
telephone utility stocks (20%) and natural gas utilities (8%). These investments
offer many of the same characteristics that we look for in our electric utility
investments: Consistent, predictable earnings growth and steady demand
fundamentals. During the reporting period, we took advantage of opportunities in
foreign markets to build a small, but growing, foreign component into the
portfolio. On December 31, 1996, 17.8% of the portfolio's total net assets were
represented by foreign utility stocks, compared to 7.4% a year ago. Over the
year, we initiated positions in Endesa (Chile), NTT (Japan), BSES (India), and
Korea Mobile Telecom (Korea), and added to several of our European utility
positions. Our foreign holdings enable us to participate in what we believe will
be high growth opportunities outside the U.S. while adding diversification to
the portfolio.
We remain committed to our primary investment philosophy that utilities provide
services that are an essential part of life around the world. We believe that
these stocks will continue to play an important role in a well-diversified
portfolio and remain committed to our long-term objective of maximizing total
return through investment in utility stocks.
PORTFOLIOS SEEKING CURRENT INCOME
HIGH INCOME FUND
Over the last 12 months, the portfolio performed relatively well within the
context of fixed-income markets, due primarily to moderate economic growth and
low inflation. The high yield market, in particular, vastly outperformed
comparable maturity Treasury securities. Improving corporate profiles and strong
demand for high yield securities were additional factors contributing to this
sector's strong performance.
During the year, we made several industry allocation changes in the portfolio.
We decreased our weighting in the transportation, food retailing, health care
services and forest & paper products sectors while adding telecommunications and
wireless communications services. We elected to decrease transportation and
forest & paper products due to profit taking and the cyclical nature of these
industries. We pared back food retailing because of changing competitive
dynamics, and health care services was reduced in light of an uncertain
legislative outlook for 1997. Our portfolio weighting in telecommunications and
wireless communications increased as we adopted a more favorable industry
outlook due to the passage of the Telecommunications Act of 1996. These
industries performed well during the year, thanks in large part to economies of
scale and increased market penetration.
Within the telecommunication and wireless sectors, Sprint Spectrum, IntelCom
Group, Inc., and Teleport Communications Group, Inc. performed well. Other names
which drove portfolio performance included IMC Global Inc., Repap, and MFS
Communications Co., Inc. IMC Global, an international fertilizer company, was
upgraded to investment grade status as a result of improving fundamentals. Repap
and MFS benefited from mergers with larger, well-capitalized companies.
With an eye toward the future, we improved the portfolio's credit quality
ratings over the year. The average credit rating, as measured by Moody's Credit
Ratings, improved from B2 on December 31, 1995, to B1 on December 31, 1996. This
strategic move toward higher quality issues was made in recognition of the fact
that the economy is in its sixth straight year of expansion. We believe this is
a prudent investment strategy for the long term.
Given the moderate growth environment and continued low inflation, we anticipate
the outlook for the high yield bond market to be positive.
TEMPLETON GLOBAL INCOME SECURITIES FUND
(FORMERLY GLOBAL INCOME FUND)
During the 12-month period, we employed three primary investment strategies:
First, generated by our expectation of stable interest rates in the U.S.
relative to the rest of the world, we slightly increased our U.S. holdings along
with our positions in the other dollar-bloc countries (Canada, Australia, and
New Zealand). Second, we decreased our exposure to foreign currency-denominated
bonds in accordance with our belief that most foreign currencies were likely to
decline relative to the U.S. dollar. Third, we reallocated assets within Europe,
shifting away from the core markets of Germany and France to what we think are
the higher-yielding markets of Italy, Spain, Sweden and the United Kingdom. We
felt that the improved domestic policies undertaken in the higher-yielding
markets would generate higher returns than those available in the core markets.
Our investment strategies are reflected in the major allocation changes that
occurred over the course of the annual period. We reduced exposure to the German
and French bond markets -- totaling 17.9% and 7.3%, respectively, one year ago
- -- to 2.0% and 0%, respectively, by December 31, 1996. For the same period,
allocations to Italy and Spain -- totaling 4.0% and 4.8%, respectively, on
December 31, 1995 -- increased to 10.6% and 6.1%. The United Kingdom also
increased over the year, from 3.0% to 10.1%.
Looking forward, we believe that volatility is likely to remain in individual
bond and currency markets around the world, and that global bond portfolios are
attractive vehicles to help soften this volatility and capture total return
opportunities wherever they may appear. We do not feel that inflation is a major
threat to interest rates and the deflationary trends present in Europe and Japan
should help bring the overall level of global interest rates down. We feel
opportunities for improved returns remain attractive, particularly in the
slow-growth economies of Europe and in selective emerging market countries.
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 mortgage passthroughs as our largest positions. Some other
issuers held by the portfolio over the reporting period were Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation passthroughs and
debentures issued by the Financing Corporation and the Tennessee Valley
Authority. On December 31, 1996, the portfolio's investments consisted of 68.5%
of total net assets in mortgage-backed securities (of which approximately 40.1%
were Ginnie Maes), and 33.1% in other U.S. government and agency securities and
short-term investments. Of course, these holdings will change as market
conditions warrant.
The U.S. Government Securities Fund experienced positive performance in 1996 as
the portfolio's investments in U.S. agency mortgage passthrough securities did
well. The agency mortgage passthrough market experienced lower prepayment risk
as yields were higher during most of 1996. This helped the mortgage passthrough
performance relative to other government bonds as investors benefited from the
added yield these securities provided. With 1996 interest rates movements being
less volatile than those of 1994 and 1995, investors were not exposed to the
variability in average life that these securities tend to exhibit during periods
of rate volatility.
Our investment approach, which emphasizes low portfolio turnover, added value to
the portfolio's shares by reducing unnecessary transaction costs, which are
ultimately borne by shareholders. During the one-year reporting period, we made
purchases in various sectors of the government bond market. In addition, we
gained assets due to the substitution of the portfolio's shares for the
Investment Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund.
Because those portfolios carried similar investment risk, the overall portfolio
risk profile of the U.S. Government Securities Fund was not appreciably altered
with the substitution.
We employ a consistent, disciplined and conservative approach to investing in
the U.S. government bond market. Over the reporting period, the agency
passthrough market became increasingly subdivided into sectors based on the
seasoning of the underlying pools of mortgage loans. These pools, with varying
degrees of risk exposure to interest rate movement and housing cycles, exhibit
different prepayment patterns based in part on the issuance year of the
underlying securities. The emergence of these subsets provided us with increased
opportunity to add quality securities to the portfolio.
Going forward, we anticipate that the trend toward lower interest rate
volatility will continue to provide shareholders of the portfolio with
competitive returns.
THREE ZERO COUPON FUNDS
(MATURITY DATES: 2000, 2005, 2010)
Rising interest rates adversely affected the Franklin Valuemark Zero Coupon
portfolios during the one-year reporting period. We began 1996 optimistic: there
was a good chance for a balanced budget, economic growth appeared relatively
slow, and interest rates were below 6% for the 30-year U.S. Treasury Bond
(short-term rates were below 5%). Although good progress was made in reducing
the budget deficit, bond investors were disappointed when Washington fell short
of a balanced budget. Additionally, economic activity picked up (peaking in the
second quarter of 1996 at an annualized rate of 4.7%) and interest rates rose,
with the 30-year U.S. Treasury Bond at 6.65% on December 31, 1996, significantly
higher than at the start of the year.
Despite this economic growth, inflation apparently remains subdued. With all its
accepted biases, the Consumer Price Index is up 3.3% on a year-over-year basis.
We think productivity gains through technological advances and a globally
competitive market should work together to keep inflation low, and current
interest rates offer investors an opportunity to lock in attractive real rates
of return.
Volatility is a concern to investors of zero coupon securities. We aim to
maintain investments as close to the target maturities as practically possible,
so there is no realistic way for the portfolios to avoid swings in unit value
from changes in interest rates. With four years to maturity in the 2000
portfolio, this portfolio could possibly see an approximate 4% swing in value
for every 100 basis point swing in interest rates. Likewise, the 2005 portfolio
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 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 primarily hold only top-rated 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
The economy started the reporting period on a weak note, as winter storms and an
auto workers' strike detracted from economic growth, and continued to lose
momentum during the first quarter of 1996. With prospects for slower growth and
low inflation, the Federal Reserve Board (the Fed) lowered the federal funds
rate in late January 1996, from 5.50% to 5.25%. Since that point, the economy
seemed to regain its footing somewhat and achieved moderate growth with
apparently little threat of inflation. This appeared to eliminate the need for
further Fed actions and, as a result, short-term interest rates ended the period
slightly lower than at the start.
Since we maintained a relatively neutral weighted average maturity during the
reporting period, trends in the federal funds rate were reflected in the
portfolio's seven-day yield. It began the period at 5.43% and finished at 5.04%.
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 involve undue risk.
INDEX COMPARISONS
- ------------------------------------------------------------------------------
Indices measure a variety of values -- the Dow Jones Industrial Average(R) and
the Consumer Price Index are two well-known examples. On the following pages, we
have compared the performance of each Valuemark fund with an appropriate index
or indices. On pages 40 and 41, we have also included definitions of all the
indices used.
When reviewing the comparisons, please keep in mind that indices have a number
of inherent performance differentials over the Valuemark funds. First, unlike
the Valuemark portfolios, which must hold a minimum amount of cash to maintain
liquidity, indices do not have a cash component. Second, the Valuemark
portfolios are actively managed and, thus, are subject to management fees to
cover salaries to securities analysts or portfolio managers in addition to other
expenses. Indices are unmanaged and do not include any commissions or other
expenses typically associated with investing in securities. Third, indices often
contain a different mix of securities than the fund to which they are compared.
For instance, the Valuemark U.S. Government Securities Fund is compared to the
Lehman Brothers Intermediate Government Index. While the index and the fund both
hold fixed-rate obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, the fund consists primarily of mortgage-backed
securities (almost 70% of the fund's total net assets on December 31, 1996). The
index, on the other hand, holds no mortgage-backed securities at all.
Additionally, please remember that indices are simply a measure of performance
and cannot be invested in directly.
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
-----------------------
Since Inception
---------------
13.60%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
----------------------------------------------------
14.19% 12.20% 10.09%
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
--------------------------
1-year 5-year Since Inception
-----------------------------------------------------
13.90% 12.49% 10.21%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALLFUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
-----------------------------------------------------
11.28% 11.52% 11.75%
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
----------------------------------------------------
4.00% 8.75% 6.23%
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 3-year Since Inception
----------------------------------------------------
24.18% 15.62% 10.53%
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
32.82% 17.30% 13.04%
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year Since Inception
-------------------------------------------
29.07% 26.91%
- ------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year Since Inception
-------------------------------------------
21.59% 6.56%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year Since Inception
-------------------------------------------
19.84% 16.06%
- ------------------------------------------------------------------------------
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
-----------------------------
1-year Since Inception
------------------------------------------
21.28% 13.07%
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 3-year Since Inception
-----------------------------------------------------
22.98% 11.10% 11.64%
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
----------------------------------------------------
9.64% 6.59% 8.10%
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
-----------------------
Since Inception
---------------
12.50%
- ------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 3-year Since Inception
----------------------------------------------------
11.10% 3.03% 9.98%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
-----------------------------------------------------
3.62% 6.90% 8.19%
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
-----------------------------
1-year 5-year Since Inception
----------------------------------------------------
7.07% 8.35% 10.95%
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
----------------------------------------------------
-0.50% 10.04% 11.08%
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
2.43% 8.07% 9.67%
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
-2.69% 11.33% 11.59%
- -------------------------------------------------------------------------------
INDEX DEFINITIONS
CONSUMER PRICE INDEX
Measure of the average change in prices for a fixed basket of goods and
services regularly bought by consumers in the United States published by the
U.S. Bureau of Labor Statistics.
FIRST BOSTON HIGH YIELD
Unmanaged, Unmanaged, trader-priced portfolio constructed to mirror the
public high yield debt market (revisions to the index are effected weekly).
The index has several modules representing different sectors of the high
yield market including a cash-paying module, a zero-fix module, a
pay-in-kind module, and a defaulted module. The index is also divided into
other categories including industry, rating, seniority, liquidity, market
value, security price range, yield range, and other sector divisions.
INTERNATIONAL FINANCE CORPORATION'S (IFC)
INVESTABLE COMPOSITE INDEX
Emerging markets index that includes 1225 stocks from 26 countries including
Mexico, South Korea, Brazil, Jordan, and Turkey.
JP MORGAN GLOBAL BOND INDEX (UNHEDGED)
A total return index that tracks the traded sovereign issues of 13
international markets. Each market is weighted according to its traded
market capitalization in U.S. dollar terms, and all issues included in the
index are liquid with remaining maturities of greater than 13 months.
LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX
Includes fixed-rate debt that is rated investment grade or higher by
Moody's, Standard & Poor's, or Fitch. Debt is issued by the U.S. government
and its agencies, domestic corporations, and foreign dollar-denominated
securities. Lehman Brothers Intermediate Includes fixed-rate debt that is
rated investment grade or Government Index higher by Moody's, Standard &
Poor's, or Fitch. Debt is issued by the U.S. government and its agencies,
and has a maturity of one to ten years.
LIPPER INCOME AVERAGE
Consists of 21 equity funds that normally seek a high level of current
income through investing in income-producing stocks, bonds, and money-market
instruments.
MERRILL LYNCH TREASURY ZERO
COUPON FIVE, TEN AND TWENTY YEAR INDICES
Includes five-, ten- and twenty-year zero coupon bonds, respectively, which
pay no interest and are issued at a discount from redemption price.
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE
AUSTRALIA FAR EAST (EAFE) INDEX
Includes approximately 1000 companies
representing the stock markets of 20 countries in Europe, Australia, New
Zealand, and the Far East. The average company has a market capitalization of
over $3 billion. This is a total return index in U.S. dollars, with gross
dividends reinvested.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI)
PACIFIC BASIN INDEX
Includes over 400 companies and the five countries of Australia, Hong Kong,
Japan, New Zealand, and Singapore/Malaysia. This is a total return index in
U.S. dollars, with gross dividends reinvested.
MORGAN STANLEY CAPITAL INTERNATIONAL
(MSCI) WORLD INDEX
Includes approximately 1500 companies listed on the stock exchanges of 22
countries including the U.S., Europe, Canada, Australia, New Zealand, and
the Far East. The average company in the index has a market capitalization
of about $3.5 billion. This is a total return index in U.S. dollars, with
gross dividends reinvested.
RUSSELL 2500 INDEX(R)
An index consisting of 2,500 companies with small market capitalizations.
SALOMON BROTHERS WORLD GOVERNMENT HEDGED INDEX
Currency-hedged index uses rolling one-month forward exchange contracts as
hedging instruments. Total return in U.S. dollars.
SIX-MONTH CD RATES
Estimated monthly return averaging the top rates paid by major New York banks
on primary new issues of negotiable CDs. Published by Micropal.
STANDARD & POOR'S(R) 500 (S&P(R) 500)
Consists of 500 widely held common stocks within four sectors (industrials,
utilities, financial, and transportation). This index, calculated by
Standard & Poor's, is a total return index with dividends reinvested.
WILSHIRE MIDCAP GROWTH INDEX
Overlaps both the top 750 and the next 1750 of the Wilshire 2500 universe.
Includes companies that have market capitalizations ranging from $300 million
to $1.3 billion.
WILSHIRE REAL ESTATE SECURITIES INDEX
A market capitalization weighted index of publicly traded real estate
securities such as Real Estate Investment Trusts (REITs), Real Estate
Operating Companies (REOCs), and partnerships. The index is comprised of
companies whose charter is the equity ownership and operation of commercial
real estate.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Country* Amount Templeton Global Income Securities Fund (Note 1)
Bonds 93.8%
Argentina 4.3%
<S> <C> <C> <C>
US $ 2,500,000b Hidroelectrica Alicura, SA, 8.375%, 03/15/99 ................................... $ 2,487,500
US 2,895,000 Republic of Argentina, 10.95%, 11/01/99 ........................................ 3,068,700
US 3,620,000 Republic of Argentina, 8.375%, 12/20/03 ........................................ 3,402,800
US 920,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 .......................... 586,500
------------
9,545,500
------------
Australia 7.1%
AU 17,340,000 Government of Australia, 10.00%, 10/15/02 ...................................... 15,640,319
------------
Brazil 1.8%
US 2,580,000 Government of Brazil, 6.50%, 04/15/24 .......................................... 1,991,438
US 2,650,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ................... 2,015,656
------------
4,007,094
------------
Canada 4.6%
CA 11,397,000 Government of Canada, 10.25%, 02/01/04 ......................................... 10,290,628
------------
Denmark 7.2%
DK 25,917,000 Government of Denmark, 8.00%, 05/15/03 ......................................... 4,874,896
DK 43,000,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................ 8,104,941
DK 15,310,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................ 2,962,429
------------
15,942,266
------------
Germany 2.0%
DD 5,800,000 Federal Republic of Germany, Unity, 8.75%, 08/20/01 ............................ 4,387,039
------------
Irish Republic 1.2%
IR 1,600,000 Republic of Ireland, 6.25%, 10/18/04 ........................................... 2,676,514
------------
Italy 10.6%
IT 15,705,000,000 Buoni Poliennali del Tes, 10.50%, 09/01/05 ..................................... 12,379,601
IT 3,335,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ..................................... 2,482,331
IT 11,620,000,000 Government of Italy, 10.50%, 07/15/00 .......................................... 8,587,763
------------
23,449,695
------------
Mexico 4.8%
US 300,000 United Mexican States, 7.101560%, FRN, 03/31/08 ................................ 297,938
US 9,715,000 United Mexican States, 9.75%, 02/06/01 ......................................... 10,055,025
US 400,000 United Mexican States, Series D, 6.35156%, FRN, 12/31/19 ....................... 345,000
------------
10,697,963
------------
New Zealand 4.2%
NZ 11,810,000 Government of New Zealand, 10.00%, 03/15/02 .................................... 9,380,924
------------
Spain 6.1%
ES 779,230,000 Government of Spain, 12.25%, 03/25/00 .......................................... 7,114,957
ES 233,950,000 Government of Spain, 10.15%, 01/31/06 .......................................... 2,136,140
ES 462,400,000 Government of Spain,11.30%, 01/15/02 ........................................... 4,305,048
------------
13,556,145
------------
Sweden 3.1%
SE 15,300,000 Government of Sweden, 6.00%, 02/09/05 .......................................... 2,174,128
SE 12,300,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................ 2,200,610
SE 12,100,000 Kingdom of Sweden, 13.00%, 06/15/01 ............................................ 2,274,029
SE 1,100,000 Sweden National Housing Finance Corp., 12.50%, 01/23/97 ........................ 161,892
------------
6,810,659
------------
United Kingdom 10.1%
GB $ 3,245,000 United Kingdom, 8.00%, 12/07/00 ................................................ $ 5,711,854
GB 5,835,000 United Kingdom, 10.00%, 09/08/03 ............................................... 11,339,086
GB 2,905,000 United Kingdom, 10.50%, 05/19/99 ............................................... 5,349,770
------------
22,400,710
------------
United States 26.7%
US 9,610,000 U.S. Treasury Bonds, 6.375%, 08/15/02 .......................................... 9,676,078
US 21,180,000 U.S. Treasury Notes, 6.25%, 08/31/00 ........................................... 21,266,054
US 28,235,000 U.S. Treasury Notes, 6.125%, 07/31/00 .......................................... 28,243,838
------------
59,185,970
------------
Total Bonds (Cost $201,946,322)........................................... 207,971,426
------------
hReceivables from Repurchase Agreements 3.3%
US 7,060,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,279,729) (Cost $7,277,000)
Collateral: U.S. Treasury Notes, 7.75%, 11/30/99 .............................. 7,277,000
------------
Total Investments (Cost $209,223,322) 97.1%.......................... 215,248,426
Other Assets and Liabilities, Net 2.9%............................... 6,474,043
------------
Net Assets 100.0%.................................................... $221,722,469
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $209,223,322 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost..................................... $ 6,468,474
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value..................................... (443,370)
------------
Net unrealized appreciation................................................... $ 6,025,104
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IR - Irish Republic
IT - Italy
NZ - New Zealand
SE - Sweden
US - United States of America
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants High Income Fund (Note 1)
a Common Stocks & Warrants 0.1%
<C> <S> <C>
33,568 Bucyrus-Erie Co............................................................................... $ 293,720
6,900 Empire Gas Corp., warrants.................................................................... 20,700
70 Foodmaker, Inc., warrants .................................................................... 1,668
5,000 Gulf States Steel, warrants .................................................................. 25,000
7,800 International Wireless Holding Co., warrants.................................................. 70
6,500 Nextel Communications, warrants............................................................... 65
395 Thermadyne Holdings Corp...................................................................... 11,258
------------
Total Common Stocks & Warrants (Cost $610,440).......................................... 352,481
------------
Preferred Stocks 3.3%
1,300 Fresenius Medical Care A.G., 9.00%, pfd....................................................... 1,322,750
8,702 PanAmSat Corp., 12.75%, pfd., PIK............................................................. 10,965,106
2,258 Time Warner, Inc., 10.25%, pfd., Series M .................................................... 2,461,685
------------
Total Preferred Stocks (Cost $12,510,654)............................................... 14,749,541
------------
Total Common Stocks & Warrants, and Preferred Stocks (Cost $13,121,094)................. 15,102,022
------------
Face
Amount
Bonds 91.9%
Automotive 1.6%
$ 700,000b Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 ...................................... 754,250
1,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................... 1,093,750
4,500,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................................... 5,040,000
------------
6,888,000
------------
Cable Television 11.0%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 .............................. 4,247,380
1,500,000 Cablevision System Corp., senior sub. deb., 9.25%, 11/01/05 .................................. 1,488,750
3,000,000 Cablevision System Corp., senior sub. deb., 10.50%, 05/15/16 ................................. 3,120,000
4,500,000 Cablevision System Corp., senior sub. deb., 9.875%, 04/01/23 ................................. 4,410,000
5,000,000 Century Communications Corp., senior sub. notes, 11.875%, 10/15/03 ........................... 5,300,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 ............................................ 2,055,000
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................................. 2,080,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .................................. 1,722,687
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 ............................ 1,143,034
2,700,000 Diamond Cable Communications Co., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............................... 1,933,875
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 .................................... 2,436,500
4,500,000 cRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 .................... 3,220,036
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .................................. 1,586,250
8,000,000 Telewest Plc., senior deb., zero coupon to 10/01/00, (original accretion rate 11.00%),11.00%
thereafter, 10/01/07 ........................................................................ 5,600,000
1,500,000 Time Warner, Inc., senior notes, 10.15%, 05/01/12 ............................................ 1,808,997
1,500,000 Time Warner, Inc., sub. deb., 9.125%, 01/15/13 ............................................... 1,635,000
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 .............................. 2,994,594
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 ................................................................. 2,449,999
------------
49,232,102
------------
Chemicals 6.3%
3,750,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 ....................... 3,965,625
8,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............................. 8,920,000
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 ........................ 2,600,000
Chemicals (cont.)
$ 3,000,000 IMC Global, Inc., senior notes, 9.25%, 10/01/00 .............................................. $ 3,250,920
1,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ............................................... 1,894,478
1,200,000 IMC Global, Inc., senior notes, 10.125%, 06/15/01 ............................................ 1,307,851
2,425,000 IMC Global, Inc., senior notes, 10.75%, 06/15/03 ............................................. 2,663,382
4,000,000 UCC Investors, Inc., disc. notes, zero coupon to 05/01/98, (original accretion rate 12.00%), 12.00%
thereafter, 05/01/05 ........................................................................ 3,480,000
------------
28,082,256
------------
Consumer Products 2.8%
4,250,000 Coleman Holdings, Inc., senior secured disc. notes, (original accretion rate 10.875%), 0.00%,
05/27/98 .................................................................................... 3,564,688
5,800,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............................ 5,814,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .................................................... 3,041,250
------------
12,420,438
------------
Containers & Packaging 3.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 .................................... 3,806,250
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 ..................................... 1,047,500
2,500,000 bPlastic Containers, Inc., senior notes, 10.00%, 12/15/06 .................................... 2,575,000
5,000,000 bRadnor Holdings Corp., senior notes, 10.00%, 12/01/03 ....................................... 5,100,000
------------
13,578,750
------------
Energy 1.4%
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% coupon to 07/15/99, 12.875% thereafter,
07/15/04 .................................................................................... 4,250,000
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ......................................... 834,000
1,800,000 Mesa Operating Co., senior sub. notes, zero coupon to 07/01/01, (original accretion rate 11.625%),
11.625% thereafter, 07/01/06 ................................................................ 1,251,000
------------
6,335,000
------------
Food & Beverage 4.0%
3,000,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 ................. 3,060,000
700,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................... 728,000
1,124,010 n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................... 1,124,010
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 sub. notes, 10.25%, 02/15/00 ......................... 260,625
1,600,000b International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 ......................... 1,668,000
4,700,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........................ 4,876,250
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............................... 3,045,000
------------
17,941,885
------------
Food Retailing 4.7%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ................................. 1,895,500
3,691,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................... 3,930,915
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................................... 3,850,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................................... 1,025,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................................. 2,482,500
1,500,000 Penn Traffic Co., senior sub. notes, 9.625%, 04/15/05 ........................................ 866,250
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................................... 4,003,125
2,500,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 ..................................... 2,775,000
------------
20,828,290
------------
Forest & Paper Products 5.0%
$ 7,700,000 Four M Corp., senior notes, 12.00%, 06/01/06 ................................................. $ 8,085,000
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 .............................. 3,315,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 ........................ 2,100,000
3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ................................. 3,052,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ............................... 2,495,500
3,500,000 Tembec Finance Corp., senior notes, 9.875%. 09/30/05 ......................................... 3,316,250
------------
22,364,250
------------
Gaming & Leisure 7.0%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................................. 3,210,000
1,000,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ................................ 1,060,000
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................................. 5,892,625
3,000,000 Rio Hotel and Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................. 3,165,000
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................................... 8,287,500
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 ................................................................. 4,687,500
5,000,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................................. 5,037,500
------------
31,340,125
------------
Health Care Services 7.0%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............................. 8,158,500
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ............................... 5,417,500
2,000,000b Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 ......................... 2,090,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........................... 1,012,500
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 ... 5,307,500
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................................... 935,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................................... 2,550,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................................. 3,774,000
3,150,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................................. 2,157,750
------------
31,402,750
------------
Industrial Products 6.4%
2,500,000b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ........................... 2,644,688
8,500,000 American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98, (original accretion rate
10.50%), 10.50% thereafter, 06/01/05 ........................................................ 8,011,250
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................................ 1,055,000
6,500,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................................ 6,597,500
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 .............................. 3,312,000
1,200,000 bIntertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 ................................. 1,254,000
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................................ 5,568,750
------------
28,443,188
------------
Lodging 1.1%
1,000,000 John Q. Hammons Hotels L.P., first mortgage, 8.875%, 02/15/04 ................................ 997,500
1,500,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................................. 1,530,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .......................................... 2,344,650
------------
4,872,150
------------
Media & Broadcasting 6.4%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ............................... 1,810,500
2,500,000 Benedek Broadcasting, senior secured notes, 11.875%, 03/01/05 ................................ 2,731,250
6,500,000 Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 05/15/05 ................... 6,711,250
925,000 Infinity Broadcasting Corp., senior sub. notes, 10.375%, 03/15/02 ............................ 985,125
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 .................... 1,026,250
Media & Broadcasting (cont.)
$ 2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ................................... $ 2,631,250
5,000,000c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 .............................. 3,767,983
4,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ................................... 4,300,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 ........................ 2,110,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .......................... 2,559,375
------------
28,632,983
------------
Metals & Mining 3.2%
4,000,000b AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ....................................... 4,100,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................................ 4,320,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .......................................... 4,750,000
1,110,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 ................. 1,283,438
------------
14,453,438
------------
Technology & Information Systems 3.2%
6,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................................ 6,427,500
1,400,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ........................................................................ 1,025,500
2,450,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................................. 2,492,875
800,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................................... 850,000
1,150,000 bCelestica International, Inc., senior sub. notes, 10.50%, 12/31/06 .......................... 1,207,500
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ........................... 2,130,000
------------
14,133,375
------------
Telecommunications 3.0%
2,000,000 Intelecom Group, Inc., senior disc. notes, zero coupon to 05/01/01, (original accretion rate 12.50%),
12.50% thereafter, 05/01/06 ................................................................. 1,311,460
10,400,000 MFS Communications Co., Inc., senior disc. notes, zero coupon to 01/15/01, (original accretion rate
8.875%), 8.875% thereafter, 01/15/06 ........................................................ 7,709,000
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 ................................................. 4,485,000
------------
13,505,460
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ............................... 5,830,000
144,200a,l Forstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................... 72,821
------------
5,902,821
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ................................ 1,630,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................................... 4,927,500
------------
6,557,500
------------
Utilities 2.0%
3,000,000 CMS Energy Corp., senior notes, Series B, zero coupon to 10/01/95, (original accretion rate 9.875%),
9.875% thereafter, 10/01/99 ................................................................. 3,135,000
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ........................................ 2,650,000
2,715,363 Midland CoGeneration Venture, S.F., deb., Series C, 10.33%, 07/23/02 ......................... 2,905,439
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 .............................. 2,163
------------
8,692,602
------------
Wireless Communication 9.9%
$ 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 ................................................. $ 3,457,500
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 ................................................... 4,663,750
7,800,000 bInternational Wireless Communications, Inc., senior disc. notes, zero coupon to 08/15/01 .... 4,290,000
9,300,000 Millicom International Cellular, S.A., senior disc. notes, zero coupon to 06/01/01, (original accretion
rate 13.50%), 13.50% thereafter, 06/01/06.................................................... 5,766,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ................................... 4,835,125
4,500,000 bPaging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ................................... 4,578,750
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ............................. 3,172,500
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.................................................................. 6,775,000
6,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ........................................ 6,695,000
------------
44,233,625
------------
Total Bonds (Cost $393,587,025) ........................................................ 409,840,988
------------
Total Investments before Repurchase Agreements (Cost $406,708,119) ..................... 424,943,010
------------
h,iReceivables from Repurchase Agreements 3.0%
13,235,089 Joint Repurchase Agreements, 6.59%, 01/02/97, (Maturity Value $13,468,397) (Cost $13,463,468)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,653,685)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 13,463,468
------------
Total Investments (Cost $420,171,587) 98.3% ....................................... 438,406,478
Other Assets and Liabilities, Net 1.7%............................................. 7,689,047
------------
Net Assets 100.0% ................................................................. $446,095,525
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$420,171,587 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 22,104,944
Aggregate gross unrealized depreciation for all investments in which
here was an excess of tax cost over value .................................................... (3,870,053)
------------
Net unrealized appreciation ................................................................ $ 18,234,891
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Country* Warrants Precious Metals Fund (Note 1)
Common Stocks & Warrants 95.7%
Gold & Diversified Resources 14.4%
<S> <C> <C> <C>
AU 780,000a Equinox Resources, N.L. ............................................................ $ 638,582
US 160,718 Freeport-McMoRan Copper & Gold, Inc. ............................................... 4,520,194
AU 201,800 Great Central Mines, Ltd. .......................................................... 574,234
CA 110,000a Pangea Goldfields, Inc. ............................................................ 514,037
GB 318,429 RTZ Corp., Plc. .................................................................... 5,108,589
CA 159,100 Teck Corp., Class B ................................................................ 3,688,383
CA 510,600a Williams Resources, Inc. ........................................................... 525,681
CA 188,600 Williams Resources, Inc., Legend Shares ............................................ 194,170
------------
15,763,870
------------
Long Life Gold Mines 45.7%
US 210,700b Ashanti Goldfields Co., Ltd., ADS .................................................. 2,607,413
US 235,595 Barrick Gold Corp. ................................................................. 6,773,356
CA 194,920 Battle Mountain Canada, Inc. ....................................................... 1,352,079
ZA 125,000 Beatrix Mines, Ltd. ................................................................ 781,500
PE 37,404 Compania de Minas Buenaventura, SA ................................................. 308,656
PE 112,068 Compania de Minas Buenaventura, SA, Class C ........................................ 815,352
US 67,000b Compania de Minas Buenaventura, SA, Sponsored ADR .................................. 1,143,188
US 249,500 Driefontein Consolidated Mines, Ltd., ADR .......................................... 2,495,000
US 226,700 Hartebeestfontein Gold Mining Co., Ltd., ADR ....................................... 463,942
US 139,488 Homestake Mining Co. ............................................................... 1,987,704
US 95,400 Kloof Gold Mining Co., Ltd., ADR ................................................... 745,313
AU 820,260a Leo Shield Exploration, N.L. ....................................................... 436,829
US 82,400 Newmont Gold Co. ................................................................... 3,605,000
US 99,755 Newmont Mining Corp. ............................................................... 4,464,036
US 327,500 Placer Dome, Inc. .................................................................. 7,123,125
ZA 340,000 Randgold & Exploration Co., Ltd. ................................................... 2,307,363
US 257,901 Santa Fe Pacific Gold Corp. ........................................................ 3,965,228
CA 522,000a TVX Gold, Inc. ..................................................................... 4,078,274
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ..................................... 2,097,563
US 41,068 Western Areas Gold Mining, ADR ..................................................... 566,193
ZA 143,888 Western Areas Gold Mining Co., Ltd. ................................................ 1,983,708
------------
50,100,822
------------
Medium Life Gold Mines 23.5%
AU 1,243,600a Acacia Resources, Ltd. ............................................................. 2,421,763
CA 66,500a Bre-X Minerals, Ltd. ............................................................... 1,053,667
CA 6,650a Bro-X Minerals, Ltd. ............................................................... 11,653
US 209,000a Campbell Resources, Inc., warrants ................................................. 84,917
US 210,000a Canyon Resources Corp. ............................................................. 551,250
CA 151,200a Dayton Mining Corp. ................................................................ 1,004,651
CA 155,300 Euro-Nevada Mining Corp. ........................................................... 4,637,852
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ............................................ 447,957
CA 90,800 Franco-Nevada Mining Corp., Ltd. ................................................... 4,160,272
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares .................................... 114,545
CA 234,600a Geomaque Explorations, Ltd. ........................................................ 565,281
US 18,500a Getchell Gold Corp. ................................................................ 709,938
CA 86,200 Golden Knight Resources ............................................................ 415,407
CA 170,900a Greenstone Resources, Ltd. ......................................................... 1,990,329
AU 329,500a Lihir Gold, Ltd. ................................................................... 628,567
AU 271,500 Newcrest Mining, Ltd. .............................................................. 1,079,008
Medium Life Gold Mines (cont.)
AU 632,500 Plutonic Resources, Ltd. ........................................................... $ 2,941,042
AU 505,900 Sons Of Gwalia , Ltd. .............................................................. 2,987,709
------------
25,805,808
------------
Mining Finance Companies 6.5%
US 15,000 Anglo American Corp. of South Africa Ltd., Unsponsored ADR ......................... 817,500
US 113,700 DeBeers Consolidated Mines, Ltd., ADR .............................................. 3,212,025
AU 1,535,571 Normandy Mining, Ltd. .............................................................. 2,123,753
AU 230,000a Orogen Minerals, Ltd. .............................................................. 535,649
US 17,200a,b Orogen Minerals, Ltd., GDR ......................................................... 400,573
------------
7,089,500
------------
Platinum Companies 5.6%
AU 495,000a Helix Resources, N.L. .............................................................. 1,475,439
ZA 72,900 Impala Platinum Holdings, Ltd. ..................................................... 728,455
US 21,200 Impala Platinum Holdings, Ltd., ADR ................................................ 211,841
US 168,466 Rustenburg Platinum Holdings, Ltd., ADR ............................................ 2,304,547
US 82,300a,b Stillwater Mining Co. .............................................................. 1,378,524
------------
6,098,806
------------
Total Common Stocks & Warrants (Cost $99,595,951)............................. 104,858,806
------------
Face
Amount
Convertible Bonds 0.4%
US $ 270,000b Randgold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 ................. 270,000
CA 200,000 Williams Resources, Inc., cvt. sub. notes, 8.50%, 11/22/01 ......................... 154,794
------------
Total Convertible Bonds (Cost $419,740) ...................................... 424,794
------------
Total Long Term Investments (Cost $100,015,691) .............................. 105,283,600
------------
h,i Receivables from Repurchase Agreements 3.1%
US 3,409,181 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $3,468,619)
(Cost $3,467,349)
Aubrey G. Lanston & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $434,676)
Collateral: U. S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $425,887)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ............... 3,467,349
------------
Total Investments (Cost $103,483,040) 99.2%.............................. 108,750,949
Other Assets and Liabilities, Net 0.8%................................... 827,636
------------
Net Assets 100.0% ....................................................... $109,578,585
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $103,483,040 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 14,289,001
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................................ (9,021,092)
------------
Net unrealized appreciation ...................................................... $ 5,267,909
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kindom
PE - Peru
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants Real Estate Securities Fund (Note 1)
Common Stocks & Warrants 91.6%
Equity REIT - Apartments 20.0%
<C> <S> <C>
170,000 Amli Residential Properties Trust ............................................................ $ 3,973,750
295,000 Bay Apartment Communities, Inc................................................................ 10,620,000
110,000 Camden Property Trust ........................................................................ 3,148,750
205,000 Equity Residential Properties Trust .......................................................... 8,456,250
212,000 Evans Withycombe Residential, Inc. ........................................................... 4,452,000
155,000 Gables Residential Trust ..................................................................... 4,495,000
145,000 Irvine Apartment Communities, Inc............................................................. 3,625,000
215,000 Oasis Residential, Inc........................................................................ 4,891,250
100,000 Post Properties, Inc. ........................................................................ 4,025,000
120,000 Security Capital Atlantic, Inc................................................................ 2,940,000
275,000 Security Capital Pacific Trust ............................................................... 6,290,625
220,000 South West Property Trust .................................................................... 3,712,500
175,000 Summit Properties, Inc........................................................................ 3,871,875
------------
64,502,000
------------
Equity REIT - Health Care 3.7%
90,000 Health Care Property Investors, Inc. ......................................................... 3,150,000
150,000 Nationwide Health Properties, Inc............................................................. 3,637,500
158,000 Omega Healthcare Investors, Inc. ............................................................. 5,253,500
------------
12,041,000
------------
Equity REIT - Hotels 12.4%
500,000 Equity Inns, Inc. ............................................................................ 6,500,000
267,000 FelCor Suite Hotels, Inc...................................................................... 9,445,125
140,000 Patriot American Hospitality, Inc. ........................................................... 6,037,500
176,700 Starwood Lodging Trust ....................................................................... 9,740,588
605,000 Winston Hotels, Inc. ......................................................................... 8,243,125
------------
39,966,338
------------
Equity REIT - Industrial 8.9%
112,500 Duke Realty Investments, Inc. ................................................................ 4,331,250
195,000 Liberty Property Trust ....................................................................... 5,021,250
250,700 Meridian Industrial Trust, Inc................................................................ 5,264,700
327,473 Security Capital Industrial Trust ............................................................ 6,999,735
100,000 Spieker Properties, Inc....................................................................... 3,600,000
110,000 Weeks Corp. .................................................................................. 3,657,500
------------
28,874,435
------------
Equity REIT - Mixed Property Type 2.1%
115,000 Colonial Properties Trust .................................................................... 3,493,125
190,000 Glenborough Realty Trust, Inc................................................................. 3,348,750
------------
6,841,875
------------
Equity REIT - Office 7.9%
243,800 Arden Realty Group, Inc....................................................................... 6,765,450
135,000 Beacon Properties Corp. ...................................................................... 4,944,375
125,000 Crescent Real Estate Equities, Co. ........................................................... 6,593,750
210,000 Highwoods Properties, Inc..................................................................... 7,087,500
------------
25,391,075
------------
Equity REIT - Residential Communities 3.8%
185,000 Manufactured Home Communities, Inc. .......................................................... $ 4,301,250
125,000 ROC Communities, Inc.......................................................................... 3,468,750
130,000 Sun Communities, Inc.......................................................................... 4,485,000
------------
12,255,000
------------
Equity REIT - Retail - Community Centers 5.4%
102,000 Developers Diversified Realty Corp. .......................................................... 3,786,750
97,500 Kimco Realty Corp. ........................................................................... 3,400,313
511,400n Pacific Retail Trust ......................................................................... 5,625,400
90,000 Vornado Realty Trust ......................................................................... 4,725,000
------------
17,537,463
------------
Equity REIT - Retail - Outlet Centers 1.5%
75,000 Chelsea GCA Realty, Inc. ..................................................................... 2,596,875
80,000 Tanger Factory Outlet Centers, Inc............................................................ 2,170,000
------------
4,766,875
------------
Equity REIT - Retail - Regional Malls 4.9%
250,000 Simon DeBartolo Group, Inc.................................................................... 7,750,000
170,000 The Macerich Co. ............................................................................. 4,441,250
155,000 The Mills Corp. .............................................................................. 3,700,625
------------
15,891,875
------------
Equity REIT - Storage 7.3%
280,000 Public Storage, Inc........................................................................... 8,680,000
370,000 Storage Trust Realty ......................................................................... 9,990,000
130,000 Storage USA, Inc.............................................................................. 4,891,250
------------
23,561,250
------------
Home Builders 6.4%
100,000a Beazer Homes USA, Inc......................................................................... 1,850,000
306,100a Belmont Homes, Inc............................................................................ 2,946,213
75,000 Centex Corp. ................................................................................. 2,821,875
281,250 Clayton Homes, Inc............................................................................ 3,796,874
85,000 Kaufman & Broad Home Corp. ................................................................... 1,094,375
70,000 Lennar Corp. ................................................................................. 1,907,500
300,000a NVR, Inc. .................................................................................... 3,900,000
193,100a Southern Energy Homes, Inc.................................................................... 2,220,650
------------
20,537,487
------------
Hotels 5.3%
325,000a Candlewood Hotel Co., Inc..................................................................... 3,128,125
250,000a CapStar Hotel Co. ............................................................................ 4,906,250
44,122a Homestead Village, Inc........................................................................ 794,196
29,600a Homestead Village, Inc., warrants............................................................. 240,500
505,000a Host Marriott Corp. .......................................................................... 8,080,000
------------
17,149,071
------------
Mixed Property Type 2.0%
500,000 Security Capital US Realty ................................................................... 6,400,000
------------
Total Common Stocks & Warrants (Cost $216,018,176) ..................................... 295,715,744
------------
Convertible Preferred Stocks 0.4%
20,000b Catellus Development Corp., $3.625 cvt. pfd., Series B (Cost $1,000,000)...................... 1,190,000
------------
Bonds 0.6%...................................................................................
$ 2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000)............................ $ 1,937,500
------------
Total Long Term Investments (Cost $218,988,176)......................................... 298,843,244
------------
h,iReceivables from Repurchase Agreements 7.2%
22,726,825 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $23,127,905) (Cost $23,119,441)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,839,700)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 23,119,441
------------
Total Investments (Cost $242,107,617) 99.8% ....................................... 321,962,685
------------
Other Assets and Liabilities, Net 0.2%............................................. 758,510
------------
Net Assets 100.0 % ................................................................ $322,721,195
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$242,107,617 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 81,200,237
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (1,345,169)
------------
Net unrealized appreciation ................................................................ $ 79,855,068
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
REIT - Real Estate Investment Trust
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Securities Fund (Note 1)
Mortgage-Backed Securities 68.5%
Government National Mortgage Association (GNMA) - Fixed Rate 38.7%
<C> <S> <C>
$ 12,909,358 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ...................................................... $ 11,997,637
2,240,248 GNMA II, 6.00%, 01/20/24 - 10/20/24 ......................................................... 2,068,031
57,198,297 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ...................................................... 54,642,340
3,866,893 GNMA II, 6.50%, 01/20/26 .................................................................... 3,669,925
8,696,408 GNMA, PL, 6.50%, 09/15/28 ................................................................... 8,264,310
56,855,632 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ...................................................... 55,700,850
14,520,927 GNMA II, 7.00%, 01/20/24 - 12/01/26 ......................................................... 14,135,225
15,000,000k GNMA II, 7.00%, 12/01/26 .................................................................... 14,617,968
1,983,040 GNMA I, SF, 7.25%, 11/15/25 ................................................................. 1,964,759
2,242,805 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ........................................................ 2,210,915
42,539,615 GNMA I, SF, 7.50%, 02/15/17 - 06/15/23 ...................................................... 42,619,423
33,125,704 GNMA II, 7.50%, 11/20/16 - 12/01/26 ......................................................... 32,980,790
5,000,000k GNMA II, 7.50%, 12/01/26 .................................................................... 4,980,469
29,391,221 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ...................................................... 30,015,829
3,371,055 GNMA II, 8.00%, 02/20/16 - 08/20/26 ......................................................... 3,417,411
2,589,263 GNMA I, SF, 8.25%, 04/15/25 ................................................................. 2,664,516
11,529,600 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ...................................................... 11,954,773
4,261,726 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ...................................................... 4,496,145
10,571,472 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ...................................................... 11,433,761
2,227,999 GNMA II, 9.50%, 04/20/25 .................................................................... 2,387,442
8,657,430 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ..................................................... 9,504,241
297,054 GNMA II, 10.00%, 07/20/19 - 02/20/21 ........................................................ 323,139
------------
326,049,899
------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.4%
3,775,571 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 ..................... 3,854,443
3,477,477 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 ...................... 3,583,819
4,528,182 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 01/20/16 ...................... 4,593,071
------------
12,031,333
------------
Federal National Mortgage Association (FNMA) - Fixed Rate 8.8%
7,013,467 FNMA, 6.00%, 10/01/23 - 04/01/24 ............................................................ 6,520,340
15,000,000 FNMA, 6.05%, 11/10/97 ....................................................................... 15,046,605
16,442,305 FNMA, 6.50%, 01/01/24 - 06/01/24 ............................................................ 15,707,553
1,943,398 FNMA, 7.00%, 05/01/24 ....................................................................... 1,903,924
8,077,380 FNMA, PL, 7.00%, 03/17/35 ................................................................... 7,774,479
11,946,917 FNMA, 7.50%, 04/01/23 - 08/01/25 ............................................................ 11,958,127
13,480,634 FNMA, 8.00%, 07/01/16 - 02/01/25 ............................................................ 13,755,022
1,079,387 FNMA, 8.50%, 10/01/19 - 03/01/22 ............................................................ 1,118,856
173,288 FNMA, 9.00%, 09/01/18 - 03/01/21 ............................................................ 182,821
99,393 FNMA, 9.50%, 07/01/19 - 08/01/20 ............................................................ 107,346
36,255 FNMA, 10.00%, 10/01/20 ...................................................................... 39,768
------------
74,114,841
------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 7.0%
6,945,255 FNMA, Cap 12.22%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.963%, 06/01/18 ......... 7,070,687
5,056,806 FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.693%, 02/01/19 ..................... 5,266,714
2,473,734 FNMA, Cap 12.786%, Margin 1.25% + COFI, Resets Monthly, 6.084%, 02/01/03 .................... 2,462,009
6,699,164 FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.701%, 09/01/18 ................... 6,996,071
4,370,458 FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.662%, 07/01/19 ................... 4,561,273
13,893,832 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.599%, 01/01/18 ................... 14,470,563
1,129,917 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.796%, 07/01/24 ......... 1,126,675
433,585 FNMA, Cap 13.721%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 02/01/17 .................... 430,715
Federal National Mortgage Association (FNMA) - Adjustable Rate (cont.)
$ 885,440 FNMA, Cap 14.071%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 12/01/18 .................... $ 879,578
1,317,468 FNMA, Cap 14.428%, Margin 2.125% + CMT, Resets Annually, 7.25%, 04/01/19 .................... 1,365,556
6,050,539 FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 06/01/02 .................... 6,018,048
3,103,864 FNMA, Cap 14.808%, Margin 1.825% + 3CMT, Resets Tri-Annually, 8.489%, 07/01/20 .............. 3,219,110
5,122,820 FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.453%, 03/01/20 .............. 5,337,108
------------
59,204,107
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.5%
23,032,840 FHLMC, 6.50%, 06/01/08 - 01/01/24 ........................................................... 22,141,263
17,405,760 FHLMC, 7.00%, 04/01/24 ...................................................................... 17,101,159
19,790,154 FHLMC, PL, 7.00%, 09/17/31 .................................................................. 19,233,655
6,026,449 FHLMC, 7.50%, 11/01/22 - 05/01/24 ........................................................... 6,041,520
4,368,802 FHLMC, 8.00%, 05/01/16 - 05/01/22 ........................................................... 4,457,553
1,327,636 FHLMC, 8.50%, 04/01/18 - 03/01/22 ........................................................... 1,377,012
1,141,617 FHLMC, 9.00%, 03/01/03 - 01/01/21 ........................................................... 1,196,861
259,097 FHLMC, 9.50%, 06/01/16 - 08/01/20 ........................................................... 278,530
192,483 FHLMC, 10.00%, 08/01/20 - 10/01/20 .......................................................... 209,807
------------
72,037,360
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate 4.1%
5,058,120 FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annnually, 7.651%, 06/01/22 ................. 5,263,379
2,606,296 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.582%, 09/01/19 ................... 2,697,525
3,402,647 FHLMC, Cap 13.125%, Margin 2.00% + CMT, Resets Annually, 7.297%, 07/01/18 ................... 3,509,831
613,638 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.583%, 07/01/19 .................. 635,719
7,457,638 FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.751%, 02/01/19 .................. 7,749,381
5,556,893 FHLMC, Cap 13.50%, Margin 2.03% + CMT, Resets Annually, 7.496%, 05/01/18 .................... 5,751,107
1,781,078 FHLMC, Cap 13.605%, Margin 2.20% + CMT, Resets Annually, 7.557%, 02/01/19 ................... 1,843,897
7,092,294 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.628%, 04/01/18 .................. 7,355,701
------------
34,806,540
------------
Total Mortgage-Backed Securities (Cost $575,480,640) .................................. 578,244,080
------------
Other Government & Agency Securities 23.6%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 ......................................... 2,014,030
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 ................................................... 4,780,810
10,000,000 Federal Farm Credit Bank, 7.95%, 04/01/02 ................................................... 10,062,349
13,220,804 FHA Project Loan, 6.875%, 11/01/23 .......................................................... 12,592,825
8,168,028 FHA Project Loan, 7.00%, 02/01/29 ........................................................... 7,871,937
3,876,000 FICO Strips, 0.00%, 11/11/01 ................................................................ 2,857,360
1,925,000 FICO Strips, 0.00%, 05/11/02 ................................................................ 1,372,525
10,000,000 FICO Strips, 0.00%, 05/11/13 ................................................................ 3,174,609
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ...................................................... 13,008,989
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ...................................................... 754,011
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ..................................................... 4,684,361
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ..................................................... 4,530,025
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ..................................................... 7,217,839
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ..................................................... 1,383,526
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ..................................................... 1,835,446
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ...................................................... 900,325
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ...................................................... 5,203,176
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ..................................... 5,109,699
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ..................................... 5,112,735
4,851,066 Small Business Administration, 6.45%, 12/01/15 .............................................. 4,594,348
5,000,000 Small Business Administration, 6.70%, 12/01/16 .............................................. 4,906,300
$ 8,338,041 Small Business Administration, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 7.75%,
03/25/19 ................................................................................... $ 8,651,469
8,003,940 Small Business Administration, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 7.85%,
06/25/19................................................................................... 8,344,108
9,471,172 Small Business Administration, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.125%,
03/25/18 ................................................................................... 10,039,442
5,000,000 Student Loan Marketing Association, 5.64%, 11/26/97 ......................................... 4,992,895
5,000,000 Student Loan Marketing Association, 6.16%, 12/02/99 ......................................... 4,973,475
15,000,000 Student Loan Marketing Association, 0.00%, 05/15/14 ......................................... 3,807,193
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ................................................. 6,700,249
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ................................................. 1,986,977
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ................................................. 5,074,360
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ................................................ 4,868,629
12,000,000 Tennessee Valley Authority, 6.235%, 07/15/45 ................................................ 12,039,490
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ................................................. 9,759,050
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ................................................ 1,056,509
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ................................................ 12,859,246
------------
Total Other Agency Government Securities (Cost $194,604,937) .......................... 199,120,317
------------
U.S. Government Securities 8.0%
5,000,000 U.S. Treasury Notes, 5.125%, 04/30/98 ....................................................... 4,950,005
10,000,000 U.S. Treasury Notes, 5.125%, 06/30/98 ....................................................... 9,893,759
8,000,000 U.S. Treasury Notes, 5.25%, 12/31/97 ........................................................ 7,950,007
15,000,000 U.S. Treasury Notes, 5.625%, 06/30/97 ....................................................... 15,004,694
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ........................................................ 4,851,565
5,000,000 U.S. Treasury Notes, 5.875%, 08/15/98 ....................................................... 4,995,315
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 ....................................................... 4,993,755
10,000,000 U.S. Treasury Notes, 6.125%, 05/31/97 ....................................................... 10,018,759
5,000,000 U.S. Treasury Notes, 6.50%, 04/30/97 ........................................................ 5,015,630
------------
Total U.S. Government Securities (Cost $67,905,861) ................................... 67,673,489
------------
Total Long Term Investments (Cost $837,991,438) ....................................... 845,037,886
------------
h,iReceivables from Repurchase Agreements 1.5%
12,403,581 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $12,622,265) (Cost $12,617,646)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 5.125% - 8.750%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,581,782)
U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities, Corp., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,549,791)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.75% 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.50% 06/30/98 - 05/31/01 .......................... 12,617,646
------------
Total Investments (Cost $850,609,084) 101.6%...................................... 857,655,532
Liabilities in Excess of Other Assets (1.6%)...................................... (13,798,015)
------------
Net Assets 100.0%................................................................. $843,857,517
============
At December 31, 1996 the net unrealized appreciation based on
the cost of investments for income tax purposes of
$850,609,084 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 14,804,148
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................. (7,757,700)
------------
Net unrealized appreciation ............................................................... $ 7,046,448
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
FHA - Federal Housing Authority
FICO - Financing Corp.
L.L.C. - Limited Liability Corp.
PL - Project Loan
SF - Single Family
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2000 (Note 1)
Long Term Investments 100%
Government & Agency Securities 98.6%
<C> <S> <C>
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ...................................................... $ 5,845,212
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ...................................................... 2,155,250
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ...................................................... 336,363
16,175,000 FHLMC, notes, 0.00%, 05/15/00 ................................................................. 13,143,125
9,023,000 FICO Strips, 0.00%, 03/26/01 .................................................................. 6,932,100
2,000,000 FICO Strips, 0.00%, 04/06/01 .................................................................. 1,533,606
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ........................................................ 896,755
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ........................................................ 775,514
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ....................................................... 13,629,516
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ....................................................... 4,549,980
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ....................................................... 3,021,744
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ....................................................... 117,895
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ....................................................... 3,854,720
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ....................................................... 4,656,037
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ....................................................... 4,912,737
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ........................................................ 3,941,584
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ........................................................ 4,304,102
3,800,000 FNMA Strips, 0.00%, 11/22/99 .................................................................. 3,183,066
1,000,000 FNMA Strips, 0.00%, 02/12/02 .................................................................. 723,947
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ........................................................ 412,619
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ........................................................ 1,452,887
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ........................................................ 725,364
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ........................................................ 2,244,114
9,195,000 REFCO Strips, 0.00%, 01/15/01 ................................................................. 7,194,369
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ................................................... 2,673,204
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ................................................... 1,980,827
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ................................................... 50,315
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ................................................... 8,051,577
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ................................................... 718,045
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 ......................................................... 875,190
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 2,154,740
15,000,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 11,682,779
11,615,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 9,060,779
------------
127,790,062
------------
Other Securities - "AAA" Rated 1.4%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ............................................... 171,499
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 ........................ 334,189
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 ........................ 754,667
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 ........................ 567,527
------------
1,827,882
------------
Total Long Term Investments (Cost $122,571,579).......................................... 129,617,944
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 69,031 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value 69,902) (Cost $69,876)
Aubrey G. Lanston & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $8,582)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01.......................... $ 69,876
------------
Total Investments (Cost $122,641,455) 100.1% ....................................... 129,687,820
Liabilities in Excess of Other Assets (0.1%) ....................................... (86,878)
------------
Net Assets 100.0% .................................................................. $129,600,942
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $122,641,455
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,210,715
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (164,350)
------------
Net unrealized appreciation ................................................................. $ 7,046,365
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financial Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2005 (Note 1)
Long Term Investments 100.0%
Government & Agency Securities 96.8%
<C> <S> <C>
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ...................................................... $ 699,815
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ...................................................... 503,905
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 ..................................................... 5,738,216
11,400,000 FICO Strips, 0.00%, 10/06/05 .................................................................. 6,367,880
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ........................................................ 2,012,076
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ........................................................ 459,821
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ........................................................ 1,949,804
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ....................................................... 6,100,281
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ....................................................... 1,513,663
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ....................................................... 1,472,026
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ....................................................... 3,231,737
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ....................................................... 5,518,120
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ........................................................ 3,805,631
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ........................................................ 951,371
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ........................................................ 2,902,869
120,000 FNMA Strips, 0.00%, 02/12/08 .................................................................. 56,347
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ........................................................ 273,785
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ........................................................ 585,338
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ........................................................ 493,262
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ........................................................ 2,344,967
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ........................................................ 135,809
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ........................................................ 814,219
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ........................................................ 3,519,881
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ........................................................ 278,378
6,500,000 REFCO Strips, 0.00%, 01/15/06 ................................................................. 3,607,694
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ....................................................... 1,636,467
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ................................................... 3,732,126
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ................................................... 1,311,114
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ................................................... 559,871
31,140,000 U.S. Treasury Strips, 0.00%, 02/15/06 ......................................................... 17,361,605
------------
79,938,078
------------
Other Securities - "AAA" Rated 3.2%
1,500,000 Exxon Corp., 0.00%, 11/15/04 .................................................................. 902,553
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 ........................ 271,911
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 ........................ 1,210,182
459,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/07 .............. 230,360
------------
2,615,006
------------
Total Long Term Investments (Cost $75,820,587) .......................................... 82,553,084
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 92,564 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $93,893) (Cost $93,859)
Aubrey G. Lanston & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $11,531)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 93,859
------------
Total Investments (Cost $75,914,446) 100.1%......................................... 82,646,943
Liabilities in Excess of Other Assets (0.1%) ....................................... (43,474)
------------
Net Assets 100.0% ................................................................. $82,603,469
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $75,918,614
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,286,935
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (558,606)
------------
Net unrealized appreciation ................................................................. $ 6,728,329
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Face Value
Amount Zero Coupon Fund - 2010 (Note 1)
Long Term Investments 100.6%
Government & Agency Securities 95.6%
<C> <S> <C>
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 .......................................................... $ 880,432
4,040,000 FICO Strips, 0.00%, 10/06/10 .................................................................. 1,562,417
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ........................................................ 6,237,261
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ........................................................ 793,794
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ........................................................ 590,934
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ........................................................ 1,183,316
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ....................................................... 1,068,198
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ....................................................... 1,941,589
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ....................................................... 2,863,694
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ....................................................... 1,189,191
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ....................................................... 794,198
7,000,000 FICO Strips, Series A, 0.00%. 08/08/10 ........................................................ 2,739,079
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ........................................................ 345,907
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ........................................................ 1,491,532
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ........................................................ 4,774,101
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ........................................................ 333,308
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ........................................................ 1,999,718
1,975,000 FNMA Strips, 0.00%, 08/12/09 .................................................................. 828,751
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ........................................................ 2,025,210
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ........................................................ 3,217,598
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ........................................................ 478,632
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ........................................................ 1,668,785
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 .............................................................. 1,139,196
20,000,000 REFCO Strips, 0.00%, 10/15/10 ................................................................. 7,897,418
8,000,000 REFCO Strips, 0.00%, 01/15/11 ................................................................. 3,098,639
8,650,000 SLMA, 0.00%, 05/15/14 ......................................................................... 2,195,481
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ................................................... 164,396
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ................................................... 4,824,119
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ................................................... 511,051
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ................................................... 3,545,833
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ................................................... 2,613,959
25,790,000 U.S. Treasury Strips, 0.00%, 11/15/10 ......................................................... 10,299,236
------------
75,296,973
------------
Other Securities - "AAA" Rated 5.0%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 ........................ 516,948
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 ........................ 963,572
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 ........................ 1,046,150
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 ........................ 1,257,355
500,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/11 .............. 185,686
------------
3,969,711
------------
Total Long Term Investments (Cost $69,789,913)........................................... 79,266,684
------------
h,i Receivables from Repurchase Agreements 0.2%
$ 142,768 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $145,815) (Cost $145,762)
Aubrey G. Lanston & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $17,904)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 145,762
------------
Total Investments (Cost $69,935,675) 100.8% ....................................... 79,412,446
Liabilities in Excess of Other Assets (0.8%)....................................... (596,700)
------------
Net Assets 100.0% ................................................................. $78,815,746
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $70,249,878
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.................................................... $ 9,241,575
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (79,007)
------------
Net unrealized appreciation ................................................................. $ 9,162,568
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Money Market Fund (Note 1)
f Short Term Investments 98.7%
Certificates of Deposit 8.8%
<C> <S> <C>
$10,000,000 Bank of Nova Scotia, Portland Branch, 5.8%, 03/05/97 ........................................... $ 10,000,000
6,000,000 Commerzbank, AG, New York Branch, 5.41%, 02/03/97 .............................................. 6,000,186
10,000,000 Dresdner Bank, AG, New York Branch, 4.94%, 01/06/97 ............................................ 9,999,086
10,000,000 Svenska Handelsbanken, Inc., New York Branch, 5.375%, 02/25/97 ................................. 10,000,139
------------
Total Certificates of Deposit (Cost $35,999,411).......................................... 35,999,411
------------
Commercial Paper 73.5%
10,000,000 AT&T Corp., 5.37%, 3/10/97 - 3/11/97 ........................................................... 9,897,821
16,000,000 Abbey National North America, 5.32% - 5.41%, 03/10/97 - 04/02/97 ............................... 15,833,178
20,000,000 American Express Credit Corp., 5.27%, 03/20/97 - 03/21/97 ...................................... 19,770,170
20,000,000 Associates Corp. of North America, 5.32%, 01/14/97 - 01/15/97 .................................. 19,960,100
15,000,000 Bellsouth Telecommunications, Inc., 5.35%, 03/03/97 ............................................ 14,864,021
15,000,000 BIL North America, Inc., 5.33%, 01/07/97 - 01/23/97 ............................................ 14,974,831
11,000,000 Commonwealth Bank of Australia, 5.325% - 5.37%, 01/21/97 - 04/29/97 ............................ 10,952,815
20,000,000 General Electric Capital Corp., 5.30% - 5.32%, 01/16/97 - 03/31/97 ............................. 19,846,805
1,200,000 General Electric Capital Corp., 7.625%, 01/10/97 ............................................... 1,200,552
10,000,000 Generale Bank, Inc., 5.30%, 03/14/97 ........................................................... 9,894,000
15,000,000 Goldman Sachs Group L.P., 5.34% - 5.35%, 03/11/97 - 03/14/97 ................................... 14,841,729
7,000,000 H.J. Heinz Corp., 5.50%, 02/07/97 .............................................................. 6,960,431
10,000,000 Halifax Building Society, 5.30%, 04/16/97 ...................................................... 9,845,417
20,000,000 Kingdom of Sweden, 5.30% - 5.32%, 01/17/97 - 02/20/97 .......................................... 19,902,555
20,000,000 MetLife Funding, Inc., 5.30%, 01/24/97 - 01/27/97 .............................................. 19,927,861
20,000,000 Merrill Lynch & Co., Inc., 5.32% - 5.33%, 01/17/97 - 03/13/97 .................................. 19,855,796
15,000,000 Morgan Stanley Group, Inc., 5.32%, 03/06/97 - 03/07/97 ......................................... 14,856,655
17,750,000 National Rural Utilities Cooperative Finance Corp., 5.30%, 01/22/97 - 02/03/97 ................. 17,681,431
20,000,000 Prudential Funding Corp., 5.30% - 5.33%, 01/13/97 - 01/28/97 ................................... 19,942,483
10,000,000 Schering Corp., 5.23%, 05/20/97 ................................................................ 9,798,064
10,000,000 Wool International, 5.55%, 03/04/97 ............................................................ 9,904,416
------------
Total Commercial Paper (Cost $300,711,131)................................................ 300,711,131
------------
Total Investments Before Repurchase Agreement (Cost $336,710,542)......................... 336,710,542
------------
h Receivables from Repurchase Agreements 16.4%
19,750,000 CIBC Wood Gundy Securities Corp., 6.70%, 01/02/97, (Maturity Value $20,007,444)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .............................................. 20,000,000
28,487,000 SBC Warburg, Inc., 5.50%, 01/02/97, (Maturity Value $26,903,218)
Collateral: U.S. Treasury Bills, 09/18/97 ..................................................... 26,895,000
20,400,000 UBS Securities, L.L.C., 6.75%, 01/02/97, (Maturity Value $20,007,500)
Collateral: U.S. Treasury Notes, 5.375%, 05/31/98 ............................................. 20,000,000
------------
Total Receivables From Repurchase Agreements (Cost $66,895,000)........................... 66,895,000
------------
Total Investments (Cost $403,605,542) 98.7%......................................... 403,605,542
Other Assets and Liabilities, Net 1.3%.............................................. 5,324,271
------------
Net Assets 100%..................................................................... $408,929,813
============
</TABLE>
At December 31, 1996, 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
fCertain 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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Growth and Income Fund (Note 1)
Common Stocks 94.6%
Automobile 1.2%
<C> <S> <C>
397,000 Chrysler Corp. .............................................................................. $ 13,101,000
------------
Chemicals, Basic 2.4%
197,300 Dow Chemical Co. ............................................................................ 15,463,388
53,000 Du Pont, (E.I.), De Nemours & Co. ........................................................... 5,001,875
328,570 Millennium Chemicals, Inc. .................................................................. 5,832,118
------------
26,297,381
------------
Commercial Services 1.0%
548,600 Ogden Corp. ................................................................................. 10,286,250
------------
Consumer Products 1.4%
391,800 Dial Corp. .................................................................................. 5,779,050
237,900 Tambrands, Inc. ............................................................................. 9,724,163
------------
15,503,213
------------
Electrical Equipment 1.3%
141,100 General Electric Co. ........................................................................ 13,951,263
------------
Financial Services 9.0%
115,500 Bank of Boston Corp. ........................................................................ 7,420,875
195,800b Christiania Bank Og Kreditkasse, ADR......................................................... 6,201,260
1,393,400d Christiania Bank Og Kreditkasse (Norway) .................................................... 4,413,089
102,400d Credit Communal Holding/Dexia (Belgium) ..................................................... 9,343,566
357,000 Great Western Financial Corp. ............................................................... 10,353,000
115,900 J. P. Morgan & Co., Inc. .................................................................... 11,314,738
270,000 National City Corp. ......................................................................... 12,116,250
134,500d Nordbanken AB (Sweden) ...................................................................... 4,072,560
119,700b Nordbanken AB, Sponsored ADR................................................................. 7,248,852
379,900 PNC Bank Corp. .............................................................................. 14,293,738
510,000 Roosevelt Financial Corp. ................................................................... 10,710,000
------------
97,487,928
------------
Forest Products & Paper 4.7%
119,000 Georgia-Pacific Corp. ....................................................................... 8,568,000
1,020,000b Portucel Industrial, SA...................................................................... 5,920,692
339,700 Potlatch Corp. .............................................................................. 14,607,100
220,000 Union Camp Corp. ............................................................................ 10,505,000
235,000 Weyerhaeuser Co. ............................................................................ 11,133,124
------------
50,733,916
------------
Insurance 3.5%
324,400 Lincoln National Corp. ...................................................................... 17,031,000
279,000d Scor, SA (France)............................................................................ 9,820,154
131,000 St. Paul Cos., Inc. ......................................................................... 7,679,875
121,500 Zenith National Insurance ................................................................... 3,326,062
------------
37,857,091
------------
Miscellaneous Manufacturing 4.1%
390,000 British Steel, Plc., Sponsored ADR........................................................... 10,725,000
167,300 Cooper Industries, Inc. ..................................................................... 7,047,513
1,310,000 Hanson, Plc., ADR ........................................................................... 8,842,500
213,500 Minnesota Mining & Manufacturing Co. ........................................................ 17,693,813
------------
44,308,826
------------
Oil/Gas Transmission 3.9%
229,000 Consolidated Natural Gas Co. ................................................................ $ 12,652,250
302,400 National Fuel Gas Co. ....................................................................... 12,474,000
547,800 Pacific Enterprises ......................................................................... 16,639,425
------------
41,765,675
------------
Petroleum, Integrated 16.4%
233,700 Amoco Corp. ................................................................................. 18,812,850
192,000 Atlantic Richfield Co. ...................................................................... 25,440,000
305,000 Chevron Corp. ............................................................................... 19,825,000
213,500 Exxon Corp. ................................................................................. 20,923,000
128,000 Mobil Corp. ................................................................................. 15,648,000
285,000 Occidental Petroleum Corp. .................................................................. 6,661,875
79,900 Royal Dutch Petroleum Co., ADR............................................................... 13,642,925
256,200 Texaco, Inc. ................................................................................ 25,139,625
336,900 Ultramar Corp. .............................................................................. 10,654,462
775,000 YPF Sociedad Anonima, ADS ................................................................... 19,568,750
------------
176,316,487
------------
Pharmaceuticals 3.5%
78,000 American Home Products Corp. ................................................................ 4,572,750
208,500 Bristol-Myers Squibb Co. .................................................................... 22,674,375
343,800 Glaxo Wellcome, Plc., Sponsored ADR.......................................................... 10,915,650
------------
38,162,775
------------
Printing, Publishing & Media 1.8%
315,000a Cognizant Corp. ............................................................................. 10,395,000
375,000 Dun & Bradstreet Corp. ...................................................................... 8,906,250
------------
19,301,250
------------
Real Estate Investment Trust 4.0%
395,300 Equity Residential Properties Trust ......................................................... 16,306,125
450,000 FelCor Suite Hotels, Inc. ................................................................... 15,918,750
221,400 Oasis Residential, Inc. ..................................................................... 5,036,850
175,700 Simon DeBartolo Group, Inc. ................................................................. 5,446,700
------------
42,708,425
------------
Retail 2.0%
465,900 Penney (J.C.) Co., Inc. ..................................................................... 22,712,625
------------
Telecommunications 12.3%
72,000 Ameritech Corp. ............................................................................. 4,365,000
115,800 BellSouth Corp. ............................................................................. 4,675,425
118,300 British Telecom, Plc., Sponsored ADR......................................................... 8,118,338
524,500 GTE Corp. ................................................................................... 23,864,750
4,470,000d Hong Kong Telecommunications, Ltd. (Hong Kong)............................................... 7,195,229
495,000 NYNEX Corp. ................................................................................. 23,821,875
531,900 Southern New England Telecommunications Corp. ............................................... 20,677,613
106,400 Sprint Corp. ................................................................................ 4,242,700
360,000 Telefonos de Mexico, SA, ADR................................................................. 11,880,000
723,100 US West Communications Group ................................................................ 23,319,974
------------
132,160,904
------------
Tobacco 6.7%
345,100 American Brands, Inc. ....................................................................... 17,125,588
427,500 Imperial Tobacco Group, Plc., Sponsored ADR.................................................. 5,521,889
Tobacco (cont.)
198,600 Philip Morris Cos., Inc. .................................................................... $ 22,367,325
363,560 RJR Nabisco Holdings Corp. .................................................................. 12,361,040
445,000 UST, Inc. ................................................................................... 14,406,874
------------
71,782,716
------------
Utilities 15.4%
541,100 Central & South West Corp. .................................................................. 13,865,688
467,000 CINergy Corp. ............................................................................... 15,586,125
417,000 Dominion Resources, Inc. .................................................................... 16,054,500
590,000 Enova Corp. ................................................................................. 13,422,500
425,300 General Public Utilities Corp. .............................................................. 14,300,713
471,400 New England Electric System ................................................................. 16,440,075
403,000 Oklahoma Gas & Electric Co. ................................................................. 16,825,250
310,700 Pacific Gas & Electric Co. .................................................................. 6,524,700
520,000 PacifiCorp .................................................................................. 10,660,000
424,900 PECO Energy Co. ............................................................................. 10,728,725
338,000 Public Service Co. of Colorado .............................................................. 13,139,750
200,000 Public Service Enterprise Group, Inc. ....................................................... 5,450,000
120,000 Texas Utilities Co. ......................................................................... 4,890,000
278,500 Unicom Corp. ................................................................................ 7,554,312
------------
165,442,338
------------
Total Long Term Investments (Cost $864,711,520) ....................................... 1,019,880,063
------------
Face
Amount
h,i Receivables from Repurchase Agreements 4.8%
$ 50,897,670 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $51,795,240) (Cost $51,776,284)
Aubrey G. Lanston & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $6,359,549)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 51,776,284
------------
Total Investments (Cost $916,487,804) 99.4%....................................... 1,071,656,347
Other Assets and Liabilities, Net 0.6%............................................ 6,332,661
------------
Net Assets 100.0%................................................................. $1,077,989,008
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$916,497,581 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 170,313,985
Aggregate gross unrealized depreciation for all investments in which
there was an excessof tax cost over value .................................................. (15,155,219)
------------
Net unrealized appreciation ............................................................... $ 155,158,766
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Income Securities Fund (Note 1)
Common Stocks 32.2%
Apparel/Textiles 0.2%
<C> <S> <C>
419,424 a,n Bibb Co. .................................................................................. $ 3,171,894
------------
Computer/Technology 0.1%
190,223 a,j Anacomp, Inc. ............................................................................. 1,616,895
------------
Conglomerates 0.2%
380,000 Hanson, Plc., ADR ......................................................................... 2,565,000
------------
Consumer Products 1.7%
95,000 Imperial Tobacco Group, Plc., ADR ......................................................... 1,227,086
195,000 Phillip Morris Cos., Inc. ................................................................. 21,961,875
93,750 a,bSpecialty Foods Corp. ..................................................................... 23,438
------------
23,212,399
------------
Energy 2.5%
576,500 d Athabasca Oil Sands Trust (Canada) ........................................................ 8,397,777
30,000 Atlantic Richfield Co. .................................................................... 3,975,000
50,000 BP Prudhoe Bay Royalty Trust .............................................................. 850,000
500,000 b,dCanadian Oil Sands Trust - Units (Canada) ................................................. 7,484,210
427,805 Noble Drilling Corp. ...................................................................... 8,502,624
125,000 Ultramar Diamond Shamrock Corp. ........................................................... 3,953,125
------------
33,162,736
------------
Home Builders
2,000a NVR, Inc. ................................................................................. 26,000
------------
Metals 1.4%
185,200 Driefontein Consolidated Mines, Ltd., ADR ................................................. 1,852,000
60,000 Evander Gold Mines, Ltd., ADR ............................................................. 512,982
390,000 Free State Consolidated Gold Mines, Ltd., ADR ............................................. 2,803,125
91,872 Freeport-McMoRan Copper & Gold, Inc., Class A ............................................. 2,583,900
620,000 Hartebeestfontein Gold Mining Co., Ltd., ADR .............................................. 1,268,830
216,500 Impala Platinum Holdings, Ltd., ADR ....................................................... 2,163,376
221,523 Rustenburg Platinum Holdings, Ltd., ADR ................................................... 3,030,346
19,000 St. Helena Gold Mines, Ltd., ADR .......................................................... 109,250
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ............................................ 1,584,000
102,500 Western Deep Levels, Ltd., ADR ............................................................ 3,075,000
------------
18,982,809
------------
Miscellaneous 0.1%
27,142 Millennium Chemicals, Inc. ................................................................ 481,770
15,600 a Echelon International Corp., Inc. ......................................................... 243,750
------------
725,520
------------
Pharmaceuticals 1.6%
100,000 American Home Products Corp. .............................................................. 5,862,500
45,000 Bristol-Myers Squibb Co. .................................................................. 4,893,750
100,000 Merck & Co., Inc. ......................................................................... 7,925,000
85,000 Pharmacia & Upjohn, Inc. .................................................................. 3,368,125
------------
22,049,375
------------
Real Estate Investment Trust 2.9%
150,000 Equity Residential Properties Trust, Inc. ................................................. 6,187,500
275,000 FelCor Suite Hotels, Inc. ................................................................. 9,728,125
150,000 Gables Residential Trust .................................................................. 4,350,000
145,000 Meditrust Corp. ........................................................................... 5,800,000
Real Estate Investment Trust (cont.)
102,900 Simon DeBartolo Group, Inc. ............................................................... $ 3,189,900
360,400 j Tanger Factory Outlet Centers, Inc. ....................................................... 9,775,850
------------
39,031,375
------------
Telecommunications 0.9%
360,000 US West Communications Group .............................................................. 11,610,000
------------
Utilities 20.6%
390,000 American Electric Power Co., Inc. ......................................................... 16,038,750
650,000 Central & South West Corp. ................................................................ 16,656,250
511,000 CINergy Corp. ............................................................................. 17,054,625
500,000 Delmarva Power & Light Co. ................................................................ 10,187,500
340,000 Dominion Resources, Inc. .................................................................. 13,090,000
610,000 Edison International ...................................................................... 12,123,750
505,000 Enova Corp. ............................................................................... 11,488,750
460,000 Entergy Corp. ............................................................................. 12,765,000
365,000 Florida Progress Corp. .................................................................... 11,771,250
240,000 FPL Group, Inc. ........................................................................... 11,040,000
320,000 General Public Utilities Corp. ............................................................ 10,760,000
142,000 Hawaiian Electric Industries, Inc. ........................................................ 5,129,750
300,000 Houston Industries, Inc. .................................................................. 6,787,500
400,000 Long Island Lighting Co. .................................................................. 8,850,000
175,000 Nevada Power Co. .......................................................................... 3,587,500
330,000 New England Electric System ............................................................... 11,508,750
300,000 New York State Electric & Gas Corp. ....................................................... 6,487,500
385,000 Ohio Edison Co. ........................................................................... 8,758,750
610,000 Pacific Gas & Electric Co. ................................................................ 12,810,000
120,000 PacifiCorp. ............................................................................... 2,460,000
305,000 PECO Energy Co. ........................................................................... 7,701,250
210,000 Potomac Electric Power Co. ................................................................ 5,407,500
385,000 Public Service Enterprise Group, Inc. ..................................................... 10,491,250
135,000 SCANA Corp. ............................................................................... 3,611,250
460,000 Southern Co. .............................................................................. 10,407,500
400,000 Southwestern Public Services Co. .......................................................... 14,150,000
320,000 Texas Utilities Co. ....................................................................... 13,040,000
150,000 Western Resources, Inc. ................................................................... 4,631,250
------------
278,795,625
------------
Total Common Stocks (Cost $392,582,748).............................................. 434,949,628
------------
Preferred Stocks 0.5%
Automotive
16,726 Harvard Industries, Inc., 14.25% pfd., PIK ................................................ 266,571
------------
Cable Systems 0.4%
33,036 Cablevision Systems Corp., 11.125% pfd., PIK, Series L .................................... 2,981,488
2,579 Time Warner, Inc., 10.25% pfd., Series K .................................................. 2,811,597
------------
5,793,085
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B ................................................ 1,105,500
------------
Total Preferred Stocks (Cost $7,296,709) ............................................ 7,165,156
------------
Convertible Preferred Stocks 8.4%.........................................................
Apparel/Textile 0.1%
44,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A ........................................ $ 1,710,500
------------
Cable Systems 0.4%
265,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I ...................................... 5,432,500
------------
Consumer Products 0.2%
300,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C ................................... 2,025,000
------------
Energy 3.2%
65,000 Devon Financing Trust, $3.25 cvt. pfd. .................................................... 4,273,750
250,000 Enron Corp., 6.25%, cvt. pfd. ............................................................. 6,000,000
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C ................................. 8,959,375
31,900 Nuevo Financing, Inc., 5.75% cvt. pfd., Series A .......................................... 1,710,638
75,000 b Occidental Petroleum Corp., $3.875 cvt. pfd. .............................................. 4,293,750
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd. ................................................. 11,262,500
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd. .................................................. 1,175,869
300,000 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. .......................................... 3,675,000
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd. ................................................... 2,425,000
------------
43,775,882
------------
Metals 2.5%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B ................................................ 7,893,750
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A .............................................. 2,811,250
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd. ................................................. 3,250,000
185,000 Coeur D' Alene Mines Corp, 7.00% cvt. pfd. ................................................ 3,237,500
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A ................................................ 2,963,125
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd. ................................ 3,481,600
60,000b Freeport-McMoRan, Inc., 4.375% cvt. exch. pfd. ............................................ 3,510,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B ............................................... 3,080,000
65,500b Titanium Metals, 6.625% cvt. pfd. ......................................................... 3,586,125
------------
33,813,350
------------
Real Estate Investment Trust 1.6%
100,000 bHost Marriott Financial Trust, 6.75% cvt. pfd. ............................................ 5,350,000
135,000 Security Capital Industrial, 7.00%, cvt. pfd. ............................................. 3,678,750
400,000 Security Capital Pacific Trust, 1.75% cvt. pfd., Series A ................................. 12,250,000
------------
21,278,750
------------
Telecommunications 0.4%
145,000 Nortel Inversora, SA, 10.00% cvt. pfd. (Argentina) ........................................ 5,945,000
------------
Total Convertible Preferred Stocks (Cost $110,532,379) .............................. 113,980,982
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477) ................................................... 23,111
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,and
Miscellaneous Securities (Cost $510,422,313) ............................................. 556,118,877
------------
Face
Amount
Corporate Bonds 26.7%
Apparel/Textiles 1.9%
$ 10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ...................... 10,050,000
175,000 a,lForstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................ 88,375
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ...................................... 8,383,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 ................... 1,078,750
Apparel/Textiles (cont.)
500,000 bThe William Carter Co., senior sub. notes, 10.375%, 12/01/06 .............................. $ 517,500
5,000,00 1WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/06 ............................... 5,175,000
------------
25,292,625
------------
Automotive 0.7%
4,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................ 4,375,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................................... 420,000
5,000,000 Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 ................................. 4,212,500
------------
9,007,500
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 .................................. 9,481,250
------------
Cable Systems 1.9%
150,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 .............................. 158,606
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ............................. 3,920,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............................... 9,187,664
7,300,000 Helicon Group L.P. Corp., S.F., senior secured notes, Series B, 11.00%, 11/01/03 .......... 7,482,500
5,000,000 Storer Communiciations, Inc., sub. deb., 10.00%, 05/15/03 ................................. 5,087,500
------------
25,836,270
------------
Chemicals 1.3%
8,000,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 .................... 8,460,000
3,250,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ...................... 3,569,481
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........................... 779,375
4,150,000 Uniroyal Chemical Co. Investors, senior notes, 11.00%, 05/01/03 ........................... 4,419,750
------------
17,228,606
------------
Computer/Technology 0.3%
3,534,737 Anacomp, Inc., senior sub. notes, PIK, 13.00%, 06/04/02 ................................... 3,640,779
------------
Consumer Products 2.5%
500,000 bE&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 .................................. 525,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................................... 8,292,500
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ......................................... 5,353,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ......................... 8,020,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes, Series B, 10.50%, 02/15/03 .............. 5,262,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ................................................. 5,068,750
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................................... 1,170,125
------------
33,691,875
------------
Containers and Packaging 0.4%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............................... 2,541,875
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ................................ 2,110,000
1,000,000 bPrintpack, Inc., senior sub. notes, 10.625%, 08/15/06 ..................................... 1,040,000
300,000 bU.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ...................................... 315,000
------------
6,006,875
------------
Energy 1.3%
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................................... 3,534,375
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 .............................. 10,744,738
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............................... 1,080,000
1,000,000 Mesa Operating Co., guaranteed, 10.625%, 07/01/06 ......................................... 1,087,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............................... 1,075,000
------------
17,521,613
------------
Entertainment 0.1%
$ 650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 .............................................. $ 689,000
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 ............................. 542,500
------------
Food & Beverages 2.2%
5,000,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................ 5,200,000
3,781,280n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................ 3,781,280
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 sub. notes, 10.25%, 02/15/00 ...................... 1,052,925
3,100,000b International Home Foods Corp., senior sub. notes, 10.375%, 11/01/06 ...................... 3,231,750
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ................................ 6,588,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ...................... 3,060,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ................. 3,760,000
------------
29,854,080
------------
Food Chains 2.9%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 ..................................... 1,025,000
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ............................ 9,517,500
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ........................................ 6,390,000
7,000,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................ 7,455,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................................... 10,575,000
4,000,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 .................................. 4,440,000
------------
39,402,500
------------
Gaming & Leisure 1.5%
9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 .......................................... 8,730,000
500,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ............................. 530,000
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ............................. 2,321,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................ 8,440,000
------------
20,021,000
------------
Health Care Services 0.6%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ............................ 3,240,000
1,500,000 OrNda Healthcorp., Inc., senior sub. notes, 12.25%, 05/15/02 .............................. 1,601,250
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 3,860,000
------------
8,701,250
------------
Industrial Products 2.0%
8,650,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ..................................... 8,779,750
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ......................................... 2,025,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ............................................ 8,175,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................................... 5,030,000
2,696,000 Thermadyne Industries, Inc., notes, 10.75%, 11/01/03 ...................................... 2,756,660
246,000 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 ............................... 252,150
------------
27,018,560
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 ..................................... 2,185,000
------------
Metals 1.0%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ........................................ 1,052,500
6,020,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................................... 6,170,500
Metals (cont.)
$ 6,000,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 ............................... $ 5,655,000
815,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 .............. 942,344
------------
13,820,344
------------
Paper & Forest Products 1.0%
600,000 Four M Corp., senior notes, 12.00%, 06/01/06 .............................................. 630,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........................... 7,735,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 ............................. 4,650,000
------------
13,015,000
------------
Publishing 0.1%
1,600,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 .................................... 1,700,000
------------
Restaurants 0.3%
10,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 .................................. 4,050,000
------------
Retail 0.7%
9,940,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................................... 9,542,400
------------
Telecommunications 0.4%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ...................................... 5,325,000
------------
Utilities 2.7%
195,782,500c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)................................ 30,628,024
3,879,091 Midland CoGeneration Venture, S.F., sub. deb., Series C, 10.33%, 07/23/02 ................. 4,150,627
2,000,000 Texas New Mexico Power, secured deb., 10.75%, 09/15/03 .................................... 2,134,996
------------
36,913,647
------------
Total Corporate Bonds (Cost $358,395,796)............................................ 360,487,674
------------
Convertible Corporate Bonds 4.9%
Automotive 0.2%
4,000,000b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ...................................... 2,410,000
------------
Biotechnology 0.1%
2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ................................ 1,970,000
------------
Computer/Technology 0.7%
3,200,000b Altera Corp., cvt. sub. notes, 5.75%, 06/15/02 ............................................ 4,964,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 ............................................. 1,928,275
3,000,000b Xilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02 ............................................ 3,015,000
------------
9,907,275
------------
Energy 1.4%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 .......................................... 8,730,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ........................................ 7,546,875
3,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ........................................ 3,292,500
------------
19,569,375
------------
Health Care Services 0.3%
3,000,000 Grancare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ........................................... 3,075,000
1,000,000b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ......................... 1,045,000
------------
4,120,000
------------
Industrial Products 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ......................................... 8,040,000
------------
Metals 1.3%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ........................................ 4,350,000
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ......................... 91,000
Metals (cont.)
$ 6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............................... $ 5,610,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 .............................. 1,728,000
5,850,000b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ..................................... 5,645,250
------------
17,424,250
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ............................. 3,140,700
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ...................................... 952,850
------------
Total Convertible Corporate Bonds (Cost $63,974,931)................................. 67,534,450
------------
Zero Coupon/Step-up Bonds 3.1%
3,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01, (original accretion rate
12.25%), 12.25%, 03/15/06 ................................................................ 1,980,000
10,000,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ..................................................................... 7,325,000
2,600,000 Dr Pepper Bottling Holdings Co., S.F., senior sub. disc. notes, zero coupon to 02/15/98, (original
accretion rate 11.625%), 11.625% thereafter, 02/15/03 .................................... 2,444,000
1,000,000 Exide Corp., senior sub. notes, zero coupon to 12/15/97, (original accretion rate 12.25%), 12.25%
thereafter, 12/15/04 ..................................................................... 915,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%), 13.625% thereafter,
07/15/05 ................................................................................. 6,300,000
1,300,000 L.F.C. Holding Corp., senior deb., zero coupon to 06/15/97, (original accretion rate 15.00%),
15.00% thereafter, 06/15/02 .............................................................. 845,000
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 ..................................................... 10,115,000
1,300,000 Mesa Operating Co., company guaranteed, zero coupon to 07/01/01, (original accretion rate
11.625%), 11.625% thereafter, 07/01/06 ................................................... 903,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B, (original accretion rate 12.00%),
0.00%, 03/15/98 .......................................................................... 6,980,000
6,250,000 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 ...................................... 2,218,750
1,500,000 Uniroyal Chemical Co. Investors, senior notes, zero coupon to 05/01/98, (original accretion rate
12.00%), 12.00% thereafter, 05/01/05...................................................... 1,305,000
------------
Total Zero Coupon/Step-up Bonds (Cost $40,850,428)................................... 41,331,250
------------
U.S. Government Securities 7.1%
75,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 .................................. 71,375,069
24,390,000 U.S. Treasury Notes, 6.00% - 6.875%, 04/30/97 - 08/15/02 .................................. 24,480,479
------------
Total U.S. Government Securities (Cost $96,265,219).................................. 95,855,548
------------
Foreign Government & Agency Securities 11.2%
14,000,000c Canadian Government, first coupon deb., 8.00%, 06/01/23 ................................... 11,367,237
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 .......................................... 70,125,000
22,067,500 Republic of Brazil, 6.6875%, 01/01/01 ..................................................... 21,405,475
39,000,000 Republic of Brazil, 5.00%, 04/15/24 ....................................................... 24,570,000
25,000,000c Republic of South Africa, 12.00%, 02/28/05 ................................................ 4,368,920
26,000,000 United Mexican States, Series B, 6.25%, 12/31/19 .......................................... 19,077,500
------------
Total Foreign Government & Agency Securities (Cost $124,799,698)..................... 150,914,132
------------
Total Long Term Investments (Cost $1,194,708,385).................................... 1,272,241,931
------------
h,i Receivables from Repurchase Agreements 4.7%...............................................
$ 61,763,747 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $62,853,192) (Cost $62,830,189)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $7,717,272)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ...................... $ 62,830,189
------------
Total Investments (Cost $1,257,538,574) 98.8% ................................. 1,335,072,120
Other Assets and Liabilities 1.2%............................................... 15,587,300
------------
Net Assets 100.0%............................................................... $1,350,659,420
============
At December 31, 1996, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$1,257,538,574 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................................... $ 128,810,299
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value................................................ (51,276,753)
------------
Net unrealized appreciation.............................................................. $ 77,533,546
============
</TABLE>
PORTFOLIO ABBRIVIATIONS:
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 traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
jSee Note 8 regarding holdings of 5% or more of voting securities.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton International Equity Fund (Note 1)
Common Stocks, Rights & Warrants 85.6%
Argentina 1.8%
<S> <C> <C> <C>
AR 647,568a Ciadea, SA ........................................................................ $ 3,076,504
US 221,700 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 2,715,825
AR 56,000 YPF Sociedad Anonima .............................................................. 1,414,255
US 495,000 YPF Sociedad Anonima, ADR ......................................................... 12,498,750
------------
19,705,334
------------
Australia 4.4%
AU 1,400,341 Email, Ltd. ....................................................................... 4,530,155
AU 1,549,241 GIO Austrailia Holdings, Ltd. ..................................................... 3,965,151
AU 1,003,000 National Foods, Ltd. .............................................................. 1,275,574
AU 6,527,766 Pacific Dunlop, Ltd. .............................................................. 16,603,490
AU 7,462,117 Pioneer International, Ltd. ....................................................... 22,242,221
------------
48,616,591
------------
Austria 0.6%
AT 33,000 Boehler Uddeholm, AG .............................................................. 2,361,387
US 27,055b Boehler Uddeholm, AG .............................................................. 1,935,979
AT 39,400a Mayr-Melnhof Karton, AG ........................................................... 1,928,073
------------
6,225,439
------------
Belgium 0.5%
BE 9,054 Solvay, SA ........................................................................ 5,543,265
------------
Bermuda 2.7%
US 506,000 ACE, Ltd. ......................................................................... 30,423,250
------------
Brazil 0.7%
US 276,365 Companhia Siderurgica Nacional, ADR ............................................... 7,845,989
------------
Canada 1.6%
CA 132,800 Bank of Montreal .................................................................. 4,227,724
CA 357,000 Hudson Bay Co. .................................................................... 5,969,333
CA 254,000 London Insurance Group, Inc. ...................................................... 3,375,415
CA 447,000 National Bank of Canada ........................................................... 4,520,426
------------
18,092,898
------------
China 0.8%
HK 6,960,000 Maanshan Iron & Steel Co., Ltd., Class H .......................................... 1,493,775
US 338,300 Shandong Huaneng Power, ADR ....................................................... 3,298,425
HK 8,400,000 Shanghai Hai Xing Shipping Co., Class H ........................................... 977,439
HK 14,790,200 Yizheng Chemical Fibre Co. Ltd., Class H .......................................... 3,595,006
------------
9,364,645
------------
Czech Republic 0.3%
US 120,000b Komercni Banka, AS, GDR ........................................................... 3,290,400
------------
Ecuador 0.2%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 6,840b La Cemento Nacional CA, GDR ....................................................... 1,566,360
------------
1,657,960
------------
Finland 3.7%
FI 111,562 American Group, Ltd., Class A ..................................................... 2,303,998
FI 1,754,300a Enso Oy, Class R .................................................................. 14,225,085
FI 1,890,000a Merita, Ltd., Class A ............................................................. 5,875,435
Finland (cont.)
FI 270,000 Nokia, AB, Class A ................................................................ $ 15,671,739
FI 171,000 Outokumpu Oy, Class A ............................................................. 2,918,152
------------
40,994,409
------------
France 4.8%
FR 27,323 Alcatel Alsthom, SA ............................................................... 2,196,379
FR 13,292 Cie de Saint Gobain ............................................................... 1,881,645
FR 55,849 Marine Wendel ..................................................................... 5,127,121
FR 366,481 Pechiney, SA, Class A ............................................................. 15,366,050
FR 468,980 Regie Nationale des Usines Renault, SA ............................................ 10,085,105
FR 148,024 Societe Elf Aquitane, SA .......................................................... 13,483,459
FR 62,039 Total, SA, Class B ................................................................ 5,049,269
------------
53,189,028
------------
Germany 1.7%
DD 407,000 Deutsche Bank, AG ................................................................. 19,020,669
------------
Greece 0.5%
US 32,410 Alpha Credit Bank ................................................................. 2,062,490
GR 69,970 Ergo Bank, SA ..................................................................... 3,546,572
------------
5,609,062
------------
Hong Kong 6.8%
HK 7,134,100 C.P. Pokphand Co., Ltd. ........................................................... 2,790,181
HK 623,000 Cheung Kong Holdings, Ltd. ........................................................ 5,537,688
HK 2,389,100 Consolidated Electric Power Asia, Ltd. ............................................ 5,606,331
HK 9,576,543 Dairy Farm International Holdings, Ltd. ........................................... 7,709,117
HK 10,109,207 Great Wall Electronic International, Ltd. ......................................... 1,254,747
HK 779,000 Hang Lung Development Co., Ltd. ................................................... 1,712,199
HK 1,257,708 Jardine Matheson Holdings, Ltd. ................................................... 8,300,873
HK 2,864,250 Jardine Strategic Holdings, Ltd. .................................................. 10,397,228
HK 318,250a Jardine Strategic Holdings, Ltd., warrants ........................................ 127,300
HK 873,700 Melco International Development, Ltd. ............................................. 304,996
HK 121,900a Oriental Press Group, Ltd., warrants .............................................. 8,668
HK 7,155,000 Peregrine Investments Holdings, Ltd. .............................................. 12,257,256
HK 715,500a Peregrine Investments Holdings, Ltd., warrants .................................... 228,956
HK 17,474,000 Shun Tak Holdings ................................................................. 11,635,025
HK 3,172,400 Sing Tao Holdings, Ltd. ........................................................... 1,384,298
HK 3,287,600 Swire Pacific, Ltd., Class B ...................................................... 4,973,162
HK 1,974,000 Yue Yuen Industrial Holdings, Ltd. ................................................ 752,899
------------
74,980,924
------------
India
US 109,700b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR ................................. 301,675
------------
Indonesia 0.4%
ID 167,500 PT Barito Pacific Timber, fgn. .................................................... 102,826
ID 5,118,053 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 3,737,782
ID 503,250a PT Indah Kiat Pulp & Paper Corp., warrants ........................................ 154,469
------------
3,995,077
------------
Italy 2.1%
IT 148,000 Banco di Sardegna, SPA, di Risp ................................................... 1,249,604
IT 696,200 Cartiere Burgo, SPA ............................................................... 3,214,644
IT 1,555,000 Fiat, SPA ......................................................................... 4,688,592
Italy (cont.)
IT 904,000 Sasib, SpA, di Risp ............................................................... $ 1,688,142
IT 1,833,800 Sirti, SpA ........................................................................ 11,271,338
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp ................................ 1,205,193
------------
23,317,513
------------
Luxembourg 0.1%
LU 10,650 Arbed, SA ......................................................................... 1,158,065
------------
Mexico 1.2%
MX 559,000a Grupo Mexico, SA de CV, Class B ................................................... 1,739,774
US 275,600 Telefonos de Mexico, SA, ADR ...................................................... 9,094,800
MX 1,274,640 Vitro, SA ......................................................................... 2,315,466
------------
13,150,040
------------
Netherlands 7.9%
NL 49,467 ABN AMRO, NV ...................................................................... 3,220,441
NL 32,300 Akzo Nobel, NV .................................................................... 4,415,175
NL 85,700 DSM, NV ........................................................................... 8,458,315
NL 688,885 Ing Groep, NV ..................................................................... 24,818,214
NL 240,308 Internatio-Mueller, NV ............................................................ 6,040,757
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) ............................................ 10,665,248
NL 504,000 NV Holdingsmij de Telegraaf ....................................................... 10,625,891
NL 476,307 Philips Electronics, NV ........................................................... 19,311,607
------------
87,555,648
------------
New Zealand 1.8%
NZ 1,659,000 Carter Holt Harvey, Ltd. .......................................................... 3,764,777
NZ 1,321,124 Fisher & Paykel, Ltd. ............................................................. 5,183,516
NZ 6,020,000 Fletcher Challenge, Ltd., Forestry Division ....................................... 10,086,318
US 47,765a Tranz Rail Holdings, Ltd., ADR .................................................... 844,843
------------
19,879,454
------------
Norway 3.3%
NO 13,200 Elkem, AS ......................................................................... 217,310
NO 143,000 Fokus Bank, AS .................................................................... 982,032
NO 176,200 Fokus Bank, AS .................................................................... 1,210,028
NO 705,960 Hafslund, ASA, Class B ............................................................ 4,837,010
NO 134,000 Helikopter Services Group, ASA .................................................... 1,743,807
NO 141,000a Nycomed, ASA, Class A ............................................................. 2,155,456
NO 1,005,660a Nycomed, ASA, Class B ............................................................. 15,452,286
NO 199,000 Union Bank of Norway, Primary Capital Certificate ................................. 6,224,600
NO 295,000 Unitor, AS ........................................................................ 3,792,725
------------
36,615,254
------------
Peru 0.8%
PE 2,445,602 Telefonica del Peru, SA, Class B .................................................. 4,551,264
US 251,900 Telefonica del Peru, SA, Class B, ADR ............................................. 4,754,613
------------
9,305,877
------------
Portugal 0.6%
PT 122,351a BPI Socieda de Gestora de Participacoes Socias .................................... 1,444,065
PT 321,978 BPI Socieda de Gestora de Participacoes Socias, SA ................................ 4,007,853
US 239,400b Portucel Industrial Empresa Product de Celulose, ADR .............................. 1,389,616
------------
6,841,534
------------
South Africa 0.9%
ZA 288,500 Rustenburg Platinum Holdings, Ltd. ................................................ $ 3,946,564
ZA 710,000 Sappi, Ltd. ....................................................................... 6,373,838
------------
10,320,402
------------
South Korea 1.0%
KR 15,604a Byucksan Corp., rights ............................................................ 7,387
KR 44,500 Byucksan Development Co., Ltd. .................................................... 537,160
KR 109,900 Daegu Bank Co., Ltd. .............................................................. 1,312,284
KR 30,600 Daehan Synthetic Fiber Co., Ltd. .................................................. 2,661,657
KR 19,110 Keumkang Co., Ltd. ................................................................ 870,692
KR 39,000 Korea Chemical Co., Ltd ........................................................... 2,532,738
KR 155,990 Pacific Chemical Co., Ltd. ........................................................ 3,082,879
KR 7,870 Pohang Iron & Steel Co., Ltd. ..................................................... 488,371
------------
11,493,168
------------
Spain 6.6%
ES 132,300 Banco Bilbao Vizcaya .............................................................. 7,143,640
ES 15,600 Banco Popular Espanol, SA ......................................................... 3,064,125
ES 246,970 Compania Sevillana de Electricidad ................................................ 2,805,937
ES 378,000 Dragados y Construcciones, SA ..................................................... 5,823,224
ES 132,425a Huarte, SA ........................................................................ 219,306
ES 1,677,800 Iberdrola, SA ..................................................................... 23,779,334
ES 1,238,100 Telefonica de Espana, SA .......................................................... 28,753,102
ES 52,200 Unipapel, SA ...................................................................... 969,012
------------
72,557,680
------------
Sweden 10.4%
SE 80,600 Asea, AB, Class A ................................................................. 9,100,200
SE 515,500a Celsius, AB, Class B .............................................................. 8,125,729
SE 382,000 Electrolux, AB, Class B ........................................................... 22,181,133
SE 422,100a Enator, AB, Class B ............................................................... 10,800,304
SE 158,500 Esselte, AB, Class B .............................................................. 3,509,388
SE 1,490a Fastighets, AB Tornet, Class A .................................................... 22,722
SE 31,180a Fastighets Naeckebro, AB, Class A ................................................. 534,918
SE 210,000 Marieberg Tidnings, AB, Class A ................................................... 5,142,342
SE 163,000 Sparbanken Sverige, AB, Class A ................................................... 2,796,396
US 14,900b Sparbanken Sverige, AB, Class A ................................................... 255,621
SE 77,000 Stadshypotek, AB, Class A ......................................................... 2,111,337
US 176,000b Stadsyhpotek, AS, Class A ......................................................... 4,825,913
SE 1,288,000 Stena Line, AB, Class B, free ..................................................... 5,760,244
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B .......................................... 10,967,287
SE 311,800 Svenska Handelsbanken, Class A .................................................... 8,961,018
SE 922,000 Volvo, AB, Class B ................................................................ 20,346,635
------------
115,441,187
------------
Switzerland 5.3%
FR 51,189a Adecco, SA ........................................................................ 12,962,615
CH 3,690 Baloise-Holding ................................................................... 7,415,839
CH 12,800 Bucher Holding, AG ................................................................ 8,797,908
CH 3,570 Kuoni Reisen Holding, AG, Class B ................................................. 8,668,285
CH 10,027a Novartis, AG ...................................................................... 11,483,653
CH 15,400 SMH, AG ........................................................................... 9,491,969
------------
58,820,269
------------
Thailand
TH 17,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. $ 64,911
------------
Turkey 0.2%
US 13,125,825a Tofas Turk Otomobil Fabrikasi, AS, GDR ............................................ 2,428,278
------------
United Kingdom 11.9%
GB 6,312,400 Albert Fisher Group, Plc. ......................................................... 4,541,762
GB 2,536,000 Anglian Group, Plc. ............................................................... 9,405,626
GB 1,290,000 British Gas, Plc. ................................................................. 4,961,198
GB 1,446,000 British Telecommunications, Plc. .................................................. 9,772,279
GB 3,025,900 BTR, Plc. ......................................................................... 14,721,547
GB 7,123,000a Cordiant, Plc. .................................................................... 12,568,421
GB 1,181,500 Harrisons & Crosfield, Plc. ....................................................... 2,702,063
GB 2,493,900 Hillsdown Holdings, Plc. .......................................................... 8,544,558
GB 1,330,900 Kwik Save Group, Plc. ............................................................. 7,318,650
GB 902,000 Lex Service, Plc. ................................................................. 4,913,763
GB 1,890,000 London Pacific Group, Ltd. ........................................................ 6,783,071
GB 1,000,000 McBride, Plc. ..................................................................... 2,329,804
GB 2,687,610 Meggitt, Plc. ..................................................................... 4,742,245
GB 641,668 National Westminster Bank, Plc. ................................................... 7,535,263
GB 824,500 Railtrack Group, Plc. ............................................................. 5,473,220
GB 6,171,300a Raine, Plc. ....................................................................... 1,374,360
GB 1,676,312 Safeway, Plc. ..................................................................... 11,601,570
GB 958,900 Thames Water Group, Plc. .......................................................... 10,061,436
GB 1,306,000 Wace Group, Plc. .................................................................. 2,349,160
------------
131,699,996
------------
Total Common Stocks & Warrants (Cost $815,060,064)........................... 949,505,891
------------
Preferred Stocks 2.0%
Australia 1.1%
AU 2,639,385 News Corp., Ltd. .................................................................. 11,748,316
------------
Brazil 0.4%
US 57,300 Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR ............................... 4,383,450
------------
Colombia 0.3%
US 159,000 Banco Ganadero, SA, ADR, Class C .................................................. 3,418,500
------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............................... 1,829,544
------------
Netherlands
NL 6,910 Ballast Nedam NV, certificate, cvt., pfd. ......................................... 336,595
------------
Total Preferred Stocks (Cost $21,867,007) ................................... 21,716,405
------------
Total Common Stocks & Warrants, and Preferred Stocks
(Cost $836,927,071) .............................................................. 971,222,296
------------
Face
Amount
Convertible Bonds 0.3%
Finland 0.3%
US $ 3,050,000 American Group, Ltd., 6.25%, cvt., 06/15/03 (Cost $3,007,216) ..................... 3,034,750
------------
Total Long Term Investments (Cost $839,934,287) ............................. 974,257,046
------------
h Receivables from Repurchase Agreements 11.9%......................................
