FRANKLIN VALUEMARK FUNDS
ANNUAL REPORT
December 31, 1997
When selecting a portfolio, there are two things you may wish to consider: 1)
your investment objective; and 2) the degree of risk with which you feel
comfortable. Before you make these decisions, you may want to review the
investment strategy pyramid pictured to the right. The base of the pyramid
represents investments emphasizing stability and preservation of capital. Moving
up the pyramid, the categories reflect a greater focus on potential investment
return -- categories that generally entail a greater degree of investment risk
as well. Of course, you should review the Franklin Valuemark Funds prospectus
for more information about a specific option.
INVESTMENT STRATEGY PYRAMID
Capital Growth Fund+
Mutual Discovery Securities Fund+
Natural Resources Securities Fund*
Small Cap Fund+
Templeton Developing Markets
Equity Fund+
Templeton Global Growth Fund+
Templeton International
Equity Fund+
Templeton International
Smaller Companies Fund+
Templeton Pacific Growth Fund+
Growth and Income Fund+
Income Securities Fund+
Mutual Shares Securities Fund+
Real Estate Securities Fund
Rising Dividends Fund+
Templeton Global
Asset Allocation Fund+
Utility Equity Fund+ **
High Income Fund
Templeton Global
Income Securities Fund
U.S. Government Securities Fund
Three Zero Coupon Funds -
maturing in 2000, 2005, 2010
Money Market Fund+
Allianz Life Fixed Account++
*Effective May 1, 1997, the fund's name changed from Precious Metals Fund to
Natural Resources Securities Fund.
**Effective May 1, 1998, the Utility Equity Fund will change its name to the
Global Utiltities Securities Fund and the percentage of foreign securities the
portfolio may invest in will increase from 25% to 100%. The portfolio's
objective will remain the same.
+Investment options available under Valuemark Income Plus (VIP).
++The Allianz Life Fixed Account is only available in the Franklin Valuemark
deferred annuity. As of February 1, 1998, the Allianz Life Fixed Account for
Franklin Valuemark II and III is not available in New York and Washington. For
Franklin Valuemark IV, the Fixed Account is not available in Oregon.
The following funds are not available in Allianz Value Life: Mutual Discovery
Securities, Capital Growth, Templeton International Smaller Companies and the
three Zero Coupon Funds.
For service regarding your contract, please contact your investment
representative. You may also call 1-800/624-0197 (Franklin Valuemark deferred
variable annuity), 1-800/774-5001 (VIP), or 1-800/342-FUND (Franklin Valuemark
Funds). To ensure the highest quality of service, telephone calls to or from a
Valuemark service center may be monitored, recorded, and accessed. These calls
can be determined by the presence of a regular beeping tone.
FRANKLIN VALUEMARK FUNDS ANNUAL REPORT TABLE OF CONTENTS
LETTER TO CONTRACT OWNERS...............................2
PORTFOLIO OBJECTIVES AND RISKS..........................4
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Capital Growth Fund...................................11
Mutual Discovery Securities Fund......................13
Natural Resources Securities Fund.....................14
Small Cap Fund ......................................16
Templeton Developing Markets Equity Fund..............18
Templeton Global Growth Fund..........................20
Templeton International Equity Fund...................21
Templeton International Smaller Companies Fund........23
Templeton Pacific Growth Fund.........................26
PORTFOLIOS SEEKING GROWTH AND INCOME
Growth and Income Fund................................28
Income Securities Fund................................30
Mutual Shares Securities Fund.........................32
Real Estate Securities Fund...........................34
Rising Dividends Fund.................................36
Templeton Global Asset Allocation Fund................38
Utility Equity Fund...................................41
PORTFOLIOS SEEKING CURRENT INCOME
High Income Fund......................................44
Templeton Global Income Securities Fund...............45
U.S. Government Securities Fund.......................47
Zero Coupon Funds.....................................48
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
Money Market Fund.....................................51
REPORT OF SPECIAL MEETING OF SHAREHOLDERS..............52
IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION..........54
INDEX DEFINITIONS......................................55
FINANCIAL HIGHLIGHTS & STATEMENT OF INVESTMENTS........59
FINANCIAL STATEMENTS...................................148
NOTES TO FINANCIAL STATEMENTS..........................166
REPORT OF INDEPENDENT ACCOUNTANTS......................180
TAX INFORMATION........................................181
TECHNOLOGY UPDATE:
FRANKLIN TEMPLETON
COMBATS THE YEAR 2000 PROBLEM
By Charles B. Johnson, President of Franklin Resources, Inc.
As we near the 21st century, Franklin Templeton is taking important steps to
tackle the computer glitch dubbed the Year 2000 Problem, Y2K, or the Millennium
Bug. The problem originated from the software designers' attempt to save memory
by recording years in a two-digit format -- "98" instead of "1998", for example
- -- but didn't take into account that the year 2000 or "00", could also be
interpreted as 1900. Uncorrected, this problem could prevent computers from
accurately processing date-sensitive data after 1999.
Franklin Templeton's Information Services & Technology division established a
Year 2000 Project Team that has already begun making the necessary software
changes to help ensure that our computer systems, which service the funds and
their shareholders, will be Year-2000 Compliant. As changes reach completion, we
will conduct comprehensive tests to verify their effectiveness. We will also
require all of our major software or data-services suppliers to be Year-2000
Compliant.
In addition, with an estimated 80% of businesses facing the Year 2000 Problem,
mutual fund portfolio managers must be aware of the impact it could have on
companies in their portfolios. That's why Franklin Templeton portfolio managers
consistently keep this issue in mind while selecting investments and managing
their portfolios.
LETTER TO CONTRACT OWNERS
Dear Contract Owner:
If there is one single word that can sum up global market conditions in 1997, it
has to be "volatility." Though benign inflation and declining interest rates led
to strong economic activity, in one of every three trading days in 1997 the Dow
Jones(R) Industrial Average rose or fell by 1% or more. Even so, many financial
assets rose in value, with returns surpassing historical levels, and the Dow
reveled in a meteoric rise. Knowing that no securities market can advance
forever, many investors were asking, "When will this market correct?"
The answer came on October 27, 1997. Prior to this date, much of the volatility
of 1997 was rooted in the financial troubles of several Southeast Asian nations,
culminating in a series of currency devaluations. On July 2, 1997, Thailand
threw in the towel and let the markets determine the value of its currency. This
action was quickly followed by similar currency devaluations in Malaysia, the
Philippines and Indonesia. By Halloween week, the mighty roar of the Asian
"Tigers" dwindled to a sickly meow as Hong Kong's Hang Seng Index experienced a
5.8% drop on October 26th. The effect was widespread: the Dow tumbled 554 points
(or 7.2%), the largest percentage decline since "Black Monday" 1987. In Brazil,
where the equity market had been up 70% for the year, the index plummeted 15% in
a knee-jerk reaction to the drop on Wall Street. The European stock markets also
reacted, coming off anywhere between 2% and 6% the following day.
Though the outlook for the Asian economies is uncertain at this time, we
anticipate that their woes implicate slower growth in the U.S. To begin with,
the rash of currency devaluations in Asia signifies an erosion of purchasing
power there. Consumers in those nations may no longer be able to afford as many
American products as in the recent past -- it now takes significantly more of
their local currency to equal one U.S. dollar. As American products have now
become relatively expensive to Asian consumers, there could very well be a drop
in U.S. exports to that region. On the other hand, this also means that products
from these Asian countries will be cheaper for American consumers. This drop in
the prices of some goods implies a lessening of inflationary pressures in the
U.S.
The crucial issue is to what extent the U.S. economy will be affected by the
Asian slump. Will it merely take the steam out of inflationary pressures
simmering just below the surface, or is it enough to initiate a spiral of
deflating prices? It is interesting to note that the authorities in the U.S. --
such as the Federal Reserve Board -- still have a fair amount of flexibility to
handle the threat of deflation from Asia. We believe that low inflation, a
strong dollar and a low budget deficit mean that interest rates can be lowered
further and taxes could be cut to stimulate demand.
In other parts of the world, the Asian crisis is also forcing emerging markets
governments to tackle significant structural reforms. This is particularly true
in Brazil, where the Real Plan has been successful in temporarily achieving
relative price stability and positive economic growth. However, as shown by the
experience in Asia, fixed exchange rate policies are not a good long-term
solution, and major structural reforms are required to maintain economic
stability. Important reforms are currently being discussed, but we think these
are unlikely to be implemented during 1998.
It is important to remember, then, that securities markets can and will correct
- -in our opinion, it is desirable for them to do so. No one is able to predict
exactly how they will perform in the future. For this reason, we urge you to
exercise patience and focus not on short-term market movements, but on long-term
investment goals.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same: all of our portfolio managers are
dedicated to providing you with careful investment selections, broad
diversification, and constant, professional supervision. 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.
/s/Rupert H. Johnson, Jr.
Director and Vice President
Franklin Valuemark Funds
PORTFOLIO OBJECTIVES AND RISKS
A WORD ABOUT RISK
All of the portfolios are subject to certain risks. Generally, investments
offering the potential for higher returns are accompanied by a higher degree of
risk. Stocks, and other equities representing an ownership interest in a
company, have historically outperformed other asset classes over the long term,
but tend to fluctuate more dramatically over the shorter term. Bonds and other
debt obligations are affected by changes in interest rates and the
creditworthiness of their issuers. High yield, lower-rated ("junk") bonds
generally have greater price swings and higher default risks. Foreign investing,
especially in developing countries, has additional risks such as changes in
currency values, market price swings, and political, economic or social
instability. These and other risks to which particular portfolios may be subject
- -- such as specialized industry sectors or use of complex securities -are
discussed in the prospectus.
PORTFOLIOS SEEKING CAPITAL GROWTH
PORTFOLIO DESCRIPTION
- ------------------------------------------------------------------------------
CAPITAL GROWTH FUND Seeks capital appreciation with current income as
a secondary consideration. The portfolio invests
primarily in U.S. equity securities, including
common stocks and securities convertible into
common stocks.
- ---------------------------------------------------------------------------
MUTUAL DISCOVERY Seeks capital appreciation by investing in U.S.
SECURITIES FUND and foreign equity securities, including common
and preferred stocks and securities convertible
into common stocks, as well as debt obligations
of any quality. The portfolio also seeks to
invest in securities of domestic and foreign
companies involved in mergers, consolidations,
liquidations and reorganizations.
- -----------------------------------------------------------------------------
NATURAL RESOURCES Seeks capital appreciation through concentration
SECURITIES FUND* of its investments in securities of U.S. and
(FORMERLY PRECIOUS foreign issuers that produce, refine, process,
METALS FUND) or market natural resources as well as those that
provide support services for natural resources
companies. The portfolio's secondary objective is
to provide current income return through the
receipt of dividends or interest from its
investments. Lower-rated and similar non-rated
securities, commonly known as "junk bonds,"
have higher credit risks and may have greater
price movements. Foreign securities involve
special risks, including currency fluctuations
and political uncertainty; developing markets
involve higher risks.
*Effective May 1, 1997, the Precious Metals
Fund's name changed to the Natural Resources
Securities Fund.
- -------------------------------------------------------------------------------
SMALL CAP FUND Seeks long-term capital growth. Under normal
market conditions, the portfolio invests
primarily in equity securities of small
capitalization growth companies. The portfolio
may also invest in foreign securities, which
involve special risks. Small company securities
may have greater price swings than mid-sized or
large company securities.
- ------------------------------------------------------------------------------
TEMPLETON DEVELOPING Seeks long-term capital appreciation. The
MARKETS EQUITY FUND portfolio seeks to achieve this objective by
investing primarily in equity securities of
issuers in countries having developing markets
The portfolio is subject to special and higher
risks related to foreign developing markets,
including changes in currency values, market
price swings, and economic, social, and political
developments in the countries where the
portfolio.
- ------------------------------------------------------------------------------
TEMPLETON GLOBAL Seeks long-term capital growth; any income
GROWTH FUND realized will be incidental. The portfolio seeks
to achieve its objective through a flexible
policy of investing in stocks and debt
obligations of companies and governments of any
nation, including developing. Investments in
foreign securities involve special risks
including changes in currency values, market
price swings, and economic, social, and political
developments in the countries where the portfolio
is invested. Developing markets involve similar
but higher risks.
- ------------------------------------------------------------------------------
TEMPLETON INTERNATIONAL Seeks long-term capital growth. Under normal
EQUITY FUND market conditions, the portfolio will invest at
least 65% of its total assets in an
internationally diversified portfolio of equity
securities. These equity securities will trade on
markets in countries other than the U.S.,
including developing markets, and be issued by
companies domiciled in countries other than the
U.S., or companies that derive at least 50% of
either their revenues or pre-tax income from
activities outside the U.S. Investments in
foreign securities involve special risks
including changes in currency values,
market price swings, and economic, social, and
political developments in the countries where the
portfolio is invested. Developing markets involve
similar but higher risks.
- -----------------------------------------------------------------------------
TEMPLETON INTERNATIONAl Seeks long-term capital appreciation. The
SMALLER COMPANIES FUND portfolio seeks to achieve this objective by
investing primarily in equity securities of
smaller companies outside the U.S., including
developing markets. Investments in foreign
securities involve special risks including
changes in currency values, market price swings,
and economic, social, and political developments
in the countries where the portfolio is invested.
Developing markets involve similar but higher
risks. Small company securities may have greater
price swings than mid-sized or larger company
securities.
- ----------------------------------------------------------------------------
TEMPLETON PACIFIC Seeks long-term capital growth. Under normal
GROWTH FUND conditons, the portfolio will invest at least 65%
of its assets in equity securities which trade on
markets in the Pacific Rim, including developing
markets, and which are issued by companies
domiciled in the Pacific Rim or companies that
derived at least 50% of either their revenues or
pre-tax income from activities in the Pacific
Rim. For purposes of the portfolio's 65%
investment policy, the countries in the Pacific
Rim include Australia, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand,
Pakistan, the Philippines, Singapore and Thailand.
The portfolio invests primarily in a single
geographical region of largely developing foreign
markets and could experience significant changes
in share price in any given year.
PORTFOLIOS SEEKING GROWTH AND INCOME
PORTFOLIO DESCRIPTION
- --------------------------------------------------------------------------
GROWTH AND INCOME FUND Seeks capital appreciation. The portfolio's
secondary objective is to provide current income
return. The portfolio pursues capital
appreciation by investing primarily in U.S. ]
common stocks, securities convertible into common
stocks and preferred stocks.
- ---------------------------------------------------------------------------
Income Securities Fund Seeks to maximize income while maintaining
prospects for capital appreciation. The portfolio
will pursue its objective by investing in a
diversified portfolio of domestic and foreign
(including developing markets) debt obligations,
which may include high yield, high risk,
lower-rated bonds, as well as equity securities,
selected with particular consideration of current
income production along with capital appreciation.
Lower-rated and similar non-rated securities,
commonly known as "junk bonds," have higher
credit risks and may have greater price movements.
Foreign securities involve special risks,
including currency fluctuations and political
uncertainty; developing markets involve higher
risks.
- -------------------------------------------------------------------------------
MUTUAL SHARES Seeks capital appreciation with income as a
SECURITIES FUND secondary objective by investing in equity
securities, including common and preferred
stocks and securities convertible into common
stocks, as well as debt obligations of any
quality. The portfolio may also invest in foreign
securities which involve special risks. Small
company securities may have greater price swings
than mid-sized or large company securities.
- -------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND Seeks capital appreciation, with a secondary
objective of earning current income on its
investments. The portfolio pursues its principal
objective by concentrating in securities of
companies in the real estate industry, primarily
equity real estate investment trusts (REITs). By
investing primarily in a single industry, the
portfolio will be more affected by unfavorable
developments or market downturns in that industry
than a more diversified portfolio.
- -----------------------------------------------------------------------------
Rising Dividends Fund Seeks capital appreciation and current income
incidental to capital appreciation. In seeking
capital appreciation, the portfolio invests
with a long-term investment horizon. Preservation
of capital is also an important consideration.
The portfolio seeks its objectives by investing at
least 65% of its net assets in financially sound
companies that have paid consistently rising
dividends based on the investment philosophy that
the securities of such companies have a strong
potential to increase in value.
- ----------------------------------------------------------------------------
TEMPLETON GLOBAL ASSET Seeks a high level of total return through a
ALLOCATION FUND flexible policy of investing in the following
market segments: equity securities of issuers of
any nation, debt obligations of companies and
governments of any nation, and Money Market
Instruments. The mix of investments among these
three asset classes will be adjusted in an
attempt to capitalize on total return potential
produced by changing economic conditions
throughout the world. Investments in foreign
securities involve special risks including
changes in currency values, market price swings,
and economic, social, and political developments
in the countries where the portfolio is invested.
Developing markets involve similar but higher
risks.
- ------------------------------------------------------------------------------
UTILITY EQUITY FUND Seeks both capital appreciation and current
income by concentrating investments in the
securities of companies in the public utilities
industry. The portfolio pursues its objective by
investing at least 65% of total assets in
securities of issuers engaged in the public
utilities industry, which includes the
manufacture, production, generation,
transmission and sale of gas and electric energy
and water. Assets may also be invested in issuers
engaged in the communications field, including
entities such as telephone, telegraph, satellite,
microwave and other companies providing
communication facilities for the public benefit.
The portfolio may also invest in foreign
securities, which involve special risk
considerations, including currency fluctuations
and political uncertainty; developing markets
involve similar but higher risks. Because the
portfolio may invest in relatively few issuers,
changes in the value of a particular issuer,
interest rate movements, changes in currency
values and other risks of foreign investing may
have a greater effect on the portfolio's results.
PORTFOLIOS SEEKING CURRENT INCOME
PORTFOLIO DESCRIPTION
- ----------------------------------------------------------------------------
HIGH INCOME FUND Seeks a high level of current return. As a
secondary objective, the portfolio seeks capital
appreciation to the extent consistent with its
principal objective. The portfolio may invest in
both debt obligations and dividend-paying common
or preferred stocks, including high risk \
securities, and will seek to invest in whatever
type of investment is offering the highest yield
and expected total return without excessive risk
at the time of purchase. Lower-rated and similar
non-rated securities, commonly known as "junk
bonds," have higher credit risks and may have
greater price movements.
- -----------------------------------------------------------------------------
TEMPLETON GLOBAL INCOME Seeks high current income, consistent with
SECURITIES FUND preservation of capital, with capital
appreciation as a secondary consideration. The
portfolio will pursue its objectives by investing
at least 65% of its net assets in both domestic
and foreign debt obligations including those in
developing markets and related foreign currency
transactions. The portfolio may invest in
relatively few issuers; therefore, changes in
the value of a particular issuer, interest rate
movements, changes in currency values and
other special risks of foreign investment may
have a greater effect on the portfolio's results.
- ----------------------------------------------------------------------------
U.S. GOVERNMENT Seeks to earn income through investments in a
SECURITIES FUND portfolio limited to securities which are
obligations of the U.S. government, its agencies
or instrumentalities. These obligations may
include fixed-rate or adjustable-rate mortgage
backed securities. Individual securities, but not
shares of the portfolio, are guaranteed by the
U.S. government as to timely payment of principal
and interest.
- ------------------------------------------------------------------------------
THREE ZERO COUPON FUNDS Seek to provide as high an investment return as
(MATURITY DATES: is consistent with the preservation of capital.
SEEKS TO 2000, 2005, 2010) Each portfolio return a reasonably assured
targeted dollar amount, predictable at the time
of investment, on a specific target date in the
future by investing primarily in zero coupon
securities that pay no cash income but are
acquired by the portfolio at substantial
discounts from their value at maturity. In
response to interest rate changes, zero coupon
securities may experience greater changes in
market value than interest-paying securities of
similar maturity. The portfolios may not be
appropriate for short-term investors or those who
intend to withdraw money before the maturity
date.
- -----------------------------------------------------------------------------
PORTFOLIO SEEKING PRESERVATION OF CAPITAL AND INCOME
PORTFOLIO DESCRIPTION
- ------------------------------------------------------------------------------
Money Market Fund Seeks to obtain current income consistent with
capital preservation and liquidity. An investment
is neither insured nor guaranteed by the U.S.
government. The portfolio will seek to maintain
a $1 per share net asset value, but there is no
guarantee that it will be successful in doing so.
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARIES
You may find a complete listing of the portfolio's securities holdings including
the number of shares and dollar value beginning on page 62 of this report.
PORTFOLIOS SEEKING CAPITAL GROWTH
CAPITAL GROWTH FUND
The most notable event that occurred over the reporting period was the situation
that unfolded in Asia with a torrent of currency devaluations, resulting in some
significant turbulence in global equity markets. The effects of the Asian
problem will have ramifications on economic growth in countries throughout the
world, including the United States. While the magnitude of this effect won't be
apparent for some time, various estimates by economists suggest the impact might
be approximately 0.5% of U.S. gross domestic product (GDP). Prior to the events
in Asia, estimates of GDP growth for 1998 were in the range of about 3 - 3.5%,
but new estimates are now in the range of 2.5 - 3%. Although various economic
scenarios could result from the fallout from Asia, one certainty is the slowdown
in overall corporate profits here in the U.S.
We believe that the Capital Growth Fund, while not completely immune to this
slowing growth, is positioned in such a way that it will hopefully weather the
volatility better than the overall market. Based on next year's earnings
estimates, the portfolio's weighted average price/earnings multiple is less than
the market's, but the weighted average estimated earnings growth of the
portfolio holdings is much better than the overall market's. With that said,
though, it should be pointed out that the portfolio's over-weighting in
technology stocks does lead to periods of disruption from time to time. This was
especially true this past fall when concerns over Asia had a more pronounced
effect on such stocks than on the broader markets. However, it is our belief
that this sector will continue to provide tremendous opportunities for the
growth of capital in the years ahead.
Our focus during the year in the technology sector included the addition of two
companies in the software group, Parametric (a mechanical design automation
company) and Computer Sciences (a data services firm). These companies have much
greater exposure to the European nations (an area we think has good prospects)
as opposed to Asia, and are clear leaders in their respective markets, enjoying
fairly high returns on capital deployed in the business.
A number of the portfolio's positions performed very well during the reporting
period, including Charles Schwab (a diversified financial services firm), AES
(an independent power producer, with projects worldwide), Wal-Mart (a major
retailer), Compaq (a leading computer hardware firm), Southwest Airlines (a
regional airline), and Robert Half International (a temporary staffing
business), to name a few.
At the same time, during any given period there will be a variety of companies
that do not perform up to expectations for near-term results. Such was true with
companies like 3Com (an undisputed leader in the fast-growing data-networking
space), Xilinx (a leading provider of custom-programmed semiconductors), Nike
(arguably the world's number-one shoe company), and Oracle (a leading software
developer of database management systems). In each individual case, our
respective industry analyst, in conjunction with our team of portfolio managers,
analyzes the long-term growth prospects of the company relative to an assessment
of valuation. Unfortunately, near term volatility can be disruptive to one's
focus on the long-term growth of capital. In the management of your portfolio,
we try not to lose sight of the long term during the day-to-day volatility.
Instead, we view volatility as an opportunity to purchase what we may deem to be
the stocks of outstanding businesses at reasonable valuations.
Our overall outlook for the domestic stock market remains bullish over the
long-term for a variety of reasons. First, there remains the demographic trend
of the aging "baby-boom" generation, fostering greater awareness towards
investing for retirement. Another major reason for our optimism with the market
is that, as we live in an ever-increasing global economy, many domestically
domiciled firms, with an enhanced focus on shareholder value and improving
profitability, are proving to be highly productive on a worldwide basis. We
believe that this favorable trend will persist for some time.
CAPITAL GROWTH FUND
Top 10 Industries on 12/31/97
Based on Total Net Assets
% OF TOTAL
INDUSTRY NET ASSETS
____________________________________
Electronic Technology 11.3%
Software &
Technology Services 10.1%
Health Technology 9.7%
Financial Services 7.8%
Consumer Non-Durables 6.3%
Oil & Gas 5.2%
Semiconductors 4.9%
Utilities 4.2%
Chemical 3.8%
Producer Manufacturin 3.4%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
AGGREGATE TOTAL RETURN
________________________________
Since Inception (5/1/96) 19.40%
Please see Important Endnotes To Performance Information on page 54.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
MUTUAL DISCOVERY SECURITIES FUND
The Mutual Discovery Securities Fund seeks capital appreciation by investing
primarily in domestic and foreign equity securities. These include common and
preferred stocks, securities convertible into common stocks, as well as debt
obligations of any quality. On December 31, 1997, 79.5% of the portfolio's
assets were invested in equity securities, 3.4% in fixed-income securities, and
the remaining 17.1% in short-term and other securities. Of course, these
holdings will change as conditions warrant.
Many stock indices were delivering astronomical returns during the first half of
1997 (the S&P 500(R) gained more than 20%1), tempting some investors to jump in
and ride the market with an index fund. However, we believe that our value
approach is a better way to achieve consistent, long-term appreciation with
relatively low risk and low volatility. Even though indexing could lead to
greater returns over a specific time period, this could place the investor on a
perilous journey to mediocre returns and high volatility when market conditions
are less favorable. The mix of our investments -- cheap stocks, bankruptcies,
and special situations such as mergers and spin-offs -- is intended to provide
the best risk-adjusted returns in a wide variety of market conditions.
1. Source: Bloomberg. Index is unmanaged and includes reinvested dividends.
It has become increasingly difficult of late to find cheap stocks, especially in
the domestic market, as investors look to "buy the dips" and are willing to buy
stocks at historically high valuations. As a result, most of the large names
that dominate indices such as the S&P 500 currently trade at valuations that do
not fit our investment strategy. But cheap buys still exist. In the U.K.,
investors embraced the privatization of Railtrack, realizing the importance of
lessening the burden of government regulation.
We continue to find good value in the European markets, particularly in the
smaller and mid-cap stocks rather than the large cap stocks. This year will be
an exciting one in Europe given the scheduled, albeit somewhat limited,
introduction of the eurocurrency on January 1, 1999. Direct Pacific Rim exposure
was virtually non-existent at year-end, but we are now looking to see whether
the recent carnage has created an opportunity for us within the context of our
usual investment parameters.
We also anticipate that the markets will present us with many opportunities over
the next year. For instance, it appears that many investors have largely ignored
the fact that some companies may not achieve analysts' aggressive earnings
estimates. In particular, the "Asian flu" may have a greater ripple effect on
some companies than the market has reflected. The merger and acquisition
environment as well as divestiture activity continues to be strong. Even so, we
will not "push the envelope" and increase the risk profile of our portfolio.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
_______________________________________
1-Year 19.25%
Since Inception (11/8/96) 18.77%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
NATURAL RESOURCES SECURITIES FUND
(FORMERLY PRECIOUS METALS FUND)
The year under review saw periods of heightened market volatility, especially
for the natural resources sector. Three main factors contributed to the
increased volatility. First, despite favorable fundamentals, the energy sector
was negatively impacted by fears of a warm winter season and a higher OPEC
production quota combined with increased Iraqi output. A wave of profit taking
only served to magnify the correction at year-end. Another significant cause of
volatility was the currency turmoil in Asia, which negatively impacted
commodity-related companies as fears of a global economic slowdown surfaced.
Finally, a perceived lack of inflation created a psychological overhang in
numerous sectors, including steel, forest products, gold and base metals.
Despite the potential for continued volatility, our outlook for 1998 remains
positive. We believe the portfolio is well positioned to take advantage of
sector volatility, as we shift our focus among various sectors while
concentrating on specific company drivers. The portfolio continues to invest in
well-managed companies with fast-growing, highly efficient, technologically
advanced operations throughout the energy, mining, steel, chemicals, forest
products and related service industries. We do not purchase investments based
solely on the assumption that commodity prices will rise. Rather, we invest in
companies that we believe will fare well even in a flat-to-declining commodity
price environment, due to rapid production growth, asset or technological edge
and/or lower costs.
We anticipate a favorable environment for the energy sector, particularly in
exploration, production and oil field service companies. The portfolio therefore
maintains its 50%+ exposure to this group, although that can change. Exploration
and production companies should offer significant upside potential as additions
to reserves and production impact the bottom line. Even with flat to declining
energy prices, many companies should witness a doubling of production over the
next several years, as well as significant reserve additions. We maintain our
focus on industry leaders who should benefit from a balanced strategy of
lower-risk development drilling and higher-risk, exploration potential. In the
oil field services and equipment sector, supply and demand fundamentals continue
to support above average earnings and cash flow growth, and capital expenditure
budgets remain steady. Replacement costs and technological barriers impede new
competition, while industry fragmentation will only add fuel for the dominant
players through consolidation.
During 1997, the price of gold bullion slid below $300 per ounce, negatively
impacting the portfolio's holdings in the precious metals sector. In the face of
European Union convergence, strong equity markets and virtually nonexistent
inflationary pressures, many central banks proceeded to sell off their gold
reserves. Later in the year, Asian demand suffered a steep decline stemming from
the currency crises there. These factors adversely affected investor sentiment,
despite positive physical demand fundamentals. Short-side and aggressive options
selling also conspired to depress the gold price further. Over the longer term,
we continue to view the resilient physical demand (especially from developing
countries) and stable mined supply as attractive, and therefore remain
optimistic that gold will eventually appreciate in value.
Several niche sectors performed strongly during the year, including the offshore
segment of the oil field services and equipment industry. Oil field services and
equipment companies provide the equipment, technology, and often the know-how
for the upstream sector to carry out the exploration, development and production
of oil and natural gas. In part, the desire to reduce costs and improve the
efficiency of exploration and production drives the demand for services and
equipment. Technology and superior assets play a significant role in the
industry due to the direct impact companies can have on the success of their
customers. Recent advancements in technology including 3-D seismic, subsea
production, and automated drilling systems have opened up new areas of the world
to oil and natural gas exploration. In particular, deep water offshore areas
have been relatively unexplored to date and offer significant opportunities for
the upstream sector. Diamond Offshore Drilling, Inc. and Varco International,
Inc. are two portfolio holdings that we believe are ideally suited to benefit
from the current trends in this arena.
Diamond Offshore is a leading provider of offshore contract drilling with one of
the newest, most technologically advanced fleets in the world. The company's
fleet includes 30 semi-submersibles, 15 jack-ups, and 1 drill-ship, 6 of which
are capable of drilling wells nearly a mile beneath the sea. We believe that
continued interest in deep water exploration will keep the demand for Diamond's
premium rigs strong, allowing earnings to grow at a rate in excess of 50% per
year over the next two years. Similarly, Varco is a leading manufacturer of
products to improve the safety and productivity of the drilling process. Varco's
focus on the offshore drilling fleet should position the company to benefit from
the upgrade of existing rigs and the construction of new offshore rigs. The
company's extensive experience and commitment to research and development has
enabled them to create an advanced product line which includes top drives,
automated pipe handling equipment, and leading-edge rig control systems. Despite
the company's impressive growth outlook (estimated at 40% per annum) over the
next three years and leading industry position, at the time this report was
written, the shares traded at a discount to the earnings multiple of the
Standard & Poor's 500(R) Stock Index.
In closing, we believe that as we enter 1998, many natural resources industries
offer attractive risk/reward profiles when compared to the overall equity
market. Our focus will continue to be on companies expected to benefit from
superior growth prospects which are trading at attractive valuation levels
relative to their industry peers and the overall market.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
_________________________________
1-year -18.98%
5-year 5.65%
Since Inception (1/24/89) 3.06%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
SMALL CAP FUND
Amidst favorable economic conditions, the U.S. equity markets performed well for
the third consecutive year, reaching new highs during the period ended December
31, 1997. On a relative basis, larger capitalization stocks performed better
than small cap stocks throughout the year, in part due to investors entering
more liquid securities as a refuge from market volatility. Economic and currency
deterioration throughout Asia weighed heavily on the markets in the fourth
quarter, and certainly contributed to the increased volatility.
Notwithstanding the recent large-cap bias of the market, we remain bullish on
the small cap sector, and are finding no shortage of attractively priced growth
stocks. Despite recent weakness in the technology and energy sectors, the
portfolio has maintained much of its exposure in these areas, which we think
will provide excellent long-term growth opportunities. Our largest single
position is Varco International, Inc., a rapidly growing provider of equipment
for off shore, deep water drilling rigs. Varco should benefit from ongoing
capital spending by the large oil and gas companies. We are also optimistic
about several names in the technology service sector, including Synopsys, Inc.,
a maker of design automation software for use in the production of semiconductor
chips, and Affiliated Computer Services, Inc., a leading provider of information
processing services.
Throughout the year, we took advantage of the market volatility to sell certain
positions that, in our opinion, were fundamentally overvalued. During the year,
we reduced our stake in Labor Ready, Inc., a temporary employment company, and
liquidated our position in Adaptec, Inc., a maker of hardware and software that
increases the speed of data transmission. In addition, we took profits in two
semiconductor names, Linear Technology and Altera Corp., due to concerns about
declining growth rates.
Going forward, we continue to believe that the prospects for small cap stocks
are excellent. Relative valuations for small caps remain below historical
averages, and most small companies have little exposure to overseas markets,
limiting the impact from any Asian turmoil. The domestic economy remains strong,
and there appears to be little threat of inflationary pressure. We believe these
conditions provide the opportunity for small caps, and the portfolio in
particular, to provide attractive returns over the long term.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -------------------------------
1-year1 7.42%
Since Inception (11/1/95)22.45%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TEMPLETON DEVELOPING MARKETS EQUITY FUND
While six months ago we reported strong gains in emerging market equity prices,
underpinned by high capital inflows from developed market countries, we have
since witnessed the development of a major currency and equity market crisis in
emerging market countries.
