TABLE OF CONTENTS
FRANKLIN VALUEMARK FUNDS
SEMI-ANNUAL REPORT
Letter to Contract Owners 2
A Word About Risk 4
Portfolio Objectives and Primary Investments 5
Portfolio Summaries
Portfolios Seeking Capital Growth
Capital Growth Fund 8
Global Health Care Securities Fund 10
Mutual Discovery Securities Fund 11
Natural Resources Securities Fund 12
Small Cap Fund 13
Templeton Developing Markets Equity Fund 14
Templeton Global Growth Fund 15
Templeton International Equity Fund 17
Templeton International Smaller Companies Fund 18
Templeton Pacific Growth Fund 19
Portfolios Seeking Growth and Income
Global Utilities Securities Fund 21
Growth and Income Fund 22
Income Securities Fund 24
Mutual Shares Securities Fund 25
Real Estate Securities Fund 26
Rising Dividends Fund 28
Templeton Global Asset Allocation Fund 30
Value Securities Fund 32
Portfolios Seeking Current Income
High Income Fund 34
Templeton Global Income Securities Fund 35
U.S. Government Securities Fund 36
Zero Coupon Funds 37
Portfolio Seeking Capital Preservation and Income
Money Market Fund 39
Financial Highlights & Statement of Investments 40
Financial Statements 134
Notes to Financial Statements 153
FRANKLIN VALUEMARK
PROSPECTUS SUPPLEMENT 169
Thank you for investing with Franklin Valuemark. We encourage our investors to
maintain a long-term perspective, and remember that all securities markets move
both up and down, as do portfolio unit prices. We appreciate your past support
and look forward to serving your investment needs in the years ahead.
Please retain this document, including the enclosed prospectus supplement on p.
169, with your current prospectus for reference.
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
During the six-month reporting period, a favorable interest-rate environment and
strong economic activity contributed to positive stock market performance in the
U.S. and much of Europe. Financial difficulties continued in Asia, which
resulted in generally poor results from equity markets there, and also
negatively impacted other developing markets such as those of Latin America.
The U.S. economy expanded at a robust pace, led by consumer spending, high
employment, and a strong stock market. The1998 first quarter, annualized Gross
Domestic Product (GDP) gain of 5.5% was coupled with low inflation. Although the
second quarter's, annualized GDP gain of 1.4% reflected some slowdown due to
Asia's economic crises, it was better than expected. Investors wary of market
uncertainty flocked to the perceived safety of large-capitalization stocks,
which performed especially well during the period under review, with the Dow
Jones(R) Industrial Average advancing 14.14% and the Standard & Poor's(R) 500
Stock Index increasing 17.7%. Small cap stocks were up moderately overall, as
the Russell 2000(R) Index rose 5.27% during the same period.
Europe continued to progress toward establishment of the European Monetary Union
(EMU), when much of Europe will use a single currency called the euro.
Luxembourg and Finland have already met the criteria for joining the EMU.
Austria, Belgium, France, Germany, Ireland, Italy, the Netherlands, Portugal and
Spain are also expected to join. On January 1, 1999, the euro will become legal
tender in qualifying countries. The United Kingdom has decided not to join with
this first wave of countries. Greece, Denmark and Sweden will remain outside the
EMU for the time being.
During the past three years, most European governments (except the U.K.) have
been implementing fiscal tightening and monetary policy reform, to meet the
required EMU membership criteria. These policy initiatives improved many
European countries' economic situations during the six months under review.
Interest rates throughout Europe fell, and governments improved their balance
sheets, which helped propel many European stock markets to strong gains during
the reporting period. We believe greater integration compelled many European
companies to become more competitive by aggressively cutting costs and
streamlining business structure.
Emerging market equities experienced severe volatility during the six-month
period, as the Asian financial crises continued. In Asia, most currencies
remained unstable and, in some cases, weakened further, and most stock markets
there fell. As measured in U.S. dollars, Indonesia's equity market was down 58%,
while Hong Kong SAR, Singapore, and South Korea fell 19%, 30% and 13%,
respectively. Early in the reporting period, Latin American economies and their
stock markets proved resilient against Asia's woes; however, during the latter
part of the period, these markets suffered from Asia's continuing instability.
As a result, most Latin American stock markets recorded significant declines
during the period. For example, Venezuela's market was down 49%, Mexico's fell
26%, and Brazil's declined 8%, as measured in U.S. dollars.1 Asian and Latin
American stock markets rebounded slightly at the end of the reporting period,
after the U.S. Treasury began an intervention program to bolster the ailing
Japanese yen.
Looking forward, we think spillover from Asia's crises may affect certain
domestic companies with international operations, but a slowdown may prevent
inflation from kindling. Should inflation remain stable and interest rates stay
low, in our view the U.S. economy will likely maintain its impressive
performance. Positive economic reforms are being forced on governments around
the world -- in emerging markets due to financial crisis, and in Europe due to
economic integration. We expect that such reforms, if successfully implemented,
should contribute to global economic strength and stability.
It is important to remember, of course, that securities markets always have
been, and always will be, subject to volatility. No one can predict exactly how
they will perform in the future. For this reason, we urge you to exercise
patience and focus not on day-to-day market movements, but on your long-term
investment goals. As always, we appreciate your support, welcome your questions
and comments, and look forward to serving your investment needs in the years
ahead.
Sincerely,
Rupert H. Johnson, Jr.
Trustee and Vice President
Franklin Valuemark Funds
1. Source: Bloomberg.
A WORD ABOUT RISK
All of the portfolios are subject to certain risks, which will cause investment
returns and the value of your principal to increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. Stocks and other equities, representing an ownership
interest in an individual company, historically have outperformed other asset
classes over the long term, but tend to rise and fall more dramatically over the
shorter term. Securities of smaller companies, and companies involved in
reorganization or bankruptcy, may have greater price swings and greater credit
and other risks.
Bonds and other debt obligations are affected by the
creditworthiness of their issuers, and changes in interest rates, with prices
declining as interest rates increase. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks than investment
grade bonds. An investment in the Money Market Fund is neither insured nor
guaranteed by the U.S. government. The portfolio attempts to maintain a stable
net asset value of $1.00 per share, but there can be no assurance that it will.
Foreign investing, especially in emerging market countries, has additional risks
such as changes in currency values, market price swings, and economic, political
or social instability. These, and other risks pertaining to specific portfolios,
such as specialized industry or geographical sectors or use of complex
securities, are discussed in the Franklin Valuemark Funds prospectus. Your
investment representative can help you determine which portfolios may be right
for you.
FRANKLIN MUTUAL ADVISERS MANAGEMENT UPDATE
Franklin Mutual Advisers, Inc. is pleased to announce promotions within its
senior portfolio management team, which will become effective November 1, 1998.
Peter Langerman, currently Chief Operating Officer, will become CEO of Franklin
Mutual Advisers. Robert Friedman, currently Senior Vice President, will become
Chief Investment Officer and will have overall responsibility of the fund's
portfolio management. Their work continues to be supported by the senior
portfolio team of Jeff Altman, Ray Garea, David Marcus, Larry Sondike and David
Winters. While Michael Price will no longer be actively managing the fund's
portfolio, he will continue as Chairman of the Board of Franklin Mutual
Advisers, Inc.
Mr. Langerman joined Heine Securities Corporation (predecessor of Franklin
Mutual Advisers) in 1986 as an analyst, and was named Chief Operating Officer in
May 1997. He has spent a considerable part of his time focusing on investments
in companies in financial distress and bankruptcy.
Mr. Friedman has been responsible for numerous large domestic positions as well
as having oversight of non-U.S. investments and was based in London for two
years, and has considerable experience implementing the Mutual Advisers value
philosophy both domestically and abroad.
PORTFOLIO OBJECTIVES AND PRIMARY INVESTMENTS
The portfolio descriptions are provided for your convenience. For more complete
information, including portfolio policies and risks, please refer to your
Franklin Valuemark Funds prospectus or contact your investment representative.
<TABLE>
<CAPTION>
Portfolios Seeking Capital Growth
<S> <C>
Global Growth
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Global Health Care Securities Fund
Seeks capital appreciation. The portfolio concentrates its
investments in U.S. and foreign equity securities issued by large
and small capitalization health care companies, including
pharmaceutical, biotechnology, medical and health services and
medical supply companies.
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Mutual Discovery Securities Fund Seeks capital appreciation. Using a value-driven approach, the
portfolio invests primarily in U.S. and foreign equity
securities, including securities of small capitalization
companies; may also invest in companies involved in mergers and
bankruptcies, as well as debt securities of any quality including
"junk bonds" and defaulted securities.
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Natural Resources Securities Fund Seeks capital appreciation, with current income as a
secondary objective. The portfolio concentrates its
investments primarily in securities of U.S. and foreign
companies including those in developing markets, which own,
produce, refine, process and market natural resources, as
well as those that provide support services for natural
resources companies.
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Templeton Developing
Markets Equity Fund Seeks long-term capital appreciation. The portfolio invests
primarily in equity securities of issuers in foreign
countries with developing markets.
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Templeton Global Growth Fund Seeks long-term capital growth. The portfolio maintains a
flexible policy of investing in stocks and debt obligations
of companies and governments of any nation, including
developing markets.
- -------------------------------------------------------------------------------------------------------------------
Templeton International Equity Fund Seeks long-term capital growth. The portfolio invests
primarily in equity securities of companies whose primary
operations are outside the U.S., including developing
markets.
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Templeton International
Smaller Companies Fund Seeks long-term capital appreciation. The portfolio invests
primarily in equity securities of smaller companies outside
the U.S., including developing markets.
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Templeton Pacific Growth Fund Seeks long-term capital growth. The portfolio invests
primarily in equity securities of companies whose primary
operations are in Pacific Rim countries, most of which have
developing markets.
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Domestic Growth
- -------------------------------------------------------------------------------------------------------------------
Capital Growth Fund Seeks capital appreciation, with current income as a
secondary consideration. The portfolio invests primarily in
equity securities of large- or mid-cap U.S. companies, and
to a lesser extent in small-cap companies. The portfolio may
also invest a portion in foreign securities, including
developing markets.
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Small Cap Fund Seeks long-term capital growth. The portfolio invests
primarily in equity securities of small capitalization
growth companies. The portfolio may also invest a portion in
foreign securities.
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Portfolios Seeking Growth and Income
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Global Utilities Securities Fund
(Prior to May 1, 1998,
the Utility Equity Fund.) Seeks both capital appreciation and current income. The
portfolio concentrates its investments in securities of
issuers engaged in the public utilities industry (such as
electricity and telecommunications companies) in any nation,
including developing markets.
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Growth and Income Fund Seeks capital appreciation, with current income as a
secondary objective. The portfolio invests primarily in U.S.
common stocks and securities convertible into common stocks,
and may invest a portion in foreign securities, including
developing markets.
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Income Securities Fund Seeks to maximize income while maintaining prospects for
capital appreciation. The portfolio invests in debt and
equity securities, including "junk bonds." The portfolio may
invest in foreign securities, including developing markets.
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Mutual Shares Securities Fund Seeks capital appreciation, with current income as a
secondary objective. Using a value-driven approach, the
portfolio invests primarily in domestic equities, including
common and preferred stocks and convertible securities; may
also invest in companies involved in mergers and
bankruptcies, as well as debt securities of any quality,
including "junk bonds" and defaulted securities. The
portfolio may also invest in foreign securities.
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Real Estate Securities Fund Seeks capital appreciation, with current income as a
secondary objective. The portfolio concentrates its
investments in real estate investment trusts (REITs) and
publicly traded securities of companies in the real estate
industry.
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Rising Dividends Fund Seeks capital appreciation, with current income as a
secondary objective. The portfolio invests primarily in the
equity securities of companies that have paid consistently
rising dividends over the past ten years. Preservation of
capital is also an important consideration. The portfolio
may also invest a small portion in foreign securities.
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Templeton Global Asset Allocation Fund Seeks a high level of total return. The portfolio has a
flexible policy of investing in equity securities, debt
obligations and money market instruments of companies and
governments of any nation, including developing markets. In
addition, the portfolio may invest in "junk bonds."
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Value Securities Fund Seeks long-term total return. The portfolio invests
primarily in securities of companies, which in the portfolio
manager's opinion, are selling substantially below the
underlying value of their assets or private market value.
Such companies may include small capitalization companies,
take-over candidates, turnarounds and companies emerging
from bankruptcy. The portfolio may also invest a portion in
foreign securities.
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Portfolios Seeking Current Income
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High Income Fund Seeks a high level of current return, with capital
appreciation as a secondary objective. The portfolio invests
in debt securities and dividend-paying common and preferred
stocks, which may include high risk securities and "junk
bonds." The portfolio may also invest in foreign securities,
including developing markets.
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Templeton Global Income
Securities Fund Seeks high current income, with capital appreciation as a
secondary objective. The portfolio invests in debt
securities from any nation, including developing markets.
The portfolio may also invest in lower-rated debt
securities.
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U.S. Government Securities Fund Seeks to earn income. The portfolio invests exclusively in
obligations of the U.S. government, its agencies or
instrumentalities, with an emphasis on mortgage- backed
securities.
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Three Zero Coupon Funds
(maturity dates: 2000, 2005, 2010) The three zero coupon bond portfolios seek a high investment
return consistent with preservation of capital. Each zero
coupon portfolio seeks to return a reasonably assured target
dollar amount, predictable at the time of the investment, on
a specific date in the future. The portfolios may not be
appropriate for those who intend to redeem units before the
maturity dates.
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Portfolio Seeking Capital Preservation and Income
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Money Market Fund Seeks high current income consistent with capital
preservation and liquidity. The portfolio invests in
high-quality money market instruments.
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</TABLE>
PORTFOLIO SUMMARIES
As you read the following portfolio summaries, please remember the discussions
accurately reflect our views, opinions and portfolio holdings as of June 30,
1998, the end of the reporting period. However, they are not necessarily
complete analyses of every aspect of any industry, security or investment. Keep
in mind that market and economic conditions are changing constantly, which can
be expected to affect our strategies and the portfolios' composition. Although
historic performance is no guarantee of future results, these insights may help
you understand our investment and management philosophy.
Portfolios Seeking Capital Growth
Capital Growth Fund
The major challenge equity markets faced during the reporting period was Asia's
deteriorating economic situation. Although we believe some problems may persist,
it appears that region's fallen stock prices have discounted the worst of the
situation. The domestic arena, meanwhile, remained a stalwart, providing a "safe
haven" for investors, despite near or all-time high valuations, supported by
strong economic growth, low interest rates, record unemployment and low
inflation. Such ideal economic conditions, while cherished, rarely endure for
very long. Acknowledging the cycles associated with equity investing, Capital
Growth Fund was conceived with the strategy of trying to identify what we
believe are solid companies with promising growth prospects, and buy and hold
them for the long term. Turnover was low during the period at 6.54%, as we
sought to provide investors with the potential for consistent growth over time.
On June 30, 1998, the portfolio held stocks of 79 companies across a diverse
group of industries, including energy, financials, semiconductors, health care,
computer software, data networking and consumer products. Such broad diversity
helps cushion stock market volatility.
During periods of increased volatility, such as those we experienced recently,
we try to capitalize on what we believe are attractive long-term investment
opportunities. For example, over the past six months, the portfolio made new
investments in Applied Materials, the world's leading provider of semiconductor
manufacturing equipment; Associates First Capital, the country's largest
consumer finance company; and CIENA Corp., a telecommunications equipment
provider. Subsequent to purchase, CIENA Corp. agreed to be acquired by Tellabs.
We believe these two companies combined are well-positioned to take advantage of
rapidly growing, global demand for telecommunications equipment.
CAPITAL GROWTH FUND
Top 10 Industry Breakdown
6/30/98
% of Total
Sector Net assets
Electronic
Technology 13.9%
Heath Technology 9.2%
Technology Services 8.5%
Consumer Non-Durables 7.5%
Finance 6.6%
Utilities 6.1%
Process Industries 4.8%
Consumer Services 4.6%
Producer Manufacturing 3.3%
Industrial Services 3.2%
A variety of companies in several different sectors were outstanding portfolio
performers for the six-month period. Producing returns of approximately 50% or
more were Boston Scientific, a major medical devices company; Computer Sciences
Corp., a leading provider of information technology services; Providian
Financial, one of the largest U.S. issuers of secured credit cards; and Cisco
Systems, the predominant data networking vendor which supplies most of the
routers that handle Internet data traffic flow. Consumer retail companies
including Wal-Mart and McDonald's also enhanced the portfolio's performance.
In any given period, some companies will fail to meet expectations for near-term
results. During the reporting period, our holdings in Charles Schwab, a
diversified financial services firm; Millipore, a water purification and
filtering company; and Adaptec, a leading supplier of high performance computer
system interface chips, were disappointments.
We expect relatively greater market volatility in the coming years, versus the
past several years. In part, this results from concerns for individual
companies' sustained earnings growth. We believe the S&P 500(R) is not likely to
produce double-digit earnings growth again this year or next, as it did in each
of the four years from 1992 to 1995. When corporate profit growth slows,
investors generally seek solid, stable growth companies' stock. As growth
warrants a premium in the market due to its scarcity, investors tend to push up
the prices of such growth stocks -- a situation we believe would benefit many of
the portfolio's holdings.
Our long-term outlook for the domestic stock market remains positive for a
variety of reasons. First, the aging "baby-boom" generation fosters greater
awareness toward retirement investing. Second, major western economies, and the
U.S. in particular, are generally in a growth phase. Third, as the economy
becomes increasingly globalized, many domestic firms, with an enhanced focus on
shareholder value and improving profitability, are proving to be highly
productive worldwide. In fact, in the first half of the 1990s, American
corporations exhibited rising profit margins, and increasing return on equities.
U.S. companies also benefit from excellent global competitive positioning in
many industries. For example, U.S. high technology companies lead innovation and
have dominant global market share. We believe this favorable trend may persist
for some time.
Global Health Care Securities Fund
Global Health Care Securities Fund was launched on May 1, 1998, to give
investors an opportunity to take advantage of the strong trends driving the
health care sector. We believe this sector will be an extremely attractive area
for investment over the long term, due to the aging global population,
advancements in technology and emerging health care systems in many populous
third-world nations. In addition, demand for health care products and services
is generally very stable and largely unaffected by the business cycle or
interest rates. On one hand, we expect downward pricing pressure will remain on
reimbursement from managed care payers and the federal government, but on a more
positive note we believe the Medicare reimbursement cuts as part of the Balanced
Budget Act of 1997 are the worst we will see for some time.
Through rigorous fundamental analysis, we attempt to uncover companies that are
often overlooked by most investors and offer strong growth prospects at
attractive valuations. We also favor companies that have experienced management,
significant competitive advantages, little competition and consistent earnings
growth track records. Global Health Care Securities Fund may at times invest
over half of its assets in small- and mid-capitalization companies.
For the two months since the portfolio's inception, the market was extremely
volatile primarily due to concerns about Asia's problems and their impact on the
U.S. economy. Small-cap stocks were particularly affected and suffered greater
declines than their large-cap counterparts. The fund's high cash position helped
to moderate these declines.
Our largest investment sector was specialty pharmaceuticals. Our largest holding
in this group is Penederm Inc., a company that developed a drug delivery
mechanism for the absorption of various compounds into the skin. Sales of the
company's acne product are accelerating, and the company has several new
products on the market. On June 24, Penederm stock rose 30% after it agreed to
be acquired by Mylan Laboratories Inc. Another top holding in this group is
Inhale Therapeutics Systems, which is in clinical trials for its inhaled insulin
product. We believe that the potential is enormous for a product that can
replace needles for the administration of insulin.
During much of the period, the portfolio's largest holding was ESC Medical
Systems Ltd., a manufacturer of laser and pulsed-light devices for the cosmetic
enhancement market. The company recently acquired its largest competitor, Laser
Industries, and now has the most complete product line in the cosmetic surgery
sector. Furthermore, the company is testing a device for pediatric ear
infections, which could accelerate the company's growth over the next three to
five years.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We continue to favor dialysis companies, and hold Total Renal Care and Renal
Care Group, at this reporting period's end. Over the course of the year, we
believe these companies will benefit from favorable changes in Medicare
reimbursement for the provision of renal dialysis services. Both companies are
exceptionally well-managed and have very stable business models.
We appreciate your participation in Global Health Care Securities Fund and look
forward to serving your investment needs in the years to come. Our goal is to
seize the investment opportunities present in the health care sector in a timely
and disciplined fashion, and to identify unique opportunities to invest in
today's newest and fastest growing health care companies.
Mutual Discovery Securities Fund
Mutual Discovery Securities Fund seeks capital appreciation by investing in
domestic and foreign equity securities, including common and preferred stocks,
and securities convertible into common stocks, as well as in debt obligations of
any quality. On June 30, 1998, the portfolio had 86.0% of total net assets
invested in equity securities, 2.6% in fixed-income securities, and the
remaining 11.4% in short-term and other securities. Of course, these holdings
will change as conditions warrant.
Strong European stock market gains, recorded largely in expectation of the
European Monetary Union, made value in the region increasingly scarce. However,
we believe the U.K.'s Railtrack Group Plc., which owns almost all of Britain's
railway infrastructure, including track signaling, bridges, tunnels, stations
and depots, represented good value. Improvements in all aspects of their
railroad, and efforts to develop their real estate should provide healthy
long-term performance.
The stock price of Suez Lyonnaise des Eaux SA rose considerably as it continued
its metamorphosis into one of the world's largest water and waste services
companies. Our holdings of Societe Elf Aquataine SA, a French petroleum
explorer, also performed well. With management focused on shedding non-core
areas and streamlining businesses, we believe there is still more value to be
realized.
Shares of Kansas City Southern Industries Inc., one of our U.S. positions, also
appreciated in value. During the reporting period, they traded at a discount to
our estimation of the value of the company's individual pieces. Kansas City
Southern owns 83% of Janus Capital, its crown jewel. With more than $100 billion
in assets under management, Janus could be worth much of Kansas City Southern's
share price. During the period, Kansas City Southern announced it would spin off
its financial services businesses to shareholders.
Going forward, we anticipate U.S. equity markets will present opportunities, as
many companies' failures to achieve earnings estimates dampens investor
exuberance. In Europe, we expect an exciting six months as the continent
prepares for the limited introduction of the euro. While it may be years before
the success or failure of the new system is known, we expect mistakes to occur
and hope they force greater flexibility on the system, as well as offer us
investment opportunities in the process. We also seek to find bargains created
by Asia's economic turmoil. Despite the markets' ups and downs, we intend for
our investments to be consistent with the portfolio's lower risk, lower
volatility philosophy.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Natural Resources Securities Fund
Led by technology, financial services and health care companies, the U.S. stock
market performed strongly during the six months under review. However, Asian
economic and political turmoil raised investor concerns about future demand for
a wide range of commodities including energy, chemicals, steel and paper.
During the reporting period, we made investments based on more than the
assumption that commodity prices would rise or fall. We attempted to purchase
shares of firms with efficient, technologically advanced operations that we felt
would prosper even in a weak environment wherein commodity prices were flat or
declining.
Throughout the reporting period, many natural resources companies attempted to
diversify their asset bases and develop economies of scale by consolidating. One
of our holdings, United Meridian Corp., merged with Ocean Energy Inc., creating
a leading independent producer of oil and gas. In the paper and forest products
sector, another holding, Bowater Inc., acquired Canadian-based Avenor and
Korean-based Halla Paper, creating a low-cost global newsprint business. Placer
Dome Inc., one of our positions in the precious metals sector, announced it was
taking a stake in Vengold, which has exposure to vast gold reserves in Lihir,
Papua New Guinea.
Energy-related industries, our largest sector weighting on June 30, 1998, at
57.3%, contributed significantly to the fund's performance, as the value of our
holdings in Varco International Inc., Atwood Oceanics Inc. and Transocean
Offshore Inc. appreciated considerably. Varco profited from rising sales of
hardware that makes oil and gas drilling safer and more productive. Atwood
Oceanics and Transocean Offshore, global leaders in deepwater drilling projects,
experienced increased demand for their premium rigs.
As in all reporting periods, some positions hindered the portfolio's
performance. Crude oil prices declined significantly due to reduced demand in
Asia, higher levels of OPEC production, the return of Iraqi oil to the world
market, and a warmer-than-normal winter season in much of the northern
hemisphere. Consequently, our shares of Nuevo Energy Co. and Gulf Canada
Resources Ltd., two exploration and production companies, fell in value. Our
focus in this sector remains on companies with superior asset bases, low-cost
operations, and attractive reserve and production growth profiles, which should
contribute to providing significant, long-term returns.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, we anticipate a period of balanced supply and demand conditions
for a wide range of natural resources in the near future. If these conditions
occur, in our opinion, they should lead to moderate growth and sustained levels
of profitability for low-cost producers in commodity-related industries.
Small Cap Fund
During the six-month period ended June 30, 1998, interest rates declined,
domestic equity markets soared, and a robust U.S. economy avoided meaningful
inflationary pressure. These conditions provided an excellent environment for
equity markets and small-cap stocks.
Despite smaller companies' reduced exposure to overseas markets (compared with
that of larger companies), fears about Asia's economic woes put pressure on
small-cap stocks. We believe these fears caused nervous investors to search for
more liquid names, helping fuel larger stocks' exuberant performance. However,
the "Asian flu" did not cause more than sneezes in many other economies, abating
much of the market's nervousness.
We found well-positioned growth companies trading at reasonable prices across
diverse sectors. As in the past few years, however, we focused in the technology
sector, especially technology services companies offering products and services
that we believe can lower costs and increase operating efficiency. The positions
we added included i2 Technologies, Inc., a leading vendor of supply chain
management software, and Cambridge Technology Partners Inc., a premier
information technology consultant and systems integrator.
We remain optimistic about the long-term prospects of our industrial services
sector exposure, despite volatile commodity prices, which affected some stocks
during the period. One of our large portfolio positions is Varco International
Inc., a rapidly growing equipment provider for offshore drilling rigs. In our
view, Varco should benefit from capital spending by large oil and gas companies,
much of which is not commodity-sensitive.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, we believe the prospects for small-cap stocks are excellent.
Relative valuations for small caps remain well below historical averages, and we
anticipate most small companies should see little impact from turbulent overseas
markets. The domestic economy showed little sign of slowing down, and we expect
a continued favorable economic environment. We believe these conditions could
provide the opportunity for small-cap stocks, and the portfolio in particular,
to provide attractive, long-term returns.
Templeton Developing Markets Equity Fund
During the six months ended June 30, 1998, many Asian economies suffered
severely due to continuing currency crises in the region, and most emerging
stock markets around the world performed poorly. Although declines such as this
can be unsettling for many investors, we urge you not to lose heart. As you
know, we have always recommended that shareholders focus on the long term, and
we remain optimistic about the long-term prospects for developing markets.
In Asia, Thailand's stock market declined 19% during the six-month period, as
tight credit conditions and weak Asian demand hurt the country's export sector.
Increased corporate bankruptcies adversely affected the Korean stock market, and
Hong Kong SAR's Hang Seng Index fell 19% as rising unemployment and falling
property prices jarred its economy. Notwithstanding its need to achieve faster
economic growth, the Chinese government raised interest rates, avoiding renewed
instability from a currency devaluation. Consequently, China's Shanghai "B" and
Shenzhen "B" indices lost 29% and 18%, respectively, for the six months under
review.1
The "Asian contagion" also affected other emerging markets, as many investors
failed to discriminate between regions and countries. In Brazil, uncertainties
over the breakup of Telecomunicacoes Brasileiras SA (Telebras) and worries about
the budget deficit caused the Bovespa Index to remain volatile. Although
Mexico's corporate earnings for the first quarter of 1998 were positive, falling
oil prices and concern over the currency crisis' impact on Mexico's exports
negatively affected investor sentiment. During the period under review, the
Brazilian and Mexican markets declined 8% and 26%, respectively. Russia's was
one of the world's worst performing stock markets. Many investors were cautious
about the government's plans to achieve fiscal reform and improve tax collection
practice. More western aid appears necessary to achieve short-term stabilization
in Russia.
However, not all emerging stock markets fared poorly. The Greek government's
commitment to privatization, and to meeting the requirements for eventual
membership in the European Monetary Union (EMU), contributed to increased market
liquidity and healthy earnings growth, driving its stock market to an all-time
high. Portugal's stock market also benefited from the success of the strict
fiscal policies necessary to join the EMU.
1. Source: Bloomberg. Market return is measured in U.S. dollars.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
On June 30, 1998, the portfolio owned investments in 31 countries, with Brazil
being our largest country holding (11.1% of total net assets). Our largest
regional holding was Asia (31.2%), followed by Latin America (30.1%), Europe
(8.9%), and the Mid-East/Africa (5.2%). 24.6% of the portfolio's total net
assets were held in short-term obligations and other
net assets, up from 10.1% on December 31, 1997.
Looking forward, we believe there is good reason for optimism about emerging
markets' future. Brazil's privatization program is attracting foreign investors,
and the country's US$71 billion in foreign reserves could help minimize any
future pressure for an abrupt devaluation of the real.2 Also, many Mexican
companies could soon begin to report solid corporate earnings growth.
Asia still presents a problem, but there persists the discipline, hard work,
high savings and emphasis on education that helped build many Asian economies.
Thailand is creating a healthier banking system by recapitalizing its banks, and
in Korea, the elimination of foreign investment restrictions could stimulate
merger and acquisition activities, allowing companies to reduce their debt
burden. Hong Kong SAR's long-term prospects appear bright due to its strong
historical track record in crisis management. China's substantial foreign
reserves and current account surplus may be able to absorb temporary export
declines. Of course, there should be no illusions that Asia's deep-rooted
problems will be resolved easily; economic adjustments take time, and problems
are bound to arise along the way to recovery.
In our view, the recent emerging market crises represent opportunities to
purchase stocks at attractive prices. We will maintain our strategy of seeking
to identify and buy high-quality companies at distressed prices, for long-term
capital appreciation.
Templeton Global Growth Fund
The six months under review proved eventful for global investors, as price
volatility in Asian markets offset strong returns in the U.S. stock market and
growing investor enthusiasm for European equities. Asia's severe economic
contractions and collapsing currencies resulted in a flight to the safety of
U.S. and European markets, weakening Asian equities while making value in the
western world more difficult to find.
The fiscal prudence Hong Kong SAR demonstrated in the transition from British to
Chinese rule left its currency in a healthy position to weather the crises in
Asia.
2. Ibid.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Hong Kong possesses a government with no debt, overcapitalized banks, the third
largest currency reserves in the world, and corporations with stronger balance
sheets than many of their Asian counterparts. Hong Kong undoubtedly faces
sizable challenges, including an overvalued currency and inflated land prices.
However, we are cautiously optimistic about Hong Kong's long-term prospects
because of its strong historical track record in crisis management, its
well-established government structure, and the relatively low valuation of share
prices. We increased our holdings in Hong Kong during the reporting period, from
3.9% of total net assets to 5.2%. Significant purchases included Hong Kong
Electric Holdings and Hong Kong Telecom.
We remain comfortable with the portfolio's 41.6% weighting of total net assets
in European equities on June 30, 1998. Share prices rose and valuations
increased mainly because of consolidations, corporate reorganization and
converging interest rates. European economies benefited from reforms required
for European Monetary Union (EMU); however, restructuring has accelerated, not
maximized earnings growth. We added to positions where we believed this
potential was undervalued, especially in the U.K., where our 14% stake reflected
this belief. These included General Electric Co., Plc., one of Europe's largest
defense companies. In other areas, valuations appeared to run ahead of
fundamentals. Some companies in Italy and Spain experienced dramatic share price
increases with seeming disregard for some of the pricing pressures and regional
imbalances an EMU could bring. We sold INA in Italy, and Banco Santander in
Spain.
Our portfolio holdings in U.S. equities decreased slightly during the six-month
reporting period, dropping 1.2%, to bring the weighting to 21.2%. Many investors
perceived the U.S. market as a "safe haven" from Asian crises, attracting large
amounts of liquidity and driving valuations to lofty levels. In spite of strong
economic growth in first quarter 1998, U.S. corporate profit growth slowed
considerably, making high expectations difficult to fulfill for the full year,
especially in light of many Asian economies' continued deterioration. We believe
in the relative safety of undervalued securities, and seek to avoid expensive
investments.
We concentrated on buying bargain stocks regardless of their location or
industry. This approach is generally effective over long-term horizons, but
means enduring short-term periods where out-of-favor values deliver humble
performance. Despite the portfolio's large exposure to European companies, our
investments in emerging markets reduced the portfolio's overall results. We
continue to find more opportunities abroad, and while patience will likely be
tested in the near term, we believe it will ultimately be rewarded.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Equity Fund
Templeton International Equity Fund performed strongly during the reporting
period, aided by its exposure to soaring European markets and its low exposure
to sinking Asian equities. However, the portfolio's Latin American holdings and
above-average cash levels negatively impacted performance.
Asia's poor economic performance greatly influenced the course of global markets
over the six-month period. Declines in the Japanese economy and yen squelched
hopes that Asian markets might recover based on International Monetary Fund
programs to support Indonesia, Thailand and South Korea. The economic
deterioration was more than the region's stock markets could bear, and investors
evidently decided to evacuate Asia and move their money to the less volatile,
but more expensive, U.S. and European markets.
Europe's stock prices rose overall, largely in response to lower oil prices and
inflows of new money. Lower oil prices, and lower commodity prices in general,
acted as a "tax cut" for European consumers, resulting in stronger-than-expected
economic growth and corporate earnings. Moreover, inflation remained subdued,
and interest rates throughout the region synchronized at low levels in
anticipation of European Monetary Union (EMU) in January 1999.
Asia's turmoil negatively affected Latin American share prices, as many
investors failed to fully discriminate between regions and countries, and lost
interest in emerging market equities. Money flowed out of the region to find a
safer haven in the U.S. and Europe. Latin American economies face slower growth
as a result of Asia's weakness, but we believe any negative impact will be far
less serious than seen in Asia. Even if several Latin American nations were
forced to devalue their currencies, we believe the effect on the local stock
markets should not be as devastating as in Indonesia, Thailand and South Korea.
Compared with their Asian counterparts, in our view Latin American companies
have properly allocated capital and substantially lower, non-U.S.
dollar-denominated debt levels. Moreover, prior to the crises, overall share
prices of Latin American stocks were not as expensive as Asian equities.
Looking ahead, developments in Asia will continue to frame the investment
landscape. Japan may face difficulty dealing with its various economic problems
without causing higher unemployment at home and further economic turbulence in
Asia. Enormous amounts of capital must be raised throughout the region to
rebuild banking systems and corporate balance sheets. We expect many attractive
investment opportunities in Asia will become available during the restructuring
process.
We believe European stocks may have to pause for breath before they can move
sharply higher. Asia's economic problems are beginning to have a negative effect
on Europe. Moreover, Russia's financial difficulties also may have an
unfavorable impact on some European markets, notably Germany. As a result, we
are carefully analyzing our European holdings, and may reduce our positions in
favor of less expensive Asian and Latin American stocks as opportunities present
themselves. We held an above-average level of cash due to increased redemptions
and our desire to wait out the Asian crises before actively increasing our
exposure.
Although the investment climate is tenuous compared with recent years, we
believe the Asian economic crises are sowing seeds for the region's and the
world's future. If, as we expect, Asian companies become more accountable to
their shareholders, rebuild more responsible and conservative balance sheets,
and learn how to respond appropriately to market signals, investors should reap
long-term rewards. It is unclear if Asia has reached the point of maximum
pessimism, or whether the "Asian flu" will spread worldwide, but it is clear
that share prices are significantly lower in Asia and Latin America. We will
continue to take advantage of lower share prices in our effort to identify
bargain-priced stocks that we hope will fuel long-term performance.
Templeton International Smaller Companies Fund
Global stock markets experienced sharp swings during the six-month period. The
principal cause of this volatility was Asia, where economic news deteriorated,
and currencies remained vulnerable. Weakness in the Japanese yen fueled
speculation that China and other Asian countries would need to devalue their
currencies to remain competitive. The region's bellwether markets, Japan and
Hong Kong SAR, ended the period down 2% and 19% respectively.1 South Korea and
Thailand retreated sharply after rallying early in the period, following
agreements with the International Monetary Fund (IMF). At the end of the
reporting period, Asian currency issues remained unresolved, and we expect to
see further volatility during the year. We are mindful that an economic
quick-fix is unlikely, and that many companies remain in dire financial straits.
Latin American markets performed poorly during the past six months. In large
part, the region was tainted with the "Asian flu." We believe some stocks were
oversold due to fallout from the Asian financial crises, and as a result we
sought to take advantage of cheap valuations throughout Latin America. In our
view, political and economic changes point to stronger, more stable economies,
and if privatization continues, the region's competition and liquidity could
improve.
1. Source: Bloomberg. Market returns are measured in U.S. dollars.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In contrast, European markets soared. Indeed, during the reporting period, the
European component of the Morgan Stanley Capital International(R) Europe
Australasia Far East Index (MSCI EAFE) rose 27%. (Source: Standard and Poor's
Micropal) Eleven countries qualified for European Monetary Union (EMU) entry at
the Brussels summit, fueling positive sentiment about growth prospects there.
Looking ahead, Europe is likely to remain the bedrock of the portfolio. We
believe that underpinning the region's performance will likely be low inflation,
corporate restructuring, good earnings prospects, subdued interest rates,
increased market liquidity and strong capital inflows.
During the reporting period, we bought Techtronic Industries Co., Ltd. and
Varitronix International, Ltd. in an attempt to take advantage of bargains
created by Hong Kong's market decline. Both companies have attractive
valuations, promising growth prospects, are net cash positive, and have no real
estate exposure. We purchased Sovereign, Ltd., a full-service insurance firm we
believe may be a solid, long-term prospect in New Zealand's savings market. ISS
International Service System, AS, a cleaning, maintenance and related services
provider, reached our valuation target, and we sold it.
Going forward, we will continue to assess the impact of Asia's currency
devaluations, and the effect of its worsening economic conditions on companies
around the world. While we believe that recent market volatility presents
opportunities, we are cautious in our approach, seeking to limit our investments
to well-capitalized, high-quality companies where we feel the stock price may
not adequately reflect the company's long-term, intrinsic value. Although no one
can reliably predict the direction of the markets in the near term, we are
confident that our disciplined approach to identifying undervalued small cap
stocks should reward long-term investors.
Templeton Pacific Growth Fund
Since the unraveling of the Pacific Rim economies in the last quarter of 1997,
Asia's stock markets experienced extreme volatility. Although many markets
rallied early in the year, political uncertainty in Indonesia, and the worsening
of Japan's economic fundamentals renewed fears that Pacific Rim economies will
take several years to recover. India and Pakistan exploded nuclear devices,
adding to the region's instability.
Asian markets performed poorly during the six-month period, in both absolute and
currency-adjusted terms. Hong Kong SAR, Singapore, and Malaysia were down 19%,
30%, and 27% respectively, during the period under review.1 Uncertainty and an
extremely bearish attitude toward Asia cloud long-term perspectives. Looking
beyond the crisis, we believe our stock choices should prove correct.
1. Source: Bloomberg. Market returns are measured in U.S. dollars.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Despite favorable stock market performance in the beginning of the year, we
believe Japanese companies present few bargains for value investors. While the
market showed slightly positive returns, in our view they were generated not by
solid company fundamentals, but by domestic price-keeping operations that
artificially inflated the stock market. We do not believe this is a sustainable
activity. Lack of disclosure, labor inflexibility, and the government's weak
political will, despite the surrounding turmoil, suggest to us that Japan's
economy may continue to languish.
We maintain our belief that Hong Kong SAR and Singapore remain the most
structurally sound economies in the region. Strong bankruptcy laws in these
countries should force failing companies into insolvency in a timely manner. In
addition, we believe these governments possess the resolve to fend off currency
speculation, as the Hong Kong government demonstrated when it raised interest
rates to defend the peg to the U.S. dollar. Once Asia turns the corner, we
believe these are likely to be the first markets to take off.
While the Chinese economy faces a slowdown in export growth and significant
structural reform, the cost of labor remains lower in China than anywhere in the
region. This factor, coupled with China's rising foreign exchange reserves,
should provide a strong buffer against the specter of devaluation. We are
cheered by the new, financially savvy regime in China, and maintain similar
optimism toward the South Korean government.
These premises drove our investment decisions throughout the turmoil. We added a
position in Hong Kong Ferry Holdings Co. Ltd. Within Japan, we increased our
positions only in companies where we perceived hidden value, or strong,
long-term earning potential. Hence, we added to positions in Okamura Corp., and
Toei Co. Ltd., but trimmed exposure to East Japan Railway Co. Seeking to take
advantage of the Thai market's strong rally, we became net sellers. Looking
forward, we expect to find value in New Zealand and Australia as a result of the
precipitous declines in their currencies and commodity prices.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolios Seeking Growth and Income
Global Utilities Securities Fund
(Prior to May 1, 1998, the Utility Equity Fund)
Global Utilities Securities Fund performed strongly over the six-month reporting
period. Several of the portfolio's top holdings rose significantly. Enron Corp.,
the portfolio's largest holding (5.2% of total net assets), returned just over
31% since January 1, 1998. Another notable position, ICG Communication Inc.
(3.6%), returned over 34% for the six-month period ended June 30, 1998.1
The electric utility industry, which comprised 65.7% of the portfolio on June
30, 1998, showed signs of improvement as issues surrounding deregulation were
clarified, and several states completed their deregulation plans. Global
Utilities Securities Fund focuses its investments on electric utility companies
we believe will do well in a competitive environment. These companies generally
have low-cost operations, strong management teams and domestically and
internationally diversified businesses. Our three largest electric utility
holdings are Southern Company, Duke Energy and FPL Group Inc.
The telephone sector, representing 22.7% of the portfolio, experienced healthy
performance over the past six months. Strong demand growth and merger activities
continued within the industry, fueled by the Telecommunications Act of 1996,
which allows companies to expand their businesses into new areas. We still find
many attractive opportunities domestically and internationally within the
telecommunications sector. Some of the largest holdings include ICG
Communications Inc., Telecom Italia SpA and AirTouch Communications Inc.
Natural gas stocks, 9.2% of total net assets, were relatively flat due to
warmer-than-normal weather patterns and resulting low commodity prices. The
first six months of 1998 were very difficult for natural gas distribution and
pipeline companies alike. As a result, the average stock in this segment fell
approximately 6% during this period. Looking forward, we believe financial
results should improve by the fourth quarter 1998. The final three months of the
year usually account for up to 50% of earnings due to the seasonal pattern of
natural gas consumption. Further, we anticipate that continued consolidation in
this segment will drive stock prices higher over the longer term. Significant
investments in this group include Enron Corp. and MCN Energy Group, Inc.
1. Source: Bloomberg.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Foreign stocks made up 19.3% of the portfolio on June 30, 1998, with the
majority of the positions in Europe and the U.K. Strong equity growth occurred
as the European markets rallied due to the pending formation of the European
Monetary Union (EMU). We expect that these markets should remain strong as
Europe emerges from recession, and the release of the pent-up demand for
telecommunications services enables many European telephone stocks to increase
earnings.
The economic crises in Asia had minimal effects on the portfolio, as Asian
holdings made up only 1.6% of total assets. The portfolio was underweighted in
Asia for a few years because we believed that valuations there were too high. We
are currently monitoring Asian equity valuations in light of the recent
downturn, and may take advantage of the lower stock prices as opportunities
arise. We seek bargains in all regions of the world, but will not make
investments in volatile regions unless we feel the rewards outweigh the risks.
For this reason, we have not increased the portfolio weighting in Asia amidst
the region's economic uncertainty.
Latin American stocks suffered as a result of the Asian crises. Latin America
made up just 5.2% of the portfolio's total net assets, and therefore these
stocks' performance did not have a major impact on the overall return during the
period. We are reluctant to add Latin American positions for the same reasons we
are reticent in Asia. However, because these stocks are much cheaper now then
they have been in past years, we may add positions as opportunities arise.
Looking forward, worldwide demand for telecommunications, electric power, gas,
water and other utility services is accelerating. Many foreign countries are now
building infrastructures that will produce high levels of revenue growth for
many years into the future. While it is impossible to predict future returns, we
believe that many of the demographic, economic and social factors that
contributed to the portfolio's strong performance should be in place for years
to come.
Growth and Income Fund
The U.S. stock market advanced during the reporting period, driven by solid
economic growth, lower interest rates and a benign inflationary environment.
Corporate profits increased during the first half of 1998, albeit at a slower
rate than the previous six months. Weakness in Asia began to affect earnings of
U.S. multinational companies, leading to increased stock market volatility.
We invest in stocks of companies that we believe are selling at attractive
valuation parameters such as dividend yield, book value, cash earnings and
revenues. This strategy generally entails buying a company or sector that is out
of favor due to depressed fundamentals or market uncertainty. Recently, this
became more challenging, as general market valuations rose to the higher end of
their historical ranges. For example, the average dividend yield for companies
comprising the S&P 500 Index was near a historic low of 1.45% on June 30, 1998.1
One area where we found solid value during the period was the real estate
sector. We believe that over the next two years, most real estate investment
trusts (REITs) could experience earnings and dividend growth rates exceeding
that of the average S&P 500 company. In response to low relative valuation
measures, we added to existing positions and initiated new investments in Arden
Realty Inc. and Glenborough Realty Trust, Inc., which yielded approximately 6%
at the time of purchase. REITs now represent 6.6% of the portfolio's total net
assets, compared with 5% on December 31, 1997.
Other attractive investment areas included utilities and major oil companies.
Electric utilities, representing 11.5% of total net assets on June 30, 1998,
recently experienced improved relative performance. Despite market uncertainty,
industry deregulation implemented by various states was, for the most part,
favorable to utility investors. We also anticipate national legislation that
eventually could lead to industry consolidation. Oil prices dropped to their
lowest levels in real terms since World War II, adversely affecting energy
stocks. We believe the decline in oil prices will be temporary, and growth
prospects for major energy companies remain strong. We added to existing energy
positions, which represent 15.4% of total net assets at the close of the period.
The portfolio's consumer related stocks, such as automobiles and retailers,
performed very well during the reporting period. Low unemployment, low interest
rates and high consumer confidence led to better-than-expected spending patterns
in these sectors. Insurance, pharmaceutical and certain telephone stocks, solid
performers in 1997, continued their strong relative performance during the
period. We sold stocks such as Dial Corp., Bristol-Myers Squibb Co. and France
Telecom SA as they reached our price targets.
The reporting period was marked by significant merger and acquisition activity
for investments held in the portfolio. Five positions -- Banc One Corp.,
Chrysler Corp., Beneficial Corp., insurer Mid Ocean Ltd. and Southern New
England Telecommunication Corp. announced agreements to merge or be acquired at
higher prices than we bought them. Freeport McMoran Copper & Gold Inc. did not
meet our expectations, and we sold it at a loss.
Looking forward, we anticipate higher levels of financial market volatility in
the year ahead. We believe the portfolio's contrarian nature is well-positioned
to take advantage of volatility as various stocks fall in and out of favor, and
that this disciplined, value approach should continue producing consistent and
favorable long-term results.
1. Source: Standard and Poor's Micropal.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Income Securities Fund
The U.S. stock market climbed during the six-month reporting period, driven
primarily by strong economic growth, benign inflation, and historically low
interest rates. Although the bond markets initially reacted negatively to
reports of strong economic growth, U.S. Treasury bonds rallied toward the end of
the period on signs of slowing economic growth and a flight to quality from the
Asian crises. Bond markets also benefited from reports of low inflation and the
potential for a U.S. government budget surplus.
The fund's stock weighting remained steady at 46.6% of total net assets during
the period, while bonds declined to 49.0% from 49.7%, and cash decreased to 4.3%
from 4.7% of total net assets.
Corporate bonds, our largest fixed-income weighting, performed solidly during
the period. Investment grade companies acquired several issuers of the fund's
positions, including Ralphs Grocery, Food 4 Less and Americold, helping this
performance. As a result, our bonds appreciated and subsequently were called or
tendered at attractive levels above par. Despite record issuance of corporate
bonds, we remained selective, initiating new positions in solid companies such
as Denbury Resources (Energy) and Nextel Communications Inc.
(Telecommunications). New investments did not keep pace with calls and tenders,
leading to an overall reduction in the fund's corporate bond weighting, which
decreased from 22.5% to 18.8% over the reporting period.
Increased volatility in foreign stock and bond markets weakened the portfolio's
foreign bond positions toward the end of the period. However, the majority of
the portfolio's foreign bonds were U.S. dollar-denominated, and therefore less
susceptible to volatility from foreign exchange-rate movements. In April, we
initiated a position in U.S. dollar-denominated Republic of Korea bonds, which
we believe offer solid total return potential related to the government's
economic and political reforms.
We added to the fund's U.S. Treasury holdings at attractive levels during the
period, as we believed inflation should remain subdued, and the U.S. government
would achieve a budget surplus. As a result, U.S. Treasury bonds represented
11.3% of total net assets on June 30, 1998, compared with 9.1% at the beginning
of the year.
The fund's equity sectors provided mixed results during the past six months.
Utility stocks, representing the fund's largest equity sector, rebounded from
initial weakness to post a solid gain during the period. We believe utility
stocks are an attractive sector due to their high yields relative to the stock
market, low relative valuations, and improving opportunities for growth.
The real estate sector experienced weakness during the period. However, we
believe REITs (Real Estate Investment Trusts) offer visible cash flow and
dividend growth, and attractive valuations relative to their underlying
properties and the stock market. Consequently, we initiated three REIT
convertible preferred stock positions in Innkeepers USA Trust, specializing in
hotels, Glenborough Realty Trust, owner of a diverse mix of property types, and
Reckson Associates Realty, one of the largest owners and operators of Class A
suburban office and industrial properties in the New York tri-state area.
Energy stocks fell during the period as a result of lower oil prices. Long term,
we believe energy prices can recover, and therefore initiated a position in
Chesapeake Energy Corp. and added to existing positions in EVI, Inc., Lomak
Petroleum, and Nuevo Energy. These convertible preferred stocks offer high
dividend income and participation in the underlying common stocks at
historically attractive valuations.
We remain selective with respect to new investments amid historically high
valuations for the overall stock market and record issuance of corporate bonds.
However, we will continue to be opportunistic and utilize fundamental research
in our search for investment opportunities across markets. As always, we remain
committed to our value-oriented approach, seeking income and growth from a
diversified mix of stocks, bonds and cash.
Mutual Shares Securities Fund
Mutual Shares Securities Fund seeks capital appreciation by investing in
domestic and foreign equity securities, including common and preferred stocks,
and securities convertible into common stocks, as well as in debt obligations of
any quality. On June 30, 1998, the portfolio had 75.6% of total net assets
invested in equity securities, 4.3% in fixed-income securities, and the
remaining 20.1% in short-term and other securities. Of course, these holdings
will change as conditions warrant.
The U.S. stock market's robust advances during the reporting period made it
difficult to find cheap stocks. However, our search for value revealed a number
of substantial opportunities. Dow Chemical Company, the world's fifth largest
chemical company, embarked on an extensive restructuring and investment program.
We believe the resulting higher earnings and cash flow should provide financial
flexibility to make further investments and repurchase stock. As the benefits
from such initiatives become clearer, we expect the gap between the stock price
and the company's asset value to narrow.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Another chemical company, W.R. Grace & Co., underwent a massive, multi-year
restructuring of its business portfolio. The "new" Grace emerged as a smaller,
highly focused, specialty chemical company with a strong balance sheet. We
expect the recently announced acquisition of Crosfield will strengthen the
company's position in catalysts, a business we believe is likely to show
improving results relative to the weak levels of recent years.
Strong European stock market gains, recorded largely in expectation of the
European Monetary Union, made value in the region increasingly scarce. However,
we believe the U.K.'s Railtrack Group Plc., which owns almost all of Britain's
railway infrastructure, including track signaling, bridges, tunnels, stations
and depots, represented good value. Improvements in all aspects of their
railroad, and efforts to develop their real estate should provide healthy
long-term performance.
Going forward, we anticipate U.S. equity markets will present opportunities, as
many companies' failures to achieve earnings estimates dampen investor
exuberance. In Europe, we expect an exciting six months as the continent
prepares for the limited introduction of the euro. While it may be years before
the success or failure of the new system is known, we expect mistakes to occur
and hope they force greater flexibility on the system, as well as offer us
investment opportunities in the process. We also seek to find bargains created
by Asia's economic turmoil. Despite the markets' ups and downs, we intend for
our investments to be consistent with the portfolio's lower risk, lower
volatility philosophy.
Real Estate Securities Fund
The real estate industry benefited from strong demand for residential and
commercial space, yet real estate stocks performed poorly during the reporting
period. Most real estate companies reported strong growth in cash flow from
operations, as overall industry growth and consolidation trends continued.
However, high levels of REIT stock issuance and possible legislative changes in
the tax treatment of "paired-share" REITs negatively affected investor sentiment
and contributed to a lag in REIT stock prices.
Throughout the reporting period, we remained committed to our strategy of
focusing on property types and geographic regions with strong supply and demand
fundamentals, while attempting to identify those management teams with the
ability to add value through intensive property management and capital markets
experience. In keeping with this strategy, we maintained the majority of the
portfolio's investments in hotel, apartment, office and industrial properties,
where we anticipate the strongest cash flow growth and attractive stock
valuations.
Equity real estate investment trusts (REITs) are real estate companies that own
and manage income-producing properties such as apartments, hotels, or office
buildings. "Paired-share" REITs allow the combination of a property and
operating company within the same entity, for tax purposes.
At the end of the reporting period, the hotel sector was the portfolio's largest
property-type weighting, representing 19.4% of total net assets. Two of the
portfolio's largest positions, Starwood Lodging Corp. and Patriot American
Hospitality Inc., are hotel REITs with the unique "paired-share" tax structure.
Although these stocks weakened, partly due to probable changes in their tax
structure, we believe these two companies should retain their excellent growth
prospects and compelling valuations under any REIT structure.
The apartment sector was the portfolio's third-largest property-type weighting
at 17.0% of total net assets. This sector experienced rapid consolidation over
the six-month reporting period, as more than half the portfolio's apartment
companies announced or completed mergers last year that should reduce overall
operating and financing costs. While this sector's supply and demand
fundamentals are near equilibrium, valuations are attractive relative to other
sectors, and we expect steady cash flow growth. The portfolio's largest
positions in the apartment sector as of June 30, 1998, are Equity Residential
Properties, Camden Property Trust, and Security Capital Atlantic.
In the office and industrial sectors, we added a new position, Cabot Industrial
Trust. The company's existing properties coupled with attractive acquisition
opportunities offer excellent long-term growth potential. At the same time, we
sold the portfolio's position in Tower, a New York office REIT that did not
offer the appreciation potential of some of its peers. The portfolio's office
and industrial sector weightings represented 10.8% and 5.4% of total net assets
respectively, as of June 30, 1998.
The portfolio's homebuilding and manufactured homes sectors significantly
appreciated during the reporting period due to lower interest rates and record
levels of home buying nationwide. Consequently, the valuations on homebuilders
approached historically high levels, and we sold the portfolio's positions in
Beazer Homes, Belmont Homes, NVR Inc. and U.S. Home Corp.
Looking ahead, the unique combination of steady growth and favorable valuations
in the current market environment offers prospects for strong real estate
industry performance, in our opinion. Long term, we are committed to real estate
stocks and REITs, as this sector of the market continues to grow in
capitalization and diversity. In addition to our direct experience in real
estate and real estate securities management, our team of over thirty equity and
credit analysts is well-positioned to evaluate the merits of new REITs being
formed by a variety of U.S. corporations. We continue to focus on premier real
estate companies that we believe can create significant cash flow growth and
shareholder value.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Rising Dividends Fund
Our investment strategy is based on our belief that companies with consistently
rising dividends should, over time, also realize stock price appreciation. We
select portfolio securities based on several criteria. To be eligible for
purchase, stocks must pass certain investment "screens," or screening
procedures, requiring consistent and substantial dividend increases, strong
balance sheets and relatively low price/earnings ratios. We seek fundamentally
sound companies that meet our standards, and attempt to acquire them at
attractive prices, often when they are out of favor with other investors.
During the six-month reporting period, the stock market benefited from an
economic environment characterized by solid growth, low inflation and falling,
long-term interest rates. The composition of economic growth changed, however.
While consumer activity was robust, the manufacturing sector slowed.
Consumer-oriented stocks benefited from Asia's economic problems, which were
widely cited as a leading reason for the significant fall in long-term Treasury
bond yields in the past fifteen months. However, global competition from Asian
companies, and disappointing sales to the region hurt manufacturers. In general,
consumer-oriented stocks performed better than stocks of manufacturers during
the period.
A striking feature of the reporting period was large capitalization stocks' much
stronger performance relative to medium- and small-capitalization stocks. The
consumer orientation of many large-cap stocks partially explained this
outperformance. Another factor was the decision of many global investors to
reduce exposure to Asia and move their money to the safer U.S. markets. Much of
this money flowed into the largest and most liquid U.S. stocks.
Retailers were standout performers during this period, particularly large-cap
Wal-Mart Stores, Inc., one of the portfolio's positions. Domestic sales were
strong in all of Wal-Mart's formats, and international prospects continue to be
promising. Other significant retail holdings in Rite Aid Corp.; The Limited,
Inc.; and Family Dollar Stores, Inc. also performed well.
Another particularly strong performer was Allied Group, Inc., a property and
casualty insurance company. Allied agreed to be acquired by Nationwide Mutual at
a substantial premium to its previous trading range.
Manufacturing-oriented companies such as Hanna (M. A.) and Watts Industries,
Inc. lagged during the period. Negatively impacted by the industrial slowdown,
both companies had weaker-than-expected quarterly earnings. Two other
disappointing stocks were Dimon, Inc. and Wallace Computer Services, Inc. Dimon,
a tobacco leaf processor, experienced shipment delays to Asian cigarette
manufacturers. Wallace reported very weak quarterly earnings due to pricing
pressures in certain product categories, despite relatively strong unit volume
growth.