US $47,332,000 Aubrey G. Lanston & Co., 5.75%, 01/02/97, (Maturity Value $49,841,917)
Collateral: U.S. Treasury Notes, 8.25%, 07/15/98 ................................. $ 49,826,000
US 35,210,000 Lehman Securities, Inc., 6.75%, 01/02/97, (Maturity Value $35,269,221)
Collateral: U.S. Treasury Notes, 8.50%, 05/15/97 ................................. 35,256,000
US 47,890,000 UBS Securities, Inc., 6.75%, 01/02/97, (Maturity Value $46,381,387)
Collateral: U.S. Treasury Notes, 5.125%, 12/31/98 ................................ 46,364,000
------------
Total Receivables from Repurchase Agreements (Cost $131,446,000) ............ 131,446,000
------------
Total Investments (Cost $971,380,287) 99.8% ............................ 1,105,703,046
Other Assets and Liabilities, Net 0.2% ................................. 2,396,328
------------
Net Assets 100.0%....................................................... $1,108,099,374
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $975,370,514 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 203,669,564
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (73,337,032)
------------
Net unrealized appreciation ..................................................... $ 130,332,532
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
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
LU - Luxembourg
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton Pacific Growth Fund (Note 1)
Common Stocks & Warrants 97.6%
Australia 17.3%
<S> <C> <C> <C>
AU 1,000,000 Australia & New Zealand Banking Group Ltd. ......................................... $ 6,303,156
AU 1,706,264 Australian Gas & Light Co. ......................................................... 9,710,556
AU 680,000 Brambles Industries, Ltd. .......................................................... 13,269,216
AU 1,981,000 Capral Aluminium, Ltd. ............................................................. 6,298,386
AU 1,080,000 Coles Myer, Ltd., Class A .......................................................... 4,446,705
AU 875,000 Email, Ltd. ........................................................................ 2,830,657
AU 2,399,145 Gio Austrailia Holdings, Ltd. ...................................................... 6,140,408
AU 919,000 Mayne Nickless, Ltd., Class A ...................................................... 6,282,013
AU 3,547,000 National Foods, Ltd. ............................................................... 4,510,929
US 118,100b Qantas Airways, Ltd., ADR .......................................................... 1,933,888
------------
61,725,914
------------
China 2.4%
US 181,500a Guangshen Railway Co., Ltd., ADR ................................................... 3,743,438
HK 3,216,000 Maanshan Iron & Steel Co. Ltd., Class H ............................................ 690,227
US 225,000 Shandong Huaneng Power ............................................................. 2,193,750
HK 17,658,000 Shanghai Hai Xing Shipping Co., Class H ............................................ 2,054,716
------------
8,682,131
------------
Hong Kong 20.6%
HK 3,000,000 Cathay Pacific Airways, Ltd. ....................................................... 4,732,045
HK 800,000 Cheung Kong Holdings, Ltd. ......................................................... 7,110,996
HK 931,000 China Light & Power Co., Ltd. ...................................................... 4,140,720
US 4,197,727 Dairy Farm International Holdings, Ltd. ............................................ 3,379,170
HK 5,415,000 Grand Hotel Holdings, Ltd. ......................................................... 2,275,357
HK 169,800a Hang Lung Development Co., Ltd., warrants .......................................... 50,493
HK 5,400,399 Hon Kwok Land Investment Co., Ltd. ................................................. 2,094,667
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. ................................................. 1,454,457
HK 2,376,800 Hong Kong Telecommunications, Ltd. ................................................. 3,825,866
HK 216,200 HSBC Holdings, Plc. ................................................................ 4,626,168
HK 496,000 Hualing Holdings, Ltd. ............................................................. 55,150
HK 632,031 Jardine Matheson Holdings, Ltd. .................................................... 4,171,405
HK 284,600a Lai Sun Development Co., Ltd., warrants ............................................ 36,796
HK 3,860,000 National Mutual Asia, Ltd. ......................................................... 3,668,110
HK 1,574,667 New World Development Co., Ltd. .................................................... 10,637,579
HK 105,000a Peregrine Investments Holdings, Ltd., warrants ..................................... 33,599
HK 3,210,000 Shun Tak Holdings .................................................................. 2,137,372
HK 57,100 Sing Tao Holdings, Ltd. ............................................................ 24,916
HK 4,888,000 South China Morning Post (Holdings), Ltd. .......................................... 4,044,631
HK 645,000 Swire Pacific, Ltd., Class A ....................................................... 6,150,204
HK 3,100,000 Wheelock & Co., Ltd. ............................................................... 8,837,675
------------
73,487,376
------------
India 0.2%
US 156,100 Great Eastern Shipping Co., Ltd., GDR .............................................. 874,160
------------
Indonesia 5.0%
US 300,000a Asia Pacific Resources International, Class A ...................................... 1,687,500
ID 1,567,000 PT Bank Bali, fgn. ................................................................. 3,914,183
ID 950,000 PT Barito Pacific Timber, fgn. ..................................................... 583,192
ID 3,657,384 PT Indorama Synthetics, fgn. ....................................................... 3,483,960
US 149,400 PT Indosat, ADR .................................................................... 4,089,825
ID 129,000 PT Inti Indorayon Utama, fgn. ...................................................... 94,210
ID 771,526 PT Pabrik Kertas Tjiwi Kimia, fgn. ................................................. 767,607
Indonesia (cont.)
ID 3,423,000 PT Panasia Indosyntec, fgn. ........................................................ $ 833,287
ID 2,060,875 PT Panin Bank, fgn. ................................................................ 2,355,784
------------
17,809,548
------------
Japan 17.6%
JP 1,011,000 Daicel Chemical Industries Ltd. .................................................... 4,740,290
JP 409,000 Daito Trust Construction Co., Ltd. ................................................. 4,555,824
JP 1,200 East Japan Railway ................................................................. 5,398,498
JP 582,800 Hitachi, Ltd. ...................................................................... 5,434,971
JP 254,000 Hokuetsu Paper Mills, Ltd. ......................................................... 1,471,669
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................................... 5,026,509
JP 824,000 Mitsubishi Heavy Industries, Ltd. .................................................. 6,545,894
JP 250,000 Mitsubishi Oil Co., Ltd. ........................................................... 1,495,985
JP 10,800 Nintendo Co., Ltd. ................................................................. 769,364
JP 821 Nippon Telegraph & Telephone Corp. ................................................. 6,224,316
JP 700,000 Nisshinbo Industries, Inc........................................................... 5,452,034
JP 220,000 Nittetsu Mining Co., Ltd. .......................................................... 1,669,804
JP 550,000 Rengo Co., Ltd. .................................................................... 3,124,946
JP 50,000 Sony Corp. ......................................................................... 3,276,919
JP 70,000 Tenma Corp. ........................................................................ 1,142,388
JP 371,000 Toda Corp. ......................................................................... 2,819,100
JP 330,000 Wacoal Corp. ....................................................................... 3,647,353
------------
62,795,864
------------
Malaysia 6.9%
MY 655,000 Commerce Asset-Holding Bhd., fgn. .................................................. 4,927,737
MY 16,667a Commerce Asset-Holding Bhd., fgn., warrants ........................................ 80,514
MY 1,415,000 Golden Hope Plantations Bhd., fgn. ................................................. 2,409,226
MY 3,342,667 Malaysian International Shipping Corp., Bhd., fgn. ................................. 9,926,748
MY 193,000 Public Finance Bhd., fgn. .......................................................... 336,250
MY 1,798,800 Sime Darby Bhd., fgn. .............................................................. 7,086,937
------------
24,767,412
------------
New Zealand 2.4%
NZ 894,353 Brierley Investments, Ltd. ......................................................... 828,263
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................................... 5,473,110
NZ 192,500 Fletcher Challenge Building, Ltd. .................................................. 591,981
NZ 192,500 Fletcher Challenge Energy, Ltd. .................................................... 557,959
NZ 111,031 Fletcher Challenge, Ltd., Forestry Division ........................................ 186,029
NZ 385,000 Fletcher Challenge Paper, Ltd. ..................................................... 792,030
------------
8,429,372
------------
Pakistan 2.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ......................................................... 4,409,068
US 91,000a Hub Power Co., Ltd., GDR, reg.S .................................................... 1,797,250
PK 6,300,000a Pakistan Telecom Corp., PTC ........................................................ 3,945,369
------------
10,151,687
------------
Philippines 3.0%
PH 7,916,000a Filinvest Land, Inc. ............................................................... 2,468,106
PH 700,000a Philippine National Bank ........................................................... 8,317,491
------------
10,785,597
------------
Singapore 9.1%
SG 888,600 City Developments, Ltd., fgn. ...................................................... $ 8,001,401
SG 518,000 Development Bank of Singapore, Ltd., fgn. .......................................... 6,996,498
US 68,000 G.P. Batteries International, Ltd. ................................................. 225,760
SG 357,000 Inchcape Bhd., fgn. ................................................................ 1,239,920
SG 393,800 Overseas Union Bank, Ltd., fgn. .................................................... 3,039,405
SG 1,217,000 Parkway Holdings, Ltd., fgn. ....................................................... 4,783,463
SG 882,000 Singapore Airlines, Ltd., fgn. ..................................................... 8,005,003
------------
32,291,450
------------
South Korea 0.6%
KR 99,030 Pacific Chemical Co., Ltd. ......................................................... 1,957,161
------------
Thailand 6.2%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ................................................ 6,014,817
TH 829,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................................... 3,009,463
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ......................................... 7,433,698
TH 51,750 Oriental Hotel (Thailand) Public Co., Ltd., fgn. ................................... 233,063
TH 262,500 Robinson Department Store Public Co., Ltd., fgn. ................................... 509,217
TH 36,570 Thai Farmers Bank Public Co., Ltd. ................................................. 178,244
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................................... 4,575,778
TH 91,680a Thai Farmers Bank Public Co., Ltd., fgn., warrants ................................. 72,390
------------
22,026,670
------------
United States 3.5%
US 35,000 American International Group, Inc. ................................................. 3,788,750
US 150,000 APL, Ltd. .......................................................................... 3,543,750
US 85,000 Motorola, Inc. ..................................................................... 5,216,875
------------
12,549,375
------------
Total Common Stocks & Warrants (Cost $307,123,252)............................ 348,333,717
------------
Face
Amount
Convertible Bonds 0.3%
US $ 31,000 Dairy Farm International Holdings, Ltd., 6.50%, cvt., 05/10/49 ..................... 23,095
US 22,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., 05/07/49 ............................ 26,290
US 1,307,000 MDX Public Co., Ltd., 4.75%, cvt., 09/17/03 ........................................ 503,195
US 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 ..................................... 423,000
------------
Total Convertible Bonds (Cost $1,994,721) .................................... 975,580
------------
Total Long Term Investments ($309,117,973) ................................... 349,309,297
------------
h Receivables from Repurchase Agreements 2.5%
US 8,765,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $8,874,327) (Cost $8,871,000)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .................................. 8,871,000
------------
Total Investments (Cost $317,988,973) 100.4% ............................. 358,180,297
Liabilities in Excess of Other Assets (0.4%) ............................ (1,421,139)
------------
Net Assets 100.0%........................................................ $356,759,158
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $321,544,212 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 70,017,052
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value......................................... (33,380,967)
------------
Net unrealized appreciation....................................................... $ 36,636,085
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan KR South Korea
MY - Malaysia
NZ - New Zealand
PK - Pakistan
PH - Philippines
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Rising Dividends Fund (Note 1)
Common Stocks 97.3%
Banks 11.7%
<C> <C> <C>
177,400 CoreStates Financial Corp. ................................................................... $ 9,202,625
144,000 First Union Corp. ............................................................................ 10,656,000
279,650 Mercantile Bankshares Corp. .................................................................. 8,948,800
218,000 National Commerce Bancorp. ................................................................... 8,338,500
166,600 State Street Boston Corp. .................................................................... 10,745,700
594,228 TrustCo Bank Corp., New York.................................................................. 12,701,624
232,000 Wilmington Trust Corp. ....................................................................... 9,164,000
------------
69,757,249
------------
Business Services 4.7%
468,200 Ennis Business Forms ......................................................................... 5,267,250
253,900 Standard Register Co. ........................................................................ 8,251,750
420,500 Wallace Computer Services, Inc. .............................................................. 14,507,250
------------
28,026,250
------------
Consumer Products 13.6%
258,100 Alberto-Culver Co., Class A .................................................................. 10,646,625
93,833 Block Drug Co., Inc., Class A ................................................................ 4,316,318
720,000 Dimon, Inc. .................................................................................. 16,650,000
330,700 Newell Co. ................................................................................... 10,417,050
113,000 Philip Morris Cos., Inc. ..................................................................... 12,726,625
349,900 Stanhome, Inc. ............................................................................... 9,272,350
325,000 Universal Corp. .............................................................................. 10,440,625
205,500 UST, Inc. .................................................................................... 6,653,063
------------
81,122,656
------------
Electronic Technology 6.5%
164,700 Cohu, Inc. ................................................................................... 3,829,275
130,600 General Electric Co. ......................................................................... 12,913,075
236,500 Hewlett-Packard Co. .......................................................................... 11,884,125
165,700 Rockwell International Corp. ................................................................. 10,086,988
------------
38,713,463
------------
Energy 2.1%
75,000 Royal Dutch Petroleum Co., New York Shares, ADR............................................... 12,806,250
------------
Financial Services 2.2%
353,000 Federal National Mortgage Association ........................................................ 13,149,250
------------
Health Care Services 5.7%
354,000 Bard (C.R.), Inc. ............................................................................ 9,912,000
26,400 Becton Dickinson & Co. ....................................................................... 1,145,100
71,500 Bristol-Myers Squibb Co. ..................................................................... 7,775,625
95,000 Merck & Co., Inc. ............................................................................ 7,528,750
42,500 Pfizer, Inc. ................................................................................. 3,522,188
141,400 West Co., Inc. ............................................................................... 3,994,550
------------
33,878,213
------------
Industrial 22.6%
232,400 Avery Dennison Corp. ......................................................................... 8,221,150
18,500 Baldor Electric Co. .......................................................................... 455,563
427,100 Brady (W.H.) Co. ............................................................................. 10,517,338
26,500 Donaldson Co., Inc. .......................................................................... 887,750
230,600 Dover Corp. .................................................................................. 11,587,650
140,500 Duriron Co., Inc. ............................................................................ 3,811,063
Industrial (cont.)
390,800 Hanna (M.A.) Co. ............................................................................. $ 8,548,750
129,500 Kaydon Corp. ................................................................................. 6,102,688
219,800 Kimball International, Inc., Class B.......................................................... 9,094,225
90,300 Leggett & Platt, Inc. ........................................................................ 3,126,638
128,700 Loctite Corp. ................................................................................ 7,834,613
402,900 Millipore Corp. .............................................................................. 16,669,988
259,500 Monsanto Co. ................................................................................. 10,088,063
339,600 Myers Industries, Inc. ....................................................................... 5,730,750
207,200 Nucor Corp. .................................................................................. 10,567,200
323,300 Superior Industries International, Inc. ...................................................... 7,476,313
194,300 Superior Surgical Manufacturing Co., Inc. .................................................... 2,623,050
6,959 The Boeing Co. ............................................................................... 740,264
468,800 Watts Industries, Inc., Class A .............................................................. 11,192,600
------------
135,275,656
------------
Insurance - Property Casualty 15.4%
522,300 Allied Group, Inc. ........................................................................... 17,040,038
53,700 American International Group, Inc. ........................................................... 5,813,024
206,200 Chubb Corp. .................................................................................. 11,083,250
51,640 Cincinnati Financial Corp. ................................................................... 3,350,144
230,000 Mercury General Corp. ........................................................................ 12,075,000
444,600 MMI Cos., Inc. ............................................................................... 14,227,200
367,025 RLI Corp. .................................................................................... 12,249,458
167,800 SAFECO Corp. ................................................................................. 6,617,612
168,500 St. Paul Cos., Inc. .......................................................................... 9,878,312
------------
92,334,038
------------
Retail 8.9%
868,600 Family Dollar Stores, Inc. ................................................................... 17,697,724
155,000 Gap, Inc. .................................................................................... 4,669,374
307,000 Rite Aid Corp. ............................................................................... 12,203,250
80,300 The Limited, Inc. ............................................................................ 1,475,512
119,000 Walgreen Co. ................................................................................. 4,760,000
539,200 Wal-Mart Stores, Inc. ........................................................................ 12,334,200
------------
53,140,060
------------
Transportation 3.9%
500,000 Arnold Industries, Inc. ...................................................................... 7,937,500
640,000 Harper Group, Inc. ........................................................................... 15,200,000
------------
23,137,500
------------
Total Long Term Investments (Cost $431,060,996)......................................... 581,340,585
------------
h,i Receivables from Repurchase Agreements 2.8%
$ 16,521,896 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,813,176) (Cost $16,807,023)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,064,365)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securites, L.L.C., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... $ 16,807,023
------------
Total Investments (Cost $447,868,019) 100.1%....................................... 598,147,608
Liabilities in Excess of Other Assets (0.1%) ...................................... (723,907)
------------
Net Assets 100.0% ................................................................. $597,423,701
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$448,164,135 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $152,946,524
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (2,963,051)
------------
Net unrealized appreciation ................................................................ $149,983,473
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Utility Equity Fund (Note 1)
Common Stocks 97.7%
<S> <C> <C> <C>
US 516,000 aAES Corp. ........................................................................ $ 23,994,000
US 946,100 aAirTouch Communications, Inc. .................................................... 23,889,025
US 1,000,000 Allegheny Power System, Inc. ...................................................... 30,375,000
US 770,230 American Electric Power Co., Inc. ................................................. 31,675,709
US 100,000 Ameritech Corp. ................................................................... 6,062,500
US 360,000 AT&T Corp. ........................................................................ 15,660,000
US 158,600 a,bBSES, Ltd., GDR ................................................................ 3,271,125
US 1,496,700 Central & South West Corp. ........................................................ 38,352,938
US 1,223,900 CINergy Corp. ..................................................................... 40,847,663
US 200,000 aCompania Anonima Nacional Telefonos de Venezeula, ADR............................. 5,625,000
ES 208,141 Compania Sevillana de Electricidad, SA............................................. 2,364,783
HK 969,500 Consolidated Electric Power Asia, Ltd. ............................................ 2,275,057
US 505,000 Dominion Resources, Inc. .......................................................... 19,442,500
US 716,000 DPL, Inc. ......................................................................... 17,542,000
US 900,000 Duke Power Co. .................................................................... 41,625,000
US 49,500 aEchelon International Corp., Inc. ................................................ 773,433
US 763,600 Edison International............................................................... 15,176,550
US 978,800 Empresa Nacional Electricidad, SA, ADR............................................. 15,171,400
US 1,032,560 Enova Corp. ....................................................................... 23,490,740
US 1,040,000 Enron Corp. ....................................................................... 44,850,000
US 992,300 Enron Global Power & Pipelines, L.L.C. ............................................ 26,792,100
US 1,654,000 Entergy Corp. ..................................................................... 45,898,500
US 195,000 Espoon Sahko Oy.................................................................... 4,323,911
US 1,133,000 Florida Progress Corp. ............................................................ 36,539,250
US 1,001,300 FPL Group, Inc. ................................................................... 46,059,800
US 951,100 General Public Utilities Corp. .................................................... 31,980,738
MX 55,600 aGrupo Iusacell, SA, Series D...................................................... 31,275
US 144,440 aGrupo Iusacell, SA, Series L, ADR................................................. 1,101,355
US 590,840 GTE Corp. ......................................................................... 26,883,220
GR 400,000 Hellenic Tellecommunication Organization, SA....................................... 6,833,935
HK 2,500,000 Hongkong Electric Holdings, Ltd. .................................................. 8,306,936
US 138,000 aHuaneng Power International, Inc., ADR ........................................... 3,105,000
US 1,380,000 aICG Communications, Inc. ......................................................... 24,322,500
US 211,400 aItron, Inc. ...................................................................... 3,752,350
KR 290,000 Korea Electric Power Corp. ........................................................ 8,579,796
KR 440 Korea Mobile Telecommunications Corp. ............................................. 445,801
US 116,670 Lucent Technologies, Inc. ......................................................... 5,395,988
US 255,100 MidAmerican Energy Holdings Co. ................................................... 4,049,713
NO 468,600 aNetCom, ASA....................................................................... 4,481,750
US 382,450 New England Electric System........................................................ 13,337,944
US 24,200 New Jersey Resources Corp. ........................................................ 707,850
JP 2,870 Nippon Telegraph & Telephone Corp. ................................................ 21,758,570
US 649,900 NIPSCO Industries, Inc. ........................................................... 25,752,288
US 323,000 aNynex CableComms Group, ADR ...................................................... 5,854,375
US 223,100 Oklahoma Gas & Electric Co. ....................................................... 9,314,425
US 229,600 Pacific Enterprises................................................................ 6,974,100
US 1,123,150 Pacific Gas & Electric Co. ........................................................ 23,586,150
US 1,075,000 PacifiCorp......................................................................... 22,037,500
US 349,100 PanEnergy Corp. ................................................................... 15,709,500
US 166,600 PECO Energy Co. ................................................................... 4,206,650
US 843,000 Pinnacle West Capital Corp. ....................................................... 26,765,250
US 189,500 Public Service Co. of Colorado..................................................... 7,366,813
US 104,200 Public Service Enterprise Group, Inc. ............................................. 2,839,450
US 100,000 SBC Communications, Inc. .......................................................... $ 5,175,000
US 1,345,844 SCANA Corp. ....................................................................... 36,001,325
GB 590,000 Scottish Power, Plc. .............................................................. 3,557,748
GB 198,300 Southern Electric, Plc. ........................................................... 2,704,060
US 1,966,790 Southern Co. ...................................................................... 44,498,624
US 442,700 Southwestern Public Services Co. .................................................. 15,660,513
US 1,800,000 TECO Energy, Inc. ................................................................. 43,425,000
US 315,000 Tele Danmark, A/S, ADR............................................................. 8,583,750
PT 60,000 aTelecel-Comunicacaoes Pessoais, SA................................................ 3,831,022
US 230,000 Telecom de Argentina, SA, ADR...................................................... 9,286,250
US 103,500 Telecomunicacoes Brasileiras, SA (Telebras), ADR................................... 7,917,750
IT 11,000,000 Telecom Italia, SpA ............................................................... 21,876,649
US 29,000 Telefonica del Peru, SA, ADR....................................................... 547,375
US 170,000 Telefonos de Mexico, SA, ADR....................................................... 5,610,000
US 69,000 aTeleWest Communications, Plc., ADR................................................ 1,431,750
US 1,239,850 Texas Utilities Co. ............................................................... 50,523,888
US 73,600 Total Access Communication Plc. ................................................... 507,840
US 370,000 Transportadora de Gas del Sur, SA, ADR............................................. 4,532,500
US 884,800 US West Communications Group....................................................... 28,534,800
DD 7,515 aViag AG........................................................................... 2,945,431
------------
Total Common Stocks (Cost $1,122,249,327) .................................. 1,174,710,481
------------
Convertible Preferred Stocks 0.8%
US 240,000 Nortel Inversora, SA, cvt. pfd. (Argentina) (Cost $9,333,247) ..................... 9,840,000
------------
Total Long Term Investments (Cost $1,131,582,574) ........................... 1,184,550,481
------------
Face
Amount
Receivables from Repurchase Agreements 1.4%
US $16,195,569 h,iJoint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,480,699)
(Cost $16,474,667)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear Sterns & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.875, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,543)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01............... 16,474,667
------------
Total Investments (Cost $1,148,057,241) 99.9%........................... 1,201,025,148
Other Assets and Liabilities, Net 0.1%.................................. 1,265,172
------------
Net Assets 100%......................................................... $1,202,290,320
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $1,148,057,241 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 118,802,417
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (65,834,510)
------------
Net unrealized appreciation ..................................................... $ 52,967,907
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
DD - Germany
ES - Spain
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
US - United States
PORTFOLIO ABBREVIATION:
L.L.C. -Limited Liability Corp.
*Securities traded in foreign currency and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee note 1(h) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton Developing Markets Equity Fund (Note 1)
Common Stocks, Rights & Warrants 82.5%
Argentina 10.4%
<S> <C> <C> <C>
AR 180,876 Aluar Aluminio Argentino, SA, Class B.............................................. $ 455,890
AR 561,180 Astra Cia Argentina de Petroleo, SA................................................ 1,072,047
AR 530,163 aanor Cia Nacional Para la Industria Quimica, SA, Class D.......................... 768,875
AR 103,702 aBanco Bansud, SA, Class B......................................................... 1,242,574
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B....................................... 3,657,568
AR 86,333 Banco Frances del Rio de la Plata, SA.............................................. 807,357
US 56,200 aBuenos Aires Embotelladora, SA, ADR............................................... 210,750
AR 15,555 Capex, SA, Class A................................................................. 128,352
AR 310,746 aCiadea, SA........................................................................ 1,476,308
AR 44,010 Juan Minetti, SA................................................................... 183,115
AR 6,000 Juan Minetti, SA, conv............................................................. 6,001
AR 999,359 Molinos Rio de Plata, SA, Class B.................................................. 3,558,359
AR 23,430 Nobleza Piccardo Sdad Industrial Comercial y Financial............................. 89,050
AR 705,968 Perez Companc, SA, Class B......................................................... 4,963,849
AR 122,000 Quilmes Industrial, SA............................................................. 1,113,250
AR 4,000 Quilmes Industrial, SA, reg........................................................ 32,000
AR 381,203 aSevel Argentina, SA, Class C...................................................... 960,805
AR 22,230 Siderar, Class A................................................................... 64,034
AR 1,290,000 aSociedad Comercial del Plata Cadelplata Come...................................... 3,302,995
AR 126,224 Transportadora de Gas del Sur, SA, Class B......................................... 310,567
US 153,410 YPF Sociedad Anonima, ADR.......................................................... 3,873,603
AR 2,840 aZanella Hermanos, SA.............................................................. 625
------------
28,277,974
------------
Brazil 2.7%
BR 77,613,291 Banco Bradesco, SA................................................................. 526,584
BR 78,492,976 aBanco do Brasil, SA............................................................... 679,854
BR 36,132,595 aBanco do Brasil, SA, warrants, Class A............................................ 57,028
BR 54,198,893 aBanco do Brasil, SA, warrants, Class B............................................ 83,455
BR 90,331,488 aBanco do Brasil, SA, warrants, Class C............................................ 121,705
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA...................................... 3,573,577
BR 2,124,000 Mannesmann, SA..................................................................... 288,664
BR 29,560,000 Telebras-Telecomunicacoes Brasileiras, SA.......................................... 2,119,353
------------
7,450,220
------------
China 3.6%
CN 1,666,340 China Southern Glass Co., Ltd., Class B............................................ 1,034,124
CN 1,286,000 Chiwan Wharf Holdings Ltd., Class B ............................................... 914,474
CN 1,519,000 Guangzhou Shipyard International Co., Ltd., Class H ............................... 384,930
CN 1,169,000 Luoyang Glass Co., Ltd., Class H................................................... 358,960
CN 96,500 Shandong Huaneng Power............................................................. 940,875
CN 1,269,000 Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ................................. 352,782
CN 520,000 Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B.............................. 429,520
CN 252,000 aShanghai Industrial Sewing Machine Corp........................................... 47,880
CN 1,732,500 aShanghai Jin Jiang Tower Co., Ltd., Class B ...................................... 526,680
CN 410,000 Shanghai Jinqiao Export Processing Zone Development, Class B....................... 221,400
CN 634,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd., Class B.................. 618,393
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B......................................... 68,452
CN 2,304,000 Shanghai Pechemical Co., Ltd., Class H............................................. 700,032
CN 489,600 Shanghai Refrigerator Compressor Co., Ltd., Class B ............................... 266,342
CN 450,000 aShanghai Shangling Electric Appliance, Class B.................................... 195,300
CN 1,481,000 aShanghai Tyre & Rubber Co., Ltd., Class B......................................... 627,944
CN 1,890,361 aShanghai Vacuum Electron Devices Co., Ltd., Class B............................... 366,730
China (cont.)
CN 682,000 aShanghai Yaohua Pilkington Glass, Class B......................................... $ 324,632
CN 1,881,173 Shenzhen Vanke Co., Ltd., Class B.................................................. 1,330,405
------------
9,709,855
------------
Czech Republic 1.8%
CS 14,600 aCEZ............................................................................... 525,609
US 65,330 aCEZ, GDR.......................................................................... 2,351,880
CS 19,358 Chemopetrol Group, AS.............................................................. 839,981
CS 17 Elektrarny Opatovice, AS........................................................... 2,742
CS 1,000 Komercni Banka, AS................................................................. 83,327
CS 7,000 aSPT Telecom, AS................................................................... 871,589
CS 630 Tabak, AS.......................................................................... 158,693
------------
4,833,821
------------
Ghana 0.4%
US 85,000 Ashanti Goldfields Co., Ltd., GDR.................................................. 1,051,875
------------
Greece 3.7%
GR 38,666 Alpha Credit Bank.................................................................. 2,460,606
GR 32,000 Alpha Leasing, SA.................................................................. 622,593
GR 63,000 Delta Dairy, SA.................................................................... 720,117
GR 2,000 Elais Oleaginous Products Co., SA ................................................. 57,112
GR 13,000 Ergo Bank, SA ..................................................................... 658,932
GR 32,200 Etba Leasing....................................................................... 371,323
GR 31,250 Hellas Can - Container Manufacturers............................................... 437,634
GR 16,450 Hellenic Telecommunications Organizations OTE...................................... 281,046
US 154,000 bHellenic Telecommunications Organizations OTE..................................... 2,631,065
GR 29,000 Intracom, SA, reg.................................................................. 652,385
GR 5,170 National Bank of Greece, SA........................................................ 329,006
GR 17,170 Titan Cement Co., reg.............................................................. 933,629
------------
10,155,448
------------
Hong Kong 13.3%
HK 582,000 Cheung Kong Holdings Ltd........................................................... 5,173,250
HK 3,642,000 China Overseas Land & Investment Ltd. ............................................. 1,848,193
HK 81,000 Cross Harbour Tunnel Co., Ltd. .................................................... 176,463
HK 271,258 Dairy Farm International Holdings Ltd.............................................. 218,363
HK 6,000 Dickson Concepts (International) Ltd............................................... 22,497
HK 1,154,000 aEast Asiatic Co. (Hong Kong), Ltd. (The).......................................... 119,361
HK 1,904,000 aFu Hui Jewellery Co. (H.K.), Ltd.................................................. 177,242
HK 530,679 Great Wall Electronic International Ltd. .......................................... 65,867
HK 1,284,000 Hang Lung Development Co., Ltd. ................................................... 2,822,160
HK 770,000 Hongkong Electric Holdings Ltd. ................................................... 2,558,536
HK 776,951 Hopewell Holdings Ltd. ............................................................ 502,263
HK 214,241 HSBC Holdings, Plc ................................................................ 4,584,251
HK 42,000 IMC Holdings Ltd. ................................................................. 22,264
HK 34,000 Jardine Matheson Holdings, Ltd..................................................... 224,400
HK 194,625 Jardine Strategic Holdings, Ltd.................................................... 704,543
HK 21,625 aJardine Strategic Holdings Ltd., warrants......................................... 8,650
HK 119,000 JCG Holdings, Ltd.................................................................. 116,161
HK 2,109,297 K Wah International Holdings, Ltd. ................................................ 520,881
HK 187,320 aK Wah International Holdings, Ltd., warrants...................................... 12,109
HK 1,203,600 Lai Sun Development Co., Ltd. ..................................................... 1,820,689
HK 216,200 aLai Sun Development Co., Ltd., warrants........................................... 27,953
Hong Kong (cont.)
HK 379,000 Lai Sun Garment International Ltd.................................................. $ 602,715
HK 1,450,000 Laws International Holdings Ltd.................................................... 226,841
HK 700,000 aLuks Industrial Co., Ltd.......................................................... 68,783
HK 140,000 aLuks Industrial Co., Ltd., warrants............................................... 5,159
HK 754,886 New World Development Co., Ltd. ................................................... 5,099,592
HK 456,000 NG Fund Hong Ltd................................................................... 409,749
HK 1,626,000 aS. Megga International Holdings Ltd............................................... 107,216
HK 324,598 Semi-Tech (Global) Co., Ltd........................................................ 537,185
HK 1,891,400 Sun Hung Kai & Co., Ltd. .......................................................... 484,191
HK 319,000 Sun Hung Kai Properties Ltd. ...................................................... 3,907,848
HK 155,000 Swire Pacific, Ltd., Class B ...................................................... 234,469
HK 2,123,000 Tian An China Investments Co., Ltd................................................. 304,678
HK 1,364,000 Tungtex (Holdings) Co., Ltd........................................................ 149,900
HK 294,000 Wheelock & Co., Ltd................................................................ 838,154
HK 1,228,000 Wing Shan International, Ltd....................................................... 169,883
HK 3,582,000 aWo Kee Hong Holdings, Ltd......................................................... 291,765
HK 716,400 aWo Kee Hong Holdings, Ltd., warrants.............................................. 7,966
HK 300,000 aYaohan Hongkong Corp., Ltd........................................................ 12,024
HK 2,298,000 Yue Yuen Industrial (Holdings), Ltd................................................ 876,476
------------
36,060,690
------------
India 1.6%
IN 74,000 Arvind Mills, Ltd.................................................................. 250,794
IN 4,000 Bharat Petroleum Corp., Ltd........................................................ 33,250
IN 1,300 Bombay Dyeing & Manufacturing Co., Ltd............................................. 4,007
IN 9,000 Bses, Ltd.......................................................................... 51,841
IN 51,950 Cochin Refineries, Ltd............................................................. 143,460
IN 18,350 Grasim Industries, Ltd., Ord INR10................................................. 214,083
IN 73,200 Great Eastern Shipping Co., Ltd.................................................... 69,422
IN 4,775 Hindalco Industries................................................................ 87,442
IN 21,300 Hindustan Organic Chemicals, Ltd................................................... 18,121
IN 44,000 Hindustan Petroleum Corp., Ltd..................................................... 407,475
IN 35,000 aIndia Cements, Ltd................................................................ 87,866
US 10,000 India Cements, Ltd., GDR........................................................... 25,000
IN 20,000 Indian Aluminium Co., Ltd.......................................................... 84,937
IN 55,000 Indian Petrochemicals Corp., Ltd................................................... 184,484
IN 18,350 Indian Rayon and Industries, Ltd................................................... 153,556
IN 88,500 Indo Gulf Fertilisers & Chemicals Corp., Ltd....................................... 71,590
IN 135,050 Industrial Credit & Inv. Corp. of India (ICICI).................................... 221,316
IN 159,300 Industrial Development Bank of India............................................... 386,585
IN 66,700 ITC Bhadrachalam Paperboards, Ltd.................................................. 109,771
IN 45,000 Larsen and Toubro, Ltd............................................................. 274,582
IN 105,300 National Aluminium Co., Ltd........................................................ 91,054
IN 19,200 Oriental Bank of Commerce.......................................................... 41,640
IN 41,600 Reliance Industries, Ltd........................................................... 235,849
IN 157,500 Shipping Corporation of India, Ltd................................................. 112,029
IN 133,000 Steel Authority of India, Ltd...................................................... 68,633
US 45,000 Steel Authority of India Ltd., GDR, reg. S......................................... 432,585
IN 9,100 aSterlite Industries (India), Ltd.................................................. 49,434
IN 34,150 Tata Chemicals, Ltd................................................................ 164,082
India (cont.)
IN 33,000 Tata Iron & Steel Co., Ltd......................................................... $ 150,732
IN 2,000 Wockhardt.......................................................................... 11,367
------------
4,236,987
------------
Indonesia 5.2%
US 46,000 aAsia Pulp & Paper Co., Ltd., ADR.................................................. 523,250
ID 506,000 PT Bank Dagang Nasional Indonesia, fgn............................................. 514,141
ID 81,000 PT Bank Danamon, fgn............................................................... 76,302
ID 371,000 PT Bank PDFCI, fgn. ............................................................... 345,555
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................................... 1,386,770
ID 150,000 PT BBL Dharmala Finance, fgn. ..................................................... 184,166
ID 997,500 aPT Charoen Pokphand Indonesia, fgn................................................ 1,103,289
ID 449,000 PT Dharmala Intiland, fgn.......................................................... 665,326
ID 2,085,000 PT Gadjah Tunggal, fgn............................................................. 904,795
ID 201,000 PT Gajah Surya Multi Finance, fgn.................................................. 121,264
ID 829,600 PT Ganda Wangsa Utama, fgn......................................................... 298,544
ID 104,000 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 75,953
ID 12,000 PT Inter-Pacific Bank, fgn......................................................... 8,510
ID 880,000 PT Jakarta International Hotel & Development, fgn.................................. 633,362
ID 337,500 PT Japfa Comfeed Indonesia, fgn. .................................................. 214,331
ID 441,750 PT Multibreeder Adirama, fgn....................................................... 163,646
ID 376,630 PT Pabrik Kertas Tjiwi Kimia, fgn.................................................. 374,717
ID 766,900 PT Panasia Indosyntec, fgn......................................................... 186,692
ID 350,000 PT Polysindo Eka Perkasa, fgn...................................................... 200,042
ID 1,310,400 PT Pudjiadi Prestige, Ltd., fgn.................................................... 471,566
ID 621,500 PT Sinar Mas Agro Resources & Technology Corp., fgn................................ 440,733
ID 3,099,250 PT Sinar Mas Multi Artha, fgn...................................................... 2,591,456
ID 349,000 PT Sumalindo Lestari Jaya, fgn..................................................... 258,573
ID 658,320 PT Summarecon Agung, fgn. ......................................................... 222,970
ID 430,000 PT Tambang Timah (Persero), fgn.................................................... 782,811
ID 292,000 PT Ultra Jaya Milk, fgn............................................................ 135,986
ID 68,200 PT Unggul Indah Corp., fgn......................................................... 69,297
ID 583,000 PT United Tractors, fgn............................................................ 1,221,782
------------
14,175,829
------------
Israel 1.5%
IL 34,730 Agis Industries, Ltd............................................................... 254,357
IL 569,083 Bank Hapoalim BM................................................................... 901,636
IL 280,327 Clal Industries, Ltd............................................................... 1,340,198
IL 16,748 Discount Investment Corp........................................................... 1,073,995
IL 4,732 First International Bank of Israel................................................. 545,955
IL 265a Koor Industries, Ltd............................................................... 23,090
------------
4,139,231
------------
Malaysia 3.0%
MY 628,000a Aokam Perdana, Bhd................................................................. 743,504
MY 418,000 Berjaya Singer, Bhd................................................................ 628,945
MY 89,000 Berjaya Singer, Bhd., fgn.......................................................... 133,914
MY 154,000 Boustead Holdings, Bhd., fgn....................................................... 344,526
MY 50,000 Federal Flour Mills, Bhd. ......................................................... 124,728
MY 152,000 Hong Leong Industries, Bhd......................................................... 517,600
MY 91,200a Hong Leong Industries, Bhd., new................................................... 308,755
MY 38,000a Hong Leong Industries, Bhd., warrants, fgn......................................... 9,028
Malaysia (cont.)
MY 44,000 Island & Peninsula, Bhd., fgn...................................................... $ 147,218
MY 179,000 Leader Universal Holdings, Bhd..................................................... 375,648
MY 282,666 Malaysian International Shipping Corp., Bhd., fgn.................................. 839,436
MY 529,000 MBF Capital, Bhd................................................................... 858,800
MY 237,500 Perlis Plantations, Bhd., fgn...................................................... 738,220
MY 796,000 Renong, Bhd........................................................................ 1,412,029
MY 16,750a Renong, Bhd., warrants............................................................. 8,224
MY 26,800 Renong, 4%, conv., 9/9/01.......................................................... 11,248
MY 732,000 Shangri-La Hotels (Malaysia), Bhd.................................................. 689,828
MY 123,000 Shangri La Hotels (Malaysia), Bhd., fgn............................................ 115,914
------------
8,007,565
------------
Mexico 10.7%
MX 1,524,000 Cementos Mexicanos, SA de CV (Cemex), Class B...................................... 5,943,445
MX 3,341,085a Cifra, SA, Class C ................................................................ 4,074,494
US 38,400 Coca Cola Femsa, SA de CV, ADR..................................................... 1,108,800
MX 181,938 Cydea, SA de CV.................................................................... 327,035
MX 110,034a DESC, SA, Class B.................................................................. 601,050
MX 2,292a DESC, SA, Class C.................................................................. 12,505
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B...................................... 857,470
MX 13,429 Grupo Carso, SA de CV.............................................................. 70,796
MX 899,000a Grupo Financiero Banamex Accival, SA, Class B...................................... 1,898,041
MX 894,137a Grupo Financiero Banamex Accival, SA, Class L...................................... 1,760,559
MX 5,650,000a Grupo Financiero Bancomer, SA de CV, Class B....................................... 2,260,861
MX 941,259a Grupo Financiero Bancomer, SA de CV, Class L....................................... 316,862
MX 1,882,816a Grupo Financiero Serfin, SA, Class B............................................... 648,175
MX 97,000 Telmex-Telefonos de Mexico, SA, Class L............................................ 159,942
US 228,200 Telmex-Telefonos de Mexico, SA, Class L, ADR....................................... 7,530,600
MX 905,849 Vitro, SA ......................................................................... 1,645,534
------------
29,216,169
------------
Philippines 0.2%
PH 600,000a Keppel Philippine Holdings, Inc., Class B.......................................... 66,160
PH 2,198,000a Philex Minning Corp., Class B ..................................................... 250,722
PH 20,000a Philippine National Bank .......................................................... 237,643
PH 435,000 RFM Corp. ......................................................................... 74,430
------------
628,955
------------
Poland 0.9%
PL 64,955 Bank Gdanski, SA................................................................... 844,954
PL 69,000a Bank Inicjatyw Gospodarczch, SA, Class G........................................... 96,254
PL 13,638 Bank Przemyslowo-Handlowy, SA...................................................... 879,902
PL 9,000 Elektrim Towarzystwo Handlowe, SA.................................................. 81,607
PL 18,000 Mostostal Export, SA............................................................... 42,687
PL 17,410 Polifarb Ceiszyu, SA............................................................... 96,540
PL 10,000a Raciborska Fabryka Kotlow, SA...................................................... 56,846
PL 10,000 Warta, SA.......................................................................... 162,168
PL 1,242 Wielkopolski Bank Kredytowy, SA.................................................... 8,403
PL 11,072 Zaklady Cementowo Wapiennicze Gorazdze Chorula..................................... 276,086
------------
2,545,447
------------
Portugal 4.3%
PT 386,194 Banco Comercial Portugues, SA...................................................... $ 5,093,626
PT 162,680 Banco Espirito Santo e Comercial de Lisboa......................................... 2,862,245
PT 63,454 Banco Totta & Acores, SA........................................................... 1,196,643
PT 13,774a BPI Socieda de Gestora de Participacoes Socias .................................... 162,570
PT 36,248 BPI Socieda de Gestora de Participacoes Socias, SA................................. 451,201
US 99,840 Espirito Santo Financial Holding, SA, ADR.......................................... 1,322,880
PT 75,000 Portucel Industrial Empresa Product de Celulose, SA................................ 435,343
PT 3,000 Portugal Telecom, SA............................................................... 85,521
PT 7,010a Sociedade Portuguesa de Celulose, SA............................................... 187,174
------------
11,797,203
------------
Singapore 3.1%
SG 246,000 Acer Computer International, Ltd................................................... 423,120
SG 22,000a Acer Computer International, Ltd., warrants........................................ 10,340
SG 184,000 Acma, Ltd., fgn.................................................................... 397,113
SG 46,000a Acma, Ltd., fgn., warrants......................................................... 29,422
SG 18,000 British American Tobacco, Ltd...................................................... 77,181
SG 109,000 First Capital Corp., Ltd........................................................... 328,722
SG 238,000 First Capital Corp., Ltd., fgn..................................................... 717,759
SG 72,000 GP Batteries International, Ltd. .................................................. 239,040
SG 18,000a GP Batteries International, Ltd., warrants......................................... 22,860
SG 1,172,000 Hai Sun Hup Group, Ltd............................................................. 862,688
SG 167,000 Hinds Hotels International, Ltd.................................................... 213,628
SG 191,000 Hinds Hotels International, Ltd., fgn.............................................. 244,329
SG 100,000 Hour Glass, Ltd. .................................................................. 72,894
SG 241,000 Inchcape, Bhd., fgn................................................................ 837,033
SG 107,500 Isetan (Singapore), Ltd., fgn...................................................... 232,393
SG 194,000 Jurong Shipyard, fgn............................................................... 977,417
SG 78,000 Natsteel, Ltd. .................................................................... 177,260
SG 476,000 Natsteel, Ltd., fgn................................................................ 1,081,741
SG 177,000a Osprey Maritime, Ltd............................................................... 269,428
SG 142,000 Sembawang Corp., Ltd............................................................... 750,947
SG 148,000 WBL Corp., Ltd..................................................................... 346,916
------------
8,312,231
------------
Slovak Republic 0.2%
SS 3,600 Nafta Gbely, AS.................................................................... 179,649
SS 19,010 Slovnaft, AS....................................................................... 462,754
------------
642,403
------------
South Africa 3.3%
ZA 10,685 Anglo American Industrial Corp., Ltd............................................... 387,113
ZA 21,497 Anglo American Platinum Corp., Ltd................................................. 127,507
ZA 13,000 Anglovaal Industried, Ltd.......................................................... 58,769
ZA 715a Anglovaal Industries, Ltd., rights................................................. 55
ZA 538,000 BTR Dunlop, Ltd.................................................................... 583,595
ZA 1,127,300 Del Monte Royal Foods, Ltd......................................................... 1,132,480
ZA 319,029 Engen, Ltd......................................................................... 1,704,759
ZA 33,600 First National Bank Holdings, Ltd.................................................. 164,463
ZA 10,000 Kersaf Investments, Ltd............................................................ 91,643
ZA 32,100 Malbak, Ltd........................................................................ 140,654
ZA 40,000a McCarthy Retail, Ltd............................................................... 102,597
ZA 24,000 McCarthy Retail, zero, conv., 9/30/03 ............................................. 56,428
South Africa (cont.)
ZA 107,000 Palabora Mining Co., Ltd........................................................... $ 1,749,599
ZA 10,234 Potgietersrust Platinums, Ltd...................................................... 50,311
ZA 311,500a Rainbow Chicken, Ltd............................................................... 58,591
ZA 118,070 Rembrandt Group, Ltd............................................................... 1,053,633
ZA 7,800 Reunert, Ltd....................................................................... 25,842
ZA 58,318 Sappi, Ltd......................................................................... 523,534
ZA 3,000 South African Breweries, Ltd....................................................... 75,986
ZA 876,201 South African Iron & Steel Industrial Corp., Ltd................................... 625,523
ZA 430,685 Sun International, Ltd............................................................. 345,211
------------
9,058,293
------------
South Korea 2.4%
KR 12,000 Asia Cement Co., Ltd............................................................... 301,065
KR 50,000 Boram Bank Co., Ltd................................................................ 414,201
KR 5,430a Boram Bank Co., Ltd., new.......................................................... 42,091
KR 1,050 BYC Co., Ltd....................................................................... 111,834
KR 27,375 Central Banking Corp............................................................... 421,154
KR 5,677 Dae Duck Electronics Co., Ltd...................................................... 274,780
KR 58,682 Daegu Bank Co., Ltd................................................................ 700,705
KR 510 Daehan Synthetic Fiber Co., Ltd. .................................................. 44,361
KR 21,000 Dongkuk Steel Mill Co., Ltd........................................................ 415,030
KR 1,000 Hae In Corp., Ltd.................................................................. 44,734
US 28,902a Hana Bank, GDR..................................................................... 437,287
KR 3,950 Hankook Cosmetics Co., Ltd......................................................... 88,817
KR 44,390 Korea First Bank................................................................... 224,839
KR 54,000 Korea Kumho Petrochemical.......................................................... 447,337
KR 25,810 Kyong Nam Bank..................................................................... 283,146
KR 1,000 Moon Bae Steel Co., Ltd............................................................ 23,077
KR 75,000 Ssangyong Oil Refining Co., Ltd.................................................... 1,642,012
KR 41,447 Tong Yang Merchant Bank............................................................ 465,972
------------
6,382,442
------------
Sri Lanka
LK 36,000 Associated Motorways, Ltd. ........................................................ 17,134
LK 8,000 John Keells Holdings, Ltd.......................................................... 27,675
------------
44,809
------------
Taiwan
ZU 62,000a United Microelectronics Corp....................................................... 87,927
------------
Thailand 2.2%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn......................... 408,329
TH 3,900 Ayudhya Insurance Public Co., Ltd.................................................. 30,110
TH 43,600 Ayudhya Insurance Public Co., Ltd., fgn............................................ 336,614
TH 15,000 Bangkok Bank Public Co., Ltd....................................................... 111,713
TH 4,900 Bangkok Insurance, fgn............................................................. 69,547
TH 3,300 Bangkok Land Public Co., Ltd....................................................... 1,383
TH 580,500 Bangkok Land Public Co., Ltd., fgn................................................. 645,101
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd.......................................... 430,476
TH 253,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn.................................... 917,453
TH 16,000 Hua Thai Manufacturing Public Co., Ltd............................................. 42,424
TH 124,650 Karat Sanitaryware Public Co., Ltd., fgn........................................... 145,205
TH 50,700 Kian Gwan Public Co., Ltd., fgn.................................................... 137,396
Thailand (cont.)
TH 13,000a Land and House Public Co., Ltd..................................................... $ 88,201
TH 53,000 Regional Container Lines Public Co., Ltd., fgn..................................... 512,517
TH 313,500a Royal Ceramic Industry Public Co., Ltd., fgn....................................... 226,146
TH 80,700 Saha Pathanapibul Public Co., Ltd., fgn............................................ 188,801
TH 168,600 Saha Union Public Co., Ltd......................................................... 144,631
TH 390,000 Saha Union Public Co., Ltd., fgn................................................... 349,762
TH 42,600 Sanyo Universal Electric Public Co., Ltd........................................... 134,547
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn..................................... 16,424
TH 2,900 Siam Cement Co., Ltd.(The), fgn.................................................... 90,915
TH 150,000 Siam City Bank Public Co., Ltd., fgn............................................... 140,373
TH 8,000a Siam Commercial Bank, Ltd., loc. .................................................. 52,406
TH 23,200 Sino-Thai Engineering & Construction Public Co..................................... 60,610
TH 87,100 Sino-Thai Engineering & Construction Public Co., fgn............................... 227,548
TH 116,410 Thai Asahi Glass Public Co., Ltd................................................... 130,499
TH 18,000 Thai Farmers Bank Public Co., Ltd.................................................. 87,733
TH 43,000 Thai Rayon Public Co., Ltd......................................................... 163,476
TH 2,300 Thai Rayon Public Co., Ltd., fgn................................................... 12,556
TH 26,400 Thai Wacoal Public Co., Ltd., fgn.................................................. 116,580
TH 8,450 Thai Wah Public Co., Ltd., fgn..................................................... 5,107
TH 4,500 United Motor Works (Siam) Public Co., Ltd.......................................... 15,002
------------
6,039,585
------------
Turkey 5.3%
TR 37,837,500 Akbank............................................................................. 5,146,179
TR 1,704,000a Alarko Sanayii ve Ticaret, SA...................................................... 235,685
TR 2,075,000a Alcatel Teletas Endustri Tic, AS................................................... 147,326
TR 4,688,000 Anadolu Anonim Turk Sigorta Sirketi................................................ 207,491
TR 4,324,971 Arcelik, AS ....................................................................... 438,678
TR 312,000 Bagfas............................................................................. 70,484
TR 4,348,086 Beko Elektronik, AS................................................................ 410,953
TR 1,580,000 Borusan, AS........................................................................ 99,069
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS.......................................... 341,773
TR 1,515,000 Cimsa Cimento Sanayi ve Ticaret, AS................................................ 139,696
TR 201,000 Erciyas Biracilik.................................................................. 21,777
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ............................................. 2,082,757
TR 1,970,571 Izocam Ticaret ve Sanayii, AS...................................................... 130,826
TR 4,291,666 Koc Holding, AS.................................................................... 751,882
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS.................................... 659,485
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS................................................ 124,024
TR 1,958,000 Netas Northern Electric Telekomunic Asyon, AS...................................... 442,333
TR 699,200 Otosan Otomobil Sanayii, AS ....................................................... 283,677
TR 280,000 Petkim Petrokimya Holding, AS...................................................... 112,310
TR 1,907,865 Tat Konserve Sanayii, AS........................................................... 285,872
TR 15,009,350a Tofas Turk Otomobil Fabrikasi, AS.................................................. 588,195
TR 2,584,450 Trakya Cam Sanayii, AS............................................................. 131,069
TR 4,169,996 Turk Demir Dokum................................................................... 376,818
TR 23,861,400 Turkiye Garanti Bankasi, AS ....................................................... 1,078,108
TR 2,141,344 Vakif Finansal Kiralama, AS ....................................................... 82,929
------------
14,389,396
------------
Venezuela 2.5%
VE 256,080 Ceramica Carabobo CA, Class A...................................................... $ 279,601
US 154,000 Ceramica Carabobo CA, Class A, ADR................................................. 168,145
VE 2,765,696 Consolidada Carabobo, Class B...................................................... 112,658
VE 1,198,018 Electricidad de Caracas............................................................ 1,214,986
VE 60,000 Industrias Ventane................................................................. 40,063
VE 10,000a Manufacturera de Aparatos Domesticos, SA........................................... 11,045
US 387,000 Mavesa, SA, ADR.................................................................... 2,591,349
VE 50,000 Siderurgica Venezolana Sivensa Saica Svs........................................... 37,585
US 241,650 Siderurgica Venezolana Sivensa Saica Svs., ADR..................................... 908,238
US 22,878b Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new....................... 78,661
VE 361,600 Vencemos de Cementos, SA........................................................... 987,034
VE 110,240 Venezolana de Cementos-Vencemos #2................................................. 293,970
------------
6,723,335
------------
Zimbabwe 0.2%
ZW 14,000 Delta Corp......................................................................... 49,057
ZW 25,000 Ta Holdings........................................................................ 4,034
ZW 587,000 Transarchipel Shipping, Ltd.- TSL.................................................. 378,902
ZW 2,646 Zimbabwe Sun, Ltd.................................................................. 988
------------
432,981
------------
Total Common Stocks, Rights and Warrants (Cost $205,898,556)................. 224,400,671
------------
Preferred Stocks 7.5%
Brazil 7.4%
BR 110,000,000a Banco do Brazil, SA, pfd........................................................... 952,748
BR 264,298,700a Banespa-Banco do Estado de Sao Paulo, SA, pfd...................................... 1,271,767
BR 4,496,000 Brasmotor, SA, pfd................................................................. 1,248,288
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, Class A, pfd.................................. 1,145,491
BR 50,115,800 Duratex, SA, pfd................................................................... 1,880,970
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, Class B, pfd........................ 4,282,739
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd................................................. 1,114,114
BR 362,700a Mannesmann, SA, pfd................................................................ 52,358
BR 46,537,000 Petrobras-Petroleo Brasileiro, SA, pfd............................................. 7,412,062
BR 30,878,000 Unibanco-Uniao de Bancos Brasileiros, SA, pfd...................................... 1,007,376
------------
20,367,913
------------
South Africa 0.1%
ZA 747,600a Rainbow Chicken Ltd., conv., pfd................................................... 153,403
------------
Total Preferred Stocks (Cost $19,127,504).................................... 20,521,316
------------
Total Long Term Investments (Cost $225,026,060).............................. 244,921,987
------------
Face
Amount
Short Term Investments 10.1%
US $27,804,000 U S Treasury Bills, with maturities through 3/27/97 (Cost $27,567,030)............. 27,569,514
------------
Total Investments 100.1% (Cost $252,593,090) ........................... 272,491,501
Liabilities in Excess of Other Assets (0.1%) ........................... (393,080)
------------
Net Assets 100.0% ...................................................... $272,098,421
============
At December 31, 1996, the net unrealized
depreciation based on the cost of investments for
income tax purposes of $252,696,690 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 46,909,792
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (27,114,981)
------------
Net unrealized appreciation ..................................................... $ 19,794,811
============
</TABLE>
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
ZU - Taiwan
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.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Rights Templeton Global Growth Fund (Note 1)
Common Stocks & Rights 85.1%
Argentina 2.2%
<S> <C> <C> <C>
AR 681,655 Inversiones y Representacion....................................................... $ 2,188,506
US 1,400b Inversiones y Representacion, GDR.................................................. 44,625
US 50,000 Telecom Argentina Stet France, SA, ADR............................................. 2,018,750
US 386,900 Transportadora de Gas del Sur, SA, Class B, ADR.................................... 4,739,525
US 155,000 YPF Sociedad Anonima, ADR.......................................................... 3,913,750
------------
12,905,156
------------
Australia 3.2%
AU 1,070,707 Coles Myer, Ltd., Class A.......................................................... 4,408,443
AU 2,129,730 HIH Winterthur International Holdings, Ltd......................................... 5,332,366
AU 34,179 Pacific BBA, Ltd................................................................... 120,350
AU 2,149,000 Pacific Dunlop, Ltd. .............................................................. 5,466,020
AU 712,750 RGC, Ltd........................................................................... 3,166,897
------------
18,494,076
------------
Austria 1.6%
AT 30,000 Boehler Uddeholm, AG............................................................... 2,146,715
AT 35,400 Evn Energie-Versorgung Niederoesterreich, AG....................................... 5,327,732
AT 13,000 VA Technologies, AG, Bearer certificate............................................ 2,039,934
------------
9,514,381
------------
Bermuda 2.3%
US 80,000 Ace, Ltd........................................................................... 4,810,000
US 255,000 Partnerre, Ltd..................................................................... 8,670,000
------------
13,480,000
------------
Brazil 0.6%
BR 129,100,000 Companhia Siderurgica Nacional..................................................... 3,665,143
------------
Canada 0.9%
CA 119,700 Intrawest Corp..................................................................... 2,141,324
CA 74,000a Newbridge Networks Corp............................................................ 2,090,500
CA 195,000 Primex Forest Products, Ltd. ...................................................... 1,124,822
------------
5,356,646
------------
China 1.0%
CN 23,000,000 Shanghai Hai Xing Shipping Co., Class H............................................ 2,676,320
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H.......................................... 3,246,400
------------
5,922,720
------------
Czech Republic 1.0%
US 171,000b Komercni Banka, AS, GDR............................................................ 4,688,820
CZ 9,000a SPT Telecom, AS.................................................................... 1,120,615
------------
5,809,435
------------
Denmark 1.0%
DK 110,200 Tele Danmark, AS, Class B.......................................................... 6,081,678
------------
Ecuador 0.2%
US 400b La Cemento Nacional CA, GDR........................................................ 91,600
US 3,600b La Cemento Nacional CA, GDR........................................................ 824,400
------------
916,000
------------
Finland 2.4%
FI 145,000a Enso OY, Class R................................................................... 1,175,761
FI 270,000 Metsa Serla OY, Class B............................................................ 2,025,000
FI 130,000 Nokia, AB, Class A................................................................. 7,545,652
Finland (cont.)
FI 65,000 Outokumpu OY, Class A ............................................................. $ 1,109,239
FI 88,000a UPM-Kymmene Corp. ................................................................. 1,846,087
------------
13,701,739
------------
France 6.7%
FR 30,490 Alcatel Alsthom, SA ............................................................... 2,450,961
FR 157,102 AXA, SA ........................................................................... 9,998,777
FR 126,500 Banque Nationale de Paris ......................................................... 4,898,978
FR 23,792 Compagnie Generale D' Industrie Et de Participati ................................. 6,566,317
US 112,708 Pechiney, SA, ADR ................................................................. 2,254,160
FR 83,000 Pechiney, SA, Class A ............................................................. 3,480,077
FR 5,388a Sa des Galeries Lafayette ......................................................... 1,918,273
FR 41,972 Societe Elf Aquitane, SA .......................................................... 3,823,216
FR 32,029 Union du Credit Bail Immobilier Unibail ........................................... 3,187,457
------------
38,578,216
------------
Germany 0.4%
DD 6,300 Volkswagen, AG .................................................................... 2,616,640
------------
Greece 0.5%
GR 36,266 Alpha Credit Bank ................................................................. 2,307,876
US 5,867 Alpha Credit Bank, ADR............................................................. 373,340
------------
2,681,216
------------
Hong Kong 4.3%
HK 800,000 Cheung Kong Holdings, Ltd. ........................................................ 7,110,996
HK 1,608,500 Hongkong Electric Holdings, Ltd. .................................................. 5,344,683
HK 278,149 HSBC Holdings, Plc. ............................................................... 5,951,730
HK 800,000 Jardine Strategic Holdings, Ltd. .................................................. 2,896,000
HK 3,600,000 Shun Tak Holdings ................................................................. 2,397,052
HK 150,000 Swire Pacific, Ltd., Class A ...................................................... 1,430,280
HK 75,000 Swire Pacific, Ltd., Class B ...................................................... 113,453
------------
25,244,194
------------
Hungary 0.6%
US 256,358b MOL Magyar Olay - Es Gazipari RT, GDS ............................................. 3,204,475
------------
India 0.3%
GB 720,000a India Fund, (The), Class B ........................................................ 1,060,746
US 37,000b Larsen and Toubro, Ltd., GDR ...................................................... 539,275
------------
1,600,021
------------
Indonesia 0.3%
ID 305,700a Asia Pacific Resources International, Class A ..................................... 1,719,563
------------
Italy 1.6%
IT 896,800 Banca Fideuram, SPA ............................................................... 1,971,067
IT 1,745,200 Fiat, SpA ......................................................................... 5,262,077
IT 962,290 Telecom Italia, SPA, di Risp ...................................................... 1,913,789
------------
9,146,933
------------
Japan 2.0%
JP 230,000 Daito Trust Construction Co., Ltd. ................................................ 2,561,955
JP 603,500 Hitachi, Ltd. ..................................................................... 5,628,011
JP 200,000 Matsushita Electric Industrial Co., Ltd. .......................................... 3,263,967
------------
11,453,933
------------
Mexico 1.7%
MX 176,000 Alfa, SA de CV, Class A ........................................................... $ 812,703
US 901,000a Alfa, SA de CV, Class A, ADR ...................................................... 4,160,487
MX 1,900,000a Cifra, SA, Class B ................................................................ 2,317,073
US 86,400 Telefonos de Mexico, SA, Class L, ADR ............................................. 2,851,200
------------
10,141,463
------------
Netherlands 1.5%
NL 56,500 European Vinyls Corp., International, NV .......................................... 1,793,339
NL 105,188 Ing Groep, NV ..................................................................... 3,789,571
NL 50,000 Koninklijke Frans Maas Groep, NV .................................................. 2,056,183
NL 40,000 Koninklijke Nedlloyd, NV .......................................................... 1,098,175
------------
8,737,268
------------
New Zealand 0.4%
NZ 583,873 Fisher & Paykel, Ltd. ............................................................. 2,290,864
------------
Norway 0.5%
NO 180,600 Helikopter Services Group, ASA .................................................... 2,350,235
NO 45,000a Nycomed, AS, Class B .............................................................. 691,439
------------
3,041,674
------------
Philippines 0.9%
PH 19,923,321 Metro Pacific Corp., MDI .......................................................... 4,924,015
------------
South Africa 0.5%
ZA 200,000 Rustenburg Platinum Holdings, Ltd. ................................................ 2,735,920
------------
South Korea 1.1%
KR 5,961a Byuck San Corp., rights ........................................................... 2,822
KR 17,000 Byucksan Development Co., Ltd. .................................................... 205,207
KR 11,227 Keumkang Co., Ltd. ................................................................ 511,526
KR 100,000 Pacific Chemical Co., Ltd. ........................................................ 1,976,331
KR 19,560 Pohang Iron & Steel Co., Ltd. ..................................................... 1,213,791
KR 123,920 Shinhan Bank Co., Ltd. ............................................................ 1,983,728
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................................... 331,953
------------
6,225,358
------------
Spain 2.9%
ES 4,400 Banco Popular Espanol, SA ......................................................... 864,240
ES 75,000 Banco Santander, SA ............................................................... 4,800,693
ES 63,900 Cristaleria Espanola, SA .......................................................... 5,020,451
ES 450,000 Iberdrola, SA ..................................................................... 6,377,816
------------
17,063,200
------------
Sweden 4.1%
SE 35,000 Asea, AB, Class A ................................................................. 3,951,700
SE 192,100 Assidomaen, AB .................................................................... 5,351,877
SE 722,500 Munksjo, AB ....................................................................... 7,309,911
SE 12,400b Nordbanken, AB .................................................................... 375,463
SE 190,000 Skandia Foersaekrings, AB, free ................................................... 5,376,951
SE 68,000 Volvo, AB, Class B ................................................................ 1,500,620
------------
23,866,522
------------
Switzerland 3.0%
CH 2,200 Kuoni Reisen Holding, AG, Class B ................................................. $ 5,341,801
CH 4,160a Novartis, AG ...................................................................... 4,764,494
CH 3,000 Societe Generale de Surveillance Holdings, Ltd., bearer certificate ............... 7,373,926
------------
17,480,221
------------
Thailand
TH 26,800a MDX Public Co., Ltd. .............................................................. 20,639
------------
United Kingdom 6.3%
GB 121,606 BICC .............................................................................. 1,397,983
US 655,100a,b British Energy, Ltd., ADR ......................................................... 1,649,702
GB 1,376,200 British Gas, Plc. ................................................................. 5,292,714
GB 1,074,500 British Telecommunications, Plc. .................................................. 7,261,628
GB 1,180,000 BTR, Plc. ......................................................................... 5,740,912
GB 135,000 BTR, Plc., Class A ................................................................ 620,221
GB 1,455,000a Cordiant, Plc. .................................................................... 2,567,324
GB 1,396,100 Dawson International, Plc. ........................................................ 1,375,197
GB 466,666 Lex Service, Plc. ................................................................. 2,542,224
GB 256,000 London Pacific Group, Ltd. ........................................................ 918,765
GB 249,000 McBride, Plc. ..................................................................... 580,121
GB 320,554 National Power, Plc. .............................................................. 2,685,286
GB 225,493 Safeway, Plc. ..................................................................... 1,560,612
GB 275,300 W.H. Smith Group .................................................................. 2,025,582
------------
36,218,271
------------
United States 29.1%
US 85,000 A T & T Corp. ..................................................................... 3,697,500
US 97,400 A.G. Edwards, Inc. ................................................................ 3,275,075
US 294,000 Archer Daniels Midland Co. ........................................................ 6,468,000
US 339,000a Banner Aerospace, Inc. ............................................................ 2,923,875
US 230,000a Bay Networks, Inc. ................................................................ 4,801,250
US 27,000 Citicorp .......................................................................... 2,781,000
US 169,500 Dayton-Hudson Corp. ............................................................... 6,652,875
US 109,300 Dean Witter Discover & Co. ........................................................ 7,241,125
US 84,800a DSC Communications Corp. .......................................................... 1,515,800
US 58,500 Entergy Corp. ..................................................................... 1,623,375
US 156,000 Federal National Mortgage Association ............................................. 5,811,000
US 90,000 Ford Motor Co. .................................................................... 2,868,750
US 136,500a Fruit of the Loom, Inc., Class A .................................................. 5,169,938
US 89,000 General Growth Properties ......................................................... 2,870,250
US 60,000 General Motors Corp. .............................................................. 3,345,000
US 66,000 General Motors Corp., Class H ..................................................... 3,712,500
US 34,000 Georgia-Pacific Corp. ............................................................. 2,448,000
US 70,000 Goodyear Tire & Rubber Co. ........................................................ 3,596,250
US 269,000 Highwood Properties, Inc., REIT ................................................... 9,078,750
US 34,700 Horizon Group Inc. ................................................................ 689,663
US 52,800 Houghton Mifflin Co. .............................................................. 2,989,800
US 250,000a Humana, Inc. ...................................................................... 4,781,250
US 14,600 IBP, Inc. ......................................................................... 354,050
US 35,200 International Business Machines Corp. ............................................. 5,315,200
US 48,900a Landstar System, Inc. ............................................................. 1,136,925
US 97,902 Limited, Inc. ..................................................................... 1,798,949
US 27,547 Lucent Technologies Inc. .......................................................... 1,274,049
United States (cont.)
US 42,000 Merrill Lynch & Co., Inc. ......................................................... $ 3,423,000
US 100,000 Motorola, Inc. .................................................................... 6,137,500
US 32,000 National Health Investors, Inc. ................................................... 1,212,000
US 157,000a OMI Corp. ......................................................................... 1,373,750
US 50,000 Owens Corning ..................................................................... 2,131,250
US 70,000 PECO Energy Co. ................................................................... 1,767,500
US 151,700 Pharmacia & Upjohn ................................................................ 6,011,113
US 150,000a Pinnacle Systems Inc. ............................................................. 1,575,000
US 150,000 Post Properties Inc. .............................................................. 6,037,500
US 24,000 Reliastar Financial Corp. ......................................................... 1,386,000
US 80,000 Rouse Co. ......................................................................... 2,540,000
US 130,000a Syms Corp. ........................................................................ 1,105,000
US 120,000 Torchmark Corp. ................................................................... 6,060,000
US 127,467 Travelers, Inc. ................................................................... 5,783,800
US 172,200 U.S. West Communications Group .................................................... 5,553,450
US 114,200 UNUM Corp. ........................................................................ 8,250,950
US 81,000 Valero Energy Corp. ............................................................... 2,318,625
US 115,000 Weeks Corp. ....................................................................... 3,823,750
US 240,000 Wheelabrator Technologies, Inc. ................................................... 3,900,000
------------
168,610,387
------------
Total Common Stocks & Rights (cost $409,794,932)............................. 493,447,967
------------
Preferred Stocks 4.4%
Australia 0.8%
AU 1,093,400 News Corp. Ltd. ................................................................... 4,866,895
------------
Brazil 2.3%
BR 258,441,822 Banco Bradesco, SA, pfd. .......................................................... 1,872,839
BR 151,938,238 Cemig-Cia Energetica de Minas Gerais, pfd.......................................... 5,176,223
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ........................................ 622,946
US 75,000 Telebras-Telecomunicacoes Brasileiras, SA, pfd., ADR .............................. 5,737,500
------------
13,409,508
------------
Greece 0.4%
GR 374,380 Michaniki, SA, pfd. ............................................................... 2,481,096
------------
Italy 0.8%
IT 2,203,300 Concessioni e Costruzioni Autostrade, SpA, Class B, pfd. .......................... 4,331,025
------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 5/15/98, cvt. pfd. ............................... 221,000
------------
Total Preferred Stocks (Cost $20,478,167) ................................... 25,309,524
------------
Total Common Stocks, Rights & Preferred Stocks (Cost $430,273,099) .......... 518,757,491
------------
Face
Amount
Convertible Bonds 1.3%
Italy 0.8%
US $ 4,950,000 Government of Italy, cvt., 5.00%, 6/28/01 ......................................... 4,888,125
------------
Mexico 0.2%
US 1,210,000 Empresas ICA Sociedad Controladora, SA, cvt., 5.00%, 3/15/04 ...................... 840,950
------------
Switzerland 0.1%
US 365,000 C.S. Holding Finance BV, cvt., 4.875%, 11/19/02 ................................... 573,050
------------
Thailand 0.2%
US $ 3,602,000 MDX Public Co., Ltd., cvt., 4.75%, 9/17/03 ........................................ $ 1,386,770
------------
Total Convertible Bonds (Cost $7,798,236) ................................... 7,688,895
------------
Total Long Term Investments (Cost $438,071,335) ............................. 526,446,386
------------
h Receivables from Repurchase Agreements 10.7%
44,353,000 Aubrey G. Lanston & Co., 6.75%, 01/02/97, (Maturity Value $45,728,142)
(Cost $61,988,000)
Collateral: U.S. Treasury Notes, 6.875%, 7/31/99 ................................. 45,711,000
16,075,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $16,283,104)
Collateral: U.S. Treasury Notes, 6.25%, 7/31/98 .................................. 16,277,000
------------
Total Receivables From Repurchase Agreements ............................... 61,988,000
------------
Total Investments (Cost $500,059,335) 101.5% ........................... 588,434,386
Liabilities in Excess of Other Assets (1.5%) ........................... (8,556,999)
------------
Net Assets 100.0%....................................................... $579,877,387
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $500,072,682 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $110,740,401
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (22,378,697)
------------
Net unrealized appreciation ..................................................... $ 88,361,704
============
</TABLE>
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
IN - India
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Templeton Global Asset Allocation Fund (Note 1)
Common Stocks 55.5%
Argentina 0.3%
<S> <C> <C> <C>
US 2,000 Telecom Argentina Stet France, SA, ADR ............................................ $ 80,750
US 6,900 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 84,525
------------
165,275
------------
Australia 1.2%
AU 60,707 Coles Myer, Ltd., Class A ......................................................... 249,950
AU 95,654 HIH Winterthur International Holdings, Ltd. ....................................... 239,496
AU 42,439 Pacific BBA, Ltd. ................................................................. 149,435
AU 2,550 Pacific Dunlop, Ltd. .............................................................. 6,486
AU 10,182 RGC, Ltd. ......................................................................... 45,241
------------
690,608
------------
Austria 0.9%
AT 1,060b Boehler Uddeholm, AG .............................................................. 75,851
AT 3,000 Evn Energie-Versorgung Niederoesterreich, AG ...................................... 451,503
------------
527,354
------------
Bermuda 1.9%
US 8,400 Ace, Ltd. ......................................................................... 505,050
US 17,500 Partnerre, Ltd. ................................................................... 595,000
------------
1,100,050
------------
Brazil 2.0%
US 7,500 Cia Energetica de Minas Gerais, ADR ............................................... 255,510
BR 16,300,000 Companhia Siderurgica Nacional .................................................... 462,756
US 7,700 Companhia Siderurgica Nacional, ADR ............................................... 218,603
US 12,600 Lojas Americanas, SA, ADR ......................................................... 166,125
------------
1,102,994
------------
Canada 1.1%
CA 20,200 Hudsons Bay Co. ................................................................... 337,761
CA 15,200 Intrawest Corp. ................................................................... 271,914
------------
609,675
------------
Chile 0.2%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR ............................................ 116,400
------------
China 0.7%
HK 286,000 Shanghai Pechemical Co., Ltd., Class H ............................................ 86,896
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ......................................... 323,765
------------
410,661
------------
Colombia 0.1%
US 5,000a,b Cementos Paz del Rio, SA, ADR ..................................................... 63,750
------------
Czech Republic 0.4%
CZ 2,000a SPT Telecom, AS ................................................................... 249,026
------------
Denmark 0.4%
DK 4,000 Tele Danmark, AS, Class B ......................................................... 220,751
------------
Ecuador 0.7%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 1,400b La Cemento Nacional CA, GDR ....................................................... 320,600
------------
412,200
------------
Egypt 0.9%
EG 31,299a Suez Cement Co. ................................................................... 507,367
------------
Finland 0.9%
FI 10,000a Enso OY, Class R .................................................................. $ 81,087
FI 3,750 Metsa Serla OY, Class B ........................................................... 28,125
FI 5,000 Nokia, AB, Class A ................................................................ 290,217
FI 4,200a UPM-Kymmene Corp. ................................................................. 88,109
------------
487,538
------------
France 4.0%
FR 12,331 AXA, SA ........................................................................... 784,808
FR 9,000 Banque Nationale de Paris ......................................................... 348,544
FR 7,418 Regie Nationale des Usines Renault, SA ............................................ 159,519
FR 9,700 Rhone-Poulenc, SA, Class A ........................................................ 330,941
FR 1,805 Societe Elf Aquitane, SA .......................................................... 164,417
FR 2,556 Total, SA, Class B ................................................................ 208,029
FR 2,500 Union du Credit Bail Immobilier Unibail ........................................... 248,795
------------
2,245,053
------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................................... 149,522
------------
Greece 0.3%
GR 3,066 Alpha Credit Bank ................................................................. 195,112
------------
Hong Kong 2.2%
HK 32,000 Cheung Kong Holdings, Ltd. ........................................................ 284,440
HK 111,000 Grand Hotel Holdings, Ltd. ........................................................ 46,642
HK 1,114,960 Hon Kwok Land Investment Co., Ltd. ................................................ 432,462
HK 7,963 Peregrine Investments Holdings, Ltd. .............................................. 13,641
HK 244,000 Shun Tak Holdings ................................................................. 162,467
HK 774,000 Yue Yuen Industrial (Holdings), Ltd. .............................................. 295,210
------------
1,234,862
------------
Hungary 0.3%
US 12,107b MOL Magyar Olay - Es Gazipari, RT, GDS ............................................ 151,337
------------
Indonesia 0.5%
US 19,300a Asia Pacific Resources International, Class A ..................................... 108,562
ID 1,000 PT Bank Bali, fgn. ................................................................ 2,498
ID 154,000 PT Lippo Bank, fgn. ............................................................... 149,958
------------
261,018
------------
Irish Republic 0.7%
GB 42,733 Bank of Ireland ................................................................... 390,552
------------
Italy 0.4%
IT 74,700 Banca Fideuram, SpA ............................................................... 164,182
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ..................................... 45,468
------------
209,650
------------
Japan 0.8%
JP 12,000 Daito Trust Construction Co., Ltd. ................................................ 133,667
JP 5,000 Matsushita Electric Industrial Co., Ltd. .......................................... 81,599
JP 3,500 Nintendo Co., Ltd. ................................................................ 249,331
------------
464,597
------------
Mexico 1.4%
MX 26,800 Alfa, SA de CV, Class A ........................................................... 123,753
MX 58,000a,b Alfa, SA de CV, Class A ........................................................... 267,823
Mexico (cont.)
MX 96,200a Cifra, SA, Class B ................................................................ $ 117,317
US 3,000a Empresas ICA Sociedad Controladora, SA, ADR ....................................... 43,875
US 6,709 Telmex-Telefonos de Mexico, SA, Class L, ADR ...................................... 221,397
------------
774,165
------------
Netherlands 0.5%
NL 5,097 Ing Groep, NV ..................................................................... 183,628
NL 2,900 Philips Electronics, NV ........................................................... 117,579
------------
301,207
------------
New Zealand 0.4%
NZ 51,300 Ceramico Corp., Ltd. .............................................................. 48,960
US 9,000a Tranz Rail Holdings, Ltd., ADR .................................................... 159,187
------------
208,147
------------
Norway 0.5%
NO 14,800 Elkem, AS ......................................................................... 243,650
NO 1,700 Hafslund, ASA, Class B ............................................................ 11,648
NO 1,700a Nycomed, ASA, Class B ............................................................. 26,121
------------
281,419
------------
Russia 0.5%
US 10,000b Mosenergo, ADR .................................................................... 308,000
------------
South Africa
ZA 400 Rustenburg Platinum Holdings, Ltd. ................................................ 5,472
------------
South Korea 0.4%
KR 9,000 Korea Long Term Credit Bank ....................................................... 158,557
KR 940 Pohang Iron & Steel Co., Ltd. ..................................................... 58,331
------------
216,888
------------
Spain 0.9%
ES 9,500 Dragados y Construcciones, SA ..................................................... 146,351
ES 20,500 Iberdrola, SA ..................................................................... 290,545
ES 1,750 Telefonica de Espana, SA .......................................................... 40,641
------------
477,537
------------
Sweden 2.7%
SE 2,300 Electrolux, AB, Class B ........................................................... 133,551
SE 165a Fastighets Naeckebro, AB, Class A ................................................. 2,831
SE 5,000 Marieberg Tidnings, AB, Class A ................................................... 122,437
SE 9,575 Mo Och Domsjoe, AB, Class B ....................................................... 269,566
SE 18,000b Nordbanken, AB..................................................................... 545,027
SE 13,800 Skandia Foersaekrings, AB ......................................................... 390,536
SE 1,650 Svenska Handelsbanken, Class A .................................................... 47,420
------------
1,511,368
------------
Switzerland 1.6%
CH 4,085 CS Holding ........................................................................ 419,640
CH 70 Kuoni Reisen Holding, AG, Class B ................................................. 169,966
CH 115 Societe Generale de Surveillance Holdings, Ltd. ................................... 282,667
------------
872,273
------------
Thailand 0.2%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. 108,789
------------
United Kingdom 4.4%
GB 66,780 British Energy, Ltd. .............................................................. $ 168,168
US 47,700a,b British Energy, Ltd., ADR ......................................................... 120,120
GB 40,000 British Gas, Plc. ................................................................. 153,836
GB 65,000 British Telecommunications, Plc. .................................................. 439,279
GB 23,400 BTR, Plc. ......................................................................... 113,845
GB 45,000a Cordiant, Plc. .................................................................... 79,402
GB 13,500 Dawson International, Plc. ........................................................ 13,298
GB 76,100 Invesco, Plc. ..................................................................... 338,300
GB 21,666 Lex Service, Plc. ................................................................. 118,028
GB 118,414 Railtrack Group, Plc. ............................................................. 786,059
US 7,000 Sea Containers, Ltd., Class A ..................................................... 109,375
GB 2,200 W.H. Smith Group .................................................................. 16,187
------------
2,455,897
------------
United States 20.8%
US 7,000 AT&T Corp. ........................................................................ 304,500
US 1,100 A.G. Edwards, Inc. ................................................................ 36,987
US 2,860 AK Steel Holding Corp., REIT ...................................................... 113,327
US 16,800 Archer Daniels Midland Co. ........................................................ 369,600
US 33,026a Bay Networks, Inc. ................................................................ 689,418
US 5,900 Beacon Properties Corp. ........................................................... 216,087
US 6,800 Carramerica Realty Corp. .......................................................... 198,900
US 2,400 Citicorp .......................................................................... 247,200
US 5,000 Crescent Real Estate Equities Co., REIT ........................................... 263,750
US 11,100 Dayton-Hudson Corp. ............................................................... 435,675
US 10,000 Dean Witter Discover & Co. ........................................................ 662,500
US 15,200 Entergy Corp. ..................................................................... 421,800
US 12,450a Fruit of the Loom, Inc., Class A .................................................. 471,544
US 2,700 General Motors Corp. .............................................................. 150,525
US 3,100 General Motors Corp., Class H ..................................................... 174,375
US 2,500 Georgia-Pacific Corp. ............................................................. 180,000
US 3,600 Goodyear Tire & Rubber Co. ........................................................ 184,950
US 12,200a Healthsource, Inc. ................................................................ 160,125
US 16,600 Highwoods Properties, Inc., REIT .................................................. 560,250
US 12,000 Horizon Group, Inc. ............................................................... 238,500
US 9,500 Houghton Mifflin Co. .............................................................. 537,938
US 18,200a Humana, Inc. ...................................................................... 348,075
US 3,500 International Business Machines Corp. ............................................. 528,500
US 13,000a Landstar System, Inc. ............................................................. 302,250
US 2,268 Lucent Technologies, Inc. ......................................................... 104,895
US 2,000 Merrill Lynch & Co., Inc. ......................................................... 163,000
US 5,300 Motorola, Inc. .................................................................... 325,287
US 8,000 Oregon Steel Mills, Inc. .......................................................... 134,000
US 1,800 PECO Energy Co. ................................................................... 45,450
US 5,200a Pinnacle Systems, Inc. ............................................................ 54,600
US 7,600 Post Properties, Inc., REIT ....................................................... 305,900
US 12,000 Presidential Life Corp. ........................................................... 144,750
US 13,500 Rouse Co. ......................................................................... 428,625
US 15,000 Summit Properties, Inc., REIT ..................................................... 331,875
US 17,500 Sun Co., Inc. ..................................................................... 426,563
US 1,400 Texas Utilties Co. ................................................................ 57,050
US 7,000 Torchmark Corp. ................................................................... 353,500
United States (cont.)
US 4,000 UNUM Corp. ........................................................................ $ 289,000
US 1,000 U.S. West Communications Group .................................................... 32,250
US 2,400 Valero Energy Corp. ............................................................... 68,700
US 7,100 Walbro Corp. ...................................................................... 129,575
US 7,500 Weeks Corp. ....................................................................... 249,375
US 17,000 Wheelabrator Technologies, Inc. ................................................... 276,250
------------
11,717,421
------------
Total Common Stocks (Cost $26,378,839) ...................................... 31,203,935
------------
Preferred Stocks 1.5%
Argentina 1.2%
US 4,700 Cia de Inversiones en Telecomunicaciones, SA, pfd. cvt. ........................... 246,750
US 7,800b Cia Inversiones Telecomunicaciones, SA, pfd., cvt. ................................ 409,500
------------
656,250
------------
Greece 0.3%
GR 29,990 Michaniki, SA, pfd. ............................................................... 198,750
------------
Total Preferred Stocks (Cost $921,813)....................................... 855,000
------------
Total Common Stocks and Preferred Stocks (Cost $27,300,652).................. 32,058,935
------------
Face
Amount
Bonds 28.1%
Argentina 1.4%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 ............................................ 107,750
US 100,000b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............................... 103,000
US 100,000 Republic of Argentina, 6.375%, FRN, 03/31/23 ...................................... 77,125
US 160,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 ............................. 102,000
US 200,000 Republic of Argentina, 11.00%, 10/09/06 ........................................... 211,000
US 200,000 Republic of Argentina, 9.25%, 02/23/01 ............................................ 202,000
------------
802,875
------------
Australia 2.1%
AU 1,240,000 Government of Australia, 10.00%, 10/15/02 ......................................... 1,118,454
AU 7,971 HIH Winterthur International Holdings, Ltd., 8.00%, 11/02/01 ...................... 33,706
------------
1,152,160
------------
Brazil 1.3%
US 150,000b Centrais Electricas Brasileiras, SA, 10.00%, 10/30/98 ............................. 156,000
US 100,000 Government of Brazil, 5.00%, 04/15/24 ............................................. 63,000
US 250,000 Government of Brazil, 6.50%, 04/15/24 ............................................. 192,969
US 430,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ...................... 327,069
------------
739,038
------------
Canada 0.8%
CA 480,000 Government of Canada, 10.25%, 02/01/04 ............................................ 433,404
------------
Denmark 1.2%
DK 235,000 Government of Denmark, 8.00%, 05/15/03 ............................................ 44,203
DK 1,320,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................... 248,803
DK 2,000,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................... 386,993
------------
679,999
------------
Ecuador 0.5%
US 400,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................................... 276,000
------------
Germany 0.4%
DD $ 100,000 Deutsche Bundespost, 7.75%, 10/01/04 .............................................. $ 72,993
DD 65,000 Federal Republic of Germany, 6.50%, 07/15/03 ...................................... 44,928
DD 80,000 Federal Republic of Germany, Bundes, 8.25%, 09/20/01 .............................. 59,533
DD 85,000 Federal Republic of Germany, Bundesobl, 6.625%, 01/20/98 .......................... 57,160
------------
234,614
------------
Indonesia 0.2%
US 87,000 PT Polysindo International Finance Co., Series B, 11.375%, 06/15/06 ............... 93,851
------------
Irish Republic 0.1%
IR 35,000 Republic of Ireland, 6.25%, 10/18/04 .............................................. 58,549
------------
Italy 3.4%
IT 490,000,000 Buoni Poliennali del Tes, 10.50%, 09/1/05.......................................... 386,247
IT 640,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ........................................ 476,369
US 490,000 Government of Italy, 5.00%, 06/28/01, cvt.......................................... 483,875
IT 780,000,000 Government of Italy, 10.50%, 07/15/00 ............................................. 576,459
------------
1,922,950
------------
Mexico 2.5%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ..................................................... 130,162
US 200,000b Cemex, SA, 10.75%, 07/15/00 ....................................................... 211,750
US 1,000,000 United Mexican States, 11.375%, 09/15/16 .......................................... 1,053,750
------------
1,395,662
------------
Netherlands 0.6%
NL 500,000 Netherlands Govt., 7.00%, 03/15/99, 1 & 2.......................................... 309,875
------------
New Zealand 1.0%
NZ 690,000 Government of New Zealand, 10.00%, 03/15/02 ....................................... 548,081
------------
Philippines 0.5%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ........................... 288,900
------------
Poland 0.7%
US 400,000b Poland Communications Inc., 9.875%, 11/01/03 ...................................... 397,500
------------
Spain 1.1%
ES 55,020,000 Government of Spain, 12.25%, 03/25/00 ............................................. 502,374
ES 13,580,000 Spain Govt., 10.15%, 01/31/06 ..................................................... 123,996
------------
626,370
------------
Sweden 1.2%
SE 500,000 Government of Sweden, 6.00%, 02/09/05 ............................................. 71,050
SE 1,900,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................... 339,932
SE 19,020,000 Kingdom of Sweden, 11.30%, 01/15/02 ............................................... 177,080
SE 300,000 Sweden Kingdom, 13.00%, 06/15/01 .................................................. 56,381
------------
644,443
------------
Trinidad and Tobago 0.3%
US 170,000b Sei Holdings IX Inc., 11.00%, 11/30/00 ............................................ 182,750
------------
United Kingdom 1.8%
GB 235,000 United Kingdom, 8.00%, 12/07/00 ................................................... 413,647
GB 80,000 United Kingdom, stk., 10.00%, 09/08/03 ............................................ 155,463
GB 235,000 United Kingdom, stk., 10.50%, 05/19/99 ............................................ 432,770
------------
1,001,880
------------
United States 5.7%
US $ 405,000 U.S. Treasury Bonds, 6.375%, 08/15/02 ............................................. $ 407,785
US 380,000 U.S. Treasury Notes, 7.875%, 11/15/99 ............................................. 398,288
US 380,000 U.S. Treasury Notes, 8.50%, 02/15/00 .............................................. 405,888
US 1,000,000 U.S. Treasury Notes, 6.125%, 07/31/00 ............................................. 1,000,313
US 1,010,000 U.S. Treasury Notes, 6.25%, 08/31/00 .............................................. 1,014,104
------------
3,226,378
------------
Venezuela 1.4%
US 250,000 Republic of Venezuela, 6.75%, 03/31/20, Par Bond, Series B......................... 191,250
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 .................................. 382,500
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................................... 220,312
------------
794,062
------------
Total Bonds (Cost $15,552,515)............................................... 15,809,341
------------
Total Long Term Investments (Cost $42,853,167)............................... 47,868,276
------------
h Receivables From Repurchase Agreements 13.9%
US 7,830,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,840,939) (Cost $7,838,000)
Collateral: U.S. Treasury Notes, 6.75%, 05/15/97 ................................. 7,838,000
------------
Total Investments (Cost $50,691,167) 99.0%.............................. 55,706,276
Other Assets and Liabilities, Net 1.0%.................................. 567,850
------------
Net Assets 100.0% ...................................................... $56,274,126
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $50,691,167 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 5,912,883
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value ....................................... (897,774)
------------
Net unrealized appreciation ..................................................... $ 5,015,109
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CZ - Czech Republic
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IR - Irish Republic
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
REIT - Real Estate Investment Trust
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Small Cap Fund (Note 1)
Common Stocks 91.0%
Commercial Services 1.5%
<C> <S> <C>
46,150a Labor Ready, Inc. ............................................................................ $ 623,025
72,200 Norrell Corp. ................................................................................ 1,967,450
------------
2,590,475
------------
Consumer Products Durables 4.6%
56,650a Belmont Homes, Inc. .......................................................................... 545,256
80,000a Cannondale Corp. ............................................................................. 1,800,000
106,250 Clayton Homes, Inc. .......................................................................... 1,434,375
79,500a Galoob Toys, Inc. ............................................................................ 1,113,000
75,000a K2, Inc. ..................................................................................... 2,062,500
21,700a RockShox, Inc. ............................................................................... 314,650
49,500a Southern Energy Homes, Inc. .................................................................. 569,250
------------
7,839,031
------------
Consumer Products Non-Durables 3.8%
3,200a Consolidated Cigar Holdings, Inc. ............................................................ 79,200
79,000a Designer Holdings, Ltd. ...................................................................... 1,273,875
100,000a Donna Karan International, Inc. .............................................................. 1,412,500
26,000a Scholastic Corp. ............................................................................. 1,748,500
41,000a Tommy Hilfiger Corp. ......................................................................... 1,968,000
------------
6,482,075
------------
Consumer Services 2.9%
95,000a CapStar Hotel Co. ............................................................................ 1,864,375
105,000a Prime Hospitality Corp. ...................................................................... 1,693,125
45,900a Starbucks Corp. .............................................................................. 1,313,888
10,100a Veterinary Centers of America, Inc. .......................................................... 111,100
------------
4,982,488
------------
Electronic Technology 8.4%
61,300a Komag, Inc. .................................................................................. 1,662,763
35,000a Lexmark International Group, Inc., Class A ................................................... 966,875
51,400 Logicon, Inc. ................................................................................ 1,876,100
54,000a Natural Microsystems Corp. ................................................................... 1,701,000
42,000a Newbridge Networks Corp. ..................................................................... 1,186,500
55,000a Quantum Corp. ................................................................................ 1,574,375
183,000a Spectralink Corp. ............................................................................ 480,375
98,300a Tekelec....................................................................................... 1,548,225
90,000a Tracor, Inc. ................................................................................. 1,912,500
25,000a Verilink Corp. ............................................................................... 831,250
150,000a Visioneer, Inc. .............................................................................. 675,000
------------
14,414,963
------------
Energy & Minerals 6.1%
140,000a,d Abacan Resource Corp. (Canada)................................................................ 1,216,250
49,000a Barrett Resources Corp. ...................................................................... 2,088,625
146,400a Cairn Energy USA, Inc. ....................................................................... 1,464,000
53,000 Devon Energy Corp. ........................................................................... 1,841,750
32,000a Input/Output, Inc. ........................................................................... 592,000
7,900a National-Oilwell, Inc. ....................................................................... 242,925
40,700a Parallel Petroleum Corp. ..................................................................... 190,781
74,000a Titan Exploration, Inc. ...................................................................... 888,000
81,600a Varco International, Inc. .................................................................... 1,887,000
------------
10,411,331
------------
Financial Services 7.5%
64,800a AmeriCredit Corp. ............................................................................ $ 1,328,400
46,300 Chartwell Re Corp. ........................................................................... 1,238,525
6,100a Delta Financial Corp. ........................................................................ 109,800
65,000a EVEREN Capital Corp. ......................................................................... 1,454,375
19,400 Executive Risk Inc. .......................................................................... 717,800
80,000 IPC Holdings Ltd. ............................................................................ 1,790,000
125,000a Risk Capital Holdings, Inc. .................................................................. 2,421,875
56,600d Scor, SA (France)............................................................................. 1,992,189
56,200a Silicon Valley Bancshares..................................................................... 1,812,450
------------
12,865,414
------------
Health Care Services 6.7%
38,600a Access Health, Inc. .......................................................................... 1,727,350
95,000a Amisys Managed Care Systems................................................................... 1,615,000
153,900a Capstone Pharmacy Services, Inc. ............................................................. 1,750,613
31,000a Health Systems International, Inc., Class A .................................................. 767,250
41,100a Medic Computer Systems, Inc. ................................................................. 1,656,844
219,000a Transition Systems, Inc. ..................................................................... 3,093,375
90,000a U.S. Diagnostic Labs, Inc. ................................................................... 832,500
------------
11,442,932
------------
Health Technology 5.3%
70,900a,k DepoTech Corp. ............................................................................... 1,160,988
12,400a Heartport, Inc. .............................................................................. 283,650
80,000 Mentor Corp. ................................................................................. 2,360,000
210,000a Neurobiological Technologies, Inc. ........................................................... 787,500
70,600a Noven Pharmaceuticals, Inc. .................................................................. 988,400
245,000a OrthoLogic Corp. ............................................................................. 1,378,125
50,700a Penederm, Inc. ............................................................................... 627,413
26,400a Pharmacopeia, Inc. ........................................................................... 511,500
24,300a Serologicals Corp. ........................................................................... 859,613
------------
8,957,189
------------
Industrial Services 1.0%
22,400a American Buildings Co. ....................................................................... 534,800
25,600 Butler Manufacturing Co. ..................................................................... 1,036,800
6,600a Waters Corp. ................................................................................. 200,475
------------
1,772,075
------------
Non-Energy Minerals 1.1%
57,400a Century Aluminum Co. ......................................................................... 990,150
47,900a Steel Dynamics, Inc. ......................................................................... 916,088
------------
1,906,238
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. .................................................................................. 459,025
106,400a Gentex Corp. ................................................................................. 2,141,300
38,000 Pittston Brink's Group........................................................................ 1,026,000
43,700 Roper Industries, Inc. ....................................................................... 1,709,763
56,100a UCAR International, Inc. ..................................................................... 2,110,763
------------
7,446,851
------------
Real Estate Investment Trust 5.3%
53,200a Arden Realty Group, Inc. ..................................................................... $ 1,476,300
45,000 Bay Apartment Communities, Inc. .............................................................. 1,620,000
90,300 Equity Inns, Inc. ............................................................................ 1,173,900
50,000 FelCor Suite Hotels, Inc. .................................................................... 1,768,750
27,400 Omega Healthcare Investors, Inc. ............................................................. 911,050
26,000 Storage Trust Realty.......................................................................... 702,000
98,000 Winston Hotels, Inc. ......................................................................... 1,335,250
------------
8,987,250
------------
Retail 1.9%
3,200a Abercrobmbie & Fitch Co. ..................................................................... 52,800
75,000a AnnTaylor Stores Corp. ....................................................................... 1,312,500
25,500a Borders Group, Inc. .......................................................................... 914,813
100,000a Rent-Way, Inc. ............................................................................... 962,500
------------
3,242,613
------------
Semiconductors 10.2%
48,000a Adaptec, Inc. ................................................................................ 1,920,000
20,000a Altera Corp. ................................................................................. 1,453,750
33,000a C-Cube Microsystems, Inc. .................................................................... 1,218,938
45,500a Etec Systems, Inc. ........................................................................... 1,740,375
12,700a Exar Corp. ................................................................................... 196,850
56,100a Lattice Semiconductor Corp. .................................................................. 2,580,600
55,000 Linear Technology Corp. ...................................................................... 2,413,125
87,600a Micro Linear Corp. ........................................................................... 755,550
110,000a Sierra Semiconductor Corp. ................................................................... 1,650,000
38,200a Uniphase Corp. ............................................................................... 2,005,500
41,000a Xilinx, Inc. ................................................................................. 1,509,313
------------
17,444,001
------------
Technology Services 11.4%
49,800a Affiliated Computer Services, Inc. ........................................................... 1,481,550
25,000a Broderbund Software, Inc. .................................................................... 743,750
94,700a Business Objects SA, ADR...................................................................... 1,278,450
47,200a First USA Paymentech, Inc. ................................................................... 1,598,900
12,400a Forrester Research, Inc. ..................................................................... 319,300
25,700a Fractal Design Corp. ......................................................................... 269,850
47,400a HNC Software, Inc. ........................................................................... 1,487,175
134,000a Integrated Systems, Inc. ..................................................................... 3,484,000
61,000a Mercury Interactive Corp. .................................................................... 793,000
122,500a Phoenix Technologies, Ltd. ................................................................... 1,975,313
20,000a Rainbow Technologies, Inc. ................................................................... 372,500
28,000a Sapient Corp. ................................................................................ 1,179,500
10,000a SS&C Technologies, Inc. ...................................................................... 63,750
29,463a Sterling Commerce, Inc. ...................................................................... 1,038,571
48,500a Sterling Software, Inc. ...................................................................... 1,533,813
52,000a Symantec Corp. ............................................................................... 754,000
19,000a Synopsys, Inc. ............................................................................... 878,750
4,100a Versatility Inc. ............................................................................. 61,500
4,900a West TeleServices Corp. ...................................................................... 111,475
12,400a White Pine Software, Inc. .................................................................... 89,900
------------
19,515,047
------------
Transportation 3.5%
50,000 Air Express International Corp. .............................................................. $ 1,612,500
51,000a Atlantic Coast Airlines, Inc. ................................................................ 624,750
60,000 Expeditors International of Washington, Inc. ................................................. 1,380,000
51,000 Harper Group, Inc. ........................................................................... 1,211,250
46,000a Landstar System, Inc. ........................................................................ 1,069,500
------------
5,898,000
------------
Utilities/Communications 5.4%
68,400a Bell Cablemedia Plc. ......................................................................... 1,060,200
36,000a CommNet Cellular.............................................................................. 1,003,500
64,500 HSN, Inc. .................................................................................... 1,531,875
120,000a ICG Communications, Inc. ..................................................................... 2,115,000
92,900a Primus Telecommunications Group, Inc. ........................................................ 1,184,475
92,500a Rural Cellular Corp. ......................................................................... 890,313
109,600a Western Wireless Corp. ....................................................................... 1,520,700
------------
9,306,063
------------
Total Common Stock (Cost $145,043,670).................................................. 155,504,036
------------
Face
Amount
Convertible Corporate Bonds 0.6%
$ 825,000b US Diagnostic Labs, Inc., cvt. sub. deb., 9.00%, 03/31/03 (Cost $1,062,035)................... 1,014,742
------------
Total Long Term Investments (Cost $146,105,705)......................................... 156,518,778
------------
h,i Receivables from Repurchase Agreements 9.6%
16,198,707 Joint Repurchase Agreements, 6.59%, 01/02/97 Maturity Value $16,483,763) (Cost $16,477,730)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,919)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 16,477,730
------------
Total Investments (Cost $162,583,435) 101.2%....................................... 172,996,508
Liabilities in Excess of Other Assets (1.2%)....................................... (2,027,538)
------------
Net Assets 100%.................................................................... $170,968,970
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$162,646,140 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 19,710,416
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (9,355,635)
------------
Net unrealized appreciation ................................................................ $ 10,354,781
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Capital Growth Fund (Note 1)
Common Stocks 84.5%
Commercial Services 2.3%
<C> <S> <C>
15,000 Equifax, Inc. .................................................................................. $ 459,375
16,000a Robert Half International, Inc.................................................................. 550,000
------------
1,009,375
------------
Consumer Products - Durables 2.5%
7,000 Duracell International, Inc..................................................................... 489,125
22,000 Mattel, Inc..................................................................................... 610,500
------------
1,099,625
------------
Consumer Products - Non-Durables 5.9%
5,000 Campbell Soup Co................................................................................ 401,250
35,000a Donna Karan International, Inc.................................................................. 494,375
8,000 Hershey Foods Corp.............................................................................. 350,000
25,000 PepsiCo, Inc.................................................................................... 731,250
3,500 Proctor & Gamble Co............................................................................. 376,250
6,000 The Coca-Cola Co................................................................................ 315,750
------------
2,668,875
------------
Consumer Services 3.3%
15,000a CUC International, Inc.......................................................................... 356,250
6,000 Disney (Walt) Co................................................................................ 417,750
33,000a Mirage Resorts, Inc............................................................................. 713,625
------------
1,487,625
------------
Electronic Technology 14.1%
6,500a 3Com Corp....................................................................................... 476,938
8,000a Ascend Communications, Inc...................................................................... 497,000
10,000a Bay Networks.................................................................................... 208,750
20,000a Cabletron Systems, Inc.......................................................................... 665,000
14,500a Cisco Systems, Inc.............................................................................. 922,563
4,000a Compaq Computer Corp............................................................................ 297,000
8,000 Hewlett-Packard Co.............................................................................. 402,000
10,000a Imation Corp.................................................................................... 281,250
10,000 Molex, Inc...................................................................................... 391,250
18,000a Newbridge Networks Corp......................................................................... 508,500
15,000a Silicon Graphics, Inc........................................................................... 382,500
6,000 United Technologies Corp........................................................................ 396,000
12,000a U.S. Robotics Corp.............................................................................. 864,000
------------
6,292,751
------------
Energy & Minerals 4.3%
15,000a Barrett Resources Corp.......................................................................... 639,375
27,000 Enron Oil & Gas Co.............................................................................. 681,750
3,500 Royal Dutch Petroleum Co., New York Shares, ADR................................................. 597,625
------------
1,918,750
------------
Financial Services 5.9%
5,000 American International Group, Inc............................................................... 541,250
5,000 Citicorp ....................................................................................... 515,000
13,000 Federal National Mortgage Association........................................................... 484,250
18,000 Schwab (Charles) Corp........................................................................... 576,000
2,000 Wells Fargo & Co................................................................................ 539,500
------------
2,656,000
------------
Health Care Services 2.0%
5,500a Oxford Health Plans, Inc........................................................................ $ 322,094
7,000a Pacificare Health Systems, Inc., Class B........................................................ 596,750
------------
918,844
------------
Health Technology 11.9%
10,000 Abbott Laboratories............................................................................. 511,250
12,000 Allergan, Inc................................................................................... 427,500
7,000 American Home Products Corp..................................................................... 410,375
10,000a Amgen, Inc...................................................................................... 543,750
12,000 Baxter International, Inc....................................................................... 492,000
7,000a Boston Scientific Corp.......................................................................... 420,000
15,000 Johnson & Johnson............................................................................... 746,250
7,000 Lilly (Eli) & Co................................................................................ 511,000
27,000 Mentor Corp..................................................................................... 796,500
6,000 Merck & Co., Inc................................................................................ 475,500
------------
5,334,125
------------
Industrial Services 0.7%
3,000 Schlumberger, Ltd............................................................................... 299,625
------------
Process Industries 2.9%
6,000 Air Products and Chemicals, Inc................................................................. 414,750
11,000 Millipore Corp.................................................................................. 455,125
7,000 Sigma-Aldrich Corp.............................................................................. 437,063
------------
1,306,938
------------
Producer Manufacturing 3.3%
5,000 Emerson Electric Co............................................................................. 483,750
6,000 Minnesota Mining & Manufacturing Co............................................................. 497,250
15,000a U.S. Filter Corp................................................................................ 476,250
------------
1,457,250
------------
Retail 1.1%
10,000 McDonald's Corp................................................................................. 452,500
------------
Semiconductors 3.4%
5,000 Intel Corp...................................................................................... 654,688
10,000 Linear Technology Corp.......................................................................... 438,750
12,000a Xilinx, Inc..................................................................................... 441,750
------------
1,535,188
------------
Software/Technology Services 14.1%
15,000 Adobe Systems, Inc.............................................................................. 560,625
14,000 Automatic Data Processing, Inc.................................................................. 600,250
15,000a Broderbund Software, Inc........................................................................ 446,250
17,000 Electronic Data Systems Corp. .................................................................. 735,250
22,000 First Data Corp................................................................................. 803,000
22,000a Informix Corp................................................................................... 448,250
20,000a Intuit, Inc..................................................................................... 630,000
2,400a Microsoft Corp.................................................................................. 198,300
12,000a Oracle Corp..................................................................................... 501,000
21,000a Sabre Group Holdings, Inc....................................................................... 585,375
10,000a Sterling Commerce, Inc.......................................................................... 352,500
Software/Technology Services (cont.)