The main crisis began with the devaluation of the Thai baht in July 1997, then
spread to most of Asia and on to other emerging markets around the world. The
devaluation of currencies had a domino effect on the equity markets of the
region because so many companies and governments had borrowed U.S. dollars
heavily, attracted by the low dollar interest rates being offered during the
last few years. Having been assured by their governments that the exchange rates
of their local currencies against the U.S. dollar would not change, these
borrowers assumed little or no currency risk. The contagion effect of falling
currencies thus had a disastrous impact on the cost of paying back the U.S.
dollar loans, putting many companies into bankruptcy and thus affecting the
banking systems in those countries. The rush for cash then consumed equity
market prices in a wild melee of selling, the likes of which has not been seen
for many years. As of December 31, 1997 the Thai market was down 88% in U.S.
dollar terms from its all time high. Enormous falls from all time highs have
also been seen in Korea (-83%), Malaysia (-69%), and Pakistan (-54%).2 Many
other countries in Asia have seen equity prices fall by more than 50% from all
time highs. This growing crisis has naturally had an adverse effect on the
performance of the portfolio.
2. Source: Bloomberg.
Although it held out for quite some time, even Hong Kong's equity market
eventually fell victim to the Asian virus. Hong Kong stocks fell by nearly 30%
in October, precipitating a sell-off in both emerging and developed markets
around the world.3 Such a dramatic drop in a market regarded as a safe-haven was
surprising. It was brought about by a vigorous speculative attack on the Hong
Kong dollar peg to the U.S. dollar, which sent overnight inter-bank rates in the
Special Administrative Region soaring. Although the speculative pressure has now
eased somewhat, the Hong Kong government faces a dilemma. If it continues to peg
its currency to the U.S. dollar, it risks further speculative attacks and upward
pressure on interest rates. This has already had an impact on the local stock
market that was accompanied by declines in property prices. Of course, there are
dramatic implications for a banking sector in Hong Kong heavily geared towards
the property sector. In light of this, Moody's Investors Service downgraded the
outlook for Hong Kong banks from positive to negative. If, on the other hand,
the government floats the Hong Kong dollar, it risks spiraling inflation and
pushing the economy into recession. A difficult choice, to be sure, but given
the underlying health of the economy we believe that the government has made the
right decision in sticking to its U.S. dollar peg. In our opinion however,
inflation will have to come down over the long term in Hong Kong to a level well
below that of the U.S., or the currency peg will need to be abandoned.
3. Source: Bloomberg. Price depreciation measured in Hong Kong dollars.
Despite such a large drop in the stock markets of developing countries, there is
no need to panic. History has shown that the best time to buy stocks is when
prices have suddenly and dramatically declined. We believe the crisis has
created some exceptional opportunities in markets and individual stocks that
were previously overvalued. Many stocks in markets such as Thailand are
ridiculously cheap at current levels. That is not to say that they will not fall
any further; rather, we think that they represent excellent opportunities for
long-term investors. Having swallowed the bitter medicine of devaluation, many
of the countries in Asia are well placed for an export-led recovery despite
higher imported raw material costs. The crisis has also forced many governments
to address some much needed structural changes and exercise a good deal more
fiscal restraint. To take advantage of these opportunities, we have been selling
in Latin American and Eastern European markets that have been less affected by
the crisis and buying in Asia where prices have been most affected.
By the end of 1997, the portfolio had less than 10% of total net assets held in
cash reflecting the exceptional number of buying opportunities that we have been
able to locate. In contrast to many top-down portfolios that are holding very
high cash levels we are close to being fully invested. This is consistent with
our methodology of buying when other people are selling and when we find good
value. We are confident that from a five-year perspective, the portfolio
contains some exceptional bargains. Our largest holding remains Brazil, which
accounts for 11.5% of the portfolio. The proportion of the portfolio held in
Thailand has risen from 2.2% one year ago to 5.1% as of December 31, 1997.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -------------------------------------
1-yea -8.72%
3-year 4.49%
Since Inception (3/15/94) 2.31%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton Global Growth Fund
With regard to the portfolio, exposure to any industry or country is merely a
consequence of where we uncovered undervalued companies around the globe. Over
the course of the year, the outcome of that search for bargain stocks led to two
major changes in the portfolio's country weighting. The first was a decline in
the exposure to the U.S. market, which represented about 23% of the portfolio's
total net assets on December 31, 1997, compared with 29.1% at the end of last
year. Quite simply, it has grown increasingly difficult for us to find
undervalued investments in America, and a number of our holdings at the
beginning of the year have appreciated to levels that we feel fully reflect the
company's long-term fundamentals. As a result, we have sold our positions in
financial stocks such as Merrill Lynch, Fannie Mae and Citicorp. We did add to
newer bargain investments including IBP, Inc., a meat packaging company, and
AT&T, the long distance telephone provider.
The market has not suffered a meaningful decline in over 10 years, and --
overall -the U.S. market today sells at a high earnings multiple with near
record low dividend yields and record-high price-to-book value. Long-term
earnings expectations are at near-record highs as investors appear to be
projecting the past six years of strong growth onto the future. Yet, much of the
past earnings were achieved through lower taxes and interest expense that may be
difficult to repeat going forward. This is especially true in an environment
where pricing remains difficult, and the American consumer is burdened with
substantial levels of debt. While these observations are of little value in
predicting a decline, we have never made it a practice of trying to time
markets. Instead, we try to invest in companies where share prices are well
below our opinion of their intrinsic values, based on the long-term
fundamentals. For these reasons, it is more difficult to find such companies in
the U.S. today.
The second noticeable shift in the portfolio's country weightings was the
doubling of our exposure to the U.K. In Britain, we are finding higher dividend
yields and lower share prices relative to earnings when comparing British
companies with their competitors around the world. Among the new additions to
the portfolio are Courtaulds Plc., a chemical manufacturer, and National Grid
Holdings Plc., the operator of the country's electricity transmission grid. In
continental Europe, strong share price appreciation helped our performance but
has also pushed up valuations. We have therefore reduced our exposure to banks
in Sweden and Spain. Many of the companies we continue to hold in the region are
those that have not yet fully realized the benefits of restructuring.
While the market declines in China and Hong Kong have certainly hurt our
performance, we began the year with about 9% of the portfolio's total net assets
in Asia and have been underweight in the region for some time because of
generally high valuation levels. Recent events have provided a welcome
opportunity to increase our Asian holdings. We are not ignoring the risks and
problems that the region faces, but are systematically and rationally
determining when undue concerns are reflected in share prices. This was the
approach we took after the Mexican peso crisis when we invested in South
American companies. As was the case in South America, oftentimes we are
initially too early and this may prove to be the case with some of the stocks we
are now cautiously buying in Asia. However, laying the foundation for future
long-term performance requires both fortitude and patience.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ------------------------------------
1-year1 3.50%
3-year 15.77%
Since Inception (3/15/94) 13.19%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TEMPLETON INTERNATIONAL EQUITY FUND
The primary reason for the portfolio's level of performance this year was its
absence from the poorly-performing Japanese market as well as a relatively light
weighting in Southeast Asia in general. European markets, where the majority of
the portfolio's assets were invested, achieved attractive returns for equity
investors. These returns, however, were somewhat offset by the dollar's strength
versus many European currencies.
Toward the end of 1997, investors began to focus on Asia, as many of the
currency and stock markets were in the throes of severe disruptions. Fortunately
for the portfolio's shareholders, we had very low weightings in this region.
Accordingly, the direct impact on the portfolio of these markets' collapsing
values was rather limited. On December 31, 1997, less than 4% of the portfolio's
total net assets were invested in Asia. With share prices in this region falling
to distress levels, we are scouring the Asian stock markets for opportunities to
purchase bargain-priced stocks. Finding stocks that have both healthy balance
sheets and the possibility of rebounding strongly from the current Asian
economic malaise has proven challenging thus far. As share and currency values
continue to fall, however, we anticipate that our holdings in Asia will rise --
perhaps significantly.
Concerns over events in Asia also impacted share prices in Latin America, with
the Brazilian market suffering the most significant damage. This occurred when
fears surfaced that the excesses being uncovered in Asia might also be found in
Brazil. Many investors became concerned that Brazil might be forced to devalue
its currency which, in turn, might lead to a collapse of share values due to
rising dollar-denominated debt on corporate balance sheets. In fact, Brazilian
corporations generally have little debt, and the recipe for financial disaster
in Asia of property speculation and mis-allocated capital spending does not
exist in Brazil. Consequently, we took the opportunity to significantly increase
our holdings of Brazilian shares when that market sold off sharply based on
fears of Brazil's catching the "Asian flu." We added to our positions in
Unibanco (Uniao de Bancos Brasileiros) and Telebras (Telecomunicacoes
Brasileiras), and established new positions in Electrobras (Centrais Electricas
Brasileiras) and Petrobras (Petroleo Brasileiro). Because the Brazilian
government responded aggressively with appropriate policies to the growing
concerns about its currency, it was able to stave off devaluation. This
impressive performance was quickly rewarded with a sharp rebound in share prices
starting in mid-November. Should Latin American stocks suffer any further
declines as a result of the global economic concerns, it is possible that we
would seek to increase our holdings further. We expect the longer-term economic
performance of the region to respond positively to the privatizations and
economic reforms being implemented in many Latin American countries.
The portfolio's substantial exposure to European equities contributed greatly to
its performance during the year. Most European markets performed very well in
1997, and many of the shares the portfolio held benefited from this bullish
trend. Our largest exposure in Europe, and indeed in the portfolio in general,
is in the United Kingdom, where we identified many stocks selling at prices that
we considered low in relation to the earnings these companies may achieve in the
longer term. On December 31, 1997, 22.4% of the portfolio was invested in U.K.
equities. Recently, we added positions in ICI, Storehouse, and General Electric
to our U.K. holdings. Sweden also features prominently in our European exposure,
comprising 5.5% of the portfolio's total net assets. We have been reducing our
cyclical exposure in the portfolio as of late, and this has resulted in selling
some of the portfolio's Swedish positions. Many cyclical shares, particularly
those in Europe, may be negatively affected by excess supply from depressed and
low-cost Asian countries. Companies such as Solvay, Arbed, Pechiney and Renault
are some of the European cyclicals that have been eliminated from the portfolio
during this process. As the portfolio is currently structured, it is slightly
underweighted in European equities relative to the MSCI-EAFE Index and is
particularly underweighted in Germany, France and Switzerland. These three
countries have performed very well in recent years and it is becoming difficult
to identify bargain priced stocks there.
We believe the outlook for international equities over the longer term is
bright. Many of the difficult issues now facing Asian economies will result in
changes that will enhance the possibility of achieving attractive long-term
investment returns. As trade and labor markets move in the direction of greater
freedom, governments withdraw from interfering in industrial policy decisions
and companies rely more heavily on signals from the capital markets in setting
expansion plans, better corporate earnings performance should be achieved. In
the short term, the process of moving toward these ideals can result in volatile
markets. Accordingly, by December 31, 1997, the portfolio had built up its cash
reserves to 20.6% of total net assets in anticipation of deploying these funds
as outstanding bargains materialize.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
WE ARE REPLACING THE MSCI EAFE INDEX WITH THE MSCI ALL COUNTRY WORLD EX-U.S.
FREE INDEX. BECAUSE THE NEW INDEX INCORPORATES SECURITIES OF EMERGING MARKETS AS
WELL AS DEVELOPED MARKETS, IT BETTER MATCHES THE INVESTMENTS OF THE FUND.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -----------------------------------
1-year 11.69%
5-year 14.51%
Since Inception (1/27/92) 11.65%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Templeton International Smaller Companies Fund
Throughout the year, the portfolio, using a disciplined focus on long-term
value, continued its endeavor to purchase the shares of undervalued, small-cap
companies outside the U.S. As of December 31, 1997, the portfolio had over $32
million in assets under management and was invested in 36 countries.
Our European positions contributed significantly to the portfolio's performance
over the past year. In preparation for European Monetary Union, many nations
exercised restraint in their fiscal and monetary policies. Members of the E.U.
have been running tight budgetary policies for several years now so that they
may qualify for monetary union under the stringent guidelines set forth in the
Maastricht Treaty. This has led to the current environment where subdued
inflation has paved the way for economic recovery. Along with trends of
consolidation and corporate restructuring stemming from a need to remain
competitive in an increasingly international marketplace, these factors
propelled many European stock markets to record levels.
For example, the stock markets of the U.K., Spain, Sweden, Switzerland, and the
Netherlands all climbed more than 28% in local currency terms during 1997.4
4. Source: Bloomberg. Index is unmanaged and includes reinvested dividends.
Total return measured in local currencies.
The portfolio's large European positions reflect the bargains our analysts are
uncovering there. We believe that many European shares, especially those of
smaller companies, offer compelling value. For instance, we purchased shares in
Hazlewood Foods during the year, a U.K.-based food processing company. We were
able to acquire shares of Hazlewood at attractive valuations after investor
pessimism over increased retailer price pressure and the BSE (mad cow disease)
scare depressed the stock price. These concerns were very real, but the stock
price plummeted to levels beneath what we felt represented fair value, as they
failed to reflect the company's positive long-term business prospects. Another
example is Bertrand Faure, a French car seat manufacturer. With an ongoing
restructuring in Bertrand's German operations not fully reflected in the stock
price, we were able to pick up shares in a firm that eventually should benefit
from trends toward outsourcing, sophisticated car seats, and vehicles with more
seats (e.g., sport utility vehicles).
While Asia suffered from an epidemic of currency devaluations (and various
side-effects) this year, relatively modest exposure to the poorest-performing
markets tempered their effect on the portfolio. Since we had viewed Asian
markets as somewhat high-priced prior to these crises, the portfolio's
value-orientation dictated only a minor allocation in this region. Our largest
investment in Asia was (and continues to be) Hong Kong, which was largely
unaffected by the contagion until October. At that time, worries mounted that in
order for its products to remain competitive, the Special Administrative Region
would abandon its U.S. dollar peg and let its currency devalue as well. The Hong
Kong equity market swooned in the process, but we had steadily reduced our
weighting there following the July handover of the former British colony to
China.
We will continue to be circumspect in our approach to Asian shares, focusing on
firms that have strong cash flow, low leverage, established franchises, and
skilled, experienced management teams. This focus on quality drew us to Hong
Kong in particular. Li & Fung, a high-quality company with a very strong balance
sheet and a forward-thinking, sophisticated management team, is an example of a
company that we have targeted. Li & Fung manages manufacturing programs for
companies involved in the production of labor-intensive consumer goods. While
the company trades at bargain levels, its net cash position, realistic strategy,
and sound business provide a level of quality that is especially important
during periods of volatility. Giordano, a Hong Kong-based retailer of "value for
the money" casual apparel is yet another example of a financially solid Asian
firm that meets our bargain criteria. Investors fled the company over concerns
regarding ongoing difficulties in the firm's Chinese operations. While China is
clearly a risk, these concerns appear overblown to us in light of Giordano's
strong brand name, successful business model and cash stockpile.
Latin American markets performed quite well during the year. While markets did
sell off in the latter part of 1997 in response to the Asian crisis, the high
debt problems associated with Asian companies are less prevalent in Latin
America. Consequently, we may be able to locate attractive, high-quality smaller
companies for the portfolio. One example is Petroleo Ipiranga, a Brazilian
company that distributes petroleum and diesel fuel to gas stations in that
country. The company has an attractive balance sheet and should be a beneficiary
of strong growth as Brazilians begin to purchase more automobiles and drive more
frequently in an economy expected to see better long-term stability.
Looking forward, we will continue to assess the Asian economy and its impact on
companies around the world. While we are confident that the recent market
corrections present opportunities, we are cautious in our approach, and will
limit our investments to high-quality companies where we feel that the stock
price does not adequately reflect the company's long-term intrinsic value.
Therefore, we expect that the largest concentration of the portfolio's assets
should remain in Europe, where we continue to uncover attractive small-cap
stocks.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
WE ARE REPLACING THE MSCI EAFE INDEX WITH THE SALOMON WORLD EX-U.S. EXTENDED
MARKET INDEX. BECAUSE THE NEW INDEX INCORPORATES SECURITIES OF SMALLER COMPANIES
AND SECURITIES OF EMERGING, AS WELL AS DEVELOPED, MARKETS WE BELIEVE IT BETTER
MATCHES THE INVESTMENTS OF THE FUND.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ----------------------------------
1-year -1.50%
Since Inception (5/1/96) 6.35%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
TEMPLETON PACIFIC GROWTH FUND
In the past year, Asian financial markets experienced a period of severe
volatility and intense corrections. Sparked by speculative attacks on the Thai
baht before July, a rash of currency devaluations quickly infected much of the
continent. By late October, Indonesia, Malaysia, Pakistan, the Philippines,
Singapore, South Korea, Taiwan and even Australia and Hong Kong had been
significantly affected by downward pressure on their currencies and falling
equity prices. This experience had the side effect of highlighting macroeconomic
problems present in many of these nations, such as slowing export growth, rising
deficits, overvalued property markets, and weak banking systems.
The downward spiral of Asian equity markets adversely affected the portfolio's
performance during the year. Hardest hit were the markets of Thailand, which
fell 52% over the year, Malaysia, 51%, and the Philippines, 40%.5 Hong Kong
continued to be the portfolio's largest exposure, accounting for 32% of total
net assets on December 31, 1997. Even though its economic fundamentals remained
strong during the year, its stock market suffered significant declines in a
volatile environment. On December 31, 1997, the Hang Seng Index was 20% lower
than it had been on December 31, 1996, after surviving a 35% decline from August
to the end of 1997.6 Still, such corrections often produce an atmosphere where
we can discover undervalued securities. One stock we believed to be undervalued
was Hong Kong Ferry Holdings, which operates ferry and related businesses, and
is involved with other activities such as property investment and travel and
hotel operations. Due to its attractive valuation, we added to our existing
holdings of this stock in 1997.
5. Source: Bloomberg. Index is unmanaged and includes reinvested dividends.
Total return measured in local currencies. 6. Source: Bloomberg. Price
depreciation measured in Hong Kong dollars.
Despite an extremely strong year for China's economy, we saw signs of a slowdown
toward the end of 1997. In 1998, restructuring of state-owned enterprises could
cause further slowing of economic growth. Worries still abound that the outbreak
of currency devaluations in neighboring countries may affect China's competitive
position in exports. Consequently, we sold our holdings of Beijing Yanhua
Petrochemicals for a profit during the year.
Also during the period, we initiated a position in Tata Engineering & Locomotive
Co., Ltd., an Indian manufacturer of commercial automotive vehicles, which we
considered undervalued. The stock of Brambles Industries Ltd., based in
Australia, reached our sell-price target and we liquidated our position.
We believe that although Asian markets could experience further declines, they
could also provide excellent opportunities for purchasing shares of companies
unfairly punished by generalized fear about these countries' economic
circumstances. In our opinion, the Pacific Rim continues to offer a variety of
investment opportunities and the economies of these countries are storehouses of
value in the long run.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TEMPLETON PACIFIC
GROWTH FUND
Top 10 Holdings on 12/31/97
Based on Total Net Assets
COMPANY/ % OF TOTAL
INDUSTRY, COUNTRY Net Assets
- --------------------------------------------------
East Japan Railway Co./
TRANSPORTATION, JAPAN 3.3%
HSBC Holdings Plc./
BANKING, HONG KONG 3.2%
Cheung Kong Holdings Ltd./
REAL ESTATE, HONG KONG 3.2%
China Light & Power Co., Ltd./
UTILITIES - ELECTRICAL & GAS,
HONG KONG 3.1%
Hong Kong
Telecommunications Ltd./
TELECOMMUNICATIONS,
HONG KONG 3.0%
Singapore Airlines Ltd./
TRANSPORTATION, SINGAPORE 3.0%
Malaysian International
Shipping Corp./
TRANSPORTATION, MALAYSIA 3.0%
Pakistan Telecommunications
Corp., PTC/
TELECOMMUNICATIONS,
PAKISTAN 2.9%
Fauji Fertilizer Co., Ltd./
CHEMICALS, PAKISTAN 2.8%
New World Development
Co. Ltd./
REAL ESTATE, HONG KONG 2.8%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -----------------------------------
1-year -35.95%
5-year 0.71%
Since Inception (1/27/92) 0.39%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
PORTFOLIOS SEEKING GROWTH AND INCOME
GROWTH AND INCOME FUND
Throughout the year, the U.S. economy continued its steady course of moderate
growth with virtually no inflation. In this benign economic atmosphere,
corporate profits continued their climb and stock market valuations rose to the
expensive end of their historical ranges. During the latter part of the year,
however, stock markets the world over experienced a dramatic rise in volatility.
Such a stark increase in market volatility came about as a result of the Asian
crisis sparking fears of a slowdown in corporate earnings growth. As a result,
there has been a renewed focus in global equity markets on value stocks that
have defensive characteristics during turbulent times. The recent performance of
the Growth and Income Fund, which has a value orientation, reflected this
current trend.
In keeping with its fundamental investment approach, the portfolio seeks to
invest in stocks with attractive valuations -- that is, stocks selling at
bargain prices according to measurements such as relative dividend yield, book
value, revenues, and normalized earnings. We often find such stocks in companies
that appear to be fundamentally strong, but have experienced temporary earnings
disappointments, or in companies or industries with uncertain prospects for
near-term earnings growth.
We continue to believe that various utility stocks represent an investment
opportunity as many companies are selling at their most attractive relative
valuations in over two decades. Lack of meaningful earnings growth in recent
years and uncertainty regarding the future deregulation have resulted in the
industry's underperformance against the broader stock market averages over the
last several years. We took advantage of this weakness to initiate a position in
Entergy Corp., a New Orleans-based electric utility that offered a 6.9% dividend
yield and traded at nine times our calculations of estimated earnings at the
time of purchase. In the telephone utility sector, we added AT&T to the
portfolio. At the time of purchase, AT&T's stock sold at 10 times depressed
earnings and offered a dividend yield of over 4%. Management recently announced
a major restructuring plan that should significantly reduce the company's costs.
Energy stocks remained a major investment focus for the portfolio. The
combination of strong cash flows, attractive fundamentals and above-average
dividend yields made many stocks in this industry ideal investment candidates
for us. Moreover, we believe the rising worldwide demand for oil, in relation to
exploration and production activity could lead to higher oil prices. We added to
existing holdings during the reporting period -- including increasing our
positions in Atlantic Richfield, Chevron, Texaco, and YPF Sociedad Anonima --
and, on December 31, 1997, this sector represented 15.1% of total net assets.
The financial sector -- the portfolio's largest sector weighting -- made an
impressive showing this year, benefiting from strong fundamentals and declining
interest rates. Over the reporting period, we initiated a position in the
consumer finance company Beneficial Corp., and also added two insurance
companies that specialize in reinsurance: Mid Ocean Ltd. and Scor. All three
stocks traded at attractive valuations relative to their peers and offered
above-market dividend yields.
Finally, we took advantage of recent price weakness in consumer non-durable
stocks to initiate new positions in Anheuser-Busch (the largest beer brewer in
the world) and H.J. Heinz (a major food producer). The management teams of both
companies recently announced corporate restructurings that could result in the
resumption of favorable earnings growth.
While we added to existing holdings or initiated new positions, we also reduced
several positions during the reporting period. Specifically, we sold Du Pont in
the chemical industry, Sprint, British Telecom and Telmex in the utilities
sector, and American Home Products and Tambrands in the consumer/health sector
as these stocks had reached our price objectives. All were sold at significant
total return gains. Conversely, we eliminated investments in weaker-positioned
electric utilities that did not meet earlier expectations. Unicom, PECO Energy,
and Public Service Enterprise Group came under pressure as a result of worsening
competitive and regulatory environments within their areas of operation. We,
therefore, sold these holdings and reinvested the proceeds in utilities that we
felt were in better competitive positions and offered greater total return
potential.
Looking forward, we remain committed to our disciplined, value-oriented
approach, which has historically produced consistent and favorable long-term
results.
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GROWTH AND INCOME FUND
Top 10 Industries on 12/31/97
Based on Total Net Assets
% of Total
Industry Net Assets
- ------------------------------------------
Financials 19.8%
Energy and Resource 15.1%
Consumer Staples 13.9%
Electric Utilities 10.7%
Telecommunications 10.4%
Basic Materials 10.2%
Health Care 4.5%
Gas Utilities 3.8%
Manufacturing 2.9%
Retail 2.3%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ----------------------------------
1-year 27.74%
5-year 15.61%
Since Inception (1/24/89) 11.94%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
INCOME SECURITIES FUND
Despite increased volatility in recent months, the stock and bond markets
experienced another strong year in 1997, driven primarily by steady economic
growth and low inflation. The stock market temporarily retreated from all-time
highs toward the end of the year, in part as a result of financial and economic
weakness in Asia and concerns over a potentially negative impact on the U.S.
economy. The bond market also experienced some volatility during the period, but
generally strengthened in the second half of 1997 as inflationary fears subsided
and investors began to show a renewed interest in value and safe-haven
securities. Many of the portfolio's sectors performed well over the year, with
utility stocks, real estate stocks, and U.S. Treasury bonds leading the way.
General sector weightings in the portfolio did not change significantly over the
past year. However, we did increase the portfolio's stock holdings from 41.1% to
45.6% of total net assets while reducing the portfolio's cash position from 6.0%
to 4.9% over the year. As of December 31, 1997, 49.7% of the portfolio's assets
were invested in bonds, 45.6% in stocks, and 4.7% in cash and other net assets.
Corporate bonds, which continued to be our largest fixed-income weighting,
generally performed well during the year. Although corporate bond valuations
were at relatively high levels in 1997, we were able to find some attractive
investments in new and existing positions. We initiated several corporate bond
positions during the period, including Del Monte Corp. (Food & Beverage), Paging
Network, Inc. (Telecommunications), Revlon Corp. (Consumer Products), Tjiwi
Kimia Finance Mauritius, Ltd. (Paper & Forest Products), ICN Pharmaceuticals,
Inc. (Pharmaceuticals), and Venetian Casino Resort, L.L.C. (Gaming & Leisure).
Additionally, we sold or tendered several positions at levels that we believed
represented full value.
The portfolio's foreign bond positions performed well during the period despite
increased volatility in foreign stock and bond markets. Over the year, we
consolidated our foreign dollar-denominated Brady bond positions by swapping out
of our Mexican Brady bonds and into Brazilian Brady bonds, which -- along with
our Argentinian Brady bonds -- appeared to offer greater total return potential.
We also took advantage of weakness in October resulting from the Asian crisis,
by adding to our Brazilian Brady bond positions. Finally, we sold our Canadian
bond position in May due to valuation concerns and currency risk.
Believing that subdued inflation and prospects for a balanced budget would allow
interest rates to fall, we added to our holdings of U.S. Treasuries throughout
the year. As a result, the portfolio benefited from the decline of the 30-year
Treasury bond yield, which fell from 6.64% to 5.93% over the past 12 months. On
December 31, 1997, U.S. Treasury bonds accounted for 8.3% of total net assets,
up from 7.1% a year earlier.
Most of the portfolio's equity sectors performed well during the period with the
real estate, pharmaceutical and utility stocks appreciating the most. We
purchased several new convertible positions in the real estate sector, including
Vornado Realty Trust (REIT), and Macerich Co. (REIT). These securities provide
attractive income and downside protection while offering equity upside potential
related to positive fundamental trends in the real estate industry. Following
significant price appreciation, we sold the portfolio's remaining pharmaceutical
holdings, as we believed upside potential for these stocks was limited at
current valuations. The purchase and eventual sale of the pharmaceutical stocks
is a good example of our contrarian style and active approach to investing, as
we originally purchased the stocks when the sector was out of favor due to
healthcare reform uncertainty in 1993 and 1994.
Utility stocks, which represented the portfolio's largest stock sector,
rebounded after weakness in the first quarter and turned in a strong performance
for the year. We initiated several new positions in the sector, including
MidAmerican Energy Holdings Co., CMS Energy Corp. and Northern States Power Co.,
mid-western electric and natural gas utilities. Utility stocks were 26.6% of the
portfolio as of December 31, 1997, up from 20.6% a year ago. We increased our
weighting in utility stocks because we believed many of the stocks were
undervalued and offered attractive high current income. In addition, we believe
many utility stocks will benefit in a deregulated environment from stronger cash
flow growth, less regulatory uncertainty, and higher valuations.
Looking at other sectors, strength in the technology stocks prompted us to
recognize significant gains on the portfolio's Altera Corp. and Xilinx, Inc.
convertible bond positions purchased last July during the technology sell-off.
We initiated a position in General Motors common stock (Automotive) as we
believed that the company's current corporate restructuring will significantly
benefit shareholders. We also purchased a new issue of convertible bonds from
Continucare Corp. (Health Care Services), a company specializing in outpatient
rehabilitation services. In the energy sector, we took advantage of recent
weakness in the group by purchasing convertible preferred shares of Energy
Ventures (Energy) and Lomak Petroleum, Inc. (Energy). We also sold several stock
positions that no longer fit the portfolio's valuation criteria.
With the stock market near all-time highs, we remain selective and are
continually searching for attractive investments for our shareholders. We
believe the portfolio is well positioned to benefit from the current market
environment of low inflation and slow economic growth. Of course, we continue to
follow our value-oriented approach, searching for income and growth from a
diversified mix of stocks, bonds, and cash.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- --------------------------------
1-year 17.09%
5-year 12.08%
Since Inception (1/24/89) 12.34%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
MUTUAL SHARES SECURITIES FUND
The Mutual Shares Securities Fund seeks capital appreciation by investing
primarily in domestic equity securities. These include common and preferred
stocks, securities convertible into common stocks, as well as debt obligations
of any quality. On December 31, 1997, 73.4% of the portfolio's total net assets
were invested in equity securities, 3.7% in fixed-income securities, and the
remaining 22.9% in short-term and other securities. Of course, these holdings
will change as conditions warrant.
Many stock indices were delivering astronomical returns during the first half of
1997 (the S&P 500 gained more than 20%7), tempting some investors to jump in and
ride the market with an index fund. However, we believe that our value approach
is a better way to achieve consistent, long-term appreciation with relatively
low risk and low volatility. Even though indexing could lead to greater returns
over a specific time period, this could place the investor on a perilous journey
to mediocre returns and high volatility when market conditions are less
favorable. The mix of our investments -- cheap stocks, bankruptcies, and special
situations such as mergers and spin-offs -- is intended to provide the best
risk-adjusted returns in a wide variety of market conditions.
7. Source: Bloomberg. Index is unmanaged and includes reinvested dividends.
It has become increasingly difficult of late to find cheap stocks, especially in
the domestic market, as investors look to "buy the dips" and are willing to buy
stocks at historically high valuations. As a result, most of the large names
that dominate indices such as the S&P 500 currently trade at valuations that do
not fit our investment strategy. But cheap buys still exist. In the U.K.,
investors embraced the privatization of Railtrack, realizing the importance of
lessening the burden of government regulation.
We continue to find good value in the European markets, particularly in the
smaller and mid-cap stocks rather than the large cap stocks. This year will be
an exciting one in Europe given the scheduled, albeit somewhat limited,
introduction of the eurocurrency on January 1, 1999. Direct Pacific Rim exposure
was virtually non-existent at year-end, but we are now looking to see whether
the recent carnage has created an opportunity for us within the context of our
usual investment parameters.
We also anticipate that the markets will present us with substantial
opportunities over the next year. For instance, it appears that many investors
have largely ignored the fact that some companies may not achieve analysts'
aggressive earnings estimates. In particular, the "Asian flu" may have a greater
ripple effect on some companies than the market has reflected. The merger and
acquisition environment as well as divestiture activity continue to be strong.
Even so, we will not "push the envelope" and increase the risk profile of our
portfolio.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -------------------------------------
1-year 17.73%
Since Inception (11/8/96) 18.85%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
REAL ESTATE SECURITIES FUND
During the reporting period, the real estate industry continued to benefit from
an environment of strong economic growth and relatively low interest rates.
Demand for commercial and residential space remained strong, driven primarily by
the growing economy. At the same time, development of new supply was restrained
in most property sectors, leading to rising occupancy and rental rates. As a
result, most real estate companies continued to report strong growth in cash
flow from operations. Ongoing consolidation also contributed to the sector's
growth, as private real estate companies and single-building owners merged with
public real estate firms to take advantage of the financing flexibility and
economies of scale enjoyed by the larger, public companies. For example, several
of the portfolio's positions were involved in high-profile public mergers,
including Starwood Lodging Corporation's announced mergers with Westin and ITT
Sheraton and Equity Office Properties' merger with Beacon Properties
Corporation.
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 strong 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, as well as the
most favorable supply and demand fundamentals.
At the end of the reporting period, the hotel sector was the portfolio's largest
property type weighting, representing 20.1% of total net assets, up from 17.9%
twelve months ago. Valuations in this sector remain attractive to us,
particularly in light of the high cash flow growth rates. New development in the
upscale hotel sector remains limited while demand continues to grow, resulting
in increased room rates. Over the past year, we initiated positions in two
notable lodging companies: Innkeepers USA Trust and Prime Hospitality
Corporation. In our opinion, both were attractively valued and offered unique
growth opportunities. Core holdings in this sector continued to include FelCor
Suite Hotels, Inc., Patriot American Hospitality, Inc., Starwood Lodging Corp.,
CapStar Hotel Company and Host Marriott Corp.
The apartment sector was the portfolio's second largest property type weighting,
totaling 16.8% of total net assets on December 31, 1997, down from 20.0% one
year ago. Valuations in the apartment group remain attractive relative to other
sectors and we expect steady cash flow growth. However, security selection is
important in this sector as supply and demand fundamentals near equilibrium.
While the overall sector weighting was trimmed and several positions were
eliminated, we continued to focus on core holdings such as Equity Residential
Properties Trust, Camden Properties Trust and Security Capital Pacific Trust. In
addition, our only new position in the apartment sector, Charles E. Smith
Residential Realty, Inc., performed quite well as investors keyed on the
company's new acquisition strategy focused on downtown high-rise apartments in
major metropolitan areas.