We added three new positions to the portfolio during the period, Diebold, Inc.,
Reynolds Co. and Schultz Sav-O Stores, Inc. Diebold, which makes card-based
transaction systems, has an exceptional record of 45 years of annual dividend
increases. Although earnings slipped as a result of slowing orders, Diebold is
positioned for long-term growth from the increasing use of automation to deliver
consumer products and services. Reynolds is a leading provider of information
management systems used primarily by automobile dealerships. Schultz Sav-O
Stores owns and operates retail grocery stores in eastern Wisconsin and
northeastern Illinois, and is a wholesale grocery distributor.
Other significant additions to the portfolio included Pall Corp.; West Co.,
Inc.; Bemis Company, Inc.; and Wallace Computer Services, Inc. Pall makes
fluid-filtration devices for a variety of industries including heath care.
West's products are used in the packaging and delivery of health care products.
Bemis is a leading manufacturer of flexible packaging for food industry use.
Wallace, although a disappointing performer during the period, is
well-positioned as a provider of office supply management services to large
organizations.
We eliminated positions from the portfolio including Merck & Co., Inc. and
Stanhome, Inc. Merck became less attractively valued than alternative
investments. Stanhome, now known as Enesco Group, Inc., failed to meet the
portfolio's dividend requirements.
Notable year-over-year dividend increases during the past six months came from
Cohu, Inc. (+33.3%), Nucor Corp. (+20%), First Union Corp. (+31.3%), Leggett &
Platt, Inc. (+23.1%), Mercury General Corp. (+20.7%), National Commerce Bancorp
(+45.5%), and Alberto-Culver Co. Class A (+20%).1
As shown in the table, our 10 largest positions on June 30, 1998, comprised
29.1% of the portfolio's total net assets. It is interesting to note how these
10 companies would, in the aggregate, respond to the portfolio's screening
criteria based on a simple average of statistical measures. On average, these 10
companies have raised their dividends 19 years in a row and by 365% in the last
10 years. Their most recent dividend increases averaged 20%, for a yield of 1.8%
on June 30, 1998, and a dividend payout ratio of 34%. Long-term debt averaged
21.5% of capitalization, and the average price/earnings ratio was 19.4, versus
27.1 for that of the unmanaged Standard & Poor's 500 Stock Index on the same
date. While future results may differ, we think these companies are
representative of the portfolio's fundamentally high quality. We also believe
that, over the long term, companies that increase cash payments to shareholders,
year after year, will be superior builders of wealth.
1. Source: Bloomberg.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Asset Allocation Fund
Volatility in global markets characterized the six-month reporting period. Japan
announced that it is "officially" in a recession, according to its first
quarter, annualized Gross Domestic Product (GDP) figures. These showed a GDP
quarterly decline of 1.3%, and qualified as a recession based on Japan's two
consecutive quarters of negative growth.1 Japan's first recession since the oil
shock of 1974 turned investor sentiment sharply negative. The Nikkei Stock Index
momentarily dropped under 15,000, and the yen hit an eight-year low of 145
versus the U.S. dollar. Near the end of the reporting period, Japan's economy
was bolstered by the U.S. intervention to buoy the yen. The Nikkei recovered
slightly, and the yen strengthened to 138 versus the dollar, due to U.S.
government support.1,2
The world's emerging markets are watching the yen for signs of continued
weakness. A further decline could put pressure on China to devalue its currency
and retain competitiveness. In turn, this would threaten the safety of the Hong
Kong SAR dollar peg and could result in another Asian currency meltdown.
Although the portfolio has only 2% of assets in Japan, the interconnected
economies of Southeast Asia furnish few places to hide from risk. We took
advantage of market declines, however, by purchasing additional shares of
companies selling at what we considered attractive valuations, as a result of
the currency crises. We also initiated positions in other companies whose stock
prices, in many cases, were more than 50% below their peaks prior to the crises.
Other emerging markets such as Brazil and Russia had relatively over-valued
currencies and came under pressure. In May, the Morgan Stanley Capital
International Emerging Market Index recorded its third worst month since August
1990, as liquidity was sucked from these markets and transferred into the U.S.
and Europe.3 This had an adverse effect on the portfolio's performance, as 12%
of the portfolio's equity holdings were in emerging markets.
Although more volatility in Asia and emerging markets is likely, we think the
corrections were overdone. Our focus on value means that we carefully attempted
to augment small, emerging market positions in Brazil and Russia. For example,
Brazil was recently trading at only seven times 1999 U.S. dollar earnings
estimates, according to Morgan Stanley, and these earnings are expected to grow
by 18%. Furthermore, improving fundamentals in Latin American equity markets
contrasted with stock prices there. We believe some stocks were oversold due to
the Asian financial crises, and as a result we sought to take advantage of cheap
valuations throughout Latin America. In our view, political and economic changes
point to stronger, more stable economies, and if privatization continues, the
region's competition and liquidity could improve.
1. Source: Bloomberg.
2. Source: Lexis-Nexis.
3. Source: Standard and Poor's Micropal.
The U.S. stock market continued to rally, albeit at a reduced pace. Expectations
of a greater fall-out from Asia on industrial and high-tech exporters held back
U.S. markets from stronger performance. However, we believe that earnings
expectations are too high in the U.S., and that a combination of high wage costs
and reduced pricing power will squeeze corporate profits. Pre-tax profits for
U.S. companies dropped 1.8% in first quarter 1998, after a 2.1% decline in
fourth quarter 1997. This was the first two-quarter drop since the 1990-91
recession.4 We believe that profit projections for the future are overly
optimistic, and many companies will find that the market will correct them.
Due to overvaluation, we trimmed some of our domestic holdings, and the
portfolio now has 14% of its equity exposure in the U.S. However, given the
balanced nature of the portfolio, we benefited from a flight to quality from
Asia into U.S. Treasury bonds, where the portfolio holds 6% of its assets. Price
appreciation on the 30-year Treasury bond recently drove yields down to record
levels of 5.6%.
We remain comfortable with the portfolio's 21% weighting of total net assets in
European equities, which benefited from converging interest rates, corporate
restructuring and economic growth. Cost-saving consolidations (particularly in
the banking, insurance and pharmaceutical sectors) continued to lock in value
for shareholders and improve share prices during the reporting period. We added
to positions in the U.K., which we believe will gain from the introduction of
the euro, continued corporate restructuring, or their focus on shareholder value
and reasonable valuations. As of June 30, 1998, we have 8% of the portfolio's
total net assets in U.K. equities, trading at an average of 14 times 1999
earnings estimates, and yielding approximately 4%.
As developments from the Asian crises unfold, we will remain cautious but
committed to uncovering values worldwide for the portfolio. We will continue to
utilize our diligent, bottom-up research style in an effort to unearth companies
with strong fundamentals whose share prices were unduly penalized because
investors failed to distinguish them from their less stable peers. If countries
like Thailand, Korea and the Philippines restructure and reform, some companies
in those areas may provide excellent, long-term value. In Europe, we are
optimistic about the potential benefits that a single European currency could
offer to participating economies. And in the U.S., we are confident that if
companies continue to restructure their businesses, investors will be rewarded.
In times of uncertainty and volatility it is important to maintain discipline
and avoid short-term, negative sentiment and noise. We search daily for bargains
around the world, following a process developed over 50 years of international
investing.
4. Source: Bloomberg.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Value Securities Fund
Value Securities Fund was launched on May 1, 1998, to invest in the securities
of companies that we believe are undervalued. The portfolio seeks to buy
companies that we view as bargains, which can come in a variety of styles and
sizes. Some are so obscure and small as to be off the radar screen from most
market analysts. Others are well-known, large-cap stocks experiencing dramatic
drops, often due to only one bad quarter. These are what we call "fallen
angels." Some value stocks trade at extraordinarily low prices relative to
visible net assets; in many cases it is possible to buy a healthy company at or
below such value and pay very little for hard assets like land, minerals and
timber, whose potential sales value is unknown, but obviously substantial.
Other stocks can be purchased at surprisingly low prices relative to earnings or
cash flows. Frequently, the stocks we perceive as bargains have a cloud hanging
over them. It could be an out-of-favor company or industry, an ineffectual
management team, or a passive board of directors. Our job is to work at
determining whether the problem is correctable.
At times, companies of interest to us are in a turnaround mode and trading at
prices that say more about the seller's emotions than about what we are buying.
Turnarounds do not proceed on schedule, and we frequently must conclude that we
are early. Our attention to a business's balance sheet and cash flow buys us
time to wait out our disappointments.
As of June 30, 1998, the portfolio's largest position was Cliffs Drilling Co.,
an international operator of oil and gas drilling rigs in the Gulf Coast,
Venezuela and the Middle East. At recent levels, the stock sold at only 5.3
times 1998 earnings estimates, and 3.9 times cash flow. Depressed oil prices
have caused the stock price to drop during the period, from a high of $55.75 to
just under $33 on June 30, 1998. When oil prices return closer to their historic
norms of $20 per barrel, Cliffs Drilling should benefit significantly.
Nuevo Energy Co., our second-largest holding, is an oil and gas exploration and
production company. Largely oil-based, the company's shares have suffered with
severe oil price weakness during the reporting period. Because the company is
one of the industry's lowest cost producers, improvements in oil prices should
have a substantial impact on the company's cash flow and earnings. The company
stands a very good chance of obtaining a meaningful state lease adjacent to its
leased federal field in offshore California. The stock sells at less than nine
times 1998 cash flow and five times estimated 1999 cash flow.
The third-largest position, Ladish Co., Inc., headquartered in Cudahy,
Wisconsin, manufactures highly engineered, forged components for the jet engine,
commercial aerospace and defense markets. The company's products include
compressor and turbine discs, jet engine casings, landing gear components and
helicopter rotor parts. Primary customers include GE, Rolls Royce, Pratt &
Whitney and Boeing. The stock is depressed because of recent concerns about the
longevity of the aerospace cycle and concerns about profitability at Boeing.
During the period, the stock traded at less than seven times 1999 earnings
estimates, and about 4.5 times 1998 cash flow. The company has a solid backlog,
has improved its balance sheet considerably, and in our view, represented good
value at these levels.
The only identifiable catalyst for our buying decisions is the mispricing of
assets or cash flow. We look for gains to come in one of three ways. First, the
market's appraisal of the firm may change. The stock will be bid up to levels we
think appropriate, and we exit. Second, the value disparity stays the same or
increases, and a competitor or other strategic buyer launches a takeover bid,
which again, drives up the price. Third, nothing changes except that the
intrinsic value increases over time. If that happens, we will stay with a strong
balance sheet indefinitely, since we can't predict when lightning will strike.
We can also be wrong, of course, and end up with a loss. Obviously, there are no
guarantees. However, we are confident in our approach of buying good companies
when they are out of favor, and having patience until their value is recognized
by other investors.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolios Seeking Current Income
High Income Fund
During the six months under review, market conditions remained favorable for
high yield bonds, as key market indicators reached all-time peaks. The yield on
the 30-year Treasury bond fell from 5.93% on December 31, 1997, to 5.62% on June
30, 1998, while the Dow Jones Industrial Average increased from 7908 to 8952
over the same period.1 The economic outlook was also positive. Moderate economic
growth with subdued inflation, improving corporate profits and declining
interest rates contributed to favorable high yield corporate bond performance.
In making sector allocation changes during the reporting period, our objective
was to increase exposure to industries that should have limited downside risk
during economic decelerations. Within telecommunications, we favored companies
with the ability to capitalize on the industry deregulation initiated through
the 1996 Telecommunications Act. Part of this strategy involved maintaining
healthy exposure to competitive local exchange carriers (CLECs), which we
believe are successfully taking share from the baby bells and are
well-positioned for future consolidation. We also initiated new positions in
Global Crossing Holding, Ltd. and Level 3 Communications, two companies who
construct high quality fiber optic networks.
Wireless communications remained our top investment sector, reflecting our
belief in the industry's strong growth prospects, despite burgeoning
competition. We favored market leaders such as Sprint Spectrum L.P. and Nextel
Communications, Inc. in mobile telephones, and Paging Network, Inc. in paging
services. Standout performers in the wireless communications industry over the
past six months included portfolio holdings Sprint Spectrum, which announced it
would become majority controlled by Sprint Corporation, and Sygnet Wireless,
Inc., a rural cellular telephone provider somewhat insulated from competition.
We increased our exposure to the media and gaming & leisure sectors, which may
benefit from current merger activity. Representative new portfolio positions in
these sectors include Six Flags Theme Parks, which is owned by Premier Parks
Inc., a consolidator in the theme park industry, and Regal Cinemas Inc., a
consolidator in the movie theater industry.
Across industries, we remained focused on securities that we expect to benefit
from positive corporate events and/or improving credit profiles. Merger and
acquisition activity, or other promising corporate events over the review period
positively impacted several portfolio positions, including Showboat, Purina
Mills Inc., Ralphs Grocery, Coca-Cola Bottling and Borg-Warner Security Corp.
1. Source: Bloomberg.
Conversely, we reduced our holdings in the cable television and health care
services industries. In cable television, we primarily took profits in issues
whose solid appreciation reflected consolidation activity, while in the health
care industry, Tenet Healthcare Corp. represented another opportunity for
profit-taking.
In our view, the outlook for the high yield corporate bond market in general,
and the portfolio specifically, seems promising. Recent volatility in the Asian
markets will likely preclude a near-term change in policy from the Federal
Reserve Board, while economic expansion, which has remained solid through the
second quarter, suggests continued growth in corporate profits. This should, in
turn, lead to improving corporate profiles. Should these trends persist, we
believe corporate high yield bonds will perform favorably.
Templeton Global Income Securities Fund
Interest rates fell for the balance of the reporting period, reflecting investor
belief that Asia's instability would make industrial country central banks less
likely to raise interest rates, despite strong growth in their domestic
economies. However, there were exceptions of higher global interest rates near
the end of the period, based on the increased probability that major central
banks would possibly tighten monetary policy toward the end of 1998.
During the period, we focused on heightening the portfolio's interest rate
sensitivity by increasing the average maturity of U.S. and European holdings.
Average maturity of U.S. holdings increased from 7.6 years to 8.4 years, and the
average maturity of European holdings increased from 3.4 years to 5.8 years
during the period. Also, we increased use of foreign currency hedges, in an
effort to protect the value of the portfolio's European positions. Hedging
activity increased toward the period's end, when perceptions of U.S. economic
prospects improved, and the U.S. dollar rallied against the German mark and
other European currencies.
Going forward, we believe the outlook for global bonds is positive, as inflation
generally drives interest rates, and inflation prospects remain low. However,
European and U.S. growth is very strong, raising the possibility that interest
rates will temporarily move higher before declining over the balance of the
year. We anticipate the U.S. dollar will remain firm, until the U.S. current
account deficit weakens significantly, which may occur later in the year. We
intend to maintain our focus on global government securities, which we feel
offer maximum returns with reduced risks.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Q: How does a CURRENT ACCOUNT DEFICIT differ from a TRADE DEFICIT?
- --------------------------------------------------------------------------------
A: The trade deficit is an excess of imports over exports, resulting in a
negative balance of trade. The balance of trade is made up of transactions in
merchandise and other movable goods, and is only one factor comprising the
broader current account, which also includes services, tourism, transportation,
and interest and profits earned abroad.
- --------------------------------------------------------------------------------
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
U.S. Government Securities Fund
During the reporting period, yields on U.S. Treasury securities declined and the
Treasury yield curve flattened, with long-term interest rates declining more
than short-term rates. For most of the period, yields fluctuated in a narrow
band as investors wrestled with a robust U.S. economy that produced strong job
and income growth. The combination of a tight labor market and mysteriously low
inflation kept pressure on short-term interest rates to remain high, as the
market feared the Federal Reserve Board (the Fed) would tighten the money
supply. The Fed did not change monetary policy or interest rates during the
period.
The decline in Asian markets, which began in the summer of 1997, continued
during the past six months as economies throughout the region contracted, often
severely. The ongoing problems refocused market attention on the Japanese
financial industry's fragility. Japan's inability to jump-start its economy
caused the yen to depreciate sharply versus the U.S. dollar. By June, U.S. and
Japanese monetary authorities made a dramatic move to shore up confidence in
Japan's currency by exchanging dollars for yen in a rare foreign currency
intervention. Japan's role in the global marketplace is critical for any Asian
economic rebound, and further devaluation of the yen could put pressure on other
currencies in the region to move lower as well.
Because the world economy is interconnected, a deep recession in Japan or Russia
can be a greater threat to U.S. growth prospects than rekindled inflation.
Therefore, we believe the Fed probably will not risk destabilizing currency
relationships between the U.S. and Asia by raising short-term interest rates.
Our best guess is that short-term rates will continue at their current levels in
the months ahead.
In response to the relatively stable interest-rate environment that the U.S.
economy enjoyed during the past six months, mortgage pass-through securities
posted strong performance. Fixed-rate securities outperformed adjustable-rate
securities in the flattening yield curve environment. This is because
adjustable-rate securities are tied to short-term interest rates such as the
one-year Constant Maturity Treasury (CMT), the six-month Treasury bill, or the
11th District Cost of Funds Index. In contrast, fixed-rate mortgages are tied to
movements in longer-term rates, such as the 10-year Treasury. With less
difference between short- and long-term rates, adjustable-rate borrowers have an
increased economic incentive to refinance into a fixed-rate mortgage.
As longer-term interest rates fell near the end of the six-month period,
prepayment risk became more of a factor in relative valuations throughout the
sector. In lower interest-rate environments, borrowers often refinance loans,
causing mortgage pass-through holders to receive unanticipated prepayments and
cashflows on their securities. If the yield curve remains flat, or even inverts,
prepayments on adjustable-rate securities should remain at high levels, reducing
income and limiting price appreciation. This is where our emphasis on seasoned
CMT adjustable-rate securities could prove most beneficial to shareholders. The
flat yield curve environment will probably have less negative impact on these
securities. Seasoned adjustable-rate securities have already been through one or
more refinancing cycles, and thus, are less likely to prepay than newer
securities, which are refinanceable for the first time.
Looking ahead, we anticipate little change in the U.S. interest-rate environment
over the next several months. Monetary policy makers may continue to fret over
the inflationary pressures resulting from a very strong U.S. labor market, and
keep short-term rates high. Long-term interest rates are likely to remain low as
slowing world economies and reduced currency valuations have favorable
inflationary impacts for the U.S. In this environment, we expect to hold a
higher allocation of mortgage pass-throughs within the portfolio, seeking to
take advantage of the relatively larger yield spread and level of income these
securities provide.
Zero Coupon 2000 Fund
Zero Coupon 2005 Fund
Zero Coupon 2010 Fund
U.S. interest rates declined during the six-month reporting period. Inflation
remained subdued despite a robust domestic economy. If Asian economic problems
weaken overseas demand for our goods and services, while lowering the cost of
exports to the U.S., this downward pricing pressure could keep a lid on future
inflation. The annualized, Gross Domestic Product growth rate slowed from 5.5%
in first quarter 1998 to 1.4% in the second quarter, which should also
discourage inflation. Recent volatility in the Asian markets will likely
preclude a near-term change in the Federal Reserve Board's (the Fed's) policy.
Because the world economy is interconnected, a deep recession in Japan or Russia
can be a greater threat to U.S. growth prospects than rekindled inflation.
Therefore, we believe the Fed probably will not risk destabilizing currency
relationships between the U.S. and Asia by raising short-term interest rates.
Our best guess is that short-term rates will continue at their current levels in
the months ahead. The Fed did not change monetary policy or interest rates
during the period.
The U.S. bond market benefited from the flight of international capital to the
safe haven of U.S. Treasuries during the Asian crises. U.S. Treasury bonds offer
interest rates that are among the highest in the developed world, despite the
American economy's current strength relative to other developed countries. At
the same time the Asian crises have increased demand for U.S. Treasury
securities, the supply has been shrinking. The U.S. government's borrowing needs
are on the decline, as the federal budget for this fiscal year appears to be
running a surplus for the first time in decades.
Looking ahead, interest rate swings will remain a dominant factor impacting the
funds' value. The longer the fund's target maturity, the greater its sensitivity
to interest-rate volatility. Thus, the portfolio with bonds maturing in 2000, up
to two and one-half years from now, would experience an approximate 2.5% swing
in value for each 1% swing in interest rates. Likewise, the 2005 portfolio has
the potential to move up or down approximately 7.5% for the same swing in
interest rates, while the 2010 portfolio may move up or down 12.5%. Despite
short-term swings, investors who hold zero coupon bonds to maturity will receive
a predictable rate of return.
Normally, individual zero coupon bonds will return a fixed rate, if held to
maturity. Zero coupon investments, therefore, can be attractive for relatively
short-term investors and risk-averse, long-term investors. Of course, a managed
portfolio of zero coupon bonds will fluctuate with cash flow in or out of the
portfolio, or vary with market conditions. In each portfolio, we strive to
maintain -- at all times -- a duration within 12 months of the target maturity.
We do not try to time the market; instead, our portfolio activity mirrors
shareholder activity.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Seeking Capital Preservation and Income
Money Market Fund
Over the six-month reporting period, the U.S. economy expanded at a healthy
pace, inflation was low and short-term interest rates were relatively stable.
The real U.S. Gross Domestic Product (GDP) for the first quarter 1998 grew at an
annualized rate of 5.5%, considerably above the Federal Reserve Board's (the
Fed's) targeted long-term growth rate of 2.50%.1 In spite of Asia's financial
problems and the General Motors strike, the GDP grew in the second quarter at a
better-than-expected, annualized rate of 1.4%. Relatively low interest rates,
and higher income levels, real estate and stock prices combined to fuel the
economy's consumer sector, the primary driver of domestic growth during the
period under review. As a result of strong economic growth, the U.S.
unemployment rate declined to 4.5%, the lowest in 28 years.2 Inflation as
measured by the Consumer Price Index (CPI) increased only 1.7% compounded for
the first half of 1998, down from 2.3% for the same period in 1997.3 Increased
international competition, higher domestic productivity, and lower commodity
prices contributed to inflation's deceleration. While long-term interest rates
declined near the period's end due to subdued inflation, short-term interest
rates were relatively stable. The Federal Funds target rate remained unchanged
at 5.50% over the past six months. Low inflation coupled with the Asian crises
offset strong economic growth and tight U.S. labor conditions, discouraging the
Fed from making any policy changes. Preliminary estimates for second quarter
1998 indicate that economic growth slowed slightly due to a wider trade deficit
and a manufacturing sector weakened by the Asian crises.
The relatively stable, short-term interest rate environment influenced the
portfolio's seven-day yield, which decreased from 5.28% on December 31, 1997, to
5.19% on June 30, 1998.
Looking forward, we believe relatively low interest rates, and high equity and
real estate prices will continue to stimulate consumer spending and fuel
domestic economic growth, possibly leading to further wage pressures. However,
low inflation and the Asian crises' dampening effects will likely offset U.S.
economic strength and may prevent the Fed from making any policy changes in the
near term. Until the uncertainties surrounding the Asian crises are removed, we
anticipate short-term interest rates should remain near current levels.
We continue to invest the portfolio's assets in securities that as of June 30,
1998, 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 derivatives or other
potentially volatile securities that we believe involve undue risk.
1. Source: Lexis-Nexis.
2. Source: Bureau of Labor Statistics.
3. Source: Standard and Poor's Micropal.
FRANKLIN VALUEMARK FUNDS
Financial Highlights
<TABLE>
<CAPTION>
Per share operating performance
(for a share outstanding throughout the period) Ratios/supplemental data
----------------------------------------------------------------------------------------------------------------------------
Net Net Total Distrib- Ratio of
asset Net real- from utions Distri- net invest-
value, invest- ized & invest- from net butions Net Ratio of ment income
begin- ment unreal- ment invest- from net Total Net asset assets, expenses (loss)to Portfolio
Period ning of income ized operat- ment realized distri- value, end Total end of per- to average average net turnover
Ended period (loss) (loss) ions income gains butions of period return iod (000's) net assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19964 $10.00 $ .03 $1.33 $1.36 $-- $-- $-- $11.36 13.60% $ 44,667 .77%* .96%* 3.91%
1997 11.36 .06 2.02 2.08 (.02) -- (.02) 13.42 18.31 109,355 .77 .72 19.90
19987 13.42 .04 1.60 1.64 (.06) -- (.06) 15.00 12.21 150,812 .76* .84* 6.54
Global Health Care Securities Fund
19986 10.00 (.02) .11 .09 -- -- -- 10.09 .90 1,852 3.17* (1.42)* 5.56
Global Utilities Securities Fund
1993 15.82 .38 1.28 1.66 (.34) -- (.34) 17.14 10.54 1,589,634 .51 4.47 4.80
1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73) 14.42 (11.56) 1,155,110 .52 5.58 11.74
1995 14.42 .84 3.54 4.38 (.90) -- (.90) 17.90 31.35 1,423,446 .50 5.14 13.27
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18 7.07 1,202,290 .50 4.20 29.69
1997 18.18 .90 3.54 4.44 (.96) (1.33) (2.29) 20.33 26.76 1,129,904 .50 3.91 17.00
19987 20.33 .41 .89 1.30 (.83) (1.22) (2.05) 19.58 6.51 1,090,671 .50* 3.42* 9.78
Growth and Income Fund
1993 12.79 .09 1.22 1.31 (.11) -- (.11) 13.99 10.32 371,484 .58 1.00 41.56
1994 13.99 .19 (.47) (.28) (.09) (.20) (.29) 13.42 (3.41) 517,877 .54 1.81 99.21
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14 32.83 889,487 .52 3.30 116.54
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55 14.19 1,077,989 .50 4.06 23.01
1997 17.55 .67 4.05 4.72 (.64) (.62) (1.26) 21.01 27.74 1,338,476 .49 3.53 36.71
19987 21.01 .34 .79 1.13 (.69) (1.64) (2.33) 19.81 5.41 1,381,577 .48* 3.24* 15.23
High Income Fund
1993 11.77 .37 1.45 1.82 (.46) -- (.46) 13.13 15.71 196,972 .64 8.18 21.06
1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62) 12.21 (2.26) 255,036 .60 9.45 22.94
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66 19.76 360,904 .56 9.63 20.65
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16 13.90 446,096 .54 9.63 27.16
1997 14.16 1.33 .22 1.55 (1.22) (.04) (1.26) 14.45 11.47 496,036 .53 9.64 36.38
19987 14.45 .63 (.06) .57 (1.27) (.08) (1.35) 13.67 3.95 514,634 .52* 9.38* 20.41
Income Securities Fund
1993 13.65 .33 2.18 2.51 (.31) (.05) (.36) 15.80 18.59 737,942 .56 6.66 10.12
1994 15.80 .82 (1.80) (.98) (.44) (.07) (.51) 14.31 (6.27) 1,000,002 .54 7.27 13.33
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47 22.40 1,266,538 .51 8.05 33.14
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21 11.28 1,350,659 .50 7.96 15.28
1997 17.21 1.40 1.38 2.78 (1.33) (.29) (1.62 18.37 17.09 1,406,787 .50 7.53 14.68
19987 18.37 .66 (.42) .24 (1.42) (.33) (1.75) 16.86 1.28 1,340,378 .50* 6.72* 8.33
Money Market Fund
1993 1.00 .030 -- .030 (.030) -- (.030) 1.00 2.54 131,534 .66 2.53 --
1994 1.00 .040 -- .040 (.040) -- (.040) 1.00 3.82 518,618 .468 4.05 --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .408 5.58 --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .438 5.04 --
1997 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.24 367,449 .458 5.11 --
19987 1.00 .030 -- .030 (.030) -- (.030) 1.00 2.59 353,100 .458* 5.12* --
</TABLE>
<TABLE>
<CAPTION>
Per share operating performance
(for a share outstanding throughout the period) Ratios/supplemental data
----------------------------------------------------------------------------------------------------------------------------
Net Net Total Distrib- Ratio of
asset Net real- from utions Distri- net invest-
value, invest- ized & invest- from net butions Net Ratio of ment income
begin- ment unreal- ment invest- from net Total Net asset assets, expenses (loss)to Portfolio
Period ning of income ized operat- ment realized distri- value, end Total end of per- to average average net turnover
Ended period (loss) (loss) ions income gains butions of period return iod (000's) net assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Discovery Securities Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19965 $10.00 $.02 $ .19 $ .21 $-- $-- $-- $10.21 2.10% $ 15,418 1.37%* 2.11%* .14%
1997 10.21 .13 1.84 1.97 (.01) -- (.01) 12.17 19.25 198,653 1.06 1.19 55.93
19987 12.17 .10 1.21 1.31 (.17) (.15) (.32) 13.16 10.74 272,271 1.02* 2.28* 29.77
Mutual Shares Securities Fund
19965 10.00 .02 .33 .35 -- -- -- 10.35 3.50 27,677 1.00* 2.56* 1.31
1997 10.35 .13 1.71 1.84 (.01) -- (.01) 12.18 17.73 387,787 .80 2.10 49.01
19987 12.18 .15 .77 .92 (.13) (.11) (.24) 12.86 7.62 524,640 .77* 3.10* 27.24
Natural Resources Fund
1993 9.36 .03 5.16 5.19 (.09) -- (.09) 14.46 55.62 73,575 .68 1.58 .01
1994 14.46 .16 (.45) (.29) (.08) -- (.08) 14.09 (2.01) 125,078 .68 1.63 7.66
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08 2.35 105,109 .66 1.40 15.66
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29 4.00 109,579 .65 1.00 21.77
1997 14.29 .15 (2.83) (2.68) (.20) -- (.20) 11.41 (18.98) 74,924 .69 1.00 85.22
19987 11.41 .08 (.93) (.85) (.15) -- (.15) 10.41 (7.41) 65,740 .68* 1.22* 25.76
Real Estate Securities Fund
1993 12.79 .09 2.33 2.42 (.17) -- (.17) 15.04 19.01 92,678 .67 4.05 5.84
1994 15.04 .38 .06 .44 (.17) -- (.17) 15.31 2.89 195,697 .62 4.00 11.73
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40 17.53 213,473 .59 4.74 22.15
1996 17.40 .79 4.74 5.53 (.78) -- (.78 22.15 32.82 322,721 .57 4.80 10.32
1997 22.15 .72 3.72 4.44 (.67) (.32) (.99) 25.60 20.70 440,554 .54 3.59 11.62
19987 25.60 .57 (1.77) (1.20) (.94) (.58) (1.52) 22.88 (4.50) 391,975 .52* 4.26* 4.21
Rising Dividends Fund
1993 10.98 .14 (.52) (.38) (.03) -- (.03) 10.57 (3.48) 299,730 .79 2.31 13.58
1994 10.57 .26 (.69) (.43) (.17) -- (.17) 9.97 (4.08) 309,929 .80 2.71 24.07
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66 29.74 463,253 .78 2.72 18.72
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40 24.18 597,424 .76 1.96 27.97
1997 15.40 .22 4.77 4.99 (.26) (.45) (.71) 19.68 33.03 780,298 .74 1.24 37.04
19987 19.68 .10 (1.50) (1.40) (.22) (.26) (.48) 17.80 5.09 820,663 .72* 1.08* 16.09
Small Cap Fund
19953 10.00 .03 .21 .24 -- -- -- 10.24 2.30 13,301 .90* 2.70* 16.04
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20 28.95 170,969 .77 .63 63.72
1997 13.20 .01 2.24 2.25 (.03) (.37) (.40) 15.05 17.42 313,462 .77 .06 64.07
19987 15.05 .02 .72 .74 (.01) (1.19) (1.20) 14.59 5.30 352,503 .76* .32* 32.08
Templeton Developing Markets Equity Fund
19941 10.00 .07 (.51) (.44) -- -- -- 9.56 (4.40) 98,189 1.53* 1.85* 1.15
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78 2.77 158,084 1.41 2.01 19.96
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59 21.59 272,098 1.49 1.68 12.42
1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38) 10.29 (8.72) 279,680 1.42 1.57 20.59
19987 10.29 .13 (1.97) (1.84) (.29) (.94) (1.23) 7.22 ( 18.10) 201,912 1.45* 2.08* 8.50
Templeton Global Asset Allocation Fund
19952 10.00 .18 .52 .70 (.18) -- (.18) 10.52 7.01 14,729 .90* 3.84* 30.00
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59 19.84 56,274 .86 4.21 52.35
1997 12.59 .42 1.04 1.46 (.26) (.07) (.33) 13.72 11.71 93,402 .94 4.22 61.93
19987 13.72 .30 .07 .37 (.48) (.58) (1.06) 13.03 2.80 95,181 .82* 4.45* 26.20
</TABLE>
<TABLE>
<CAPTION>
Per share operating performance
(for a share outstanding throughout the period) Ratios/supplemental data
----------------------------------------------------------------------------------------------------------------------------
Net Net Total Distrib- Ratio of
asset Net real- from utions Distri- net invest-
value, invest- ized & invest- from net butions Net Ratio of ment income
begin- ment unreal- ment invest- from net Total Net asset assets, expenses (loss)to Portfolio
Period ning of income ized operat- ment realized distri- value, end Total end of per- to average average net turnover
Ended period (loss) (loss) ions income gains butions of period return iod (000's) net assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Global Growth Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19941 $10.15 $ .07 $ .26 $ .33 $-- $-- $-- $10.48 3.25% $ 158,856 1.14%* 2.49%* 7.14%
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75 12.72 338,755 .97 2.46 30.92
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80 21.28 579,877 .93 2.20 12.32
1997 13.80 .33 1.53 1.86 (.24) (.08) (.32) 15.34 13.50 758,445 .88 2.49 24.81
19987 15.34 .21 1.08 1.29 (.41) (1.49) (1.90) 14.73 8.68 817,697 .88* 2.81* 15.32
Templeton Global Income Securities Fund
1993 12.00 .50 1.47 1.97 (.50) (.16) (.66) 13.31 16.68 206,594 .73 7.56 59.98
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19 (4.99) 254,311 .71 7.99 79.38
1995 12.19 .29 1.47 1.76 (.49) -- (.49) 13.46 14.68 243,194 .64 7.59 152.89
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61 9.56 221,722 .61 7.30 140.96
1997 13.61 1.05 (.73) .32 (.96) -- (.96) 12.97 2.55 185,016 .62 7.03 181.61
19987 12.97 .56 (.21) .35 (.98) -- (.98) 12.34 2.67 166,982 .63* 7.00* 25.04
Templeton International Equity Fund
1993++ 9.76 .18 2.60 2.78 (.04) -- (.04) 12.50 28.56 310,146 1.12 1.58 29.50
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .87 785,124 .99 2.17 12.22
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.59 850,117 .92 2.87 16.42
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52
1997 15.45 .30 1.51 1.81 (.45) (.69) (1.14) 16.12 11.69 1,161,430 .89 3.01 26.96
19987 16.12 .28 1.85 2.13 (.53) (1.05) (1.58) 16.67 13.38 1,196,298 .88* 2.84* --
Templeton International Smaller Companies Fund
19964 10.00 .10 1.15 1.25 -- -- -- 11.25 12.50 16,255 1.16* 2.51* --
1997 11.25 .23 (.39) (.16) (.07) -- (.07) 11.02 (1.50) 32,201 1.06 2.74 21.38
19987 11.02 .14 .11 .25 (.25) (.30) (.55) 10.72 2.22 33,541 1.08* 2.55* 7.90
Templeton Pacific Growth Fund
1993 9.88 .05 4.68 4.73 -- -- -- 14.61 47.87 215,882 1.14 1.29 12.36
1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09) 13.24 (8.79) 375,832 1.07 2.04 4.29
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91 7.97 331,936 1.01 2.08 36.06
1996 13.91 .21 1.34 1.56 (.44) (.26) (.70) 14.76 11.10 356,759 .99 1.51 12.85
1997 14.76 .29 (5.49) (5.20) (.28) -- (.28) 9.28 (35.95) 165,404 1.03 1.97 11.87
19987 9.28 .17 (2.63) (2.46) (.35) (.11) (.46) 6.36 (26.44) 102,341 1.11* 3.28* 9.51
U.S. Government Securities Fund
1993 13.24 .50 .77 1.27 (.51) (.08) (.59) 13.92 9.71 684,303 .54 6.06 145.11
1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72) 12.57 (4.55) 579,039 .53 6.87 18.25**
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00 19.46 643,165 .52 6.72 18.68**
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47 3.62 843,858 .51 6.66 12.93***
1997 13.47 1.00 .21 1.21 (.76) -- (.76) 13.92 9.31 765,084 .50 6.49 16.84
19987 13.92 .54 (.04) .50 (1.03) -- (1.03) 13.39 3.57 709,671 .50* 6.32* 14.82
Value Securities Fund
19986 10.00 .01 (0.87) (.86) -- -- -- 9.14 (8.60) 2,233 1.39* 1.89* 16.12
</TABLE>
<TABLE>
<CAPTION>
Per share operating performance
(for a share outstanding throughout the period) Ratios/supplemental data
----------------------------------------------------------------------------------------------------------------------------
Net Net Total Distrib- Ratio of
asset Net real- from utions Distri- net invest-
value, invest- ized & invest- from net butions Net Ratio of ment income
begin- ment unreal- ment invest- from net Total Net asset assets, expenses (loss)to Portfolio
Period ning of income ized operat- ment realized distri- value, end Total end of per- to average average net turnover
Ended period (loss) (loss) ions income gains butions of period return iod (000's) net assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
Zero Coupon Fund - 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 $13.88 $ .66 $1.55 $2.21 $ (.62) $ (.03) $ (.65) $15.44 16.15% $ 76,916 .37%8 5.88% 7.02%
1994 15.44 .68 (1.71) (1.03) (.69) (.10) (.79) 13.62 (6.76) 94,230 .408 6.37 --
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73 20.67 137,357 .408 6.14 1.63
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19 2.43 129,601 .408 6.14 .58
1997 15.19 1.15 (.12) 1.03 (1.06) (.02) (1.08) 15.14 7.11 111,650 .408 6.47 6.16
19987 15.14 .64 (.15) .49 (1.21) (.19) (1.40) 14.23 3.29 99,888 .408* 6.56* 16.96
Zero Coupon Fund - 2005
1993 13.62 .44 2.55 2.99 (.52) (.01) (.53) 16.08 22.21 42,998 .378 5.67 16.59
1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79) 13.76 (9.60) 51,499 .408 6.53 2.00
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38 31.76 83,222 .408 6.19 1.72
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35 (.50) 82,603 .408 6.15 2.06
1997 16.35 1.14 .63 1.77 (1.06) (.01) (1.07) 17.05 11.37 77,296 .408 6.16 4.52
19987 17.05 .52 .31 .83 (1.10) (.25) (1.35) 16.53 4.85 78,154 .408* 5.90* 1.25
Zero Coupon Fund - 2010
1993 13.35 .50 2.81 3.31 (.94) (.04) (.98) 15.68 25.47 29,189 .258 5.89 36.63
1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94) 13.02 (10.97) 45,361 .408 6.57 4.34
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04 42.79 85,633 .408 6.41 31.45
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29 (2.69) 78,816 .408 6.24 16.10
1997 16.29 1.02 1.54 2.56 (1.01) (.01) (1.02) 17.83 16.57 85,515 .408 6.21 12.20
19987 17.83 .59 .60 1.19 (1.11) (.15) (1.26) 17.76 6.70 85,132 .408* 5.70* 9.52
</TABLE>
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***The portfolio turnover rate excludes transactions related to the liquidation
of the Investment Grade Intermediate Bond Fund and the Adjustable U.S.
Government Fund and mortgage dollar roll transactions.
+Total return is not annualized.
++Per share amounts have been calculated using the average shares outstanding
during the period. 1For the period March 15, 1994 (effective date) to December
31, 1994.
2For the period April 19, 1995 (seed date) to December 31, 1995. 3For the period
November 1, 1995 (effective date) to December 31, 1995. 4For the period May 1,
1996 (effective date) to December 31, 1996. 5For the period November 8, 1996
(effective date) to December 31, 1996. 6For the period May 1, 1998 (effective
date) to June 30, 1998.
7For the six months ended June 30, 1998.
8During the periods indicated below, Franklin Advisers, Inc., 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:
Money Market Fund
1994 .54%
1995 .53
1996 .53
1997 .53
19987 .55*
Zero Coupon Fund - 2000
1993 .67%
1994 .66
1995 .63
1996 .62
1997 .63
19987 .64*
Zero Coupon Fund - 2005
1993 .67%
1994 .68
1995 .66
1996 .65
1997 .65
19987 .65*
Zero Coupon Fund - 2010
1993 .68%
1994 .68
1995 .66
1996 .65
1997 .65
19987 .65*
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Capital Growth Fund SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 81.4%
Commercial Services 2.3%
Equifax, Inc. 55,000 $ 1,997,188
aRobert Half International, Inc. 27,000 1,508,625
------------
3,505,813
------------
Consumer Durables 2.8%
aElectronic Arts, Inc. 35,000 1,890,000
Mattel, Inc. 55,000 2,327,184
------------
4,217,184
------------
Consumer Non-durables 7.5%
Campbell Soup Co. 30,000 1,593,750
ConAgra, Inc. 30,000 950,625
Gillette Co. 16,000 907,000
Hershey Foods Corp. 20,000 1,380,000
Nike, Inc., Class B 35,000 1,704,063
PepsiCo , Inc. 20,000 823,750
Philip Morris Cos., Inc. 50,000 1,968,750
Procter & Gamble Co. 15,000 1,365,938
The Coca-Cola Co. 7,000 598,500
aVlasic Foods International, Inc. 2,200 44,275
------------
11,336,651
------------
Consumer Services 4.6%
Disney (Walt) Co. 9,000 945,563
McDonald's Corp. 25,000 1,725,000
aMirage Resorts, Inc. 75,000 1,598,438
Time Warner, Inc. 30,000 2,563,125
aTricon Global Restaurants, Inc. 2,000 63,375
------------
6,895,501
------------
Electronic Technology 13.9%
a3Com Corp. 55,000 1,687,812
aAdaptec, Inc. 40,000 572,500
aApplied Materials, Inc. 25,000 737,500
aCIENA Corp. 30,000 2,088,750
aCisco Systems, Inc. 40,500 3,728,531
Compaq Computer Corp. 65,000 1,844,375
Hewlett-Packard Co. 20,000 1,197,500
aImation Corp. 40,000 662,500
Intel Corp. 20,000 1,482,500
Linear Technology Corp. 16,000 965,000
Molex, Inc. 48,437 1,210,925
aUniphase Corp. 25,000 1,569,533
United Technologies Corp. 20,000 1,850,000
aXilinx, Inc. 40,000 1,360,000
------------
20,957,426
------------
Energy Minerals 2.8%
aBarrett Resources Corp. 55,000 2,059,063
Royal Dutch Petroleum Co., New York Shares, ADR 40,000 2,192,500
(The Netherlands ------------
4,251,563
------------
Finance 6.6%
American International Group, Inc. 12,000 1,752,000
Associates First Capital Corp., Class A 15,000 1,153,125
Citicorp 7,000 1,044,750
Fannie Mae 30,000 1,822,500
Providian Financial Corp. 30,000 2,356,875
Schwab (Charles) Corp. 35,000 1,137,500
Wells Fargo & Co. 2,000 738,000
------------
10,004,750
------------
Health Technology 9.2%
Abbott Laboratories 40,000 $ 1,635,000
American Home Products Corp. 30,000 1,552,500
aAmgen, Inc. 25,000 1,634,375
Baxter International, Inc. 25,000 1,345,313
aBoston Scientific Corp. 40,000 2,865,000
Johnson & Johnson 25,000 1,843,750
Lilly (Eli) & Co. 16,000 1,057,000
Mentor Corp. 35,000 848,750
Merck & Co., Inc. 8,000 1,070,000
------------
13,851,688
------------
Health Services .6%
aPacifiCare Health Systems, Inc., Series B 10,000 883,750
------------
Industrial Services 3.2%
aAES Corp. 45,000 2,365,313
aRepublic Services, Inc., Class A 45,500 1,092,000
Schlumberger, Ltd. 20,000 1,366,250
------------
4,823,563
------------
Non-Energy Minerals 1.0%
De Beers Consolidated Mines, Ltd., ADR 85,000 1,487,500
------------
Process Industries 4.8%
Air Products and Chemicals, Inc. 60,000 2,400,000
Millipore Corp. 50,000 1,362,500
aOwens-Illinois, Inc. 38,500 1,722,875
Sigma-Aldrich Corp. 50,000 1,756,250
------------
7,241,625
------------
Producer Manufacturing 3.3%
Emerson Electric Co. 40,000 2,415,000
Minnesota Mining & Manufacturing Co. 15,000 1,232,813
aU.S. Filter Corp. 45,000 1,262,812
------------
4,910,625
------------
Retail Trade 1.5%
Wal-Mart Stores, Inc. 38,000 2,308,500
------------
Technology Services 8.5%
Adobe Systems, Inc. 20,000 848,750
Automatic Data Processing, Inc. 32,000 2,332,000
aComputer Sciences Corp. 40,000 2,560,000
aMicrosoft Corp. 14,000 1,517,250
aOracle Corp. 35,000 859,687
aParametric Technology Corp. 80,000 2,170,000
aSynopsys, Inc. 55,000 2,516,250
------------
12,803,937
------------
Transportation 2.7%
Air Express International Corp. 60,000 1,605,000
Expeditors International of Washington, Inc. 30,000 1,320,000
Southwest Airlines Co. 40,500 1,199,813
------------
4,124,813
------------
Utilities & Telecommunication 6.1%
aAirTouch Communications, Inc. 40,000 2,337,500
CMS Energy Corp. 45,000 1,980,000
Utilities & Telecommunication (cont.)
Enron Corp. 40,000 $ 2,162,500
GTE Corp. 30,000 1,668,750
MCN Energy Group, Inc. 40,000 995,000
------------
9,143,750
------------
Total Long Term Investments (Cost $95,551,270) 122,748,639
------------
PRINCIPAL
AMOUNT
---------
fRepurchase Agreement 20.0%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $30,148,798) (Cost $30,144,097) $30,144,097 30,144,097
BancAmerica Robertson Stephens (Maturity Value $2,881,019)
Barclays Capital, Inc. (Maturity Value $2,881,019)
Bear, Stearns & Co., Inc. (Maturity Value $1,571,054)
BT Alex Brown, Inc. (Maturity Value $2,648,573)
Chase Securities, Inc. (Maturity Value $2,881,019)
CIBC Oppenheimer Corp. (Maturity Value $2,881,019)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,881,019)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $2,881,019)
Greenwich Capital Markets, Inc. (Maturity Value $2,881,019)
Paribas Corp. (Maturity Value $2,881,019)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,881,019)
Collateralized by U.S. Treasury Bills & Notes
-------------
Total Investments (Cost $125,695,367) 101.4% 152,892,736
Other Assets, less Liabilities (1.4%) (2,080,530)
-------------
Net Assets 100.0% $150,812,206
=============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Global Health Care Securities Fund SHARES VALUE
- -------------------------------------------------------------------------------
Common Stocks 66.2%
Health Technology 31.9%
American Home Products Corp. 700 $ 36,225
aBoston Scientific Corp. 200 14,325
aDura Pharmaceuticals, Inc. 1,500 33,563
aESC Medical Systems, Ltd. (Israel) 3,100 104,625
aInhale Therapeutic Systems 1,700 42,075
aLigand Pharmaceuticals, Inc., Class B 2,800 36,050
Lilly (Eli) & Co. 500 33,030
Medtronic, Inc. 400 25,500
aOrthoLogic Corp. 2,000 10,250
aPenederm, Inc. 3,800 76,000
Pfizer, Inc. 200 21,738
aSangStat Medical Corp. 1,300 40,788
aSerologicals Corp. 1,600 51,600
SmithKline Beecham, Plc., Sponsored ADR (United Kingdom) 500 30,250
aZonagen, Inc. 1,600 35,100
---------
591,119
---------
Health Services 34.3%
aAccess Health, Inc. 2,600 66,300
aAdvanced Health Corp. 200 1,100
aAmSurg Corp. 4,600 35,075
aAssisted Living Concepts, Inc. 1,400 24,150
aConcentra Managed Care, Inc. 2,500 65,000
aCurative Health Services, Inc. 1,800 51,300
HBO & Co. 300 10,575
aHealthcare Recoveries, Inc. 1,500 29,625
aPAREXEL International Corp. 1,000 36,375
aPediatric Services of America, Inc. 2,200 34,100
aPediatrix Medical Group, Inc. 1,600 59,500
aPharmaceutical Product Development, Inc. 2,500 55,000
aPhyCor, Inc. 2,600 43,063
aRenal Care Group, Inc. 1,000 44,062
aTenet Healthcare Corp. 700 21,875
aTotal Renal Care Holdings, Inc. 1,700 58,649
----------
635,749
----------
Total Long Term Investments (Cost $1,176,919) 1,226,868
----------
PRINCIPAL
AMOUNT
---------
fRepurchase Agreement 48.8%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $904,155) (Cost $904,014) $904,014 904,014
BancAmerica Robertson Stephens (Maturity Value $86,401)
Barclays Capital, Inc. (Maturity Value $86,401)
Bear, Stearns & Co., Inc. (Maturity Value $47,116)
BT Alex Brown, Inc. (Maturity Value $79,430)
Chase Securities, Inc. (Maturity Value $86,401)
CIBC Oppenheimer Corp. (Maturity Value $86,401)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $86,401)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $86,401)
Greenwich Capital Markets, Inc. (Maturity Value $86,401)
Paribas Corp. (Maturity Value $86,401)
SBC Warburg Dillon Read, Inc. (Maturity Value $86,401)
Collateralized by U.S. Treasury Bills & Notes
------------
Total Investments (Cost $2,080,933) 115.0% 2,130,882
Other Assets, less Liabilities (15.0%) (278,642)
------------
Net Assets 100.0% $1,852,240
============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Global Utilities Securities Fund COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 94.3%
Utilities & Telecommunication 94.3%
aAES Corp. United States 550,000 $ 28,909,375
aAirTouch Communications, Inc. United States 496,100 28,990,844
American Electric Power Co. United States 360,230 16,345,436
Beijing Datang Power Generation Co., Ltd. China 3,291,000 923,770
BSES, Ltd., Sponsored GDR, 144A India 158,600 1,637,545
aCable & Wireless Communications, Plc, ADR United Kingdom 1,186,895 12,010,742
Central & South West Corp. United States 647,400 17,398,875
CINergy Corp. United States 1,104,800 38,668,000
Companhia Paranaense de Energia-Copel, Sponsored ADR Brazil 83,300 770,525
Dominion Resources, Inc. United States 291,000 11,858,250
DPL, Inc. United States 1,074,000 19,466,250
Duke Energy Corp. United States 700,000 41,475,000
Edison International United States 763,600 22,573,925
EDP-Electricidade de Portugal, SA Portugal 324,000 7,531,702
Empresa Nacional de Electricidad, SA, Sponsored ADR Chile 978,800 13,947,900
Enron Corp. United States 1,040,000 56,225,000
Entergy Corp. United States 996,200 28,640,750
Espoon Sahko Oyj, 144A Finland 195,000 4,442,763
aEsprit Telecom Group, Plc., ADR United Kingdom 86,400 1,587,600
Florida Progress Corp. United States 700,000 28,787,500
FPL Group, Inc. United States 626,400 39,463,200
aGlobal TeleSystems Group, Inc. United States 156,400 7,624,500
GPU, Inc. United States 850,000 32,140,625
aGrupo Iusacell, SA, Series D Mexico 55,600 51,430
aGrupo Iusacell, SA, Series L, Sponsored ADR Mexico 105,140 1,445,675
Hellenic Telecommunication Organization, SA Greece 197,691 5,067,676
Hongkong Electric Holdings, Ltd. Hong Kong 1,250,000 3,871,667
aHuaneng Power International, Inc., Sponsored ADR China 138,000 1,854,375
aICG Communications, Inc. United States 1,060,000 38,756,250
aIntermedia Communications, Inc. United States 273,200 11,457,325
aItron, Inc. United States 211,400 2,695,350
Korea Electric Power Corp. South Korea 83,420 890,097
Light Servicos de Eletricidade, SA Brazil 10,140,600 3,112,496
aLoral Space & Communications, Ltd. United States 300,000 8,475,000
MCN Energy Group, Inc. United States 200,000 4,975,000
MDU Resources Group, Inc. United States 411,200 14,674,700
MidAmerican Energy Holdings Co. United States 288,400 6,236,650
aMillicom International Cellular, SA Luxembourg 140,000 6,125,000
National Power, Plc. United Kingdom 302,500 2,851,679
New Century Energies, Inc. United States 610,065 27,719,828
New Jersey Resources Corp. United States 210,000 7,494,375
NIPSCO Industries, Inc. United States 1,299,800 36,394,400
Northern States Power Co. United States 423,600 12,125,550
OGE Energy Corp. United States 222,200 5,999,400
PacifiCorp United States 950,000 21,493,750
PG&E Corp. United States 1,055,150 33,303,172
Pinnacle West Capital Corp. United States 663,000 29,835,000
Portugal Telecom, SA Portugal 239,400 12,687,993
RWE AG Germany 175,000 10,373,961
SBC Communications, Inc. United States 150,000 6,000,000
SCANA Corp. United States 800,000 23,850,000
Scottish Power, Plc. United Kingdom 590,000 5,182,951
aSempra Energy United States 1,372,286 38,080,950
Sonat, Inc. United States 225,000 8,690,625
Southern Co. United States 1,598,290 44,252,654
aSTET Hellas Telecommunications, SA, ADR Greece 68,900 2,859,350
TECO Energy, Inc. United States 600,000 16,087,500
Tele Danmark, AS, Sponsored ADR Denmark 311,500 14,679,438
hTelecom Corp. of New Zealand, Ltd., ADR New Zealand 559,900 9,413,319
Utilities & Telecommunication (cont.)