13,000a Sterling Software, Inc.......................................................................... $ 411,124
1,200a West TeleServices Corp.......................................................................... 27,300
------------
6,299,224
------------
Transportation 2.7%
22,000 Air Express International Corp.................................................................. 709,500
22,000 Southwest Airlines Co........................................................................... 486,750
------------
1,196,250
------------
Utilities 4.1%
12,000a AES Corp........................................................................................ 558,000
25,000a AirTouch Communications, Inc.................................................................... 631,250
7,000d Deutsche Telekom (Germany) ..................................................................... 147,187
11,000 GTE Corp........................................................................................ 500,500
------------
1,836,937
------------
Total Long Term Investments (Cost $35,787,432)............................................ 37,769,882
------------
Face
Amount
h,iReceivables from Repurchase Agreements 17.7%
$ 7,767,535 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $7,904,293) (Cost $7,901,400)
Aubrey G. Lanston & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $970,506)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................... 7,901,400
------------
Total Investments (Cost $43,688,832) 102.2%.......................................... 45,671,282
Liabilities in Excess of Other Assets (2.2%)......................................... (1,004,571)
------------
Net Assets 100.0% ................................................................... $44,666,711
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $43,688,832
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 2,753,332
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (770,882)
------------
Net unrealized appreciation .................................................................. $ 1,982,450
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton International Smaller Companies Fund (Note 1)
Common Stocks & Warrants 58.5%
Argentina 0.8%
<S> <C> <C> <C>
US 100 Comercial Industrial Financiera Inmobiliari Agropecuaria, ADR ....................... $ 195
US 24,300a,b Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR ..................... 47,385
US 7,000 Transportadora de Gas del Sur, SA, Class B, ADR ..................................... 85,750
------------
133,330
------------
Australia 0.9%
AU 6,000 Davids, Ltd. ........................................................................ 8,441
AU 44,000 Email, Ltd. ......................................................................... 145,460
------------
153,901
------------
Austria 1.5%
AT 3,453 Boehler Uddeholm, AG ................................................................ 247,087
------------
Canada 0.2%
CA 1,480 Hudson Bay Co. ...................................................................... 24,747
------------
China 2.3%
CN 40,000 China International Marine Containers, Class B ...................................... 46,545
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H .................................... 62,486
US 92,000b Guangdong Electric Power Development Co., Ltd., Class B ............................. 81,360
US 40,000b Guangdong Kelon Electrical Holdings, Ltd., Class H, ADR ............................. 25,858
CN 92,000 Guangdong Kelon Electrical Holdings, Ltd., Class H .................................. 59,474
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ..................................... 101,430
------------
377,153
------------
Denmark 2.4%
DK 2,252 Det Danske Traelastkompagni, AS ..................................................... 206,883
DK 7,200 ISS International Service System, AS, Class B ....................................... 189,506
------------
396,389
------------
Ecuador 0.9%
US 625b La Cemento Nacional CA, GDR ......................................................... 143,125
------------
France 2.1%
FR 38 Eramet, SA .......................................................................... 1,993
FR 1,283 Marine Wendel ....................................................................... 117,784
FR 294a Sa des Galeries Lafayette ........................................................... 104,672
FR 2,356 Vallourec ........................................................................... 124,957
------------
349,406
------------
Germany 0.6%
DD 1,686 Moebel Walther, AG .................................................................. 93,149
------------
Hong Kong 6.8%
HK 904,000 Baltrans Holdings, Ltd. ............................................................. 122,723
HK 432,100 C.P. Pokphand Co., Ltd. ............................................................. 168,996
HK 79,000 Giordano International, Ltd. ........................................................ 67,412
HK 125,052 Hung Hing Printing Group, Ltd. ...................................................... 45,271
HK 153,000 Kumagai Gumi Hong Kong, Ltd. ........................................................ 178,033
HK 7,800a Kumagai Gumi Hong Kong, Ltd., warrants .............................................. 3,328
HK 77,000 Li & Fung, Ltd. ..................................................................... 68,195
HK 26,000 Orient Overseas International, Ltd. ................................................. 16,976
HK 1,225 Peregrine Investments Holdings, Ltd. ................................................ 2,099
HK 535,000 Sinocan Holdings, Ltd. .............................................................. 262,848
HK 23,000 Swank International Manufacturing Co., Ltd. ......................................... 3,479
Hong Kong (cont.)
HK 741,000 Techtronic Industries Co., Ltd. ..................................................... $ 110,175
HK 12,000 Wing Hang Bank ...................................................................... 54,457
------------
1,103,992
------------
Hungary 0.4%
US 5,560a,b Tiszai Vegyi Kombinat RT, GDR ....................................................... 62,828
------------
Indonesia 2.3%
ID 144,100 PT Steady Safe, fgn. ................................................................ 184,548
ID 106,000 PT Tambang Timah (Persero), fgn. .................................................... 192,972
------------
377,520
------------
Italy 1.0%
IT 9,566 Cartiere Burgo, SPA ................................................................ 44,170
US 3,600a,b Esaote Biomedica, SPA, ADR .......................................................... 113,580
------------
157,750
------------
Mexico 0.6%
MX 151,800a Empaques Ponderosa, SA de CV, Class B ............................................... 93,911
------------
Netherlands 7.0%
NL 1,223 Crown-Van Gelder Papier, SA ......................................................... 109,868
NL 3,096 De Boer Winkelbedrijven, NV ......................................................... 217,877
NL 3,000 Gamma Holdings, NV .................................................................. 144,917
NL 960 Hollandsche Beton Groep, NV ......................................................... 199,006
NL 3,744 Internatio-Mueller, NV .............................................................. 94,115
NL 1,850a Nagron Nationaal Grondbezit, NV ..................................................... 180,017
NL 4,850 Schuttersveld Holding................................................................ 196,079
------------
1,141,879
------------
New Zealand 2.6%
NZ 6,625 Fisher & Paykel, Ltd. ............................................................... 25,994
NZ 66,054 Fletcher Challenge, Ltd., Forestry Division ......................................... 110,671
NZ 70,500 Tourism Holdings, Ltd. .............................................................. 134,568
NZ 8,900a Tranz Rail Holdings, Ltd., ADR ...................................................... 157,419
------------
428,652
------------
Norway 2.3%
NO 12,300 Helikopter Services Group, ASA ...................................................... 160,066
NO 600 Norske Skogindustrier, AS, Class A .................................................. 20,179
NO 6,300 Union Bank of Norway, Primary Capital Certificate ................................... 197,060
------------
377,305
------------
South Africa 0.8%
ZA 12,400 Impala Platinum Holdings, Ltd. ...................................................... 123,907
------------
Spain 6.9%
ES 3,272 Banco de Valencia, SA ............................................................... 63,890
ES 4,000 Banco Pastor, SA .................................................................... 256,345
ES 1,291 Cristaleria Espanola, SA ............................................................ 101,430
ES 1,250 Cubiertas y Mzov, SA ................................................................ 96,283
ES 5,755 Dragados y Construcciones, SA ....................................................... 88,658
ES 1,500 Electricas Reunidas de Zaragoza ..................................................... 60,081
ES 34,500 Energia e Industrias Aragonesas Eia S ............................................... 191,334
Spain (cont.)
ES 3,700 Gesa-Gas y Electricidad, SA ......................................................... $ 236,549
ES 3,323 Uralita, SA ......................................................................... 25,980
------------
1,120,550
------------
Sweden 5.9%
SE 8,000 Catena, Class A ..................................................................... 100,882
SE 4,000a Celsius, AB, Class B ................................................................ 63,051
SE 4,800a Dahl International, AB .............................................................. 100,999
US 6,300a,b Dahl International, AB, ADR ......................................................... 132,562
SE 5,800 Foreningsbanken, AB, Class A ........................................................ 29,171
SE 8,060 Marieberg Tidnings, AB, Class A ..................................................... 197,368
SE 12,995 Munksjo, AB ......................................................................... 131,477
SE 18,145 Scribona, AB, Class B ............................................................... 203,537
SE 1,200 Stena Line, AB, Class B, free ....................................................... 5,367
------------
964,414
------------
Switzerland 1.2%
CH 52 Sarna Kunststoff Holding, AG ........................................................ 49,145
CH 200 Swisslog Holding, AG ................................................................ 55,136
CH 245 Zehnder Holding, AG ................................................................. 84,199
------------
188,480
------------
Thailand 0.5%
TH 9,400a Alphatec Electronics Public Co., Ltd., fgn. ......................................... 72,206
TH 4,800 Robinson Depart. Store Public Co., Ltd., fgn. ....................................... 9,311
------------
81,517
------------
Turkey 0.1%
US 98,875a Tofas Turk Otomobil Fabrikasi, AS, GDR .............................................. 18,292
------------
United Kingdom 8.4%
GB 35,337 Albert Fisher Group, Plc. ........................................................... 25,425
GB 182,524 Apv, Plc. ........................................................................... 240,764
GB 124,400 Hazlewood Foods, Plc. ............................................................... 229,092
GB 200,500 Howden Group, Plc. .................................................................. 266,193
GB 45,500 Lex Service, Plc. ................................................................... 247,867
GB 64,100 McBride, Plc. ....................................................................... 149,340
GB 500 Sea Containers Ltd., Class A ........................................................ 7,813
GB 66,700 Wace Group, Plc. .................................................................... 119,976
GB 11,200a Wagon Industrial Holdings, Plc. ..................................................... 57,560
------------
1,344,030
------------
Total Common Stocks & Warrants (Cost $8,383,250) .............................. 9,503,314
------------
Preferred Stocks 3.0%
Brazil 1.8%
BR 5,207,000 Bombril, SA ......................................................................... 85,188
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ........................................... 12,229
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. .......................................... 106,909
BR 205,000 Weg, SA, pfd. ....................................................................... 96,670
------------
300,996
------------
Netherlands 1.2%
NL 4,025 Ballast Nedam, NV, ctf., conv., pfd. ................................................ $ 196,063
------------
Total Preferred Stocks (Cost $513,051) ........................................ 497,059
------------
Total Long Term Investments (Cost $8,896,301) ................................. 10,000,373
------------
Face
Amount
h Receivables from Repurchase Agreements 39.0%
US $1,955,000 Aubrey G Lanston & Co., 6.75%, 01/02/97, (Maturity Value $2,040,531)
Collateral: U.S. Treasury Notes, 7.25%, 02/15/98 ................................... 2,000,000
US 1,960,000 UBS Securities Inc., 6.75%, 01/02/97, (Maturity Value $2,040,850)
Collateral: U.S. Treasury, 6.375%, 01/15/00 ........................................ 2,000,000
US 2,370,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $2,386,572)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98 ................................... 2,338,000
------------
Total Receivables from Repurchase Agreements (Cost $6,338,000) ................ 6,338,000
------------
Total Investments (Cost $15,234,301) 100.5% .............................. 16,338,373
Liabilities in Excess of Other Assets (0.5%) ............................. (83,335)
------------
Net Assets 100.0% ........................................................ $16,255,038
============
At December 31, 1996, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $15,234,301 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.......................................... $ 1,284,614
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ......................................... (180,542)
------------
Net unrealized appreciation ....................................................... $ 1,104,072
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
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 transactions; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Mutual Shares Securities Fund (Note 1)
Common Stocks & Warrants 61.5%
Aerospace 1.6%
<C> <S> <C>
8,000 General Motors Corp., Class H................................................................. $ 450,000
------------
Automobile 1.8%
9,000 General Motors Corp. ......................................................................... 501,750
------------
Banking 0.7%
3,500a Standard Federal Bancorporation .............................................................. 199,063
------------
Chemicals 3.1%
3,000d BASF AG ...................................................................................... 115,437
2,000d DSM NV ....................................................................................... 197,394
14,500 Olin Corp..................................................................................... 545,562
------------
858,393
------------
Conglomerates 3.3%
10,000a American Standard Cos., Inc. ................................................................. 382,500
65,000d BTR, Plc. .................................................................................... 316,237
5,000a,d Investor, AB, Class B ........................................................................ 221,046
------------
919,783
------------
Construction & Housing 1.3%
14,800 Martin Marietta Materials, Inc................................................................ 344,100
------------
Consumer Products 3.2%
6,000 American Brands, Inc.......................................................................... 297,750
25,000d BAT Industries, Plc........................................................................... 207,498
25,000 Dial Corp. ................................................................................... 368,750
------------
873,998
------------
Electrical & Electronics 1.6%
8,500 Xerox Corp. .................................................................................. 447,313
------------
Energy 5.2%
11,700 Ashland, Inc.................................................................................. 513,338
29,300d Saga Petroleum, AS, Class B................................................................... 459,392
26,100d Shell Transport & Trading Co., Plc. .......................................................... 452,259
------------
1,424,989
------------
Financial Services 2.2%
2,000 Beneficial Corp. ............................................................................. 126,750
40,000 Mercury Finance Co. .......................................................................... 490,000
------------
616,750
------------
Food & Beverages 1.6%
53,000d Cadbury Schweppes, Plc........................................................................ 447,160
------------
Health Care Services 5.2%
24,000a Beverly Enterprises .......................................................................... 306,000
5,200a Foundation Health Corp. ...................................................................... 165,100
15,000a Mid-Atlantic Medical Services ................................................................ 200,625
17,600a Tenet Healthcare Corp. ....................................................................... 385,000
13,400 Imation Corp ................................................................................. 376,875
------------
1,433,600
------------
Industrial Components 7.8%
15,000 ITT Industries ............................................................................... $ 367,500
16,000d Lagardere Sca ................................................................................ 439,421
80,000a,d Lucas Varity, Plc............................................................................. 304,930
7,800a Owens-Illinois, Inc........................................................................... 177,450
19,000 Federal Mogul Corp. .......................................................................... 418,000
21,500a New Holland NV ............................................................................... 448,813
------------
2,156,114
------------
Insurance 7.3%
25,000 20th Century Industries ...................................................................... 421,875
1,500a Alleghany Corp. .............................................................................. 318,000
4,000 AON Corp. .................................................................................... 248,500
8,000 Argonaut Group ............................................................................... 246,000
7,500 Home Beneficial Corp., Class B ............................................................... 284,063
8,900a ITT Hartford Group, Inc. ..................................................................... 386,038
3,000 Selective Insurance Group .................................................................... 114,000
------------
2,018,476
------------
Metals & Mining 2.8%
25,000a LTV Corp. .................................................................................... 296,875
8,500 Reynolds Metals Co. .......................................................................... 479,188
------------
776,063
------------
Printing, Publishing & Media 5.1%
20,000 Comcast Corp., Class A........................................................................ 356,250
14,000 Dun & Bradstreet Corp. ....................................................................... 332,500
7,500 Knight-Ridder, Inc............................................................................ 286,875
12,500 Scripps (EW) Co., Class A..................................................................... 437,500
------------
1,413,125
------------
Retail 2.4%
13,600 Dillard Dept. Stores, Inc., Class A........................................................... 419,900
4,000a Vons Companies, Inc........................................................................... 239,500
------------
659,400
------------
Telecommunications 3.2%
7,600 AT&T Corp. ................................................................................... 330,600
4,000 MCI Communications Corp. ..................................................................... 130,750
12,000 Telephone & Data Systems, Inc................................................................. 435,000
------------
869,350
------------
Transportation 2.1%
2,000 Burlington Northern Santa Fe Corp. ........................................................... 172,750
8,000 Ryder Systems, Inc............................................................................ 225,000
4,300 Xtra Corp. ................................................................................... 186,513
------------
584,263
------------
Total Common Stocks (Cost $16,461,251).................................................. 17,020,690
------------
Options 1.0%
12,000a,n Cityscape Financial Corp., January/20/Call (Cost $240,000).................................... 283,500
------------
Total Common Stocks & Options (Cost $16,701,251)........................................ 17,304,190
------------
Face
Amount
Bonds 1.5%...................................................................................
$ 100,000 Comcast Cellular, 0.0% 03/05/00 .............................................................. $ 72,375
175,000 Consorcio G Grupo Dina, SA, 8.00%, 8/08/04 ................................................... 145,250
100,000 Consorcio G Grupo Dina, SA, 8.00%, 11/15/02 .................................................. 63,000
150,000b Uniforet, Inc., 11.125%, 10/15/06 ............................................................ 140,250
------------
Total Bonds (Cost $411,314)............................................................. 420,875
------------
Total Long Term Investments (Cost $17,112,565).......................................... 17,725,065
------------
f Short Term Investments 40.1%
Federal National Mortgage Association,
4,700,000 5.50%, 1/08/97 ............................................................................. 4,696,660
2,400,000 5.50%, 1/13/97 ............................................................................. 2,395,950
4,000,000 5.50%, 1/14/97 ............................................................................. 3,992,640
------------
Total Short Term Investments (Cost $11,080,933)..................................... 11,085,250
------------
Total Investments (Cost $28,193,498) 104.1%........................................ 28,810,315
Liabilities in Excess of Other Assets, Net (4.1%)................................. (1,133,393)
------------
Net Assets 100.0% ................................................................ $27,676,922
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$28,193,498 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 718,006
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (101,189)
------------
Net unrealized appreciation ................................................................ $ 616,817
============
</TABLE>
aNon-income producing.
bPurchased in private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Warrants Mutual Discovery Securities Fund (Note 1)
Common Stocks 60.9%
Aerospace 0.6%
<S> <C> <C>
3,000a,d Thomson CSF .................................................................................... $ 97,377
------------
Automobile 1.1%
3,000 General Motors Corp. ........................................................................... 167,250
------------
Banking 0.6%
1,500a Standard Federal Bancorporation, Inc............................................................ 85,313
------------
Chemicals 3.3%
1,700d BASF AG ........................................................................................ 65,414
4,000a Chemfirst, Inc.................................................................................. 92,500
1,336a Mississippi Chemical Corp. ..................................................................... 32,064
6,600 Olin Corp. ..................................................................................... 248,325
2,000d Rhone-Poulenc, SA, Class A...................................................................... 68,235
------------
506,538
------------
Conglomerates 7.1%
30,000d BTR, Plc........................................................................................ 145,955
80a,d Cie Financiere Richemont AG, Class A............................................................ 112,365
2,600d Empire Co. Ltd., Class A........................................................................ 25,154
210,000d Hanson, Plc..................................................................................... 293,196
3,000a,d Investor AB, Class B............................................................................ 132,628
9,000a,d Kinnevik AB, Class B............................................................................ 248,099
30,000d Tomkins, Plc.................................................................................... 137,990
------------
1,095,387
------------
Construction & Housing 0.8%
5,200 Martin Marietta Materials, Inc.................................................................. 120,900
------------
Consumer Products 0.9%
16,000d BAT Industries, Plc............................................................................. 132,799
------------
Electrical & Electronics 2.1%
1,500a Amphenol Corp., Class A......................................................................... 33,375
14,500 Wang Labs, Inc.................................................................................. 293,625
------------
327,000
------------
Energy 6.7%
10,000 ENSERCH Corp. .................................................................................. 230,000
16,600d Saga Petroleum, AS, Class B..................................................................... 260,270
14,800d Shell Transport & Trading Co., Plc. ............................................................ 256,453
1,450d Societe Elf Aquitane, SA ....................................................................... 132,080
8,000 Southwest Gas Corp ............................................................................. 154,000
------------
1,032,803
------------
Financial Services 2.9%
7,600a,d Compagnie de Suez, SA........................................................................... 323,348
8,000a SPS Transaction Services, Inc................................................................... 122,000
------------
445,348
------------
Food & Beverage 1.6%
30,000d Cadbury Schweppes, Plc.......................................................................... 253,109
------------
Health Care Services 6.4%
18,000a Apria Healthcare Group, Inc..................................................................... 337,500
4,000a Beverly Enterprises ............................................................................ 51,000
3,200a Foundation Health Corp. ........................................................................ 101,600
7,600 Imation Corp. .................................................................................. 213,750
Health Care Services (cont.)
5,000a Mid Atlantic Medical Services .................................................................. $ 66,875
9,700a Tenet Healthcare Corp. ......................................................................... 212,187
------------
982,912
------------
Industrial Components 4.3%
2,500d Aker, A/S, Class A.............................................................................. 55,660
10,000 Federal Mogul Corp. ............................................................................ 220,000
9,000d Lagardere Sca .................................................................................. 247,175
1,570 Lyonnais des Eaux SA ........................................................................... 146,220
------------
669,055
------------
Insurance 3.5%
2,500 20th Century Industries ........................................................................ 42,187
7,000 Arthur J Gallagher Co. ......................................................................... 217,000
1,000d Axa, SA......................................................................................... 63,645
3,000 Home Beneficial Corp., Class B.................................................................. 113,625
3,000 PXRE Corp. ..................................................................................... 74,250
500 Reliable Life Insurance Co., Class A............................................................ 34,250
------------
544,957
------------
Metals & Mining 0.9%
16,000a WHX Corp. ...................................................................................... 142,000
------------
Printing, Publishing & Media 9.6%
6,000 Comcast Corp., Class A.......................................................................... 106,875
12,000a,d De Telegraaf Holding NV ........................................................................ 252,997
4,800 Dun & Bradstreet Corp. ......................................................................... 114,000
3,000d EMI Group, Plc.................................................................................. 70,922
500a,d Pathe, SA....................................................................................... 120,540
20,600a,d Pearson, Plc.................................................................................... 264,496
25,000d Southam, Inc.................................................................................... 347,742
11,000d United News & Media, Plc........................................................................ 131,060
2,000a Young Broadcasting Corp., Class A............................................................... 58,500
------------
1,467,132
------------
Retail 3.5%
27,400d Vendome Luxury Group, Plc....................................................................... 249,949
11,000a Waban, Inc. .................................................................................... 286,000
------------
535,949
------------
Telecommunications 2.1%
1,600 AT&T Corp. ..................................................................................... 69,600
2,000 MCI Communications Corp. ....................................................................... 65,375
19,500a United States Satelite Broadcasting Co., Inc., Class A.......................................... 195,000
------------
329,975
------------
Transportation 2.9%
20,000a Fritz Companies ................................................................................ 255,000
8,000a M.S. Carriers, Inc.............................................................................. 128,000
2,500 Ryder Systems, Inc.............................................................................. 70,313
------------
453,313
------------
Total Common Stocks (Cost $9,174,523)..................................................... 9,389,117
------------
Option 1.2%
8,000a,n Cityscape Financial Corp., January/20/Call (Cost $160,000)...................................... $ 189,000
------------
Preferred Stock 0.4%
1,000 Granite Broadcasting Corp., cvt., pfd. (Cost $62,000)........................................... 56,500
------------
Total Common Stocks & Options & Preferred Stock (Cost $9,396,523)......................... 9,634,617
------------
Face
Amount
Bonds 0.7%
$ 100,000 Consorcio G Grupo Dina, SA, 11/15/02............................................................ 83,000
50,000 Consorcio G. Grupo Dina, SA, 8.00%, 08/08/04.................................................... 31,500
------------
Total Bonds (Cost $113,930)............................................................... 114,500
------------
Total Long Term Investments (Cost $9,510,453)............................................. 9,749,117
------------
f Short Term Investments 44.7%
Federal National Mortgage Association,
2,800,000 5.50%, 01/08/97 .............................................................................. 2,798,013
1,600,000 5.50%, 01/13/97 .............................................................................. 1,597,300
2,500,000 5.50%, 01/14/97 .............................................................................. 2,495,400
------------
Total Short Term Investments (Cost $6,888,053)............................................. 6,890,713
------------
Total Investments 107.9% (Cost $16,398,506)........................................... 16,639,830
Liabilities in Excess of Other Assets, Net (7.9%)..................................... (1,222,100)
------------
Net Assets 100.0% .................................................................... $15,417,730
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $16,398,506
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 326,363
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (85,039)
------------
Net unrealized appreciation .................................................................. $ 241,324
============
</TABLE>
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................. $201,946,322 $406,708,119 $100,015,691 $218,988,176 $837,991,438
========== ========== ========== ========== ==========
At value............................................ 207,971,426 424,943,010 105,283,600 298,843,244 845,037,886
Receivables from repurchase agreements, at value
and cost............................................. 7,277,000 13,463,468 3,467,349 23,119,441 12,617,646
Cash................................................. 71 78,643 812,903 -- 6,673
Receivables:
Dividends and interest.............................. 6,037,134 7,813,047 88,045 1,974,322 6,569,453
Investment securities sold.......................... -- -- -- -- 459,215
Capital shares sold................................. -- -- -- 243,911 77,178
Unrealized gain on forward foreign currency contracts
(Note 2)............................................. 750,169 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total assets.................................... 222,035,800 446,298,168 109,651,897 324,180,918 864,768,051
---------- ---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................... -- -- -- 220,928 --
Delayed delivery (Note 1).......................... -- -- -- -- 19,808,854
Capital shares repurchased.......................... 84,774 -- -- 1,093,736 731,274
Management fees..................................... 101,580 188,287 56,939 136,471 347,440
Accrued expenses and other liabilities............... 39,611 14,356 16,373 8,588 22,966
Unrealized loss on forward foreign currency contracts
(Note 2)............................................. 87,366 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total liabilities............................... 313,331 202,643 73,312 1,459,723 20,910,534
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................. $ 12,596,126 $ 37,005,221 $ 1,214,989 $ 11,259,725 $ 42,920,983
Net unrealized appreciation on investments and
translation of assets and liabilities denominated in
foreign currencies................................... 6,671,970 18,234,139 5,273,371 79,855,068 7,046,448
Accumulated net realized gain (loss) from investments (4,045,845) 1,211,890 (146,066) 5,025,389 (15,868,007)
Capital shares....................................... 206,500,218 389,644,275 103,236,291 226,581,013 809,758,093
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Shares outstanding.................................... 16,287,427 31,511,357 7,668,120 14,568,012 62,667,403
========== ========== ========== ========== ==========
Net asset value per share............................. $13.61 $14.16 $14.29 $22.15 $13.47
========== ========== ========== ========== ==========
Representative computation of net asset value of Templeton Global Income
Securities Fund:
Net asset value, offering and redemption price
per share ($221,722,469 / 16,287,427)................ $13.61
==========
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
---------- --------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................... $122,571,579 $75,820,587 $69,789,913 $336,710,542 $ 864,711,520
========== ========= ========= ========== ===========
At value.............................................. 129,617,944 82,553,084 79,266,684 336,710,542 1,019,880,063
Receivables from repurchase agreements, at value
and cost............................................... 69,876 93,859 145,762 66,895,000 51,776,284
Cash................................................... -- -- -- 4,700,658 --
Receivables:
Dividends and interest................................ -- -- -- 794,346 3,785,038
Investment securities sold............................ -- -- -- -- 3,512,869
Capital shares sold................................... -- 629 57,497 -- 404,277
---------- --------- --------- ---------- -----------
Total assets...................................... 129,687,820 82,647,572 79,469,943 409,100,546 1,079,358,531
---------- --------- --------- ---------- -----------
Liabilities:
Payables:
Capital shares repurchased............................ 36,555 10,245 545,466 -- 896,804
Management fees....................................... 44,259 29,399 16,569 154,541 433,613
Accrued expenses and other liabilities................. 6,064 4,459 92,162 16,192 39,106
---------- --------- --------- ---------- -----------
Total liabilities................................. 86,878 44,103 654,197 170,733 1,369,523
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................... $ 8,152,316 $ 4,939,715 $ 4,878,360 $-- $ 39,442,227
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies.................................. 7,046,365 6,732,497 9,476,771 -- 155,168,751
Accumulated net realized gain (loss) from investments . 183,688 12,553 (380,118) -- 37,740,141
Capital shares......................................... 114,218,573 70,918,704 64,840,733 408,929,813 845,637,889
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Shares outstanding...................................... 8,530,236 5,052,522 4,839,072 408,929,813 61,406,730
========== ========= ========= ========== ===========
Net asset value per share............................... $15.19 $16.35 $16.29 $1.00 $17.55
========== ========= ========= ========== ===========
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
----------- ----------- ---------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.............................. $1,194,708,385 $ 839,934,287 $309,117,973 $431,060,996 $1,131,582,574
=========== =========== ========== ========== ===========
At value........................................ 1,272,241,931 974,257,046 349,309,297 581,340,585 1,184,550,481
Receivables from repurchase agreements, at value
and cost......................................... 62,830,189 131,446,000 8,871,000 16,807,023 16,474,667
Cash............................................. -- 931 264 172,383 --
Receivables:
Dividends and interest.......................... 17,104,906 2,561,987 861,231 1,332,043 3,051,664
Investment securities sold...................... 33,385 2,714,857 17,048 -- 57,430
Capital shares sold............................. 414,835 16,643 1,008 -- 25,004
----------- ----------- ---------- ---------- -----------
Total assets................................ 1,352,625,246 1,110,997,464 359,059,848 599,652,034 1,204,159,246
----------- ----------- ---------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased ................ 517,007 1,250,875 29,588 1,853,351 --
Capital shares repurchased...................... 839,779 684,914 1,886,006 -- 1,325,847
Management fees................................. 536,436 727,438 274,863 359,607 479,904
Accrued expenses and other liabilities........... 72,604 234,863 110,233 15,375 63,175
----------- ----------- ---------- ---------- -----------
Total liabilities........................... 1,965,826 2,898,090 2,300,690 2,228,333 1,868,926
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Net assets consist of:
Undistributed net investment income.............. $ 99,623,131 $ 27,747,634 $ 2,026,130 $ 9,954,026 $ 54,346,789
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies................ 77,529,713 134,322,759 40,191,324 150,279,589 52,967,907
Accumulated net realized gain (loss) from
investments ..................................... 21,370,923 49,651,484 (4,936,835) 16,701,690 75,189,259
Capital shares................................... 1,152,135,653 896,377,497 319,478,539 420,488,396 1,019,786,365
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Shares outstanding................................ 78,493,846 71,718,408 24,170,761 38,791,704 66,144,551
=========== =========== ========== ========== ===========
Net asset value per share......................... $17.21 $15.45 $14.76 $15.40 $18.18
=========== =========== ========== ========== ===========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $252,593,090 $438,071,335 $42,853,167 $146,105,705
========== ========== ========== ==========
At value............................................................ 272,491,501 526,446,386 47,868,276 156,518,778
Receivables from repurchase agreements, at value and cost............ -- 61,988,000 7,838,000 16,477,730
Foreign currencies at value and cost................................. 911,992 -- -- --
Receivables:
Dividends and interest.............................................. 450,226 965,456 503,823 165,102
Investment securities sold.......................................... 336,287 -- 3,607 --
Capital shares sold................................................. 87,314 36,592 151,967 146,290
Unrealized gain on forward foreign currency contracts (Note 2)....... -- -- 5,521 --
---------- ---------- ---------- ----------
Total assets.................................................... 274,277,320 589,436,434 56,371,194 173,307,900
---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................................... 1,715,562 1,381,875 47,880 855,122
Delayed delivery (Note 1).......................................... -- -- -- 957,150
Capital shares repurchased.......................................... -- 1,252,510 -- 420,130
Management fees..................................................... 280,632 411,384 36,558 102,293
Accrued expenses and other liabilities............................... 180,903 99,487 10,556 4,235
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 438 --
Bank overdraft....................................................... 1,802 3,206,834 1,636 --
Foreign currency overdraft, at value and cost ....................... -- 3,206,957 -- --
---------- ---------- ---------- ----------
Total liabilities............................................... 2,178,899 9,559,047 97,068 2,338,930
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................................. $ 3,577,713 $ 10,394,157 $ 1,460,392 $ 578,335
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 19,898,411 88,375,051 5,020,163 10,413,073
Accumulated net realized gain from investments ...................... 6,190,238 3,595,964 428,295 6,732,932
Capital shares....................................................... 242,432,059 477,512,215 49,365,276 153,244,630
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Shares outstanding.................................................... 23,468,431 42,027,864 4,469,291 12,956,069
========== ========== ========== ==========
Net asset value per share............................................. $11.59 $13.80 $12.59 $13.20
========== ========== ========== ==========
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund Fund Securities Fund Securities Fund
--------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $35,787,432 $ 8,896,301 $28,193,498 $16,398,506
========= ========= ========== ===========
At value............................................................ 37,769,882 10,000,373 28,810,315 16,639,830
Receivables from repurchase agreements, at value and cost............ 7,901,400 6,338,000 -- --
Cash................................................................. 7,564 -- 1,254,546 1,021,497
Receivables:
Dividends and interest.............................................. 23,370 19,810 11,166 5,787
Investment securities sold.......................................... -- 1,859 -- --
Capital shares sold................................................. -- -- 706,560 745,417
--------- --------- ---------- -----------
Total assets.................................................... 45,702,216 16,360,042 30,782,587 18,412,531
--------- --------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased..................................... 1,007,236 39,162 3,037,354 2,925,519
Capital shares repurchased.......................................... -- 46,704 -- --
Management fees..................................................... 26,296 12,961 11,822 11,033
Accrued expenses and other liabilities............................... 1,973 5,824 8,015 4,775
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 48,474 53,474
Bank overdraft....................................................... -- 353 -- --
--------- --------- ---------- -----------
Total liabilities............................................... 1,035,505 105,004 3,105,665 2,994,801
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................................. $ 109,751 $ 132,644 $ 50,601 $ 26,147
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 1,982,450 1,104,072 568,343 187,850
Accumulated net realized gain (loss) from investments ............... (139,950) -- (3,049) --
Capital shares....................................................... 42,714,460 15,018,322 27,061,027 15,203,733
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Shares outstanding.................................................... 3,930,828 1,445,259 2,673,901 1,510,497
========= ========= ========== ===========
Net asset value per share............................................. $11.36 $11.25 $10.35 $10.21
========= ========= ========== ===========
Statements of Operations
for the year ended December 31, 1996
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- -------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest1 .............................................. $17,957,900 $37,434,091 $ 642,007 $ 1,025,568 $46,276,568
Dividends2.............................................. -- 1,642,821 1,428,329 11,995,963 --
---------- ---------- -------- ---------- ----------
Total income....................................... 17,957,900 39,076,912 2,070,336 13,021,531 46,276,568
---------- ---------- -------- ---------- ----------
Expenses:
Management fees (Note 6)................................ 1,262,055 1,985,566 754,383 1,335,653 3,162,073
Custodian fees.......................................... 92,550 10,891 33,402 4,603 13,156
Reports to shareholders................................. 27,051 47,540 15,643 29,351 80,954
Professional fees....................................... 8,600 12,280 5,846 8,956 18,945
Trustees' fees and expenses............................. 1,582 2,608 867 1,631 4,491
Other................................................... 434 9,299 2,663 2,987 9,291
---------- ---------- -------- ---------- ----------
Total expenses..................................... 1,392,272 2,068,184 812,804 1,383,181 3,288,910
---------- ---------- -------- ---------- ----------
Net investment income............................. 16,565,628 37,008,728 1,257,532 11,638,350 42,987,658
---------- ---------- -------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................... 473,472 1,214,007 (146,066) 5,460,333 (158,758)
Foreign currency transactions......................... (53,884) (3,507) (42,500) -- --
Net unrealized appreciation (depreciation) on:
Investments........................................... 2,679,931 13,293,126 930,235 57,769,186 (18,937,072)
Translation of assets and liabilities denominated in
foreign currencies...................................... 641,631 1,095 5,671 -- --
---------- ---------- -------- ---------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................. 3,741,150 14,504,721 747,340 63,229,519 (19,095,830)
---------- ---------- -------- ---------- ----------
Net increase in net assets resulting from operations..... $20,306,778 $51,513,449 $2,004,872 $74,867,869 $23,891,828
========== ========== ======== ========== ==========
1Net of foreign taxes withheld of $250,973 for the Templeton Global Income Securities Fund.
2Net of foreign taxes and fees withheld of $112,509 for the Precious Metals Fund.
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
--------- --------- --------- --------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest ................................................. $8,677,417 $5,259,243 $5,189,484 $23,914,246 $ 3,725,065
Dividends3................................................ -- -- -- -- 40,633,786
--------- --------- --------- --------- ----------
Total income......................................... 8,677,417 5,259,243 5,189,484 23,914,246 44,358,851
--------- --------- --------- --------- ----------
Expenses:
Management fees (Note 6).................................. 790,492 503,611 490,108 2,225,389 4,643,546
Custodian fees............................................ 3,562 1,981 1,672 7,843 29,893
Reports to shareholders................................... 16,797 10,045 9,850 54,419 122,636
Professional fees......................................... 5,359 3,716 3,882 16,411 30,140
Trustees' fees and expenses............................... 914 553 543 3,020 6,670
Other..................................................... 3,801 3,118 3,331 7,018 12,562
Management fees waived by manager (Note 6)................ (295,543) (203,897) (198,310) (443,587) --
--------- --------- --------- --------- ----------
Total expenses....................................... 525,382 319,127 311,076 1,870,513 4,845,447
--------- --------- --------- --------- ----------
Net investment income............................... 8,152,035 4,940,116 4,878,408 22,043,733 39,513,404
--------- --------- --------- --------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments............................................. 183,983 19,477 (191,720) -- 37,891,245
Foreign currency transactions........................... -- -- -- -- (79,533)
Net unrealized appreciation (depreciation) on:
Investments............................................. (5,248,940) (5,309,151) (6,860,589) -- 55,138,044
Translation of assets and liabilities denominated in
foreign currencies........................................ -- -- -- -- 208
--------- --------- --------- --------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................... (5,064,957) (5,289,674) (7,052,309) -- 92,949,964
--------- --------- --------- --------- ----------
Net increase (decrease) in net assets resulting from
operations................................................ $3,087,078 $ (349,558) $(2,173,901) $22,043,733 $132,463,368
========= ========= ========= ========= ==========
3Net of foreign taxes and fees withheld of $643,185 for the Growth and Income Fund.
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
---------- ---------- --------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest .............................................. $ 78,393,845 $ 10,234,709 $ 815,560 $ 2,406,978 $ 1,627,033
Dividends4............................................. 31,792,041 28,746,834 8,545,807 11,431,537 59,257,031
---------- ---------- --------- ---------- ----------
Total income...................................... 110,185,886 38,981,543 9,361,367 13,838,515 60,884,064
---------- ---------- --------- ---------- ----------
Expenses:
Management fees (Note 6)............................... 6,130,804 7,945,053 3,343,850 3,785,807 6,097,507
Custodian fees......................................... 123,304 621,312 280,490 10,356 90,468
Reports to shareholders................................ 162,107 113,833 44,916 61,635 162,864
Professional fees...................................... 42,708 27,750 13,100 15,517 42,547
Trustees' fees and expenses............................ 9,005 7,019 2,562 3,442 9,093
Registration fees...................................... -- 10,014 10,009 -- 10,000
Other.................................................. 19,260 29,802 5,288 6,178 17,533
---------- ---------- --------- ---------- ----------
Total expenses.................................... 6,487,188 8,754,783 3,700,215 3,882,935 6,430,012
---------- ---------- --------- ---------- ----------
Net investment income............................ 103,698,698 30,226,760 5,661,152 9,955,580 54,454,052
---------- ---------- --------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments.......................................... 20,229,599 49,779,857 (4,377,500) 31,514,069 82,705,077
Foreign currency transactions........................ (419,290) (482,587) 64,831 (102,562)
Net unrealized appreciation (depreciation) on:
Investments.......................................... 16,701,514 122,637,885 36,732,857 71,866,460 (53,556,922)
Translation of assets and liabilities denominated in
foreign currencies..................................... 45,771 -- -- -- (551)
---------- ---------- --------- ---------- ----------
Net realized and unrealized gain from investments and
foreign currencies..................................... 36,557,594 171,935,155 32,420,188 103,380,529 29,045,042
---------- ---------- --------- ---------- ----------
Net increase in net assets resulting from operations.... $140,256,292 $202,161,915 $38,081,340 $113,336,109 $83,499,094
========== ========== ========= ========== ==========
4Net of foreign taxes and fees withheld of $170,500, $3,296,423, $608,294,
$62,834 and $633,448 for the Income Securities Fund, Templeton International
Equity Fund, Templeton Pacific Growth Fund, Rising Dividends Fund, and Utility
Equity Fund, respectively.
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
--------- --------- ---------- ---------
Investment income:
<S> <C> <C> <C> <C>
Interest5 ............................................................. $ 1,272,781 $ 3,337,722 $1,192,888 $ 807,636
Dividends6............................................................. 6,041,537 10,977,393 540,763 494,208
--------- --------- ---------- ---------
Total income...................................................... 7,314,318 14,315,115 1,733,651 1,301,844
--------- --------- ---------- ---------
Expenses:
Management fees (Note 6)............................................... 2,887,400 4,016,061 272,732 694,975
Custodian fees......................................................... 530,000 191,073 14,227 978
Reports to shareholders................................................ 15,500 24,723 1,834 9,310
Professional fees...................................................... 4,100 17,273 3,600 8,338
Trustees' fees and expenses............................................ 500 -- 29 563
Other.................................................................. 2,751 522 3,033 2,195
--------- --------- ---------- ---------
Total expenses.................................................... 3,440,251 4,249,652 295,455 716,359
--------- --------- ---------- ---------
Net investment income............................................ 3,874,067 10,065,463 1,438,196 585,485
--------- --------- ---------- ---------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................................... 6,444,991 5,369,864 489,252 6,732,905
Foreign currency transactions......................................... (198,551) (252,340) (12,228) (6,723)
Net unrealized appreciation (depreciation) on:
Investments........................................................... 29,643,653 73,557,750 4,638,458 10,251,252
Translation of assets and liabilities denominated in foreign currencies 48,919 -- (456) --
--------- --------- ---------- ---------
Net realized and unrealized gain from investments and foreign currencies 35,939,012 78,675,274 5,115,026
16,977,434
--------- --------- ---------- ---------
Net increase in net assets resulting from operations.................... $39,813,079 $88,740,737 $6,553,222 $17,562,919
========= ========= ========== =========
5Net of foreign taxes withheld of $8,478 for the Templeton Global Asset
Allocation Fund. 6Net of foreign taxes withheld of $355,057, $825,578, $36,004
for the Templeton Developing Markets Equity Fund, Templeton Global Growth Fund,
and Templeton Global Asset Allocation Fund, respectively.
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund* Fund* Securities Fund** Securities Fund**
--------- --------- ----------- -----------
Investment income:
<S> <C> <C> <C> <C>
Interest ............................................................ $ 114,799 $ 122,487 $ 62,029 $ 34,509
Dividends7........................................................... 84,201 84,349 8,410 5,586
--------- --------- ----------- -----------
Total income.................................................... 199,000 206,836 70,439 40,095
--------- --------- ----------- -----------
Expenses:
Management fees (Note 6)............................................. 86,028 56,389 11,822 11,033
Custodian fees....................................................... 96 4,830 3,400 3,200
Reports to shareholders.............................................. 536 1,500 2,971 --
Professional fees.................................................... 1,770 1,150 1,560 1,560
Trustees' fees and expenses.......................................... 49 150 -- 15
Registration fees.................................................... -- 1,300 -- --
Other................................................................ 307 152 85 --
--------- --------- ----------- -----------
Total expenses.................................................. 88,786 65,471 19,838 15,808
--------- --------- ----------- -----------
Net investment income......................................... 110,214 141,365 50,601 24,287
--------- --------- ----------- -----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments......................................................... (139,950) 904 (3,049) 1,860
Foreign currency transactions....................................... (463) (9,625) -- --
Net unrealized appreciation on investments........................... 1,982,450 1,104,072 568,343 187,850
--------- --------- ----------- -----------
Net realized and unrealized gain from investments and foreign currencies 1,842,037 1,095,351 565,294 189,710
--------- --------- ----------- -----------
Net increase in net assets resulting from operations.................. $ 1,952,251 $ 1,236,716 $ 615,895 $ 213,997
========= ========= =========== ===========
7Net of foreign taxes withheld of $1,034, $9,526 and $508 for the Capital Growth
Fund, Templeton International Smaller Companies Fund, and Mutual Discovery
Securities Fund, respectively.
*May 1, 1996 (effective date) to December 31, 1996
**November 8, 1996 (effective date) to December 31, 1996
Statements of Changes in Net Assets
for the years ended December 31, 1996 and 1995
Templeton Global Income
Securities Fund High Income Fund Precious Metals Fund
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 16,565,628 $ 18,687,112 $ 37,008,728 $ 31,021,484 $ 1,257,532 $ 1,615,339
Net realized gain (loss) from
investments and foreign currency
transactions...................... 419,588 (7,995,904) 1,210,500 1,770,719 (188,566) 1,438,861
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in foreign
currencies........................ 3,321,562 22,864,210 13,294,221 22,884,579 935,906 (1,361,730)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 20,306,778 33,555,418 51,513,449 55,676,782 2,004,872 1,692,470
Distributions to shareholders from:
Undistributed net investment
income............................ (17,028,466) (9,275,583) (31,018,152) (21,305,944) (1,593,439) (1,664,388)
Undistributed net realized capital
gains............................. -- -- (1,646,547) -- (1,460,667) (1,232,041)
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... (24,749,927) (35,396,559) 66,343,229 71,496,259 5,519,005 (18,765,586)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets..................... (21,471,615) (11,116,724) 85,191,979 105,867,097 4,469,771 (19,969,545)
Net assets:
Beginning of year................. 243,194,084 254,310,808 360,903,546 255,036,449 105,108,814 125,078,359
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $221,722,469 $243,194,084 $446,095,525 $360,903,546 $109,578,585 $105,108,814
========== ========== ========== ========== ========== ==========
Undistributed net investment
income included in net assets:
Beginning of year................ $ 14,271,863 $ 20,717,930 $ 31,020,827 $ 21,367,505 $ 1,615,202 $ 1,682,044
========== ========== ========== ========== ========== ==========
End of year...................... $ 12,596,126 $ 14,271,863 $ 37,005,221 $ 31,020,827 $ 1,214,989 $ 1,615,202
========== ========== ========== ========== ========== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 11,638,350 $ 9,336,142 $ 42,987,658 $ 41,653,906 $ 8,152,035 $ 7,341,344
Net realized gain (loss) from
investments ...................... 5,460,333 1,068,152 (158,758) (891,143) 183,983 72,202
Net unrealized appreciation
(depreciation) on investments .... 57,769,186 21,851,218 (18,937,072) 68,885,320 (5,248,940) 14,631,144
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 74,867,869 32,255,512 23,891,828 109,648,083 3,087,078 22,044,690
Distributions to shareholders from:
Undistributed net investment
income............................ (9,713,587) (6,411,953) (41,654,771) (43,440,615) (7,341,063) (5,282,540)
Undistributed net realized capital
gains............................. -- -- -- -- (72,481) --
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... 44,093,562 (8,066,883) 218,454,989 (2,081,082) (3,429,313) 26,364,407
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets........................ 109,247,844 17,776,676 200,692,046 64,126,386 (7,755,779) 43,126,557
Net assets:
Beginning of year................. 213,473,351 195,696,675 643,165,471 579,039,085 137,356,721 94,230,164
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $322,721,195 $213,473,351 $843,857,517 $643,165,471 $129,600,942 $137,356,721
========== ========== ========== ========== ========== ==========
Undistributed net investment income included in net assets:
Beginning of year................ $ 9,334,962 $ 6,410,773 $ 41,588,096 $ 43,374,805 $ 7,341,344 $ 5,282,540
========== ========== ========== ========== ========== ==========
End of year...................... $ 11,259,725 $ 9,334,962 $ 42,920,983 $ 41,588,096 $ 8,152,316 $ 7,341,344
========== ========== ========== ========== ========== ==========
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- ------------------- ----------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- ---------- -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................... $ 4,940,116 $ 4,217,941 $ 4,878,408 $ 4,092,137 $ 22,043,733 $ 25,363,309
Net realized gain (loss) from investments
and foreign currency transactions........ 19,477 27,440 (191,720) 1,268,380 -- 289
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies............................... (5,309,151) 14,450,466 (6,860,589) 17,390,706 -- --
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................ (349,558) 18,695,847 (2,173,901) 22,751,223 22,043,733 25,363,598
Distributions to shareholders from:
Undistributed net investment income...... (4,218,190) (2,941,626) (4,092,016) (2,074,389) (22,043,733) (25,363,598)+
Undistributed net realized capital gains. -- -- (1,109,315) -- -- --
Increase (decrease) in net assets from
capital share transactions (Note 3)...... 3,949,514 15,968,605 558,186 19,594,876 (20,617,040) (89,071,533)
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net
assets................................... (618,234) 31,722,826 (6,817,046) 40,271,710 (20,617,040) (89,071,533)
Net assets:
Beginning of year........................ 83,221,703 51,498,877 85,632,792 45,361,082 429,546,853 518,618,386
--------- --------- --------- --------- ---------- -----------
End of year.............................. $82,603,469 $83,221,703 $78,815,746 $85,632,792 $408,929,813 $429,546,853
========= ========= ========= ========= ========== ===========
Undistributed net investment income included in net assets:
Beginning of year....................... $ 4,217,789 $ 2,941,474 $ 4,091,968 $ 2,074,248 $-- $--
========= ========= ========= ========= ========== ===========
End of year............................. $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968 $-- $--
========= ========= ========= ========= ========== ===========
+Distributions were increased by a net realized gain from security transactions of $289.
Templeton International
Growth and Income Fund Income Securities Fund Equity Fund
----------------------- ------------------------ -----------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ------------ ----------
Increase (decrease) in net assets:
Operations:
Net investment income....... $ 39,513,404 $ 22,234,234 $ 103,698,698 $ 91,009,891 $ 30,226,760 $ 23,458,911
Net realized gain (loss) from
investments and foreign
currency transactions........ 37,811,712 79,239,315 19,810,309 (15,464,708) 49,297,270 30,984,955
Net unrealized appreciation
on investments and
translation of assets and
liabilities denominated in
foreign currencies........... 55,138,252 91,264,881 16,747,285 152,006,805 122,637,885 26,564,752
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets resulting from
operations................... 132,463,368 192,738,430 140,256,292 227,551,988 202,161,915 81,008,618
Distributions to shareholders
from:
Undistributed net investment
income....................... (22,230,774) (8,012,262) (66,927,738) (63,454,170) (25,386,301) (13,634,404)
Undistributed net realized
capital gains................ (78,714,626) (17,435,234) (11,125,807) (5,103,693) (31,064,815) (16,891,097)
Increase in net assets from
capital share transactions
(Note 3)..................... 156,983,572 204,319,488 21,919,171 107,540,999 112,271,953 14,509,031
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets....................... 188,501,540 371,610,422 84,121,918 266,535,124 257,982,752 64,992,148
Net assets:
Beginning of year............ 889,487,468 517,877,046 1,266,537,502 1,000,002,378 850,116,622 785,124,474
----------- ---------- ----------- ----------- ------------ ----------
End of year.................. $1,077,989,008 $889,487,468 $1,350,659,420 $1,266,537,502 $1,108,099,374 $850,116,622
=========== ========== =========== =========== ============ ==========
Undistributed net investment income included in net assets:
Beginning of year........... $ 22,239,184 $ 8,017,077 $ 91,003,300 $ 67,603,145 $ 23,389,762 $ 13,466,616
=========== ========== =========== =========== ============ ==========
End of year................. $ 39,442,227 $ 22,239,184 $ 99,623,131 $ 91,003,300 $ 27,747,634 $ 23,389,762
=========== ========== =========== =========== ============ ==========
Templeton
Pacific Growth Fund Rising Dividends Fund Utility Equity Fund
---------------------- ---------------------- -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ------------ -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income........... $ 5,661,152 $ 7,241,924 $ 9,955,580 $ 10,367,695 $ 54,454,052 $ 65,692,968
Net realized gain (loss) from
investments and foreign
currency transactions............ (4,312,669) 6,009,137 31,514,069 251,515 82,602,515 2,816,631
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies............... 36,732,857 12,826,175 71,866,460 88,320,864 (53,557,473) 282,539,662
---------- ---------- ---------- ---------- ------------ -----------
Net increase in net assets
resulting from operations........ 38,081,340 26,077,236 113,336,109 98,940,074 83,499,094 351,049,261
Distributions to shareholders from:
Undistributed net investment
income........................... (10,991,812) (6,625,094) (10,368,611) (8,063,908) (65,540,030) (70,961,297)
Undistributed net realized capital
gains............................ (6,370,262) (2,753,036) -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3)......................... 4,104,011 (60,595,295) 31,202,926 62,448,084 (239,114,944) (11,752,253)
---------- ---------- ---------- ---------- ------------ -----------
Net increase (decrease) in
net assets....................... 24,823,277 (43,896,189) 134,170,424 153,324,250 (221,155,880) 268,335,711
Net assets:
Beginning of year................ 331,935,881 375,832,070 463,253,277 309,929,027 1,423,446,200 1,155,110,489
---------- ---------- ---------- ---------- ------------ -----------
End of year...................... $356,759,158 $331,935,881 $597,423,701 $463,253,277 $1,202,290,320 $1,423,446,200
========== ========== ========== ========== ============ ===========
Undistributed net investment income included in net assets:
Beginning of year............... $ 7,402,137 $ 6,796,802 $ 10,367,057 $ 8,063,270 $ 65,687,973 $ 70,953,514
========== ========== ========== ========== ============ ===========
End of year..................... $ 2,026,130 $ 7,402,137 $ 9,954,026 $ 10,367,057 $ 54,346,789 $ 65,687,973
========== ========== ========== ========== ============ ===========
for the years ended December 31, 1996 and 1995 (except as noted)
Templeton Developing Templeton Global Templeton Global
Markets Equity Fund Growth Fund Asset Allocation Fund
--------------------- ---------------------- --------------------
1996 1995 1996 1995 1996 1995*
---------- ---------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................. $ 3,874,067 $ 2,632,898 $ 10,065,463 $ 6,108,912 $ 1,438,196 $ 251,964
Net realized gain from investments
and foreign currency transactions...... 6,246,440 3,236,155 5,117,524 7,733,119 477,024 11,985
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies..................... 29,692,572 (2,382,349) 73,557,750 15,482,583 4,638,002 382,161
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets
resulting from operations.............. 39,813,079 3,486,704 88,740,737 29,324,614 6,553,222 646,110
Distributions to shareholders from:
Undistributed net investment income.... (2,182,460) (489,978) (7,356,652) (1,324,712) (14,806) (246,062)
Undistributed net realized capital gains (4,037,551) (115,132) (7,356,653) -- (29,614) --
Increase in net assets from capital share
transactions (Note 3).................. 80,421,511 57,013,367 167,094,838 151,899,127 35,036,621 13,828,655
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets........ 114,014,579 59,894,961 241,122,270 179,899,029 41,545,423 14,228,703
Net assets:
Beginning of year...................... 158,083,842 98,188,881 338,755,117 158,856,088 14,728,703 500,000
---------- ---------- ---------- ---------- ---------- ---------
End of year............................ $272,098,421 $158,083,842 $579,877,387 $338,755,117 $56,274,126 $14,728,703
========== ========== ========== ========== ========== =========
Undistributed net investment income included in net assets:
Beginning of year..................... $ 2,084,657 $ 758,368 $ 5,816,563 $ 1,454,896 $ (6,078) $--
========== ========== ========== ========== ========== =========
End of year........................... $ 3,577,713 $ 2,084,657 $ 10,394,157 $ 5,816,563 $ 1,460,392 $ (6,078)
========== ========== ========== ========== ========== =========
*April 19, 1995 (effective date) to December 31, 1995.
Templeton
International Mutual Mutual
Smaller Shares Discovery
Capital Companies Securities Securities
Small Cap Fund Growth Fund Fund Fund Fund
--------------------- --------- --------- --------- ---------
1996 1995** 1996*** 1996*** 1996**** 1996****
---------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income...................... $ 585,485 $ 33,213 $ 110,214 $ 141,365 $ 50,601 $ 24,287
Net realized gain (loss) from investments
and foreign currency transactions........... 6,726,182 2,754 (140,413) (8,721) (3,049) 1,860
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies........... 10,251,252 161,821 1,982,450 1,104,072 568,343 187,850
---------- --------- --------- --------- --------- ---------
Net increase in net assets resulting
from operations............................. 17,562,919 197,788 1,952,251 1,236,716 615,895 213,997
Distributions to shareholders from:
Undistributed net investment income......... (33,640) -- -- -- -- --
Undistributed net realized capital gains.... (2,727) -- -- -- -- --
Increase in net assets from capital share
transactions (Note 3)....................... 140,140,940 12,853,690 42,714,460 15,018,322 27,061,027 15,203,733
---------- --------- --------- --------- --------- ---------
Net increase in net assets............. 157,667,492 13,051,478 44,666,711 16,255,038 27,676,922 15,417,730
Net assets:
Beginning of year........................... 13,301,478 250,000 -- -- -- --
---------- --------- --------- --------- --------- ---------
End of year................................. $170,968,970 $13,301,478 $44,666,711 $16,255,038 $27,676,922 $15,417,730
========== ========= ========= ========= ========= =========
Undistributed net investment income included in net assets:
Beginning of year.......................... $ 33,213 $-- $-- $-- $-- $--
========== ========= ========= ========= ========= =========
End of year................................ $ 578,335 $ 33,213 $ 109,751 $ 132,644 $ 50,601 $ 26,147
========== ========= ========= ========= ========= =========
**November 1, 1995 (effective date) to December 31, 1995.
***May 1, 1996 (effective date) to December 31, 1996.
****November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements
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>
Capital Preservation
Capital Growth Growth and Income High Current Income and Income
----------------------- --------------------- ------------------ --------------
<S> <C> <C> <C>
Precious Metals Fund Growth and Income Fund Templeton Global Income Money Market Fund
Templeton Developing Income Securities Fund Securities Fund
Markets Equity Fund Real Estate Securities Fund High Income Fund
Templeton Global Growth Fund Rising Dividends Fund The U.S. Government
Templeton International Templeton Global Asset Securities Fund
Equity Fund Allocation Fund Zero Coupon Fund - 2000
Templeton Pacific Growth Fund Utility Equity Fund Zero Coupon Fund - 2005
Small Cap Fund Mutual Shares Securities Fund Zero Coupon Fund - 2010
Capital Growth Fund
Templeton International
Smaller Companies Fund
Mutual Discovery Securities 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
Mutual Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remained unchanged.
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 Advisor. 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
For the Money Market Fund, 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 declared and
reinvested daily in additional shares of the Fund at net asset value.
A portion of the distributions received by the funds 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 passive
foreign investment company (PFIC) shares, 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 passive foreign investment company (PFIC) shares, differing treatment
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.
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 Fund, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. At December 31, 1996, all outstanding repurchase agreements held by
the Funds, had been entered into on that date.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may purchase 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.
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.
k. Options:
The Mutual Shares Securities Fund and the Mutual Discovery Securities Fund may
buy listed call options on securities which it intends to purchase in order to
limit the risk of a substantial increase in the market price of such securities.
A call option gives the Funds the right to buy the underlying securities from
the option writer at a stated exercise price. Any losses realized by the Funds
upon expiration of the call options are limited to the premiums paid for the
purchase of such options, plus any transaction costs.
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 Templeton Global Income Securities Fund, Templeton Global Asset Allocation
Fund, Mutual Shares Securities Fund and Mutual Discovery 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.
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 December 31, 1996, the Templeton Global Income Securities Fund had the
following forward currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- --------
<C> <S> <C> <C> <C>
21,500,000 Deutsche Mark........... U.S. $13,925,321 02/03/97 U.S. $ (81,144)
21,500,000 Deutsche Mark........... 14,001,954 02/05/97 (6,222)
--------- --------
U.S. $27,927,275 U.S. $ (87,366)
--------- --------
Unrealized gain on offsetting forward exchange contracts..................... 750,169
Net unrealized gain on forward exchange contracts........................... $662,803
========
The Templeton Global Asset Allocation Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
110,000 Deutsche Mark........... U.S. $ 71,246 02/03/97 U.S. $ (411)
110,000 Deutsche Mark........... 71,638 02/05/97 (27)
--------- -------
U.S. $142,884 U.S. $ (438)
--------- -------
Unrealized gain on offsetting forward exchange contracts..................... 5,521
Net unrealized gain on forward exchange contracts........................... $5,083
=======
2. FORWARD FOREIGN CURRENCY CONTRACTS (cont.)
The Mutual Shares Securities Fund had the following forward currency contracts
outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Loss
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
949,850 Great British Pounds.... U.S. $1,583,138 02/18/97 U.S. $(42,217)
1,043,371 French Francs........... 199,539 02/28/97 (2,374)
1,936,392 Norwegian Krone......... 300,705 03/10/97 (3,883)
--------- -------
U.S. $2,083,382 U.S. $(48,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(48,474)
=======
The Mutual Discovery Securities Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
908,457 Great British Pounds.... U.S. $1,505,580 02/18/97 U.S. $(48,947)
202,980 Canadian Dollars........ 150,702 05/30/97 1,133
104,068 Great British Pounds.... 171,554 08/18/97 (5,556)
1,281,396 French Francs........... 247,871 02/28/97 (104)
--------- -------
U.S. $2,075,707 U.S. $(53,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(53,474)
=======
3. TRUST SHARES
At December 31, 1996, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended December 31, 1996 and 1995 were as follows:
Templeton Global
Income Securities Fund High Income Fund Precious Metals Fund
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 1,774,907 $23,229,506 14,886,206 $203,832,754 5,826,772 $92,609,906
Shares issued in reinvestment of distributions 1,374,371 17,028,466 2,553,925 32,664,699 200,533 3,054,106
Shares redeemed.............................. (4,932,897) (65,007,899) (12,349,882) (170,154,224) (5,826,876) (90,145,007)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (1,783,619) $(24,749,927) 5,090,249 $ 66,343,229 200,429 $ 5,519,005
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,178,751 $14,989,802 3,955,751 $ 52,494,118 836,229 $11,648,578
Shares issued in reinvestment of distributions 732,090 9,275,583 1,649,067 21,305,944 205,566 2,896,429
Shares redeemed.............................. (2,840,995) (36,191,941) (4,087,131) (54,161,612) (1,102,540) (15,328,334)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (1,862,284) (23,470,003) 4,012,012 51,857,809 (1,350,012) (17,982,259)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (2,792,438) $(35,396,559) 5,529,699 $ 71,496,259 (1,410,757) $(18,765,586)
======== ========== ========= =========== ======== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 4,215,417 $80,007,020 4,777,016 $ 64,263,777 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 541,263 9,713,587 3,298,082 41,654,771 517,344 7,413,544
Shares redeemed.............................. (2,455,248) (45,627,045) (13,383,651) (179,598,763) (2,064,008) (31,249,490)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... 2,301,432 $44,093,562 16,722,759 $218,454,989 (199,913) $ (3,429,313)
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,340,093 $20,990,418 4,057,377 $ 54,748,439 1,413,875 $20,777,927
Shares issued in reinvestment of distributions 417,717 6,411,953 3,278,537 43,440,615 354,296 5,282,548
Shares redeemed.............................. (1,401,583) (22,032,486) (7,126,939) (95,628,635) (1,003,208) (14,976,357)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (874,485) (13,436,768) (340,030) (4,641,501) 1,045,976 15,280,289
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (518,258) $ (8,066,883) (131,055) $ (2,081,082) 1,810,939 $26,364,407
======== ========== ========= =========== ======== ==========
3. TRUST SHARES (cont.)
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- -------------------- ----------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- ---------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 1,047,318 $16,865,102 2,638,570 $42,320,073 624,484,193 $624,484,193
Shares issued in reinvestment of distributions 282,342 4,218,190 361,957 5,201,331 22,025,506 22,025,506
Shares redeemed............................. (1,065,563) (17,133,778) (2,908,691) (46,963,218) (667,126,739) (667,126,739)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 264,097 $ 3,949,514 91,836 $ 558,186 (20,617,040) $ (20,617,040)
======== ========== ======== ========== ========== ===========
1995
Shares sold................................. 942,223 $14,600,167 909,048 $13,837,665 202,376,630 $202,376,630
Shares issued in reinvestment of distributions 185,240 2,941,626 129,812 2,074,389 25,427,564 25,427,564
Shares redeemed............................. (421,198) (6,606,649) (493,484) (7,588,835) (146,409,205) (146,409,205)
Net shares sold (redeemed) from exercise of
exchange privilege.......................... 338,466 5,033,461 718,072 11,271,657 (170,466,522) (170,466,522)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 1,044,731 $15,968,605 1,263,448 $19,594,876 (89,071,533) $ (89,071,533)
======== ========== ======== ========== ========== ===========
Templeton
Growth and Income Fund Income Securities Fund International Equity Fund
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................. 17,103,384 $291,261,819 12,978,656 $215,025,216 16,304,017 $233,298,562
Shares issued in reinvestment of
distributions........................... 6,313,033 100,945,400 4,981,081 78,053,545 4,023,601 56,451,117
Shares redeemed......................... (13,907,925) (235,223,647) (16,378,905) (271,159,590) (12,410,252) (177,477,726)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 9,508,492 $156,983,572 1,580,832 $ 21,919,171 7,917,366 $112,271,953
========= =========== ========= =========== ========= ===========
1995
Shares sold............................. 7,137,692 $109,151,094 10,113,056 $155,712,027 8,219,451 $106,471,518
Shares issued in reinvestment of
distributions........................... 1,706,740 25,447,497 4,534,250 68,557,863 2,362,655 30,525,501
Shares redeemed......................... (5,978,524) (90,725,782) (10,094,332) (154,925,002) (7,007,432) (90,959,162)
Net shares sold (redeemed) from
exercise of exchange privilege.......... 10,428,442 160,446,679 2,479,081 38,196,111 (2,536,715) (31,528,826)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 13,294,350 $204,319,488 7,032,055 $107,540,999 1,037,959 $ 14,509,031
========= =========== ========= =========== ========= ===========
Templeton Rising
Pacific Growth Fund Dividends Fund Utility Equity Fund
--------------------- -------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................. 11,017,347 $162,907,832 9,416,748 $128,553,979 4,951,179 $ 87,970,395
Shares issued in reinvestment of
distributions............................ 1,175,496 17,362,074 776,095 10,368,611 3,882,703 65,540,030
Shares redeemed.......................... (11,892,182) (176,165,895) (7,989,700) (107,719,664) (22,222,999) (392,625,369)
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... 300,661 $ 4,104,011 2,203,143 $ 31,202,926 (13,389,117) $(239,114,944)
========= =========== ======== =========== ========= ===========
1995
Shares sold.............................. 2,230,611 $ 29,634,248 4,053,853 $ 46,217,013 5,042,256 $ 79,723,893
Shares issued in reinvestment of
distributions............................ 711,543 9,378,130 726,478 8,063,909 4,578,148 70,961,297
Shares redeemed.......................... (3,306,122) (43,982,761) (3,959,378) (44,968,613) (10,979,441) (173,993,280)
Net shares sold (redeemed) from exercise
of exchange privilege.................... (4,156,691) (55,624,912) 4,683,755 53,135,775 787,401 11,555,837
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... (4,520,659) $ (60,595,295) 5,504,708 $ 62,448,084 (571,636) $ (11,752,253)
========= =========== ======== =========== ========= ===========
3. TRUST SHARES (cont.)
Templeton Developing Templeton Templeton Global Asset
Markets Equity Fund Global Growth Fund Allocation Fund*
-------------------- -------------------- ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ---------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................... 12,008,203 $131,040,673 16,172,059 $204,037,772 3,324,255 $37,900,419
Shares issued in reinvestment of distributions. 568,038 6,220,011 1,172,375 14,713,305 3,931 44,420
Shares redeemed................................ (5,266,029) (56,839,173) (4,156,855) (51,656,239) (258,845) (2,908,218)
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 7,310,212 $ 80,421,511 13,187,579 $167,094,838 3,069,341 $35,036,621
========= ========== ========= ========== ======== ==========
1995
Shares sold.................................... 4,586,720 $ 44,019,390 11,202,768 $124,502,270 514,807 $ 5,313,984
Shares issued in reinvestment of distributions. 61,746 605,110 119,022 1,324,712 23,479 246,062
Shares redeemed................................ (1,121,485) (10,897,349) (1,972,050) (22,039,520) (213,358) (2,230,197)
Net shares sold (redeemed) from exercise of
exchange privilege............................. 2,365,581 23,286,216 4,330,050 48,111,665 1,025,022 10,498,806
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 5,892,562 $ 57,013,367 13,679,790 $151,899,127 1,349,950 $13,828,655
========= ========== ========= ========== ======== ==========
Templeton
International Smaller
Small Cap Fund** Capital Growth Fund*** Companies Fund***
-------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- -------- --------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................................... 17,929,579 $214,314,899 4,551,652 $49,307,053 1,887,934 $19,652,954
Shares issued in reinvestment of distributions... 2,914 36,368 -- -- -- --
Shares redeemed.................................. (6,275,212) (74,210,327) (620,824) (6,592,593) (442,675) (4,634,632)
--------- ---------- -------- --------- -------- ----------
Net increase...................................... 11,657,281 $140,140,940 3,930,828 $42,714,460 1,445,259 $15,018,322
========= ========== ======== ========= ======== ==========
1995
Shares sold...................................... 190,530 $ 1,922,288
Shares redeemed.................................. (5,971) (60,260)
Net shares sold (redeemed) from exercise of
exchange privilege............................... 1,089,229 10,991,662
--------- ----------
Net increase...................................... 1,273,788 $ 12,853,690
========= ==========
Mutual Shares Mutual Discoveries
Securities Fund**** Securities Fund****
------------------ -----------------
Shares Amount Shares Amount
-------- --------- ------- ---------
1996
<S> <C> <C> <C> <C>
Shares sold................................................................... 2,673,916 $27,061,180 1,510,497 $15,203,733
Shares redeemed............................................................... (15) (153) -- --
-------- --------- ------- ---------
Net increase................................................................... 2,673,901 $27,061,027 1,510,497 $15,203,733
======== ========= ======= =========
*For the period April 19, 1995 (effective date) to December 31, 1995. **For the
period November 1, 1995 (effective date) to December 31, 1995. ***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 Funds had accumulated net realized
capital gains or capital loss carryovers as follows:
High Real Estate Zero Coupon Zero Coupon Zero Coupon
Income FundSecurities Fund Fund - 2000 Fund - 2005 Fund - 2010
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ................................. $1,211,890 $5,025,389 $183,688 $16,721 $38,764
======== ========== ======== ======== ========
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)
Templeton
Growth and Income International Rising Utility
Income FundSecurities Fund Equity Fund Dividends Fund Equity Fund
--------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ............................. $37,745,691 $21,370,923 $49,651,484 $16,997,806 $75,189,259
========= ========== ======== ========== =========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth FundAllocation Fund Cap Fund
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Accumulated net realized gains .............................................. $6,195,420 $3,597,282 $428,295 $6,794,002
======== ======== ========== ========
Templeton Templeton
Precious U.S. Government Money Capital Global Income Pacific
Metals FundSecurities Fund Market Fund Growth FundSecurities FundGrowth Fund
-------- ----------- -------- -------- ---------- --------
Capital loss carryovers
Expiring in:1999 $ -- $ -- $ -- $ -- $-- $ --
2000.................................. -- -- 418 -- -- --
2001.................................. -- -- 523 -- -- --
2002.................................. -- 14,789,560 7,568 -- -- 402,770
2003.................................. -- 826,481 -- -- -- 3,643,075
2004.................................. 146,066 -- -- 52,275 1,767,518 --
-------- ----------- -------- -------- ---------- --------
$146,066 $15,616,041 $8,509 $52,275 $1,767,518 $4,045,845
======== =========== ======== ======== ========== ========
</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 December 31, 1996 by $4,168 in Zero Coupon Fund - 2005,
$314,203 in Zero Coupon Fund - 2010, $9,777 in Growth and Income Fund,
$3,990,227 in Templeton International Equity Fund, $103,600 in Templeton
Developing Markets Equity Fund, $3,555,239 in Templeton Pacific Growth Fund,
$296,116 in Rising Dividends Fund, $13,347 in Templeton Global Growth Fund and
$62,705 in Small Cap Fund.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government Zero Coupon
Securities Fund Income Fund Metals FundSecurities FundSecurities Fund***Fund - 2000
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases ................................. $303,821,574 $157,706,146 $33,953,802 $60,858,072 $76,112,140 $ 764,880
Sales ..................................... $329,230,918 $ 99,365,626 $24,601,239 $23,484,427 $88,321,362 $10,968,281
Income Templeton Templeton
Zero Coupon Zero Coupon Growth and Securities International Pacific
Fund - 2005 Fund - 2010 Income Fund Fund Equity Fund Growth Fund
-------- --------- ---------- ---------- ---------- ---------
Purchases .................................... $2,227,312 $12,568,420 $331,534,066 $317,604,964 $254,455,666 $46,046,765
Sales ........................................ $1,654,344 $14,093,296 $207,828,875 $175,661,249 $236,211,877 $47,657,087
Templeton
Developing Templeton Templeton
Rising Utility Markets Global Global Asset Small
Dividends Fund Equity Fund Equity Fund Growth Fund Allocation Fund* Cap Fund
---------- ---------- --------- ---------- ----------- ----------
Purchases ................................ $203,203,223 $375,683,901 $96,882,928 $186,654,274 $42,047,805 $182,121,699
Sales .................................... $130,165,631 $515,672,768 $25,351,495 $ 50,224,188 $13,415,348 $ 50,911,175
Templeton Mutual Mutual
International Shares Discovery
Capital Smaller Companies Securities Securities
Growth Fund* Fund* Fund** Fund**
--------- ------------ --------- --------
Purchases .............................................................. $36,587,181 $8,897,257 $17,263,507 $9,516,603
Sales .................................................................. $ 659,799 $ 1,860 $ 147,893 $ 8,010
</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.
***Excludes purchase and sales related to the liquidaton of the Investment Grade
Intermediate Bond Fund and the Adjustable U.S. Government Fund and mortgage
dollar roll transactions.
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 Templeton International Equity Fund, the
Templeton Pacific Growth Fund, the Rising Dividends Fund, the Templeton
International Smaller Companies Fund, the Templeton Global Growth Fund, the
Templeton Developing Markets Equity Fund, the Templeton Global Asset Allocation
Fund, the Small Cap Fund, Capital Growth Fund, the Mutual Discovery Securities
Fund, and the Mutual Shares Securities 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 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 Small Cap Fund and
Capital Growth 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 advisor 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.
TGAL serves as the investment advisor 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
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
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
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment advisor 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 Rising Dividends Fund, the Templeton International Smaller Companies
Fund, the Templeton Global Growth Fund, the Templeton Developing Markets Equity
Fund, the Templeton Global Asset Allocation Fund, the Mutual Discovery
Securities Fund and the Mutual Shares Securities 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.
Franklin Templeton Services, Inc., (FT Services) serves as the business manager
for the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, the Mutual Discovery Fund and the Mutual Shares 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.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the Templeton International Equity Fund and 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 a portion of the management fees for the
Zero Coupon Fund - 2000, Zero Coupon Fund - 2005, Zero Coupon Fund - 2010, and
Money Market Fund, aggregating $1,141,337.
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.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Shareholder Services Agreement:
Franklin/Templeton Investors Services, Inc. (Investors Services), under the
terms of an agreement, performs shareholder servicing for the Funds and is not
paid by the Funds for the service.
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 and the Income Securities Fund have 85.7% and 41.1%,
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 yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer.
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 in the period in which the default
occurs.
At December 31, 1996, the High Income Fund held one defaulted security issued by
one company with a value aggregating $72,821 representing .02% of the Fund's net
assets. The Income Securities Fund held one defaulted security issued by one
company with a value aggregating $88,375 representing .01% of the Fund's net
assets.
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 Templeton International Equity Fund has investments in excess of 10% of
its net assets in Sweden and United Kingdom.
The Templeton Pacific Growth Fund has investments in excess of 10% of its
net assets in Australia, Hong Kong and Japan.
The Templeton Developing Markets Equity Fund has investments in excess of
10% of its net assets in Argentina, Hong Kong and Mexico.
The High Income Fund has investments in excess of 10% of its net assets in
Cable Television industry.
The Templeton Global Income Securities Fund has investments in excess of
10% of its net assets in Italy and United Kingdom.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES Investment of 5% or
more of an issuer's outstanding voting securities held by any of the Funds are
defined in the Investment Company Act of 1940 as affiliated companies. The
investments in such companies at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Purchase Market Dividend
Fund Affiliate Cost Value Income
------------------------------ -------------------------- -------- -------- -------
<S> <C> <C> <C> <C>
Income Securities Fund .................. Tanger Factory Outlet Centers, Inc. $9,718,888 $9,775,850 $742,424
Income Securities Fund .................. Anacomp, Inc. ..................... 1,902,683 1,616,895 0
</TABLE>
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 December 31, 1996, the Funds held
restricted securities as follows:
Real Estate Securities Fund (1.7% of net assets)
<TABLE>
<CAPTION>
Shares Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
511,400 Pacific Retail Trust ........................... 08/30/96 $5,625,400 $5,625,400
Income Securities Fund (0.5% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
419,424 Bibb Co. ....................................... 03/30/93 - $6,112,066 $3,171,894
09/08/94
9. RESTRICTED SECURITIES (cont.)
Income Securities Fund (0.5% of net assets)
Face Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
3,781,280 Del Monte Corp. ................................ 09/11/96 $3,935,678 $3,781,280
High Income Fund (0.2% of net assets)
Face
------- ------------------------------------- ---------- -------- --------
1,124,010 Del Monte Corp. ................................ 09/11/96 $1,124,010 $1,124,010
Mutual Shares Securities Fund (1.0% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
12,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 240,000 $ 283,500
Mutual Discovery Securities Fund (1.2% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
8,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 160,000 $ 189,000
</TABLE>
10. OTHER CONSIDERATIONS
As the Investment Advisor of the High Income Fund and 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 committee for Forstmann Textile, Inc. and therefore may be
in possession of certain material non-public information. Advisers has 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.
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.
Goverment 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:
<TABLE>
<CAPTION>
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
---------- -------------
<S> <C> <C>
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
========== =============
</TABLE>
12. 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
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Templeton Global Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.59$ .260$ (.293) $ (.033) $(.404) $(.153) $ (.557) $12.00 (.40)% $ 75,062 .67% 4.72% 92.22% --
1993 12.00 .500 1.471 1.971 (.499) (.162) (.661) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .860 (1.520) (.660) (.326) (.134) (.460) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .290 1.469 1.759 (.489) -- (.489) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.018 .167 1.185 (1.035) -- (1.035) 13.61 9.56 221,722 .61 7.30 140.96 --
High Income Fund
1992 10.62 .380 1.306 1.686 (.536) -- (.536) 11.77 16.21 67,991 .68 9.76 33.36 --
1993 11.77 .370 1.446 1.816 (.456) -- (.456) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .880 (1.180) (.300) (.546) (.074) (.620) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.060 1.301 2.361 (.911) -- (.911) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.200 .564 1.764 (1.200) (.064) (1.264) 14.16 13.90 446,096 .54 9.63 27.16 --
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Precious Metals Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $10.71$ .100 $(1.140) $(1.040) $(.310) $--$ (.310) $ 9.36 (10.13)% $ 13,827 .69% 2.23% -- % --
1993 9.36 .030 5.159 5.189 (.089) -- (.089) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .160 (.453) (.293) (.077) -- (.077) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .220 .111 .331 (.196) (.145) (.341) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .150 .436 .586 (.196) (.180) (.376) 14.29 4.00 109,579 .65 1.00 21.77 .0221
Real Estate Securities Fund
1992 11.65 .140 1.244 1.384 (.244) -- (.244) $12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .090 2.329 2.419 (.169) -- (.169) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .380 .060 .440 (.170) -- (.170) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .780 1.833 2.613 (.523) -- (.523) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .789 4.738 5.527 (.777) -- (.777) 22.15 32.82 322,721 .57 4.80 10.32 .0519
U.S. Government Securities Fund
1992 12.72 .520 .434 .954 (.425) (.009) (.434) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .500 .771 1.271 (.512) (.079) (.591) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .960 (1.590) (.630) (.668) (.052) (.720) 12.57 (4.55) 579,039 .53 6.87 18.25*** --
1995 12.57 .930 1.461 2.391 (.961) -- (.961) 14.00 19.46 643,165 .52 6.72 18.68*** --
1996 14.00 .750 (.308) .442 (.972) -- (.972) 13.47 3.62 843,858 .51 6.66 12.93***
Zero Coupon Fund - 2000
1992 13.26 .570 .577 1.147 (.527) -- (.527) 13.88 9.04 48,217 .257 6.97 9.10 --
1993 13.88 .660 1.549 2.209 (.618) (.031) (.649) 15.44 16.15 76,916 .377 5.88 7.02 --
1994 15.44 .680 (1.710) (1.030) (.691) (.099) (.790) 13.62 (6.76) 94,230 .407 6.37 -- --
1995 13.62 .750 2.029 2.779 (.669) -- (.669) 15.73 20.67 137,357 .407 6.14 1.63 --
1996 15.73 .980 (.650) .330 (.861) (.009) (.870) 15.19 2.43 129,601 .407 6.14 .58 --
Zero Coupon Fund - 2005
1992 12.91 .650 .670 1.320 (.610) -- (.610) 13.62 10.81 18,295 .257 7.46 19.48 --
1993 13.62 .440 2.547 2.987 (.521) (.006) (.527) 16.08 22.21 42,998 .377 5.67 16.59 --
1994 16.08 .710 (2.240) (1.530) (.602) (.188) (.790) 13.76 (9.60) 51,499 .407 6.53 2.00 --
1995 13.76 .780 3.525 4.305 (.685) -- (.685) 17.38 31.76 83,222 .407 6.19 1.72 --
1996 17.38 .958 (1.127) (.169) (.861) -- (.861) 16.35 (0.50) 82,603 .407 6.15 2.06 --
Zero Coupon Fund - 2010
1992 12.84 1.210 .026 1.236 (.726) -- (.726) 13.35 10.31 13,431 .257 7.64 54.50 --
1993 13.35 .500 2.805 3.305 (.937) (.038) (.975) 15.68 25.47 29,189 .257 5.89 36.63 --
1994 15.68 .550 (2.270) (1.720) (.632) (.308) (.940) 13.02 (10.97) 45,361 .407 6.57 4.34 --
1995 13.02 .760 4.749 5.509 (.489) -- (.489) 18.04 42.79 85,633 .407 6.41 31.45 --
1996 18.04 1.024 (1.658) (.634) (.878) (.238) (1.116) 16.29 (2.69) 78,816 .407 6.24 16.10 --
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 .467 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .407 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .437 5.04 -- --
Growth and Income Fund
1992 12.11 .080 .721 .801 (.121) -- (.121) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .090 1.221 1.311 (.111) -- (.111) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .190 (.470) (.280) (.094) (.196) (.290) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .410 3.915 4.325 (.196) (.409) (.605) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .620 1.633 2.253 (.406) (1.437) (1.843) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.82$ .400 $ 1.266 $1.666$ (.592)$ (.244)$ (.836) $13.65 13.20% $ 182,993 .67% 7.44% 12.59% --
1993 13.65 .330 2.177 2.507 (.312) (.045) (.357) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .820 (1.799) (.979) (.444) (.067) (.511) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.160 1.960 3.120 (.888) (.072) (.960) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.320 .438 1.758 (.873) (.145) (1.018) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
Templeton International Equity Fund
19921 10.00 .140 (.380) (.240) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .180 2.598 2.778 (.038) -- (.038) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .190 (.080) .110 (.035) (.065) (.100) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .370 .939 1.309 (.223) (.276) (.499) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .400 2.575 2.975 (.380) (.465) (.845) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
Templeton Pacific Growth Fund
19921 10.00 -- (.120) (.120) -- -- -- 9.88 (1.20) 5,788 1.317 -- 8.41 --
1993 9.88 .050 4.680 4.730 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .220 (1.500) (1.280) (.031) (.059) (.090) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .330 .705 1.035 (.258) (.107) (.365) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .214 1.331 1.545 (.440) (.255) (.695) 14.76 11.10 356,759 .99 1.51 12.85 .0092
Rising Dividends Fund
19921 10.00 .060 .920 .980 -- -- -- 10.98 9.80 97,687 .677 2.11* 5.22 --
1993 10.98 .140 (.522) (.382) (.028) -- (.028) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .260 (.690) (.430) (.170) -- (.170) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .270 2.661 2.931 (.241) -- (.241) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .250 2.769 3.019 (.279) -- (.279) 15.40 24.18 597,424 .76 1.96 27.97 .0505
Utility Equity Fund
1992 14.86 .350 .915 1.265 (.305) -- (.305) 15.82 8.69 667,118 .55 5.18 .13 --
1993 15.82 .380 1.279 1.659 (.338) (.001) (.339) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .950 (2.940) (1.990) (.620) (.110) (.730) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .840 3.542 4.382 (.902) -- (.902) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .910 .285 1.195 (.915) -- (.915) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
Templeton Developing Markets Equity Fund
19942 10.00 .070 (.510) (.440) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .090 .180 .270 (.040) (.010) (.050) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .123 1.972 2.095 (.100) (.185) (.285) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
Templeton Global Growth Fund
19942 10.15 .070 .260 .330 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .160 1.170 1.330 (.060) -- (.060) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .251 2.209 2.460 (.205) (.205) (.410) 13.80 21.28 579,877 .93 2.20 12.32 .0096
Templeton Global Asset Allocation Fund
19953 10.00 .180 .520 .700 (.180) -- (.180) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .336 1.749 2.085 (.005) (.010) (.015) 12.59 19.84 56,269 .86 4.21 52.35 .0028
Small Cap Fund
19954 10.00 .030 .210 .240 -- -- -- 10.24 2.30 13,301 .90* 2.70* 16.04 --
1996 10.24 .023 2.941 2.964 (.004) -- (.004) 13.20 28.95 170,969 .77 .63 63.72 .0518
Capital Growth Fund
19965 10.00 .030 1.330 1.360 -- -- -- 11.36 13.60 44,667 .77* .96* 3.91 .0567
Templeton International Smaller Companies Fund
19965 10.00 .091 1.159 1.250 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Mutual Shares Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19966 $10.00$ .019$ .331 $ .350 $-- $-- $-- $10.35 3.50% $ 27,677 1.00%* 2.56%* 1.31% .0410
Mutual Discovery Securities Fund
19966 10.00 .016 .192 .210 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
</TABLE>
*Annualized
***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.
++Per share amounts have been calculated using the average shares outstanding
during the period.
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.
7During 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:
Ratio of Expenses
to average net assets
Adjustable U.S. Government Fund
1992 0.62%
Zero Coupon Fund - 2000
1992 0.68
1993 0.67
1994 0.66
1995 0.63
1996 0.62
Zero Coupon Fund - 2005
1992 0.69
1993 0.67
1994 0.68
1995 0.66
1996 0.65
Ratio of Expenses
to average net assets
Zero Coupon Fund - 2010
1992 0.69%
1993 0.68
1994 0.68
1995 0.66
1996 0.65
Money Market Fund
1994 0.54
1995 0.53
1996 0.53
Templeton Pacific Growth Fund
19921 2.57*
Rising Dividends Fund
19921 0.76*
FRANKLIN VALUEMARK FUNDS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Valuemark Funds:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-three funds comprising the Franklin Valuemark Funds, including each
Fund's statement of investments in securities and net assets, as of December 31,
1996, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds comprising the Franklin Valuemark Funds as of December 31, 1996,
the results of their operations, changes in their net assets and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P
San Francisco, California
February 4, 1997
Franklin Valuemark Annual Report December 31, 1996.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 1000 Index and the S&P 500, based on a $10,000
investment from 5/1/96 to 12/31/96.