We increased the portfolio's exposure to the office and industrial property
sectors over the reporting period by initiating new positions in AMB Property
Corporation, Mack-Cali Realty, Equity Office Properties, Tower Realty Trust and
SL Green Realty Corporation. For the most part, these companies have heavy
property concentrations in the Northeast and on the West Coast where new
property development is limited. We believe that these securities were
attractively valued and should generate above average cash flow growth over the
next few years. We also maintained core positions such as Arden Realty Group,
Security Capital Industrial Trust, Spieker Properties and Highwoods Properties,
Inc. As of December 31, 1997, the office sector weighting was 11.9% of total net
assets, up from 7.9% one year ago. The industrial sector now represents 10.9% of
total net assets, up from 8.9% at the beginning of the reporting period.
Looking forward, we believe the real estate industry should benefit from steady
demand for residential and commercial space and limited new development. In our
opinion, the prospects for investing in real estate securities are quite
attractive due to their unique combination of strong underlying fundamentals,
favorable valuations, and attractive growth opportunities.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ---------------------------------
1-year 20.70%
5-year 18.25%
Since Inception (1/24/89) 13.87%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
RISING DIVIDENDS FUND
Our investment strategy is based on our belief that companies with consistently
rising dividends should, over time, also realize appreciation in their stock
prices. We select portfolio securities based on several criteria. To be eligible
for purchase, stocks must pass certain investment "screens," or screening
procedures, requiring strong balance sheets, relatively low price/earnings
ratios, and consistent and substantial dividend increases. We seek fundamentally
sound companies that meet our standards and attempt to acquire them at
attractive prices, often when they are out of favor with other investors.
The U.S. stock market benefited during 1997 from an economy characterized by
solid growth, low inflation, and falling long-term interest rates. Financial
services stocks, such as banks and insurance companies, performed particularly
well in this positive atmosphere. This trend aided two of the portfolio's
largest equity holdings, Mercury General Corp. and National Commerce Bancorp,
which also had distinguishing attributes that contributed to their strong
performance during the year. Mercury General is an automobile insurer which
conducts the majority of its business in California. Mercury has been able to
offer drivers attractively priced auto insurance through the combination of a
strong distribution network, very effective claims handling capabilities, and a
low cost structure. As a result, this firm has been able to gain market share
while generating strong earnings growth.
National Commerce Bancorp. is a Tennessee-based regional bank that has become a
leader in supermarket branch banking. Several years ago, the company determined
that in order to be competitive, it not only had to have a very low cost
structure, but also had to be able to offer top quality services to its
customers. In order to achieve this, National Commerce decided that it needed to
take itself to its customers, rather than waiting for its customers to come to
it. And where could the bank make itself easily accessible to its customers? At
their local supermarket, of course. This bank's branches are now almost
exclusively located in high traffic supermarket stores -- thereby eliminating
the need for costly, stand-alone facilities. Like Mercury General, National
Commerce has been able to gain market share and grow earnings as well.
The retail sector also performed well for the portfolio in the past year. Our
largest holding in this sector is Family Dollar Stores, a leading participant in
the growing "convenience discounter" retailing segment. Earnings growth has
accelerated as a result of the company's everyday low-pricing strategy, in
addition to its store remodeling and expansion program. The idea of offering
basic merchandise at an attractive price from a convenient location is proving
to be especially popular with low and middle-income consumers.
Despite the presence of the roaring equity market, several of the portfolio's
stocks suffered sagging prices during the year. These included Millipore Corp.,
MMI Cos., Inc., and Nike, Inc. Millipore's earnings were hurt during the year by
weak sales of microelectronics filtration equipment coupled with the negative
impact on foreign currencies of the indomitable U.S. dollar. Looking ahead,
Millipore continues to be well positioned to benefit from the increasing demand
for greater purification technology in growing industries such as semiconductor
manufacturing and biotechnology. A slowdown in medical malpractice premium
growth hampered the performance of MMI stock over the year. Although the medical
malpractice market is still soft, MMI has several medical consulting businesses
that are growing nicely and is also likely to benefit from its recent
acquisition of another insurer, Unionamerica Holdings. Although Nike has become
one of the world's most recognizable brand names, its earnings have suffered
from a slowdown in domestic footwear sales and, more recently, a decline in
sales to Asia due to the economic crisis in that region. On the other hand, Nike
continues to expand its already formidable global distribution capabilities and
is extending its dominant sports-related franchise into different athletic
footwear and equipment categories, which bodes well for the corporation's
long-term prospects.
During the year, we added several new positions to the portfolio, such as Bemis
Company, Inc., a manufacturer of flexible packaging for use by the food service
industry. We also purchased shares of Pall Corp., which makes fluid filtration
devices for a variety of industries, including healthcare. ReliaStar, a provider
of a broad range of insurance-related investment products, has increased its
dividend for 26 years, and was added to the portfolio in 1997. Finally, we
initiated positions in Sherwin-Williams, a retail distributor of architectural
coatings, and U.S. Bancorp., one of the top performers among regional banks.
We eliminated several positions from the portfolio during the reporting period
as they no longer fit our investment criteria. Bristol-Myers Squibb Co., Gap,
Inc., Monsanto Co., Pfizer, Inc., Safeco Corp., UST, Inc., and Walgreen Co.
either suffered from slowing dividend growth, falling dividends, or they simply
became less attractively valued than alternative investments.
Our ten largest positions on December 31, 1997, comprised 25.6% of the
portfolio's total net assets. It is interesting to note how these ten companies
would, in the aggregate, respond to the portfolio's screening criteria based on
a simple average of statistical measures. On average, these ten companies have
increased their dividends 18 years in a row, and by 345% in the last ten years
(this excludes Fannie Mae's colossal 2,000% increase). Their most recent
dividend increases averaged 13.7%, with a dividend pay-out ratio of 25%.
Long-term debt averaged 14% of capitalization, and the average price/earnings
ratio was 19.7, viewed against 21.4 for that of the unmanaged Standard & Poor's
500(R) Stock Index on the same date. It is our opinion that these companies are
representative of the fundamentally high quality of the portfolio. We also
believe that, over the long haul, companies that increase cash payments to
shareholders, year after year, will be superior builders of wealth.
RISING DIVIDENDS FUND
Top 10 Holdings on 12/31/97
Based on Total Net Assets
Company, % of Total
INDUSTRY Net Assets
- ------------------------------------------
Family Dollar Stores, Inc.
RETAIL 4.3%
Wallace Computer Services, Inc.
BUSINESS SERVICES 3.1%
Nucor Corp.,
INDUSTRIAL 2.6%
Mercury General Corp.,
INSURANCE-PROPERTY CASUALTY 2.5%
Dimon Inc.,
CONSUMER PRODUCTS 2.4%
Alberto-Culver Co.,
CONSUMER PRODUCTS 2.2%
National Commerce Bancorp,
BANKS 2.1%
Fannie Mae,
FINANCIAL SERVICES 2.1%
Watts Industries, Inc.,
INDUSTRIAL 2.1%
RLI Corp.,
INSURANCE-PROPERTY CASUALTY 2.1%
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -----------------------------------------------
1-year 33.03%
5-year 14.69%
Since Inception (1/27/92) 14.04%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TEMPLETON GLOBAL ASSET ALLOCATION FUND
Volatility and uncertainty dominated global markets in 1997, most of which can
be traced back to Southeast Asia's by now well-documented financial troubles
that began to surface around mid year. Questions about Asia's financial future
will no doubt remain unanswered for some time, although an economic recovery
there will depend, to a large extent, on whether Japan finally realizes economic
growth in 1998. We are carefully picking through the ashes in Southeast Asia,
looking for undervalued companies with strong balance sheets that can weather
the inevitable storms over the next few years.
The Hong Kong market was down over 20% in 1997 and underperformed due to the
threat of a currency devaluation, the possibility of a slowdown in China, and
over-extended property prices.8 We believe that Hong Kong will maintain the
currency peg because, unlike many other Asian countries, Hong Kong has budget
and current account surpluses, a robust banking system and $70 billion in
foreign currency reserves. Perhaps more importantly, it has China's support,
which needs to maintain confidence in Hong Kong's capital markets so that it can
use them to privatize its state-owned companies. In our opinion, the risks of a
devaluation have been overly discounted, with the market trading at only 9.8
times 1998 earnings.9 As of December 31, 1997, the portfolio had a 2.6%
weighting in Hong Kong.
8. Source: Bloomberg. Price depreciation measured in Hong Kong dollars.
9. Source: Morgan Stanley Capital International(R).
Lately, the fad for mega-mergers has reappeared across the "pond." As in the
U.S., such mergers have been concentrated in the financial services area. The
advent of the euro has forced banks and insurance companies to focus on
pan-European economies of scale. For example, two giants of the Swiss banking
market, UBS and Swiss Bank, agreed to merge in a $25 billion transaction, and
insurance companies BAT of the U.K. and Zurich of Switzerland agreed to tie the
knot for $18 billion. We invested in this trend via our insurance and financial
services holdings which respectively made up 5.9% and 3.3% of the portfolio at
the end of the reporting period.
The U.K. is much further ahead of continental Europe in terms of the business
cycle (it is the only major country with an inverted yield curve), shareholder
value and corporate restructuring. We currently favor the U.K., as it is one of
the few countries that can opt in or out of the euro. It also has some of the
cheapest valuations and highest yields in Europe (the average dividend yield of
our U.K. holdings was 3.9% at period end) as well as political certainty.
Finally, there are still opportunities for corporate restructuring in the U.K.
Within our own holdings, restructuring is taking place at ICI, Harrisons and
Crosfield, and BTR.
The U.S. has just completed its seventh year of economic growth. The Goldilocks
economy (not too hot, not too cold) continued with moderate economic growth and
inflation at an eleven-year low of 1.7%.10 At the same time the budget is moving
toward its first surplus since 1969, and the dollar is regarded the safe haven
in a world of uncertainty. However, our main concern is over-extended stock
market valuations, which have no sympathy for earnings disappointments. On
December 9, Oracle's share price declined by 29% because its second quarter
profit figure of $0.19 was 4 cents below expectations. 1997 was the third
consecutive year of 20%-plus returns for the Dow Jones(R) Industrial Average, an
unprecedented accomplishment.
10. Source: Bloomberg. Inflation measured as CPI year-over-year percentage
change as of 12/97.
By historical measures, however, all valuations are stretched, with the S&P 500
trading at an estimated 19 times 1998 earnings, a 20-year high.11 Therefore, we
place more confidence in economic growth than in stock prices. Although the U.S.
remains our largest single country weighting with regard to equities, accounting
for 16.1% of total net assets, we have been taking profits throughout the year
(the U.S. weighting at the end of 1996 was 20.8%). We are underweight versus
other benchmarks and have a high composition of undervalued and defensive
stocks. Although we have not found many new U.S. bargains, the recent technology
sector shakedown has turned some growth stocks into value stocks. For example,
the market punished networking and modem company 3Com for disappointing earnings
announcements, and the stock finished the year off 52%.12 Although there could
be further short-term disappointments, we consider this an undervalued stock,
and we added to our position.
11. Source: IBES.
12. Source: Bloomberg.
On October 27, 1997, the Brazilian Bovespa index dropped 15% as concern spread
regarding the overvalued currency and twin budget and current account
deficits.13 Unlike the Asian countries however, the Brazilian government took
swift action to restore confidence by doubling interest rates to 45% and
announcing severe budget cuts totaling $18 billion, or 3% of gross domestic
product. We believe that Brazil will not devalue its currency because it has
taken adequate measures to restore stability, and proceeds from privatization
that could total $90 billion by 2000 can finance future investment. Analysts
expect this market's earnings to grow at 26%, and we have invested nearly 5% of
the portfolio in Brazilian equities including Banco Bradesco, one of our largest
holdings.
13. Source: Bloomberg. Price depreciation measured in Brazilian reals.
We believe that opportunities are born out of adversity, and we continue to
search diligently for overlooked opportunities around the world.
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- --------------------------------------
1-year 11.71%
Since Inception (5/1/95) 14.22%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
UTILITY EQUITY FUND*
*Effective May 1, 1998, the Utility Equity Fund will change its name to the
Global Utilities Securities Fund and the percentage of foreign securities the
portfolio may invest in will increase from 25% to 100%. The portfolio's
objectives will remain the same.
Although the utility sector trailed some of the broad market indices this year,
the S&P Electric Utilities Index actually has outperformed the S&P 500 in the
fourth quarter by over 1500 basis points.14 This change in investor sentiment
reflects a movement toward "safe haven" securities due to several factors.
Global currency market disruptions led to earnings revisions for many
corporations, thereby increasing stock market volatility. Also, evidence is
building that the U.S. economy is beginning to slow down. These factors, in
conjunction with the positive impact of decreased regulatory risk, made the
utility sector attractive to many investors.
14. Source: Bloomberg. Indices are unmanaged and include reinvested dividends.
The U.S. economic environment during the year was generally favorable for
interest-rate sensitive stocks. With long-term interest rates declining steadily
since April, and relatively high natural gas prices, domestic utility stocks
performed well in 1997. A favorable regulatory environment also added to this
picturesque background, when -- in September -- the 8th U.S. Circuit Court of
Appeals removed some of the uncertainty surrounding the Telecommunications Act
of 1996, with a ruling that more clearly defined the role of new competitors.
With California leading the way, several states are in the process of completing
plans to restructure the electric generation business. This bodes well for the
industry's future, as a complete resolution of regulatory issues should enhance
utility companies' earnings, and make their stocks more attractive to investors.
With the European Monetary Union looming just around the corner, interest rates
there painted a picture similar to the U.S. situation. Most European nations
continued to exercise a great deal of fiscal and monetary restraint to qualify
for monetary union under the Maastricht Treaty's strict criteria. Interest rates
in traditionally high-yielding markets such as Spain and Italy came down
significantly, moving toward convergence with the likes of Germany and France,
which encouraged investors to bid up the prices of many utility stocks. Germany,
Switzerland, Finland, Italy, and Portugal were among the best performing utility
markets. Taking advantage of this strength, we sold our shares of Italmobiliare
and Electricidade de Portugal at a profit. It is our belief that many European
utility companies are currently positioned to benefit from a large, pent-up
demand for telecommunications services. In our opinion, our holdings of
Telefonica de Espana and Hellenic Telecommunications Organization could
experience extensive growth for several years to come.
In the first half of the year, solid economic growth and lower inflation allowed
for increased infrastructure spending in Latin America. The earnings outlook for
Latin American utility companies was therefore quite positive, prompting us to
initiate new positions in such companies as Telefonica del Peru and Companhia
Paranaense de Energia-Copel. These corporations have positioned themselves to
potentially profit from the rapidly growing demand for electricity in Latin
America. The economic environment in Brazil also created some promising
investment opportunities, as privatization and regulatory reform in the
telecommunications and electric utilities industries accelerated. This led us to
purchase shares of Telecomunicacoes Brasileiras, Brazil's largest
telecommunications provider.
Believing that most Asian utility stock valuations were simply too high, we
maintained a low weighting in Asia during the year. This was fortunate, as the
portfolio was somewhat insulated from the direct impact of the Asian problems
that surfaced after June. Despite this region's turmoil, we believe that the
long-term economic growth rate of many Asian countries is likely to be much
higher than that of some developed markets. Most of our Asian holdings are in
China, Hong Kong, and India, whose economies -- in our opinion -- still possess
the ability to grow strongly over the next few years.
Looking ahead, we are optimistic about the prospects for utility companies
worldwide. Given the prevailing environment of accelerating privatization and
regulatory reform, utilities stocks could continue to perform well in both
Europe and Latin America. As for the U.S., we think many high-quality utility
companies with aggressive, entrepreneurial management have the potential to
expand their operations and generate solid earnings growth. Utility companies
provide services that are an essential part of peoples' lives, and it is our
belief that their stocks play an integral role in a well-diversified investment
portfolio.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
UTILITY EQUITY FUND
Top 10 Holdings on 12/31/97
Based on Total Net Assets
% of Total
Company Net Assets
- --------------------------------------------
Southern Co. 4.2%
TECO Energy, Inc. 3.9%
Enron Corp. 3.8%
CINergy Corp. 3.8%
Duke Energy Corp. 3.7%
GPU Inc. 3.4%
ICG Communications,Inc. 3.3%
FPL Group, Inc. 3.3%
Florida Progress Corp. 3.2%
NIPSCO Industries 2.8%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ----------------------------------------------
1-year 26.76%
5-year 11.56%
Since Inception (1/24/89) 12.62%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
UTILITY EQUITY FUND CHANGES OF FUND NAME
AND NON-FUNDAMENTAL POLICIES
ON MAY 1, 1998, THE FUND'S NAME WILL CHANGE TO "GLOBAL UTILITIES SECURITIES
FUND." THE FUND'S CURRENT POLICY LIMITING FOREIGN INVESTMENTS TO 25% OF NET
ASSETS WILL BE LIFTED, SO THAT THE FUND WILL BE AUTHORIZED TO INVEST WITHOUT
LIMIT IN FOREIGN SECURITIES. The Fund's investment objective, its policy of
concentrating its investments in the public utilities industry, and its other
investment policies and restrictions will remain the same.
After the changes take place, the Fund will normally invest at least 65% of its
total assets in issuers domiciled in at least three different countries, one of
which may be the U.S. Under normal circumstances, the Fund is expected to invest
a higher percentage of its assets in U.S. securities than in securities of any
other single country. The Fund's Manager believes that a global utilities fund
may benefit from a wider selection of investment opportunities and greater
diversification than a fund which invests primarily in securities of domestic
utility companies.
The Fund's increasing investments in foreign securities will involve increasing
risk. Foreign securities involve greater risks than similar domestic securities
due to currency fluctuations, market volatility, and economic, social and
political uncertainty. Investments in foreign developing markets involve
heightened risks related to the smaller size and lesser liquidity of these
markets. INVESTORS SHOULD CONSIDER CAREFULLY THE SUBSTANTIAL RISKS INVOLVED IN
INVESTING IN FOREIGN SECURITIES, RISKS THAT ARE HEIGHTENED FOR INVESTMENTS IN
DEVELOPING MARKETS. SEE "HIGHLIGHTED RISK CONSIDERATIONS, FOREIGN TRANSACTIONS."
WHEN REVIEWING THEIR INVESTMENTS OR CONSIDERING NEW PURCHASES OR TRANSFERS,
CONTRACT OWNERS MAY WISH TO TAKE THESE UPCOMING FUND CHANGES INTO ACCOUNT AND TO
CONSULT WITH THEIR INVESTMENT REPRESENTATIVES.
PORTFOLIOS SEEKING CURRENT INCOME
HIGH INCOME FUND
The "Goldilocks economy" continued its reign in the U.S. during the year under
review, ensuring an environment that was "just right" for market participants.
This was particularly true for holders of corporate high yield bonds, which were
a top performer within fixed income asset classes in 1997. The portfolio also
turned in a laudable performance for the year, fueled by bonds with improving
credit profiles as well as those experiencing positive corporate events. Our
investments continue to be oriented toward bonds that are expected to experience
capital appreciation due to one or both of those factors.
With a keen eye focused on reducing our exposure to the economically sensitive
chemicals and gaming industries, we took profits in a few positions such as IMC
Global (chemicals) and Aztar (gaming). We also reduced weightings in the cable
television and food retailing industries during the year, selling positions that
we thought could be vulnerable to competitive threats in their respective
markets.
In the media and broadcasting arena, deregulation fostered significant merger
and acquisition activity, leading us to increase our exposure to the sector.
During the year we initiated positions in Chancellor Media and Hollinger,
companies that we think are well positioned to capitalize on positive industry
trends. In the industrial sector, we increased our weighting by focusing on
companies that we believe should perform well in a more subdued economic
environment, such as Allied Waste Industries. The wireless communications
industry also provided some attractive investment opportunities in 1997, and
future prospects are bright due to ongoing market-friendly legislation. Within
the various wireless industry subsectors, we tend to favor the leaders, such as
Paging Network in paging, along with Sprint Spectrum and Nextel Communications
in digital PCS. Finally, while increasing our weighting in telecommunications we
focused primarily on competitive local exchange carriers such as Teleport and
Intermedia.
As measured by Moody's, the portfolio's average credit rating on December 31,
1997, was B2. Looking forward, we expect to maintain or improve this average
credit rating, anticipating somewhat of an economic slowdown over the next year.
We feel that a slower-growing economy, combined with low inflation, will
continue to provide a favorable environment for corporate high yield bonds.
HIGH INCOME FUND
Top 10 Industries on 12/31/97
Based on Total Net Assets
% of Total
Industry Net Assets
- ---------------------------------------------------
Wireless Communication 12.2%
Industrial Products 8.2%
Cable Television/Systems 7.5%
Media 5.7%
Health Care Services 5.4%
Telecommunications 5.4%
Broadcasting 5.2%
Gaming & Leisure 4.5%
Food & Beverage 4.2%
Transportation 4.1%
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ----------------------------------------------
1-year 11.47%
5-year 11.49%
Since Inception (1/24/89) 10.35%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 24 OMITTED - SEE APPENDIX AT END OF DOCUMENT
TEMPLETON GLOBAL INCOME SECURITIES FUND
The worldwide economic atmosphere made global bond investing a perilous business
in 1997. In the U.S., economic growth proceeded at a pace historically
associated with rising inflation and falling bond prices, causing considerable
tension in the bond market. Ten-year U.S. Treasury bond yields, for example,
began the year at 6.42%, rose to a high of 6.97%, and then fell to 5.74% at the
end of the year.15 The U.S. dollar was equally volatile, with a number of
foreign currencies depreciating between 2% and 52% against the U.S. currency.
15. Source: Bloomberg.
This volatility resulted from three distinct developments during the period.
First was a general fear in the markets that the rapid U.S. economic growth and
low unemployment would eventually translate into higher inflation. Second,
prospects for European Monetary Union improved during the year, with many
European economies converging in preparation for this event. Last, the Asian
currency crisis produced shockwaves throughout global markets that should take
some time to dissipate. Each of these developments affected global interest
rates and currency values in different ways.
Much portfolio activity related directly to the sources of volatility in the
global bond markets, particularly to foreign currencies' decline in value
relative to the U.S. dollar. We also made portfolio adjustments in the
composition of its European and within the dollar bloc countries. Finally, we
increased the portfolios' emerging markets holdings.
Responding to the U.S. dollar's accelerating upward momentum relative to
European currencies, we reduced the portfolio's overall exposure to European
bonds and increased holdings of U.S. dollar-denominated bonds. We also increased
the use of forward sales of European currencies, seeking to preserve the dollar
value of our European bond holdings. The net currency exposure to European
currencies (actual holdings plus the effect of currency hedges) was 52.8% at the
beginning of the period and had fallen to approximately 46.7% by the end of the
period.
We reallocated the portfolio's European holdings during the year through the
sale of modest amounts of bonds from Denmark, Ireland, Italy and the United
Kingdom, while the portfolio's German position was increased.
Within the dollar bloc markets, we dramatically reduced our exposure to
Australia in favor of dollar-denominated Latin American securities. Our Latin
American holdings, as a percentage of total net assets, nearly doubled over the
course of the year, from 10.9% to 21.3%. The portfolio's largest emerging
markets position as of the end of the year was in Mexico, where we increased our
exposure from 4.8% to 7.1%.
In our view, a somewhat slow-growing U.S. economy in 1998 could be a major boon
for global bond investors for several reasons. Of course, this could lead to
reduced pressure on interest rates. In addition, though, slower growth would
also tend to help foreign currencies rebound against the U.S. dollar,
representing the possibility of attractive capital gains for U.S.-based
investors. The Asian problem may also encourage a weakening of the dollar since
it could very well lead to a widening of the U.S. trade and current account
balances.
The outlook for global bond markets in 1998 seems promising to us, although
patience may be required for investment opportunities to arise. The Asian
financial quagmire, as an example, should serve to moderately deflate growth and
inflationary pressures in the developed nations, removing the impetus for
central bankers to raise interest rates.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- --------------------------------------
1-year 2.55%
5-yea 7.39%
Since Inception (1/24/89) 7.57%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 25 OMITTED - SEE APPENDIX AT END OF DOCUMENT
U.S. GOVERNMENT SECURITIES FUND
The U.S. bond market turned in a strong performance for 1997 as interest rates
declined during the year. The yield curve flattened drastically -- one-year
Treasury bill yields finished both 1996 and 1997 at 5.48%, while 30-year
Treasury bond yields fell from 6.64% at the end of 1996 to 5.93% on December 31,
1997.16 The Federal Reserve Board (the Fed) moved interest rates only once
during the year, when it raised the federal funds rate by 25 basis points at the
Federal Open Market Committee's March meeting. While economic growth and
consumer demand continued to be strong throughout the year, actual inflation
figures consistently moved lower. The unemployment rate in the U.S. continued to
move lower throughout the year with labor costs creeping higher. Although
normally we would expect tight labor markets to give way to spiraling inflation
through wage increases, large gains in productivity apparently allowed U.S.
businesses to absorb higher labor costs without passing on the cost increases to
consumers. Lower commodity prices also helped to keep inflationary pressures in
check during 1997.
16. Source: Bloomberg.
During the middle of the year, disruptions in several developing southeast Asian
economies became apparent which eventually led to ripple effects around the
globe. By the fourth quarter, global equity markets swooned from the Asian
debacle and U.S. government bonds became safe havens for investors, helping to
push yields lower. In addition to the global situation, the strong U.S. economy
served to bolster tax revenues which lowered the U.S. budget deficit and reduced
the issuance of U.S. Treasury bonds into the marketplace. The lower supply of
bonds also contributed to falling long-term interest rates during the year.
Lower interest rates helped the performance of the portfolio's holdings in U.S.
government and agency securities. The portfolio is geared toward
intermediate-term government securities and we continued to add positions across
various government agencies and sectors during the year, including agency
pass-through securities.
At this time, we do not anticipate that the Fed will move interest rates in the
months ahead given that the Asian crisis has not yet fully played itself out. On
the one hand, continued strong consumer demand may keep pressure on the Fed to
move rates higher sometime next year due to the high rate of utilization in the
labor and resource markets that currently exists. Then again, year-over-year
inflation rates have been under 2%, which may allow long-term rates to continue
moving lower, should consumer demand slow sufficiently to ultimately ease labor
markets.
Therefore, we expect that the 30-year U.S. Treasury bond market may be range
bound around the 5.75% to 6.25% level in the months ahead. As interest rates
move to the lower end of that range, agency pass-through securities may be
subject to prepayment risk, so new assets will likely be allocated to more
non-callable securities until a more favorable environment develops. It is our
belief that while the supply of mortgage pass-throughs should rise in the months
ahead, agency issuers will continue to provide positive support to pass-through
yield spreads.
As far as the Treasury market is concerned, we expect that the U.S. yield curve
will continue to have a flatter profile in the months ahead. If growth slows
significantly enough for the Fed to ease monetary policy, the curve may steepen.
However, we anticipate that any monetary tightenings will signal to investors
that the Fed is ahead of the curve in terms of inflation, and bond yields may
fall in response.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -----------------------------------------
1-year 9.31%
5-year 7.10%
Since Inception (3/14/89) 8.32%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 26 OMITTED - SEE APPENDIX AT END OF DOCUMENT
ZERO COUPON 2000 FUND
ZERO COUPON 2005 FUND
ZERO COUPON 2010 FUND
The past year bore witness to a substantial decline in long-term interest rates,
though for a while it appeared that rates would move higher, driven by
accelerating inflationary pressures. These pressures simply never materialized,
and the Federal Reserve (the Fed) raised interest rates only once during the
year -- an action which eventually allowed long-term rates to come down
significantly.
All three portfolios benefited from the fall in interest rates during the year.
The longer portfolios enjoyed the best returns because of their high duration
and the fact that longer term interest rates (10 - 30 years) fell more than
intermediate term rates (2 - 5 years). This flattening of the yield curve came
about because the Fed held the target rate for federal funds at 5.50% although
inflation fell throughout the year allowing longer term interest rates to fall
as well. Inflation, as measured by the consumer price index, year over year, is
now 1.7%, the lowest level in 11 years.17 Productivity gains, global competition
and moderate economic growth should be conducive to a low inflation environment.
17. Source: Bloomberg. Year-over-year as of 12/31/97.
The Zero Coupon portfolios aim to maintain investments as close to the target
maturities as is practically possible. This makes changes in interest rates a
highly significant factor affecting the unit value of these portfolios. With two
years to maturity in the 2000 portfolio, this portfolio's value could experience
an approximate 3% swing in value for every 100 basis point (1%) swing in
interest rates. Likewise, the 2005 portfolio has the potential to move
approximately 8% for the same change in interest rates, and the 2010 portfolio
could move -- up or down -about 13%.
Normally, individual zero coupon bonds will return a fixed rate, if held to
maturity. Zero coupon investments, therefore, can be attractive for both
aggressive and risk-averse investors. Of course, a managed portfolio of zero
coupon bonds will fluctuate with cash flow in or out of the portfolio, or vary
with market conditions. In each portfolio, we strive to maintain -- at all times
- -- a duration within 12 months of the target maturity. We do not try to time the
market; instead, our portfolio activity mirrors shareholder activity.
GRAPHIC MATERIAL 27 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -------------------------------------------
1-year 7.11%
5-year 7.43%
Since Inception (3/14/89) 9.38%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT DOES NOT
INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE VARIABLE
ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK FUNDS. IF
THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE CONTRACT
PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- -------------------------------------------
1-year 11.37%
5-year 9.87%
Since Inception (3/14/89) 11.11%
GRAPHIC MATERIAL 28 OMITTED - SEE APPENDIX AT END OF DOCUMENT
WE ARE REPLACING THE MERRILL LYNCH 20-YEAR ZERO INDEX WITH THE MERRILL LYNCH
10-YEAR ZERO INDEX. BECAUSE THE FUND NOW HAS LESS THAN 12 YEARS UNTIL ITS 2010
TARGET DATE, WE THINK THE 10 YEAR INDEX BETTER MATCHES THE INVESTMENTS OF THE
FUND.
PERFORMANCE SHOWN IN THE GRAPH REFLECTS ALL FUND OPERATING EXPENSES BUT
DOES NOT INCLUDE ANY VARIABLE ACCOUNT FEES, CHARGES OR EXPENSES IMPOSED BY THE
VARIABLE ANNUITY AND LIFE INSURANCE CONTRACTS THAT USE THE FRANKLIN VALUEMARK
FUNDS. IF THEY HAD BEEN INCLUDED, PERFORMANCE WOULD HAVE BEEN LOWER. SEE THE
CONTRACT PROSPECTUS FOR A COMPLETE DESCRIPTION OF THE VARIABLE ACCOUNT EXPENSES,
INCLUDING ANY APPLICABLE SALES CHARGES.
Average Annual Total Return
- ----------------------------------------------
1-year 16.57%
5-year 12.13%
Since Inception (3/14/89) 12.14%
PLEASE SEE IMPORTANT ENDNOTES TO PERFORMANCE INFORMATION ON PAGE 54.
GRAPHIC MATERIAL 29 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PORTFOLIO SEEKING CAPITAL PRESERVATION AND INCOME
MONEY MARKET FUND
An atmosphere of strong economic growth and very mild inflation was prevalent in
the U.S. throughout 1997. Real gross domestic product (GDP) growth through the
first three quarters of the year was 3.8%, considerably outpacing the Federal
Reserve's (the Fed's) targeted long-term growth rate of 2.5%. Unemployment fell
to its lowest level in 25 years, as a direct result of the country's economic
strength. In the spring, the fast pace of economic growth and the tightening
labor markets raised some concerns at the Fed that prices might have been in
danger of inching up. The Fed responded by increasing the federal funds rate by
twenty-five basis points (0.25%) in late March. Since the rate hike, the Fed has
remained on the sidelines, not responding to the continued economic strength for
a couple of reasons. First, despite the torrid pace of GDP growth, consumer
prices increased by only 1.7% in 1997 -- the lowest increase in 11 years.18
Second, the Asian financial crisis which began to shake global equity markets in
October may have prevented the Fed from taking any steps which would induce
further volatility into the international financial markets.
18. Source: Bloomberg. Inflation measured as CPI year-over-year percentage
change as of 12/97.
The rise in short-term interest rates caused the portfolio's seven-day yield to
increase from 5.04% on December 31, 1996 to 5.28% at the end of 1997.
We believe the economy is in the later stages of the current business cycle.
Higher private consumption and increased capital spending should stimulate more
growth, which could ultimately lead to further wage inflation. However, we think
that the impact of higher wages on overall consumer prices should be dampened by
ongoing improvements in manufacturing productivity and lower exports to the Far
East as a result of the crisis in Asia. Taking all these factors into
consideration, we believe that the Fed will remain inactive until it has fully
assessed the impact of these variables on domestic economic growth and
inflation.
We continue to invest the portfolio's assets in securities that are among the
highest quality available to money market funds. 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.
REPORT OF SPECIAL MEETING OF SHAREHOLDERS
At the Special Meeting of Shareholders of Franklin Valuemark Funds held on April
4, 1997, shareholders voted as follows:
1. Regarding the election of trustees who constitute the current Board of
Trustees.