Telecom Italia, SpA Italy 5,028,372 $ 24,466,479
Telecomunicacoes Brasileiras, SA, Sponsored ADR Brazil 20,000 2,183,750
Telefonica, SA, Sponsored ADR Spain 86,619 12,045,455
Telefonica del Peru, SA, Class B, ADR Peru 337,500 6,897,656
aTeleWest Communications, Plc., Sponsored ADR United Kingdom 69,000 1,638,750
Texas Utilities Co. United States 411,350 17,122,444
Tokyo Electric Power Co. Japan 135,000 2,645,819
Tokyo Gas Co., Ltd. Japan 2,000,000 4,452,931
Total Access Communication Public Co., Ltd. Thailand 916,600 980,762
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR Argentina 370,000 4,255,000
Viag AG Germany 6,200 4,190,582
Western Resources, Inc. United States 8,700 337,669
aWorldCom, Inc. United States 150,000 7,265,625
--------------
Total Common Stocks (Cost $812,724,330) 1,028,967,585
--------------
Convertible Preferred Stocks 3.0%
cCMS Energy Corp., 7.75%, quarterly cvt. pfd. United States 175,000 10,839,063
Nortel Inversora, SA, 10.00%, cvt. pfd. Argentina 400,000 21,650,000
--------------
Total Convertible Preferred Stocks (Cost $30,134,277) 32,489,063
--------------
Preferred Stocks .2%
Eletropaulo Metropolitana-Electricidade de Sao Paulo, SA, pfd. Brazil 22,700,000 1,707,505
aEmpresa Bandeirante de Energia, SA, pfd. Brazil 22,700,000 359,165
aEmpresa Metropolitana de Aguas e Energia, SA, pfd. Brazil 22,700,000 17,664
Empresa Paulista de Transmissao de Energia Eletrica, SA, pfd. Brazil 22,700,000 80,466
--------------
Total Preferred Stocks (Cost $4,789,294) 2,164,800
--------------
Total Long Term Investments (Cost $847,647,901) 1,063,621,448
--------------
PRINCIPAL
AMOUNT
---------
fRepurchase Agreement 3.1%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $33,458,030)
(Cost $33,452,813) United States $33,452,813 33,452,813
BancAmerica Robertson Stephens (Maturity Value $3,197,249)
Barclays Capital, Inc. (Maturity Value $3,197,249)
Bear, Stearns & Co., Inc. (Maturity Value $1,743,499)
BT Alex Brown, Inc. (Maturity Value $2,939,290)
Chase Securities, Inc. (Maturity Value $3,197,249)
CIBC Oppenheimer Corp. (Maturity Value $3,197,249)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,197,249)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $3,197,249)
Greenwich Capital Markets, Inc. (Maturity Value $3,197,249)
Paribas Corp. (Maturity Value $3,197,249)
SBC Warburg Dillon Read, Inc. (Maturity Value $3,197,249)
Collateralized by U.S. Treasury Bills & Notes
--------------
Total Investments (Cost $881,100,714) 100.6% 1,097,074,261
--------------
Other Assets, less Liabilities (.6%) (6,403,409)
--------------
Net Assets 100.0% $1,090,670,852
==============
aNon-income producing.
cSee Note 8 regarding restricted securities.
fSee Note 1(c) regarding joint repurchase agreement.
hSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Growth and Income Fund COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
Common Stocks 94.3%
Commercial Services .8%
Dun & Bradstreet Corp. United States 325,000 $ 11,700,000
-------------
Consumer Durables 4.4%
Chrysler Corp. United States 367,000 20,689,625
Eastman Kodak Co. United States 262,000 19,142,375
Ford Motor Co. United States 347,500 20,502,500
-------------
60,334,500
-------------
Consumer Non-Durables 8.4%
Anheuser Busch Cos., Inc. United States 375,000 17,695,313
DIMON, Inc. United States 865,500 9,736,875
Fortune Brands, Inc. United States 385,100 14,802,281
General Mills, Inc. United States 203,500 13,914,313
H.J. Heinz Co. United States 308,000 17,286,500
Philip Morris Cos., Inc. United States 437,800 17,238,375
RJR Nabisco Holdings Corp. United States 248,560 5,903,300
UST, Inc. United States 745,000 20,115,000
-------------
116,691,957
-------------
Electronic Technology .9%
AMP, Inc. United States 355,000 12,203,125
-------------
Energy Minerals 15.4%
Amoco Corp. United States 646,400 26,906,400
Atlantic Richfield Co. United States 505,000 39,453,125
Chevron Corp. United States 339,000 28,158,188
Exxon Corp. United States 347,000 24,745,438
Mobil Corp. United States 274,000 20,995,250
Texaco, Inc. United States 561,400 33,508,563
Ultramar Diamond Shamrock Corp. United States 447,800 14,133,688
YPF Sociedad Anomina, Sponsored ADR Argentina 807,000 24,260,438
-------------
212,161,090
-------------
Finance 22.3%
Arden Realty, Inc. United States 619,200 16,021,800
Associates First Capital Corp., Class A United States 91,074 7,001,314
Banc One Corp. United States 276,210 15,415,971
BankBoston Corp. United States 447,000 24,864,375
Beneficial Corp. United States 60,000 9,191,250
Equity Residential Properties Trust United States 485,300 23,021,419
FelCor Suite Hotels, Inc. United States 712,000 22,339,000
Glenborough Realty Trust, Inc. United States 300,000 7,912,500
J.P. Morgan & Co., Inc. United States 95,900 11,232,288
Lincoln National Corp. United States 324,400 29,642,050
Mercantile Bancorporation, Inc. United States 266,703 13,435,164
Mid Ocean Ltd. Bermuda 244,100 19,161,850
National City Corp. United States 275,000 19,525,000
PNC Bank Corp. United States 322,900 17,376,056
Scor France 297,000 18,838,819
Simon DeBartolo Group, Inc. United States 677,700 22,025,250
St. Paul Cos., Inc. United States 342,000 14,385,375
Westpac Banking Corp., Ltd. Australia 2,163,651 13,197,406
Zenith National Insurance Corp. United States 121,500 3,424,781
-------------
308,011,668
-------------
Health Technology 3.6%
Glaxo Wellcome, Plc., Sponsored ADR United Kingdom 365,800 21,879,413
Pharmacia & Upjohn, Inc. United States 615,000 28,366,875
-------------
50,246,288
-------------
Non-Energy Minerals 3.7%
British Steel, Plc., Sponsored ADR United Kingdom 490,000 $ 11,147,500
Carpenter Technology Corp. United States 109,200 5,487,300
De Beers Consolidated Mines, Ltd., ADR South Africa 678,000 11,865,000
Georgia-Pacific Corp. (Timber Group) United States 441,000 10,170,563
Weyerhaeuser Co. United States 270,000 12,470,625
-------------
51,140,988
-------------
Process Industries 6.2%
BetzDearborn, Inc. United States 215,000 8,895,625
Dow Chemical Co. United States 144,300 13,952,006
Imperial Chemical Industries, Plc., Sponsored ADR United Kingdom 331,000 21,349,500
Pall Corp. United States 754,600 15,469,300
Potlatch Corp. United States 318,400 13,372,800
Union Camp Corp. United States 255,000 12,654,375
-------------
85,693,606
-------------
Producer Manufacturing 3.4%
Cooper Industries, Inc. United States 167,300 9,191,044
Diebold, Inc. United States 32,000 924,000
Federal Signal Corp. United States 655,000 15,924,688
General Electric Co. United States 92,200 8,390,200
Minnesota Mining and Manufacturing Co. United States 80,500 6,616,094
Pitney Bowes, Inc. United States 125,000 6,015,625
-------------
47,061,651
-------------
Retail Trade 2.6%
J.C. Penney Co., Inc. United States 501,900 36,293,644
-------------
Utilities & Telecommunication 22.6%
Ameritech Corp. United States 292,000 13,103,500
Bell Atlantic Corp. United States 739,632 33,745,710
Cinergy Corp. United States 449,000 15,715,000
Consolidated Natural Gas Co. United States 317,000 18,663,375
Dominion Resources, Inc. United States 571,000 23,268,250
Entergy Corp. United States 673,000 19,348,750
GPU, Inc. United States 425,300 16,081,656
GTE Corp. United States 444,500 24,725,313
National Fuel Gas Co. United States 365,800 15,935,163
New Century Energies, Inc. United States 303,000 13,767,563
OGE Energy Corp. United States 588,000 15,876,000
PacifiCorp United States 468,000 10,588,500
PG&E Corp. United States 455,700 14,383,031
Sempra Energy United States 1,052,685 29,212,010
Southern New England Telecommunications Corp. United States 145,100 9,504,050
hTelecom Corp. of New Zealand, Ltd., ADR New Zealand 895,900 15,062,311
U S WEST Communications Group United States 483,100 22,705,700
-------------
311,685,882
-------------
Total Long Term Investments (Cost $1,006,575,751) 1,303,224,399
-------------
fRepurchase Agreement 5.4%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $73,901,975)
(Cost $73,890,452) United State $73,890,452 $ 73,890,452
BancAmerica Robertson Stephens (Maturity Value $7,062,073)
Barclays Capital, Inc. (Maturity Value $7,062,073)
Bear, Stearns & Co., Inc. (Maturity Value $3,851,031)
BT Alex Brown, Inc. (Maturity Value $6,492,287)
Chase Securities, Inc. (Maturity Value $7,062,073)
CIBC Oppenheimer Corp. (Maturity Value $7,062,073)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $7,062,073)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $7,062,073)
Greenwich Capital Markets, Inc. (Maturity Value $7,062,073)
Paribas Corp. (Maturity Value $7,062,073)
SBC Warburg Dillon Read, Inc. (Maturity Value $7,062,073)
Collateralized by U.S. Treasury Bills & Notes
-------------
Total Investments (Cost $1,080,466,203) 99.7% 1,377,114,851
Other Assets, less Liabilities .3% 4,462,399
-------------
Net Assets 100.0% $1,381,577,250
=============
fSee Note 1(c) regarding joint repurchase agreement.
hSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
High Income Fund COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------
Long-Term Investments 96.7%
Preferred Stocks 1.5%
Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A Indonesia 4,500,000 $ 3,296,250
Fresenius Medical Care A.G., 9.00%, pfd. Germany 1,300 1,345,500
Time Warner, Inc., 10.25%, pfd., Series M, PIK United States 2,496 2,786,160
-----------
Total Preferred Stocks (Cost $8,322,018) 7,427,910
-----------
aWarrants
Empire Gas Corp. United States 6,900 34,500
Foodmaker, Inc. United States 70 3,348
Gulf States Steel United States 5,000 26,500
International Wireless Holding Co. United States 7,800 7,800
Loral Orion Network Systems, Inc. United States 1,500 20,096
McCaw International Holdings United States 7,000 35,000
Nextel Communications, Inc. United States 6,500 15,600
Wireless One, Inc. United States 5,000 25
-----------
Total Warrants (Cost $189,054) 142,869
-----------
PRINCIPAL
AMOUNT*
---------
Bonds 95.2%
Automotive 1.3%
Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 United States $ 700,000 759,500
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06 United States 1,000,000 1,112,500
Oshkosh Truck Corp., 8.75%, 3/01/08 United States 2,000,000 2,030,000
Talon Automotive Group, senior sub notes, 144A, 9.625%, 5/01/08 United States 2,900,000 2,871,000
-----------
6,773,000
-----------
Broadcasting 5.6%
Benedek Broadcasting Corp., senior notes, 11.875%, 3/01/05 United States 2,500,000 2,800,000
Chancellor Media Corp., senior sub. notes, 8.125%, 12/15/07 United States 8,000,000 8,140,000
Granite Broadcasting Corp., senior sub. notes, 10.375%, 5/15/05 United States 6,500,000 6,906,250
Jacor Communications, Inc., senior sub. notes, 9.75%, 12/15/06 United States 1,000,000 1,092,500
Lin Holdings Corp., senior disc. notes, 144A, zero coupon to 3/01/03,
10.0% thereafter, 3/01/08 United States 3,100,000 2,108,000
Lin Television Corp., senior sub. notes, 144A, 8.375%, 3/01/08 United States 2,800,000 2,870,000
SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 5/15/06 United States 2,000,000 2,220,000
Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 9/30/05 United States 2,500,000 2,693,750
-----------
28,830,500
-----------
Cable Television 6.1%
CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 United States 3,000,000 3,517,500
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 United States 4,500,000 4,983,750
CSC Holdings Inc., senior sub. notes, 8.125%, 8/15/09 United States 1,500,000 1,608,750
Century Communications Corp., senior sub. notes, 9.50%, 3/01/05 United States 3,000,000 3,262,500
Diamond Cable Communications Co., Plc., senior disc.
notes, zero coupon to 12/15/00,
11.75% thereafter, 12/15/05 United Kingdom 2,700,000 2,241,000
Diamond Cable Communications Co., Plc., senior disc.
notes, zero coupon to 2/15/02,
10.75% thereafter, 2/15/07 United Kingdom 1,500,000 1,102,500
Diamond Holdings, Plc., 144A, 9.125%, 2/01/08 United Kingdom 3,000,000 3,105,000
Rogers Cablesystems, Inc., senior secured deb., 9.65%, 1/15/14 Canada 5,700,000 CAD 4,470,346
TeleWest Communications, Plc., senior disc. deb., zero coupon to
10/01/00, 11.00% thereafter, 10/01/07 United Kingdom 8,000,000 6,680,000
Wireless One, Inc., senior disc. notes, zero coupon to 8/01/01, 13.50%
thereafter, 8/01/06 United States 2,000,000 180,001
------------
31,151,347
------------
Chemicals 1.7%
Applied Extrusion Technologies, Inc., senior notes, Series B, 11.50%, 4/01/02 United States 3,750,000 3,975,000
Climachem, Inc., senior sub. notes, 10.75%, 12/01/07 United States 1,200,000 1,251,000
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 United States 3,500,000 3,500,000
------------
8,726,000
------------
Consumer Products 4.5%
E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 United States$3,000,000 $ 2,205,000
La Petite Academy Inc., senior notes, 144A, 10.00%, 5/15/08 United States 5,000,000 5,062,500
Revlon Worldwide Corp., senior disc. notes, Series B, zero coupon
to 3/15/00,10.75% thereafter, 3/15/01 United States10,000,000 7,800,000
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 United States 3,000,000 3,228,951
Sealy Mattress Corp., senior disc. notes, 144A, zero coupon
to 12/15/02, 10.875% thereafter, 12/15/07 United States 1,500,000 975,000
Sealy Mattress Corp., senior sub. notes, 144A, 9.875%, 12/15/07 United States 1,000,000 1,020,000
Styling Technology Corp., senior sub notes, 144A, 10.875%, 7/01/08 United States 3,000,000 3,007,500
------------
23,298,951
------------
Containers/Packaging 1.9%
Container Corp., senior notes, Series A, 11.25%, 5/01/04 United States 2,500,000 2,737,500
Graham Packaging Co., senior disc. notes, 144A, zero
coupon to 1/15/03, 10.75% thereafter, 1/15/09 United States 900,000 567,000
Plastic Containers, Inc., senior notes, 10.00%, 12/15/06 United States 1,000,000 1,070,000
Radnor Holdings Corp., senior notes, 10.00%, 12/01/03 United States 5,000,000 5,225,000
------------
9,599,500
------------
Energy 4.1%
Abraxas Petroleum Corp., 11.50%, 11/01/04 United States 4,300,000 4,461,250
Clark R&M, Inc., senior sub. notes, 8.875%, 11/15/07 United States 5,000,000 5,012,500
Dailey International, Inc., 9.50%, 2/15/08 United States 1,550,000 1,519,000
Dawson Production Services, Inc., senior notes, 9.375%, 2/01/07 United States 1,000,000 1,010,000
Empire Gas Corp., senior secured notes, 7.00%
coupon to 7/15/99, 12.875% thereafter, 7/15/04 United States 5,000,000 4,600,000
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 United States 800,000 806,000
Mesa Operating Co., senior sub. notes, zero coupon
to 7/01/01, 11.625% thereafter, 7/01/06 United States 1,800,000 1,494,000
Nuevo Energy Co., senior sub. notes, 144A, 8.875%, 6/01/08 United States 1,300,000 1,322,750
Pogo Producing Co., senior sub. notes, Series B, 8.75%, 5/15/07 United States 1,000,000 1,020,000
------------
21,245,500
------------
Food/Beverage 3.0%
Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 2/01/05 United States 700,000 777,000
Doane Products Co., senior notes, 10.625%, 3/01/06 United States 3,000,000 3,285,000
International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 United States 1,600,000 1,744,000
Packaged Ice, Inc., senior notes, 144A, 9.75%, 2/01/05 United States 2,600,000 2,626,000
Purina Mills, Inc., senior sub notes, 144A, 9.00%, 3/15/10 United States 2,600,000 2,671,500
RC/Arby's Corp., senior notes, 9.75%, 8/01/00 United States 4,000,000 4,131,440
------------
15,234,940
------------
Food Retailing 1.0%
Fleming Co.'s, Inc., senior sub. notes, 10.50%, 12/01/04 United States 2,000,000 2,090,000
Fleming Co.'s, Inc., senior sub. notes, 10.625%, 7/31/07 United States 2,000,000 2,095,000
Shoppers Food Warehouse Corp., senior notes, 9.75%, 6/15/04 United States 750,000 832,500
------------
5,017,500
------------
Forest/Paper Products 2.6%
Bear Island Paper, senior notes, 10.00%, 12/01/07 United States 1,800,000 1,854,000
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 United States 7,700,000 8,277,500
Repap New Brunswick, senior notes, 144A, 9.00%, 6/01/04 Canada 2,000,000 2,020,000
Tjiwi Kimia Fn Mauritius, senior unsecured notes, 10.00%, 8/01/04 Indonesia 2,000,000 1,425,000
------------
13,576,500
------------
Gaming/Leisure 1.5%
Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 8/15/06 United States 1,000,000 1,110,000
Hard Rock Hotel, Inc., senior sub. notes, 144A, 9.25%, 4/01/05 United States 400,000 412,250
Players International, Inc., senior notes, 10.875%, 4/15/05 United States 2,900,000 3,157,375
Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 7/15/05 United States 3,000,000 3,225,000
------------
7,904,625
------------
Health Care Services 4.2%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 United States $7,770,000 $ 7,653,450
Magellan Health Services, senior sub notes, 144A, 9.00%, 2/15/08 United States 2,750,000 2,743,125
Pharmerica Inc., senior sub notes, 144A, 8.375%, 4/01/08 United States 1,250,000 1,259,375
Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 United States 2,400,000 2,559,667
Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 United States 3,250,000 3,367,813
Vencor Inc., senior sub notes, 144A, 9.875%, 5/01/05 United States 4,200,000 4,142,250
------------
21,725,680
------------
Industrial Products 9.1%
Allied Waste Industries, Inc., senior disc. notes, zero coupon
to 6/01/02, 11.30% thereafter, 6/01/07 United States 11,500,000 8,452,500
Allied Waste Industries, Inc., senior sub. notes, 10.25%, 12/01/06 United States 2,500,000 2,750,000
EASCO Corp., senior notes, Series B, 10.00%, 3/15/01 United States 6,500,000 6,662,500
Exide Electronics Group, Inc., senior sub. notes, 11.50%, 3/15/06 United States 2,000,000 2,360,000
Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 United States 3,200,000 3,408,000
Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 United Kingdom 3,700,000 3,829,500
Les, Inc., senior sub. Notes, 144A, 9.25%, 6/01/08 United States 4,500,000 4,612,500
Nortek, Inc., senior sub. notes, 9.875%, 3/01/04 United States 5,500,000 5,678,750
Simonds Industries, senior sub. notes, 144A, 10.25%, 7/01/08 United States 2,750,000 2,750,000
Terex Corp., senior sub notes, 144A, 8.875%, 4/01/08 United States 3,550,000 3,487,875
Universal Compression, Inc., senior disc. notes, 144A, zero coupon to
------------
2/15/03, 9.875% thereafter, 2/15/08 United States 4,650,000 2,952,750
46,944,375
------------
Lodging 2.2%
HMH Properties Corp., Series B, 8.875%, 7/15/07 United States 3,000,000 3,360,000
John Q. Hammons Hotels, L.P., first mortgage, 8.875%, 2/15/04 United States 1,000,000 1,012,500
John Q. Hammons Hotels, L.P., first mortgage, 9.75%, 10/01/05 United States 1,500,000 1,597,500
Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 4/01/07 United States 3,000,000 3,157,500
Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 United States 2,310,000 2,390,850
------------
11,518,350
------------
Media 8.5%
Advanstar Communications, senior sub. notes, 144A, 9.25%, 5/01/08 United States 5,000,000 5,056,250
Ascent Entertainment Group, Inc., senior disc. notes, zero coupon to 12/01/02,
11.875% thereafter, 12/15/04 United States 3,000,000 1,950,000
Fox Family Worldwide, Inc., senior disc. notes, zero coupon to 11/01/02,
10.25% thereafter, 11/01/07 United States 3,000,000 1,965,000
Fox Family Worldwide, Inc., senior notes, 9.25%, 11/01/07 United States 1,500,000 1,507,500
Hollinger Publishing, senior sub. notes, 9.25%, 3/15/07 United States 4,500,000 4,758,750
K-III Communications Corp., senior notes, 10.25%, 6/01/04 United States 2,500,000 2,675,000
News America Holdings, Inc., deb., 8.625%, 2/07/14 Australia 5,000,000 AUD 3,386,516
Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 United States 4,250,000 4,451,875
Regal Cinemas, Inc., senior sub notes, 144A, 9.50%, 6/01/08 United States 5,000,000 5,056,250
Six Flags Entertainment, 8.875%, 4/01/06 United States 2,250,000 2,306,250
Six Flags Theme Parks, senior sub. notes, zero coupon
to 6/15/98, 12.25% thereafter, 6/15/05 United States 5,000,000 5,700,000
Time Warner, Inc., deb., 9.125%, 1/15/13 United States 1,500,000 1,850,118
Turner Broadcasting Systems, Inc., senior deb., 8.40%, 2/01/24 United States 3,000,000 3,215,736
------------
43,879,245
------------
Metals/Mining 3.9%
AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 United States 4,000,000 4,200,000
Algoma Steel, Inc., first mortgage, 12.375%, 7/15/05 Canada 4,000,000 4,500,000
LTV Corp., 8.20%, 9/15/07 United States 4,500,000 4,365,000
Neenah Corp., senior sub. notes, Series B, 11.125%, 5/01/07 United States 1,000,000 1,095,000
P&L Coal Holdings Corp., senior notes, 144A, 8.875%, 5/15/08 United States 1,000,000 1,033,750
P&L Coal Holdings Corp., senior sub. notes, 144A, 9.625%, 5/15/08 United States 4,500,000 4,646,250
------------
19,840,000
------------
Restaurants 1.6%
Friendly Ice Cream Corp., senior notes, 10.50%, 12/01/07 United States 8,000,000 8,440,000
------------
Retail .8%
Hollywood Entertainment Corp., senior sub. notes, Series B, 10.625%, 8/15/04 United States $4,000,000 $ 4,100,000
------------
Technology/Information Systems 2.4%
Amphenol Corp., senior sub. notes, 9.875%, 5/15/07 United States 1,000,000 1,055,000
Anacomp Inc., senior sub. notes, 144A, 10.875%, 4/01/04 United States 4,000,000 4,230,000
Borg-Warner Security Corp., senior sub. notes, 9.625%, 3/15/07 United States 4,000,000 4,500,000
Decisionone Corp., senior sub. notes, 9.75%, 8/01/07 United States 1,000,000 970,000
Decisionone Holdings, units, zero coupon to 8/01/03, 11.50% thereafter, United States 2,500,000 1,525,000
8/01/08
------------
12,280,000
------------
Telecommunications 9.5%
Dynatech Corp., senior sub notes, 144A, 9.75%, 5/15/08 United States 3,500,000 3,578,750
Flag Limited, senior notes, 144A, 8.25%, 1/30/08 Bermuda 1,000,000 1,008,750
Global Crossing Holdings, Ltd., senior notes, 144A, 9.625%, 5/15/08 Bermuda 5,000,000 5,187,500
Hermes Europe Railtel BV, senior notes, 11.50%, 8/15/07 Netherlands 2,000,000 2,270,000
Intelcom Group, Inc., senior disc. notes, zero coupon
to 5/01/01, 12.50% thereafter, 5/01/06 United States 3,250,000 2,551,250
Intermedia Communications, Inc., senior disc. notes, zero coupon
to 7/01/02, 11.25% thereafter, 7/15/07 United States 5,000,000 3,675,000
IXC Communications, Inc., senior sub notes, 144A, 9.00%, 4/15/08 United States 2,250,000 2,227,500
Level 3 Communications, senior notes, 144A, 9.125%, 5/01/08 United States 5,000,000 4,893,750
Netia Holdings, BV, 10.25%, 11/01/07 Poland 1,300,000 1,252,875
Netia Holdings, BV, zero coupon to 11/01/01, 11.25% thereafter, 11/01/07 Poland 2,000,000 1,325,000
NEXTLINK Communications, Inc., senior notes, 9.625%, 10/01/07 United States 1,400,000 1,442,000
NEXTLINK Communications, Inc., senior notes, 144A, 9.00%, 3/15/08 United States 3,600,000 3,591,000
Orion Network Systems, Inc., senior disc. notes, zero coupon
to 1/15/02, 12.50% thereafter, 1/15/07 United States 1,500,000 1,147,500
Poland Telecom Finance, units, 144A, 14.00%, 12/01/07 Poland 8,000,000 9,040,000
Teleport Communications Group, Inc., senior notes, 11.125%, 7/01/07 United States 6,500,000 5,655,000
------------
48,845,875
------------
Textiles/Apparel 2.1%
Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 4/15/06 United States 5,500,000 6,160,000
Pillowtex Corp., senior sub. notes, 9.00%, 12/15/07 United States 2,900,000 2,997,875
Polysindo International Finance, notes, 9.375%, 7/30/07 Indonesia 4,250,000 1,583,125
------------
10,741,000
------------
Transportation 4.9%
American Commercial Lines, L.L.C., 144A, 10.25%, 6/30/08 United States 3,100,000 3,146,500
Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 Greece 1,600,000 1,644,000
GS Superhighway Holdings, Ltd., senior notes, 10.25%, 8/15/07 Hong Kong 6,000,000 4,260,000
Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 Bermuda 4,500,000 4,938,750
Holt Group, senior notes, 144A, 9.75%, 1/15/06 United States 3,250,000 3,266,250
L-3 Communications Corp., senior sub. notes, 10.375%, 5/01/07 United States 3,500,000 3,885,000
MRS Logistica, SA, notes, 144A, 10.625%, 8/15/05 Brazil 5,000,000 4,187,500
------------
25,328,000
------------
Utilities 2.0%
AES Corp., senior sub. notes, 8.50%, 11/01/07 United States 1,000,000 1,015,000
El Paso Electric Co., first mortgage, 8.90%, 2/01/06 United States 2,500,000 2,800,000
Midland Funding Corp. I, deb., Series C-94, 10.33%, 7/23/02 United States 2,145,356 2,331,990
Niagara Mohawk Power, senior disc. notes, Series H, zero coupon
to 7/01/08, 8.50% thereafter, 7/01/010 United States 1,500,000 1,027,500
Niagara Mohawk Power, senior notes, Series D, 7.25%, 10/01/02 United States 1,000,000 1,003,470
Niagara Mohawk Power, senior notes, Series G, 7.75%, 10/01/08 United States 1,200,000 1,228,500
Trench Electric & Trench, Inc., senior sub. deb., 10.25%, 12/15/07 Canada 750,000 763,125
-------------
10,169,585
-------------
Wireless Communication 10.7%
Arch Communications Group, Inc., senior disc. notes, zero coupon to 3/15/01,
10.875% thereafter, 3/15/08 United States 6,000,000 3,360,000
International Wireless Communications, Inc.,
senior disc. notes, zero coupon to 8/15/01,
14.00% thereafter, 8/15/01 United States 7,800,000 1,092,000
Wireless Communication (cont.)
Iradium, L.L.C., senior notes,10.875%,7/15/05 United States$2,350,000 $ 2,344,125
McCaw International, Ltd., senior disc. notes, zero coupon
to 4/15/02, 13.00% thereafter, 4/15/07 United States 7,000,000 4,620,000
Millicom International Cellular, SA, senior disc. notes, zero coupon
to 6/01/01, 13.50% thereafter, 6/01/06 Luxembourg 9,300,000 7,195,875
Nextel Communications, Inc., senior disc. notes, zero coupon to
9/15/02, 10.65% thereafter, 9/15/07 United States 7,000,000 4,742,500
Nextel Communications, Inc., senior disc. notes, zero coupon
to 10/31/02, 9.75% thereafter, 10/31/07 United States 3,000,000 1,965,000
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 United States 4,700,000 4,899,750
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 United States 4,500,000 4,680,000
Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 6/01/16 Canada 3,000,000 3,150,000
Sprint Spectrum, L.P., senior disc. notes, zero coupon to 8/15/01,
12.50% thereafter, 8/15/06 United States10,000,000 8,575,000
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 United States 7,500,000 8,362,500
------------
54,986,750
------------
Total Bonds (Cost $477,418,440) 490,157,223
------------
Total Long-Term Investments (Cost $485,929,512) 497,728,002
fRepurchase Agreement 1.8%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $9,194,339)
(Cost $9,192,905) United States 9,192,905 9,192,905
BancAmerica Robertson Stephens (Maturity Value $878,611)
Barclays Capital, Inc. (Maturity Value $878,611)
Bear, Stearns & Co., Inc. (Maturity Value $479,117)
BT Alex Brown, Inc. (Maturity Value $807,723)
Chase Securities, Inc. (Maturity Value $878,611)
CIBC Oppenheimer Corp. (Maturity Value $878,611)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $878,611)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $878,611)
Greenwich Capital Markets, Inc. (Maturity Value $878,611)
Paribas Corp. (Maturity Value $878,611)
SBC Warburg Dillon Read, Inc. (Maturity Value $878,611)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $495,122,417) 98.5% 506,920,907
Other Assets, less Liabilities 1.5% 7,713,373
------------
Net Assets 100.0% $514,634,280
============
See currency abbreviations on page 133.
*Securities traded in U.S. Dollars unless otherwise indicated.
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
Income Securities Fund WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks and Warrants 37.0%
Apparel & Textiles .5%
a,c Bibb Co. 419,424 $ 6,448,644
------------
Automotive .2%
General Motors Corp. 45,000 3,006,563
------------
Computer & Technology .2%
aAnacomp, Inc. 105,000 2,480,625
------------
Consumer Products 1.9%
Philip Morris Cos., Inc. 600,000 23,625,000
RJR Nabisco Holdings Corp. 60,000 1,425,000
------------
25,050,000
------------
Energy 2.9%
Athabasca Oil Sands Trust (Canada) 576,500 7,252,559
Canadian Oil Sands Trust - Units, 144A (Canada) 500,000 7,089,184
McDermott International, Inc. 280,000 9,642,500
Pioneer Natural Resources Co. 302,226 7,215,646
aSanta Fe Energy Resources, Inc. 279,642 3,006,152
Snyder Oil Corp. 61,087 1,217,922
Ultramar Diamond Shamrock Corp. 125,000 3,945,313
------------
39,369,276
------------
Metals 1.1%
Anglo American Platinum Corp., Ltd., ADR 223,161 2,404,984
Anglogold, Ltd., ADR (South Africa) 354,900 7,200,389
De Beers Consolidated Mines, Ltd., ADR 40,000 700,000
Driefontein Consolidated, Ltd., Sponsored ADR 185,200 949,150
Freeport-McMoRan Copper & Gold, Inc., Class A 110,000 1,567,500
Impala Platinum Holdings, Ltd., ADR 216,500 1,826,784
St. Helena Gold Mines, Ltd., ADR 19,000 38,595
------------
14,687,402
------------
Real Estate Investment Trusts 2.0%
Equity Residential Properties Trust 150,000 7,115,625
FelCor Suite Hotels, Inc. 275,000 8,628,125
Gables Residential Trust 150,000 4,068,750
Meditrust Cos. 120,160 3,356,970
Security Capital Group, Inc., Class B, warrants 36,419 12,521
Simon DeBartolo Group, Inc. 102,900 3,344,250
------------
26,526,241
------------
Telecommunications 1.1%
U S WEST, Inc. 325,000 15,275,000
------------
Utilities 27.1%
American Electric Power Co. 390,000 17,696,250
Central & South West Corp. 650,000 17,468,750
CINergy Corp. 511,000 17,885,000
Conectiv, Inc. 500,000 10,250,000
Dominion Resources, Inc. 375,000 15,281,250
Edison International 600,000 17,737,500
Energy East Corp. 200,000 8,325,000
Entergy Corp. 570,000 16,387,500
FirstEnergy Corp. 385,000 11,838,750
Florida Progress Corp. 400,000 16,450,000
FPL Group, Inc. 240,000 15,120,000
GPU, Inc. 320,000 12,100,000
Hawaiian Electric Industries, Inc. 142,000 5,635,625
Houston Industries, Inc. 315,000 9,725,625
MarketSpan Corp. 352,000 10,538,000
MidAmerican Energy Holdings Co. 291,700 6,308,013
Utilities (cont.)
Nevada Power Co. 175,000 $ 4,506,250
New Century Energies, Inc. 380,000 17,266,250
New England Electric System 330,000 14,272,500
Northern States Power Co. 210,000 6,011,250
PacifiCorp 120,000 2,715,000
PECO Energy Co. 400,000 11,675,000
PG&E Corp. 575,000 18,148,438
Potomac Electric Power Co. 300,000 7,518,750
Public Service Enterprise Group, Inc. 395,000 13,602,813
SCANA Corp. 150,000 4,471,875
Sempra Energy 525,000 14,568,750
Southern Co. 480,000 13,290,000
Texas Utilities Co. 437,450 18,208,856
Western Resources, Inc. 215,000 8,344,688
------------
363,347,683
------------
Total Common Stocks and Warrants (Cost $402,443,870) 496,191,434
------------
Preferred Stocks .5%
Media & Broadcasting .2%
Time Warner, Inc., 10.25%, pfd., Series M 2,852 3,183,545
------------
Paper & Forest Products .3%
Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A 5,000,000 3,662,500
------------
Total Preferred Stocks (Cost $7,882,236) 6,846,045
------------
Convertible Preferred Stocks 9.1%
Cable Systems .7%
CSC Holdings Inc., 8.50% cvt. pfd., Series I 150,000 9,590,625
------------
Energy 2.3%
Chesapeake Energy Corp., 7.00% cvt. pfd., 144A 85,000 3,601,875
Devon Financing Trust, $3.25 cvt. pfd., 144A 60,000 3,690,000
Enron Corp., 6.25% cvt. pfd. 340,000 6,800,000
EVI, Inc., 5.00% cvt. pfd., 144A 125,000 5,343,750
Lomak Petroleum, Inc., 5.75% cvt. pfd., 144A 120,000 4,530,000
Nuevo Energy Co., 5.75% cvt. pfd., Series A 140,000 6,396,250
Patina Oil & Gas Corp., 7.125% cvt. pfd. 39,525 1,052,353
------------
31,414,228
------------
Lodging .4%
Host Marriott Financial Trust, 6.75% cvt. pfd., 144A 100,000 5,262,500
------------
Metals 1.7%
Amax Gold, Inc., $3.75 cvt. pfd., Series B 150,000 6,628,125
Armco, Inc., $3.625 cum. cvt. pfd., Series A 65,000 3,339,375
Battle Mountain Gold Co., $3.25 cvt. pfd. 66,300 3,037,369
Coeur D' Alene Mines Corp., 7.00% cvt. pfd. 135,000 1,442,813
Cyprus Amax Minerals Co., $4.00 cvt. pfd., Series A 55,000 2,502,500
Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd. 108,800 2,305,200
Hecla Mining Co., $3.50 cvt. pfd., Series B 70,000 3,062,500
------------
22,317,882
------------
Real Estate Investment Trusts 2.6%
Glenborough Realty Trust, 7.75% cvt. pfd., Series A 270,000 6,581,250
Reckson Associates Realty, 7.625% cvt. pfd., Series A 180,000 4,241,250
Security Capital Industrial Trust, 7.00% cvt. pfd. 135,000 4,235,625
Security Capital Pacific Trust, $1.75 cvt. pfd., Series A 400,000 12,050,000
Vornado Realty Trust, 6.50% cvt. pfd., Series A 60,000 3,442,500
Innkeepers USA Trust, 13.00% cvt. pfd., 144A 175,000 4,051,075
------------
34,601,700
------------
Telecommunications .6%
Nortel Inversora, SA, 10.00% cvt. pfd. (Argentina) 150,000 $ 8,118,750
------------
Transportation .1%
Union Pacific Capital Trust, 6.25% cvt. pfd., 144A 10,000 471,250
------------
Utility .7%
cCMS Energy Corp., 7.75% quarterly cvt. pfd. 160,000 9,910,000
------------
Total Convertible Preferred Stocks (Cost $117,095,515) 121,686,935
------------
Partnership Units .1%
BP Prudhoe Bay Royalty Trust (Cost $1,340,750) 50,000 534,375
------------
PRINCIPAL
AMOUNT*
Corporate Bonds 18.8%
Apparel & Textiles 1.5%
Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 $ 10,000,000 10,600,000
Hartmarx Corp., senior sub. notes, 10.875%, 1/15/02 8,300,000 8,673,500
Polysindo International Finance Corp., secured notes, 11.375%, 6/15/06 1,000,000 392,500
The William Carter Co., senior sub. notes, Series A, 10.375%, 12/01/06 500,000 535,000
------------
20,201,000
------------
Automotive .5%
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06 4,000,000 4,450,000
a,b,cHarvard Industries, Inc., senior notes, 11.125%, 8/01/05 5,000,000 2,225,000
------------
6,675,000
------------
Cable Systems 1.6%
Continental Cablevision, Inc., senior deb., 9.50%, 8/01/13 8,000,000 9,539,320
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 4,000,000 4,430,000
Helicon Group L.P. Corp., S.F., senior secured notes, Series B, 11.00%, 11/01/03 7,300,000 7,847,500
------------
21,816,820
------------
Chemicals .7%
Applied Extrusion Technologies, Inc., senior notes, Series B, 11.50%, 4/01/02 8,000,000 8,480,000
Uniroyal Chemical Co. Investors, senior notes, 10.50%, 5/01/02 725,000 790,250
------------
9,270,250
------------
Computer & Technology .8%
Anacomp, Inc., senior sub. notes, Series B, 10.875%, 4/01/04 6,000,000 6,345,000
Maxtor Corp., S.F., sub. deb., 5.75%, 3/01/12 1,500,000 1,057,500
Samsung Electronics America, Inc., 9.75%, 144A 4,000,000 3,760,000
------------
11,162,500
------------
Consumer Products 1.4%
E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 3,750,000 2,756,250
Outsourcing Services Group, senior sub. notes, 144A, 10.875%, 3/01/06 2,000,000 2,050,000
Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 8,000,000 8,260,000
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 5,000,000 5,381,585
------------
18,447,835
------------
Containers & Packaging .5%
Calmar, Inc., senior sub. notes, Series B, 11.50%, 8/15/05 2,450,000 2,835,875
Packaging Resources, Inc., senior notes, 11.625%, 5/01/03 3,000,000 2,955,000
Printpack, Inc., senior sub. notes, Series B, 10.625%, 8/15/06 1,000,000 1,075,000
U.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 300,000 318,000
------------
7,183,875
------------
Energy 2.0%
Bellwether Exploration Co., senior sub. notes, 10.875%, 4/01/07 $ 1,000,000 $ 1,060,000
Conproca, SA, 144A, 12.00%, 6/16/10 (Mexico) 9,000,000 9,157,500
Denbury Management, Inc., senior sub unsecured notes, 9.00%, 3/01/08 4,000,000 3,840,000
Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 7/15/04 9,835,000 10,744,738
Mesa Operating Co., senior sub. notes, 10.625%, 7/01/06 1,000,000 1,170,000
Plains Resources, Inc., senior sub. notes, Series B, 10.25%, 3/15/06 1,000,000 1,055,000
------------
27,027,238
------------
Entertainment .1%
AMF Bowling Worldwide, Inc., senior sub. notes, Series B, 10.875%, 3/15/06 650,000 696,313
------------
Financial Services .3%
First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 500,000 555,000
IBJ Preferred Capital Co., L.L.C., 144A, 8.79%, 12/29/49 4,000,000 3,540,000
------------
4,095,000
------------
Food & Beverages 1.9%
Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 2/01/05 5,000,000 5,550,000
Del Monte Corp., senior sub. notes, Series B, 12.25%, 4/15/07 4,000,000 4,510,000
Doane Products Co., senior notes, 10.625%, 3/01/06 3,000,000 3,285,000
International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 4,100,000 4,469,000
Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 8/15/03 4,000,000 3,560,000
Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 8/15/01 4,000,000 3,900,000
------------
25,274,000
------------
Food Chains .1%
bBruno's, Inc., senior sub. notes, 10.50%, 8/01/05 7,000,000 1,225,000
------------
Gaming & Leisure 1.8%
Aztar Corp., senior sub. notes, 11.00%, 10/01/02 9,000,000 9,281,250
Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 8/15/06 500,000 555,000
Hard Rock Hotel, Inc., senior sub. notes, 144A, 9.25%, 4/01/05 400,000 412,250
Harveys Casinos Resorts, senior sub. notes, 10.625%, 6/01/06 2,200,000 2,447,500
Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 7/15/05 8,000,000 8,600,000
Venetian Casino Resort, L.L.C., 144A, 12.25%, 11/15/04 2,000,000 2,065,000
------------
23,361,000
------------
Health Care Services .3%
Dade International, Inc., senior sub. notes, Series B, 11.125%, 5/01/06 3,000,000 3,360,000
------------
Industrial Products 1.0%
Nortek, Inc., senior sub. notes, 9.875%, 3/01/04 2,000,000 2,065,000
RBX Corp., senior sub. notes, Series B, 11.25%, 10/15/05 10,000,000 6,550,000
Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 2,696,000 2,915,050
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 1,350,000 1,373,625
------------
12,903,675
------------
Media & Broadcasting .2%
Benedek Broadcasting Corp., senior notes, 11.875%, 3/01/05 2,000,000 2,240,000
------------
Metals .4%
Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 6,000,000 6,000,000
------------
Paper & Forest Products .9%
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 2,000,000 2,150,000
Riverwood International, senior sub. notes, 10.875%, 4/01/08 6,000,000 6,090,000
Tjiwi Kimia Finance Mauritius, senior unsecured notes, 10.00%, 8/01/04 6,000,000 4,275,000
------------
12,515,000
------------
Pharmaceuticals .2%
ICN Pharmaceuticals, Inc., senior notes, Series B, 9.25%, 8/15/05 3,000,000 3,172,500
------------
Shipping Services .1%
First Wave Marine, Inc., senior notes, 11.00%, 2/01/08 1,000,000 1,055,000
------------
Telecommunications .2%
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 $ 3,000,000 $ 3,127,500
------------
Utilities 2.3%
ESCOM, E168, utility deb., 11.00%, 6/01/08, (South Africa) 195,782,500 ZAR 25,423,920
Midland Funding Corp. I, deb., S.F., Series C-94, 10.33%, 7/23/02 3,064,795 3,331,414
Texas New Mexico Power, secured deb., 10.75%, 9/15/03 2,000,000 2,165,982
------------
30,921,316
------------
Total Corporate Bonds (Cost $265,359,245) 251,730,822
------------
Convertible Corporate Bonds 4.8%
Automotive .2%
Exide Corp., cvt. senior sub. notes, 144A, 2.90%, 12/15/05 4,000,000 2,520,000
------------
Computer & Technology .8%
Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 3/01/02 9,000,000 11,283,750
------------
Electrical Equipment .6%
Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 8,000,000 8,360,000
------------
Energy 1.0%
Oryx Energy Co., S.F., cvt. sub. deb., 7.50%, 5/15/14 9,000,000 8,932,500
Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 5,000,000 4,731,250
------------
13,663,750
------------
Health Care Services .7%
Continucare Corp., cvt. sub notes, 144A, 8.00%, 10/31/02 9,500,000 7,932,500
Medical Care International, Inc., S.F., cvt. sub. deb., 144A, 6.75%, 10/01/06 1,000,000 915,000
------------
8,847,500
------------
Metals .8%
Ashanti Capital, Ltd., cvt. notes, 5.50%, 3/15/03 5,000,000 3,925,000
Coeur D'Alene Mines Corp., Eurobonds, cvt. sub. deb., 6.00%, 6/10/02 100,000 73,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 6,000,000 4,545,000
FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 1/16/05 1,800,000 1,719,000
------------
10,262,000
------------
Pollution Control .2%
Air & Water Technology Corp., S.F., cvt. sub. deb., 8.00%, 5/15/15 3,610,000 3,073,013
------------
Real Estate Investment Trusts .4%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 5,500,000 5,417,500
------------
Retail .1%
Drug Emporium, Inc., S.F., cvt. sub. deb., 7.75%, 10/01/14 1,180,000 1,029,550
------------
Total Convertible Corporate Bonds (Cost $65,360,560) 64,457,063
------------
Zero Coupon/Step-up Bonds 2.3%
AMF Bowling Worldwide, Inc., senior sub. disc. notes, Series B, zero coupon
to 3/15/01, 12.25% thereafter, 3/15/06 2,438,000 1,971,733
APP Finance (VI) Mauritius Ltd., cvt., 144A, 0.00%, 11/18/12 11,500,000 2,357,500
Marcus Cable Holding Co., senior disc. notes, zero coupon to 6/15/00,
14.25% thereafter, 12/15/05 14,000,000 13,090,000
Mesa Operating Co., senior sub. notes, zero coupon to
7/01/01, 11.625% thereafter, 7/01/06 1,300,000 1,079,000
Nextel International, Inc., senior disc. notes, 144A, zero coupon
to 4/15/03, 12.125% thereafter, 4/15/08 5,000,000 2,900,000
Nextel Communications, senior disc. notes, 144A, zero coupon
to 2/15/03, 9.95% thereafter, 2/15/08 8,200,000 5,278,750
Revlon Worldwide Corp., senior disc. notes, Series B zero coupon
to 3/15/00, 10.75% thereafter, 3/15/01 6,000,000 4,680,000
------------
Total Zero Coupon/Step-up Bonds (Cost $28,520,935) 31,356,983
------------
U.S. Government Securities 11.3%
U.S. Treasury Bonds, 6.00% - 7.125%, 2/15/23 - 2/15/26 129,000,000 139,670,754
U.S. Treasury Notes, 6.375%, 8/15/02 11,000,000 11,336,886
------------
Total U.S. Government Securities (Cost $135,716,624) 151,007,640
------------
Foreign Government & Agency Securities 11.8%
Republic of Argentina, Series L, 5.50%, 3/31/23 110,000,000 81,812,500
Republic of Brazil - El, floating rate deb., 6.875%, 4/15/06 15,520,000 12,765,200
Republic of Brazil - IDU, variable rate deb., Series A, 6.8125%, 1/01/01 $ 7,000,000 $ 6,650,000
Republic of Brazil PAR Z-L, variable rate collateralized deb., 5.25%, 4/15/24 39,000,000 27,568,125
Republic of Korea, 5.875%, 4/15/08 20,000,000 18,387,500
Republic of South Africa, 12.00%, 2/28/05 (South Africa) 75,000,000ZAR 10,934,829
------------
Total Foreign Government & Agency Securities (Cost $133,219,934) 158,118,154
------------
Total Long Term Investments (Cost $1,156,939,669) 1,281,929,451
------------
fRepurchase Agreement 3.3%
Joint Repurchase Agreement, 5.614%, 7/01/98
(Maturity Value $44,431,896) (Cost $44,424,968) 44,424,968 44,424,968
BancAmerica Robertson Stephens (Maturity Value $4,245,912)
Barclays Capital, Inc. (Maturity Value $4,245,912)
Bear, Stearns & Co., Inc. (Maturity Value $2,315,346)
BT Alex Brown, Inc. (Maturity Value $3,903,342)
Chase Securities, Inc. (Maturity Value $4,245,912)
CIBC Oppenheimer Corp. (Maturity Value $4,245,912)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $4,245,912)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $4,245,912)
Greenwich Capital Markets, Inc. (Maturity Value $4,245,912)
Paribas Corp. (Maturity Value $4,245,912)
SBC Warburg Dillon Read, Inc. (Maturity Value $4,245,912)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $1,201,364,637) 99.0% 1,326,354,419
Other Assets, less Liabilities 1.0% 14,023,632
------------
Net Assets 100.0% $1,340,378,051
============
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cSee Note 8 regarding restricted securities.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
PRINCIPAL
Money Market Fund AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
Certificates of Deposit 11.9%
<S> <C> <C>
Australia New Zealand Banking Group, New York Branch, 5.59%, 9/25/98 $10,000,000 $ 10,000,232
Bayerische Vereinsbank, New York Branch, 5.85%, 12/18/98 7,000,000 7,002,658
Credit Agricole Indosuez, New York Branch, 5.52%, 8/10/98 5,000,000 5,000,000
National Westminster Bank, New York Branch, 5.69% - 5.745%, 7/06/98 - 4/06/99 10,000,000 9,997,856
Rabobank Nederland, NV, New York Branch, 5.70%, 4/20/99 5,000,000 4,993,524
Swiss Bank Corp., New York Branch, 5.81%, 4/29/99 5,000,000 4,998,416
------------
Total Certificates of Deposit (Cost $41,992,686) 41,992,686
============
dCommercial Paper 77.4%
AIG Funding, Inc., 5.30%, 7/13/98 10,000,000 9,982,333
American Express Credit Corp., 5.43% - 5.45%, 7/31/98 - 8/05/98 15,000,000 14,925,160
Associates Corp. of North America, 5.46% - 5.51%, 7/09/98 - 8/17/98 15,000,000 14,936,847
Bellsouth Telecommunications, Inc., 5.49%, 7/22/98 5,000,000 4,983,987
Chevron U.S.A., Inc., 5.49%, 8/19/98 - 8/26/98 15,000,000 14,878,000
CIESCO, L.P., 5.50% - 5.52%, 7/28/98 - 9/08/98 15,000,000 14,887,517
Commonwealth Bank of Australia, 5.42% - 5.455%, 10/19/98 - 11/25/98 10,000,000 9,805,820
Dupont (E.I.) De Nemours & Co., 5.48%, 9/23/98 - 9/24/98 10,000,000 9,871,372
General Electric Capital Corp., 5.35% - 5.52%, 7/14/98 - 7/27/98 15,000,000 14,960,004
Generale Bank, Inc., 5.50%, 8/12/98 - 8/14/98 10,000,000 9,934,306
Goldman Sachs Group, L.P., 5.50%, 9/03/98 - 9/04/98 10,000,000 9,901,458
International Lease Finance Corp., 5.50%, 8/18/98 5,000,000 4,963,333
Merrill Lynch & Co., Inc., 5.48% - 5.52%, 7/08/98 - 8/28/98 15,000,000 14,906,505
Metlife Funding, Inc., 5.50%, 9/10/98 5,000,000 4,945,764
Morgan Stanley Dean Witter & Co., 5.49% - 5.52%, 7/16/98 - 7/23/98 15,000,000 14,957,238
Motorola, Inc., 5.49% - 5.50%, 8/11/98 - 9/16/98 10,000,000 9,909,969
National Australian Funding (DE), Inc., 5.45%, 12/01/98 5,000,000 4,884,188
National Rural Utilities Cooperative Finance Corp., 5.46% - 5.50%, 7/17/98 - 7/24/98 15,000,000 14,955,020
Pitney Bowes Credit Corp., 5.47%, 7/01/98 5,000,000 5,000,000
Procter & Gamble Co., 5.50%, 9/03/98 5,192,000 5,141,234
Province of British Columbia, 5.40% - 5.50%, 7/10/98 - 10/09/98 15,000,000 14,843,125
Royal Bank of Canada, 5.38%, 8/03/98 5,000,000 4,975,342
Salomon Smith Barney Holdings, Inc., 5.50%, 7/01/98 - 7/02/98 10,000,000 9,999,236
Societe Generale N.A., Inc., 5.51%, 8/24/98 5,000,000 4,958,675
Svenska Handelsbanken, Inc., 5.50%, 8/13/98 - 8/20/98 10,000,000 9,928,959
Toyota Motor Credit Corp., 5.50%, 8/06/98 - 8/31/98 15,000,000 14,897,639
Westpac Capital Corp., 5.495%, 7/07/98 5,000,000 4,995,421
------------
Total Commercial Paper (Cost $273,328,452) 273,328,452
============
Total Investments before Repurchase Agreements (Cost $315,321,138) 315,321,138
============
gRepurchase Agreement 11.4%
Barclays Capital, Inc., 5.125%, 7/01/98, (Maturity Value $10,391,479)
Collateralized by U.S. Treasury Notes 10,390,000 10,390,000
CIBC Oppenheimer Corp., 5.75%, 7/01/98, (Maturity Value $15,002,396)
Collateralized by U.S. Treasury Notes 15,000,000 15,000,000
SBC Warburg Dillon Read, Inc., 5.90%, 7/01/98, (Maturity Value $15,002,458)
Collateralized by U.S. Treasury Notes 15,000,000 15,000,000
------------
Total Repurchase Agreements (Cost $40,390,000) 40,390,000
------------
Total Investments (Cost $355,711,138) 100.7% 355,711,138
Other Assets, less Liabilities (.7%) (2,611,190)
------------
Net Assets 100.0% $353,099,948
============
dSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
WARRANTS
Mutual Discovery Securities Fund COUNTRY & RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------------
Common Stocks, Warrants and Rights 85.4%
Banking 4.6%
<S> <C> <C>
Australia & New Zealand Banking Group Ltd. Australia 96,000 $ 662,249
aBanca Nazionale del Lavoro SpA Italy 20,800 549,853
Banque Cantonale Vaudoise Switzerland 600 245,253
BG Bank AS Denmark 40,500 2,508,385
Fokus Bank AS Norway 50,000 387,698
aFokus Bank AS, rts. Norway 50,000 717
Mercantile Bankshares Corp. United States 10,000 348,125
Merita Ltd., A Finland 92,500 610,322
Pacific Bank N.A. United States 15,000 825,000
UST Corp., Inc. United States 80,000 2,120,000
Vermont Financial Services Corp. United States 48,000 1,317,000
Western Bancorp United States 67,975 2,867,682
------------
12,442,284
------------
Beverages & Tobacco 2.4%
B.A.T. Industries Plc. United Kingdom 103,710 1,039,975
Farmer Brothers Co. United States 5,000 1,195,000
Heineken Holding NV, A Netherlands 19,531 643,297
Kita Kyushu Coca-Cola Bottling Co. Ltd. Japan 22,000 499,334
Mikuni Coca-Cola Bottling Co. Japan 18,000 308,679
Philip Morris Companies Inc. United States 20,000 787,500
RJR Nabisco Holdings Corp. United States 50,000 1,187,500
Seita France 10,664 483,284
Swedish Match AB Sweden 87,000 289,095
------------
6,433,664
------------
Broadcasting & Publishing 5.8%
Alma Media OYJ, Series 2 Finland 16,500 577,423
A-Pressen AS, A Norway 20,600 402,685
Comcast Corp., Special A United States 5,000 202,969
Dow Jones & Co. Inc. United States 39,500 2,202,125
aMediaone Group Inc. United States 42,500 1,867,344
Mirror Group Plc. United Kingdom 260,000 980,412
aModern Times Group AB, B, fgn. Sweden 36,000 469,473
NV Holdingsmij de Telegraaf Netherlands 75,000 1,806,607
Pearson Plc. United Kingdom 120,740 2,216,004
Quebecor Inc. Canada 81,000 1,622,148
Shaw Brothers Hong Kong Ltd. Hong Kong 278,000 168,624
Southam Inc. Canada 75,000 1,361,735
United News & Media Plc. United Kingdom 144,280 2,020,941
------------
15,898,490
------------
Business & Public Services 2.6%
Esselte AB, A Sweden 9,700 215,288
IFIL Finanziaria Partecipazioni SpA Italy 204,000 947,153
aIFIL Finanziaria Partecipazioni SpA, rts. Italy 100,000 4,765
Laidlaw Environmental Services Inc. United States 173,000 627,125
Suez Lyonnaise des Eaux SA France 23,000 3,785,155
Vivendi France 3,500 747,354
Yorkshire Water Plc. United Kingdom 98,280 737,912
------------
7,064,752
------------
Chemicals 6.0%
British Vita Plc. United Kingdom 100,000 428,805
aBush Boake Allen Inc. United States 55,000 1,612,188
aCarbide/Graphite Group Inc. United States 22,500 625,781
Chemfirst Inc. United States 15,000 378,750
Croda International Plc. United Kingdom 200,000 1,274,736
Chemicals (cont.)
DSM NV Netherlands 18,525 $ 1,901,494
Hanna M.A. Co. United States 45,000 824,063
Hoechst AG Germany 55,100 2,750,421
Inspec Group Plc. United Kingdom 265,000 1,160,652
Laporte Plc. United Kingdom 60,000 718,290
Morton International Inc. United States 85,500 2,137,500
Olin Corp. United States 15,000 625,313
Yule Catto & Company Plc. United Kingdom 282,000 1,766,793
------------
16,204,786
------------
Construction & Housing .2%
Hollandsche Beton Groep NV Netherlands 3,623 75,516
Martin Marietta Materials Inc. United States 7,500 337,500
------------
413,016
------------
Data Processing & Reproduction .5%
aNational Processing Inc. United States 75,000 801,563
Tecnost Mael SpA Italy 190,000 566,510
------------
1,368,073
------------
Electrical & Electronics 2.5%
aDII Group Inc. United States 150,000 2,559,375
aEncore Wire Corp. United States 38,100 614,363
Philips Electronics NV Netherlands 9,500 798,594
Philips Electronics NV ADR Netherlands 5,000 425,000
Racal Electronics Plc. United Kingdom 288,500 1,629,413
aWang Laboratories Inc., A United States 34,800 885,225
------------
6,911,970
------------
Electronic Components & Instruments .4%
aAmphenol Corp., A United States 10,032 391,248
aNBS Technologies Inc. Canada 57,100 114,546
Spectra Physics AB, A Sweden 43,800 700,260
------------
1,206,054
------------
Energy Equipment & Services 3.4%
Bouygues Offshore SA, ADR France 37,000 781,625
aCie Generale De Geophysique SA France 8,600 1,261,694
aCie Generale De Geophysique SA, ADR France 30,000 881,250
ISIS SA France 6,478 792,875
aKoninklijke Pakhoed NV Netherlands 5,385 174,717
Saipem SpA Italy 250,000 1,287,446
Transocean Offshore Inc. United States 18,000 801,000
aTrico Marine Services Inc. United States 75,000 1,026,563
aVeritas DGC Inc. United States 46,000 2,297,125
------------
9,304,295
------------
Energy Sources 2.4%
Electrafina SA Belgium 12,809 1,652,330
aOcean Energy Inc. United States 45,500 890,094
Saga Petroleum AS, B Norway 89,000 1,258,422
Shell Transport & Trading Co. Plc. United Kingdom 84,400 594,971
Societe Elf Aquitane SA France 14,700 2,066,656
------------
6,462,473
------------
Financial Services 2.2%
Advanta Corp., B United States 23,243 461,955
Axa-UAP France 1,000 112,471
aCir Cie Industriali Riunite SpA Italy 20,000 24,956
Financial Services (cont.)
aCoast Federal Litigation Contingent Pymt Rts Trust, rts United States 25,000 $ 378,125
aContinental Information Systems Inc. United States 52,000 105,625
Electra Investment Trust Plc. United Kingdom 79,500 857,556
Laser Mortgage Management Inc. United States 94,000 1,022,250
Pargesa Holdings SA Switzerland 500 888,383
Peoples Bancorp Inc. United States 80,243 802,430
Pioneer Group Inc. United States 48,000 1,263,000
aRH Donnelly United States 2,500 7,500
------------
5,924,251
------------
Food & Household Products 1.7%
Cadbury Schweppes Plc. United Kingdom 81,212 1,260,850
Metsa Tissue OY Finland 63,500 686,336
aRalcorp Holdings Inc. United States 30,000 566,250
aScott's Restaurants Inc. Canada 60,000 220,326
aScott's Restaurants Inc., C Canada 70,000 253,477
U.S. Industries Inc. United States 54,000 1,336,500
Van Melle NV Netherlands 5,889 424,117
------------
4,747,856
------------
Forest Products & Paper .3%
Fletcher Challenge Canada Ltd., A Canada 10,000 139,064
aInternational Forest Products Ltd., A Canada 220,000 710,618
Jefferson Smurfit Group Plc. Irish Republic 20,000 59,562
------------
909,244
------------
Health & Personal Care 5.1%
aApria Healthcare Group Inc. United States 90,000 601,875
Astra AB, A Sweden 88,600 1,810,907
Astra AB, ADR Sweden 12,300 252,150
aBeverly Enterprises Inc. United States 25,000 345,313
aFoundation Health Systems, A United States 22,060 581,833
aMid-Atlantic Medical Services Inc. United States 5,000 57,500
aOxford Health Plans Inc. United States 60,000 918,750
aParagon Health Networks Inc. United States 36,246 584,462
aPharmerica Inc. United States 11,378 137,241
aUnited Dental Care Inc. United States 40,000 771,250
aVencor Inc. United States 604,000 4,379,000
aVentas Inc. United States 44,000 607,750
aVitalink Pharmacy Services Inc. United States 50,613 1,116,649
Yamanouchi Pharmaceutical Co. Ltd. Japan 85,000 1,770,004
------------
13,934,684
------------
Industrial Components 4.0%
Charter Plc. United Kingdom 135,746 1,421,240
DT Industries Inc. United States 90,000 2,182,500
General Motors Corp. United States 10,000 668,125
Kennametal Inc. United States 52,000 2,171,000
Lucas Varity Plc. United Kingdom 665,000 2,649,060
Lucas Varity Plc., ADR United Kingdom 11,500 457,844
Magneti Marelli SpA Italy 108,220 238,595
Michelin SA, B France 14,416 832,151
Morgan Crucible Company Plc. United Kingdom 52,000 337,071
------------
10,957,586
------------
Insurance 5.5%
aAlleghany Corp. United States 2,020 471,165
aAllianz AG, wts. France 12,597 73,236
Arthur J Gallagher Co. United States 18,700 836,825
Insurance (cont.)