Period Ending Fund Index Index
5/1/96 $10,000 $10,000 $10,000
5/31/96 $10,220 $10,258 $10,240
6/30/96 $10,180 $10,297 $10,251
7/31/96 $ 9,790 $9,842 $9,757
8/31/96 $10,180 $10,050 $10,023
9/30/96 $10,910 $10,615 $10,586
10/31/96 $10,880 $10,908 $10,820
11/30/96 $11,750 $11,733 $11,618
12/31/96 $11,360 $11,501 $11,430
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,280 $11,101 $10,234
6/30/89 $9,990 $11,038 $10,259
7/31/89 $10,530 $12,035 $10,283
8/31/89 $11,020 $12,271 $10,300
9/30/89 $10,680 $12,220 $10,333
10/31/89 $10,040 $11,937 $10,382
11/30/89 $10,110 $12,180 $10,407
12/31/89 $10,290 $12,473 $10,424
1/31/90 $9,760 $11,636 $10,531
2/28/90 $9,920 $11,786 $10,581
3/31/90 $10,159 $12,098 $10,639
4/30/90 $9,958 $11,797 $10,656
5/31/90 $10,824 $12,947 $10,680
6/30/90 $10,693 $12,860 $10,738
7/31/90 $10,623 $12,819 $10,779
8/31/90 $9,736 $11,660 $10,878
9/30/90 $9,343 $11,093 $10,969
10/31/90 $9,242 $11,045 $11,035
11/30/90 $9,776 $11,758 $11,060
12/31/90 $10,048 $12,086 $11,060
1/31/91 $10,683 $12,613 $11,126
2/28/91 $11,127 $13,515 $11,143
3/31/91 $11,147 $13,842 $11,159
4/30/91 $11,177 $13,876 $11,176
5/31/91 $11,600 $14,474 $11,210
6/30/91 $10,853 $13,811 $11,242
7/31/91 $11,243 $14,454 $11,259
8/31/91 $11,623 $14,797 $11,292
9/30/91 $11,541 $14,550 $11,341
10/31/91 $11,664 $14,745 $11,358
11/30/91 $11,161 $14,150 $11,391
12/31/91 $12,054 $15,769 $11,399
1/31/92 $12,577 $15,476 $11,416
2/29/92 $12,587 $15,676 $11,457
3/31/92 $12,125 $15,370 $11,516
4/30/92 $12,146 $15,822 $11,532
5/31/92 $12,218 $15,899 $11,548
6/30/92 $11,943 $15,662 $11,590
7/31/92 $12,295 $16,303 $11,614
8/31/92 $12,119 $15,969 $11,647
9/30/92 $12,420 $16,156 $11,679
10/31/92 $12,658 $16,211 $11,720
11/30/92 $13,135 $16,762 $11,736
12/31/92 $13,260 $16,968 $11,728
1/31/93 $13,363 $17,110 $11,786
2/28/93 $13,280 $17,343 $11,827
3/31/93 $13,653 $17,709 $11,868
4/30/93 $13,477 $17,281 $11,902
5/31/93 $13,840 $17,742 $11,918
6/30/93 $13,676 $17,793 $11,935
7/31/93 $13,477 $17,722 $11,935
8/31/93 $13,979 $18,394 $11,968
9/30/93 $13,896 $18,252 $11,993
10/31/93 $14,105 $18,630 $12,043
11/30/93 $13,990 $18,453 $12,051
12/31/93 $14,627 $18,676 $12,051
1/31/94 $15,453 $19,311 $12,084
2/28/94 $15,255 $18,788 $12,125
3/31/94 $14,345 $7,969 $12,166
4/30/94 $14,429 $18,199 $12,183
5/31/94 $14,471 $18,497 $12,191
6/30/94 $13,815 $18,044 $12,233
7/31/94 $14,215 $18,636 $12,266
8/31/94 $14,689 $19,400 $12,315
9/30/94 $14,257 $18,927 $12,348
10/31/94 $14,457 $19,353 $12,357
11/30/94 $13,920 $18,648 $12,373
12/31/94 $14,131 $18,924 $12,373
1/31/95 $14,246 $19,414 $12,422
2/28/95 $14,815 $20,171 $12,472
3/31/95 $15,236 $20,766 $12,513
4/30/95 $15,689 $21,377 $12,555
5/31/95 $16,173 $22,232 $12,580
6/30/95 $16,273 $22,748 $12,605
7/31/95 $16,547 $23,503 $12,605
8/31/95 $16,744 $23,562 $12,638
9/30/95 $17,467 $24,556 $12,663
10/31/95 $17,335 $24,468 $12,705
11/30/95 $18,014 $25,542 $12,696
12/31/95 $18,770 $26,035 $12,687
1/31/96 $19,153 $26,920 $12,762
2/29/96 $18,956 $27,170 $12,803
3/31/96 $19,153 $27,431 $12,869
4/30/96 $19,252 $27,834 $12,919
5/31/96 $19,449 $28,553 $12,944
6/30/96 $19,810 $28,661 $12,952
7/31/96 $19,077 $27,394 $12,976
8/31/96 $19,346 $27,972 $13,001
9/30/96 $19,859 $29,547 $13,043
10/31/96 $20,445 $30,363 $13,084
11/30/96 $21,422 $32,658 $13,109
12/31/96 $21,434 $32,011 $13,109
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
shares with the CS First Boston High Yield Index and the CPI, based on a $10,000
investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,045 $10,011
2/28/89 $10,080 $10,091 $10,052
3/31/89 $10,150 $10,019 $10,110
4/30/89 $10,220 $9,995 $10,176
5/31/89 $10,290 $10,232 $10,234
6/30/89 $10,300 $10,380 $10,259
7/31/89 $10,330 $10,403 $10,283
8/31/89 $10,370 $10,402 $10,300
9/30/89 $10,300 $10,165 $10,333
10/31/89 $10,070 $9,911 $10,382
11/30/89 $10,050 $9,931 $10,407
12/31/89 $10,130 $9,886 $10,424
1/31/90 $9,920 $9,538 $10,531
2/28/90 $9,770 $9,362 $10,581
3/31/90 $9,924 $9,632 $10,639
4/30/90 $9,831 $9,672 $10,656
5/31/90 $9,893 $9,873 $10,680
6/30/90 $10,152 $10,184 $10,738
7/31/90 $10,379 $10,513 $10,779
8/31/90 $9,893 $10,027 $10,878
9/30/90 $9,251 $9,262 $10,969
10/31/90 $8,879 $9,030 $11,035
11/30/90 $9,076 $9,211 $11,060
12/31/90 $9,251 $9,256 $11,060
1/31/91 $9,345 $9,509 $11,126
2/28/91 $9,934 $10,330 $11,143
3/31/91 $10,286 $10,970 $11,159
4/30/91 $10,566 $11,426 $11,176
5/31/91 $10,659 $11,483 $11,210
6/30/91 $10,907 $11,784 $11,242
7/31/91 $11,168 $12,182 $11,259
8/31/91 $11,372 $12,404 $11,292
9/30/91 $11,519 $12,685 $11,341
10/31/91 $11,803 $13,105 $11,358
11/30/91 $11,939 $13,210 $11,391
12/31/91 $12,007 $13,306 $11,399
1/31/92 $12,392 $13,848 $11,416
2/29/92 $12,608 $14,184 $11,457
3/31/92 $12,778 $14,396 $11,516
4/30/92 $12,857 $14,407 $11,532
5/31/92 $13,039 $14,603 $11,548
6/30/92 $13,161 $14,748 $11,590
7/31/92 $13,411 $14,975 $11,614
8/31/92 $13,637 $15,181 $11,647
9/30/92 $13,744 $15,280 $11,679
10/31/92 $13,577 $15,121 $11,720
11/30/92 $13,839 $15,348 $11,736
12/31/92 $13,993 $15,521 $11,728
1/31/93 $14,255 $15,945 $11,786
2/28/93 $14,481 $16,261 $11,827
3/31/93 $14,695 $16,604 $11,868
4/30/93 $14,754 $16,699 $11,902
5/31/93 $14,897 $16,942 $11,918
6/30/93 $15,206 $17,249 $11,935
7/31/93 $15,317 $17,428 $11,935
8/31/93 $15,403 $17,577 $11,968
9/30/93 $15,403 $17,677 $11,993
10/31/93 $15,921 $18,000 $12,043
11/30/93 $16,020 $18,227 $12,051
12/31/93 $16,192 $18,457 $12,051
1/31/94 $16,537 $18,785 $12,084
2/28/94 $16,414 $18,813 $12,125
3/31/94 $15,637 $18,260 $12,166
4/30/94 $15,415 $18,016 $12,183
5/31/94 $15,465 $18,118 $12,191
6/30/94 $15,619 $17,997 $12,233
7/31/94 $15,593 $18,082 $12,266
8/31/94 $15,710 $18,212 $12,315
9/30/94 $15,762 $18,285 $12,348
10/31/94 $15,788 $18,297 $12,357
11/30/94 $15,684 $18,085 $12,373
12/31/94 $15,853 $18,277 $12,373
1/31/95 $16,112 $18,469 $12,422
2/28/95 $16,735 $18,923 $12,472
3/31/95 $16,904 $19,137 $12,513
4/30/95 $17,398 $19,562 $12,555
5/31/95 $17,878 $20,113 $12,580
6/30/95 $17,971 $20,246 $12,605
7/31/95 $18,221 $20,560 $12,605
8/31/95 $18,277 $20,617 $12,638
9/30/95 $18,471 $20,855 $12,663
10/31/95 $18,721 $21,086 $12,705
11/30/95 $18,666 $21,185 $12,696
12/31/95 $18,985 $21,454 $12,687
1/31/96 $19,347 $21,862 $12,762
2/29/96 $19,541 $21,978 $12,803
3/31/96 $19,402 $21,918 $12,869
4/30/96 $19,500 $22,037 $12,919
5/31/96 $19,652 $22,215 $12,944
6/30/96 $19,701 $22,264 $12,952
7/31/96 $19,899 $22,465 $12,976
8/31/96 $20,250 $22,709 $13,001
9/30/96 $20,739 $23,100 $13,043
10/31/96 $20,938 $23,294 $13,084
11/30/96 $21,319 $23,657 $13,109
12/31/96 $21,625 $24,119 $13,109
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Government/Corporate Bond Index, the S&P 500,
and the Lipper Income Average, based on a $10,000 investment from 1/24/89 to
12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000 $10,000
3/31/89 $10,150 $10,080 $10,520 $10,263
6/30/89 $10,280 $10,890 $11,449 $10,895
9/30/89 $10,460 $10,993 $12,675 $11,230
12/31/89 $10,900 $11,390 $12,936 $11,409
3/31/90 $10,693 $11,260 $12,547 $11,007
6/30/90 $11,030 $11,665 $13,336 $11,256
9/30/90 $10,101 $11,735 $11,504 $10,389
12/31/90 $10,091 $12,334 $12,535 $10,495
3/31/91 $11,754 $12,665 $14,355 $11,287
6/30/91 $12,452 $12,857 $14,323 $11,417
9/30/91 $13,448 $13,596 $15,088 $12,209
12/31/91 $13,999 $14,321 $16,354 $12,885
3/31/92 $14,935 $14,106 $15,941 $12,885
6/30/92 $15,515 $14,678 $16,243 $13,258
9/30/92 $15,855 $15,395 $16,755 $13,762
12/31/92 $15,983 $15,406 $17,599 $14,051
3/31/93 $16,979 $16,123 $18,368 $14,832
6/30/93 $17,671 $16,609 $18,457 $15,160
9/30/93 $18,367 $17,160 $18,934 $15,651
12/31/93 $18,954 $17,110 $19,373 $15,832
3/31/94 $18,151 $16,571 $18,638 $15,349
6/30/94 $17,816 $16,366 $18,717 $15,306
9/30/94 $18,175 $16,448 $19,632 $15,629
12/31/94 $17,729 $16,509 $19,628 $15,403
3/31/95 $18,460 $17,331 $21,540 $16,290
6/30/95 $19,869 $18,454 $23,597 $17,267
9/30/95 $20,804 $18,806 $25,473 $18,081
12/31/95 $21,700 $19,683 $27,006 $18,892
3/31/96 $21,938 $19,222 $28,457 $19,255
6/30/96 $22,576 $19,312 $29,734 $19,606
9/30/96 $22,955 $19,654 $30,653 $19,990
12/31/96 $24,148 $20,256 $33,210 $20,933
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500, based on a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index
01/24/89 $10,000 $10,000
01/31/89 $10,020 $10,165
02/28/89 $10,080 $9,912
03/31/89 $10,150 $10,143
04/30/89 $10,220 $10,669
05/31/89 $10,090 $11,101
06/30/89 $10,360 $11,038
07/31/89 $10,500 $12,035
08/31/89 $10,750 $12,271
09/30/89 $11,110 $12,220
10/31/89 $11,180 $11,937
11/30/89 $12,230 $12,180
12/31/89 $12,430 $12,473
01/31/90 $12,920 $11,636
02/28/90 $12,180 $11,786
03/31/90 $12,038 $12,098
04/30/90 $11,258 $11,797
05/31/90 $11,947 $12,947
06/30/90 $11,380 $12,860
07/31/90 $12,038 $12,819
08/31/90 $11,694 $11,660
09/30/90 $11,501 $11,093
10/31/90 $10,448 $11,045
11/30/90 $10,185 $11,758
12/31/90 $10,651 $12,086
01/31/91 $9,831 $12,613
02/28/91 $10,701 $13,515
03/31/91 $10,610 $13,842
04/30/91 $10,560 $13,876
05/31/91 $10,853 $14,474
06/30/91 $11,258 $13,811
07/31/91 $11,382 $14,454
08/31/91 $10,814 $14,797
09/30/91 $10,834 $14,550
10/31/91 $11,227 $14,745
11/30/91 $11,361 $14,150
12/31/91 $10,617 $15,769
01/31/92 $11,340 $15,476
02/29/92 $11,165 $15,676
03/31/92 $10,752 $15,370
04/30/92 $10,607 $15,822
05/31/92 $11,123 $15,899
06/30/92 $11,407 $15,662
07/31/92 $11,492 $16,303
08/31/92 $11,120 $15,969
09/30/92 $10,982 $16,156
10/31/92 $10,313 $16,211
11/30/92 $9,612 $16,762
12/31/92 $9,941 $16,968
01/31/93 $9,867 $17,110
02/28/93 $10,355 $17,343
03/31/93 $11,343 $17,709
04/30/93 $12,108 $17,281
05/31/93 $13,658 $17,742
06/30/93 $13,737 $17,793
07/31/93 $14,957 $17,722
08/31/93 $13,823 $18,394
09/30/93 $12,689 $18,252
10/31/93 $13,887 $18,630
11/30/93 $13,769 $18,453
12/31/93 $15,471 $18,676
01/31/94 $15,578 $19,311
02/28/94 $14,925 $18,788
03/31/94 $15,096 $17,969
04/30/94 $14,390 $18,199
05/31/94 $14,861 $18,497
06/30/94 $14,559 $18,044
07/31/94 $14,839 $18,636
08/31/94 $15,495 $19,400
09/30/94 $16,508 $18,927
10/31/94 $15,915 $19,353
11/30/94 $14,645 $18,648
12/31/94 $15,172 $18,924
01/31/95 $13,385 $19,414
02/28/95 $13,988 $20,171
03/31/95 $15,291 $20,766
04/30/95 $15,442 $21,377
05/31/95 $15,334 $22,232
06/30/95 $15,319 $22,748
07/31/95 $15,815 $23,503
08/31/95 $15,716 $23,562
09/30/95 $15,782 $24,556
10/31/95 $14,018 $24,468
11/30/95 $15,242 $25,542
12/31/95 $15,529 $26,035
1/31/96 $18,098 $26,920
2/29/96 $18,231 $27,170
3/31/96 $18,319 $27,431
4/30/96 $18,418 $27,834
5/31/96 $19,124 $28,553
6/30/96 $16,862 $28,661
7/31/96 $16,512 $27,394
8/31/96 $17,144 $27,972
9/30/96 $16,184 $29,547
10/31/96 $16,297 $30,363
11/30/96 $16,150 $32,658
12/31/96 $16,150 $32,011
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire Real Estate Securities Index and the S&P 500, based on
a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,037
2/28/89 $10,080 $9,912 $10,063
3/31/89 $10,150 $10,143 $10,134
4/30/89 $10,220 $10,669 $10,318
5/31/89 $10,290 $11,101 $10,495
6/30/89 $10,540 $11,038 $10,613
7/31/89 $10,850 $12,035 $10,948
8/31/89 $10,990 $12,271 $10,832
9/30/89 $10,750 $12,220 $10,808
10/31/89 $10,450 $11,937 $10,268
11/30/89 $10,490 $12,180 $10,115
12/31/89 $10,480 $12,473 $10,111
1/31/90 $10,170 $11,636 $9,635
2/28/90 $10,150 $11,786 $9,631
3/31/90 $10,249 $12,098 $9,609
4/30/90 $10,107 $11,797 $9,422
5/31/90 $10,178 $12,947 $9,381
6/30/90 $10,259 $12,860 $9,399
7/31/90 $10,137 $12,819 $9,039
8/31/90 $9,427 $11,660 $7,983
9/30/90 $8,808 $11,093 $7,058
10/31/90 $8,564 $11,045 $6,550
11/30/90 $9,102 $11,758 $6,816
12/31/90 $9,224 $12,086 $6,728
1/31/91 $10,158 $12,613 $7,383
2/28/91 $10,381 $13,515 $7,817
3/31/91 $11,081 $13,842 $8,514
4/30/91 $11,274 $13,876 $8,445
5/31/91 $11,406 $14,474 $8,575
6/30/91 $11,096 $13,811 $8,153
7/31/91 $11,233 $14,454 $8,118
8/31/91 $11,191 $14,797 $8,020
9/30/91 $11,413 $14,550 $7,929
10/31/91 $11,265 $14,745 $7,750
11/30/91 $11,180 $14,150 $7,493
12/31/91 $11,909 $15,769 $8,076
1/31/92 $12,987 $15,476 $8,456
2/29/92 $12,628 $15,676 $8,435
3/31/92 $12,396 $15,370 $8,253
4/30/92 $12,216 $15,822 $8,116
5/31/92 $12,501 $15,899 $8,149
6/30/92 $12,390 $15,662 $7,903
7/31/92 $12,886 $16,303 $7,933
8/31/92 $12,746 $15,969 $7,813
9/30/92 $12,929 $16,156 $8,110
10/31/92 $13,135 $16,211 $8,196
11/30/92 $13,286 $16,762 $8,267
12/31/92 $13,804 $16,968 $8,674
1/31/93 $14,365 $17,110 $9,276
2/28/93 $14,883 $17,343 $9,725
3/31/93 $15,854 $17,709 $10,378
4/30/93 $15,228 $17,281 $9,790
5/31/93 $15,099 $17,742 $9,636
6/30/93 $15,619 $17,793 $9,888
7/31/93 $15,925 $17,722 $10,089
8/31/93 $16,351 $18,394 $10,299
9/30/93 $17,192 $18,252 $10,765
10/31/93 $17,072 $18,630 $10,463
11/30/93 $16,013 $18,453 $10,007
12/31/93 $16,428 $18,676 $9,995
1/31/94 $16,723 $19,311 $10,295
2/28/94 $17,411 $18,788 $10,716
3/31/94 $16,799 $17,969 $10,220
4/30/94 $17,072 $18,199 $10,334
5/31/94 $17,334 $18,497 $10,549
6/30/94 $17,010 $18,044 $10,341
7/31/94 $16,976 $18,636 $10,365
8/31/94 $16,921 $19,400 $10,358
9/30/94 $16,644 $18,927 $10,185
10/31/94 $16,047 $19,353 $9,812
11/30/94 $15,471 $18,648 $9,428
12/31/94 $16,943 $18,924 $10,159
1/31/95 $16,323 $19,414 $9,831
2/28/95 $16,611 $20,171 $10,139
3/31/95 $16,733 $20,766 $10,197
4/30/95 $16,689 $21,377 $10,124
5/31/95 $17,364 $22,232 $10,459
6/30/95 $17,658 $22,748 $10,641
7/31/95 $18,024 $23,503 $10,812
8/31/95 $18,413 $23,562 $10,944
9/30/95 $18,940 $24,556 $11,146
10/31/95 $18,551 $24,468 $10,800
11/30/95 $18,860 $25,542 $10,912
12/31/95 $19,912 $26,035 $11,545
1/31/96 $20,359 $26,920 $11,705
2/29/96 $20,622 $27,170 $11,936
3/31/96 $20,645 $27,431 $12,033
4/30/96 $20,702 $27,834 $12,087
5/31/96 $21,114 $28,553 $12,357
6/30/96 $21,341 $28,661 $12,604
7/31/96 $21,174 $27,394 $12,492
8/31/96 $22,188 $27,972 $13,023
9/30/96 $22,889 $29,547 $13,348
10/31/96 $23,343 $30,363 $13,710
11/30/96 $24,107 $32,658 $14,279
12/31/96 $26,448 $32,011 $15,802
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire MidCap Growth Index, based on a $10,000 investment from
1/27/92 to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $10,039
2/29/92 $10,000 $10,209
3/31/92 $9,930 $9,801
4/30/92 $9,980 $9,568
5/31/92 $10,130 $9,448
6/30/92 $9,990 $9,020
7/31/92 $10,350 $9,514
8/31/92 $10,240 $9,315
9/30/92 $10,410 $9,478
10/31/92 $10,540 $9,865
11/30/92 $10,860 $10,620
12/31/92 $10,980 $10,945
1/31/93 $10,860 $11,193
2/28/93 $10,670 $10,815
3/31/93 $10,760 $11,147
4/30/93 $10,390 $10,681
5/31/93 $10,530 $11,290
6/30/93 $10,418 $11,365
7/31/93 $10,418 $11,264
8/31/93 $10,588 $11,835
9/30/93 $10,588 $12,132
10/31/93 $10,749 $12,196
11/30/93 $10,478 $12,006
12/31/93 $10,598 $12,670
1/31/94 $10,739 $13,117
2/28/94 $10,378 $13,187
3/31/94 $9,916 $12,402
4/30/94 $9,936 $12,452
5/31/94 $10,077 $12,261
6/30/94 $10,054 $11,643
7/31/94 $10,156 $11,927
8/31/94 $10,584 $12,948
9/30/94 $10,340 $12,846
10/31/94 $10,309 $13,159
11/30/94 $10,064 $12,576
12/31/94 $10,166 $12,785
1/31/95 $10,442 $12,788
2/28/95 $10,748 $13,555
3/31/95 $10,982 $14,055
4/30/95 $11,064 $14,265
5/31/95 $11,441 $14,498
6/30/95 $11,565 $15,410
7/31/95 $11,815 $16,705
8/31/95 $12,013 $16,960
9/30/95 $12,409 $17,434
10/31/95 $12,304 $16,820
11/30/95 $12,940 $17,703
12/31/95 $13,190 $17,767
1/31/96 $13,451 $18,074
2/29/96 $13,648 $18,750
3/31/96 $13,648 $18,977
4/30/96 $13,617 $20,102
5/31/96 $13,992 $20,703
6/30/96 $14,146 $19,575
7/31/96 $13,731 $17,899
8/31/96 $14,008 $19,204
9/30/96 $14,731 $20,113
10/31/96 $15,167 $19,544
11/30/96 $16,220 $20,644
12/31/96 $16,379 $20,371
GRAPHIC MATERIAL (8)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 2500 Index and the S&P 500, based on a $10,000
investment from 11/1/95 to 12/31/96.
Period Ending Fund Index Index
11/1/95 $10,000 $10,000 $10,000
11/30/95 $9,700 $10,439 $10,427
12/31/95 $10,230 $10,640 $10,605
1/31/96 $10,370 $11,002 $10,681
2/29/96 $10,850 $11,105 $11,002
3/31/96 $11,140 $11,211 $11,227
4/30/96 $12,250 $11,376 $11,745
5/31/96 $12,760 $11,669 $12,063
6/30/96 $12,154 $11,714 $11,693
7/31/96 $11,054 $11,196 $10,837
8/31/96 $12,114 $11,432 $11,460
9/30/96 $12,654 $12,076 $11,957
10/31/96 $12,404 $12,409 $11,878
11/30/96 $12,964 $13,347 $12,451
12/31/96 $13,204 $13,083 $12,622
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the IFC Investable Composite Index, based
on a $10,000 investment from 3/15/94 to 12/31/96.
Period Ending Fund Index Index
3/15/94 $10,000 $10,000 $10,000
3/31/94 $10,000 $9,779 $9,478
4/30/94 $10,060 $10,083 $9,298
5/31/94 $10,040 $10,110 $9,518
6/30/94 $9,990 $10,083 $9,179
7/31/94 $10,250 $10,276 $9,839
8/31/94 $10,530 $10,587 $11,098
9/30/94 $10,520 $10,310 $11,378
10/31/94 $10,410 $10,606 $11,003
11/30/94 $10,000 $10,148 $10,581
12/31/94 $9,560 $10,248 $9,442
1/31/95 $8,910 $10,097 $8,197
2/28/95 $8,780 $10,246 $8,090
3/31/95 $9,150 $10,742 $8,073
4/30/95 $9,540 $11,119 $8,410
5/31/95 $9,800 $11,216 $8,724
6/30/95 $9,855 $11,215 $8,775
7/31/95 $10,438 $11,778 $9,047
8/31/95 $10,167 $11,517 $8,805
9/30/95 $10,096 $11,855 $8,738
10/31/95 $9,735 $11,670 $8,406
11/30/95 $9,664 $12,077 $8,364
12/31/95 $9,825 $12,432 $8,655
1/31/96 $10,880 $12,660 $9,386
2/29/96 $10,659 $12,740 $9,168
3/31/96 $10,860 $12,954 $9,300
4/30/96 $11,222 $13,261 $9,676
5/31/96 $11,382 $13,274 $9,590
6/30/96 $11,390 $13,343 $9,702
7/31/96 $10,782 $12,873 $9,066
8/31/96 $10,957 $13,024 $9,347
9/30/96 $11,194 $13,536 $9,485
10/31/96 $11,184 $13,633 $9,281
11/30/96 $11,617 $14,399 $9,419
12/31/96 $11,947 $14,172 $9,460
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the JP Morgan Global Bond Unhedged Index,
based on a $10,000 investment from 5/1/95 to 12/31/96.
Period Ending Fund Index Index
5/01/95 $10,000 $10,000 $10,000
5/31/95 $10,070 $10,087 $10,279
6/30/95 $10,130 $10,086 $10,344
7/31/95 $10,340 $10,592 $10,392
8/31/95 $10,290 $10,358 $10,103
9/30/95 $10,390 $10,662 $10,331
10/31/95 $10,320 $10,495 $10,432
11/30/95 $10,430 $10,862 $10,549
12/31/95 $10,701 $11,181 $10,680
1/31/96 $11,077 $11,386 $10,570
2/29/96 $11,148 $11,457 $10,508
3/31/96 $11,219 $11,650 $10,493
4/30/96 $11,423 $11,926 $10,454
5/31/96 $11,525 $11,938 $10,464
6/30/96 $11,581 $12,000 $10,555
7/31/96 $11,407 $11,578 $10,749
8/31/96 $11,652 $11,713 $10,795
9/30/96 $11,927 $12,173 $10,854
10/31/96 $12,059 $12,261 $11,070
11/30/96 $12,599 $12,950 $11,162
12/31/96 $12,823 $12,745 $11,151
GRAPHIC MATERIAL (11)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index, based on a $10,000 investment from 3/15/94 to
12/31/96.
Period Ending Fund Index
3/15/94 $10,000 $10,000
3/31/94 $10,030 $9,779
4/30/94 $10,079 $10,083
5/31/94 $10,118 $10,110
6/30/94 $10,020 $10,083
7/31/94 $10,295 $10,276
8/31/94 $10,551 $10,587
9/30/94 $10,482 $10,310
10/31/94 $10,492 $10,606
11/30/94 $10,285 $10,148
12/31/94 $10,315 $10,248
1/31/95 $10,226 $10,097
2/28/95 $10,335 $10,246
3/31/95 $10,335 $10,742
4/30/95 $10,630 $11,119
5/31/95 $10,896 $11,216
6/30/95 $11,053 $11,215
7/31/95 $11,498 $11,778
8/31/95 $11,399 $11,517
9/30/95 $11,617 $11,855
10/31/95 $11,231 $11,670
11/30/95 $11,310 $12,077
12/31/95 $11,627 $12,432
1/31/96 $12,132 $12,660
2/29/96 $12,181 $12,740
3/31/96 $12,379 $12,954
4/30/96 $12,706 $13,261
5/31/96 $12,894 $13,274
6/30/96 $12,886 $13,343
7/31/96 $12,416 $12,873
8/31/96 $12,814 $13,024
9/30/96 $12,988 $13,536
10/31/96 $13,080 $13,633
11/30/96 $13,672 $14,399
12/31/96 $14,102 $14,172
GRAPHIC MATERIAL (12)
The following line graph hypothetically compares the performance of the fund's
shares with the JP Morgan Globa Bond (Unhedged)Index and the CPI, based on a
$10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $9,978 $10,011
2/28/89 $10,080 $9,962 $10,052
3/31/89 $10,150 $9,877 $10,110
4/30/89 $10,220 $10,040 $10,176
5/31/89 $10,290 $9,932 $10,234
6/30/89 $10,330 $10,157 $10,259
7/31/89 $10,510 $10,562 $10,283
8/31/89 $10,610 $10,249 $10,300
9/30/89 $10,600 $10,411 $10,333
10/31/89 $10,570 $10,545 $10,382
11/30/89 $10,760 $10,639 $10,407
12/31/89 $10,930 $10,764 $10,424
1/31/90 $10,920 $10,603 $10,531
2/28/90 $10,850 $10,489 $10,581
3/31/90 $10,965 $10,425 $10,639
4/30/90 $10,944 $10,384 $10,656
5/31/90 $11,138 $10,716 $10,680
6/30/90 $11,454 $10,910 $10,738
7/31/90 $11,729 $11,231 $10,779
8/31/90 $11,627 $11,143 $10,878
9/30/90 $11,617 $11,248 $10,969
10/31/90 $11,688 $11,692 $11,035
11/30/90 $11,882 $11,898 $11,060
12/31/90 $12,004 $12,030 $11,060
1/31/91 $12,147 $12,303 $11,126
2/28/91 $12,412 $12,316 $11,143
3/31/91 $12,147 $11,931 $11,159
4/30/91 $12,320 $12,076 $11,176
5/31/91 $12,463 $12,087 $11,210
6/30/91 $12,359 $11,925 $11,242
7/31/91 $12,605 $12,176 $11,259
8/31/91 $12,648 $12,430 $11,292
9/30/91 $12,982 $12,883 $11,341
10/31/91 $13,154 $13,011 $11,358
11/30/91 $13,132 $13,223 $11,391
12/31/91 $13,486 $13,891 $11,399
1/31/92 $13,454 $13,618 $11,416
2/29/92 $13,464 $13,579 $11,457
3/31/92 $13,475 $13,454 $11,516
4/30/92 $13,604 $13,566 $11,532
5/31/92 $13,871 $13,951 $11,548
6/30/92 $13,868 $14,332 $11,590
7/31/92 $14,014 $14,647 $11,614
8/31/92 $13,846 $15,037 $11,647
9/30/92 $13,197 $15,022 $11,679
10/31/92 $13,477 $14,646 $11,720
11/30/92 $13,253 $14,387 $11,736
12/31/92 $13,432 $14,524 $11,728
1/31/93 $13,533 $14,771 $11,786
2/28/93 $13,734 $15,008 $11,827
3/31/93 $14,148 $15,239 $11,868
4/30/93 $14,574 $15,517 $11,902
5/31/93 $14,809 $15,615 $11,918
6/30/93 $14,778 $15,627 $11,935
7/31/93 $14,825 $15,633 $11,935
8/31/93 $15,155 $16,096 $11,968
9/30/93 $15,107 $16,267 $11,993
10/31/93 $15,461 $16,259 $12,043
11/30/93 $15,155 $16,140 $12,051
12/31/93 $15,673 $16,304 $12,051
1/31/94 $15,967 $16,458 $12,084
2/28/94 $15,602 $16,277 $12,125
3/31/94 $15,131 $16,202 $12,166
4/30/94 $15,119 $16,189 $12,183
5/31/94 $15,178 $16,054 $12,191
6/30/94 $14,440 $16,246 $12,233
7/31/94 $14,670 $16,398 $12,266
8/31/94 $14,791 $16,356 $12,315
9/30/94 $14,779 $16,436 $12,348
10/31/94 $14,864 $16,682 $12,357
11/30/94 $14,864 $16,472 $12,373
12/31/94 $14,755 $16,510 $12,373
1/31/95 $14,658 $16,843 $12,422
2/28/95 $14,888 $17,278 $12,472
3/31/95 $15,155 $18,157 $12,513
4/30/95 $15,494 $18,446 $12,555
5/31/95 $15,869 $18,961 $12,580
6/30/95 $15,940 $19,080 $12,605
7/31/95 $16,041 $19,170 $12,605
8/31/95 $15,839 $18,637 $12,638
9/30/95 $16,191 $19,056 $12,663
10/31/95 $16,455 $19,243 $12,705
11/30/95 $16,594 $19,459 $12,696
12/31/95 $16,921 $19,700 $12,687
1/31/96 $16,845 $19,497 $12,762
2/29/96 $16,644 $19,384 $12,803
3/31/96 $16,694 $19,355 $12,869
4/30/96 $16,820 $19,283 $12,919
5/31/96 $16,908 $19,303 $12,944
6/30/96 $17,135 $19,470 $12,952
7/31/96 $17,204 $19,829 $12,976
8/31/96 $17,421 $19,912 $13,001
9/30/96 $17,694 $20,022 $13,043
10/31/96 $18,048 $20,420 $13,084
11/30/96 $18,484 $20,589 $13,109
12/31/96 $18,552 $20,569 $13,109
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 1/27/92 to
12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,973
2/29/92 $10,000 $9,619
3/31/92 $10,000 $8,987
4/30/92 $10,010 $9,032
5/31/92 $10,270 $9,639
6/30/92 $10,040 $9,185
7/31/92 $9,760 $8,952
8/31/92 $9,860 $9,517
9/30/92 $9,740 $9,332
10/31/92 $9,570 $8,845
11/30/92 $9,670 $8,931
12/31/92 $9,760 $8,980
1/31/93 $9,630 $8,982
2/28/93 $9,770 $9,256
3/31/93 $9,930 $10,066
4/30/93 $10,200 $11,024
5/31/93 $10,410 $11,260
6/30/93 $10,218 $11,087
7/31/93 $10,419 $11,477
8/31/93 $11,132 $12,099
9/30/93 $11,042 $11,829
10/31/93 $11,694 $12,196
11/30/93 $11,403 $11,132
12/31/93 $12,547 $11,938
1/31/94 $13,461 $12,951
2/28/94 $13,230 $12,917
3/31/94 $12,748 $12,363
4/30/94 $12,868 $12,891
5/31/94 $12,939 $12,820
6/30/94 $12,601 $13,003
7/31/94 $13,117 $13,132
8/31/94 $13,512 $13,446
9/30/94 $13,249 $13,025
10/31/94 $13,461 $13,461
11/30/94 $12,885 $12,818
12/31/94 $12,652 $12,901
1/31/95 $12,389 $12,408
2/28/95 $12,571 $12,376
3/31/95 $12,531 $13,152
4/30/95 $13,087 $13,651
5/31/95 $13,330 $13,492
6/30/95 $13,624 $13,259
7/31/95 $14,202 $14,087
8/31/95 $13,897 $13,554
9/30/95 $14,202 $13,822
10/31/95 $13,792 $13,454
11/30/95 $13,824 $13,832
12/31/95 $13,992 $14,392
1/31/96 $14,464 $14,454
2/29/96 $14,801 $14,506
3/31/96 $15,032 $14,818
4/30/96 $15,473 $15,252
5/31/96 $15,693 $14,975
6/30/96 $15,714 $15,063
7/31/96 $15,235 $14,626
8/31/96 $15,692 $14,662
9/30/96 $15,848 $15,054
10/31/96 $16,137 $14,904
11/30/96 $16,750 $15,500
12/31/96 $17,207 $15,305
GRAPHIC MATERIAL (14)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 5/1/96 to
12/31/96.
Period Ending Fund Index
5/1/96 $10,000 $10,000
5/31/96 $10,150 $9,818
6/30/96 $10,330 $9,876
7/31/96 $10,210 $9,590
8/31/96 $10,330 $9,613
9/30/96 $10,410 $9,870
10/31/96 $10,690 $9,771
11/30/96 $10,890 $10,162
12/31/96 $11,250 $10,034
GRAPHIC MATERIAL (15)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI Pacific Index, based on a $10,000 investment from 1/27/92
to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,950
2/29/92 $10,000 $9,254
3/31/92 $10,000 $8,376
4/30/92 $10,010 $7,994
5/31/92 $10,210 $8,619
6/30/92 $10,450 $7,944
7/31/92 $9,900 $7,835
8/31/92 $9,570 $8,910
9/30/92 $9,790 $8,708
10/31/92 $10,230 $8,402
11/30/92 $10,110 $8,562
12/31/92 $9,880 $8,466
1/31/93 $9,980 $8,452
2/28/93 $10,330 $8,864
3/31/93 $10,270 $9,936
4/30/93 $10,920 $11,521
5/31/93 $11,290 $11,859
6/30/93 $11,100 $11,666
7/31/93 $11,230 $12,358
8/31/93 $11,770 $12,725
9/30/93 $11,840 $12,251
10/31/93 $13,110 $12,525
11/30/93 $12,970 $10,760
12/31/93 $14,610 $11,512
1/31/94 $14,720 $12,847
2/28/94 $14,300 $13,180
3/31/94 $13,330 $12,453
4/30/94 $13,520 $12,994
5/31/94 $14,080 $13,304
6/30/94 $13,704 $13,742
7/31/94 $13,956 $13,449
8/31/94 $14,549 $13,685
9/30/94 $14,006 $13,344
10/31/94 $14,097 $13,683
11/30/94 $13,191 $12,921
12/31/94 $13,322 $13,010
1/31/95 $12,356 $12,190
2/28/95 $12,869 $11,890
3/31/95 $13,191 $12,806
4/30/95 $13,372 $13,353
5/31/95 $13,895 $12,821
6/30/95 $13,639 $12,280
7/31/95 $14,166 $13,168
8/31/95 $14,001 $12,674
9/30/95 $14,259 $12,793
10/31/95 $13,691 $12,173
11/30/95 $13,763 $12,773
12/31/95 $14,384 $13,399
1/31/96 $15,552 $13,424
2/29/96 $15,500 $13,275
3/31/96 $15,531 $13,684
4/30/96 $16,224 $14,384
5/31/96 $16,276 $13,761
6/30/96 $16,132 $13,766
7/31/96 $15,255 $13,136
8/31/96 $15,634 $12,792
9/30/96 $15,862 $13,211
10/31/96 $15,353 $12,600
11/30/96 $16,176 $12,940
12/31/96 $15,981 $12,267
GRAPHIC MATERIAL (16)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Intermediate Government Bond Index and the CPI,
based on a $10,000 investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,026 $10,032
4/30/89 $10,000 $10,229 $10,097
5/31/89 $10,000 $10,426 $10,155
6/30/89 $10,050 $10,692 $10,179
7/31/89 $10,190 $10,909 $10,203
8/31/89 $10,080 $10,762 $10,220
9/30/89 $10,140 $10,813 $10,252
10/31/89 $10,370 $11,040 $10,302
11/30/89 $10,470 $11,150 $10,326
12/31/89 $10,540 $11,182 $10,343
1/31/90 $10,420 $11,113 $10,449
2/28/90 $10,480 $11,154 $10,498
3/31/90 $10,510 $11,167 $10,556
4/30/90 $10,398 $11,130 $10,573
5/31/90 $10,671 $11,368 $10,597
6/30/90 $10,793 $11,519 $10,655
7/31/90 $10,964 $11,680 $10,695
8/31/90 $10,894 $11,638 $10,794
9/30/90 $10,974 $11,741 $10,884
10/31/90 $11,096 $11,905 $10,950
11/30/90 $11,318 $12,084 $10,974
12/31/90 $11,480 $12,251 $10,974
1/31/91 $11,652 $12,377 $11,039
2/28/91 $11,753 $12,453 $11,056
3/31/91 $11,813 $12,521 $11,073
4/30/91 $11,904 $12,650 $11,089
5/31/91 $11,995 $12,721 $11,122
6/30/91 $12,011 $12,731 $11,155
7/31/91 $12,178 $12,869 $11,171
8/31/91 $12,398 $13,113 $11,204
9/30/91 $12,649 $13,336 $11,253
10/31/91 $12,806 $13,488 $11,270
11/30/91 $12,890 $13,646 $11,303
12/31/91 $13,235 $13,978 $11,311
1/31/92 $13,046 $13,843 $11,328
2/29/92 $13,162 $13,886 $11,368
3/31/92 $13,067 $13,831 $11,426
4/30/92 $13,172 $13,955 $11,442
5/31/92 $13,465 $14,163 $11,458
6/30/92 $13,672 $14,367 $11,500
7/31/92 $13,953 $14,643 $11,524
8/31/92 $14,116 $14,792 $11,556
9/30/92 $14,278 $14,996 $11,588
10/31/92 $14,040 $14,816 $11,629
11/30/92 $14,072 $14,756 $11,645
12/31/92 $14,332 $14,946 $11,637
1/31/93 $14,635 $15,224 $11,694
2/28/93 $14,895 $15,448 $11,735
3/31/93 $14,971 $15,505 $11,776
4/30/93 $15,057 $15,626 $11,809
5/31/93 $15,101 $15,584 $11,826
6/30/93 $15,374 $15,810 $11,842
7/31/93 $15,476 $15,841 $11,842
8/31/93 $15,702 $16,077 $11,875
9/30/93 $15,702 $16,143 $11,900
10/31/93 $15,781 $16,182 $11,949
11/30/93 $15,577 $16,103 $11,957
12/31/93 $15,724 $16,169 $11,957
1/31/94 $15,928 $16,329 $11,990
2/28/94 $15,611 $16,105 $12,030
3/31/94 $15,058 $15,870 $12,071
4/30/94 $14,911 $15,767 $12,088
5/31/94 $14,934 $15,778 $12,097
6/30/94 $14,761 $15,781 $12,138
7/31/94 $15,129 $15,988 $12,171
8/31/94 $15,118 $16,034 $12,219
9/30/94 $14,809 $15,901 $12,252
10/31/94 $14,738 $15,904 $12,261
11/30/94 $14,738 $15,834 $12,277
12/31/94 $14,928 $15,887 $12,277
1/31/95 $15,260 $16,145 $12,326
2/28/95 $15,676 $16,457 $12,375
3/31/95 $15,759 $16,548 $12,416
4/30/95 $15,996 $16,740 $12,457
5/31/95 $16,697 $17,212 $12,482
6/30/95 $16,788 $17,322 $12,507
7/31/95 $16,737 $17,330 $12,507
8/31/95 $16,953 $17,473 $12,539
9/30/95 $17,132 $17,590 $12,565
10/31/95 $17,361 $17,783 $12,606
11/30/95 $17,590 $18,000 $12,597
12/31/95 $17,832 $18,178 $12,588
1/31/96 $17,947 $18,331 $12,663
2/29/96 $17,641 $18,137 $12,703
3/31/96 $17,514 $18,053 $12,769
4/30/96 $17,399 $18,001 $12,819
5/31/96 $17,323 $17,992 $12,843
6/30/96 $17,571 $18,175 $12,851
7/31/96 $17,613 $18,232 $12,875
8/31/96 $17,585 $18,252 $12,900
9/30/96 $17,928 $18,487 $12,941
10/31/96 $18,312 $18,790 $12,983
11/30/96 $18,587 $19,018 $13,007
12/31/96 $18,477 $18,915 $13,007
GRAPHIC MATERIAL (17)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,610 $11,101 $10,234
6/30/89 $10,730 $11,038 $10,259
7/31/89 $11,260 $12,035 $10,283
8/31/89 $11,100 $12,271 $10,300
9/30/89 $11,160 $12,220 $10,333
10/31/89 $11,260 $11,937 $10,382
11/30/89 $11,500 $12,180 $10,407
12/31/89 $12,140 $12,473 $10,424
1/31/90 $11,680 $11,636 $10,531
2/28/90 $11,750 $11,786 $10,581
3/31/90 $11,668 $12,098 $10,639
4/30/90 $11,153 $11,797 $10,656
5/31/90 $11,607 $12,947 $10,680
6/30/90 $11,678 $12,860 $10,738
7/31/90 $11,839 $12,819 $10,779
8/31/90 $11,103 $11,660 $10,878
9/30/90 $11,113 $11,093 $10,969
10/31/90 $11,899 $11,045 $11,035
11/30/90 $12,192 $11,758 $11,060
12/31/90 $12,363 $12,086 $11,060
1/31/91 $12,232 $12,613 $11,126
2/28/91 $12,676 $13,515 $11,143
3/31/91 $12,888 $13,842 $11,159
4/30/91 $12,989 $13,876 $11,176
5/31/91 $12,968 $14,474 $11,210
6/30/91 $12,871 $13,811 $11,242
7/31/91 $13,379 $14,454 $11,259
8/31/91 $13,742 $14,797 $11,292
9/30/91 $14,218 $14,550 $11,341
10/31/91 $14,426 $14,745 $11,358
11/30/91 $14,706 $14,150 $11,391
12/31/91 $15,275 $15,769 $11,399
1/31/92 $14,757 $15,476 $11,416
2/29/92 $14,726 $15,676 $11,457
3/31/92 $14,633 $15,370 $11,516
4/30/92 $15,068 $15,822 $11,532
5/31/92 $15,358 $15,899 $11,548
6/30/92 $15,543 $15,662 $11,590
7/31/92 $16,378 $16,303 $11,614
8/31/92 $16,315 $15,969 $11,647
9/30/92 $16,389 $16,156 $11,679
10/31/92 $16,283 $16,211 $11,720
11/30/92 $16,304 $16,762 $11,736
12/31/92 $16,738 $16,968 $11,728
1/31/93 $17,003 $17,110 $11,786
2/28/93 $17,923 $17,343 $11,827
3/31/93 $18,082 $17,709 $11,868
4/30/93 $18,092 $17,281 $11,902
5/31/93 $18,018 $17,742 $11,918
6/30/93 $18,459 $17,793 $11,935
7/31/93 $18,826 $17,722 $11,935
8/31/93 $19,344 $18,394 $11,968
9/30/93 $19,247 $18,252 $11,993
10/31/93 $19,128 $18,630 $12,043
11/30/93 $18,221 $18,453 $12,051
12/31/93 $18,502 $18,676 $12,051
1/31/94 $18,124 $19,311 $12,084
2/28/94 $17,206 $18,788 $12,125
3/31/94 $16,602 $17,969 $12,166
4/30/94 $16,991 $18,199 $12,183
5/31/94 $16,105 $18,497 $12,191
6/30/94 $15,354 $18,044 $12,233
7/31/94 $16,142 $18,636 $12,266
8/31/94 $16,299 $19,400 $12,315
9/30/94 $15,894 $18,927 $12,348
10/31/94 $16,198 $19,353 $12,357
11/30/94 $16,288 $18,648 $12,373
12/31/94 $16,220 $18,924 $12,373
1/31/95 $17,165 $19,414 $12,422
2/28/95 $17,233 $20,171 $12,472
3/31/95 $16,985 $20,766 $12,513
4/30/95 $17,345 $21,377 $12,555
5/31/95 $18,301 $22,232 $12,580
6/30/95 $18,283 $22,748 $12,605
7/31/95 $18,319 $23,503 $12,605
8/31/95 $18,497 $23,562 $12,638
9/30/95 $19,545 $24,556 $12,663
10/31/95 $19,985 $24,468 $12,705
11/30/95 $20,318 $25,542 $12,696
12/31/95 $21,306 $26,035 $12,687
1/31/96 $21,687 $26,920 $12,762
2/29/96 $21,294 $27,170 $12,803
3/31/96 $21,282 $27,431 $12,869
4/30/96 $20,842 $27,834 $12,919
5/31/96 $21,306 $28,553 $12,944
6/30/96 $22,248 $28,661 $12,952
7/31/96 $21,081 $27,394 $12,976
8/31/96 $21,533 $27,972 $13,001
9/30/96 $21,658 $29,547 $13,043
10/31/96 $22,361 $30,363 $13,084
11/30/96 $22,763 $32,658 $13,109
12/31/96 $22,813 $32,011 $13,109
GRAPHIC MATERIAL (18)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 5-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,040 $10,032
4/30/89 $10,000 $10,257 $10,097
5/31/89 $9,990 $10,571 $10,155
6/30/89 $10,560 $10,951 $10,179
7/31/89 $10,790 $11,344 $10,203
8/31/89 $10,460 $11,021 $10,220
9/30/89 $10,480 $11,066 $10,252
10/31/89 $10,910 $11,389 $10,302
11/30/89 $11,010 $11,534 $10,326
12/31/89 $11,080 $11,543 $10,343
1/31/90 $10,610 $11,346 $10,449
2/28/90 $10,600 $11,357 $10,498
3/31/90 $10,592 $11,356 $10,556
4/30/90 $10,170 $11,240 $10,573
5/31/90 $10,664 $11,582 $10,597
6/30/90 $10,932 $11,771 $10,655
7/31/90 $11,076 $11,979 $10,695
8/31/90 $10,582 $11,822 $10,794
9/30/90 $10,715 $11,935 $10,884
10/31/90 $10,973 $12,179 $10,950
11/30/90 $11,518 $12,504 $10,974
12/31/90 $11,734 $12,721 $10,974
1/31/91 $11,868 $12,850 $11,039
2/28/91 $11,889 $12,895 $11,056
3/31/91 $11,868 $12,943 $11,073
4/30/91 $12,064 $13,149 $11,089
5/31/91 $12,054 $13,190 $11,122
6/30/91 $11,987 $13,162 $11,155
7/31/91 $12,147 $13,350 $11,171
8/31/91 $12,615 $13,748 $11,204
9/30/91 $13,072 $14,100 $11,253
10/31/91 $13,157 $14,321 $11,270
11/30/91 $13,338 $14,566 $11,303
12/31/91 $13,933 $14,914 $11,311
1/31/92 $13,487 $14,668 $11,328
2/29/92 $13,572 $14,693 $11,368
3/31/92 $13,465 $14,546 $11,426
4/30/92 $13,519 $14,670 $11,442
5/31/92 $13,848 $15,035 $11,458
6/30/92 $14,249 $15,363 $11,500
7/31/92 $14,880 $15,802 $11,524
8/31/92 $15,080 $16,060 $11,556
9/30/92 $15,501 $16,410 $11,588
10/31/92 $15,102 $16,049 $11,629
11/30/92 $14,947 $15,869 $11,645
12/31/92 $15,379 $16,164 $11,637
1/31/93 $15,789 $16,659 $11,694
2/28/93 $16,387 $17,051 $11,735
3/31/93 $16,587 $17,124 $11,776
4/30/93 $16,664 $17,328 $11,809
5/31/93 $16,653 $17,239 $11,826
6/30/93 $17,308 $17,631 $11,842
7/31/93 $17,412 $17,645 $11,842
8/31/93 $17,863 $18,059 $11,875
9/30/93 $17,979 $18,148 $11,900
10/31/93 $18,129 $18,157 $11,949
11/30/93 $17,701 $17,974 $11,957
12/31/93 $17,863 $18,069 $11,957
1/31/94 $18,176 $18,324 $11,990
2/28/94 $17,528 $17,895 $12,030
3/31/94 $16,938 $17,433 $12,071
4/30/94 $16,729 $17,220 $12,088
5/31/94 $16,729 $17,233 $12,097
6/30/94 $16,694 $17,196 $12,138
7/31/94 $17,023 $17,513 $12,171
8/31/94 $17,023 $17,571 $12,219
9/30/94 $16,694 $17,272 $12,252
10/31/94 $16,596 $17,236 $12,261
11/30/94 $16,511 $17,101 $12,277
12/31/94 $16,621 $17,255 $12,277
1/31/95 $16,950 $17,422 $12,326
2/28/95 $17,475 $17,924 $12,375
3/31/95 $17,573 $17,998 $12,416
4/30/95 $17,829 $18,278 $12,457
5/31/95 $18,756 $19,149 $12,482
6/30/95 $18,909 $19,306 $12,507
7/31/95 $18,781 $19,211 $12,507
8/31/95 $18,998 $19,395 $12,539
9/30/95 $19,138 $19,543 $12,565
10/31/95 $19,482 $19,850 $12,606
11/30/95 $19,814 $20,219 $12,597
12/31/95 $20,056 $20,474 $12,588
1/31/96 $20,286 $20,697 $12,663
2/29/96 $19,890 $20,303 $12,703
3/31/96 $19,648 $20,046 $12,769
4/30/96 $19,495 $19,819 $12,819
5/31/96 $19,406 $19,722 $12,843
6/30/96 $19,637 $20,012 $12,851
7/31/96 $19,691 $19,694 $12,875
8/31/96 $19,664 $19,962 $12,900
9/30/96 $19,988 $20,331 $12,941
10/31/96 $20,435 $20,853 $12,983
11/30/96 $20,746 $21,214 $13,007
12/31/96 $20,543 $20,940 $13,007
GRAPHIC MATERIAL (19)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 10-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,064 $10,032
4/30/89 $10,000 $10,339 $10,097
5/31/89 $10,070 $10,762 $10,155
6/30/89 $11,310 $11,405 $10,179
7/31/89 $11,290 $11,714 $10,203
8/31/89 $10,850 $11,360 $10,220
9/30/89 $10,870 $11,408 $10,252
10/31/89 $11,500 $11,874 $10,302
11/30/89 $11,580 $11,973 $10,326
12/31/89 $11,530 $11,972 $10,343
1/31/90 $10,630 $11,486 $10,449
2/28/90 $10,640 $11,460 $10,498
3/31/90 $10,598 $11,451 $10,556
4/30/90 $10,024 $11,131 $10,573
5/31/90 $10,746 $11,663 $10,597
6/30/90 $11,065 $11,939 $10,655
7/31/90 $11,171 $12,069 $10,695
8/31/90 $10,290 $11,498 $10,794
9/30/90 $10,502 $11,629 $10,884
10/31/90 $10,746 $12,005 $10,950
11/30/90 $11,521 $12,527 $10,974
12/31/90 $11,840 $12,809 $10,974
1/31/91 $11,978 $12,938 $11,039
2/28/91 $11,978 $12,955 $11,056
3/31/91 $11,893 $13,047 $11,073
4/30/91 $12,127 $13,260 $11,089
5/31/91 $11,999 $13,244 $11,122
6/30/91 $11,857 $13,151 $11,155
7/31/91 $12,066 $13,383 $11,171
8/31/91 $12,663 $13,914 $11,204
9/30/91 $13,292 $14,393 $11,253
10/31/91 $13,237 $14,462 $11,270
11/30/91 $13,303 $14,666 $11,303
12/31/91 $14,065 $15,468 $11,311
1/31/92 $13,579 $14,821 $11,328
2/29/92 $13,612 $14,910 $11,368
3/31/92 $13,513 $14,718 $11,426
4/30/92 $13,480 $14,658 $11,442
5/31/92 $13,976 $15,084 $11,458
6/30/92 $14,216 $15,437 $11,500
7/31/92 $15,016 $16,152 $11,524
8/31/92 $15,132 $16,334 $11,556
9/30/92 $15,711 $16,792 $11,588
10/31/92 $15,143 $16,303 $11,629
11/30/92 $15,271 $16,288 $11,645
12/31/92 $15,793 $16,852 $11,637
1/31/93 $16,291 $17,524 $11,694
2/28/93 $17,196 $18,210 $11,735
3/31/93 $17,358 $18,261 $11,776
4/30/93 $17,346 $18,516 $11,809
5/31/93 $17,346 $18,414 $11,826
6/30/93 $18,520 $19,425 $11,842
7/31/93 $18,724 $19,585 $11,842
8/31/93 $19,360 $20,333 $11,875
9/30/93 $19,564 $20,575 $11,900
10/31/93 $19,840 $20,661 $11,949
11/30/93 $19,084 $19,973 $11,957
12/31/93 $19,300 $20,149 $11,957
1/31/94 $19,864 $20,737 $11,990
2/28/94 $18,748 $19,748 $12,030
3/31/94 $17,728 $18,733 $12,071
4/30/94 $17,452 $18,439 $12,088
5/31/94 $17,416 $18,347 $12,097
6/30/94 $17,163 $18,209 $12,138
7/31/94 $17,691 $18,732 $12,171
8/31/94 $17,641 $18,764 $12,219
9/30/94 $16,999 $18,088 $12,252
10/31/94 $16,899 $17,956 $12,261
11/30/94 $16,999 $18,042 $12,277
12/31/94 $17,314 $18,356 $12,277
1/31/95 $17,704 $18,841 $12,326
2/28/95 $18,295 $19,566 $12,375
3/31/95 $18,446 $19,701 $12,416
4/30/95 $18,862 $20,085 $12,457
5/31/95 $20,497 $21,768 $12,482
6/30/95 $20,647 $22,056 $12,507
7/31/95 $20,279 $21,692 $12,507
8/31/95 $20,712 $22,121 $12,539
9/30/95 $21,080 $22,486 $12,565
10/31/95 $21,657 $23,055 $12,606
11/30/95 $22,248 $23,761 $12,597
12/31/95 $22,812 $24,341 $12,588
1/31/96 $22,891 $24,392 $12,663
2/29/96 $21,802 $23,233 $12,703
3/31/96 $21,461 $22,787 $12,769
4/30/96 $21,067 $22,251 $12,819
5/31/96 $20,830 $22,109 $12,843
6/30/96 $21,295 $22,604 $12,851
7/31/96 $21,295 $22,598 $12,875
8/31/96 $21,101 $22,353 $12,900
9/30/96 $21,670 $23,017 $12,941
10/31/96 $22,531 $23,959 $12,983
11/30/96 $23,197 $24,776 $13,007
12/31/96 $22,698 $24,129 $13,007
GRAPHIC MATERIAL (20)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 20-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,109 $10,032
4/30/89 $10,000 $10,494 $10,097
5/31/89 $10,000 $11,218 $10,155
6/30/89 $11,290 $12,388 $10,179
7/31/89 $11,250 $12,458 $10,203
8/31/89 $10,790 $11,840 $10,220
9/30/89 $10,860 $11,945 $10,252
10/31/89 $11,630 $12,745 $10,302
11/30/89 $11,720 $12,972 $10,326
12/31/89 $11,610 $12,904 $10,343
1/31/90 $10,580 $11,934 $10,449
2/28/90 $10,530 $11,668 $10,498
3/31/90 $10,400 $11,557 $10,556
4/30/90 $9,652 $10,869 $10,573
5/31/90 $10,617 $11,932 $10,597
6/30/90 $11,064 $12,425 $10,655
7/31/90 $11,136 $12,374 $10,695
8/31/90 $9,912 $11,011 $10,794
9/30/90 $10,150 $11,240 $10,884
10/31/90 $10,358 $11,566 $10,950
11/30/90 $11,271 $12,608 $10,974
12/31/90 $11,676 $12,940 $10,974
1/31/91 $11,853 $13,206 $11,039
2/28/91 $11,811 $13,087 $11,056
3/31/91 $11,666 $13,182 $11,073
4/30/91 $11,946 $13,421 $11,089
5/31/91 $11,686 $13,267 $11,122
6/30/91 $11,412 $13,000 $11,155
7/31/91 $11,619 $13,273 $11,171
8/31/91 $12,362 $14,056 $11,204
9/30/91 $13,061 $14,781 $11,253
10/31/91 $12,864 $14,549 $11,270
11/30/91 $12,744 $14,670 $11,303
12/31/91 $13,749 $15,854 $11,311
1/31/92 $13,246 $15,164 $11,328
2/29/92 $13,290 $15,233 $11,368
3/31/92 $13,235 $14,986 $11,426
4/30/92 $13,050 $14,715 $11,442
5/31/92 $13,759 $15,337 $11,458
6/30/92 $13,776 $15,380 $11,500
7/31/92 $14,598 $16,413 $11,524
8/31/92 $14,679 $16,359 $11,556
9/30/92 $14,923 $16,307 $11,588
10/31/92 $14,378 $15,968 $11,629
11/30/92 $14,772 $16,341 $11,645
12/31/92 $15,467 $17,034 $11,637
1/31/93 $15,792 $17,595 $11,694
2/28/93 $16,707 $18,677 $11,735
3/31/93 $17,054 $18,546 $11,776
4/30/93 $16,881 $18,774 $11,809
5/31/93 $16,985 $18,956 $11,826
6/30/93 $18,058 $20,442 $11,842
7/31/93 $18,664 $21,338 $11,842
8/31/93 $19,617 $22,712 $11,875
9/30/93 $19,778 $22,639 $11,900
10/31/93 $20,162 $23,054 $11,949
11/30/93 $19,332 $22,125 $11,957
12/31/93 $19,407 $22,047 $11,957
1/31/94 $20,186 $22,929 $11,990
2/28/94 $18,788 $21,356 $12,030
3/31/94 $17,662 $20,013 $12,071
4/30/94 $17,365 $19,496 $12,088
5/31/94 $17,092 $18,900 $12,097
6/30/94 $16,534 $18,599 $12,138
7/31/94 $17,392 $19,779 $12,171
8/31/94 $17,041 $19,179 $12,219
9/30/94 $16,248 $18,101 $12,252
10/31/94 $16,131 $17,996 $12,261
11/30/94 $16,417 $18,436 $12,277
12/31/94 $16,924 $19,119 $12,277
1/31/95 $17,366 $19,856 $12,326
2/28/95 $17,886 $20,479 $12,375
3/31/95 $18,068 $20,733 $12,416
4/30/95 $18,561 $21,191 $12,457
5/31/95 $20,862 $24,264 $12,482
6/30/95 $20,964 $24,591 $12,507
7/31/95 $20,415 $23,898 $12,507
8/31/95 $21,018 $24,842 $12,539
9/30/95 $21,527 $25,562 $12,565
10/31/95 $22,532 $26,984 $12,606
11/30/95 $23,295 $27,998 $12,597
12/31/95 $24,166 $29,297 $12,588
1/31/96 $24,112 $29,016 $12,663
2/29/96 $22,264 $26,341 $12,703
3/31/96 $21,728 $25,335 $12,769
4/30/96 $21,152 $24,417 $12,819
5/31/96 $20,951 $24,420 $12,843
6/30/96 $21,596 $25,270 $12,851
7/31/96 $21,553 $25,204 $12,875
8/31/96 $21,077 $24,370 $12,900
9/30/96 $21,928 $25,583 $12,941
10/31/96 $23,155 $27,320 $12,983
11/30/96 $24,224 $28,946 $13,007
12/31/96 $23,516 $27,643 $13,007
THE INVESTMENT STRATEGY PYRAMID
As a Franklin Valuemark contract owner, you can invest in up to nine investment
options at one time. When selecting an option, there are two things you may wish
to consider: 1) your investment objective; and 2) the degree of risk with which
you feel comfortable. Before you make these decisions, you may want to review
the investment strategy pyramid pictured below. The base of the pyramid
represents investments emphasizing stability and preservation of capital. Moving
up the pyramid, the categories reflect a greater focus on potential investment
return -- categories that generally entail a greater degree of investment risk
as well. Of course, you should review the Franklin Valuemark Funds prospectus
for more information about a specific option.
GRAPH OMITTED
Capital Growth Fund Mutual Discovery Securities Fund Precious
Metals Fund* Small Cap Fund Templeton Developing Markets Equity
Fund Templeton Global Growth Fund Templeton International
Equity Fund Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
Growth and Income Fund
Income Securities Fund
Mutual Shares Securities Fund
Real Estate Securities Fund
Rising Dividends Fund
Templeton Global Asset Allocation Fund
Utility Equity Fund
High Income Fund
Templeton Global Income Securities Fund+
U.S. Gov't. Securities Fund
Three Zero Coupon Funds
maturing in 2000, 2005, 2010
Money Market Fund
*The Board has approved for contract owner consideration changes in the
investment objective and industry concentration policy of the Precious Metals
Fund to those of a fund which invests primarily in natural resources industries.
Contract owners of record as of January 21, 1997, are entitled to vote at the
April 4, 1997, meeting. If approved, the change would take effect on May 1,
1997.
+Effective May 1, 1996, the Global Income Fund's name changed to the
Templeton Global Income Securities Fund. The portfolio's objective and
investment strategy remain unchanged.
For service regarding your contract, please contact your investment
representative. You may also call 1-800/624-0197 (Valuemark deferred variable
annuity), 1-800/774-5001 (VIP), or 1-800/342-FUND (Franklin Valuemark Funds). To
ensure the highest quality of service, telephone calls to or from a Valuemark
service center may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
LETTER TO CONTRACT OWNERS
- ------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
LETTER TO CONTRACT OWNERS 1
ECONOMIC OVERVIEW 3
CHANGE IN UNIT PRICES 5
FRANKLIN VALUEMARK TOTAL RETURNS 6
PORTFOLIO OBJECTIVES 8
PORTFOLIO PROFILES
PORTFOLIOS SEEKING CAPITAL GROWTH
Capital Growth Fund 12
Mutual Discovery Securities Fund 12
GRAPHICS OMITTED
Precious Metals Fund 13
Small Cap Fund 14
Templeton Developing Markets Equity Fund 15
Templeton Global Growth Fund 15
Templeton International Equity Fund 17
Templeton International
Smaller Companies Fund 17
Templeton Pacific Growth Fund 18
PORTFOLIOS SEEKING GROWTH AND INCOME
Growth and Income Fund 19
Income Securities Fund 20
Mutual Shares Securities Fund 21
GRAPHICS OMITTED
Real Estate Securities Fund 21
Rising Dividends Fund 23
Templeton Global Asset Allocation Fund 24
Utility Equity Fund 25
PORTFOLIOS SEEKING CURRENT INCOME
High Income Fund 26
Templeton Global Income Securities Fund 26
U.S. Government Securities Fund 27
Zero Coupon Funds 28
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Money Market Fund 29
INDEX COMPARISONS 30
INDEX DEFINITIONS 38
PREFERRED LIFE VARIABLE ACCOUNT C
Financial Statements and Notes 40
FRANKLIN VALUEMARK FUNDS
Statement of Investments 62
Financial Statements and Notes 157
February 14, 1997
Dear Contract Owner:
This annual report covers the year ended December 31, 1996, for the Franklin
Valuemark(R) flexible-premium deferred variable annuity and Franklin Valuemark
Funds.
We introduced two new Valuemark portfolios over the reporting period. On
December 2, 1996, we added the Mutual Discovery Securities Fund and the Mutual
Shares Securities Fund as investment options to your annuity. Mutual Discovery
seeks capital appreciation through a policy of investing in domestic and foreign
equity securities. Mutual Shares seeks capital appreciation, with current income
as a secondary objective.
On October 25, 1996, shares of the Adjustable U.S. Government Fund and the
Investment Grade Intermediate Bond Fund were replaced by shares of the U.S.
Government Securities Fund. The substitution is designed to benefit contract
owners by consolidating the assets of portfolios with similar investment
objectives, strategies and risks, thereby potentially lowering operating
expenses.
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 through 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 Executive Vice President
Franklin Valuemark Funds
SIGNATURE OMITTED
Ronald L. Wobbeking
Chairman of the Board
Preferred Life Insurance Company
of New York
SIGNATURE OMITTED
MUTUAL SERIES MANAGERS
COME TO VALUEMARK
IN NOVEMBER 1996, HEINE SECURITIES CORPORATION, ADVISERS OF THE MUTUAL SERIES
FUNDS, JOINED FORCES WITH THE FRANKLIN TEMPLETON GROUP. WHAT'S MORE, AS OF
DECEMBER 2, 1996, FRANKLIN VALUEMARK BEGAN OFFERING MODELS OF TWO MUTUAL SERIES
FUNDS -- MUTUAL DISCOVERY AND MUTUAL SHARES -- TO CONTRACT OWNERS.
ALTHOUGH THE NEW VALUEMARK PORTFOLIOS WILL PERFORM DIFFERENTLY THAN THE PUBLIC
FUNDS DUE TO DIFFERENCES IN SIZE, INVESTMENTS HELD, AND OTHER FACTORS, THEY WILL
BE MANAGED BY MICHAEL PRICE AND HIS TEAM, USING THE SAME VALUE INVESTMENT
APPROACH.
ECONOMIC OVERVIEW FOR 1996
- -------------------------------------------------------------------------------
A STRONG U.S. ECONOMY
At the end of 1995, the U.S. economy appeared to be stalled and on the verge of
a recession. At that time, few could accurately predict the record-setting climb
of the stock market that would occur in the 12 months to follow. Consistent
employment growth, strong personal income and rising financial asset values
helped consumer spending rebound in the first and second quarters of 1996. Gross
Domestic Product (GDP) grew at an annualized rate of 4.7% during the second
quarter. As the third quarter ended, the national unemployment rate remained
low, leading many bond investors to speculate that economic growth could
accelerate and lead to increased inflation. A saving grace came in the third
quarter when consumers didn't open their wallets as often as they had earlier in
the year (growth fell to an annualized rate of 2.2% by September 30, 1996). But
fourth quarter economic reports showed that activity in key sectors had picked
up, reviving inflation expectations and pushing interest rates -- and bond
yields -- higher. The 30-year U.S. Treasury bond finished the year yielding
6.65%, significantly higher than its 5.96% yield on December 31, 1995.
U.S. EQUITIES POST BANNER YEAr
Record amounts of capital poured into mutual funds in 1996, and the Dow Jones
Industrial Average(R) (the Dow) set an unprecedented 44 records -- including
closing above the 6000 point mark for the first time on October 14, 1996.
Despite its strong upward movement throughout the year, the Dow suffered two
measurable sell-offs in the first half of 1996. It tumbled 171.24 points on
March 8, recovered quickly and advanced to a new high of 5778.00 on May 22, only
to slide to 5346.55 by July 23. The Dow closed the reporting period at 6448.27,
a 26% increase from December 31, 1995.*
*Dow Jones Industrial Average total return calculated by Wilshire Associates,
Inc.
FOREIGN EQUITIES BOOKED STRONG GAINS, TOO. . . .
Patient investors of global equity markets enjoyed 1996, especially since
foreign markets experienced positive gains. Due to declining European interest
rates and increased participation in European equities by American investors,
many European stocks performed well, with most major European stock exchanges
posting gains of more than 15% (measured in local currencies). Some European
fixed-income and currency markets started the year in a promising fashion, but
couldn't deliver the goods. This was especially evident in Germany, where the
economy continued to move at a snail's pace. Indications were that the German
economy was starting to recover in early September, but some of the optimism
might have been a bit premature since the 1997 budget includes plans for fiscal
tightening. With this in mind, and with the overtones of the European Monetary
Union (EMU) in the background, we believe the Deutschmark will most likely
continue to weaken against the U.S. dollar and other foreign currencies.
Boasting an influx of investors who reaped the benefits of favorable returns
(quite a change from 1995's dramatic sell-off), most emerging market stocks
posted a banner year. Particularly strong performances came from Brazil, Poland
and Russia. Another buoyant market was Hong Kong, which has managed to attract
significant capital inflows despite the upcoming reversion to Chinese rule.
Consumer and business confidence in Japan are improving but still have some
distance to go. In fact, a recent Tankan economic report suggested that while
Japan's equity market produced a positive return for the year, the economy has
yet to turn. This, coupled with a questionable banking system, indicates that
Japan's economy may remain on shaky ground for some time.
ON INTO 1997
Chances are that despite Federal Reserve Chairman Alan Greenspan's recent
comment that the U.S. market may be overpriced, we believe the Dow could
continue to rise and give equity investments another good year. It also appears
to us that U.S. economic growth may continue at a moderate pace, accompanied
with low inflation -- a scenario we think is already priced into the domestic
bond market. Still, a couple of things lurk in the shadows that could
potentially cause the bond market some grief, including continued entitlement
program reforms and their potential impact on the federal budget. Additionally,
should strong growth resume in Asian and European countries, pressure could be
put on the dollar relative to foreign currencies -- perhaps negatively impacting
U.S. interest rates and forcingthe Fed to reconsider its stance on domestic
monetary policy.
There are no promises that 1997's market can match that of 1996 -- market
corrections may occur after good years, causing relatively short but sometimes
sharp declines in stock prices. While market volatility and the possibility of
corrections can be unsettling, it is a reminder to investors that security
prices don't always move upward. History has shown that, over the long term,
stocks and bonds have delivered impressive results when left to compound -- even
through market downturns. For this reason, you are encouraged to periodically
review your investment program and focus on your continuing long-term goals.
FRANKLIN VALUEMARK VARIABLE ANNUITY
CHANGE IN UNIT PRICES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
% CHANGE
UNIT PRICE* UNIT PRICE* IN UNIT PRICE
PORTFOLIO NAME 12/31/95 12/31/96 12/31/95 TO 12/31/96
- -------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund $10.00** $11.25 12.54%
Growth and Income Fund $17.31 $19.49 12.59%
High Income Fund $17.25 $19.37 12.31%
Income Securities Fund $19.79 $21.71 9.72%
Money Market Fund $12.88 $13.36 3.69%
Mutual Discovery Securities Fund N/A+ $10.18 N/A
Mutual Shares Securities Fund N/A+ $10.33 N/A
Precious Metals Fund $14.11 $14.47 2.54%
Real Estate Securities Fund $18.07 $23.67 30.96%
Rising Dividends Fund $12.50 $15.30 22.44%
Small Cap Fund $10.15** $12.91 27.26%
Templeton Developing Markets Equity Fund $ 9.58 $11.49 19.89%
Templeton Global Asset Allocation Fund $10.59 $12.51 18.16%
Templeton Global Growth Fund $11.34 $13.56 19.58%
Templeton Global Income Securities Fund++ $15.52 $16.78 8.10%
Templeton International Equity Fund $13.26 $16.08 21.25%
Templeton International Smaller Companies Fund $10.00** $11.15 11.45%
Templeton Pacific Growth Fund $13.63 $14.93 9.55%
U.S. Government Securities Fund $16.30 $16.65 2.16%
Utility Equity Fund $19.56 $20.65 5.57%
Zero Coupon Fund - 2000 $18.29 $18.47 0.99%
Zero Coupon Fund - 2005 $20.91 $20.52 -1.90%
Zero Coupon Fund - 2010 $22.43 $21.52 -4.05%
</TABLE>
*The unit prices have been rounded to the nearest hundredth. Percent change is
calculated using actual unit prices.
**Unit price at inception on June 10, 1996.
+Figures for this time period are not available due to the funds' recent
inception dates.
++Effective May 1, 1996, the Global Income Fund's name changed
to the Templeton Global Income Securities Fund. The portfolio's objective and
investment strategy remain unchanged.
Note: The unit value for each subaccount that invests in a particular portfolio
is the total value of assets of the subaccount (net assets of the portfolio),
minus the daily charges for mortality and expense risk and administrative
expenses (annualized at 1.4% of the account's average daily net assets), plus or
minus a charge or credit for any taxes reserved, divided by the total number of
outstanding units for the fund at the end of the valuation period. The unit
value does not take into account the contingent deferred sales charge that
declines from 5% to 1.5% over five years, or the annual contract maintenance fee
of $30. Past performance is not indicative of future performance. Unit price and
return vary, so that investors may have a gain or loss when they sell their
units. This information is for Valuemark contract owners only and may not be
used as sales literature.
- -------------------------------------------------------------------------------
VALUEMARK II
STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITH CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
INCEPTION SINCE
SUBACCOUNT NAME DATE 1-YEAR 5-YEAR INCEPTION
- ------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund+ 5/1/96 N/A N/A N/A
Growth and Income Fund* 1/24/89 8.24% 10.14% 8.68%
High Income Fund* 1/24/89 7.96% 10.70% 8.60%
Income Securities Fund* 1/24/89 5.37% 9.70% 10.18%
Money Market Fund** 1/24/89 -0.66% 2.45% 3.63%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A
Precious Metals Fund* 1/24/89 -1.81% 6.20% 4.67%
Real Estate Securities Fund* 1/24/89 26.61% 14.72% 11.38%
Rising Dividends Fund 1/27/92 18.09% N/A 8.86%
Small Cap Fund 11/1/95 22.91% N/A 21.42%
Templeton Developing Markets Equity Fund* 3/15/94 15.54% N/A 4.24%
Templeton Global Asset Allocation Fund 5/1/95 13.81% N/A 12.32%
Templeton Global Growth Fund* 3/15/94 15.23% N/A 10.74%
Templeton Global Income Securities Fund* 1/24/89 3.75% 5.14% 6.66%
Templeton International Equity Fund 1/27/92 16.90% N/A 9.97%
Templeton International Smaller Companies Fund+ 5/1/96 N/A N/A N/A
Templeton Pacific Growth Fund 1/27/92 5.20% N/A 8.33%
U.S. Government Securities Fund 3/14/89 -2.19% 5.25% 6.67%
Utility Equity Fund 1/24/89 1.22% 6.71% 9.49%
Zero Coupon - 2000** 3/14/89 -3.36% 6.22% 8.10%
Zero Coupon - 2005** 3/14/89 -6.25% 8.27% 9.57%
Zero Coupon - 2010** 3/14/89 -8.40% 9.67% 10.24%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. They are based on a $1,000 hypothetical
investment and represent the average annual change in value of an investment
over the indicated periods. They reflect the deduction of an annual asset charge
of 1.4%, fund charges, an annual contract maintenance charge of $30 (prorated,
based on an approximate average contract size of $30,000), and applicable
declining contingent deferred sales charges, assuming the account is liquidated
at the end of the reporting period, according to the following schedule:
YEARS SINCE DEPOSIT: 1 2 3 4 5 6
CHARGE: 5% 5% 4% 3% 1.5% 0%
The figures also assume reinvestment of dividends and capital gains and reflect
the application of an annual 15% cumulative free withdrawal privilege.
Investment return and principal value will fluctuate with market conditions and
you may have a gain or loss when units are sold. Past performance does not
guarantee future results.
*Past expense reductions by the portfolio's manager increased the portfolio's
total returns.
**The manager agreed in advance to waive a portion of management fees and to
assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees. For
the Zero Coupon Funds, until at least December 31, 1997, the manager has agreed
to keep total expenses to a maximum of 0.40% of each portfolio's average monthly
net assets, which has the effect of increasing total return to contract holders.
+Figures for these time periods are not available due to portfolios' recent
inception dates.
VALUEMARK II
NON-STANDARDIZED TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 1996
WITHOUT CONTINGENT DEFERRED SALES CHARGE AND OTHER CHARGES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL RETURN CUMULATIVE TOTAL RETURN
INCEPTION SINCE SINCE
SUBACCOUNT NAME DATE 1-YEAR 5-YEAR INCEPTION 3-YEAR 5-YEAR INCEPTION
---------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund+ 5/1/96 N/A N/A N/A N/A N/A 12.54%
Growth and Income Fund* 1/24/89 12.59% 10.28% 8.77% 42.50% 63.10% 94.90%
High Income Fund* 1/24/89 12.31% 10.84% 8.69% 27.84% 67.27% 93.75%
Income Securities Fund* 1/24/89 9.72% 9.84% 10.25% 22.41% 59.85% 117.08%
Money Market Fund** 1/24/89 3.69% 2.61% 3.72% 10.72% 13.78% 33.59%
Mutual Discovery Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 1.80%
Mutual Shares Securities Fund+ 11/8/96 N/A N/A N/A N/A N/A 3.30%
Precious Metals Fund* 1/24/89 2.54% 6.35% 4.76% 0.03% 36.04% 44.67%
Real Estate Securities Fund* 1/24/89 30.96% 14.84% 11.46% 54.00% 99.76% 136.68%
Rising Dividends Fund 1/27/92 22.44% N/A 9.01% 48.18% N/A 53.03%
Small Cap Fund 11/1/95 27.26% N/A 24.49% 27.26% N/A 29.13%
Templeton Developing Markets Equity Fund* 3/15/94 19.89% N/A 5.08% N/A N/A 14.87%
Templeton Global Asset Allocation Fund 5/1/95 18.16% N/A 14.36% N/A N/A 25.14%
Templeton Global Growth Fund* 3/15/94 19.58% N/A 11.49% N/A N/A 35.60%
Templeton Global Income Securities Fund* 1/24/89 8.10% 5.30% 6.74% 14.54% 29.46% 67.81%
Templeton International Equity Fund 1/27/92 21.25% N/A 10.11% 31.54% N/A 60.81%
Templeton International
Smaller Companies Fund+ 5/1/96 N/A N/A N/A N/A N/A 11.45%
Templeton Pacific Growth Fund 1/27/92 9.55% N/A 8.47% 4.91% N/A 49.32%
U.S. Government Securities Fund 3/14/89 2.16% 5.40% 6.75% 13.28% 30.10% 66.50%
Utility Equity Fund 1/24/89 5.57% 6.86% 9.57% 19.26% 39.35% 106.54%
Zero Coupon - 2000** 3/14/89 0.99% 6.36% 8.18% 10.51% 36.14% 84.75%
Zero Coupon - 2005** 3/14/89 -1.90% 8.40% 9.64% 13.67% 49.70% 105.17%
Zero Coupon - 2010** 3/14/89 -4.05% 9.81% 10.32% 18.62% 59.63% 115.22%
</TABLE>
The above figures represent past performance of the portfolios whose inception
dates may have preceded the effective dates of the subaccounts, contracts, or
their availability in all states. Total return is the cumulative or average
annual percent change in the unit price of the subaccount, assuming reinvestment
of dividends and capital gains. These figures assume the contract owner is still
invested at the end of the reporting period. Past performance is not indicative
of future performance.
Standardized performance data and other important disclosures are on page 6.
Please review this information and a Franklin Valuemark prospectus before
investing.
*Past expense reductions by the
portfolio's manager increased the portfolio's total returns.
**The manager agreed in advance to waive a portion of management fees and to
assume responsibility for other expenses. Without these reductions, the
portfolios' total returns would have been lower. The fee waiver may be
discontinued at any time upon notice to the portfolios' Board of Trustees. For
the Zero Coupon Funds, until at least December 31, 1997, the manager has agreed
to keep total expenses to a maximum of 0.40% of each portfolio's average monthly
net assets, which has the effect of increasing total return to contract holders.
+Figures for these time periods are not available due to portfolios' recent
inception dates.
PORTFOLIO OBJECTIVES
- -------------------------------------------------------------------------------
PORTFOLIO DESCRIPTION
- -------------------------------------------------------------------------------
Portfolios Seeking Capital Growth
CAPITAL GROWTH FUND
Seeks capital appreciation with current income as a secondary consideration.
The portfolio invests primarily in equity securities, including common stocks
and securitiesconvertible into common stocks.
MUTUAL DISCOVERY SECURITIES FUND
Seeks capital appreciation by investing in domestic and foreign equity
securities, including securities of small cap companies as well as debt
obligations of any quality. The portfolio also seeks to invest in securities
of domestic and foreign companies and reorganizations, as well as
distressed/bankruptcy investments.
PRECIOUS METALS FUND
Seekscapital appreciation through concentration of its investments in
securities of issuers, including those in developing markets, engaged in
mining, processing or dealing in gold and other precious metals. The
portfolio's secondary objective is to provide current income return through
the receipt of dividends or interest from its investments.
SMALL CAP FUND
Seeks long-term capital growth. Under normal market conditions, the
portfolio invests primarily in equity securities of small capitalization
growth companies.
TEMPLETON DEVELOPING
MARKETS EQUITY FUND
Seeks long-term capital appreciation. The portfolio seeks to achieve this
objective by investing primarily in equity securities of issuers in
countries having developing markets under normal market conditions.
TEMPLETON GLOBAL GROWTH FUND
Seeks long-term capital growth; any income realized will be 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 under normal market conditions.
TEMPLETON INTERNATIONAL EQUITY FUND
Seeks long-term capital growth. Under
normal market conditions, the portfolio will invest at least 65% of its 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.
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
Seeks long-term capital appreciation. The portfolio seeks to achieve this
objective by investing primarily in equity securities of smaller companies
outside the U.S., including developing markets under normal market
conditions.
TEMPLETON PACIFIC GROWTH FUND
Seeks long-term capital growth. Under normal conditions, the 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 are Australia, Hong Kong, Indonesia, Japan,
Korea, Malaysia, New Zealand, Singapore and Thailand.
PORTFOLIOS SEEKING GROWTH AND INCOME
GROWTH AND INCOME FUND AND INCOME
Seeks capital appreciation. The portfolio's secondary 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 FUND
Seeks to maximize income while maintaining prospects for 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.
MUTUAL SHARES SECURITIES FUND
Seeks capital appreciation with income as a secondary objective. The
portfolio may invest in domestic and foreign equity securities, as well as
debt obligations of any quality. The portfolio also seeks to invest in
securities of companies involved in mergers and reorganizations, as well as
distressed/bankruptcy investments.
REAL ESTATE SECURITIES FUND
Seeks capital appreciation, with a secondary objective of earning current
income on its investments. The portfolio pursues its principal objective by
investing primarily in securities of companies in the real estate industry,
primarily equity real estate investment trusts (REITs).
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.
TEMPLETON GLOBAL
ASSET ALLOCATION FUND
Seeks a high level of total return through a flexible policy 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.
UTILITY EQUITY FUND
Seeks both capital appreciation and curent income by concentrating
investments in the securities 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.
PORTFOLIOS SEEKING CURRENT INCOME
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.
TEMPLETON GLOBAL INCOME
SECURITIES FUND+
(FORMERLY GLOBAL INCOME FUND)
Seeks high current income, consistent with preservation of capital, with
capital appreciation as a secondary 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.
U.S. GOVERNMENT SECURITIES FUND
Seeks to earn income through investments in a portfolio 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.
THREE ZERO COUPON FUNDS
(MATURITY DATES: 2000, 2005, 2010)
Seek to provide as high an investment return as is consistent 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.
PORTFOLIO SEEKING PRESERVATION OF CAPITAL AND INCOME
MONEY MARKET FUND
Seeks to obtain as high a level of high current income (in the context of the
type of investment available to the portfolio) consistent with capital
preservation and liquidity. 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.
+Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remain unchanged.
PORTFOLIO PROFILES -- 1996
- ------------------------------------------------------------------------------
PORTFOLIOS SEEKING CAPITAL GROWTH
CAPITAL GROWTH FUND
The Capital Growth Fund portfolio consists of what we consider to be good
quality growth companies, generally large-capitalization and mid-capitalization
stocks. Our investment objective of capital appreciation is achieved through a
long-term "buy and hold" strategy. Our aim is to provide investors with the
potential for solid growth over time, instead of jockeying for short-term,
overnight gains. Some of our top sectors at year end included software, data
networking, healthcare, semiconductors, financials, energy, and consumer
products. By maintaining exposure to a number of industries, we seek to reduce
the impact that a single, poorly performing sector could have on your
investment.
We expect that the market may become more volatile in the coming years (unlike
the relatively low volatility that has been present over the last several
years). This expectation stems in part from concerns for sustained earnings
growth of individual companies. It is our belief that the S&P 500(R) will not
produce double-digit earnings growth in 1997 as it has in each of the last four
years. 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 up -- a
condition which we believe should benefit many of your portfolio holdings.
Our long-term outlook for the domestic stock market remains bullish for a
variety of reasons. First, a significant demographic trend shows the aging "baby
boom" generation is shifting from a "consumption" mode to a "savings" mode --
investing more for retirement. Consequently, new money flows remained solid
during 1996, pushing markets higher. A second reason for our optimism is that a
number of major world economies are in either a growth or recovery phase. This
benefits a number of multinational firms that sell products or services abroad.
Third, as we live in an ever-increasing global economy, many domestically-
domiciled firms -- with an enhanced focus on share holder value and
improving profitability -- are proving to be highly productive on a worldwide
basis. We feel that this favorable trend may persist for some time.
NEW! MUTUAL DISCOVERY SECURITIES FUND
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Discovery Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 0.7% in fixed-income securities, and the remaining 36.8% in
short-term and other securities. Of course, these holdings will change as
conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
PRECIOUS METALS FUND
The year ending December 31, 1996, may have signaled the breakout from the
previous two years of a tight trading range for bullion, with the majority of
the volatility occurring in the first and fourth quarters. The overall tone of
the bullion market was negative, as both private and official sectors'
disinvestment drove prices down. In addition, the strong dollar drove down gold
prices in most foreign currencies, except the South African Rand. As a result,
even though the physical supply and demand factors were neutral, the bullion
price showed little strength.
Because of the attractive valuations of gold securities relative to other
precious metals, we increased our holdings of gold-producing companies over the
reporting period. Consequently, we decreased our exposure to platinum and
diversified metals. We focused on mining companies with attractive reserve,
production and growth profiles, and smaller companies with international
exploration and mining potential. Specifically, we initiated new positions in
the following: Getchell Gold, an intermediate low-cost gold producer in Nevada;
Equinox, an Australian exploration company; and Orogen Minerals, a diversified
mining and energy company with significant assets in Papua, New Guinea. We also
added to existing holdings with prospects for future growth, and trimmed or
eliminated positions with limited upside potential.
While there are three issues that could negatively affect bullion prices in the
near term, we believe that much of the downside risks are already in the price.
These risks are 1) that speculative selling by investors continues, 2) that the
European Central Bank continues to sell in order to meet the standards of the
European Monetary Union, and 3) that producer forward-selling could increase.
Looking forward, we remain optimistic about the long-term prospects for gold and
the portfolio. With demand continuing to exceed supply, gold fundamentals should
support a gradual increase in gold prices. We believe that a gold bullion price
range of $360 to $390 per ounce could prevail for 1997. Given this outlook, we
intend to maintain our emphasis on those mining companies we feel are capable of
increasing reserves, production, cash flow, and earnings over the long term.
SMALL CAP FUND
Supported by a growing economy and low inflation, the U.S. equity markets
reached new highs during the year ended December 31, 1996. While nearly all
indices showed substantial gains during the year, larger capitalization stocks
performed better than small cap stocks. The difference in performance was at
least partially a result of investor concerns over market volatility and the
perception that large cap stocks were more immune to market swings. Despite this
bias toward large cap stocks, the portfolio performed well during the year.
Much of our success can be attributed to stock selection: We continue to look
for small companies in their emerging growth phase, focusing on companies with
an identifiable and, we believe, sustainable competitive advantage, which can
often lead to superior earnings and revenue growth. Over the period, our
research led us to investments in a number of different industries, including
many outside the traditional growth sectors. In fact, the portfolio was helped
by the strong performance of our energy stocks (6.1% of total net assets on
December 31, 1996), including Barrett Resources and Abacan Resources, and also
by our holdings in REITs (5.3%), particularly Bay Apartments and FelCor Suites
Hotels, Inc.
While we remain broadly diversified, we continue to find many of the fastest
growing companies in the technology sector (21.6% of the fund's portfolio on
December 31, 1996). Technology stocks led a sharp market decline in June and
July, and we took advantage of this weakness to purchase shares in high quality
companies. Some of the names in which we initiated a position were C-Cube
Microsystems, a leading provider of digital video compression technology, and
Broderbund Software, a top developer of computer software. Many technology names
recovered quickly in August and September, and just as we took advantage of the
earlier market weakness to buy, we took advantage of the strength to sell
positions we believed had limited appreciation potential.
Among those we sold over the reporting period was Shiva Corp., a provider of
telecommunications hard- ware and software.
The U.S. economy continues to show signs of strength and, for now, there appears
to us to be little evidence of inflationary pressure. We believe these
conditions will continue to provide attractive opportunities for small growth
companies to develop. At the same time, small cap stocks have underperformed
and, in our opinion, have become attractively valued relative to the overall
market. Because of these factors, we are optimistic about the prospects for the
portfolio and small cap stocks in general.
TEMPLETON DEVELOPING MARKETS EQUITY FUND
The emerging markets team places particular emphasis on choosing stocks of
companies with good management and strong expected earnings growth over the next
five years. Selecting these stocks is a very intensive process and we are
expanding our analytical capability to meet the challenges in an ever-expanding
emerging markets universe.
On December 31, 1996, the portfolio was invested in 24 countries, with Hong Kong
as the largest country holding (13.3% of total net assets), followed by Mexico
(10.7%) and Argentina (10.4%). Many investors are still concerned about the
economic prospects for Hong Kong after its reversion to China in 1997. Although
we have considered the possibility of economic disaster in Hong Kong after the
handover, we believe that it is more likely the Hong Kong economy will continue
to prosper. The signs are good. The Chinese government has made public
announcements that funds will be made available to protect the Hong Kong stock
market, and that the economic and social status quo will be maintained after the
reversion. This year, the Hong Kong market rallied, buoyed by broad economic
recovery -- particularly in the important retail and property sectors. Concerns
in Hong Kong's capital market appear to be easing and evidence of that can be
found in the narrowing of the gap in valuations between Hong Kong stocks and
those of other Asian markets. It is also encouraging to see that China B shares
- -- which are intended for foreign investors -- rallied sharply since the
beginning of November due to expectations of higher company earnings.
Overall, our outlook for Hong Kong, and emerging markets in general, is
positive. We will continue to visit the companies in which we invest, searching
for potential investment bargains and stocks with strong growth and stability in
a volatile market.
TEMPLETON GLOBAL GROWTH FUND
In many countries around the world, financial returns to equity investors
accelerated over the past year, adding to the gains accumulated since the start
of this bull market. Among the developed stock markets tracked in the Morgan
Stanley Capital International(R)* (MSCI) World Index, only Singapore and Japan
posted negative returns in U.S. dollar terms for 1996. Others, such as Finland
and Spain, rocketed upward, returning 35% and 42%, respectively.
*Registered trademark of Morgan Stanley & Co., Inc.
The U.S. was among the better performing markets over the reporting period, and
it remains the portfolio's largest country exposure even though our weighting
declined from 34% to 29% of total net assets by December 31, 1996. This decline
resulted from our disciplined global value approach, which focuses on individual
company fundamentals. Quite simply, some of our holdings in the U.S. reached our
sell targets, and we found more bargains overseas. Included in our sales of U.S.
stocks were energy companies like Texaco and Mobil, whose share prices climbed
on the back of rising oil prices. Similarly, shares in Travellers and Nike
posted substantial returns and no longer appeared undervalued to us. We did find
new investments in the telecommunications sector, particularly in U.S. West
Communications, where competitive threats appear overly discounted.
Our European holdings, in general, performed well over the year. In France, our
second largest country weighting (6.7%), energy companies improved their
returns, just as their U.S. counterparts did. Many French companies, however,
performed poorly. We continue to believe the potential for cost cutting and
restructuring is not reflected in the share prices of the banks and insurance
companies we hold in this area.
For the first three quarters of last year, the U.K. was an economic laggard;
surprisingly, its market still yields on average nearly twice that of the U.S.
As we uncovered new investments in the U.K. over the period, we doubled its
weighting in the portfolio from 3.1% at the end of last year to 6.3% on December
31. Among these new investments are two companies with new management teams that
have been repositioned through internal changes: BICC and BTR, Plc. We also
invested in companies addressing competitive positions through external
maneuvers; among these was British Telecommunications, PLC., which announced its
intention to merge with MCI.
We maintained a relatively low weighting in Japan over the year (2.0%) compared
to the MSCI World Index. The Japanese economy continued to languish and its
banking sector is still suffering the effects of the collapse in asset values.
More important, from our perspective valuation levels still appear high and
bargain investments remain scarce.
Emerging markets together with Hong Kong comprised approximately 15% of the
portfolio's total net assets on December 31, 1996. Their performance last year
was mixed, with Chinese markets exploding in the second half of 1996 to finish
up over 30% while Thailand and South Korea slumped -- both losing over a third
of their value. Additionally, new opportunities found in South Africa and
Ecuador increased the diversity of the portfolio, which is now invested in 33
countries.
We remain comfortable with the long-term outlook for our existing holdings, and
also expect to take advantage of the weakness experienced in some of these
countries in the coming year.
TEMPLETON INTERNATIONAL EQUITY FUND
During the year ended December 31, 1996, the Templeton International Equity Fund
enjoyed strong performance as foreign markets rebounded from a generally
lackluster 1995. At year end, the portfolio's largest country allocations were
in the United Kingdom (11.9% of total net assets), Sweden (10.4%), the
Netherlands (7.9%), and Hong Kong (6.8%). Approximatley 61% of the portfolio's
total net assets was invested in European stocks, 9% in Asian stocks, 5% in
Latin American stocks, 11% in other stocks and the remaining 12% was in cash and
equivalents.
Throughout 1996, we added to our positions in the United Kingdom, Switzerland
and Finland. Our exposure to Finland increased with our purchase of Nokia AB, a
telecommunications group. We were able to purchase Nokia at what we believe are
very attractive levels, identifying the long-term value of the company despite
near-term earnings disappointments. We reduced holdings in Hong Kong, Spain and
the Netherlands which we felt had achieved fair value, and we added to or
initiated positions in stocks that our analysts believed were selling at bargain
prices.
As value investors, we buy stocks that we believe are selling at significant
discounts to their underlying value. Our analysts around the globe scour local
markets for what we think are mispriced stocks. We recognize that value often
takes time to show itself in the form of higher prices and, for this reason, we
are long-term investors -- typically holding stocks for about five years.
Templeton International Smaller Companies Fund
Nineteen ninety-six was the first year of operation for the Templeton
International Smaller Companies Fund, which invests in small cap companies
outside the U.S. We employ a long-term, value-oriented approach when selecting
stocks for our portfolio. Our analysts search for stocks that are selling at
what we believe to be bargain prices; as there are many investors who buy and
sell based on current results, a short-term disruption can evoke a wave of
investor selling, often pushing a stock's price down to a level well below its
intrinsic value. Since we determine a company's value by looking at long-term
operating fundamentals, we are often able to buy out- of-favor companies at what
we feel are attractive prices.
At year end, the portfolio held approximately 41% of its total net assets in
European stocks, 12% in Asian stocks, 4% in Latin American stocks, 4% in other
stocks, and -- reflecting the newness of the portfolio -- the remaining 38% in
cash. Our largest positions, by country, were United Kingdom (8.4%), Netherlands
(8.2%), Spain (6.9%), Hong Kong (6.8%), and Sweden (5.9%).
Our large European holding reflects the bargains our analysts uncovered in that
region. We continue to believe that many European stocks, particularly those of
smaller companies, offer compelling value. For instance, we initiated a position
in McBride (United Kingdom) -- the largest manufacturer of private label
household goods and personal care products in Europe. Private label products are
winning a position in Europe, as large retailers expand their private label
product lines, and we believe McBride stands to benefit from this trend.
On a relative basis, European and Asian stocks appear to offer better values
than those available from North American stocks. Overall, we remain cautiously
optimistic for world markets in 1997.
TEMPLETON PACIFIC GROWTH FUND
On December 31, 1996, the portfolio's top five geographic allocations were Hong
Kong (20.6% of total net assets), Japan (17.6%), Australia (17.3%), Singapore
(9.1%), and Malaysia (6.9%).
During the reporting period, the Hong Kong stock market rose substantially,
posting large gains in the financial and real estate sectors. Our holdings of
Cheung Kong Holdings, Ltd. and New World Development Co., Ltd. appreciated in
value and, taking advantage of rising stock prices, we sold our shares of Hong
Kong Land Holdings Co. for a profit.
Due to a stronger currency and higher commodity prices, Australia's stock market
performed well over the year and Brambles Industries Inc., our largest
Australian holding, benefited greatly. The Chinese, Thai, Pakistani and Indian
stock markets did not fare as well as other Pacific Rim markets. However, we
sought to take advantage of price declines in China by purchasing shares of
Guangshen Railway, which operates the only railroad between Guangzhou and
Shenzhen, the two largest cities in Guangchong Province.
We remain optimistic about the Pacific Rim equity markets. In our opinion, this
region continues to offer a variety of investment opportunities in
industrialized nations such as Hong Kong, and in nations like Australia, rich
with natural resources.
PORTFOLIOS SEEKING GROWTH AND INCOME
GROWTH AND INCOME FUND
In keeping with its fundamental investment approach, the fund seeks to invest in
stocks with attractive valuations -- that is, stocks selling at bargain prices
according to measurements such as relative dividend yield, book value, revenues
and normalized earnings. We often find such stocks in companies that appear to
us to be fundamentally strong but have experienced temporary earnings
disappointments, or in companies or industries with uncertain prospects for
near-term earnings growth.
During the reporting period, we found many utility stocks that met our criteria,
including telephone and electric companies. In the electric utility sector, we
initiated several new positions over the period, including Unicom, an
Illinois-based utility that offered a 6.5% dividend yield and traded at eight
times our calculations of estimated earnings. In the telephone utility sector,
we increased our holdings in GTE Corp., U.S. West Communications Group, NYNEX
Corp., and Southern New England Telecommunications Group. These four telephone
companies were all trading at attractive valuations at the time of purchase and
we think they appear to be well-positioned for an increasingly competitive
environment.
Energy stocks continue to be a major investment focus. Newly purchased Amoco and
Occidental Petroleum, combined with additions to current holdings, made the
energy & resources sector the portfolio's largest on December 31, 1996 (16.4% of
total net assets). Stocks in which we increased our investments included
Atlantic Richfield, Texaco, and Exxon, which were among the fund's 10 largest
positions.
We also initiated new investments in foreign securities as we believed stocks of
many foreign companies traded at more attractive valuations than those of
comparable U.S.-based companies. During the period we purchased British Steel
and Glaxo Wellcome, bringing foreign holdings to 13.3% of total net assets at
the close of the fiscal year.
During the reporting period, we reduced our holdings in certain stocks that
reached our price objectives, selling Marsh & McLennan (insurance), B.F.
Goodrich (basic materials), Baxter (health care), and Pharmacia Upjohn (health
care) at significant gains. On the other hand, certain stocks did not perform up
to expectations. Most notably, the stock price of H&R Block came under
significant pressure with the deteriorating fundamentals of its subsidiary
company, Compuserve. Because we had become increasingly concerned that the
company might reduce its dividend, we decided to sell our position at a loss.
This allowed us to invest the proceeds in stocks we felt offered better
total-return potential.
Looking forward, we will remain committed to our disciplined, value-oriented
investment approach, which has produced consistent and favorable long-term
results.
INCOME SECURITIES FUND
During 1996, the broader stock market generally strengthened, driven by moderate
economic growth, low inflation and healthy corporate earnings. The over-all bond
market did not fare as well during the period under review, however. Several
sectors of the fund performed well over this period, although the general rise
in interest rates caused some weakness. On December 31, 1996, 53.0% of the
portfolio's total net assets were in bonds, 41.1% in stocks, and 5.9% in cash.
The rise in interest rates provided us with several opportunities to invest a
large portion of the portfolio's cash position in securities that we found
presented good value, bringing our cash position down from 13.3% on December 31,
1995.
Corporate bonds, which continued to represent our largest fixed-income weighting
(26.7%), performed relatively well over the period given the overall increase in
interest rates. This performance highlights the benefit of including corporate
bonds in the portfolio. Typically, when the economy strengthens, increased
interest rate risk is frequently offset by stronger revenue, operating cash flow
and higher credit ratings for the issuing corporations. We utilized our
extensive credit research to seek out corporate bonds with attractive yields and
capital appreciation potential, and initiated several new positions during the
period. These included Collins & Aikman (automotive), Packaging Resources
(containers & packaging), and Smith's Food & Drug (food chains).
The portfolio's other fixed-income holdings consisted of foreign and U.S.
Treasury bonds. As indications of stronger U.S. economic growth led to rising
long-term interest rates, we increased our U.S. Treasury exposure from 2.8% at
the start of the period to 7.1% of total net assets on December 31, 1996.
Similarly, we took advantage of the bond market sell-off in February and
initiated positions in dollar-denominated Brazilian and Ecuadorian Brady bonds.
Our Latin American Brady bonds were subsequently one of the portfolio's top
performing sectors. At the end of the year, we sold our Ecuadorian Brady bonds
due to higher political risk following mid-year elections.
Several of the portfolio's equity positions performed well during the period.
Our pharmaceutical stocks rose significantly, but believing that their
appreciation potential was limited, we reduced our exposure to this sector from
4.3% to 1.6% of total net assets by December 31, 1996. Due to rising oil and
natural gas prices during the period, energy stocks also increased in value. We
initiated several positions that benefited from the increase in energy prices,
including Athabasca Oil Sands Trust, Canadian Oil Sands Trust, Devon Energy, and
Enron Oil & Gas.
Prices of utilities stocks retreated in January as interest rates began to rise.
We took this opportunity to add to several existing holdings and initiate new
positions in Peco Energy and Western Resources, increasing our weighting in the
utility sector from 17.6% at the start of the year to 20.6% of total net assets
by year end.
During the July U.S. stock market sell-off, we initiated two convertible bond
positions in Altera Corp. and Xilinx, Inc., two leading semiconductor design
companies. We invested in the technology sector for the first time in several
years as weakness in technology stock prices caused valuations to return to what
we believe were more attractive levels. We also initiated positions in other
convertible securities, most notably Exide Corp. (automotive), FelCor Suite
Hotels, Inc. (REIT), Host Marriott (REIT), and Nortel (telecommunications --
Argentina).
With the stock market near all-time highs, we remain selective and opportunistic
as we search for attractive investments. We are comfortable with the portfolio's
5.9% cash position, and feel that it should provide us with the ability to take
advantage of investment opportunities as they arise.
NEW! MUTUAL SHARES SECURITIES FUND
The Franklin Valuemark Funds Trust added a new portfolio on November 8, 1996:
the Mutual Shares Securities Fund. The portfolio 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 stock, as well as debt obligations of any quality.
On December 31, 1996, 62.5% of the portfolio's assets were invested in equity
securities, 1.5% in fixed-income securities, and 36.0% in short-term and other
securities. Of course, these holdings will change as conditions warrant.
As value investors, our primary mission is to buy securities at signficant
discounts to asset value. We focus on individual stocks, not on macroeconomic
variables or overall market movements. Our experience demonstrates that "cheap
stock" opportunities exist even as many securities may be priced at expensive
levels. Most people like to invest in companies that are performing well and
have stocks that performed well. We tend to focus on the laggards, however --
the underperformers whose share price performance has been poor, or companies
beset by negative news such as earnings disappointments or adverse legal
judgements. The extension of our value investing approach to mergers and
acquisitions as well as to distressed securities further removes us from the
equivalent of owning a market index.
REAL ESTATE SECURITIES FUND
The Real Estate Securities Fund's strong performance over the 12 month period
was driven in part by the continued recovery of the real estate industry, which
was behind the powerful move in real estate stocks during 1996. U.S. real estate
fundamentals, in general, steadily improved across most property types and
geographic regions during the 12-month reporting period. The healthy economy
continued to fuel strong demand for commercial and residential real estate,
leading to rising occupancy and rental rates. At the same time, the industry
remained disciplined in terms of new property development, only breaking ground
when construction was warranted by high demand and limited supply. As a result,
equity REITs and real estate operating companies generated strong cash flow
growth from their operations. This positive operating performance, combined with
solid industry fundamentals, continued to attract investors to the real estate
securities market.