<TABLE>
<CAPTION>
% of % of
Shares Shares Shares Shares
Shares Voted Voted For Voted Voted Against Voted
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Frank H. Abbott 972,593,525.009 948,803,887.387 97.554% 23,789,637.622 2.446%
L. C. Anderson 972,593,525.009 950,301,681.416 97.708% 22,291,843.593 2.292%
Harris J. Ashton 972,583,525.009 950,544,829.797 97.733% 22,048,695.212 2.267%
S. Joseph Fortunato 972,583,525.009 949,805,658.718 97.657% 22,787,866.291 2.343%
David W. Garbellano* 972,583,525.009 947,870,197.603 97.458% 24,723,327.406 2.542%
Charles B. Johnson 972,583,525.009 950,398,940.768 97.718% 22,194,584.241 2.282%
Charles E. Johnson 972,583,525.009 950,097,436.776 97.687% 22,496,088.233 2.313%
Rupert H. Johnson, Jr. 972,853,525.009 950,749,074.437 97.754% 21,844,450.572 2.246%
Frank W. T. LaHaye 972,853,525.009 950,680,992.891 97.747% 21,912,532.118 2.253%
Gordon S. Macklin 972,853,525.009 950,214,147.999 97.699% 22,379,377.010 2.301%
</TABLE>
*The Board noted with deep regret the passing of David W. Garbellano in late
1997. The Board appointed Robert F. Carlson to fill the vacancy in January 1998.
2. Regarding the ratification of the selection of Coopers & Lybrand L.L.P.,
Certified Public Accountants, as the independent auditors for the Trust for the
fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
% of % of % of
Shares Shares Shares Shares Shares
Shares Voted Shares Voted For Voted Voted Against Voted Voted abstain Voted
- --------------------------------------------------------------------------------------
972,593,525.009 915,813,515.019 94.162% 7,634,859.171 0.785% 49,145,150.819 5.053%
3. Regarding the approval of changes in the investment objective and industry
concentration policy of the Precious Metals Fund to those of a natural resources
fund on May 1, 1997.
<S> <C> <C> <C> <C> <C> <C>
% of % of % of
Shares Shares Shares Shares Shares
Shares Voted Shares Voted For Voted Voted Against Voted Voted abstain Voted
- ----------------------------------------------------------------------------------------
7,315,445.976 6,188,720.987 84.598% 663,584.104 9.071% 463,140.885 6.331%
4. Regarding the approval of a change in the fundamental investment policies of
the Precious Metals Fund to permit a change from investments in precious metals
commodities to natural resources commodities, and to clarify that the fund may
invest in futures contracts related to such commodities.
<C> <C> <C> <C> <C> <C> <C>
% of % of % of
Shares Shares Shares Shares Shares
Shares Voted Shares Voted For Voted Voted Against Voted Voted abstain Voted
- ----------------------------------------------------------------------------------------
7,315,445.976 6,100,496.708 83.392% 772,291.632 10.557% 442,657.636 6.051%
5. Regarding the approval of a change in the fundamental investment policy of
the Precious Metals Fund to permit a change from 5% to up to 10% of the Trust's
assets that may be invested in unseasoned issuers.
<C> <C> <C> <C> <C> <C> <C>
% of % of % of
Shares Shares Shares Shares Shares
Shares Voted Shares Voted For Voted Voted Against Voted Voted abstain Voted
- ----------------------------------------------------------------------------------------
7,315,445.976 5,925,877.013 81.005% 900,970.326 12.316% 488,598.637 6.679%
</TABLE>
There being no further business to come before the meeting, upon motion duly
made, seconded and carried, the Meeting was adjourned.
Dated: April 4, 1997
Karen L. Skidmore
Acting Secretary
IMPORTANT ENDNOTES
TO PERFORMANCE INFORMATION
Total return of the portfolio is the percentage change in value of a
hypothetical $10,000 investment over the indicated periods and includes
reinvestment of dividends and capital gains. Inception dates of the portfolios
may have preceded the effective dates of the subaccounts, contracts, or their
availability in all states. Performance data is historical and cannot predict or
guarantee future results. Principal value and investment return will fluctuate
with market conditions and you may have a gain or loss when you withdraw your
money.
When reviewing the index comparisons, please keep in mind that indices have a
number of inherent performance differentials over the Valuemark portfolios.
First, unlike the Valuemark portfolios, which must hold a minimum amount of cash
to maintain liquidity, indices do not have a cash component. Second, the
Valuemark portfolios are actively managed and, thus, are subject to management
fees to cover salaries of securities analysts or portfolio managers in addition
to other expenses. Indices are unmanaged and do not include any commissions or
other expenses typically associated with investing in securities. Third, indices
often contain a different mix of securities than the portfolio to which they are
compared. Additionally, please remember that indices are simply a measure of
performance and cannot be invested in directly.
INDEX DEFINITIONS
INDEX DEFINITION
- ----------------------------------------------------------------------------
CONSUMER PRICE INDEX Measure of the average change in prices for a fixed
basket of goods and services regularly bought by
consumers in the United States published by the U.S.
Bureau of Labor Statistics.
- -------------------------------------------------------------------------
FINANCIAL TIMES/ The basic sector includes: construction and building
S&P ACTUARIES WORLD materials, chemicals, mining, minerals, precious metals
(ENERGY 50%/ and minerals, forestry and paper products, and
INDUSTRIES 50%) fabricated metal products. Basic The energy sector
COMPOSITE INDEX includes oil internationals, crude producers,petroleum
products and refineries, non-oil energy sources, and
energy equipment and services. The index is compiled by
the Financial Times, Goldman Sachs & Co., and Wood
Mckenzie & Co., Ltd., in conjunction with the Institute
of Actuaries and the Faculty of Actuaries, and is a
weighted arithmetic average of the price relatives of
the constituents as produced by transaction in the
marketplace and adjusted for intervening capital
changes. The Index is in U.S. dollars and total return.
- -----------------------------------------------------------------------------
FINANCIAL TIMES/ Includes electric utilities, waterworks supply, natural
ACTUARIES WORLD gas S&P utilities, and telephone companies. The index
UTILITIES INDEX is compiled by the Financial Times, Goldman Sachs &
Co., and Wood Mckenzie & Co., Ltd., in conjunction with
the Institute of Actuaries and the Faculty of
Actuaries, and is a weighted arithmetic average of the
price relatives of the constituents as produced by
transaction in the marketplace and adjusted for
intervening capital changes. The Index is in U.S.
dollars and total return.
- -------------------------------------------------------------------------------
FIRST BOSTON Unmanaged, trader-priced portfolio constructed to
HIGH YIELD mirror the public high yield debt market (revisions
to the index are effected weekly). The index has
several modules representing different sectors of the
high yield market including a cash-paying module, a
zero-fix module, a pay-in-kind module, and a defaulted
module. The index is also divided into other categories
including industry, rating, seniority, liquidity,
market value, security price range, yield range, and
other sector divisions.
- -----------------------------------------------------------------------------
INTERNATIONAL FINANCE Emerging markets index that includes 650 stocks from
CORPORATION'S (IFC) 18 countries including Mexico, South Korea, Brazil,
INVESTABLE COMPOSITE Jordan, and Turkey.
INDEX
- -----------------------------------------------------------------------------
JP MORGAN GLOBAL BOND A total return index that tracks the traded sovereign
INDEX (UNHEDGED) issues of 13 international markets. Each market is
weighted according to its traded market capitalization
in U.S. dollar terms, and all issues included in the
index are liquid with remaining maturities of greater
than 13 months.
- -----------------------------------------------------------------------------
LEHMAN BROTHERS Includes fixed-rate debt that is rated investment grade
GOVERNMENT/CORPORATE or higher by Moody's, Standard & Poor's, or Fitch. Debt
BOND INDEX is issued by the U.S. government and its agencies,
domestic corporations, and foreign dollar-denominated
securities.
- ------------------------------------------------------------------------------
LEHMAN BROTHERS Includes fixed-rate debt that is rated investment grade
INTERMEDIATE GOVERNMENT or higher by Moody's, Standard & Poor's, or Fitch. Debt
INDEX is issued by the U.S. government and its agencies, and
has a maturity of one to ten years.
- -------------------------------------------------------------------------------
LIPPER INCOME AVERAGE Consists of 21 equity funds that normally seek a high
level of current income through investing in
income-producing stocks, bonds, and money-market
instruments.
- -------------------------------------------------------------------------------
MERRIL LYNCH TREASURY Includes five-, ten- and twenty-year zero coupon bonds,
ZERO COUPON FIVE, TEN respectively, which pay no interest and are issued at a
TWENTY YEAR INDICES discount from redemption price.
- ------------------------------------------------------------------------------
MORGAN STANLEY CAPITAL Includes approximately 1000 companies representing
INTERNATIONAL EUROPE the stock markets of 18 countries in Europe, Australia,
AUSTRALIA FAR EAST New Zealand, and the Far East. The average company
(EAFE) INDEX has a market capitalization of over $3 billion. This is
a total return index in U.S. dollars, with gross
dividends reinvested.
- -----------------------------------------------------------------------------
MORGAN STANLEY CAPITAL Includes over 400 companies and the five countries of
INTERNATIONAL(MSCI) Australia, Hong Kong, Japan, New Zealand, and
SINGAPORE/ PACIFIC Malaysia. This is a total return index in U.S.
BASIN INDEX dollars, with gross dividends reinvested.
- -----------------------------------------------------------------------------
MORGAN STANLEY CAPITAL Includes approximately 1450 securities listed on the
STOCK INTERNATIONAL exchanges of 20 countries including the U.S., Europe,
(MSCI) WORLD INDEX Canada, Australia, New Zealand, and the Far East. The
average company in the index has a market
capitalization of about $3.5 billion. This is a total
return index in U.S. dollars, with gross dividends
reinvested.
- ------------------------------------------------------------------------------
RUSSELL 1000 INDEX An index consisting of the highest-ranking 1,000
large-capitalization U.S. stocks.
- -----------------------------------------------------------------------------
RUSSELL 2500 INDEX An index consisting of 2,500 companies with small
market capitalizations.
- ------------------------------------------------------------------------------
SALOMON BROTHERS WORLD Currency-hedged index uses rolling one-month forward
GOVERNMENT HEDGED INDEX exchange contracts as hedging instruments. Total return
in U.S. dollars.
- -----------------------------------------------------------------------------
SIX-MONTH CD RATES Estimated monthly return averaging the top rates paid
by major New York banks on primary new issues of
negotiable CDs. Published by Micropal.
- ------------------------------------------------------------------------------
STANDARD & POOR'S 500 Consists of 500 widely held common stocks within
(S&P 500) four sectors (industrials, utilities, financial, and
transportation). This index, calculated by Standard &
Poor's, is a total return index with dividends
reinvested.
- ------------------------------------------------------------------------------
WILSHIRE MIDCAP GROWTH Overlaps both the top 750 and the next 1750 of the
INDEX Wilshire 2500 universe. Includes companies that have
market capitalizations ranging from $300 million to
$1.3 billion.
- ------------------------------------------------------------------------------
Wilshire Real Estate A market capitalization weighted index of publicly
Securities Index traded real estate securities such as Real Estate
Investment Trusts (REITs), Real Estate Operating
Companies (REOCs), and partnerships. The index is
comprised of companies whose charter is the equity
ownership and operation of commercial real estate.
- -------------------------------------------------------------------------------
FRANKLIN VALUEMARK FUNDS
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
PER SHARE OPERATING PERFORMANCE
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
NET NET RATIO RATIO OF
NET DISTRI- DISTRI- ASSET ASSETS, OF NET INVESTMENT
ASSET NET NET TOTAL BUTIONS BUTIONS VALUE, END EXPENSES INCOME TO PORT- AVERAGE
VALUE INVEST- REALIZED & FROM FROM NET FROM NET TOTAL END OF TO AVERAGE FOLIO COM-
PERIOD BEGINNING MENT UNREALIZED INVESTMENT INVESTMENT REALIZED DISTRI- OF TOTAL PERIOD AVERAGE NET TURNOVER MISSION
ENDED OF PERIOD INCOME GAIN(LOSS) OPERATIONS INCOME GAINS BUTIONS PERIOD RETURN+ (OOO"S)NET ASSETS ASSETS RATE RATE****
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH FUND
<S> <C> <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% $.0567
1997 11.36 .06 2.02 2.08 (.02) -- (.02) 13.42 18.31 109,355 .77 .72 19.90 .0575
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 .0407
1997 17.55 .67 4.05 4.72 (.64) (.62) (1.26) 21.01 27.74 1,338,476 .49 3.53 36.71 .0413
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 --
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 .0519
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 .0506
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 .466 4.05 -- --
1995 1.00 .060 -- .060 (.060) -- (.060) 1.00 5.74 429,547 .406 5.58 -- --
1996 1.00 .050 -- .050 (.050) -- (.050) 1.00 5.16 408,930 .436 5.04 -- --
1997 1.00 .05 -- .050 (.050) -- (.050) 1.00 5.24 367,449 .456 5.11 -- --
MUTUAL DISCOVERY SECURITIES FUND
19965 10.00 .02 .19 .21 -- -- -- 10.21 2.10 15,418 1.37* 2.11* .14 .0300
1997 10.21 .13 1.84 1.97 (.01) -- (.01) 12.17 19.25 198,653 .64 1.19 55.93 .0219
MUTUAL SHARES SECURITIES FUND
19965 10.00 .02 .33 .35 -- -- -- 10.35 3.50 27,677 1.00* 2.56* 1.31 .0410
1997 10.35 .13 1.71 1.84 (.01) -- (.01) 12.18 17.73 387,787 .80 2.10 49.01 .0397
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 .0221
1997 14.29 .15 (2.83) (2.68) (.20) -- (.20) 11.41 (18.98 74,924 .69 1.00 85.22 .0265
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 .0519
1997 22.15 .72 3.72 4.44 (.67) (.32) (.99) 25.60 20.70 440,554 .54 3.59 11.62 .0550
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 .0505
1997 15.40 .22 4.77 4.99 (.26) (.45) (.71) 19.68 33.03 780,298 .74 1.24 37.04 .0516
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 .0518
1997 13.20 .01 2.24 2.25 (.03) (.37) (.40) 15.05 17.42 313,462 .77 .06 64.07 .0482
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 .0025
1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38) 10.29 (8.72) 279,680 1.42 1.57 20.59 .0016
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 .0028
1997 12.59 .42 1.04 1.46 (.26) (.07) (.33) 13.72 11.71 93,402 .94 4.22 61.93 .0008
TEMPLETON GLOBAL GROWTH FUN
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 .0096
1997 13.80 .33 1.53 1.86 (.24) (.08) (.32) 15.34 13.507 58,445 .88 2.49 24.81 .0018
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 7.59152.89 --
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 --
TEMPLETON INTERNATIONAL EQUITY FUND
1993++ 9.76 .18 2.60 2.78 (.04 -- (.04) 12.50 28.563 10,146 1.12 1.58 29.50 --
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51 .877 85,124 .99 2.17 12.22 --
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32 10.598 50,117 .92 2.87 16.42 --
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45 22.98 1,108,099 .89 3.07 27.52 .0140
1997 15.45 .30 1.51 1.81 (.45) (.69) (1.14) 16.12 11.69 1,161,430 .89 3.01 26.96 .0022
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
19964 10.00 .10 1.15 1.2 -- -- -- 11.25 12.50 16,255 1.16* 2.51* -- .0031
1997 11.25 .23 (.39) (.16) (.07) -- (.07) 11.02 (1.50) 32,201 1.06 2.74 21.38 .0004
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 .0092
1997 14.76 .29(5.49) (5.20) (.28) -- (.28) 9.28 (35.95 165,404 1.03 1.97 11.87 .0070
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 (.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 --
UTILITY EQUITY 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 7.0 1,202,290 .50 4.20 29.69 .0252
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 .0154
ZERO COUPON FUND - 2000
1993 13.88 .66 1.55 2.21 (.62) (.03) (.65) 15.44 16.15 76,916 .376 5.88 7.02 --
1994 15.44 .68 1.71) (1.03) (.69) (.10) (.79) 13.62 (6.76) 94,230 .406 6.37 -- --
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73 20.67 137,357 .406 6.14 1.63 --
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19 2.43 129,601 .406 6.14 .58 --
1997 15.19 1.15 (.12) 1.03 (1.06) (.02) (1.08) 15.14 7.11 111,650 .406 6.47 6.16 --
ZERO COUPON FUND - 2005
1993 13.62 .44 2.55 2.99 (.52) (.01) (.53) 16.08 22.21 42,998 .376 5.67 16.59 --
1994 16.08 .71(2.24) (1.53) (.60) (.19) (.79) 13.76 (9.60) 51,499 .406 6.53 2.00 --
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38 31.76 83,222 .406 6.19 1.72 --
1996 17.38 .96(1.13) (.17) (.86) -- (.86) 16.35 (.50) 82,603 .406 6.15 2.06 --
1997 16.35 1.14 .63 1.77 (1.06) (.01) (1.07) 17.05 11.37 77,296 .406 6.16 4.52 --
ZERO COUPON FUND - 2010
1993 13.35 .50 2.81 3.31 (.94) (.04) (.98) 15.68 25.47 29,189 .256 5.89 36.63 --
1994 15.68 .55(2.27) (1.72) (.63) (.31) (.94) 13.02 (10.97 45,361 .406 6.57 4.34 --
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04 42.79 85,633 .406 6.41 31.45 --
1996 18.04 1.02(1.65) (.63) (.88) (.24) (1.12) 16.29 (2.69) 78,816 .406 6.24 16.10 --
1997 16.29 1.02 1.54 2.56 ( 1.01) (.01) (1.02) 17.83 16.57 85,515 .406 6.21 12.20 --
</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.
****Relates to purchases and sales of equity securities. Prior to December 31,
1996, disclosure of average commission rate was not required.
+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. 6During 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
ZERO COUPON FUND - 2000
1993 .67%
1994 .66
1995 .63
1996 .62
1997 .63
ZERO COUPON FUND - 2005
1993 .67%
1994 .68
1995 .66
1996 .65
1997 .65
ZERO COUPON FUND - 2010
1993 .68%
1994 .68
1995 .66
1996 .65
1997 .65
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
<TABLE>
<CAPTION>
Capital Growth Fund SHARES VALUE
<S> <C> <C>
Common Stocks 82.1%
Chemicals 3.8%
Air Products and Chemicals, Inc. ..................................................................... 20,000 $ 1,645,000
Millipore Corp. ...................................................................................... 30,000 1,018,125
Sigma-Aldrich Corp. .................................................................................. 35,000 1,391,250
-------------
4,054,375
-------------
Commercial Services 1.0%
aRobert Half International, Inc. ...................................................................... 27,000 1,080,000
-------------
Consumer Products - Durables 1.4%
Mattel, Inc. ......................................................................................... 40,000 1,490,000
-------------
Consumer Products - Non-Durables 6.3%
Campbell Soup Co. .................................................................................... 22,000 1,278,750
Gillette Co. ......................................................................................... 8,000 803,500
Hershey Foods Corp. .................................................................................. 20,000 1,238,750
Nike, Inc., Class B ................................................................................. 30,000 1,177,500
PepsiCo, Inc. ........................................................................................ 20,000 728,750
Procter & Gamble Co. ................................................................................. 15,000 1,197,187
The Coca-Cola Co. .................................................................................... 7,000 466,375
-------------
6,890,812
-------------
Consumer Services 3.2%
Cendant Corp. ........................................................................................ 40,000 1,375,000
Disney (Walt) Co. .................................................................................... 9,000 891,563
Mirage Resorts, Inc. ................................................................................. 55,000 1,251,250
-------------
3,517,813
-------------
Containers & Packaging 1.3%
Owens-Illinois, Inc. ................................................................................. 38,500 1,460,593
-------------
Data Services 1.1%
aComputer Sciences Corp. .............................................................................. 15,000 1,252,500
-------------
Electronic Technology 11.3%
a3Com Corp. ........................................................................................... 45,000 1,572,187
aAscend Communications, Inc. .......................................................................... 10,000 245,000
aCisco Systems, Inc. .................................................................................. 40,500 2,257,875
Compaq Computer Corp. ................................................................................ 25,000 1,410,938
Hewlett-Packard Co. .................................................................................. 20,000 1,250,000
aImation Corp. ........................................................................................ 40,000 640,000
Molex, Inc. .......................................................................................... 48,437 1,556,039
aNewbridge Networks Corp. ............................................................................. 35,000 1,220,625
aUniphase Corp. ....................................................................................... 18,000 744,750
United Technologies Corp. ............................................................................ 20,000 1,456,250
-------------
12,353,664
-------------
Financial Services 7.8%
American International Group, Inc. ................................................................... 12,000 1,305,000
Citicorp ............................................................................................. 11,000 1,390,813
Equifax, Inc. ........................................................................................ 35,000 1,240,312
Fannie Mae ........................................................................................... 20,000 1,141,250
Providian Financial Corp. ............................................................................ 34,000 1,536,375
Schwab (Charles) Corp. ............................................................................... 27,000 1,132,313
Wells Fargo & Co. .................................................................................... 2,000 678,875
-------------
8,424,938
-------------
Health Care Services .6%
aOxford Health Plans, Inc. ............................................................................ 10,000 155,625
aPacifiCare Health Systems, Inc., Class B ............................................................. 10,000 523,750
-------------
679,375
-------------
Health Technology 9.7%
Abbott Laboratories .................................................................................. 15,000 $ 983,438
American Home Products Corp. ......................................................................... 10,000 765,000
aAmgen, Inc. .......................................................................................... 25,000 1,353,125
Baxter International, Inc. ........................................................................... 25,000 1,260,937
aBoston Scientific Corp. .............................................................................. 30,000 1,376,250
Johnson & Johnson .................................................................................... 25,000 1,646,875
Lilly (Eli) & Co. .................................................................................... 16,000 1,114,000
Mentor Corp. ......................................................................................... 35,000 1,277,500
Merck & Co., Inc. .................................................................................... 8,000 850,000
-------------
10,627,125
-------------
Industrial Services .7%
Schlumberger, Ltd.................................................................................... 10,000 805,000
-------------
Media & Broadcasting 1.4%
Time Warner, Inc. .................................................................................... 25,000 1,550,000
-------------
Oil & Gas 5.2%
aBarrett Resources Corp. .............................................................................. 50,000 1,512,500
Enron Corp. .......................................................................................... 40,000 1,662,500
MCN Energy Group, Inc................................................................................. 30,000 1,211,250
Royal Dutch Petroleum Co., New York Shares, ADR ...................................................... 25,000 1,354,687
-------------
5,740,937
-------------
Producer Manufacturing 3.4%
Emerson Electric Co. ................................................................................. 25,000 1,410,937
Minnesota Mining & Manufacturing Co. ................................................................. 15,000 1,230,937
aU.S. Filter Corp. .................................................................................... 35,000 1,047,813
-------------
3,689,687
-------------
Restaurants 1.1%
McDonald's Corp. ..................................................................................... 25,000 1,193,750
aTricon Global Restaurants, Inc. ...................................................................... 2,000 58,125
-------------
1,251,875
-------------
Retail 1.4%
Wal-Mart Stores, Inc. ................................................................................ 38,000 1,498,625
-------------
Semiconductors 4.9%
aAdaptec, Inc. ........................................................................................ 45,000 1,670,625
Intel Corp. .......................................................................................... 15,000 1,053,750
Linear Technology Corp. .............................................................................. 16,000 922,000
aXilinx, Inc. ......................................................................................... 50,000 1,753,125
-------------
5,399,500
-------------
Software/Technology Services 10.1%
Adobe Systems, Inc. .................................................................................. 20,000 825,000
Automatic Data Processing, Inc. ...................................................................... 32,000 1,964,000
aElectronic Arts, Inc. ................................................................................ 35,000 1,323,437
aIntuit, Inc. ......................................................................................... 30,000 1,237,500
aMicrosoft Corp. ...................................................................................... 7,000 904,750
aOracle Corp. ......................................................................................... 35,000 780,937
aParametric Technology Co. ............................................................................ 40,000 1,895,000
aSiebel Systems, Inc. ................................................................................. 66 2,760
aSterling Commerce, Inc. .............................................................................. 20,000 768,750
aSynopsys, Inc. ....................................................................................... 36,500 1,304,875
-------------
11,007,009
-------------
Transportation 2.2%
Air Express International Corp. ...................................................................... 45,000 1,372,500
Southwest Airlines Co. ............................................................................... 40,500 997,313
-------------
2,369,813
-------------
Utilities 4.2%
aAES Corp. ............................................................................................ 34,000 $ 1,585,250
aAirTouch Communications, Inc. ........................................................................ 35,000 1,454,688
GTE Corp. ............................................................................................ 30,000 1,567,500
-------------
4,607,438
-------------
Total Long Term Investments (Cost $76,532,823) ....................................................... 89,751,079
-------------
PRINCIPAL
AMOUNT
fRepurchase Agreement 17.3%
Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $18,914,678) (Cost $18,908,076) ........ $18,908,076 18,908,076
-------------
BancAmerica Robertson Stephens (Maturity Value $586,357)
Barclays Capital Group, Inc. (Maturity Value $1,740,150)
BT Alex Brown, Inc. (Maturity Value $1,626,663)
Chase Securities, Inc. (Maturity Value $1,740,150)
CIBC Wood Gundy Securities Corp. (Maturity Value $1,740,150)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $1,740,150)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,740,150)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $1,740,150)
Greenwich Capital Markets, Inc. (Maturity Value $1,040,308)
Paribas Corp. (Maturity Value $1,740,150)
SBC Warburg Dillon Read, Inc. (Maturity Value $1,740,150 )
UBS Securities, L.L.C. (Maturity Value $1,740,150)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $95,440,899) 99.4% ........................................................... 108,659,155
Other Assets, less Liabilities .6% ................................................................... 695,832
-------------
Net Assets 100.0% .................................................................................... $109,354,987
=============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
Growth and Income Fund COUNTRY SHARES VALUE
Common Stocks 93.5%
<S> <C> <C>
Automobile 2.0%
Chrysler Corp. ................................................................... United States 367,000 $ 12,913,813
Ford Motor Co. ................................................................... United States 292,500 14,241,093
-------------
27,154,906
-------------
Chemicals, Basic 3.5%
Dow Chemical Co. ................................................................. United States 144,300 14,646,450
Imperial Chemical Industries, Plc., Sponsored ADR ................................ United Kingdom 331,000 21,494,313
Millennium Chemicals, Inc. ....................................................... United States 431,870 10,175,937
-------------
46,316,700
-------------
Consumer Products 4.6%
Anheuser-Busch Cos., Inc. ........................................................ United States 375,000 16,500,000
Cadbury Schweppes, Plc. .......................................................... United Kingdom 123,900 1,231,104
Dial Corp. ....................................................................... United States 236,800 4,928,400
Eastman Kodak Co. ................................................................ United States 182,000 11,067,875
Fortune Brands, Inc. ............................................................. United States 345,100 12,790,269
H.J. Heinz Co. ................................................................... United States 288,000 14,634,000
-------------
61,151,648
-------------
Electrical Equipment 1.5%
AMP, Inc. ........................................................................ United States 300,000 12,600,000
General Electric Co. ............................................................. United States 92,200 6,765,175
-------------
19,365,175
-------------
Financial Services 10.1%
Banc One Corp. ................................................................... United States 263,100 14,289,618
BankBoston Corp. ................................................................. United States 223,500 20,995,031
Beneficial Corp. ................................................................. United States 217,000 18,038,125
J.P. Morgan & Co., Inc. .......................................................... United States 115,900 13,082,213
Mercantile Bancorporation, Inc. .................................................. United States 248,203 15,264,485
National City Corp. .............................................................. United States 304,000 19,988,000
PNC Bank Corp. ................................................................... United States 345,900 19,737,919
Westpac Banking Corp., Ltd. ...................................................... Australia 2,163,651 13,842,132
-------------
135,237,523
-------------
Forest Products & Paper 4.4%
Georgia-Pacific Corp. ............................................................ United States 151,000 9,173,250
Georgia Pacific Corp. (Timber Group) ............................................. United States 201,000 4,560,187
Portucel Industrial-Empresa Produtora de Celulosa, SA, Sponsored ADR, 144A ....... Portugual 1,020,000 6,223,632
Potlatch Corp. ................................................................... United States 318,400 13,691,200
Union Camp Corp. ................................................................. United States 240,000 12,885,000
Weyerhaeuser Co. ................................................................. United States 255,000 12,510,938
-------------
59,044,207
-------------
Insurance 4.5%
Lincoln National Corp. ........................................................... United States 324,400 25,343,750
Mid Ocean, Ltd. .................................................................. United States 214,100 11,614,925
Scor ............................................................................. France 297,000 14,202,310
St. Paul Cos., Inc. .............................................................. United States 76,000 6,236,750
Zenith National Insurance Corp. .................................................. United States 121,500 3,128,625
-------------
60,526,360
-------------
Metals & Mining 2.0%
British Steel, Plc., Sponsored ADR ............................................... United Kingdom 490,000 10,504,375
DeBeers Consolidated Mines, Ltd., ADR ............................................ South Africa 401,800 8,211,788
Freeport-McMoRan Copper & Gold, Inc., Class A .................................... United States 480,000 7,560,000
-------------
26,276,163
-------------
Miscellaneous Manufacturing .8%
Cooper Industries, Inc. .......................................................... United States 167,300 $ 8,197,700
Minnesota Mining and Manufacturing Co. ........................................... United States 35,500 2,913,219
-------------
11,110,919
-------------
Oil/Gas Transmission 3.8%
Consolidated Natural Gas Co. ..................................................... United States 267,000 16,153,500
National Fuel Gas Co. ............................................................ United States 421,800 20,536,388
Pacific Enterprises .............................................................. United States 390,800 14,703,850
-------------
51,393,738
-------------
Petroleum, Integrated 15.1%
Amoco Corp. ...................................................................... United States 275,700 23,468,962
Atlantic Richfield Co. ........................................................... United States 452,000 36,216,500
Chevron Corp. .................................................................... United States 339,000 26,103,000
Exxon Corp. ...................................................................... United States 427,000 26,127,062
Mobil Corp. ...................................................................... United States 274,000 19,779,375
Texaco, Inc. ..................................................................... United States 536,400 29,166,750
Ultramar Diamond Shamrock Corp. .................................................. United States 447,800 14,273,625
YPF Sociedad Anonima, Sponsored ADR .............................................. Argentina 807,000 27,589,313
-------------
202,724,587
-------------
Pharmaceuticals 4.5%
Bristol-Myers Squibb Co. ......................................................... United States 185,000 17,505,625
Glaxo Wellcome, Plc., Sponsored ADR .............................................. United Kingdom 440,800 21,103,300
Pharmacia & Upjohn, Inc. ......................................................... United States 590,000 21,608,750
-------------
60,217,675
-------------
Printing, Publishing & Media .8%
Dun & Bradstreet Corp. ........................................................... United States 325,000 10,054,688
-------------
Real Estate Investment Trusts 5.2%
Equity Residential Properties Trust .............................................. United States 485,300 24,537,980
FelCor Suite Hotels, Inc. ........................................................ United States 712,000 25,276,000
Simon DeBartolo Group, Inc. ...................................................... United States 615,700 20,125,693
-------------
69,939,673
-------------
Retail 2.3%
J.C. Penney Co., Inc. ............................................................ United States 501,900 30,270,844
-------------
Telecommunications 10.4%
Ameritech Corp. .................................................................. United States 181,000 14,570,500
AT&T Corp. ....................................................................... United States 276,000 16,905,000
Bell Atlantic Corp. .............................................................. United States 274,816 25,008,255
aFrance Telecom, SA ............................................................... France 111,100 4,029,763
GTE Corp. ........................................................................ United States 477,500 24,949,375
Southern New England Telecommunications Corp. .................................... United States 633,900 31,893,093
U S WEST Communications Group .................................................... United States 483,100 21,799,888
-------------
139,155,874
-------------
Tobacco 6.4%
Dimon, Inc. ...................................................................... United States 550,000 14,437,500
Imperial Tobacco Group, Plc. ..................................................... United Kingdom 1,108,000 6,987,780
Imperial Tobacco Group, Plc., ADR ................................................ United Kingdom 528,300 6,663,606
Philip Morris Cos., Inc. ......................................................... United States 347,800 15,759,688
RJR Nabisco Holdings Corp. ....................................................... United States 498,560 18,696,000
UST, Inc. ........................................................................ United States 640,000 23,640,000
-------------
86,184,574
-------------
Transportation .9%
Illinois Central Corp. ........................................................... United States 352,000 11,990,000
-------------
Utilities 10.7%
CINergy Corp. .................................................................... United States 364,000 $ 13,968,500
Dominion Resources, Inc. ......................................................... United States 519,000 22,089,938
Enova Corp. ...................................................................... United States 590,000 15,966,875
Entergy Corp. .................................................................... United States 653,000 19,549,188
GPU, Inc. ........................................................................ United States 425,300 17,915,763
New Century Energies, Inc. ....................................................... United States 288,000 13,806,000
OGE Energy Corp. ................................................................. United States 294,000 16,041,375
PacifiCorp ....................................................................... United States 410,000 11,172,500
PG&E Corp. ....................................................................... United States 435,700 13,261,619
-------------
143,771,758
-------------
Total Long Term Investments (Cost $947,564,869) .................................. 1,251,887,012
-------------
PRINCIPAL
AMOUNT
fRepurchase Agreement 5.8%
Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $77,961,600)
(Cost $77,934,388) ............................................................... United States $77,934,388 77,934,388
-------------
BancAmerica Robertson Stephens (Maturity Value $2,388,743)
Barclays Capital Group, Inc. (Maturity Value $7,169,349)
BT Alex Brown, Inc. (Maturity Value $6,750,695)
Chase Securities, Inc. (Maturity Value $7,169,349)
CIBC Wood Gundy Securities Corp. (Maturity Value $7,169,349)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $7,169,349)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $7,169,349)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $7,168,569)
Greenwich Capital Markets, Inc. (Marturity Value $4,301,141)
Paribas Corp. (Maturity Value $7,168,569)
SBC Warburg Dillon Read, Inc. (Maturity Value $7,168,569)
UBS Securities, L.L.C. (Maturity Value $7,168,569)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $1,025,499,257) 99.3% .................................... 1,329,821,400
Other Assets, less Liabilities .7% ............................................... 8,654,726
-------------
Net Assets 100.0% ................................................................ $1,338,476,126
=============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
SHARES/
High Income Fund COUNTRY WARRANTS VALUE
<S> <C> <C>
Long-Term Investments 93.5%
aCommon Stocks and Warrants .1%
Empire Gas Corp., warrants ...................................................... United States 6,900 $ 41,400
Foodmaker, Inc., warrants ....................................................... United States 70 2,968
Gulf States Steel, warrants ..................................................... United States 5,000 25,000
International Wireless Holding Co., warrants .................................... United States 7,800 312,000
McCaw International Holdings..................................................... United States 7,000 17,500
Nextel Communications, Inc. ..................................................... United States 10,070 261,820
Nextel Communications, Inc., warrants............................................ United States 6,500 19,500
Orion Network Systems, Inc., warrants ........................................... United States 1,500 17,016
Thermadyne Holdings Corp. ....................................................... United States 395 11,653
Wireless One, Inc., warrants .................................................... United States 5,000 50
-------------
Total Common Stocks and Warrants (Cost $357,374) ................................ 708,907
-------------
Preferred Stocks 1.6%
Asia Pulp & Paper Co., Ltd., 12.00%, pfd., Class A .............................. Indonesia 4,500,000 3,881,250
Fresenius Medical Care A.G., 9.00%, pfd. ........................................ United States 1,300 1,365,000
Time Warner, Inc., 10.25%, pfd., Series M, PIK .................................. United States 2,496 2,808,418
-------------
Total Preferred Stocks (Cost $8,322,389) ........................................ 8,054,668
-------------
Total Common Stocks and Warrants, and Preferred Stocks (Cost $8,679,763) ........ 8,763,575
-------------
PRINCIPAL
AMOUNT*
Bonds 91.8%
Automotive .4%
Aetna Industrial, Inc., senior notes, 11.875%, 10/01/06 ........................ United States 700,000 612,500
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06 ...................... United States 1,000,000 1,130,000
-------------
1,742,500
-------------
Broadcasting 5.2%
Benedek Broadcasting Corp., senior notes, 11.875%, 3/01/05 ...................... United States 2,500,000 2,812,500
Chancellor Media Corp., senior sub. notes, 144A, 8.125%, 12/15/07 ............... United States 8,000,000 7,870,000
Granite Broadcasting Corp., senior sub. notes, 10.375%, 5/15/05 ................. United States 6,500,000 6,841,250
Jacor Communications, Inc., senior sub. notes, 9.75%, 12/15/06 .................. United States 1,000,000 1,068,750
SCI Television, Inc., S.F., senior notes, 11.00%, 6/30/05 ....................... United States 2,000,000 2,113,462
SFX Broadcasting, Inc., senior sub. notes, Series B, 10.75%, 5/15/06 ........... United States 2,000,000 2,200,000
Sinclair Broadcast Group, Inc., senior sub. notes, 10.00%, 9/30/05 .............. United States 2,500,000 2,643,750
-------------
25,549,712
-------------
Cable Television/Systems 7.5%
Cablevision Systems Corp., senior sub. deb., 10.50%, 5/15/16 .................... United States 3,000,000 3,502,500
Cablevision Systems Corp., senior sub. deb., 9.875%, 4/01/23 .................... United States 4,500,000 4,972,500
Cablevision Systems Corp., senior sub. notes, 8.125%, 8/15/09 ................... United States 1,500,000 1,556,250
Century Communications Corp., senior sub. notes, 9.50%, 3/01/05 ................. United States 3,000,000 3,187,500
Comcast Corp., senior sub. deb., 9.125%, 10/15/06 .............................. United States 2,000,000 2,135,000
Comcast Corp., senior sub. deb., 9.50%, 1/15/08 ................................. United States 2,000,000 2,135,000
Continental Cablevision, Inc., senior deb., 9.50%, 8/01/13 ...................... United States 1,500,000 1,789,617
Continental Cablevision, Inc., senior sub. deb., 11.00%, 6/01/07 ................ United States 1,000,000 1,112,220
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 2,099,250
Diamond Cable Communications Co., Plc., senior disc. notes, 144A,
zero coupon to 2/15/02, 10.75%
thereafter, 2/15/07 ............................................................ United Kingdom 1,500,000 1,023,750
Le Groupe Videotron Ltee, senior notes, 10.625%, 2/15/05 ........................ Canada 2,200,000 2,442,000
Rogers Cablesystems, Inc., senior secured deb., 9.65%, 1/15/14 .................. Canada 5,700,000 CAD 4,317,729
TeleWest Communications, Plc., senior deb., zero coupon
to 10/01/00,11.00% thereafter, 10/01/07 .......................................... United Kingdom 8,000,000 6,250,000
Wireless One, Inc., units, senior disc. notes, zero coupon to 8/01/01,
13.50% thereafter, 8/01/06 ...................................................... United States 2,000,000 420,000
-------------
36,943,316
-------------
Chemicals 2.6%
Applied Extrusion Technologies, Inc., senior notes, Series B, 11.50%, 4/01/02 ... United States 3,750,000 4,012,500
Climachem, Inc., senior sub. notes, 144A, 10.75%, 12/01/07 ...................... United States 1,200,000 1,242,000
Chemicals (cont.)