Assurances Generales de France AGF France 33,612 $ 1,901,882
Citizens Corp. United States 35,000 1,095,938
Guardian Royal Exchange Plc. United Kingdom 401,000 2,361,815
Koelnische Rueckversicherungs AG Germany 258 378,510
Pohjola Insurance Co. Ltd. Finland 10,000 495,767
Pohjola Insurance Co. Ltd., A Finland 5,000 246,061
PXRE Corp. United States 50,000 1,500,000
Royal & Sun Alliance Insurance Group Plc. United Kingdom 231,400 2,393,766
Sampo Insurance Co. Ltd., A Finland 50,000 2,369,474
Topdanmark AS Denmark 1,828 303,208
Union Assurances Federales SA France 2,283 359,858
Unitrin Inc. United States 4,470 310,665
------------
15,098,170
------------
Leisure & Tourism .4%
La Quinta Inns Inc. United States 65,000 1,057,306
------------
Machinery & Engineering 2.8%
aGardner Denver Inc. United States 70,000 1,933,750
IMI Plc. United Kingdom 110,000 681,833
aKSB AG Germany 100 23,934
Laird Group Plc. United Kingdom 207,110 964,122
Makita Corp. Japan 15,000 172,821
Partek AB Finland 56,500 978,319
Rauma OY Finland 28,500 584,394
aStork NV Netherlands 17,150 546,318
TT Group Plc. United Kingdom 356,250 1,756,463
------------
7,641,954
------------
Merchandising 4.3%
aBJ's Wholesale Club Inc. United States 4,500 182,813
FKI Plc. United Kingdom 606,000 1,764,391
Food Lion Inc., B United States 45,000 452,813
aFootstar Inc. United States 20,000 960,000
aHomebase Inc. United States 25,000 198,438
Hudson's Bay Co. Canada 165,000 3,781,238
aNine West Group Inc. United States 75,000 2,010,938
aSignet Group Plc. United Kingdom 2,100,000 1,515,417
aSignet Group Plc., ADR United Kingdom 16,000 341,000
Wassall Plc. United Kingdom 85,000 423,341
------------
11,630,389
------------
Metals & Mining 3.3%
Allegheny Teledyne Inc. United States 10,000 228,750
aGlobal Industrial Technologies Inc. United States 38,000 546,250
Inland Steel Industries Inc. United States 110,000 3,100,625
aInmet Mining Corp. Canada 145,000 473,292
aOlympic Steel Inc. United States 70,000 875,000
aStillwater Mining Co. United States 64,900 1,760,413
Trelleborg AB, B Sweden 141,000 1,856,450
aWHX Corp. United States 16,000 206,000
------------
9,046,780
------------
Misc Materials & Commodities .1%
De Beers/Centenary Linked Units, ADR South Africa 13,000 227,500
------------
Multi-Industry 14.3%
Aker RGI ASA, A Norway 39,500 620,284
aAlbatros Investissement SA France 20,000 774,066
CGIP-Compagnie Generale Industrie de Participation France 4,083 2,157,655
Multi-Industry (cont.)
Cie Financiere Richemont AG, A Switzerland 2,861 $ 3,744,122
Cie Nationale A Portfeuille Belgium 373 33,681
Custos AB, A Sweden 68,900 1,753,840
Custos AB, B Sweden 41,540 1,046,977
Empire Co. Ltd., A Canada 2,600 48,621
Financiere Et Industrielle Gaz Et Eaux SA France 22,911 1,255,823
Gendis Inc., A Canada 62,300 516,854
Groupe Bruxelles Lambert SA Belgium 2,200 444,020
GTI Holding NV Netherlands 14,050 504,203
Harcourt General Inc. United States 13,000 773,500
Hogg Robinson Plc. United Kingdom 26,000 117,780
Inchcape Plc. United Kingdom 402,000 1,281,109
Investor AB, A Sweden 13,000 753,113
Investor AB, B Sweden 35,000 2,042,972
Invik & Co. AB, B Sweden 5,500 431,040
Kansas City Southern Industries Inc. United States 149,000 7,394,125
Kinnevik AB, B Sweden 36,000 1,171,425
aKinnevik AB, rts. Sweden 36,000 164,767
Lagardere S.C.A. France 24,870 1,035,359
Marine Wendel SA France 7,585 1,396,312
Montedison SpA Italy 1,538,000 1,903,519
Orkla ASA, B Norway 7,220 154,308
Pilkington Plc. United Kingdom 280,000 518,570
Ratin AS Denmark 12,350 2,612,949
aSaab AB, B Sweden 12,000 126,397
Sophus Berendsen AS, B Denmark 12,350 511,815
Ste Eurafrance France 1,556 977,969
Ste Generale de Belgique SA Belgium 8,300 1,416,420
Tomkins Plc. United Kingdom 211,830 1,151,327
------------
38,834,922
------------
Real Estate 3.6%
Apartment Investment & Management Co. United States 41,475 1,638,263
aAsticus AB Sweden 11,400 125,795
Berkshire Realty Co. United States 64,800 757,350
Castellum AB Sweden 64,400 759,082
aChicago Title Corp. United States 4,060 187,521
Fastighets AB Tornet, A Sweden 35,100 563,368
First Union Real Estate Equity & Mtg. Investments, SBI United States 69,000 638,250
aInsignia Financial Group Inc. United States 52,500 1,286,250
LNR Property Corp. United States 38,000 973,750
LNR Property Corp., B United States 39,000 999,375
Mark Centers Trust United States 30,000 223,125
Naeckebro AB, A Sweden 10,200 170,109
a,cSecurity Capital Global Realty United States 6,075 121,500
aSecurity Capital US Realty, A Luxembourg 70,000 931,000
Ste des Immeubles De France France 3,797 311,497
------------
9,686,235
------------
Recreation & Other Consumer Goods .8%
EMI Group Plc. United Kingdom 115,000 1,006,399
aScientific Games Holdings Corp United States 50,000 1,150,000
------------
2,156,399
------------
Telecommunications 1.4%
aCS Wireless Inc. United States 309 3
Koninklijke Ptt Nederland NV Netherlands 12,550 483,072
Telecom Italia SpA Italy 150,000 1,095,919
Telecommunications (cont.)
Telecom Italia SpA, di Risp Italy 105,000 $ 510,897
Telecomunicacoes Brasileiras SA (Telebras) Brazil 11,600,000 922,704
Telephone & Data Systems Inc. United States 15,000 590,625
US West Inc. United States 1,706 80,182
------------
3,683,402
------------
Textiles & Apparel .3%
Scapa Group Plc. United Kingdom 214,000 683,769
------------
Transportation 4.0%
aArkansas Best Corp. United States 100,000 937,500
ASG AB, B Sweden 20,900 642,077
BTL AB, B Sweden 244,400 1,314,720
Deutsche Lufthansa AG Germany 72,000 1,806,981
aEurotunnel SA, new units, (bearer form) France 41 45
Florida East Coast Industries Inc. United States 12,000 351,000
aFritz Companies Inc. United States 15,000 200,625
a,cGolden Ocean Group Ltd., wts. United States 615 3,075
Koninklijke Van Ommeren NV Netherlands 19,250 808,156
aLandstar System Inc. United States 20,000 698,750
Railtrack Group Plc. United Kingdom 131,576 3,233,748
Smit Internationale NV Netherlands 10,483 283,951
Tranz Rail Holdings Ltd. New Zealand 10,000 22,840
Tranz Rail Holdings Ltd., ADR New Zealand 75,000 496,875
------------
10,800,343
------------
Utilities Electrical & Gas .5%
aCitizens Utilities Co., B United States 152,258 1,465,487
------------
Wholesale & International Trade
Brierley Investments Ltd. New Zealand 223,100 111,162
------------
Total Common Stocks, Warrants and Rights (Cost $212,653,133) 232,307,296
------------
Preferred Stocks .6%
Gerdau SA, pfd. Brazil 3,500,000 48,418
KSB AG,pfd. Germany 3,461 862,853
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR Brazil 6,600 720,638
------------
Total Preferred Stocks (Cost $1,898,301) 1,631,909
------------
PRINCIPAL
AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
Bonds 1.3%
Boston Chicken Inc., 15.25%, 6/01/15 United States 1,250,000 68,750
Buenos Aires Embotelladora SA, 144A, 8.50%, 12/29/00 Argentina 84,000 54,600
Consorcio G Grupo Dina, SA de CV, 0/12.00%, 11/15/02 Mexico 100,000 95,000
CS Wireless Inc., senior disc. Notes, Series B, zero coupon to 3/01/01,
(original accretion rate 11.375%), 11.375% thereafter, 3/01/06 United States 940,000 220,900
bEurotunnel Plc.:
Jr. Note Tranche JD3 Tier 1 United Kingdom 199,178GBP 296,604
Jr. Note Tranche JD3 Tier 2 United Kingdom 214,178GBP 303,753
Jr. Note Tranche JD3 Tier 2 Interest Accrual United Kingdom 11,334GBP 11,346
Jr. Note Tranche JD3 Tier 3 Interest Accrual United Kingdom 22,668GBP 9,455
Resettable note R5 United Kingdom 169,650GBP 144,361
Stapled equity note United Kingdom 212,860GBP 120,754
Stapled Participating Loan Note United Kingdom 18,002GBP 13,366
Global Ocean Carriers Ltd., 10.25%, 7/15/07 United States 142,000 131,350
cGolden Ocean Group Limited, 10.00%, 8/31/01 United States 500,000 372,500
bIonica Plc., 0/15.00%, 5/01/07 United Kingdom 750,000 $ 168,750
Republic of Indonesia, 7.75%, 8/1/06 Indonesia 769,000 559,448
Security Capital US Realty, 2.00%, 5/22/03 Luxembourg 586,000 494,071
Southwest Royalties Inc., 10.50%, 10/15/04 United States 230,000 188,600
TFM, SA de CV, 144A, 10.25%, 6/15/07 Mexico 250,000 243,125
TFM, SA de CV, 0/6.00%, 11.75%, 6/15/09 Mexico 300,000 188,250
------------
Total Bonds (Cost $3,977,664) 3,684,983
------------
Bonds & Notes In Reorganization 1.3% bAlpagatus SA Industrial y Comercial:
11.75%, 8/18/98 Argentina 150,000 108,000
9.00%, 2/20/49 Argentina 270,000 194,400
bank claim Argentina 425,000 306,000
bBuenos Aires Embotelladora SA, bank claim United States 1,490,634 983,818
bDow Corning Corp., 9.375%, 2/01/08 United States 300,000 402,000
Koninklijke Nederlandse Vliegtuigenfabriek Fokker, trade claim Netherlands 950,000 368,941
bMercury Finance Co., Commercial Paper:
2/11/97 United States 206,084 199,902
2/18/97 United States 500,847 485,822
3/17/97 United States 9,410 9,128
4/11/97 United States 4,285 4,157
4/18/97 United States 12,001 11,641
4/22/97 United States 6,857 6,651
4/24/97 United States 10,285 9,977
bMercury Finance Co., Bank Claim, MTN
7.42%, 6/29/00 United States 154,676 150,036
8.15%, 5/14/97 United States 220,873 214,247
------------
Total Bonds & Notes in Reorganization (Cost $3,510,089) 3,454,720
------------
Total Long Term Investments (Cost $222,039,187) 241,078,908
------------
dShort Term Investments 9.5%
Fannie Mae, 5.33% to 5.43%, with maturities to 12/18/98 United States 16,035,000 15,718,898
Federal Home Loan Bank, 5.31% to 5.38%, with maturities to 12/02/98 United States 5,200,000 5,118,315
Federal Home Loan Mortgage Corp., 5.33% to 5.37%,
with maturities to 12/04/98 United States 5,100,000 5,022,424
------------
Total Short Term Investments (Cost $25,862,581) 25,859,637
------------
Total Investments (Cost $247,901,768) 98.1% 266,938,545
Securities Sold Short (.3%) (688,837)
Net Equity in Forward Contracts .1% 170,101
Other Assets, less Liabilities 2.1% 5,851,045
------------
Net Assets 100.0% $272,270,854
============
Securities Sold Short
ISSUER COUNTRY SHARES VALUE
Meditrust Companies Inc. United States 5,000 $ 139,688
Telecom Italia Mobile SpA Italy 90,000 549,149
------------
Total Securities Sold Short (Proceeds $681,210) $ 688,837
============
See currency abbreviations on page 133.
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cSee Note 8 regarding restricted securities.
dSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
WARRANTS
Mutual Shares Securities Fund COUNTRY & RIGHTS VALUE
- -------------------------------------------------------------------------------------------------------------------
Common Stocks 75.3%
<S> <C> <C>
Aerospace & Military Technology 1.1%
aColtec Industries Inc. United States 38,000 $ 755,250
General Motors Corp., H United States 12,000 565,500
aHexcel Corp. United States 42,000 950,250
Lockheed Martin Corp. United States 25,000 2,646,875
Northrop Grumman Corp. United States 10,000 1,031,250
------------
5,949,125
------------
Appliances & Household Durables 1.0%
Black & Decker Corp. United States 50,000 3,050,000
Premark International Inc. United States 60,000 1,935,000
------------
4,985,000
------------
Automobiles .6%
aBorg-Warner Automotive Inc. United States 40,000 1,922,500
Chrysler Corp. United States 25,000 1,409,375
------------
3,331,875
------------
Banking 4.9%
Chase Manhattan Corp. United States 56,000 4,228,000
Cullen/Frost Bankers Inc. United States 10,000 542,500
First Chicago NBD Corp. United States 90,000 7,976,250
First Union Corp. United States 123,875 7,215,719
Fleet Financial Group Inc. United States 52,000 4,342,000
PNC Bank Corp. United States 20,000 1,076,250
------------
25,380,719
------------
Beverages & Tobacco 2.4%
B.A.T. Industries Plc. United Kingdom 65,950 661,327
Heineken Holding NV, A Netherlands 66,250 2,182,062
Philip Morris Companies Inc. United States 80,000 3,150,000
RJR Nabisco Holdings Corp. United States 125,000 2,968,750
UST Inc. United States 135,000 3,645,000
------------
12,607,139
------------
Broadcasting & Publishing 6.4%
Central Newspapers Inc., A United States 42,100 2,936,475
Comcast Corp., Special A United States 42,700 1,733,353
Daily Mail & General Trust Plc., A United Kingdom 25,300 1,145,241
Dow Jones & Co. Inc. United States 76,500 4,264,875
Houghton Mifflin Co. United States 70,000 2,222,500
aMediaone Group Inc. United States 255,000 10,325,312
Readers Digest Association Inc., A United States 50,000 1,356,250
Scripps Co., A United States 60,000 3,288,750
Southam Inc. Canada 150,000 2,723,471
United News & Media Plc. United Kingdom 76,000 1,064,538
aValassis Communications Inc. United States 50,000 1,928,125
aWashington Post Co., B United States 800 460,800
------------
33,449,690
------------
Building Materials & Components 1.1%
aAmerican Standard Cos. Inc. United States 90,000 4,021,875
Johns-Manville Corp. United States 110,000 1,656,875
------------
5,678,750
------------
Business & Public Services 1.2%
Moore Corp. Ltd. Canada 38,200 506,150
Moore Corp. Ltd., Ord. Canada 50,000 663,017
Suez Lyonnaise des Eaux SA France 32,000 5,266,292
------------
6,435,459
------------
Chemicals 2.9%
Dow Chemical Co. United States 30,000 2,900,625
General Chemical Group Inc. United States 23,500 652,125
Chemicals (cont.)
Morton International Inc. United States 192,700 $ 4,817,500
aNova Chemicals Ltd. Canada 76,000 1,550,440
Olin Corp. United States 70,000 2,918,125
Rohm & Haas Co. United States 16,000 1,663,000
aW R Grace & Co. United States 51,000 870,188
------------
15,372,003
------------
Construction & Housing .3%
Martin Marietta Materials Inc. United States 30,000 1,350,000
------------
Data Processing & Reproduction .3%
aBay Networks Inc. United States 13,000 419,250
aNCR Corp. United States 42,500 1,381,250
------------
1,800,500
------------
Electrical & Electronics .5%
aDSC Communications Corp. United States 36,800 1,104,000
aWang Laboratories Inc., A United States 62,500 1,589,844
------------
2,693,844
------------
Energy Equipment & Services 2.3%
aCooper Cameron Corp. United States 60,000 3,060,000
aEVI Weatherford Inc. United States 65,250 2,422,406
Noble Drilling Corp. United States 45,000 1,082,813
aR & B Falcon Corp. United States 53,100 1,201,388
aRowan Companies Inc. United States 92,500 1,797,969
aSeacor Smit Inc. United States 20,000 1,226,250
Transocean Offshore Inc. United States 27,000 1,201,500
------------
11,992,326
------------
Energy Sources 5.3%
Imperial Oil Ltd. Canada 90,000 1,569,375
Kerr McGee Corp. United States 40,000 2,315,000
aNoble Affiliates Inc. United States 37,500 1,425,000
aNuevo Energy Co. United States 25,000 803,125
aOcean Energy Inc. United States 169,000 3,306,063
Pennzoil Co. United States 50,000 2,531,250
Saga Petroleum AS, B Norway 89,300 1,262,664
aSanta Fe Energy Resources Inc. United States 287,900 3,094,925
Santa Fe International Corp. United States 40,000 1,210,000
Shell Transport & Trading Co. Plc. United Kingdom 233,300 1,644,630
Societe Elf Aquitane SA France 49,100 6,902,911
Tidewater Inc. United States 57,500 1,897,500
------------
27,962,443
------------
Financial Services 5.8%
Advanta Corp., B United States 59,358 1,179,740
Beneficial Corp. United States 50,000 7,659,375
Equifax Inc. United States 50,000 1,815,625
Firstar Corp. United States 15,000 570,000
Laser Mortgage Management Inc. United States 215,000 2,338,125
Morgan Stanley Dean Witter & Co. United States 80,000 7,310,000
Power Financial Corp. Canada 5,000 233,756
United Asset Management Corp. United States 362,000 9,434,625
------------
30,541,246
------------
Food & Household Products 1.5%
Cadbury Schweppes Plc. United Kingdom 103,270 1,603,309
Nabisco Holdings Corp., A United States 55,000 1,983,437
U.S. Industries Inc. United States 78,000 1,930,500
Van Melle NV Netherlands 33,174 2,389,141
------------
7,906,387
------------
Forest Products & Paper 3.4%
Avenor Inc. Canada 125,000 $ 2,924,076
Bowater Inc. United States 30,000 1,417,500
Champion International Corp. United States 65,000 3,197,187
Greif Brothers Corp., A United States 5,000 186,875
Longview Fibre Co. United States 60,000 855,000
Rayonier Inc. United States 100,000 4,600,000
St. Joe Co. United States 57,000 1,560,375
aStone Container Corp. United States 143,000 2,234,375
Temple Inland Inc. United States 15,111 814,105
------------
17,789,493
------------
Health & Personal Care 5.0%
aApria Healthcare Group Inc. United States 135,000 902,812
aBeverly Enterprises Inc. United States 60,000 828,750
aFoundation Health Systems, A United States 114,770 3,027,059
aMaxicare Health Plans Inc. United States 82,500 556,875
aMid-Atlantic Medical Services Inc. United States 15,000 172,500
aOxford Health Plans Inc. United States 10,000 153,125
aPacificare Health Systems Inc., A United States 35,000 2,957,500
aPacificare Health Systems Inc., B United States 24,500 2,165,187
aParagon Health Networks Inc. United States 36,950 595,811
aPharmerica Inc. United States 27,306 329,379
aPSS World Medical Inc. United States 35,000 511,875
aTenet Healthcare Corp. United States 15,000 468,750
United States Surgical Corp. United States 62,500 2,851,563
aVencor Inc. United States 1,145,000 8,301,250
aVentas Inc. United States 175,000 2,417,188
------------
26,239,624
------------
Industrial Components 4.0%
Charter Plc. United Kingdom 179,966 1,884,217
Echlin Inc. United States 45,000 2,207,812
aGeneral Motors Corp. United States 55,000 3,674,688
ITT Industries Inc. United States 70,000 2,616,250
aLear Corp. United States 50,000 2,565,625
Lucas Varity Plc. United Kingdom 1,230,000 4,899,765
Lucas Varity Plc., ADR United Kingdom 35,300 1,405,381
Mark IV Industries Inc. United States 15,000 324,375
aOwens-Illinois Inc. United States 25,000 1,118,750
------------
20,696,863
------------
Insurance 4.3%
aAlleghany Corp. United States 2,550 594,787
Allied Group Inc. United States 10,000 468,125
AON Corp. United States 42,300 2,971,575
Argonaut Group Inc. United States 51,206 1,619,390
Fund American Enterprises Holdings Inc. United States 25,000 3,700,000
Guardian Royal Exchange Plc. United Kingdom 30,594 180,193
Hartford Financial Services Group Inc. United States 20,000 2,287,500
Royal & Sun Alliance Insurance Group Plc. United Kingdom 54,500 563,787
Sampo Insurance Co. Ltd., A Finland 90,000 4,265,053
Selective Insurance Group Inc. United States 5,000 112,031
St. Paul Co. Inc. United States 100,030 4,207,512
Torchmark Corp. United States 5,000 228,750
Unitrin Inc. United States 20,000 1,390,000
------------
22,588,703
------------
Leisure & Tourism 2.5%
Callaway Golf Co. United States 186,000 3,661,875
Hilton Hotels Corp. United States 150,000 4,275,000
Leisure & Tourism (cont.)
La Quinta Inns Inc. United States 95,000 $ 1,545,294
aMGM Grand Inc. United States 119,500 3,771,719
------------
13,253,888
------------
Machinery & Engineering .3%
New Holland NV Netherlands 75,000 1,471,875
------------
Merchandising 3.1%
American Stores Co. United States 105,000 2,539,687
aCompUSA Inc. United States 40,000 722,500
Dillards Inc., A United States 30,000 1,243,125
Hudson's Bay Co. Canada 335,000 7,677,060
Quaker State Corp. United States 32,000 524,000
aToys R Us Inc. United States 50,000 1,178,125
aVenator Group Inc. United States 125,000 2,390,625
------------
16,275,122
------------
Metals & Mining .8%
Allegheny Teledyne Inc. United States 20,000 457,500
Alumax Inc. United States 10,872 504,189
Aluminum Co. of America United States 35,000 2,307,812
LTV Corp. United States 110,000 1,051,875
------------
4,321,376
------------
Multi-Industry 4.0%
Canadian Pacific Ltd. Canada 78,000 2,213,250
Edperbrascan Corp., A Canada 35,000 587,875
Harcourt General Inc. United States 30,000 1,785,000
Investor AB, A Sweden 119,200 6,905,466
Investor AB, B Sweden 93,100 5,434,306
Lagardere S.C.A. France 40,462 1,684,467
MacMillan Bloedel Ltd. Canada 50,000 533,814
Power Corp. of Canada Canada 25,000 1,173,031
aSaab AB, B Sweden 53,075 559,041
------------
20,876,250
------------
Real Estate 1.3%
aAlexander's Inc. United States 8,000 712,000
aCadillac Fairview Corp. Canada 80,000 1,838,768
aInsignia Financial Group Inc. United States 82,500 2,021,250
a,cSecurity Capital Global Realty United States 11,925 238,500
Starwood Hotels & Resorts Trust United States 43,634 2,108,086
------------
6,918,604
------------
Telecommunications 5.5%
a360 Degrees Communications Company United States 125,000 4,000,000
aCS Wireless Inc. United States 618 6
MCI Communications Corp. United States 95,000 5,521,875
Media General Inc., A United States 36,800 1,812,400
Sprint Corp. United States 15,000 1,057,500
Telecom Italia SpA Italy 150,000 1,095,919
Telecom Italia SpA, di Risp Italy 105,000 510,897
aTelecommunications Inc.- TCI Ventures Group, A United States 298,000 5,978,625
aTele-Communications Inc., A United States 29,600 1,137,750
Telecomunicacoes Brasileiras SA (Telebras) Brazil 22,400,000 1,781,774
Telephone & Data Systems Inc. United States 63,400 2,496,375
aUS Cellular Corp. United States 115,000 3,536,250
------------
28,929,371
------------
Transportation 2.4%
Burlington Northern Santa Fe Corp. United States 12,000 1,178,250
Deutsche Lufthansa AG Germany 89,500 2,246,177
aEurotunnel SA, new units France 115 126
Transportation (cont.)
Florida East Coast Industries Inc. United States 50,000 $ 1,462,500
a,cGolden Ocean Group Ltd., wts. United States 1,120 5,600
Railtrack Group Plc. United Kingdom 233,152 5,730,185
Xtra Corp. United States 32,000 1,936,000
------------
12,558,838
------------
Utilities Electrical & Gas .3%
aCalenergy Co. Inc. United States 50,000 1,503,120
------------
U.S. Regional Banks .8%
First Virginia Banks Inc. United States 40,000 2,045,000
National City Corp. United States 30,000 2,130,000
------------
4,175,000
------------
Total Common Stocks (Cost $357,520,349) 395,034,633
------------
Preferred Stocks (Cost $1,494,443) .3%
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR Brazil 13,000 1,419,438
------------
PRINCIPAL
AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
Bonds 2.8%
Boston Chicken Inc., cvt., zero coupon, 6/01/15 United States 1,850,000 101,750
Consorcio G Grupo Dina SA de CV, 0/12.00%, 11/15/02 Mexico 175,000 166,250
CS Wireless Systems, Inc., senior disc. Notes, Series B, zero coupon to 3/01/01,
(origional accretion rate 11.375%), 11.375% thereafter, 3/01/06 United States 1,875,000 440,625
bEurotunnel SA:
Jr. Note Tranche JD1 Tier 1 France 303,200FRF 44,131
Jr. Note Tranche JD1 Tier 2 France 303,200FRF 41,624
Jr. Note Tranche JD1 Tier 3 France 606,411FRF 77,231
Jr. Note Tranche JD2 Tier 1 France 947,207FRF 137,475
Jr. Note Tranche JD2 Tier 2 France 307,207FRF 42,047
Jr. Note Tranche JD2 Tier 3 France 477,537FRF 60,818
Jr. Note Tranche JD1 & JD2 Tier 2 Interest Accrual France 47,595FRF 4,723
Jr. Note Tranche JD1 & JD2 Tier 3 Interest Accrual France 95,189FRF 3,936
Resettable Facility Note Tranche R4 France 1,073,514FRF 88,779
bEurotunnel Plc.:
Jr. Note Tranche JD3 Tier 1 United Kingdom 401,900GBP 598,485
Jr. Note Tranche JD3 Tier 2 United Kingdom 427,400GBP 606,150
Jr. Note Tranche JD3 Tier 2 Interest Accrual United Kingdom 23,088GBP 23,113
Jr. Note Tranche JD3 Tier 3 United Kingdom 8GBP 10
Jr. Note Tranche JD3 Tier 3 Interest Accrual United Kingdom 46,175GBP 19,261
Resettable Facility Note Tranche R5 United Kingdom 345,583GBP 294,069
Stapled Equity Note United Kingdom 546,036GBP 309,761
Stapled Participating Loan Note United Kingdom 52,006GBP 38,614
Global Ocean Carriers Ltd., 10.25%, 7/15/07 United States 236,000 218,300
cGolden Ocean Group Limited, 10.00%, 8/31/01 United States 910,000 677,950
Hechinger Co., 6.95%, 10/15/03 United States 1,197,000 843,885
HIH Capital Ltd., cvt., 7.50%, 9/25/06 United Kingdom 1,235,000 839,800
bIonica Plc., 0/15.00%, 5/01/07 United Kingdom 1,350,000 303,750
Ivax Corp., cvt., 6.50%, 11/15/01 United States 370,000 326,062
Korea Electric Power Corp.:
6.375%, 12/01/03 South Korea 370,000 290,450
6.75%, 8/01/27 South Korea 500,000 395,000
Philipp Brothers Chemicals Inc., 9.875%, 6/01/08 United States 590,000 595,900
cRoil Limited, 12.779%, 12/05/02 Cayman Islands 3,000,000 2,505,000
Security Capital US Realty, 2.00%, 5/22/03 Luxembourg 3,372,000 2,843,018
Southwest Royalties Inc., 10.50%, 10/15/04 United States 380,000 311,600
Specialty Foods Corp., 11.25%, 8/15/03, B United States 860,000 765,400
TFM SA de CV, 144A, 10.25%, 6/15/07 Mexico 250,000 243,125
TFM SA de CV, 0/6.00%, 6/15/02, 11.75%, 6/15/09 Mexico 600,000 376,500
------------
Total Bonds (Cost $15,913,395) 14,634,592
------------
Bonds & Notes in Reorganization 1.6% bAlpargatas SA Industrial Y Comercial:
bank claim Argentina 820,000 $ 590,400
11.75%, 8/18/98 Argentina 290,000 208,800
9.00%, 2/20/49 Argentina 530,000 381,600
bAPS Inc., bank claim United States 700,000 616,000
bBarney's Inc.
7.18%, 6/15/00 United States 2,500,000 950,000
8.32%, 6/15/00 United States 1,000,000 380,000
bBrunos Inc., bank claim United States 300,000 249,000
bDow Corning Corp.:
bank claim United States 100,000 134,000
9.375%, 2/01/08 United States 550,000 737,000
bMercury Finance Co., Commercial Paper:
2/11/97 United States 318,239 308,692
2/18/97 United States 773,419 750,216
3/17/97 United States 18,820 18,255
4/11/97 United States 8,572 8,315
4/16/97 United States 691,786 671,032
4/18/97 United States 24,001 23,281
4/22/97 United States 13,714 13,302
4/24/97 United States 20,571 19,953
bMercury Finance Co., Bank Claim, MTN:
7.42%, 6/29/00 United States 257,793 250,060
8.15%, 5/14/97 United States 425,163 412,408
PIV Investment Finance (Cayman) Ltd., cvt., 4.50%, 12/01/00 Hong Kong 11,950,000 1,493,750
------------
Total Bonds & Notes in Reorganization (Cost $7,216,068) 8,216,064
------------
Total Long Term Investments (Cost $382,144,255) 419,304,727
------------
dShort Term Investments 18.7%
Fannie Mae, 5.28% to 5.37%, with maturities to 12/23/98 United States 59,400,000 58,541,429
Federal Home Loan Bank, 5.27% to 5.43%, with
maturities to 12/09/98 United States 19,500,000 19,287,891
Federal Home Loan Mortgage Corp., 5.27% to 5.35%, with maturities to 12/04/98 United States 20,382,000 20,142,521
------------
Total Short Term Investments (Cost $97,978,342) 97,971,841
------------
Total Investments (Cost $480,122,597) 98.7% 517,276,568
Securities Sold Short (1.6%) (8,298,893)
Net Equity in Forward Contracts 258,314
Other Assets, less Liabilities 2.9% 15,404,171
------------
Net Assets 100.0% $524,640,160
============
Securities Sold Short
ISSUER COUNTRY SHARES VALUE
Alcatel Alsthom Cie Generale D'Electricite SA France 6,000 $ 1,221,634
AT&T Corp. United States 22,900 1,308,162
Dana Corp. United States 15,000 802,500
Telecom Italia Mobile SpA Italy 85,000 518,641
Tyco International Ltd., new United States 47,537 2,994,831
aWorldcom Inc. United States 30,000 1,453,125
------------
Total Securities Sold Short (Proceeds $7,618,556) $ 8,298,893
============
See currency abbreviations on page 133.
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cSee Note 8 regarding restricted securities.
dSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
Natural Resources Fund COUNTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------
Common Stocks and Warrants 97.3%
Commercial Service .8%
aPentacon, Inc. United States 22,000 $ 261,250
aRitchie Bros. Auctioneers, Inc. Canada 10,900 289,531
------------
550,781
------------
Energy Minerals 31.3%
Amoco Corp. United States 18,000 749,250
Atlantic Richfield Co. United States 18,000 1,406,250
aAustral Coal, Ltd. Australia 2,937,000 654,744
aBarrett Resources Corp. United States 90,400 3,384,350
aBasin Exploration, Inc. United States 53,000 934,125
Chesapeake Energy Corp. United States 255,000 1,020,000
Enron Oil & Gas Co. United States 33,500 678,375
aGulf Canada Resources, Ltd. Canada 414,500 2,046,594
aNewfield Exploration Co. United States 71,500 1,778,563
aNuevo Energy Co. United States 54,500 1,750,813
aOcean Energy, Inc. United States 50,780 993,384
Patina Oil & Gas Corp. United States 88,500 619,500
Royal Dutch Petroleum Co., New York Shares, ADR Netherlands 3,500 191,844
aTitan Exploration, Inc. United States 96,700 858,213
aTriton Energy, Ltd. United States 20,000 713,750
Ultramar Diamond Shamrock Corp. United States 11,000 347,188
Unocal Corp. United States 22,000 786,500
YPF Sociedad Anonima, Sponsored ADR Argentina 55,000 1,653,438
------------
20,566,881
------------
Finance 5.1%
Alexandria Real Estate Equities, Inc. United States 21,800 652,638
Arden Realty, Inc. United States 25,000 646,875
SL Green Realty Corp. United States 27,300 614,250
Starwood Hotels & Resorts United States 14,600 705,363
Storage Trust Realty United States 31,800 743,325
------------
3,362,451
------------
Industrial Services 26.5%
aAES Corp. United States 32,200 1,692,513
aAmerican Disposal Services, Inc. United States 17,600 825,000
aAtwood Oceanics, Inc. United States 24,000 955,500
aCore Laboratories, N.V. Netherlands 33,400 722,275
aDiamond Offshore Drilling, Inc. United States 51,000 2,040,000
ENSCO International, Inc. United States 15,000 260,625
aEVI Weatherford, Inc. United States 61,400 2,279,474
aF&B Falcon Corp, Ltd. United States 22,000 497,750
Halliburton Co. United States 15,000 668,438
aMarine Drilling Companies, Inc. United States 38,000 608,000
Schlumberger, Ltd. United States 9,500 648,969
aStolt Comex Seaway S.A. France 31,400 608,375
aStolt Comex Seaway S.A., ADR France 15,700 274,750
aTesco Corp. Canada 40,700 440,060
aTransCoastal Marine Services, Inc. United States 85,000 512,661
Transocean Offshore, Inc. United States 38,500 1,713,250
aTuboscope, Inc. United States 44,000 869,000
aVarco International, Inc. United States 92,000 1,822,750
------------
17,439,390
------------
Non-Energy Minerals 21.2%
aAber Resources, Ltd. Canada 51,500 455,272
Aluminum Company of America United States 3,000 197,813
aAnglo American Platinum Corp., Ltd., ADR South Africa 67,179 723,981
aAnglogold, Ltd., ADR South Africa 21,800 442,289
Barrick Gold Corp. Canada 35,895 688,735
Non-Energy Minerals (cont.)
Canyon Resources Corp., warrants United States 105,000 $--
Carpenter Technology Corp. United States 4,400 221,100
Compania de Minas Buenaventura, SA, Sponsored ADR Peru 73,500 964,688
De Beers Consolidated Mines, Ltd., ADR South Africa 53,400 934,500
aEquinox Resources, NL Australia 678,400 42,010
Euro-Nevada Mining Corp. Canada 73,200 998,035
Franco-Nevada Mining Corp., Ltd. Canada 42,400 840,475
Freeport-McMoRan Copper & Gold, Inc., Class A United States 38,718 551,732
aIspat International, NV, New York Shares Netherlands 26,900 504,375
aLihir Gold, Ltd. Papua New Guinea 229,500 282,814
aMinefinders Corp. Canada 275,700 322,467
Newmont Mining Corp. United States 27,955 660,437
Nucor Corp. United States 11,200 515,200
Placer Dome, Inc. Canada 57,800 679,150
Pohang Iron & Steel Co., Ltd., Sponsored ADR South Africa 47,600 571,200
Potash Corp. of Saskatchewan, Inc. Canada 14,000 1,057,875
Rio Tinto, Plc. United Kingdom 68,429 778,666
aStillwater Mining Co., 144A United States 32,300 876,138
Vale Do Rio Doce, ADR Brazil 30,500 606,520
------------
13,915,472
------------
Process Industries 10.6%
aAirgas, Inc. United States 28,000 402,500
Asia Pulp & Paper Co., Ltd., Sponsored ADR Indonesia 75,000 843,750
Avery Dennison Corp. United States 4,000 215,000
Betzdearborn, Inc. United States 15,000 620,625
Bowater, Inc. United States 7,000 330,750
Champion International Corp. United States 7,000 344,312
Hanna (M.A.) Co. United States 53,000 970,562
IMC Global, Inc. United States 17,000 512,124
aOwens-Illinois, Inc. United States 22,600 1,011,349
Praxair, Inc. United States 25,100 1,174,993
Sigma-Aldrich Corp. United States 5,000 175,624
aWillamette Industries, Inc. United States 11,000 351,999
------------
6,953,588
------------
Utilities & Telecommunication 1.8%
Enron Corp. United States 21,600 1,167,749
------------
Total Common Stocks and Warrants (Cost $71,221,849) 63,956,312
------------
PRINCIPAL
AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Convertible Bonds .9%
Dayton Mining Corp. cvt. sub. deb., 144A, 7.00%, 4/01/02 Canada $ 800,000 460,000
Randgold & Exploration Co., Ltd., cvt. sub. notes, 144A, 7.00%, 10/03/01 South Africa 215,000 110,725
------------
Total Convertible Bonds (Cost $1,015,000) 570,725
------------
Total Long Term Investments (Cost $72,236,849) 64,527,037
------------
fRepurchase Agreement 5.9%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity
Value $3,863,763) (Cost $3,863,161) United States $3,863,161 $ 3,863,161
BancAmerica Robertson Stephens (Maturity Value $369,221)
Barclays Capital, Inc. (Maturity Value $369,221)
Bear, Stearns & Co., Inc. (Maturity Value $201,341)
BT Alex Brown, Inc. (Maturity Value $339,433)
Chase Securities, Inc. (Maturity Value $369,221)
CIBC Oppenheimer Corp. (Maturity Value $369,221)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $369,221)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $369,221)
Greenwich Capital Markets, Inc. (Maturity Value $369,221)
Paribas Corp. (Maturity Value $369,221)
SBC Warburg Dillon Read, Inc. (Maturity Value $369,221)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $76,100,010) 104.1% 68,390,198
Other Assets, less Liabilities (4.1%) (2,650,240)
------------
Net Assets 100.0% $65,739,958
============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
Real Estate Securities Fund WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks and Warrants 97.6%
Equity REIT - Apartments 17.0%
Amli Residential Properties Trust 180,000 $ 3,858,750
Avalon Bay Communities, Inc. 100,000 3,800,000
Camden Property Trust 301,573 8,971,797
Equity Residential Properties Trust 256,000 12,144,000
Gables Residential Trust 184,000 4,991,000
Irvine Apartment Communities, Inc. 155,600 4,502,675
Post Properties, Inc. 180,000 6,930,000
Security Capital Atlantic, Inc. 351,750 7,848,422
Security Capital Pacific Trust 324,285 7,296,413
Smith Charles E. Residential Realty, Inc. 99,000 3,168,000
Summit Properties, Inc. 175,000 3,314,063
------------
66,825,120
------------
Equity REIT - Diversified Property Type 14.4%
AMB Property Corp. 80,000 1,960,000
Colonial Properties Trust 201,700 6,252,700
Crescent Real Estate Equities Co. 300,000 10,087,500
Duke Realty Investments, Inc. 280,000 6,615,000
Glenborough Realty Trust, Inc. 350,000 9,231,250
Liberty Property Trust 290,000 7,413,125
Spieker Properties, Inc. 200,000 7,750,000
Vornado Realty Trust 180,000 7,143,750
------------
56,453,325
------------
Equity REIT - Health Care 3.4%
Health Care Property Investors, Inc. 70,000 2,524,375
Nationwide Health Properties, Inc. 200,000 4,775,000
OMEGA Healthcare Investors, Inc. 168,000 5,901,000
------------
13,200,375
------------
Equity REIT - Hotels 12.1%
FelCor Suite Hotels, Inc. 360,000 11,295,000
Innkeepers USA Trust 367,600 4,640,950
Patriot American Hospitality, Inc. 455,006 10,891,706
Starwood Hotels and Resorts 285,000 13,769,063
Winston Hotels, Inc. 540,000 6,750,000
------------
47,346,719
------------
Equity REIT - Industrial 5.4%
Cabot Industrial Trust 190,000 4,061,250
Meridian Industrial Trust, Inc. 300,000 6,900,000
Security Capital Industrial Trust 400,879 10,021,975
------------
20,983,225
------------
Equity REIT - Office 10.8%
Alexandria Real Estate Equities, Inc. 116,000 3,472,750
Arden Realty, Inc. 380,600 9,848,025
Equity Office Properties Trust 281,008 7,973,602
Highwoods Properties, Inc. 275,000 8,885,938
Mack-Cali Realty Corp. 230,000 7,906,250
SL Green Realty Corp. 192,000 4,320,000
------------
42,406,565
------------
Equity REIT - Residential Communities 2.7%
Manufactured Home Communities, Inc. 200,000 4,825,000
Sun Communities, Inc. 170,000 5,631,250
------------
10,456,250
------------
Equity REIT - Retail - Community Centers 6.9%
Burnham Pacific Properties, Inc. 292,600 $ 4,151,263
Developers Diversified Realty Corp. 110,000 4,310,625
Kimco Realty Corp. 200,000 8,200,000
cPacific Retail Trust 866,067 10,392,804
------------
27,054,692
------------
Equity REIT - Retail - Regional Malls 5.2%
Mills Corp. 215,000 5,160,000
Simon DeBartolo Group, Inc. 310,000 10,075,000
The Macerich Co. 180,000 5,276,250
------------
20,511,250
------------
Equity REIT - Storage 6.2%
Public Storage, Inc. 350,000 9,800,000
Storage Trust Realty 390,000 9,116,250
Storage USA, Inc. 150,500 5,267,500
------------
24,183,750
------------
Diversified Property Type 2.8%
aCrescent Operating, Inc. 27,500 467,500
aSecurity Capital Group Inc., Class B 145,000 3,860,624
aSecurity Capital Group Inc., Class B, warrants 63,712 21,904
aSecurity Capital US Realty 500,000 6,650,000
------------
11,000,028
------------
Home Builders 2.4%
Cavalier Homes, Inc. 244,880 3,168,135
Clayton Homes, Inc. 231,250 4,393,750
aSouthern Energy Homes, Inc. 193,100 1,894,793
------------
9,456,678
------------
Hotels 7.3%
a,eCandlewood Hotel Co., Inc. 650,000 4,875,000
aCapStar Hotel Co. 350,000 9,800,000
aHost Marriott Corp. 570,000 10,153,124
aPrime Hospitality Corp. 224,500 3,914,719
------------
28,742,843
------------
Other 1.0%
aTrammell Crow Co. 71,800 2,400,813
aVail Resorts, Inc. 59,700 1,589,512
------------
3,990,325
------------
Total Long Term Investments (Cost $292,057,700) 382,611,145
------------
fRepurchase Agreement 1.9%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $7,505,019) (Cost $7,503,849) $7,503,849 $ 7,503,849
BancAmerica Robertson Stephens (Maturity Value $717,180)
Barclays Capital, Inc. (Maturity Value $717,180)
Bear, Stearns & Co., Inc. (Maturity Value $391,085)
BT Alex Brown, Inc. (Maturity Value $659,314)
Chase Securities, Inc. (Maturity Value $717,180)
CIBC Oppenheimer Corp. (Maturity Value $717,180)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $717,180)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $717,180)
Greenwich Capital Markets, Inc. (Maturity Value $717,180)
Paribas Corp. (Maturity Value $717,180)
SBC Warburg Dillon Read, Inc. (Maturity Value $717,180)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $299,561,549) 99.5% 390,114,994
Other Assets, less Liabilities .5% 1,860,350
------------
Net Assets 100% $391,975,344
============
aNon-income producing.
cSee Note 8 regarding restricted securities.
eThe Investment Company Act of 1940 defines affiliated companies as investments
in portfolio companies in which the Fund owns 5% or more of the outstanding
voting securities. Investments in affiliated companies at 6/30/98 were
$4,875,000. fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Rising Dividends Fund SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
Common Stocks 97.6%
<S> <C> <C>
Banks 15.3%
First Union Corp. 423,926 $ 24,693,690
Mercantile Bankshares Corp. 270,525 9,417,652
National Commerce Bancorp. 442,700 18,538,063
State Street Corp. 157,400 10,939,300
TrustCo Bank Corp., New York 499,157 13,102,871
U.S. Bancorp 377,500 16,232,500
Washington Mutual, Inc. 517,500 22,478,906
Wilmington Trust Corp. 172,800 10,519,200
------------
125,922,182
------------
Business Services 8.6%
Avery Dennison Corp. 305,200 16,404,500
Brady (W.H.) Co. 252,700 7,028,219
Ennis Business Forms, Inc. 390,600 4,540,725
Reynolds and Reynolds Co. 260,500 4,737,844
Standard Register Co. 401,400 14,199,525
Wallace Computer Services, Inc. 979,900 23,272,625
------------
70,183,438
------------
Consumer Products 11.1%
Alberto-Culver Co., Class A 732,100 18,577,038
Block Drug Co., Inc., Class A 189,553 7,203,014
DIMON, Inc. 715,100 8,044,875
Newell Co. 303,700 15,128,056
Philip Morris Cos., Inc. 289,300 11,391,188
Sherwin-Williams Co. 497,000 16,463,125
Universal Corp. 383,500 14,333,313
------------
91,140,609
------------
Drugs & Health Care 3.3%
Becton Dickinson & Co. 161,500 12,536,438
West Co., Inc. 514,900 14,578,106
------------
27,114,544
------------
Electronics & Technology 7.6%
Baldor Electric Co. 335,333 8,173,742
Cohu, Inc. 446,300 10,850,669
Diebold, Inc. 406,000 11,723,250
General Electric Co. 103,600 9,427,600
Hewlett-Packard Co. 143,900 8,616,013
Hubbell, Inc., Class B 222,700 9,269,888
Rockwell International Corp. 97,700 4,695,706
------------
62,756,868
------------
Energy 1.0%
Royal Dutch Petroleum Co., New York Shares, ADR (The Netherlands) 154,300 8,457,569
------------
Financial Services 2.0%
Fannie Mae 262,800 15,965,100
------------
Industrial 23.7%
Bemis Co., Inc. 462,500 18,904,688
Donaldson Co., Inc. 156,200 3,690,225
Dover Corp. 379,600 13,001,300
Flowserve Corp. 261,100 6,429,588
Graco, Inc. 153,400 5,349,825
Hanna (M.A.) Co. 615,100 11,264,019
Kaydon Corp. 503,900 17,793,969
Kimball International, Inc., Class B 656,700 11,902,688
Leggett & Platt, Inc. 823,200 20,580,000
Industrial (cont.)
Millipore Corp. 385,500 $ 10,504,875
Myers Industries, Inc. 487,860 11,708,640
Nucor Corp. 194,100 8,928,600
Pall Corp. 1,371,100 28,107,550
Superior Industries International, Inc. 294,700 8,306,855
Superior Uniform Group, Inc. 235,800 3,831,750
Watts Industries, Inc., Class A 673,500 14,059,312
------------
194,363,884
------------
Insurance - Life 2.3%
American Heritage Life Investment Corp. 91,400 2,113,624
ReliaStar Financial Corp. 344,600 16,540,800
------------
18,654,424
------------
Insurance - Property Casualty 11.2%
Allied Group, Inc. 178,600 8,360,712
American International Group, Inc. 67,500 9,855,000
Chubb Corp. 174,200 14,001,324
Harleysville Group, Inc. 94,400 1,958,800
Mercury General Corp. 377,800 24,344,487
MMI Cos., Inc. 622,500 14,395,313
RLI Corp. 301,156 12,253,294
St. Paul Cos., Inc. 160,600 6,755,237
------------
91,924,167
------------
Retail 9.9%
Family Dollar Stores, Inc. 2,119,800 39,216,300
Rite Aid Corp. 414,200 15,558,387
Schultz Sav-O Stores, Inc. 37,800 614,250
The Limited, Inc. 311,500 10,318,437
Wal-Mart Stores, Inc. 258,200 15,685,650
------------
81,393,024
------------
Transportation 1.6%
Circle International Group, Inc. 477,900 13,381,200
------------
Total Common Stocks (Cost $581,605,348) 801,257,009
------------
Convertible Preferred Stocks .2%
American Heritage Life Investment Corp., 8.50% cvt. pfd. (Cost $1,210,000) 24,200 1,573,000
------------
Total Long Term Investments (Cost $582,815,348) 802,830,009
------------
fRepurchase Agreement 1.5%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $12,432,566) (Cost $12,430,628) $12,430,628 $ 12,430,628
BancAmerica Robertson Stephens (Maturity Value $1,188,056)
Barclays Capital, Inc. (Maturity Value $1,188,056)
Bear, Stearns & Co., Inc. (Maturity Value $647,861)
BT Alex Brown, Inc. (Maturity Value $1,092,201)
Chase Securities, Inc. (Maturity Value $1,188,056)
CIBC Oppenheimer Corp. (Maturity Value $1,188,056)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,188,056)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $1,188,056)
Greenwich Capital Markets, Inc. (Maturity Value $1,188,056)
Paribas Corp. (Maturity Value $1,188,056)
SBC Warburg Dillon Read, Inc. (Maturity Value $1,188,056)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $595,245,976) 99.3% 815,260,637
Other Assets, less Liabilities .7% 5,401,913
------------
Net Assets 100.0% $820,662,550
fSee Note 1(c) regarding joint repurchase agreement.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Small Cap Fund SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 90.5%
Commercial Services 4.0%
aApplied Graphics Technologies, Inc. 81,000 $ 3,705,750
Norrell Corp. 82,100 1,636,869
aNOVA Corp. 55,900 1,998,425
aRemedyTemp, Inc., Class A 29,500 857,344
aSOS Staffing Services, Inc. 75,500 1,325,969
aSylvan Learning Systems, Inc. 74,100 2,426,775
aValassis Communications, Inc. 6,200 239,088
Wallace Computer Services, Inc. 80,000 1,900,000
---------
14,090,220
---------
Consumer Durables 1.5%
aActivision, Inc. 125,700 1,296,281
aElectronic Arts, Inc. 20,000 1,080,000
K2, Inc. 103,700 1,827,713
aRockShox, Inc. 37,300 149,200
aSola International, Inc. 24,400 797,575
---------
5,150,769
---------
Consumer Non-Durables 2.6%
Alberto-Culver Co., Class A 23,300 591,238
aConsolidated Cigar Holdings, Inc. 115,900 1,419,775
aThe North Face, Inc. 77,600 1,862,400
aTommy Hilfiger Corp. 63,800 3,987,500
aTropical Sportswear International Corp. 38,900 826,625
aVans, Inc. 47,000 455,313
---------
9,142,851
---------
Consumer Services 4.3%
aAMF Bowling, Inc. 99,000 2,871,000
aCapStar Hotel Co. 120,000 3,360,000
aDeVry, Inc. 77,800 1,706,738
aPrime Hospitality Corp. 238,000 4,150,125
aRio Hotel & Casino, Inc. 47,400 894,675
aThe Marquee Group, Inc. 160,800 954,750
aVail Resorts, Inc. 47,200 1,256,700
---------
15,193,988
---------
aElectronic Technology 12.7%
Advanced Energy Industries, Inc. 126,200 1,467,075
Advanced Fibre Communications, Inc. 10,000 400,625
Alliant Techsystems, Inc. 20,800 1,315,600
Amkor Technology, Inc. 68,500 640,050
Coherent, Inc. 178,400 3,060,684
Com21, Inc. 30,600 650,250
Etec Systems, Inc. 66,600 2,343,488
Flextronics International, Ltd. 20,000 870,000
Gemstar International Group, Ltd. 57,000 2,133,938
Harmonic Lightwaves, Inc. 107,800 1,657,425
H.T.E., Inc. 131,800 1,779,300
Itron, Inc. 68,200 869,550
Jabil Circuit, Inc. 49,200 1,626,675
Komag, Inc. 317,800 1,698,260
Ladish Co., Inc. 61,800 772,500
Lattice Semiconductor Corp. 8,200 232,932
Level One Communications, Inc. 76,000 1,786,000
Natural MicroSystems Corp. 82,000 1,312,000
Novellus Systems, Inc. 40,000 1,427,500
Perceptron, Inc. 85,000 1,020,000
aElectronic Technology (cont.)
PMC-Sierra, Inc. 58,000 $ 2,718,750
PRI Automation, Inc. 14,600 249,113
Rainbow Technologies, Inc. 49,300 1,010,650
RELTEC Corp. 29,300 1,318,500
Sanmina Corp. 41,800 1,813,075
Security Dynamics Technologies, Inc. 185,700 3,435,450
SpectraLink Corp. 183,000 800,625
SpeedFam International, Inc. 29,700 547,594
Tekelec 93,700 4,193,075
Transcrypt International, Inc. 150,600 508,275
Trident Microsystems, Inc. 38,800 206,125
TriStar Aerospace Co. 31,400 486,700
Waters Corp. 6,600 388,988
---------
44,740,772
---------
Energy Minerals 4.5%
aBarrett Resources Corp. 143,200 5,361,050
aDenbury Resources, Inc. 85,800 1,120,763
Devon Energy Corp. 66,400 2,319,850
Lomak Petroleum, Inc. 125,000 1,304,688
aNewfield Exploration Co. 35,800 890,525
aTitan Exploration, Inc. 243,200 2,158,400
aTom Brown, Inc. 139,700 2,628,106
---------
15,783,382
---------
Finance 12.1%
aAffiliated Managers Group, Inc. 37,100 1,377,338
aAmerin Corp. 11,200 326,900
Arden Realty, Inc. 100,000 2,587,500
Camden Property Trust 110,000 3,272,500
Colonial Properties Trust 28,400 880,400
Espirito Santo Financial Group, ADR (Luxembourg) 125,700 3,063,938
EVEREN Capital Corp. 130,000 3,640,000
aFederated Investors, Inc., Class B 61,900 1,145,150
FelCor Suite Hotels, Inc. 102,000 3,200,250
Financial Security Assurance Holdings, Ltd. 36,800 2,162,000
Freedom Securities Corp. 18,800 340,750
Glenborough Realty Trust, Inc. 54,100 1,426,888
HCC Insurance Holdings, Inc. 22,300 490,600
aHealthCare Financial Partners, Inc. 24,100 1,477,631
aHeller Financial, Inc. 21,600 648,000
Innkeepers USA Trust 218,900 2,763,613
Life Re Corp. 23,400 1,918,800
Life USA Holding, Inc. 47,200 610,650
OMEGA Healthcare Investors, Inc. 27,400 962,425
aRisk Capital Holdings, Inc. 125,000 3,117,188
aSilicon Valley Bancshares 97,400 3,466,836
SL Green Realty Corp. 30,900 695,250
Storage Trust Realty 66,400 1,552,100
Waddell & Reed Financial, Inc. 3,200 76,600
Winston Hotels, Inc. 98,000 1,225,000
---------
42,428,307
---------
aHealth Services 3.8%
Access Health, Inc. 82,400 2,101,200
Advanced Health Corp. 41,900 230,450
American Dental Partners, Inc. 22,300 312,200
Medaphis Corp. 44,900 269,400
aHealth Services (cont.)
Pediatrix Medical Group, Inc. 9,300 $ 345,844
Pharmaceutical Product Development, Inc. 100,000 2,200,000
PhyCor, Inc. 160,000 2,650,000
Renal Care Group, Inc. 63,100 2,780,344
Total Renal Care Holdings, Inc. 53,333 1,839,989
Transition Systems, Inc. 50,900 540,813
---------
13,270,240
---------
Health Technology 4.3%
aDepoTech Corp. 85,000 132,813
aHeska Corp. 50,300 556,444
aInhale Therapeutic Systems 84,300 2,086,425
Mentor Corp. 57,300 1,389,525
aNeurogen Corp. 64,200 1,139,550
aOrthoLogic Corp. 245,000 1,255,625
aPenederm, Inc. 75,700 1,514,000
aSerologicals Corp. 102,500 3,305,625
aThe Cooper Cos., Inc. 15,000 546,563
aUniphase Corp. 54,200 3,402,746
---------
15,329,316
---------
aIndustrial Services 5.0%
American Disposal Services, Inc. 55,400 2,596,875
Atwood Oceanics, Inc. 3,400 135,363
Catalytica, Inc. 200,133 3,927,610
Core Laboratories, NV (Netherlands) 118,500 2,562,563
Tuboscope, Inc. 74,700 1,475,325
U.S. Liquids, Inc. 74,800 1,626,900
Varco International, Inc. 275,800 5,464,288
---------
17,788,924
---------
Non-Energy Minerals .7%
Carpenter Technology Corp. 51,600 2,592,900
---------
Process Industries .6%
ChemFirst, Inc. 85,100 2,148,775
---------
Producer Manufacturing 3.1%
aGentex Corp. 182,800 3,313,250
aGibraltar Steel Corp. 116,700 2,392,350
JLG Industries, Inc. 111,400 2,255,850
Roper Industries, Inc. 107,400 2,805,825
---------
10,767,275
---------
Retail Trade 1.4%
aGuitar Center, Inc. 85,000 2,560,625
aWest Marine, Inc. 141,700 2,550,600
---------
5,111,225
---------
aTechnology Services 18.5%
Affiliated Computer Services, Inc. 174,800 6,729,800
Arbor Software Corp. 20,700 650,756
Aspect Development, Inc. 17,500 1,323,438
Aspen Technology, Inc. 8,900 449,450
Brio Technology, Inc. 22,000 294,250
Business Objects SA, ADR (France) 48,600 820,125
Cambridge Technology Partners, Inc. 20,300 1,108,888
Check Point Software Technologies, Ltd. 11,700 383,175
Clarify, Inc. 129,400 1,746,900
Concord Communications, Inc. 30,000 766,875
aTechnology Services (cont.)