Throughout the reporting period, we remained committed to our long-term
investment strategy: Focusing on property types and geographic regions with
strong supply and demand fundamentals. Within each property sector, we targeted
stocks which, in our opinion, had significant growth prospects and attractive
valuations. As a result, we maintained the majority of the portfolio's
investments in the apartment, hotel, office, industrial and self-storage
property types, where we anticipated the strongest cash flow growth and most
favorable supply and demand fundamentals.
The largest property-type weighting continued to be in the apartment sector
(20.1% of total net assets on December 31, 1996). Valuations in this segment
remained attractive because of consistent cash flow growth and disciplined
development activity. Our core holdings included Equity Residential Properties
Trust and Security Capital Pacific Trust. We also maintained our large positions
in Bay Apartment Communities, Inc. and Irvine Apartment Communities Inc. -- two
California-based equity REITs that continued to benefit from California's
on-going economic recovery. Additionally, we initiated a position during the
period in Security Capital Atlantic, Inc., a southeastern apartment operator.
Our strongest performing sector continued to be the hotel property type, where
we held 17.9% of net assets on December 31, 1996. Consolidation played an
important role in this sector's performance as many public companies acquired
properties from private holders and purchased other publicly-traded companies.
We benefited from this activity when one of our holdings, Red Lion Hotels, Inc.,
was purchased by Doubletree Corp. at a significant premium above its market
price. Consequently, we sold our Red Lion position, along with several other
hotel positions where valuations were excessive relative to growth prospects.
During the reporting period, we initiated a position in CapStar Hotel Co., and
added to such core positions as FelCor Suites Hotels, Inc., Winston Hotels,
Inc., Starwood Lodging Trust, and Host Marriott Corp.
Although the retail property sector struggled with the dynamics of the retail
industry and provided mixed returns this year, specific segments of this sector
offered attractive investment opportunities. During the reporting period, we
established a position in Pacific Retail Trust, an equity REIT that focuses on a
highly-specialized retail shopping center niche: Shopping centers anchored by
grocery stores. As a result, our exposure to the retail property sector rose
from 10.9% of total net assets on December 31, 1995, to 12.0% by the end of the
reporting period. Our other investments in this sector remain concentrated in
the industry's leading companies and several specific situations such as Pacific
Retail Trust, which we believe will be in a position to grow by acquiring
properties from distressed sellers.
We also initiated several other positions in equity REITs over the period: Arden
Realty Group, a California-based equity REIT focused on the ownership and
operation of suburban office properties; Meridian Industrial Trust, with a
portfolio of high quality industrial/warehouse buildings; Glenborough Realty
Trust, Inc., which has a diversified portfolio of real estate properties and two
manufactured-home builders focused on southeastern markets; Belmont Homes, Inc.
and Clayton Homes Inc. We believe these securities are attractively valued and
could experience above-average cash flow growth.
Looking forward, we believe that the U.S. real estate industry should experience
growing demand and limited supply. We will continue to concentrate on
identifying those property types and geographic areas exhibiting the most
favorable supply and demand fundamentals. Within each sector, our individual
security selection process will remain focused on what we believe are
well-managed companies generating strong cash flow and dividend growth while
trading at attractive valuations.
RISING DIVIDENDS FUND
Our investment strategy is based on our belief that companies with consistently
rising dividends should, over time, realize increases in their share 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 investors.
Our financial stock holdings performed well this year, despite slightly rising
interest rates in 1996. Investors focused on the consistent earnings growth of
these companies as well as their relatively modest valuations. Strong performers
included Allied Group, RLI Corp., State Street Boston Corp., and CoreStates
Financial. A number of non-financial companies also did well as business
strategies implemented in recent years led to strong operating performance.
These companies included Family Dollar Stores, DIMON, Harper Group, and
Monsanto.
Significant additions to the portfolio this year included Dover Corp., Wallace
Computer Services, Inc., Nucor Corp., and Millipore Corp. All four companies
have increased their dividends each year for more than 20 years. Additionally,
their dividends have grown at a ten-year average annual rate of at least 10%.
These companies are leaders in their respective industries, and the fund
acquired the stocks at price/earnings ratios below their 10-year averages.
Notable dividend increases during the fiscal year came from Allied Group Inc.
(+32.4%), W.H. Brady Co. (+30%), Hewlett-Packard Co. (+20%), MMI Companies Inc.
(+20%), Mercury General Corp. (+20%), Philip Morris Cos. (+20%), and Wallace
Computer Services, Inc. (+30.2%).
The portfolio's top 10 holdings on December 31, 1996, were: Family Dollar
Stores, Inc. (3.0% of total net assets), Allied Group Inc. (2.9%), Millipore
Corp. (2.8%), DIMON, Inc. (2.8%), Harper Group, Inc. (2.5%), Wallace Computer
Services, Inc. (2.4%), MMI Companies, Inc. (2.4%), Federal National Mortgage
Association (2.2%), General Electric Co. (2.2%), and Royal Dutch Petroleum Co.
(2.1%).
It is interesting to note how these 10 companies would, in the aggregate, meet
the portfolio's screening criteria based on a simple average of statistical
measures. On average, these companies have raised their dividends for 15
consecutive years and by 253% in the last ten years (excluding Fannie Mae's
2736% increase), have long-term debt that is only 14% of capital, and sell at a
price/earnings ratio of 14.7. We think 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,
will be superior builders of wealth.
TEMPLETON GLOBAL ASSET ALLOCATION FUND
On December 31, 1996, equities (including convertible and preferred securities)
accounted for 58.0% of the portfolio's total net assets, with 27.1% in
fixed-income and 14.9% in short-term and other obligations.
The portfolio's investment strategies are reflected in the major allocation
changes that occurred over the course of the annual year. For example, exposure
to German and French markets were reduced, and we limited our equity positions
in Hong Kong. This is, however, no reflection of our outlook in either of these
markets and we remain optimistic about both. Our exposure in the U.S. market has
remained fairly constant on the equity side, increasing slightly on the bond
side. We also increased our bond holdings in other dollar-bloc countries
(countries whose currency is dollar denominated) such as Canada, Australia and
New Zealand during the period. Additionally, we shifted our investment focus
away from the core European markets (Germany and France) and directed our
attention toward the markets of Italy, Spain, Sweden and the United Kingdom.
Regarding industry weightings within the equity side of the portfolio, real
estate remains the highest at 6.2% of total net assets, and performance within
this sector remains strong. Sizable holdings in Hong Kong-based Hon Kwok Land
and U.S.-based Rouse Company and Post Properties Realty have posted good
performance for the year. Hon Kowk's return on December 31, 1996, was 57.6%,
Rouse's was 45.4%, and Post Properties 29.8%.
Looking forward, we feel that volatility is likely to be present in bond,
currency and equity markets around the world. Our investment philosophy is to
seek out those investments which we feel are most undervalued and we will
continue to search globally for companies and securities that fit our
investment criteria.
UTILITY EQUITY FUND
Throughout the portfolio's fiscal year, the utility market underperformed the
S&P 500 for a number of reasons -- among these was investor uncertainty
regarding regulatory reforms within the industry, and a stronger-than-expected
economy which led investors away from utilities to other equity securities. We
believe this weakness in the utility sector created selective investment
opportunities. As a result, we used proactive asset allocation strategies,
seeking both foreign and domestic markets that we believed were most attractive
on a fundamental valuation basis.
Our emphasis during the fiscal year was on electric utility stocks, with
approximately 72% of total net assets invested in this sector on December 31,
1996. In addition to these stocks, we also sought investment opportunities in
telephone utility stocks (20%) and natural gas utilities (8%). These investments
offer many of the same characteristics that we look for in our electric utility
investments: Consistent, predictable earnings growth and steady demand
fundamentals. During the reporting period, we took advantage of opportunities in
foreign markets to build a small, but growing, foreign component into the
portfolio. On December 31, 1996, 17.8% of the portfolio's total net assets were
represented by foreign utility stocks, compared to 7.4% a year ago. Over the
year, we initiated positions in Endesa (Chile), NTT (Japan), BSES (India), and
Korea Mobile Telecom (Korea), and added to several of our European utility
positions. Our foreign holdings enable us to participate in what we believe will
be high growth opportunities outside the U.S. while adding diversification to
the portfolio.
We remain committed to our primary investment philosophy that utilities provide
services that are an essential part of life around the world. We believe that
these stocks will continue to play an important role in a well-diversified
portfolio and remain committed to our long-term objective of maximizing total
return through investment in utility stocks.
PORTFOLIOS SEEKING CURRENT INCOME
HIGH INCOME FUND
Over the last 12 months, the portfolio performed relatively well within the
context of fixed-income markets, due primarily to moderate economic growth and
low inflation. The high yield market, in particular, vastly outperformed
comparable maturity Treasury securities. Improving corporate profiles and strong
demand for high yield securities were additional factors contributing to this
sector's strong performance.
During the year, we made several industry allocation changes in the portfolio.
We decreased our weighting in the transportation, food retailing, health care
services and forest & paper products sectors while adding telecommunications and
wireless communications services. We elected to decrease transportation and
forest & paper products due to profit taking and the cyclical nature of these
industries. We pared back food retailing because of changing competitive
dynamics, and health care services was reduced in light of an uncertain
legislative outlook for 1997. Our portfolio weighting in telecommunications and
wireless communications increased as we adopted a more favorable industry
outlook due to the passage of the Telecommunications Act of 1996. These
industries performed well during the year, thanks in large part to economies of
scale and increased market penetration.
Within the telecommunication and wireless sectors, Sprint Spectrum, IntelCom
Group, Inc., and Teleport Communications Group, Inc. performed well. Other names
which drove portfolio performance included IMC Global Inc., Repap, and MFS
Communications Co., Inc. IMC Global, an international fertilizer company, was
upgraded to investment grade status as a result of improving fundamentals. Repap
and MFS benefited from mergers with larger, well-capitalized companies.
With an eye toward the future, we improved the portfolio's credit quality
ratings over the year. The average credit rating, as measured by Moody's Credit
Ratings, improved from B2 on December 31, 1995, to B1 on December 31, 1996. This
strategic move toward higher quality issues was made in recognition of the fact
that the economy is in its sixth straight year of expansion. We believe this is
a prudent investment strategy for the long term.
Given the moderate growth environment and continued low inflation, we anticipate
the outlook for the high yield bond market to be positive.
TEMPLETON GLOBAL INCOME SECURITIES FUND
(FORMERLY GLOBAL INCOME FUND)
During the 12-month period, we employed three primary investment strategies:
First, generated by our expectation of stable interest rates in the U.S.
relative to the rest of the world, we slightly increased our U.S. holdings along
with our positions in the other dollar-bloc countries (Canada, Australia, and
New Zealand). Second, we decreased our exposure to foreign currency-denominated
bonds in accordance with our belief that most foreign currencies were likely to
decline relative to the U.S. dollar. Third, we reallocated assets within Europe,
shifting away from the core markets of Germany and France to what we think are
the higher-yielding markets of Italy, Spain, Sweden and the United Kingdom. We
felt that the improved domestic policies undertaken in the higher-yielding
markets would generate higher returns than those available in the core markets.
Our investment strategies are reflected in the major allocation changes that
occurred over the course of the annual period. We reduced exposure to the German
and French bond markets -- totaling 17.9% and 7.3%, respectively, one year ago
- -- to 2.0% and 0%, respectively, by December 31, 1996. For the same period,
allocations to Italy and Spain -- totaling 4.0% and 4.8%, respectively, on
December 31, 1995 -- increased to 10.6% and 6.1%. The United Kingdom also
increased over the year, from 3.0% to 10.1%.
Looking forward, we believe that volatility is likely to remain in individual
bond and currency markets around the world, and that global bond portfolios are
attractive vehicles to help soften this volatility and capture total return
opportunities wherever they may appear. We do not feel that inflation is a major
threat to interest rates and the deflationary trends present in Europe and Japan
should help bring the overall level of global interest rates down. We feel
opportunities for improved returns remain attractive, particularly in the
slow-growth economies of Europe and in selective emerging market countries.
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 mortgage passthroughs as our largest positions. Some other
issuers held by the portfolio over the reporting period were Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation passthroughs and
debentures issued by the Financing Corporation and the Tennessee Valley
Authority. On December 31, 1996, the portfolio's investments consisted of 68.5%
of total net assets in mortgage-backed securities (of which approximately 40.1%
were Ginnie Maes), and 33.1% in other U.S. government and agency securities and
short-term investments. Of course, these holdings will change as market
conditions warrant.
The U.S. Government Securities Fund experienced positive performance in 1996 as
the portfolio's investments in U.S. agency mortgage passthrough securities did
well. The agency mortgage passthrough market experienced lower prepayment risk
as yields were higher during most of 1996. This helped the mortgage passthrough
performance relative to other government bonds as investors benefited from the
added yield these securities provided. With 1996 interest rates movements being
less volatile than those of 1994 and 1995, investors were not exposed to the
variability in average life that these securities tend to exhibit during periods
of rate volatility.
Our investment approach, which emphasizes low portfolio turnover, added value to
the portfolio's shares by reducing unnecessary transaction costs, which are
ultimately borne by shareholders. During the one-year reporting period, we made
purchases in various sectors of the government bond market. In addition, we
gained assets due to the substitution of the portfolio's shares for the
Investment Grade Intermediate Bond Fund and the Adjustable U.S. Government Fund.
Because those portfolios carried similar investment risk, the overall portfolio
risk profile of the U.S. Government Securities Fund was not appreciably altered
with the substitution.
We employ a consistent, disciplined and conservative approach to investing in
the U.S. government bond market. Over the reporting period, the agency
passthrough market became increasingly subdivided into sectors based on the
seasoning of the underlying pools of mortgage loans. These pools, with varying
degrees of risk exposure to interest rate movement and housing cycles, exhibit
different prepayment patterns based in part on the issuance year of the
underlying securities. The emergence of these subsets provided us with increased
opportunity to add quality securities to the portfolio.
Going forward, we anticipate that the trend toward lower interest rate
volatility will continue to provide shareholders of the portfolio with
competitive returns.
THREE ZERO COUPON FUNDS
(MATURITY DATES: 2000, 2005, 2010)
Rising interest rates adversely affected the Franklin Valuemark Zero Coupon
portfolios during the one-year reporting period. We began 1996 optimistic: there
was a good chance for a balanced budget, economic growth appeared relatively
slow, and interest rates were below 6% for the 30-year U.S. Treasury Bond
(short-term rates were below 5%). Although good progress was made in reducing
the budget deficit, bond investors were disappointed when Washington fell short
of a balanced budget. Additionally, economic activity picked up (peaking in the
second quarter of 1996 at an annualized rate of 4.7%) and interest rates rose,
with the 30-year U.S. Treasury Bond at 6.65% on December 31, 1996, significantly
higher than at the start of the year.
Despite this economic growth, inflation apparently remains subdued. With all its
accepted biases, the Consumer Price Index is up 3.3% on a year-over-year basis.
We think productivity gains through technological advances and a globally
competitive market should work together to keep inflation low, and current
interest rates offer investors an opportunity to lock in attractive real rates
of return.
Volatility is a concern to investors of zero coupon securities. We aim to
maintain investments as close to the target maturities as practically possible,
so there is no realistic way for the portfolios to avoid swings in unit value
from changes in interest rates. With four years to maturity in the 2000
portfolio, this portfolio could possibly see an approximate 4% swing in value
for every 100 basis point swing in interest rates. Likewise, the 2005 portfolio
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 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 primarily hold only top-rated 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
The economy started the reporting period on a weak note, as winter storms and an
auto workers' strike detracted from economic growth, and continued to lose
momentum during the first quarter of 1996. With prospects for slower growth and
low inflation, the Federal Reserve Board (the Fed) lowered the federal funds
rate in late January 1996, from 5.50% to 5.25%. Since that point, the economy
seemed to regain its footing somewhat and achieved moderate growth with
apparently little threat of inflation. This appeared to eliminate the need for
further Fed actions and, as a result, short-term interest rates ended the period
slightly lower than at the start.
Since we maintained a relatively neutral weighted average maturity during the
reporting period, trends in the federal funds rate were reflected in the
portfolio's seven-day yield. It began the period at 5.43% and finished at 5.04%.
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 involve undue risk.
INDEX COMPARISONS
- -------------------------------------------------------------------------------
Indices measure a variety of values -- the Dow Jones Industrial Average(R) and
the Consumer Price Index are two well-known examples. On the following pages, we
have compared the performance of each Valuemark fund with an appropriate index
or indices. On pages 38 and 39, we have also included definitions of all the
indices used.
When reviewing the comparisons, please keep in mind that indices have a number
of inherent performance differentials over the Valuemark funds. First, unlike
the Valuemark portfolios, which must hold a minimum amount of cash to maintain
liquidity, indices do not have a cash component. Second, the Valuemark
portfolios are actively managed and, thus, are subject to management fees to
cover salaries to securities analysts or portfolio managers in addition to other
expenses. Indices are unmanaged and do not include any commissions or other
expenses typically associated with investing in securities. Third, indices often
contain a different mix of securities than the fund to which they are compared.
For instance, the Valuemark U.S. Government Securities Fund is compared to the
Lehman Brothers Intermediate Government Index. While the index and the fund both
hold fixed-rate obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, the fund consists primarily of mortgage-backed
securities (almost 70% of the fund's total net assets on December 31, 1996). The
index, on the other hand, holds no mortgage-backed securities at all.
Additionally, please remember that indices are simply a measure of performance
and cannot be invested in directly.
- -----------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
----------------------
Since Inception
---------------
13.60%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
14.19% 12.20% 10.09%
- ------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
13.90% 12.49% 10.21%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
-----------------------------------------------------
11.28% 11.52% 11.75%
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
-----------------------------------------------------
4.00% 8.75% 6.23%
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 3-year Since Inception
----------------------------------------------------
24.18% 15.62% 10.53%
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
---------------------------------------------------
32.82% 17.30% 13.04%
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year Since Inception
------------------------------------------
29.07% 26.91%
- -------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year Since Inception
------------------------------
21.59% 6.56%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year Since Inception
-------------------------------------------
19.84% 16.06%
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year Since Inception
------------------------------------------
21.28% 13.07%
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 3-year Since Inception
------------------------------------------
22.98% 11.10% 11.64%
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
-------------------------------------------
9.64% 6.59% 8.10%
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Aggregate Total Return
----------------------
Since Inception
---------------
12.50%
- ------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
Total return of the fund is the percent change in value of a hypothetical
$10,000 investment over the indicated periods and includes reinvestment of
dividends and capital gains. Inception dates of the funds may have preceded the
effective dates of the subaccounts, contracts, or their availability in all
states. Performance data is historical and cannot predict or guarantee future
results. Principal value and investment return will fluctuate with market
conditions and you may have a gain or loss when you withdraw your money.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 3-year Since Inception
-----------------------------------------------------
11.10% 3.03% 9.98%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSUR- ANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES. BECAUSE OF THE COMPLEXITY OF CERTAIN
CONTRACTS, THE PROSPECTUS MAY ALSO INCLUDE A HYPOTHETICAL ILLUSTRATION INTENDED
TO SHOW HOW THE CONTRACT WORKS AND THE EFFECT OF SUCH VARIABLE ACCOUNT EXPENSES
ON PERFORMANCE.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Retur
----------------------------
1-year 5-year Since Inception
-----------------------------------------------------
3.62% 6.90% 8.19%
- -------------------------------------------------------------------------------
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
----------------------------
1-year 5-year Since Inception
----------------------------------------------------
7.07% 8.35% 10.95%
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
----------------------------------------------------
-0.50% 10.04% 11.08%
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
----------------------------------------------------
2.43% 8.07% 9.67%
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Average Annual Total Return
---------------------------
1-year 5-year Since Inception
----------------------------------------------------
-2.69% 11.33% 11.59%
- ------------------------------------------------------------------------------
INDEX DEFINITIONS
INDEX DEFINITION
CONSUMER PRICE INDEX
Measure of the average change in prices for a fixed basket of goods and
services regularly bought by consumers in the United States published by the
U.S. Bureau of Labor Statistics.
FIRST BOSTON HIGH YIELD
Unmanaged, trader-priced portfolio constructed to mirror the public high
yield debt market (revisions to the index are effected weekly). The index
has several modules representing different sectors of the high yield market
including a cash-paying module, a zero-fix module, a pay-in-kind module, and
a defaulted module. The index is also divided into other categories
including industry, rating, seniority, liquidity, market value, security
price range, yield range, and other sector divisions.
INTERNATIONAL FINANCE CORPORATION'S
(IFC) INVESTABLE COMPOSITE INDEX
Emerging markets index that includes 1225 stocks from 26 countries including
Mexico, South Korea, Brazil, Jordan, and Turkey.
JP MORGAN GLOBAL BOND INDEX
(UNHEDGED)
A total return index that tracks the
traded sovereign issues of 13 international markets. Each market is weighted
according to its traded market capitalization in U.S. dollar terms, and all
issues included in the index are liquid with remaining maturities of greater
than 13 months.
LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX
Includes fixed-rate debt that is rated investment grade or higher by
Moody's, Standard & Poor's, or Fitch. Debt is issued by the U.S. government
and its agencies, domestic corporations, and foreign dollar-denominated
securities.
LEHMAN BROTHERS INTERMEDIATE
Includes fixed-rate debt that is rated investment grade or Government Index
higher by Moody's, Standard & Poor's, or Fitch. Debt is issued by the U.S.
government and its agencies, and has a maturity of one to ten years.
LIPPER INCOME AVERAGE
Consists of 21 equity funds that normally seek a high level of current
income through investing in income-producing stocks, bonds, and money-market
instruments.
MERRILL LYNCH TREASURY ZERO COUPON
FIVE, TEN AND TWENTY YEAR INDICES
Includes five-, ten- and twenty-year zero coupon bonds, respectively, which
pay no interest and are issued at a discount from redemption price.
MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE AUSTRALIA FAR EAST (EAFE) INDEX
Includes approximately 1000 companies representing the stock markets of 20
countries in Europe, Australia, New Zealand, and the Far East. The average
company has a market capitalization of over $3 billion. This is a total
return index in U.S. dollars, with gross dividends reinvested.
MORGAN STANLEY CAPITAL INTERNATIONAL
(MSCI) PACIFIC BASIN INDEX
Includes over 400 companies and the five countries of Australia,
Hong Kong, Japan, New Zealand, and Singapore/Malaysia. This is a total return
index in U.S. dollars, with gross dividends reinvested.
MORGAN STANLEY CAPITAL INTERNATIONAL
(MSCI) WORLD INDEX
Includes approximately 1500 companies listed on the stock exchanges of 22
countries including the U.S., Europe, Canada, Australia, New Zealand, and
the Far East. The average company in the index has a market capitalization
of about $3.5 billion. This is a total return index in U.S. dollars, with
gross dividends reinvested.
RUSSELL 2500 INDEX(R)
An index consisting of 2,500 companies with small market capitalizations.
SALOMON BROTHERS WORLD GOVERNMENT
HEDGED INDEX
Currency-hedged index uses rolling one-month forward exchange contracts as
hedging instruments. Total return in U.S. dollars.
SIX-MONTH CD RATES
Estimated monthly return averaging the top rates paid by major New York banks
on primary new issues of negotiable CDs. Published by Micropal.
STANDARD & POOR'S(R) 500 (S&P(R) 500)
Consists of 500 widely held common stocks within four sectors (industrials,
utilities, financial, and transportation). This index, calculated by
Standard & Poor's, is a total return index with dividends reinvested.
WILSHIRE MIDCAP GROWTH INDEX
Overlaps both the top 750 and the next 1750 of the Wilshire 2500 universe.
Includes companies that have market capitalizations ranging from $300
million to $1.3 billion.
WILSHIRE REAL ESTATE SECURITIES INDEX
A market capitalization weighted index of publicly traded real estate
securities such as Real Estate Investment Trusts REITs), Real Estate
Operating Companies (REOCs), and partnerships. The index is comprised of
companies whose charter is the equity ownership and operation of commercial
real estate.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Country* Amount Templeton Global Income Securities Fund (Note 1)
Bonds 93.8%
Argentina 4.3%
<S> <C> <C> <C>
US $ 2,500,000b Hidroelectrica Alicura, SA, 8.375%, 03/15/99 ................................... $ 2,487,500
US 2,895,000 Republic of Argentina, 10.95%, 11/01/99 ........................................ 3,068,700
US 3,620,000 Republic of Argentina, 8.375%, 12/20/03 ........................................ 3,402,800
US 920,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 .......................... 586,500
------------
9,545,500
------------
Australia 7.1%
AU 17,340,000 Government of Australia, 10.00%, 10/15/02 ...................................... 15,640,319
------------
Brazil 1.8%
US 2,580,000 Government of Brazil, 6.50%, 04/15/24 .......................................... 1,991,438
US 2,650,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ................... 2,015,656
------------
4,007,094
------------
Canada 4.6%
CA 11,397,000 Government of Canada, 10.25%, 02/01/04 ......................................... 10,290,628
------------
Denmark 7.2%
DK 25,917,000 Government of Denmark, 8.00%, 05/15/03 ......................................... 4,874,896
DK 43,000,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................ 8,104,941
DK 15,310,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................ 2,962,429
------------
15,942,266
------------
Germany 2.0%
DD 5,800,000 Federal Republic of Germany, Unity, 8.75%, 08/20/01 ............................ 4,387,039
------------
Irish Republic 1.2%
IR 1,600,000 Republic of Ireland, 6.25%, 10/18/04 ........................................... 2,676,514
------------
Italy 10.6%
IT 15,705,000,000 Buoni Poliennali del Tes, 10.50%, 09/01/05 ..................................... 12,379,601
IT 3,335,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ..................................... 2,482,331
IT 11,620,000,000 Government of Italy, 10.50%, 07/15/00 .......................................... 8,587,763
------------
23,449,695
------------
Mexico 4.8%
US 300,000 United Mexican States, 7.101560%, FRN, 03/31/08 ................................ 297,938
US 9,715,000 United Mexican States, 9.75%, 02/06/01 ......................................... 10,055,025
US 400,000 United Mexican States, Series D, 6.35156%, FRN, 12/31/19 ....................... 345,000
------------
10,697,963
------------
New Zealand 4.2%
NZ 11,810,000 Government of New Zealand, 10.00%, 03/15/02 .................................... 9,380,924
------------
Spain 6.1%
ES 779,230,000 Government of Spain, 12.25%, 03/25/00 .......................................... 7,114,957
ES 233,950,000 Government of Spain, 10.15%, 01/31/06 .......................................... 2,136,140
ES 462,400,000 Government of Spain,11.30%, 01/15/02 ........................................... 4,305,048
------------
13,556,145
------------
Sweden 3.1%
SE 15,300,000 Government of Sweden, 6.00%, 02/09/05 .......................................... 2,174,128
SE 12,300,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................ 2,200,610
SE 12,100,000 Kingdom of Sweden, 13.00%, 06/15/01 ............................................ 2,274,029
SE 1,100,000 Sweden National Housing Finance Corp., 12.50%, 01/23/97 ........................ 161,892
------------
6,810,659
------------
United Kingdom 10.1%
GB $ 3,245,000 United Kingdom, 8.00%, 12/07/00 ................................................ $ 5,711,854
GB 5,835,000 United Kingdom, 10.00%, 09/08/03 ............................................... 11,339,086
GB 2,905,000 United Kingdom, 10.50%, 05/19/99 ............................................... 5,349,770
------------
22,400,710
------------
United States 26.7%
US 9,610,000 U.S. Treasury Bonds, 6.375%, 08/15/02 .......................................... 9,676,078
US 21,180,000 U.S. Treasury Notes, 6.25%, 08/31/00 ........................................... 21,266,054
US 28,235,000 U.S. Treasury Notes, 6.125%, 07/31/00 .......................................... 28,243,838
------------
59,185,970
------------
Total Bonds (Cost $201,946,322)........................................... 207,971,426
------------
hReceivables from Repurchase Agreements 3.3%
US 7,060,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,279,729) (Cost $7,277,000)
Collateral: U.S. Treasury Notes, 7.75%, 11/30/99 .............................. 7,277,000
------------
Total Investments (Cost $209,223,322) 97.1%.......................... 215,248,426
Other Assets and Liabilities, Net 2.9%............................... 6,474,043
------------
Net Assets 100.0%.................................................... $221,722,469
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $209,223,322 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost..................................... $ 6,468,474
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value..................................... (443,370)
------------
Net unrealized appreciation................................................... $ 6,025,104
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
DD - Germany
DK - Denmark
ES - Spain
GB - United Kingdom
IR - Irish Republic
IT - Italy
NZ - New Zealand
SE - Sweden
US - United States of America
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
VRN - Variable Rate Notes
*Securities traded in currency of country indicated.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants High Income Fund (Note 1)
a Common Stocks & Warrants 0.1%
<C> <S> <C>
33,568 Bucyrus-Erie Co............................................................................... $ 293,720
6,900 Empire Gas Corp., warrants.................................................................... 20,700
70 Foodmaker, Inc., warrants .................................................................... 1,668
5,000 Gulf States Steel, warrants .................................................................. 25,000
7,800 International Wireless Holding Co., warrants.................................................. 70
6,500 Nextel Communications, warrants............................................................... 65
395 Thermadyne Holdings Corp...................................................................... 11,258
------------
Total Common Stocks & Warrants (Cost $610,440).......................................... 352,481
------------
Preferred Stocks 3.3%
1,300 Fresenius Medical Care A.G., 9.00%, pfd....................................................... 1,322,750
8,702 PanAmSat Corp., 12.75%, pfd., PIK............................................................. 10,965,106
2,258 Time Warner, Inc., 10.25%, pfd., Series M .................................................... 2,461,685
------------
Total Preferred Stocks (Cost $12,510,654)............................................... 14,749,541
------------
Total Common Stocks & Warrants, and Preferred Stocks (Cost $13,121,094)................. 15,102,022
------------
Face
Amount
Bonds 91.9%
Automotive 1.6%
$ 700,000b Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 ...................................... 754,250
1,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................... 1,093,750
4,500,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ............................................... 5,040,000
------------
6,888,000
------------
Cable Television 11.0%
4,000,000 Cablevision Industries Corp., senior sub. deb., 9.25%, 04/01/08 .............................. 4,247,380
1,500,000 Cablevision System Corp., senior sub. deb., 9.25%, 11/01/05 .................................. 1,488,750
3,000,000 Cablevision System Corp., senior sub. deb., 10.50%, 05/15/16 ................................. 3,120,000
4,500,000 Cablevision System Corp., senior sub. deb., 9.875%, 04/01/23 ................................. 4,410,000
5,000,000 Century Communications Corp., senior sub. notes, 11.875%, 10/15/03 ........................... 5,300,000
2,000,000 Comcast Corp., senior sub. deb., 9.125%, 10/15/06 ............................................ 2,055,000
2,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ............................................. 2,080,000
1,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .................................. 1,722,687
1,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 ............................ 1,143,034
2,700,000 Diamond Cable Communications Co., senior disc. notes, zero coupon to 12/15/00,
(original accretion rate 11.75%), 11.75% thereafter, 12/15/05 ............................... 1,933,875
2,200,000 Le Groupe Videotron Ltee, senior notes, 10.625%, 02/15/05 .................................... 2,436,500
4,500,000 cRogers Cablesystems, Inc., senior secured deb. (Canada), 9.65%, 01/15/14 .................... 3,220,036
1,500,000 Rogers Communications, Inc., senior deb., 10.875%, 04/15/04 .................................. 1,586,250
8,000,000 Telewest Plc., senior deb., zero coupon to 10/01/00, (original accretion rate 11.00%),11.00%
thereafter, 10/01/07 ........................................................................ 5,600,000
1,500,000 Time Warner, Inc., senior notes, 10.15%, 05/01/12 ............................................ 1,808,997
1,500,000 Time Warner, Inc., sub. deb., 9.125%, 01/15/13 ............................................... 1,635,000
3,000,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 .............................. 2,994,594
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 ................................................................. 2,449,999
------------
49,232,102
------------
Chemicals 6.3%
3,750,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 ....................... 3,965,625
8,000,000 Arcadian Partners L.P., senior notes, Series B, 10.75%, 05/01/05 ............................. 8,920,000
2,500,000 Harris Chemical of North America, senior sub. notes, 10.75%, 10/15/03 ........................ 2,600,000
Chemicals (cont.)
$ 3,000,000 IMC Global, Inc., senior notes, 9.25%, 10/01/00 .............................................. $ 3,250,920
1,600,000 IMC Global, Inc., senior deb., 9.45%, 12/15/11 ............................................... 1,894,478
1,200,000 IMC Global, Inc., senior notes, 10.125%, 06/15/01 ............................................ 1,307,851
2,425,000 IMC Global, Inc., senior notes, 10.75%, 06/15/03 ............................................. 2,663,382
4,000,000 UCC Investors, Inc., disc. notes, zero coupon to 05/01/98, (original accretion rate 12.00%), 12.00%
thereafter, 05/01/05 ........................................................................ 3,480,000
------------
28,082,256
------------
Consumer Products 2.8%
4,250,000 Coleman Holdings, Inc., senior secured disc. notes, (original accretion rate 10.875%), 0.00%,
05/27/98 .................................................................................... 3,564,688
5,800,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............................ 5,814,500
3,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 .................................................... 3,041,250
------------
12,420,438
------------
Containers & Packaging 3.1%
3,500,000 Container Corp., senior notes, Series A, 11.25%, 05/01/04 .................................... 3,806,250
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 ..................................... 1,047,500
2,500,000 bPlastic Containers, Inc., senior notes, 10.00%, 12/15/06 .................................... 2,575,000
5,000,000 bRadnor Holdings Corp., senior notes, 10.00%, 12/01/03 ....................................... 5,100,000
------------
13,578,750
------------
Energy 1.4%
5,000,000 Empire Gas Corp., units, senior secured notes, 7.00% coupon to 07/15/99, 12.875% thereafter,
07/15/04 .................................................................................... 4,250,000
800,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ......................................... 834,000
1,800,000 Mesa Operating Co., senior sub. notes, zero coupon to 07/01/01, (original accretion rate 11.625%),
11.625% thereafter, 07/01/06 ................................................................ 1,251,000
------------
6,335,000
------------
Food & Beverage 4.0%
3,000,000 Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 ................. 3,060,000
700,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................... 728,000
1,124,010 n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................... 1,124,010
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 sub. notes, 10.25%, 02/15/00 ......................... 260,625
1,600,000b International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 ......................... 1,668,000
4,700,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ........................ 4,876,250
3,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ............................... 3,045,000
------------
17,941,885
------------
Food Retailing 4.7%
1,700,000 Dominick's Finer Foods, senior sub. notes, 10.875%, 05/01/05 ................................. 1,895,500
3,691,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................... 3,930,915
4,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ................................... 3,850,000
1,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ................................... 1,025,000
3,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ............................................. 2,482,500
1,500,000 Penn Traffic Co., senior sub. notes, 9.625%, 04/15/05 ........................................ 866,250
3,750,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ........................................... 4,003,125
2,500,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 ..................................... 2,775,000
------------
20,828,290
------------
Forest & Paper Products 5.0%
$ 7,700,000 Four M Corp., senior notes, 12.00%, 06/01/06 ................................................. $ 8,085,000
3,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 .............................. 3,315,000
2,000,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 ........................ 2,100,000
3,000,000 Repap Wisconsin, Inc., senior secured notes, 9.25%, 02/01/02 ................................. 3,052,500
2,300,000 S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ............................... 2,495,500
3,500,000 Tembec Finance Corp., senior notes, 9.875%. 09/30/05 ......................................... 3,316,250
------------
22,364,250
------------
Gaming & Leisure 7.0%
3,000,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ............................................. 3,210,000
1,000,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ................................ 1,060,000
5,900,000 Players International, Inc., senior notes, 10.875%, 04/15/05 ................................. 5,892,625
3,000,000 Rio Hotel and Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................. 3,165,000
7,500,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 .......................................... 8,287,500
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 ................................................................. 4,687,500
5,000,000 Station Casinos, Inc., senior sub. notes, 10.125%, 03/15/06 .................................. 5,037,500
------------
31,340,125
------------
Health Care Services 7.0%
7,770,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ............................. 8,158,500
5,500,000 Mariner Health Group, Inc., senior sub. notes, 9.50%, 04/01/06 ............................... 5,417,500
2,000,000b Maxxim Medical, Inc., guaranteed senior sub. notes, 10.50%, 08/01/06 ......................... 2,090,000
1,000,000 Regency Health Services, Inc., senior sub. notes, 9.875%, 10/15/02 ........................... 1,012,500
5,500,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 ... 5,307,500
850,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ....................................... 935,000
2,400,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ....................................... 2,550,000
3,400,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ................................. 3,774,000
3,150,000 Unilab Corp., senior notes, 11.00%, 04/01/06 ................................................. 2,157,750
------------
31,402,750
------------
Industrial Products 6.4%
2,500,000b Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 ........................... 2,644,688
8,500,000 American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98, (original accretion rate
10.50%), 10.50% thereafter, 06/01/05 ........................................................ 8,011,250
1,000,000 Day International Group, senior sub. notes, 11.125%, 06/01/05 ................................ 1,055,000
6,500,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ........................................ 6,597,500
3,200,000 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 .............................. 3,312,000
1,200,000 bIntertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 ................................. 1,254,000
5,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ............................................ 5,568,750
------------
28,443,188
------------
Lodging 1.1%
1,000,000 John Q. Hammons Hotels L.P., first mortgage, 8.875%, 02/15/04 ................................ 997,500
1,500,000 John Q. Hammons Hotels L.P., first mortgage, 9.75%, 10/01/05 ................................. 1,530,000
2,310,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 .......................................... 2,344,650
------------
4,872,150
------------
Media & Broadcasting 6.4%
1,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ............................... 1,810,500
2,500,000 Benedek Broadcasting, senior secured notes, 11.875%, 03/01/05 ................................ 2,731,250
6,500,000 Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 05/15/05 ................... 6,711,250
925,000 Infinity Broadcasting Corp., senior sub. notes, 10.375%, 03/15/02 ............................ 985,125
1,000,000 Jacor Communications, Inc., guaranteed senior sub. notes, 9.75%, 12/15/06 .................... 1,026,250
Media & Broadcasting (cont.)
$ 2,500,000 K-III Communications Corp., senior notes, 10.25%, 06/01/04 ................................... $ 2,631,250
5,000,000c News America Holdings, Inc., deb. (Australia), 8.625%, 02/07/14 .............................. 3,767,983
4,000,000 SCI Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ................................... 4,300,000
2,000,000 SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 05/15/06 ........................ 2,110,000
2,500,000 Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 09/30/05 .......................... 2,559,375
------------
28,632,983
------------
Metals & Mining 3.2%
4,000,000b AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ....................................... 4,100,000
4,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 ........................................ 4,320,000
5,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 .......................................... 4,750,000
1,110,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 ................. 1,283,438
------------
14,453,438
------------
Technology & Information Systems 3.2%
6,000,000 ADT Operations, guaranteed senior sub. notes, 9.25%, 08/01/03 ................................ 6,427,500
1,400,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ........................................................................ 1,025,500
2,450,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ............................................. 2,492,875
800,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ....................................... 850,000
1,150,000 bCelestica International, Inc., senior sub. notes, 10.50%, 12/31/06 .......................... 1,207,500
2,000,000 Exide Electronics Group, Inc., senior sub. notes, 11.50%, 03/15/06 ........................... 2,130,000
------------
14,133,375
------------
Telecommunications 3.0%
2,000,000 Intelecom Group, Inc., senior disc. notes, zero coupon to 05/01/01, (original accretion rate 12.50%),
12.50% thereafter, 05/01/06 ................................................................. 1,311,460
10,400,000 MFS Communications Co., Inc., senior disc. notes, zero coupon to 01/15/01, (original accretion rate
8.875%), 8.875% thereafter, 01/15/06 ........................................................ 7,709,000
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 ................................................. 4,485,000
------------
13,505,460
------------
Textiles & Apparel 1.3%
5,500,000 Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 04/15/06 ............................... 5,830,000
144,200a,l Forstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................... 72,821
------------
5,902,821
------------
Transportation 1.5%
1,600,000 Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ................................ 1,630,000
4,500,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ....................................... 4,927,500
------------
6,557,500
------------
Utilities 2.0%
3,000,000 CMS Energy Corp., senior notes, Series B, zero coupon to 10/01/95, (original accretion rate 9.875%),
9.875% thereafter, 10/01/99 ................................................................. 3,135,000
2,500,000 El Paso Electric Co., first mortgage, 8.90%, 02/01/06 ........................................ 2,650,000
2,715,363 Midland CoGeneration Venture, S.F., deb., Series C, 10.33%, 07/23/02 ......................... 2,905,439
2,000 System Energy Resource, S.F., first mortgage, 11.375%, 09/01/16 .............................. 2,163
------------
8,692,602
------------
Wireless Communication 9.9%
$ 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 ................................................. $ 3,457,500
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 ................................................... 4,663,750
7,800,000 bInternational Wireless Communications, Inc., senior disc. notes, zero coupon to 08/15/01 .... 4,290,000
9,300,000 Millicom International Cellular, S.A., senior disc. notes, zero coupon to 06/01/01, (original accretion
rate 13.50%), 13.50% thereafter, 06/01/06.................................................... 5,766,000
4,700,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ................................... 4,835,125
4,500,000 bPaging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ................................... 4,578,750
3,000,000 Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 06/01/16 ............................. 3,172,500
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.................................................................. 6,775,000
6,500,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ........................................ 6,695,000
------------
44,233,625
------------
Total Bonds (Cost $393,587,025) ........................................................ 409,840,988
------------
Total Investments before Repurchase Agreements (Cost $406,708,119) ..................... 424,943,010
------------
h,iReceivables from Repurchase Agreements 3.0%
13,235,089 Joint Repurchase Agreements, 6.59%, 01/02/97, (Maturity Value $13,468,397) (Cost $13,463,468)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,653,685)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,687,816)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 13,463,468
------------
Total Investments (Cost $420,171,587) 98.3% ....................................... 438,406,478
Other Assets and Liabilities, Net 1.7%............................................. 7,689,047
------------
Net Assets 100.0% ................................................................. $446,095,525
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$420,171,587 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 22,104,944
Aggregate gross unrealized depreciation for all investments in which
here was an excess of tax cost over value .................................................... (3,870,053)
------------
Net unrealized appreciation ................................................................ $ 18,234,891
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Country* Warrants Precious Metals Fund (Note 1)
Common Stocks & Warrants 95.7%
Gold & Diversified Resources 14.4%
<S> <C> <C> <C>
AU 780,000a Equinox Resources, N.L. ............................................................ $ 638,582
US 160,718 Freeport-McMoRan Copper & Gold, Inc. ............................................... 4,520,194
AU 201,800 Great Central Mines, Ltd. .......................................................... 574,234
CA 110,000a Pangea Goldfields, Inc. ............................................................ 514,037
GB 318,429 RTZ Corp., Plc. .................................................................... 5,108,589
CA 159,100 Teck Corp., Class B ................................................................ 3,688,383
CA 510,600a Williams Resources, Inc. ........................................................... 525,681
CA 188,600 Williams Resources, Inc., Legend Shares ............................................ 194,170
------------
15,763,870
------------
Long Life Gold Mines 45.7%
US 210,700b Ashanti Goldfields Co., Ltd., ADS .................................................. 2,607,413
US 235,595 Barrick Gold Corp. ................................................................. 6,773,356
CA 194,920 Battle Mountain Canada, Inc. ....................................................... 1,352,079
ZA 125,000 Beatrix Mines, Ltd. ................................................................ 781,500
PE 37,404 Compania de Minas Buenaventura, SA ................................................. 308,656
PE 112,068 Compania de Minas Buenaventura, SA, Class C ........................................ 815,352
US 67,000b Compania de Minas Buenaventura, SA, Sponsored ADR .................................. 1,143,188
US 249,500 Driefontein Consolidated Mines, Ltd., ADR .......................................... 2,495,000
US 226,700 Hartebeestfontein Gold Mining Co., Ltd., ADR ....................................... 463,942
US 139,488 Homestake Mining Co. ............................................................... 1,987,704
US 95,400 Kloof Gold Mining Co., Ltd., ADR ................................................... 745,313
AU 820,260a Leo Shield Exploration, N.L. ....................................................... 436,829
US 82,400 Newmont Gold Co. ................................................................... 3,605,000
US 99,755 Newmont Mining Corp. ............................................................... 4,464,036
US 327,500 Placer Dome, Inc. .................................................................. 7,123,125
ZA 340,000 Randgold & Exploration Co., Ltd. ................................................... 2,307,363
US 257,901 Santa Fe Pacific Gold Corp. ........................................................ 3,965,228
CA 522,000a TVX Gold, Inc. ..................................................................... 4,078,274
US 339,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ..................................... 2,097,563
US 41,068 Western Areas Gold Mining, ADR ..................................................... 566,193
ZA 143,888 Western Areas Gold Mining Co., Ltd. ................................................ 1,983,708
------------
50,100,822
------------
Medium Life Gold Mines 23.5%
AU 1,243,600a Acacia Resources, Ltd. ............................................................. 2,421,763
CA 66,500a Bre-X Minerals, Ltd. ............................................................... 1,053,667
CA 6,650a Bro-X Minerals, Ltd. ............................................................... 11,653
US 209,000a Campbell Resources, Inc., warrants ................................................. 84,917
US 210,000a Canyon Resources Corp. ............................................................. 551,250
CA 151,200a Dayton Mining Corp. ................................................................ 1,004,651
CA 155,300 Euro-Nevada Mining Corp. ........................................................... 4,637,852
CA 15,000 Euro-Nevada Mining Corp., Legend Shares ............................................ 447,957
CA 90,800 Franco-Nevada Mining Corp., Ltd. ................................................... 4,160,272
CA 2,500 Franco-Nevada Mining Corp., Ltd., Legend Shares .................................... 114,545
CA 234,600a Geomaque Explorations, Ltd. ........................................................ 565,281
US 18,500a Getchell Gold Corp. ................................................................ 709,938
CA 86,200 Golden Knight Resources ............................................................ 415,407
CA 170,900a Greenstone Resources, Ltd. ......................................................... 1,990,329
AU 329,500a Lihir Gold, Ltd. ................................................................... 628,567
AU 271,500 Newcrest Mining, Ltd. .............................................................. 1,079,008
Medium Life Gold Mines (cont.)
AU 632,500 Plutonic Resources, Ltd. ........................................................... $ 2,941,042
AU 505,900 Sons Of Gwalia , Ltd. .............................................................. 2,987,709
------------
25,805,808
------------
Mining Finance Companies 6.5%
US 15,000 Anglo American Corp. of South Africa Ltd., Unsponsored ADR ......................... 817,500
US 113,700 DeBeers Consolidated Mines, Ltd., ADR .............................................. 3,212,025
AU 1,535,571 Normandy Mining, Ltd. .............................................................. 2,123,753
AU 230,000a Orogen Minerals, Ltd. .............................................................. 535,649
US 17,200a,b Orogen Minerals, Ltd., GDR ......................................................... 400,573
------------
7,089,500
------------
Platinum Companies 5.6%
AU 495,000a Helix Resources, N.L. .............................................................. 1,475,439
ZA 72,900 Impala Platinum Holdings, Ltd. ..................................................... 728,455
US 21,200 Impala Platinum Holdings, Ltd., ADR ................................................ 211,841
US 168,466 Rustenburg Platinum Holdings, Ltd., ADR ............................................ 2,304,547
US 82,300a,b Stillwater Mining Co. .............................................................. 1,378,524
------------
6,098,806
------------
Total Common Stocks & Warrants (Cost $99,595,951)............................. 104,858,806
------------
Face
Amount
Convertible Bonds 0.4%
US $ 270,000b Randgold & Exploration Co., Ltd., cvt. sub. notes, 7.00%, 10/03/01 ................. 270,000
CA 200,000 Williams Resources, Inc., cvt. sub. notes, 8.50%, 11/22/01 ......................... 154,794
------------
Total Convertible Bonds (Cost $419,740) ...................................... 424,794
------------
Total Long Term Investments (Cost $100,015,691) .............................. 105,283,600
------------
h,i Receivables from Repurchase Agreements 3.1%
US 3,409,181 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $3,468,619)
(Cost $3,467,349)
Aubrey G. Lanston & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $434,676)
Collateral: U. S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $425,887)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $434,676)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ............... 3,467,349
------------
Total Investments (Cost $103,483,040) 99.2%.............................. 108,750,949
Other Assets and Liabilities, Net 0.8%................................... 827,636
------------
Net Assets 100.0% ....................................................... $109,578,585
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $103,483,040 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 14,289,001
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................................ (9,021,092)
------------
Net unrealized appreciation ...................................................... $ 5,267,909
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
CA - Canada
GB - United Kindom
PE - Peru
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Warrants Real Estate Securities Fund (Note 1)
Common Stocks & Warrants 91.6%
Equity REIT - Apartments 20.0%
<C> <S> <C>
170,000 Amli Residential Properties Trust ............................................................ $ 3,973,750
295,000 Bay Apartment Communities, Inc................................................................ 10,620,000
110,000 Camden Property Trust ........................................................................ 3,148,750
205,000 Equity Residential Properties Trust .......................................................... 8,456,250
212,000 Evans Withycombe Residential, Inc. ........................................................... 4,452,000
155,000 Gables Residential Trust ..................................................................... 4,495,000
145,000 Irvine Apartment Communities, Inc............................................................. 3,625,000
215,000 Oasis Residential, Inc........................................................................ 4,891,250
100,000 Post Properties, Inc. ........................................................................ 4,025,000
120,000 Security Capital Atlantic, Inc................................................................ 2,940,000
275,000 Security Capital Pacific Trust ............................................................... 6,290,625
220,000 South West Property Trust .................................................................... 3,712,500
175,000 Summit Properties, Inc........................................................................ 3,871,875
------------
64,502,000
------------
Equity REIT - Health Care 3.7%
90,000 Health Care Property Investors, Inc. ......................................................... 3,150,000
150,000 Nationwide Health Properties, Inc............................................................. 3,637,500
158,000 Omega Healthcare Investors, Inc. ............................................................. 5,253,500
------------
12,041,000
------------
Equity REIT - Hotels 12.4%
500,000 Equity Inns, Inc. ............................................................................ 6,500,000
267,000 FelCor Suite Hotels, Inc...................................................................... 9,445,125
140,000 Patriot American Hospitality, Inc. ........................................................... 6,037,500
176,700 Starwood Lodging Trust ....................................................................... 9,740,588
605,000 Winston Hotels, Inc. ......................................................................... 8,243,125
------------
39,966,338
------------
Equity REIT - Industrial 8.9%
112,500 Duke Realty Investments, Inc. ................................................................ 4,331,250
195,000 Liberty Property Trust ....................................................................... 5,021,250
250,700 Meridian Industrial Trust, Inc................................................................ 5,264,700
327,473 Security Capital Industrial Trust ............................................................ 6,999,735
100,000 Spieker Properties, Inc....................................................................... 3,600,000
110,000 Weeks Corp. .................................................................................. 3,657,500
------------
28,874,435
------------
Equity REIT - Mixed Property Type 2.1%
115,000 Colonial Properties Trust .................................................................... 3,493,125
190,000 Glenborough Realty Trust, Inc................................................................. 3,348,750
------------
6,841,875
------------
Equity REIT - Office 7.9%
243,800 Arden Realty Group, Inc....................................................................... 6,765,450
135,000 Beacon Properties Corp. ...................................................................... 4,944,375
125,000 Crescent Real Estate Equities, Co. ........................................................... 6,593,750
210,000 Highwoods Properties, Inc..................................................................... 7,087,500
------------
25,391,075
------------
Equity REIT - Residential Communities 3.8%
185,000 Manufactured Home Communities, Inc. .......................................................... $ 4,301,250
125,000 ROC Communities, Inc.......................................................................... 3,468,750
130,000 Sun Communities, Inc.......................................................................... 4,485,000
------------
12,255,000
------------
Equity REIT - Retail - Community Centers 5.4%
102,000 Developers Diversified Realty Corp. .......................................................... 3,786,750
97,500 Kimco Realty Corp. ........................................................................... 3,400,313
511,400n Pacific Retail Trust ......................................................................... 5,625,400
90,000 Vornado Realty Trust ......................................................................... 4,725,000
------------
17,537,463
------------
Equity REIT - Retail - Outlet Centers 1.5%
75,000 Chelsea GCA Realty, Inc. ..................................................................... 2,596,875
80,000 Tanger Factory Outlet Centers, Inc............................................................ 2,170,000
------------
4,766,875
------------
Equity REIT - Retail - Regional Malls 4.9%
250,000 Simon DeBartolo Group, Inc.................................................................... 7,750,000
170,000 The Macerich Co. ............................................................................. 4,441,250
155,000 The Mills Corp. .............................................................................. 3,700,625
------------
15,891,875
------------
Equity REIT - Storage 7.3%
280,000 Public Storage, Inc........................................................................... 8,680,000
370,000 Storage Trust Realty ......................................................................... 9,990,000
130,000 Storage USA, Inc.............................................................................. 4,891,250
------------
23,561,250
------------
Home Builders 6.4%
100,000a Beazer Homes USA, Inc......................................................................... 1,850,000
306,100a Belmont Homes, Inc............................................................................ 2,946,213
75,000 Centex Corp. ................................................................................. 2,821,875
281,250 Clayton Homes, Inc............................................................................ 3,796,874
85,000 Kaufman & Broad Home Corp. ................................................................... 1,094,375
70,000 Lennar Corp. ................................................................................. 1,907,500
300,000a NVR, Inc. .................................................................................... 3,900,000
193,100a Southern Energy Homes, Inc.................................................................... 2,220,650
------------
20,537,487
------------
Hotels 5.3%
325,000a Candlewood Hotel Co., Inc..................................................................... 3,128,125
250,000a CapStar Hotel Co. ............................................................................ 4,906,250
44,122a Homestead Village, Inc........................................................................ 794,196
29,600a Homestead Village, Inc., warrants............................................................. 240,500
505,000a Host Marriott Corp. .......................................................................... 8,080,000
------------
17,149,071
------------
Mixed Property Type 2.0%
500,000 Security Capital US Realty ................................................................... 6,400,000
------------
Total Common Stocks & Warrants (Cost $216,018,176) ..................................... 295,715,744
------------
Convertible Preferred Stocks 0.4%
20,000b Catellus Development Corp., $3.625 cvt. pfd., Series B (Cost $1,000,000)...................... 1,190,000
------------
Bonds 0.6%...................................................................................
$ 2,000,000 US Home Corp., cvt. sub. notes, 4.875%, 11/01/05 (Cost $1,970,000)............................ $ 1,937,500
------------
Total Long Term Investments (Cost $218,988,176)......................................... 298,843,244
------------
h,iReceivables from Repurchase Agreements 7.2%
22,726,825 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $23,127,905) (Cost $23,119,441)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,839,700)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $2,898,315)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 23,119,441
------------
Total Investments (Cost $242,107,617) 99.8% ....................................... 321,962,685
------------
Other Assets and Liabilities, Net 0.2%............................................. 758,510
------------
Net Assets 100.0 % ................................................................ $322,721,195
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$242,107,617 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 81,200,237
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (1,345,169)
------------
Net unrealized appreciation ................................................................ $ 79,855,068
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
REIT - Real Estate Investment Trust
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Securities Fund (Note 1)
Mortgage-Backed Securities 68.5%
Government National Mortgage Association (GNMA) - Fixed Rate 38.7%
<C> <S> <C>
$ 12,909,358 GNMA I, SF, 6.00%, 12/15/23 - 01/15/24 ...................................................... $ 11,997,637
2,240,248 GNMA II, 6.00%, 01/20/24 - 10/20/24 ......................................................... 2,068,031
57,198,297 GNMA I, SF, 6.50%, 05/15/23 - 05/15/24 ...................................................... 54,642,340
3,866,893 GNMA II, 6.50%, 01/20/26 .................................................................... 3,669,925
8,696,408 GNMA, PL, 6.50%, 09/15/28 ................................................................... 8,264,310
56,855,632 GNMA I, SF, 7.00%, 03/15/22 - 12/15/26 ...................................................... 55,700,850
14,520,927 GNMA II, 7.00%, 01/20/24 - 12/01/26 ......................................................... 14,135,225
15,000,000k GNMA II, 7.00%, 12/01/26 .................................................................... 14,617,968
1,983,040 GNMA I, SF, 7.25%, 11/15/25 ................................................................. 1,964,759
2,242,805 GNMA, PL, 7.25%, 05/15/22 - 08/15/22 ........................................................ 2,210,915
42,539,615 GNMA I, SF, 7.50%, 02/15/17 - 06/15/23 ...................................................... 42,619,423
33,125,704 GNMA II, 7.50%, 11/20/16 - 12/01/26 ......................................................... 32,980,790
5,000,000k GNMA II, 7.50%, 12/01/26 .................................................................... 4,980,469
29,391,221 GNMA I, SF, 8.00%, 04/15/05 - 06/15/25 ...................................................... 30,015,829
3,371,055 GNMA II, 8.00%, 02/20/16 - 08/20/26 ......................................................... 3,417,411
2,589,263 GNMA I, SF, 8.25%, 04/15/25 ................................................................. 2,664,516
11,529,600 GNMA I, SF, 8.50%, 08/15/21 - 12/15/24 ...................................................... 11,954,773
4,261,726 GNMA I, SF, 9.00%, 04/15/16 - 02/15/21 ...................................................... 4,496,145
10,571,472 GNMA I, SF, 9.50%, 10/15/15 - 12/15/21 ...................................................... 11,433,761
2,227,999 GNMA II, 9.50%, 04/20/25 .................................................................... 2,387,442
8,657,430 GNMA I, SF, 10.00%, 08/15/17 - 08/15/21 ..................................................... 9,504,241
297,054 GNMA II, 10.00%, 07/20/19 - 02/20/21 ........................................................ 323,139
------------
326,049,899
------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.4%
3,775,571 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/17 ..................... 3,854,443
3,477,477 GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 7.50%, 07/20/25 ...................... 3,583,819
4,528,182 GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 01/20/16 ...................... 4,593,071
------------
12,031,333
------------
Federal National Mortgage Association (FNMA) - Fixed Rate 8.8%
7,013,467 FNMA, 6.00%, 10/01/23 - 04/01/24 ............................................................ 6,520,340
15,000,000 FNMA, 6.05%, 11/10/97 ....................................................................... 15,046,605
16,442,305 FNMA, 6.50%, 01/01/24 - 06/01/24 ............................................................ 15,707,553
1,943,398 FNMA, 7.00%, 05/01/24 ....................................................................... 1,903,924
8,077,380 FNMA, PL, 7.00%, 03/17/35 ................................................................... 7,774,479
11,946,917 FNMA, 7.50%, 04/01/23 - 08/01/25 ............................................................ 11,958,127
13,480,634 FNMA, 8.00%, 07/01/16 - 02/01/25 ............................................................ 13,755,022
1,079,387 FNMA, 8.50%, 10/01/19 - 03/01/22 ............................................................ 1,118,856
173,288 FNMA, 9.00%, 09/01/18 - 03/01/21 ............................................................ 182,821
99,393 FNMA, 9.50%, 07/01/19 - 08/01/20 ............................................................ 107,346
36,255 FNMA, 10.00%, 10/01/20 ...................................................................... 39,768
------------
74,114,841
------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 7.0%
6,945,255 FNMA, Cap 12.22%, Margin 1.75% + 6 Month DR, Resets Semi-Annually, 6.963%, 06/01/18 ......... 7,070,687
5,056,806 FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.693%, 02/01/19 ..................... 5,266,714
2,473,734 FNMA, Cap 12.786%, Margin 1.25% + COFI, Resets Monthly, 6.084%, 02/01/03 .................... 2,462,009
6,699,164 FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.701%, 09/01/18 ................... 6,996,071
4,370,458 FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.662%, 07/01/19 ................... 4,561,273
13,893,832 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.599%, 01/01/18 ................... 14,470,563
1,129,917 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually, 6.796%, 07/01/24 ......... 1,126,675
433,585 FNMA, Cap 13.721%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 02/01/17 .................... 430,715
Federal National Mortgage Association (FNMA) - Adjustable Rate (cont.)
$ 885,440 FNMA, Cap 14.071%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 12/01/18 .................... $ 879,578
1,317,468 FNMA, Cap 14.428%, Margin 2.125% + CMT, Resets Annually, 7.25%, 04/01/19 .................... 1,365,556
6,050,539 FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 6.089%, 06/01/02 .................... 6,018,048
3,103,864 FNMA, Cap 14.808%, Margin 1.825% + 3CMT, Resets Tri-Annually, 8.489%, 07/01/20 .............. 3,219,110
5,122,820 FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.453%, 03/01/20 .............. 5,337,108
------------
59,204,107
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 8.5%
23,032,840 FHLMC, 6.50%, 06/01/08 - 01/01/24 ........................................................... 22,141,263
17,405,760 FHLMC, 7.00%, 04/01/24 ...................................................................... 17,101,159
19,790,154 FHLMC, PL, 7.00%, 09/17/31 .................................................................. 19,233,655
6,026,449 FHLMC, 7.50%, 11/01/22 - 05/01/24 ........................................................... 6,041,520
4,368,802 FHLMC, 8.00%, 05/01/16 - 05/01/22 ........................................................... 4,457,553
1,327,636 FHLMC, 8.50%, 04/01/18 - 03/01/22 ........................................................... 1,377,012
1,141,617 FHLMC, 9.00%, 03/01/03 - 01/01/21 ........................................................... 1,196,861
259,097 FHLMC, 9.50%, 06/01/16 - 08/01/20 ........................................................... 278,530
192,483 FHLMC, 10.00%, 08/01/20 - 10/01/20 .......................................................... 209,807
------------
72,037,360
------------
Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate 4.1%
5,058,120 FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annnually, 7.651%, 06/01/22 ................. 5,263,379
2,606,296 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.582%, 09/01/19 ................... 2,697,525
3,402,647 FHLMC, Cap 13.125%, Margin 2.00% + CMT, Resets Annually, 7.297%, 07/01/18 ................... 3,509,831
613,638 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.583%, 07/01/19 .................. 635,719
7,457,638 FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.751%, 02/01/19 .................. 7,749,381
5,556,893 FHLMC, Cap 13.50%, Margin 2.03% + CMT, Resets Annually, 7.496%, 05/01/18 .................... 5,751,107
1,781,078 FHLMC, Cap 13.605%, Margin 2.20% + CMT, Resets Annually, 7.557%, 02/01/19 ................... 1,843,897
7,092,294 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.628%, 04/01/18 .................. 7,355,701
------------
34,806,540
------------
Total Mortgage-Backed Securities (Cost $575,480,640) .................................. 578,244,080
------------
Other Government & Agency Securities 23.6%
2,000,000 Federal Agriculture Mortgage Corp., 6.91%, 07/15/97 ......................................... 2,014,030
5,000,000 Federal Farm Credit Bank, 5.80%, 09/16/03 ................................................... 4,780,810
10,000,000 Federal Farm Credit Bank, 7.95%, 04/01/02 ................................................... 10,062,349
13,220,804 FHA Project Loan, 6.875%, 11/01/23 .......................................................... 12,592,825
8,168,028 FHA Project Loan, 7.00%, 02/01/29 ........................................................... 7,871,937
3,876,000 FICO Strips, 0.00%, 11/11/01 ................................................................ 2,857,360
1,925,000 FICO Strips, 0.00%, 05/11/02 ................................................................ 1,372,525
10,000,000 FICO Strips, 0.00%, 05/11/13 ................................................................ 3,174,609
15,000,000 FICO Strips, Series 1, 0.00%, 05/11/99 ...................................................... 13,008,989
1,758,000 FICO Strips, Series 1, 0.00%, 05/11/09 ...................................................... 754,011
11,024,000 FICO Strips, Series 13, 0.00%, 06/27/09 ..................................................... 4,684,361
5,000,000 FICO Strips, Series 15, 0.00%, 09/07/98 ..................................................... 4,530,025
10,000,000 FICO Strips, Series 15, 0.00%, 03/07/02 ..................................................... 7,217,839
3,202,000 FICO Strips, Series 16, 0.00%, 04/05/09 ..................................................... 1,383,526
4,745,000 FICO Strips, Series 16, 0.00%, 10/05/10 ..................................................... 1,835,446
2,060,000 FICO Strips, Series A, 0.00%, 02/08/09 ...................................................... 900,325
7,000,000 FICO Strips, Series D, 0.00%, 09/26/01 ...................................................... 5,203,176
5,000,000 Housing Urban Development, Series 96-A, 7.63%, 08/01/14 ..................................... 5,109,699
5,000,000 Housing Urban Development, Series 96-A, 7.66%, 08/01/15 ..................................... 5,112,735
4,851,066 Small Business Administration, 6.45%, 12/01/15 .............................................. 4,594,348
5,000,000 Small Business Administration, 6.70%, 12/01/16 .............................................. 4,906,300
$ 8,338,041 Small Business Administration, Cap 10.50%, Margin Prime - 0.50%, Resets Quarterly, 7.75%,
03/25/19 ................................................................................... $ 8,651,469
8,003,940 Small Business Administration, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 7.85%,
06/25/19................................................................................... 8,344,108
9,471,172 Small Business Administration, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.125%,
03/25/18 ................................................................................... 10,039,442
5,000,000 Student Loan Marketing Association, 5.64%, 11/26/97 ......................................... 4,992,895
5,000,000 Student Loan Marketing Association, 6.16%, 12/02/99 ......................................... 4,973,475
15,000,000 Student Loan Marketing Association, 0.00%, 05/15/14 ......................................... 3,807,193
10,000,000 Tennessee Valley Authority, 0.00%, 04/15/03 ................................................. 6,700,249
6,000,000 Tennessee Valley Authority, 0.00%, 04/15/42 ................................................. 1,986,977
5,000,000 Tennessee Valley Authority, 5.98%, 04/01/36 ................................................. 5,074,360
5,000,000 Tennessee Valley Authority, 6.125%, 07/15/03 ................................................ 4,868,629
12,000,000 Tennessee Valley Authority, 6.235%, 07/15/45 ................................................ 12,039,490
10,000,000 Tennessee Valley Authority, 7.25%, 07/15/43 ................................................. 9,759,050
1,000,000 Tennessee Valley Authority, 8.375%, 10/01/99 ................................................ 1,056,509
12,000,000 Tennessee Valley Authority, 8.625%, 11/15/29 ................................................ 12,859,246
------------
Total Other Agency Government Securities (Cost $194,604,937) .......................... 199,120,317
------------
U.S. Government Securities 8.0%
5,000,000 U.S. Treasury Notes, 5.125%, 04/30/98 ....................................................... 4,950,005
10,000,000 U.S. Treasury Notes, 5.125%, 06/30/98 ....................................................... 9,893,759
8,000,000 U.S. Treasury Notes, 5.25%, 12/31/97 ........................................................ 7,950,007
15,000,000 U.S. Treasury Notes, 5.625%, 06/30/97 ....................................................... 15,004,694
5,000,000 U.S. Treasury Notes, 5.75%, 08/15/03 ........................................................ 4,851,565
5,000,000 U.S. Treasury Notes, 5.875%, 08/15/98 ....................................................... 4,995,315
5,000,000 U.S. Treasury Notes, 5.875%, 03/31/99 ....................................................... 4,993,755
10,000,000 U.S. Treasury Notes, 6.125%, 05/31/97 ....................................................... 10,018,759
5,000,000 U.S. Treasury Notes, 6.50%, 04/30/97 ........................................................ 5,015,630
------------
Total U.S. Government Securities (Cost $67,905,861) ................................... 67,673,489
------------
Total Long Term Investments (Cost $837,991,438) ....................................... 845,037,886
------------
h,iReceivables from Repurchase Agreements 1.5%
12,403,581 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $12,622,265) (Cost $12,617,646)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 5.125% - 8.750%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $1,581,782)
U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities, Corp., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $1,549,791)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.75% 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $1,581,782)
Collateral: U.S. Treasury Notes, 6.25%- 8.50% 06/30/98 - 05/31/01 .......................... 12,617,646
------------
Total Investments (Cost $850,609,084) 101.6%...................................... 857,655,532
Liabilities in Excess of Other Assets (1.6%)...................................... (13,798,015)
------------
Net Assets 100.0%................................................................. $843,857,517
============
At December 31, 1996 the net unrealized appreciation based on
the cost of investments for income tax purposes of
$850,609,084 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 14,804,148
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................. (7,757,700)
------------
Net unrealized appreciation ............................................................... $ 7,046,448
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
DR - Discount Rate
FHA - Federal Housing Authority
FICO - Financing Corp.
L.L.C. - Limited Liability Corp.
PL - Project Loan
SF - Single Family
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2000 (Note 1)
Long Term Investments 100%
Government & Agency Securities 98.6%
<C> <S> <C>
$ 7,567,000 FHLB Strips, Series A-1, 0.00%, 02/25/01 ...................................................... $ 5,845,212
2,884,000 FHLB Strips, Series A-1, 0.00%, 08/25/01 ...................................................... 2,155,250
465,000 FHLB Strips, Series A-1, 0.00%, 02/25/02 ...................................................... 336,363
16,175,000 FHLMC, notes, 0.00%, 05/15/00 ................................................................. 13,143,125
9,023,000 FICO Strips, 0.00%, 03/26/01 .................................................................. 6,932,100
2,000,000 FICO Strips, 0.00%, 04/06/01 .................................................................. 1,533,606
1,139,000 FICO Strips, Series 1, 0.00%, 11/11/00 ........................................................ 896,755
1,000,000 FICO Strips, Series 7, 0.00%, 02/03/01 ........................................................ 775,514
17,390,000 FICO Strips, Series 12, 0.00%, 12/06/00 ....................................................... 13,629,516
6,000,000 FICO Strips, Series 12, 0.00%, 06/06/01 ....................................................... 4,549,980
4,000,000 FICO Strips, Series 13, 0.00%, 06/27/01 ....................................................... 3,021,744
148,000 FICO Strips, Series 15, 0.00%, 09/07/00 ....................................................... 117,895
5,000,000 FICO Strips, Series 15, 0.00%, 03/07/01 ....................................................... 3,854,720
5,875,000 FICO Strips, Series 17, 0.00%, 10/05/00 ....................................................... 4,656,037
6,200,000 FICO Strips, Series 18, 0.00%, 10/06/00 ....................................................... 4,912,737
4,965,000 FICO Strips, Series D, 0.00%, 09/26/00 ........................................................ 3,941,584
5,550,000 FICO Strips, Series D, 0.00%, 02/03/01 ........................................................ 4,304,102
3,800,000 FNMA Strips, 0.00%, 11/22/99 .................................................................. 3,183,066
1,000,000 FNMA Strips, 0.00%, 02/12/02 .................................................................. 723,947
500,000 FNMA Strips, Series 1, 0.00%, 02/12/00 ........................................................ 412,619
1,875,000 FNMA Strips, Series 1, 0.00%, 02/01/01 ........................................................ 1,452,887
1,000,000 FNMA Strips, Series 1, 0.00%, 02/01/02 ........................................................ 725,364
3,000,000 FNMA Strips, Series 2, 0.00%, 08/12/01 ........................................................ 2,244,114
9,195,000 REFCO Strips, 0.00%, 01/15/01 ................................................................. 7,194,369
3,320,000 Tennessee Valley Authority, 0.00%, 07/15/00 ................................................... 2,673,204
2,500,000 Tennessee Valley Authority, 0.00%, 10/15/00 ................................................... 1,980,827
65,000 Tennessee Valley Authority, 0.00%, 01/01/01 ................................................... 50,315
10,500,000 Tennessee Valley Authority, 0.00%, 04/15/01 ................................................... 8,051,577
1,000,000 Tennessee Valley Authority, 0.00%, 04/15/02 ................................................... 718,045
1,110,375 U.S. Treasury Strips, 0.00%, 11/15/00 ......................................................... 875,190
2,778,750 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 2,154,740
15,000,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 11,682,779
11,615,000 U.S. Treasury Strips, 0.00%, 02/15/01 ......................................................... 9,060,779
------------
127,790,062
------------
Other Securities - "AAA" Rated 1.4%
220,000 InterAmerican Development Bank, 0.00%, 12/16/00 ............................................... 171,499
405,000 International Bank for Reconstruction and Development, 0.00%, 02/15/00 ........................ 334,189
945,000 International Bank for Reconstruction and Development, 0.00%, 08/15/00 ........................ 754,667
735,000 International Bank for Reconstruction and Development, 0.00%, 02/15/01 ........................ 567,527
------------
1,827,882
------------
Total Long Term Investments (Cost $122,571,579).......................................... 129,617,944
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 69,031 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value 69,902) (Cost $69,876)
Aubrey G. Lanston & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $8,582)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $8,760)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01.......................... $ 69,876
------------
Total Investments (Cost $122,641,455) 100.1% ....................................... 129,687,820
Liabilities in Excess of Other Assets (0.1%) ....................................... (86,878)
------------
Net Assets 100.0% .................................................................. $129,600,942
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $122,641,455
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,210,715
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (164,350)
------------
Net unrealized appreciation ................................................................. $ 7,046,365
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financial Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Zero Coupon Fund - 2005 (Note 1)
Long Term Investments 100.0%
Government & Agency Securities 96.8%
<C> <S> <C>
$ 1,000,000 FHLB Strips, Series A-1, 0.00%, 08/25/02 ...................................................... $ 699,815
800,000 FHLB Strips, Series A-1, 0.00%, 02/25/04 ...................................................... 503,905
9,110,000 FHLB Strips, Series A-1P, 0.00%, 02/25/04 ..................................................... 5,738,216
11,400,000 FICO Strips, 0.00%, 10/06/05 .................................................................. 6,367,880
3,500,000 FICO Strips, Series 1, 0.00%, 05/11/05 ........................................................ 2,012,076
829,000 FICO Strips, Series 1, 0.00%, 11/11/05 ........................................................ 459,821
3,509,000 FICO Strips, Series 2, 0.00%, 11/02/05 ........................................................ 1,949,804
11,055,000 FICO Strips, Series 12, 0.00%, 12/06/05 ....................................................... 6,100,281
2,755,000 FICO Strips, Series 13, 0.00%, 12/27/05 ....................................................... 1,513,663
2,620,000 FICO Strips, Series 15, 0.00%, 09/07/05 ....................................................... 1,472,026
6,000,000 FICO Strips, Series 16, 0.00%, 04/05/06 ....................................................... 3,231,737
10,000,000 FICO Strips, Series 19, 0.00%, 12/06/05 ....................................................... 5,518,120
6,799,000 FICO Strips, Series D, 0.00%, 09/26/05 ........................................................ 3,805,631
1,763,000 FICO Strips, Series D, 0.00%, 03/26/06 ........................................................ 951,371
5,000,000 FICO Strips, Series F, 0.00%, 03/26/05 ........................................................ 2,902,869
120,000 FNMA Strips, 0.00%, 02/12/08 .................................................................. 56,347
450,000 FNMA Strips, Series 1, 0.00%, 08/01/04 ........................................................ 273,785
1,000,000 FNMA Strips, Series 1, 0.00%, 02/12/05 ........................................................ 585,338
875,000 FNMA Strips, Series 1, 0.00%, 08/12/05 ........................................................ 493,262
4,307,000 FNMA Strips, Series 1, 0.00%, 02/01/06 ........................................................ 2,344,967
250,000 FNMA Strips, Series 1, 0.00%, 02/12/06 ........................................................ 135,809
1,730,000 FNMA Strips, Series 1, 0.00%, 02/01/08 ........................................................ 814,219
6,000,000 FNMA Strips, Series 2, 0.00%, 02/01/05 ........................................................ 3,519,881
530,000 FNMA Strips, Series 9, 0.00%, 08/01/06 ........................................................ 278,378
6,500,000 REFCO Strips, 0.00%, 01/15/06 ................................................................. 3,607,694
3,000,000 REFCO Strips, Series R, 0.00%, 04/15/06 ....................................................... 1,636,467
6,200,000 Tennessee Valley Authority, 0.00%, 10/15/04 ................................................... 3,732,126
2,260,000 Tennessee Valley Authority, 0.00%, 04/15/05 ................................................... 1,311,114
1,000,000 Tennessee Valley Authority, 0.00%, 10/15/05 ................................................... 559,871
31,140,000 U.S. Treasury Strips, 0.00%, 02/15/06 ......................................................... 17,361,605
------------
79,938,078
------------
Other Securities - "AAA" Rated 3.2%
1,500,000 Exxon Corp., 0.00%, 11/15/04 .................................................................. 902,553
541,000 International Bank for Reconstruction and Development, 0.00%, 02/15/07 ........................ 271,911
2,500,000 International Bank for Reconstruction and Development, 0.00%, 08/15/07 ........................ 1,210,182
459,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/07 .............. 230,360
------------
2,615,006
------------
Total Long Term Investments (Cost $75,820,587) .......................................... 82,553,084
------------
h,i Receivables from Repurchase Agreements 0.1%...................................................
$ 92,564 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $93,893) (Cost $93,859)
Aubrey G. Lanston & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $11,531)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $11,766)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 93,859
------------
Total Investments (Cost $75,914,446) 100.1%......................................... 82,646,943
Liabilities in Excess of Other Assets (0.1%) ....................................... (43,474)
------------
Net Assets 100.0% ................................................................. $82,603,469
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $75,918,614
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................... $ 7,286,935
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ................................................... (558,606)
------------
Net unrealized appreciation ................................................................. $ 6,728,329
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLB - Federal Home Loan Bank
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Face Value
Amount Zero Coupon Fund - 2010 (Note 1)
Long Term Investments 100.6%
Government & Agency Securities 95.6%
<C> <S> <C>
$ 4,450,000 FHLMC, capital deb., 0.00%, 11/29/19 .......................................................... $ 880,432
4,040,000 FICO Strips, 0.00%, 10/06/10 .................................................................. 1,562,417
16,246,000 FICO Strips, Series 1, 0.00%, 11/11/10 ........................................................ 6,237,261
2,000,000 FICO Strips, Series 3, 0.00%, 05/30/10 ........................................................ 793,794
1,528,000 FICO Strips, Series 4, 0.00%, 10/06/10 ........................................................ 590,934
3,021,000 FICO Strips, Series 8, 0.00%, 08/03/10 ........................................................ 1,183,316
2,837,000 FICO Strips, Series 11, 0.00%, 02/08/11 ....................................................... 1,068,198
4,550,000 FICO Strips, Series 12, 0.00%, 06/06/09 ....................................................... 1,941,589
7,500,000 FICO Strips, Series 12, 0.00%, 12/06/10 ....................................................... 2,863,694
3,000,000 FICO Strips, Series 19, 0.00%, 06/06/10 ....................................................... 1,189,191
2,080,000 FICO Strips, Series 19, 0.00%, 12/06/10 ....................................................... 794,198
7,000,000 FICO Strips, Series A, 0.00%. 08/08/10 ........................................................ 2,739,079
860,000 FICO Strips, Series D, 0.00%, 03/26/10 ........................................................ 345,907
4,000,000 FICO Strips, Series D, 0.00%, 03/26/11 ........................................................ 1,491,532
12,412,000 FICO Strips, Series E, 0.00%, 11/02/10 ........................................................ 4,774,101
860,000 FICO Strips, Series F, 0.00%, 09/26/10 ........................................................ 333,308
5,311,000 FICO Strips, Series F, 0.00%, 02/08/11 ........................................................ 1,999,718
1,975,000 FNMA Strips, 0.00%, 08/12/09 .................................................................. 828,751
5,000,000 FNMA Strips, Series 1, 0.00%, 02/01/10 ........................................................ 2,025,210
8,250,000 FNMA Strips, Series 1, 0.00%, 08/01/10 ........................................................ 3,217,598
1,230,000 FNMA Strips, Series 1, 0.00%, 08/12/10 ........................................................ 478,632
4,450,000 FNMA Strips, Series 1, 0.00%, 02/01/11 ........................................................ 1,668,785
3,281,000 FNMA, sub. deb., 0.00%, 02/01/12 .............................................................. 1,139,196
20,000,000 REFCO Strips, 0.00%, 10/15/10 ................................................................. 7,897,418
8,000,000 REFCO Strips, 0.00%, 01/15/11 ................................................................. 3,098,639
8,650,000 SLMA, 0.00%, 05/15/14 ......................................................................... 2,195,481
412,000 Tennessee Valley Authority, 0.00%, 01/01/10 ................................................... 164,396
12,000,000 Tennessee Valley Authority, 0.00%, 04/15/10 ................................................... 4,824,119
1,320,000 Tennessee Valley Authority, 0.00%, 10/15/10 ................................................... 511,051
9,525,000 Tennessee Valley Authority, 0.00%, 04/15/11 ................................................... 3,545,833
7,295,000 Tennessee Valley Authority, 0.00%, 10/15/11 ................................................... 2,613,959
25,790,000 U.S. Treasury Strips, 0.00%, 11/15/10 ......................................................... 10,299,236
------------
75,296,973
------------
Other Securities - "AAA" Rated 5.0%
1,392,000 International Bank for Reconstruction and Development, 0.00%, 02/15/11 ........................ 516,948
2,800,000 International Bank for Reconstruction and Development, 0.00%, 02/15/12 ........................ 963,572
3,287,000 International Bank for Reconstruction and Development, 0.00%, 02/15/13 ........................ 1,046,150
4,100,000 International Bank for Reconstruction and Development, 0.00%, 08/15/13 ........................ 1,257,355
500,000 International Bank for Reconstruction and Development, Series 2, 0.00%, 02/15/11 .............. 185,686
------------
3,969,711
------------
Total Long Term Investments (Cost $69,789,913)........................................... 79,266,684
------------
h,i Receivables from Repurchase Agreements 0.2%
$ 142,768 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $145,815) (Cost $145,762)
Aubrey G. Lanston & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $17,904)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $18,273)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 .......................... $ 145,762
------------
Total Investments (Cost $69,935,675) 100.8% ....................................... 79,412,446
Liabilities in Excess of Other Assets (0.8%)....................................... (596,700)
------------
Net Assets 100.0% ................................................................. $78,815,746
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $70,249,878
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.................................................... $ 9,241,575
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (79,007)
------------
Net unrealized appreciation ................................................................. $ 9,162,568
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corp.
FICO - Financing Corp.
FNMA - Federal National Mortgage Association
L.L.C. - Limited Liability Corp.
REFCO - Resolution Funding Corp.
SLMA - Student Loan Marketing Association
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments in Securities and Net Assets, December 31, 1996
<TABLE>
<CAPTION>
Face Value
Amount Money Market Fund (Note 1)
f Short Term Investments 98.7%
Certificates of Deposit 8.8%
<C> <S> <C>
$10,000,000 Bank of Nova Scotia, Portland Branch, 5.8%, 03/05/97 ........................................... $ 10,000,000
6,000,000 Commerzbank, AG, New York Branch, 5.41%, 02/03/97 .............................................. 6,000,186
10,000,000 Dresdner Bank, AG, New York Branch, 4.94%, 01/06/97 ............................................ 9,999,086
10,000,000 Svenska Handelsbanken, Inc., New York Branch, 5.375%, 02/25/97 ................................. 10,000,139
------------
Total Certificates of Deposit (Cost $35,999,411).......................................... 35,999,411
------------
Commercial Paper 73.5%
10,000,000 AT&T Corp., 5.37%, 3/10/97 - 3/11/97 ........................................................... 9,897,821
16,000,000 Abbey National North America, 5.32% - 5.41%, 03/10/97 - 04/02/97 ............................... 15,833,178
20,000,000 American Express Credit Corp., 5.27%, 03/20/97 - 03/21/97 ...................................... 19,770,170
20,000,000 Associates Corp. of North America, 5.32%, 01/14/97 - 01/15/97 .................................. 19,960,100
15,000,000 Bellsouth Telecommunications, Inc., 5.35%, 03/03/97 ............................................ 14,864,021
15,000,000 BIL North America, Inc., 5.33%, 01/07/97 - 01/23/97 ............................................ 14,974,831
11,000,000 Commonwealth Bank of Australia, 5.325% - 5.37%, 01/21/97 - 04/29/97 ............................ 10,952,815
20,000,000 General Electric Capital Corp., 5.30% - 5.32%, 01/16/97 - 03/31/97 ............................. 19,846,805
1,200,000 General Electric Capital Corp., 7.625%, 01/10/97 ............................................... 1,200,552
10,000,000 Generale Bank, Inc., 5.30%, 03/14/97 ........................................................... 9,894,000
15,000,000 Goldman Sachs Group L.P., 5.34% - 5.35%, 03/11/97 - 03/14/97 ................................... 14,841,729
7,000,000 H.J. Heinz Corp., 5.50%, 02/07/97 .............................................................. 6,960,431
10,000,000 Halifax Building Society, 5.30%, 04/16/97 ...................................................... 9,845,417
20,000,000 Kingdom of Sweden, 5.30% - 5.32%, 01/17/97 - 02/20/97 .......................................... 19,902,555
20,000,000 MetLife Funding, Inc., 5.30%, 01/24/97 - 01/27/97 .............................................. 19,927,861
20,000,000 Merrill Lynch & Co., Inc., 5.32% - 5.33%, 01/17/97 - 03/13/97 .................................. 19,855,796
15,000,000 Morgan Stanley Group, Inc., 5.32%, 03/06/97 - 03/07/97 ......................................... 14,856,655
17,750,000 National Rural Utilities Cooperative Finance Corp., 5.30%, 01/22/97 - 02/03/97 ................. 17,681,431
20,000,000 Prudential Funding Corp., 5.30% - 5.33%, 01/13/97 - 01/28/97 ................................... 19,942,483
10,000,000 Schering Corp., 5.23%, 05/20/97 ................................................................ 9,798,064
10,000,000 Wool International, 5.55%, 03/04/97 ............................................................ 9,904,416
------------
Total Commercial Paper (Cost $300,711,131)................................................ 300,711,131
------------
Total Investments Before Repurchase Agreement (Cost $336,710,542)......................... 336,710,542
------------
h Receivables from Repurchase Agreements 16.4%
19,750,000 CIBC Wood Gundy Securities Corp., 6.70%, 01/02/97, (Maturity Value $20,007,444)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .............................................. 20,000,000
28,487,000 SBC Warburg, Inc., 5.50%, 01/02/97, (Maturity Value $26,903,218)
Collateral: U.S. Treasury Bills, 09/18/97 ..................................................... 26,895,000
20,400,000 UBS Securities, L.L.C., 6.75%, 01/02/97, (Maturity Value $20,007,500)
Collateral: U.S. Treasury Notes, 5.375%, 05/31/98 ............................................. 20,000,000
------------
Total Receivables From Repurchase Agreements (Cost $66,895,000)........................... 66,895,000
------------
Total Investments (Cost $403,605,542) 98.7%......................................... 403,605,542
Other Assets and Liabilities, Net 1.3%.............................................. 5,324,271
------------
Net Assets 100%..................................................................... $408,929,813
============
</TABLE>
At December 31, 1996, 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
fCertain 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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Growth and Income Fund (Note 1)
Common Stocks 94.6%
Automobile 1.2%
<C> <S> <C>
397,000 Chrysler Corp. .............................................................................. $ 13,101,000
------------
Chemicals, Basic 2.4%
197,300 Dow Chemical Co. ............................................................................ 15,463,388
53,000 Du Pont, (E.I.), De Nemours & Co. ........................................................... 5,001,875
328,570 Millennium Chemicals, Inc. .................................................................. 5,832,118
------------
26,297,381
------------
Commercial Services 1.0%
548,600 Ogden Corp. ................................................................................. 10,286,250
------------
Consumer Products 1.4%
391,800 Dial Corp. .................................................................................. 5,779,050
237,900 Tambrands, Inc. ............................................................................. 9,724,163
------------
15,503,213
------------
Electrical Equipment 1.3%
141,100 General Electric Co. ........................................................................ 13,951,263
------------
Financial Services 9.0%
115,500 Bank of Boston Corp. ........................................................................ 7,420,875
195,800b Christiania Bank Og Kreditkasse, ADR......................................................... 6,201,260
1,393,400d Christiania Bank Og Kreditkasse (Norway) .................................................... 4,413,089
102,400d Credit Communal Holding/Dexia (Belgium) ..................................................... 9,343,566
357,000 Great Western Financial Corp. ............................................................... 10,353,000
115,900 J. P. Morgan & Co., Inc. .................................................................... 11,314,738
270,000 National City Corp. ......................................................................... 12,116,250
134,500d Nordbanken AB (Sweden) ...................................................................... 4,072,560
119,700b Nordbanken AB, Sponsored ADR................................................................. 7,248,852
379,900 PNC Bank Corp. .............................................................................. 14,293,738
510,000 Roosevelt Financial Corp. ................................................................... 10,710,000
------------
97,487,928
------------
Forest Products & Paper 4.7%
119,000 Georgia-Pacific Corp. ....................................................................... 8,568,000
1,020,000b Portucel Industrial, SA...................................................................... 5,920,692
339,700 Potlatch Corp. .............................................................................. 14,607,100
220,000 Union Camp Corp. ............................................................................ 10,505,000
235,000 Weyerhaeuser Co. ............................................................................ 11,133,124
------------
50,733,916
------------
Insurance 3.5%
324,400 Lincoln National Corp. ...................................................................... 17,031,000
279,000d Scor, SA (France)............................................................................ 9,820,154
131,000 St. Paul Cos., Inc. ......................................................................... 7,679,875
121,500 Zenith National Insurance ................................................................... 3,326,062
------------
37,857,091
------------
Miscellaneous Manufacturing 4.1%
390,000 British Steel, Plc., Sponsored ADR........................................................... 10,725,000
167,300 Cooper Industries, Inc. ..................................................................... 7,047,513
1,310,000 Hanson, Plc., ADR ........................................................................... 8,842,500
213,500 Minnesota Mining & Manufacturing Co. ........................................................ 17,693,813
------------
44,308,826
------------
Oil/Gas Transmission 3.9%
229,000 Consolidated Natural Gas Co. ................................................................ $ 12,652,250
302,400 National Fuel Gas Co. ....................................................................... 12,474,000
547,800 Pacific Enterprises ......................................................................... 16,639,425
------------
41,765,675
------------
Petroleum, Integrated 16.4%
233,700 Amoco Corp. ................................................................................. 18,812,850
192,000 Atlantic Richfield Co. ...................................................................... 25,440,000
305,000 Chevron Corp. ............................................................................... 19,825,000
213,500 Exxon Corp. ................................................................................. 20,923,000
128,000 Mobil Corp. ................................................................................. 15,648,000
285,000 Occidental Petroleum Corp. .................................................................. 6,661,875
79,900 Royal Dutch Petroleum Co., ADR............................................................... 13,642,925
256,200 Texaco, Inc. ................................................................................ 25,139,625
336,900 Ultramar Corp. .............................................................................. 10,654,462
775,000 YPF Sociedad Anonima, ADS ................................................................... 19,568,750
------------
176,316,487
------------
Pharmaceuticals 3.5%
78,000 American Home Products Corp. ................................................................ 4,572,750
208,500 Bristol-Myers Squibb Co. .................................................................... 22,674,375
343,800 Glaxo Wellcome, Plc., Sponsored ADR.......................................................... 10,915,650
------------
38,162,775
------------
Printing, Publishing & Media 1.8%
315,000a Cognizant Corp. ............................................................................. 10,395,000
375,000 Dun & Bradstreet Corp. ...................................................................... 8,906,250
------------
19,301,250
------------
Real Estate Investment Trust 4.0%
395,300 Equity Residential Properties Trust ......................................................... 16,306,125
450,000 FelCor Suite Hotels, Inc. ................................................................... 15,918,750
221,400 Oasis Residential, Inc. ..................................................................... 5,036,850
175,700 Simon DeBartolo Group, Inc. ................................................................. 5,446,700
------------
42,708,425
------------
Retail 2.0%
465,900 Penney (J.C.) Co., Inc. ..................................................................... 22,712,625
------------
Telecommunications 12.3%
72,000 Ameritech Corp. ............................................................................. 4,365,000
115,800 BellSouth Corp. ............................................................................. 4,675,425
118,300 British Telecom, Plc., Sponsored ADR......................................................... 8,118,338
524,500 GTE Corp. ................................................................................... 23,864,750
4,470,000d Hong Kong Telecommunications, Ltd. (Hong Kong)............................................... 7,195,229
495,000 NYNEX Corp. ................................................................................. 23,821,875
531,900 Southern New England Telecommunications Corp. ............................................... 20,677,613
106,400 Sprint Corp. ................................................................................ 4,242,700
360,000 Telefonos de Mexico, SA, ADR................................................................. 11,880,000
723,100 US West Communications Group ................................................................ 23,319,974
------------
132,160,904
------------
Tobacco 6.7%
345,100 American Brands, Inc. ....................................................................... 17,125,588
427,500 Imperial Tobacco Group, Plc., Sponsored ADR.................................................. 5,521,889
Tobacco (cont.)
198,600 Philip Morris Cos., Inc. .................................................................... $ 22,367,325
363,560 RJR Nabisco Holdings Corp. .................................................................. 12,361,040
445,000 UST, Inc. ................................................................................... 14,406,874
------------
71,782,716
------------
Utilities 15.4%
541,100 Central & South West Corp. .................................................................. 13,865,688
467,000 CINergy Corp. ............................................................................... 15,586,125
417,000 Dominion Resources, Inc. .................................................................... 16,054,500
590,000 Enova Corp. ................................................................................. 13,422,500
425,300 General Public Utilities Corp. .............................................................. 14,300,713
471,400 New England Electric System ................................................................. 16,440,075
403,000 Oklahoma Gas & Electric Co. ................................................................. 16,825,250
310,700 Pacific Gas & Electric Co. .................................................................. 6,524,700
520,000 PacifiCorp .................................................................................. 10,660,000
424,900 PECO Energy Co. ............................................................................. 10,728,725
338,000 Public Service Co. of Colorado .............................................................. 13,139,750
200,000 Public Service Enterprise Group, Inc. ....................................................... 5,450,000
120,000 Texas Utilities Co. ......................................................................... 4,890,000
278,500 Unicom Corp. ................................................................................ 7,554,312
------------
165,442,338
------------
Total Long Term Investments (Cost $864,711,520) ....................................... 1,019,880,063
------------
Face
Amount
h,i Receivables from Repurchase Agreements 4.8%
$ 50,897,670 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $51,795,240) (Cost $51,776,284)
Aubrey G. Lanston & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $6,359,549)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $6,490,813)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................ 51,776,284
------------
Total Investments (Cost $916,487,804) 99.4%....................................... 1,071,656,347
Other Assets and Liabilities, Net 0.6%............................................ 6,332,661
------------
Net Assets 100.0%................................................................. $1,077,989,008
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$916,497,581 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ................................................. $ 170,313,985
Aggregate gross unrealized depreciation for all investments in which
there was an excessof tax cost over value .................................................. (15,155,219)
------------
Net unrealized appreciation ............................................................... $ 155,158,766
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Income Securities Fund (Note 1)
Common Stocks 32.2%
Apparel/Textiles 0.2%
<C> <S> <C>
419,424 a,n Bibb Co. .................................................................................. $ 3,171,894
------------
Computer/Technology 0.1%
190,223 a,j Anacomp, Inc. ............................................................................. 1,616,895
------------
Conglomerates 0.2%
380,000 Hanson, Plc., ADR ......................................................................... 2,565,000
------------
Consumer Products 1.7%
95,000 Imperial Tobacco Group, Plc., ADR ......................................................... 1,227,086
195,000 Phillip Morris Cos., Inc. ................................................................. 21,961,875
93,750 a,bSpecialty Foods Corp. ..................................................................... 23,438
------------
23,212,399
------------
Energy 2.5%
576,500 d Athabasca Oil Sands Trust (Canada) ........................................................ 8,397,777
30,000 Atlantic Richfield Co. .................................................................... 3,975,000
50,000 BP Prudhoe Bay Royalty Trust .............................................................. 850,000
500,000 b,dCanadian Oil Sands Trust - Units (Canada) ................................................. 7,484,210
427,805 Noble Drilling Corp. ...................................................................... 8,502,624
125,000 Ultramar Diamond Shamrock Corp. ........................................................... 3,953,125
------------
33,162,736
------------
Home Builders
2,000a NVR, Inc. ................................................................................. 26,000
------------
Metals 1.4%
185,200 Driefontein Consolidated Mines, Ltd., ADR ................................................. 1,852,000
60,000 Evander Gold Mines, Ltd., ADR ............................................................. 512,982
390,000 Free State Consolidated Gold Mines, Ltd., ADR ............................................. 2,803,125
91,872 Freeport-McMoRan Copper & Gold, Inc., Class A ............................................. 2,583,900
620,000 Hartebeestfontein Gold Mining Co., Ltd., ADR .............................................. 1,268,830
216,500 Impala Platinum Holdings, Ltd., ADR ....................................................... 2,163,376
221,523 Rustenburg Platinum Holdings, Ltd., ADR ................................................... 3,030,346
19,000 St. Helena Gold Mines, Ltd., ADR .......................................................... 109,250
256,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ............................................ 1,584,000
102,500 Western Deep Levels, Ltd., ADR ............................................................ 3,075,000
------------
18,982,809
------------
Miscellaneous 0.1%
27,142 Millennium Chemicals, Inc. ................................................................ 481,770
15,600 a Echelon International Corp., Inc. ......................................................... 243,750
------------
725,520
------------
Pharmaceuticals 1.6%
100,000 American Home Products Corp. .............................................................. 5,862,500
45,000 Bristol-Myers Squibb Co. .................................................................. 4,893,750
100,000 Merck & Co., Inc. ......................................................................... 7,925,000
85,000 Pharmacia & Upjohn, Inc. .................................................................. 3,368,125
------------
22,049,375
------------
Real Estate Investment Trust 2.9%
150,000 Equity Residential Properties Trust, Inc. ................................................. 6,187,500
275,000 FelCor Suite Hotels, Inc. ................................................................. 9,728,125
150,000 Gables Residential Trust .................................................................. 4,350,000
145,000 Meditrust Corp. ........................................................................... 5,800,000
Real Estate Investment Trust (cont.)
102,900 Simon DeBartolo Group, Inc. ............................................................... $ 3,189,900
360,400 j Tanger Factory Outlet Centers, Inc. ....................................................... 9,775,850
------------
39,031,375
------------
Telecommunications 0.9%
360,000 US West Communications Group .............................................................. 11,610,000
------------
Utilities 20.6%
390,000 American Electric Power Co., Inc. ......................................................... 16,038,750
650,000 Central & South West Corp. ................................................................ 16,656,250
511,000 CINergy Corp. ............................................................................. 17,054,625
500,000 Delmarva Power & Light Co. ................................................................ 10,187,500
340,000 Dominion Resources, Inc. .................................................................. 13,090,000
610,000 Edison International ...................................................................... 12,123,750
505,000 Enova Corp. ............................................................................... 11,488,750
460,000 Entergy Corp. ............................................................................. 12,765,000
365,000 Florida Progress Corp. .................................................................... 11,771,250
240,000 FPL Group, Inc. ........................................................................... 11,040,000
320,000 General Public Utilities Corp. ............................................................ 10,760,000
142,000 Hawaiian Electric Industries, Inc. ........................................................ 5,129,750
300,000 Houston Industries, Inc. .................................................................. 6,787,500
400,000 Long Island Lighting Co. .................................................................. 8,850,000
175,000 Nevada Power Co. .......................................................................... 3,587,500
330,000 New England Electric System ............................................................... 11,508,750
300,000 New York State Electric & Gas Corp. ....................................................... 6,487,500
385,000 Ohio Edison Co. ........................................................................... 8,758,750
610,000 Pacific Gas & Electric Co. ................................................................ 12,810,000
120,000 PacifiCorp. ............................................................................... 2,460,000
305,000 PECO Energy Co. ........................................................................... 7,701,250
210,000 Potomac Electric Power Co. ................................................................ 5,407,500
385,000 Public Service Enterprise Group, Inc. ..................................................... 10,491,250
135,000 SCANA Corp. ............................................................................... 3,611,250
460,000 Southern Co. .............................................................................. 10,407,500
400,000 Southwestern Public Services Co. .......................................................... 14,150,000
320,000 Texas Utilities Co. ....................................................................... 13,040,000
150,000 Western Resources, Inc. ................................................................... 4,631,250
------------
278,795,625
------------
Total Common Stocks (Cost $392,582,748).............................................. 434,949,628
------------
Preferred Stocks 0.5%
Automotive
16,726 Harvard Industries, Inc., 14.25% pfd., PIK ................................................ 266,571
------------
Cable Systems 0.4%
33,036 Cablevision Systems Corp., 11.125% pfd., PIK, Series L .................................... 2,981,488
2,579 Time Warner, Inc., 10.25% pfd., Series K .................................................. 2,811,597
------------
5,793,085
------------
Consumer Products 0.1%
11,000 Pantry Pride, Inc., $14.875 pfd., Series B ................................................ 1,105,500
------------
Total Preferred Stocks (Cost $7,296,709) ............................................ 7,165,156
------------
Convertible Preferred Stocks 8.4%.........................................................