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 ........................ United States 3,500,000 $ 3,640,000
Uniroyal Chemical Co. Investors, disc. notes, zero coupon to 5/01/98,
12.00% thereafter, 5/01/05....................................................... United States 4,000,000 3,920,000
-------------
12,814,500
-------------
Consumer Products 3.1%
E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ............ United States 3,000,000 2,760,000
Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ............... United States 300,000 306,375
Revlon Worldwide Corp., senior disc. notes, 144A, zero coupon to
3/15/00, 10.75% thereafter 3/15/01................................................ United States 10,000,000 6,950,000
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 ........................................ United States 3,000,000 3,439,017
Sealy Mattress Corp., senior disc. notes, 144A, zero coupon to
12/15/02, 10.875% thereafter, 12/15/07 ......................................... United States 1,500,000 911,250
Sealy Mattress Corp., senior sub. notes, 144A, 9.875%, 12/15/07 ................ United States 1,000,000 1,027,500
-------------
15,394,142
-------------
Containers & Packaging 2.0%
Container Corp., senior notes, Series A, 11.25%, 5/01/04......................... United States 3,500,000 3,876,250
Plastic Containers, Inc., senior notes, 10.00%, 12/15/06 ........................ United States 1,000,000 1,060,000
Radnor Holdings Corp., senior notes, 10.00%, 12/01/03............................ United States 5,000,000 5,212,500
-------------
10,148,750
-------------
Energy 3.1%
Clark R&M, Inc., senior sub. notes, 144A, 8.875%, 11/15/07 ..................... United States 5,000,000 5,062,500
Dailey International, Inc.,senior sub. notes, 144A, 9.75%, 8/15/07 ............. United States 1,100,000 1,160,500
Dawson Production Services, Inc., senior notes, 9.375%, 2/01/07 ................. United States 1,000,000 1,058,750
Empire Gas Corp., units, senior secured notes, 7.00% coupon to
7/15/99, 12.875% thereafter, 7/15/04 ............................................ United States 5,000,000 4,487,500
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ........................... United States 800,000 852,000
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
Pogo Producing Co., senior sub. notes, Series B, 8.75%, 5/15/07 ................. United States 1,000,000 1,030,000
-------------
15,145,250
-------------
Food & Beverage 4.2%
Coca Cola Bottling Group Southwest, Inc., senior sub. notes, 9.00%, 11/15/03 .... United States 3,000,000 3,090,000
Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 2/01/05 .................... United States 700,000 775,250
Doane Products Co., senior notes, 10.625%, 3/01/06 ............................. United States 3,000,000 3,195,000
International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 ........... United States 1,600,000 1,764,000
PMI Acquisition Corp., senior sub. notes, 10.25%, 9/01/03 ....................... United States 4,700,000 5,017,250
RC/Arby's Corp., senior notes, 9.75%, 8/01/00 ................................... United States 4,000,000 4,095,000
Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 .................. United States 3,000,000 3,075,000
-------------
21,011,500
-------------
Food Retailing 2.0%
Fleming Cos., Inc., senior sub. notes, 144A, 10.50%, 12/01/04 ................... United States 2,000,000 2,105,000
Fleming Cos., Inc., senior sub. notes, 144A, 10.625%, 7/31/07 .................. United States 2,000,000 2,120,000
Ralphs Grocery Co., senior notes, 10.45%, 6/15/04 ............................... United States 3,750,000 4,218,750
Shoppers Food Warehouse Corp., senior notes, 144A, 9.75%, 6/15/04 ............... United States 1,500,000 1,537,500
-------------
9,981,250
-------------
Forest & Paper Products 2.9%
Bear Island Paper, senior notes, 144A, 10.00%, 12/01/07 ........................ United States 1,800,000 1,851,750
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 ........................... United States 7,700,000 8,200,500
S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 .................. United States 2,300,000 2,564,500
Tjiwi Kimia Finance Mauritius, senior unsecured notes,
144A, 10.00%, 8/01/04............................................................. Mauritius 2,000,000 1,680,000
-------------
14,296,750
-------------
Gaming & Leisure 4.5%
Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 8/15/06 .................... United States 1,000,000 1,100,000
Players International, Inc., senior notes, 10.875%, 4/15/05 ..................... United States 2,900,000 3,132,000
Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 7/15/05 ................... United States 3,000,000 3,255,000
Gaming & Leisure (cont.)
Showboat, Inc., senior sub. notes, 13.00%, 8/01/09 .............................. United States 7,500,000 $ 9,337,500
Six Flags Theme Parks, senior sub. notes, zero coupon to 6/15/98,
12.25% thereafter, 6/15/05........................................................ United States 5,000,000 5,350,000
-------------
22,174,500
-------------
Health Care Services 5.4%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ................ United States 7,770,000 8,168,213
Mariner Health Group, Inc., senior sub. notes, 9.50%, 4/01/06 ................... United States 5,500,000 5,720,000
Maxxim Medical, Inc., senior sub. notes, 10.50%, 8/01/06 ....................... United States 2,000,000 2,185,000
Tenet Healthcare Corp., senior notes, 9.625%, 9/01/02............................ United States 850,000 922,250
Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03........................... United States 2,400,000 2,547,655
Tenet Healthcare Corp., senior sub. notes, 10.125%, 3/01/05...................... United States 3,400,000 3,727,250
Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 ..................... United States 3,250,000 3,347,500
-------------
26,617,868
-------------
Industrial Products 8.2%
Allied Waste Industries, Inc., senior disc. notes,
zero coupon to 6/01/02, 11.30% thereafter, 6/01/07 .............................. United States 11,500,000 8,107,500
Allied Waste Industries, Inc., senior sub. notes, 144A, 10.25%, 12/01/06 ........ United States 2,500,000 2,756,250
American Standard Cos., Inc., senior sub. deb., zero coupon to
6/01/98, 10.50% thereafter, 6/01/05 ............................................. United States 8,500,000 8,670,000
Day International Group, senior sub. notes, 11.125%, 6/01/05 .................... United States 1,000,000 1,085,000
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 2,385,000
Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ................. United States 3,200,000 3,632,000
Intertek Finance, Plc., senior sub. notes, 10.25%, 11/01/06 .................... United Kingdom 1,200,000 1,254,000
Nortek, Inc., senior sub. notes, 9.875%, 3/01/04 ................................ United States 5,500,000 5,637,500
Trench Electric & Trench, Inc., senior sub. deb., 144A, 10.25%, 12/15/07 ....... Canada 750,000 765,000
-------------
40,954,750
-------------
Lodging 2.3%
HMH Properties Corp., notes, Series B, 8.875%, 7/15/07 .......................... United States 3,000,000 3,172,500
John Q. Hammons Hotels, L.P., first mortgage, 8.875%, 2/15/04.................... United States 1,000,000 1,025,000
John Q. Hammons Hotels, L.P., first mortgage, 9.75%, 10/01/05.................... United States 1,500,000 1,590,000
Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 4/01/07 ........... United States 3,000,000 3,195,000
Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03.............................. United States 2,310,000 2,385,075
-------------
11,367,575
-------------
Media 5.7%
American Media Operation, senior sub. notes, 11.625%, 11/15/04 .................. United States 1,700,000 1,853,000
Ascent Entertainment Group, Inc., senior disc. notes, 144A,
zero coupon to 12/01/02, 11.875% thereafter,
12/15/04......................................................................... United States 3,000,000 1,732,500
Fox Kids Worldwide, Inc., senior disc. notes, 144A,
zero coupon to 11/01/02, 10.25% thereafter, 11/01/07 ............................. United States 5,750,000 3,450,000
Fox Kids Worldwide, Inc., senior notes, 144A, 9.25%, 11/01/07 ................... United States 1,500,000 1,458,750
Hollinger Publishing, senior sub. notes, 9.25%, 3/15/07 ......................... United States 4,500,000 4,747,500
K-III Communications Corp., senior notes, 10.25%, 6/01/04 ....................... United States 2,500,000 2,687,500
News America Holdings, Inc., deb., 8.625%, 2/07/14............................... Australia 5,000,000 AUD 3,091,740
Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 ...................... United States 4,250,000 4,441,250
Time Warner, Inc., deb., 9.125%, 1/15/13 ........................................ United States 1,500,000 1,795,269
Turner Broadcasting Systems, Inc., senior deb., 8.40%, 2/01/24 .................. United States 3,000,000 3,189,312
-------------
28,446,821
-------------
Metals & Mining 3.1%
AK Steel Holding Corp., senior notes, 9.125%, 12/15/06 ......................... United States 4,000,000 4,120,000
Algoma Steel, Inc., first mortgage, 12.375%, 7/15/05 ............................ Canada 4,000,000 4,640,000
LTV Corp., notes, 144A, 8.20%, 9/15/07 ......................................... United States 4,500,000 4,342,500
Neenah Corp., senior sub. notes, Series B, 11.125%, 5/01/07 .................... United States 1,000,000 1,097,500
UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 1/15/05 ........... United States 1,110,000 1,251,523
-------------
15,451,523
-------------
Restaurants 1.6%
Friendly Ice Cream Corp., senior notes, 10.50%, 12/01/07 ....................... United States 8,000,000 8,140,000
-------------
Retail .8%
Hollywood Entertainment Corp., senior sub. notes,
Series B, 10.625%, 8/15/04....................................................... United States 4,000,000 $ 3,940,000
-------------
Technology & Information Systems 1.8%
Amphenol Corp., senior sub. notes, 9.875%, 5/15/07 ............................. United States 1,000,000 1,065,000
Borg-Warner Security Corp., senior sub. notes, 9.625%, 3/15/07 ................. United States 4,000,000 4,180,000
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 .............. United States 1,150,000 1,213,250
Decisionone Corp., senior sub. notes, 9.75%, 8/01/07 ........................... United States 1,000,000 1,025,000
Decisionone Holdings, units, zero coupon to 8/01/03,
11.50% thereafter, 8/01/08....................................................... United States 2,500,000 1,600,000
-------------
9,083,250
-------------
Telecommunications 5.4%
Hermes Europe Railtel BV, senior notes, 144A, 11.50%, 8/15/07 ................... Netherlands 2,000,000 2,200,000
Intelcom Group, Inc., senior disc. notes, zero coupon to
5/01/01, 12.50% thereafter, 5/01/06 ............................................. United States 3,250,000 2,449,688
Intermedia Communications, Inc., senior disc. notes,
zero coupon to 7/01/02, 11.25% thereafter, 7/15/07 .............................. United States 5,000,000 3,587,500
Netia Holdings, BV, notes, 144A, 10.25%, 11/01/07 ............................... Poland 1,300,000 1,248,000
Netia Holdings, BV, notes, 144A, zero coupon to 11/01/01,
11.25% thereafter, 11/01/07 ...................................................... Poland 2,000,000 1,140,000
NEXTLINK Communications, Inc., senior notes, 9.625%, 10/01/07 .................. United States 1,400,000 1,456,000
Orion Network Systems, Inc., units, senior disc. notes, zero
coupon to 1/15/02, 12.50% thereafter, 1/15/07 .................................... United States 1,500,000 1,121,250
Poland Telecom Finance, units, 144A, 4.00%, 12/01/07............................ Poland 8,000,000 8,260,000
Teleport Communications Group, Inc., senior disc. notes,
zero coupon to 7/01/01, 11.125% thereafter,
7/01/07 ......................................................................... United States 6,500,000 5,313,750
-------------
26,776,188
-------------
Textiles & Apparel 2.4%
Clark-Schwebel, Inc., senior notes, Series B, 10.50%, 4/15/06 .................. United States 5,500,000 6,022,500
Pillowtex Corp., senior sub. notes, 144A, 9.00%, 12/15/07 ...................... United States 2,900,000 2,987,000
Polysindo International Finance, notes, 9.375%, 7/30/07 ......................... Indonesia 4,250,000 3,070,625
-------------
12,080,125
-------------
Transportation 4.1%
Eletson Holdings, Inc., first mortgage notes, 9.25%, 11/15/03 ................... Greece 1,600,000 1,644,000
GS Superhighway Holdings, Ltd., senior notes, 144A, 10.25%, 8/15/07............. Hong Kong 6,000,000 5,280,000
Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 .......................... Bermuda 4,500,000 4,961,250
L-3 Communications Corp., senior sub. notes, 10.375%, 5/01/07 .................. United States 3,500,000 3,815,000
MRS Logistica, SA, notes, 144A, 10.625%, 8/15/05................................. Brazil 5,000,000 4,525,000
-------------
20,225,250
-------------
Utilities 1.3%
AES Corp., senior sub. notes, 144A, 8.50%, 11/01/07 ............................ United States 1,000,000 1,005,000
El Paso Electric Co., first mortgage, 8.90%, 2/01/06 ........................... United States 2,500,000 2,765,625
Midland Funding Corp. I, deb., Series C-94, 10.33%, 7/23/02...................... United States 2,366,375 2,556,904
System Energy Resource, S.F., first mortgage, 11.375%, 9/01/16 .................. United States 1,000 1,081
-------------
6,328,610
-------------
Wireless Communication 12.2%
Arch Communications Group, Inc., senior disc. notes,
zero coupon to 3/15/01, 10.875% thereafter, 3/15/08.............................. United States 6,000,000 3,660,000
Comcast Cellular, senior notes, Series B, 9.50%, 5/01/07 ....................... United States 3,000,000 3,142,500
Dial Call Communications, units, senior disc. notes,
zero coupon to 4/15/99, 12.25% thereafter, 4/15/04 .............................. United States 4,000,000 3,830,000
International Wireless Communications, Inc., senior disc. notes,
zero coupon to 8/15/01, 14.00% thereafter 8/15/01............................... United States 7,800,000 3,900,000
McCaw International, Ltd., units, senior disc. notes,
zero coupon to 4/15/02, 13.50%.................................................. United States 7,000,000 4,165,000
thereafter, 4/15/07...............................................................
Millicom International Cellular, SA,
senior disc. notes, 13.50%, 6/01/06 ............................................. Luxembourg 9,300,000 6,812,250
Nextel Communications, Inc., senior disc. notes,
144A, zero coupon to 9/15/02, 10.65%............................................. United States 7,000,000 4,445,000
thereafter, 9/15/07
Nextel Communications, Inc., senior disc. notes,
144A, zero coupon to 10/31/02, 9.75%............................................. United States 3,000,000 1,845,000
thereafter, 10/31/07
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 ...................... United States 4,700,000 4,911,500
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08........................ United States 4,500,000 4,685,625
Rogers Cantel Mobile Communications, Inc., deb., 9.75%, 6/01/16 ................. Canada 3,000,000 3,217,500
Wireless Communication (cont.)
Sprint Spectrum, L.P., senior disc. notes, zero coupon to 8/15/01,
12.50% thereafter, 8/15/06 ..................................................... United States 10,000,000 $ 7,825,000
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 .......................... United States 7,500,000 8,081,250
-------------
60,520,625
-------------
Total Bonds (Cost $434,246,371) ................................................. 455,134,755
-------------
Total Long Term Investments (Cost $442,926,134) ................................. 463,898,330
-------------
fRepurchase Agreement 4.9%
Joint Repurchase Agreement, 6.285%, 1/02/98 (Maturity Value $24,275,586)......... United States 24,267,113 24,267,113
-------------
(Cost $24,267,113)
BancAmerica Robertson Stephens (Maturity Value $743,749)
Barclays Capital Group, Inc. (Maturity Value $2,232,284)
BT Alex Brown, Inc., (Maturity Value $2,101,910)
Chase Securities, Inc., (Maturity Value $2,232,284)
CIBC Wood Gundy Securities Corp., (Maturity Value $2,232,284)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., (Maturity Value $2,232,284)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,232,284)
Dresdne Kleinwort Benson, North America, L.L.C., (Maturity Value $2,232,284)
Greenwich Capital Markets, Inc., (Maturity Value $1,339,371)
Paribas Corp., (Maturity Value $2,232,284)
SBC Warburg, Inc. (Maturity Value $2,232,284)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,232,284)
Collaterized by U.S. Treasury Bills & Notes
Total Investments (Cost $467,193,247) 98.4% ..................................... 488,165,443
Other Assets, less Liabilities 1.6% ............................................. 7,870,389
-------------
Net Assets 100.0% .............................................................. $496,035,832
=============
See currency abbreviations on page 147.
*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, December 31, 1997
SHARES/
Income Securities Fund WARRANTS VALUE
<S> <C> <C>
Common Stocks and Warrants 36.3%
Apparel & Textiles .3%
a,cBibb Co.......................................................................................... 419,424 $ 3,512,676
-------------
Automotive .2%
General Motors Corp. ............................................................................... 40,000 2,425,000
-------------
Computer & Technology .2%
a Anacomp, Inc...................................................................................... 190,223 2,972,234
-------------
Consumer Products 2.1%
Phillip Morris Cos., Inc. ........................................................................ 600,000 27,187,500
RJR Nabisco Holdings Corp. ....................................................................... 60,000 2,250,000
-------------
29,437,500
-------------
Energy 3.3%
Athabasca Oil Sands Trust (Canada) 576,500 9,863,493
Atlantic Richfield Co. ........................................................................... 60,000 4,807,500
Canadian Oil Sands Trust - Units, 144A (Canada) .................................................. 500,000 9,446,835
Energy Group, Plc., Sponsored ADR ................................................................ 47,500 2,119,688
Pioneer Natural Resources Co. .................................................................... 302,226 8,745,665
aSanta Fe Energy Resources, Inc. ................................................................... 279,642 3,145,973
Snyder Oil Corp. ................................................................................. 61,087 1,114,838
Texaco Inc. ...................................................................................... 60,000 3,262,500
Ultramar Diamond Shamrock Corp. .................................................................. 125,000 3,984,375
-------------
46,490,867
-------------
Metals 1.0%
Anglo American Platinum Corp., Ltd., ADR ......................................................... 223,161 2,980,672
Driefontein Consolidated, Ltd., Sponsored ADR .................................................... 185,200 1,226,950
Free State Consolidated Gold Mines, Ltd., ADR .................................................... 500,000 2,218,750
Freeport-McMoRan Copper & Gold, Inc., Class A .................................................... 110,000 1,684,375
Impala Platinum Holdings, Ltd., ADR .............................................................. 216,500 2,068,679
St. Helena Gold Mines, Ltd., ADR ................................................................. 19,000 47,500
Vaal Reefs Exploration & Mining Co., Ltd., ADR ................................................... 400,000 1,537,520
Western Deep Levels, Ltd., ADR ................................................................... 150,000 2,793,750
-------------
14,558,196
-------------
Real Estate Investment Trusts 2.1%
Equity Residential Properties Trust .............................................................. 150,000 7,584,375
FelCor Suite Hotels, Inc. ........................................................................ 275,000 9,762,500
Gables Residential Trust ......................................................................... 150,000 4,143,750
Meditrust Cos. ................................................................................... 120,160 4,400,860
Simon DeBartolo Group, Inc. ...................................................................... 102,900 3,363,544
-------------
29,255,029
-------------
Telecommunications 1.2%
U S WEST Communications Group .................................................................... 360,000 16,245,000
-------------
Utilities 25.9%
American Electric Power Co. ...................................................................... 390,000 20,133,750
Central & South West Corp. ....................................................................... 670,000 18,131,875
CINergy Corp. .................................................................................... 511,000 19,609,625
Delmarva Power & Light Co. ....................................................................... 500,000 11,531,250
Dominion Resources, Inc. ......................................................................... 385,000 16,386,563
Edison International.............................................................................. 610,000 16,584,375
Enova Corp. ...................................................................................... 525,000 14,207,813
Entergy Corp. .................................................................................... 570,000 17,064,375
FirstEnergy Corp. ................................................................................ 385,000 11,165,000
Florida Progress Corp. ........................................................................... 422,300 16,575,275
FPL Group, Inc................................................................................... 240,000 14,205,000
GPU, Inc......................................................................................... 320,000 13,480,000
Hawaiian Electric Industries, Inc. ............................................................... 142,000 5,804,250
Utilities (cont.)
Houston Industries, Inc. ......................................................................... 315,000 $ 8,406,563
Long Island Lighting Co. ......................................................................... 400,000 12,050,000
MidAmerican Energy Holdings Co. .................................................................. 291,700 6,417,400
Nevada Power Co. ................................................................................. 175,000 4,648,438
New Century Energies, Inc. ....................................................................... 380,000 18,216,250
New England Electric System ...................................................................... 330,000 14,107,500
New York State Electric & Gas Corp. ............................................................. 200,000 7,100,000
Northern States Power Co. ........................................................................ 105,000 6,116,250
PacifiCorp ...................................................................................... 120,000 3,270,000
PECO Energy Co................................................................................... 400,000 9,700,000
PG&E Corp. ...................................................................................... 610,000 18,566,875
Potomac Electric Power Co. ....................................................................... 300,000 7,743,750
Public Service Enterprise Group, Inc. ............................................................ 395,000 12,516,563
SCANA Corp. ...................................................................................... 150,000 4,490,625
Southern Co. ..................................................................................... 480,000 12,420,000
Texas Utilities Co. .............................................................................. 370,000 15,378,125
Western Resources, Inc. .......................................................................... 210,000 9,030,000
-------------
365,057,490
-------------
Miscellaneous Securities.......................................................................... 316,981
-------------
Total Common Stocks and Warrants (Cost $401,963,996) ............................................. 510,270,973
-------------
Preferred Stocks .6%
Consumer Products .1%
Pantry Pride, Inc., $14.875 pfd., Series B ....................................................... 11,000 1,104,125
-------------
Media & Broadcasting .2%
Time Warner, Inc., 10.25% pfd., Series M ......................................................... 2,852 3,208,796
-------------
Paper & Forest Products .3%
Asia Pulp & Paper Co., Ltd., 12.00% pfd., Class A ................................................ 5,000,000 4,312,500
-------------
Total Preferred Stocks (Cost $9,037,531) ......................................................... 8,625,421
-------------
Convertible Preferred Stocks 8.6%
Cable Systems .8%
Cablevision Systems Corp., 8.50% cvt. pfd., Series I ............................................. 265,000 10,202,500
-------------
Energy 3.0%
Devon Financing Trust, $3.25 cvt. pfd., 144A ..................................................... 60,000 4,410,000
Enron Corp., 6.25% cvt. pfd. ..................................................................... 330,000 6,806,250
EVI, Inc., 5.00% cvt. pfd., 144A ................................................................. 80,000 3,640,000
Lomak Petroleum, Inc., 5.75% cvt. pfd., 144A ..................................................... 65,000 3,103,750
McDermott International, Inc., $2.875 cvt. pfd., Series C, 144A .................................. 235,000 12,807,500
Nuevo Energy Co., 5.75% cvt. pfd., Series A ...................................................... 116,000 5,684,000
Occidental Petroleum Corp., $3.875 cvt. pfd., 144A ............................................... 75,000 4,828,125
Patina Oil & Gas Corp., 7.125% cvt. pfd. ......................................................... 39,525 1,146,225
-------------
42,425,850
-------------
Lodging .4%
Host Marriott Financial Trust, 6.75% cvt. pfd., 144A ............................................. 100,000 6,062,500
-------------
Metals 1.5%
Amax Gold, Inc., $3.75 cvt. pfd., Series B ....................................................... 150,000 5,400,000
Armco, Inc., $3.625 cum. cvt. pfd., Series A ..................................................... 65,000 3,038,750
Battle Mountain Gold Co., $3.25 cvt. pfd. ........................................................ 66,300 2,983,500
Coeur D' Alene Mines Corp., 7.00% cvt. pfd. ...................................................... 135,000 1,636,875
Cyprus Amax Minerals Co., $4.00 cvt. pfd., Series A .............................................. 55,000 2,612,500
Freeport-McMoRan Copper & Gold, Inc., $1.25 cum. cvt. pfd. ...................................... 108,800 2,611,200
Hecla Mining Co., $3.50 cvt. pfd., Series B ...................................................... 70,000 3,272,500
-------------
21,555,325
-------------
Real Estate Investment Trusts 1.5%
Security Capital Industrial Trust, 7.00% cvt. pfd. ............................................... 135,000 $ 4,303,125
Security Capital Pacific Trust, $1.75 cvt. pfd., Series A ........................................ 400,000 13,100,000
Vornado Realty Trust, 6.50% cvt. pfd., Series A .................................................. 60,000 3,960,000
-------------
21,363,125
-------------
Telecommunications .7%
Nortel Inversora, SA, 10.00% cvt. pfd. (Argentina) ............................................... 150,000 9,515,625
-------------
Utility .7%
c CMS Energy Corp., 7.75% quarterly cvt. pfd. ...................................................... 160,000 10,367,730
-------------
Total Convertible Preferred Stocks (Cost $109,036,746) 121,492,655
-------------
Partnership Units .1%
BP Prudhoe Bay Royalty Trust (Cost $1,340,750) 50,000 803,125
-------------
PRINCIPAL
AMOUNT
Corporate Bonds 22.5%
Apparel & Textiles 1.8%
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 8,590,500
Polysindo International Finance Corp., secured notes, 11.375%, 6/15/06 ........................... 1,000,000 822,500
The William Carter Co., senior sub. notes, Series A, 10.375%, 12/01/06 ........................... 500,000 527,500
WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ...................................... 5,000,000 5,250,000
-------------
25,790,500
-------------
Automotive .5%
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06 ....................................... 4,000,000 4,520,000
Exide Corp., senior notes, 10.75%, 12/15/02 ...................................................... 400,000 423,480
a,bHarvard Industries, Inc., senior notes, 11.125%, 8/01/05 ........................................ 5,000,000 1,650,000
-------------
6,593,480
-------------
Building Products .7%
Inter-City Products Corp., senior notes, 9.75%, 3/01/00 .......................................... 9,250,000 9,481,250
-------------
Cable Systems 1.6%
Cablevision Systems Corp., senior sub. deb., 9.875%, 4/01/23 ..................................... 4,000,000 4,420,000
Continental Cablevision, Inc., senior deb., 9.50%, 8/01/13 ....................................... 8,000,000 9,544,624
Helicon Group L.P. Corp., S.F., senior secured notes, Series B, 11.00%, 11/01/03 ................. 7,300,000 7,884,000
-------------
21,848,624
-------------
Chemicals 1.0%
Applied Extrusion Technologies, Inc., senior notes, Series B, 11.50%, 4/01/02 .................... 8,000,000 8,560,000
Uniroyal Chemical Co. Investors, senior notes, 10.50%, 5/01/02 ................................... 725,000 793,875
Uniroyal Chemical Co. Investors, senior sub. notes, 11.00%, 5/01/03 .............................. 4,150,000 4,440,500
-------------
13,794,375
-------------
Computer & Technology .6%
Anacomp, Inc., senior sub. notes, Series B, 10.875%, 4/01/04 ..................................... 6,000,000 6,270,000
Maxtor Corp., S.F., sub. deb., 5.75%, 3/01/12 .................................................... 1,500,000 1,057,500
-------------
7,327,500
-------------
Consumer Products 1.5%
E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ............................... 2,750,000 2,530,000
Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03................................ 8,000,000 8,170,000
Revlon Consumer Product Corp., senior sub. notes, Series B, 10.50%, 2/15/03 ...................... 5,000,000 5,275,000
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 ......................................................... 5,000,000 5,731,695
-------------
21,706,695
-------------
Containers & Packaging .5%
Calmar, Inc., senior sub. notes, Series B, 11.50%, 8/15/05 ....................................... 2,450,000 2,609,250
Packaging Resources, Inc., senior notes, 11.625%, 5/01/03 ........................................ 2,000,000 2,090,000
Containers & Packaging (cont.)