Documentum, Inc. 34,500 $ 1,656,000
Envoy Corp. 61,500 2,913,563
Harbinger Corp. 144,450 3,493,884
HNC Software, Inc. 92,700 3,783,319
i2 Technologies, Inc. 60,000 2,107,500
Information Advantage, Inc. 17,400 110,925
Integrated Systems, Inc. 125,700 1,932,638
International Network Services 89,900 3,685,900
Intuit, Inc. 80,800 4,949,000
J.D. Edwards & Co. 30,000 1,288,125
Network Associates, Inc. 69,768 3,340,143
Omtool, Ltd. 69,600 530,700
Sapient Corp. 23,200 1,223,800
Synopsys, Inc. 109,000 4,986,750
The Vantive Corp. 132,300 2,712,150
Transaction Systems Architects, Inc. 72,000 2,772,000
USCS International, Inc. 100,000 2,068,750
VERITAS Software Corp. 45,000 1,861,875
Visio Corp. 10,000 477,500
Whittman-Hart, Inc. 10,000 483,750
Wind River Systems, Inc. 116,400 4,175,850
XcelleNet, Inc. 21,000 471,179
---------
65,298,958
---------
Transportation 4.0%
Air Express International Corp. 100,000 2,675,000
aAtlantic Coast Airlines Holdings 171,000 5,130,000
C.H. Robinson Worldwide, Inc. 112,600 2,800,925
Circle International Group, Inc. 32,300 904,400
Expeditors International of Washington, Inc. 54,800 2,411,200
aRoyal Olympic Cruise Lines, Inc. 23,800 238,000
---------
14,159,525
---------
aUtilities & Telecommunication 7.4%
Arch Communications Group, Inc. 191,700 754,819
ICG Communications, Inc. 156,000 5,703,750
Intermedia Communications, Inc. 91,200 3,824,700
Millicom International Cellular, SA (Luxembourg) 62,400 2,730,000
Paging Network, Inc. 174,800 2,447,200
Primus Telecommunications Group, Inc. 132,500 2,509,219
Rural Cellular Corp., Class A 139,300 2,176,563
Western Wireless Corp., Class A 298,100 5,943,369
---------
26,089,620
---------
Total Long Term Investments (Cost $289,282,883) 319,087,047
---------
fRepurchase Agreement 14.5%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $50,941,745) (Cost $50,933,802) $50,933,802 $ 50,933,802
BancAmerica Robertson Stephens (Maturity Value $4,867,993)
Barclays Capital, Inc. (Maturity Value $4,867,993)
Bear, Stearns & Co., Inc. (Maturity Value $2,654,575)
BT Alex Brown, Inc. (Maturity Value $4,475,233)
Chase Securities, Inc. (Maturity Value $4,867,993)
CIBC Oppenheimer Corp. (Maturity Value $4,867,993)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $4,867,993)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $4,867,993)
Greenwich Capital Markets, Inc. (Maturity Value $4,867,993)
Paribas Corp. (Maturity Value $4,867,993)
SBC Warburg Dillon Read, Inc. (Maturity Value $4,867,993)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $340,216,685) 105.0% 370,020,849
Other Assets, less Liabilities (5.0%) (17,517,439)
---------
Net Assets 100.0% $352,503,410
=========
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
WARRANTS
Templeton Developing Markets Equity Fund INDUSTRY & RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks, Bonds, Warrants and Rights 75.4%
Argentina 4.8%
aAtanor Cia Nacional Para la Industria Quimica SA, D Chemicals 530,163 $ 471,892
Banco de Galicia y Buenos Aires SA, B Banking 149,675 673,605
aBuenos Aires Embotelladora SA, ADR Beverages & Tobacco 56,200 562
Capex SA, A Utilities Electrical & Gas 48,735 180,338
Central Costanera SA, B Utilities Electrical & Gas 1,501 4,353
Molinos Rio de Plata SA, B Food & Household Products 936,348 2,050,807
Nobleza Piccardo Sdad Industrial Comercial y Financial Beverages & Tobacco 41,972 170,004
Perez Companc SA, B Energy Sources 177,195 889,608
Quilmes Industrial SA Beverages & Tobacco 136,000 1,326,000
Renault Argentina SA Automobiles 46,977 93,494
Sociedad Comercial del Plata Cadelplata Come Multi-Industry 1,662,960 1,829,439
Transportadora de Gas del Sur SA, ADR, B Energy Sources 500 5,750
Transportadora de Gas del Sur SA, B Energy Sources 102,030 228,570
YPF Sociedad Anonima, ADR Energy Sources 57,293 1,722,371
---------
9,646,793
---------
Brazil 11.1%
Aracruz Celulose SA, ADR Forest Products & Paper 114,800 1,313,025
Banco Bradesco SA Banking 145,190,083 1,161,169
Banco Bradesco SA, pfd. Banking 63,508,124 529,875
Banco do Brasil SA Banking 104,354,976 860,753
Banco do Brazil SA, pfd. Banking 44,750,000 499,114
Brasmotor SA, pfd. Multi-Industry 4,219,000 386,663
Centrais Eletricas Brasileiras SA Utilities Electrical & Gas 96,602,000 2,839,761
Centrais Eletricas Brasileiras SA, pfd., B Utilities Electrical & Gas103,269,000 3,107,177
aCentrais Geradoras Do Sul Do Brasil SA (Gerasul) Utilities Electrical & Gas 96,602,000 131,965
aCentrais Geradoras Do Sul Do Brasil SA (Gerasul), pfd. Utilities Electrical & Gas104,369,000 150,697
aCia Mesbla SA, pfd. Merchandising 7,484,000 0
Companhia Siderurgica Nacional Sid Nacional CSN Metals & Mining 36,963,000 926,152
Copene-Petroquimica do Nordeste SA, A, pfd. Chemicals 2,905,700 643,143
Duratex SA, pfd. Forest Products & Paper 48,915,800 1,903,174
Investimentos Itau SA, pfd. Multi-Industry 1,884,200 1,189,232
aMannesmann SA Machinery & Engineering 2,156,500 247,048
aMannesmann SA, pfd. Machinery & Engineering 329,200 38,852
Petrobras-Petroleo Brasileiro SA, pfd. Energy Sources 17,577,000 3,267,383
Telecomunicacoes Brasileiras SA (Telebras) Telecommunications 29,560,000 2,351,306
Unibanco Uniao de Bamncos Brasileiros SA, unit Banking 15,439,000 913,045
---------
22,459,534
---------
Chile .9%
Compania De Telecomunicaciones De Chile SA, Spons. ADR Telecommunications 45,000 914,063
Empresa Nacional de Electricidad SA, ADR Electrical & Electronics 27,300 389,025
Enersis SA, ADR Utilities Electrical & Gas 11,000 268,813
Quinenco SA, ADR Multi-Industry 15,200 136,800
---------
1,708,701
---------
China 2.3%
China Southern Glass Co. Ltd., B Building Materials
& Components 1,765,445 341,761
aChina Vanke Co. Ltd., B Real Estate 2,598,061 1,492,059
Chiwan Wharf Holdings Ltd., B Transportation 1,132,000 255,659
Guangshen Railway Co. Ltd., ADR Transportation 12,700 86,519
Guangshen Railway Co. Ltd., H Transportation 908,000 120,698
aLuoyang Glass Co. Ltd., H Misc Materials & Commodities1,601,000 74,382
Shandong Huaneng Power Development Co. Ltd., ADR Utilities Electrical & Gas 96,500 518,688
Shanghai Chlor-Alkali Chemical Co. Ltd., B Chemicals 1,180,900 151,155
aShanghai Dazhong Taxi Shareholding Co. Ltd., B Transportation 569,300 310,838
aShanghai Jin Jiang Tower Co. Ltd., B Leisure & Tourism 1,891,600 266,716
aShanghai Lujiaxui Finance & Trade Zn Dev Stock Co Ltd, B Real Estate 304,900 137,205
Shanghai New Asia Group Co. Ltd., B Food & Household Products 189,940 40,267
Shanghai Petrochemical Co. Ltd., H Chemicals 2,540,000 285,187
aShanghai Refrigerator Compressor Co. Ltd., B Industrial Components 472,480 74,652
aShanghai Tyre & Rubber Co. Ltd., B Industrial Components 1,338,700 216,869
China (cont.)
aShanghai Vacuum Electron Devices Co. Ltd., B Appliances & Household
Durables 1,355,361 $ 246,676
Shanghai Yaohua Pilkington Glass, B Building Materials
& Components 575,600 74,828
4,694,159
---------
Colombia .7%
Bavaria SA Beverages & Tobacco 164,307 958,324
Cementos Argos SA Building Materials & Components64,000 214,730
Compania Nacional de Chocolates SA Food & Household Products 69,363 311,006
---------
1,484,060
---------
Czech Republic 2.3%
aCEZ AS Utilities Electrical & Gas 117,430 3,245,702
Elektrarny Opatovice AS Energy Sources 317 40,564
aKomercni Banka AS Banking 1,000 33,553
Komercni Banka AS, GDR Banking 6,800 85,510
aSPT Telecom AS Telecommunications 51,100 706,188
Tabak AS Beverages & Tobacco 130 31,334
Unipetrol Chemicals 212,938 465,880
---------
4,608,731
---------
Ghana .7%
Ashanti Goldfields Co. Ltd., GDR Metals & Mining 166,364 1,351,708
---------
Greece 1.7%
Alpha Credit Bank Banking 26,078 2,113,888
aAlpha Credit Bank, rts. Banking 42,378 75,207
Alpha Leasing SA Financial Services 30,480 525,697
aEtba Leasing Financial Services 5,338 52,629
Hellenic Telecommunications Organizations, SA Telecommunications 15,128 387,790
Hellenic Telecommunications Organizations, SA 144A Telecommunications 10,909 279,642
National Bank of Greece SA Banking 215 27,575
---------
3,462,428
---------
Hong Kong 4.2%
CDL Hotel International Ltd. Leisure & Tourism 58,000 17,216
Cheung Kong Holdings Ltd. Multi-Industry 349,000 1,716,039
Citic Pacific Ltd. Multi-Industry 10,000 17,681
Cross Harbour Tunnel Co. Ltd. Transportation 34,000 40,807
Dairy Farm International Holdings Ltd. Merchandising 226,772 242,646
Goldlion Holdings Ltd. Textiles & Apparel 130,000 14,596
Great Wall Electronic International Ltd. Electrical & Electronics 402,102 10,327
Hang Lung Development Co. Ltd. Real Estate 1,021,000 1,014,596
Hong Kong & Shanghai Hotels Ltd. Leisure & Tourism 571,000 285,552
Hong Kong Electric Holdings Ltd. Utilities Electrical & Gas 180,400 558,759
HSBC Holdings PLC Banking 97,663 2,388,449
IMC Holdings Ltd. Transportation 98,000 11,130
Jardine Matheson Holdings Ltd. Multi-Industry 23,852 64,400
Jardine Strategic Holdings Ltd. Multi-Industry 78,125 148,438
K Wah International Holdings Ltd. Building Materials
& Components 451,418 31,459
Lai Sun Development Co. Ltd. Real Estate 134,600 16,850
Lai Sun Garment International Ltd. Multi-Industry 220,000 47,415
New World Development Co. Ltd. Real Estate 416,231 805,754
Semi-Tech Co. Ltd. Appliances & Household
Durables 1,323,701 65,770
aSun Hung Kai & Co. Ltd, wts. Financial Services 22,080 254
Sun Hung Kai & Co. Ltd. Financial Services 14,400 892
Sun Hung Kai Properties Ltd. Real Estate 77,982 331,106
Wheelock and Company Ltd. Multi-Industry 681,000 402,082
Yue Yuen Industrial (Holdings) Ltd. Recreation & Other
Consumer Goods 129,200 230,935
---------
8,463,153
---------
Hungary .9%
Borsodchem RT Chemicals 14,830 433,485
Borsodchem RT, GDR Chemicals 13,000 374,075
Hungary (cont.)
Egis RT Multi-Industry 4,907 $ 172,703
Graboplast Textil Es Muborgyarto RT Textiles & Apparel 7,850 198,780
Tiszai Vegyi Kombinat RT Chemicals 32,951 640,856
---------
1,819,899
---------
India 3.1%
Arvind Mills Ltd. Textiles & Apparel 143,000 143,084
Bajaj Auto Ltd. Automobiles 5,400 72,892
Bank of Baroda Banking 95,700 187,109
aBharat Petroleum Corporation, Ltd. Energy Sources 10,500 86,912
Bombay Dyeing & Manufacturing Co. Ltd. Chemicals 2,200 3,634
Grasim Industries Ltd. Multi-Industry 48,900 412,837
Great Eastern Shipping Co. Ltd. Transportation 297,800 217,157
Gujarat Ambuja Cements Ltd. Building Materials & Components 100 616
Gujarat Industries Power Ltd. Energy Equipment & Services 52,100 30,061
Hindustan Organic Chemicals Ltd. Chemicals 25,900 6,112
Hindustan Petroleum Corporation Ltd. Energy Sources 39,200 361,241
India Cements Ltd. Building Materials & Components41,900 49,440
India Cements Ltd., GDR Building Materials & Components 3,051 4,027
Indian Aluminium Co. Ltd. Metals & Mining 45,000 79,752
Indian Petrochemicals Corp. Ltd. Chemicals 207,200 251,818
Indian Rayon & Industries Ltd. Multi-Industry 30,525 147,673
Indian Rayon & Industries Ltd., GDR Multi-Industry 10,669 34,141
Indo Gulf Fertilisers & Chemicals Corp. Ltd. Chemicals 142,300 118,877
Industrial Credit & Inv. Corp. of India (ICICI) Financial Services 190,480 347,921
Industrial Development Bank of India Banking 166,300 253,914
Larsen & Toubro Ltd. Multi-Industry 179,250 969,959
Madras Cements Ltd. Building Materials & Components 380 32,059
Mahanagar Telephone Nigam Ltd. Telecommunications 7,400 31,154
National Aluminium Co. Ltd. Metals & Mining 598,100 296,404
Oriental Bank of Commerce Banking 294,800 327,672
Reliance Industries Ltd. Chemicals 115,400 390,249
Shipping Corporation of India Ltd. Transportation 182,200 167,044
Steel Authority of India Ltd, GDR, Reg S Metals & Mining 22,000 54,670
Steel Authority of India Ltd. Metals & Mining 74,100 15,738
Sterlite Industries Ltd. Metals & Mining 30 124
Tata Chemicals Ltd. Chemicals 76,350 225,942
Tata Engineering & Locomotive Co. Telco Machinery & Engineering 188,500 740,655
Tata Hydro-Electric Power Co. Utilities Electrical & Gas 20,000 40,708
Tata Iron & Steel Co., Ltd. Metals & Mining 50,000 148,555
Thermax Ltd. Energy Equipment & Services 2,200 6,838
---------
6,256,989
---------
Indonesia 1.7%
Asia Pulp & Paper Co. Ltd., ADR Forest Products & Paper 59,100 664,875
aPT Bank International Indonesia, fgn. Banking 1,620,000 32,838
PT Barito Pacific Timber TBK Forest Products & Paper 3,211,000 54,240
aPT BBL Dharmala Finance, fgn. Financial Services 150,000 13,176
PT BDNI Capital Corporation, fgn. Financial Services 411,000 5,554
PT Charoen Pokphand Indonesia Food & Household Products 2,493,750 44,230
PT Ciputra Dev. Real Estate 800,000 8,108
PT Dharmala Intiland TBK Real Estate 744,800 6,291
PT Gadjah Tunggal Automobiles 6,225,000 42,061
PT Gudang Garam Beverages & Tobacco 50,000 29,392
PT Indah Kiat Pulp & Paper Corp. Forest Products & Paper 1,593,500 304,165
aPT Indah Kiat Pulp & Paper Corp. TBK, wts. Forest Products & Paper 114,400 13,372
PT Indocement Tunggal Prakarsa Building Materials
& Components 1,566,000 423,243
PT Indofoods Sukses Makmur Food & Household Products 633,020 62,019
PT Indosat Telecommunications 143,000 166,189
PT Inter-Pacific Bank, fgn. Banking 12,000 1,014
PT Jakarta International Hotel & Development Real Estate 481,500 13,827
PT Kalbe Farma Health & Personal Care 82,000 2,216
Indonesia (cont.)
aPT Modern Photo Film Co. Multi-Industry 218,000 $ 12,152
PT Multibreeder Adirama Indonesia TBK Food & Household Products 25,750 130
PT Pakuwon Jati Real Estate 383,500 1,296
aPT Semen Cibinong, loc. Building Materials
& Components 698,500 18,878
PT Semen Gresik Building Materials
& Components 337,000 191,270
aPT Sinar Mas Agro Resources & Technology Corp. Food & Household Products 745,800 70,549
PT Sinar Mas Multi Artha, fgn. Financial Services 1,581,250 405,997
PT Sumalindo Lestari Jaya TBK Forest Products & Paper 349,000 7,664
PT Summarecon Agung Real Estate 678,069 9,163
PT Tambang Timah (Persero) Metals & Mining 869,000 388,995
PT Tempo Scan Pacific Health & Personal Care 555,000 8,438
PT Tjiwi Kimia TBK Forest Products & Paper 2,251,926 281,491
aPT Tjiwi Kimia TBK, wts. Forest Products & Paper 169,155 9,258
PT Ultra Jaya Milk Food & Household Products 338,500 25,159
PT Unggul Indah Corp. Chemicals 136,400 13,364
aPT United Tractors Machinery & Engineering 356,000 10,824
---------
3,341,438
---------
Israel .7%
Clal Industries Ltd. Multi-Industry 207,302 1,119,285
First International Bank of Israel Banking 40 313
Koor Industries Ltd. Multi-Industry 1,966 227,082
---------
1,346,680
---------
Jordan .1%
Jordan Cement Factories Ltd. Building Materials & Components36,000 104,810
---------
Malaysia 2.1%
AMMB Holdings Bhd. Financial Services 191,000 100,393
Berjaya Singer Bhd Appliances & Household
Durables 456,000 113,244
Boustead Holdings Bhd. Food & Household Products 384,000 235,168
Edaran Otomobil Nasional Bhd. Automobiles 3,000 2,893
Federal Flour Mills Bhd. Food & Household Products 103,000 76,738
Genting Bhd. Leisure & Tourism 246,400 445,570
aHong Leong Industries Bhd., wts. Multi-Industry 38,000 3,115
Hong Leong Industries Bhd. Multi-Industry 336,200 249,668
Hong Leong Properties Bhd. Real Estate 474,000 67,429
Island & Peninsula Bhd. Real Estate 458,000 191,040
Kian Joo Can Factory Bhd. Industrial Components 85,000 77,878
Leader Universal Holdings Bhd. Industrial Components 982,000 146,797
Malaysian Airlines System Bhd. Transportation 197,000 65,073
Malaysian International Shipping Corp., fgn. Transportation 211,666 308,759
MBF Capital Bhd. Financial Services 710,000 118,975
Oriental Holdings Bhd. Automobiles 39,000 64,882
Perlis Plantations Bhd. Multi-Industry 360,500 312,911
Perusahaan Otomobil Nasional Bhd. Automobiles 214,000 136,733
PPB Oil Palms Bhd. Multi-Industry 625 407
Public Bank Bhd. Banking 368,000 109,136
Public Bank Bhd., fgn. Banking 31,000 9,343
aRenong Bhd. Multi-Industry 2,000,000 332,731
iRenong, 4.00%, cvt., 5/22/01 Multi-Industry 16,800 MYR 770
Resorts World Bhd. Leisure & Tourism 591,000 649,779
Shangri La Hotels (Malaysia) Bhd. Leisure & Tourism 1,010,000 241,085
Tanjong PLC Recreation & Other
Consumer Goods 109,000 151,115
Technology Resources Industries Bhd. Multi-Industry 104,000 71,465
---------
4,283,097
---------
Mexico 10.5%
Cemex SA, A Building Materials
& Components 54,810 205,858
Cemex SA, B Building Materials
& Components 1,327,000 5,833,129
Coca Cola Femsa SA de CV, ADR Beverages & Tobacco 32,800 569,900
Cydea SA de CV Multi-Industry 69,938 115,188
DESC SA de CV DESC, B Multi-Industry 92,034 469,080
Mexico (cont.)
aGrupo Financiero Banamex Accival SA, B Banking 461,000 $ 897,785
aGrupo Financiero Banamex Accival SA, L Banking 1,082,137 1,782,287
Grupo Financiero Bancomer SA de CV, B Banking 3,558,000 1,326,430
Grupo Financiero Bancomer SA de CV, L Banking 1,670,370 408,019
aGrupo Financiero Serfin SA de CV, B Banking 2,607,816 296,013
Telefonos de Mexico SA (Telmex), ADR, L Telecommunications 163,200 7,843,800
Vitro SA De CV Food & Household Products 681,849 1,441,702
---------
21,189,191
---------
Peru .9%
Telefonica Del Peru SA, ADR B Telecommunications 93,700 1,914,994
---------
Philippines .4%
aA Soriano Corp. Multi-Industry 2,434,000 65,374
Ayala Corp., B Multi-Industry 171,400 44,186
aBelle Corp. Real Estate 36,000 915
aDigital Telecommunications Philippines Inc. Telecommunications 360,000 11,223
Filinvest Development Corp. Real Estate 3,447,000 173,590
aKeppel Philippine Holdings Inc., B Machinery & Engineering 759,000 18,201
aMetro Pacific Corp. MDI Multi-Industry 30,000 683
aPetron Corporation Energy Sources 949,000 100,134
aPhilex Mining Corp., B Metals & Mining 5,146,500 92,563
Philippine Commercial International Bank Inc. Banking 30,000 109,353
aPhilippine National Bank Banking 24,970 29,641
RFM Corp. Food & Household Products 418,000 60,144
RFM Corporation, 10.00%, cvt., pfd. Food & Household Products 79,090 11,380
aSoutheast Asia Cement Holdings Inc. Building Materials
& Components 10,000,000 83,933
---------
801,320
---------
Poland 2.0%
Bank Handlowy W Warszawie SA Banking 4,900 93,447
Bank Przemyslowo-Handlowy SA Banking 13,638 977,775
Big Bank Gdanski SA, G Banking 1,067,350 1,423,337
Big Bank Gdanski SA, GDR Banking 12,333 239,260
Elektrim SA Multi-Industry 12,500 152,352
Gorazdze SA Building Materials & Components 8,385 152,695
aImpexmetal SA, A Metals & Mining 8,603 64,393
Mostostal Export SA Construction & Housing 48,032 74,383
aOrbis SA Leisure & Tourism 3,715 33,027
Polifarb Cieszyn Wroclaw SA Chemicals 18,149 46,843
aRolimpex SA Wholesale & International Trade49,753 85,609
Warta SA Insurance 27,566 490,132
Wielkopolski Bank Kredytowy SA Banking 14,742 114,148
Zaklady Piwowarskie W Zywcu SA Beverages & Tobacco 780 93,949
aZaklady Plyt Wiorowych Grajewo AS Forest Products & Paper 1,800 45,168
---------
4,086,518
---------
Portugal 1.5%
Banco Comercial Portugues SA Banking 34,450 978,185
aBanco Comercial Portugues SA, new Banking 48,590 1,354,691
aBanco Espirito Santo E Comercial De Lisboa Banking 25,311 739,516
---------
3,072,392
---------
Russia .1%
Irkutskenergo Utilities Electrical & Gas 439,500 43,071
Mosenergo Utilities Electrical & Gas 2,052,000 102,600
aRostelekom Telecommunications 2,000 4,530
Unified Energy System Utilities Electrical & Gas 610,600 78,767
---------
228,968
---------
Singapore 3.5%
Acer Computer International Ltd. Electrical & Electronics 302,000 105,700
aAcer Computer International Ltd., wts. Electrical & Electronics 17,000 1,020
Acma Ltd. Electrical & Electronics 302,000 182,326
Singapore (cont.)
aAcma Ltd., wts. Electrical & Electronics 44,000 $ 2,865
Asia Pacific Breweries Ltd. Beverages & Tobacco 26,000 58,325
British American Tobacco Co. (Singapore) Ltd. Beverages & Tobacco 18,000 41,551
City Developments Ltd. Construction & Housing 62,500 174,608
Cycle & Carriage Ltd. Automobiles 149,000 363,350
Delgro Corp. Transportation 50,000 35,809
First Capital Corp. Ltd. Real Estate 769,000 261,719
Fraser and Neave Ltd. Beverages & Tobacco 89,000 239,160
G P Batteries International Ltd. Electrical & Electronics 49,000 89,328
aG P Batteries International Ltd., wts. Electrical & Electronics 16,000 8,334
Hai Sun Hup Group Ltd. Transportation 1,827,000 427,147
aHai Sun Hup Group Ltd., wts Transportation 389,200 16,125
Hinds Hotels International Ltd. Leisure & Tourism 344,000 213,791
Hong Leong Finance Ltd., fgn. Financial Services 35,000 28,588
Hour Glass Ltd. Merchandising 100,000 17,757
aInchcape Marketing Services Ltd. Broadcasting & Publishing 377,000 90,373
Inchcape Motores Ltd. Wholesale & International
Trade 377,000 258,846
Isetan (Singapore) Ltd. Merchandising 75,500 71,277
Jurong Shipyard Ltd. Machinery & Engineering 224,000 1,080,556
Keppel Corp., Ltd. Transportation 174,000 261,592
MCL Land Ltd. Real Estate 682,000 244,220
Metro Holdings Ltd. Wholesale & International
Trade 169,000 102,030
Natsteel Ltd. Metals & Mining 583,000 565,919
aOsprey Maritime Ltd. Transportation 359,000 165,741
Osprey Maritime Ltd., cvt., pfd. Transportation 96,120 34,136
aOverseas Union Enterprise Ltd. Leisure & Tourism 232,400 342,513
Robinson & Co., Ltd. Merchandising 33,200 84,498
SBS Bus Service Ltd., fgn. Transportation 188,500 77,542
Sembawang Corp. Ltd. Multi-Industry 421,000 495,880
Singapore Petroleum Company, fgn. Chemicals 44,000 15,756
Times Publishing Ltd. Broadcasting & Publishing 26,000 43,090
United Industrial Corporation Ltd. Real Estate 2,187,000 627,816
United Overseas Land Ltd. Real Estate 63,000 33,933
aVan Der Horst Ltd. Machinery & Engineering 119,000 21,131
WBL Corp. Ltd. Multi-Industry 135,000 87,896
---------
6,972,248
---------
Slovak Republic .4%
Nafta Gbely AS Utilities Electrical & Gas 7,600 108,157
Slovnaft AS Chemicals 28,010 550,091
Vychodoslovenske Zeleziarne AS Metals & Mining 20,000 165,082
---------
823,330
---------
South Africa 3.5%
Aeci Ltd. Chemicals 22,000 87,485
Alpha Ltd. Building Materials & Components19,900 146,299
Anglo American Industrial Corp. Ltd. Multi-Industry 30,455 503,767
Anglo-American Corp of South Africa Ltd. Metals & Mining 1,000 33,417
Anglovaal Industried Ltd. Multi-Industry 94,715 102,865
Bonnita Holdings Ltd. Food & Household Products 80,000 34,085
BTR Dunlop Ltd. Industrial Components 656,000 232,368
CG Smith Ltd. Multi-Industry 73,000 198,814
De Beers/Centenary Linked Units, Reg. Misc Materials & Commodities 2,000 34,820
aDel Monte Royal Foods Ltd. Food & Household Products 1,762,900 795,293
Edgars Stores Ltd. Textiles & Apparel 11,203 98,272
Engen Ltd. Energy Sources 361,029 989,286
Kersaf Investments Ltd. Leisure & Tourism 107,200 483,609
Malbak Ltd. Multi-Industry 30,575 20,434
McCarthy Retail Ltd. Multi-Industry 67,466 61,999
McCarthy Retail Ltd., cvt., zero coupon, 9/30/03 Multi-Industry 11,837 ZAR 13,350
Palabora Mining Co. Ltd. Metals & Mining 115,000 605,273
aRainbow Chicken Ltd. Food & Household Products 176,985 11,829
South Africa (cont.)
Rembrandt Group Ltd. Multi-Industry 18,070 $ 111,711
Reunert Ltd. Electrical & Electronics 228,300 255,574
aSappi Ltd. Forest Products & Paper 233,851 869,371
South African Breweries Ltd. Beverages & Tobacco 19,828 404,180
South African Iron & Steel Industrial Corp. Ltd. Metals & Mining 2,534,412 474,276
Sun International (South Africa) Ltd. Leisure & Tourism 1,079,985 359,093
Tongaat-Hulett Group Ltd. Multi-Industry 4,800 35,489
Toyota South Africa Limited Automobiles 22,000 79,031
Voltex Holdings Ltd. Electrical & Electronics 136,907 50,325
---------
7,092,315
---------
South Korea 1.8%
Asia Cement Manufacturing Company Ltd. Building Materials
& Components 16,140 76,409
aBoram Bank Co. Ltd. Banking 101,230 178,424
BYC Co. Ltd. Textiles & Apparel 2,760 75,382
aCho Hung Bank Co. Ltd. Banking 100,000 60,816
aCho Hung Bank Co. Ltd., GDR Banking 54,000 33,750
aDaegu Bank Co. Ltd. Banking 110,168 116,346
Daewoo Electric Components Co. Ltd. Electronic Components
& Instruments 9,000 15,076
aDaewoo Electronics Co. Electrical & Electronics 104,000 272,688
Dongbu Steel Co. Ltd. Metals & Mining 7,000 14,020
Dongkuk Steel Mill Co. Ltd. Metals & Mining 33,700 117,815
Hae In Corp. Ltd. Merchandising 10,000 40,131
Hana Bank Banking 12,535 45,192
Hana Bank, GDR Banking 117,687 417,789
Hankook Cosmetics Co. Ltd. Health & Personal Care 3,950 21,577
aHotel Shilla Co. Leisure & Tourism 9,200 30,220
Korea Electric Power Corp. Utilities Electrical & Gas 20,600 219,803
aKyong Nam Bank Banking 59,410 51,059
LG Electronics Inc. Electrical & Electronics 27,000 221,231
LG Industrial Systems Ltd. Electrical & Electronics 16,000 39,039
Moon Bae Steel Co. Ltd. Metals & Mining 1,000 4,159
Saehan Precision Co. Ltd. Electrical & Electronics 4,234 45,331
Samsung Display Devices Ltd. Electrical & Electronics 15,259 416,761
Samsung Electronics Co. Ltd. Multi-Industry 3,900 120,721
aSamsung Heavy Industries Co. Ltd. Machinery & Engineering 44,000 219,519
Shin Poong Paper Manufacturing Co. Ltd. Forest Products & Paper 5,521 36,592
Shin Young Wocoal Inc. Textiles & Apparel 1,610 55,582
Ssangyong Oil Refining Co. Ltd. Energy Equipment & Services 71,640 485,253
aTong Yang Merchant Bank Financial Services 88,915 218,241
---------
3,648,926
---------
Sri Lanka .1%
National Development Bank of Sri Lanka Banking 130,000 248,471
---------
Thailand 4.7%
Advanced Info Service Ltd., fgn. Telecommunications 87,300 371,489
American Standard Sanitaryware Public Co. Ltd., fgn Building Materials
& Components 30,800 123,054
Ayudhya Insurance Public Co. Ltd., fgn. Insurance 49,100 178,757
Bangkok Bank Public Co. Ltd. Banking 921,400 947,539
Bangkok Insurance Public Co. Ltd. BKI Insurance 37,000 170,567
Bangkok Insurance Public Co. Ltd. BKI, fgn. Insurance 4,900 37,069
Bank of Ayudhya Public Co. Ltd., fgn. Banking 1,887,000 245,355
Banpu Public Co. Ltd. Energy Sources 27,000 26,170
aChareon Pokphand Feedmill Public Co. Ltd., fgn. Food & Household Products 335,700 281,734
aCharoen Pokphand Feedmill Public Co. Ltd. Food & Household Products 149,300 109,416
aDusit Thani Public Company Ltd., fgn. Leisure & Tourism 74,500 71,858
aHana Microelectronics Co. Ltd. Electrical & Electronics 79,782 201,813
aHana Microelectronics Co. Ltd., fgn. Electrical & Electronics 80,618 205,833
aHua Thai Manufacturing Public Co. Ltd. Textiles & Apparel 16,000 21,939
Industrial Finance Corp. of Thailand Financial Services 167,000 33,163
Industrial Finance Corp. of Thailand, fgn. Financial Services 1,298,700 267,109
aItalian-Thai Development Public Co. LTD., fgn. Construction & Housing 109,700 55,758
Thailand (cont.)
aJasmine International Public Co. Ltd., fgn. Telecommunications 1,205,000 $ 391,696
aKarat Sanitaryware Public Co. Ltd., fgn. Building Materials
& Components 157,333 23,433
Kian Gwan (Thailand) Public Co. Ltd., fgn. Real Estate 50,700 59,330
aLand and House Public Co. Ltd. Real Estate 588,809 104,399
aLand and House Public Co. Ltd., fgn. Real Estate 272,556 64,434
aPhatra Thanakit Public Co. Ltd., fgn. Financial Services 1,081,300 97,138
Regional Container Lines Public Co. Ltd. Transportation 17,992 14,036
Regional Container Lines Public Co. Ltd., fgn. Transportation 294,008 278,022
Saha Pathanapibul Public Co. Ltd., fgn. Food & Household Products 80,700 67,488
Saha Union Public Co. Ltd. Multi-Industry 193,300 110,816
Saha Union Public Co. Ltd., fgn. Multi-Industry 483,000 294,025
aSanyo Universal Electric Public Co Ltd., fgn. Appliances & Household Durables47,800 9,040
aSerm Suk Public Co. Ltd. Food & Household Products 46,300 218,913
aSG Asia Credit Public Co. Ltd., fgn. Financial Services 19,194 6,693
aSiam Cement Public Co. Ltd. Building Materials
& Components 68,100 289,787
aSiam Cement Public Co. Ltd., fgn. Building Materials
& Components 70,100 338,071
aSiam Commercial Bank Ltd., fgn. Banking 506,800 161,745
Siam Commercial Bank Ltd., loc. Banking 451,333 138,708
Siam Makro Public Company Ltd., fgn. Merchandising 246,000 337,305
aSino-Thai Engineering & Construction Public Co., fgn. Construction & Housing 107,900 11,989
Thai Airways International Public Co. Ltd., fgn. Transportation 477,700 398,083
aThai Asahi Glass Public Co. Ltd. Building Materials
& Components 116,410 9,632
Thai Farmers Bank Public Co. Ltd. Banking 2,169,300 1,564,152
aThai Investments and Securities Ltd. Financial Services 364,300 43,061
Thai Military Bank Ltd., fgn. Banking 713,100 87,662
aThai Petrochemical Industry Public Co. Ltd., fgn. Chemicals 1,469,520 104,221
Thai Plastic and Chemical Co. Ltd., fgn. Chemicals 2,200 4,083
Thai Rayon Public Co. Ltd. Textiles & Apparel 42,775 58,146
Thai Rayon Public Co. Ltd., fgn. Textiles & Apparel 2,525 3,432
aThai Telephone & Telecommunication Public Co. Ltd.,fgn. Telecommunications 313,100 39,230
Thai Wacoal Public Co. Ltd., fgn. Textiles & Apparel 26,400 64,284
aTipco Asphalt Public Co. Ltd., fgn. Building Materials
& Components 112,000 127,092
aTotal Access Communication Public Co. Ltd. Telecommunications 309,000 330,630
aUnited Communications Industries, fgn. Telecommunications 529,700 250,449
United Motor Works (Siam) Public Co. Ltd. Machinery & Engineering 4,500 2,979
9,452,827
Turkey 7.3%
Akbank Banking 98,347,957 3,174,897
aAkbank, new Banking 92,984,600 2,652,714
Alarko Sanayii ve Ticaret SA Appliances & Household
Durables 3,833,998 241,064
aAnadolu Anonim Turk Sigorta Sirketi, br. Insurance 18,049,000 308,269
Arcelik AS Appliances & Household
Durables 4,497,456 211,029
Beko Elektronik AS Appliances & Household
Durables 5,450,005 143,206
Borusan AS Industrial Components 1,306,000 53,926
aCimentas Izmir Cimento Fabrikasi Turk AS Building Materials
& Components 8,030,175 452,149
Erciyas Biracilik Food & Household Products 3,086,000 469,155
aEregli Demir ve Celik Fabrikalari AS Metals & Mining 11,713,000 1,824,660
Izocam Ticaret ve Sanayii AS, br. Building Materials
& Components 8,954,284 141,171
Marshall Boya ve Vernik Sanayii AS Industrial Components 686,528 96,640
aNetas Northern Electric Telekomunic Asyon AS Electrical & Electronics 1,055,000 281,175
Sabanci Holdings AS, ADR Multi-Industry 228,000 3,511,200
Tat Konserve Sanayii AS Food & Household Products 3,970,928 132,662
aTofas Turk Otomobil Fabrikasi AS Automobiles 6,016,025 254,055
Turk Demir Dokum, br. Appliances & Household
Durables 6,465,986 110,436
aTurkiye Garanti Bankasi AS Banking 14,244,330 655,004
Vakif Finansal Kiralama AS Financial Services 4,701,184 67,941
---------
14,781,353
---------
Venezuela 1.2%
Ceramica Carabobo CA, A Building Materials
& Components 330,484 65,767
Ceramica Carabobo CA, A, ADR Building Materials
& Components 29,950 59,601
Venezuela (cont.)
Corporacion Industrial Carbabobo Saca SIC, Class B Building Materials
& Components 122,940 $ 1,412
Electricidad de Caracas Utilities Electrical & Gas 1,726,005 779,857
Industrias Ventane Utilities Electrical & Gas 240,000 10,421
aManufacturera de Aparatos Domesticos, SA Appliances & Household
Durables 10,000 3,600
Mavesa SA, ADR Food & Household Products 321,900 1,026,056
Siderurgica Venezolana Sivensa Saica Svs., ADR, Class A Metals & Mining 19,608 120,432
Venezolana de Cementos-Vencemos, 1 Building Materials
& Components 212,767 211,707
Venezolana de Cementos-Vencemos, 2 Building Materials
& Components 180,161 179,100
---------
2,457,953
---------
Zimbabwe .2%
Delta Corp. Multi-Industry 221,604 145,193
TA Holdings Multi-Industry 25,000 1,458
Transarchipel Shipping, Ltd.- TSL Multi-Industry 587,000 97,779
Zimbabwe Sun Ltd. Multi-Industry 881,488 137,041
---------
381,471
---------
Total Long Term Investments (Cost $241,278,386) 152,184,457
---------
PRINCIPAL
AMOUNT
-------------
Short Term Investments 21.8%
dU.S. Treasury Bills, 4.96% to 5.125%, with maturities to 12/17/98
(Cost $44,004,819) $44,874,000 44,026,282
---------
Total Investments (Cost $285,283,205) 97.2% 196,210,739
Other Assets, less Liabilities 2.8% 5,701,202
---------
Net Assets 100.0% $201,911,941
=========
See currency abbreviations on page 133.
aNon-income producing.
dSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
iQuantity shown represents principal amount in currency indicated.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks and Rights 58.5%
Aerospace & Military Technology 1.9%
Kaman Corp., Class A United States 40,300 $ 766,959
Raytheon Co., Class A United States 17,615 1,015,064
---------
1,782,023
---------
Appliances & Household Durables .5%
Laox Co., Ltd. Japan 70,000 431,243
---------
Automobiles .2%
General Motors Corp. United States 2,700 180,394
---------
Banking 2.7%
Alpha Credit Bank Greece 3,832 310,623
aAlpha Credit Bank, rts. Greece 3,832 6,801
Bangkok Bank Public Co., Ltd., fgn. Thailand 312,000 383,546
Banque Nationale de Paris France 9,193 751,132
Credit Suisse Group Switzerland 4,085 908,945
aKorea Long Term Credit Bank South Korea 35,013 65,028
PT Bank Bali, fgn. Indonesia 247,500 14,215
aPT Lippo Bank, fgn. Indonesia 325,000 16,470
aShinhan Bank South Korea 33,947 112,743
---------
2,569,503
---------
Building Materials & Components 2.2%
Caradon, Plc. United Kingdom 295,300 916,438
aGujarat Ambuja Cements, Ltd. India 35,600 219,439
Gujarat Ambuja Cements, Ltd., GDR India 14,600 70,445
Suez Cement Co. Egypt 45,299 836,596
---------
2,042,918
---------
Business & Public Services 1.2%
Columbia HCA Healthcare Corp. United States 13,600 396,100
aHumana, Inc. United States 18,200 567,612
SGS Societe Generale de Surveillance Holdings, SA, Class B Switzerland 115 194,927
---------
1,158,639
---------
Chemicals 1.1%
Beijing Yanhua Petrochemical Co., Ltd., ADR China 69,740 418,440
Rhone-Poulenc SA, Class A France 9,870 556,677
Shanghai Petrochemical Co., Ltd., Class H China 834,000 93,640
---------
1,068,757
---------
Data Processing & Reproduction 1.9%
a3com Corp. United States 25,400 779,462
aBay Networks, Inc United States 33,026 1,065,088
---------
1,844,550
---------
Electrical & Electronics 3.4%
General Electric Co., Plc. United Kingdom 141,100 1,218,328
Motorola, Inc. United States 4,310 226,544
Philips Electronics, NV Netherlands 11,300 949,907
Tadiran, Ltd., Sponsored ADR Israel 26,058 863,171
---------
3,257,950
---------
Energy Equipment & Services .7%
Sun Co., Inc. United States 17,500 679,219
---------
Energy Sources .8%
MOL Magyar Olay - Es Gazipari RT, GDS Hungary 12,107 326,284
Rao Gazprom, ADR, Reg S Russia 14,201 158,696
Societe Elf Aquitaine, SA France 1,805 253,763
---------
738,743
---------
Financial Services 3.6%
Axa-UAP, SA France 14,631 $ 1,645,564
Banca Fideuram, SpA Italy 74,700 426,671
Merrill Lynch & Co., Inc. United States 6,100 562,725
Morgan Stanley, Dean Witter Discovery & Co. United States 9,000 822,375
---------
3,457,335
---------
Food & Household Products 1.4%
Archer-Daniels Midland Co. United States 28,140 545,212
IBP, Inc. United States 43,300 784,812
---------
1,330,024
---------
Forest Products & Paper 1.7%
aAsia Pacific Resources International Holdings, Ltd., Class A Indonesia 33,775 61,217
Cartiere Burgo, SpA Italy 34,500 274,556
Enso OY, Class R Finland 10,000 107,538
Georgia Pacific Corp. United States 2,500 147,344
Mo Och Domsjoe AB, Class B Sweden 9,575 273,746
aRepap Enterprises, Inc. Canada 4,876,190 795,815
---------
1,660,216
---------
Industrial Components 1.8%
BTR, Plc. United Kingdom 347,994 992,874
Goodyear Tire & Rubber Co. United States 3,600 231,975
Madeco Manufacturera de Cobre, SA, ADR Chile 18,685 164,662
Yamato Kogyo Co., Ltd. Japan 37,000 271,931
---------
1,661,442
---------
Insurance 7.6%
Ace, Ltd. Bermuda 25,200 982,800
HIH Winterthur International Holdings, Ltd. Australia 458,261 808,766
ING Groep, NV Netherlands 5,097 333,753
National Mutual Asia, Ltd. Hong Kong 489,000 312,385
Partnerre, Ltd. Bermuda 17,500 892,500
Reinsurance Australia Corporation, Ltd. Australia 305,100 778,781
Scor France 18,000 1,141,747
Torchmark Corp. United States 14,000 640,500
UNUM Corp. United States 8,000 444,000
Zuerich Versicherung Switzerland 1,390 887,078
---------
7,222,310
---------
Leisure & Tourism .3%
Mandarin Oriental International, Ltd. Singapore 524,000 298,680
---------
Machinery & Engineering .5%
Makita Corp. Japan 38,000 437,814
---------
Merchandising 3.3%
Best Denki Co., Ltd. Japan 17,000 99,218
aCifra, SA de CV Mexico 107,403 161,355
Coles Myer, Ltd. Australia 60,707 236,834
David Jones, Ltd. Australia 345,909 396,277
Hudson's Bay Co. Canada 20,200 462,915
Matsuzakaya Co., Ltd. Japan 80,000 357,387
Somerfield, Plc. United Kingdom 222,600 1,420,638
---------
3,134,624
---------
Metals & Mining 2.7%
Angang New Steel Company Ltd., Class H, 144A China 2,022,000 187,884
Anglo American Platinum Corp., Ltd. South Africa 402 4,332
British Steel, Plc. United Kingdom 206,500 455,662
Companhia Siderurgica Nacional Brazil 16,300,000 408,416
Metals & Mining (cont.)
Companhia Siderurgica Nacional, Sponsored ADR Brazil 7,700 $ 188,650
Elkem, AS Norway 49,700 595,869
Industrias Penoles, SA Mexico 168,200 533,463
Pohang Iron & Steel Co., Ltd. South Korea 6,690 223,557
---------
2,597,833
---------
Miscellaneous Materials & Commodities
Korea Chemical Co., Ltd. South Korea 1,580 22,555
---------
Multi-Industry 5.1%
Alfa, SA de CV, Class A Mexico 127,251 528,206
Broken Hill Proprietary Co., Ltd. Australia 75,894 641,513
Cheung Kong Holdings, Ltd. Hong Kong 172,000 845,727
Elementis, Plc. United Kingdom 79,859 205,197
Hutchison Whampoa, Ltd. Hong Kong 79,000 416,991
La Cemento Nacional, SA, Sponsored GDR Ecuador 400 64,000
La Cemento Nacional, SA, Sponsored GDR, 144A Ecuador 1,400 224,000
aMetro Pacific Corp., MDI Philippines 4,426,706 100,848
Pilkington, Plc. United Kingdom 454,300 841,381
aSaab AB, Class B Sweden 42,900 451,868
Swire Pacific Ltd., Class B Hong Kong 945,000 567,102
---------
4,886,833
---------
Real Estate 2.7%
Highwood Properties, Inc. United States 16,600 536,387
Hon Kwok Land Investment Co., Ltd. Hong Kong 1,226,456 128,208
aIntrawest Corp. Canada 15,200 302,336
Post Properties, Inc. United States 7,600 292,600
The Rouse Co. United States 13,500 424,406
Summit Properties, Inc. United States 15,000 284,062
Unibail Union du Credit Bail Immobilier France 2,500 323,354
Weeks Corp. United States 7,500 237,188
---------
2,528,541
---------
Recreation & Other Consumer Goods 1.0%
Nintendo Co., Ltd. Japan 7,000 654,177
Yue Yuen Industrial Holdings, Ltd. Hong Kong 190,140 339,860
---------
994,037
---------
Telecommunications 3.8%
AT&T Corp. United States 7,000 399,875
British Telecommunications, Plc. United Kingdom 65,000 807,972
Hong Kong Telecommunications, Ltd. Hong Kong 436,000 818,703
Rostelecom, ADR Russia 25,300 338,387
Telecom Argentina Stet-France SA, Sponsored ADR Argentina 4,000 119,250
Telefonica de Argentina SA, Class B, ADR Argentina 25,000 810,938
Telefonos de Mexico SA (Telmex), Class L, ADR Mexico 6,709 322,451
---------
3,617,576
---------
Textiles & Apparel .6%
aFruit of the Loom Inc., Class A United States 12,450 413,184
aYizheng Chemical Fibre Co., Ltd., Class H China 1,332,000 146,117
---------
559,301
---------
Transportation 2.4%
Danzas Holdings, AG Switzerland 1,905 512,421
Great Eastern Shipping Co., Ltd., GDR, 144A India 86,700 340,297
aLandstar System, Inc. United States 13,000 454,187
Sea Containers, Ltd., Class A United Kingdom 7,000 267,750
Transportation (cont.)
Singapore Airlines, Ltd., fgn. Singapore 102,000 $ 476,946
Tranz Rail Holdings, Ltd., Sponsored ADR New Zealand 40,380 267,518
---------
2,319,119
---------
Utilities Electrical & Gas 3.4%
Entergy Corp. United States 30,200 868,250
Evn Energie-Versorgung Niederoesterreich AG Austria 3,000 448,937
Gas y Electricidad, SA Spain 4,300 327,507
Hong Kong Electric Holdings, Ltd. Hong Kong 130,000 402,653
Korea Electric Power Corp. South Korea 39,730 423,922
Mosenergo, ADR Russia 21,297 106,485
Mosenergo, ADR, 144A Russia 30,000 150,000
National Grid Holdings, Plc. United Kingdom 79,730 539,768
---------
3,267,522
---------
Total Common Stocks and Rights (Cost $51,836,818) 55,749,701
---------
Preferred Stocks 3.2%
Banco Bradesco, SA, pfd. Brazil 121,758,350 1,015,881
Cia Energetica de Minas Gerais, pfd., ADR Brazil 9,178 285,680
Cia Vale do Rio Doce, pfd. Brazil 13,400 266,471
Cia Vale do Rio Doce, pfd., ADR Brazil 15,100 300,277
Coteminas Cia Tecidos Norte de Minas (CTNM), pfd. Brazil 599,000 84,158
Empresa Nacional de Comercio Redito Participacoe, pfd. Brazil 275,000 690
Intrawest Corp., non resort pfd. Canada 13,679 27,441
Petrobras Distribuidora, SA, pfd. Brazil 19,319,300 267,591
Petrobras-Petroleo Brasileiro, SA, pfd. Brazil 3,401,000 632,211
Usinas Siderugicas de Minas Gerais, pfd., Sponsored ADR Brazil 28,300 144,363
---------
Total Preferred Stocks (Cost $3,611,612) 3,024,763
---------
PRINCIPAL
AMOUNT*
-------------
Bonds 29.1%
Bepensa SA, 144A, 9.75%, 9/30/0 Mexico $ 110,000 107,250
Bridas Corp., Yankee, 12.50%, 11/18/99 Argentina 100,000 105,250
Buoni Poliennali Del Tes,
10.50%, 7/15/00 Italy 1,125,000,000 ITL 705,423
7.75%, 11/01/06 Italy 1,400,000,000 ITL 935,434
Cemex, SA, 144A, 10.75%, 7/15/00 Mexico 200,000 210,500
Centrais Electricas Brasileiras, SA, senior unsubordinated notes,
144A, 10.00%, 10/30/98 Brazil 150,000 149,250
Federal Republic of Germany, 5.25%, 2/21/01 Germany 1,200,000 DEM 683,102
Government of Australia, 9.50%, 8/15/03 Australia 1,096,000 AUD 802,294
Government of Belgium, 6.25%, 3/28/07 Belgium 27,350,000 BEF 804,183
Government of Canada, deb.,
Series A32, 10.50%, 07/01/00 Canada 917,000 CAD 684,097
Series A37, 10.50%, 3/01/01 Canada 182,000 CAD 139,463
Series J25, 10.00%, 5/01/02 Canada 1,025,000 CAD 807,907
Government of France, 5.50%, 4/25/07 France 3,490,000 FRF 607,200
Government of Italy, cvt. bonds, 5.00%, 6/28/01 Italy 890,000 1,480,737
Government of Netherlands, Series 1 & 2, 7.00%, 3/15/99 Netherlands 500,000 NLG 251,081
Government of New Zealand, 6.50%, 2/15/00 New Zealand 610,000 NZD 313,484
Kingdom of Denmark,
bonds, 8.00%, 5/15/03 Denmark 3,065,000 DKK 509,734
7.00%, 12/15/04 Denmark 3,000,000 DKK 488,585
Kingdom of Sweden, bonds, Series 1033, 10.25%, 5/05/03 Sweden 5,000,000 SEK 777,308
Minfin of Russia,
144A, 10.00%, 6/26/07 Russia 180,000 132,525
Reg S, 10.00%, 6/26/07 Russia 260,000 191,425
PT Indah Kiat Financial Mauritius, 10.00%, 7/01/07 Indonesia $ 300,000 $ 213,000
Pera Financial Services, 9.375%, 10/15/02 Turkey 120,000 109,866
Phillipine Long Distance Telephone Co., 9.25%, 6/30/06 Philippines 270,000 263,250
Poland Communications Inc., 9.875%, 11/01/03 Poland 400,000 390,000
Protexa Construcciones, SA de CV, 144A, 12.125%, 7/24/02 Mexico 100,000 90,500
Republic of Argentina,
9.25%, 2/23/01 Argentina 900,000 920,250
8.75%, 5/09/02 Argentina 100,000 95,300
notes, Series REGS, 11.75%, 2/12/07 Argentina 100,000 ARS 94,509
unsecured notes, 11.375%, 1/30/17 Argentina 200,000 213,500
9.75%, 9/19/27 Argentina 540,000 500,850
Republic of Brazil,
notes, 8.875%, 11/05/01 Brazil 100,000 99,850
cvt., Series L, FRN, 4/15/12 Brazil 775,000 543,469
Series C, 8.00%, 4/15/14 Brazil 116,022 86,130
bonds, 10.125%, 5/15/27 Brazil 425,000 367,306
Republic of Ecuador,
11.25%, 4/25/02 Ecuador 450,000 461,812
144A, 11.25%, 4/25/02 Ecuador 275,000 282,219
Republic of Turkey, 144A, 10.00%, 9/19/97 Turkey 520,000 504,400
Republic of Venezuela,
senior unsubordinated deb., 9.125%, 6/18/07 Venezuela 600,000 559,500
144A, 9.125%, 6/18/07 Venezuela 100,000 93,250
9.25%, 9/15/27 Venezuela 1,333,000 1,027,243
Sei Holdings IX, Inc., 144A, 11.00%, 11/30/00 Trinidad and Tobago 170,000 183,007
Treuhandanstalt, 7.50%, 9/09/04 Germany 2,090,000 DEM 1,336,789
United Kingdom,
8.00%, 12/07/00 United Kingdom 490,000 GBP 837,239
7.50%, 12/07/06 United Kingdom 280,000 GBP 513,753
United Mexican States,
notes, 9.75%, 2/06/01 Mexico 620,000 647,435
bonds, 11.375%, 9/15/16 Mexico 430,000 479,558
U.S. Treasury Bond, 6.375%, 8/15/02 United States 275,000 283,422
U.S. Treasury Notes,
8.50%, 2/15/00 United States 880,000 920,151
6.25%, 8/31/00 United States 1,010,000 1,025,151
6.625%, 4/30/02 United States 1,385,000 1,436,073
7.25%, 8/15/04 United States 596,000 648,896
6.125%, 8/15/07 United States 1,008,000 1,049,581
6.125%, 11/15/27 United States 489,000 524,147
---------
Total Bonds (Cost $28,214,363) 27,687,638
---------
Total Long Term Investments (Cost $83,662,793) 86,462,102
---------
gRepurchase Agreements 8.3%
Dresdner Bank AG, 5.65%, 7/01/98 (Maturity Value $3,925,616)
Collateralized by U.S. Treasury Notes & Bonds United States 3,925,000 3,925,000
Swiss Bank Corp., 5.96%, 7/01/98 (Maturity Value $3,960,656)
Collateralized by U.S. Treasury Notes & Bonds United States 3,960,000 3,960,000
---------
Total Repurchase Agreements (Cost $7,885,000) 7,885,000
---------
Total Investments (Cost $91,547,793) 99.1% 94,347,102
Net Equity in Forward Contracts 10,039
Other Assets, less Liabilities .9% 823,629
---------
Net Assets 100.0% $95,180,770
=========
See currency abbreviations on page 133.