Apparel/Textile 0.1%
44,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A ........................................ $ 1,710,500
------------
Cable Systems 0.4%
265,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I ...................................... 5,432,500
------------
Consumer Products 0.2%
300,000 RJR Nabisco Holdings Corp., $0.6012 cvt. pfd., Series C ................................... 2,025,000
------------
Energy 3.2%
65,000 Devon Financing Trust, $3.25 cvt. pfd. .................................................... 4,273,750
250,000 Enron Corp., 6.25%, cvt. pfd. ............................................................. 6,000,000
235,000 b McDermott International, Inc., $2.875 cvt. pfd., Series C ................................. 8,959,375
31,900 Nuevo Financing, Inc., 5.75% cvt. pfd., Series A .......................................... 1,710,638
75,000 b Occidental Petroleum Corp., $3.875 cvt. pfd. .............................................. 4,293,750
170,000 b Parker & Parsley Capital, 6.25% cvt. pfd. ................................................. 11,262,500
39,525 Patina Oil & Gas Corp., 7.125% cvt. pfd. .................................................. 1,175,869
300,000 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. .......................................... 3,675,000
100,000 Snyder Oil Corp., $1.50 cvt. exch. pfd. ................................................... 2,425,000
------------
43,775,882
------------
Metals 2.5%
150,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B ................................................ 7,893,750
65,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A .............................................. 2,811,250
65,000 Battle Mountain Gold Co., $3.25 cvt. pfd. ................................................. 3,250,000
185,000 Coeur D' Alene Mines Corp, 7.00% cvt. pfd. ................................................ 3,237,500
55,000 Cyprus Minerals, $4.00 cvt. pfd., Series A ................................................ 2,963,125
108,800 Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd. ................................ 3,481,600
60,000b Freeport-McMoRan, Inc., 4.375% cvt. exch. pfd. ............................................ 3,510,000
70,000 Hecla Mining Co., $3.50 cvt. pfd., Series B ............................................... 3,080,000
65,500b Titanium Metals, 6.625% cvt. pfd. ......................................................... 3,586,125
------------
33,813,350
------------
Real Estate Investment Trust 1.6%
100,000 bHost Marriott Financial Trust, 6.75% cvt. pfd. ............................................ 5,350,000
135,000 Security Capital Industrial, 7.00%, cvt. pfd. ............................................. 3,678,750
400,000 Security Capital Pacific Trust, 1.75% cvt. pfd., Series A ................................. 12,250,000
------------
21,278,750
------------
Telecommunications 0.4%
145,000 Nortel Inversora, SA, 10.00% cvt. pfd. (Argentina) ........................................ 5,945,000
------------
Total Convertible Preferred Stocks (Cost $110,532,379) .............................. 113,980,982
------------
Miscellaneous
30,814 a Miscellaneous Securities (Cost $10,477) ................................................... 23,111
------------
Total Common Stocks, Preferred Stocks, Convertible Preferred Stocks,and
Miscellaneous Securities (Cost $510,422,313) ............................................. 556,118,877
------------
Face
Amount
Corporate Bonds 26.7%
Apparel/Textiles 1.9%
$ 10,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ...................... 10,050,000
175,000 a,lForstmann Textile, Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ........................ 88,375
8,300,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ...................................... 8,383,000
1,000,000 Polysindo International Finance Corp., secured notes, 11.375%, 06/15/06 ................... 1,078,750
Apparel/Textiles (cont.)
500,000 bThe William Carter Co., senior sub. notes, 10.375%, 12/01/06 .............................. $ 517,500
5,000,00 1WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/06 ............................... 5,175,000
------------
25,292,625
------------
Automotive 0.7%
4,000,000 Collins & Aikman Products, senior sub. notes, 11.50%, 04/15/06 ............................ 4,375,000
400,000 Exide Corp., senior notes, 10.75%, 12/15/02 ............................................... 420,000
5,000,000 Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 ................................. 4,212,500
------------
9,007,500
------------
Building Products 0.7%
9,250,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 .................................. 9,481,250
------------
Cable Systems 1.9%
150,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 .............................. 158,606
4,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ............................. 3,920,000
8,000,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 ............................... 9,187,664
7,300,000 Helicon Group L.P. Corp., S.F., senior secured notes, Series B, 11.00%, 11/01/03 .......... 7,482,500
5,000,000 Storer Communiciations, Inc., sub. deb., 10.00%, 05/15/03 ................................. 5,087,500
------------
25,836,270
------------
Chemicals 1.3%
8,000,000 Applied Extrusion Technology, senior notes, Series B, 11.50%, 04/01/02 .................... 8,460,000
3,250,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ...................... 3,569,481
725,000 Uniroyal Chemical Co. Investors, senior notes, 10.50%, 05/01/02 ........................... 779,375
4,150,000 Uniroyal Chemical Co. Investors, senior notes, 11.00%, 05/01/03 ........................... 4,419,750
------------
17,228,606
------------
Computer/Technology 0.3%
3,534,737 Anacomp, Inc., senior sub. notes, PIK, 13.00%, 06/04/02 ................................... 3,640,779
------------
Consumer Products 2.5%
500,000 bE&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 .................................. 525,000
7,750,000 Hines Horticulture, senior sub. notes, 11.75%, 10/15/05 ................................... 8,292,500
5,050,000 Mafco, Inc., senior sub. notes, 11.875%, 11/15/02 ......................................... 5,353,000
8,000,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ......................... 8,020,000
5,000,000 Revlon Consumer Product Corp., senior sub. notes, Series B, 10.50%, 02/15/03 .............. 5,262,500
5,000,000 RJR Nabisco, Inc., notes, 9.25%, 08/15/13 ................................................. 5,068,750
1,150,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ........................................... 1,170,125
------------
33,691,875
------------
Containers and Packaging 0.4%
2,450,000 Calmar, Inc., senior sub. notes, Series B, 11.50%, 08/15/05 ............................... 2,541,875
2,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 ................................ 2,110,000
1,000,000 bPrintpack, Inc., senior sub. notes, 10.625%, 08/15/06 ..................................... 1,040,000
300,000 bU.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ...................................... 315,000
------------
6,006,875
------------
Energy 1.3%
3,250,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ........................................... 3,534,375
9,835,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 .............................. 10,744,738
1,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ............................... 1,080,000
1,000,000 Mesa Operating Co., guaranteed, 10.625%, 07/01/06 ......................................... 1,087,500
1,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ............................... 1,075,000
------------
17,521,613
------------
Entertainment 0.1%
$ 650,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 .............................................. $ 689,000
------------
Financial Services
500,000 First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 ............................. 542,500
------------
Food & Beverages 2.2%
5,000,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ............................ 5,200,000
3,781,280n Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ........................................ 3,781,280
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 sub. notes, 10.25%, 02/15/00 ...................... 1,052,925
3,100,000b International Home Foods Corp., senior sub. notes, 10.375%, 11/01/06 ...................... 3,231,750
6,350,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ................................ 6,588,125
4,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ...................... 3,060,000
4,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ................. 3,760,000
------------
29,854,080
------------
Food Chains 2.9%
1,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 ..................................... 1,025,000
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ............................ 9,517,500
6,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ........................................ 6,390,000
7,000,000 Grand Union Capital Corp., senior sub. notes, 12.00%, 09/01/04 ............................ 7,455,000
10,000,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 ................................... 10,575,000
4,000,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 .................................. 4,440,000
------------
39,402,500
------------
Gaming & Leisure 1.5%
9,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 .......................................... 8,730,000
500,000b Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ............................. 530,000
2,200,000 Harveys Casinos Resorts, senior sub. notes, 10.625%, 06/01/06 ............................. 2,321,000
8,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ............................ 8,440,000
------------
20,021,000
------------
Health Care Services 0.6%
3,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ............................ 3,240,000
1,500,000 OrNda Healthcorp., Inc., senior sub. notes, 12.25%, 05/15/02 .............................. 1,601,250
4,000,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter, 12/15/03 3,860,000
------------
8,701,250
------------
Industrial Products 2.0%
8,650,000 Easco Corp., senior notes, Series B, 10.00%, 03/15/01 ..................................... 8,779,750
2,000,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ......................................... 2,025,000
10,000,000 RBX Corp., senior sub. notes, 11.25%, 10/15/05 ............................................ 8,175,000
5,030,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ................................... 5,030,000
2,696,000 Thermadyne Industries, Inc., notes, 10.75%, 11/01/03 ...................................... 2,756,660
246,000 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 ............................... 252,150
------------
27,018,560
------------
Media & Broadcasting 0.2%
2,000,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 ..................................... 2,185,000
------------
Metals 1.0%
1,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 ........................................ 1,052,500
6,020,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ................................... 6,170,500
Metals (cont.)
$ 6,000,000 Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 ............................... $ 5,655,000
815,000 UCAR Global Enterprises, Inc., senior sub. notes, Series B, 12.00%, 01/15/05 .............. 942,344
------------
13,820,344
------------
Paper & Forest Products 1.0%
600,000 Four M Corp., senior notes, 12.00%, 06/01/06 .............................................. 630,000
7,000,000 Rapp International Finance Co., secured notes, 13.25%, 12/15/05 ........................... 7,735,000
5,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 ............................. 4,650,000
------------
13,015,000
------------
Publishing 0.1%
1,600,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 .................................... 1,700,000
------------
Restaurants 0.3%
10,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 .................................. 4,050,000
------------
Retail 0.7%
9,940,000 Levitz Furniture Corp., senior notes, 13.375%, 10/15/98 ................................... 9,542,400
------------
Telecommunications 0.4%
5,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ...................................... 5,325,000
------------
Utilities 2.7%
195,782,500c ESCOM, E168, utility deb., 11.00%, 06/01/08, (South Africa)................................ 30,628,024
3,879,091 Midland CoGeneration Venture, S.F., sub. deb., Series C, 10.33%, 07/23/02 ................. 4,150,627
2,000,000 Texas New Mexico Power, secured deb., 10.75%, 09/15/03 .................................... 2,134,996
------------
36,913,647
------------
Total Corporate Bonds (Cost $358,395,796)............................................ 360,487,674
------------
Convertible Corporate Bonds 4.9%
Automotive 0.2%
4,000,000b Exide Corp., cvt. senior sub. notes, 2.90%, 12/15/05 ...................................... 2,410,000
------------
Biotechnology 0.1%
2,000,000 Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ................................ 1,970,000
------------
Computer/Technology 0.7%
3,200,000b Altera Corp., cvt. sub. notes, 5.75%, 06/15/02 ............................................ 4,964,000
2,815,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 ............................................. 1,928,275
3,000,000b Xilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02 ............................................ 3,015,000
------------
9,907,275
------------
Energy 1.4%
9,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 .......................................... 8,730,000
7,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 ........................................ 7,546,875
3,000,000 Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ........................................ 3,292,500
------------
19,569,375
------------
Health Care Services 0.3%
3,000,000 Grancare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ........................................... 3,075,000
1,000,000b Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ......................... 1,045,000
------------
4,120,000
------------
Industrial Products 0.6%
8,000,000 Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ......................................... 8,040,000
------------
Metals 1.3%
5,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 ........................................ 4,350,000
100,000 Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 ......................... 91,000
Metals (cont.)
$ 6,000,000 Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ............................... $ 5,610,000
1,800,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 .............................. 1,728,000
5,850,000b Homestake Mining Co., cvt. sub. deb., 5.50%, 06/23/00 ..................................... 5,645,250
------------
17,424,250
------------
Pollution Control 0.2%
3,610,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ............................. 3,140,700
------------
Retail 0.1%
1,180,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ...................................... 952,850
------------
Total Convertible Corporate Bonds (Cost $63,974,931)................................. 67,534,450
------------
Zero Coupon/Step-up Bonds 3.1%
3,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01, (original accretion rate
12.25%), 12.25%, 03/15/06 ................................................................ 1,980,000
10,000,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%), 11.50%
thereafter, 03/01/05 ..................................................................... 7,325,000
2,600,000 Dr Pepper Bottling Holdings Co., S.F., senior sub. disc. notes, zero coupon to 02/15/98, (original
accretion rate 11.625%), 11.625% thereafter, 02/15/03 .................................... 2,444,000
1,000,000 Exide Corp., senior sub. notes, zero coupon to 12/15/97, (original accretion rate 12.25%), 12.25%
thereafter, 12/15/04 ..................................................................... 915,000
10,000,000 Food 4 Less, Inc., zero coupon to 06/15/00, (original accretion rate 13.625%), 13.625% thereafter,
07/15/05 ................................................................................. 6,300,000
1,300,000 L.F.C. Holding Corp., senior deb., zero coupon to 06/15/97, (original accretion rate 15.00%),
15.00% thereafter, 06/15/02 .............................................................. 845,000
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 ..................................................... 10,115,000
1,300,000 Mesa Operating Co., company guaranteed, zero coupon to 07/01/01, (original accretion rate
11.625%), 11.625% thereafter, 07/01/06 ................................................... 903,500
8,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B, (original accretion rate 12.00%),
0.00%, 03/15/98 .......................................................................... 6,980,000
6,250,000 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 ...................................... 2,218,750
1,500,000 Uniroyal Chemical Co. Investors, senior notes, zero coupon to 05/01/98, (original accretion rate
12.00%), 12.00% thereafter, 05/01/05...................................................... 1,305,000
------------
Total Zero Coupon/Step-up Bonds (Cost $40,850,428)................................... 41,331,250
------------
U.S. Government Securities 7.1%
75,000,000 U.S. Treasury Bonds, 6.25% - 7.125%, 02/15/23 - 08/15/23 .................................. 71,375,069
24,390,000 U.S. Treasury Notes, 6.00% - 6.875%, 04/30/97 - 08/15/02 .................................. 24,480,479
------------
Total U.S. Government Securities (Cost $96,265,219).................................. 95,855,548
------------
Foreign Government & Agency Securities 11.2%
14,000,000c Canadian Government, first coupon deb., 8.00%, 06/01/23 ................................... 11,367,237
110,000,000 Republic of Argentina, Series L, 5.25%, 03/31/23 .......................................... 70,125,000
22,067,500 Republic of Brazil, 6.6875%, 01/01/01 ..................................................... 21,405,475
39,000,000 Republic of Brazil, 5.00%, 04/15/24 ....................................................... 24,570,000
25,000,000c Republic of South Africa, 12.00%, 02/28/05 ................................................ 4,368,920
26,000,000 United Mexican States, Series B, 6.25%, 12/31/19 .......................................... 19,077,500
------------
Total Foreign Government & Agency Securities (Cost $124,799,698)..................... 150,914,132
------------
Total Long Term Investments (Cost $1,194,708,385).................................... 1,272,241,931
------------
h,i Receivables from Repurchase Agreements 4.7%...............................................
$ 61,763,747 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $62,853,192) (Cost $62,830,189)
Aubrey G. Lanston & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $7,717,272)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $7,876,560)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ...................... $ 62,830,189
------------
Total Investments (Cost $1,257,538,574) 98.8% ................................. 1,335,072,120
Other Assets and Liabilities 1.2%............................................... 15,587,300
------------
Net Assets 100.0%............................................................... $1,350,659,420
============
At December 31, 1996, the net unrealized appreciation based
on the cost of investments for income tax purposes of
$1,257,538,574 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ............................................... $ 128,810,299
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value................................................ (51,276,753)
------------
Net unrealized appreciation.............................................................. $ 77,533,546
============
</TABLE>
PORTFOLIO ABBRIVIATIONS:
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 traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
jSee Note 8 regarding holdings of 5% or more of voting securities.
lSee Note 7 regarding defaulted securities.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton International Equity Fund (Note 1)
Common Stocks, Rights & Warrants 85.6%
Argentina 1.8%
<S> <C> <C> <C>
AR 647,568a Ciadea, SA ........................................................................ $ 3,076,504
US 221,700 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 2,715,825
AR 56,000 YPF Sociedad Anonima .............................................................. 1,414,255
US 495,000 YPF Sociedad Anonima, ADR ......................................................... 12,498,750
------------
19,705,334
------------
Australia 4.4%
AU 1,400,341 Email, Ltd. ....................................................................... 4,530,155
AU 1,549,241 GIO Austrailia Holdings, Ltd. ..................................................... 3,965,151
AU 1,003,000 National Foods, Ltd. .............................................................. 1,275,574
AU 6,527,766 Pacific Dunlop, Ltd. .............................................................. 16,603,490
AU 7,462,117 Pioneer International, Ltd. ....................................................... 22,242,221
------------
48,616,591
------------
Austria 0.6%
AT 33,000 Boehler Uddeholm, AG .............................................................. 2,361,387
US 27,055b Boehler Uddeholm, AG .............................................................. 1,935,979
AT 39,400a Mayr-Melnhof Karton, AG ........................................................... 1,928,073
------------
6,225,439
------------
Belgium 0.5%
BE 9,054 Solvay, SA ........................................................................ 5,543,265
------------
Bermuda 2.7%
US 506,000 ACE, Ltd. ......................................................................... 30,423,250
------------
Brazil 0.7%
US 276,365 Companhia Siderurgica Nacional, ADR ............................................... 7,845,989
------------
Canada 1.6%
CA 132,800 Bank of Montreal .................................................................. 4,227,724
CA 357,000 Hudson Bay Co. .................................................................... 5,969,333
CA 254,000 London Insurance Group, Inc. ...................................................... 3,375,415
CA 447,000 National Bank of Canada ........................................................... 4,520,426
------------
18,092,898
------------
China 0.8%
HK 6,960,000 Maanshan Iron & Steel Co., Ltd., Class H .......................................... 1,493,775
US 338,300 Shandong Huaneng Power, ADR ....................................................... 3,298,425
HK 8,400,000 Shanghai Hai Xing Shipping Co., Class H ........................................... 977,439
HK 14,790,200 Yizheng Chemical Fibre Co. Ltd., Class H .......................................... 3,595,006
------------
9,364,645
------------
Czech Republic 0.3%
US 120,000b Komercni Banka, AS, GDR ........................................................... 3,290,400
------------
Ecuador 0.2%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 6,840b La Cemento Nacional CA, GDR ....................................................... 1,566,360
------------
1,657,960
------------
Finland 3.7%
FI 111,562 American Group, Ltd., Class A ..................................................... 2,303,998
FI 1,754,300a Enso Oy, Class R .................................................................. 14,225,085
FI 1,890,000a Merita, Ltd., Class A ............................................................. 5,875,435
Finland (cont.)
FI 270,000 Nokia, AB, Class A ................................................................ $ 15,671,739
FI 171,000 Outokumpu Oy, Class A ............................................................. 2,918,152
------------
40,994,409
------------
France 4.8%
FR 27,323 Alcatel Alsthom, SA ............................................................... 2,196,379
FR 13,292 Cie de Saint Gobain ............................................................... 1,881,645
FR 55,849 Marine Wendel ..................................................................... 5,127,121
FR 366,481 Pechiney, SA, Class A ............................................................. 15,366,050
FR 468,980 Regie Nationale des Usines Renault, SA ............................................ 10,085,105
FR 148,024 Societe Elf Aquitane, SA .......................................................... 13,483,459
FR 62,039 Total, SA, Class B ................................................................ 5,049,269
------------
53,189,028
------------
Germany 1.7%
DD 407,000 Deutsche Bank, AG ................................................................. 19,020,669
------------
Greece 0.5%
US 32,410 Alpha Credit Bank ................................................................. 2,062,490
GR 69,970 Ergo Bank, SA ..................................................................... 3,546,572
------------
5,609,062
------------
Hong Kong 6.8%
HK 7,134,100 C.P. Pokphand Co., Ltd. ........................................................... 2,790,181
HK 623,000 Cheung Kong Holdings, Ltd. ........................................................ 5,537,688
HK 2,389,100 Consolidated Electric Power Asia, Ltd. ............................................ 5,606,331
HK 9,576,543 Dairy Farm International Holdings, Ltd. ........................................... 7,709,117
HK 10,109,207 Great Wall Electronic International, Ltd. ......................................... 1,254,747
HK 779,000 Hang Lung Development Co., Ltd. ................................................... 1,712,199
HK 1,257,708 Jardine Matheson Holdings, Ltd. ................................................... 8,300,873
HK 2,864,250 Jardine Strategic Holdings, Ltd. .................................................. 10,397,228
HK 318,250a Jardine Strategic Holdings, Ltd., warrants ........................................ 127,300
HK 873,700 Melco International Development, Ltd. ............................................. 304,996
HK 121,900a Oriental Press Group, Ltd., warrants .............................................. 8,668
HK 7,155,000 Peregrine Investments Holdings, Ltd. .............................................. 12,257,256
HK 715,500a Peregrine Investments Holdings, Ltd., warrants .................................... 228,956
HK 17,474,000 Shun Tak Holdings ................................................................. 11,635,025
HK 3,172,400 Sing Tao Holdings, Ltd. ........................................................... 1,384,298
HK 3,287,600 Swire Pacific, Ltd., Class B ...................................................... 4,973,162
HK 1,974,000 Yue Yuen Industrial Holdings, Ltd. ................................................ 752,899
------------
74,980,924
------------
India
US 109,700b Gujarat Narmada Valley Fertilizers Co., Ltd., GDR ................................. 301,675
------------
Indonesia 0.4%
ID 167,500 PT Barito Pacific Timber, fgn. .................................................... 102,826
ID 5,118,053 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 3,737,782
ID 503,250a PT Indah Kiat Pulp & Paper Corp., warrants ........................................ 154,469
------------
3,995,077
------------
Italy 2.1%
IT 148,000 Banco di Sardegna, SPA, di Risp ................................................... 1,249,604
IT 696,200 Cartiere Burgo, SPA ............................................................... 3,214,644
IT 1,555,000 Fiat, SPA ......................................................................... 4,688,592
Italy (cont.)
IT 904,000 Sasib, SpA, di Risp ............................................................... $ 1,688,142
IT 1,833,800 Sirti, SpA ........................................................................ 11,271,338
IT 468,000 Unione Cementi Marchino Emiliane (Unicem), di Risp ................................ 1,205,193
------------
23,317,513
------------
Luxembourg 0.1%
LU 10,650 Arbed, SA ......................................................................... 1,158,065
------------
Mexico 1.2%
MX 559,000a Grupo Mexico, SA de CV, Class B ................................................... 1,739,774
US 275,600 Telefonos de Mexico, SA, ADR ...................................................... 9,094,800
MX 1,274,640 Vitro, SA ......................................................................... 2,315,466
------------
13,150,040
------------
Netherlands 7.9%
NL 49,467 ABN AMRO, NV ...................................................................... 3,220,441
NL 32,300 Akzo Nobel, NV .................................................................... 4,415,175
NL 85,700 DSM, NV ........................................................................... 8,458,315
NL 688,885 Ing Groep, NV ..................................................................... 24,818,214
NL 240,308 Internatio-Mueller, NV ............................................................ 6,040,757
NL 147,900 Koninklijke Bijenkorf Beheer, NV (KBB) ............................................ 10,665,248
NL 504,000 NV Holdingsmij de Telegraaf ....................................................... 10,625,891
NL 476,307 Philips Electronics, NV ........................................................... 19,311,607
------------
87,555,648
------------
New Zealand 1.8%
NZ 1,659,000 Carter Holt Harvey, Ltd. .......................................................... 3,764,777
NZ 1,321,124 Fisher & Paykel, Ltd. ............................................................. 5,183,516
NZ 6,020,000 Fletcher Challenge, Ltd., Forestry Division ....................................... 10,086,318
US 47,765a Tranz Rail Holdings, Ltd., ADR .................................................... 844,843
------------
19,879,454
------------
Norway 3.3%
NO 13,200 Elkem, AS ......................................................................... 217,310
NO 143,000 Fokus Bank, AS .................................................................... 982,032
NO 176,200 Fokus Bank, AS .................................................................... 1,210,028
NO 705,960 Hafslund, ASA, Class B ............................................................ 4,837,010
NO 134,000 Helikopter Services Group, ASA .................................................... 1,743,807
NO 141,000a Nycomed, ASA, Class A ............................................................. 2,155,456
NO 1,005,660a Nycomed, ASA, Class B ............................................................. 15,452,286
NO 199,000 Union Bank of Norway, Primary Capital Certificate ................................. 6,224,600
NO 295,000 Unitor, AS ........................................................................ 3,792,725
------------
36,615,254
------------
Peru 0.8%
PE 2,445,602 Telefonica del Peru, SA, Class B .................................................. 4,551,264
US 251,900 Telefonica del Peru, SA, Class B, ADR ............................................. 4,754,613
------------
9,305,877
------------
Portugal 0.6%
PT 122,351a BPI Socieda de Gestora de Participacoes Socias .................................... 1,444,065
PT 321,978 BPI Socieda de Gestora de Participacoes Socias, SA ................................ 4,007,853
US 239,400b Portucel Industrial Empresa Product de Celulose, ADR .............................. 1,389,616
------------
6,841,534
------------
South Africa 0.9%
ZA 288,500 Rustenburg Platinum Holdings, Ltd. ................................................ $ 3,946,564
ZA 710,000 Sappi, Ltd. ....................................................................... 6,373,838
------------
10,320,402
------------
South Korea 1.0%
KR 15,604a Byucksan Corp., rights ............................................................ 7,387
KR 44,500 Byucksan Development Co., Ltd. .................................................... 537,160
KR 109,900 Daegu Bank Co., Ltd. .............................................................. 1,312,284
KR 30,600 Daehan Synthetic Fiber Co., Ltd. .................................................. 2,661,657
KR 19,110 Keumkang Co., Ltd. ................................................................ 870,692
KR 39,000 Korea Chemical Co., Ltd ........................................................... 2,532,738
KR 155,990 Pacific Chemical Co., Ltd. ........................................................ 3,082,879
KR 7,870 Pohang Iron & Steel Co., Ltd. ..................................................... 488,371
------------
11,493,168
------------
Spain 6.6%
ES 132,300 Banco Bilbao Vizcaya .............................................................. 7,143,640
ES 15,600 Banco Popular Espanol, SA ......................................................... 3,064,125
ES 246,970 Compania Sevillana de Electricidad ................................................ 2,805,937
ES 378,000 Dragados y Construcciones, SA ..................................................... 5,823,224
ES 132,425a Huarte, SA ........................................................................ 219,306
ES 1,677,800 Iberdrola, SA ..................................................................... 23,779,334
ES 1,238,100 Telefonica de Espana, SA .......................................................... 28,753,102
ES 52,200 Unipapel, SA ...................................................................... 969,012
------------
72,557,680
------------
Sweden 10.4%
SE 80,600 Asea, AB, Class A ................................................................. 9,100,200
SE 515,500a Celsius, AB, Class B .............................................................. 8,125,729
SE 382,000 Electrolux, AB, Class B ........................................................... 22,181,133
SE 422,100a Enator, AB, Class B ............................................................... 10,800,304
SE 158,500 Esselte, AB, Class B .............................................................. 3,509,388
SE 1,490a Fastighets, AB Tornet, Class A .................................................... 22,722
SE 31,180a Fastighets Naeckebro, AB, Class A ................................................. 534,918
SE 210,000 Marieberg Tidnings, AB, Class A ................................................... 5,142,342
SE 163,000 Sparbanken Sverige, AB, Class A ................................................... 2,796,396
US 14,900b Sparbanken Sverige, AB, Class A ................................................... 255,621
SE 77,000 Stadshypotek, AB, Class A ......................................................... 2,111,337
US 176,000b Stadsyhpotek, AS, Class A ......................................................... 4,825,913
SE 1,288,000 Stena Line, AB, Class B, free ..................................................... 5,760,244
SE 804,250 Stora Kopparbergs Bergslags, AB, Class B .......................................... 10,967,287
SE 311,800 Svenska Handelsbanken, Class A .................................................... 8,961,018
SE 922,000 Volvo, AB, Class B ................................................................ 20,346,635
------------
115,441,187
------------
Switzerland 5.3%
FR 51,189a Adecco, SA ........................................................................ 12,962,615
CH 3,690 Baloise-Holding ................................................................... 7,415,839
CH 12,800 Bucher Holding, AG ................................................................ 8,797,908
CH 3,570 Kuoni Reisen Holding, AG, Class B ................................................. 8,668,285
CH 10,027a Novartis, AG ...................................................................... 11,483,653
CH 15,400 SMH, AG ........................................................................... 9,491,969
------------
58,820,269
------------
Thailand
TH 17,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. $ 64,911
------------
Turkey 0.2%
US 13,125,825a Tofas Turk Otomobil Fabrikasi, AS, GDR ............................................ 2,428,278
------------
United Kingdom 11.9%
GB 6,312,400 Albert Fisher Group, Plc. ......................................................... 4,541,762
GB 2,536,000 Anglian Group, Plc. ............................................................... 9,405,626
GB 1,290,000 British Gas, Plc. ................................................................. 4,961,198
GB 1,446,000 British Telecommunications, Plc. .................................................. 9,772,279
GB 3,025,900 BTR, Plc. ......................................................................... 14,721,547
GB 7,123,000a Cordiant, Plc. .................................................................... 12,568,421
GB 1,181,500 Harrisons & Crosfield, Plc. ....................................................... 2,702,063
GB 2,493,900 Hillsdown Holdings, Plc. .......................................................... 8,544,558
GB 1,330,900 Kwik Save Group, Plc. ............................................................. 7,318,650
GB 902,000 Lex Service, Plc. ................................................................. 4,913,763
GB 1,890,000 London Pacific Group, Ltd. ........................................................ 6,783,071
GB 1,000,000 McBride, Plc. ..................................................................... 2,329,804
GB 2,687,610 Meggitt, Plc. ..................................................................... 4,742,245
GB 641,668 National Westminster Bank, Plc. ................................................... 7,535,263
GB 824,500 Railtrack Group, Plc. ............................................................. 5,473,220
GB 6,171,300a Raine, Plc. ....................................................................... 1,374,360
GB 1,676,312 Safeway, Plc. ..................................................................... 11,601,570
GB 958,900 Thames Water Group, Plc. .......................................................... 10,061,436
GB 1,306,000 Wace Group, Plc. .................................................................. 2,349,160
------------
131,699,996
------------
Total Common Stocks & Warrants (Cost $815,060,064)........................... 949,505,891
------------
Preferred Stocks 2.0%
Australia 1.1%
AU 2,639,385 News Corp., Ltd. .................................................................. 11,748,316
------------
Brazil 0.4%
US 57,300 Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR ............................... 4,383,450
------------
Colombia 0.3%
US 159,000 Banco Ganadero, SA, ADR, Class C .................................................. 3,418,500
------------
Hong Kong 0.2%
US 1,531,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., pfd. ............................... 1,829,544
------------
Netherlands
NL 6,910 Ballast Nedam NV, certificate, cvt., pfd. ......................................... 336,595
------------
Total Preferred Stocks (Cost $21,867,007) ................................... 21,716,405
------------
Total Common Stocks & Warrants, and Preferred Stocks
(Cost $836,927,071) .............................................................. 971,222,296
------------
Face
Amount
Convertible Bonds 0.3%
Finland 0.3%
US $ 3,050,000 American Group, Ltd., 6.25%, cvt., 06/15/03 (Cost $3,007,216) ..................... 3,034,750
------------
Total Long Term Investments (Cost $839,934,287) ............................. 974,257,046
------------
h Receivables from Repurchase Agreements 11.9%......................................
US $47,332,000 Aubrey G. Lanston & Co., 5.75%, 01/02/97, (Maturity Value $49,841,917)
Collateral: U.S. Treasury Notes, 8.25%, 07/15/98 ................................. $ 49,826,000
US 35,210,000 Lehman Securities, Inc., 6.75%, 01/02/97, (Maturity Value $35,269,221)
Collateral: U.S. Treasury Notes, 8.50%, 05/15/97 ................................. 35,256,000
US 47,890,000 UBS Securities, Inc., 6.75%, 01/02/97, (Maturity Value $46,381,387)
Collateral: U.S. Treasury Notes, 5.125%, 12/31/98 ................................ 46,364,000
------------
Total Receivables from Repurchase Agreements (Cost $131,446,000) ............ 131,446,000
------------
Total Investments (Cost $971,380,287) 99.8% ............................ 1,105,703,046
Other Assets and Liabilities, Net 0.2% ................................. 2,396,328
------------
Net Assets 100.0%....................................................... $1,108,099,374
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $975,370,514 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 203,669,564
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (73,337,032)
------------
Net unrealized appreciation ..................................................... $ 130,332,532
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
AT - Austria
AU - Australia
BE - Belgium
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
LU - Luxembourg
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Warrants Templeton Pacific Growth Fund (Note 1)
Common Stocks & Warrants 97.6%
Australia 17.3%
<S> <C> <C> <C>
AU 1,000,000 Australia & New Zealand Banking Group Ltd. ......................................... $ 6,303,156
AU 1,706,264 Australian Gas & Light Co. ......................................................... 9,710,556
AU 680,000 Brambles Industries, Ltd. .......................................................... 13,269,216
AU 1,981,000 Capral Aluminium, Ltd. ............................................................. 6,298,386
AU 1,080,000 Coles Myer, Ltd., Class A .......................................................... 4,446,705
AU 875,000 Email, Ltd. ........................................................................ 2,830,657
AU 2,399,145 Gio Austrailia Holdings, Ltd. ...................................................... 6,140,408
AU 919,000 Mayne Nickless, Ltd., Class A ...................................................... 6,282,013
AU 3,547,000 National Foods, Ltd. ............................................................... 4,510,929
US 118,100b Qantas Airways, Ltd., ADR .......................................................... 1,933,888
------------
61,725,914
------------
China 2.4%
US 181,500a Guangshen Railway Co., Ltd., ADR ................................................... 3,743,438
HK 3,216,000 Maanshan Iron & Steel Co. Ltd., Class H ............................................ 690,227
US 225,000 Shandong Huaneng Power ............................................................. 2,193,750
HK 17,658,000 Shanghai Hai Xing Shipping Co., Class H ............................................ 2,054,716
------------
8,682,131
------------
Hong Kong 20.6%
HK 3,000,000 Cathay Pacific Airways, Ltd. ....................................................... 4,732,045
HK 800,000 Cheung Kong Holdings, Ltd. ......................................................... 7,110,996
HK 931,000 China Light & Power Co., Ltd. ...................................................... 4,140,720
US 4,197,727 Dairy Farm International Holdings, Ltd. ............................................ 3,379,170
HK 5,415,000 Grand Hotel Holdings, Ltd. ......................................................... 2,275,357
HK 169,800a Hang Lung Development Co., Ltd., warrants .......................................... 50,493
HK 5,400,399 Hon Kwok Land Investment Co., Ltd. ................................................. 2,094,667
HK 745,000 Hong Kong Ferry Holdings Co., Ltd. ................................................. 1,454,457
HK 2,376,800 Hong Kong Telecommunications, Ltd. ................................................. 3,825,866
HK 216,200 HSBC Holdings, Plc. ................................................................ 4,626,168
HK 496,000 Hualing Holdings, Ltd. ............................................................. 55,150
HK 632,031 Jardine Matheson Holdings, Ltd. .................................................... 4,171,405
HK 284,600a Lai Sun Development Co., Ltd., warrants ............................................ 36,796
HK 3,860,000 National Mutual Asia, Ltd. ......................................................... 3,668,110
HK 1,574,667 New World Development Co., Ltd. .................................................... 10,637,579
HK 105,000a Peregrine Investments Holdings, Ltd., warrants ..................................... 33,599
HK 3,210,000 Shun Tak Holdings .................................................................. 2,137,372
HK 57,100 Sing Tao Holdings, Ltd. ............................................................ 24,916
HK 4,888,000 South China Morning Post (Holdings), Ltd. .......................................... 4,044,631
HK 645,000 Swire Pacific, Ltd., Class A ....................................................... 6,150,204
HK 3,100,000 Wheelock & Co., Ltd. ............................................................... 8,837,675
------------
73,487,376
------------
India 0.2%
US 156,100 Great Eastern Shipping Co., Ltd., GDR .............................................. 874,160
------------
Indonesia 5.0%
US 300,000a Asia Pacific Resources International, Class A ...................................... 1,687,500
ID 1,567,000 PT Bank Bali, fgn. ................................................................. 3,914,183
ID 950,000 PT Barito Pacific Timber, fgn. ..................................................... 583,192
ID 3,657,384 PT Indorama Synthetics, fgn. ....................................................... 3,483,960
US 149,400 PT Indosat, ADR .................................................................... 4,089,825
ID 129,000 PT Inti Indorayon Utama, fgn. ...................................................... 94,210
ID 771,526 PT Pabrik Kertas Tjiwi Kimia, fgn. ................................................. 767,607
Indonesia (cont.)
ID 3,423,000 PT Panasia Indosyntec, fgn. ........................................................ $ 833,287
ID 2,060,875 PT Panin Bank, fgn. ................................................................ 2,355,784
------------
17,809,548
------------
Japan 17.6%
JP 1,011,000 Daicel Chemical Industries Ltd. .................................................... 4,740,290
JP 409,000 Daito Trust Construction Co., Ltd. ................................................. 4,555,824
JP 1,200 East Japan Railway ................................................................. 5,398,498
JP 582,800 Hitachi, Ltd. ...................................................................... 5,434,971
JP 254,000 Hokuetsu Paper Mills, Ltd. ......................................................... 1,471,669
JP 308,000 Matsushita Electric Industrial Co., Ltd. ........................................... 5,026,509
JP 824,000 Mitsubishi Heavy Industries, Ltd. .................................................. 6,545,894
JP 250,000 Mitsubishi Oil Co., Ltd. ........................................................... 1,495,985
JP 10,800 Nintendo Co., Ltd. ................................................................. 769,364
JP 821 Nippon Telegraph & Telephone Corp. ................................................. 6,224,316
JP 700,000 Nisshinbo Industries, Inc........................................................... 5,452,034
JP 220,000 Nittetsu Mining Co., Ltd. .......................................................... 1,669,804
JP 550,000 Rengo Co., Ltd. .................................................................... 3,124,946
JP 50,000 Sony Corp. ......................................................................... 3,276,919
JP 70,000 Tenma Corp. ........................................................................ 1,142,388
JP 371,000 Toda Corp. ......................................................................... 2,819,100
JP 330,000 Wacoal Corp. ....................................................................... 3,647,353
------------
62,795,864
------------
Malaysia 6.9%
MY 655,000 Commerce Asset-Holding Bhd., fgn. .................................................. 4,927,737
MY 16,667a Commerce Asset-Holding Bhd., fgn., warrants ........................................ 80,514
MY 1,415,000 Golden Hope Plantations Bhd., fgn. ................................................. 2,409,226
MY 3,342,667 Malaysian International Shipping Corp., Bhd., fgn. ................................. 9,926,748
MY 193,000 Public Finance Bhd., fgn. .......................................................... 336,250
MY 1,798,800 Sime Darby Bhd., fgn. .............................................................. 7,086,937
------------
24,767,412
------------
New Zealand 2.4%
NZ 894,353 Brierley Investments, Ltd. ......................................................... 828,263
NZ 2,411,800 Carter Holt Harvey, Ltd. ........................................................... 5,473,110
NZ 192,500 Fletcher Challenge Building, Ltd. .................................................. 591,981
NZ 192,500 Fletcher Challenge Energy, Ltd. .................................................... 557,959
NZ 111,031 Fletcher Challenge, Ltd., Forestry Division ........................................ 186,029
NZ 385,000 Fletcher Challenge Paper, Ltd. ..................................................... 792,030
------------
8,429,372
------------
Pakistan 2.8%
PK 2,618,000 Fauji Fertilizer Co., Ltd. ......................................................... 4,409,068
US 91,000a Hub Power Co., Ltd., GDR, reg.S .................................................... 1,797,250
PK 6,300,000a Pakistan Telecom Corp., PTC ........................................................ 3,945,369
------------
10,151,687
------------
Philippines 3.0%
PH 7,916,000a Filinvest Land, Inc. ............................................................... 2,468,106
PH 700,000a Philippine National Bank ........................................................... 8,317,491
------------
10,785,597
------------
Singapore 9.1%
SG 888,600 City Developments, Ltd., fgn. ...................................................... $ 8,001,401
SG 518,000 Development Bank of Singapore, Ltd., fgn. .......................................... 6,996,498
US 68,000 G.P. Batteries International, Ltd. ................................................. 225,760
SG 357,000 Inchcape Bhd., fgn. ................................................................ 1,239,920
SG 393,800 Overseas Union Bank, Ltd., fgn. .................................................... 3,039,405
SG 1,217,000 Parkway Holdings, Ltd., fgn. ....................................................... 4,783,463
SG 882,000 Singapore Airlines, Ltd., fgn. ..................................................... 8,005,003
------------
32,291,450
------------
South Korea 0.6%
KR 99,030 Pacific Chemical Co., Ltd. ......................................................... 1,957,161
------------
Thailand 6.2%
TH 622,000 Bangkok Bank Public Co., Ltd., fgn. ................................................ 6,014,817
TH 829,900 Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................................... 3,009,463
TH 2,783,133 Industrial Finance Corp. of Thailand, fgn. ......................................... 7,433,698
TH 51,750 Oriental Hotel (Thailand) Public Co., Ltd., fgn. ................................... 233,063
TH 262,500 Robinson Department Store Public Co., Ltd., fgn. ................................... 509,217
TH 36,570 Thai Farmers Bank Public Co., Ltd. ................................................. 178,244
TH 733,440 Thai Farmers Bank Public Co., Ltd., fgn. ........................................... 4,575,778
TH 91,680a Thai Farmers Bank Public Co., Ltd., fgn., warrants ................................. 72,390
------------
22,026,670
------------
United States 3.5%
US 35,000 American International Group, Inc. ................................................. 3,788,750
US 150,000 APL, Ltd. .......................................................................... 3,543,750
US 85,000 Motorola, Inc. ..................................................................... 5,216,875
------------
12,549,375
------------
Total Common Stocks & Warrants (Cost $307,123,252)............................ 348,333,717
------------
Face
Amount
Convertible Bonds 0.3%
US $ 31,000 Dairy Farm International Holdings, Ltd., 6.50%, cvt., 05/10/49 ..................... 23,095
US 22,000 Jardine Strategic Holdings, Ltd., 7.50%, cvt., 05/07/49 ............................ 26,290
US 1,307,000 MDX Public Co., Ltd., 4.75%, cvt., 09/17/03 ........................................ 503,195
US 360,000 PT Inti Indorayon Utama, 5.50%, cvt., 10/01/02 ..................................... 423,000
------------
Total Convertible Bonds (Cost $1,994,721) .................................... 975,580
------------
Total Long Term Investments ($309,117,973) ................................... 349,309,297
------------
h Receivables from Repurchase Agreements 2.5%
US 8,765,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $8,874,327) (Cost $8,871,000)
Collateral: U.S. Treasury Notes, 6.25%, 07/31/98 .................................. 8,871,000
------------
Total Investments (Cost $317,988,973) 100.4% ............................. 358,180,297
Liabilities in Excess of Other Assets (0.4%) ............................ (1,421,139)
------------
Net Assets 100.0%........................................................ $356,759,158
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $321,544,212 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ........................................ $ 70,017,052
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value......................................... (33,380,967)
------------
Net unrealized appreciation....................................................... $ 36,636,085
============
</TABLE>
COUNTRY LEGEND:
AU - Australia
HK - Hong Kong
ID - Indonesia
JP - Japan KR South Korea
MY - Malaysia
NZ - New Zealand
PK - Pakistan
PH - Philippines
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Rising Dividends Fund (Note 1)
Common Stocks 97.3%
Banks 11.7%
<C> <C> <C>
177,400 CoreStates Financial Corp. ................................................................... $ 9,202,625
144,000 First Union Corp. ............................................................................ 10,656,000
279,650 Mercantile Bankshares Corp. .................................................................. 8,948,800
218,000 National Commerce Bancorp. ................................................................... 8,338,500
166,600 State Street Boston Corp. .................................................................... 10,745,700
594,228 TrustCo Bank Corp., New York.................................................................. 12,701,624
232,000 Wilmington Trust Corp. ....................................................................... 9,164,000
------------
69,757,249
------------
Business Services 4.7%
468,200 Ennis Business Forms ......................................................................... 5,267,250
253,900 Standard Register Co. ........................................................................ 8,251,750
420,500 Wallace Computer Services, Inc. .............................................................. 14,507,250
------------
28,026,250
------------
Consumer Products 13.6%
258,100 Alberto-Culver Co., Class A .................................................................. 10,646,625
93,833 Block Drug Co., Inc., Class A ................................................................ 4,316,318
720,000 Dimon, Inc. .................................................................................. 16,650,000
330,700 Newell Co. ................................................................................... 10,417,050
113,000 Philip Morris Cos., Inc. ..................................................................... 12,726,625
349,900 Stanhome, Inc. ............................................................................... 9,272,350
325,000 Universal Corp. .............................................................................. 10,440,625
205,500 UST, Inc. .................................................................................... 6,653,063
------------
81,122,656
------------
Electronic Technology 6.5%
164,700 Cohu, Inc. ................................................................................... 3,829,275
130,600 General Electric Co. ......................................................................... 12,913,075
236,500 Hewlett-Packard Co. .......................................................................... 11,884,125
165,700 Rockwell International Corp. ................................................................. 10,086,988
------------
38,713,463
------------
Energy 2.1%
75,000 Royal Dutch Petroleum Co., New York Shares, ADR............................................... 12,806,250
------------
Financial Services 2.2%
353,000 Federal National Mortgage Association ........................................................ 13,149,250
------------
Health Care Services 5.7%
354,000 Bard (C.R.), Inc. ............................................................................ 9,912,000
26,400 Becton Dickinson & Co. ....................................................................... 1,145,100
71,500 Bristol-Myers Squibb Co. ..................................................................... 7,775,625
95,000 Merck & Co., Inc. ............................................................................ 7,528,750
42,500 Pfizer, Inc. ................................................................................. 3,522,188
141,400 West Co., Inc. ............................................................................... 3,994,550
------------
33,878,213
------------
Industrial 22.6%
232,400 Avery Dennison Corp. ......................................................................... 8,221,150
18,500 Baldor Electric Co. .......................................................................... 455,563
427,100 Brady (W.H.) Co. ............................................................................. 10,517,338
26,500 Donaldson Co., Inc. .......................................................................... 887,750
230,600 Dover Corp. .................................................................................. 11,587,650
140,500 Duriron Co., Inc. ............................................................................ 3,811,063
Industrial (cont.)
390,800 Hanna (M.A.) Co. ............................................................................. $ 8,548,750
129,500 Kaydon Corp. ................................................................................. 6,102,688
219,800 Kimball International, Inc., Class B.......................................................... 9,094,225
90,300 Leggett & Platt, Inc. ........................................................................ 3,126,638
128,700 Loctite Corp. ................................................................................ 7,834,613
402,900 Millipore Corp. .............................................................................. 16,669,988
259,500 Monsanto Co. ................................................................................. 10,088,063
339,600 Myers Industries, Inc. ....................................................................... 5,730,750
207,200 Nucor Corp. .................................................................................. 10,567,200
323,300 Superior Industries International, Inc. ...................................................... 7,476,313
194,300 Superior Surgical Manufacturing Co., Inc. .................................................... 2,623,050
6,959 The Boeing Co. ............................................................................... 740,264
468,800 Watts Industries, Inc., Class A .............................................................. 11,192,600
------------
135,275,656
------------
Insurance - Property Casualty 15.4%
522,300 Allied Group, Inc. ........................................................................... 17,040,038
53,700 American International Group, Inc. ........................................................... 5,813,024
206,200 Chubb Corp. .................................................................................. 11,083,250
51,640 Cincinnati Financial Corp. ................................................................... 3,350,144
230,000 Mercury General Corp. ........................................................................ 12,075,000
444,600 MMI Cos., Inc. ............................................................................... 14,227,200
367,025 RLI Corp. .................................................................................... 12,249,458
167,800 SAFECO Corp. ................................................................................. 6,617,612
168,500 St. Paul Cos., Inc. .......................................................................... 9,878,312
------------
92,334,038
------------
Retail 8.9%
868,600 Family Dollar Stores, Inc. ................................................................... 17,697,724
155,000 Gap, Inc. .................................................................................... 4,669,374
307,000 Rite Aid Corp. ............................................................................... 12,203,250
80,300 The Limited, Inc. ............................................................................ 1,475,512
119,000 Walgreen Co. ................................................................................. 4,760,000
539,200 Wal-Mart Stores, Inc. ........................................................................ 12,334,200
------------
53,140,060
------------
Transportation 3.9%
500,000 Arnold Industries, Inc. ...................................................................... 7,937,500
640,000 Harper Group, Inc. ........................................................................... 15,200,000
------------
23,137,500
------------
Total Long Term Investments (Cost $431,060,996)......................................... 581,340,585
------------
h,i Receivables from Repurchase Agreements 2.8%
$ 16,521,896 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,813,176) (Cost $16,807,023)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,064,365)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securites, L.L.C., (Maturity Value $2,106,973)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... $ 16,807,023
------------
Total Investments (Cost $447,868,019) 100.1%....................................... 598,147,608
Liabilities in Excess of Other Assets (0.1%) ...................................... (723,907)
------------
Net Assets 100.0% ................................................................. $597,423,701
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$448,164,135 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $152,946,524
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (2,963,051)
------------
Net unrealized appreciation ................................................................ $149,983,473
============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Utility Equity Fund (Note 1)
Common Stocks 97.7%
<S> <C> <C> <C>
US 516,000 aAES Corp. ........................................................................ $ 23,994,000
US 946,100 aAirTouch Communications, Inc. .................................................... 23,889,025
US 1,000,000 Allegheny Power System, Inc. ...................................................... 30,375,000
US 770,230 American Electric Power Co., Inc. ................................................. 31,675,709
US 100,000 Ameritech Corp. ................................................................... 6,062,500
US 360,000 AT&T Corp. ........................................................................ 15,660,000
US 158,600 a,bBSES, Ltd., GDR ................................................................ 3,271,125
US 1,496,700 Central & South West Corp. ........................................................ 38,352,938
US 1,223,900 CINergy Corp. ..................................................................... 40,847,663
US 200,000 aCompania Anonima Nacional Telefonos de Venezeula, ADR............................. 5,625,000
ES 208,141 Compania Sevillana de Electricidad, SA............................................. 2,364,783
HK 969,500 Consolidated Electric Power Asia, Ltd. ............................................ 2,275,057
US 505,000 Dominion Resources, Inc. .......................................................... 19,442,500
US 716,000 DPL, Inc. ......................................................................... 17,542,000
US 900,000 Duke Power Co. .................................................................... 41,625,000
US 49,500 aEchelon International Corp., Inc. ................................................ 773,433
US 763,600 Edison International............................................................... 15,176,550
US 978,800 Empresa Nacional Electricidad, SA, ADR............................................. 15,171,400
US 1,032,560 Enova Corp. ....................................................................... 23,490,740
US 1,040,000 Enron Corp. ....................................................................... 44,850,000
US 992,300 Enron Global Power & Pipelines, L.L.C. ............................................ 26,792,100
US 1,654,000 Entergy Corp. ..................................................................... 45,898,500
US 195,000 Espoon Sahko Oy.................................................................... 4,323,911
US 1,133,000 Florida Progress Corp. ............................................................ 36,539,250
US 1,001,300 FPL Group, Inc. ................................................................... 46,059,800
US 951,100 General Public Utilities Corp. .................................................... 31,980,738
MX 55,600 aGrupo Iusacell, SA, Series D...................................................... 31,275
US 144,440 aGrupo Iusacell, SA, Series L, ADR................................................. 1,101,355
US 590,840 GTE Corp. ......................................................................... 26,883,220
GR 400,000 Hellenic Tellecommunication Organization, SA....................................... 6,833,935
HK 2,500,000 Hongkong Electric Holdings, Ltd. .................................................. 8,306,936
US 138,000 aHuaneng Power International, Inc., ADR ........................................... 3,105,000
US 1,380,000 aICG Communications, Inc. ......................................................... 24,322,500
US 211,400 aItron, Inc. ...................................................................... 3,752,350
KR 290,000 Korea Electric Power Corp. ........................................................ 8,579,796
KR 440 Korea Mobile Telecommunications Corp. ............................................. 445,801
US 116,670 Lucent Technologies, Inc. ......................................................... 5,395,988
US 255,100 MidAmerican Energy Holdings Co. ................................................... 4,049,713
NO 468,600 aNetCom, ASA....................................................................... 4,481,750
US 382,450 New England Electric System........................................................ 13,337,944
US 24,200 New Jersey Resources Corp. ........................................................ 707,850
JP 2,870 Nippon Telegraph & Telephone Corp. ................................................ 21,758,570
US 649,900 NIPSCO Industries, Inc. ........................................................... 25,752,288
US 323,000 aNynex CableComms Group, ADR ...................................................... 5,854,375
US 223,100 Oklahoma Gas & Electric Co. ....................................................... 9,314,425
US 229,600 Pacific Enterprises................................................................ 6,974,100
US 1,123,150 Pacific Gas & Electric Co. ........................................................ 23,586,150
US 1,075,000 PacifiCorp......................................................................... 22,037,500
US 349,100 PanEnergy Corp. ................................................................... 15,709,500
US 166,600 PECO Energy Co. ................................................................... 4,206,650
US 843,000 Pinnacle West Capital Corp. ....................................................... 26,765,250
US 189,500 Public Service Co. of Colorado..................................................... 7,366,813
US 104,200 Public Service Enterprise Group, Inc. ............................................. 2,839,450
US 100,000 SBC Communications, Inc. .......................................................... $ 5,175,000
US 1,345,844 SCANA Corp. ....................................................................... 36,001,325
GB 590,000 Scottish Power, Plc. .............................................................. 3,557,748
GB 198,300 Southern Electric, Plc. ........................................................... 2,704,060
US 1,966,790 Southern Co. ...................................................................... 44,498,624
US 442,700 Southwestern Public Services Co. .................................................. 15,660,513
US 1,800,000 TECO Energy, Inc. ................................................................. 43,425,000
US 315,000 Tele Danmark, A/S, ADR............................................................. 8,583,750
PT 60,000 aTelecel-Comunicacaoes Pessoais, SA................................................ 3,831,022
US 230,000 Telecom de Argentina, SA, ADR...................................................... 9,286,250
US 103,500 Telecomunicacoes Brasileiras, SA (Telebras), ADR................................... 7,917,750
IT 11,000,000 Telecom Italia, SpA ............................................................... 21,876,649
US 29,000 Telefonica del Peru, SA, ADR....................................................... 547,375
US 170,000 Telefonos de Mexico, SA, ADR....................................................... 5,610,000
US 69,000 aTeleWest Communications, Plc., ADR................................................ 1,431,750
US 1,239,850 Texas Utilities Co. ............................................................... 50,523,888
US 73,600 Total Access Communication Plc. ................................................... 507,840
US 370,000 Transportadora de Gas del Sur, SA, ADR............................................. 4,532,500
US 884,800 US West Communications Group....................................................... 28,534,800
DD 7,515 aViag AG........................................................................... 2,945,431
------------
Total Common Stocks (Cost $1,122,249,327) .................................. 1,174,710,481
------------
Convertible Preferred Stocks 0.8%
US 240,000 Nortel Inversora, SA, cvt. pfd. (Argentina) (Cost $9,333,247) ..................... 9,840,000
------------
Total Long Term Investments (Cost $1,131,582,574) ........................... 1,184,550,481
------------
Face
Amount
Receivables from Repurchase Agreements 1.4%
US $16,195,569 h,iJoint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $16,480,699)
(Cost $16,474,667)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear Sterns & Co., Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.00% - 8.875, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,543)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,308)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01............... 16,474,667
------------
Total Investments (Cost $1,148,057,241) 99.9%........................... 1,201,025,148
Other Assets and Liabilities, Net 0.1%.................................. 1,265,172
------------
Net Assets 100%......................................................... $1,202,290,320
============
At December 31, 1996, the net unrealized appreciation
based on the cost of investments for income tax
purposes of $1,148,057,241 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 118,802,417
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (65,834,510)
------------
Net unrealized appreciation ..................................................... $ 52,967,907
============
</TABLE>
COUNTRY LEGEND:
AR - Argentina
DD - Germany
ES - Spain
GB - United Kingdom
GR - Greece
HK - Hong Kong
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NO - Norway
PT - Portugal
US - United States
PORTFOLIO ABBREVIATION:
L.L.C. -Limited Liability Corp.
*Securities traded in foreign currency and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
iSee note 1(h) regarding joint repurchase agreements.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton Developing Markets Equity Fund (Note 1)
Common Stocks, Rights & Warrants 82.5%
Argentina 10.4%
<S> <C> <C> <C>
AR 180,876 Aluar Aluminio Argentino, SA, Class B.............................................. $ 455,890
AR 561,180 Astra Cia Argentina de Petroleo, SA................................................ 1,072,047
AR 530,163 aanor Cia Nacional Para la Industria Quimica, SA, Class D.......................... 768,875
AR 103,702 aBanco Bansud, SA, Class B......................................................... 1,242,574
AR 608,471 Banco de Galicia y Buenos Aires, SA, Class B....................................... 3,657,568
AR 86,333 Banco Frances del Rio de la Plata, SA.............................................. 807,357
US 56,200 aBuenos Aires Embotelladora, SA, ADR............................................... 210,750
AR 15,555 Capex, SA, Class A................................................................. 128,352
AR 310,746 aCiadea, SA........................................................................ 1,476,308
AR 44,010 Juan Minetti, SA................................................................... 183,115
AR 6,000 Juan Minetti, SA, conv............................................................. 6,001
AR 999,359 Molinos Rio de Plata, SA, Class B.................................................. 3,558,359
AR 23,430 Nobleza Piccardo Sdad Industrial Comercial y Financial............................. 89,050
AR 705,968 Perez Companc, SA, Class B......................................................... 4,963,849
AR 122,000 Quilmes Industrial, SA............................................................. 1,113,250
AR 4,000 Quilmes Industrial, SA, reg........................................................ 32,000
AR 381,203 aSevel Argentina, SA, Class C...................................................... 960,805
AR 22,230 Siderar, Class A................................................................... 64,034
AR 1,290,000 aSociedad Comercial del Plata Cadelplata Come...................................... 3,302,995
AR 126,224 Transportadora de Gas del Sur, SA, Class B......................................... 310,567
US 153,410 YPF Sociedad Anonima, ADR.......................................................... 3,873,603
AR 2,840 aZanella Hermanos, SA.............................................................. 625
------------
28,277,974
------------
Brazil 2.7%
BR 77,613,291 Banco Bradesco, SA................................................................. 526,584
BR 78,492,976 aBanco do Brasil, SA............................................................... 679,854
BR 36,132,595 aBanco do Brasil, SA, warrants, Class A............................................ 57,028
BR 54,198,893 aBanco do Brasil, SA, warrants, Class B............................................ 83,455
BR 90,331,488 aBanco do Brasil, SA, warrants, Class C............................................ 121,705
BR 9,982,000 Eletrobras-Centrais Eletricas Brasileiras, SA...................................... 3,573,577
BR 2,124,000 Mannesmann, SA..................................................................... 288,664
BR 29,560,000 Telebras-Telecomunicacoes Brasileiras, SA.......................................... 2,119,353
------------
7,450,220
------------
China 3.6%
CN 1,666,340 China Southern Glass Co., Ltd., Class B............................................ 1,034,124
CN 1,286,000 Chiwan Wharf Holdings Ltd., Class B ............................................... 914,474
CN 1,519,000 Guangzhou Shipyard International Co., Ltd., Class H ............................... 384,930
CN 1,169,000 Luoyang Glass Co., Ltd., Class H................................................... 358,960
CN 96,500 Shandong Huaneng Power............................................................. 940,875
CN 1,269,000 Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ................................. 352,782
CN 520,000 Shanghai Dazhong Taxi Shareholding Co., Ltd., Class B.............................. 429,520
CN 252,000 aShanghai Industrial Sewing Machine Corp........................................... 47,880
CN 1,732,500 aShanghai Jin Jiang Tower Co., Ltd., Class B ...................................... 526,680
CN 410,000 Shanghai Jinqiao Export Processing Zone Development, Class B....................... 221,400
CN 634,900 Shanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd., Class B.................. 618,393
CN 157,000 Shanghai New Asia Group Co., Ltd., Class B......................................... 68,452
CN 2,304,000 Shanghai Pechemical Co., Ltd., Class H............................................. 700,032
CN 489,600 Shanghai Refrigerator Compressor Co., Ltd., Class B ............................... 266,342
CN 450,000 aShanghai Shangling Electric Appliance, Class B.................................... 195,300
CN 1,481,000 aShanghai Tyre & Rubber Co., Ltd., Class B......................................... 627,944
CN 1,890,361 aShanghai Vacuum Electron Devices Co., Ltd., Class B............................... 366,730
China (cont.)
CN 682,000 aShanghai Yaohua Pilkington Glass, Class B......................................... $ 324,632
CN 1,881,173 Shenzhen Vanke Co., Ltd., Class B.................................................. 1,330,405
------------
9,709,855
------------
Czech Republic 1.8%
CS 14,600 aCEZ............................................................................... 525,609
US 65,330 aCEZ, GDR.......................................................................... 2,351,880
CS 19,358 Chemopetrol Group, AS.............................................................. 839,981
CS 17 Elektrarny Opatovice, AS........................................................... 2,742
CS 1,000 Komercni Banka, AS................................................................. 83,327
CS 7,000 aSPT Telecom, AS................................................................... 871,589
CS 630 Tabak, AS.......................................................................... 158,693
------------
4,833,821
------------
Ghana 0.4%
US 85,000 Ashanti Goldfields Co., Ltd., GDR.................................................. 1,051,875
------------
Greece 3.7%
GR 38,666 Alpha Credit Bank.................................................................. 2,460,606
GR 32,000 Alpha Leasing, SA.................................................................. 622,593
GR 63,000 Delta Dairy, SA.................................................................... 720,117
GR 2,000 Elais Oleaginous Products Co., SA ................................................. 57,112
GR 13,000 Ergo Bank, SA ..................................................................... 658,932
GR 32,200 Etba Leasing....................................................................... 371,323
GR 31,250 Hellas Can - Container Manufacturers............................................... 437,634
GR 16,450 Hellenic Telecommunications Organizations OTE...................................... 281,046
US 154,000 bHellenic Telecommunications Organizations OTE..................................... 2,631,065
GR 29,000 Intracom, SA, reg.................................................................. 652,385
GR 5,170 National Bank of Greece, SA........................................................ 329,006
GR 17,170 Titan Cement Co., reg.............................................................. 933,629
------------
10,155,448
------------
Hong Kong 13.3%
HK 582,000 Cheung Kong Holdings Ltd........................................................... 5,173,250
HK 3,642,000 China Overseas Land & Investment Ltd. ............................................. 1,848,193
HK 81,000 Cross Harbour Tunnel Co., Ltd. .................................................... 176,463
HK 271,258 Dairy Farm International Holdings Ltd.............................................. 218,363
HK 6,000 Dickson Concepts (International) Ltd............................................... 22,497
HK 1,154,000 aEast Asiatic Co. (Hong Kong), Ltd. (The).......................................... 119,361
HK 1,904,000 aFu Hui Jewellery Co. (H.K.), Ltd.................................................. 177,242
HK 530,679 Great Wall Electronic International Ltd. .......................................... 65,867
HK 1,284,000 Hang Lung Development Co., Ltd. ................................................... 2,822,160
HK 770,000 Hongkong Electric Holdings Ltd. ................................................... 2,558,536
HK 776,951 Hopewell Holdings Ltd. ............................................................ 502,263
HK 214,241 HSBC Holdings, Plc ................................................................ 4,584,251
HK 42,000 IMC Holdings Ltd. ................................................................. 22,264
HK 34,000 Jardine Matheson Holdings, Ltd..................................................... 224,400
HK 194,625 Jardine Strategic Holdings, Ltd.................................................... 704,543
HK 21,625 aJardine Strategic Holdings Ltd., warrants......................................... 8,650
HK 119,000 JCG Holdings, Ltd.................................................................. 116,161
HK 2,109,297 K Wah International Holdings, Ltd. ................................................ 520,881
HK 187,320 aK Wah International Holdings, Ltd., warrants...................................... 12,109
HK 1,203,600 Lai Sun Development Co., Ltd. ..................................................... 1,820,689
HK 216,200 aLai Sun Development Co., Ltd., warrants........................................... 27,953
Hong Kong (cont.)
HK 379,000 Lai Sun Garment International Ltd.................................................. $ 602,715
HK 1,450,000 Laws International Holdings Ltd.................................................... 226,841
HK 700,000 aLuks Industrial Co., Ltd.......................................................... 68,783
HK 140,000 aLuks Industrial Co., Ltd., warrants............................................... 5,159
HK 754,886 New World Development Co., Ltd. ................................................... 5,099,592
HK 456,000 NG Fund Hong Ltd................................................................... 409,749
HK 1,626,000 aS. Megga International Holdings Ltd............................................... 107,216
HK 324,598 Semi-Tech (Global) Co., Ltd........................................................ 537,185
HK 1,891,400 Sun Hung Kai & Co., Ltd. .......................................................... 484,191
HK 319,000 Sun Hung Kai Properties Ltd. ...................................................... 3,907,848
HK 155,000 Swire Pacific, Ltd., Class B ...................................................... 234,469
HK 2,123,000 Tian An China Investments Co., Ltd................................................. 304,678
HK 1,364,000 Tungtex (Holdings) Co., Ltd........................................................ 149,900
HK 294,000 Wheelock & Co., Ltd................................................................ 838,154
HK 1,228,000 Wing Shan International, Ltd....................................................... 169,883
HK 3,582,000 aWo Kee Hong Holdings, Ltd......................................................... 291,765
HK 716,400 aWo Kee Hong Holdings, Ltd., warrants.............................................. 7,966
HK 300,000 aYaohan Hongkong Corp., Ltd........................................................ 12,024
HK 2,298,000 Yue Yuen Industrial (Holdings), Ltd................................................ 876,476
------------
36,060,690
------------
India 1.6%
IN 74,000 Arvind Mills, Ltd.................................................................. 250,794
IN 4,000 Bharat Petroleum Corp., Ltd........................................................ 33,250
IN 1,300 Bombay Dyeing & Manufacturing Co., Ltd............................................. 4,007
IN 9,000 Bses, Ltd.......................................................................... 51,841
IN 51,950 Cochin Refineries, Ltd............................................................. 143,460
IN 18,350 Grasim Industries, Ltd., Ord INR10................................................. 214,083
IN 73,200 Great Eastern Shipping Co., Ltd.................................................... 69,422
IN 4,775 Hindalco Industries................................................................ 87,442
IN 21,300 Hindustan Organic Chemicals, Ltd................................................... 18,121
IN 44,000 Hindustan Petroleum Corp., Ltd..................................................... 407,475
IN 35,000 aIndia Cements, Ltd................................................................ 87,866
US 10,000 India Cements, Ltd., GDR........................................................... 25,000
IN 20,000 Indian Aluminium Co., Ltd.......................................................... 84,937
IN 55,000 Indian Petrochemicals Corp., Ltd................................................... 184,484
IN 18,350 Indian Rayon and Industries, Ltd................................................... 153,556
IN 88,500 Indo Gulf Fertilisers & Chemicals Corp., Ltd....................................... 71,590
IN 135,050 Industrial Credit & Inv. Corp. of India (ICICI).................................... 221,316
IN 159,300 Industrial Development Bank of India............................................... 386,585
IN 66,700 ITC Bhadrachalam Paperboards, Ltd.................................................. 109,771
IN 45,000 Larsen and Toubro, Ltd............................................................. 274,582
IN 105,300 National Aluminium Co., Ltd........................................................ 91,054
IN 19,200 Oriental Bank of Commerce.......................................................... 41,640
IN 41,600 Reliance Industries, Ltd........................................................... 235,849
IN 157,500 Shipping Corporation of India, Ltd................................................. 112,029
IN 133,000 Steel Authority of India, Ltd...................................................... 68,633
US 45,000 Steel Authority of India Ltd., GDR, reg. S......................................... 432,585
IN 9,100 aSterlite Industries (India), Ltd.................................................. 49,434
IN 34,150 Tata Chemicals, Ltd................................................................ 164,082
India (cont.)
IN 33,000 Tata Iron & Steel Co., Ltd......................................................... $ 150,732
IN 2,000 Wockhardt.......................................................................... 11,367
------------
4,236,987
------------
Indonesia 5.2%
US 46,000 aAsia Pulp & Paper Co., Ltd., ADR.................................................. 523,250
ID 506,000 PT Bank Dagang Nasional Indonesia, fgn............................................. 514,141
ID 81,000 PT Bank Danamon, fgn............................................................... 76,302
ID 371,000 PT Bank PDFCI, fgn. ............................................................... 345,555
ID 2,259,000 PT Barito Pacific Timber, fgn. .................................................... 1,386,770
ID 150,000 PT BBL Dharmala Finance, fgn. ..................................................... 184,166
ID 997,500 aPT Charoen Pokphand Indonesia, fgn................................................ 1,103,289
ID 449,000 PT Dharmala Intiland, fgn.......................................................... 665,326
ID 2,085,000 PT Gadjah Tunggal, fgn............................................................. 904,795
ID 201,000 PT Gajah Surya Multi Finance, fgn.................................................. 121,264
ID 829,600 PT Ganda Wangsa Utama, fgn......................................................... 298,544
ID 104,000 PT Indah Kiat Pulp & Paper Corp., fgn. ............................................ 75,953
ID 12,000 PT Inter-Pacific Bank, fgn......................................................... 8,510
ID 880,000 PT Jakarta International Hotel & Development, fgn.................................. 633,362
ID 337,500 PT Japfa Comfeed Indonesia, fgn. .................................................. 214,331
ID 441,750 PT Multibreeder Adirama, fgn....................................................... 163,646
ID 376,630 PT Pabrik Kertas Tjiwi Kimia, fgn.................................................. 374,717
ID 766,900 PT Panasia Indosyntec, fgn......................................................... 186,692
ID 350,000 PT Polysindo Eka Perkasa, fgn...................................................... 200,042
ID 1,310,400 PT Pudjiadi Prestige, Ltd., fgn.................................................... 471,566
ID 621,500 PT Sinar Mas Agro Resources & Technology Corp., fgn................................ 440,733
ID 3,099,250 PT Sinar Mas Multi Artha, fgn...................................................... 2,591,456
ID 349,000 PT Sumalindo Lestari Jaya, fgn..................................................... 258,573
ID 658,320 PT Summarecon Agung, fgn. ......................................................... 222,970
ID 430,000 PT Tambang Timah (Persero), fgn.................................................... 782,811
ID 292,000 PT Ultra Jaya Milk, fgn............................................................ 135,986
ID 68,200 PT Unggul Indah Corp., fgn......................................................... 69,297
ID 583,000 PT United Tractors, fgn............................................................ 1,221,782
------------
14,175,829
------------
Israel 1.5%
IL 34,730 Agis Industries, Ltd............................................................... 254,357
IL 569,083 Bank Hapoalim BM................................................................... 901,636
IL 280,327 Clal Industries, Ltd............................................................... 1,340,198
IL 16,748 Discount Investment Corp........................................................... 1,073,995
IL 4,732 First International Bank of Israel................................................. 545,955
IL 265a Koor Industries, Ltd............................................................... 23,090
------------
4,139,231
------------
Malaysia 3.0%
MY 628,000a Aokam Perdana, Bhd................................................................. 743,504
MY 418,000 Berjaya Singer, Bhd................................................................ 628,945
MY 89,000 Berjaya Singer, Bhd., fgn.......................................................... 133,914
MY 154,000 Boustead Holdings, Bhd., fgn....................................................... 344,526
MY 50,000 Federal Flour Mills, Bhd. ......................................................... 124,728
MY 152,000 Hong Leong Industries, Bhd......................................................... 517,600
MY 91,200a Hong Leong Industries, Bhd., new................................................... 308,755
MY 38,000a Hong Leong Industries, Bhd., warrants, fgn......................................... 9,028
Malaysia (cont.)
MY 44,000 Island & Peninsula, Bhd., fgn...................................................... $ 147,218
MY 179,000 Leader Universal Holdings, Bhd..................................................... 375,648
MY 282,666 Malaysian International Shipping Corp., Bhd., fgn.................................. 839,436
MY 529,000 MBF Capital, Bhd................................................................... 858,800
MY 237,500 Perlis Plantations, Bhd., fgn...................................................... 738,220
MY 796,000 Renong, Bhd........................................................................ 1,412,029
MY 16,750a Renong, Bhd., warrants............................................................. 8,224
MY 26,800 Renong, 4%, conv., 9/9/01.......................................................... 11,248
MY 732,000 Shangri-La Hotels (Malaysia), Bhd.................................................. 689,828
MY 123,000 Shangri La Hotels (Malaysia), Bhd., fgn............................................ 115,914
------------
8,007,565
------------
Mexico 10.7%
MX 1,524,000 Cementos Mexicanos, SA de CV (Cemex), Class B...................................... 5,943,445
MX 3,341,085a Cifra, SA, Class C ................................................................ 4,074,494
US 38,400 Coca Cola Femsa, SA de CV, ADR..................................................... 1,108,800
MX 181,938 Cydea, SA de CV.................................................................... 327,035
MX 110,034a DESC, SA, Class B.................................................................. 601,050
MX 2,292a DESC, SA, Class C.................................................................. 12,505
MX 250,000 Fomento Economico Mexicano, SA de CV, Class B...................................... 857,470
MX 13,429 Grupo Carso, SA de CV.............................................................. 70,796
MX 899,000a Grupo Financiero Banamex Accival, SA, Class B...................................... 1,898,041
MX 894,137a Grupo Financiero Banamex Accival, SA, Class L...................................... 1,760,559
MX 5,650,000a Grupo Financiero Bancomer, SA de CV, Class B....................................... 2,260,861
MX 941,259a Grupo Financiero Bancomer, SA de CV, Class L....................................... 316,862
MX 1,882,816a Grupo Financiero Serfin, SA, Class B............................................... 648,175
MX 97,000 Telmex-Telefonos de Mexico, SA, Class L............................................ 159,942
US 228,200 Telmex-Telefonos de Mexico, SA, Class L, ADR....................................... 7,530,600
MX 905,849 Vitro, SA ......................................................................... 1,645,534
------------
29,216,169
------------
Philippines 0.2%
PH 600,000a Keppel Philippine Holdings, Inc., Class B.......................................... 66,160
PH 2,198,000a Philex Minning Corp., Class B ..................................................... 250,722
PH 20,000a Philippine National Bank .......................................................... 237,643
PH 435,000 RFM Corp. ......................................................................... 74,430
------------
628,955
------------
Poland 0.9%
PL 64,955 Bank Gdanski, SA................................................................... 844,954
PL 69,000a Bank Inicjatyw Gospodarczch, SA, Class G........................................... 96,254
PL 13,638 Bank Przemyslowo-Handlowy, SA...................................................... 879,902
PL 9,000 Elektrim Towarzystwo Handlowe, SA.................................................. 81,607
PL 18,000 Mostostal Export, SA............................................................... 42,687
PL 17,410 Polifarb Ceiszyu, SA............................................................... 96,540
PL 10,000a Raciborska Fabryka Kotlow, SA...................................................... 56,846
PL 10,000 Warta, SA.......................................................................... 162,168
PL 1,242 Wielkopolski Bank Kredytowy, SA.................................................... 8,403
PL 11,072 Zaklady Cementowo Wapiennicze Gorazdze Chorula..................................... 276,086
------------
2,545,447
------------
Portugal 4.3%
PT 386,194 Banco Comercial Portugues, SA...................................................... $ 5,093,626
PT 162,680 Banco Espirito Santo e Comercial de Lisboa......................................... 2,862,245
PT 63,454 Banco Totta & Acores, SA........................................................... 1,196,643
PT 13,774a BPI Socieda de Gestora de Participacoes Socias .................................... 162,570
PT 36,248 BPI Socieda de Gestora de Participacoes Socias, SA................................. 451,201
US 99,840 Espirito Santo Financial Holding, SA, ADR.......................................... 1,322,880
PT 75,000 Portucel Industrial Empresa Product de Celulose, SA................................ 435,343
PT 3,000 Portugal Telecom, SA............................................................... 85,521
PT 7,010a Sociedade Portuguesa de Celulose, SA............................................... 187,174
------------
11,797,203
------------
Singapore 3.1%
SG 246,000 Acer Computer International, Ltd................................................... 423,120
SG 22,000a Acer Computer International, Ltd., warrants........................................ 10,340
SG 184,000 Acma, Ltd., fgn.................................................................... 397,113
SG 46,000a Acma, Ltd., fgn., warrants......................................................... 29,422
SG 18,000 British American Tobacco, Ltd...................................................... 77,181
SG 109,000 First Capital Corp., Ltd........................................................... 328,722
SG 238,000 First Capital Corp., Ltd., fgn..................................................... 717,759
SG 72,000 GP Batteries International, Ltd. .................................................. 239,040
SG 18,000a GP Batteries International, Ltd., warrants......................................... 22,860
SG 1,172,000 Hai Sun Hup Group, Ltd............................................................. 862,688
SG 167,000 Hinds Hotels International, Ltd.................................................... 213,628
SG 191,000 Hinds Hotels International, Ltd., fgn.............................................. 244,329
SG 100,000 Hour Glass, Ltd. .................................................................. 72,894
SG 241,000 Inchcape, Bhd., fgn................................................................ 837,033
SG 107,500 Isetan (Singapore), Ltd., fgn...................................................... 232,393
SG 194,000 Jurong Shipyard, fgn............................................................... 977,417
SG 78,000 Natsteel, Ltd. .................................................................... 177,260
SG 476,000 Natsteel, Ltd., fgn................................................................ 1,081,741
SG 177,000a Osprey Maritime, Ltd............................................................... 269,428
SG 142,000 Sembawang Corp., Ltd............................................................... 750,947
SG 148,000 WBL Corp., Ltd..................................................................... 346,916
------------
8,312,231
------------
Slovak Republic 0.2%
SS 3,600 Nafta Gbely, AS.................................................................... 179,649
SS 19,010 Slovnaft, AS....................................................................... 462,754
------------
642,403
------------
South Africa 3.3%
ZA 10,685 Anglo American Industrial Corp., Ltd............................................... 387,113
ZA 21,497 Anglo American Platinum Corp., Ltd................................................. 127,507
ZA 13,000 Anglovaal Industried, Ltd.......................................................... 58,769
ZA 715a Anglovaal Industries, Ltd., rights................................................. 55
ZA 538,000 BTR Dunlop, Ltd.................................................................... 583,595
ZA 1,127,300 Del Monte Royal Foods, Ltd......................................................... 1,132,480
ZA 319,029 Engen, Ltd......................................................................... 1,704,759
ZA 33,600 First National Bank Holdings, Ltd.................................................. 164,463
ZA 10,000 Kersaf Investments, Ltd............................................................ 91,643
ZA 32,100 Malbak, Ltd........................................................................ 140,654
ZA 40,000a McCarthy Retail, Ltd............................................................... 102,597
ZA 24,000 McCarthy Retail, zero, conv., 9/30/03 ............................................. 56,428
South Africa (cont.)
ZA 107,000 Palabora Mining Co., Ltd........................................................... $ 1,749,599
ZA 10,234 Potgietersrust Platinums, Ltd...................................................... 50,311
ZA 311,500a Rainbow Chicken, Ltd............................................................... 58,591
ZA 118,070 Rembrandt Group, Ltd............................................................... 1,053,633
ZA 7,800 Reunert, Ltd....................................................................... 25,842
ZA 58,318 Sappi, Ltd......................................................................... 523,534
ZA 3,000 South African Breweries, Ltd....................................................... 75,986
ZA 876,201 South African Iron & Steel Industrial Corp., Ltd................................... 625,523
ZA 430,685 Sun International, Ltd............................................................. 345,211
------------
9,058,293
------------
South Korea 2.4%
KR 12,000 Asia Cement Co., Ltd............................................................... 301,065
KR 50,000 Boram Bank Co., Ltd................................................................ 414,201
KR 5,430a Boram Bank Co., Ltd., new.......................................................... 42,091
KR 1,050 BYC Co., Ltd....................................................................... 111,834
KR 27,375 Central Banking Corp............................................................... 421,154
KR 5,677 Dae Duck Electronics Co., Ltd...................................................... 274,780
KR 58,682 Daegu Bank Co., Ltd................................................................ 700,705
KR 510 Daehan Synthetic Fiber Co., Ltd. .................................................. 44,361
KR 21,000 Dongkuk Steel Mill Co., Ltd........................................................ 415,030
KR 1,000 Hae In Corp., Ltd.................................................................. 44,734
US 28,902a Hana Bank, GDR..................................................................... 437,287
KR 3,950 Hankook Cosmetics Co., Ltd......................................................... 88,817
KR 44,390 Korea First Bank................................................................... 224,839
KR 54,000 Korea Kumho Petrochemical.......................................................... 447,337
KR 25,810 Kyong Nam Bank..................................................................... 283,146
KR 1,000 Moon Bae Steel Co., Ltd............................................................ 23,077
KR 75,000 Ssangyong Oil Refining Co., Ltd.................................................... 1,642,012
KR 41,447 Tong Yang Merchant Bank............................................................ 465,972
------------
6,382,442
------------
Sri Lanka
LK 36,000 Associated Motorways, Ltd. ........................................................ 17,134
LK 8,000 John Keells Holdings, Ltd.......................................................... 27,675
------------
44,809
------------
Taiwan
ZU 62,000a United Microelectronics Corp....................................................... 87,927
------------
Thailand 2.2%
TH 30,800 American Standard Sanitaryware (THB) Public Co., Ltd., fgn......................... 408,329
TH 3,900 Ayudhya Insurance Public Co., Ltd.................................................. 30,110
TH 43,600 Ayudhya Insurance Public Co., Ltd., fgn............................................ 336,614
TH 15,000 Bangkok Bank Public Co., Ltd....................................................... 111,713
TH 4,900 Bangkok Insurance, fgn............................................................. 69,547
TH 3,300 Bangkok Land Public Co., Ltd....................................................... 1,383
TH 580,500 Bangkok Land Public Co., Ltd., fgn................................................. 645,101
TH 138,000 Charoen Pokphand Feedmill Public Co., Ltd.......................................... 430,476
TH 253,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn.................................... 917,453
TH 16,000 Hua Thai Manufacturing Public Co., Ltd............................................. 42,424
TH 124,650 Karat Sanitaryware Public Co., Ltd., fgn........................................... 145,205
TH 50,700 Kian Gwan Public Co., Ltd., fgn.................................................... 137,396
Thailand (cont.)
TH 13,000a Land and House Public Co., Ltd..................................................... $ 88,201
TH 53,000 Regional Container Lines Public Co., Ltd., fgn..................................... 512,517
TH 313,500a Royal Ceramic Industry Public Co., Ltd., fgn....................................... 226,146
TH 80,700 Saha Pathanapibul Public Co., Ltd., fgn............................................ 188,801
TH 168,600 Saha Union Public Co., Ltd......................................................... 144,631
TH 390,000 Saha Union Public Co., Ltd., fgn................................................... 349,762
TH 42,600 Sanyo Universal Electric Public Co., Ltd........................................... 134,547
TH 5,200 Sanyo Universal Electric Public Co., Ltd., fgn..................................... 16,424
TH 2,900 Siam Cement Co., Ltd.(The), fgn.................................................... 90,915
TH 150,000 Siam City Bank Public Co., Ltd., fgn............................................... 140,373
TH 8,000a Siam Commercial Bank, Ltd., loc. .................................................. 52,406
TH 23,200 Sino-Thai Engineering & Construction Public Co..................................... 60,610
TH 87,100 Sino-Thai Engineering & Construction Public Co., fgn............................... 227,548
TH 116,410 Thai Asahi Glass Public Co., Ltd................................................... 130,499
TH 18,000 Thai Farmers Bank Public Co., Ltd.................................................. 87,733
TH 43,000 Thai Rayon Public Co., Ltd......................................................... 163,476
TH 2,300 Thai Rayon Public Co., Ltd., fgn................................................... 12,556
TH 26,400 Thai Wacoal Public Co., Ltd., fgn.................................................. 116,580
TH 8,450 Thai Wah Public Co., Ltd., fgn..................................................... 5,107
TH 4,500 United Motor Works (Siam) Public Co., Ltd.......................................... 15,002
------------
6,039,585
------------
Turkey 5.3%
TR 37,837,500 Akbank............................................................................. 5,146,179
TR 1,704,000a Alarko Sanayii ve Ticaret, SA...................................................... 235,685
TR 2,075,000a Alcatel Teletas Endustri Tic, AS................................................... 147,326
TR 4,688,000 Anadolu Anonim Turk Sigorta Sirketi................................................ 207,491
TR 4,324,971 Arcelik, AS ....................................................................... 438,678
TR 312,000 Bagfas............................................................................. 70,484
TR 4,348,086 Beko Elektronik, AS................................................................ 410,953
TR 1,580,000 Borusan, AS........................................................................ 99,069
TR 3,223,070 Cimentas Izmir Cimento Fabrikasi Turk, AS.......................................... 341,773
TR 1,515,000 Cimsa Cimento Sanayi ve Ticaret, AS................................................ 139,696
TR 201,000 Erciyas Biracilik.................................................................. 21,777
TR 17,375,000 Eregli Demir ve Celik Fabrikalari, AS ............................................. 2,082,757
TR 1,970,571 Izocam Ticaret ve Sanayii, AS...................................................... 130,826
TR 4,291,666 Koc Holding, AS.................................................................... 751,882
TR 3,446,800 Koc Yatirim ve Sanayii Mamullesi Pazarlanca, AS.................................... 659,485
TR 1,620,528 Marshall Boya ve Vernik Sanayii, AS................................................ 124,024
TR 1,958,000 Netas Northern Electric Telekomunic Asyon, AS...................................... 442,333
TR 699,200 Otosan Otomobil Sanayii, AS ....................................................... 283,677
TR 280,000 Petkim Petrokimya Holding, AS...................................................... 112,310
TR 1,907,865 Tat Konserve Sanayii, AS........................................................... 285,872
TR 15,009,350a Tofas Turk Otomobil Fabrikasi, AS.................................................. 588,195
TR 2,584,450 Trakya Cam Sanayii, AS............................................................. 131,069
TR 4,169,996 Turk Demir Dokum................................................................... 376,818
TR 23,861,400 Turkiye Garanti Bankasi, AS ....................................................... 1,078,108
TR 2,141,344 Vakif Finansal Kiralama, AS ....................................................... 82,929
------------
14,389,396
------------
Venezuela 2.5%
VE 256,080 Ceramica Carabobo CA, Class A...................................................... $ 279,601
US 154,000 Ceramica Carabobo CA, Class A, ADR................................................. 168,145
VE 2,765,696 Consolidada Carabobo, Class B...................................................... 112,658
VE 1,198,018 Electricidad de Caracas............................................................ 1,214,986
VE 60,000 Industrias Ventane................................................................. 40,063
VE 10,000a Manufacturera de Aparatos Domesticos, SA........................................... 11,045
US 387,000 Mavesa, SA, ADR.................................................................... 2,591,349
VE 50,000 Siderurgica Venezolana Sivensa Saica Svs........................................... 37,585
US 241,650 Siderurgica Venezolana Sivensa Saica Svs., ADR..................................... 908,238
US 22,878b Siderurgica Venezolana Sivensa SAICA Svs., ADR, Class B, new....................... 78,661
VE 361,600 Vencemos de Cementos, SA........................................................... 987,034
VE 110,240 Venezolana de Cementos-Vencemos #2................................................. 293,970
------------
6,723,335
------------
Zimbabwe 0.2%
ZW 14,000 Delta Corp......................................................................... 49,057
ZW 25,000 Ta Holdings........................................................................ 4,034
ZW 587,000 Transarchipel Shipping, Ltd.- TSL.................................................. 378,902
ZW 2,646 Zimbabwe Sun, Ltd.................................................................. 988
------------
432,981
------------
Total Common Stocks, Rights and Warrants (Cost $205,898,556)................. 224,400,671
------------
Preferred Stocks 7.5%
Brazil 7.4%
BR 110,000,000a Banco do Brazil, SA, pfd........................................................... 952,748
BR 264,298,700a Banespa-Banco do Estado de Sao Paulo, SA, pfd...................................... 1,271,767
BR 4,496,000 Brasmotor, SA, pfd................................................................. 1,248,288
BR 2,975,700 Copene-Petroquimica do Nordeste, SA, Class A, pfd.................................. 1,145,491
BR 50,115,800 Duratex, SA, pfd................................................................... 1,880,970
BR 11,529,000 Eletrobras-Centrais Eletricas Brasileiras, SA, Class B, pfd........................ 4,282,739
BR 1,484,200 Itausa-Investimentos Itau, SA, pfd................................................. 1,114,114
BR 362,700a Mannesmann, SA, pfd................................................................ 52,358
BR 46,537,000 Petrobras-Petroleo Brasileiro, SA, pfd............................................. 7,412,062
BR 30,878,000 Unibanco-Uniao de Bancos Brasileiros, SA, pfd...................................... 1,007,376
------------
20,367,913
------------
South Africa 0.1%
ZA 747,600a Rainbow Chicken Ltd., conv., pfd................................................... 153,403
------------
Total Preferred Stocks (Cost $19,127,504).................................... 20,521,316
------------
Total Long Term Investments (Cost $225,026,060).............................. 244,921,987
------------
Face
Amount
Short Term Investments 10.1%
US $27,804,000 U S Treasury Bills, with maturities through 3/27/97 (Cost $27,567,030)............. 27,569,514
------------
Total Investments 100.1% (Cost $252,593,090) ........................... 272,491,501
Liabilities in Excess of Other Assets (0.1%) ........................... (393,080)
------------
Net Assets 100.0% ...................................................... $272,098,421
============
At December 31, 1996, the net unrealized
depreciation based on the cost of investments for
income tax purposes of $252,696,690 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 46,909,792
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (27,114,981)
------------
Net unrealized appreciation ..................................................... $ 19,794,811
============
</TABLE>
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
ZU - Taiwan
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.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Country* Rights Templeton Global Growth Fund (Note 1)
Common Stocks & Rights 85.1%
Argentina 2.2%
<S> <C> <C> <C>
AR 681,655 Inversiones y Representacion....................................................... $ 2,188,506
US 1,400b Inversiones y Representacion, GDR.................................................. 44,625
US 50,000 Telecom Argentina Stet France, SA, ADR............................................. 2,018,750
US 386,900 Transportadora de Gas del Sur, SA, Class B, ADR.................................... 4,739,525
US 155,000 YPF Sociedad Anonima, ADR.......................................................... 3,913,750
------------
12,905,156
------------
Australia 3.2%
AU 1,070,707 Coles Myer, Ltd., Class A.......................................................... 4,408,443
AU 2,129,730 HIH Winterthur International Holdings, Ltd......................................... 5,332,366
AU 34,179 Pacific BBA, Ltd................................................................... 120,350
AU 2,149,000 Pacific Dunlop, Ltd. .............................................................. 5,466,020
AU 712,750 RGC, Ltd........................................................................... 3,166,897
------------
18,494,076
------------
Austria 1.6%
AT 30,000 Boehler Uddeholm, AG............................................................... 2,146,715
AT 35,400 Evn Energie-Versorgung Niederoesterreich, AG....................................... 5,327,732
AT 13,000 VA Technologies, AG, Bearer certificate............................................ 2,039,934
------------
9,514,381
------------
Bermuda 2.3%
US 80,000 Ace, Ltd........................................................................... 4,810,000
US 255,000 Partnerre, Ltd..................................................................... 8,670,000
------------
13,480,000
------------
Brazil 0.6%
BR 129,100,000 Companhia Siderurgica Nacional..................................................... 3,665,143
------------
Canada 0.9%
CA 119,700 Intrawest Corp..................................................................... 2,141,324
CA 74,000a Newbridge Networks Corp............................................................ 2,090,500
CA 195,000 Primex Forest Products, Ltd. ...................................................... 1,124,822
------------
5,356,646
------------
China 1.0%
CN 23,000,000 Shanghai Hai Xing Shipping Co., Class H............................................ 2,676,320
CN 13,356,000 Yizheng Chemical Fibre Co., Ltd., Class H.......................................... 3,246,400
------------
5,922,720
------------
Czech Republic 1.0%
US 171,000b Komercni Banka, AS, GDR............................................................ 4,688,820
CZ 9,000a SPT Telecom, AS.................................................................... 1,120,615
------------
5,809,435
------------
Denmark 1.0%
DK 110,200 Tele Danmark, AS, Class B.......................................................... 6,081,678
------------
Ecuador 0.2%
US 400b La Cemento Nacional CA, GDR........................................................ 91,600
US 3,600b La Cemento Nacional CA, GDR........................................................ 824,400
------------
916,000
------------
Finland 2.4%
FI 145,000a Enso OY, Class R................................................................... 1,175,761
FI 270,000 Metsa Serla OY, Class B............................................................ 2,025,000
FI 130,000 Nokia, AB, Class A................................................................. 7,545,652
Finland (cont.)
FI 65,000 Outokumpu OY, Class A ............................................................. $ 1,109,239
FI 88,000a UPM-Kymmene Corp. ................................................................. 1,846,087
------------
13,701,739
------------
France 6.7%
FR 30,490 Alcatel Alsthom, SA ............................................................... 2,450,961
FR 157,102 AXA, SA ........................................................................... 9,998,777
FR 126,500 Banque Nationale de Paris ......................................................... 4,898,978
FR 23,792 Compagnie Generale D' Industrie Et de Participati ................................. 6,566,317
US 112,708 Pechiney, SA, ADR ................................................................. 2,254,160
FR 83,000 Pechiney, SA, Class A ............................................................. 3,480,077
FR 5,388a Sa des Galeries Lafayette ......................................................... 1,918,273
FR 41,972 Societe Elf Aquitane, SA .......................................................... 3,823,216
FR 32,029 Union du Credit Bail Immobilier Unibail ........................................... 3,187,457
------------
38,578,216
------------
Germany 0.4%
DD 6,300 Volkswagen, AG .................................................................... 2,616,640
------------
Greece 0.5%
GR 36,266 Alpha Credit Bank ................................................................. 2,307,876
US 5,867 Alpha Credit Bank, ADR............................................................. 373,340
------------
2,681,216
------------
Hong Kong 4.3%
HK 800,000 Cheung Kong Holdings, Ltd. ........................................................ 7,110,996
HK 1,608,500 Hongkong Electric Holdings, Ltd. .................................................. 5,344,683
HK 278,149 HSBC Holdings, Plc. ............................................................... 5,951,730
HK 800,000 Jardine Strategic Holdings, Ltd. .................................................. 2,896,000
HK 3,600,000 Shun Tak Holdings ................................................................. 2,397,052
HK 150,000 Swire Pacific, Ltd., Class A ...................................................... 1,430,280
HK 75,000 Swire Pacific, Ltd., Class B ...................................................... 113,453
------------
25,244,194
------------
Hungary 0.6%
US 256,358b MOL Magyar Olay - Es Gazipari RT, GDS ............................................. 3,204,475
------------
India 0.3%
GB 720,000a India Fund, (The), Class B ........................................................ 1,060,746
US 37,000b Larsen and Toubro, Ltd., GDR ...................................................... 539,275
------------
1,600,021
------------
Indonesia 0.3%
ID 305,700a Asia Pacific Resources International, Class A ..................................... 1,719,563
------------
Italy 1.6%
IT 896,800 Banca Fideuram, SPA ............................................................... 1,971,067
IT 1,745,200 Fiat, SpA ......................................................................... 5,262,077
IT 962,290 Telecom Italia, SPA, di Risp ...................................................... 1,913,789
------------
9,146,933
------------
Japan 2.0%
JP 230,000 Daito Trust Construction Co., Ltd. ................................................ 2,561,955
JP 603,500 Hitachi, Ltd. ..................................................................... 5,628,011
JP 200,000 Matsushita Electric Industrial Co., Ltd. .......................................... 3,263,967
------------
11,453,933
------------
Mexico 1.7%
MX 176,000 Alfa, SA de CV, Class A ........................................................... $ 812,703
US 901,000a Alfa, SA de CV, Class A, ADR ...................................................... 4,160,487
MX 1,900,000a Cifra, SA, Class B ................................................................ 2,317,073
US 86,400 Telefonos de Mexico, SA, Class L, ADR ............................................. 2,851,200
------------
10,141,463
------------
Netherlands 1.5%
NL 56,500 European Vinyls Corp., International, NV .......................................... 1,793,339
NL 105,188 Ing Groep, NV ..................................................................... 3,789,571
NL 50,000 Koninklijke Frans Maas Groep, NV .................................................. 2,056,183
NL 40,000 Koninklijke Nedlloyd, NV .......................................................... 1,098,175
------------
8,737,268
------------
New Zealand 0.4%
NZ 583,873 Fisher & Paykel, Ltd. ............................................................. 2,290,864
------------
Norway 0.5%
NO 180,600 Helikopter Services Group, ASA .................................................... 2,350,235
NO 45,000a Nycomed, AS, Class B .............................................................. 691,439
------------
3,041,674
------------
Philippines 0.9%
PH 19,923,321 Metro Pacific Corp., MDI .......................................................... 4,924,015
------------
South Africa 0.5%
ZA 200,000 Rustenburg Platinum Holdings, Ltd. ................................................ 2,735,920
------------
South Korea 1.1%
KR 5,961a Byuck San Corp., rights ........................................................... 2,822
KR 17,000 Byucksan Development Co., Ltd. .................................................... 205,207
KR 11,227 Keumkang Co., Ltd. ................................................................ 511,526
KR 100,000 Pacific Chemical Co., Ltd. ........................................................ 1,976,331
KR 19,560 Pohang Iron & Steel Co., Ltd. ..................................................... 1,213,791
KR 123,920 Shinhan Bank Co., Ltd. ............................................................ 1,983,728
KR 1,000 Tae Kwang Industrial Co., Ltd. .................................................... 331,953
------------
6,225,358
------------
Spain 2.9%
ES 4,400 Banco Popular Espanol, SA ......................................................... 864,240
ES 75,000 Banco Santander, SA ............................................................... 4,800,693
ES 63,900 Cristaleria Espanola, SA .......................................................... 5,020,451
ES 450,000 Iberdrola, SA ..................................................................... 6,377,816
------------
17,063,200
------------
Sweden 4.1%
SE 35,000 Asea, AB, Class A ................................................................. 3,951,700
SE 192,100 Assidomaen, AB .................................................................... 5,351,877
SE 722,500 Munksjo, AB ....................................................................... 7,309,911
SE 12,400b Nordbanken, AB .................................................................... 375,463
SE 190,000 Skandia Foersaekrings, AB, free ................................................... 5,376,951
SE 68,000 Volvo, AB, Class B ................................................................ 1,500,620
------------
23,866,522
------------
Switzerland 3.0%
CH 2,200 Kuoni Reisen Holding, AG, Class B ................................................. $ 5,341,801
CH 4,160a Novartis, AG ...................................................................... 4,764,494
CH 3,000 Societe Generale de Surveillance Holdings, Ltd., bearer certificate ............... 7,373,926
------------
17,480,221
------------
Thailand
TH 26,800a MDX Public Co., Ltd. .............................................................. 20,639
------------
United Kingdom 6.3%
GB 121,606 BICC .............................................................................. 1,397,983
US 655,100a,b British Energy, Ltd., ADR ......................................................... 1,649,702
GB 1,376,200 British Gas, Plc. ................................................................. 5,292,714
GB 1,074,500 British Telecommunications, Plc. .................................................. 7,261,628
GB 1,180,000 BTR, Plc. ......................................................................... 5,740,912
GB 135,000 BTR, Plc., Class A ................................................................ 620,221
GB 1,455,000a Cordiant, Plc. .................................................................... 2,567,324
GB 1,396,100 Dawson International, Plc. ........................................................ 1,375,197
GB 466,666 Lex Service, Plc. ................................................................. 2,542,224
GB 256,000 London Pacific Group, Ltd. ........................................................ 918,765
GB 249,000 McBride, Plc. ..................................................................... 580,121
GB 320,554 National Power, Plc. .............................................................. 2,685,286
GB 225,493 Safeway, Plc. ..................................................................... 1,560,612
GB 275,300 W.H. Smith Group .................................................................. 2,025,582
------------
36,218,271
------------
United States 29.1%
US 85,000 A T & T Corp. ..................................................................... 3,697,500
US 97,400 A.G. Edwards, Inc. ................................................................ 3,275,075
US 294,000 Archer Daniels Midland Co. ........................................................ 6,468,000
US 339,000a Banner Aerospace, Inc. ............................................................ 2,923,875
US 230,000a Bay Networks, Inc. ................................................................ 4,801,250
US 27,000 Citicorp .......................................................................... 2,781,000
US 169,500 Dayton-Hudson Corp. ............................................................... 6,652,875
US 109,300 Dean Witter Discover & Co. ........................................................ 7,241,125
US 84,800a DSC Communications Corp. .......................................................... 1,515,800
US 58,500 Entergy Corp. ..................................................................... 1,623,375
US 156,000 Federal National Mortgage Association ............................................. 5,811,000
US 90,000 Ford Motor Co. .................................................................... 2,868,750
US 136,500a Fruit of the Loom, Inc., Class A .................................................. 5,169,938
US 89,000 General Growth Properties ......................................................... 2,870,250
US 60,000 General Motors Corp. .............................................................. 3,345,000
US 66,000 General Motors Corp., Class H ..................................................... 3,712,500
US 34,000 Georgia-Pacific Corp. ............................................................. 2,448,000
US 70,000 Goodyear Tire & Rubber Co. ........................................................ 3,596,250
US 269,000 Highwood Properties, Inc., REIT ................................................... 9,078,750
US 34,700 Horizon Group Inc. ................................................................ 689,663
US 52,800 Houghton Mifflin Co. .............................................................. 2,989,800
US 250,000a Humana, Inc. ...................................................................... 4,781,250
US 14,600 IBP, Inc. ......................................................................... 354,050
US 35,200 International Business Machines Corp. ............................................. 5,315,200
US 48,900a Landstar System, Inc. ............................................................. 1,136,925
US 97,902 Limited, Inc. ..................................................................... 1,798,949
US 27,547 Lucent Technologies Inc. .......................................................... 1,274,049
United States (cont.)