Printpack, Inc., senior sub. notes, Series B, 10.625%, 8/15/06 ................................... $ 1,000,000 $ 1,065,000
U.S. Can Corp., senior sub. notes, 10.125%, 10/15/06 ............................................. 300,000 319,500
-------------
6,083,750
-------------
Energy 1.0%
Bellwether Exploration Co., senior sub. notes, 10.875%, 4/01/07 .................................. 1,000,000 1,097,500
Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 7/15/04 ...................................... 9,835,000 10,670,975
Mesa Operating Co., senior sub. notes, 10.625%, 7/01/06 .......................................... 1,000,000 1,175,000
Plains Resources, Inc., senior sub. notes, Series B, 10.25%, 3/15/06 ............................. 1,000,000 1,082,500
-------------
14,025,975
-------------
Entertainment .1%
AMF Bowling Worldwide, Inc., senior sub. notes, Series B, 10.875%, 3/15/06 ....................... 650,000 715,000
-------------
Financial Services
First Nationwide Escrow, senior sub. notes, 10.625%, 10/01/03 .................................... 500,000 562,500
-------------
Food & Beverages 2.3%
Curtice-Burns Food, Inc., senior sub. notes, 12.25%, 2/01/05 ..................................... 5,000,000 5,537,500
Del Monte Corp., senior sub. notes, Series B, 12.25%, 4/15/07 .................................... 4,000,000 4,530,000
Doane Products Co., senior notes, 10.625%, 3/01/06 ............................................... 3,000,000 3,195,000
International Home Foods, Inc., senior sub. notes, 10.375%, 11/01/06 ............................. 4,100,000 4,520,250
PMI Acquisition Corp., senior sub. notes, 10.25%, 9/01/03 ........................................ 6,350,000 6,778,625
Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 8/15/03 .............................. 4,000,000 3,760,000
Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 8/15/01 ......................... 4,000,000 3,980,000
-------------
32,301,375
-------------
Food Chains 2.0%
Americold Corp., senior sub. notes, 12.875%, 5/01/08 ............................................. 1,000,000 1,275,000
Americold Corp., S.F., first mortgage, Series B, 11.50%, 3/01/05 ................................. 9,000,000 9,652,500
Bruno's, Inc., senior sub. notes, 10.50%, 8/01/05 ................................................ 7,000,000 2,485,000
Grand Union Co., senior notes, 12.00%, 9/01/04 ................................................... 7,000,000 3,780,000
Ralphs Grocery Co., senior sub. notes, 11.00%, 6/15/05 ........................................... 10,000,000 11,425,000
-------------
28,617,500
-------------
Gaming & Leisure 1.7%
Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ................................................. 9,000,000 9,337,500
Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 8/15/06 ..................................... 500,000 550,000
Harveys Casinos Resorts, senior sub. notes, 10.625%, 6/01/06 ..................................... 2,200,000 2,398,000
Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 7/15/05 .................................... 8,000,000 8,680,000
Venetian Casino Resort, L.L.C., mortgage notes, 144A, 12.25%, 11/15/04 ........................... 3,000,000 3,011,250
-------------
23,976,750
-------------
Health Care Services .2%
Dade International, Inc., senior sub. notes, Series B, 11.125%, 5/01/06 .......................... 3,000,000 3,315,000
-------------
Industrial Products 1.3%
Nortek, Inc., senior sub. notes, 9.875%, 3/01/04 ................................................. 2,000,000 2,050,000
RBX Corp., senior sub. notes, Series B, 11.25%, 10/15/05 ......................................... 10,000,000 8,600,000
RHI Holdings, Inc., S.F., senior sub. deb., 11.875%, 3/01/99 ..................................... 3,677,000 3,667,808
Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 ............................................... 2,696,000 2,871,240
Thermadyne Holdings Corp., senior notes, 10.25%, 5/01/02 ......................................... 246,000 254,610
Trench Electric & Trench Inc., senior sub. deb., 144A, 10.25%, 12/15/07 .......................... 1,350,000 1,377,000
-------------
18,820,658
-------------
Media & Broadcasting .2%
Benedek Broadcasting Corp., senior notes, 11.875%, 3/01/05 ....................................... 2,000,000 2,250,000
-------------
Metals 1.0%
Jorgensen, Earle M. Co., senior notes, 10.75%, 3/01/00 ........................................... 7,000,000 7,157,500
Republic Engineered Steel, first mortgage, 9.875%, 12/15/01 ...................................... 6,000,000 5,790,000
UCAR Global Enterprises, senior sub. notes, Series B, 12.00%, 1/15/05 ............................ 815,000 918,913
-------------
13,866,413
-------------
Paper & Forest Products .9%
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 ............................................ $ 2,000,000 $ 2,130,000
Riverwood International, senior sub. notes, 10.875%, 4/01/08 ..................................... 6,000,000 5,805,000
Tjiwi Kimia Finance Mauritius, senior unsecured notes, 144A, 10.00%, 8/01/04, (Mauritius) ........ 6,000,000 5,040,000
-------------
12,975,000
-------------
Pharmaceuticals .2%
ICN Pharmaceuticals, Inc., senior notes, Series B, 9.25%, 8/15/05 ................................ 3,000,000 3,195,000
-------------
Telecommunications .6%
CommNet Cellular, Inc., sub. notes, 11.25%, 7/01/05.............................................. 5,000,000 5,750,000
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 ........................................ 3,000,000 3,135,000
-------------
8,885,000
-------------
Utilities 2.8%
ESCOM, E168, utility deb., 11.00%, 6/01/08, (South Africa) ....................................... 195,782,500 33,902,376
Midland Funding Corp. I, deb., S.F., Series C-94, 10.33%, 7/23/02 ................................ 3,380,535 3,652,720
Texas New Mexico Power, secured deb., 10.75%, 9/15/03 ............................................ 2,000,000 2,185,812
-------------
39,740,908
-------------
Total Corporate Bonds (Cost $312,055,023) ....................................................... 315,873,253
-------------
Convertible Corporate Bonds 5.0%
Automotive .2%
Exide Corp., cvt. senior sub. notes, 144A, 2.90%, 12/15/05 ....................................... 4,000,000 2,680,000
-------------
Biotechnology .1%
Centocor, Inc., Eurobonds, cvt. sub. deb., 6.75%, 10/16/01 ....................................... 2,000,000 1,960,000
-------------
Computer & Technology .6%
Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 3/01/02 .................................... 11,000,000 9,075,000
-------------
Electrical Equipment .7%
Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ................................................ 8,000,000 9,800,000
-------------
Energy 1.0%
Oryx Energy Co., S.F., cvt. sub. deb., 7.50%, 5/15/14 ............................................ 9,000,000 9,225,000
Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ............................................... 5,000,000 4,956,250
-------------
14,181,250
-------------
Health Care Services .7%
Continucare Corp., cvt. sub notes, 144A, 8.00%, 10/31/02 ......................................... 9,500,000 8,787,500
Medical Care International, Inc., S.F., cvt. sub. deb., 144A, 6.75%, 10/01/06 .................... 1,000,000 930,000
-------------
9,717,500
-------------
Metals 1.0%
Ashanti Capital, Ltd., cvt. notes, 5.50%, 3/15/03 ................................................ 5,000,000 3,737,500
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 4,702,500
FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 1/16/05 ...................................... 1,800,000 1,683,000
Homestake Mining Co., cvt. sub. deb., 144A, 5.50%, 6/23/00 ....................................... 4,000,000 3,750,000
-------------
13,946,000
-------------
Pollution Control .2%
Air & Water Technology Corp., S.F., cvt. sub. deb., 8.00%, 5/15/15 ............................... 3,610,000 2,973,738
-------------
Real Estate Investment Trust .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 1,036,925
-------------
Total Convertible Corporate Bonds (Cost $72,557,735) ............................................. 70,787,913
-------------
Zero Coupon/Step-up Bonds 2.8%
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 1,929,068
APP Finance (VI) Mauritius Ltd., cvt., 144A, 0.00%, 11/18/12 ..................................... 11,500,000 2,357,500
Food 4 Less, Inc., senior disc. deb., zero coupon to 6/15/00,
13.625% thereafter, 7/15/05...................................................................... 10,000,000 8,750,000
Marcus Cable Holding Co., senior disc. notes,
zero coupon to 6/15/00, 14.25% thereafter, 12/15/05 ............................................ $14,000,000 $ 12,180,000
Mesa Operating Co., senior sub. notes,
zero coupon to 7/01/01, 11.625% thereafter, 7/01/06 ............................................. 1,300,000 1,079,000
Revlon Worldwide Corp., senior secured disc. notes,
Series B, 0.00%, 3/15/98 ........................................................................ 8,000,000 7,918,200
Revlon Worldwide Corp., senior disc. notes,
zero coupon to 3/15/00, 10.75% thereater, 3/15/01 .............................................. 6,000,000 4,170,000
Uniroyal Chemical Co. Investors, disc. notes,
zero coupon to 5/01/98, 12.00% thereafter, 5/01/05 .............................................. 1,500,000 1,470,000
-------------
Total Zero Coupon/Step-up Bonds (Cost $35,806,963) ............................................... 39,853,768
-------------
U.S. Government Securities 9.1%
U.S. Treasury Bonds, 6.00% - 7.125%, 2/15/23 - 2/15/26 ........................................... 111,000,000 116,480,997
U.S. Treasury Notes, 6.375%, 8/15/02 ............................................................. 11,000,000 11,288,761
-------------
Total U.S. Government Securities (Cost $117,769,483) ............................................. 127,769,758
-------------
Foreign Government & Agency Securities 10.3%
Republic of Argentina, Series L, 5.50%, 3/31/23 .................................................. 110,000,000 80,575,000
Republic of Brazil,
6.8125%, 1/01/01 ................................................................................. 7,850,000 7,477,125
6.875%, 4/15/06 .................................................................................. 15,680,000 13,504,400
5.25%, 4/15/24 ................................................................................... 39,000,000 28,275,000
Republic of South Africa, 12.00%, 2/28/05 (South Africa) ......................................... 75,000,000 14,240,214
-------------
Total Foreign Government & Agency Securities (Cost $114,051,959) ................................. 144,071,739
-------------
Total Long Term Investments ( Cost $1,173,620,186) ............................................... 1,339,548,605
-------------
f Repurchase Agreement 3.6%
Joint Repurchase Agreement, 6.285%, 1/02/98
(Maturity Value $51,217,379) (Cost $51,199,502) ..................................................... 51,199,502 51,199,502
-------------
BancAmerica Robertson Stephens (Maturity Value $1,569,188)
Barclays Capital Group, Inc., (Maturity Value $4,709,741)
BT Alex Brown, Inc., (Maturity Value $4,434,676)
Chase Securities, Inc., (Maturity Value $4,709,741)
CIBC Wood Gundy Securities Corp., (Maturity Value $4,709,741)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., (Maturity Value $4,709,741)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $4,709,741)
Dresdner Kleinwort Benson, North America, L.L.C., (Maturity Value $4,709,741)
Greenwich Capital Markets, Inc., (Maturity Value $2,825,846)
Paribas Corp., (Maturity Value $4,709,741)
SBC Warburg Dillon Read, Inc. (Maturity Value $4,709,741)
UBS Securities, L.L.C., (Maturity Value $4,709,741)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $1,224,819,688) 98.9% .................................................... 1,390,748,107
Other Assets, less Liabilities 1.1% .............................................................. 16,038,512
-------------
Net Assets 100.0% ................................................................................ $1,406,786,619
=============
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, December 31, 1997
PRINCIPAL
Money Market Fund AMOUNT VALUE
<S> <C> <C>
Certificates of Deposit 10.9%
Bank of Montreal, Chicago Branch, 5.72%, 5/13/98 ................................................... $ 5,000,000 $ 5,000,178
Barclays Bank, Plc., New York Branch, 5.79%, 3/04/98 ............................................... 5,000,000 5,000,085
Bayerische Vereinsbank, New York Branch, 5.78%, 5/14/98 ............................................ 5,000,000 5,000,000
Morgan Guaranty and Trust, New York Branch, 5.94%, 3/20/98 ......................................... 5,000,000 5,000,000
Societe Generale, New York Branch, 5.77%, 3/17/98 - 3/19/98 ........................................ 15,000,000 15,000,000
Swiss Bank Corp., New York Branch, 5.75%, 5/08/98 .................................................. 5,000,000 5,000,000
-------------
Total Certificates of Deposit (Cost $40,000,263) ................................................... 40,000,263
-------------
dCommercial Paper 76.0%
Abbey National North America, 5.55% - 5.60%, 1/23/98 - 4/27/98 ..................................... 15,000,000 14,876,361
ABN-Amro North America Finance, Inc., 5.54%, 4/30/98 ............................................... 5,000,000 4,908,436
Ameritech Corp., 5.52%, 1/22/98 .................................................................... 10,000,000 9,967,800
Associates Corp. of North America, 5.55% - 5.60%, 1/14/98 - 1/15/98 ................................ 15,000,000 14,968,306
AT&T Corp., 5.50 - 5.58%, 1/05/98 - 5/18/98 ........................................................ 15,000,000 14,887,714
Canadian Wheat Board, 5.51% - 5.55%, 2/13/98 - 5/19/98 ............................................. 15,000,000 14,827,811
CIESCO, L.P., 5.60% - 5.75%, 1/13/98 - 1/29/98 ..................................................... 10,000,000 9,968,306
Coca-Cola Co., 5.49%, 1/21/98 ...................................................................... 10,000,000 9,969,500
Commonwealth Bank of Australia, 5.54%, 5/07/98 ..................................................... 5,000,000 4,903,050
Disney (Walt) Co., 5.60%, 4/21/98 - 4/23/98 ........................................................ 15,000,000 14,741,000
General Electric Capital Corp., 5.55% - 5.60%, 1/15/98 - 1/22/98 ................................... 15,000,000 14,962,084
Generale Bank, Inc., 5.51% - 5.60%, 1/06/98 - 2/19/98 .............................................. 15,000,000 14,954,723
Goldman Sachs Group, L.P., 5.65%, 2/09/98 - 2/20/98 ................................................ 10,000,000 9,930,160
Kingdom of Sweden, 5.54%, 2/24/98 .................................................................. 11,400,000 11,305,266
Merrill Lynch & Co., Inc., 5.71%, 2/23/98 - 2/25/98 ................................................ 10,000,000 9,914,350
Metlife Funding, Inc., 5.58% - 5.66%, 1/07/98 - 2/17/98 ............................................ 15,000,000 14,926,172
Morgan Stanley Group, Inc., 5.51% - 5.59%, 1/06/98 -1/09/98 ........................................ 15,000,000 14,984,548
National Australian Funding, 5.595%, 1/20/98 ....................................................... 10,000,000 9,970,471
National Rural Utilities Cooperative Finance Corp., 5.66%, 3/02/98 ................................. 5,000,000 4,952,833
Province of British Columbia, 5.63%, 2/10/98 ....................................................... 10,000,000 9,937,444
Schering Corp., 5.65%, 2/24/98 ..................................................................... 5,000,000 4,957,625
Siemens Capital Corp., 5.57% - 5.59%, 6/15/98 - 6/25/98 ............................................ 15,000,000 14,601,905
Toyota Motor Credit Corp., 5.64%, 1/28/98 - 1/30/98 ................................................ 15,000,000 14,934,200
Wool International, 5.49% - 5.69%, 2/12/98 - 2/17/98 ............................................... 15,000,000 14,897,640
-------------
Total Commercial Paper (Cost $279,247,705) ......................................................... 279,247,705
-------------
Total Investments before Repurchase Agreements (Cost $319,247,968) ................................. 319,247,968
-------------
gRepurchase Agreements 13.2%
BancAmerica Robertson Stephens, 5.40%, 1/02/98, (Maturity Value $8,467,540)
Collateralized by U.S. Treasury Notes ............................................................... 8,465,000 8,465,000
SBC Warburg Dillon Read, Inc., 6.50%, 1/02/98, (Maturity Value $20,007,222)
Collateralized by U.S. Treasury Notes ............................................................... 20,000,000 20,000,000
UBS Securities, L.L.C., 6.45%, 1/02/98, (Maturity Value $20,007,167)
Collateralized by U.S. Treasury Notes ............................................................... 20,000,000 20,000,000
-------------
Total Repurchase Agreements (Cost $48,465,000) ..................................................... 48,465,000
-------------
Total Investments (Cost $367,712,968) 100.1%........................................................ 367,712,968
Other Assets, less Liabilities (.1)%................................................................ (263,829)
-------------
Net Assets 100.0%................................................................................... $367,449,139
=============
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, December 31, 1997
SHARES/
WARRANTS
Mutual Discovery Securities Fund COUNTRY & RIGHTS VALUE
<S> <C> <C>
Common Stocks, Warrants and Rights 79.2%
Aerospace & Military Technology
Raytheon Co., A .................................................................. United States 637 $ 31,412
-------------
Automobiles .4%
General Motors Corp. ............................................................. United States 10,000 606,250
aMagneti Marelli SpA .............................................................. Italy 77,300 130,698
-------------
736,948
-------------
Banking 2.9%
aBanca Nazionale del Lavoro SpA, fgn. ............................................. Italy 32,000 497,456
aBanque Cantonale Vaudoise, fgn. .................................................. Switzerland 600 204,837
BG Bank AS, fgn. ................................................................. Denmark 20,500 1,379,252
aCredit National/Natexis .......................................................... France 12,500 729,002
Merita Ltd., A .................................................................. Finland 55,500 303,512
aNordbanken Holding AB ............................................................ Sweden 94,000 531,568
Pacific Bank N.A. ................................................................ United States 10,000 450,000
Western Bancorp United States 47,975 1,583,164
-------------
5,678,791
-------------
Beverages & Tobacco 3.5%
B.A.T. Industries Plc. ........................................................... United Kingdom 103,710 944,475
Diageo Plc. ...................................................................... United Kingdom 120,000 1,100,710
Farmer Brothers Co. .............................................................. United States 2,500 467,500
Heineken Holding NV, A ........................................................... Netherlands 3,125 480,852
Philip Morris Cos. Inc............................................................ United States 37,000 1,676,563
RJR Nabisco Holdings Corp. ....................................................... United States 50,000 1,875,000
aSeita ............................................................................ France 4,300 154,324
Swedish Match AB ................................................................ Sweden 87,000 290,369
-------------
6,989,793
-------------
Broadcasting & Publishing 7.0%
Aamulehti Yhtymae OY, II ......................................................... Finland 16,500 551,090
A-Pressen AS, A .................................................................. Norway 20,600 453,898
Comcast Corp., Special A ......................................................... United States 6,000 189,375
Dow Jones & Co. Inc............................................................... United States 39,500 2,120,656
Dun & Bradstreet Corp. ........................................................... United States 4,800 148,500
John Fairfax Holdings Ltd. ....................................................... Australia 380,000 792,528
Midland Independent Newspapers Plc. .............................................. United Kingdom 50,000 173,269
Mirror Group Plc. ................................................................ United Kingdom 240,000 774,537
aModern Times Group AB, fgn. ...................................................... Sweden 36,000 215,368
NV Holdingsmij de Telegraaf ...................................................... Netherlands 53,800 1,013,567
Pearson Plc. ..................................................................... United Kingdom 60,000 778,479
Quebecor Inc...................................................................... Canada 70,000 1,258,878
Shaw Brothers Hong Kong Ltd. ..................................................... Hong Kong 278,000 206,285
Southam Inc....................................................................... Canada 75,000 1,430,146
United News & Media Plc. ......................................................... United Kingdom 42,377 478,140
aUS West Media Group .............................................................. United States 97,500 2,815,313
aYoung Broadcasting Corp., A ...................................................... United States 10,000 387,500
-------------
13,787,529
-------------
Building Materials & Components .3%
Pilkington Plc. .................................................................. United Kingdom 280,000 588,622
-------------
Business & Public Services 2.7%
Cie Generale Des Eaux ............................................................ France 3,500 488,494
Esselte AB, A .................................................................... Sweden 29,700 561,090
Esselte AB, B .................................................................... Sweden 10,000 202,773
IFIL Finanziaria Partecipazioni SpA .............................................. Italy 80,000 290,876
Suez Lyonnaise des Eaux SA ....................................................... France 23,000 2,545,158
Business & Public Services (cont.)
Wheelabrator Technologies Inc. ................................................... United States 30,000 $ 481,875
Yorkshire Water Plc. ............................................................. United Kingdom 97,000 771,055
-------------
5,341,321
-------------
Chemicals 2.8%
Allied Colloids Group Plc. ....................................................... United Kingdom 290,000 797,776
aBush Boake Allen Inc. ............................................................ United States 55,000 1,440,312
Chemfirst Inc .................................................................... United States 15,000 423,750
aHolliday Chemical Holdings Plc. .................................................. United Kingdom 24,000 90,264
Inspec Group Plc. ................................................................ United Kingdom 140,000 541,486
Laporte Plc. ..................................................................... United Kingdom 60,000 658,750
Morton International Inc.......................................................... United States 15,000 515,625
Olin Corp. ....................................................................... United States 15,000 703,125
Yule Catto & Company Plc. ........................................................ United Kingdom 85,000 401,352
-------------
5,572,440
-------------
Construction & Housing 1.1%
Actividades de Construcciones y Servicio ......................................... Spain 16,500 399,639
a Actividades de Construcciones y Servicio (ACS), rts. .......................... Spain 4,194 110
Grupo Acciona SA ................................................................. Spain 4,709 768,400
Hollandsche Beton Groep NV ....................................................... Netherlands 15,420 286,703
Martin Marietta Materials Inc..................................................... United States 7,500 274,219
Skanska AB, B .................................................................... Sweden 9,000 368,959
-------------
2,098,030
-------------
Data Processing & Reproduction .9%
aInso Corp. ....................................................................... United States 51,000 589,688
aNational Processing Inc........................................................... United States 75,000 740,625
Tecnost Mael SpA ................................................................. Italy 190,000 385,585
-------------
1,715,898
-------------
Electrical & Electronics .5%
Philips Electronics NV ........................................................... Netherlands 7,000 419,796
Philips Electronics NV ADR ....................................................... Netherlands 5,000 302,500
aWang Laboratories Inc., A ........................................................ United States 14,500 320,813
-------------
1,043,109
-------------
Electronic Components & Instruments 1.1%
aAmphenol Corp., A ................................................................ United States 10,032 558,657
aDynatech Corp. ................................................................... United States 15,000 703,125
aNBS Technologies Inc. ............................................................ Canada 57,100 120,269
Spectra Physics AB, A ............................................................ Sweden 43,800 830,225
-------------
2,212,276
-------------
Energy Equipment & Services 3.9%
Bouygues Offshore SA, ADR ........................................................ France 37,000 804,750
Cie Generale De Geophysique SA ................................................... France 6,199 793,093
aCie Generale De Geophysique SA, ADR .............................................. France 19,000 486,875
aISIS SA .......................................................................... France 4,000 438,648
Transocean Offshore Inc........................................................... United States 18,000 867,375
aTrico Marine Services Inc......................................................... United States 75,000 2,203,125
aUnited Meridian Corp. ............................................................ United States 15,000 421,875
aVeritas DGC Inc................................................................... United States 46,000 1,817,000
-------------
7,832,741
-------------
Energy Sources 2.4%
Saga Petroleum AS, B ............................................................. Norway 89,000 1,351,593
Shell Transport & Trading Co. Plc. ............................................... United Kingdom 84,400 611,986
Energy Sources (cont.)
Societe Elf Aquitaine SA, ADR .................................................... France 15,000 $ 879,375
Societe Elf Aquitaine SA ......................................................... France 16,800 1,953,975
-------------
4,796,929
-------------
Financial Services 5.3%
Advanta Corp., B ................................................................. United States 40,000 1,015,000
Axa SA ........................................................................... France 1,000 77,378
Bayonne Bancshares Inc. .......................................................... United States 25,500 341,062
aCityscape Financial Corp. ........................................................ United States 8,000 4,000
aContinental Information Systems Inc. ............................................. United States 52,000 136,500
aDexia France..................................................................... France 4,200 486,400
aEdinburg Dragon Trust Plc. ....................................................... United Kingdom 50,000 45,165
Imperial Credit Commercial Mortgage Investment ................................... United States 25,000 365,625
Julius Baer Holdings AG .......................................................... Switzerland 300 556,221
cLaser Mortgage Management Inc. ................................................... United States 115,000 1,667,500
aLife Financial Corp. ............................................................. United States 20,000 252,500
Long Island Bancorp Inc. ......................................................... United States 8,000 397,000
Mercury Asset Management Group Plc. .............................................. United Kingdom 13,500 376,035
Morgan Stanley, Dean Witter Discover & Co. ....................................... United States 6,500 384,313
Pargesa Holdings SA .............................................................. Switzerland 500 615,742
Pioneer Group Inc. ............................................................... United States 17,500 492,188
aSecurity Capital Group, B ........................................................ United States 42,500 1,381,250
aSPS Transaction Services Inc. .................................................... United States 8,000 180,500
Trilon Financial Corporation ..................................................... Canada 210,000 1,689,934
-------------
10,464,313
-------------
Food & Household Products 2.3%
Cadbury Schweppes Plc. ........................................................... United Kingdom 81,212 806,945
aMetsa Tissue OY .................................................................. Finland 55,000 529,894
Ralcorp Holdings Inc.............................................................. United States 50,000 846,875
Scott's Restaurants Inc. ......................................................... Canada 45,000 157,447
aScott's Restaurants Inc., C ...................................................... Canada 70,000 251,041
U.S. Industries Inc. ............................................................. United States 51,000 1,536,375
Van Melle NV ..................................................................... Netherlands 5,800 414,766
-------------
4,543,343
-------------
Forest Products & Paper .1%
Fletcher Challenge Canada Ltd., A ................................................ Canada 10,000 136,454
-------------
Health & Personal Care 4.1%
aApria Healthcare Group Inc. ...................................................... United States 90,000 1,209,375
aBeverly Enterprises Inc. ......................................................... United States 25,000 325,000
aFoundation Health Systems, A ..................................................... United States 24,160 540,580
aMid-Atlantic Medical Services Inc. ............................................... United States 5,000 63,750
aOxford Health Plans Inc. ......................................................... United States 60,000 933,750
aParagon Health Networks Inc. ..................................................... United States 36,246 709,057
aPharMerica Inc. .................................................................. United States 11,378 118,042
aSummit Care Corp. ................................................................ United States 113,500 1,858,563
aUnited Dental Care Inc. .......................................................... United States 40,000 430,000
aVencor Inc. ...................................................................... United States 30,000 733,125
aVitalink Pharmacy Services Inc. .................................................. United States 54,613 1,317,539
-------------
8,238,781
-------------
Industrial Components 3.5%
Charter Plc. ..................................................................... United Kingdom 131,612 1,615,753
DT Industries Inc. ............................................................... United States 75,000 2,550,000
Kennametal Inc. .................................................................. United States 30,000 1,554,375
Industrial Components (cont.)
Lucas Varity Plc. ................................................................ United Kingdom 250,000 $ 884,821
Michelin SA, B ................................................................... France 6,416 323,012
-------------
6,927,961
-------------
Insurance 4.5%
aAlleghany Corp. .................................................................. United States 1,020 290,445
American General Corp. ........................................................... United States 2,901 156,835
Arthur J Gallagher Co. ........................................................... United States 18,700 643,981
Assurances Generales de France AGF ............................................... France 35,000 1,854,532
Citizens Corp. ................................................................... United States 35,000 1,006,250
Guardian Royal Exchange Plc. ..................................................... United Kingdom 85,000 453,702
Koelnische Rueckversicherungs AG ................................................. Germany 258 236,631
Pohjola Insurance Co. Ltd. ....................................................... Finland 10,000 370,697
Pohjola Insurance Co. Ltd., A .................................................... Finland 5,000 187,183
PXRE Corp. ....................................................................... United States 24,100 799,819
Reliable Life Insurance Co., A ................................................... United States 2,000 227,000
Royal & Sun Alliance Insurance Group Plc. ........................................ United Kingdom 90,866 910,331
Sampo Insurance Co. Ltd., A ...................................................... Finland 22,000 726,712
SCOR SA .......................................................................... France 8,900 425,591
aTopdanmark AS .................................................................... Denmark 1,828 346,824
Twentieth Century Industries California .......................................... United States 2,500 65,000
aUnion Assurances Federales SA .................................................... France 2,283 299,671
-------------
9,001,204
-------------
Leisure & Tourism .9%
Gaylord Entertainment Co., A ..................................................... United States 8,333 266,135
La Quinta Inns Inc. .............................................................. United States 80,000 1,545,000
-------------
1,811,135
-------------
Machinery & Engineering 3.3%
Cardo AB......................................................................... Sweden 9,000 234,638
IMI Plc. ......................................................................... United Kingdom 110,000 732,575
aMunters AB ....................................................................... Sweden 25,000 215,683
Partek AB ........................................................................ Finland 56,500 861,622
Rauma OY ......................................................................... Finland 28,500 444,561
Safety Kleen Corp. ............................................................... United States 100,000 2,743,750
Triplex Lloyd Plc. ............................................................... United Kingdom 82,777 370,463
TT Group Plc. .................................................................... United Kingdom 190,000 862,814
-------------
6,466,106
-------------
Merchandising 2.5%
aBJ's Wholesale Club Inc. ......................................................... United States 22,000 690,250
aDress Barn Inc. .................................................................. United States 10,000 283,750
FKI Plc. ......................................................................... United Kingdom 50,000 157,667
aFood Lion Inc. , B ............................................................... United States 45,000 371,250
aFootstar Inc. .................................................................... United States 20,000 537,500
aHomebase Inc. .................................................................... United States 25,000 196,875
aNine West Group Inc. ............................................................. United States 75,000 1,945,313
Vendome Luxury Group Plc. ........................................................ United Kingdom 100,000 781,763
-------------
4,964,368
-------------
Metals & Mining .6%
aStillwater Mining Co. ............................................................ United States 64,900 1,087,075
aWHX Corp. ........................................................................ United States 16,000 190,000
-------------
1,277,075
-------------
Miscellaneous Materials & Commodities .1%
De Beers/Centenary Linked Units, ADR ............................................. South Africa 13,000 265,687
-------------
Multi-Industry 12.5%
Aker RGI ASA, A .................................................................. Norway 39,500 $ 712,339
Aker RGI ASA, B .................................................................. Norway 71,940 1,170,549
Bulten AB, B ..................................................................... Sweden 34,500 312,850
CGIP-Compagnie Generale Industrie de Participation ............................... France 3,561 1,278,019
Cie Financiere Richemont AG, A ................................................... Switzerland 1,035 1,125,885
Custos AB, A..................................................................... Sweden 68,900 1,483,885
Custos AB, B..................................................................... Sweden 41,540 878,943
Empire Co. Ltd., A............................................................... Canada 2,600 39,572
Financiere Et Industrielle Gaz Et Eaux SA ........................................ France 484 208,687
Gendis Inc. , A .................................................................. Canada 62,300 926,402
aGTI Holding NV ................................................................... Netherlands 28,000 701,502
Harcourt General Inc. ............................................................ United States 15,000 821,250
Hogg Robinson Plc. ............................................................... United Kingdom 60,000 251,774
Industrivarden AB, A ............................................................. Sweden 3,900 218,580
Investor AB, A................................................................... Sweden 13,000 633,635
Investor AB, B ................................................................... Sweden 35,000 1,705,941
Invik & Co. AB, A................................................................ Sweden 1,500 67,066
Invik & Co. AB, B................................................................ Sweden 5,500 245,910
Kansas City Southern Industries Inc. ............................................. United States 170,000 5,397,500
Kinnevik AB, B ................................................................... Sweden 36,000 596,229
Lagardere S.C.A. ................................................................. France 24,870 822,320
Marine Wendel SA................................................................. France 7,585 862,032
Montaigne Participations et Gestion SA ........................................... France 317 104,025
aMontedison SpA ................................................................... Italy 650,000 582,759
Sophus Berendsen AS, B ........................................................... Denmark 12,350 2,036,734
Ste Eurafrance ................................................................... France 950 386,724
Ste Generale de Belgique SA ...................................................... Belgium 8,300 759,413
Tomkins Plc. ..................................................................... United Kingdom 90,977 424,344
-------------
24,754,869
-------------
Real Estate 5.0%
Ambassador Apartments Inc. ....................................................... United States 75,000 1,542,187
Berkshire Realty Co. ............................................................. United States 64,800 777,600
aCastellum AB ..................................................................... Sweden 32,000 318,392
First Union Real Estate Equity & Mtg. Investments, SBI ........................... United States 80,000 1,300,000
aInsignia Financial Group Inc. .................................................... United States 40,000 920,000
LNR Property Corp. .............................................................. United States 28,000 661,500
aLNR Property Corp., B ............................................................ United States 39,000 921,375
Mark Centers Trust .............................................................. United States 30,000 270,000
Prime Group Realty Trust ......................................................... United States 50,000 1,012,500
cRE Acquisition LLC ............................................................... United States 272,776 272,449
SL Green Realty Corporation ...................................................... United States 20,000 518,750
Ste des Immeubles De France ...................................................... France 4,059 243,466
Tower Realty Trust Inc. .......................................................... United States 50,000 1,231,250
-------------
9,989,469
-------------
Recreation & Other Consumer Goods 1.0%
EMI Group Plc. ................................................................... United Kingdom 115,000 990,158
aScientific Games Holdings Corp ................................................... United States 50,000 1,012,500
-------------
2,002,658
-------------
Telecommunications 1.5%
aCellular Communications International Inc. ....................................... United States 20,000 935,000
aCS Wireless Inc. ................................................................. United States 309 3
Koninklijke Ptt Nederland NV ..................................................... Netherlands 31,000 1,293,418
Telephone & Data Systems Inc. .................................................... United States 15,000 696,292
-------------
2,924,713
-------------
Transportation 2.2%
Florida East Coast Industries Inc. ............................................... United States 3,000 $ 288,375
aFritz Companies Inc. ............................................................. United States 20,000 278,750
cGolden Ocean Group Ltd., wts. .................................................... United States 515 2,575
aLandstar System Inc. ............................................................. United States 20,000 527,500
Railtrack Group Plc. ............................................................. United Kingdom 131,576 2,098,284
Smit Internationale NV, fgn. ..................................................... Netherlands 10,200 276,675
Tranz Rail Holdings Ltd. ......................................................... New Zealand 10,000 37,742
Tranz Rail Holdings Ltd., ADR .................................................... New Zealand 75,000 862,500
-------------
4,372,401
-------------
Utilities - Electrical, Gas & Water .3%
aCitizens Utilities Co., B ........................................................ United States 70,000 673,750
-------------
Total Common Stocks, Warrants and Rights (Cost $146,577,528) ..................... 157,240,126
-------------
Preferred Stocks .3%
Gerdau SA, pfd. .................................................................. Brazil 3,500,000 43,905
Houghton Mifflin Co., 6.00%, conv., pfd. ......................................... United States 20,000 512,000
North Atlantic Trading Company Inc. , 12.00%, pfd. ............................... United States 5,291 142,857
-------------
Total Preferred Stocks (Cost $771,946) ........................................... 698,762
-------------
PRINCIPAL
AMOUNT*
Bonds & Notes 2.3%
American Communication Services, Inc. , senior disc. notes,
zero coupon to 11/01/00, (original accretion
rate 13.00%), 13.00% thereafter, 11/01/05 ........................................ United States 400,000 322,000
Boston Chicken, 15.25%, 6/01/15 .................................................. United States 1,250,000 189,062
Computervision Corp., 11.375%, 8/15/99 ........................................... United States 500,000 505,625
Computervision Corporation, 8.00%, 12/1/09 ....................................... United States 350,000 323,750
Consorcio G Grupo Dina, SA de CV, zero coupon, 11/15/02 .......................... Mexico 100,000 90,500
CS Wireless Systems, 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 1,125,000 298,125
Delco Remy International, 11.50%, 7/31/04 ........................................ United States 700,000 710,500
Dow Corning Corp., 9.375%, 2/1/08 ................................................ United States 300,000 382,500
Global Ocean Carriers Ltd., 10.25%, 7/15/07, 144A ................................ United States 150,000 144,000
Globalstar LP, 10.75%, 11/1/04 ................................................... United States 200,000 196,000
cGolden Ocean Group Ltd., 10.00%, 8/31/01 ......................................... United States 250,000 205,000
North Atlantic Trading Company Inc. , 11.00%, 6/15/04 ............................ United States 100,000 104,250
Olivetti International NV, 3.75%, conv., 12/31/99 ................................ Italy 680,000,000 ITL 426,682
aPeoples Choice TV Corp., senior disc. Notes, 13.125%, 6/01/04..................... United States 500 180,000
Sassco Fashions Ltd., 12.75%, 2/15/05, w/i ....................................... United States 119,414 124,788
TFM, SA de CV, 10.25%, 6/15/07, 144A ............................................. Mexico 250,000 257,500
TFM, SA de CV, zero coupon to 6/15/02,
(original accretion rate 11.75%), 11.75%.......................................... Mexico 300,000 191,250
thereafter, 6/15/09
Total Bonds & Notes (Cost $4,423,687) ............................................ 4,651,532
-------------
Bonds & Notes in Reorganization 1.1%
Buenos Aires Embotelladora SA, bank claim ........................................ United States 890,634 623,444
Eurotunnel Finance Ltd., Bank Claim:
Tranche B ........................................................................ United Kingdom 50,000 XEU 28,566
Tranche B ........................................................................ United Kingdom 860,000 GBP 748,588
Ionica Plc., 15.00%, 5/01/07 ..................................................... United Kingdom 750,000 303,750
Mercury Finance Co., Commercial Paper:
3/17/47 .......................................................................... United States 11,526 9,566
4/11/47 .......................................................................... United States 5,243 4,352
4/18/47 .......................................................................... United States 14,682 12,186
4/22/47 .......................................................................... United States 8,389 6,963
4/24/47 .......................................................................... United States 12,584 10,444
Mercury Finance Co., Bank Claim, MTN:
7.42%, 6/29/00 ................................................................... United States 189,953 $ 157,661
8.15%, 5/14/47 ................................................................... United States 275,173 228,393
-------------
Total Bonds & Notes in Reorganization (Cost $2,154,121) .......................... 2,133,913
-------------
Total Long Term Investments (Cost $153,927,282) .................................. 164,724,333
-------------
dShort Term Investments 15.3%
Federal Home Loan Bank, 5.37% to 5.48%,
with maturities to 1/23/98 ....................................................... United States 3,400,000 3,395,605
Federal Home Loan Mortgage Corp., 5.46% to 5.64%,
with maturities to 2/13/98 ....................................................... United States 5,600,000 5,577,985
Federal National Mortgage Assn., 5.355% to 5.650%,
with maturities to 4/22/98 ....................................................... United States 21,500,000 21,336,534
-------------
Total Short Term Investments (Cost $30,626,898) .................................. 30,310,124
-------------
Total Investments (Cost $184,554,180) 98.2% ...................................... 195,034,457
Net Equity in Forward Contracts .................................................. 1,125,546
Other Assets, less Liabilities 1.8% .............................................. 2,492,759
-------------
Net Assets 100.0% ................................................................ $198,652,762
=============
See currency abbreviations on page 147.