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
gSee Note 1(c) regarding repurchase agreements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
TEMPLETON GLOBAL GROWTH FUND COUNTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks and Rights 83.3%
Aerospace & Military Technology 2.5%
aFairchild Corp., Class A United States 204,957 $ 4,137,569
aGeneral Motors Corp., Class H United States 66,000 3,110,250
Raytheon Co., A United States 222,644 12,829,861
---------
20,077,680
---------
Appliances & Household Durables .2%
Fisher & Paykel Industries, Ltd. New Zealand 594,959 1,513,333
---------
Automobiles 4.1%
Autoliv, Inc. Sweden 246,100 7,869,127
Fiat, SpA Italy 1,919,720 8,428,171
Ford Motor Co. United States 90,000 5,310,000
General Motors Corp. United States 60,000 4,008,750
Volkswagen, AG Germany 6,300 6,055,679
Volvo, AB, Class B Sweden 68,000 2,025,104
---------
33,696,831
---------
Banking 1.7%
Alpha Credit Bank Greece 45,333 3,674,676
Alpha Credit Bank, 144A Greece 7,333 594,441
aAlpha Credit Bank, rts. Greece 45,332 80,450
aAlpha Credit Bank, rts., 144A Greece 7,333 12,492
Credit Suisse Group, reg. Switzerland 5,475 1,218,231
Guoco Group, Ltd. Hong Kong 1,633,000 1,717,594
HSBC Holdings, Plc. Hong Kong 2,878 70,384
aKookmin Bank South Korea 293,928 1,091,792
aShinhan Bank South Korea 130,116 432,141
Singapore Finance Ltd., fgn. Singapore 1,141,000 540,278
Unibanco Uniao de Bancos Brasileiros, SA, GDR Brazil 149,000 4,395,500
---------
13,827,979
---------
Broadcasting & Publishing .6%
Cordiant, Plc. United Kingdom 727,500 1,608,332
Houghton Mifflin Co. United States 105,600 3,352,800
---------
4,961,132
---------
Building Materials & Components 1.6%
Caradon, Plc. United Kingdom 2,752,600 8,542,457
Owens Corning United States 100,600 4,105,738
Siam City Cement Public Co., Ltd., fgn. Thailand 771,063 546,853
---------
13,195,048
---------
Business & Public Services 2.0%
aHumana, Inc. United States 250,000 7,796,875
Lex Service, Plc. United Kingdom 466,666 3,869,807
SGS Societe Generale de Surveillance Holdings, Class B Switzerland 3,000 5,085,047
---------
16,751,729
---------
Chemicals 1.5%
Courtaulds, Plc. United Kingdom 1,554,900 11,557,846
European Vinyls Corporation Evc International, NV Netherlands 56,500 986,014
---------
12,543,860
---------
Construction & Housing .3%
Daito Trust Construction Co. Japan 274,700 2,078,286
---------
Data Processing & Reproduction 1.5%
a3com Corp. United States 110,700 3,397,106
aBay Networks, Inc United States 230,000 7,417,500
aNewbridge Networks Corp. Canada 74,000 1,771,375
---------
12,585,981
---------
Electrical & Electronics 3.8%
ABB, AB, Class A Sweden 350,000 $ 4,959,310
Catic Shenzhen Holdings, Ltd. China 9,945,000 847,082
Dongfang Electrical Machinery Co., Ltd., Class H China 5,506,000 397,925
aDSC Communications Corp. United States 84,800 2,544,000
General Electric Co., Plc. United Kingdom 1,160,300 10,018,608
Hitachi, Ltd. Japan 603,500 3,935,350
Matsushita Electric Industrial Co., Ltd. Japan 200,000 3,213,604
Motorola, Inc. United States 100,000 5,256,250
---------
31,172,129
---------
Electronic Components & Instruments .5%
BICC, Plc. United Kingdom 1,397,152 3,053,808
aNanjing Panda Electronics Co., Ltd. China 17,794,000 1,067,833
---------
4,121,641
---------
Energy Sources 3.9%
MOL Magyar Olay - Es Gazipari RT, GDS Hungary 256,358 6,908,848
aPetron Corp., fgn. Philippines 8,101,033 854,785
aRanger Oil, Ltd. Canada 229,150 1,643,965
aRenaissance Energy, Ltd. Canada 94,200 1,412,472
Societe Elf Aquitaine, SA France 41,972 5,900,794
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR Argentina 386,900 4,449,350
Valero Energy Corp., new United States 81,000 2,693,250
YPF Sociedad Anonima, ADR Argentina 257,700 7,747,106
---------
31,610,570
---------
Financial Services 4.5%
Associates First Capital Corp., Class A United States 23,587 1,813,251
Axa-UAP, SA France 157,102 17,669,428
Banca Fideuram, SpA Italy 488,700 2,791,354
India Fund, Class B India 720,000 925,017
Industrial Credit & Investment Corp. of India, GDR, 144A India 396,700 4,021,546
Morgan Stanley, Dean Witter Discovery & Co. United States 103,100 9,420,763
---------
36,641,359
---------
Food & Household Products 4.2%
Archer-Daniels Midland Co. United States 595,300 11,533,938
aExpress Dairies, Plc. United Kingdom 1,104,398 3,068,079
IBP, Inc. United States 272,543 4,939,842
Northern Foods, Plc. United Kingdom 2,208,797 8,034,133
Oshawa Group Ltd., Class A Canada 384,200 6,923,464
Showa Sangyo Co. Japan 17,000 32,338
---------
34,531,794
---------
Forest Products & Paper 3.6%
aAsia Pacific Resources International Hldgs. Ltd., Class A Indonesia 534,975 969,642
Assidomaen, AB Sweden 192,100 5,588,434
Carter Holt Harvey, Ltd. New Zealand 940,712 820,384
Enso OY, Class R Finland 559,700 6,018,883
Georgia Pacific Corp. United States 34,000 2,003,875
Georgia Pacific Timber Group United States 34,000 784,125
Metsa Serla OY, Class B Finland 270,000 2,608,244
Munksjo, AB Sweden 722,500 7,066,546
Primex Forest Products, Ltd. Canada 195,000 928,224
UPM-Kymmene Corp. Finland 88,000 2,341,769
---------
29,130,126
---------
Health & Personal Care 2.4%
Medeva, Plc. United Kingdom 1,614,200 4,605,536
Nycomed Amersham, Plc. United Kingdom 521,694 3,875,230
Health & Personal Care (cont.)
Pacific Chemical Co., Ltd. South Korea 100,000 $ 910,415
Pharmacia & Upjohn United States 218,900 10,096,763
---------
19,487,944
---------
Industrial Components 1.6%
BTR Plc. United Kingdom 3,139,175 8,956,501
aBTR Plc., B United Kingdom 135,000 77,710
BTR Plc., fgn. United Kingdom 109,688 296,148
Yamato Kogyo Co., Ltd. Japan 466,000 3,424,866
---------
12,755,225
---------
Insurance 6.4%
Ace, Ltd. Bermuda 121,500 4,738,500
HIH Winterthur International Holdings, Ltd. Australia 2,244,429 3,961,100
ING Groep, NV Netherlands 105,188 6,887,740
Partnerre, Ltd. Bermuda 127,900 6,522,900
Reliastar Financial Corp. United States 48,000 2,304,000
Torchmark Corp. United States 240,000 10,980,000
UNUM Corp. United States 81,100 4,501,050
Zuerich Versicherung Switzerland 19,500 12,444,620
---------
52,339,910
---------
Leisure & Tourism 1.3%
Kuoni Reisen Holding, AG, Class B Switzerland 2,200 10,921,677
---------
Machinery & Engineering 1.5%
Laird Group, Plc. United Kingdom 1,178,900 5,487,922
Makita Corp. Japan 154,000 1,774,298
VA Technologie AG Austria 25,900 3,222,458
Valmet (OY) Finland 98,500 1,698,384
---------
12,183,062
---------
Merchandising 2.4%
Best Denki Co., Ltd. Japan 65,000 379,364
Coles Myer Ltd., Class A Australia 1,070,971 4,178,144
The Limited, Inc. United States 97,902 3,243,004
Matsuzakaya Co., Ltd. Japan 51,000 227,834
Sa des Galeries Lafayette France 5,388 5,373,741
Safeway, Plc. United Kingdom 231,198 1,517,943
W.H. Smith Group United Kingdom 513,810 4,569,372
---------
19,489,402
---------
Metals & Mining 4.4%
Anglo American Platinum Corp., Ltd. South Africa 377,265 4,065,763
Boehler Uddeholm, AG Austria 93,200 6,157,556
Chongqing Iron & Steel, Ltd., Class H China 9,783,000 909,036
Companhia Siderurgica Nacional Brazil 129,100,000 3,234,755
Industrias Penoles, SA Mexico 178,200 565,179
Ingwe Coal Corp., Ltd. South Africa 1,243,800 3,532,932
Outokumpu OY, Class A Finland 342,200 4,366,029
Pechiney SA, ADR France 112,708 2,278,815
Pechiney SA, Class A France 84,279 3,394,300
Pohang Iron & Steel Co., Ltd. South Korea 100,000 3,341,661
RGC, Ltd. Australia 1,074,643 1,064,754
WMC, Ltd. Australia 1,040,856 3,132,507
---------
36,043,287
---------
Multi-Industry 4.1%
Broken Hill Proprietary Co., Ltd. Australia 564,031 4,767,610
Cheung Kong Holdings, Ltd. Hong Kong 800,000 3,933,614
Multi-Industry (cont.)
Hutchison Whampoa, Ltd. Hong Kong 1,523,000 $ 8,038,962
Jardine Strategic Holdings Ltd. Hong Kong 800,000 1,520,000
La Cemento Nacional SA, Sponsored GDR Ecuador 400 64,000
La Cemento Nacional SA, Sponsored GDR, 144A Ecuador 3,600 576,000
aMetro Pacific Corp. Philippines 61,356,666 1,397,814
Pacific Dunlop, Ltd. Australia 2,149,000 3,473,298
Saha Union Public Co., Ltd., fgn. Thailand 4,138,400 2,519,239
Swire Pacific Ltd., Class A Hong Kong 1,661,000 6,270,068
Swire Pacific Ltd., Class B Hong Kong 1,304,000 782,541
---------
33,343,146
---------
Real Estate 4.3%
China Resources Beijing Land, Ltd. China 4,652,000 1,500,916
General Growth Properties United States 89,000 3,326,375
Hang Lung Development Co., Ltd. Hong Kong 1,418,000 1,409,106
Highwood Properties, Inc. United States 164,900 5,328,331
Intrawest Corp. Canada 119,700 2,380,895
Inversiones y Representacion Argentina 1,136,091 3,340,442
Inversiones y Representacion, GDR Argentina 2,332 67,920
National Health Investors, Inc. United States 123,400 4,087,625
New World Development Co., Ltd. Hong Kong 1,639,000 3,172,831
The Rouse Co. United States 80,000 2,515,000
Unibail Union du Credit Bail Immobilier France 32,029 4,142,686
Weeks Corp. United States 115,000 3,636,875
---------
34,909,002
---------
Recreation & Other Consumer Goods .1%
Fila Holding, SpA, ADR Italy 60,600 909,000
---------
Telecommunications 5.7%
AT&T Corp. United States 60,300 3,444,637
British Telecommunications, Plc. United Kingdom 1,091,388 13,566,324
Hong Kong Telecommunications, Ltd. Hong Kong 3,411,600 6,406,161
PT Indosat, Sponsored ADR Indonesia 31,100 345,988
Tele Danmark, AS, Class B Denmark 110,200 10,576,123
Telecom Argentina Stet-France, SA, Sponsored ADR Argentina 100,000 2,981,250
Telefonos de Mexico, SA, (Telmex), Class L, Sponsored ADR Mexico 92,900 4,465,006
U.S. West Inc. United States 94,200 4,427,400
---------
46,212,889
---------
Textiles & Apparel 1.3%
aAbercrombie & Fitch Co., A United States 1,338 58,872
Courtaulds Textiles, Plc. United Kingdom 734,300 3,553,025
Dawson International, Plc. United Kingdom 1,434,880 1,029,463
aFruit of the Loom, Inc., Class A United States 136,500 4,530,094
Tae Kwang Industrial Co., Ltd. South Korea 1,000 233,066
aYizheng Chemical Fibre Co., Ltd., Class H China 13,356,000 1,465,116
---------
10,869,636
---------
Transportation 2.4%
Danzas Holding, AG Switzerland 15,410 4,145,095
Helikopter Services Group, ASA Norway 180,600 1,835,772
Koninklijke Frans Maas Groep, NV Netherlands 51,470 1,910,326
Koninklijke Nedlloyd, NV Netherlands 260,670 5,292,337
aLandstar System, Inc. United States 48,900 1,708,444
Shun Tak Holdings Hong Kong 3,600,000 353,096
Singapore Airlines Ltd., fgn. Singapore 944,600 4,416,893
---------
19,661,963
---------
Utilities Electrical & Gas 8.9%
BG, Plc. United Kingdom 1,214,294 $ 7,025,335
aCentrica, Plc. United Kingdom 1,376,200 2,324,895
Electrabel, SA Belgium 40,900 11,596,211
Entergy Corp. United States 283,900 8,162,125
Evn Energie-Versorgung Niederoesterreich AG Austria 35,400 5,297,456
Hong Kong Electric Holdings, Ltd. Hong Kong 2,944,000 9,118,550
Iberdrola, SA Spain 744,700 12,112,502
Korea Electric Power Corp. South Korea 212,500 2,267,389
National Grid Group, Plc. United Kingdom 1,558,900 10,553,670
Peco Energy Co. United States 147,100 4,293,481
---------
72,751,614
---------
Total Common Stocks and Rights (Cost $596,538,377) 680,317,235
---------
Preferred Stocks 3.5%
Banco Bradesco SA, pfd. Brazil 451,500,022 3,767,054
Centrais Eletricas Brasileiras SA (Electrobras), pfd., ADR Brazil 176,400 2,653,778
Centrais Geradoras Do Sul Do Brasil SA (Gerasul), pfd., ADR Brazil 17,640 127,351
Coteminas Cia Tecidos Norte de Minas (CTNM), pfd. Brazil 1,952,000 274,252
Empresa Nacional de Comercio Redito Participacoe, pfd. Brazil 1,952,000 4,894
Michaniki SA, pfd. Greece 449,256 1,919,393
News Corp. Ltd., pfd. Australia 1,642,771 11,637,727
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR Brazil 75,000 8,189,063
---------
Total Preferred Stocks (Cost $21,828,046) 28,573,512
---------
PRINCIPAL
AMOUNT
-------------
Bonds 1.5%
Alfa SA de CV,
cvt., 8.00%, 9/15/00 Mexico $ 1,650,000 1,658,250
cvt., 144A, 8.00%, 9/15/00 Mexico 2,710,000 2,723,550
Government of Italy, cvt., 5.00%, 6/28/01 Italy 4,950,000 8,235,563
---------
Total Bonds (Cost $12,833,850) 12,617,363
---------
Total Long Term Investments (Cost $631,200,273) 721,508,110
---------
gRepurchase Agreements 11.5%
Bank of America, 5.65%, 7/01/98 (Maturity Value $33,005,179)
Collateralized by U.S. Treasury Notes United States 33,000,000 33,000,000
Morgan Stanley Inc., 5.75%, 7/01/98 (Maturity Value $29,264,673)
Collateral: U.S. Treasury Notes United States 29,260,000 29,260,000
Paine Webber Group Inc., 5.75%, 7/01/98 (Maturity Value $32,005,111)
Collateral: U.S. Treasury Notes United States 32,000,000 32,000,000
---------
Total Repurchase Agreements (Cost $94,260,000) 94,260,000
---------
Total Investments (Cost $725,460,273) 99.8% 815,768,110
Other Assets, less Liabilities .2% 1,928,495
---------
Total Net Assets 100.0% $817,696,605
=========
aNon-income producing.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES TRUST AMOUNT* VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 97.2%
Argentina 5.5%
Republic of Argentina:
10.95%, 11/01/99 $ 1,645,000 $ 1,712,857
8.75%, 5/09/02 6,250,000 5,956,250
8.375%, 12/20/03 785,000 786,472
11.00%, 10/09/06 760,000 807,500
---------
9,263,079
---------
Australia 3.5%
Government of Australia, 9.50%, 8/15/03 8,000,000 AUD 5,856,161
---------
Belgium 3.8%
Belgium Govt., 6.25%, 3/28/07 213,440,000 6,275,859
---------
Brazil 7.0%
Republic of Brazil:
8.875%, 11/05/01 3,905,000 3,899,143
FRN, 4/15/09 3,780,000 2,844,450
8.00%, 4/15/14 3,915,729 2,906,884
10.125%, 5/15/27 2,300,000 1,987,775
---------
11,638,252
---------
Canada 8.4%
Government of Canada:
10.50%, 7/01/00 2,641,000 CAD 1,970,230
10.50%, 3/01/01 5,947,000 CAD 4,557,055
10.00%, 5/01/02 9,565,000 CAD 7,539,149
---------
14,066,434
---------
Denmark 2.2%
Kingdom of Denmark:
9.00%, 11/15/00 6,600,000 DKK 1,057,037
8.00%, 5/15/03 15,995,000 DKK 2,660,096
---------
3,717,133
---------
France 2.8%
France Govt., 5.50%, 4/25/07 27,260,000 4,742,771
---------
Germany 9.6%
Federal Republic of Germany:
5.25%, 2/21/01 17,855,000 DEM 10,163,996
5.25%, 1/04/08 10,130,000 DEM 5,809,176
---------
15,973,172
---------
Italy 6.6%
Buoni Poliennali Del Tesoro:
10.50%, 7/15/00 6,925,000,000 ITL 4,342,271
7.75%, 11/01/06 9,940,000,000 ITL 6,641,579
---------
10,983,850
---------
Mexico 5.2%
United Mexican States:
9.75%, 2/06/01 6,560,000 6,850,280
9.875%, 1/15/07 1,700,000 1,770,125
---------
8,620,405
---------
New Zealand 1.9%
Government of New Zealand, 6.50%, 2/15/00 6,035,000 NZD 3,101,433
---------
Sweden 2.4%
Kingdom of Sweden, 10.25%, 5/05/03 26,000,000 SEK 4,041,999
---------
United Kingdom 7.4%
United Kingdom:
8.00%, 12/07/00 4,415,000 GBP 7,543,691
7.50%, 12/07/06 2,630,000 GBP 4,825,605
---------
12,369,296
---------
United States 28.3%
U.S. Treasury Bond, 6.375%, 8/15/02 $ 8,320,000 $ 8,574,808
U.S. Treasury Notes:
6.625%, 4/30/02 13,000,000 13,479,388
7.25%, 8/15/04 8,419,000 9,166,195
6.125%, 8/15/07 10,211,000 10,632,214
6.125%, 11/15/27 4,972,000 5,329,367
---------
47,181,972
---------
Venezuela 2.6%
Republic of Venezuela:
9.125%, 6/18/07, 144A 1,940,000 1,809,050
9.25%, 9/15/27 3,376,000 2,601,630
---------
4,410,680
---------
Total Long Term Investments (Cost $166,004,881) 162,242,496
---------
gRepurchase Agreement 1.0%
Swiss Bank Corp., 5.96%, 7/01/98 (Maturity Value $1,654,274) (Cost $1,654,000)
Collateralized by U.S. Treasury Notes & Bonds 1,654,000 1,654,000
---------
Total Investments (Cost $167,658,881) 98.2% 163,896,496
Net Equity in Forward Contracts 109,428
Other Assets, Less Liabilities 1.8% 2,976,240
---------
Net Assets 100.0% $166,982,164
=========
See Currency abbreviations on page 133.
*Securities traded in U.S. dollars unless otherwise indicated.
gSee Note 1(c) regarding repurchase agreements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
WARRANTS
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY & RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks, Warrants and Rights 80.4%
Aerospace & Military Technology .1%
Hong Kong Aircraft Engineering Co. Ltd. Hong Kong 513,400 $ 795,086
---------
Appliances & Household Durables 2.0%
Electrolux AB, B Sweden 1,160,000 19,927,523
Fisher & Paykel Ltd. New Zealand 1,321,125 3,360,402
---------
23,287,925
---------
Automobiles 2.3%
Autoliv Inc. Sweden 317,000 10,136,177
Fiat SpA Italy 3,391,410 14,889,351
Volvo AB, B Sweden 91,500 2,724,956
---------
27,750,484
---------
Banking 10.6%
Banco Popular Espanol SA Spain 62,400 5,331,452
BPI Socieda de Gestora de Participacoes Socias SA Portugal 321,978 10,390,379
Credit Commercial de France CCF France 128,800 10,843,401
aDaegu Bank Co. Ltd. South Korea 155,586 164,312
Deutsche Bank AG Germany 407,000 34,465,346
Foreningssparbanken AB, A Sweden 163,000 4,905,391
Komercni Banka AS, GDR, 144A Czech Republic 120,000 1,509,000
aKorea Long Term Credit Bank South Korea 184,325 342,338
Merita Ltd., A Finland 1,254,500 8,277,283
National Bank of Canada Canada 447,000 8,739,077
National Westminster Bank Plc. United Kingdom 641,668 11,498,506
Svenska Handelsbanken, A Sweden 155,400 7,209,871
Unibanco Uniao de Bamncos Brasileiros SA, unit Brazil 28,412,000 1,680,253
Unibanco Uniao de Bancos Brasileiros SA, GDR Brazil 548,700 16,186,650
Union Bank of Norway, Primary Capital Cert. Norway 199,000 5,705,350
---------
127,248,609
---------
Broadcasting & Publishing 3.0%
Cordiant Communications Group Plc. United Kingdom 3,561,500 7,873,640
Marieberg Tidnings AB, A Sweden 210,000 6,102,584
NV Holdingmaatschappij de Telegraaf Netherlands 504,000 12,140,399
Saatchi & Saatchi Plc. United Kingdom 3,561,500 9,864,334
---------
35,980,957
---------
Building Materials & Components 3.2%
Anglian Group Plc. United Kingdom 2,536,000 10,493,676
Cie de Saint Gobain France 13,292 2,464,494
Hepworth Plc. United Kingdom 1,330,100 4,793,633
Keumkang Co. Ltd. South Korea 19,110 164,237
Pioneer International Ltd. Australia 7,462,117 17,790,490
aSiam City Cement Public Co. Ltd., fgn. Thailand 405,100 287,305
Unione Cementi Marchino Emiliane (Unicem), di Risp Italy 468,000 1,990,952
---------
37,984,787
---------
Business & Public Services 1.3%
Esselte AB, B Sweden 158,500 3,676,849
Lex Service Plc. United Kingdom 902,000 7,479,794
aWaste Management International Plc. United Kingdom 710,700 3,901,296
---------
15,057,939
---------
Chemicals 3.7%
Akzo Nobel NV Netherlands 129,200 7,180,248
Courtaulds Plc. United Kingdom 2,919,000 21,697,442
DSM NV Netherlands 19,000 1,950,251
Imperial Chemical Industries Plc. United Kingdom 857,000 13,812,894
---------
44,640,835
---------
Construction & Housing 1.8%
Dragados y Construcciones SA Spain 378,000 $ 12,148,148
Sirti SpA Italy 1,833,800 9,864,586
---------
22,012,734
---------
Electrical & Electronics 2.9%
General Electric Co. Plc. United Kingdom 1,920,000 16,578,236
Philips Electronics NV Netherlands 219,307 18,435,501
---------
35,013,737
---------
Energy Sources 3.9%
Hafslund ASA, B Norway 10 39
Societe Elf Aquitane SA France 148,024 20,810,519
Total SA, B France 62,039 8,065,275
Transportadora de Gas del Sur SA, Sponsored ADR, B Argentina 221,700 2,549,550
YPF Sociedad Anonima Argentina 25,100 749,310
YPF Sociedad Anonima, ADR Argentina 495,000 14,880,938
---------
47,055,631
---------
Food & Household Products 2.2%
C P Pokphand Co. Ltd. Hong Kong 7,134,100 262,398
Hillsdown Holdings Plc. United Kingdom 2,493,900 6,740,945
McBride Plc. United Kingdom 1,000,000 2,878,166
Oshawa Group Ltd., A Canada 230,000 4,144,708
Tate & Lyle Plc. United Kingdom 1,540,500 12,234,758
---------
26,260,975
---------
Forest Products & Paper 3.0%
Carter Holt Harvey Ltd. New Zealand 3,243,400 2,828,532
Cartiere Burgo SpA Italy 696,200 5,540,460
Enso OY, R Finland 186,900 2,009,879
Fletcher Challenge Ltd. Forestry Division New Zealand 6,020,000 3,374,982
Mayr-Melnhof Karton AG Austria 39,400 2,575,163
PT Indah Kiat Pulp & Paper Corp., fgn. Indonesia 9,724,297 1,856,158
aPT Indah Kiat Pulp & Paper Corp., rights Indonesia 818,888 95,721
aPT Indah Kiat Pulp & Paper Corp., warrants Indonesia 782,553 116,325
aSappi Ltd. South Africa 722,582 2,686,291
Stora Kopparbergs Bergslags AB, B Sweden 804,250 12,706,805
Unipapel SA Spain 52,200 1,728,748
---------
35,519,064
---------
Health & Personal Care 3.7%
Internatio-Mueller NV Netherlands 240,308 8,044,919
Novartis AG Switzerland 2,506 4,170,058
Nycomed Amersham Plc. United Kingdom 4,356,733 32,529,751
---------
44,744,728
---------
Industrial Components 1.5%
BTR Plc. United Kingdom 3,416,237 9,746,997
Granges AB Sweden 191,000 3,496,721
Meggitt Plc. United Kingdom 1,487,610 4,827,646
---------
18,071,364
---------
Insurance 6.2%
Ace Ltd. Bermuda 682,500 26,617,500
Baloise-Holding Switzerland 7,380 6,042,959
GIO Australia Holdings Ltd. Australia 1,549,534 3,976,363
ING Groep NV Netherlands 563,685 36,910,256
---------
73,547,078
---------
Leisure & Tourism 1.5%
Kuoni Reisen Holding AG, B Switzerland 3,570 $ 17,722,903
---------
Machinery & Engineering 1.4%
Bucher Holding AG, br. Switzerland 12,800 16,793,249
---------
Merchandising 5.9%
David Jones Ltd. Australia 2,463,527 2,822,242
Hudson's Bay Co. Canada 357,000 8,181,225
Koninklijke Bijenkorf Beheer KBB NV Netherlands 147,900 10,360,707
Safeway Plc. United Kingdom 1,695,778 11,133,724
Somerfield Plc. United Kingdom 1,552,716 9,909,465
Storehouse Plc. United Kingdom 3,314,000 13,878,833
Thorn Plc. United Kingdom 3,844,899 14,755,010
---------
71,041,206
---------
Metals & Mining 2.5%
Anglo American Platinum Corp. Ltd. South Africa 417,465 4,498,996
Boehler Uddeholm AG Austria 33,000 2,180,250
Boehler Uddeholm AG, 144A Austria 27,055 1,787,475
British Steel Plc. United Kingdom 4,033,200 8,899,635
Companhia Siderurgica Nacional, Sponsored ADR Brazil 276,365 6,770,943
Grupo Mexico SA de CV, B Mexico 1,983,600 5,441,324
Pohang Iron & Steel Co. Ltd. South Korea 10,450 349,204
---------
29,927,827
---------
Misc Materials & Commodities .4%
Korea Chemical Co. Ltd. South Korea 57,900 826,540
Unitor ASA Norway 295,000 4,344,172
---------
5,170,712
---------
Multi-Industry 2.5%
Cheung Kong Holdings Ltd. Hong Kong 188,600 927,349
Elementis Plc. United Kingdom 3,336,000 8,571,829
Jardine Strategic Holdings Ltd. (London) Hong Kong 2,090,747 4,014,234
Jardine Strategic Holdings Ltd. (Singapore) Hong Kong 484,193 919,967
Marine Wendel SA France 55,849 10,281,167
Swire Pacific Ltd., B Hong Kong 7,937,100 4,763,120
---------
29,477,666
---------
Real Estate .1%
Hang Lung Development Co. Ltd. Hong Kong 779,000 774,114
---------
Recreation & Other Consumer Goods 1.1%
Swatch Group AG, br. Switzerland 15,400 11,899,262
Yue Yuen Industrial (Holdings) Ltd. Hong Kong 394,800 705,673
---------
12,604,935
---------
Telecommunications 6.8%
British Telecommunications Plc. United Kingdom 1,446,000 17,974,272
Nokia AB, A Finland 310,000 22,883,650
Telefonica Del Peru SA, B, ADR Peru 251,900 5,148,206
Telefonica del Peru SA, B Peru 2,445,602 5,033,472
Telefonica SA Spain 646,100 29,922,588
---------
80,962,188
---------
Textiles & Apparel .2%
aYizheng Chemical Fibre Co. Ltd., H China 19,340,200 2,121,566
---------
Transportation .3%
Air New Zealand Ltd., B New Zealand 2,322,000 2,495,076
Helikopter Services Group ASA Norway 134,000 1,362,090
Tranz Rail Holdings Ltd., Sponsored ADR New Zealand 47,765 316,443
---------
4,173,609
---------
Utilities Electrical & Gas 6.3%
BG Plc. United Kingdom 2,566,588 $ 14,849,074
Centrais Eletricas Brasileiras SA (Electrobras) Brazil 363,450,000 10,684,160
aCentrais Geradoras Do Sul Do Brasil SA (Gerasul) Brazil 363,450,000 496,499
aCentrica Plc. United Kingdom 1,290,000 2,179,272
Cia Sevillana de Electricidad SA Spain 246,970 2,726,366
Iberdrola SA Spain 1,517,800 24,686,929
Korea Electric Power Corp. South Korea 66,000 704,224
Shandong Huaneng Power Development Co. Ltd., Sponsored ADR China 338,300 1,818,363
Thames Water Group Plc. United Kingdom 978,479 17,632,020
---------
75,776,907
---------
Total Common Stocks, Warrants and Rights (Cost $683,633,944) 961,518,815
---------
Preferred Stocks 3.1%
Banco Bradesco SA, pfd. Brazil 525,200,000 4,381,964
Banco Itau SA, pfd. Brazil 4,209,000 2,401,816
News Corp. Ltd., pfd. Australia 3,486 24,696
Petroleo Brasileiro SA (Petrobras), pfd. Brazil 60,000,000 11,153,381
Telecomunicacoes Brasileiras SA (Telebras), pfd., ADR Brazil 177,300 19,358,944
---------
Total Preferred Stocks (Cost $33,631,335) 37,320,801
---------
Total Long Term Investments (Cost $717,265,279) 998,839,616
---------
PRINCIPAL
AMOUNT
------------
gRepurchase Agreements 15.2%
Bank of America, 5.65%, 7/01/98 (Maturity value $47,007,376)
Collateralized by U.S. Treasury Notes United States$47,000,000 47,000,000
Morgan Stanley Inc., 5.75%, 7/01/98 (Maturity value $45,007,188)
Collateralized by U.S. Treasury Notes United States 45,000,000 45,000,000
Paine Webber Group Inc., 5.75%, 7/01/98 (Maturity value $46,007,347)
Collateralized by U.S. Treasury Notes United States 46,000,000 46,000,000
Swiss Bank Corp., 5.96%, 7/01/98 (Maturity value $43,764,244)
Collateralized by U.S. Treasury Notes United States 43,757,000 43,757,000
---------
Total Repurchase Agreements (Cost $181,757,000) 181,757,000
---------
Total Investments (Cost $899,022,279) 98.7% 1,180,596,616
Other Assets, less Liabilities 1.3% 15,701,191
---------
Net Assets 100.0% $1,196,297,807
=========
aNon-income producing.
gSee Note 1(c) regarding repurchase agreements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY RIGHTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks and Rights 87.0%
Aerospace & Military Technology
Hong Kong Aircraft Engineering Co., Ltd. Hong Kong 100 $ 155
---------
Appliances & Household Durables 1.1%
Email, Ltd. Australia 44,964 77,963
Fisher & Paykel Industries, Ltd. New Zealand 68,222 173,529
Guangdong Kelon Electrical Hldgs., Ltd., Class H China 92,000 72,426
Guangdong Kelon Electrical Hldgs., Ltd., Class H, 144A China 40,000 31,490
---------
355,408
---------
Automobiles .9%
Bilia, AB Sweden 28,100 288,932
---------
Banking 4.3%
Banco de Valencia, SA Spain 3,272 94,041
Banco Pastor, SA Spain 8,000 452,022
aBank Austria, AG, rts. Austria 6,000 54,637
Commercial International Bank, Ltd., GDR, 144A Egypt 17,550 189,540
Fokus Bank, AS Norway 8,400 65,133
Singapore Finance, Ltd. Singapore 148,000 70,080
Unibanco Uniao de Bancos Brasileiros, SA, GDR Brazil 10,235 301,932
Union Bank of Norway, Primary Capital Certification Norway 7,170 205,565
---------
1,432,950
---------
Beverages & Tobacco .1%
Sinocan Holdings, Ltd. Hong Kong 955,000 38,207
---------
Broadcasting & Publishing 2.7%
aApt Satellite Holdings, Ltd., ADR Hong Kong 22,000 193,875
GTC Transcontinental Group, Ltd., Class B Canada 63,300 688,722
aInchcape Marketing Services Singapore 94,500 22,653
---------
905,250
---------
Building Materials & Components 6.5%
Caradon, Plc. United Kingdom 117,500 364,651
Cementos Diamante, SA, ADR, 144A Colombia 26,900 228,650
Cristaleria Espanola, SA Spain 1,291 126,326
Det Danske Traelastkompagni, AS Denmark 3,752 356,814
Gujarat Ambuja Cements, Ltd. India 47,500 292,791
Mirgor SA Comercial Industrial Financiera Inmobi, Class C, ADR Argentina 24,300 55,890
Sarna Kunststoff Holding, AG Switzerland 52 90,849
Schuttersveld, NV Netherlands 11,146 301,362
aSiam City Cement Public Co., Ltd., fgn. Thailand 67,621 47,958
Suez Cement Co., GDR, 144A Egypt 16,450 298,156
---------
2,163,447
---------
Business & Public Services 3.5%
Kardex, AG, br. Switzerland 1,494 482,634
Lex Service, Plc. United Kingdom 54,100 448,622
Scribona, AB, Class B Sweden 19,045 229,259
---------
1,160,515
---------
Chemicals .9%
Energia e Industrias Aragonesas Eia, SA Spain 34,500 298,599
---------
Construction & Housing 2.2%
Dragados y Construcciones, SA Spain 14,155 454,913
Hollandsche Beton Groep, NV Netherlands 9,600 200,098
aKumagai Gumi Hong Kong, Ltd. Hong Kong 215,000 89,484
---------
744,495
---------
Electrical & Electronics 3.2%
Dongfang Electrical Machinery Co., Ltd., Class H China 179,000 $ 12,937
Tadiran, Ltd., Sponsored ADR Israel 9,750 322,969
Techtronic Industries Co., Ltd. Hong Kong 1,791,000 369,822
Varitronix International, Ltd. Hong Kong 176,500 353,064
---------
1,058,792
---------
Electronic Components & Instruments 1.9%
Swisslog Holding, AG Switzerland 1,000 115,374
VTech Holdings, Ltd. Hong Kong 136,000 506,362
---------
621,736
---------
Energy Sources .2%
Transportadora de Gas del Sur, SA, Class B, ADR Argentina 7,000 80,500
---------
Financial Services 2.2%
Dah Sing Financial Holdings, Ltd. Hong Kong 134,800 156,570
Housing Development Finance Corp., Ltd. India 1,400 87,552
Industrial Credit & Investment Corp. of India (ICICI) India 170,000 310,513
Morgan Stanley Growth Fund India 1,275,000 180,531
---------
735,166
---------
Food & Household Products 9.3%
aChareon Pokphand Feedmill Public Co., Ltd., fgn. Thailand 71,300 59,842
Hazlewood Foods, Plc. United Kingdom 252,600 1,011,513
Hillsdown Holdings, Plc. United Kingdom 100,000 270,297
Illovo Sugar, Ltd. South Africa 187,000 231,211
McBride, Plc. United Kingdom 64,100 184,490
National Foods, Ltd. Australia 182,091 311,217
Oshawa Group, Ltd., Class A Canada 34,000 612,696
Perkins Foods, Plc. United Kingdom 189,240 453,097
---------
3,134,363
---------
Forest Products & Paper 2.7%
Crown-Van Gelder Papier, SA Netherlands 6,115 105,815
aEmpaques Ponderosa, SA de CV, Class B Mexico 151,800 94,600
Fletcher Challenge Ltd. Forestry Division New Zealand 263,076 147,488
Munksjo, AB Sweden 12,995 127,100
Primex Forest Products, Ltd. Canada 90,000 428,411
---------
903,414
---------
Health & Personal Care .4%
Internatio-Mueller, NV Netherlands 3,744 125,340
---------
Industrial Components 6.6%
Granges, AB Sweden 14,679 268,735
Lucas Varity, Plc. United Kingdom 112,111 446,600
Otra, NV Netherlands 23,500 354,660
Sylea, SA France 4,447 411,160
Weir Group, Plc. United Kingdom 120,900 440,762
Yamato Kogyo Co., Ltd. Japan 41,000 301,329
---------
2,223,246
---------
Insurance 1.8%
HIH Winterthur International Holdings, Ltd. Australia 193,879 342,169
Sovereign, Ltd. New Zealand 259,100 268,998
---------
611,167
---------
Leisure & Tourism .3%
aTourism Holdings, Ltd. New Zealand 200,314 114,381
---------
Machinery & Engineering 1.8%
Arcadis, NV Netherlands 29,625 $ 326,222
Laird Group, Plc. United Kingdom 62,000 288,617
---------
614,839
---------
Merchandising 14.0%
David Jones, Ltd. Australia 243,000 278,383
Giordano International, Ltd. Hong Kong 933,000 189,042
Li & Fung, Ltd. Hong Kong 241,000 388,780
Makro Atacadista, SA, ADR Brazil 37,500 282,077
Moebel Walther, AG Germany 7,506 307,725
Northwest Co. Fund Canada 31,365 346,592
Sa des Galeries Lafayette France 810 807,856
Safeway, Plc. United Kingdom 58,559 384,472
Samas-Groep, NV Netherlands 4,450 312,826
Somerfield, Plc. United Kingdom 82,800 528,431
Storehouse, Plc. United Kingdom 88,185 369,313
Thorn, Plc. United Kingdom 134,450 515,959
---------
4,711,456
---------
Metals & Mining 3.8%
Arbed, SA Belgium 3,240 385,735
Boehler Uddeholm, AG Austria 4,993 329,878
Elkem, AS Norway 23,850 285,945
PT Tambang Timah (Persero) Indonesia 204,000 91,318
Vallourec France 2,356 182,993
---------
1,275,869
---------
Miscellaneous Materials & Commodities .5%
Korea Chemical Co., Ltd. South Korea 2,900 41,398
Thai Glass Industries Public Co., Ltd., fgn. Thailand 73,900 115,742
---------
157,140
---------
Multi-Industry 5.8%
aAmer Group, Ltd., Class A Finland 11,300 218,320
La Cemento Nacional CA, Sponsored GDR, 144A Ecuador 1,075 172,000
Marine Wendel, SA France 3,283 604,363
Murray & Roberts Hldgs., Ltd. South Africa 150,000 152,882
Nagron Nationaal Grondbezit, NV Netherlands 7,400 198,987
Saha Union Public Co., Ltd., fgn. Thailand 201,000 122,358
Wagon Industrial Holdings, Plc. United Kingdom 34,300 202,307
Zehnder Holding, AG, br. Switzerland 465 275,910
---------
1,947,127
---------
Real Estate 1.2%
Inversiones y Representacion, SA Argentina 142,333 418,501
---------
Telecommunications .2%
aDigital Telecommunications Philippines, Inc. Philippines 2,198,000 68,523
---------
Textiles & Apparel 1.4%
Dawson International, Plc. United Kingdom 193,500 138,828
Gamma Holding, NV Netherlands 3,000 165,913
Inner Mongolia Erdos Cashmere Products Co., Ltd., Class B China 497,000 120,274
aYizheng Chemical Fibre Co., Ltd., Class H China 326,000 35,761
---------
460,776
---------
Transportation 3.6%
Anangel-American Shipholdings, Ltd., ADR Greece 35,000 253,750
Delgro Corp. Singapore 78,000 55,863
Helikopter Services Group ASA Norway 16,400 166,704
Orient Overseas International, Ltd. Hong Kong 362,000 133,147
Transportation (cont.)
aOsprey Maritime, Ltd. Singapore 350,000 $ 161,586
Stolt Nielsen, SA, ADR Norway 15,000 260,625
Tranz Rail Holdings, Ltd., Sponsored ADR New Zealand 25,400 168,275
---------
1,199,950
---------
Utilities Electrical & Gas 1.7%
Gas y Electricidad, SA Spain 5,700 434,137
Guangdong Electric Power Development Co., Ltd., Class B, 144A China 338,520 125,821
---------
559,958
---------
Wholesale & International Trade 2.2%
Dahl International, AB Sweden 9,550 176,034
Dahl International, AB, 144A Sweden 6,300 116,127
Eurodis Electron, Plc. United Kingdom 150,000 389,178
Inchcape, Bhd., fgn. Singapore 94,500 64,883
---------
746,222
---------
Total Common Stocks (Cost $29,633,682) 29,156,424
---------
Preferred Stocks 5.1%
Ballast Nedam, NV, ctf., cvt., pfd. Netherlands 6,700 297,090
Bank Austria, AG, new, pfd., 144A Austria 6,000 487,125
Cia Brasileira de Petroleo Ipiranga, pfd. Brazil 25,141,000 229,543
Fertilizantes Fosfatados SA, pfd. Brazil 41,995,000 157,944
Moebel Walther, AG, pfd. Germany 4,550 214,266
Weg, SA, pfd. Brazil 507,200 333,280
---------
Total Preferred Stocks (Cost $1,548,633) 1,719,248
---------
Total Long Term Investments (Cost $31,182,315) 30,875,672
---------
PRINCIPAL
AMOUNT
-------------
gRepurchase Agreements 6.3%
Dresdner Bank AG, 5.65%, 7/01/98 (Maturity Value $1,090,171)
Collateralized by U.S. Treasury Notes and Bonds United States $1,090,000 1,090,000
Morgan Stanley Inc., 5.75%, 7/01/98 (Maturity Value $1,038,166)
Collateralized by U.S. Treasury Notes and Bonds United States 1,038,000 1,038,000
---------
Total Repurchase Agreements (Cost $2,128,000) 2,128,000
---------
Total Investments (Cost $33,310,315) 98.4% 33,003,672
Other Assets, less Liabilities 1.6% 537,286
---------
Net Assets 100.0% $33,540,958
=========
aNon-income producing.
gSee Note 1(c) regarding repurchase agreements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
SHARES/
Templeton Pacific Growth Fund COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks and Warrants 96.6%
Banking 8.8%
Bangkok Bank Public Co. Ltd., fgn. Thailand 622,000 $ 764,635
Development Bank of Singapore Ltd., fgn. Singapore 569,800 3,153,377
HSBC Holdings Plc. Hong Kong 54,200 1,325,517
Krung Thai Bank Public Co. Ltd., fgn. Thailand 3,303,292 437,315
Overseas Union Bank Ltd., fgn. Singapore 472,560 1,034,905
aPhilippine National Bank Philippines 962,500 1,142,536
PT Bank Bali, fgn. Indonesia 3,134,000 179,993
PT Bank Pan Indonesia TBK Indonesia 6,182,625 146,211
aPT Bank Pan Indonesia TBK, wts. Indonesia 883,232 2,745
Singapore Finance Ltd., fgn. Singapore 213,000 100,858
Thai Farmers Bank Public Co. Ltd. Thailand 36,570 26,368
Thai Farmers Bank Public Co. Ltd., fgn. Thailand 733,440 645,878
aThai Farmers Bank Public Co. Ltd., fgn., wts. Thailand 91,680 5,418
---------
8,965,756
---------
Broadcasting & Publishing 2.6%
aInchcape Marketing Services Ltd. Singapore 1,240,000 297,248
South China Morning Post Ltd. Hong Kong 4,888,000 2,349,818
---------
2,647,066
---------
Building Materials & Components 1.6%
Okumura Corp. Japan 467,000 1,638,715
---------
Chemicals 1.6%
Fauji Fertilizer Co. Ltd. Pakistan 1,521,700 1,650,255
---------
Construction & Housing 10.2%
City Developments Ltd. Singapore 888,600 2,482,504
Daito Trust Construction Co. Ltd. Japan 409,000 3,094,355
Road King Infrastructure Ltd. Hong Kong 3,831,977 3,016,682
Toda Corp. Japan 470,000 1,879,526
---------
10,473,067
---------
Electrical & Electronics .0%
Hitachi Ltd. Japan 800 5,217
---------
Energy Sources .6%
Hub Power Co. Ltd., GDR, reg.S Pakistan 74,900 561,750
---------
Financial Services 1.4%
Commerce Asset-Holding Bhd. Malaysia 1,572,000 587,486
aCommerce Asset-Holding Bhd, wts. 3/16/02 Malaysia 163,750 12,634
Industrial Finance Corp. of Thailand, fgn. Thailand 2,783,133 572,417
Public Finance Bhd., fgn. Malaysia 928,000 224,868
---------
1,397,405
---------
Food & Household Products .7%
aCharoen Pokphand Feedmill Public Co. Ltd., fgn. Thailand 829,900 696,488
---------
Forest Products & Paper 2.2%
Carter Holt Harvey Ltd. New Zealand 2,411,800 2,103,303
aPT Inti Indorayon Utama Indonesia 129,000 4,794
PT Tjiwi Kimia TBK Indonesia 1,388,741 173,593
aPT Tjiwi Kimia TBK, wts. Indonesia 192,880 10,556
---------
2,292,246
---------
Industrial Components 5.8%
Fuji Heavy Industries Ltd. Japan 577,000 2,856,209
Mitsubishi Heavy Industries Ltd. Japan 824,000 3,111,114
---------
5,967,323
---------
Insurance 4.9%
GIO Australia Holdings Ltd. Australia 984,445 $ 2,526,250
National Mutual Asia Ltd. Hong Kong 3,860,000 2,465,865
---------
4,992,115
---------
Leisure & Tourism 1.2%
Toei Co. Ltd. Japan 397,000 1,250,056
---------
Merchandising 1.4%
Coles Myer Ltd., A Australia 261,200 1,019,011
Takashimaya Co. Ltd. Japan 57,000 429,600
---------
1,448,611
---------
Metals & Mining 2.1%
Capral Aluminium Ltd. Australia 1,521,000 2,138,062
---------
Misc Materials & Commodities 2.3%
Golden Hope Plantations Bhd. Malaysia 2,607,000 2,388,571
---------
Multi-Industry 13.6%
Broken Hill Proprietary Co. Ltd. Australia 211,000 1,783,528
Cheung Kong Holdings Ltd. Hong Kong 692,500 3,405,034
Hicom Holdings Bhd. Malaysia 1,634,000 413,671
Hutchison Whampoa Ltd. Hong Kong 216,000 1,140,129
Jardine Matheson Holdings Ltd. Hong Kong 632,031 1,706,484
SIME Darby Bhd. Malaysia 1,798,800 1,240,402
Swire Pacific Ltd., A Hong Kong 645,000 2,434,795
Wheelock and Company Ltd. Hong Kong 3,100,000 1,830,331
---------
13,954,374
---------
Real Estate 2.1%
aFilinvest Land inc. Philippines 5,675,000 239,520
Hon Kwok Land Investment Co. Ltd. Hong Kong 5,940,438 620,984
New World Development Co. Ltd. Hong Kong 658,978 1,275,672
---------
2,136,176
---------
Telecommunications 5.9%
Hong Kong Telecommunications Ltd. Hong Kong 2,100,633 3,944,482
Pakistan Telecommunications Corp., PTC, A Pakistan 5,906,900 2,075,518
---------
6,020,000
---------
Textiles & Apparel 5.8%
Nisshinbo Industries Inc. Japan 700,000 2,799,293
PT Indorama Synthetics Indonesia 3,657,384 284,189
PT Panasia Indosyntec Indonesia 3,423,000 34,693
Wacoal Corp. Japan 280,000 2,844,688
---------
5,962,863
---------
Transportation 13.6%
Cathay Pacific Airways Ltd. Hong Kong 3,000,000 2,110,059
East Japan Railway Co. Japan 600 2,818,748
Great Eastern Shipping Co. Ltd., GDR India 156,100 612,693
Guangshen Railway Co. Ltd., ADR China 142,800 972,825
GZI Transport Ltd. China 1,008,000 227,654
aGZI Transport Ltd., wts. 144A China 201,600 520
Hitachi Zosen Corp. Japan 843,000 1,360,608
Hong Kong Ferry Holdings Co. Ltd. Hong Kong 745,000 499,961
Malaysian International Shipping Corp., fgn. Malaysia 1,467,267 2,140,317
Singapore Airlines Ltd., fgn. Singapore 672,800 3,145,972
---------
13,889,357
---------
Utilities Electrical & Gas 5.3%
CLP Holdings Ltd. Hong Kong 931,000 $ 4,241,321
Shandong Huaneng Power Development Co. Ltd., ADR China 225,000 1,209,375
---------
5,450,696
---------
Wholesale & International Trade 2.9%
Brierley Investments Ltd. New Zealand 4,177,353 2,081,727
Inchcape Motores Ltd. Singapore 1,240,000 851,376
---------
2,933,103
---------
Total Long Term Investments (Cost $200,944,341) 98,859,272
---------
PRINCIPAL
AMOUNT
-------------
gRepurchase Agreement 2.6%
Swiss Bank Corp., 5.96%, 7/01/98 (Maturity Value $2,690,445) (Cost $2,690,000)
Collateralized by U.S. Treasury Notes & Bonds United States$2,690,000 2,690,000
---------
Total Investments (Cost $203,634,341) 99.2% 101,549,272
Other Assets, less Liabilities .8% 791,793
---------
Net Assets 100.0% $102,341,065
=========
aNon-income producing.
gSee Note 1(c) regarding repurchase agreements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
PRINCIPAL
U.S. Government Securities Fund AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-Backed Securities 71.5%
Government National Mortgage Association (GNMA) - Fixed Rate 44.6%
GNMA I, SF, 6.00%, 11/15/23 - 4/15/24 $16,444,291 $ 16,148,841
GNMA II, 6.00%, 1/20/24 - 10/20/24 1,967,484 1,917,041
GNMA I, SF, 6.50%, 5/15/23 - 3/15/28 59,886,893 60,006,809
GNMA II, 6.50%, 1/20/26 - 3/20/28 33,568,698 33,405,556
GNMA I, SF, 7.00%, 3/15/22 - 5/15/28 77,811,482 79,265,246
GNMA I, SF, 7.25%, 11/15/25 1,796,529 1,826,436
GNMA, PL, 7.25%, 5/15/22 - 8/15/22 2,195,282 2,272,500
GNMA I, SF, 7.50%, 2/15/17 - 5/15/28 38,537,080 39,735,685
GNMA II, 7.50%, 11/20/16 - 11/20/26 27,579,671 28,351,823
GNMA I, SF, 8.00%, 4/15/05 - 6/15/25 22,638,310 23,626,523
GNMA II, 8.00%, 2/20/16 - 8/20/26 2,463,027 2,553,258
GNMA I, SF, 8.25%, 4/15/25 1,226,363 1,286,466
GNMA I, SF, 8.50%, 8/15/21 - 12/15/24 7,386,287 7,810,249
GNMA I, SF, 9.00%, 4/15/16 - 2/15/21 2,991,615 3,228,998
GNMA I, SF, 9.50%, 7/15/16 - 12/15/21 6,945,606 7,555,466
GNMA II, 9.50%, 4/20/25 868,139 932,337
GNMA I, SF, 10.00%, 8/15/17 - 8/15/21 6,098,085 6,726,841
---------
316,650,075
---------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.3%
GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.00%, 07/20/17 2,903,826 2,992,331
GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 8.00%, 07/20/25 1,904,241 1,998,159
GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 6.875%, 01/20/16 4,268,390 4,391,229
---------
9,381,719
---------
Federal National Mortgage Association (FNMA) - Fixed Rate 7.4%
FNMA, 6.00%, 10/01/23 - 4/01/28 11,228,158 10,983,464
FNMA, 6.50%, 1/01/24 - 6/01/24 14,166,398 14,186,639
FNMA, 7.00%, 5/01/24 1,649,629 1,676,866
FNMA, PL, 7.00%, 3/17/35 6,469,928 6,459,771
FNMA, 7.50%, 4/01/23 - 8/01/25 8,109,275 8,330,277
FNMA, 8.00%, 7/01/16 - 2/01/25 9,665,988 10,040,204
FNMA, 8.50%, 10/01/19 - 2/01/22 723,872 761,319
---------
52,438,540
---------
Federal National Mortgage Association (FNMA) - Adjustable Rate 6.2%
FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.695%, 02/01/19 4,029,514 4,187,638
FNMA, Cap 12.786%, Margin 1.25% + COFI, Resets Monthly, 6.218%, 02/01/03 536,202 535,505
FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.740%, 09/01/18 5,226,491 5,458,906
FNMA, Cap 12.93%, Margin 2.24% + CMT, Resets Annually, 7.106%, 02/01/27 7,878,911 8,112,752
FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.669%, 07/01/19 3,861,830 3,996,256
FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.657%, 01/01/18 11,096,745 11,535,295
FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 6.191%, 06/01/02 4,851,739 4,860,618
FNMA, Cap 14.808%, Margin 1.825% + 3CMT, Resets Tri-Annually, 7.831%, 07/01/20 1,556,094 1,616,320
FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.409%, 03/01/20 3,501,234 3,682,794
---------
43,986,084
---------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 9.7%
hFHLMC, 6.00%, 8/01/28 4,370,000 4,259,384
FHLMC, 6.00%, 1/01/24 - 12/01/25 545,478 535,369
FHLMC, 6.50%, 6/01/08 - 1/01/24 19,559,405 19,634,801
FHLMC, 7.00%, 4/01/24 14,929,644 15,189,613
FHLMC, PL, 7.00%, 9/17/31 19,267,482 19,448,211
FHLMC, 7.50%, 11/01/22 - 5/01/24 4,878,109 5,012,860
FHLMC, 8.00%, 5/01/16 - 5/01/22 3,075,336 3,190,512
FHLMC, 8.50%, 4/01/18 - 3/01/22 822,142 863,661
FHLMC, 9.00%, 3/01/03 498,036 513,285
---------
68,647,696
---------
Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate 2.3%
FHLMC, Cap 10.99%, Margin 2.225% + CMT, Resets Annually, 8.011%, 06/01/22 $ 2,086,932 $ 2,179,839
FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annually, 7.618%, 06/01/22 3,385,449 3,516,633
FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.818%, 02/01/19 4,791,328 4,976,329
FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.692%, 04/01/18 5,707,340 5,920,520
---------
16,593,321
---------
Total Mortgage-Backed Securities (Cost $491,521,361) 507,697,435
---------
Other Agency Securities 24.2%
Federal Agriculture Mortgage Corp., 7.23%, 1/17/07 5,000,000 5,223,390
Federal Farm Credit Bank, 5.80%, 9/16/03 5,000,000 4,928,745
Federal Home Loan Bank, 0.00%, 8/15/22 17,500,000 2,798,828
Federal Home Loan Bank, 0.00%, 1/23/23 10,000,000 1,712,610
FICO Strips, 0.00%, 11/11/01 3,876,000 3,201,033
FICO Strips, 0.00%, 03/07/02 10,000,000 8,107,100
FICO Strips, 0.00%, 5/11/02 1,925,000 1,544,891
FICO Strips, 0.00%, 5/11/13 10,000,000 4,094,500
FICO Strips, Series 1, 0.00%, 5/11/99 10,000,000 9,524,500
FICO Strips, Series 1, 0.00%, 5/11/09 1,758,000 924,240
FICO Strips, Series 13, 0.00%, 6/27/09 11,024,000 5,750,956
FICO Strips, Series 16, 0.00%, 4/05/09 3,202,000 1,694,185
FICO Strips, Series 16, 0.00%, 10/05/10 4,745,000 2,283,161
FICO Strips, Series A, 0.00%, 2/08/09 2,060,000 1,100,946
FICO Strips, Series D, 0.00%, 9/26/01 7,000,000 5,822,544
Housing Urban Development, Series 96-A, 7.63%, 8/01/14 5,000,000 5,458,045
Housing Urban Development, Series 96-A, 7.66%, 8/01/15 5,000,000 5,456,800
Small Business Administration, 6.45%, 12/01/15 4,327,415 4,391,591
Small Business Administration, 6.70%, 12/01/16 4,658,789 4,778,334
Small Business Administration, 6.85%, 7/01/17 4,897,198 5,050,236
Small Business Administration, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly,
8.10%, 6/25/19 6,382,053 6,764,977
Small Business Administration, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly,
8.375%, 3/25/18 7,398,681 7,935,086
Student Loan Marketing Association, 0.00%, 5/15/14 15,000,000 4,457,250
Tennessee Valley Authority, 0.00%, 4/15/03 10,000,000 7,655,460
Tennessee Valley Authority, 0.00%, 4/15/42 6,000,000 2,597,040
Tennessee Valley Authority, 0.00%, 7/15/43 7,000,000 4,947,320
Tennessee Valley Authority, 5.88%, 4/01/36 5,000,000 5,105,270
Tennessee Valley Authority, 6.125%, 7/15/03 5,000,000 5,021,080
Tennessee Valley Authority, 6.235%, 7/15/45 19,249,000 19,875,728
Tennessee Valley Authority, 7.25%, 7/15/43 10,000,000 10,577,420
Tennessee Valley Authority, 8.625%, 11/15/29 12,000,000 12,964,944
---------
Total Other Agency Securities (Cost $161,507,328) 171,748,210
---------
U.S. Government Securities .9%
U.S. Treasury Strips, 0.00%, 2/15/19 20,000,000 6,175,160
---------
Total U.S. Government Securities (Cost $5,414,296) 6,175,160
---------
Total Long Term Investments (Cost $658,442,985) 685,620,805
---------
fRepurchase Agreement 3.3%
Joint Repurchase Agreement, 5.614%, 07/01/98, (Maturity $23,131,728) (Cost $23,128,121) $23,128,121 $ 23,128,121
BancAmerica Robertson Stephens ( Maturity Value $2,210,468)
Barclays Capital, Inc. (Maturity Value $2,210,468)
Bear, Stearns & Co., Inc. (Maturity Value $1,205,394)
BT Alex Brown, Inc. (Maturity Value $2,032,122)
Chase Securities, Inc. (Maturity Value $2,210,468)
CIBC Oppenheimer Corp. (Maturity Value $2,210,468)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,210,468)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $2,210,468)
Greenwich Capital Markets, Inc. (Maturity Value $2,210,468)
Paribas Corp. (Maturity Value $2,210,468)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,210,468)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $681,571,106) 99.9% 708,748,926
Other Assets, less Liabilities .1% 922,421
---------
Net Assets 100.0% $709,671,347
=========
fSee Note 1(c) regarding joint repurchase agreement.
hSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
Value Securities Fund SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 98.5%
Commercial Services 1.7%
aKevco, Inc. 200 $ 4,413
aRush Enterprises, Inc. 1,200 12,450
Unisource Worldwide, Inc. 2,000 21,625
---------
38,488
---------
Consumer Durables 9.1%
aAcorn Products, Inc. 2,000 14,000
aCannondale Corp. 2,400 32,100
D.R. Horton, Inc. 100 2,088
aEKCO Group, Inc. 2,000 15,750
Engle Homes, Inc. 200 3,125
Flexsteel Industries, Inc. 1,000 14,000
M/I Schottenstein Homes, Inc. 1,000 21,625
Mattel, Inc. 1,600 67,700
aRockShox, Inc. 3,600 14,400
aSola International, Inc. 300 9,806
aTBC Corp. 1,400 9,275
---------
203,869
---------
Consumer Non-Durables 8.5%
DIMON, Inc. 6,000 67,500
aRidgeview, Inc. 700 4,200
Schweitzer-Mauduit International, Inc. 2,000 58,000
aStandard Commercial Corp. 5,000 55,000
aTropical Sportswear International Corp. 200 4,250
---------
188,950
---------
Electronic Technology 16.5%
aAlliant Techsystems, Inc. 800 50,600
Astro-Med, Inc. 600 4,575
aDunn Computer Corp. 1,200 9,900
Elbit Systems, Ltd. (Israel) 1,800 23,288
aESCO Electronics Corp. 600 11,400
aHurco Companies, Inc. 800 5,800
aKomag, Inc. 5,000 26,719
aLadish Co., Inc. 7,000 87,500
aNCR Corp. 1,500 48,750
aRadiSys Corporation 500 10,750
aRead-Rite Corp. 4,000 36,250
aSPACEHAB, Inc. 1,500 17,344
aSpectraLink Corp. 600 2,625
aSpeedFam International, Inc. 1,200 22,125
aTrident Microsystems, Inc. 600 3,188
United Industrial Corp. 600 7,800
---------
368,614
---------
Energy Minerals 4.3%
aNuevo Energy Co. 3,000 96,375
---------
Finance 15.3%
aAcceptance Insurance Companies, Inc. 1,500 36,844
aAmerican Safety Insurance Group, Ltd. 3,100 36,425
Household International, Inc. 1,400 69,650
aPBOC Holdings Inc. 2,000 27,625
Penn-America Group, Inc. 2,500 33,750
Presidential Life Corp. 100 2,138
aProfessionals Insurance Co. Management Group 300 11,250
aThe Seibels Bruce Group, Inc. 2,000 14,750
aSymons International Group, Inc. 500 9,375
Finance (cont.)