US 42,000 Merrill Lynch & Co., Inc. ......................................................... $ 3,423,000
US 100,000 Motorola, Inc. .................................................................... 6,137,500
US 32,000 National Health Investors, Inc. ................................................... 1,212,000
US 157,000a OMI Corp. ......................................................................... 1,373,750
US 50,000 Owens Corning ..................................................................... 2,131,250
US 70,000 PECO Energy Co. ................................................................... 1,767,500
US 151,700 Pharmacia & Upjohn ................................................................ 6,011,113
US 150,000a Pinnacle Systems Inc. ............................................................. 1,575,000
US 150,000 Post Properties Inc. .............................................................. 6,037,500
US 24,000 Reliastar Financial Corp. ......................................................... 1,386,000
US 80,000 Rouse Co. ......................................................................... 2,540,000
US 130,000a Syms Corp. ........................................................................ 1,105,000
US 120,000 Torchmark Corp. ................................................................... 6,060,000
US 127,467 Travelers, Inc. ................................................................... 5,783,800
US 172,200 U.S. West Communications Group .................................................... 5,553,450
US 114,200 UNUM Corp. ........................................................................ 8,250,950
US 81,000 Valero Energy Corp. ............................................................... 2,318,625
US 115,000 Weeks Corp. ....................................................................... 3,823,750
US 240,000 Wheelabrator Technologies, Inc. ................................................... 3,900,000
------------
168,610,387
------------
Total Common Stocks & Rights (cost $409,794,932)............................. 493,447,967
------------
Preferred Stocks 4.4%
Australia 0.8%
AU 1,093,400 News Corp. Ltd. ................................................................... 4,866,895
------------
Brazil 2.3%
BR 258,441,822 Banco Bradesco, SA, pfd. .......................................................... 1,872,839
BR 151,938,238 Cemig-Cia Energetica de Minas Gerais, pfd.......................................... 5,176,223
BR 1,952,000 Coteminas Cia Tecidos Norte de Minas, pfd. ........................................ 622,946
US 75,000 Telebras-Telecomunicacoes Brasileiras, SA, pfd., ADR .............................. 5,737,500
------------
13,409,508
------------
Greece 0.4%
GR 374,380 Michaniki, SA, pfd. ............................................................... 2,481,096
------------
Italy 0.8%
IT 2,203,300 Concessioni e Costruzioni Autostrade, SpA, Class B, pfd. .......................... 4,331,025
------------
Mexico 0.1%
US 6,500 Nacional Financiera, SA, 11.25%, 5/15/98, cvt. pfd. ............................... 221,000
------------
Total Preferred Stocks (Cost $20,478,167) ................................... 25,309,524
------------
Total Common Stocks, Rights & Preferred Stocks (Cost $430,273,099) .......... 518,757,491
------------
Face
Amount
Convertible Bonds 1.3%
Italy 0.8%
US $ 4,950,000 Government of Italy, cvt., 5.00%, 6/28/01 ......................................... 4,888,125
------------
Mexico 0.2%
US 1,210,000 Empresas ICA Sociedad Controladora, SA, cvt., 5.00%, 3/15/04 ...................... 840,950
------------
Switzerland 0.1%
US 365,000 C.S. Holding Finance BV, cvt., 4.875%, 11/19/02 ................................... 573,050
------------
Thailand 0.2%
US $ 3,602,000 MDX Public Co., Ltd., cvt., 4.75%, 9/17/03 ........................................ $ 1,386,770
------------
Total Convertible Bonds (Cost $7,798,236) ................................... 7,688,895
------------
Total Long Term Investments (Cost $438,071,335) ............................. 526,446,386
------------
h Receivables from Repurchase Agreements 10.7%
44,353,000 Aubrey G. Lanston & Co., 6.75%, 01/02/97, (Maturity Value $45,728,142)
(Cost $61,988,000)
Collateral: U.S. Treasury Notes, 6.875%, 7/31/99 ................................. 45,711,000
16,075,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $16,283,104)
Collateral: U.S. Treasury Notes, 6.25%, 7/31/98 .................................. 16,277,000
------------
Total Receivables From Repurchase Agreements ............................... 61,988,000
------------
Total Investments (Cost $500,059,335) 101.5% ........................... 588,434,386
Liabilities in Excess of Other Assets (1.5%) ........................... (8,556,999)
------------
Net Assets 100.0%....................................................... $579,877,387
============
At December 31, 1996, the net unrealized
appreciation based on the cost of investments for
income tax purposes of $500,072,682 was as
follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $110,740,401
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ....................................... (22,378,697)
------------
Net unrealized appreciation ..................................................... $ 88,361,704
============
</TABLE>
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
IN - India
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherland
NO - Norway
NZ - New Zealand
PH - Philippines
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATION:
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.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Country* Shares Templeton Global Asset Allocation Fund (Note 1)
Common Stocks 55.5%
Argentina 0.3%
<S> <C> <C> <C>
US 2,000 Telecom Argentina Stet France, SA, ADR ............................................ $ 80,750
US 6,900 Transportadora de Gas del Sur, SA, Class B, ADR ................................... 84,525
------------
165,275
------------
Australia 1.2%
AU 60,707 Coles Myer, Ltd., Class A ......................................................... 249,950
AU 95,654 HIH Winterthur International Holdings, Ltd. ....................................... 239,496
AU 42,439 Pacific BBA, Ltd. ................................................................. 149,435
AU 2,550 Pacific Dunlop, Ltd. .............................................................. 6,486
AU 10,182 RGC, Ltd. ......................................................................... 45,241
------------
690,608
------------
Austria 0.9%
AT 1,060b Boehler Uddeholm, AG .............................................................. 75,851
AT 3,000 Evn Energie-Versorgung Niederoesterreich, AG ...................................... 451,503
------------
527,354
------------
Bermuda 1.9%
US 8,400 Ace, Ltd. ......................................................................... 505,050
US 17,500 Partnerre, Ltd. ................................................................... 595,000
------------
1,100,050
------------
Brazil 2.0%
US 7,500 Cia Energetica de Minas Gerais, ADR ............................................... 255,510
BR 16,300,000 Companhia Siderurgica Nacional .................................................... 462,756
US 7,700 Companhia Siderurgica Nacional, ADR ............................................... 218,603
US 12,600 Lojas Americanas, SA, ADR ......................................................... 166,125
------------
1,102,994
------------
Canada 1.1%
CA 20,200 Hudsons Bay Co. ................................................................... 337,761
CA 15,200 Intrawest Corp. ................................................................... 271,914
------------
609,675
------------
Chile 0.2%
US 4,800 Madeco Manufacturera de Cobre, SA, ADR ............................................ 116,400
------------
China 0.7%
HK 286,000 Shanghai Pechemical Co., Ltd., Class H ............................................ 86,896
HK 1,332,000 Yizheng Chemical Fibre Co., Ltd., Class H ......................................... 323,765
------------
410,661
------------
Colombia 0.1%
US 5,000a,b Cementos Paz del Rio, SA, ADR ..................................................... 63,750
------------
Czech Republic 0.4%
CZ 2,000a SPT Telecom, AS ................................................................... 249,026
------------
Denmark 0.4%
DK 4,000 Tele Danmark, AS, Class B ......................................................... 220,751
------------
Ecuador 0.7%
US 400 La Cemento Nacional CA, GDR ....................................................... 91,600
US 1,400b La Cemento Nacional CA, GDR ....................................................... 320,600
------------
412,200
------------
Egypt 0.9%
EG 31,299a Suez Cement Co. ................................................................... 507,367
------------
Finland 0.9%
FI 10,000a Enso OY, Class R .................................................................. $ 81,087
FI 3,750 Metsa Serla OY, Class B ........................................................... 28,125
FI 5,000 Nokia, AB, Class A ................................................................ 290,217
FI 4,200a UPM-Kymmene Corp. ................................................................. 88,109
------------
487,538
------------
France 4.0%
FR 12,331 AXA, SA ........................................................................... 784,808
FR 9,000 Banque Nationale de Paris ......................................................... 348,544
FR 7,418 Regie Nationale des Usines Renault, SA ............................................ 159,519
FR 9,700 Rhone-Poulenc, SA, Class A ........................................................ 330,941
FR 1,805 Societe Elf Aquitane, SA .......................................................... 164,417
FR 2,556 Total, SA, Class B ................................................................ 208,029
FR 2,500 Union du Credit Bail Immobilier Unibail ........................................... 248,795
------------
2,245,053
------------
Germany 0.3%
DD 360 Volkswagen, AG .................................................................... 149,522
------------
Greece 0.3%
GR 3,066 Alpha Credit Bank ................................................................. 195,112
------------
Hong Kong 2.2%
HK 32,000 Cheung Kong Holdings, Ltd. ........................................................ 284,440
HK 111,000 Grand Hotel Holdings, Ltd. ........................................................ 46,642
HK 1,114,960 Hon Kwok Land Investment Co., Ltd. ................................................ 432,462
HK 7,963 Peregrine Investments Holdings, Ltd. .............................................. 13,641
HK 244,000 Shun Tak Holdings ................................................................. 162,467
HK 774,000 Yue Yuen Industrial (Holdings), Ltd. .............................................. 295,210
------------
1,234,862
------------
Hungary 0.3%
US 12,107b MOL Magyar Olay - Es Gazipari, RT, GDS ............................................ 151,337
------------
Indonesia 0.5%
US 19,300a Asia Pacific Resources International, Class A ..................................... 108,562
ID 1,000 PT Bank Bali, fgn. ................................................................ 2,498
ID 154,000 PT Lippo Bank, fgn. ............................................................... 149,958
------------
261,018
------------
Irish Republic 0.7%
GB 42,733 Bank of Ireland ................................................................... 390,552
------------
Italy 0.4%
IT 74,700 Banca Fideuram, SpA ............................................................... 164,182
IT 10,000 STET (Sta Finanziaria Telefonica Torino), SpA ..................................... 45,468
------------
209,650
------------
Japan 0.8%
JP 12,000 Daito Trust Construction Co., Ltd. ................................................ 133,667
JP 5,000 Matsushita Electric Industrial Co., Ltd. .......................................... 81,599
JP 3,500 Nintendo Co., Ltd. ................................................................ 249,331
------------
464,597
------------
Mexico 1.4%
MX 26,800 Alfa, SA de CV, Class A ........................................................... 123,753
MX 58,000a,b Alfa, SA de CV, Class A ........................................................... 267,823
Mexico (cont.)
MX 96,200a Cifra, SA, Class B ................................................................ $ 117,317
US 3,000a Empresas ICA Sociedad Controladora, SA, ADR ....................................... 43,875
US 6,709 Telmex-Telefonos de Mexico, SA, Class L, ADR ...................................... 221,397
------------
774,165
------------
Netherlands 0.5%
NL 5,097 Ing Groep, NV ..................................................................... 183,628
NL 2,900 Philips Electronics, NV ........................................................... 117,579
------------
301,207
------------
New Zealand 0.4%
NZ 51,300 Ceramico Corp., Ltd. .............................................................. 48,960
US 9,000a Tranz Rail Holdings, Ltd., ADR .................................................... 159,187
------------
208,147
------------
Norway 0.5%
NO 14,800 Elkem, AS ......................................................................... 243,650
NO 1,700 Hafslund, ASA, Class B ............................................................ 11,648
NO 1,700a Nycomed, ASA, Class B ............................................................. 26,121
------------
281,419
------------
Russia 0.5%
US 10,000b Mosenergo, ADR .................................................................... 308,000
------------
South Africa
ZA 400 Rustenburg Platinum Holdings, Ltd. ................................................ 5,472
------------
South Korea 0.4%
KR 9,000 Korea Long Term Credit Bank ....................................................... 158,557
KR 940 Pohang Iron & Steel Co., Ltd. ..................................................... 58,331
------------
216,888
------------
Spain 0.9%
ES 9,500 Dragados y Construcciones, SA ..................................................... 146,351
ES 20,500 Iberdrola, SA ..................................................................... 290,545
ES 1,750 Telefonica de Espana, SA .......................................................... 40,641
------------
477,537
------------
Sweden 2.7%
SE 2,300 Electrolux, AB, Class B ........................................................... 133,551
SE 165a Fastighets Naeckebro, AB, Class A ................................................. 2,831
SE 5,000 Marieberg Tidnings, AB, Class A ................................................... 122,437
SE 9,575 Mo Och Domsjoe, AB, Class B ....................................................... 269,566
SE 18,000b Nordbanken, AB..................................................................... 545,027
SE 13,800 Skandia Foersaekrings, AB ......................................................... 390,536
SE 1,650 Svenska Handelsbanken, Class A .................................................... 47,420
------------
1,511,368
------------
Switzerland 1.6%
CH 4,085 CS Holding ........................................................................ 419,640
CH 70 Kuoni Reisen Holding, AG, Class B ................................................. 169,966
CH 115 Societe Generale de Surveillance Holdings, Ltd. ................................... 282,667
------------
872,273
------------
Thailand 0.2%
TH 30,000 Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. 108,789
------------
United Kingdom 4.4%
GB 66,780 British Energy, Ltd. .............................................................. $ 168,168
US 47,700a,b British Energy, Ltd., ADR ......................................................... 120,120
GB 40,000 British Gas, Plc. ................................................................. 153,836
GB 65,000 British Telecommunications, Plc. .................................................. 439,279
GB 23,400 BTR, Plc. ......................................................................... 113,845
GB 45,000a Cordiant, Plc. .................................................................... 79,402
GB 13,500 Dawson International, Plc. ........................................................ 13,298
GB 76,100 Invesco, Plc. ..................................................................... 338,300
GB 21,666 Lex Service, Plc. ................................................................. 118,028
GB 118,414 Railtrack Group, Plc. ............................................................. 786,059
US 7,000 Sea Containers, Ltd., Class A ..................................................... 109,375
GB 2,200 W.H. Smith Group .................................................................. 16,187
------------
2,455,897
------------
United States 20.8%
US 7,000 AT&T Corp. ........................................................................ 304,500
US 1,100 A.G. Edwards, Inc. ................................................................ 36,987
US 2,860 AK Steel Holding Corp., REIT ...................................................... 113,327
US 16,800 Archer Daniels Midland Co. ........................................................ 369,600
US 33,026a Bay Networks, Inc. ................................................................ 689,418
US 5,900 Beacon Properties Corp. ........................................................... 216,087
US 6,800 Carramerica Realty Corp. .......................................................... 198,900
US 2,400 Citicorp .......................................................................... 247,200
US 5,000 Crescent Real Estate Equities Co., REIT ........................................... 263,750
US 11,100 Dayton-Hudson Corp. ............................................................... 435,675
US 10,000 Dean Witter Discover & Co. ........................................................ 662,500
US 15,200 Entergy Corp. ..................................................................... 421,800
US 12,450a Fruit of the Loom, Inc., Class A .................................................. 471,544
US 2,700 General Motors Corp. .............................................................. 150,525
US 3,100 General Motors Corp., Class H ..................................................... 174,375
US 2,500 Georgia-Pacific Corp. ............................................................. 180,000
US 3,600 Goodyear Tire & Rubber Co. ........................................................ 184,950
US 12,200a Healthsource, Inc. ................................................................ 160,125
US 16,600 Highwoods Properties, Inc., REIT .................................................. 560,250
US 12,000 Horizon Group, Inc. ............................................................... 238,500
US 9,500 Houghton Mifflin Co. .............................................................. 537,938
US 18,200a Humana, Inc. ...................................................................... 348,075
US 3,500 International Business Machines Corp. ............................................. 528,500
US 13,000a Landstar System, Inc. ............................................................. 302,250
US 2,268 Lucent Technologies, Inc. ......................................................... 104,895
US 2,000 Merrill Lynch & Co., Inc. ......................................................... 163,000
US 5,300 Motorola, Inc. .................................................................... 325,287
US 8,000 Oregon Steel Mills, Inc. .......................................................... 134,000
US 1,800 PECO Energy Co. ................................................................... 45,450
US 5,200a Pinnacle Systems, Inc. ............................................................ 54,600
US 7,600 Post Properties, Inc., REIT ....................................................... 305,900
US 12,000 Presidential Life Corp. ........................................................... 144,750
US 13,500 Rouse Co. ......................................................................... 428,625
US 15,000 Summit Properties, Inc., REIT ..................................................... 331,875
US 17,500 Sun Co., Inc. ..................................................................... 426,563
US 1,400 Texas Utilties Co. ................................................................ 57,050
US 7,000 Torchmark Corp. ................................................................... 353,500
United States (cont.)
US 4,000 UNUM Corp. ........................................................................ $ 289,000
US 1,000 U.S. West Communications Group .................................................... 32,250
US 2,400 Valero Energy Corp. ............................................................... 68,700
US 7,100 Walbro Corp. ...................................................................... 129,575
US 7,500 Weeks Corp. ....................................................................... 249,375
US 17,000 Wheelabrator Technologies, Inc. ................................................... 276,250
------------
11,717,421
------------
Total Common Stocks (Cost $26,378,839) ...................................... 31,203,935
------------
Preferred Stocks 1.5%
Argentina 1.2%
US 4,700 Cia de Inversiones en Telecomunicaciones, SA, pfd. cvt. ........................... 246,750
US 7,800b Cia Inversiones Telecomunicaciones, SA, pfd., cvt. ................................ 409,500
------------
656,250
------------
Greece 0.3%
GR 29,990 Michaniki, SA, pfd. ............................................................... 198,750
------------
Total Preferred Stocks (Cost $921,813)....................................... 855,000
------------
Total Common Stocks and Preferred Stocks (Cost $27,300,652).................. 32,058,935
------------
Face
Amount
Bonds 28.1%
Argentina 1.4%
US $ 100,000 Bridas Corp., Yankee, 12.50%, 11/18/99 ............................................ 107,750
US 100,000b Industrias Metalurgicas Pescarmona,11.75%, 03/27/98 ............................... 103,000
US 100,000 Republic of Argentina, 6.375%, FRN, 03/31/23 ...................................... 77,125
US 160,000 Republic of Argentina, Series L, 5.25%, VRN, 03/31/23 ............................. 102,000
US 200,000 Republic of Argentina, 11.00%, 10/09/06 ........................................... 211,000
US 200,000 Republic of Argentina, 9.25%, 02/23/01 ............................................ 202,000
------------
802,875
------------
Australia 2.1%
AU 1,240,000 Government of Australia, 10.00%, 10/15/02 ......................................... 1,118,454
AU 7,971 HIH Winterthur International Holdings, Ltd., 8.00%, 11/02/01 ...................... 33,706
------------
1,152,160
------------
Brazil 1.3%
US 150,000b Centrais Electricas Brasileiras, SA, 10.00%, 10/30/98 ............................. 156,000
US 100,000 Government of Brazil, 5.00%, 04/15/24 ............................................. 63,000
US 250,000 Government of Brazil, 6.50%, 04/15/24 ............................................. 192,969
US 430,000 Government of Brazil, cvt., Series L, 6.5625%, FRN, 04/15/12 ...................... 327,069
------------
739,038
------------
Canada 0.8%
CA 480,000 Government of Canada, 10.25%, 02/01/04 ............................................ 433,404
------------
Denmark 1.2%
DK 235,000 Government of Denmark, 8.00%, 05/15/03 ............................................ 44,203
DK 1,320,000 Kingdom of Denmark, 8.00%, 11/15/01 ............................................... 248,803
DK 2,000,000 Kingdom of Denmark, 9.00%, 11/15/00 ............................................... 386,993
------------
679,999
------------
Ecuador 0.5%
US 400,000 Republic of Ecuador, disc, FRN, 6.50%, 02/28/25 ................................... 276,000
------------
Germany 0.4%
DD $ 100,000 Deutsche Bundespost, 7.75%, 10/01/04 .............................................. $ 72,993
DD 65,000 Federal Republic of Germany, 6.50%, 07/15/03 ...................................... 44,928
DD 80,000 Federal Republic of Germany, Bundes, 8.25%, 09/20/01 .............................. 59,533
DD 85,000 Federal Republic of Germany, Bundesobl, 6.625%, 01/20/98 .......................... 57,160
------------
234,614
------------
Indonesia 0.2%
US 87,000 PT Polysindo International Finance Co., Series B, 11.375%, 06/15/06 ............... 93,851
------------
Irish Republic 0.1%
IR 35,000 Republic of Ireland, 6.25%, 10/18/04 .............................................. 58,549
------------
Italy 3.4%
IT 490,000,000 Buoni Poliennali del Tes, 10.50%, 09/1/05.......................................... 386,247
IT 640,000,000 Buoni Poliennali del Tes, 10.50%, 11/01/00 ........................................ 476,369
US 490,000 Government of Italy, 5.00%, 06/28/01, cvt.......................................... 483,875
IT 780,000,000 Government of Italy, 10.50%, 07/15/00 ............................................. 576,459
------------
1,922,950
------------
Mexico 2.5%
US 130,000 Bancomer, SA, 8.00%, 07/07/98 ..................................................... 130,162
US 200,000b Cemex, SA, 10.75%, 07/15/00 ....................................................... 211,750
US 1,000,000 United Mexican States, 11.375%, 09/15/16 .......................................... 1,053,750
------------
1,395,662
------------
Netherlands 0.6%
NL 500,000 Netherlands Govt., 7.00%, 03/15/99, 1 & 2.......................................... 309,875
------------
New Zealand 1.0%
NZ 690,000 Government of New Zealand, 10.00%, 03/15/02 ....................................... 548,081
------------
Philippines 0.5%
US 270,000 Phillipine Long Distance Telephone Co., 9.25%, 06/30/06 ........................... 288,900
------------
Poland 0.7%
US 400,000b Poland Communications Inc., 9.875%, 11/01/03 ...................................... 397,500
------------
Spain 1.1%
ES 55,020,000 Government of Spain, 12.25%, 03/25/00 ............................................. 502,374
ES 13,580,000 Spain Govt., 10.15%, 01/31/06 ..................................................... 123,996
------------
626,370
------------
Sweden 1.2%
SE 500,000 Government of Sweden, 6.00%, 02/09/05 ............................................. 71,050
SE 1,900,000 Kingdom of Sweden, 10.25%, 05/05/03 ............................................... 339,932
SE 19,020,000 Kingdom of Sweden, 11.30%, 01/15/02 ............................................... 177,080
SE 300,000 Sweden Kingdom, 13.00%, 06/15/01 .................................................. 56,381
------------
644,443
------------
Trinidad and Tobago 0.3%
US 170,000b Sei Holdings IX Inc., 11.00%, 11/30/00 ............................................ 182,750
------------
United Kingdom 1.8%
GB 235,000 United Kingdom, 8.00%, 12/07/00 ................................................... 413,647
GB 80,000 United Kingdom, stk., 10.00%, 09/08/03 ............................................ 155,463
GB 235,000 United Kingdom, stk., 10.50%, 05/19/99 ............................................ 432,770
------------
1,001,880
------------
United States 5.7%
US $ 405,000 U.S. Treasury Bonds, 6.375%, 08/15/02 ............................................. $ 407,785
US 380,000 U.S. Treasury Notes, 7.875%, 11/15/99 ............................................. 398,288
US 380,000 U.S. Treasury Notes, 8.50%, 02/15/00 .............................................. 405,888
US 1,000,000 U.S. Treasury Notes, 6.125%, 07/31/00 ............................................. 1,000,313
US 1,010,000 U.S. Treasury Notes, 6.25%, 08/31/00 .............................................. 1,014,104
------------
3,226,378
------------
Venezuela 1.4%
US 250,000 Republic of Venezuela, 6.75%, 03/31/20, Par Bond, Series B......................... 191,250
US 500,000 Republic of Venezuela, Series A, 6.75%, 03/31/20 .................................. 382,500
US 250,000 Venezuela DCB, 6.50%, FRN, 12/18/07 ............................................... 220,312
------------
794,062
------------
Total Bonds (Cost $15,552,515)............................................... 15,809,341
------------
Total Long Term Investments (Cost $42,853,167)............................... 47,868,276
------------
h Receivables From Repurchase Agreements 13.9%
US 7,830,000 Lehman Brothers Inc., 6.75%, 01/02/97 (Maturity Value $7,840,939) (Cost $7,838,000)
Collateral: U.S. Treasury Notes, 6.75%, 05/15/97 ................................. 7,838,000
------------
Total Investments (Cost $50,691,167) 99.0%.............................. 55,706,276
Other Assets and Liabilities, Net 1.0%.................................. 567,850
------------
Net Assets 100.0% ...................................................... $56,274,126
============
At December 31, 1996, the unrealized appreciation
based on the cost of investments for income tax
purposes of $50,691,167 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ....................................... $ 5,912,883
Aggregate gross unrealized depreciation for all investments which
there was an excess of tax cost over value ....................................... (897,774)
------------
Net unrealized appreciation ..................................................... $ 5,015,109
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CZ - Czech Republic
DD - Germany
DK - Denmark
EG - Egypt
ES - Spain
FI - Finland
FR - France
GB - United Kingdom
GR - Greece
HK - Hong Kong
ID - Indonesia
IR - Irish Republic
IT - Italy
JP - Japan
KR - South Korea
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
SE - Sweden
TH - Thailand
US - United States
ZA - South Africa
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
REIT - Real Estate Investment Trust
VRN - Variable Rate Notes
*Securities traded in currency of country indicated and valued in U.S. dollars.
aNon-income producing.
bPurchased in a private transaction; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Small Cap Fund (Note 1)
Common Stocks 91.0%
Commercial Services 1.5%
<C> <S> <C>
46,150a Labor Ready, Inc. ............................................................................ $ 623,025
72,200 Norrell Corp. ................................................................................ 1,967,450
------------
2,590,475
------------
Consumer Products Durables 4.6%
56,650a Belmont Homes, Inc. .......................................................................... 545,256
80,000a Cannondale Corp. ............................................................................. 1,800,000
106,250 Clayton Homes, Inc. .......................................................................... 1,434,375
79,500a Galoob Toys, Inc. ............................................................................ 1,113,000
75,000a K2, Inc. ..................................................................................... 2,062,500
21,700a RockShox, Inc. ............................................................................... 314,650
49,500a Southern Energy Homes, Inc. .................................................................. 569,250
------------
7,839,031
------------
Consumer Products Non-Durables 3.8%
3,200a Consolidated Cigar Holdings, Inc. ............................................................ 79,200
79,000a Designer Holdings, Ltd. ...................................................................... 1,273,875
100,000a Donna Karan International, Inc. .............................................................. 1,412,500
26,000a Scholastic Corp. ............................................................................. 1,748,500
41,000a Tommy Hilfiger Corp. ......................................................................... 1,968,000
------------
6,482,075
------------
Consumer Services 2.9%
95,000a CapStar Hotel Co. ............................................................................ 1,864,375
105,000a Prime Hospitality Corp. ...................................................................... 1,693,125
45,900a Starbucks Corp. .............................................................................. 1,313,888
10,100a Veterinary Centers of America, Inc. .......................................................... 111,100
------------
4,982,488
------------
Electronic Technology 8.4%
61,300a Komag, Inc. .................................................................................. 1,662,763
35,000a Lexmark International Group, Inc., Class A ................................................... 966,875
51,400 Logicon, Inc. ................................................................................ 1,876,100
54,000a Natural Microsystems Corp. ................................................................... 1,701,000
42,000a Newbridge Networks Corp. ..................................................................... 1,186,500
55,000a Quantum Corp. ................................................................................ 1,574,375
183,000a Spectralink Corp. ............................................................................ 480,375
98,300a Tekelec....................................................................................... 1,548,225
90,000a Tracor, Inc. ................................................................................. 1,912,500
25,000a Verilink Corp. ............................................................................... 831,250
150,000a Visioneer, Inc. .............................................................................. 675,000
------------
14,414,963
------------
Energy & Minerals 6.1%
140,000a,d Abacan Resource Corp. (Canada)................................................................ 1,216,250
49,000a Barrett Resources Corp. ...................................................................... 2,088,625
146,400a Cairn Energy USA, Inc. ....................................................................... 1,464,000
53,000 Devon Energy Corp. ........................................................................... 1,841,750
32,000a Input/Output, Inc. ........................................................................... 592,000
7,900a National-Oilwell, Inc. ....................................................................... 242,925
40,700a Parallel Petroleum Corp. ..................................................................... 190,781
74,000a Titan Exploration, Inc. ...................................................................... 888,000
81,600a Varco International, Inc. .................................................................... 1,887,000
------------
10,411,331
------------
Financial Services 7.5%
64,800a AmeriCredit Corp. ............................................................................ $ 1,328,400
46,300 Chartwell Re Corp. ........................................................................... 1,238,525
6,100a Delta Financial Corp. ........................................................................ 109,800
65,000a EVEREN Capital Corp. ......................................................................... 1,454,375
19,400 Executive Risk Inc. .......................................................................... 717,800
80,000 IPC Holdings Ltd. ............................................................................ 1,790,000
125,000a Risk Capital Holdings, Inc. .................................................................. 2,421,875
56,600d Scor, SA (France)............................................................................. 1,992,189
56,200a Silicon Valley Bancshares..................................................................... 1,812,450
------------
12,865,414
------------
Health Care Services 6.7%
38,600a Access Health, Inc. .......................................................................... 1,727,350
95,000a Amisys Managed Care Systems................................................................... 1,615,000
153,900a Capstone Pharmacy Services, Inc. ............................................................. 1,750,613
31,000a Health Systems International, Inc., Class A .................................................. 767,250
41,100a Medic Computer Systems, Inc. ................................................................. 1,656,844
219,000a Transition Systems, Inc. ..................................................................... 3,093,375
90,000a U.S. Diagnostic Labs, Inc. ................................................................... 832,500
------------
11,442,932
------------
Health Technology 5.3%
70,900a,k DepoTech Corp. ............................................................................... 1,160,988
12,400a Heartport, Inc. .............................................................................. 283,650
80,000 Mentor Corp. ................................................................................. 2,360,000
210,000a Neurobiological Technologies, Inc. ........................................................... 787,500
70,600a Noven Pharmaceuticals, Inc. .................................................................. 988,400
245,000a OrthoLogic Corp. ............................................................................. 1,378,125
50,700a Penederm, Inc. ............................................................................... 627,413
26,400a Pharmacopeia, Inc. ........................................................................... 511,500
24,300a Serologicals Corp. ........................................................................... 859,613
------------
8,957,189
------------
Industrial Services 1.0%
22,400a American Buildings Co. ....................................................................... 534,800
25,600 Butler Manufacturing Co. ..................................................................... 1,036,800
6,600a Waters Corp. ................................................................................. 200,475
------------
1,772,075
------------
Non-Energy Minerals 1.1%
57,400a Century Aluminum Co. ......................................................................... 990,150
47,900a Steel Dynamics, Inc. ......................................................................... 916,088
------------
1,906,238
------------
Producer Manufacturing 4.4%
60,200 Easco, Inc. .................................................................................. 459,025
106,400a Gentex Corp. ................................................................................. 2,141,300
38,000 Pittston Brink's Group........................................................................ 1,026,000
43,700 Roper Industries, Inc. ....................................................................... 1,709,763
56,100a UCAR International, Inc. ..................................................................... 2,110,763
------------
7,446,851
------------
Real Estate Investment Trust 5.3%
53,200a Arden Realty Group, Inc. ..................................................................... $ 1,476,300
45,000 Bay Apartment Communities, Inc. .............................................................. 1,620,000
90,300 Equity Inns, Inc. ............................................................................ 1,173,900
50,000 FelCor Suite Hotels, Inc. .................................................................... 1,768,750
27,400 Omega Healthcare Investors, Inc. ............................................................. 911,050
26,000 Storage Trust Realty.......................................................................... 702,000
98,000 Winston Hotels, Inc. ......................................................................... 1,335,250
------------
8,987,250
------------
Retail 1.9%
3,200a Abercrobmbie & Fitch Co. ..................................................................... 52,800
75,000a AnnTaylor Stores Corp. ....................................................................... 1,312,500
25,500a Borders Group, Inc. .......................................................................... 914,813
100,000a Rent-Way, Inc. ............................................................................... 962,500
------------
3,242,613
------------
Semiconductors 10.2%
48,000a Adaptec, Inc. ................................................................................ 1,920,000
20,000a Altera Corp. ................................................................................. 1,453,750
33,000a C-Cube Microsystems, Inc. .................................................................... 1,218,938
45,500a Etec Systems, Inc. ........................................................................... 1,740,375
12,700a Exar Corp. ................................................................................... 196,850
56,100a Lattice Semiconductor Corp. .................................................................. 2,580,600
55,000 Linear Technology Corp. ...................................................................... 2,413,125
87,600a Micro Linear Corp. ........................................................................... 755,550
110,000a Sierra Semiconductor Corp. ................................................................... 1,650,000
38,200a Uniphase Corp. ............................................................................... 2,005,500
41,000a Xilinx, Inc. ................................................................................. 1,509,313
------------
17,444,001
------------
Technology Services 11.4%
49,800a Affiliated Computer Services, Inc. ........................................................... 1,481,550
25,000a Broderbund Software, Inc. .................................................................... 743,750
94,700a Business Objects SA, ADR...................................................................... 1,278,450
47,200a First USA Paymentech, Inc. ................................................................... 1,598,900
12,400a Forrester Research, Inc. ..................................................................... 319,300
25,700a Fractal Design Corp. ......................................................................... 269,850
47,400a HNC Software, Inc. ........................................................................... 1,487,175
134,000a Integrated Systems, Inc. ..................................................................... 3,484,000
61,000a Mercury Interactive Corp. .................................................................... 793,000
122,500a Phoenix Technologies, Ltd. ................................................................... 1,975,313
20,000a Rainbow Technologies, Inc. ................................................................... 372,500
28,000a Sapient Corp. ................................................................................ 1,179,500
10,000a SS&C Technologies, Inc. ...................................................................... 63,750
29,463a Sterling Commerce, Inc. ...................................................................... 1,038,571
48,500a Sterling Software, Inc. ...................................................................... 1,533,813
52,000a Symantec Corp. ............................................................................... 754,000
19,000a Synopsys, Inc. ............................................................................... 878,750
4,100a Versatility Inc. ............................................................................. 61,500
4,900a West TeleServices Corp. ...................................................................... 111,475
12,400a White Pine Software, Inc. .................................................................... 89,900
------------
19,515,047
------------
Transportation 3.5%
50,000 Air Express International Corp. .............................................................. $ 1,612,500
51,000a Atlantic Coast Airlines, Inc. ................................................................ 624,750
60,000 Expeditors International of Washington, Inc. ................................................. 1,380,000
51,000 Harper Group, Inc. ........................................................................... 1,211,250
46,000a Landstar System, Inc. ........................................................................ 1,069,500
------------
5,898,000
------------
Utilities/Communications 5.4%
68,400a Bell Cablemedia Plc. ......................................................................... 1,060,200
36,000a CommNet Cellular.............................................................................. 1,003,500
64,500 HSN, Inc. .................................................................................... 1,531,875
120,000a ICG Communications, Inc. ..................................................................... 2,115,000
92,900a Primus Telecommunications Group, Inc. ........................................................ 1,184,475
92,500a Rural Cellular Corp. ......................................................................... 890,313
109,600a Western Wireless Corp. ....................................................................... 1,520,700
------------
9,306,063
------------
Total Common Stock (Cost $145,043,670).................................................. 155,504,036
------------
Face
Amount
Convertible Corporate Bonds 0.6%
$ 825,000b US Diagnostic Labs, Inc., cvt. sub. deb., 9.00%, 03/31/03 (Cost $1,062,035)................... 1,014,742
------------
Total Long Term Investments (Cost $146,105,705)......................................... 156,518,778
------------
h,i Receivables from Repurchase Agreements 9.6%
16,198,707 Joint Repurchase Agreements, 6.59%, 01/02/97 Maturity Value $16,483,763) (Cost $16,477,730)
Aubrey G. Lanston & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $2,023,919)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities L.L.C., (Maturity Value $2,065,692)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ......................... 16,477,730
------------
Total Investments (Cost $162,583,435) 101.2%....................................... 172,996,508
Liabilities in Excess of Other Assets (1.2%)....................................... (2,027,538)
------------
Net Assets 100%.................................................................... $170,968,970
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$162,646,140 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 19,710,416
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (9,355,635)
------------
Net unrealized appreciation ................................................................ $ 10,354,781
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
kSee Note 1(i) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Capital Growth Fund (Note 1)
Common Stocks 84.5%
Commercial Services 2.3%
<C> <S> <C>
15,000 Equifax, Inc. .................................................................................. $ 459,375
16,000a Robert Half International, Inc.................................................................. 550,000
------------
1,009,375
------------
Consumer Products - Durables 2.5%
7,000 Duracell International, Inc..................................................................... 489,125
22,000 Mattel, Inc..................................................................................... 610,500
------------
1,099,625
------------
Consumer Products - Non-Durables 5.9%
5,000 Campbell Soup Co................................................................................ 401,250
35,000a Donna Karan International, Inc.................................................................. 494,375
8,000 Hershey Foods Corp.............................................................................. 350,000
25,000 PepsiCo, Inc.................................................................................... 731,250
3,500 Proctor & Gamble Co............................................................................. 376,250
6,000 The Coca-Cola Co................................................................................ 315,750
------------
2,668,875
------------
Consumer Services 3.3%
15,000a CUC International, Inc.......................................................................... 356,250
6,000 Disney (Walt) Co................................................................................ 417,750
33,000a Mirage Resorts, Inc............................................................................. 713,625
------------
1,487,625
------------
Electronic Technology 14.1%
6,500a 3Com Corp....................................................................................... 476,938
8,000a Ascend Communications, Inc...................................................................... 497,000
10,000a Bay Networks.................................................................................... 208,750
20,000a Cabletron Systems, Inc.......................................................................... 665,000
14,500a Cisco Systems, Inc.............................................................................. 922,563
4,000a Compaq Computer Corp............................................................................ 297,000
8,000 Hewlett-Packard Co.............................................................................. 402,000
10,000a Imation Corp.................................................................................... 281,250
10,000 Molex, Inc...................................................................................... 391,250
18,000a Newbridge Networks Corp......................................................................... 508,500
15,000a Silicon Graphics, Inc........................................................................... 382,500
6,000 United Technologies Corp........................................................................ 396,000
12,000a U.S. Robotics Corp.............................................................................. 864,000
------------
6,292,751
------------
Energy & Minerals 4.3%
15,000a Barrett Resources Corp.......................................................................... 639,375
27,000 Enron Oil & Gas Co.............................................................................. 681,750
3,500 Royal Dutch Petroleum Co., New York Shares, ADR................................................. 597,625
------------
1,918,750
------------
Financial Services 5.9%
5,000 American International Group, Inc............................................................... 541,250
5,000 Citicorp ....................................................................................... 515,000
13,000 Federal National Mortgage Association........................................................... 484,250
18,000 Schwab (Charles) Corp........................................................................... 576,000
2,000 Wells Fargo & Co................................................................................ 539,500
------------
2,656,000
------------
Health Care Services 2.0%
5,500a Oxford Health Plans, Inc........................................................................ $ 322,094
7,000a Pacificare Health Systems, Inc., Class B........................................................ 596,750
------------
918,844
------------
Health Technology 11.9%
10,000 Abbott Laboratories............................................................................. 511,250
12,000 Allergan, Inc................................................................................... 427,500
7,000 American Home Products Corp..................................................................... 410,375
10,000a Amgen, Inc...................................................................................... 543,750
12,000 Baxter International, Inc....................................................................... 492,000
7,000a Boston Scientific Corp.......................................................................... 420,000
15,000 Johnson & Johnson............................................................................... 746,250
7,000 Lilly (Eli) & Co................................................................................ 511,000
27,000 Mentor Corp..................................................................................... 796,500
6,000 Merck & Co., Inc................................................................................ 475,500
------------
5,334,125
------------
Industrial Services 0.7%
3,000 Schlumberger, Ltd............................................................................... 299,625
------------
Process Industries 2.9%
6,000 Air Products and Chemicals, Inc................................................................. 414,750
11,000 Millipore Corp.................................................................................. 455,125
7,000 Sigma-Aldrich Corp.............................................................................. 437,063
------------
1,306,938
------------
Producer Manufacturing 3.3%
5,000 Emerson Electric Co............................................................................. 483,750
6,000 Minnesota Mining & Manufacturing Co............................................................. 497,250
15,000a U.S. Filter Corp................................................................................ 476,250
------------
1,457,250
------------
Retail 1.1%
10,000 McDonald's Corp................................................................................. 452,500
------------
Semiconductors 3.4%
5,000 Intel Corp...................................................................................... 654,688
10,000 Linear Technology Corp.......................................................................... 438,750
12,000a Xilinx, Inc..................................................................................... 441,750
------------
1,535,188
------------
Software/Technology Services 14.1%
15,000 Adobe Systems, Inc.............................................................................. 560,625
14,000 Automatic Data Processing, Inc.................................................................. 600,250
15,000a Broderbund Software, Inc........................................................................ 446,250
17,000 Electronic Data Systems Corp. .................................................................. 735,250
22,000 First Data Corp................................................................................. 803,000
22,000a Informix Corp................................................................................... 448,250
20,000a Intuit, Inc..................................................................................... 630,000
2,400a Microsoft Corp.................................................................................. 198,300
12,000a Oracle Corp..................................................................................... 501,000
21,000a Sabre Group Holdings, Inc....................................................................... 585,375
10,000a Sterling Commerce, Inc.......................................................................... 352,500
Software/Technology Services (cont.)
13,000a Sterling Software, Inc.......................................................................... $ 411,124
1,200a West TeleServices Corp.......................................................................... 27,300
------------
6,299,224
------------
Transportation 2.7%
22,000 Air Express International Corp.................................................................. 709,500
22,000 Southwest Airlines Co........................................................................... 486,750
------------
1,196,250
------------
Utilities 4.1%
12,000a AES Corp........................................................................................ 558,000
25,000a AirTouch Communications, Inc.................................................................... 631,250
7,000d Deutsche Telekom (Germany) ..................................................................... 147,187
11,000 GTE Corp........................................................................................ 500,500
------------
1,836,937
------------
Total Long Term Investments (Cost $35,787,432)............................................ 37,769,882
------------
Face
Amount
h,iReceivables from Repurchase Agreements 17.7%
$ 7,767,535 Joint Repurchase Agreements, 6.59%, 01/02/97 (Maturity Value $7,904,293) (Cost $7,901,400)
Aubrey G. Lanston & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.625%, 08/15/97 - 09/30/98
Bear, Stearns & Co., Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.125% - 8.75%, 10/15/97 - 06/30/01
CIBC Wood Gundy Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%, 07/31/98 - 12/31/98
Daiwa Securities America, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 9.125%, 05/15/97 - 08/15/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.00% - 8.875%, 11/15/97 - 11/15/01
SBC Warburg, Inc., (Maturity Value $970,506)
Collateral: U.S. Treasury Notes, 6.25% - 7.875%, 01/15/98 - 04/30/01
The Nikko Securities Co. International, Inc., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.75%, 08/15/00 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $990,541)
Collateral: U.S. Treasury Notes, 6.25% - 8.50%, 06/30/98 - 05/31/01 ........................... 7,901,400
------------
Total Investments (Cost $43,688,832) 102.2%.......................................... 45,671,282
Liabilities in Excess of Other Assets (2.2%)......................................... (1,004,571)
------------
Net Assets 100.0% ................................................................... $44,666,711
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $43,688,832
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 2,753,332
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (770,882)
------------
Net unrealized appreciation .................................................................. $ 1,982,450
============
</TABLE>
PORTFOLIO ABBREVIATION:
L.L.C. - Limited Liability Corp.
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
hFace amount for repurchase agreements is for the underlying collateral.
iSee Note 1(h) regarding joint repurchase agreements.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/
Warrants & Value
Country* Rights Templeton International Smaller Companies Fund (Note 1)
Common Stocks & Warrants 58.5%
Argentina 0.8%
<S> <C> <C> <C>
US 100 Comercial Industrial Financiera Inmobiliari Agropecuaria, ADR ....................... $ 195
US 24,300a,b Mirgor SA, Comercial Industrial Financiera Inmobi, Class C, ADR ..................... 47,385
US 7,000 Transportadora de Gas del Sur, SA, Class B, ADR ..................................... 85,750
------------
133,330
------------
Australia 0.9%
AU 6,000 Davids, Ltd. ........................................................................ 8,441
AU 44,000 Email, Ltd. ......................................................................... 145,460
------------
153,901
------------
Austria 1.5%
AT 3,453 Boehler Uddeholm, AG ................................................................ 247,087
------------
Canada 0.2%
CA 1,480 Hudson Bay Co. ...................................................................... 24,747
------------
China 2.3%
CN 40,000 China International Marine Containers, Class B ...................................... 46,545
CN 179,000 Dongfang Electrical Machinery Co., Ltd., Class H .................................... 62,486
US 92,000b Guangdong Electric Power Development Co., Ltd., Class B ............................. 81,360
US 40,000b Guangdong Kelon Electrical Holdings, Ltd., Class H, ADR ............................. 25,858
CN 92,000 Guangdong Kelon Electrical Holdings, Ltd., Class H .................................. 59,474
CN 161,000 Inner Mongolia Erdos Cashmere Products, Class B ..................................... 101,430
------------
377,153
------------
Denmark 2.4%
DK 2,252 Det Danske Traelastkompagni, AS ..................................................... 206,883
DK 7,200 ISS International Service System, AS, Class B ....................................... 189,506
------------
396,389
------------
Ecuador 0.9%
US 625b La Cemento Nacional CA, GDR ......................................................... 143,125
------------
France 2.1%
FR 38 Eramet, SA .......................................................................... 1,993
FR 1,283 Marine Wendel ....................................................................... 117,784
FR 294a Sa des Galeries Lafayette ........................................................... 104,672
FR 2,356 Vallourec ........................................................................... 124,957
------------
349,406
------------
Germany 0.6%
DD 1,686 Moebel Walther, AG .................................................................. 93,149
------------
Hong Kong 6.8%
HK 904,000 Baltrans Holdings, Ltd. ............................................................. 122,723
HK 432,100 C.P. Pokphand Co., Ltd. ............................................................. 168,996
HK 79,000 Giordano International, Ltd. ........................................................ 67,412
HK 125,052 Hung Hing Printing Group, Ltd. ...................................................... 45,271
HK 153,000 Kumagai Gumi Hong Kong, Ltd. ........................................................ 178,033
HK 7,800a Kumagai Gumi Hong Kong, Ltd., warrants .............................................. 3,328
HK 77,000 Li & Fung, Ltd. ..................................................................... 68,195
HK 26,000 Orient Overseas International, Ltd. ................................................. 16,976
HK 1,225 Peregrine Investments Holdings, Ltd. ................................................ 2,099
HK 535,000 Sinocan Holdings, Ltd. .............................................................. 262,848
HK 23,000 Swank International Manufacturing Co., Ltd. ......................................... 3,479
Hong Kong (cont.)
HK 741,000 Techtronic Industries Co., Ltd. ..................................................... $ 110,175
HK 12,000 Wing Hang Bank ...................................................................... 54,457
------------
1,103,992
------------
Hungary 0.4%
US 5,560a,b Tiszai Vegyi Kombinat RT, GDR ....................................................... 62,828
------------
Indonesia 2.3%
ID 144,100 PT Steady Safe, fgn. ................................................................ 184,548
ID 106,000 PT Tambang Timah (Persero), fgn. .................................................... 192,972
------------
377,520
------------
Italy 1.0%
IT 9,566 Cartiere Burgo, SPA ................................................................ 44,170
US 3,600a,b Esaote Biomedica, SPA, ADR .......................................................... 113,580
------------
157,750
------------
Mexico 0.6%
MX 151,800a Empaques Ponderosa, SA de CV, Class B ............................................... 93,911
------------
Netherlands 7.0%
NL 1,223 Crown-Van Gelder Papier, SA ......................................................... 109,868
NL 3,096 De Boer Winkelbedrijven, NV ......................................................... 217,877
NL 3,000 Gamma Holdings, NV .................................................................. 144,917
NL 960 Hollandsche Beton Groep, NV ......................................................... 199,006
NL 3,744 Internatio-Mueller, NV .............................................................. 94,115
NL 1,850a Nagron Nationaal Grondbezit, NV ..................................................... 180,017
NL 4,850 Schuttersveld Holding................................................................ 196,079
------------
1,141,879
------------
New Zealand 2.6%
NZ 6,625 Fisher & Paykel, Ltd. ............................................................... 25,994
NZ 66,054 Fletcher Challenge, Ltd., Forestry Division ......................................... 110,671
NZ 70,500 Tourism Holdings, Ltd. .............................................................. 134,568
NZ 8,900a Tranz Rail Holdings, Ltd., ADR ...................................................... 157,419
------------
428,652
------------
Norway 2.3%
NO 12,300 Helikopter Services Group, ASA ...................................................... 160,066
NO 600 Norske Skogindustrier, AS, Class A .................................................. 20,179
NO 6,300 Union Bank of Norway, Primary Capital Certificate ................................... 197,060
------------
377,305
------------
South Africa 0.8%
ZA 12,400 Impala Platinum Holdings, Ltd. ...................................................... 123,907
------------
Spain 6.9%
ES 3,272 Banco de Valencia, SA ............................................................... 63,890
ES 4,000 Banco Pastor, SA .................................................................... 256,345
ES 1,291 Cristaleria Espanola, SA ............................................................ 101,430
ES 1,250 Cubiertas y Mzov, SA ................................................................ 96,283
ES 5,755 Dragados y Construcciones, SA ....................................................... 88,658
ES 1,500 Electricas Reunidas de Zaragoza ..................................................... 60,081
ES 34,500 Energia e Industrias Aragonesas Eia S ............................................... 191,334
Spain (cont.)
ES 3,700 Gesa-Gas y Electricidad, SA ......................................................... $ 236,549
ES 3,323 Uralita, SA ......................................................................... 25,980
------------
1,120,550
------------
Sweden 5.9%
SE 8,000 Catena, Class A ..................................................................... 100,882
SE 4,000a Celsius, AB, Class B ................................................................ 63,051
SE 4,800a Dahl International, AB .............................................................. 100,999
US 6,300a,b Dahl International, AB, ADR ......................................................... 132,562
SE 5,800 Foreningsbanken, AB, Class A ........................................................ 29,171
SE 8,060 Marieberg Tidnings, AB, Class A ..................................................... 197,368
SE 12,995 Munksjo, AB ......................................................................... 131,477
SE 18,145 Scribona, AB, Class B ............................................................... 203,537
SE 1,200 Stena Line, AB, Class B, free ....................................................... 5,367
------------
964,414
------------
Switzerland 1.2%
CH 52 Sarna Kunststoff Holding, AG ........................................................ 49,145
CH 200 Swisslog Holding, AG ................................................................ 55,136
CH 245 Zehnder Holding, AG ................................................................. 84,199
------------
188,480
------------
Thailand 0.5%
TH 9,400a Alphatec Electronics Public Co., Ltd., fgn. ......................................... 72,206
TH 4,800 Robinson Depart. Store Public Co., Ltd., fgn. ....................................... 9,311
------------
81,517
------------
Turkey 0.1%
US 98,875a Tofas Turk Otomobil Fabrikasi, AS, GDR .............................................. 18,292
------------
United Kingdom 8.4%
GB 35,337 Albert Fisher Group, Plc. ........................................................... 25,425
GB 182,524 Apv, Plc. ........................................................................... 240,764
GB 124,400 Hazlewood Foods, Plc. ............................................................... 229,092
GB 200,500 Howden Group, Plc. .................................................................. 266,193
GB 45,500 Lex Service, Plc. ................................................................... 247,867
GB 64,100 McBride, Plc. ....................................................................... 149,340
GB 500 Sea Containers Ltd., Class A ........................................................ 7,813
GB 66,700 Wace Group, Plc. .................................................................... 119,976
GB 11,200a Wagon Industrial Holdings, Plc. ..................................................... 57,560
------------
1,344,030
------------
Total Common Stocks & Warrants (Cost $8,383,250) .............................. 9,503,314
------------
Preferred Stocks 3.0%
Brazil 1.8%
BR 5,207,000 Bombril, SA ......................................................................... 85,188
BR 842,000 Cia Brasileira de Petroleo Ipiranga, pfd. ........................................... 12,229
BR 335,000 Coteminas Cia Tecidos Norte de Minas, pfd. .......................................... 106,909
BR 205,000 Weg, SA, pfd. ....................................................................... 96,670
------------
300,996
------------
Netherlands 1.2%
NL 4,025 Ballast Nedam, NV, ctf., conv., pfd. ................................................ $ 196,063
------------
Total Preferred Stocks (Cost $513,051) ........................................ 497,059
------------
Total Long Term Investments (Cost $8,896,301) ................................. 10,000,373
------------
Face
Amount
h Receivables from Repurchase Agreements 39.0%
US $1,955,000 Aubrey G Lanston & Co., 6.75%, 01/02/97, (Maturity Value $2,040,531)
Collateral: U.S. Treasury Notes, 7.25%, 02/15/98 ................................... 2,000,000
US 1,960,000 UBS Securities Inc., 6.75%, 01/02/97, (Maturity Value $2,040,850)
Collateral: U.S. Treasury, 6.375%, 01/15/00 ........................................ 2,000,000
US 2,370,000 Lehman Brothers Inc., 6.75%, 01/02/97, (Maturity Value $2,386,572)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98 ................................... 2,338,000
------------
Total Receivables from Repurchase Agreements (Cost $6,338,000) ................ 6,338,000
------------
Total Investments (Cost $15,234,301) 100.5% .............................. 16,338,373
Liabilities in Excess of Other Assets (0.5%) ............................. (83,335)
------------
Net Assets 100.0% ........................................................ $16,255,038
============
At December 31, 1996, the net unrealized depreciation
based on the cost of investments for income tax
purposes of $15,234,301 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost.......................................... $ 1,284,614
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ......................................... (180,542)
------------
Net unrealized appreciation ....................................................... $ 1,104,072
============
</TABLE>
COUNTRY LEGEND:
AT - Austria
AU - Australia
BR - Brazil
CA - Canada
CH - Switzerland
CN - China
DD - Germany
DK - Denmark
ES - Spain
FR - France
GB - United Kingdom
HK - Hong Kong
ID - Indonesia
IT - Italy
MX - Mexico
NL - Netherlands
NO - Norway
NZ - New Zealand
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 transactions; resale may only be to qualified
institutional buyers.
hFace amount for repurchase agreements is for the underlying collateral.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Value
Shares Mutual Shares Securities Fund (Note 1)
Common Stocks & Warrants 61.5%
Aerospace 1.6%
<C> <S> <C>
8,000 General Motors Corp., Class H................................................................. $ 450,000
------------
Automobile 1.8%
9,000 General Motors Corp. ......................................................................... 501,750
------------
Banking 0.7%
3,500a Standard Federal Bancorporation .............................................................. 199,063
------------
Chemicals 3.1%
3,000d BASF AG ...................................................................................... 115,437
2,000d DSM NV ....................................................................................... 197,394
14,500 Olin Corp..................................................................................... 545,562
------------
858,393
------------
Conglomerates 3.3%
10,000a American Standard Cos., Inc. ................................................................. 382,500
65,000d BTR, Plc. .................................................................................... 316,237
5,000a,d Investor, AB, Class B ........................................................................ 221,046
------------
919,783
------------
Construction & Housing 1.3%
14,800 Martin Marietta Materials, Inc................................................................ 344,100
------------
Consumer Products 3.2%
6,000 American Brands, Inc.......................................................................... 297,750
25,000d BAT Industries, Plc........................................................................... 207,498
25,000 Dial Corp. ................................................................................... 368,750
------------
873,998
------------
Electrical & Electronics 1.6%
8,500 Xerox Corp. .................................................................................. 447,313
------------
Energy 5.2%
11,700 Ashland, Inc.................................................................................. 513,338
29,300d Saga Petroleum, AS, Class B................................................................... 459,392
26,100d Shell Transport & Trading Co., Plc. .......................................................... 452,259
------------
1,424,989
------------
Financial Services 2.2%
2,000 Beneficial Corp. ............................................................................. 126,750
40,000 Mercury Finance Co. .......................................................................... 490,000
------------
616,750
------------
Food & Beverages 1.6%
53,000d Cadbury Schweppes, Plc........................................................................ 447,160
------------
Health Care Services 5.2%
24,000a Beverly Enterprises .......................................................................... 306,000
5,200a Foundation Health Corp. ...................................................................... 165,100
15,000a Mid-Atlantic Medical Services ................................................................ 200,625
17,600a Tenet Healthcare Corp. ....................................................................... 385,000
13,400 Imation Corp ................................................................................. 376,875
------------
1,433,600
------------
Industrial Components 7.8%
15,000 ITT Industries ............................................................................... $ 367,500
16,000d Lagardere Sca ................................................................................ 439,421
80,000a,d Lucas Varity, Plc............................................................................. 304,930
7,800a Owens-Illinois, Inc........................................................................... 177,450
19,000 Federal Mogul Corp. .......................................................................... 418,000
21,500a New Holland NV ............................................................................... 448,813
------------
2,156,114
------------
Insurance 7.3%
25,000 20th Century Industries ...................................................................... 421,875
1,500a Alleghany Corp. .............................................................................. 318,000
4,000 AON Corp. .................................................................................... 248,500
8,000 Argonaut Group ............................................................................... 246,000
7,500 Home Beneficial Corp., Class B ............................................................... 284,063
8,900a ITT Hartford Group, Inc. ..................................................................... 386,038
3,000 Selective Insurance Group .................................................................... 114,000
------------
2,018,476
------------
Metals & Mining 2.8%
25,000a LTV Corp. .................................................................................... 296,875
8,500 Reynolds Metals Co. .......................................................................... 479,188
------------
776,063
------------
Printing, Publishing & Media 5.1%
20,000 Comcast Corp., Class A........................................................................ 356,250
14,000 Dun & Bradstreet Corp. ....................................................................... 332,500
7,500 Knight-Ridder, Inc............................................................................ 286,875
12,500 Scripps (EW) Co., Class A..................................................................... 437,500
------------
1,413,125
------------
Retail 2.4%
13,600 Dillard Dept. Stores, Inc., Class A........................................................... 419,900
4,000a Vons Companies, Inc........................................................................... 239,500
------------
659,400
------------
Telecommunications 3.2%
7,600 AT&T Corp. ................................................................................... 330,600
4,000 MCI Communications Corp. ..................................................................... 130,750
12,000 Telephone & Data Systems, Inc................................................................. 435,000
------------
869,350
------------
Transportation 2.1%
2,000 Burlington Northern Santa Fe Corp. ........................................................... 172,750
8,000 Ryder Systems, Inc............................................................................ 225,000
4,300 Xtra Corp. ................................................................................... 186,513
------------
584,263
------------
Total Common Stocks (Cost $16,461,251).................................................. 17,020,690
------------
Options 1.0%
12,000a,n Cityscape Financial Corp., January/20/Call (Cost $240,000).................................... 283,500
------------
Total Common Stocks & Options (Cost $16,701,251)........................................ 17,304,190
------------
Face
Amount
Bonds 1.5%...................................................................................
$ 100,000 Comcast Cellular, 0.0% 03/05/00 .............................................................. $ 72,375
175,000 Consorcio G Grupo Dina, SA, 8.00%, 8/08/04 ................................................... 145,250
100,000 Consorcio G Grupo Dina, SA, 8.00%, 11/15/02 .................................................. 63,000
150,000b Uniforet, Inc., 11.125%, 10/15/06 ............................................................ 140,250
------------
Total Bonds (Cost $411,314)............................................................. 420,875
------------
Total Long Term Investments (Cost $17,112,565).......................................... 17,725,065
------------
f Short Term Investments 40.1%
Federal National Mortgage Association,
4,700,000 5.50%, 1/08/97 ............................................................................. 4,696,660
2,400,000 5.50%, 1/13/97 ............................................................................. 2,395,950
4,000,000 5.50%, 1/14/97 ............................................................................. 3,992,640
------------
Total Short Term Investments (Cost $11,080,933)..................................... 11,085,250
------------
Total Investments (Cost $28,193,498) 104.1%........................................ 28,810,315
Liabilities in Excess of Other Assets, Net (4.1%)................................. (1,133,393)
------------
Net Assets 100.0% ................................................................ $27,676,922
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$28,193,498 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................. $ 718,006
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................. (101,189)
------------
Net unrealized appreciation ................................................................ $ 616,817
============
</TABLE>
aNon-income producing.
bPurchased in private placement transaction; resale may only be to qualified
institutional buyers.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
<TABLE>
<CAPTION>
Statement of Investments in Securities and Net Assets, December 31, 1996
Shares/ Value
Warrants Mutual Discovery Securities Fund (Note 1)
Common Stocks 60.9%
Aerospace 0.6%
<S> <C> <C>
3,000a,d Thomson CSF .................................................................................... $ 97,377
------------
Automobile 1.1%
3,000 General Motors Corp. ........................................................................... 167,250
------------
Banking 0.6%
1,500a Standard Federal Bancorporation, Inc............................................................ 85,313
------------
Chemicals 3.3%
1,700d BASF AG ........................................................................................ 65,414
4,000a Chemfirst, Inc.................................................................................. 92,500
1,336a Mississippi Chemical Corp. ..................................................................... 32,064
6,600 Olin Corp. ..................................................................................... 248,325
2,000d Rhone-Poulenc, SA, Class A...................................................................... 68,235
------------
506,538
------------
Conglomerates 7.1%
30,000d BTR, Plc........................................................................................ 145,955
80a,d Cie Financiere Richemont AG, Class A............................................................ 112,365
2,600d Empire Co. Ltd., Class A........................................................................ 25,154
210,000d Hanson, Plc..................................................................................... 293,196
3,000a,d Investor AB, Class B............................................................................ 132,628
9,000a,d Kinnevik AB, Class B............................................................................ 248,099
30,000d Tomkins, Plc.................................................................................... 137,990
------------
1,095,387
------------
Construction & Housing 0.8%
5,200 Martin Marietta Materials, Inc.................................................................. 120,900
------------
Consumer Products 0.9%
16,000d BAT Industries, Plc............................................................................. 132,799
------------
Electrical & Electronics 2.1%
1,500a Amphenol Corp., Class A......................................................................... 33,375
14,500 Wang Labs, Inc.................................................................................. 293,625
------------
327,000
------------
Energy 6.7%
10,000 ENSERCH Corp. .................................................................................. 230,000
16,600d Saga Petroleum, AS, Class B..................................................................... 260,270
14,800d Shell Transport & Trading Co., Plc. ............................................................ 256,453
1,450d Societe Elf Aquitane, SA ....................................................................... 132,080
8,000 Southwest Gas Corp ............................................................................. 154,000
------------
1,032,803
------------
Financial Services 2.9%
7,600a,d Compagnie de Suez, SA........................................................................... 323,348
8,000a SPS Transaction Services, Inc................................................................... 122,000
------------
445,348
------------
Food & Beverage 1.6%
30,000d Cadbury Schweppes, Plc.......................................................................... 253,109
------------
Health Care Services 6.4%
18,000a Apria Healthcare Group, Inc..................................................................... 337,500
4,000a Beverly Enterprises ............................................................................ 51,000
3,200a Foundation Health Corp. ........................................................................ 101,600
7,600 Imation Corp. .................................................................................. 213,750
Health Care Services (cont.)
5,000a Mid Atlantic Medical Services .................................................................. $ 66,875
9,700a Tenet Healthcare Corp. ......................................................................... 212,187
------------
982,912
------------
Industrial Components 4.3%
2,500d Aker, A/S, Class A.............................................................................. 55,660
10,000 Federal Mogul Corp. ............................................................................ 220,000
9,000d Lagardere Sca .................................................................................. 247,175
1,570 Lyonnais des Eaux SA ........................................................................... 146,220
------------
669,055
------------
Insurance 3.5%
2,500 20th Century Industries ........................................................................ 42,187
7,000 Arthur J Gallagher Co. ......................................................................... 217,000
1,000d Axa, SA......................................................................................... 63,645
3,000 Home Beneficial Corp., Class B.................................................................. 113,625
3,000 PXRE Corp. ..................................................................................... 74,250
500 Reliable Life Insurance Co., Class A............................................................ 34,250
------------
544,957
------------
Metals & Mining 0.9%
16,000a WHX Corp. ...................................................................................... 142,000
------------
Printing, Publishing & Media 9.6%
6,000 Comcast Corp., Class A.......................................................................... 106,875
12,000a,d De Telegraaf Holding NV ........................................................................ 252,997
4,800 Dun & Bradstreet Corp. ......................................................................... 114,000
3,000d EMI Group, Plc.................................................................................. 70,922
500a,d Pathe, SA....................................................................................... 120,540
20,600a,d Pearson, Plc.................................................................................... 264,496
25,000d Southam, Inc.................................................................................... 347,742
11,000d United News & Media, Plc........................................................................ 131,060
2,000a Young Broadcasting Corp., Class A............................................................... 58,500
------------
1,467,132
------------
Retail 3.5%
27,400d Vendome Luxury Group, Plc....................................................................... 249,949
11,000a Waban, Inc. .................................................................................... 286,000
------------
535,949
------------
Telecommunications 2.1%
1,600 AT&T Corp. ..................................................................................... 69,600
2,000 MCI Communications Corp. ....................................................................... 65,375
19,500a United States Satelite Broadcasting Co., Inc., Class A.......................................... 195,000
------------
329,975
------------
Transportation 2.9%
20,000a Fritz Companies ................................................................................ 255,000
8,000a M.S. Carriers, Inc.............................................................................. 128,000
2,500 Ryder Systems, Inc.............................................................................. 70,313
------------
453,313
------------
Total Common Stocks (Cost $9,174,523)..................................................... 9,389,117
------------
Option 1.2%
8,000a,n Cityscape Financial Corp., January/20/Call (Cost $160,000)...................................... $ 189,000
------------
Preferred Stock 0.4%
1,000 Granite Broadcasting Corp., cvt., pfd. (Cost $62,000)........................................... 56,500
------------
Total Common Stocks & Options & Preferred Stock (Cost $9,396,523)......................... 9,634,617
------------
Face
Amount
Bonds 0.7%
$ 100,000 Consorcio G Grupo Dina, SA, 11/15/02............................................................ 83,000
50,000 Consorcio G. Grupo Dina, SA, 8.00%, 08/08/04.................................................... 31,500
------------
Total Bonds (Cost $113,930)............................................................... 114,500
------------
Total Long Term Investments (Cost $9,510,453)............................................. 9,749,117
------------
f Short Term Investments 44.7%
Federal National Mortgage Association,
2,800,000 5.50%, 01/08/97 .............................................................................. 2,798,013
1,600,000 5.50%, 01/13/97 .............................................................................. 1,597,300
2,500,000 5.50%, 01/14/97 .............................................................................. 2,495,400
------------
Total Short Term Investments (Cost $6,888,053)............................................. 6,890,713
------------
Total Investments 107.9% (Cost $16,398,506)........................................... 16,639,830
Liabilities in Excess of Other Assets, Net (7.9%)..................................... (1,222,100)
------------
Net Assets 100.0% .................................................................... $15,417,730
============
At December 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $16,398,506
was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .................................................... $ 326,363
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .................................................... (85,039)
------------
Net unrealized appreciation .................................................................. $ 241,324
============
</TABLE>
aNon-income producing.
dSecurities traded in foreign currency and valued in U.S. dollars.
fCertain 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 upon maturity.
nSee Note 9 regarding restricted securities.
FRANKLIN VALUEMARK FUNDS
Financial Statements
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................. $201,946,322 $406,708,119 $100,015,691 $218,988,176 $837,991,438
========== ========== ========== ========== ==========
At value............................................ 207,971,426 424,943,010 105,283,600 298,843,244 845,037,886
Receivables from repurchase agreements, at value
and cost............................................. 7,277,000 13,463,468 3,467,349 23,119,441 12,617,646
Cash................................................. 71 78,643 812,903 -- 6,673
Receivables:
Dividends and interest.............................. 6,037,134 7,813,047 88,045 1,974,322 6,569,453
Investment securities sold.......................... -- -- -- -- 459,215
Capital shares sold................................. -- -- -- 243,911 77,178
Unrealized gain on forward foreign currency contracts
(Note 2)............................................. 750,169 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total assets.................................... 222,035,800 446,298,168 109,651,897 324,180,918 864,768,051
---------- ---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................... -- -- -- 220,928 --
Delayed delivery (Note 1).......................... -- -- -- -- 19,808,854
Capital shares repurchased.......................... 84,774 -- -- 1,093,736 731,274
Management fees..................................... 101,580 188,287 56,939 136,471 347,440
Accrued expenses and other liabilities............... 39,611 14,356 16,373 8,588 22,966
Unrealized loss on forward foreign currency contracts
(Note 2)............................................. 87,366 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total liabilities............................... 313,331 202,643 73,312 1,459,723 20,910,534
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................. $ 12,596,126 $ 37,005,221 $ 1,214,989 $ 11,259,725 $ 42,920,983
Net unrealized appreciation on investments and
translation of assets and liabilities denominated in
foreign currencies................................... 6,671,970 18,234,139 5,273,371 79,855,068 7,046,448
Accumulated net realized gain (loss) from investments (4,045,845) 1,211,890 (146,066) 5,025,389 (15,868,007)
Capital shares....................................... 206,500,218 389,644,275 103,236,291 226,581,013 809,758,093
---------- ---------- ---------- ---------- ----------
Net assets, at value.................................. $221,722,469 $446,095,525 $109,578,585 $322,721,195 $843,857,517
========== ========== ========== ========== ==========
Shares outstanding.................................... 16,287,427 31,511,357 7,668,120 14,568,012 62,667,403
========== ========== ========== ========== ==========
Net asset value per share............................. $13.61 $14.16 $14.29 $22.15 $13.47
========== ========== ========== ========== ==========
Representative computation of net asset value of Templeton Global Income
Securities Fund:
Net asset value, offering and redemption price
per share ($221,722,469 / 16,287,427)................ $13.61
==========
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
---------- --------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.................................... $122,571,579 $75,820,587 $69,789,913 $336,710,542 $ 864,711,520
========== ========= ========= ========== ===========
At value.............................................. 129,617,944 82,553,084 79,266,684 336,710,542 1,019,880,063
Receivables from repurchase agreements, at value
and cost............................................... 69,876 93,859 145,762 66,895,000 51,776,284
Cash................................................... -- -- -- 4,700,658 --
Receivables:
Dividends and interest................................ -- -- -- 794,346 3,785,038
Investment securities sold............................ -- -- -- -- 3,512,869
Capital shares sold................................... -- 629 57,497 -- 404,277
---------- --------- --------- ---------- -----------
Total assets...................................... 129,687,820 82,647,572 79,469,943 409,100,546 1,079,358,531
---------- --------- --------- ---------- -----------
Liabilities:
Payables:
Capital shares repurchased............................ 36,555 10,245 545,466 -- 896,804
Management fees....................................... 44,259 29,399 16,569 154,541 433,613
Accrued expenses and other liabilities................. 6,064 4,459 92,162 16,192 39,106
---------- --------- --------- ---------- -----------
Total liabilities................................. 86,878 44,103 654,197 170,733 1,369,523
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................... $ 8,152,316 $ 4,939,715 $ 4,878,360 $-- $ 39,442,227
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies.................................. 7,046,365 6,732,497 9,476,771 -- 155,168,751
Accumulated net realized gain (loss) from investments . 183,688 12,553 (380,118) -- 37,740,141
Capital shares......................................... 114,218,573 70,918,704 64,840,733 408,929,813 845,637,889
---------- --------- --------- ---------- -----------
Net assets, at value.................................... $129,600,942 $82,603,469 $78,815,746 $408,929,813 $1,077,989,008
========== ========= ========= ========== ===========
Shares outstanding...................................... 8,530,236 5,052,522 4,839,072 408,929,813 61,406,730
========== ========= ========= ========== ===========
Net asset value per share............................... $15.19 $16.35 $16.29 $1.00 $17.55
========== ========= ========= ========== ===========
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
----------- ----------- ---------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost.............................. $1,194,708,385 $ 839,934,287 $309,117,973 $431,060,996 $1,131,582,574
=========== =========== ========== ========== ===========
At value........................................ 1,272,241,931 974,257,046 349,309,297 581,340,585 1,184,550,481
Receivables from repurchase agreements, at value
and cost......................................... 62,830,189 131,446,000 8,871,000 16,807,023 16,474,667
Cash............................................. -- 931 264 172,383 --
Receivables:
Dividends and interest.......................... 17,104,906 2,561,987 861,231 1,332,043 3,051,664
Investment securities sold...................... 33,385 2,714,857 17,048 -- 57,430
Capital shares sold............................. 414,835 16,643 1,008 -- 25,004
----------- ----------- ---------- ---------- -----------
Total assets................................ 1,352,625,246 1,110,997,464 359,059,848 599,652,034 1,204,159,246
----------- ----------- ---------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased ................ 517,007 1,250,875 29,588 1,853,351 --
Capital shares repurchased...................... 839,779 684,914 1,886,006 -- 1,325,847
Management fees................................. 536,436 727,438 274,863 359,607 479,904
Accrued expenses and other liabilities........... 72,604 234,863 110,233 15,375 63,175
----------- ----------- ---------- ---------- -----------
Total liabilities........................... 1,965,826 2,898,090 2,300,690 2,228,333 1,868,926
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Net assets consist of:
Undistributed net investment income.............. $ 99,623,131 $ 27,747,634 $ 2,026,130 $ 9,954,026 $ 54,346,789
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies................ 77,529,713 134,322,759 40,191,324 150,279,589 52,967,907
Accumulated net realized gain (loss) from
investments ..................................... 21,370,923 49,651,484 (4,936,835) 16,701,690 75,189,259
Capital shares................................... 1,152,135,653 896,377,497 319,478,539 420,488,396 1,019,786,365
----------- ----------- ---------- ---------- -----------
Net assets, at value.............................. $1,350,659,420 $1,108,099,374 $356,759,158 $597,423,701 $1,202,290,320
=========== =========== ========== ========== ===========
Shares outstanding................................ 78,493,846 71,718,408 24,170,761 38,791,704 66,144,551
=========== =========== ========== ========== ===========
Net asset value per share......................... $17.21 $15.45 $14.76 $15.40 $18.18
=========== =========== ========== ========== ===========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
---------- ---------- ---------- ----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $252,593,090 $438,071,335 $42,853,167 $146,105,705
========== ========== ========== ==========
At value............................................................ 272,491,501 526,446,386 47,868,276 156,518,778
Receivables from repurchase agreements, at value and cost............ -- 61,988,000 7,838,000 16,477,730
Foreign currencies at value and cost................................. 911,992 -- -- --
Receivables:
Dividends and interest.............................................. 450,226 965,456 503,823 165,102
Investment securities sold.......................................... 336,287 -- 3,607 --
Capital shares sold................................................. 87,314 36,592 151,967 146,290
Unrealized gain on forward foreign currency contracts (Note 2)....... -- -- 5,521 --
---------- ---------- ---------- ----------
Total assets.................................................... 274,277,320 589,436,434 56,371,194 173,307,900
---------- ---------- ---------- ----------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery................................................... 1,715,562 1,381,875 47,880 855,122
Delayed delivery (Note 1).......................................... -- -- -- 957,150
Capital shares repurchased.......................................... -- 1,252,510 -- 420,130
Management fees..................................................... 280,632 411,384 36,558 102,293
Accrued expenses and other liabilities............................... 180,903 99,487 10,556 4,235
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 438 --
Bank overdraft....................................................... 1,802 3,206,834 1,636 --
Foreign currency overdraft, at value and cost ....................... -- 3,206,957 -- --
---------- ---------- ---------- ----------
Total liabilities............................................... 2,178,899 9,559,047 97,068 2,338,930
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Net assets consist of:
Undistributed net investment income.................................. $ 3,577,713 $ 10,394,157 $ 1,460,392 $ 578,335
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 19,898,411 88,375,051 5,020,163 10,413,073
Accumulated net realized gain from investments ...................... 6,190,238 3,595,964 428,295 6,732,932
Capital shares....................................................... 242,432,059 477,512,215 49,365,276 153,244,630
---------- ---------- ---------- ----------
Net assets, at value.................................................. $272,098,421 $579,877,387 $56,274,126 $170,968,970
========== ========== ========== ==========
Shares outstanding.................................................... 23,468,431 42,027,864 4,469,291 12,956,069
========== ========== ========== ==========
Net asset value per share............................................. $11.59 $13.80 $12.59 $13.20
========== ========== ========== ==========
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund Fund Securities Fund Securities Fund
--------- --------- ---------- -----------
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
At identified cost.................................................. $35,787,432 $ 8,896,301 $28,193,498 $16,398,506
========= ========= ========== ===========
At value............................................................ 37,769,882 10,000,373 28,810,315 16,639,830
Receivables from repurchase agreements, at value and cost............ 7,901,400 6,338,000 -- --
Cash................................................................. 7,564 -- 1,254,546 1,021,497
Receivables:
Dividends and interest.............................................. 23,370 19,810 11,166 5,787
Investment securities sold.......................................... -- 1,859 -- --
Capital shares sold................................................. -- -- 706,560 745,417
--------- --------- ---------- -----------
Total assets.................................................... 45,702,216 16,360,042 30,782,587 18,412,531
--------- --------- ---------- -----------
Liabilities:
Payables:
Investment securities purchased..................................... 1,007,236 39,162 3,037,354 2,925,519
Capital shares repurchased.......................................... -- 46,704 -- --
Management fees..................................................... 26,296 12,961 11,822 11,033
Accrued expenses and other liabilities............................... 1,973 5,824 8,015 4,775
Unrealized loss on forward foreign currency contracts (Note 2)....... -- -- 48,474 53,474
Bank overdraft....................................................... -- 353 -- --
--------- --------- ---------- -----------
Total liabilities............................................... 1,035,505 105,004 3,105,665 2,994,801
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Net assets consist of:
Undistributed net investment income.................................. $ 109,751 $ 132,644 $ 50,601 $ 26,147
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies.................... 1,982,450 1,104,072 568,343 187,850
Accumulated net realized gain (loss) from investments ............... (139,950) -- (3,049) --
Capital shares....................................................... 42,714,460 15,018,322 27,061,027 15,203,733
--------- --------- ---------- -----------
Net assets, at value.................................................. $44,666,711 $16,255,038 $27,676,922 $15,417,730
========= ========= ========== ===========
Shares outstanding.................................................... 3,930,828 1,445,259 2,673,901 1,510,497
========= ========= ========== ===========
Net asset value per share............................................. $11.36 $11.25 $10.35 $10.21
========= ========= ========== ===========
Statements of Operations
for the year ended December 31, 1996
Templeton
Global Income High Precious Real Estate U.S. Government
Securities Fund Income Fund Metals Fund Securities Fund Securities Fund
---------- ---------- -------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest1 .............................................. $17,957,900 $37,434,091 $ 642,007 $ 1,025,568 $46,276,568
Dividends2.............................................. -- 1,642,821 1,428,329 11,995,963 --
---------- ---------- -------- ---------- ----------
Total income....................................... 17,957,900 39,076,912 2,070,336 13,021,531 46,276,568
---------- ---------- -------- ---------- ----------
Expenses:
Management fees (Note 6)................................ 1,262,055 1,985,566 754,383 1,335,653 3,162,073
Custodian fees.......................................... 92,550 10,891 33,402 4,603 13,156
Reports to shareholders................................. 27,051 47,540 15,643 29,351 80,954
Professional fees....................................... 8,600 12,280 5,846 8,956 18,945
Trustees' fees and expenses............................. 1,582 2,608 867 1,631 4,491
Other................................................... 434 9,299 2,663 2,987 9,291
---------- ---------- -------- ---------- ----------
Total expenses..................................... 1,392,272 2,068,184 812,804 1,383,181 3,288,910
---------- ---------- -------- ---------- ----------
Net investment income............................. 16,565,628 37,008,728 1,257,532 11,638,350 42,987,658
---------- ---------- -------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................... 473,472 1,214,007 (146,066) 5,460,333 (158,758)
Foreign currency transactions......................... (53,884) (3,507) (42,500) -- --
Net unrealized appreciation (depreciation) on:
Investments........................................... 2,679,931 13,293,126 930,235 57,769,186 (18,937,072)
Translation of assets and liabilities denominated in
foreign currencies...................................... 641,631 1,095 5,671 -- --
---------- ---------- -------- ---------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................. 3,741,150 14,504,721 747,340 63,229,519 (19,095,830)
---------- ---------- -------- ---------- ----------
Net increase in net assets resulting from operations..... $20,306,778 $51,513,449 $2,004,872 $74,867,869 $23,891,828
========== ========== ======== ========== ==========
1Net of foreign taxes withheld of $250,973 for the Templeton Global Income Securities Fund.
2Net of foreign taxes and fees withheld of $112,509 for the Precious Metals Fund.
Zero Coupon Zero Coupon Zero Coupon Money Growth and
Fund - 2000 Fund - 2005 Fund - 2010 Market Fund Income Fund
--------- --------- --------- --------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest ................................................. $8,677,417 $5,259,243 $5,189,484 $23,914,246 $ 3,725,065
Dividends3................................................ -- -- -- -- 40,633,786
--------- --------- --------- --------- ----------
Total income......................................... 8,677,417 5,259,243 5,189,484 23,914,246 44,358,851
--------- --------- --------- --------- ----------
Expenses:
Management fees (Note 6).................................. 790,492 503,611 490,108 2,225,389 4,643,546
Custodian fees............................................ 3,562 1,981 1,672 7,843 29,893
Reports to shareholders................................... 16,797 10,045 9,850 54,419 122,636
Professional fees......................................... 5,359 3,716 3,882 16,411 30,140
Trustees' fees and expenses............................... 914 553 543 3,020 6,670
Other..................................................... 3,801 3,118 3,331 7,018 12,562
Management fees waived by manager (Note 6)................ (295,543) (203,897) (198,310) (443,587) --
--------- --------- --------- --------- ----------
Total expenses....................................... 525,382 319,127 311,076 1,870,513 4,845,447
--------- --------- --------- --------- ----------
Net investment income............................... 8,152,035 4,940,116 4,878,408 22,043,733 39,513,404
--------- --------- --------- --------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments............................................. 183,983 19,477 (191,720) -- 37,891,245
Foreign currency transactions........................... -- -- -- -- (79,533)
Net unrealized appreciation (depreciation) on:
Investments............................................. (5,248,940) (5,309,151) (6,860,589) -- 55,138,044
Translation of assets and liabilities denominated in
foreign currencies........................................ -- -- -- -- 208
--------- --------- --------- --------- ----------
Net realized and unrealized gain (loss) from investments
and foreign currencies.................................... (5,064,957) (5,289,674) (7,052,309) -- 92,949,964
--------- --------- --------- --------- ----------
Net increase (decrease) in net assets resulting from
operations................................................ $3,087,078 $ (349,558) $(2,173,901) $22,043,733 $132,463,368
========= ========= ========= ========= ==========
3Net of foreign taxes and fees withheld of $643,185 for the Growth and Income Fund.
Templeton Templeton
Income International Pacific Rising Utility
Securities Fund Equity Fund Growth Fund Dividends Fund Equity Fund
---------- ---------- --------- ---------- ----------
Investment income:
<S> <C> <C> <C> <C> <C>
Interest .............................................. $ 78,393,845 $ 10,234,709 $ 815,560 $ 2,406,978 $ 1,627,033
Dividends4............................................. 31,792,041 28,746,834 8,545,807 11,431,537 59,257,031
---------- ---------- --------- ---------- ----------
Total income...................................... 110,185,886 38,981,543 9,361,367 13,838,515 60,884,064
---------- ---------- --------- ---------- ----------
Expenses:
Management fees (Note 6)............................... 6,130,804 7,945,053 3,343,850 3,785,807 6,097,507
Custodian fees......................................... 123,304 621,312 280,490 10,356 90,468
Reports to shareholders................................ 162,107 113,833 44,916 61,635 162,864
Professional fees...................................... 42,708 27,750 13,100 15,517 42,547
Trustees' fees and expenses............................ 9,005 7,019 2,562 3,442 9,093
Registration fees...................................... -- 10,014 10,009 -- 10,000
Other.................................................. 19,260 29,802 5,288 6,178 17,533
---------- ---------- --------- ---------- ----------
Total expenses.................................... 6,487,188 8,754,783 3,700,215 3,882,935 6,430,012
---------- ---------- --------- ---------- ----------
Net investment income............................ 103,698,698 30,226,760 5,661,152 9,955,580 54,454,052
---------- ---------- --------- ---------- ----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments.......................................... 20,229,599 49,779,857 (4,377,500) 31,514,069 82,705,077
Foreign currency transactions........................ (419,290) (482,587) 64,831 (102,562)
Net unrealized appreciation (depreciation) on:
Investments.......................................... 16,701,514 122,637,885 36,732,857 71,866,460 (53,556,922)
Translation of assets and liabilities denominated in
foreign currencies..................................... 45,771 -- -- -- (551)
---------- ---------- --------- ---------- ----------
Net realized and unrealized gain from investments and
foreign currencies..................................... 36,557,594 171,935,155 32,420,188 103,380,529 29,045,042
---------- ---------- --------- ---------- ----------
Net increase in net assets resulting from operations.... $140,256,292 $202,161,915 $38,081,340 $113,336,109 $83,499,094
========== ========== ========= ========== ==========
4Net of foreign taxes and fees withheld of $170,500, $3,296,423, $608,294,
$62,834 and $633,448 for the Income Securities Fund, Templeton International
Equity Fund, Templeton Pacific Growth Fund, Rising Dividends Fund, and Utility
Equity Fund, respectively.
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth Fund Allocation Fund Cap Fund
--------- --------- ---------- ---------
Investment income:
<S> <C> <C> <C> <C>
Interest5 ............................................................. $ 1,272,781 $ 3,337,722 $1,192,888 $ 807,636
Dividends6............................................................. 6,041,537 10,977,393 540,763 494,208
--------- --------- ---------- ---------
Total income...................................................... 7,314,318 14,315,115 1,733,651 1,301,844
--------- --------- ---------- ---------
Expenses:
Management fees (Note 6)............................................... 2,887,400 4,016,061 272,732 694,975
Custodian fees......................................................... 530,000 191,073 14,227 978
Reports to shareholders................................................ 15,500 24,723 1,834 9,310
Professional fees...................................................... 4,100 17,273 3,600 8,338
Trustees' fees and expenses............................................ 500 -- 29 563
Other.................................................................. 2,751 522 3,033 2,195
--------- --------- ---------- ---------
Total expenses.................................................... 3,440,251 4,249,652 295,455 716,359
--------- --------- ---------- ---------
Net investment income............................................ 3,874,067 10,065,463 1,438,196 585,485
--------- --------- ---------- ---------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments........................................................... 6,444,991 5,369,864 489,252 6,732,905
Foreign currency transactions......................................... (198,551) (252,340) (12,228) (6,723)
Net unrealized appreciation (depreciation) on:
Investments........................................................... 29,643,653 73,557,750 4,638,458 10,251,252
Translation of assets and liabilities denominated in foreign currencies 48,919 -- (456) --
--------- --------- ---------- ---------
Net realized and unrealized gain from investments and foreign currencies 35,939,012 78,675,274 5,115,026
16,977,434
--------- --------- ---------- ---------
Net increase in net assets resulting from operations.................... $39,813,079 $88,740,737 $6,553,222 $17,562,919
========= ========= ========== =========
5Net of foreign taxes withheld of $8,478 for the Templeton Global Asset
Allocation Fund. 6Net of foreign taxes withheld of $355,057, $825,578, $36,004
for the Templeton Developing Markets Equity Fund, Templeton Global Growth Fund,
and Templeton Global Asset Allocation Fund, respectively.
Templeton
International
Smaller
Capital Companies Mutual Shares Mutual Discovery
Growth Fund* Fund* Securities Fund** Securities Fund**
--------- --------- ----------- -----------
Investment income:
<S> <C> <C> <C> <C>
Interest ............................................................ $ 114,799 $ 122,487 $ 62,029 $ 34,509
Dividends7........................................................... 84,201 84,349 8,410 5,586
--------- --------- ----------- -----------
Total income.................................................... 199,000 206,836 70,439 40,095
--------- --------- ----------- -----------
Expenses:
Management fees (Note 6)............................................. 86,028 56,389 11,822 11,033
Custodian fees....................................................... 96 4,830 3,400 3,200
Reports to shareholders.............................................. 536 1,500 2,971 --
Professional fees.................................................... 1,770 1,150 1,560 1,560
Trustees' fees and expenses.......................................... 49 150 -- 15
Registration fees.................................................... -- 1,300 -- --
Other................................................................ 307 152 85 --
--------- --------- ----------- -----------
Total expenses.................................................. 88,786 65,471 19,838 15,808
--------- --------- ----------- -----------
Net investment income......................................... 110,214 141,365 50,601 24,287
--------- --------- ----------- -----------
Realized and unrealized gain (loss) from investments and foreign currency: Net
realized gain (loss) on:
Investments......................................................... (139,950) 904 (3,049) 1,860
Foreign currency transactions....................................... (463) (9,625) -- --
Net unrealized appreciation on investments........................... 1,982,450 1,104,072 568,343 187,850
--------- --------- ----------- -----------
Net realized and unrealized gain from investments and foreign currencies 1,842,037 1,095,351 565,294 189,710
--------- --------- ----------- -----------
Net increase in net assets resulting from operations.................. $ 1,952,251 $ 1,236,716 $ 615,895 $ 213,997
========= ========= =========== ===========
7Net of foreign taxes withheld of $1,034, $9,526 and $508 for the Capital Growth
Fund, Templeton International Smaller Companies Fund, and Mutual Discovery
Securities Fund, respectively.
*May 1, 1996 (effective date) to December 31, 1996
**November 8, 1996 (effective date) to December 31, 1996
Statements of Changes in Net Assets
for the years ended December 31, 1996 and 1995
Templeton Global Income
Securities Fund High Income Fund Precious Metals Fund
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 16,565,628 $ 18,687,112 $ 37,008,728 $ 31,021,484 $ 1,257,532 $ 1,615,339
Net realized gain (loss) from
investments and foreign currency
transactions...................... 419,588 (7,995,904) 1,210,500 1,770,719 (188,566) 1,438,861
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in foreign
currencies........................ 3,321,562 22,864,210 13,294,221 22,884,579 935,906 (1,361,730)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 20,306,778 33,555,418 51,513,449 55,676,782 2,004,872 1,692,470
Distributions to shareholders from:
Undistributed net investment
income............................ (17,028,466) (9,275,583) (31,018,152) (21,305,944) (1,593,439) (1,664,388)
Undistributed net realized capital
gains............................. -- -- (1,646,547) -- (1,460,667) (1,232,041)
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... (24,749,927) (35,396,559) 66,343,229 71,496,259 5,519,005 (18,765,586)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets..................... (21,471,615) (11,116,724) 85,191,979 105,867,097 4,469,771 (19,969,545)
Net assets:
Beginning of year................. 243,194,084 254,310,808 360,903,546 255,036,449 105,108,814 125,078,359
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $221,722,469 $243,194,084 $446,095,525 $360,903,546 $109,578,585 $105,108,814
========== ========== ========== ========== ========== ==========
Undistributed net investment
income included in net assets:
Beginning of year................ $ 14,271,863 $ 20,717,930 $ 31,020,827 $ 21,367,505 $ 1,615,202 $ 1,682,044
========== ========== ========== ========== ========== ==========
End of year...................... $ 12,596,126 $ 14,271,863 $ 37,005,221 $ 31,020,827 $ 1,214,989 $ 1,615,202
========== ========== ========== ========== ========== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income............ $ 11,638,350 $ 9,336,142 $ 42,987,658 $ 41,653,906 $ 8,152,035 $ 7,341,344
Net realized gain (loss) from
investments ...................... 5,460,333 1,068,152 (158,758) (891,143) 183,983 72,202
Net unrealized appreciation
(depreciation) on investments .... 57,769,186 21,851,218 (18,937,072) 68,885,320 (5,248,940) 14,631,144
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets
resulting from operations......... 74,867,869 32,255,512 23,891,828 109,648,083 3,087,078 22,044,690
Distributions to shareholders from:
Undistributed net investment
income............................ (9,713,587) (6,411,953) (41,654,771) (43,440,615) (7,341,063) (5,282,540)
Undistributed net realized capital
gains............................. -- -- -- -- (72,481) --
Increase (decrease) in net assets
from capital share transactions
(Note 3).......................... 44,093,562 (8,066,883) 218,454,989 (2,081,082) (3,429,313) 26,364,407
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets........................ 109,247,844 17,776,676 200,692,046 64,126,386 (7,755,779) 43,126,557
Net assets:
Beginning of year................. 213,473,351 195,696,675 643,165,471 579,039,085 137,356,721 94,230,164
---------- ---------- ---------- ---------- ---------- ----------
End of year....................... $322,721,195 $213,473,351 $843,857,517 $643,165,471 $129,600,942 $137,356,721
========== ========== ========== ========== ========== ==========
Undistributed net investment income included in net assets:
Beginning of year................ $ 9,334,962 $ 6,410,773 $ 41,588,096 $ 43,374,805 $ 7,341,344 $ 5,282,540
========== ========== ========== ========== ========== ==========
End of year...................... $ 11,259,725 $ 9,334,962 $ 42,920,983 $ 41,588,096 $ 8,152,316 $ 7,341,344
========== ========== ========== ========== ========== ==========
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- ------------------- ----------------------
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- ---------- -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................... $ 4,940,116 $ 4,217,941 $ 4,878,408 $ 4,092,137 $ 22,043,733 $ 25,363,309
Net realized gain (loss) from investments
and foreign currency transactions........ 19,477 27,440 (191,720) 1,268,380 -- 289
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies............................... (5,309,151) 14,450,466 (6,860,589) 17,390,706 -- --
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................ (349,558) 18,695,847 (2,173,901) 22,751,223 22,043,733 25,363,598
Distributions to shareholders from:
Undistributed net investment income...... (4,218,190) (2,941,626) (4,092,016) (2,074,389) (22,043,733) (25,363,598)+
Undistributed net realized capital gains. -- -- (1,109,315) -- -- --
Increase (decrease) in net assets from
capital share transactions (Note 3)...... 3,949,514 15,968,605 558,186 19,594,876 (20,617,040) (89,071,533)
--------- --------- --------- --------- ---------- -----------
Net increase (decrease) in net
assets................................... (618,234) 31,722,826 (6,817,046) 40,271,710 (20,617,040) (89,071,533)
Net assets:
Beginning of year........................ 83,221,703 51,498,877 85,632,792 45,361,082 429,546,853 518,618,386
--------- --------- --------- --------- ---------- -----------
End of year.............................. $82,603,469 $83,221,703 $78,815,746 $85,632,792 $408,929,813 $429,546,853
========= ========= ========= ========= ========== ===========
Undistributed net investment income included in net assets:
Beginning of year....................... $ 4,217,789 $ 2,941,474 $ 4,091,968 $ 2,074,248 $-- $--
========= ========= ========= ========= ========== ===========
End of year............................. $ 4,939,715 $ 4,217,789 $ 4,878,360 $ 4,091,968 $-- $--
========= ========= ========= ========= ========== ===========
+Distributions were increased by a net realized gain from security transactions of $289.
Templeton International
Growth and Income Fund Income Securities Fund Equity Fund
----------------------- ------------------------ -----------------------
1996 1995 1996 1995 1996 1995
----------- ---------- ----------- ----------- ------------ ----------
Increase (decrease) in net assets:
Operations:
Net investment income....... $ 39,513,404 $ 22,234,234 $ 103,698,698 $ 91,009,891 $ 30,226,760 $ 23,458,911
Net realized gain (loss) from
investments and foreign
currency transactions........ 37,811,712 79,239,315 19,810,309 (15,464,708) 49,297,270 30,984,955
Net unrealized appreciation
on investments and
translation of assets and
liabilities denominated in
foreign currencies........... 55,138,252 91,264,881 16,747,285 152,006,805 122,637,885 26,564,752
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets resulting from
operations................... 132,463,368 192,738,430 140,256,292 227,551,988 202,161,915 81,008,618
Distributions to shareholders
from:
Undistributed net investment
income....................... (22,230,774) (8,012,262) (66,927,738) (63,454,170) (25,386,301) (13,634,404)
Undistributed net realized
capital gains................ (78,714,626) (17,435,234) (11,125,807) (5,103,693) (31,064,815) (16,891,097)
Increase in net assets from
capital share transactions
(Note 3)..................... 156,983,572 204,319,488 21,919,171 107,540,999 112,271,953 14,509,031
----------- ---------- ----------- ----------- ------------ ----------
Net increase in net
assets....................... 188,501,540 371,610,422 84,121,918 266,535,124 257,982,752 64,992,148
Net assets:
Beginning of year............ 889,487,468 517,877,046 1,266,537,502 1,000,002,378 850,116,622 785,124,474
----------- ---------- ----------- ----------- ------------ ----------
End of year.................. $1,077,989,008 $889,487,468 $1,350,659,420 $1,266,537,502 $1,108,099,374 $850,116,622
=========== ========== =========== =========== ============ ==========
Undistributed net investment income included in net assets:
Beginning of year........... $ 22,239,184 $ 8,017,077 $ 91,003,300 $ 67,603,145 $ 23,389,762 $ 13,466,616
=========== ========== =========== =========== ============ ==========
End of year................. $ 39,442,227 $ 22,239,184 $ 99,623,131 $ 91,003,300 $ 27,747,634 $ 23,389,762
=========== ========== =========== =========== ============ ==========
Templeton
Pacific Growth Fund Rising Dividends Fund Utility Equity Fund
---------------------- ---------------------- -------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ------------ -----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income........... $ 5,661,152 $ 7,241,924 $ 9,955,580 $ 10,367,695 $ 54,454,052 $ 65,692,968
Net realized gain (loss) from
investments and foreign
currency transactions............ (4,312,669) 6,009,137 31,514,069 251,515 82,602,515 2,816,631
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies............... 36,732,857 12,826,175 71,866,460 88,320,864 (53,557,473) 282,539,662
---------- ---------- ---------- ---------- ------------ -----------
Net increase in net assets
resulting from operations........ 38,081,340 26,077,236 113,336,109 98,940,074 83,499,094 351,049,261
Distributions to shareholders from:
Undistributed net investment
income........................... (10,991,812) (6,625,094) (10,368,611) (8,063,908) (65,540,030) (70,961,297)
Undistributed net realized capital
gains............................ (6,370,262) (2,753,036) -- -- -- --
Increase (decrease) in net assets
from capital share transactions
(Note 3)......................... 4,104,011 (60,595,295) 31,202,926 62,448,084 (239,114,944) (11,752,253)
---------- ---------- ---------- ---------- ------------ -----------
Net increase (decrease) in
net assets....................... 24,823,277 (43,896,189) 134,170,424 153,324,250 (221,155,880) 268,335,711
Net assets:
Beginning of year................ 331,935,881 375,832,070 463,253,277 309,929,027 1,423,446,200 1,155,110,489
---------- ---------- ---------- ---------- ------------ -----------
End of year...................... $356,759,158 $331,935,881 $597,423,701 $463,253,277 $1,202,290,320 $1,423,446,200
========== ========== ========== ========== ============ ===========
Undistributed net investment income included in net assets:
Beginning of year............... $ 7,402,137 $ 6,796,802 $ 10,367,057 $ 8,063,270 $ 65,687,973 $ 70,953,514
========== ========== ========== ========== ============ ===========
End of year..................... $ 2,026,130 $ 7,402,137 $ 9,954,026 $ 10,367,057 $ 54,346,789 $ 65,687,973
========== ========== ========== ========== ============ ===========
for the years ended December 31, 1996 and 1995 (except as noted)
Templeton Developing Templeton Global Templeton Global
Markets Equity Fund Growth Fund Asset Allocation Fund
--------------------- ---------------------- --------------------
1996 1995 1996 1995 1996 1995*
---------- ---------- ---------- ---------- ---------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income................. $ 3,874,067 $ 2,632,898 $ 10,065,463 $ 6,108,912 $ 1,438,196 $ 251,964
Net realized gain from investments
and foreign currency transactions...... 6,246,440 3,236,155 5,117,524 7,733,119 477,024 11,985
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies..................... 29,692,572 (2,382,349) 73,557,750 15,482,583 4,638,002 382,161
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets
resulting from operations.............. 39,813,079 3,486,704 88,740,737 29,324,614 6,553,222 646,110
Distributions to shareholders from:
Undistributed net investment income.... (2,182,460) (489,978) (7,356,652) (1,324,712) (14,806) (246,062)
Undistributed net realized capital gains (4,037,551) (115,132) (7,356,653) -- (29,614) --
Increase in net assets from capital share
transactions (Note 3).................. 80,421,511 57,013,367 167,094,838 151,899,127 35,036,621 13,828,655
---------- ---------- ---------- ---------- ---------- ---------
Net increase in net assets........ 114,014,579 59,894,961 241,122,270 179,899,029 41,545,423 14,228,703
Net assets:
Beginning of year...................... 158,083,842 98,188,881 338,755,117 158,856,088 14,728,703 500,000
---------- ---------- ---------- ---------- ---------- ---------
End of year............................ $272,098,421 $158,083,842 $579,877,387 $338,755,117 $56,274,126 $14,728,703
========== ========== ========== ========== ========== =========
Undistributed net investment income included in net assets:
Beginning of year..................... $ 2,084,657 $ 758,368 $ 5,816,563 $ 1,454,896 $ (6,078) $--
========== ========== ========== ========== ========== =========
End of year........................... $ 3,577,713 $ 2,084,657 $ 10,394,157 $ 5,816,563 $ 1,460,392 $ (6,078)
========== ========== ========== ========== ========== =========
*April 19, 1995 (effective date) to December 31, 1995.