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
c See 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, December 31, 1997
SHARES/
Mutual Shares Securities Fund COUNTRY WARRANTS VALUE
<S> <C> <C>
Common Stocks and Warrants 73.4%
Aerospace & Military Technology 1.6%
Boeing Co. ....................................................................... United States 33,450 $ 1,636,959
aHexcel Corp. ..................................................................... United States 42,000 1,047,375
Lockheed Martin Corp. ............................................................ United States 25,000 2,462,500
Northrop Grumman Corp. ........................................................... United States 5,000 575,000
Raytheon Co., A .................................................................. United States 10,255 505,700
-------------
6,227,534
-------------
Appliances & Household Durables .5%
Black & Decker Corp. ............................................................. United States 50,000 1,953,125
-------------
Automobiles 1.4%
General Motors Corp. ............................................................. United States 55,000 3,334,375
Regie Nationale des Usines Renault SA ............................................ France 78,550 2,209,606
-------------
5,543,981
-------------
Banking 3.8%
Chase Manhattan Corp. ............................................................ United States 28,000 3,066,000
First Union Corp. ................................................................ United States 71,000 3,638,750
Fleet Financial Group Inc. ....................................................... United States 52,000 3,896,750
Mellon Bank Corp. ................................................................ United States 15,000 909,375
PNC Bank Corp. ................................................................... United States 20,000 1,141,250
Wells Fargo & Co. ................................................................ United States 6,000 2,036,625
-------------
14,688,750
-------------
Beverages & Tobacco 5.5%
B.A.T. Industries Plc. ........................................................... United Kingdom 305,867 2,785,495
Diageo Plc. ...................................................................... United Kingdom 125,000 1,146,572
Gallaher Group Plc. .............................................................. United Kingdom 360,000 1,909,736
Gallaher Group Plc., ADR ......................................................... United Kingdom 18,500 395,438
Heineken Holding NV, A ........................................................... Netherlands 10,600 1,631,050
Philip Morris Cos. Inc. .......................................................... United States 100,000 4,531,250
RJR Nabisco Holdings Corp. ....................................................... United States 100,000 3,750,000
UST Inc. ......................................................................... United States 135,000 4,986,563
-------------
21,136,104
-------------
Broadcasting & Publishing 9.3%
Comcast Corp., Special A ......................................................... United States 50,000 1,578,125
Daily Mail & General Trust Plc., A ............................................... United Kingdom 25,300 836,228
Dow Jones & Co. Inc. ............................................................. United States 76,500 4,107,094
Dun & Bradstreet Corp. ........................................................... United States 14,000 433,125
Houghton Mifflin Co. ............................................................. United States 70,000 2,686,250
Readers Digest Association Inc., A ............................................... United States 40,000 945,000
Scripps Co., A ................................................................... United States 60,000 2,906,250
aSFX Broadcasting Inc., A ......................................................... United States 20,000 1,605,000
Southam Inc. ..................................................................... Canada 150,000 2,860,292
Time Warner Inc. ................................................................. United States 53,000 3,286,000
United News & Media Plc. ......................................................... United Kingdom 123,020 1,388,036
aUS West Media Group .............................................................. United States 390,000 11,261,240
aValassis Communications Inc. .................................................... United States 50,000 1,850,000
-------------
35,742,640
-------------
Building Materials & Components 1.0%
aAmerican Standard Cos. Inc. ..................................................... United States 80,000 3,065,000
Johns-Manville Corp. ............................................................. United States 100,000 1,006,250
-------------
4,071,250
-------------
Business & Public Services 1.3%
Moore Corp. Ltd.................................................................. Canada 38,200 577,775
Moore Corp. Ltd., ORD ............................................................ Canada 50,000 752,248
Suez Lyonnaise des Eaux SA ....................................................... France 32,000 3,541,082
-------------
4,871,105
-------------
Chemicals 1.9%
General Chemical Group Inc. ...................................................... United States 25,000 $ 668,750
Morton International Inc. ........................................................ United States 75,000 2,578,125
Olin Corp. ....................................................................... United States 70,000 3,281,250
Rohm & Haas Co. .................................................................. United States 8,500 813,875
-------------
7,342,000
-------------
Construction & Housing .3%
Martin Marietta Materials Inc. ................................................... United States 30,000 1,096,875
-------------
Data Processing & Reproduction .6%
First Data Corp .................................................................. United States 38,000 1,111,500
aNCR Corp. ........................................................................ United States 42,500 1,182,030
-------------
2,293,530
-------------
Electronic Components & Instruments .3%
Fisher Scientific International Inc. ............................................. United States 25,000 1,193,750
-------------
Energy Equipment & Services 2.5%
aNoble Drilling Corp. ............................................................. United States 45,000 1,378,125
aReading & Bates Corp. ............................................................ United States 45,000 1,884,375
aRowan Companies Inc. ............................................................. United States 71,300 2,174,650
Transocean Offshore Inc. ......................................................... United States 27,000 1,301,063
aUnited Meridian Corp. ............................................................ United States 100,000 2,812,500
-------------
9,550,713
-------------
Energy Sources 5.8%
Imperial Oil Ltd. ................................................................ Canada 30,000 1,918,125
Kerr McGee Corp .................................................................. United States 40,000 2,532,500
Noble Affiliates Inc. ............................................................ United States 37,500 1,321,875
aNuevo Energy Co. ................................................................. United States 25,000 1,018,750
Pennzoil Co. ..................................................................... United States 50,000 3,340,625
Saga Petroleum AS, B ............................................................. Norway 89,300 1,356,149
a Santa Fe Energy Resources Inc. ................................................ United States 277,100 3,117,375
Sell Transport & Trading Co. Plc. ................................................ United Kingdom 158,300 1,147,836
Societe Elf Aquitane SA .......................................................... France 46,000 5,350,170
Tidewater Inc. ................................................................... United States 15,000 826,875
Union Texas Petroleum Holdings Inc. .............................................. United States 30,000 624,375
-------------
22,554,655
-------------
Financial Services 5.9%
Advanta Corp., B ................................................................. United States 100,000 2,537,500
Beneficial Corp. ................................................................. United States 29,000 2,410,625
aCIT Group Inc., A ................................................................ United States 25,000 806,250
a Cityscape Financial Corp. ..................................................... United States 12,000 6,000
Equifax Inc. ..................................................................... United States 50,000 1,771,875
cLaser Mortgage Management Inc. ................................................... United States 220,000 3,190,000
Lehman Brothers Holdings Inc. .................................................... United States 11,000 561,000
Morgan Stanley, Dean Witter Discover & Co. ....................................... United States 105,000 6,208,125
Power Financial Corp. ............................................................ Canada 5,000 174,941
Providian Financial Corp. ........................................................ United States 2,100 94,894
United Asset Management Corp. .................................................... United States 204,000 4,985,250
-------------
22,746,460
-------------
Food & Household Products 2.7%
Cadbury Schweppes Plc. ........................................................... United Kingdom 103,270 1,026,119
Nabisco Holdings Corp., A ........................................................ United States 100,000 4,843,750
U.S. Industries Inc. ............................................................. United States 75,000 2,259,375
Van Melle NV ..................................................................... Netherlands 32,672 2,336,419
-------------
10,465,663
-------------
Forest Products & Paper 1.9%
Bowater Inc. ..................................................................... United States 30,000 1,333,125
Champion International Corp. ..................................................... United States 50,000 2,265,625
Forest Products & Paper (cont.)
Greif Brothers Corp., A .......................................................... United States 5,000 $ 167,500
Longview Fibre Co. ............................................................... United States 60,000 911,250
St. Joe Paper Corp. .............................................................. United States 19,000 1,719,500
Temple Inland Inc. ............................................................... United States 15,111 790,494
-------------
7,187,494
-------------
Health & Personal Care 4.4%
Aetna Inc. ....................................................................... United States 30,000 2,116,874
aApria Healthcare Group Inc. ...................................................... United States 135,000 1,814,063
aBeverly Enterprises Inc. ......................................................... United States 60,000 780,000
aFoundation Health Systems, A ..................................................... United States 125,470 2,807,390
aMaxicare Health Plans Inc. ....................................................... United States 82,500 897,188
aMid-Atlantic Medical Services Inc. ............................................... United States 15,000 191,250
aOxford Health Plans Inc. ......................................................... United States 10,000 155,625
aPacificare Health Systems Inc., A ................................................ United States 35,000 1,758,750
aPacificare Health Systems Inc., B ................................................ United States 24,500 1,283,188
aParagon Health Networks Inc. ..................................................... United States 36,950 722,825
aPharMerica Inc. .................................................................. United States 27,306 283,300
aTenet Healthcare Corp. ........................................................... United States 20,000 662,500
United States Surgical Corp. ..................................................... United States 62,500 1,832,031
aVencor Inc. ...................................................................... United States 75,000 1,832,813
-------------
17,137,797
-------------
Industrial Components 1.7%
Charter Plc. ..................................................................... United Kingdom 100,000 1,227,664
aITT Industries Inc. .............................................................. United States 75,000 2,353,125
Lucas Varity Plc. ................................................................ United Kingdom 1,080,000 2,406,714
Lucas Varity Plc., ADR ........................................................... United Kingdom 10,300 359,213
aOwens-Illinois Inc. .............................................................. United States 7,800 295,913
-------------
6,642,629
-------------
Insurance 3.1%
aAlleghany Corp. .................................................................. United States 2,550 726,113
American General Corp. ........................................................... United States 7,252 392,061
AON Corp. ........................................................................ United States 42,300 2,479,838
Argonaut Group Inc. .............................................................. United States 51,206 1,734,603
Fund American Enterprises Holdings Inc. .......................................... United States 25,000 3,025,000
Selective Insurance Group Inc. ................................................... United States 6,000 162,000
Twentieth Century Industries California .......................................... United States 16,200 421,200
Unitrin Inc. ..................................................................... United States 20,000 1,292,500
Western National Corp. ........................................................... United States 58,000 1,718,250
-------------
11,951,565
-------------
Leisure & Tourism 4.0%
aCircus Circus Enterprises Inc. ................................................... United States 116,500 2,388,250
Hilton Hotels Corp. .............................................................. United States 150,000 4,462,500
ITT Corp. ........................................................................ United States 60,000 4,972,500
aMGM Grand Inc. ................................................................... United States 105,000 3,786,562
-------------
15,609,812
-------------
Machinery & Engineering .5%
Briggs & Stratton Corp. .......................................................... United States 25,000 1,214,063
New Holland NV ................................................................... Netherlands 30,000 793,125
-------------
2,007,188
-------------
Merchandising 1.3%
American Stores Co. .............................................................. United States 105,000 2,159,063
Dillards Inc., A ................................................................. United States 15,000 528,750
aWoolworth Corp. .................................................................. United States 125,000 2,546,875
-------------
5,234,688
-------------
Metals & Mining .8%
Aluminum Co. of America .......................................................... United States 4,000 $ 281,500
LTV Corp. ........................................................................ United States 110,000 1,072,500
Reynolds Metals Co. .............................................................. United States 32,000 1,920,000
-------------
3,274,000
-------------
Multi-Industry 3.9%
Harcourt General Inc. ............................................................ United States 35,000 1,916,250
Investor AB, A ................................................................... Sweden 119,200 5,809,946
Investor AB, B ................................................................... Sweden 93,100 4,537,803
Lagardere S.C.A. ................................................................. France 40,462 1,337,865
McMillan Bloedel Ltd. ............................................................ Canada 50,000 519,576
Power Corp. of Canada ............................................................ Canada 25,000 895,700
-------------
15,017,140
-------------
Real Estate .6%
aAlexander's Inc. ................................................................. United States 8,000 726,500
aInsignia Financial Group Inc. .................................................... United States 65,000 1,495,000
Reckson Associates Realty Corp. .................................................. United States 10,000 253,750
-------------
2,475,250
-------------
Telecommunications 4.4%
a360 Degrees Communications Company ............................................... United States 125,000 2,523,438
aCS Wireless Inc. ................................................................. United States 618 5
aGeneral Motors Corp., H .......................................................... United States 12,000 443,250
aLoral Space & Communications Ltd. ................................................ United States 75,000 1,607,813
MCI Communications Corp. ......................................................... United States 100,000 4,281,250
Sprint Corp. ..................................................................... United States 18,000 1,055,250
aTelecommunications Inc.- TCI Ventures Group, A ................................... United States 154,000 4,360,125
Telephone & Data Systems Inc. .................................................... United States 63,400 2,952,063
-------------
17,223,194
-------------
Transportation 2.1%
Burlington Northern Santa Fe Corp. ............................................... United States 14,000 1,301,124
Florida East Coast Industries Inc. ............................................... United States 12,500 1,201,563
aGolden Ocean Group Ltd., wts. .................................................... United States 935 4,675
Railtrack Group Plc. ............................................................. United Kingdom 233,152 3,718,148
Xtra Corp. ....................................................................... United States 32,000 1,876,000
-------------
8,101,510
-------------
Utilities - Electrical, Gas & Water .3%
Nova Corp. ....................................................................... Canada 120,000 1,142,017
-------------
Total Common Stocks and Warrants (Cost $260,174,159) ............................. 284,482,419
-------------
Preferred Stocks
North Atlantic Trading Company Inc., 12.00%, pfd. (Cost $132,712) ................ United States 5,291 142,857
-------------
PRINCIPAL
AMOUNT*
Bonds & Notes 2.4%
<S> <C> <C>
American Communication Services, Inc., senior disc. notes,
zero coupon to 11/01/00,
(original accretion rate 13.00%), 13.00% thereafter, 11/01/05 .................... United States 700,000 563,500
Boston Chicken, Inc., cvt., zero coupon, 6/01/15 ................................. United States 1,850,000 279,813
Computervision Corp., 11.375%, 8/15/99 ........................................... United States 500,000 505,625
Consorcio G Grupo Dina, SA de CV, zero coupon, 11/15/02 .......................... Mexico 175,000 158,375
CS Wireless Systems, 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 2,250,000 596,250
Delco Remy International, 11.50%, 7/31/04 ........................................ United States 1,300,000 1,319,500
Dow Corning Corp., 9.375%, 2/1/08 ................................................ United States 550,000 701,250
Falcon Building Products Inc., 10.50%, 6/15/07, 144A ............................. United States 1,000,000 662,500
Global Ocean Carriers Ltd., 10.25%, 7/15/07, 144A ................................ United States 250,000 240,000
Globalstar LP, 10.75%, 11/1/04 ................................................... United States 300,000 $ 294,000
c Golden Ocean Group Ltd., 10.00%, 8/31/01 ...................................... United States 450,000 369,000
Ivax Corp., 6.50%, conv., 11/15/01 ............................................... United States 370,000 317,275
North Atlantic Trading Company Inc., 11.00%, 6/15/04 ............................. United States 100,000 104,250
Olivetti International NV, 3.75%, conv., 12/31/99 ................................ Italy 1,170,000,000 ITL 734,144
a Peoples Choice TV Corp., senior disc. Notes, 13.25%, 6/01/04 .................. United States 500 180,000
Sassco Fashions Ltd., 12.75%, 2/15/05, w/i ....................................... United States 199,023 207,979
Specialty Foods Corp., 11.25%, 8/15/03, B ........................................ United States 800,000 752,000
TFM SA de CV, 10.25%, 6/15/07, 144A .............................................. Mexico 250,000 257,500
TFM SA de CV, zero coupon to 6/15/02, 11.75%, 6/15/09 ............................ Mexico 600,000 382,500
Uniforet Inc., 11.125%, 10/15/06 ................................................. Canada 500,000 477,500
Wavetek Corporation, 10.125%, 6/15/07, 144A ...................................... United States 500,000 515,000
-------------
Total Bonds & Notes (Cost $9,510,436) ............................................ 9,617,961
-------------
Bonds & Notes in Reorganization 1.3%
Barney's Inc.
7.18%, 6/15/00 ................................................................... United States 2,500,000 912,500
8.32%, 6/15/00................................................................... United States 1,000,000 365,000
Dow Corning Corp., bank claim .................................................... United States 100,000 123,500
Eurotunnel Finance Ltd., Bank Claims:
Tranche B ........................................................................ United Kingdom 84,000 XEU 47,991
Tranche B ........................................................................ United Kingdom 1,540,000 GBP 1,340,493
Ionica Plc., 5/01/07 ............................................................. United Kingdom 1,350,000 546,750
Mercury Finance Co., Commercial Paper:
3/17/97 .......................................................................... United States 23,052 19,133
4/11/97 .......................................................................... United States 10,487 8,704
4/16/97 .......................................................................... United States 846,395 702,508
4/18/97 .......................................................................... United States 29,363 24,371
4/22/97 .......................................................................... United States 16,778 13,926
4/24/97 .......................................................................... United States 25,167 20,899
Mercury Finance Co., Bank Claim, MTN:
7.42%, 6/29/00 ................................................................... United States 316,588 262,768
8.15%, 5/14/97 ................................................................... United States 529,684 439,638
-------------
Total Bonds & Notes in Reorganization (Cost $4,433,524) .......................... 4,828,181
-------------
Total Long Term Investments (Cost $274,250,831) .................................. 299,071,418
-------------
dShort Term Investments 23.3%
Federal Home Loan Bank, 5.37% to 5.55%,
with maturities to 3/20/98 ....................................................... 20,500,000 20,390,768
Federal Home Loan Mortgage Corp.,
5.46% to 5.63%, with maturities to 2/17/98 ....................................... 9,835,000 9,781,908
Federal National Mortgage Assn.,
5.355% to 5.650%, with maturities to 4/27/98 ..................................... 60,705,000 60,190,868
-------------
Total Short Term Investments (Cost $90,338,555) .................................. 90,363,544
-------------
Total Investments (Cost $364,589,386) 100.4% ..................................... 389,434,962
-------------
Securities Sold Short (.2)% ...................................................... (907,500)
Net Equity in Forward Contracts .2% .............................................. 686,688
Other Assets, less Liabilities (.4)% ............................................. (1,426,818)
-------------
Net Assets 100.0% ................................................................ $387,787,332
=============
Securities Sold Short
ISSUER COUNTRY SHARES VALUE
aWorldcom Inc. (proceeds $983,153) ................................................ United States 30,000 $ (907,500)
=============
See currency abbreviations on page 147.
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
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, December 31, 1997
SHARES/
Natural Resources Fund COUNTRY WARRANTS VALUE
<S> <C> <C>
bCommon Stocks and Warrants 93.7%
Papua New Guinea
Chemicals 7.8%
aAirgas, Inc. ..................................................................... United States 28,000 $ 392,000
Avery Dennison Corp. ............................................................. United States 24,000 1,074,000
BetzDearborn, Inc. ............................................................... United States 15,000 915,938
Hanna (M.A.) Co. ................................................................. United States 30,000 757,500
IMC Global, Inc. ................................................................. United States 17,000 556,750
Potash Corp. of Saskatchewan, Inc. ............................................... Canada 10,000 830,000
Praxair, Inc. .................................................................... United States 25,100 1,129,500
Sigma-Aldrich Corp. .............................................................. United States 5,000 198,750
-------------
5,854,438
-------------
Environmental/Engineering & Construction/Capital Goods 2.2%
aAtchinson Casting Corp. .......................................................... United States 24,500 398,125
aDenison International, Plc. ADR .................................................. United Kingdom 35,500 612,375
aOwens-Illinois, Inc. ............................................................. United States 17,100 648,731
-------------
1,659,231
-------------
Forest Products & Paper/Packaging 2.3%
Asia Pulp & Paper Co., Ltd., Sponsored ADR ....................................... Indonesia 75,000 754,688
Crown Cork & Seal Co. ............................................................ United States 20,000 1,002,500
-------------
1,757,188
-------------
Metals - Diversified 4.3%
a Austral Coal, Ltd. ............................................................ Australia 2,937,000 689,109
Freeport-McMoRan Copper & Gold, Inc., Class A .................................... United States 38,718 592,869
Pohang Iron & Steel Co., Ltd., Sponsored ADR ..................................... Korea 29,800 519,638
Rio Tinto, Plc. .................................................................. United Kingdom 68,429 792,876
Vale do Rio Doce, ADR ............................................................ Brazil 30,500 613,526
-------------
3,208,018
-------------
Mining - Precious Metals 17.9%
aAber Resources, Ltd. ............................................................. Canada 76,500 808,334
Anglo American Platinum Corp., Ltd., ADR ......................................... South Africa 67,179 897,283
Ashanti Goldfields Co., Ltd., Sponsored GDR ...................................... Ghana 86,330 647,475
aAsquith Resources, Inc., 144A .................................................... Canada 565,600 57,389
Barrick Gold Corp. ............................................................... Canada 52,895 985,169
aCanyon Resources Corp. ........................................................... United States 210,000 249,375
Canyon Resources Corp., warrants ................................................. United States 105,000 --
Compania de Minas Buenaventura, SA, Sponsored ADR, 144A .......................... Peru 72,800 1,164,800
De Beers Consolidated Mines, Ltd., ADR ........................................... South Africa 40,000 817,500
Driefontein Consolidated, Ltd., Sponsored ADR .................................... South Africa 124,500 824,813
aEquinox Resources, N.L. .......................................................... Australia 1,480,000 154,334
Euro-Nevada Mining Corp........................................................... Canada 58,200 788,055
Franco-Nevada Mining Corp., Ltd. ................................................. Canada 39,900 784,570
aLihir Gold, Ltd. ................................................................. Papua New Guinea 329,500 343,603
aMinefinders Corp., Ltd. .......................................................... Canada 275,700 407,073
Newmont Mining Corp. ............................................................. United States 32,755 962,178
Normandy Mining, Ltd. ............................................................ Australia 1,568,952 1,523,622
Placer Dome, Inc. ................................................................ Canada 82,800 1,050,525
aStillwater Mining Co., 144A ...................................................... United States 32,300 524,875
Vaal Reefs Exploration & Mining Co., Ltd., ADR ................................... Portugal 109,000 418,974
-------------
13,409,947
-------------
Oil Field Services 20.3%
aCore Laboratories, NV ............................................................ United States 53,400 964,538
aDiamond Offshore Drilling, Inc. .................................................. United States 43,000 2,069,375
aEVI, Inc. ........................................................................ United States 50,000 2,587,500
aFalcon Drilling Co., Inc. ........................................................ United States 22,000 771,375
aNorton Drilling Services, Inc. ................................................... United States 90,000 188,442
aRowan Cos., Inc. ................................................................. United States 30,000 915,000
aStolt Comex Seaway, SA ........................................................... United States 15,700 785,000
Oil Field Services (cont.)
aTesco Corp. ...................................................................... Canada 54,200 $ 805,955
Tidewater, Inc. .................................................................. United States 15,000 826,875
aTransCoastal Marine Services, Inc. ............................................... United States 60,000 855,000
Transocean Offshore, Inc. ........................................................ United States 45,000 2,168,438
aUTI Energy Corp. ................................................................. United States 18,000 465,750
aVarco International, Inc. ........................................................ United States 85,000 1,822,188
-------------
15,225,436
-------------
Oil/Gas Exploration & Production 24.9%
aAbacan Resource Corp. ............................................................ Canada 90,000 141,703
aAbacan Resource Corp. ............................................................ United States 182,900 285,781
aAtwood Oceanics, Inc. ............................................................ United States 24,000 1,137,000
Baker Hughes, Inc. ............................................................... United States 22,000 959,750
aBarrett Resources Corp. .......................................................... United States 90,400 2,734,600
aBasin Exploration, Inc. .......................................................... United States 53,000 940,750
aBenton Oil & Gas Co. ............................................................. United States 60,000 776,250
aEncal Energy, Ltd. ............................................................... Canada 141,800 466,366
aGulf Canada Resources, Ltd. ...................................................... Canada 365,000 2,555,000
aMagnum Hunter Resources, Inc. .................................................... United States 145,000 752,188
aNational Energy Group, Inc. ...................................................... United States 245,000 995,313
aNewfield Exploration Co. ......................................................... United States 35,000 815,938
aNuevo Energy Co. ................................................................. United States 31,000 1,263,250
aOcean Energy, Inc. ............................................................... United States 17,000 838,313
Patina Oil & Gas Corp. ........................................................... United States 100,500 772,594
aSummit Resources, Ltd. ........................................................... Canada 150,000 477,590
aTitan Exploration, Inc. .......................................................... United States 96,700 918,650
aTriton Energy, Ltd. .............................................................. United States 10,000 291,875
aUnited Meridian Corp. ............................................................ United States 25,000 703,125
Unocal Corp. ..................................................................... United States 22,000 853,875
-------------
18,679,911
-------------
Oil/Gas Integrated 4.4%
Atlantic Richfield Co. ........................................................... United States 18,000 1,442,250
YPF Sociedad Anonima, Sponsored ADR .............................................. Argentina 55,000 1,880,312
-------------
3,322,562
-------------
Oil/Gas Pipelines & Distribution 3.6%
aAES Corp. ........................................................................ United States 32,200 1,501,324
Enron Corp. ...................................................................... United States 28,000 1,163,750
-------------
2,665,074
-------------
Real Estate Investment Trusts 4.0%
aAlexandria Real Estate Equities, Inc. ............................................ United States 19,800 624,937
Arden Realty Group, Inc. ......................................................... United States 25,000 768,750
FelCor Suite Hotels, Inc. ........................................................ United States 21,000 745,500
Storage Trust Realty ............................................................. United States 31,800 836,737
-------------
2,975,924
-------------
Steel 2.0%
a Ispat International, NV, New York Shares ...................................... United States 26,900 581,712
a UCAR International, Inc. ...................................................... United States 23,100 922,555
-------------
1,504,267
-------------
Total Common Stocks and Warrants (Cost $78,340,492) .............................. 70,261,996
-------------
bConvertible Bonds 1.0%
Dayton Mining Corp. cvt. sub. deb., 144A, 7.00%, 4/01/02 ......................... Canada 800,000 $ 552,000
Rangold & Exploration Co., Ltd., cvt. sub. notes, 144A, 7.00%, 10/03/01 .......... South Africa 215,000 116,100
Williams Resources, Inc., cvt. sub. deb., 8.00%, 1/23/02 ......................... Canada 200,000 CAD 44,785
-------------
Total Convertible Bonds (Cost $1,164,740) ........................................ 712,885
-------------
Total Long Term Investments (Cost $79,505,232) ................................... 70,974,881
-------------
f Repurchase Agreement 6.7%
Joint Repurchase Agreement, 6.285%, 1/02/98
(Maturity Value $5,018,606) (Cost $5,016,854) .................................... United States 5,016,854 5,016,854
-------------
BancAmerica Robertson Stephens (Maturity Value $155,576)
Barclays Capital Group, Inc., (Maturity Value $461,712)
BT Alex Brown, Inc. (Maturity Value $431,600)
Chase Securities, Inc., (Maturity Value $461,712)
CIBC Wood Gundy Securities Corp., (Maturity Value $461,712)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $461,712)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $461,712)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $461,712)
Greenwich Capital Markets, Inc. (Maturity Value $276,022)
Paribas Corp. (Maturity Value $461,712)
SBC Warburg Dillon Read, Inc. (Maturity Value $461,712)
UBS Securities, L.L.C., (Maturity Value $461,712)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $84,522,086) 101.4% ...................................... 75,991,735
Other Assets, less Liabilities (1.4)% ............................................ (1,067,425)
-------------
Net Assets 100.0% ................................................................ $74,924,310
=============
See currency abbreviations on page 147.