The Centris Group, Inc. 4,500 $ 55,688
The PMI Group, Inc. 600 44,025
---------
341,520
---------
Health Services .4%
aCohr, Inc. 1,600 8,200
---------
Health Technology 4.0%
aDepoTech Corp. 900 1,406
aMatrix Pharmaceutical, Inc. 800 3,500
aOrthoLogic Corp. 2,500 12,813
The West Company, Inc. 2,500 70,781
---------
88,500
---------
Industrial Services 16.7%
aAtwood Oceanics, Inc. 400 15,925
Butler Manufacturing Co. 2,000 68,125
aCliffs Drilling Co. 3,000 98,438
ENSCO International, Inc. 4,000 69,500
aPerini Corp. 4,000 34,250
aRowan Companies, Inc. 4,500 87,469
---------
373,707
---------
Non-Energy Minerals 3.4%
aLone Star Technologies, Inc. 5,000 76,250
---------
Process Industries 1.6%
Hanna (M.A.) Co. 600 10,988
Myers Industries, Inc. 300 7,200
Oil-Dri Corporation of America 600 8,663
Tuscarora Incorporated 500 7,938
---------
34,789
---------
Producer Manufacturing 6.7%
aAtchison Casting Corp. 100 1,788
Commercial Intertech Corp. 400 7,250
Commonwealth Industries, Inc. 2,000 20,000
aDenison International PLC, ADR (United Kingdom) 1,200 23,700
EASCO, Inc. 400 4,025
Flowserve Corp. 200 4,925
aGlobal Industrial Technologies, Inc. 600 8,625
Haskel International, Inc., Class A 600 6,000
JLG Industries, Inc. 1,400 28,350
aKeystone Consolidated Industries, Inc. 600 7,125
Patrick Industries, Inc. 500 7,625
Watts Industries, Inc., Class A 1,500 31,313
---------
150,726
---------
Retail Trade 1.5%
aBrookstone, Inc. 800 12,000
aDuckwall-Alco Stores, Inc. 400 7,000
Haverty Furniture Companies, Inc. 100 2,213
aSyms Corp. 900 12,825
---------
34,038
---------
Technology Services 2.6%
aInterlink Computer Sciences, Inc. 600 2,100
aManchester Equipment Co., Inc. 800 3,150
The Reynolds & Reynolds Co., Class A 1,500 27,281
aUltrak, Inc. 3,000 25,500
---------
58,031
---------
Transportation 6.2%
aConrad Industries, Inc. 1,300 $ 14,781
aFritz Companies, Inc. 400 5,350
Kenan Transport Co. 800 27,500
aMotor Cargo Industries, Inc. 800 8,650
Tidewater, Inc. 2,500 82,500
---------
138,788
---------
Total Long Term Investments (Cost $2,302,609) 2,200,838
---------
PRINCIPAL
AMOUNT
-----------
fRepurchase Agreement 25.4%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $568,359) (Cost $568,270) $568,270 568,270
BancAmerica Robertson Stephens (Maturity Value $54,312)
Barclays Capital, Inc. (Maturity Value $54,312)
Bear, Stearns & Co., Inc. (Maturity Value $29,619)
BT Alex Brown, Inc. (Maturity Value $49,932)
Chase Securities, Inc. (Maturity Value $54,312)
CIBC Oppenheimer Corp. (Maturity Value $54,312)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $54,312)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $54,312)
Greenwich Capital Markets, Inc. (Maturity Value $54,312)
Paribas Corp. (Maturity Value $54,312)
SBC Warburg Dillon Read, Inc. (Maturity Value $54,312)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $2,870,879) 123.9% 2,769,108
Other Assets, less Liabilities (23.9%) (535,637)
---------
Net Assets 100.0% $2,233,471
=========
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
PRINCIPAL
ZERO COUPON FUND - 2000 AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 100.0%
Government & Agency Securities 98.0%
FHLB Strips, Series A-1, 0.00%, 2/25/01 $ 7,567,000 $ 6,537,532
FHLB Strips, Series A-1, 0.00%, 8/25/01 2,884,000 2,420,879
FHLB Strips, Series A-1, 0.00%, 2/25/02 465,000 379,570
FHLMC, 0.00%, 5/15/00 16,175,000 14,596,595
FICO Strips, 0.00%, 10/06/00 6,200,000 5,453,793
FICO Strips, Series 1, 0.00%, 11/11/00 1,139,000 996,433
FICO Strips, Series 7, 0.00%, 2/03/01 1,000,000 863,858
FICO Strips, Series 12, 0.00%, 12/06/00 17,390,000 15,154,272
FICO Strips, Series 15, 0.00%, 9/07/00 148,000 130,781
FICO Strips, Series 17, 0.00%, 10/05/00 5,875,000 5,168,666
FICO Strips, Series D, 0.00%, 9/26/00 4,965,000 4,374,518
FNMA Strips, 0.00%, 11/22/99 3,800,000 3,517,261
FNMA Strips, 0.00%, 8/12/01 3,000,000 2,517,192
FNMA Strips, 0.00%, 2/12/02 1,000,000 815,627
FNMA Strips, Series 1, 0.00%, 2/12/00 500,000 456,907
FNMA Strips, Series 1, 0.00%, 2/01/01 1,875,000 1,622,657
FNMA Strips, Series 1, 0.00%, 2/01/02 1,000,000 817,035
REFCO Strips, 0.00%, 1/15/01 9,195,000 8,009,443
Chattanooga Valley, Tennessee Valley Authority, 0.00%, 1/01/01 65,000 56,226
Tennessee Valley Authority, 0.00%, 7/15/00 3,320,000 2,965,680
Tennessee Valley Authority, 0.00%, 10/15/00 2,500,000 2,202,040
Tennessee Valley Authority, 0.00%, 4/15/01 10,500,000 8,994,216
Tennessee Valley Authority, 0.00%, 4/15/02 1,000,000 809,718
U.S. Treasury Strips, Series QO, 0.00%, 11/15/00 1,110,375 972,446
U.S. Treasury Strips, Series QO, 0.00%, 2/15/01 2,778,750 2,399,534
U.S. Treasury Strips, Series SO, 0.00%, 2/15/01 6,560,000 5,686,477
---------
97,919,356
---------
Other Securities - "AAA" Rated 2.0%
InterAmerican Development Bank, 0.00%, 12/16/00 220,000 191,237
International Bank Reconstruction and Development, 0.00%, 2/15/00 405,000 370,176
International Bank Reconstruction and Development, 0.00%, 8/15/00 945,000 839,579
International Bank Reconstruction and Development, 0.00%, 2/15/01 735,000 634,994
---------
2,035,986
---------
Total Long Term Investments (Cost $95,148,931) 99,955,342
---------
fRepurchase Agreement .1%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $78,056) (Cost $78,044) 78,044 78,044
BancAmerica Robertson Stephens (Maturity Value $7,459)
Barclays Capital, Inc. (Maturity Value $7,459)
Bear, Stearns & Co., Inc. (Maturity Value $4,068)
BT Alex Brown, Inc. (Maturity Value $6,857)
Chase Securities, Inc. (Maturity Value $7,459)
CIBC Oppenheimer Corp. (Maturity Value $7,459)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $7,459)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $7,459)
Greenwich Capital Markets, Inc. (Maturity Value $7,459)
Paribas Corp. (Maturity Value $7,459)
SBC Warburg Dillon Read, Inc. (Maturity Value $7,459)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $95,226,975) 100.1% 100,033,386
Other Assets, less Liabilities (.1%) (144,907)
---------
Net Assets 100.0% $ 99,888,479
=========
fSee Note 1(c) regarding joint repurchase agreement.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
PRINCIPAL
ZERO COUPON FUND - 2005 AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 99.7%
Government & Agency Securities 95.7%
FHLB Strips, Series A-1, 0.00%, 8/25/02 $ 1,000,000 $ 795,021
FHLB Strips, Series A-1, 0.00%, 2/25/04 800,000 583,000
FHLB Strips, Series A-1P, 0.00%, 2/25/04 9,110,000 6,638,913
FICO Strips, 0.00%, 10/06/05 11,400,000 7,487,896
FICO Strips, Series 1, 0.00%, 5/11/05 3,500,000 2,353,463
FICO Strips, Series 1, 0.00%, 11/11/05 829,000 541,492
FICO Strips, Series 2, 0.00%, 11/02/05 3,509,000 2,295,258
FICO Strips, Series 12, 0.00%, 12/06/05 11,055,000 7,189,277
FICO Strips, Series 13, 0.00%, 12/27/05 2,755,000 1,785,105
FICO Strips, Series 15, 0.00%, 9/07/05 2,620,000 1,728,912
FICO Strips, Series 19, 0.00%, 12/06/05 10,000,000 6,503,190
FICO Strips, Series D, 0.00%, 9/26/05 6,799,000 4,473,212
FICO Strips, Series F, 0.00%, 3/26/05 5,000,000 3,386,765
FNMA Strips, 0.00%, 2/12/08 120,000 68,739
FNMA Strips, Series 1, 0.00%, 8/01/04 450,000 318,469
FNMA Strips, Series 1, 0.00%, 2/12/05 1,000,000 684,790
FNMA Strips, Series 1, 0.00%, 8/12/05 875,000 582,068
FNMA Strips, Series 1, 0.00%, 2/01/06 4,307,000 2,784,631
FNMA Strips, Series 1, 0.00%, 2/12/06 250,000 161,319
FNMA Strips, Series 1, 0.00%, 2/01/08 1,730,000 993,062
FNMA Strips, Series 2, 0.00%, 2/01/05 6,000,000 4,116,234
FNMA Strips, Series 9, 0.00%, 8/01/06 530,000 332,725
REFCO Strips, 0.00%, 1/15/06 6,500,000 4,271,098
REFCO Strips, Series R, 0.00%, 4/15/06 3,000,000 1,941,570
Tennessee Valley Authority, 0.00%, 10/15/04 6,200,000 4,355,747
Tennessee Valley Authority, 0.00%, 4/15/05 2,260,000 1,541,229
Tennessee Valley Authority, 0.00%, 10/15/05 1,000,000 662,768
U.S. Treasury Strips, 0.00%, 2/15/06 9,500,000 6,248,985
---------
74,824,938
---------
Other Securities - "AAA" Rated 4.0%
Exxon Corp., 0.00%, 11/15/04 1,500,000 1,042,175
International Bank for Reconstruction and Development, 0.00%, 2/15/07 541,000 327,102
International Bank for Reconstruction and Development, 0.00%, 8/15/07 2,500,000 1,465,348
International Bank for Reconstruction and Development, Series 2, 0.00%, 2/15/07 459,000 276,912
---------
3,111,537
---------
Total Long Term Investments (Cost $67,743,636) 77,936,475
---------
fRepurchase Agreement .4%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $295,699) (Cost $295,653) 295,653 295,653
BancAmerica Robertson Stephens (Maturity Value $28,257)
Barclays Capital, Inc. (Maturity Value $28,257)
Bear, Stearns & Co., Inc. (Maturity Value $15,409)
BT Alex Brown, Inc. (Maturity Value $25,977)
Chase Securities, Inc. (Maturity Value $28,257)
CIBC Oppenheimer Corp. (Maturity Value $28,257)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $28,257)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $28,257)
Greenwich Capital Markets, Inc. (Maturity Value $28,257)
Paribas Corp. (Maturity Value $28,257)
SBC Warburg Dillon Read, Inc. (Maturity Value $28,257)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $68,039,289) 100.1% 78,232,128
Other Assets, less Liabilities (.1%) (77,973)
---------
Net Assets 100.0% $78,154,155
=========
fSee Note 1 (c) regarding joint repurchase agreement
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
PRINCIPAL
ZERO COUPON FUND - 2010 AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long Term Investments 98.7%
Government & Agency Securities 92.7%
FICO Strips, 0.00%, 10/06/10 $ 4,040,000 $ 1,943,612
FICO Strips, Series 1, 0.00%, 11/11/10 16,246,000 7,767,261
FICO Strips, Series 3, 0.00%, 5/30/10 2,000,000 984,198
FICO Strips, Series 4, 0.00%, 10/06/10 1,528,000 735,109
FICO Strips, Series 8, 0.00%, 8/03/10 3,021,000 1,469,720
FICO Strips, Series 11, 0.00%, 2/08/11 2,837,000 1,336,726
FICO Strips, Series 12, 0.00%, 6/06/09 4,550,000 2,381,857
FICO Strips, Series 12, 0.00%, 12/06/10 7,500,000 3,570,555
FICO Strips, Series 19, 0.00%, 6/06/10 3,000,000 1,474,527
FICO Strips, Series 19, 0.00%, 12/06/10 2,080,000 990,234
FICO Strips, Series A, 0.00%, 8/08/10 7,000,000 3,402,497
FICO Strips, Series D, 0.00%, 3/26/10 860,000 428,028
FICO Strips, Series D, 0.00%, 9/26/10 860,000 414,496
FNMA Strips, 0.00%, 8/12/09 1,975,000 1,031,450
FNMA Strips, Series 1, 0.00%, 2/01/10 5,000,000 2,535,300
FNMA Strips, Series 1, 0.00%, 8/01/10 8,250,000 4,052,945
FNMA Strips, Series 1, 0.00%, 8/12/10 1,230,000 603,089
FNMA Strips, Series 1, 0.00%, 2/01/11 4,450,000 2,119,766
FNMA, sub. deb., 0.00%, 2/01/12 3,281,000 1,469,626
REFCO Strips, 0.00%, 10/15/10 20,000,000 9,885,600
REFCO Strips, 0.00%, 1/15/11 8,000,000 3,896,584
SLMA, 0.00%, 5/15/14 8,650,000 2,570,348
Tennessee Valley Authority, 0.00%, 1/01/10 412,000 203,578
Tennessee Valley Authority, 0.00%, 4/15/10 12,000,000 6,042,792
Tennessee Valley Authority, 0.00%, 10/15/10 1,320,000 643,714
Tennessee Valley Authority, 0.00%, 4/15/11 9,525,000 4,506,535
Tennessee Valley Authority, 0.00%, 10/15/11 7,295,000 3,343,889
U.S. Treasury Strips, 0.00%, 11/15/10 18,250,000 9,093,957
---------
78,897,993
---------
Other Securities - "AAA" Rated 6.0%
International Bank for Reconstruction and Development, 0.00%, 2/15/11 1,392,000 652,713
International Bank for Reconstruction and Development, 0.00%, 2/15/12 2,800,000 1,232,198
International Bank for Reconstruction and Development, 0.00%, 2/15/13 3,287,000 1,359,292
International Bank for Reconstruction and Development, 0.00%, 8/15/13 4,100,000 1,642,365
International Bank for Reconstruction and Development, Series 2, 0.00%, 2/15/11 500,000 234,452
---------
5,121,020
---------
Total Long Term Investments (Cost $67,363,218) 84,019,013
---------
fRepurchase Agreement 1.4%
Joint Repurchase Agreement, 5.614%, 7/01/98 (Maturity Value $1,227,025) (Cost $1,226,834) 1,226,834 1,226,834
BancAmerica Robertson Stephens (Maturity Value $117,255)
Barclays Capital, Inc. (Maturity Value $117,255)
Bear, Stearns & Co., Inc. (Maturity Value $63,938)
BT Alex Brown, Inc. (Maturity Value $107,792)
Chase Securities, Inc. (Maturity Value $117,255)
CIBC Oppenheimer Corp. (Maturity Value $117,255)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $117,255)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $117,255)
Greenwich Capital Markets, Inc. (Maturity Value $117,255)
Paribas Corp. (Maturity Value $117,255)
SBC Warburg Dillon Read, Inc. (Maturity Value $117,255)
Collateralized by U.S. Treasury Bills & Notes
---------
Total Investments (Cost $68,590,052) 100.1% 85,245,847
Other Assets, less Liabilities (.1%) (114,023)
---------
Net Assets 100.0% 85,131,824
=========
fSee Note 1(c) regarding joint repurchase agreement.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1998 (unaudited)
CURRENCY ABBREVIATIO
- --------------------------------------
ARS - Argentina Peso
AUD - Australian Dollar
BEF - Belgian Franc
CAD - Canadian Dollar
DEM - German Mark
DKK - Danish Krone
FRF - French Franc
GBP - British Pound
ITL - Italian Lira
MYR - Malaysian Ringgit
NLG - Dutch Guilder
NZD - New Zealand Dollar
SEK - Swedish Krone
ZAR - South African Rand
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements
Statements of Assets and Liabilities
June 30, 1998 (unaudited)
Global
Capital Health Care Global Utilities Growth and High
Growth Fund Securities Fund Securities Fund Income Fund Income Fund
--------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $ 95,551,270 $1,176,919 $ 847,647,901 $1,006,575,751 $485,929,512
================================================================================
Value 122,748,639 1,226,868 1,063,621,448 1,303,224,399 497,728,002
Repurchase agreements, at value and cost 30,144,097 904,014 33,452,813 73,890,452 9,192,905
Cash 523,264 37,689 7,542,226 433,270 2,563
Receivables:
Investment securities sold -- 18,305 801,080 5,104,169 1,961,104
Capital shares sold -- -- 296,777 -- --
Dividends and interest 93,576 22 1,555,493 3,911,780 8,732,226
--------------------------------------------------------------------------------
Total assets 153,509,576 2,186,898 1,107,269,837 1,386,564,070 517,616,800
--------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 2,611,546 324,298 15,437,010 4,421,908 2,750,000
Capital shares redeemed -- -- 693,676 -- --
Affiliates 85,824 4,710 418,908 528,412 209,016
Other liabilities -- 5,650 49,391 36,500 23,504
--------------------------------------------------------------------------------
Total liabilities 2,697,370 334,658 16,598,985 4,986,820 2,982,520
--------------------------------------------------------------------------------
Net assets, at value $150,812,206 $1,852,240 $1,090,670,852 $1,381,577,250 $514,634,280
================================================================================
Net assets consist of:
Undistributed net investment income (loss) $ 528,508 $ (2,993) $ 18,899,785 $ 21,857,299 $ 24,021,958
Net unrealized appreciation 27,197,369 49,949 215,958,716 296,651,830 11,789,948
Accumulated net realized gain (loss) (407,103) (5,356) 38,210,381 57,610,611 4,672,930
Capital shares 123,493,432 1,810,640 817,601,970 1,005,457,510 474,149,444
--------------------------------------------------------------------------------
Net assets, at value $150,812,206 $1,852,240 $1,090,670,852 $1,381,577,250 $514,634,280
================================================================================
Shares outstanding 10,052,192 183,568 55,697,057 69,742,260 37,660,255
================================================================================
Net asset value and maximum offering price per share
(net asset value / shares outstanding) $15.00 $10.09 $19.58 $19.81 $13.67
================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1998 (unaudited)
Income Money Mutual Discovery Mutual Shares Natural
Securities Fund Market Fund Securities Fund Securities Fund Resources Fund
--------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $1,156,939,669 $315,321,138 $247,901,768 $480,122,597 $72,236,849
======================================================================================
Value 1,281,929,451 315,321,138 266,938,545 517,276,568 64,527,037
Repurchase agreements, at value and cost 44,424,968 40,390,000 -- -- 3,863,161
Cash -- 797 5,706,390 3,219,379 128,743
Receivables:
Investment securities sold -- -- 4,272,856 32,281,670 --
Capital shares sold -- 304,092 1,402,820 671,812 --
Dividends and interest 14,669,880 806,394 790,963 1,143,751 74,150
Unrealized gain on forward exchange contracts
(Note 6) -- -- 1,083,759 885,638 --
Deposits with brokers for securities sold short -- -- 173,759 1,090,973 --
--------------------------------------------------------------------------------------
Total assets 1,341,024,299 356,822,421 280,369,092 556,569,791 68,593,091
--------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- -- 6,261,891 22,611,097 122,627
Capital shares redeemed -- 3,581,098 14,583 27,348 --
Affiliates 515,336 131,705 184,124 334,706 34,123
Securities sold short, at value+ -- -- 688,837 8,298,893 --
Payable upon return of securities loaned (Note 10) -- -- -- -- 2,675,613
Unrealized loss on forward exchange contracts
(Note 6) -- -- 913,658 627,324 --
Other liabilities 130,912 9,670 35,145 30,263 20,770
--------------------------------------------------------------------------------------
Total liabilities 646,248 3,722,473 8,098,238 31,929,631 2,853,133
--------------------------------------------------------------------------------------
Net assets, at value $1,340,378,051 $353,099,948 $272,270,854 $524,640,160 $65,739,958
======================================================================================
Net assets consist of:
Undistributed net investment income $ 45,734,245 $-- $ 2,297,788 $ 6,729,132 $ 442,826
Net unrealized appreciation (depreciation) 124,869,192 -- 19,199,251 36,731,946 (7,709,812)
Accumulated net realized gain (loss) 12,616,252 -- 11,378,131 13,856,472 (13,103,253)
Capital shares 1,157,158,362 353,099,948 239,395,684 467,322,610 86,110,197
--------------------------------------------------------------------------------------
Net assets, at value $1,340,378,051 $353,099,948 $272,270,854 $524,640,160 $65,739,958
======================================================================================
Shares outstanding 79,517,278 353,099,948 20,692,108 40,798,117 6,315,134
======================================================================================
Net asset value and maximum offering price per share
(net asset value / shares outstanding) $16.86 $1.00 $13.16 $12.86 $10.41
======================================================================================
+Proceeds $681,210 and $7,618,556 for the Mutual Discovery Securities Fund and
the Mutual Shares Securities Fund respectively.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1998 (unaudited)
Templeton
Developing Templeton
Real Estate Rising Small Cap Markets Global Asset
Securities Fund Dividends Fund Fund Equity Fund Allocation Fund
-----------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $292,057,700 $582,815,348 $289,282,883 $285,283,205 $83,662,793
===================================================================================
Value 382,611,145 802,830,009 319,087,047 196,210,739 86,462,102
Repurchase agreements, at value and cost 7,503,849 12,430,628 50,933,802 -- 7,885,000
Cash 166,718 -- 486,907 511,699 835,250
Receivables:
Investment securities sold -- 9,434,974 3,749,040 6,532,296 --
Capital shares sold 59,349 207,665 -- 35,375 47,633
Dividends and interest 2,105,675 1,117,266 262,896 1,175,025 894,731
Unrealized gain on forward exchange contracts
(Note 6) -- -- -- -- 54,241
-----------------------------------------------------------------------------------
Total assets 392,446,736 826,020,542 374,519,692 204,465,134 96,178,957
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- 4,582,066 1,344,596 1,991,084 833,011
Capital shares redeemed 294,017 291,373 -- 168,633 --
Affiliates 164,382 467,241 208,357 212,433 62,138
Payable upon return of securities loaned (Note 10) -- -- 20,454,870 -- --
Unrealized loss on forward exchange contracts
(Note 6) -- -- -- -- 44,202
Other liabilities 12,993 17,312 8,459 181,043 58,836
-----------------------------------------------------------------------------------
Total liabilities 471,392 5,357,992 22,016,282 2,553,193 998,187
-----------------------------------------------------------------------------------
Net assets, at value $391,975,344 $820,662,550 $352,503,410 $201,911,941 $95,180,770
===================================================================================
Net assets consist of:
Undistributed net investment income $ 7,830,560 $ 4,529,117 $ 540,810 $ 568,551 $ 1,810,587
Net unrealized appreciation (depreciation) 90,553,445 220,014,661 29,804,164 (89,072,466) 2,813,693
Accumulated net realized gain (loss) 11,056,711 45,541,863 10,149,843 (868,725) 3,717,632
Capital shares 282,534,628 550,576,909 312,008,593 291,284,581 86,838,858
-----------------------------------------------------------------------------------
Net assets, at value $391,975,344 $820,662,550 $352,503,410 $201,911,941 $95,180,770
===================================================================================
Shares outstanding 17,133,245 46,095,117 24,158,253 27,979,522 7,304,346
===================================================================================
Net asset value and maximum offering price per share
(net asset value / shares outstanding) $22.88 $17.80 $14.59 $7.22 $13.03
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1998 (unaudited)
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund
------------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $631,200,273 $166,004,881 $ 717,265,279 $31,182,315 $200,944,341
====================================================================================
Value 721,508,110 162,242,496 998,839,616 30,875,672 98,859,272
Repurchase agreements, at value and cost 94,260,000 1,654,000 181,757,000 2,128,000 2,690,000
Cash 125,775 779 -- -- 556
Receivables:
Investment securities sold -- -- 12,110,216 741,784 --
Capital shares sold 508,209 5,660 -- 10,447 31,166
Dividends and interest 2,005,668 3,083,250 5,298,399 112,700 940,604
Unrealized gain on forward exchange contracts
(Note 6) -- 462,269 -- -- --
------------------------------------------------------------------------------------
Total assets 818,407,762 167,448,454 1,198,005,231 33,868,603 102,521,598
------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 14,889 -- 2,249 289,871 --
Capital shares redeemed 41,250 89 556,760 -- --
Affiliates 545,898 75,989 781,588 27,516 99,510
Custodian fees 79,350 20,400 212,545 -- 41,428
Funds advanced by custodian -- -- 88,234 7,016 --
Unrealized loss on forward exchange contracts
(Note 6) -- 352,841 -- -- --
Other liabilities 29,770 16,971 66,048 3,242 39,595
------------------------------------------------------------------------------------
Total liabilities 711,157 466,290 1,707,424 327,645 180,533
------------------------------------------------------------------------------------
Net assets, at value $817,696,605 $166,982,164 $1,196,297,807 $33,540,958 $102,341,065
====================================================================================
Net assets consist of:
Undistributed net investment income $ 8,203,678 $ 4,949,623 $ 15,349,556 $ 406,128 $ (1,438,016)
Net unrealized appreciation (depreciation) 90,307,837 (3,672,540) 281,574,337 (306,643) (102,085,069)
Accumulated net realized gain (loss) 42,123,420 (3,410,263) 7,979,557 (927,503) (10,583,751)
Capital shares 677,061,670 169,115,344 891,394,357 34,368,976 216,447,901
------------------------------------------------------------------------------------
Net assets, at value $817,696,605 $166,982,164 $1,196,297,807 $33,540,958 $102,341,065
====================================================================================
Shares outstanding 55,498,710 13,533,589 71,772,191 3,129,151 16,084,048
====================================================================================
Net asset value and maximum offering price per share
(net asset value / shares outstanding) $14.73 $12.34 $16.67 $10.72 $6.36
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Assets and Liabilities (cont.)
June 30, 1998 (unaudited)
U.S.
Government Value Zero Coupon Zero Coupon Zero Coupon
Securities Fund Securities Fund Fund - 2000 Fund - 2005 Fund - 2010
-----------------------------------------------------------------------------------
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost $658,442,985 $2,302,609 $95,148,931 $67,743,636 $67,363,218
===================================================================================
Value 685,620,805 2,200,838 99,955,342 77,936,475 84,019,013
Repurchase agreements, at value and cost 23,128,121 568,270 78,044 295,653 1,226,834
Cash 8,168 2,748 -- -- --
Receivables:
Investment securities sold 5,053,474 1,009 -- -- --
Capital shares sold 76,879 -- -- 16,102 22,539
Dividends and interest 5,277,556 477 -- -- --
-----------------------------------------------------------------------------------
Total assets 719,165,003 2,773,342 100,033,386 78,248,230 85,268,386
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investments securities purchased 8,512,396 538,060 -- -- --
Capital shares redeemed 666,055 -- 108,936 69,298 62,880
Affiliates 282,476 779 31,158 24,304 17,115
Other liabilities 32,729 1,032 4,813 473 56,567
-----------------------------------------------------------------------------------
Total liabilities 9,493,656 539,871 144,907 94,075 136,562
-----------------------------------------------------------------------------------
Net assets, at value $709,671,347 $2,233,471 $99,888,479 $78,154,155 $85,131,824
===================================================================================
Net assets consist of:
Undistributed net investment income $ 23,071,559 $ 3,061 $ 3,417,218 $ 2,271,686 $ 2,387,340
Net unrealized appreciation (depreciation) 27,177,820 (101,771) 4,806,411 10,192,839 16,655,795
Accumulated net realized gain (loss) (14,797,437) (7,943) 1,332,398 287,268 2,019,913
Capital shares 674,219,405 2,340,124 90,332,452 65,402,362 64,068,776
-----------------------------------------------------------------------------------
Net assets, at value $709,671,347 $2,233,471 $99,888,479 $78,154,155 $85,131,824
===================================================================================
Shares outstanding 52,997,065 244,472 7,018,055 4,729,245 4,793,406
===================================================================================
Net asset value and maximum offering price per share
(net asset value / shares outstanding) $13.39 $9.14 $14.23 $16.53 $17.76
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Operations
for the six months ended June 30, 1998 (unaudited)
Global
Capital Health Care Global Utilities Growth and High
Growth Fund Securities Fund* Securities Fund Income Fund Income Fund
--------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends $ 429,281 $ 22 $20,883,866 $23,562,249 $ 186,420
Interest 586,574 3,654 823,414 2,362,497 24,645,986
Other -- -- -- -- 621,139
--------------------------------------------------------------------------------
Total investment income 1,015,855 3,676 21,707,280 25,924,746 25,453,545
--------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 475,396 810 2,596,838 3,233,318 1,270,725
Administrative fees (Note 3) -- 203 -- -- --
Custodian fees 386 3,197 44,221 17,381 6,001
Reports to shareholders 3,961 996 92,287 104,975 39,271
Professional fees 1,852 567 13,985 15,096 8,364
Trustees' fees and expenses 340 66 3,468 4,087 1,515
Other 870 830 4,737 6,590 4,962
--------------------------------------------------------------------------------
Total expenses 482,805 6,669 2,755,536 3,381,447 1,330,838
--------------------------------------------------------------------------------
Net investment income (loss) 533,050 (2,993) 18,951,744 22,543,299 24,122,707
--------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (212,560) (5,356) 38,272,508 57,744,552 4,693,257
Foreign currency transactions -- -- 18,377 (12,472) (9,642)
--------------------------------------------------------------------------------
Net realized gain (loss) (212,560) (5,356) 38,290,885 57,732,080 4,683,615
Net unrealized appreciation (depreciation) on:
Investments 13,979,113 49,949 12,548,130 (7,673,496) (9,173,707)
Translation of assets and liabilities denominated
in foreign currencies -- -- (12,468) 12,937 5,157
--------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 13,979,113 49,949 12,535,662 (7,660,559) (9,168,550)
--------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 13,766,553 44,593 50,826,547 50,071,521 (4,484,935)
--------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $14,299,603 $41,600 $69,778,291 $72,614,820 $19,637,772
================================================================================
*For the period May 1, 1998 (effective date) to June 30, 1998.
+Net of foreign taxes of $240,204 for the Growth and Income Fund.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1998 (unaudited)
Income Money Mutual Discovery Mutual Shares Natural
Securities Fund Market Fund Securities Fund Securities Fund Resources Fund
-------------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends $15,694,890 $-- $ 2,576,784 $ 5,543,463 $ 450,216
Interest 34,253,211 9,684,414 1,349,156 3,514,637 248,415
-------------------------------------------------------------------------------------
Total investment income 49,948,101 9,684,414 3,925,940 9,058,100 698,631
-------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 3,213,226 900,476 951,673 1,403,263 228,247
Administrative fees (Note 3) -- -- 175,450 330,614 --
Custodian fees 55,714 2,760 71,558 38,132 8,418
Reports to shareholders 153,896 36,666 9,800 16,380 6,907
Registration and filing fees 15 -- 200 200 --
Professional fees 23,609 6,480 200 1,100 2,148
Trustees' fees and expenses 4,926 1,416 100 300 250
Other 9,211 2,889 1,157 5,290 2,939
-------------------------------------------------------------------------------------
Total expenses 3,460,597 950,687 1,210,138 1,795,279 248,909
Expenses waived/paid by affiliate (Note 3) -- (174,319) -- -- --
-------------------------------------------------------------------------------------
Net expenses 3,460,597 776,368 1,210,138 1,795,279 248,909
-------------------------------------------------------------------------------------
Net investment income 46,487,504 8,908,046 2,715,802 7,262,821 449,722
-------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 12,763,145 (371) 10,209,885 13,834,192 (6,653,093)
Foreign currency transactions (104,527) -- 1,635,884 452,788 (15,387)
-------------------------------------------------------------------------------------
Net realized gain (loss) 12,658,618 (371) 11,845,769 14,286,980 (6,668,480)
Net unrealized appreciation (depreciation) on:
Investments (40,938,637) -- 8,548,873 11,552,403 820,539
Translation of assets and liabilities denominated
in foreign currencies (108,311) -- (955,445) (428,374) 3
-------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) (41,046,948) -- 7,593,428 11,124,029 820,542
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (28,388,330) (371) 19,439,197 25,411,009 (5,847,938)
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $18,099,174 $8,907,675 $22,154,999 $32,673,830 $(5,398,216)
=====================================================================================
+Net of foreign taxes of $46,738, $306,072, and $210,067 for the Income
Securities Fund, the Mutual Discovery Securities Fund, and the Mutual Shares
Securities Fund, respectively.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1998 (unaudited)
Templeton
Developing Templeton
Real Estate Rising Small Cap Markets Global Asset
Securities Fund Dividends Fund Fund Equity Fund Allocation Fund
------------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends $ 9,425,758 $ 6,961,154 $ 872,917 $ 3,936,716 $1,095,750
Interest 690,435 547,143 1,040,333 574,008 1,427,514
------------------------------------------------------------------------------------
Total investment income 10,116,193 7,508,297 1,913,250 4,510,724 2,523,264
------------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 1,068,763 2,896,189 1,305,228 1,594,510 311,274
Administrative fees (Note 3) -- -- -- -- 71,832
Custodian fees 2,279 3,669 2,266 212,084 2,000
Reports to shareholders 28,854 53,235 24,247 28,477 5,000
Registration and filing fees 948 3,379 -- -- 350
Professional fees 6,564 11,039 5,496 20,442 1,900
Trustees' fees and expenses 1,341 2,476 1,162 407 702
Other 2,157 3,999 1,628 -- --
------------------------------------------------------------------------------------
Total expenses 1,110,906 2,973,986 1,340,027 1,855,920 393,058
------------------------------------------------------------------------------------
Net investment income 9,005,287 4,534,311 573,223 2,654,804 2,130,206
------------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 11,246,901 45,847,932 10,330,091 7,532,381 3,695,401
Foreign currency transactions -- -- (36,347) (343,584) 55,311
------------------------------------------------------------------------------------
Net realized gain 11,246,901 45,847,932 10,293,744 7,188,797 3,750,712
Net unrealized appreciation (depreciation) on:
Investments (39,746,686) (10,480,013) 5,162,552 (55,866,517) (3,350,376)
Translation of assets and liabilities denominated
in foreign currencies -- -- -- -- (1,127)
------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) (39,746,686) (10,480,013) 5,162,552 (55,866,517) (3,351,503)
------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (28,499,785) 35,367,919 15,456,296 (48,677,720) 399,209
------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $(19,494,498) $39,902,230 $16,029,519 $(46,022,916) $2,529,415
====================================================================================
+Net of foreign taxes of $14,289, $179,613 and $94,528 for the Small Cap Fund,
the Templeton Developing Markets Equity Fund and the Templeton Global Asset
Allocation Fund, respectively.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1998 (unaudited)
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund
-------------------------------------------------------------------------------
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends $11,836,123 $ 243 $ 16,431,262 $550,854 $ 3,025,823
Interest 3,066,004 6,712,505 5,682,706 63,270 27,921
-------------------------------------------------------------------------------
Total investment income 14,902,127 6,712,748 22,113,968 614,124 3,053,744
-------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 3,327,562 501,689 4,750,614 169,050 675,264
Custodian fees 168,800 31,876 347,005 11,656 59,300
Reports to shareholders 50,576 7,000 98,000 1,050 26,000
Registration and filing fees -- 10,500 6,000 481 3,500
Professional fees 12,081 3,700 20,500 -- 4,400
Trustees' fees and expenses 1,517 600 3,200 1,100 850
Other -- 1,041 8,337 -- 3,903
-------------------------------------------------------------------------------
Total expenses 3,560,536 556,406 5,233,656 183,337 773,217
-------------------------------------------------------------------------------
Net investment income 11,341,591 6,156,342 16,880,312 430,787 2,280,527
-------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments 42,417,428 (1,041,540) 8,554,072 (631,478) (10,364,554)
Foreign currency transactions (198,250) 808,324 (313,027) (40,684) 165,254
-------------------------------------------------------------------------------
Net realized gain (loss) 42,219,178 (233,216) 8,241,045 (672,162) (10,199,300)
Net unrealized appreciation (depreciation) on:
Investments 11,319,144 (408,631) 122,892,824 971,086 (30,270,087)
Translation of assets and liabilities denominated
in foreign currencies -- (696,979) -- 22,578 --
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 11,319,144 (1,105,610) 122,892,824 993,664 (30,270,087)
-------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 53,538,322 (1,338,826) 131,133,869 321,502 (40,469,387)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $64,879,913 $4,817,516 $148,014,181 $752,289 $(38,188,860)
===============================================================================
+Net of foreign taxes of $1,397,433, $2,469,004, $74,856 and $202,257 for the
Templeton Global Growth Fund, Templeton International Equity Fund, Templeton
International Smaller Companies Fund and the Templeton Pacific Growth Fund,
respectively.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Operations (cont.)
for the six months ended June 30, 1998 (unaudited)
U.S.
Government Value Zero Coupon Zero Coupon Zero Coupon
Securities Fund Securities Fund* Fund - 2000 Fund - 2005 Fund - 2010
---------------------------------------------------------------------------------
Investment income:
<S> <C> <C> <C> <C> <C>
Dividends $-- $ 871 $-- $-- $--
Interest 25,019,679 4,444 3,678,530 2,429,275 2,559,420
---------------------------------------------------------------------------------
Total investment income 25,019,679 5,315 3,678,530 2,429,275 2,559,420
---------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) 1,762,160 973 324,150 239,434 260,283
Custodian fees 3,883 244 537 512 426
Reports to shareholders 60,517 113 8,307 6,740 6,511
Registration and filing fees -- 263 -- -- --
Professional fees 11,069 400 1,104 1,539 1,942
Trustees' fees and expenses 2,643 45 370 295 264
Other 6,658 216 1,807 2,654 2,259
---------------------------------------------------------------------------------
Total expenses 1,846,930 2,254 336,275 251,174 271,685
Expenses waived/paid by affiliate (Note 3) -- -- (125,298) (98,798) (104,935)
---------------------------------------------------------------------------------
Net Expenses 1,846,930 2,254 210,977 152,376 166,750
---------------------------------------------------------------------------------
Net investment income 23,172,749 3,061 3,467,553 2,276,899 2,392,670
---------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments 933,918 (7,943) 1,333,331 288,467 2,113,815
Net unrealized appreciation (depreciation)
on investments 1,494,802 (101,771) (1,312,997) 1,096,350 854,649
---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 2,428,720 (109,714) 20,334 1,384,817 2,968,464
---------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $25,601,469 $(106,653) $3,487,887 $3,661,716 $5,361,134
=================================================================================
*For the period May 1, 1998 (effective date) to June 30,1998
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Global Health Care
Capital Growth Fund Securities Fund Global Utilities Securities Fund
----------------------------------------------------------------------------------
1998 1997 1998* 1998 1997
----------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C>
Net investment income (loss) $ 533,050 $ 538,149 $ (2,993) $ 18,951,744 $ 42,454,900
Net realized gain (loss) from investments
and foreign currency transactions (212,560) (58,087) (5,356) 38,290,885 61,850,100
Net unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies 13,979,113 11,235,806 49,949 12,535,662 150,455,147
----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 14,299,603 11,715,868 41,600 69,778,291 254,760,147
Distributions to shareholders from:
Net investment income (539,187) (109,761) -- (42,481,848) (54,348,880)
Net realized gains -- -- -- (61,944,426) (75,198,357)
----------------------------------------------------------------------------------
Total distributions to shareholders (539,187) (109,761) -- (104,426,274) (129,547,237)
Capital share transactions (Note 2) 27,696,803 53,082,169 1,810,640 (4,585,266) (197,599,129)
----------------------------------------------------------------------------------
Net increase (decrease) in net assets 41,457,219 64,688,276 1,852,240 (39,233,249) (72,386,219)
Net assets:
Beginning of period 109,354,987 44,666,711 -- 1,129,904,101 1,202,290,320
----------------------------------------------------------------------------------
End of period $150,812,206 $109,354,987 $1,852,240 $1,090,670,852 $1,129,904,101
==================================================================================
Undistributed net investment income (loss)
included in net assets
End of period $ 528,508 $ 534,645 $ (2,993) $ 18,899,785 $ 42,429,889
==================================================================================
*For the period May 1, 1998 (effective date) to June 30,1998.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Growth and Income Fund High Income Fund Income Securities Fund
--------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
--------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 22,543,299 $ 42,540,625 $ 24,122,707 $ 44,024,339 $ 46,487,504 $ 102,082,393
Net realized gain from
investments and foreign
currency transactions 57,732,080 102,492,523 4,683,615 2,599,594 12,658,618 24,171,050
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies (7,660,559) 149,143,638 (9,168,550) 2,724,359 (41,046,948) 88,386,427
--------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 72,614,820 294,176,786 19,637,772 49,348,292 18,099,174 214,639,870
Distributions to shareholders from:
Net investment income (43,569,458) (39,059,424) (44,113,848) (37,006,747) (102,762,929) (99,613,761)
Net realized gains (102,500,145) (37,881,070) (2,617,950) (1,213,933) (24,268,308) (21,398,124)
--------------------------------------------------------------------------------------------
Total distributions to
shareholders (146,069,603) (76,940,494) (46,731,798) (38,220,680) (127,031,237) (121,011,885)
Capital share transactions
(Note 2) 116,555,907 43,250,826 45,692,474 38,812,695 42,523,495 (37,500,786)
--------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets 43,101,124 260,487,118 18,598,448 49,940,307 (66,408,568) 56,127,199
Net assets:
Beginning of period 1,338,476,126 1,077,989,008 496,035,832 446,095,525 1,406,786,619 1,350,659,420
--------------------------------------------------------------------------------------------
End of period $1,381,577,250 $1,338,476,126 $514,634,280 $496,035,832 $1,340,378,051 $1,406,786,619
============================================================================================
Undistributed net investment income
included in net assets
End of period $ 21,857,299 $ 42,883,458 $ 24,021,958 $ 44,013,099 $ 45,734,245 $ 102,009,670
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Money Market Fund Mutual Discovery Securities Fund Mutual Shares Securities Fund
---------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 8,908,046 $ 20,721,147 $ 2,715,802 $ 2,280,806 $ 7,262,821 $ 4,433,846
Net realized gain (loss) from
investments and foreign
currency transactions (371) -- 11,845,769 3,239,880 14,286,980 4,245,422
Net unrealized appreciation on
investments and translation of
assets and liabilities denominated
in foreign currencies -- -- 7,593,428 11,417,973 11,124,029 25,039,574
---------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 8,907,675 20,721,147 22,154,999 16,938,659 32,673,830 33,718,842
Distributions to shareholders from:
Net investment income (8,907,675) (20,721,147) (3,306,778) (49,403) (5,124,853) (87,831)
Net realized gains -- -- (3,076,304) -- (4,478,333) --
---------------------------------------------------------------------------------------------
Total distributions to
shareholders (8,907,675) (20,721,147) (6,383,082) (49,403) (9,603,186) (87,831)
Capital share transactions
(Note 2) (14,349,191) (41,480,674) 57,846,175 166,345,776 113,782,184 326,479,399
---------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets (14,349,191) (41,480,674) 73,618,092 183,235,032 136,852,828 360,110,410
Net assets:
Beginning of period 367,449,139 408,929,813 198,652,762 15,417,730 387,787,332 27,676,922
---------------------------------------------------------------------------------------------
End of period $353,099,948 $367,449,139 $272,270,854 $198,652,762 $524,640,160 $387,787,332
=============================================================================================
Undistributed net investment income
included in net assets
End of period $-- $-- $ 2,297,788 $ 2,888,764 $ 6,729,132 $ 4,591,164
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Natural Resource Fund Real Estate Securities Fund Rising Dividends Fund
-----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 449,722 $ 936,102 $ 9,005,287 $ 13,879,598 $ 4,534,311 $ 8,597,527
Net realized gain (loss) from
investments and foreign
currency transactions (6,668,480) (6,076,012) 11,246,901 9,523,858 45,847,932 105,385,082
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 820,542 (13,803,725) (39,746,686) 50,445,063 (10,480,013) 80,215,085
-----------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations (5,398,216) (18,943,635) (19,494,498) 73,848,519 39,902,230 194,197,694
Distributions to shareholders from:
Net investment income (946,913) (1,423,769) (15,362,062) (10,951,988) (8,600,227) (9,956,520)
Net realized gains -- -- (9,509,537) (5,229,900) (105,391,578) (17,001,263)
-----------------------------------------------------------------------------------------
Total distributions to
shareholders (946,913) (1,423,769) (24,871,599) (16,181,888) (113,991,805) (26,957,783)
Capital share transactions
(Note 2) (2,839,223) (14,286,871) (4,212,822) 60,166,437 114,454,341 15,634,172
-----------------------------------------------------------------------------------------
Net increase (decrease)
in net assets (9,184,352) (34,654,275) (48,578,919) 117,833,068 40,364,766 182,874,083
Net assets:
Beginning of period 74,924,310 109,578,585 440,554,263 322,721,195 780,297,784 597,423,701
-----------------------------------------------------------------------------------------
End of period $65,739,958 $ 74,924,310 $391,975,344 $440,554,263 $820,662,550 $780,297,784
=========================================================================================
Undistributed net investment income
included in net assets
End of period $ 442,826 $ 940,017 $ 7,830,560 $ 14,187,335 $ 4,529,117 $ 8,595,033
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Templeton Templeton
Small Cap Fund Developing Markets Equity Fund Global Asset Allocation Fund
------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 573,223 $ 154,966 $ 2,654,804 $ 5,379,345 $ 2,130,206 $ 3,416,577
Net realized gain from
investments and foreign
currency transactions 10,293,744 25,783,381 7,188,797 14,814,772 3,750,712 3,506,166
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 5,162,552 14,228,539 (55,866,517) (53,104,360) (3,351,503) 1,145,033
------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 16,029,519 40,166,886 (46,022,916) (32,910,243) 2,529,415 8,067,776
Distributions to shareholders from:
Net investment income (201,399) (573,457) (7,007,400) (3,987,427) (3,274,568) (1,548,504)
Net realized gains (25,854,888) (6,796,191) (22,786,132) (6,324,884) (3,894,373) (446,684)
------------------------------------------------------------------------------------------
Total distributions to
shareholders (26,056,287) (7,369,648) (29,793,532) (10,312,311) (7,168,941) (1,995,188)
Capital share transactions
(Note 2) 49,068,639 109,695,331 (1,951,662) 50,804,184 6,418,474 31,055,108
------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets 39,041,871 142,492,569 (77,768,110) 7,581,630 1,778,948 37,127,696
Net assets:
Beginning of period 313,461,539 170,968,970 279,680,051 272,098,421 93,401,822 56,274,126
------------------------------------------------------------------------------------------
End of period $352,503,410 $313,461,539 $201,911,941 $279,680,051 $95,180,770 $93,401,822
==========================================================================================
Undistributed net investment income
included in net assets
End of period $ 540,810 $ 160,082 $ 568,551 $ 4,921,147 $ 1,810,587 $ 2,954,949
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Templeton Global Growth Fund Templeton Global Income Securities Fund Templeton International Equity Fund
----------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 11,341,591 $ 17,575,343 $ 6,156,342 $ 14,187,376 $ 16,880,312 $ 36,435,795
Net realized gain (loss) from
investments and foreign
currency transactions 42,219,178 73,768,401 (233,216) (228,933) 8,241,045 71,056,314
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 11,319,144 (9,386,358) (1,105,610) (9,238,900) 122,892,824 24,358,754
----------------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 64,879,913 81,957,386 4,817,516 4,719,543 148,014,181 131,850,863
Distributions to shareholders from:
Net investment income (20,206,508) (11,070,041) (12,370,027) (14,522,463) (34,702,026) (32,476,317)
Net realized gains (73,600,973) (3,690,014) -- -- (69,708,108) (49,797,020)
----------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (93,807,481) (14,760,055) (12,370,027) (14,522,463) (104,410,134) (82,273,337)
Capital share transactions
(Note 2) 88,179,598 111,369,857 (10,481,499) (26,903,375) (8,735,789) 3,752,649
----------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets 59,252,030 178,567,188 (18,034,010) (36,706,295) 34,868,258 53,330,175
Net assets:
Beginning of period 758,444,575 579,877,387 185,016,174 221,722,469 1,161,429,549 1,108,099,374
----------------------------------------------------------------------------------------------------------
End of period $817,696,605 $758,444,575 $166,982,164 $185,016,174 $1,196,297,807 $1,161,429,549
==========================================================================================================
Undistributed net investment income
included in net assets
End of period $ 8,203,678 $ 17,068,595 $ 4,949,623 $ 11,163,308 $ 15,349,556 $ 33,171,270
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Templeton International
Smaller Companies Fund Templeton Pacific Growth Fund U.S. Government Securities Fund
-----------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 430,787 $ 770,264 $ 2,280,527 $ 5,575,047 $ 23,172,749 $ 50,859,278
Net realized gain (loss) from
investments and foreign
currency transactions (672,162) 573,090 (10,199,300) 5,990,468 933,918 84,959
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 993,664 (2,404,379) (30,270,087) (112,006,306) 1,494,802 18,636,570
-----------------------------------------------------------------------------------------------
Net increase in net assets
resulting from
operations 752,289 (1,061,025) (38,188,860) (100,440,791) 25,601,469 69,580,807
Distributions to shareholders from:
Net investment income (741,652) (155,776) (5,322,439) (5,815,823) (50,958,932) (42,870,826)
Net realized gains (858,570) -- (1,619,542) -- -- --
-----------------------------------------------------------------------------------------------
Total distributions to
shareholders (1,600,222) (155,776) (6,941,981) (5,815,823) (50,958,932) (42,870,826)
Capital share transactions
(Note 2) 2,188,186 17,162,468 (17,931,909) (85,098,729) (30,055,631) (105,483,057)
-----------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets 1,340,253 15,945,667 (63,062,750) (191,355,343) (55,413,094) (78,773,076)
Net assets:
Beginning of period 32,200,705 16,255,038 165,403,815 356,759,158 765,084,441 843,857,517
-----------------------------------------------------------------------------------------------
End of period $33,540,958 $32,200,705 $102,341,065 $165,403,815 $709,671,347 $765,084,441
===============================================================================================
Undistributed net investment income
included in net assets
End of period $ 406,128 $ 716,993 $ (1,438,016) $ 1,603,896 $ 23,071,559 $ 50,857,742
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Value Securities Fund Zero Coupon Fund - 2000
----------------------------------------------------
1998* 1998 1997
----------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C>
Net investment income $ 3,061 $ 3,467,553 $ 7,759,046
Net realized gain (loss) from investments and foreign currency transactions (7,943) 1,333,331 1,248,982
Net unrealized depreciation on investments and translation
of assets and liabilities denominated in foreign currencies (101,771) (1,312,997) (926,957)
----------------------------------------------------
Net increase (decrease) in net assets resulting from operations (106,653) 3,487,887 8,081,071
Distributions to shareholders from:
Net investment income -- (7,809,331) (8,152,085)
Net realized gains -- (1,249,416) (184,468)
----------------------------------------------------
Total distributions to shareholders -- (9,058,747) (8,336,553)
Capital share transactions (Note 2) 2,340,124 (6,191,112) (17,695,009)
----------------------------------------------------
Net increase (decrease) in net assets 2,233,471 (11,761,972) (17,950,491)
Net assets:
Beginning of period -- 111,650,451 129,600,942
----------------------------------------------------
End of period $2,233,471 $ 99,888,479 $111,650,451
====================================================
Undistributed net investment income included in net assets
End of period $ 3,061 $ 3,417,218 $ 7,759,277
====================================================
*For the period May 1, 1998 (effective date) to June 30, 1998
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
Statements of Changes in Net Assets (cont.)
for the six months ended June 30, 1998 (unaudited)
and the year ended December 31, 1997
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income $ 2,276,899 $ 4,790,147 $ 2,392,670 $ 4,883,560
Net realized gain from investments and
foreign currency transactions 288,467 1,112,714 2,113,815 1,001,612
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies 1,096,350 2,363,992 854,649 6,324,375
------------------------------------------------------------
Net increase in net assets resulting from operations 3,661,716 8,266,853 5,361,134 12,209,547
Distributions to shareholders from:
Net investment income (4,795,119) (4,939,956) (4,888,749) (4,878,501)
Net realized gains (1,109,296) (17,170) (676,395) (39,001)
------------------------------------------------------------
Total distributions to shareholders (5,904,415) (4,957,126) (5,565,144) (4,917,502)
Capital share transactions (Note 2) 3,101,343 (8,617,685) (178,892) (593,065)
------------------------------------------------------------
Net increase (decrease) in net assets 858,644 (5,307,958) (382,902) 6,698,980
Net assets:
Beginning of period 77,295,511 82,603,469 85,514,726 78,815,746
------------------------------------------------------------
End of period $78,154,155 $77,295,511 $85,131,824 $85,514,726
============================================================
Undistributed net investment income included in net assets
End of period $ 2,271,686 $ 4,789,906 $ 2,387,340 $ 4,883,419
============================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Valuemark Funds (the Trust) is registered under the Investment Company
Act of 1940, as an open-end investment company, consisting of twenty-five series
(the Funds). All Funds are diversified except the Global Health Care Securities
Fund, the Templeton Global Income Securities Fund and the Value Securities Fund.
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) and its
affiliates. The Funds and their investment policies are:
<TABLE>
<CAPTION>
Capital Growth Growth and Income High Current Income Capital Preservation
and Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund Global Utilities Securities Fund High Income Fund Money Market Fund
Global Health Care Securities Fund Growth and Income Fund Templeton Global Income Securities Fund
Mutual Discovery Securities Fund Income Securities Fund U.S. Government Securities Fund
Natural Resources Fund Mutual Shares Securities Fund Zero Coupon Fund - 2000
Small Cap Fund Real Estate Securities Fund Zero Coupon Fund - 2005
Templeton Developing Markets Equity Fund Rising Dividends Fund Zero Coupon Fund - 2010
Templeton Global Growth Fund Templeton Global Asset Allocation Fund
Templeton International Equity Fund Value Securities Fund
Templeton International Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
Effective May 1, 1998, the name of the Utility Equity Fund changed to the Global
Utilities Securities Fund. The portfolio's investment objectives and other
policies did not change.