Templeton
International Mutual Mutual
Smaller Shares Discovery
Capital Companies Securities Securities
Small Cap Fund Growth Fund Fund Fund Fund
--------------------- --------- --------- --------- ---------
1996 1995** 1996*** 1996*** 1996**** 1996****
---------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income...................... $ 585,485 $ 33,213 $ 110,214 $ 141,365 $ 50,601 $ 24,287
Net realized gain (loss) from investments
and foreign currency transactions........... 6,726,182 2,754 (140,413) (8,721) (3,049) 1,860
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies........... 10,251,252 161,821 1,982,450 1,104,072 568,343 187,850
---------- --------- --------- --------- --------- ---------
Net increase in net assets resulting
from operations............................. 17,562,919 197,788 1,952,251 1,236,716 615,895 213,997
Distributions to shareholders from:
Undistributed net investment income......... (33,640) -- -- -- -- --
Undistributed net realized capital gains.... (2,727) -- -- -- -- --
Increase in net assets from capital share
transactions (Note 3)....................... 140,140,940 12,853,690 42,714,460 15,018,322 27,061,027 15,203,733
---------- --------- --------- --------- --------- ---------
Net increase in net assets............. 157,667,492 13,051,478 44,666,711 16,255,038 27,676,922 15,417,730
Net assets:
Beginning of year........................... 13,301,478 250,000 -- -- -- --
---------- --------- --------- --------- --------- ---------
End of year................................. $170,968,970 $13,301,478 $44,666,711 $16,255,038 $27,676,922 $15,417,730
========== ========= ========= ========= ========= =========
Undistributed net investment income included in net assets:
Beginning of year.......................... $ 33,213 $-- $-- $-- $-- $--
========== ========= ========= ========= ========= =========
End of year................................ $ 578,335 $ 33,213 $ 109,751 $ 132,644 $ 50,601 $ 26,147
========== ========= ========= ========= ========= =========
**November 1, 1995 (effective date) to December 31, 1995.
***May 1, 1996 (effective date) to December 31, 1996.
****November 8, 1996 (effective date) to December 31, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements
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>
Capital Preservation
Capital Growth Growth and Income High Current Income and Income
----------------------- --------------------- ------------------ --------------
<S> <C> <C> <C>
Precious Metals Fund Growth and Income Fund Templeton Global Income Money Market Fund
Templeton Developing Income Securities Fund Securities Fund
Markets Equity Fund Real Estate Securities Fund High Income Fund
Templeton Global Growth Fund Rising Dividends Fund The U.S. Government
Templeton International Templeton Global Asset Securities Fund
Equity Fund Allocation Fund Zero Coupon Fund - 2000
Templeton Pacific Growth Fund Utility Equity Fund Zero Coupon Fund - 2005
Small Cap Fund Mutual Shares Securities Fund Zero Coupon Fund - 2010
Capital Growth Fund
Templeton International
Smaller Companies Fund
Mutual Discovery Securities 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
Mutual Discovery Securities Fund became effective November 8, 1996.
Effective May 1, 1996, the name of the Global Income Fund changed to the
Templeton Global Income Securities Fund. The portfolio's objective and current
investment strategy remained unchanged.
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 Advisor. 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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.
For the Money Market Fund, 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 declared and
reinvested daily in additional shares of the Fund at net asset value.
A portion of the distributions received by the funds 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 passive
foreign investment company (PFIC) shares, 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 passive foreign investment company (PFIC) shares, differing treatment
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.
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 Fund, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. At December 31, 1996, all outstanding repurchase agreements held by
the Funds, had been entered into on that date.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
i. Securities Purchased on a When-Issued or Delayed Delivery Basis:
The Funds may purchase 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.
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.
k. Options:
The Mutual Shares Securities Fund and the Mutual Discovery Securities Fund may
buy listed call options on securities which it intends to purchase in order to
limit the risk of a substantial increase in the market price of such securities.
A call option gives the Funds the right to buy the underlying securities from
the option writer at a stated exercise price. Any losses realized by the Funds
upon expiration of the call options are limited to the premiums paid for the
purchase of such options, plus any transaction costs.
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 Templeton Global Income Securities Fund, Templeton Global Asset Allocation
Fund, Mutual Shares Securities Fund and Mutual Discovery 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.
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 December 31, 1996, the Templeton Global Income Securities Fund had the
following forward currency contracts outstanding:
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- --------
<C> <S> <C> <C> <C>
21,500,000 Deutsche Mark........... U.S. $13,925,321 02/03/97 U.S. $ (81,144)
21,500,000 Deutsche Mark........... 14,001,954 02/05/97 (6,222)
--------- --------
U.S. $27,927,275 U.S. $ (87,366)
--------- --------
Unrealized gain on offsetting forward exchange contracts..................... 750,169
Net unrealized gain on forward exchange contracts........................... $662,803
========
The Templeton Global Asset Allocation Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
110,000 Deutsche Mark........... U.S. $ 71,246 02/03/97 U.S. $ (411)
110,000 Deutsche Mark........... 71,638 02/05/97 (27)
--------- -------
U.S. $142,884 U.S. $ (438)
--------- -------
Unrealized gain on offsetting forward exchange contracts..................... 5,521
Net unrealized gain on forward exchange contracts........................... $5,083
=======
2. FORWARD FOREIGN CURRENCY CONTRACTS (cont.)
The Mutual Shares Securities Fund had the following forward currency contracts
outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Loss
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
949,850 Great British Pounds.... U.S. $1,583,138 02/18/97 U.S. $(42,217)
1,043,371 French Francs........... 199,539 02/28/97 (2,374)
1,936,392 Norwegian Krone......... 300,705 03/10/97 (3,883)
--------- -------
U.S. $2,083,382 U.S. $(48,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(48,474)
=======
The Mutual Discovery Securities Fund had the following forward currency
contracts outstanding:
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
---------------------------- --------- ---------- -------
<C> <S> <C> <C> <C>
908,457 Great British Pounds.... U.S. $1,505,580 02/18/97 U.S. $(48,947)
202,980 Canadian Dollars........ 150,702 05/30/97 1,133
104,068 Great British Pounds.... 171,554 08/18/97 (5,556)
1,281,396 French Francs........... 247,871 02/28/97 (104)
--------- -------
U.S. $2,075,707 U.S. $(53,474)
--------- -------
Net unrealized loss on forward exchange contracts........................... $(53,474)
=======
3. TRUST SHARES
At December 31, 1996, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended December 31, 1996 and 1995 were as follows:
Templeton Global
Income Securities Fund High Income Fund Precious Metals Fund
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 1,774,907 $23,229,506 14,886,206 $203,832,754 5,826,772 $92,609,906
Shares issued in reinvestment of distributions 1,374,371 17,028,466 2,553,925 32,664,699 200,533 3,054,106
Shares redeemed.............................. (4,932,897) (65,007,899) (12,349,882) (170,154,224) (5,826,876) (90,145,007)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (1,783,619) $(24,749,927) 5,090,249 $ 66,343,229 200,429 $ 5,519,005
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,178,751 $14,989,802 3,955,751 $ 52,494,118 836,229 $11,648,578
Shares issued in reinvestment of distributions 732,090 9,275,583 1,649,067 21,305,944 205,566 2,896,429
Shares redeemed.............................. (2,840,995) (36,191,941) (4,087,131) (54,161,612) (1,102,540) (15,328,334)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (1,862,284) (23,470,003) 4,012,012 51,857,809 (1,350,012) (17,982,259)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (2,792,438) $(35,396,559) 5,529,699 $ 71,496,259 (1,410,757) $(18,765,586)
======== ========== ========= =========== ======== ==========
Real Estate U.S. Government
Securities Fund Securities Fund Zero Coupon Fund - 2000
------------------- --------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- --------- ----------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................. 4,215,417 $80,007,020 4,777,016 $ 64,263,777 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 541,263 9,713,587 3,298,082 41,654,771 517,344 7,413,544
Shares redeemed.............................. (2,455,248) (45,627,045) (13,383,651) (179,598,763) (2,064,008) (31,249,490)
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... 2,301,432 $44,093,562 16,722,759 $218,454,989 (199,913) $ (3,429,313)
======== ========== ========= =========== ======== ==========
1995
Shares sold.................................. 1,340,093 $20,990,418 4,057,377 $ 54,748,439 1,413,875 $20,777,927
Shares issued in reinvestment of distributions 417,717 6,411,953 3,278,537 43,440,615 354,296 5,282,548
Shares redeemed.............................. (1,401,583) (22,032,486) (7,126,939) (95,628,635) (1,003,208) (14,976,357)
Net shares sold (redeemed) from exercise of
exchange privilege........................... (874,485) (13,436,768) (340,030) (4,641,501) 1,045,976 15,280,289
-------- ---------- --------- ----------- -------- ----------
Net increase (decrease)....................... (518,258) $ (8,066,883) (131,055) $ (2,081,082) 1,810,939 $26,364,407
======== ========== ========= =========== ======== ==========
3. TRUST SHARES (cont.)
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010 Money Market Fund
------------------- -------------------- ----------------------
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- ---------- ---------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold................................. 1,047,318 $16,865,102 2,638,570 $42,320,073 624,484,193 $624,484,193
Shares issued in reinvestment of distributions 282,342 4,218,190 361,957 5,201,331 22,025,506 22,025,506
Shares redeemed............................. (1,065,563) (17,133,778) (2,908,691) (46,963,218) (667,126,739) (667,126,739)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 264,097 $ 3,949,514 91,836 $ 558,186 (20,617,040) $ (20,617,040)
======== ========== ======== ========== ========== ===========
1995
Shares sold................................. 942,223 $14,600,167 909,048 $13,837,665 202,376,630 $202,376,630
Shares issued in reinvestment of distributions 185,240 2,941,626 129,812 2,074,389 25,427,564 25,427,564
Shares redeemed............................. (421,198) (6,606,649) (493,484) (7,588,835) (146,409,205) (146,409,205)
Net shares sold (redeemed) from exercise of
exchange privilege.......................... 338,466 5,033,461 718,072 11,271,657 (170,466,522) (170,466,522)
-------- ---------- -------- ---------- ---------- -----------
Net increase (decrease)...................... 1,044,731 $15,968,605 1,263,448 $19,594,876 (89,071,533) $ (89,071,533)
======== ========== ======== ========== ========== ===========
Templeton
Growth and Income Fund Income Securities Fund International Equity Fund
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................. 17,103,384 $291,261,819 12,978,656 $215,025,216 16,304,017 $233,298,562
Shares issued in reinvestment of
distributions........................... 6,313,033 100,945,400 4,981,081 78,053,545 4,023,601 56,451,117
Shares redeemed......................... (13,907,925) (235,223,647) (16,378,905) (271,159,590) (12,410,252) (177,477,726)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 9,508,492 $156,983,572 1,580,832 $ 21,919,171 7,917,366 $112,271,953
========= =========== ========= =========== ========= ===========
1995
Shares sold............................. 7,137,692 $109,151,094 10,113,056 $155,712,027 8,219,451 $106,471,518
Shares issued in reinvestment of
distributions........................... 1,706,740 25,447,497 4,534,250 68,557,863 2,362,655 30,525,501
Shares redeemed......................... (5,978,524) (90,725,782) (10,094,332) (154,925,002) (7,007,432) (90,959,162)
Net shares sold (redeemed) from
exercise of exchange privilege.......... 10,428,442 160,446,679 2,479,081 38,196,111 (2,536,715) (31,528,826)
--------- ----------- --------- ----------- --------- -----------
Net increase............................. 13,294,350 $204,319,488 7,032,055 $107,540,999 1,037,959 $ 14,509,031
========= =========== ========= =========== ========= ===========
Templeton Rising
Pacific Growth Fund Dividends Fund Utility Equity Fund
--------------------- -------------------- ---------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ----------- --------- -----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................. 11,017,347 $162,907,832 9,416,748 $128,553,979 4,951,179 $ 87,970,395
Shares issued in reinvestment of
distributions............................ 1,175,496 17,362,074 776,095 10,368,611 3,882,703 65,540,030
Shares redeemed.......................... (11,892,182) (176,165,895) (7,989,700) (107,719,664) (22,222,999) (392,625,369)
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... 300,661 $ 4,104,011 2,203,143 $ 31,202,926 (13,389,117) $(239,114,944)
========= =========== ======== =========== ========= ===========
1995
Shares sold.............................. 2,230,611 $ 29,634,248 4,053,853 $ 46,217,013 5,042,256 $ 79,723,893
Shares issued in reinvestment of
distributions............................ 711,543 9,378,130 726,478 8,063,909 4,578,148 70,961,297
Shares redeemed.......................... (3,306,122) (43,982,761) (3,959,378) (44,968,613) (10,979,441) (173,993,280)
Net shares sold (redeemed) from exercise
of exchange privilege.................... (4,156,691) (55,624,912) 4,683,755 53,135,775 787,401 11,555,837
--------- ----------- -------- ----------- --------- -----------
Net increase (decrease)................... (4,520,659) $ (60,595,295) 5,504,708 $ 62,448,084 (571,636) $ (11,752,253)
========= =========== ======== =========== ========= ===========
3. TRUST SHARES (cont.)
Templeton Developing Templeton Templeton Global Asset
Markets Equity Fund Global Growth Fund Allocation Fund*
-------------------- -------------------- ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- --------- ---------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................................... 12,008,203 $131,040,673 16,172,059 $204,037,772 3,324,255 $37,900,419
Shares issued in reinvestment of distributions. 568,038 6,220,011 1,172,375 14,713,305 3,931 44,420
Shares redeemed................................ (5,266,029) (56,839,173) (4,156,855) (51,656,239) (258,845) (2,908,218)
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 7,310,212 $ 80,421,511 13,187,579 $167,094,838 3,069,341 $35,036,621
========= ========== ========= ========== ======== ==========
1995
Shares sold.................................... 4,586,720 $ 44,019,390 11,202,768 $124,502,270 514,807 $ 5,313,984
Shares issued in reinvestment of distributions. 61,746 605,110 119,022 1,324,712 23,479 246,062
Shares redeemed................................ (1,121,485) (10,897,349) (1,972,050) (22,039,520) (213,358) (2,230,197)
Net shares sold (redeemed) from exercise of
exchange privilege............................. 2,365,581 23,286,216 4,330,050 48,111,665 1,025,022 10,498,806
--------- ---------- --------- ---------- -------- ----------
Net increase.................................... 5,892,562 $ 57,013,367 13,679,790 $151,899,127 1,349,950 $13,828,655
========= ========== ========= ========== ======== ==========
Templeton
International Smaller
Small Cap Fund** Capital Growth Fund*** Companies Fund***
-------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
--------- ---------- -------- --------- -------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................................... 17,929,579 $214,314,899 4,551,652 $49,307,053 1,887,934 $19,652,954
Shares issued in reinvestment of distributions... 2,914 36,368 -- -- -- --
Shares redeemed.................................. (6,275,212) (74,210,327) (620,824) (6,592,593) (442,675) (4,634,632)
--------- ---------- -------- --------- -------- ----------
Net increase...................................... 11,657,281 $140,140,940 3,930,828 $42,714,460 1,445,259 $15,018,322
========= ========== ======== ========= ======== ==========
1995
Shares sold...................................... 190,530 $ 1,922,288
Shares redeemed.................................. (5,971) (60,260)
Net shares sold (redeemed) from exercise of
exchange privilege............................... 1,089,229 10,991,662
--------- ----------
Net increase...................................... 1,273,788 $ 12,853,690
========= ==========
Mutual Shares Mutual Discoveries
Securities Fund**** Securities Fund****
------------------ -----------------
Shares Amount Shares Amount
-------- --------- ------- ---------
1996
<S> <C> <C> <C> <C>
Shares sold................................................................... 2,673,916 $27,061,180 1,510,497 $15,203,733
Shares redeemed............................................................... (15) (153) -- --
-------- --------- ------- ---------
Net increase................................................................... 2,673,901 $27,061,027 1,510,497 $15,203,733
======== ========= ======= =========
*For the period April 19, 1995 (effective date) to December 31, 1995. **For the
period November 1, 1995 (effective date) to December 31, 1995. ***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 Funds had accumulated net realized
capital gains or capital loss carryovers as follows:
High Real Estate Zero Coupon Zero Coupon Zero Coupon
Income FundSecurities Fund Fund - 2000 Fund - 2005 Fund - 2010
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ................................. $1,211,890 $5,025,389 $183,688 $16,721 $38,764
======== ========== ======== ======== ========
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS (cont.)
Templeton
Growth and Income International Rising Utility
Income FundSecurities Fund Equity Fund Dividends Fund Equity Fund
--------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accumulated net realized gains ............................. $37,745,691 $21,370,923 $49,651,484 $16,997,806 $75,189,259
========= ========== ======== ========== =========
Templeton
Developing Templeton Templeton
Markets Global Global Asset Small
Equity Fund Growth FundAllocation Fund Cap Fund
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Accumulated net realized gains .............................................. $6,195,420 $3,597,282 $428,295 $6,794,002
======== ======== ========== ========
Templeton Templeton
Precious U.S. Government Money Capital Global Income Pacific
Metals FundSecurities Fund Market Fund Growth FundSecurities FundGrowth Fund
-------- ----------- -------- -------- ---------- --------
Capital loss carryovers
Expiring in:1999 $ -- $ -- $ -- $ -- $-- $ --
2000.................................. -- -- 418 -- -- --
2001.................................. -- -- 523 -- -- --
2002.................................. -- 14,789,560 7,568 -- -- 402,770
2003.................................. -- 826,481 -- -- -- 3,643,075
2004.................................. 146,066 -- -- 52,275 1,767,518 --
-------- ----------- -------- -------- ---------- --------
$146,066 $15,616,041 $8,509 $52,275 $1,767,518 $4,045,845
======== =========== ======== ======== ========== ========
</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 December 31, 1996 by $4,168 in Zero Coupon Fund - 2005,
$314,203 in Zero Coupon Fund - 2010, $9,777 in Growth and Income Fund,
$3,990,227 in Templeton International Equity Fund, $103,600 in Templeton
Developing Markets Equity Fund, $3,555,239 in Templeton Pacific Growth Fund,
$296,116 in Rising Dividends Fund, $13,347 in Templeton Global Growth Fund and
$62,705 in Small Cap Fund.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Templeton
Global Income High Precious Real Estate U.S. Government Zero Coupon
Securities Fund Income Fund Metals FundSecurities FundSecurities Fund***Fund - 2000
---------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchases ................................. $303,821,574 $157,706,146 $33,953,802 $60,858,072 $76,112,140 $ 764,880
Sales ..................................... $329,230,918 $ 99,365,626 $24,601,239 $23,484,427 $88,321,362 $10,968,281
Income Templeton Templeton
Zero Coupon Zero Coupon Growth and Securities International Pacific
Fund - 2005 Fund - 2010 Income Fund Fund Equity Fund Growth Fund
-------- --------- ---------- ---------- ---------- ---------
Purchases .................................... $2,227,312 $12,568,420 $331,534,066 $317,604,964 $254,455,666 $46,046,765
Sales ........................................ $1,654,344 $14,093,296 $207,828,875 $175,661,249 $236,211,877 $47,657,087
Templeton
Developing Templeton Templeton
Rising Utility Markets Global Global Asset Small
Dividends Fund Equity Fund Equity Fund Growth Fund Allocation Fund* Cap Fund
---------- ---------- --------- ---------- ----------- ----------
Purchases ................................ $203,203,223 $375,683,901 $96,882,928 $186,654,274 $42,047,805 $182,121,699
Sales .................................... $130,165,631 $515,672,768 $25,351,495 $ 50,224,188 $13,415,348 $ 50,911,175
Templeton Mutual Mutual
International Shares Discovery
Capital Smaller Companies Securities Securities
Growth Fund* Fund* Fund** Fund**
--------- ------------ --------- --------
Purchases .............................................................. $36,587,181 $8,897,257 $17,263,507 $9,516,603
Sales .................................................................. $ 659,799 $ 1,860 $ 147,893 $ 8,010
</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.
***Excludes purchase and sales related to the liquidaton of the Investment Grade
Intermediate Bond Fund and the Adjustable U.S. Government Fund and mortgage
dollar roll transactions.
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 Templeton International Equity Fund, the
Templeton Pacific Growth Fund, the Rising Dividends Fund, the Templeton
International Smaller Companies Fund, the Templeton Global Growth Fund, the
Templeton Developing Markets Equity Fund, the Templeton Global Asset Allocation
Fund, the Small Cap Fund, Capital Growth Fund, the Mutual Discovery Securities
Fund, and the Mutual Shares Securities 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 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 Small Cap Fund and
Capital Growth 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 advisor 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.
TGAL serves as the investment advisor 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
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
a. Management Agreement: (cont.)
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
average daily net assets.
Templeton Asset Management, Ltd. (TAML) serves as the investment advisor 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 Rising Dividends Fund, the Templeton International Smaller Companies
Fund, the Templeton Global Growth Fund, the Templeton Developing Markets Equity
Fund, the Templeton Global Asset Allocation Fund, the Mutual Discovery
Securities Fund and the Mutual Shares Securities 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.
Franklin Templeton Services, Inc., (FT Services) serves as the business manager
for the Templeton Global Asset Allocation Fund, the Templeton International
Smaller Companies Fund, the Mutual Discovery Fund and the Mutual Shares 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.
Under a subadvisory agreement, Templeton Investment Counsel, Inc. (TICI)
provides services to the Templeton International Equity Fund and 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 a portion of the management fees for the
Zero Coupon Fund - 2000, Zero Coupon Fund - 2005, Zero Coupon Fund - 2010, and
Money Market Fund, aggregating $1,141,337.
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.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Shareholder Services Agreement:
Franklin/Templeton Investors Services, Inc. (Investors Services), under the
terms of an agreement, performs shareholder servicing for the Funds and is not
paid by the Funds for the service.
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 and the Income Securities Fund have 85.7% and 41.1%,
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 yielding securities, because such securities are generally unsecured and
are often subordinated to other creditors of the issuer.
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 in the period in which the default
occurs.
At December 31, 1996, the High Income Fund held one defaulted security issued by
one company with a value aggregating $72,821 representing .02% of the Fund's net
assets. The Income Securities Fund held one defaulted security issued by one
company with a value aggregating $88,375 representing .01% of the Fund's net
assets.
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 Templeton International Equity Fund has investments in excess of 10% of
its net assets in Sweden and United Kingdom.
The Templeton Pacific Growth Fund has investments in excess of 10% of its
net assets in Australia, Hong Kong and Japan.
The Templeton Developing Markets Equity Fund has investments in excess of
10% of its net assets in Argentina, Hong Kong and Mexico.
The High Income Fund has investments in excess of 10% of its net assets in
Cable Television industry.
The Templeton Global Income Securities Fund has investments in excess of
10% of its net assets in Italy and United Kingdom.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES Investment of 5% or
more of an issuer's outstanding voting securities held by any of the Funds are
defined in the Investment Company Act of 1940 as affiliated companies. The
investments in such companies at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Purchase Market Dividend
Fund Affiliate Cost Value Income
------------------------------ -------------------------- -------- -------- -------
<S> <C> <C> <C> <C>
Income Securities Fund .................. Tanger Factory Outlet Centers, Inc. $9,718,888 $9,775,850 $742,424
Income Securities Fund .................. Anacomp, Inc. ..................... 1,902,683 1,616,895 0
</TABLE>
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 December 31, 1996, the Funds held
restricted securities as follows:
Real Estate Securities Fund (1.7% of net assets)
<TABLE>
<CAPTION>
Shares Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
<S> <C> <C> <C>
511,400 Pacific Retail Trust ........................... 08/30/96 $5,625,400 $5,625,400
Income Securities Fund (0.5% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
419,424 Bibb Co. ....................................... 03/30/93 - $6,112,066 $3,171,894
09/08/94
9. RESTRICTED SECURITIES (cont.)
Income Securities Fund (0.5% of net assets)
Face Security Acquisition Date Cost Value
------- ------------------------------------- ---------- -------- --------
3,781,280 Del Monte Corp. ................................ 09/11/96 $3,935,678 $3,781,280
High Income Fund (0.2% of net assets)
Face
------- ------------------------------------- ---------- -------- --------
1,124,010 Del Monte Corp. ................................ 09/11/96 $1,124,010 $1,124,010
Mutual Shares Securities Fund (1.0% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
12,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 240,000 $ 283,500
Mutual Discovery Securities Fund (1.2% of net assets)
Shares
------- ------------------------------------- ---------- -------- --------
8,000 Cityscape Financial Corp., January/20/call ..... 11/25/96 $ 160,000 $ 189,000
</TABLE>
10. OTHER CONSIDERATIONS
As the Investment Advisor of the High Income Fund and 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 committee for Forstmann Textile, Inc. and therefore may be
in possession of certain material non-public information. Advisers has 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.
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.
Goverment 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:
<TABLE>
<CAPTION>
Shares Issued by
Net Assets U.S. Gov't Sec. Fund
---------- -------------
<S> <C> <C>
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
========== =============
</TABLE>
12. 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
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Templeton Global Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.59$ .260$ (.293) $ (.033) $(.404) $(.153) $ (.557) $12.00 (.40)% $ 75,062 .67% 4.72% 92.22% --
1993 12.00 .500 1.471 1.971 (.499) (.162) (.661) 13.31 16.68 206,594 .73 7.56 59.98 --
1994 13.31 .860 (1.520) (.660) (.326) (.134) (.460) 12.19 (4.99) 254,311 .71 7.99 79.38 --
1995 12.19 .290 1.469 1.759 (.489) -- (.489) 13.46 14.68 243,194 .64 7.59 152.89 --
1996 13.46 1.018 .167 1.185 (1.035) -- (1.035) 13.61 9.56 221,722 .61 7.30 140.96 --
High Income Fund
1992 10.62 .380 1.306 1.686 (.536) -- (.536) 11.77 16.21 67,991 .68 9.76 33.36 --
1993 11.77 .370 1.446 1.816 (.456) -- (.456) 13.13 15.71 196,972 .64 8.18 21.06 --
1994 13.13 .880 (1.180) (.300) (.546) (.074) (.620) 12.21 (2.26) 255,036 .60 9.45 22.94 --
1995 12.21 1.060 1.301 2.361 (.911) -- (.911) 13.66 19.76 360,904 .56 9.63 20.65 --
1996 13.66 1.200 .564 1.764 (1.200) (.064) (1.264) 14.16 13.90 446,096 .54 9.63 27.16 --
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Precious Metals Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $10.71$ .100 $(1.140) $(1.040) $(.310) $--$ (.310) $ 9.36 (10.13)% $ 13,827 .69% 2.23% -- % --
1993 9.36 .030 5.159 5.189 (.089) -- (.089) 14.46 55.62 73,575 .68 1.58 .01 --
1994 14.46 .160 (.453) (.293) (.077) -- (.077) 14.09 (2.01) 125,078 .68 1.63 7.66 --
1995 14.09 .220 .111 .331 (.196) (.145) (.341) 14.08 2.35 105,109 .66 1.40 15.66 --
1996 14.08 .150 .436 .586 (.196) (.180) (.376) 14.29 4.00 109,579 .65 1.00 21.77 .0221
Real Estate Securities Fund
1992 11.65 .140 1.244 1.384 (.244) -- (.244) $12.79 12.12 14,859 .69 4.50 2.76 --
1993 12.79 .090 2.329 2.419 (.169) -- (.169) 15.04 19.01 92,678 .67 4.05 5.84 --
1994 15.04 .380 .060 .440 (.170) -- (.170) 15.31 2.89 195,697 .62 4.00 11.73 --
1995 15.31 .780 1.833 2.613 (.523) -- (.523) 17.40 17.53 213,473 .59 4.74 22.15 --
1996 17.40 .789 4.738 5.527 (.777) -- (.777) 22.15 32.82 322,721 .57 4.80 10.32 .0519
U.S. Government Securities Fund
1992 12.72 .520 .434 .954 (.425) (.009) (.434) 13.24 7.69 371,828 .59 7.07 28.64 --
1993 13.24 .500 .771 1.271 (.512) (.079) (.591) 13.92 9.71 684,303 .54 6.06 145.11 --
1994 13.92 .960 (1.590) (.630) (.668) (.052) (.720) 12.57 (4.55) 579,039 .53 6.87 18.25*** --
1995 12.57 .930 1.461 2.391 (.961) -- (.961) 14.00 19.46 643,165 .52 6.72 18.68*** --
1996 14.00 .750 (.308) .442 (.972) -- (.972) 13.47 3.62 843,858 .51 6.66 12.93***
Zero Coupon Fund - 2000
1992 13.26 .570 .577 1.147 (.527) -- (.527) 13.88 9.04 48,217 .257 6.97 9.10 --
1993 13.88 .660 1.549 2.209 (.618) (.031) (.649) 15.44 16.15 76,916 .377 5.88 7.02 --
1994 15.44 .680 (1.710) (1.030) (.691) (.099) (.790) 13.62 (6.76) 94,230 .407 6.37 -- --
1995 13.62 .750 2.029 2.779 (.669) -- (.669) 15.73 20.67 137,357 .407 6.14 1.63 --
1996 15.73 .980 (.650) .330 (.861) (.009) (.870) 15.19 2.43 129,601 .407 6.14 .58 --
Zero Coupon Fund - 2005
1992 12.91 .650 .670 1.320 (.610) -- (.610) 13.62 10.81 18,295 .257 7.46 19.48 --
1993 13.62 .440 2.547 2.987 (.521) (.006) (.527) 16.08 22.21 42,998 .377 5.67 16.59 --
1994 16.08 .710 (2.240) (1.530) (.602) (.188) (.790) 13.76 (9.60) 51,499 .407 6.53 2.00 --
1995 13.76 .780 3.525 4.305 (.685) -- (.685) 17.38 31.76 83,222 .407 6.19 1.72 --
1996 17.38 .958 (1.127) (.169) (.861) -- (.861) 16.35 (0.50) 82,603 .407 6.15 2.06 --
Zero Coupon Fund - 2010
1992 12.84 1.210 .026 1.236 (.726) -- (.726) 13.35 10.31 13,431 .257 7.64 54.50 --
1993 13.35 .500 2.805 3.305 (.937) (.038) (.975) 15.68 25.47 29,189 .257 5.89 36.63 --
1994 15.68 .550 (2.270) (1.720) (.632) (.308) (.940) 13.02 (10.97) 45,361 .407 6.57 4.34 --
1995 13.02 .760 4.749 5.509 (.489) -- (.489) 18.04 42.79 85,633 .407 6.41 31.45 --
1996 18.04 1.024 (1.658) (.634) (.878) (.238) (1.116) 16.29 (2.69) 78,816 .407 6.24 16.10 --
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 .467 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .407 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .437 5.04 -- --
Growth and Income Fund
1992 12.11 .080 .721 .801 (.121) -- (.121) 12.79 6.73 231,659 .62 1.44 25.22 --
1993 12.79 .090 1.221 1.311 (.111) -- (.111) 13.99 10.32 371,484 .58 1.00 41.56 --
1994 13.99 .190 (.470) (.280) (.094) (.196) (.290) 13.42 (3.41) 517,877 .54 1.81 99.21 --
1995 13.42 .410 3.915 4.325 (.196) (.409) (.605) 17.14 32.83 889,487 .52 3.30 116.54 --
1996 17.14 .620 1.633 2.253 (.406) (1.437) (1.843) 17.55 14.19 1,077,989 .50 4.06 23.01 .0407
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Income Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $12.82$ .400 $ 1.266 $1.666$ (.592)$ (.244)$ (.836) $13.65 13.20% $ 182,993 .67% 7.44% 12.59% --
1993 13.65 .330 2.177 2.507 (.312) (.045) (.357) 15.80 18.59 737,942 .56 6.66 10.12 --
1994 15.80 .820 (1.799) (.979) (.444) (.067) (.511) 14.31 (6.27) 1,000,002 .54 7.27 13.33 --
1995 14.31 1.160 1.960 3.120 (.888) (.072) (.960) 16.47 22.40 1,266,538 .51 8.05 33.14 --
1996 16.47 1.320 .438 1.758 (.873) (.145) (1.018) 17.21 11.28 1,350,659 .50 7.96 15.28 .0519
Templeton International Equity Fund
19921 10.00 .140 (.380) (.240) -- -- -- 9.76 (2.40) 13,662 1.77* 3.91* 21.78 --
1993++ 9.76 .180 2.598 2.778 (.038) -- (.038) 12.50 28.56 310,146 1.12 1.58 29.50 --
1994 12.50 .190 (.080) .110 (.035) (.065) (.100) 12.51 .87 785,124 .99 2.17 12.22 --
1995 12.51 .370 .939 1.309 (.223) (.276) (.499) 13.32 10.59 850,117 .92 2.87 16.42 --
1996 13.32 .400 2.575 2.975 (.380) (.465) (.845) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
Templeton Pacific Growth Fund
19921 10.00 -- (.120) (.120) -- -- -- 9.88 (1.20) 5,788 1.317 -- 8.41 --
1993 9.88 .050 4.680 4.730 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36 --
1994 14.61 .220 (1.500) (1.280) (.031) (.059) (.090) 13.24 (8.79) 375,832 1.07 2.04 4.29 --
1995 13.24 .330 .705 1.035 (.258) (.107) (.365) 13.91 7.97 331,936 1.01 2.08 36.06 --
1996 13.91 .214 1.331 1.545 (.440) (.255) (.695) 14.76 11.10 356,759 .99 1.51 12.85 .0092
Rising Dividends Fund
19921 10.00 .060 .920 .980 -- -- -- 10.98 9.80 97,687 .677 2.11* 5.22 --
1993 10.98 .140 (.522) (.382) (.028) -- (.028) 10.57 (3.48) 299,730 .79 2.31 13.58 --
1994 10.57 .260 (.690) (.430) (.170) -- (.170) 9.97 (4.08) 309,929 .80 2.71 24.07 --
1995 9.97 .270 2.661 2.931 (.241) -- (.241) 12.66 29.74 463,253 .78 2.72 18.72 --
1996 12.66 .250 2.769 3.019 (.279) -- (.279) 15.40 24.18 597,424 .76 1.96 27.97 .0505
Utility Equity Fund
1992 14.86 .350 .915 1.265 (.305) -- (.305) 15.82 8.69 667,118 .55 5.18 .13 --
1993 15.82 .380 1.279 1.659 (.338) (.001) (.339) 17.14 10.54 1,589,634 .51 4.47 4.80 --
1994 17.14 .950 (2.940) (1.990) (.620) (.110) (.730) 14.42 (11.56) 1,155,110 .52 5.58 11.74 --
1995 14.42 .840 3.542 4.382 (.902) -- (.902) 17.90 31.35 1,423,446 .50 5.14 13.27 --
1996 17.90 .910 .285 1.195 (.915) -- (.915) 18.18 7.07 1,202,290 .50 4.20 29.69 .0252
Templeton Developing Markets Equity Fund
19942 10.00 .070 (.510) (.440) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15 --
1995 9.56 .090 .180 .270 (.040) (.010) (.050) 9.78 2.77 158,084 1.41 2.01 19.96 --
1996 9.78 .123 1.972 2.095 (.100) (.185) (.285) 11.59 21.59 272,098 1.49 1.68 12.42 .0025
Templeton Global Growth Fund
19942 10.15 .070 .260 .330 -- -- -- 10.48 3.25 158,856 1.14* 2.49* 7.14 --
1995 10.48 .160 1.170 1.330 (.060) -- (.060) 11.75 12.72 338,755 .97 2.46 30.92 --
1996 11.75 .251 2.209 2.460 (.205) (.205) (.410) 13.80 21.28 579,877 .93 2.20 12.32 .0096
Templeton Global Asset Allocation Fund
19953 10.00 .180 .520 .700 (.180) -- (.180) 10.52 7.01 14,729 .90* 3.84* 30.00 --
1996 10.52 .336 1.749 2.085 (.005) (.010) (.015) 12.59 19.84 56,269 .86 4.21 52.35 .0028
Small Cap Fund
19954 10.00 .030 .210 .240 -- -- -- 10.24 2.30 13,301 .90* 2.70* 16.04 --
1996 10.24 .023 2.941 2.964 (.004) -- (.004) 13.20 28.95 170,969 .77 .63 63.72 .0518
Capital Growth Fund
19965 10.00 .030 1.330 1.360 -- -- -- 11.36 13.60 44,667 .77* .96* 3.91 .0567
Templeton International Smaller Companies Fund
19965 10.00 .091 1.159 1.250 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
12. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------------------------------------- ---------------------------------------------
Ratio
Net & of Net
Net Realized Distri- Invest-
Asset Unreal- Total butions Distri- Net Net Ratio of ment
Value ized From From butions Asset Assets Expenses Income Port-
at Net Gain Invest- Net From Value at to to folio
Year Begin- Invest (Loss) ment Invest- Realized Total at End of Average Average Turn- Average
Ended ning of -ment on Se- Opera- ment Capital Distri- End of Total Period Net Net over Commission
Dec. 31, Period Income curities tions Income Gains tions Period Return+ (in 000's) Assets Assets Rate Rate
Mutual Shares Securities Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19966 $10.00$ .019$ .331 $ .350 $-- $-- $-- $10.35 3.50% $ 27,677 1.00%* 2.56%* 1.31% .0410
Mutual Discovery Securities Fund
19966 10.00 .016 .192 .210 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
</TABLE>
*Annualized
***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.
++Per share amounts have been calculated using the average shares outstanding
during the period.
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.
7During 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:
Ratio of Expenses
to average net assets
Adjustable U.S. Government Fund
1992 0.62%
Zero Coupon Fund - 2000
1992 0.68
1993 0.67
1994 0.66
1995 0.63
1996 0.62
Zero Coupon Fund - 2005
1992 0.69
1993 0.67
1994 0.68
1995 0.66
1996 0.65
Ratio of Expenses
to average net assets
Zero Coupon Fund - 2010
1992 0.69%
1993 0.68
1994 0.68
1995 0.66
1996 0.65
Money Market Fund
1994 0.54
1995 0.53
1996 0.53
Templeton Pacific Growth Fund
19921 2.57*
Rising Dividends Fund
19921 0.76*
FRANKLIN VALUEMARK FUNDS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Valuemark Funds:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-three funds comprising the Franklin Valuemark Funds, including each
Fund's statement of investments in securities and net assets, as of December 31,
1996, and the related statements of operations, statements of changes in net
assets, and financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds comprising the Franklin Valuemark Funds as of December 31, 1996,
the results of their operations, changes in their net assets and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P
San Francisco, California
February 4, 1997
Franklin Valuemark Annual Report December 31, 1996.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 1000 Index and the S&P 500, based on a $10,000
investment from 5/1/96 to 12/31/96.
Period Ending Fund Index Index
5/1/96 $10,000 $10,000 $10,000
5/31/96 $10,220 $10,258 $10,240
6/30/96 $10,180 $10,297 $10,251
7/31/96 $ 9,790 $9,842 $9,757
8/31/96 $10,180 $10,050 $10,023
9/30/96 $10,910 $10,615 $10,586
10/31/96 $10,880 $10,908 $10,820
11/30/96 $11,750 $11,733 $11,618
12/31/96 $11,360 $11,501 $11,430
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,280 $11,101 $10,234
6/30/89 $9,990 $11,038 $10,259
7/31/89 $10,530 $12,035 $10,283
8/31/89 $11,020 $12,271 $10,300
9/30/89 $10,680 $12,220 $10,333
10/31/89 $10,040 $11,937 $10,382
11/30/89 $10,110 $12,180 $10,407
12/31/89 $10,290 $12,473 $10,424
1/31/90 $9,760 $11,636 $10,531
2/28/90 $9,920 $11,786 $10,581
3/31/90 $10,159 $12,098 $10,639
4/30/90 $9,958 $11,797 $10,656
5/31/90 $10,824 $12,947 $10,680
6/30/90 $10,693 $12,860 $10,738
7/31/90 $10,623 $12,819 $10,779
8/31/90 $9,736 $11,660 $10,878
9/30/90 $9,343 $11,093 $10,969
10/31/90 $9,242 $11,045 $11,035
11/30/90 $9,776 $11,758 $11,060
12/31/90 $10,048 $12,086 $11,060
1/31/91 $10,683 $12,613 $11,126
2/28/91 $11,127 $13,515 $11,143
3/31/91 $11,147 $13,842 $11,159
4/30/91 $11,177 $13,876 $11,176
5/31/91 $11,600 $14,474 $11,210
6/30/91 $10,853 $13,811 $11,242
7/31/91 $11,243 $14,454 $11,259
8/31/91 $11,623 $14,797 $11,292
9/30/91 $11,541 $14,550 $11,341
10/31/91 $11,664 $14,745 $11,358
11/30/91 $11,161 $14,150 $11,391
12/31/91 $12,054 $15,769 $11,399
1/31/92 $12,577 $15,476 $11,416
2/29/92 $12,587 $15,676 $11,457
3/31/92 $12,125 $15,370 $11,516
4/30/92 $12,146 $15,822 $11,532
5/31/92 $12,218 $15,899 $11,548
6/30/92 $11,943 $15,662 $11,590
7/31/92 $12,295 $16,303 $11,614
8/31/92 $12,119 $15,969 $11,647
9/30/92 $12,420 $16,156 $11,679
10/31/92 $12,658 $16,211 $11,720
11/30/92 $13,135 $16,762 $11,736
12/31/92 $13,260 $16,968 $11,728
1/31/93 $13,363 $17,110 $11,786
2/28/93 $13,280 $17,343 $11,827
3/31/93 $13,653 $17,709 $11,868
4/30/93 $13,477 $17,281 $11,902
5/31/93 $13,840 $17,742 $11,918
6/30/93 $13,676 $17,793 $11,935
7/31/93 $13,477 $17,722 $11,935
8/31/93 $13,979 $18,394 $11,968
9/30/93 $13,896 $18,252 $11,993
10/31/93 $14,105 $18,630 $12,043
11/30/93 $13,990 $18,453 $12,051
12/31/93 $14,627 $18,676 $12,051
1/31/94 $15,453 $19,311 $12,084
2/28/94 $15,255 $18,788 $12,125
3/31/94 $14,345 $7,969 $12,166
4/30/94 $14,429 $18,199 $12,183
5/31/94 $14,471 $18,497 $12,191
6/30/94 $13,815 $18,044 $12,233
7/31/94 $14,215 $18,636 $12,266
8/31/94 $14,689 $19,400 $12,315
9/30/94 $14,257 $18,927 $12,348
10/31/94 $14,457 $19,353 $12,357
11/30/94 $13,920 $18,648 $12,373
12/31/94 $14,131 $18,924 $12,373
1/31/95 $14,246 $19,414 $12,422
2/28/95 $14,815 $20,171 $12,472
3/31/95 $15,236 $20,766 $12,513
4/30/95 $15,689 $21,377 $12,555
5/31/95 $16,173 $22,232 $12,580
6/30/95 $16,273 $22,748 $12,605
7/31/95 $16,547 $23,503 $12,605
8/31/95 $16,744 $23,562 $12,638
9/30/95 $17,467 $24,556 $12,663
10/31/95 $17,335 $24,468 $12,705
11/30/95 $18,014 $25,542 $12,696
12/31/95 $18,770 $26,035 $12,687
1/31/96 $19,153 $26,920 $12,762
2/29/96 $18,956 $27,170 $12,803
3/31/96 $19,153 $27,431 $12,869
4/30/96 $19,252 $27,834 $12,919
5/31/96 $19,449 $28,553 $12,944
6/30/96 $19,810 $28,661 $12,952
7/31/96 $19,077 $27,394 $12,976
8/31/96 $19,346 $27,972 $13,001
9/30/96 $19,859 $29,547 $13,043
10/31/96 $20,445 $30,363 $13,084
11/30/96 $21,422 $32,658 $13,109
12/31/96 $21,434 $32,011 $13,109
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
shares with the CS First Boston High Yield Index and the CPI, based on a $10,000
investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,045 $10,011
2/28/89 $10,080 $10,091 $10,052
3/31/89 $10,150 $10,019 $10,110
4/30/89 $10,220 $9,995 $10,176
5/31/89 $10,290 $10,232 $10,234
6/30/89 $10,300 $10,380 $10,259
7/31/89 $10,330 $10,403 $10,283
8/31/89 $10,370 $10,402 $10,300
9/30/89 $10,300 $10,165 $10,333
10/31/89 $10,070 $9,911 $10,382
11/30/89 $10,050 $9,931 $10,407
12/31/89 $10,130 $9,886 $10,424
1/31/90 $9,920 $9,538 $10,531
2/28/90 $9,770 $9,362 $10,581
3/31/90 $9,924 $9,632 $10,639
4/30/90 $9,831 $9,672 $10,656
5/31/90 $9,893 $9,873 $10,680
6/30/90 $10,152 $10,184 $10,738
7/31/90 $10,379 $10,513 $10,779
8/31/90 $9,893 $10,027 $10,878
9/30/90 $9,251 $9,262 $10,969
10/31/90 $8,879 $9,030 $11,035
11/30/90 $9,076 $9,211 $11,060
12/31/90 $9,251 $9,256 $11,060
1/31/91 $9,345 $9,509 $11,126
2/28/91 $9,934 $10,330 $11,143
3/31/91 $10,286 $10,970 $11,159
4/30/91 $10,566 $11,426 $11,176
5/31/91 $10,659 $11,483 $11,210
6/30/91 $10,907 $11,784 $11,242
7/31/91 $11,168 $12,182 $11,259
8/31/91 $11,372 $12,404 $11,292
9/30/91 $11,519 $12,685 $11,341
10/31/91 $11,803 $13,105 $11,358
11/30/91 $11,939 $13,210 $11,391
12/31/91 $12,007 $13,306 $11,399
1/31/92 $12,392 $13,848 $11,416
2/29/92 $12,608 $14,184 $11,457
3/31/92 $12,778 $14,396 $11,516
4/30/92 $12,857 $14,407 $11,532
5/31/92 $13,039 $14,603 $11,548
6/30/92 $13,161 $14,748 $11,590
7/31/92 $13,411 $14,975 $11,614
8/31/92 $13,637 $15,181 $11,647
9/30/92 $13,744 $15,280 $11,679
10/31/92 $13,577 $15,121 $11,720
11/30/92 $13,839 $15,348 $11,736
12/31/92 $13,993 $15,521 $11,728
1/31/93 $14,255 $15,945 $11,786
2/28/93 $14,481 $16,261 $11,827
3/31/93 $14,695 $16,604 $11,868
4/30/93 $14,754 $16,699 $11,902
5/31/93 $14,897 $16,942 $11,918
6/30/93 $15,206 $17,249 $11,935
7/31/93 $15,317 $17,428 $11,935
8/31/93 $15,403 $17,577 $11,968
9/30/93 $15,403 $17,677 $11,993
10/31/93 $15,921 $18,000 $12,043
11/30/93 $16,020 $18,227 $12,051
12/31/93 $16,192 $18,457 $12,051
1/31/94 $16,537 $18,785 $12,084
2/28/94 $16,414 $18,813 $12,125
3/31/94 $15,637 $18,260 $12,166
4/30/94 $15,415 $18,016 $12,183
5/31/94 $15,465 $18,118 $12,191
6/30/94 $15,619 $17,997 $12,233
7/31/94 $15,593 $18,082 $12,266
8/31/94 $15,710 $18,212 $12,315
9/30/94 $15,762 $18,285 $12,348
10/31/94 $15,788 $18,297 $12,357
11/30/94 $15,684 $18,085 $12,373
12/31/94 $15,853 $18,277 $12,373
1/31/95 $16,112 $18,469 $12,422
2/28/95 $16,735 $18,923 $12,472
3/31/95 $16,904 $19,137 $12,513
4/30/95 $17,398 $19,562 $12,555
5/31/95 $17,878 $20,113 $12,580
6/30/95 $17,971 $20,246 $12,605
7/31/95 $18,221 $20,560 $12,605
8/31/95 $18,277 $20,617 $12,638
9/30/95 $18,471 $20,855 $12,663
10/31/95 $18,721 $21,086 $12,705
11/30/95 $18,666 $21,185 $12,696
12/31/95 $18,985 $21,454 $12,687
1/31/96 $19,347 $21,862 $12,762
2/29/96 $19,541 $21,978 $12,803
3/31/96 $19,402 $21,918 $12,869
4/30/96 $19,500 $22,037 $12,919
5/31/96 $19,652 $22,215 $12,944
6/30/96 $19,701 $22,264 $12,952
7/31/96 $19,899 $22,465 $12,976
8/31/96 $20,250 $22,709 $13,001
9/30/96 $20,739 $23,100 $13,043
10/31/96 $20,938 $23,294 $13,084
11/30/96 $21,319 $23,657 $13,109
12/31/96 $21,625 $24,119 $13,109
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Government/Corporate Bond Index, the S&P 500,
and the Lipper Income Average, based on a $10,000 investment from 1/24/89 to
12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000 $10,000
3/31/89 $10,150 $10,080 $10,520 $10,263
6/30/89 $10,280 $10,890 $11,449 $10,895
9/30/89 $10,460 $10,993 $12,675 $11,230
12/31/89 $10,900 $11,390 $12,936 $11,409
3/31/90 $10,693 $11,260 $12,547 $11,007
6/30/90 $11,030 $11,665 $13,336 $11,256
9/30/90 $10,101 $11,735 $11,504 $10,389
12/31/90 $10,091 $12,334 $12,535 $10,495
3/31/91 $11,754 $12,665 $14,355 $11,287
6/30/91 $12,452 $12,857 $14,323 $11,417
9/30/91 $13,448 $13,596 $15,088 $12,209
12/31/91 $13,999 $14,321 $16,354 $12,885
3/31/92 $14,935 $14,106 $15,941 $12,885
6/30/92 $15,515 $14,678 $16,243 $13,258
9/30/92 $15,855 $15,395 $16,755 $13,762
12/31/92 $15,983 $15,406 $17,599 $14,051
3/31/93 $16,979 $16,123 $18,368 $14,832
6/30/93 $17,671 $16,609 $18,457 $15,160
9/30/93 $18,367 $17,160 $18,934 $15,651
12/31/93 $18,954 $17,110 $19,373 $15,832
3/31/94 $18,151 $16,571 $18,638 $15,349
6/30/94 $17,816 $16,366 $18,717 $15,306
9/30/94 $18,175 $16,448 $19,632 $15,629
12/31/94 $17,729 $16,509 $19,628 $15,403
3/31/95 $18,460 $17,331 $21,540 $16,290
6/30/95 $19,869 $18,454 $23,597 $17,267
9/30/95 $20,804 $18,806 $25,473 $18,081
12/31/95 $21,700 $19,683 $27,006 $18,892
3/31/96 $21,938 $19,222 $28,457 $19,255
6/30/96 $22,576 $19,312 $29,734 $19,606
9/30/96 $22,955 $19,654 $30,653 $19,990
12/31/96 $24,148 $20,256 $33,210 $20,933
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500, based on a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index
01/24/89 $10,000 $10,000
01/31/89 $10,020 $10,165
02/28/89 $10,080 $9,912
03/31/89 $10,150 $10,143
04/30/89 $10,220 $10,669
05/31/89 $10,090 $11,101
06/30/89 $10,360 $11,038
07/31/89 $10,500 $12,035
08/31/89 $10,750 $12,271
09/30/89 $11,110 $12,220
10/31/89 $11,180 $11,937
11/30/89 $12,230 $12,180
12/31/89 $12,430 $12,473
01/31/90 $12,920 $11,636
02/28/90 $12,180 $11,786
03/31/90 $12,038 $12,098
04/30/90 $11,258 $11,797
05/31/90 $11,947 $12,947
06/30/90 $11,380 $12,860
07/31/90 $12,038 $12,819
08/31/90 $11,694 $11,660
09/30/90 $11,501 $11,093
10/31/90 $10,448 $11,045
11/30/90 $10,185 $11,758
12/31/90 $10,651 $12,086
01/31/91 $9,831 $12,613
02/28/91 $10,701 $13,515
03/31/91 $10,610 $13,842
04/30/91 $10,560 $13,876
05/31/91 $10,853 $14,474
06/30/91 $11,258 $13,811
07/31/91 $11,382 $14,454
08/31/91 $10,814 $14,797
09/30/91 $10,834 $14,550
10/31/91 $11,227 $14,745
11/30/91 $11,361 $14,150
12/31/91 $10,617 $15,769
01/31/92 $11,340 $15,476
02/29/92 $11,165 $15,676
03/31/92 $10,752 $15,370
04/30/92 $10,607 $15,822
05/31/92 $11,123 $15,899
06/30/92 $11,407 $15,662
07/31/92 $11,492 $16,303
08/31/92 $11,120 $15,969
09/30/92 $10,982 $16,156
10/31/92 $10,313 $16,211
11/30/92 $9,612 $16,762
12/31/92 $9,941 $16,968
01/31/93 $9,867 $17,110
02/28/93 $10,355 $17,343
03/31/93 $11,343 $17,709
04/30/93 $12,108 $17,281
05/31/93 $13,658 $17,742
06/30/93 $13,737 $17,793
07/31/93 $14,957 $17,722
08/31/93 $13,823 $18,394
09/30/93 $12,689 $18,252
10/31/93 $13,887 $18,630
11/30/93 $13,769 $18,453
12/31/93 $15,471 $18,676
01/31/94 $15,578 $19,311
02/28/94 $14,925 $18,788
03/31/94 $15,096 $17,969
04/30/94 $14,390 $18,199
05/31/94 $14,861 $18,497
06/30/94 $14,559 $18,044
07/31/94 $14,839 $18,636
08/31/94 $15,495 $19,400
09/30/94 $16,508 $18,927
10/31/94 $15,915 $19,353
11/30/94 $14,645 $18,648
12/31/94 $15,172 $18,924
01/31/95 $13,385 $19,414
02/28/95 $13,988 $20,171
03/31/95 $15,291 $20,766
04/30/95 $15,442 $21,377
05/31/95 $15,334 $22,232
06/30/95 $15,319 $22,748
07/31/95 $15,815 $23,503
08/31/95 $15,716 $23,562
09/30/95 $15,782 $24,556
10/31/95 $14,018 $24,468
11/30/95 $15,242 $25,542
12/31/95 $15,529 $26,035
1/31/96 $18,098 $26,920
2/29/96 $18,231 $27,170
3/31/96 $18,319 $27,431
4/30/96 $18,418 $27,834
5/31/96 $19,124 $28,553
6/30/96 $16,862 $28,661
7/31/96 $16,512 $27,394
8/31/96 $17,144 $27,972
9/30/96 $16,184 $29,547
10/31/96 $16,297 $30,363
11/30/96 $16,150 $32,658
12/31/96 $16,150 $32,011
GRAPHIC MATERIAL (6)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire Real Estate Securities Index and the S&P 500, based on
a $10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,037
2/28/89 $10,080 $9,912 $10,063
3/31/89 $10,150 $10,143 $10,134
4/30/89 $10,220 $10,669 $10,318
5/31/89 $10,290 $11,101 $10,495
6/30/89 $10,540 $11,038 $10,613
7/31/89 $10,850 $12,035 $10,948
8/31/89 $10,990 $12,271 $10,832
9/30/89 $10,750 $12,220 $10,808
10/31/89 $10,450 $11,937 $10,268
11/30/89 $10,490 $12,180 $10,115
12/31/89 $10,480 $12,473 $10,111
1/31/90 $10,170 $11,636 $9,635
2/28/90 $10,150 $11,786 $9,631
3/31/90 $10,249 $12,098 $9,609
4/30/90 $10,107 $11,797 $9,422
5/31/90 $10,178 $12,947 $9,381
6/30/90 $10,259 $12,860 $9,399
7/31/90 $10,137 $12,819 $9,039
8/31/90 $9,427 $11,660 $7,983
9/30/90 $8,808 $11,093 $7,058
10/31/90 $8,564 $11,045 $6,550
11/30/90 $9,102 $11,758 $6,816
12/31/90 $9,224 $12,086 $6,728
1/31/91 $10,158 $12,613 $7,383
2/28/91 $10,381 $13,515 $7,817
3/31/91 $11,081 $13,842 $8,514
4/30/91 $11,274 $13,876 $8,445
5/31/91 $11,406 $14,474 $8,575
6/30/91 $11,096 $13,811 $8,153
7/31/91 $11,233 $14,454 $8,118
8/31/91 $11,191 $14,797 $8,020
9/30/91 $11,413 $14,550 $7,929
10/31/91 $11,265 $14,745 $7,750
11/30/91 $11,180 $14,150 $7,493
12/31/91 $11,909 $15,769 $8,076
1/31/92 $12,987 $15,476 $8,456
2/29/92 $12,628 $15,676 $8,435
3/31/92 $12,396 $15,370 $8,253
4/30/92 $12,216 $15,822 $8,116
5/31/92 $12,501 $15,899 $8,149
6/30/92 $12,390 $15,662 $7,903
7/31/92 $12,886 $16,303 $7,933
8/31/92 $12,746 $15,969 $7,813
9/30/92 $12,929 $16,156 $8,110
10/31/92 $13,135 $16,211 $8,196
11/30/92 $13,286 $16,762 $8,267
12/31/92 $13,804 $16,968 $8,674
1/31/93 $14,365 $17,110 $9,276
2/28/93 $14,883 $17,343 $9,725
3/31/93 $15,854 $17,709 $10,378
4/30/93 $15,228 $17,281 $9,790
5/31/93 $15,099 $17,742 $9,636
6/30/93 $15,619 $17,793 $9,888
7/31/93 $15,925 $17,722 $10,089
8/31/93 $16,351 $18,394 $10,299
9/30/93 $17,192 $18,252 $10,765
10/31/93 $17,072 $18,630 $10,463
11/30/93 $16,013 $18,453 $10,007
12/31/93 $16,428 $18,676 $9,995
1/31/94 $16,723 $19,311 $10,295
2/28/94 $17,411 $18,788 $10,716
3/31/94 $16,799 $17,969 $10,220
4/30/94 $17,072 $18,199 $10,334
5/31/94 $17,334 $18,497 $10,549
6/30/94 $17,010 $18,044 $10,341
7/31/94 $16,976 $18,636 $10,365
8/31/94 $16,921 $19,400 $10,358
9/30/94 $16,644 $18,927 $10,185
10/31/94 $16,047 $19,353 $9,812
11/30/94 $15,471 $18,648 $9,428
12/31/94 $16,943 $18,924 $10,159
1/31/95 $16,323 $19,414 $9,831
2/28/95 $16,611 $20,171 $10,139
3/31/95 $16,733 $20,766 $10,197
4/30/95 $16,689 $21,377 $10,124
5/31/95 $17,364 $22,232 $10,459
6/30/95 $17,658 $22,748 $10,641
7/31/95 $18,024 $23,503 $10,812
8/31/95 $18,413 $23,562 $10,944
9/30/95 $18,940 $24,556 $11,146
10/31/95 $18,551 $24,468 $10,800
11/30/95 $18,860 $25,542 $10,912
12/31/95 $19,912 $26,035 $11,545
1/31/96 $20,359 $26,920 $11,705
2/29/96 $20,622 $27,170 $11,936
3/31/96 $20,645 $27,431 $12,033
4/30/96 $20,702 $27,834 $12,087
5/31/96 $21,114 $28,553 $12,357
6/30/96 $21,341 $28,661 $12,604
7/31/96 $21,174 $27,394 $12,492
8/31/96 $22,188 $27,972 $13,023
9/30/96 $22,889 $29,547 $13,348
10/31/96 $23,343 $30,363 $13,710
11/30/96 $24,107 $32,658 $14,279
12/31/96 $26,448 $32,011 $15,802
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the fund's
shares with the Wilshire MidCap Growth Index, based on a $10,000 investment from
1/27/92 to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $10,039
2/29/92 $10,000 $10,209
3/31/92 $9,930 $9,801
4/30/92 $9,980 $9,568
5/31/92 $10,130 $9,448
6/30/92 $9,990 $9,020
7/31/92 $10,350 $9,514
8/31/92 $10,240 $9,315
9/30/92 $10,410 $9,478
10/31/92 $10,540 $9,865
11/30/92 $10,860 $10,620
12/31/92 $10,980 $10,945
1/31/93 $10,860 $11,193
2/28/93 $10,670 $10,815
3/31/93 $10,760 $11,147
4/30/93 $10,390 $10,681
5/31/93 $10,530 $11,290
6/30/93 $10,418 $11,365
7/31/93 $10,418 $11,264
8/31/93 $10,588 $11,835
9/30/93 $10,588 $12,132
10/31/93 $10,749 $12,196
11/30/93 $10,478 $12,006
12/31/93 $10,598 $12,670
1/31/94 $10,739 $13,117
2/28/94 $10,378 $13,187
3/31/94 $9,916 $12,402
4/30/94 $9,936 $12,452
5/31/94 $10,077 $12,261
6/30/94 $10,054 $11,643
7/31/94 $10,156 $11,927
8/31/94 $10,584 $12,948
9/30/94 $10,340 $12,846
10/31/94 $10,309 $13,159
11/30/94 $10,064 $12,576
12/31/94 $10,166 $12,785
1/31/95 $10,442 $12,788
2/28/95 $10,748 $13,555
3/31/95 $10,982 $14,055
4/30/95 $11,064 $14,265
5/31/95 $11,441 $14,498
6/30/95 $11,565 $15,410
7/31/95 $11,815 $16,705
8/31/95 $12,013 $16,960
9/30/95 $12,409 $17,434
10/31/95 $12,304 $16,820
11/30/95 $12,940 $17,703
12/31/95 $13,190 $17,767
1/31/96 $13,451 $18,074
2/29/96 $13,648 $18,750
3/31/96 $13,648 $18,977
4/30/96 $13,617 $20,102
5/31/96 $13,992 $20,703
6/30/96 $14,146 $19,575
7/31/96 $13,731 $17,899
8/31/96 $14,008 $19,204
9/30/96 $14,731 $20,113
10/31/96 $15,167 $19,544
11/30/96 $16,220 $20,644
12/31/96 $16,379 $20,371
GRAPHIC MATERIAL (8)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 2500 Index and the S&P 500, based on a $10,000
investment from 11/1/95 to 12/31/96.
Period Ending Fund Index Index
11/1/95 $10,000 $10,000 $10,000
11/30/95 $9,700 $10,439 $10,427
12/31/95 $10,230 $10,640 $10,605
1/31/96 $10,370 $11,002 $10,681
2/29/96 $10,850 $11,105 $11,002
3/31/96 $11,140 $11,211 $11,227
4/30/96 $12,250 $11,376 $11,745
5/31/96 $12,760 $11,669 $12,063
6/30/96 $12,154 $11,714 $11,693
7/31/96 $11,054 $11,196 $10,837
8/31/96 $12,114 $11,432 $11,460
9/30/96 $12,654 $12,076 $11,957
10/31/96 $12,404 $12,409 $11,878
11/30/96 $12,964 $13,347 $12,451
12/31/96 $13,204 $13,083 $12,622
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the IFC Investable Composite Index, based
on a $10,000 investment from 3/15/94 to 12/31/96.
Period Ending Fund Index Index
3/15/94 $10,000 $10,000 $10,000
3/31/94 $10,000 $9,779 $9,478
4/30/94 $10,060 $10,083 $9,298
5/31/94 $10,040 $10,110 $9,518
6/30/94 $9,990 $10,083 $9,179
7/31/94 $10,250 $10,276 $9,839
8/31/94 $10,530 $10,587 $11,098
9/30/94 $10,520 $10,310 $11,378
10/31/94 $10,410 $10,606 $11,003
11/30/94 $10,000 $10,148 $10,581
12/31/94 $9,560 $10,248 $9,442
1/31/95 $8,910 $10,097 $8,197
2/28/95 $8,780 $10,246 $8,090
3/31/95 $9,150 $10,742 $8,073
4/30/95 $9,540 $11,119 $8,410
5/31/95 $9,800 $11,216 $8,724
6/30/95 $9,855 $11,215 $8,775
7/31/95 $10,438 $11,778 $9,047
8/31/95 $10,167 $11,517 $8,805
9/30/95 $10,096 $11,855 $8,738
10/31/95 $9,735 $11,670 $8,406
11/30/95 $9,664 $12,077 $8,364
12/31/95 $9,825 $12,432 $8,655
1/31/96 $10,880 $12,660 $9,386
2/29/96 $10,659 $12,740 $9,168
3/31/96 $10,860 $12,954 $9,300
4/30/96 $11,222 $13,261 $9,676
5/31/96 $11,382 $13,274 $9,590
6/30/96 $11,390 $13,343 $9,702
7/31/96 $10,782 $12,873 $9,066
8/31/96 $10,957 $13,024 $9,347
9/30/96 $11,194 $13,536 $9,485
10/31/96 $11,184 $13,633 $9,281
11/30/96 $11,617 $14,399 $9,419
12/31/96 $11,947 $14,172 $9,460
GRAPHIC MATERIAL (10)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index and the JP Morgan Global Bond Unhedged Index,
based on a $10,000 investment from 5/1/95 to 12/31/96.
Period Ending Fund Index Index
5/01/95 $10,000 $10,000 $10,000
5/31/95 $10,070 $10,087 $10,279
6/30/95 $10,130 $10,086 $10,344
7/31/95 $10,340 $10,592 $10,392
8/31/95 $10,290 $10,358 $10,103
9/30/95 $10,390 $10,662 $10,331
10/31/95 $10,320 $10,495 $10,432
11/30/95 $10,430 $10,862 $10,549
12/31/95 $10,701 $11,181 $10,680
1/31/96 $11,077 $11,386 $10,570
2/29/96 $11,148 $11,457 $10,508
3/31/96 $11,219 $11,650 $10,493
4/30/96 $11,423 $11,926 $10,454
5/31/96 $11,525 $11,938 $10,464
6/30/96 $11,581 $12,000 $10,555
7/31/96 $11,407 $11,578 $10,749
8/31/96 $11,652 $11,713 $10,795
9/30/96 $11,927 $12,173 $10,854
10/31/96 $12,059 $12,261 $11,070
11/30/96 $12,599 $12,950 $11,162
12/31/96 $12,823 $12,745 $11,151
GRAPHIC MATERIAL (11)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI World Index, based on a $10,000 investment from 3/15/94 to
12/31/96.
Period Ending Fund Index
3/15/94 $10,000 $10,000
3/31/94 $10,030 $9,779
4/30/94 $10,079 $10,083
5/31/94 $10,118 $10,110
6/30/94 $10,020 $10,083
7/31/94 $10,295 $10,276
8/31/94 $10,551 $10,587
9/30/94 $10,482 $10,310
10/31/94 $10,492 $10,606
11/30/94 $10,285 $10,148
12/31/94 $10,315 $10,248
1/31/95 $10,226 $10,097
2/28/95 $10,335 $10,246
3/31/95 $10,335 $10,742
4/30/95 $10,630 $11,119
5/31/95 $10,896 $11,216
6/30/95 $11,053 $11,215
7/31/95 $11,498 $11,778
8/31/95 $11,399 $11,517
9/30/95 $11,617 $11,855
10/31/95 $11,231 $11,670
11/30/95 $11,310 $12,077
12/31/95 $11,627 $12,432
1/31/96 $12,132 $12,660
2/29/96 $12,181 $12,740
3/31/96 $12,379 $12,954
4/30/96 $12,706 $13,261
5/31/96 $12,894 $13,274
6/30/96 $12,886 $13,343
7/31/96 $12,416 $12,873
8/31/96 $12,814 $13,024
9/30/96 $12,988 $13,536
10/31/96 $13,080 $13,633
11/30/96 $13,672 $14,399
12/31/96 $14,102 $14,172
GRAPHIC MATERIAL (12)
The following line graph hypothetically compares the performance of the fund's
shares with the JP Morgan Globa Bond (Unhedged)Index and the CPI, based on a
$10,000 investment from 1/24/89 to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $9,978 $10,011
2/28/89 $10,080 $9,962 $10,052
3/31/89 $10,150 $9,877 $10,110
4/30/89 $10,220 $10,040 $10,176
5/31/89 $10,290 $9,932 $10,234
6/30/89 $10,330 $10,157 $10,259
7/31/89 $10,510 $10,562 $10,283
8/31/89 $10,610 $10,249 $10,300
9/30/89 $10,600 $10,411 $10,333
10/31/89 $10,570 $10,545 $10,382
11/30/89 $10,760 $10,639 $10,407
12/31/89 $10,930 $10,764 $10,424
1/31/90 $10,920 $10,603 $10,531
2/28/90 $10,850 $10,489 $10,581
3/31/90 $10,965 $10,425 $10,639
4/30/90 $10,944 $10,384 $10,656
5/31/90 $11,138 $10,716 $10,680
6/30/90 $11,454 $10,910 $10,738
7/31/90 $11,729 $11,231 $10,779
8/31/90 $11,627 $11,143 $10,878
9/30/90 $11,617 $11,248 $10,969
10/31/90 $11,688 $11,692 $11,035
11/30/90 $11,882 $11,898 $11,060
12/31/90 $12,004 $12,030 $11,060
1/31/91 $12,147 $12,303 $11,126
2/28/91 $12,412 $12,316 $11,143
3/31/91 $12,147 $11,931 $11,159
4/30/91 $12,320 $12,076 $11,176
5/31/91 $12,463 $12,087 $11,210
6/30/91 $12,359 $11,925 $11,242
7/31/91 $12,605 $12,176 $11,259
8/31/91 $12,648 $12,430 $11,292
9/30/91 $12,982 $12,883 $11,341
10/31/91 $13,154 $13,011 $11,358
11/30/91 $13,132 $13,223 $11,391
12/31/91 $13,486 $13,891 $11,399
1/31/92 $13,454 $13,618 $11,416
2/29/92 $13,464 $13,579 $11,457
3/31/92 $13,475 $13,454 $11,516
4/30/92 $13,604 $13,566 $11,532
5/31/92 $13,871 $13,951 $11,548
6/30/92 $13,868 $14,332 $11,590
7/31/92 $14,014 $14,647 $11,614
8/31/92 $13,846 $15,037 $11,647
9/30/92 $13,197 $15,022 $11,679
10/31/92 $13,477 $14,646 $11,720
11/30/92 $13,253 $14,387 $11,736
12/31/92 $13,432 $14,524 $11,728
1/31/93 $13,533 $14,771 $11,786
2/28/93 $13,734 $15,008 $11,827
3/31/93 $14,148 $15,239 $11,868
4/30/93 $14,574 $15,517 $11,902
5/31/93 $14,809 $15,615 $11,918
6/30/93 $14,778 $15,627 $11,935
7/31/93 $14,825 $15,633 $11,935
8/31/93 $15,155 $16,096 $11,968
9/30/93 $15,107 $16,267 $11,993
10/31/93 $15,461 $16,259 $12,043
11/30/93 $15,155 $16,140 $12,051
12/31/93 $15,673 $16,304 $12,051
1/31/94 $15,967 $16,458 $12,084
2/28/94 $15,602 $16,277 $12,125
3/31/94 $15,131 $16,202 $12,166
4/30/94 $15,119 $16,189 $12,183
5/31/94 $15,178 $16,054 $12,191
6/30/94 $14,440 $16,246 $12,233
7/31/94 $14,670 $16,398 $12,266
8/31/94 $14,791 $16,356 $12,315
9/30/94 $14,779 $16,436 $12,348
10/31/94 $14,864 $16,682 $12,357
11/30/94 $14,864 $16,472 $12,373
12/31/94 $14,755 $16,510 $12,373
1/31/95 $14,658 $16,843 $12,422
2/28/95 $14,888 $17,278 $12,472
3/31/95 $15,155 $18,157 $12,513
4/30/95 $15,494 $18,446 $12,555
5/31/95 $15,869 $18,961 $12,580
6/30/95 $15,940 $19,080 $12,605
7/31/95 $16,041 $19,170 $12,605
8/31/95 $15,839 $18,637 $12,638
9/30/95 $16,191 $19,056 $12,663
10/31/95 $16,455 $19,243 $12,705
11/30/95 $16,594 $19,459 $12,696
12/31/95 $16,921 $19,700 $12,687
1/31/96 $16,845 $19,497 $12,762
2/29/96 $16,644 $19,384 $12,803
3/31/96 $16,694 $19,355 $12,869
4/30/96 $16,820 $19,283 $12,919
5/31/96 $16,908 $19,303 $12,944
6/30/96 $17,135 $19,470 $12,952
7/31/96 $17,204 $19,829 $12,976
8/31/96 $17,421 $19,912 $13,001
9/30/96 $17,694 $20,022 $13,043
10/31/96 $18,048 $20,420 $13,084
11/30/96 $18,484 $20,589 $13,109
12/31/96 $18,552 $20,569 $13,109
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 1/27/92 to
12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,973
2/29/92 $10,000 $9,619
3/31/92 $10,000 $8,987
4/30/92 $10,010 $9,032
5/31/92 $10,270 $9,639
6/30/92 $10,040 $9,185
7/31/92 $9,760 $8,952
8/31/92 $9,860 $9,517
9/30/92 $9,740 $9,332
10/31/92 $9,570 $8,845
11/30/92 $9,670 $8,931
12/31/92 $9,760 $8,980
1/31/93 $9,630 $8,982
2/28/93 $9,770 $9,256
3/31/93 $9,930 $10,066
4/30/93 $10,200 $11,024
5/31/93 $10,410 $11,260
6/30/93 $10,218 $11,087
7/31/93 $10,419 $11,477
8/31/93 $11,132 $12,099
9/30/93 $11,042 $11,829
10/31/93 $11,694 $12,196
11/30/93 $11,403 $11,132
12/31/93 $12,547 $11,938
1/31/94 $13,461 $12,951
2/28/94 $13,230 $12,917
3/31/94 $12,748 $12,363
4/30/94 $12,868 $12,891
5/31/94 $12,939 $12,820
6/30/94 $12,601 $13,003
7/31/94 $13,117 $13,132
8/31/94 $13,512 $13,446
9/30/94 $13,249 $13,025
10/31/94 $13,461 $13,461
11/30/94 $12,885 $12,818
12/31/94 $12,652 $12,901
1/31/95 $12,389 $12,408
2/28/95 $12,571 $12,376
3/31/95 $12,531 $13,152
4/30/95 $13,087 $13,651
5/31/95 $13,330 $13,492
6/30/95 $13,624 $13,259
7/31/95 $14,202 $14,087
8/31/95 $13,897 $13,554
9/30/95 $14,202 $13,822
10/31/95 $13,792 $13,454
11/30/95 $13,824 $13,832
12/31/95 $13,992 $14,392
1/31/96 $14,464 $14,454
2/29/96 $14,801 $14,506
3/31/96 $15,032 $14,818
4/30/96 $15,473 $15,252
5/31/96 $15,693 $14,975
6/30/96 $15,714 $15,063
7/31/96 $15,235 $14,626
8/31/96 $15,692 $14,662
9/30/96 $15,848 $15,054
10/31/96 $16,137 $14,904
11/30/96 $16,750 $15,500
12/31/96 $17,207 $15,305
GRAPHIC MATERIAL (14)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI EAFE Index, based on a $10,000 investment from 5/1/96 to
12/31/96.
Period Ending Fund Index
5/1/96 $10,000 $10,000
5/31/96 $10,150 $9,818
6/30/96 $10,330 $9,876
7/31/96 $10,210 $9,590
8/31/96 $10,330 $9,613
9/30/96 $10,410 $9,870
10/31/96 $10,690 $9,771
11/30/96 $10,890 $10,162
12/31/96 $11,250 $10,034
GRAPHIC MATERIAL (15)
The following line graph hypothetically compares the performance of the fund's
shares with the MSCI Pacific Index, based on a $10,000 investment from 1/27/92
to 12/31/96.
Period Ending Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,950
2/29/92 $10,000 $9,254
3/31/92 $10,000 $8,376
4/30/92 $10,010 $7,994
5/31/92 $10,210 $8,619
6/30/92 $10,450 $7,944
7/31/92 $9,900 $7,835
8/31/92 $9,570 $8,910
9/30/92 $9,790 $8,708
10/31/92 $10,230 $8,402
11/30/92 $10,110 $8,562
12/31/92 $9,880 $8,466
1/31/93 $9,980 $8,452
2/28/93 $10,330 $8,864
3/31/93 $10,270 $9,936
4/30/93 $10,920 $11,521
5/31/93 $11,290 $11,859
6/30/93 $11,100 $11,666
7/31/93 $11,230 $12,358
8/31/93 $11,770 $12,725
9/30/93 $11,840 $12,251
10/31/93 $13,110 $12,525
11/30/93 $12,970 $10,760
12/31/93 $14,610 $11,512
1/31/94 $14,720 $12,847
2/28/94 $14,300 $13,180
3/31/94 $13,330 $12,453
4/30/94 $13,520 $12,994
5/31/94 $14,080 $13,304
6/30/94 $13,704 $13,742
7/31/94 $13,956 $13,449
8/31/94 $14,549 $13,685
9/30/94 $14,006 $13,344
10/31/94 $14,097 $13,683
11/30/94 $13,191 $12,921
12/31/94 $13,322 $13,010
1/31/95 $12,356 $12,190
2/28/95 $12,869 $11,890
3/31/95 $13,191 $12,806
4/30/95 $13,372 $13,353
5/31/95 $13,895 $12,821
6/30/95 $13,639 $12,280
7/31/95 $14,166 $13,168
8/31/95 $14,001 $12,674
9/30/95 $14,259 $12,793
10/31/95 $13,691 $12,173
11/30/95 $13,763 $12,773
12/31/95 $14,384 $13,399
1/31/96 $15,552 $13,424
2/29/96 $15,500 $13,275
3/31/96 $15,531 $13,684
4/30/96 $16,224 $14,384
5/31/96 $16,276 $13,761
6/30/96 $16,132 $13,766
7/31/96 $15,255 $13,136
8/31/96 $15,634 $12,792
9/30/96 $15,862 $13,211
10/31/96 $15,353 $12,600
11/30/96 $16,176 $12,940
12/31/96 $15,981 $12,267
GRAPHIC MATERIAL (16)
The following line graph hypothetically compares the performance of the fund's
shares with the Lehman Brothers Intermediate Government Bond Index and the CPI,
based on a $10,000 investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,026 $10,032
4/30/89 $10,000 $10,229 $10,097
5/31/89 $10,000 $10,426 $10,155
6/30/89 $10,050 $10,692 $10,179
7/31/89 $10,190 $10,909 $10,203
8/31/89 $10,080 $10,762 $10,220
9/30/89 $10,140 $10,813 $10,252
10/31/89 $10,370 $11,040 $10,302
11/30/89 $10,470 $11,150 $10,326
12/31/89 $10,540 $11,182 $10,343
1/31/90 $10,420 $11,113 $10,449
2/28/90 $10,480 $11,154 $10,498
3/31/90 $10,510 $11,167 $10,556
4/30/90 $10,398 $11,130 $10,573
5/31/90 $10,671 $11,368 $10,597
6/30/90 $10,793 $11,519 $10,655
7/31/90 $10,964 $11,680 $10,695
8/31/90 $10,894 $11,638 $10,794
9/30/90 $10,974 $11,741 $10,884
10/31/90 $11,096 $11,905 $10,950
11/30/90 $11,318 $12,084 $10,974
12/31/90 $11,480 $12,251 $10,974
1/31/91 $11,652 $12,377 $11,039
2/28/91 $11,753 $12,453 $11,056
3/31/91 $11,813 $12,521 $11,073
4/30/91 $11,904 $12,650 $11,089
5/31/91 $11,995 $12,721 $11,122
6/30/91 $12,011 $12,731 $11,155
7/31/91 $12,178 $12,869 $11,171
8/31/91 $12,398 $13,113 $11,204
9/30/91 $12,649 $13,336 $11,253
10/31/91 $12,806 $13,488 $11,270
11/30/91 $12,890 $13,646 $11,303
12/31/91 $13,235 $13,978 $11,311
1/31/92 $13,046 $13,843 $11,328
2/29/92 $13,162 $13,886 $11,368
3/31/92 $13,067 $13,831 $11,426
4/30/92 $13,172 $13,955 $11,442
5/31/92 $13,465 $14,163 $11,458
6/30/92 $13,672 $14,367 $11,500
7/31/92 $13,953 $14,643 $11,524
8/31/92 $14,116 $14,792 $11,556
9/30/92 $14,278 $14,996 $11,588
10/31/92 $14,040 $14,816 $11,629
11/30/92 $14,072 $14,756 $11,645
12/31/92 $14,332 $14,946 $11,637
1/31/93 $14,635 $15,224 $11,694
2/28/93 $14,895 $15,448 $11,735
3/31/93 $14,971 $15,505 $11,776
4/30/93 $15,057 $15,626 $11,809
5/31/93 $15,101 $15,584 $11,826
6/30/93 $15,374 $15,810 $11,842
7/31/93 $15,476 $15,841 $11,842
8/31/93 $15,702 $16,077 $11,875
9/30/93 $15,702 $16,143 $11,900
10/31/93 $15,781 $16,182 $11,949
11/30/93 $15,577 $16,103 $11,957
12/31/93 $15,724 $16,169 $11,957
1/31/94 $15,928 $16,329 $11,990
2/28/94 $15,611 $16,105 $12,030
3/31/94 $15,058 $15,870 $12,071
4/30/94 $14,911 $15,767 $12,088
5/31/94 $14,934 $15,778 $12,097
6/30/94 $14,761 $15,781 $12,138
7/31/94 $15,129 $15,988 $12,171
8/31/94 $15,118 $16,034 $12,219
9/30/94 $14,809 $15,901 $12,252
10/31/94 $14,738 $15,904 $12,261
11/30/94 $14,738 $15,834 $12,277
12/31/94 $14,928 $15,887 $12,277
1/31/95 $15,260 $16,145 $12,326
2/28/95 $15,676 $16,457 $12,375
3/31/95 $15,759 $16,548 $12,416
4/30/95 $15,996 $16,740 $12,457
5/31/95 $16,697 $17,212 $12,482
6/30/95 $16,788 $17,322 $12,507
7/31/95 $16,737 $17,330 $12,507
8/31/95 $16,953 $17,473 $12,539
9/30/95 $17,132 $17,590 $12,565
10/31/95 $17,361 $17,783 $12,606
11/30/95 $17,590 $18,000 $12,597
12/31/95 $17,832 $18,178 $12,588
1/31/96 $17,947 $18,331 $12,663
2/29/96 $17,641 $18,137 $12,703
3/31/96 $17,514 $18,053 $12,769
4/30/96 $17,399 $18,001 $12,819
5/31/96 $17,323 $17,992 $12,843
6/30/96 $17,571 $18,175 $12,851
7/31/96 $17,613 $18,232 $12,875
8/31/96 $17,585 $18,252 $12,900
9/30/96 $17,928 $18,487 $12,941
10/31/96 $18,312 $18,790 $12,983
11/30/96 $18,587 $19,018 $13,007
12/31/96 $18,477 $18,915 $13,007
GRAPHIC MATERIAL (17)
The following line graph hypothetically compares the performance of the fund's
shares with the S&P 500 and the CPI, based on a $10,000 investment from 1/24/89
to 12/31/96.
Period Ending Fund Index Index
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $10,165 $10,011
2/28/89 $10,080 $9,912 $10,052
3/31/89 $10,150 $10,143 $10,110
4/30/89 $10,210 $10,669 $10,176
5/31/89 $10,610 $11,101 $10,234
6/30/89 $10,730 $11,038 $10,259
7/31/89 $11,260 $12,035 $10,283
8/31/89 $11,100 $12,271 $10,300
9/30/89 $11,160 $12,220 $10,333
10/31/89 $11,260 $11,937 $10,382
11/30/89 $11,500 $12,180 $10,407
12/31/89 $12,140 $12,473 $10,424
1/31/90 $11,680 $11,636 $10,531
2/28/90 $11,750 $11,786 $10,581
3/31/90 $11,668 $12,098 $10,639
4/30/90 $11,153 $11,797 $10,656
5/31/90 $11,607 $12,947 $10,680
6/30/90 $11,678 $12,860 $10,738
7/31/90 $11,839 $12,819 $10,779
8/31/90 $11,103 $11,660 $10,878
9/30/90 $11,113 $11,093 $10,969
10/31/90 $11,899 $11,045 $11,035
11/30/90 $12,192 $11,758 $11,060
12/31/90 $12,363 $12,086 $11,060
1/31/91 $12,232 $12,613 $11,126
2/28/91 $12,676 $13,515 $11,143
3/31/91 $12,888 $13,842 $11,159
4/30/91 $12,989 $13,876 $11,176
5/31/91 $12,968 $14,474 $11,210
6/30/91 $12,871 $13,811 $11,242
7/31/91 $13,379 $14,454 $11,259
8/31/91 $13,742 $14,797 $11,292
9/30/91 $14,218 $14,550 $11,341
10/31/91 $14,426 $14,745 $11,358
11/30/91 $14,706 $14,150 $11,391
12/31/91 $15,275 $15,769 $11,399
1/31/92 $14,757 $15,476 $11,416
2/29/92 $14,726 $15,676 $11,457
3/31/92 $14,633 $15,370 $11,516
4/30/92 $15,068 $15,822 $11,532
5/31/92 $15,358 $15,899 $11,548
6/30/92 $15,543 $15,662 $11,590
7/31/92 $16,378 $16,303 $11,614
8/31/92 $16,315 $15,969 $11,647
9/30/92 $16,389 $16,156 $11,679
10/31/92 $16,283 $16,211 $11,720
11/30/92 $16,304 $16,762 $11,736
12/31/92 $16,738 $16,968 $11,728
1/31/93 $17,003 $17,110 $11,786
2/28/93 $17,923 $17,343 $11,827
3/31/93 $18,082 $17,709 $11,868
4/30/93 $18,092 $17,281 $11,902
5/31/93 $18,018 $17,742 $11,918
6/30/93 $18,459 $17,793 $11,935
7/31/93 $18,826 $17,722 $11,935
8/31/93 $19,344 $18,394 $11,968
9/30/93 $19,247 $18,252 $11,993
10/31/93 $19,128 $18,630 $12,043
11/30/93 $18,221 $18,453 $12,051
12/31/93 $18,502 $18,676 $12,051
1/31/94 $18,124 $19,311 $12,084
2/28/94 $17,206 $18,788 $12,125
3/31/94 $16,602 $17,969 $12,166
4/30/94 $16,991 $18,199 $12,183
5/31/94 $16,105 $18,497 $12,191
6/30/94 $15,354 $18,044 $12,233
7/31/94 $16,142 $18,636 $12,266
8/31/94 $16,299 $19,400 $12,315
9/30/94 $15,894 $18,927 $12,348
10/31/94 $16,198 $19,353 $12,357
11/30/94 $16,288 $18,648 $12,373
12/31/94 $16,220 $18,924 $12,373
1/31/95 $17,165 $19,414 $12,422
2/28/95 $17,233 $20,171 $12,472
3/31/95 $16,985 $20,766 $12,513
4/30/95 $17,345 $21,377 $12,555
5/31/95 $18,301 $22,232 $12,580
6/30/95 $18,283 $22,748 $12,605
7/31/95 $18,319 $23,503 $12,605
8/31/95 $18,497 $23,562 $12,638
9/30/95 $19,545 $24,556 $12,663
10/31/95 $19,985 $24,468 $12,705
11/30/95 $20,318 $25,542 $12,696
12/31/95 $21,306 $26,035 $12,687
1/31/96 $21,687 $26,920 $12,762
2/29/96 $21,294 $27,170 $12,803
3/31/96 $21,282 $27,431 $12,869
4/30/96 $20,842 $27,834 $12,919
5/31/96 $21,306 $28,553 $12,944
6/30/96 $22,248 $28,661 $12,952
7/31/96 $21,081 $27,394 $12,976
8/31/96 $21,533 $27,972 $13,001
9/30/96 $21,658 $29,547 $13,043
10/31/96 $22,361 $30,363 $13,084
11/30/96 $22,763 $32,658 $13,109
12/31/96 $22,813 $32,011 $13,109
GRAPHIC MATERIAL (18)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 5-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,040 $10,032
4/30/89 $10,000 $10,257 $10,097
5/31/89 $9,990 $10,571 $10,155
6/30/89 $10,560 $10,951 $10,179
7/31/89 $10,790 $11,344 $10,203
8/31/89 $10,460 $11,021 $10,220
9/30/89 $10,480 $11,066 $10,252
10/31/89 $10,910 $11,389 $10,302
11/30/89 $11,010 $11,534 $10,326
12/31/89 $11,080 $11,543 $10,343
1/31/90 $10,610 $11,346 $10,449
2/28/90 $10,600 $11,357 $10,498
3/31/90 $10,592 $11,356 $10,556
4/30/90 $10,170 $11,240 $10,573
5/31/90 $10,664 $11,582 $10,597
6/30/90 $10,932 $11,771 $10,655
7/31/90 $11,076 $11,979 $10,695
8/31/90 $10,582 $11,822 $10,794
9/30/90 $10,715 $11,935 $10,884
10/31/90 $10,973 $12,179 $10,950
11/30/90 $11,518 $12,504 $10,974
12/31/90 $11,734 $12,721 $10,974
1/31/91 $11,868 $12,850 $11,039
2/28/91 $11,889 $12,895 $11,056
3/31/91 $11,868 $12,943 $11,073
4/30/91 $12,064 $13,149 $11,089
5/31/91 $12,054 $13,190 $11,122
6/30/91 $11,987 $13,162 $11,155
7/31/91 $12,147 $13,350 $11,171
8/31/91 $12,615 $13,748 $11,204
9/30/91 $13,072 $14,100 $11,253
10/31/91 $13,157 $14,321 $11,270
11/30/91 $13,338 $14,566 $11,303
12/31/91 $13,933 $14,914 $11,311
1/31/92 $13,487 $14,668 $11,328
2/29/92 $13,572 $14,693 $11,368
3/31/92 $13,465 $14,546 $11,426
4/30/92 $13,519 $14,670 $11,442
5/31/92 $13,848 $15,035 $11,458
6/30/92 $14,249 $15,363 $11,500
7/31/92 $14,880 $15,802 $11,524
8/31/92 $15,080 $16,060 $11,556
9/30/92 $15,501 $16,410 $11,588
10/31/92 $15,102 $16,049 $11,629
11/30/92 $14,947 $15,869 $11,645
12/31/92 $15,379 $16,164 $11,637
1/31/93 $15,789 $16,659 $11,694
2/28/93 $16,387 $17,051 $11,735
3/31/93 $16,587 $17,124 $11,776
4/30/93 $16,664 $17,328 $11,809
5/31/93 $16,653 $17,239 $11,826
6/30/93 $17,308 $17,631 $11,842
7/31/93 $17,412 $17,645 $11,842
8/31/93 $17,863 $18,059 $11,875
9/30/93 $17,979 $18,148 $11,900
10/31/93 $18,129 $18,157 $11,949
11/30/93 $17,701 $17,974 $11,957
12/31/93 $17,863 $18,069 $11,957
1/31/94 $18,176 $18,324 $11,990
2/28/94 $17,528 $17,895 $12,030
3/31/94 $16,938 $17,433 $12,071
4/30/94 $16,729 $17,220 $12,088
5/31/94 $16,729 $17,233 $12,097
6/30/94 $16,694 $17,196 $12,138
7/31/94 $17,023 $17,513 $12,171
8/31/94 $17,023 $17,571 $12,219
9/30/94 $16,694 $17,272 $12,252
10/31/94 $16,596 $17,236 $12,261
11/30/94 $16,511 $17,101 $12,277
12/31/94 $16,621 $17,255 $12,277
1/31/95 $16,950 $17,422 $12,326
2/28/95 $17,475 $17,924 $12,375
3/31/95 $17,573 $17,998 $12,416
4/30/95 $17,829 $18,278 $12,457
5/31/95 $18,756 $19,149 $12,482
6/30/95 $18,909 $19,306 $12,507
7/31/95 $18,781 $19,211 $12,507
8/31/95 $18,998 $19,395 $12,539
9/30/95 $19,138 $19,543 $12,565
10/31/95 $19,482 $19,850 $12,606
11/30/95 $19,814 $20,219 $12,597
12/31/95 $20,056 $20,474 $12,588
1/31/96 $20,286 $20,697 $12,663
2/29/96 $19,890 $20,303 $12,703
3/31/96 $19,648 $20,046 $12,769
4/30/96 $19,495 $19,819 $12,819
5/31/96 $19,406 $19,722 $12,843
6/30/96 $19,637 $20,012 $12,851
7/31/96 $19,691 $19,694 $12,875
8/31/96 $19,664 $19,962 $12,900
9/30/96 $19,988 $20,331 $12,941
10/31/96 $20,435 $20,853 $12,983
11/30/96 $20,746 $21,214 $13,007
12/31/96 $20,543 $20,940 $13,007
GRAPHIC MATERIAL (19)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 10-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,064 $10,032
4/30/89 $10,000 $10,339 $10,097
5/31/89 $10,070 $10,762 $10,155
6/30/89 $11,310 $11,405 $10,179
7/31/89 $11,290 $11,714 $10,203
8/31/89 $10,850 $11,360 $10,220
9/30/89 $10,870 $11,408 $10,252
10/31/89 $11,500 $11,874 $10,302
11/30/89 $11,580 $11,973 $10,326
12/31/89 $11,530 $11,972 $10,343
1/31/90 $10,630 $11,486 $10,449
2/28/90 $10,640 $11,460 $10,498
3/31/90 $10,598 $11,451 $10,556
4/30/90 $10,024 $11,131 $10,573
5/31/90 $10,746 $11,663 $10,597
6/30/90 $11,065 $11,939 $10,655
7/31/90 $11,171 $12,069 $10,695
8/31/90 $10,290 $11,498 $10,794
9/30/90 $10,502 $11,629 $10,884
10/31/90 $10,746 $12,005 $10,950
11/30/90 $11,521 $12,527 $10,974
12/31/90 $11,840 $12,809 $10,974
1/31/91 $11,978 $12,938 $11,039
2/28/91 $11,978 $12,955 $11,056
3/31/91 $11,893 $13,047 $11,073
4/30/91 $12,127 $13,260 $11,089
5/31/91 $11,999 $13,244 $11,122
6/30/91 $11,857 $13,151 $11,155
7/31/91 $12,066 $13,383 $11,171
8/31/91 $12,663 $13,914 $11,204
9/30/91 $13,292 $14,393 $11,253
10/31/91 $13,237 $14,462 $11,270
11/30/91 $13,303 $14,666 $11,303
12/31/91 $14,065 $15,468 $11,311
1/31/92 $13,579 $14,821 $11,328
2/29/92 $13,612 $14,910 $11,368
3/31/92 $13,513 $14,718 $11,426
4/30/92 $13,480 $14,658 $11,442
5/31/92 $13,976 $15,084 $11,458
6/30/92 $14,216 $15,437 $11,500
7/31/92 $15,016 $16,152 $11,524
8/31/92 $15,132 $16,334 $11,556
9/30/92 $15,711 $16,792 $11,588
10/31/92 $15,143 $16,303 $11,629
11/30/92 $15,271 $16,288 $11,645
12/31/92 $15,793 $16,852 $11,637
1/31/93 $16,291 $17,524 $11,694
2/28/93 $17,196 $18,210 $11,735
3/31/93 $17,358 $18,261 $11,776
4/30/93 $17,346 $18,516 $11,809
5/31/93 $17,346 $18,414 $11,826
6/30/93 $18,520 $19,425 $11,842
7/31/93 $18,724 $19,585 $11,842
8/31/93 $19,360 $20,333 $11,875
9/30/93 $19,564 $20,575 $11,900
10/31/93 $19,840 $20,661 $11,949
11/30/93 $19,084 $19,973 $11,957
12/31/93 $19,300 $20,149 $11,957
1/31/94 $19,864 $20,737 $11,990
2/28/94 $18,748 $19,748 $12,030
3/31/94 $17,728 $18,733 $12,071
4/30/94 $17,452 $18,439 $12,088
5/31/94 $17,416 $18,347 $12,097
6/30/94 $17,163 $18,209 $12,138
7/31/94 $17,691 $18,732 $12,171
8/31/94 $17,641 $18,764 $12,219
9/30/94 $16,999 $18,088 $12,252
10/31/94 $16,899 $17,956 $12,261
11/30/94 $16,999 $18,042 $12,277
12/31/94 $17,314 $18,356 $12,277
1/31/95 $17,704 $18,841 $12,326
2/28/95 $18,295 $19,566 $12,375
3/31/95 $18,446 $19,701 $12,416
4/30/95 $18,862 $20,085 $12,457
5/31/95 $20,497 $21,768 $12,482
6/30/95 $20,647 $22,056 $12,507
7/31/95 $20,279 $21,692 $12,507
8/31/95 $20,712 $22,121 $12,539
9/30/95 $21,080 $22,486 $12,565
10/31/95 $21,657 $23,055 $12,606
11/30/95 $22,248 $23,761 $12,597
12/31/95 $22,812 $24,341 $12,588
1/31/96 $22,891 $24,392 $12,663
2/29/96 $21,802 $23,233 $12,703
3/31/96 $21,461 $22,787 $12,769
4/30/96 $21,067 $22,251 $12,819
5/31/96 $20,830 $22,109 $12,843
6/30/96 $21,295 $22,604 $12,851
7/31/96 $21,295 $22,598 $12,875
8/31/96 $21,101 $22,353 $12,900
9/30/96 $21,670 $23,017 $12,941
10/31/96 $22,531 $23,959 $12,983
11/30/96 $23,197 $24,776 $13,007
12/31/96 $22,698 $24,129 $13,007
GRAPHIC MATERIAL (20)
The following line graph hypothetically compares the performance of the fund's
shares with the Merrill Lynch 20-Year Zero Index and the CPI, based on a $10,000
investment from 3/14/89 to 12/31/96.
Period Ending Fund Index Index
3/14/89 $10,000 $10,000 $10,000
3/31/89 $10,000 $10,109 $10,032
4/30/89 $10,000 $10,494 $10,097
5/31/89 $10,000 $11,218 $10,155
6/30/89 $11,290 $12,388 $10,179
7/31/89 $11,250 $12,458 $10,203
8/31/89 $10,790 $11,840 $10,220
9/30/89 $10,860 $11,945 $10,252
10/31/89 $11,630 $12,745 $10,302
11/30/89 $11,720 $12,972 $10,326
12/31/89 $11,610 $12,904 $10,343
1/31/90 $10,580 $11,934 $10,449
2/28/90 $10,530 $11,668 $10,498
3/31/90 $10,400 $11,557 $10,556
4/30/90 $9,652 $10,869 $10,573
5/31/90 $10,617 $11,932 $10,597
6/30/90 $11,064 $12,425 $10,655
7/31/90 $11,136 $12,374 $10,695
8/31/90 $9,912 $11,011 $10,794
9/30/90 $10,150 $11,240 $10,884
10/31/90 $10,358 $11,566 $10,950
11/30/90 $11,271 $12,608 $10,974
12/31/90 $11,676 $12,940 $10,974
1/31/91 $11,853 $13,206 $11,039
2/28/91 $11,811 $13,087 $11,056
3/31/91 $11,666 $13,182 $11,073
4/30/91 $11,946 $13,421 $11,089
5/31/91 $11,686 $13,267 $11,122
6/30/91 $11,412 $13,000 $11,155
7/31/91 $11,619 $13,273 $11,171
8/31/91 $12,362 $14,056 $11,204
9/30/91 $13,061 $14,781 $11,253
10/31/91 $12,864 $14,549 $11,270
11/30/91 $12,744 $14,670 $11,303
12/31/91 $13,749 $15,854 $11,311
1/31/92 $13,246 $15,164 $11,328
2/29/92 $13,290 $15,233 $11,368
3/31/92 $13,235 $14,986 $11,426
4/30/92 $13,050 $14,715 $11,442
5/31/92 $13,759 $15,337 $11,458
6/30/92 $13,776 $15,380 $11,500
7/31/92 $14,598 $16,413 $11,524
8/31/92 $14,679 $16,359 $11,556
9/30/92 $14,923 $16,307 $11,588
10/31/92 $14,378 $15,968 $11,629
11/30/92 $14,772 $16,341 $11,645
12/31/92 $15,467 $17,034 $11,637
1/31/93 $15,792 $17,595 $11,694
2/28/93 $16,707 $18,677 $11,735
3/31/93 $17,054 $18,546 $11,776
4/30/93 $16,881 $18,774 $11,809
5/31/93 $16,985 $18,956 $11,826
6/30/93 $18,058 $20,442 $11,842
7/31/93 $18,664 $21,338 $11,842
8/31/93 $19,617 $22,712 $11,875
9/30/93 $19,778 $22,639 $11,900
10/31/93 $20,162 $23,054 $11,949
11/30/93 $19,332 $22,125 $11,957
12/31/93 $19,407 $22,047 $11,957
1/31/94 $20,186 $22,929 $11,990
2/28/94 $18,788 $21,356 $12,030
3/31/94 $17,662 $20,013 $12,071
4/30/94 $17,365 $19,496 $12,088
5/31/94 $17,092 $18,900 $12,097
6/30/94 $16,534 $18,599 $12,138
7/31/94 $17,392 $19,779 $12,171
8/31/94 $17,041 $19,179 $12,219
9/30/94 $16,248 $18,101 $12,252
10/31/94 $16,131 $17,996 $12,261
11/30/94 $16,417 $18,436 $12,277
12/31/94 $16,924 $19,119 $12,277
1/31/95 $17,366 $19,856 $12,326
2/28/95 $17,886 $20,479 $12,375
3/31/95 $18,068 $20,733 $12,416
4/30/95 $18,561 $21,191 $12,457
5/31/95 $20,862 $24,264 $12,482
6/30/95 $20,964 $24,591 $12,507
7/31/95 $20,415 $23,898 $12,507
8/31/95 $21,018 $24,842 $12,539
9/30/95 $21,527 $25,562 $12,565
10/31/95 $22,532 $26,984 $12,606
11/30/95 $23,295 $27,998 $12,597
12/31/95 $24,166 $29,297 $12,588
1/31/96 $24,112 $29,016 $12,663
2/29/96 $22,264 $26,341 $12,703
3/31/96 $21,728 $25,335 $12,769
4/30/96 $21,152 $24,417 $12,819
5/31/96 $20,951 $24,420 $12,843
6/30/96 $21,596 $25,270 $12,851
7/31/96 $21,553 $25,204 $12,875
8/31/96 $21,077 $24,370 $12,900
9/30/96 $21,928 $25,583 $12,941
10/31/96 $23,155 $27,320 $12,983
11/30/96 $24,224 $28,946 $13,007
12/31/96 $23,516 $27,643 $13,007