Effective May 1, 1998, the Global Health Care Securities Fund and the Value
Securities Fund commenced operations.
The following summarizes the Funds' significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees (the Board).
Portfolio securities in the Money Market Fund are valued at amortized cost which
approximates value.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Repurchase Agreements:
Certain Funds may enter into a joint repurchase agreement whereby their
uninvested cash balance is deposited into a joint cash account to be used to
invest in one or more repurchase agreements. The value and face amount of the
joint repurchase agreement are allocated to the Funds based on their pro-rata
interest. Repurchase agreements are accounted for as a loan by the Funds to the
seller, collateralized by securities which are delivered to the Funds'
custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of the dollar amount invested
by the Funds, with the value of the underlying securities marked to market daily
to maintain coverage of at least 100%. At June 30, 1998, all outstanding
repurchase agreements held by the Funds had been entered into on that date.
d. Forward Exchange Contracts:
The Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Global Asset Allocation Fund and the Templeton Global Income
Securities Fund may enter into forward exchange contracts to hedge against
foreign exchange risks. These contracts are valued daily and the Funds' equity
therein is included in the Statement of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statement of Operations.
e. Securities Sold Short:
The Mutual Shares Securities Fund and the Mutual Discovery Securities Fund are
engaged in selling securities short, which obligates the Fund to replace a
security borrowed by purchasing the same security at the current market value.
The Fund would incur a loss if the price of the security increases between the
date of the short sale and the date on which the Fund replaces the borrowed
security. The Fund would realize a gain if the price of the security declines
between those dates.
The Fund is required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the Fund must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.
f. Income Taxes:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
g. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. For the Money Market Fund,
distributions from net investment income and capital gains or losses are
normally declared and reinvested daily.
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. Other expenses are
charged to each Fund on a specific identification basis.
Distributions received by the Trust from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
h. 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.
<TABLE>
<CAPTION>
2. SHARES OF BENEFICIAL INTEREST
At June 30, 1998, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Funds' shares were as follows:
Capital Growth Fund Global Health Care Securities Fund* Global Utilities Securities Fund
--------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 3,454,331 $49,941,474 191,462 $1,891,534 1,547,069 $ 32,055,098
Shares issued in reinvestment of
distributions 37,058 539,187 -- -- 5,388,352 104,426,274
Shares redeemed (1,589,233) (22,783,858) (7,894) (80,894) (6,807,596) (141,066,638)
--------------------------------------------------------------------------------------------
Net increase (decrease) 1,902,156 $27,696,803 183,568 $1,810,640 127,825 $ (4,585,266)
============================================================================================
Year ended December 31, 1997
Shares sold 7,609,203 $95,467,235 1,963,946 $ 36,229,864
Shares issued in reinvestment
of distributions 8,739 109,761 7,553,775 129,547,236
Shares redeemed (3,398,734) (42,494,827) (20,093,040) (363,376,229)
-------------------------- ----------------------------------
Net increase (decrease) 4,219,208 $53,082,169 (10,575,319) $(197,599,129)
========================== ==================================
</TABLE>
<TABLE>
<CAPTION>
Growth and Income Fund High Income Fund Income Securities Fund
---------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 4,747,242 $103,134,037 5,954,122 $ 87,167,950 3,217,119 $ 59,210,495
Shares issued in reinvestment
of distributions 7,392,186 146,069,603 3,423,575 46,731,798 7,512,196 127,031,236
Shares redeemed (6,099,945) (132,647,733) (6,041,860) (88,207,274) (7,807,080) (143,718,236)
---------------------------------------------------------------------------------
Net increase 6,039,483 $116,555,907 3,335,837 $ 45,692,474 2,922,235 $ 42,523,495
=================================================================================
Year ended December 31, 1997
Shares sold 11,852,804 $227,366,997 15,001,724 $213,493,612 8,990,147 $157,499,453
Shares issued in reinvestment of distributions4,094,758 76,940,493 2,802,103 38,220,680 7,246,221 121,011,885
Shares redeemed (13,651,515) (261,056,664)(14,990,766) (212,901,597)(18,135,171) (316,012,124)
---------------------------------------------------------------------------------
Net increase (decrease) 2,296,047 $ 43,250,826 2,813,061 $ 38,812,695 (1,898,803) $ (37,500,786)
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
Mutual Discovery Mutual Shares
Money Market Fund Securities Fund Securities Fund
----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 304,433,643 $304,433,643 5,799,918 $ 76,752,589 11,184,925 $143,083,195
Shares issued in reinvestment
of distributions 8,907,760 8,907,760 482,835 6,383,082 760,950 9,603,185
Shares redeemed (327,690,594) (327,690,594) (1,917,069) (25,289,496) (2,989,208) (38,904,196)
----------------------------------------------------------------------------------
Net increase (decrease) (14,349,191) $ (14,349,191) 4,365,684 $ 57,846,175 8,956,667 $113,782,184
==================================================================================
Year ended December 31, 1997
Shares sold 748,100,457 $748,100,457 17,092,095 $192,828,736 31,512,828 $353,477,935
Shares issued in reinvestment
of distributions 20,721,280 20,721,280 4,419 49,403 7,793 87,831
Shares redeemed (810,302,411) (810,302,411) (2,280,587) (26,532,363) (2,353,072) (27,086,367)
----------------------------------------------------------------------------------
Net increase (decrease) (41,480,674) $ (41,480,674) 14,815,927 $166,345,776 29,167,549 $326,479,399
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
2. SHARES OF BENEFICIAL INTEREST (cont.)
Natural Real Estate Rising
Resources Fund Securities Fund Dividends Fund
-----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 2,210,022 $25,231,959 1,326,832 $ 33,423,156 5,137,936 $106,203,022
Shares issued in reinvestment
of distributions 91,844 946,913 1,117,323 24,871,599 6,443,856 113,991,805
Shares redeemed (2,551,349) (29,018,095) (2,518,807) (62,507,577) (5,126,896) (105,740,486)
-----------------------------------------------------------------------------------
Net increase (decrease) (249,483) $ (2,839,223) (74,652) $ (4,212,822) 6,454,896 $114,454,341
===================================================================================
Year ended December 31, 1997
Shares sold 3,255,526 $44,002,036 5,979,601 $139,175,365 9,172,221 $162,728,294
Shares issued in reinvestment
of distributions 107,292 1,423,769 722,405 16,181,889 1,563,677 26,957,783
Shares redeemed (4,466,321) (59,712,676) (4,062,121) (95,190,817) (9,887,381) (174,051,905)
-----------------------------------------------------------------------------------
Net increase (decrease) (1,103,503) $(14,286,871) 2,639,885 $ 60,166,437 848,517 $ 15,634,172
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Templeton Developing Templeton Global Asset
Small Cap Fund Markets Equity Fund Allocation Fund
----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 5,670,813 $ 89,614,678 2,988,534 $ 29,667,799 320,591 $ 4,665,151
Shares issued in reinvestment
of distributions 1,866,496 26,056,287 4,042,542 29,793,532 556,595 7,168,941
Shares redeemed (4,205,216) (66,602,326) (6,235,432) (61,412,993) (381,089) (5,415,618)
----------------------------------------------------------------------------------
Net increase (decrease) 3,332,093 $ 49,068,639 795,644 $ (1,951,662) 496,097 $ 6,418,474
==================================================================================
Year ended December 31, 1997
Shares sold 15,767,713 $223,364,294 10,816,139 $137,500,694 2,863,159 $38,251,762
Shares issued in reinvestment
of distributions 542,684 7,369,648 774,197 10,312,311 149,676 1,995,188
Shares redeemed (8,440,306) (121,038,611) (7,874,889) (97,008,821) (673,877) (9,191,842)
----------------------------------------------------------------------------------
Net increase 7,870,091 $109,695,331 3,715,447 $ 50,804,184 2,338,958 $31,055,108
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Templeton Templeton Global Templeton
Global Growth Fund Income Securities Fund International Equity Fund
-----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 4,055,974 $ 66,772,209 423,913 $ 5,579,376 5,371,710 $ 93,648,103
Shares issued in reinvestment
of distributions 6,496,363 93,807,481 1,004,061 12,370,027 6,374,245 104,410,134
Shares redeemed (4,484,428) (72,400,092) (2,159,583) (28,430,902) (12,020,171) (206,794,026)
-----------------------------------------------------------------------------------
Net increase (decrease) 6,067,909 $ 88,179,598 (731,609) $(10,481,499) (274,216) $ (8,735,789)
===================================================================================
Year ended December 31, 1997
Shares sold 13,313,319 $200,497,392 1,379,330 $18,167,921 18,290,362 $299,526,246
Shares issued in reinvestment
of distributions 971,695 14,760,055 1,145,305 14,522,463 5,084,879 82,273,337
Shares redeemed (6,882,077) (103,887,590) (4,546,864) (59,593,759) (23,047,242) (378,046,934)
-----------------------------------------------------------------------------------
Net increase (decrease) 7,402,937 $111,369,857 (2,022,229) $(26,903,375) 327,999 $ 3,752,649
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
2. SHARES OF BENEFICIAL INTEREST (cont.)
Templeton
International Smaller Templeton U.S. Government
Companies Fund Pacific Growth Fund Securities Fund
-----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 720,357 $ 8,343,677 4,954,636 $ 43,244,155 3,111,576 $ 43,780,113
Shares issued in reinvestment
of distributions 147,758 1,600,222 1,116,074 6,941,980 3,808,590 50,958,933
Shares redeemed (661,509) (7,755,713) (7,814,135) (68,118,044) (8,872,307) (124,794,677)
-----------------------------------------------------------------------------------
Net increase (decrease) 206,606 $ 2,188,186 (1,743,425)$ (17,931,909) (1,952,141) $ (30,055,631)
===================================================================================
Year ended December 31, 1997
Shares sold 2,609,483 $30,517,402 6,602,123 $ 85,539,550 6,114,131 $ 83,399,898
Shares issued in reinvestment
of distributions 13,269 155,776 396,714 5,815,823 3,245,331 42,870,826
Shares redeemed (1,145,466) (13,510,710) (13,342,125) (176,454,102) (17,077,659) (231,753,781)
-----------------------------------------------------------------------------------
Net increase (decrease) 1,477,286 $17,162,468 (6,343,288)$ (85,098,729) (7,718,197) $(105,483,057)
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Value Securities Fund* Zero Coupon Fund - 2000 Zero Coupon Fund - 2005
-----------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------
Six months ended June 30, 1998
<S> <C> <C> <C> <C> <C> <C>
Shares sold 337,568 $3,247,483 132,437 $ 2,020,265 348,695 $ 6,057,672
Shares issued in reinvestment
of distributions -- -- 637,042 9,058,747 357,194 5,904,415
Shares redeemed (93,096) (907,359) (1,126,715) (17,270,124) (510,540) (8,860,744)
-----------------------------------------------------------------------------------
Net increase (decrease) 244,472 $2,340,124 (357,236) $ (6,191,112) 195,349 $ 3,101,343
===================================================================================
Year ended December 31, 1997
Shares sold 510,404 $ 7,615,267 597,716 $ 9,749,533
Shares issued in reinvestment of distributions 575,729 8,336,552 315,539 4,957,126
Shares redeemed (2,241,078) (33,646,828) (1,431,881) (23,324,344)
----------------------------------------------------------
Net decrease (1,154,945) $(17,695,009) (518,626) $ (8,617,685)
==========================================================
</TABLE>
<TABLE>
<CAPTION>
Zero Coupon Fund - 2010
----------------------------
Shares Amount
----------------------------
Six months ended June 30, 1998
<S> <C> <C>
Shares sold 922,060 $16,766,418
Shares issued in reinvestment of distributions 314,060 5,565,143
Shares redeemed (1,240,079) (22,510,453)
----------------------------
Net decrease (3,959) $ (178,892)
============================
Year ended December 31, 1997
Shares sold 1,745,371 $28,766,689
Shares issued in reinvestment of distributions 313,017 4,917,502
Shares redeemed (2,100,095) (34,277,256)
----------------------------
Net decrease (41,707) $ (593,065)
============================
*For the period May 1, 1998 (effective date) to June 30, 1998.
</TABLE>
<TABLE>
<CAPTION>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
Entity Affiliation
- -------------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisory Services, Inc. (Advisory Services) Investment manager
Franklin Mutual Advisers, Inc. (Franklin Mutual) Investment manager
Templeton Asset Management Ltd. (TAML) Investment manager
Templeton Global Advisors Ltd. (TGAL) Investment manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except the Capital Growth Fund, the Global Health Care
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Rising Dividends Fund, the Small Cap Fund, the Templeton
Developing Markets Equity Fund, the Templeton Global Asset Allocation Fund, the
Templeton Global Growth Fund, the Templeton International Equity Fund, the
Templeton International Smaller Companies Fund, the Templeton Pacific Growth
Fund and the Value Securities Fund as follows:
Annualized Fee Rate Average Daily Net Assets
----------------------------------------------------------------------------
.625 of 1% First $100 million
.500 of 1% over $100 million, up to and including $250 million
.450 of 1% over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Income Securities Fund and receives from Advisers fees based on
the average daily net assets of the Fund.
The Templeton International Equity Fund and the Templeton Pacific Growth Fund
pay an investment management fee to Advisers based on the average daily net
assets of the Funds as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
1% First $100 million
.900 of 1% over $100 million, up to and including $250 million
.800 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 subadvisory services to the
Templeton International Equity Fund and the Templeton Pacific Growth Fund, and
receives from Advisers fees based on the average daily net assets of each Fund.
The Capital Growth Fund and the Small Cap Fund pay an investment management fee
to Advisers based on the average net assets of the Funds as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
.750 of 1% First $500 million
.625 of 1% over $500 million, up to and including $1 billion
.500 of 1% over $1 billion
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Global Health Care Securities Fund and Value Securities Fund pay an
investment management fee to Advisers and Advisory Services, respectively, based
on the average net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
.600 of 1% First $200 million
.500 of 1% over $200 million, up to and including $1.3 billion
.400 of 1% over $1.3 billion
The Rising Dividends Fund pays an investment management fee to Advisory Services
based on the average net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
----------------------------------------------------------------------------
.750 of 1% First $500 million
.625 of 1% over $500 million, up to and including $1 billion
.500 of 1% over $1 billion
The Templeton Global Growth Fund pays an investment management fee to TGAL based
on the average daily net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
1% First $100 million
.900 of 1% over $100 million, up to and including $250 million
.800 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
The Templeton Global Asset Allocation Fund pays an investment management fee to
TGAL based on the average daily net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
.650 of 1% First $200 million
.585 of 1% over $200 million, up to and including $1.3 billion
.520 of 1% over $1.3 billion
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Asset Allocation Fund and receives from TGA fees based on the
average daily net assets of the Fund.
The Templeton International Smaller Companies Fund pays an investment management
fee to TICI based on the average daily net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
.850 of 1% First $200 million
.765 of 1% over $200 million, up to and including $1.3 billion
.680 of 1% over $1.3 billion
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund pay
an investment management fee to Franklin Mutual of .80 and .60 of 1%,
respectively, per year of the average daily net assets of each Fund.
The Templeton Developing Markets Equity Fund pays an investment management fee
to TAML of 1.25 of 1% per year of the average daily net assets of the Fund.
Under an agreement with their respective investment managers, FT Services
provides administrative services to the Funds, except for the Global Health Care
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton
International Smaller Companies Fund and the Value Securities Fund. The fee is
paid by Advisers based on the average daily net assets, and is not an additional
expense of the Funds.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Global Health Care Securities Fund, the Mutual Discovery Securities Fund,
the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund,
the Templeton International Smaller Companies Fund and the Value Securities Fund
pay business management fees to FT Services based on the average daily net
assets of the Funds as follows:
Annualized Fee Rate Average Daily Net Assets
------------------------------------------------------------------------
.150 of 1% First $200 million
.135 of 1% over $200 million, up to and including $700 million
.100 of 1% over $700 million, up to and including $1.2 billion
Fees are further reduced on net assets over $1.2 billion.
Advisers agreed in advance to waive a portion of the management fees for the
Money Market Fund, the Zero Coupon Fund - 2000, the Zero Coupon Fund - 2005, and
the Zero Coupon Fund - 2010, through June 30, 1998, as noted in the Statement of
Operations.
Distribution plans are included in the management agreements of the Funds. No
payments were made by any Fund as a result of the plans.
Investor Services, under terms of an agreement, performs shareholder servicing
for the Funds and is not paid by the Funds for the services.
<TABLE>
<CAPTION>
4. INCOME TAXES
At December 31, 1997, the following Funds had deferred capital losses and/or
deferred currency losses occurring subsequent to October 31, 1997. For tax
purposes, such losses will be reflected in the year ending December 31, 1998.
Templeton
Natural Templeton International Templeton
Mutual Discovery Mutual Shares Resources International Smaller Pacific U.S. Government
Securities Fund Securities Fund Fund Equity Fund Companies Fund Growth Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$89,797 $44,408 $2,973,270 $1,482,029 $8,793 $49,814 $49,790
</TABLE>
At June 30, 1998, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes were as follows:
<TABLE>
<CAPTION>
Global Health
Capital Care Securities Global Utilities Growth and High
Growth Fund Fund Securities Fund Income Fund Income Fund
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost $125,786,971 $2,083,007 $881,100,714 $1,080,475,980 $495,122,417
=======================================================================================
Unrealized appreciation 30,425,873 74,187 259,890,293 322,258,957 26,890,795
Unrealized depreciation (3,320,108) (26,312) (43,916,746) (25,620,086) (15,092,305)
---------------------------------------------------------------------------------------
Net unrealized appreciation $ 27,105,765 $ 47,875 $215,973,547 $ 296,638,871 $ 11,798,490
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Mutual Natural Real Estate
Income Discovery Mutual Shares Resources Securities
Securities Fund Securities Fund Securities Fund Fund Fund
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost $1,201,364,637 $247,933,938 $480,838,725 $76,100,010 $299,561,549
=======================================================================================
Unrealized appreciation 189,337,124 34,652,839 62,666,555 4,826,517 91,111,742
Unrealized depreciation (64,347,342) (15,648,232) (26,228,712) (12,536,329) (558,297)
---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 124,989,782 $ 19,004,607 $ 36,437,843 $ (7,709,812) $ 90,553,445
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
4. INCOME TAXES (cont.)
Templeton Templeton
Rising Developing Global Asset Templeton
Dividends Small Cap Markets Allocation Global Growth
Fund Fund Equity Fund Fund Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost $595,542,092 $340,216,957 $292,550,197 $91,547,793 $725,472,307
=====================================================================================
Unrealized appreciation 251,357,316 66,421,819 23,467,146 12,772,514 181,835,374
Unrealized depreciation (31,638,771) (36,617,927) (119,806,604) (9,973,205) (91,539,571)
-------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $219,718,545 $ 29,803,892 $ (96,339,458) $ 2,799,309 $ 90,295,803
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Templeton U.S.
Templeton Templeton International Templeton Government
Global Income International Smaller Pacific Securities
Securities Fund Equity Fund Companies Fund Growth Fund Fund
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost $167,658,881 $899,022,279 $33,310,315 $207,189,573 $681,571,106
======================================================================================
Unrealized appreciation 1,884,305 355,062,635 5,514,435 2,631,121 27,818,708
Unrealized depreciation (5,646,690) (73,488,298) (5,821,078) (108,271,422) (640,888)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (3,762,385) $281,574,337 $ (306,643) $(105,640,301) $ 27,177,820
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Value Zero Coupon Zero Coupon Zero Coupon
Securities Fund Fund - 2000 Fund - 2005 Fund - 2010
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost $2,882,055 $95,230,317 $68,039,289 $68,682,416
======================================================================
Unrealized appreciation 13,113 4,813,594 10,192,839 16,563,431
Unrealized depreciation (126,060) (10,525) -- --
----------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (112,947) $ 4,803,069 $10,192,839 $16,563,431
======================================================================
</TABLE>
At December 31, 1997, the Funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
Templeton
Capital Money Natural Global Income U.S. Government
Growth Fund Market Fund Resources Fund Securities Fund Securities Fund
-------------------------------------------------------------------------------------
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C> <C>
2000 $ -- $ 418 $-- $-- $--
2001 -- 523 -- -- --
2002 -- 7,568 -- -- 14,556,689
2003 -- -- -- 3,177,406 826,481
2004 52,275 -- 146,066 -- --
2005 72,043 -- 3,313,056 -- 117,217
-------------------------------------------------------------------------------------
$124,318 $8,509 $3,459,122 $3,177,406 $15,500,387
=====================================================================================
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions and passive foreign investment company shares.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales, foreign currency
transactions and passive foreign investment company shares.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Global Global
Capital Health Care Utilities Growth and High
Growth Fund Securities Fund Securities Fund Income Fund Income Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $26,242,591 $1,213,517 $105,902,080 $198,984,680 $133,185,157
Sales $ 7,011,585 $ 31,242 $186,279,066 $197,608,819 $100,559,208
Mutual Mutual Natural Real Estate
Income Discovery Shares Resources Securities
Securities Fund Securities Fund Securities Fund Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $109,683,334 $116,347,484 $183,231,836 $18,085,430 $17,263,993
Sales $142,497,944 $ 59,148,008 $ 99,116,368 $18,688,188 $31,184,954
Templeton Templeton
Rising Developing Global Asset Templeton
Dividends Small Cap Markets Allocation Global Growth
Fund Fund Equity Fund Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $132,376,774 $118,776,237 $19,720,580 $24,382,623 $122,458,540
Sales $129,569,455 $102,153,146 $70,734,100 $19,771,542 $108,605,077
Templeton U.S.
Templeton Templeton International Templeton Government
Global Income International Smaller Pacific Securities
Securities Fund Equity Fund Companies Fund Growth Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $42,227,866 $-- $3,356,179 $13,193,230 $106,432,430
Sales $56,256,993 $55,113,242 $2,498,086 $37,206,125 $180,768,917
Value Zero Coupon Zero Coupon Zero Coupon
Securities Fund Fund - 2000 Fund - 2005 Fund - 2010
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases $2,536,052 $17,945,900 $ 967,530 $ 7,956,960
Sales $ 225,500 $33,373,576 $4,229,556 $14,856,014
</TABLE>
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Each of the Funds listed below have been a party to financial instruments with
off-balance-sheet risk, primarily forward exchange contracts, in order to
minimize the impact on the Funds from adverse changes in the relationship
between the U.S. dollar and foreign currencies and interest rates. These
instruments involve market risk in excess of the amount recognized on the
Statement of Assets and Liabilities. Some of these risks have been minimized by
offsetting contracts. Risks arise from the possible inability of counterparties
to meet the terms of their contracts, future movement in currency values and
interest rates and contract positions that are not exact offsets. The contract
amount indicates the extent of the Funds' involvement in such contracts.
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At June 30,
1998, the Funds have outstanding forward exchange contracts for the sale or
purchase of currencies as set out below. The contracts are reported in the
financial statements at the Funds' net equity, as measured by the difference
between the forward exchange rates at the reporting date and the forward
exchange rates at the day of entry into the contract.
<TABLE>
<CAPTION>
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (cont.)
Mutual Discovery Securities Fund
In Unrealized
Contracts to Sell Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,021,015 Australian Dollar U.S. $ 672,491 10/6/98 U.S. $ 39,439
109,055,084 Belgium Franc 3,021,547 11/12/98 88,514
594,506 British Pound 993,260 7/20/98 2,439
696,870 British Pound 1,158,894 10/15/98 3,256
271,831 British Pound 451,293 11/18/98 1,399
181,897 Canadian Dollar 127,881 7/13/98 4,149
9,743,048 Canadian Dollar 6,869,248 7/31/98 238,954
31,110,462 Danish Krone 4,562,840 10/27/98 20,077
7,942,678 German Mark 4,437,250 9/18/98 15,603
510,029 German Mark 287,146 12/18/98 1,751
4,291,611 Dutch Guilder 2,145,827 9/17/98 25,853
6,164,695 Dutch Guilder 3,102,232 12/10/98 41,937
22,452,370 Finnish Markka 4,121,248 9/3/98 13,863
810,420 Finnish Markka 150,000 9/3/98 1,744
25,188,081 French Franc 4,196,590 7/17/98 26,021
36,325,177 French Franc 6,054,196 8/28/98 24,277
12,669,898 French Franc 2,127,042 10/19/98 17,682
13,506,223 French Franc 2,289,190 11/18/98 36,744
12,354,985 French Franc 2,094,065 12/11/98 30,904
216,683,229 Japanese Yen 1,605,061 12/21/98 2,537
1,658,520 New Zealand Dollar 947,552 8/17/98 89,365
28,345,586 Norwegian Krone 3,769,529 9/10/98 69,680
2,046,676 Swedish Krona 257,768 8/17/98 623
63,667,831 Swedish Krona 8,091,960 9/18/98 82,269
1,065,217 Swedish Krona 138,628 10/21/98 4,434
14,616,865 Swedish Krona 1,887,347 11/16/98 48,414
968,897 Swedish Krona 123,011 12/14/98 668
6,999,518 Swiss Franc 4,825,589 12/10/98 133,577
--------- ---------
U.S. $70,508,685 1,066,173
========= =========
Contracts to Buy
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
590,663 Hong Kong Dollar U.S. $ 75,000 7/14/98 1,130
=========
Net unrealized gain on offsetting forward foreign currency contracts 16,456
---------
Unrealized gain on forward foreign currency contracts 1,083,759
=========
Contracts to Sell
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14,185,435 British Pound U.S. $22,982,736 7/20/98 (659,131)
3,158,699 British Pound 5,131,622 8/17/98 (124,449)
1,098,583 British Pound 1,800,578 11/18/98 (17,634)
4,244,105 Dutch Guilder 2,089,106 9/17/98 (7,400)
1,005,276 Dutch Guilder 497,388 12/10/98 (1,654)
5,241,716 Finnish Markka 953,633 9/3/98 (5,275)
9,037,050 French Franc 1,486,717 8/28/98 (13,419)
1,405,464 Hong Kong Dollar 171,712 7/14/98 (9,436)
12,165,890,105 Italian Lira 6,892,465 4/2/99 (13,969)
59,468,090 Japanese Yen 429,411 12/21/98 (10,397)
105,867,717 Spanish Peseta 688,302 8/17/98 (4,430)
9,590,789 Swedish Krona 1,199,351 8/17/98 (5,638)
2,372,597 Swedish Krona 297,318 9/18/98 (1,165)
3,519,984 Swedish Krona 441,042 11/16/98 (2,896)
5,093,516 Swedish Krona 642,350 12/14/98 (811)
--------- ---------
U.S. $45,703,731 (877,704)
========= =========
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (cont.)
Mutual Discovery Securities Fund (cont.)
In Unrealized
Contracts to Buy Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
150,000 New Zealand Dollar U.S. $ 84,533 8/17/98 U.S. $ (6,916)
7,889,660 Norwegian Krone 1,048,000 9/10/98 (18,191)
106,682,999 Spanish Peseta 703,614 8/17/98 (5,548)
458,338 Swiss France 312,539 12/10/98 (5,299)
--------- ---------
U.S. $ 2,148,686 (35,954)
=========
Unrealized loss on forward foreign currency contracts (913,658)
---------
Net unrealized gain on forward foreign currency contracts U.S. $ 170,101
=========
Mutual Shares Securities Fund
In Unrealized
Contracts to Sell Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
24,672,470 Canadian Dollar U.S. $18,227,180 7/31/98 U.S. $618,839
3,591,863 German Mark 2,006,627 9/18/98 7,056
480,240 Dutch Guilder 240,000 9/17/98 2,771
1,907,788 Dutch Guilder 961,926 12/10/98 14,857
14,451,119 French Franc 2,407,709 7/17/98 14,935
5,833,762 French Franc 972,294 8/28/98 3,899
21,552,387 French Franc 3,652,947 11/18/98 58,634
32,069,148 French Franc 5,435,449 12/11/98 80,216
9,547,946 Norwegian Krone 1,278,586 9/10/98 32,326
31,199,959 Swedish Krona 3,956,154 9/18/98 31,063
--------- ---------
U.S. $39,138,872 864,596
========= ==========
Contracts to Buy
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
21,979 British Pound U.S. $ 36,122 7/20/98 508
66,982 British Pound 108,222 8/17/98 3,235
--------- ---------
U.S. $ 144,344 3,743
=========
Net unrealized gain on offsetting forward foreign currency contracts 17,299
---------
Unrealized gain on forward foreign currency contracts 885,638
=========
Contracts to Sell
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8,970,414 British Pound U.S. $14,511,469 7/20/98 (438,887)
265,000 British Pound 440,165 7/31/98 (1,219)
3,547,886 British Pound 5,767,986 8/17/98 (135,692)
219,898 British Pound 360,412 11/18/98 (3,530)
4,939,902 Dutch Guilder 2,435,009 9/17/98 (5,208)
19,564,178 Finnish Markka 3,560,360 9/3/98 (18,666)
1,517,675 French Franc 250,000 8/28/98 (1,932)
4,012,190,829 Italian Lira 2,273,067 4/2/99 (4,607)
11,000,000 Swedish Krona 1,369,778 8/17/98 (12,267)
33,400,385 Swedish Krona 4,212,168 12/14/98 (5,316)
--------- ---------
Unrealized loss on forward foreign currency contracts U.S. $35,180,414 (627,324)
========= =========
Net unrealized gain on forward foreign currency contracts U.S. $258,314
=========
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (cont.)
Templeton Global Asset Allocation Fund
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,946,000 German Mark U.S. $1,097,575 7/08/98 U.S. $18,912
973,000 German Mark 542,212 7/13/98 2,710
85,000 New Zealand Dollar 44,566 7/23/98 512
1,100,000 German Mark 612,319 7/27/98 1,856
2,000,000 German Mark 1,113,338 7/24/98 3,618
--------- ---------
U.S. $3,410,009 27,608
========= =========
Contracts to Buy (Foreign exchange currency)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
444,000 Australian Dollar U.S. $ 273,380 7/13/98 1,623
=========
Net unrealized gain on offsetting forward foreign currency contracts 25,010
---------
Unrealized gain on forward foreign currency contracts 54,241
=========
Contracts to Buy (Foreign exchange currency)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
300,000 Australian Dollar U.S. $ 180,138 7/10/98 (5,666)
335,000 New Zealand Dollar 165,658 7/13/98 (8,086)
740,000 Australian Dollar 433,736 7/13/98 (24,601)
885,000 German Mark 488,950 7/17/98 (1,883)
912,000 Canadian Dollar 620,029 7/20/98 (443)
42,500 New Zealand Dollar 21,516 8/03/98 (495)
148,000 Australian Dollar 89,525 8/04/98 (2,171)
--------- ---------
U.S. $1,999,551 (43,345)
=========
Net unrealized loss on offsetting forward foreign currency contracts (857)
---------
Unrealized loss on forward foreign currency contracts (44,202)
---------
Net unrealized gain on forward foreign currency contracts U.S. $10,039
=========
Templeton Global Income Fund
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
17,060,000 German Mark U.S. $ 9,622,109 7/08/98 U.S. $165,794
8,530,000 German Mark 4,753,413 7/13/98 23,757
11,500,000 German Mark 6,401,692 7/24/98 20,801
7,000,000 German Mark 3,896,574 7/27/98 11,814
845,000 New Zealand Dollar 443,034 7/23/98 5,087
--------- ---------
U.S. $25,116,822 227,253
========= =========
Contracts to Buy (Foreign exchange currency)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3,270,000 Australian Dollar U.S. $ 2,013,404 7/13/98 11,952
=========
Net unrealized gain on offsetting forward foreign currency contracts 223,064
---------
Unrealized gain on forward foreign currency contracts 462,269
=========
Contracts to Sell (Foreign exchange currency)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2,200,000 Australian Dollar U.S. $ 1,321,012 7/10/98 (41,549)
5,450,000 Australian Dollar 3,194,409 7/13/98 (181,185)
1,090,000 Australian Dollar 659,341 8/04/98 (15,991)
8,036,000 Canadian Dollar 5,463,322 7/20/98 (3,903)
7,500,000 German Mark 4,143,646 7/17/98 (15,957)
3,350,000 New Zealand Dollar 1,656,575 7/13/98 (80,856)
422,500 New Zealand Dollar 213,891 8/03/98 (4,922)
--------- ---------
U.S. $16,652,196 (344,363)
=========
Net unrealized loss on offsetting forward foreign currency contracts (8,478)
---------
Unrealized loss on forward foreign currency contracts (352,841)
---------
Net unrealized gain on forward foreign currency contracts U.S. $109,428
=========
</TABLE>
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund and the Income Securities Fund have 96.7% and 33.2%,
respectively, of their portfolios invested in lower rated and comparable quality
unrated high yield securities, which 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. At June 30, 1998 the Income Securities Fund, the
Mutual Discovery Securities Fund and the Mutual Shares Securities Fund held
defaulted securities with a value aggregating $3,450,000, $4,154,213 and
$9,416,417 representing 2.6%, 1.5% and 1.8%, respectively, of the Fund's net
assets. For information as to specific securities, see the accompanying
Statement of Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
The High Income Fund has investments in excess of 10% of its total net assets in
the Wireless Communication industry. Such concentration may subject the Fund
more significantly to economic changes occurring within that industry.
8. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Quantity Issuer Acquisition Date Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Global Utilities Securities Fund
<S> <C> <C> <C> <C>
175,000 CMS Energy Corp., 7.75% quarterly cvt. pfd. (.99% of Net Assets) 6/18/97 $8,750,000 $10,839,063
-----------
Income Securities Fund
<S> <C> <C> <C> <C>
419,424 Bibb Co. 3/30/93 - 9/27/96 $6,112,066 $ 6,448,644
160,000 CMS Energy Corp., 7.75% cvt. pfd. 6/18/97 8,000,000 9,910,000
5,000,000 Harvard Industries, Inc., senior notes 11.125%, 8/01/05 7/25/95 - 6/18/96 4,894,018 2,225,000
-----------
Total Restricted Securities (1.39% of Net Assets) $18,583,644
===========
Mutual Discovery Securities Fund
<S> <C> <C> <C> <C>
615 Golden Ocean Group Ltd., wts. 8/25/97 $ 3,075
500,000 Golden Ocean Group Limited, 10.00%, 8/31/01 8/25/97 372,500
6,075 Security Capital Global Realty 4/8/98 121,500
-----------
Total Restricted Securities (.01% of Net Assets) $ 497,075
===========
Mutual Shares Securities Fund
<S> <C> <C> <C> <C>
1,120 Golden Ocean Group Ltd., wts 8/25/97 $ 5,600
910,000 Golden Ocean Group Ltd., 10.00%, 8/31/01 8/25/97 677,950
3,000,000 Roil Ltd., 12.779%, 12/05/02 5/8/98 2,505,000
11,925 Security Capital Global Realty 4/8/98 238,500
-----------
Total Restricted Securities (.65% of Net Assets) $3,427,050
===========
Real Estate Securities Fund
<S> <C> <C> <C> <C>
866,067 Pacific Retail Trust (2.65% of Net Assets) 8/30/96 - 4/30/97 $9,813,708 $10,392,804
-----------
</TABLE>
9. LENDING OF PORTFOLIO SECURITIES
The Natural Resources Fund and the Small Cap Fund loan securities to certain
brokers for which it receives cash collateral against the loaned securities in
an amount equal to at least 102% of the market value of the loaned securities.
Net interest income from the investment of the cash collateral received and the
value of the loaned securities at June 30, 1998 were as follows:
Natural Small Cap
Resources Fund Fund
---------------------------------------------------------------
Interest income $ 106,783 $ 205,495
Value of loaned securities $2,396,249 $19,117,870
10. OTHER CONSIDERATIONS
Advisers, as the manager for the Income Securities Fund, may serve as a member
of various credit committees, representing credit interests in certain corporate
restructuring negotiations. Currently, Advisers serves on the credit committees
for Harvard Industries, Inc. As a result of this involvement, Advisers may be in
possession of certain material non-public information. Advisers has not nor does
it intend to sell any of its holdings in these securities while in possession of
this information.
This page intentionally left blank.
oFVF STKSEMI
Supplement Dated August 3, 1998
to the Prospectuses Dated May 1, 1998
of
FRANKLIN VALUEMARK(R) LIFE
Single Premium Variable Life Insurance
Allianz Life Variable Account A
ALLIANZ VALUE LIFE
Flexible Premium Variable Life Insurance
Allianz Life Variable Account A
FRANKLIN VALUEMARK(R) II, III AND IV
Flexible Payment Variable Annuities
Allianz Life Variable Account B
FRANKLIN VALUEMARK(R) II
Flexible Premium Variable Annuity
Preferred Life Variable Account C
FRANKLIN TEMPLETON VALUEMARK(R) INCOME PLUS
Individual Immediate Variable Annuity
Allianz Life Variable Account C
The portfolio expense tables, which appear in the sections entitled "Fee Table"
or "Allianz Life Variable Account B Fee Table" or "Preferred Life Variable
Account C Fee Table" in the annuity prospectuses and in the subsections "Trust
Annual Expenses" or "Portfolio Annual Expenses" under "Deductions and Charges"
in the variable life insurance prospectuses, are amended by:
1) Restating certain Portfolios' "Management and Portfolio Administration Fees"
and the "Other Expenses" as indicated below. The Portfolio Administration Fees
for these Portfolios were inadvertently included under "Other Expenses" rather
than under "Management and Portfolio Administration Fees." Please note that
"Total Annual Expenses" for each Portfolio shown below are the same as in the
May 1, 1998 prospectuses.
<TABLE>
<CAPTION>
Management
and Portfolio Other Total Annual
Portfolio Administration Fees Expenses Expenses
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Discovery Securities Fund .95%* .11% 1.06%
Mutual Shares Securities Fund .75%* .05% .80%
Templeton Global Asset Allocation Fund .80%* .14% .94%
Templeton International Smaller Companies Fund 1.00%* .06% 1.06%
*Includes a .15% Administration Fee which is a direct expense of the Portfolio.
</TABLE>
2) Adding the following language:
Franklin Advisers, Inc. and Franklin Templeton Services, Inc. have agreed in
advance to waive or limit their Management and Portfolio Administration Fees and
to assume as their own expense certain expenses otherwise payable by the new
Global Health Care Securities and Value Securities Funds as necessary so that
through at least December 31, 1998, Total Annual Expenses of each of these
portfolios do not exceed 1.00% of its average net assets. As noted in the May 1,
1998 prospectuses, estimated total annual expenses for these portfolios are not
anticipated to exceed 1.00% of their average net assets.
Please note: The Global Health Care Securities, Mutual Discovery Securities,
Templeton International Smaller Companies and Value Securities Funds are not
available in Allianz Value Life, and Global Health Care Securities Fund is not
available in Franklin Templeton Valuemark Income Plus.
Supplement Dated August 17, 1998
to the Prospectus Dated May 1, 1998
of
FRANKLIN VALUEMARK FUNDS
The section "Management" in the prospectus is amended by:
1) Restating certain Portfolios' "Management and Portfolio Administration Fees"
in the subsection "Managers" as indicated below. The Portfolio Administration
Fees for these Portfolios were inadvertently not included under "1997 Management
and Portfolio Administration Fees," but were reflected in "1997 Total Operating
Expenses." Accordingly, these portfolios' "1997 Total Operating Expenses" remain
the same as in the May 1, 1998 prospectus.
<TABLE>
<CAPTION>
1997 Management 1997 Total
and Portfolio Operating
Portfolio (Except New Portfolios) Administration Fees Expenses
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mutual Discovery Securities Fund .95%* 1.06%
Mutual Shares Securities Fund .75%* .80%
Templeton Global Asset Allocation Fund .80%* .94%
Templeton International Smaller Companies Fund 1.00%* 1.06%
*Includes a .15% Administration Fee which is a direct expense of the Portfolio.
</TABLE>
2) Adding the following sentence:
Franklin Advisers, Inc. and Franklin Templeton Services, Inc. have agreed
in advance to waive or limit their Management and Fund Administration Fees
and to assume as their own expense certain expenses otherwise payable by
the Global Health Care Securities Fund and Value Securities Fund as
necessary so that through at least December 31, 1998, the total expenses of
each portfolio do not exceed 1.00% of its average net assets.
3) Replacing the discussion under "Portfolio Operations" for the Portfolios
listed with the following:
GLOBAL HEALTH CARE SECURITIES FUND
Kurt von Emster
Evan McCulloch
Rupert H. Johnson, Jr.
GLOBAL UTILITIES SECURITIES FUND
(formerly Utility Equity Fund)
Sally Edwards-Haff
Ian Link
TEMPLETON GLOBAL INCOME SECURITIES FUND
Thomas J. Dickson
Neil S. Devlin
Thomas Latta
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
Simon Rudolph
Peter A. Nori
Juan J. Benito
MUTUAL DISCOVERY SECURITIES AND
MUTUAL SHARES SECURITIES FUNDS
Michael F. Price
Peter A. Langerman
Jeffrey A. Altman
Robert L. Friedman
Raymond Garea
Lawrence N. Sondike
David E. Marcus
David J. Winters
4) Changing or adding the following to the subsection "Biographical
Information":
Jeffrey A. Altman
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Altman has a Bachelor of Science degree from Tulane University. Before
October 1996, Mr. Altman was employed as a research analyst and trader for
Heine Securities Corporation, the predecessor of Franklin Mutual. He has
been with the Franklin Templeton Group since November 1996 and has managed
the Mutual Discovery and Mutual Shares Funds from inception.
Robert L. Friedman
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Friedman has a Bachelor of Arts degree in Humanities from the Johns
Hopkins University and a Masters in Business Administration from the
Wharton School, University of Pennsylvania. Before November 1996, Mr.
Friedman was a research analyst for Heine Securities Corporation, the
predecessor of Franklin Mutual. He has been with the Franklin Templeton
Group since November 1996 and has managed the Mutual Discovery and Mutual
Shares Funds from inception. On November 1, 1998, Mr. Friedman will become
Chief Investment Officer of Franklin Mutual.
Raymond Garea
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Garea has a Bachelor of Science degree in Engineering from Case
Institute of Technology and a Masters in Business Administration from the
University of Michigan. Before November 1996, he was a research analyst for
Heine Securities Corporation, the predecessor of Franklin Mutual. He has
been with the Franklin Templeton Group since November 1996 and has managed
the Mutual Discovery and Mutual Shares Funds from inception.
Peter A. Langerman
Senior Vice President and Chief Operating Officer
Franklin Mutual Advisers, Inc.
Mr. Langerman has a Bachelor of Arts degree from Yale University, a Masters
in Science from New York University Graduate School of Business and a Juris
Doctor from Stanford University Law School. Before November 1996, he was a
research analyst for Heine Securities Corporation, the predecessor of
Franklin Mutual. He has been with the Franklin Templeton Group since
November 1996 and has managed the Mutual Discovery and Mutual Shares Funds
from inception. On November 1, 1998, Mr. Langerman will become Chief
Executive Officer of Franklin Mutual.
Thomas Latta
Vice President of Templeton Global Bond Managers
a division of Templeton Investment Counsel, Inc.
Mr. Latta received a Bachelor of Business Administration degree from the
University of Miami (Florida). Mr. Latta is a Chartered Financial Analyst,
and a member of the Association for Investment Management and Research and
the Institute of Chartered Financial Analysts. He joined the Franklin
Templeton organization in 1991, and has managed the Templeton Global Income
Securities Fund since May 1998.
David E. Marcus
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Marcus holds a Bachelor of Science in Business Administration/Finance
from Northeastern University. Before November 1996, he was a research
analyst for Heine Securities Corporation, the predecessor of Franklin
Mutual. He has been with the Franklin Templeton Group since November 1996
and has managed the Mutual Discovery and Mutual Shares Funds since March
1998.
Michael F. Price
Chief Executive Officer and President
Franklin Mutual Advisers, Inc.
Mr. Price has a Bachelor of Arts degree in Business Administration from the
University of Oklahoma. Before November 1996, Mr. Price was President and
Chairman of Heine Securities Corporation, the predecessor of Franklin
Mutual. He became Chief Executive Officer of Franklin Mutual in November
1996 and has managed the Mutual Discovery and Mutual Shares Funds from
inception. After November 1, 1998, Mr. Price will continue as Chairman of
the Board of Directors of Franklin Mutual but will not be involved in daily
portfolio management.
Lawrence N. Sondike
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Sondike has a Bachelor of Arts degree from Cornell University and a
Masters in Business Administration from New York University Graduate School
of Business. Before November 1996, he was a research analyst for Heine
Securities Corporation, the predecessor of Franklin Mutual. He has been
with the Franklin Templeton Group since November 1996, and has managed the
Mutual Discovery and Mutual Shares Funds from inception.
David J. Winters
Senior Vice President
Franklin Mutual Advisers, Inc.
Mr. Winters is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Economics from Cornell University. Before November 1996, he was a
Research Analyst for Heine Securities Corporation, the predecessor of
Franklin Mutual. He has been with the Franklin Templeton Group since
November 1996 and has managed the Mutual Discovery and Mutual Shares Funds
since March 1998.
Franklin Valuemark Funds
Semiannual Report, June 30, 1998.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows the top five sectors of the Global Health Care Securities Fund
based on the percentage of total net assets on 6/30/98.
Specialty Pharmaceuticals 12.6%
Alternate Site Providers 12.3%
Health Care Outsourcing Services 10.3%
Medical Technology & Supplies 8.6%
Pharmaceuticals 6.7%
GRAPHIC MATERIAL (2)
This chart shows the top ten holdings of the Mutual Discovery Securities Fund
based on the percentage of total net assets on 6/30/98.
Kansas City Southern Industries Inc.
Multi-Industry, U.S. 2.7%
Vencor Inc.
Health & Personal Care, U.S. 1.6%
Suez Lyonnaise des Eaux SA
Business & Public Services, France 1.4%
Hudson's Bay Co.
Merchandising, Canada 1.4%
Cie Financiere Richemont AG, A
Multi-Industry, Switzerland 1.4%
Railtrack Group Plc.
Transportation, U.K. 1.2%
Lucas Varity Plc.
Industrial Components, U.K. 1.1%
Inland Steel Industries Inc.
Metals & Mining, U.S. 1.1%
Western Bancorp
Banking, U.S. 1.1%
Custos AB, A & B
Multi-Industry, Sweden 1.0%
GRAPHIC MATERIAL (3)
This chart shows the top ten holdings of the Natural Resources Securities Fund
based on the percentage of total net assets on 6/30/98.
Barrettt Resources Corp. 5.1%
EVI Weatherford Inc. 3.5%
Gulf Canada Resources Ltd. 3.1%
Diamond Offshore Drilling Inc. 3.1%
Varco International Inc. 2.8%
Newfield Exploration Co. 2.7%
Nuevo Energy Co. 2.7%
Transocean Offshore Inc. 2.6%
AES Corp. 2.6%
YPF Sociedad Anonima, Sponsored ADR 2.5%
GRAPHIC MATERIAL (4)
This chart shows the top ten industry breakdown of the Small Cap Fund based on
the percentage of total net assets on 6/30/98.
Technology Services 18.5%
Electronic Technology 12.7%
Finance 12.1%
Utilities 7.4%
Industrial Services 5.0%
Energy Minerals 4.5%
Health Technology 4.3%
Consumer Services 4.3%
Transportation 4.0%
Commercial Services 4.0%
GRAPHIC MATERIAL (5)
This chart shows the top ten holdings of the Templeton Developing Markets Equity
Fund based on the percentage of total net assets on 6/30/98.
Telefonos de Mexico SA (Telmex), ADR, L
Telecommunications, Mexico 3.9%
Cemex SA, A&B
Building Materials & Components, Mexico 3.0%
Centrais Eletricas Brasileiras SA
Utilities Electrical & Gas, Brazil 2.9%
Akbank
Banking, Turkey 2.9%
Sabanci Holdings AS, ADR
Multi-Industry, Turkey 1.7%
Petrobras - Petroleo Brasileiro SA, pfd.
Energy Sources, Brazil 1.6%
CEZ AS
Utilities Electrical & Gas, Czech Republic 1.6%
Grupo Financiero Banamex Accival SA, B&L
Banking, Mexico 1.5%
HSBC Holdings Plc.
Banking, Hong Kong SAR 1.2%
Banco Commercial Portugues SA
Banking, Portugal 1.2%
GRAPHIC MATERIAL (6)
This chart shows in pie format the geographic distribution of the Templeton
Global Growth Fund based on total net assets as of 6/30/98.
Europe 41.6%
North America 24.4%
Asia 10.9%
Latin America 6.3%
Australia/New Zealand 4.2%
South Africa 0.9%
Short-term investments &
other net assets 11.7%
GRAPHIC MATERIAL (7)
This chart shows in bar format the geographic distribution of the Templeton
International Equity Fund based on total net assets on 6/30/98.
Europe 65.1%
Latin America 8.9%
North America 4.0%
Australia/New Zealand 3.1%
Asia 1.8%
Africa 0.6%
Short-term investments & other net assets 16.5%
GRAPHIC MATERIAL (8)
This chart shows the top ten holdings of the Templeton International Smaller
Companies Fund based on the percentage of total net assets on 6/30/98.
Hazlewood Foods Plc.
Food & Household Products, U.K. 3.0%
Sa des Galeries Lafayette
Merchandising, France 2.4%
GTC Transcontinental Group Ltd., Class B
Broadcasting & Publishing, Canada 2.1%
Oshawa Group Ltd., Class A
Food & Household Products, Canada 1.8%
Marine Wendel SA
Multi-Industry, France 1.8%
Bank Austria AG, new, pfd., 144A
Banking, Austria 1.6%
Somerfield Plc.
Merchandising, U.K. 1.6%
Moebel Walther AG
Merchandising, Germany 1.6%
Thorn Plc.
Merchandising, U.K. 1.5%
VTech Holdings Ltd.
Electronic Components & Instruments,
Hong Kong SAR 1.5%
GRAPHIC MATERIAL (9)
This chart shows the top ten holdings of the Templeton Pacific Growth Fund based
on the percentage of total net assets on 6/30/98.
CLP Holdings Ltd.
Utilities Electrical & Gas, Hong Kong SAR 4.1%
Hong Kong Telecommunications Ltd.
Telecommunications, Hong Kong SAR 3.9%
Cheung Kong Holdings Ltd.
Multi-Industry, Hong Kong SAR 3.3%
Development Bank of Singapore Ltd.
Banking, Singapore 3.1%
Singapore Airlines Ltd., Tgn.
Transportation, Singapore 3.1%
Mitsubishi Heavy Industries Ltd.
Industrial Components, Japan 3.0%
Daito Trust Construction Co. Ltd.
Construction, Japan 3.0%
Road King Infrastructure Ltd.
Construction, Hong Kong SAR 2.9%
Fuji Heavy Industries Ltd.
Industrial Components, Japan 2.8%
Wacoal Corp.
Textiles & Apparel, Japan 2.8%
GRAPHIC MATERIAL (10)
This chart shows the top ten holdings of the Global Utilities Securities Fund
based on the percentage of total net assets on 6/30/98.
Enron Corp. 5.2%
Southern Co. 4.1%
Duke Energy 3.8%
FPL Group Inc. 3.6%
ICG Communications Inc. 3.6%
CINergy Corp. 3.5%
Sempra Energy 3.5%
NIPSCO Industries 3.3%
PG&E Corp. 3.1%
GPU Inc. 2.9%
GRAPHIC MATERIAL (11)
This chart shows the top ten holdings of the Growth and Income Fund based on the
percentage of total net assets on 6/30/98.
Atlantic Richfield Co. Oil 2.9%
JC Penney Co., Inc. Retail 2.6%
Bell Atlantic Corp. Telephone Services 2.4%
Texaco, Inc. Oil 2.4%
Lincoln National Corp. Insurance 2.2%
Sempra Energy Electric Utilities 2.1%
Pharmacia & Upjohn, Inc. Pharmaceuticals 2.1%
Chevron Corp. Oil 2.0%
Amoco Corp. Oil 1.9%
BankBoston Corp. Banking 1.8%
GRAPHIC MATERIAL (12)
This chart shows the top ten holdings of the Income Securities Fund based on the
percentage of total net assets on 6/30/98.
U.S. Treasury Bonds Bonds 10.4%
Republic of Argentina Bonds 6.1%
Republic of Brazil Bonds 3.5%
ESCOM Bonds 1.9%
Philip Morris Stock 1.8%
Republic of Korea Bonds 1.4%
Texas Utilities Holding Co. Stock 1.4%
PG&E Corp. Stock 1.4%
CINergy Corp. Stock 1.3%
Edison International Stock 1.3%
GRAPHIC MATERIAL (13)
This chart shows the top ten holdings of the Mutual Shares Securities Fund based
on the percentage of total net assets on 6/30/98.
Investor AB, A & B
Multi-Industry, Sweden 2.4%
Mediaone Group Inc.
Broadcasting & Publishing, U.S. 2.0%
United Asset Management Corp.
Financial Services, U.S. 1.8%
Vencor Inc.
Health & Personal Care, U.S. 1.6%
First Chicago NBD Corp.
Banking, U.S. 1.5%
Hudson's Bay Co.
Merchandising, Canada 1.5%
Beneficial Corp.
Financial Services, U.S. 1.5%
Morgan Stanley Dean Witter & Co.
Financial Services, U.S. 1.4%
First Union Corp.
Banking, U.S. 1.4%
Societe Elf Aquitaine SA
Energy Sources, France 1.3%
GRAPHIC MATERIAL (14)
This chart shows the top ten holdings of the Real Estate Securities Fund based
on the percentage of total net assets on 6/30/98.
Starwood Hotels and Resorts
Equity REIT - Hotels 3.5%
Equity Residential Properties Trust
Equity REIT - Apartments 3.1%
FelCor Suite Hotels
Equity REIT - Hotels 2.9%
Patriot American Hospitality
Equity REIT - Hotels 2.8%
Pacific Retail Trust
Equity REIT - Retail 2.7%
Host Marriott Corporation
Hotels 2.6%
Crescent Real Estate Equities
Equity REIT - Diversified 2.6%
Simon DeBartolo Group
Equity REIT - Retail 2.6%
Security Capital Industrial Trust
Equity REIT - Industrial 2.6%
Arden Realty Group
Equity REIT - Office 2.5%
GRAPHIC MATERIAL (15)
This chart shows the top ten stock holdings of the Rising Dividends Fund based
on the percentage of total net assets on 6/30/98.
Family Dollar Stores, Inc. Retail 4.8%
Pall Corp. Industrial 3.4%
First Union Corporation Banks 3.0%
Mercury General Corp. Insurance-Property Casualty 3.0%
Wallace Computer Services, Inc. Business Services 2.8%
Washington Mutual, Inc. Banks 2.7%
Leggett & Platt Industrial 2.5%
Bemis Company Inc. Industrial 2.3%
Alberto-Culver Co. Consumer Products 2.3%
National Commerce Bancorp Banks 2.3%
GRAPHIC MATERIAL (16)
This chart shows in pie format the asset allocation of the Templeton Global
Asset Allocation Fund based on total net assets as of 6/30/98.
Equity Securities 61.7%
Fixed-Income Securities 29.1%
Short-term investments & other net assets 9.2%
GRAPHIC MATERIAL (17)
This chart shows the top ten holdings of the Value Securities Fund based on the
percentage of total net assets on 6/30/98.
Cliffs Drilling Co. Industrial Services 4.4%
Nuevo Energy Co. Energy Minerals 4.3%
Ladish Co. Inc. Electronic Technology 3.9%
Rowan Companies, Inc. Industrial Services 3.9%
Tidewater Inc. Transportation 3.7%
Lone Star Technologies Inc. Non-Energy Minerals 3.4%
The West Company, Inc. Health Technology 3.2%
Household International Finance 3.1%
ENSCO International Industrial Services 3.1%
Butler Manufacturing Co. Industrial Services 3.1%
GRAPHIC MATERIAL (18)
This chart shows the industry breakdown of the High Income Fund based on the
percentage of total net assets on 6/30/98.
Wireless Communications 10.7%
Telecommunications 9.5%
Industrial Products 9.1%
Media 8.5%
Cable Television 6.1%
Broadcasting 5.6%
Transportation 4.9%
Consumer Products 4.5%
Health Care Services 4.2%
Energy 4.1%
Metals & Mining 3.9%
Food & Beverage 3.0%
Forest & Paper Products 2.6%
Technology & Info Systems 2.4%
Lodging 2.2%
Textiles & Apparel 2.1%
Utilities 2.0%
Containers & Packaging 1.9%
Chemicals 1.7%
Restaurants 1.6%
Gaming & Leisure 1.5%
Automotive 1.3%
Food Retailing 1.0%
Retail 0.8%
Cash and Equivalents 4.8%
GRAPHIC MATERIAL (19)
This chart shows in pie format the geographic distribution of the Templeton
Global Income Securities Fund based on total net assets on 6/30/98.
North America 36.7%
Europe 34.8%
Latin America 20.3%
Australia/New Zealand 5.4%
Short-term investments &
other net assets 2.8%
GRAPHIC MATERIAL (20)
This chart shows in pie format the investment holdings of the U.S. Government
Securities Fund based on total net assets as of 6/30/98.
Mortgage Backed Securities 71.5%
Agency Notes & Bonds 25.1%
Cash & Equivalents 3.4%
GRAPHIC MATERIAL (21)
This chart shows the top ten holdings of the Money Market Fund based on the
percentage of total net assets on 6/30/98.
U.S. Treasury Repo 11.3%
General Electric Capital Corp. 4.2%
Morgan Stanley Group Inc. 4.2%
National Rural Utilities 4.2%
Associates Corp. of N. America 4.2%
American Express Credit Corp. 4.2%
AIG Funding Corp. 4.2%
Ciesco L.P. 4.2%
Merrill Lynch & Co. 4.2%
Toyota Motor Credit Corp. 4.2%