*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, December 31, 1997
SHARES/
Real Estate Securities Fund WARRANTS VALUE
<S> <C> <C>
Common Stocks and Warrants 96.6%
Equity REIT - Apartments 16.8%
Amli Residential Properties Trust .................................................................. 180,000 $ 4,005,000
Bay Apartment Communities, Inc. .................................................................... 175,000 6,825,000
Camden Property Trust .............................................................................. 190,000 5,890,000
Charles E. Smith Residential Realty, Inc. .......................................................... 135,000 4,792,500
Equity Residential Properties Trust ................................................................ 256,000 12,944,000
Gables Residential Trust ........................................................................... 195,000 5,386,875
Irvine Apartment Communities, Inc. ................................................................. 155,600 4,950,025
Oasis Residential, Inc. ............................................................................ 147,000 3,279,938
Post Properties, Inc. .............................................................................. 120,000 4,875,000
Security Capital Atlantic, Inc. .................................................................... 371,250 7,842,656
Security Capital Pacific Trust ..................................................................... 354,285 8,591,411
Summit Properties, Inc. ............................................................................ 225,000 4,753,125
-------------
74,135,530
-------------
Equity REIT - Health Care 4.5%
Alexandria Real Estate Equities, Inc. .............................................................. 116,000 3,661,250
Health Care Property Investors, Inc. ............................................................... 125,000 4,726,563
Nationwide Health Properties, Inc. ................................................................. 200,000 5,100,000
Omega Healthcare Investors, Inc. ................................................................... 168,000 6,489,000
-------------
19,976,813
-------------
Equity REIT - Hotels 12.5%
FelCor Suite Hotels, Inc. .......................................................................... 360,000 12,780,000
Innkeepers USA Trust ............................................................................... 367,600 5,697,800
Patriot American Hospitality, Inc. ................................................................. 455,006 13,081,423
Starwood Lodging Trust ............................................................................. 265,050 15,339,769
Winston Hotels, Inc. ............................................................................... 620,000 8,176,250
-------------
55,075,242
-------------
Equity REIT - Industrial 10.9%
AMB Property Corp. ................................................................................. 80,000 2,010,000
Duke Realty Investments, Inc. ...................................................................... 260,000 6,305,000
Liberty Property Trust ............................................................................. 275,000 7,854,688
Meridian Industrial Trust, Inc. .................................................................... 300,000 7,650,000
Security Capital Industrial Trust .................................................................. 400,879 9,971,865
Spieker Properties, Inc. ........................................................................... 200,000 8,575,000
Weeks Corp. ........................................................................................ 170,000 5,440,000
-------------
47,806,553
-------------
Equity REIT - Mixed Property Type 3.6%
Colonial Properties Trust .......................................................................... 195,000 5,874,375
Glenborough Realty Trust, Inc. ..................................................................... 330,000 9,776,250
-------------
15,650,625
-------------
Equity REIT - Office 11.9%
Arden Realty Group, Inc. ........................................................................... 325,000 9,993,750
Crescent Real Estate Equities Co. .................................................................. 300,000 11,812,500
Equity Office Properties Trust ..................................................................... 281,008 8,869,315
Highwoods Properties, Inc. ......................................................................... 275,000 10,226,563
Mack-Cali Realty Corp. ............................................................................. 225,000 9,225,000
SL Green Realty Corp. .............................................................................. 57,000 1,478,438
Tower Realty Trust, Inc. ........................................................................... 35,100 864,338
-------------
52,469,904
-------------
Equity REIT - Residential Communities 2.4%
Manufactured Home Communities, Inc. ................................................................ 200,000 5,400,000
Sun Communities, Inc. .............................................................................. 140,000 5,031,250
-------------
10,431,250
-------------
Equity REIT - Retail - Community Centers 7.6%
Burnham Pacific Properties, Inc. ................................................................... 220,000 $ 3,368,750
Developers Diversified Realty Corp. ................................................................ 110,000 4,207,500
Kimco Realty Corp. ................................................................................. 180,000 6,345,000
cPacific Retail Trust .............................................................................. 866,067 11,258,871
Vornado Realty Trust ............................................................................... 180,000 8,448,750
-------------
33,628,871
-------------
Equity REIT - Retail - Regional Malls 4.7%
Simon DeBartolo Group, Inc. ........................................................................ 310,000 10,133,125
The Macerich Co. ................................................................................... 180,000 5,130,000
The Mills Corp. .................................................................................... 215,000 5,267,500
-------------
20,530,625
-------------
Equity REIT - Storage 6.0%
Public Storage, Inc. ............................................................................... 350,000 10,281,250
Storage Trust Realty ............................................................................... 390,000 10,261,875
Storage USA, Inc. .................................................................................. 150,500 6,010,594
-------------
26,553,719
-------------
Home Builders 4.1%
aBeazer Homes USA, Inc. ............................................................................ 100,000 1,993,750
aBelmont Homes, Inc. ............................................................................... 306,100 2,353,144
Clayton Homes, Inc. ................................................................................ 281,250 5,062,500
aNVR, Inc. ......................................................................................... 250,000 5,468,750
aSouthern Energy Homes, Inc. ....................................................................... 193,100 1,544,800
aUS Home Corp. ..................................................................................... 45,000 1,766,250
-------------
18,189,194
-------------
Hotels 7.6%
a,eCandlewood Hotel Co., Inc. ...................................................................... 650,000 5,687,500
aCapStar Hotel Co. ................................................................................. 350,000 12,009,375
aHost Marriott Corp. ............................................................................... 570,000 11,186,250
aPrime Hospitality Corp. ........................................................................... 224,500 4,574,187
-------------
33,457,312
-------------
Mixed Property Type 4.0%
aCrescent Operating, Inc. .......................................................................... 27,500 673,750
aSecurity Capital Group Inc., Class B .............................................................. 125,400 4,075,500
aSecurity Capital Group Inc., Class B, warrants .................................................... 63,712 334,487
aSecurity Capital US Realty ........................................................................ 500,000 7,100,000
aTrammell Crow Co. ................................................................................. 71,800 1,848,849
aVail Resorts, Inc. ................................................................................ 138,000 3,579,374
-------------
17,611,960
-------------
Total Common Stocks and Warrants (Cost $295,217,467) ............................................... 425,517,598
-------------
fRepurchase Agreement 6.5%
Joint Repurchase Agreement, 6.285%, 1/02/98,
(Maturity Value $28,796,224) (Cost $28,786,173) ...................................................... $28,786,173 $ 28,786,173
-------------
BancAmerica Robertson Stephens. (Maturity Value $892,682)
Barclays Capital Group, Inc. (Maturity Value $2,649,253)
BT Alex Brown, Inc. (Maturity Value $2,476,474)
Chase Securities, Inc. (Maturity Value $2,649,253)
CIBC Wood Gundy Securities Corp. (Maturity Value $2,649,253)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $2,649,253)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,649,253)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $2,649,253)
Greenwich Capital Markets, Inc. (Maturity Value $1,583,791)
Paribas Corp. (Maturity Value $2,649,253)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,649,253 )
UBS Securities, L.L.C. (Maturity Value $2,649,253)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $324,003,640) 103.1% ....................................................... 454,303,771
Other Assets, less Liabilities (3.1)% .............................................................. (13,749,508)
-------------
Net Assets 100.0% .................................................................................. $440,554,263
=============
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 12/31/97
were $5,687,500.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
Rising Dividends Fund SHARES VALUE
<S> <C> <C>
Common Stocks 97.8%
Banks 14.5%
CoreStates Financial Corp. ........................................................................ 41,800 $ 3,346,613
First Union Corp. ................................................................................. 302,000 15,477,500
Mercantile Bankshares Corp. ....................................................................... 278,225 10,885,553
National Commerce Bancorp. ........................................................................ 472,700 16,662,675
State Street Corp. ................................................................................ 185,400 10,787,963
TrustCo Bank Corp., New York ...................................................................... 529,157 14,419,528
U.S. Bancorp ...................................................................................... 132,500 14,831,719
Washington Mutual, Inc. ........................................................................... 233,500 14,900,219
Wilmington Trust Corp. ............................................................................ 172,800 10,778,400
-------------
112,090,170
-------------
Business Services 8.4%
Avery Dennison Corp. .............................................................................. 345,200 15,447,700
Brady (W.H.) Co. .................................................................................. 255,800 7,929,800
Ennis Business Forms, Inc. ........................................................................ 498,200 4,639,488
Standard Register Co. ............................................................................. 371,400 12,906,150
Wallace Computer Services, Inc. ................................................................... 627,900 24,409,613
-------------
65,332,751
-------------
Consumer Products 15.7%
Alberto-Culver Co., Class A ....................................................................... 626,200 16,907,400
Block Drug Co., Inc., Class A ..................................................................... 189,553 8,198,210
Dimon, Inc......................................................................................... 715,100 18,771,375
Newell Co. ........................................................................................ 353,700 15,032,250
Nike, Inc., Class B................................................................................ 387,500 15,209,375
Philip Morris Cos., Inc. .......................................................................... 324,300 14,694,844
Sherwin-Williams Co. .............................................................................. 465,000 12,903,750
Stanhome, Inc. .................................................................................... 224,000 5,754,000
Universal Corp. ................................................................................... 368,500 15,154,563
-------------
122,625,767
-------------
Drugs & Health Care 3.3%
Becton, Dickinson & Co. ........................................................................... 314,000 15,700,000
Merck & Co., Inc. ................................................................................. 48,300 5,131,875
West Co., Inc. .................................................................................... 172,900 5,143,775
-------------
25,975,650
-------------
Electronics & Technology 5.7%
Baldor Electric Co................................................................................. 308,133 6,682,642
Cohu, Inc.......................................................................................... 256,300 7,849,188
General Electric Co................................................................................ 116,600 8,555,525
Hewlett-Packard Co. ............................................................................... 153,900 9,618,750
Hubbell, Inc., Class B ............................................................................ 121,700 6,001,331
Rockwell International Corp. ...................................................................... 117,700 6,149,825
-------------
44,857,261
-------------
Energy 1.2%
Royal Dutch Petroleum Co., New York Shares, ADR (Netherlands) ..................................... 174,300 9,444,881
-------------
Financial Services 2.1%
Fannie Mae ........................................................................................ 292,000 16,662,250
-------------
Industrial 23.0%
Bemis Co., Inc. ................................................................................... 161,100 7,098,469
Donaldson Co., Inc................................................................................. 63,100 2,843,444
Dover Corp. ....................................................................................... 379,600 13,713,050
Flowserve Corp. ................................................................................... 467,600 13,063,575
Graco, Inc. ....................................................................................... 108,800 4,059,600
Hanna (M.A.) Co. .................................................................................. 576,800 14,564,200
Kaydon Corp. ..................................................................................... 423,200 13,806,900
Industrial (cont.)
Kimball International, Inc., Class B .............................................................. 746,600 $ 13,765,438
Leggett & Platt, Inc............................................................................... 356,600 14,932,625
Meritor Automotive, Inc. .......................................................................... 39,233 826,345
Millipore Corp.................................................................................... 405,500 13,761,656
Myers Industries, Inc. ............................................................................ 386,560 6,595,680
Nucor Corp. ....................................................................................... 426,600 20,610,113
Pall Corp. ........................................................................................ 490,500 10,147,219
Superior Industries International, Inc. ........................................................... 350,900 9,408,506
Superior Surgical Manufacturing Co., Inc. ......................................................... 235,800 3,772,800
Watts Industries, Inc., Class A ................................................................... 581,100 16,452,394
-------------
179,422,014
-------------
Insurance - Life 1.2%
American Heritage Life Investment Corp. ........................................................... 33,100 1,191,600
ReliaStar Financial Corp. ......................................................................... 200,000 8,237,500
-------------
9,429,100
-------------
Insurance - Property Casualty 12.0%
Allied Group, Inc. ................................................................................ 518,550 14,843,494
American International Group, Inc. ................................................................ 67,500 7,340,625
Chubb Corp. ....................................................................................... 174,200 13,173,875
Harleysville Group, Inc. .......................................................................... 43,800 1,051,200
Mercury General Corp. ............................................................................. 352,800 19,492,200
MMI Cos., Inc. .................................................................................... 580,500 14,585,063
RLI Corp. ........................................................................................ 328,125 16,344,726
St. Paul Cos., Inc. ............................................................................... 85,300 6,999,930
-------------
93,831,113
-------------
Retail 9.3%
Family Dollar Stores, Inc. ........................................................................ 1,139,900 33,413,318
Rite Aid Corp. .................................................................................... 212,100 12,447,618
The Limited, Inc. ................................................................................. 486,500 12,405,749
Wal-Mart Stores, Inc. ............................................................................. 369,700 14,580,043
-------------
72,846,728
-------------
Transportation 1.4%
Circle International Group, Inc. .................................................................. 469,000 10,757,687
-------------
Total Common Stocks (Cost $532,950,098) ........................................................... 763,275,372
-------------
Convertible Preferred Stocks .2%
American Heritage Life Investment Corp., 8.50% cvt. pfd. (Cost $1,210,000) ........................ 24,200 1,379,400
-------------
Total Long Term Investments (Cost $534,160,098) ................................................... 764,654,772
-------------
fRepurchase Agreement 1.3%
Joint Repurchase Agreement, 6.285%, 1/02/98,
(Maturity Value $9,994,807) (Cost $9,991,318) ....................................................... $9,991,318 $ 9,991,318
-------------
BancAmerica Robertson Stephens. (Maturity Value $309,840)
Barclays Capital Group, Inc. (Maturity Value $919,522)
BT Alex Brown, Inc. (Maturity Value $859,554)
Chase Securities, Inc. (Maturity Value $919,522)
CIBC Wood Gundy Securities Corp. (Maturity Value $919,522)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $919,522)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $919,522)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $919,522)
Greenwich Capital Markets, Inc. (Maturity Value $549,715)
Paribas Corp. (Maturity Value $919,522)
SBC Warburg Dillon Read, Inc. (Maturity Value $919,522)
UBS Securities, L.L.C. (Maturity Value $919,522)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $544,151,416) 99.3% ....................................................... 774,646,090
Other Assets, less Liabilities .7% ................................................................ 5,651,694
-------------
Net Assets 100.0% ................................................................................. $780,297,784
=============
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
Small Cap Fund SHARES VALUE
Common Stocks 91.5%
Commercial Services 4.0%
aApplied Graphics Technologies, Inc. ................................................................. 43,600 $ 2,321,700
aLabor Ready, Inc. ................................................................................... 81,475 1,568,394
Norrell Corp. ..................................................................................... 112,500 2,235,938
aRemedyTemp, Inc., Class A ........................................................................... 29,500 571,563
aSOS Staffing Services, Inc. ......................................................................... 75,500 1,425,063
aThe Marquee Group, Inc. ............................................................................. 160,800 603,000
aValassis Communications, Inc. ....................................................................... 100,000 3,700,000
-------------
12,425,658
-------------
Consumer Products Durables 3.9%
aBelmont Homes, Inc. ................................................................................. 56,650 435,497
aCannondale Corp. .................................................................................... 124,200 2,701,350
Clayton Homes, Inc. ............................................................................... 105,650 1,901,700
K-2, Inc. ......................................................................................... 105,000 2,388,750
Oakwood Homes ..................................................................................... 80,000 2,655,000
aRockShox, Inc. ...................................................................................... 56,600 523,550
aSola International, Inc. ............................................................................ 24,400 793,000
aSouthern Energy Homes, Inc. ......................................................................... 83,700 669,600
-------------
12,068,447
-------------
Consumer Products Non-Durables 3.7%
aConsolidated Cigar Holdings, Inc. ................................................................... 115,900 3,194,494
aThe North Face, Inc. ................................................................................ 77,600 1,707,200
The Warnaco Group, Inc., Class A .................................................................. 53,960 1,692,995
aTommy Hilfiger Corp. ................................................................................ 113,800 3,997,225
aTropical Sportswear International Corp. ............................................................. 38,900 389,000
aVans, Inc. .......................................................................................... 47,000 710,875
-------------
11,691,789
-------------
Consumer Services 4.3%
aAMF Bowling, Inc. ................................................................................... 31,500 787,500
aCapStar Hotel Co. ................................................................................... 101,200 3,472,425
aDeVry, Inc. ......................................................................................... 38,900 1,239,938
aPrime Hospitality Corp. ............................................................................. 208,000 4,238,000
aSylvan Learning Systems, Inc. ....................................................................... 49,400 1,926,600
aVail Resort, Inc. ................................................................................... 67,200 1,743,000
-------------
13,407,463
-------------
Electronic Technology 8.3%
aAlliant Techsystems, Inc. ........................................................................... 26,500 1,477,375
aCoherent, Inc. ...................................................................................... 89,200 3,133,150
aHarmonic Lightwaves, Inc. ........................................................................... 107,800 1,172,325
aItron, Inc. ......................................................................................... 17,300 311,400
aKomag, Inc. ......................................................................................... 267,800 3,983,525
aNatural Microsystems Corp. .......................................................................... 57,000 2,650,500
aOmtool, Ltd.......................................................................................... 77,900 798,475
aRainbow Technologies, Inc. .......................................................................... 15,800 458,200
aRead-Rite Corp. ..................................................................................... 51,500 811,125
aSpectralink Corp. ................................................................................... 183,000 514,688
aTekelec............................................................................................. 93,700 2,857,850
aTracor, Inc. ........................................................................................ 101,800 3,092,175
aTranscrypt International, Inc. ...................................................................... 100,600 2,502,425
aUniphase Corp. ...................................................................................... 54,400 2,250,800
-------------
26,014,013
-------------
Financial Services 5.7%
aAffiliated Managers Group, Inc. ..................................................................... 35,200 1,020,800
aEspirito Santo Financial Group ...................................................................... 106,000 2,153,125
EVEREN Capital Corp. .............................................................................. 65,000 3,087,500
Financial Services (cont.)
Executive Risk, Inc. .............................................................................. 48,400 $ 3,378,925
aLife USA Holding, Inc. .............................................................................. 7,200 121,500
aRisk Capital Holdings, Inc. ......................................................................... 125,000 2,781,250
Scor (France)...................................................................................... 56,600 2,706,568
aSilicon Valley Bancshares ........................................................................... 48,700 2,739,375
-------------
17,989,043
-------------
Health Care Services 4.5%
aAccess Health, Inc. ................................................................................. 78,600 2,308,875
aAdvanced Health Corp. ............................................................................... 124,300 1,973,263
aHealthcare Recoveries, Inc. ......................................................................... 91,400 2,033,650
aMedaphis Corp. ...................................................................................... 44,900 291,850
aPediatrix Medical Group, Inc. ....................................................................... 9,300 397,575
aPharMerica, Inc. .................................................................................... 153,900 1,596,713
aRenal Care Group, Inc. .............................................................................. 78,100 2,499,200
aTotal Renal Care Holdings, Inc. ..................................................................... 33,333 916,658
aTransition Systems, Inc. ............................................................................ 88,700 1,962,488
-------------
13,980,272
-------------
Health Technology 4.8%
aDepoTech Corp. ...................................................................................... 106,000 377,625
aInhale Therapeutic Systems .......................................................................... 84,300 2,191,800
Mentor Corp. ...................................................................................... 110,000 4,015,000
aNeurogen Corp. ...................................................................................... 64,200 866,700
aOrthoLogic Corp. .................................................................................... 245,000 1,362,813
aPenederm, Inc. ...................................................................................... 75,700 757,000
aSerologicals Corp. .................................................................................. 152,500 3,965,000
aVertex Pharmaceuticals, Inc. ........................................................................ 46,700 1,541,100
-------------
15,077,038
-------------
Industrial Services 1.1%
aAmerican Disposal Services, Inc. .................................................................... 49,300 1,799,450
aCatalytica, Inc. .................................................................................... 90,133 1,070,329
aaU.S. Liquids, Inc. ................................................................................. 19,200 271,200
aWaters Corp. ........................................................................................ 6,600 248,325
-------------
3,584,379
-------------
Non-Energy/Minerals 1.5%
Carpenter Technology Corp. ........................................................................ 51,600 2,480,025
aGibraltar Steel Corp. ............................................................................... 116,700 2,304,825
-------------
4,784,850
-------------
Oil & Gas 6.4%
aAbacan Resource Corp. ............................................................................... 291,900 456,094
aAbacan Resource Corp. (Canada) ...................................................................... 150,000 236,171
aAtwood Oceanic, Inc. ................................................................................ 3,400 161,075
aBarrett Resources Corp. ............................................................................. 113,200 3,424,300
Devon Energy Corp. ................................................................................ 66,400 2,556,400
Lomak Petroleum, Inc. ............................................................................. 125,000 2,031,250
aNewfield Exploration Co. ............................................................................ 35,800 834,588
aTitan Exploration, Inc. ............................................................................. 243,200 2,310,400
aTom Brown, Inc. ..................................................................................... 104,600 2,013,550
aVarco International, Inc. ........................................................................... 275,800 5,912,452
-------------
19,936,280
-------------
Process Industries 1.8%
ChemFirst, Inc. ................................................................................... 85,100 $ 2,404,075
aUCAR International, Inc. ............................................................................ 80,500 3,214,969
-------------
5,619,044
-------------
Producer Manufacturing 3.6%
aGentex Corp. ........................................................................................ 156,400 4,203,250
JLG Industries, Inc. .............................................................................. 291,400 4,116,025
Roper Industries, Inc. ............................................................................ 107,400 3,034,050
-------------
11,353,325
-------------
Real Estate Investment Trusts 5.1%
Arden Realty Group, Inc. .......................................................................... 100,000 3,075,000
Camden Property Trust ............................................................................. 60,000 1,860,000
FelCor Suite Hotels, Inc. ......................................................................... 97,000 3,443,500
Innkeepers USA Trust .............................................................................. 218,900 3,392,950
Omega Healthcare Investors, Inc. .................................................................. 27,400 1,058,325
Storage Trust Realty .............................................................................. 60,900 1,602,431
Tower Realty Trust, Inc. .......................................................................... 13,600 334,900
Winston Hotels, Inc. .............................................................................. 98,000 1,292,375
-------------
16,059,481
-------------
Retail 2.1%
aAnnTaylor Stores Corp. .............................................................................. 20,000 267,500
aGuitar Center, Inc. ................................................................................. 84,800 1,950,400
Talbots, Inc. ..................................................................................... 74,700 1,353,938
aWest Marine, Inc. ................................................................................... 141,700 3,170,538
-------------
6,742,376
-------------
Semiconductors 4.6%
aAdvanced Energy Industries, Inc. .................................................................... 110,000 1,643,125
aBrooks Automation, Inc. ............................................................................. 10,600 194,775
aC-Cube Microsystems, Inc. ........................................................................... 71,700 1,169,606
aEtec Systems, Inc. .................................................................................. 66,600 3,096,900
aLattice Semiconductor Corp. ......................................................................... 46,500 2,202,938
aNeoMagic Corp. ...................................................................................... 99,300 1,266,075
aPMC-Sierra, Inc. .................................................................................... 108,000 3,348,000
aPRI Automation, Inc. ................................................................................ 14,600 421,575
aTrident Microsystems, Inc. .......................................................................... 104,700 948,844
-------------
14,291,838
-------------
Technology Services 15.1%
aActivision, Inc. .................................................................................... 125,700 2,246,888
aAffiliated Computer Services, Inc. .................................................................. 174,800 4,599,425
aAspen Technologies, Inc. ............................................................................ 8,900 304,825
aCheck Point Software Technologies, Ltd. ............................................................. 50,000 2,037,500a
aClarify, Inc. ....................................................................................... 129,400 1,504,27a5
aDocumentum, Inc. .................................................................................... 19,700 829,863
aElectronic Arts, Inc. ............................................................................... 102,200 3,864,438
aEnvoy Corp. ......................................................................................... 61,500 1,791,188
aH.T.E., Inc. ........................................................................................ 23,400 485,550
aHarbinger Corp. ..................................................................................... 66,300 1,864,688
aHNC Software, Inc. .................................................................................. 18,500 795,500
aIntegrated Systems, Inc. ............................................................................ 125,700 1,728,375
aInternational Network Services ...................................................................... 89,900 2,078,938
aIntuit, Inc. ........................................................................................ 81,100 3,345,375
aMetaCreations Corp. ................................................................................. 104,600 1,163,675
aPaymentech, Inc. .................................................................................... 92,600 1,365,850
aPhoenix Technologies, Ltd............................................................................ 97,000 1,176,125
aRemedy Corp. ........................................................................................ 73,600 1,545,600
Technology Services (cont.)
aSapient Corp. ....................................................................................... 15,000 $ 918,750
aSterling Commerce, Inc. ............................................................................. 32,163 1,236,265
aSynopsys, Inc. ...................................................................................... 109,000 3,896,750
aThe Vantive Corp. ................................................................................... 135,000 3,408,750
Transaction Systems Architects, Inc. .............................................................. 92,000 3,496,000
aTrusted Information Systems, Inc. ................................................................... 144,000 1,440,000
aXcelleNet, Inc. ..................................................................................... 21,000 275,625
-------------
47,400,218
-------------
Transportation 3.9%
Air Express International Corp. ................................................................... 90,000 2,745,000
aAtlantic Coast Airlines, Inc. ....................................................................... 85,500 2,714,625
C.H. Robinson Worldwide, Inc. ..................................................................... 96,100 2,150,238
Circle International Group, Inc. .................................................................. 32,300 740,881
Expeditors International of Washington, Inc. ...................................................... 104,800 4,034,800
-------------
12,385,544
-------------
Utilities/Communications 7.1%
aArch Communications Group, Inc. ..................................................................... 191,700 982,463
aCommNet Cellular, Inc. .............................................................................. 46,300 1,646,544
aICG Communications, Inc. ............................................................................ 156,000 4,251,000
aMillicom International Cellular, SA ................................................................. 62,400 2,347,800
aPaging Network, Inc. ................................................................................ 369,800 3,975,350
aPrimus Telecommunications Group, Inc. ............................................................... 143,000 2,305,875
aRural Cellular Corp., Class A ....................................................................... 139,300 1,819,606
aWestern Wireless Corp., Class A ..................................................................... 279,200 4,851,100
-------------
.......... 22,179,738
-------------
Total Long Term Investments (Cost $262,349,184) ................................................... 286,990,796
-------------
PRINCIPAL
AMOUNT
fRepurchase Agreement 9.1%
Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $28,481,129) (Cost $28,471,188)....... $28,471,188 28,471,188
-------------
BancAmerica Robertson Stephens (Maturity Value $872,599)
Barclays Capital Group, Inc., (Maturity Value $2,619,009)
BT Alex Brown, Inc., (Maturity Value $2,466,050)
Chase Securities, Inc., (Maturity Value $2,619,008)
CIBC Wood Gundy Securities Corp., (Maturity Value $2,619,008)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., (Maturity Value $2,619,008)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,619,008)
Dresdne Kleinwort Benson, North America, L.L.C., (Maturity Value $2,619,008)
Greenwich Capital Markets, Inc., (Maturity Value $1,571,407)
Paribas Corp., (Maturity Value $2,619,008)
SBC Warburg Dillon Read, Inc. (Maturity Value $2,619,008)
UBS Securities, L.L.C., (Maturity Value $2,619,008)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $290,820,372) 100.6% ...................................................... 315,461,984
Other Assets, less Liabilities (.6)% .............................................................. (2,000,445)
-------------
Net Assets 100.0% ................................................................................. $313,461,539
=============
aNon-income producing.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
SHARES/
WARRANTS
Templeton Developing Markets Equity Fund INDUSTRY & RIGHTS VALUE
<S> <C> <C>
Common Stocks, Bonds, Warrants and Rights 89.0%
Argentina 6.4%
Astra Cia Argentina de Petroleo, SA .............................Energy Sources 106,180 $ 185,850
Atanor Cia Nacional Para la Industria Quimica, SA, Class D ......Chemicals 530,163 731,764
Banco de Galicia y Buenos Aires, SA, Class B ....................Banking 399,470 2,557,094
Banco Frances del Rio de la Plata, SA ...........................Banking 1,639 15,213
aBuenos Aires Embotelladora, SA, Sponsored ADR ..................Beverages & Tobacco 56,200 562
Capex, SA, Class A ..............................................Utilities Electrical & Gas 49,555 329,603
Central Costanera, SA, Class B ..................................Utilities Electrical & Gas 13,290 34,561
Juan Minetti, SA ................................................Building Materials & Components 30,350 94,710
a,iJuan Minetti, SA, cvt., Zero coupon, 12/31/05 ................Building Materials & Components 6,000 ARS 6,001
Molinos Rio de Plata SA, Class B ................................Food & Household Products 938,438 2,252,679
Nobleza Piccardo Sdad Industrial Comercial y Financial ..........Beverages & Tobacco 43,372 195,211
Perez Companc, SA, Class B ......................................Energy Sources 277,707 1,983,205
Quilmes Industrial, SA ..........................................Beverages & Tobacco 156,000 2,135,250
Renault Argentina, SA ...........................................Automobiles 293,375 410,803
aSevel Argentina, SA, Class C ...................................Automobiles 15,207 13,993
Siderar, Class A ................................................Metals & Mining 7,230 30,733
Sociedad Comercial del Plata Cadelplata Come ....................Multi-Industry 1,692,360 2,674,437
Transportadora de Gas del Sur, SA, Class B ......................Energy Sources 102,030 231,652
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR .......Energy Sources 3,000 33,562
YPF Sociedad Anonima, Sponsored ADR .............................Energy Sources 116,934 3,997,681
aZanella Hermanos, SA ...........................................Automobiles 2,840 284
-------------
17,914,848
-------------
Brazil 11.5%
Aracruz Celulose, SA, ADR .......................................Forest Products & Paper 114,800 1,650,250
Banco Bradesco, SA ..............................................Banking 150,542,291 1,497,262
aBanco Bradesco, SA, BBD, rights ................................Banking 6,436,461 23,645
aBanco Bradesco, SA, BBD, rights, pfd. ..........................Banking 3,314,124 11,878
Banco Bradesco, SA, pfd. ........................................Banking 77,514,000 763,993
Banco do Brasil, SA .............................................Banking 111,182,976 717,277
Banco do Brazil, SA, pfd. .......................................Banking 97,000,000 717,038
aBanco do Brasil, SA, Series A, warrants ........................Banking 36,132,595 61,837
aBanco do Brasil, SA, Series B, warrants ........................Banking 54,198,892 94,698
aBanco do Brasil, SA, Series C, warrants ........................Banking 79,531,488 155,350
Brasmotor, SA, pfd. .............................................Multi-Industry 4,906,000 483,545
Centrais Eletricas Brasileiras, SA ..............................Utilities Electrical & Gas 99,820,000 4,963,944
Centrais Eletricas Brasileiras, SA, Class B, pfd. ...............Utilities Electrical & Gas 106,060,000 5,416,800
Companhia Siderurgica Nacional ..................................Metals & Mining 37,703,000 1,047,259
Copene-Petroquimica do Nordeste SA, Class A, pfd. ...............Chemicals 2,975,700 906,535
Duratex, SA, pfd. ...............................................Forest Products & Paper 50,115,800 1,975,803
Investimentos Itau, SA, pfd. ....................................Multi-Industry 1,884,200 1,468,800
aMannesmann, SA .................................................Machinery & Engineering 2,224,000 261,049
aMannesmann, SA, pfd. ...........................................Machinery & Engineering 362,700 45,498
Petrobras-Petroleo Brasileiro, SA, pfd. .........................Energy Sources 25,255,000 5,906,147
Telecomunicacoes Brasileiras-Telebras, SA .......................Telecommunications 29,560,000 3,006,191
aUniao de Bancos Brasileiros, SA, pfd............................Banking 15,439,000 1,051,354
-------------
32,226,153
-------------
China 2.2%
China Southern Glass Co., Ltd., Class B .........................Building Materials & Components 2,224,446 625,796
Chiwan Wharf Holdings, Ltd., Class B ............................Transportation 1,132,000 356,443
aLuoyang Glass Co., Ltd., Class H ...............................Misc Materials & Commodities 2,175,000 196,477
Shandong Huaneng Power Co., Ltd., Sponsored ADR .................Utilities Electrical & Gas 96,500 663,437
aShanggone Co., Ltd., Class B ...................................Machinery & Engineering 233,400 20,539
Shanghai Chlor-Alkali Chemical Co., Ltd., Class B ...............Chemicals 1,332,900 229,259
aShanghai Dazhong Taxi Shareholding Co., Ltd., Class B ..........Transportation 627,300 469,220
aShanghai Jin Jiang Tower Co., Ltd., Class B ....................Leisure & Tourism 2,033,600 378,250
aShanghai Lujiaxui Finance & Trade Zn Dev Stock Co., Ltd, Class BReal Estate 358,900 279,942
Shanghai New Asia Group Co., Ltd., Class B ......................Food & Household Products 189,940 51,284
Shanghai Petrochemical Co., Ltd., Class H .......................Chemicals 1,860,000 290,437
aShanghai Refrigerator Compressor Co., Ltd., Class B ............Industrial Components 594,480 165,265
aShanghai Shangling Electric Appliance, Class B .................Appliances & Household Durables 340,730 70,190
China (cont.)
Shanghai Tyre & Rubber Co., Ltd., Class B .......................Industrial Components 1,338,700 $ 334,675
aShanghai Vacuum Electron Devices Co., Ltd., Class B ............Appliances & Household Durables 1,744,361 261,654
Shanghai Yaohua Pilkington Glass, Class B .......................Building Materials & Components 647,600 89,369
Shenzhen Vanke Co., Ltd., Class B ...............................Real Estate 2,676,061 1,554,042
-------------
6,036,279
-------------
Czech Republic 1.8%
aCEZ ............................................................Utilities Electrical & Gas 117,430 3,853,671
Elektrarny Opatovice, AS ........................................Energy Sources 17 1,971
Komercni Banka, AS ..............................................Banking 1,000 37,732
Komercni Banka, AS, GDR .........................................Banking 4,000 49,000
aSPT Telecom, AS ................................................Telecommunications 4,610 493,176
Tabak, AS .......................................................Beverages & Tobacco 130 29,694
aUnipetrol, fgn. ................................................Chemicals 212,938 612,475
-------------
5,077,719
-------------
Ghana .4%
Ashanti Goldfields Co., Ltd., Sponsored GDR .....................Metals & Mining 165,164 1,238,730
-------------
Greece 3.7%
Alpha Credit Bank ...............................................Banking 48,558 2,835,472
Alpha Leasing, SA ..............................................Financial Services 30,480 601,332
Delta Dairy, SA .................................................Food & Household Products 71,390 809,850
Ergo Bank, SA ...................................................Banking 13,873 717,476
Etba Leasing.....................................................Financial Services 40,690 336,873
Hellas Can Sa Packaging Manufacturers ...........................Metals & Mining 36,250 523,604
Hellenic Telecommunications Organizations, SA ...................Telecommunications 26,360 540,480
Hellenic Telecommunications Organizations, SA, 144A .............Telecommunications 124,800 2,558,873
aNational Bank of Greece, SA ....................................Banking 1,184 104,260
Titan Cement, Co., reg. .........................................Building Materials & Components 26,240 1,197,139
-------------
10,225,359
-------------
Hong Kong 8.3%
Cheung Kong Holdings, Ltd. ......................................Real Estate 658,000 4,309,395
Cross Harbour Tunnel Co., Ltd. ..................................Transportation 34,000 57,917
Dairy Farm International Holdings, Ltd...........................Merchandising 241,445 260,761
Goldlion Holdings, Ltd...........................................Textiles & Apparel 130,000 43,199
Great Wall Electronic International, Ltd. .......................Electrical & Electronics 693,102 53,666
Hang Lung Development ...........................................Real Estate 2,366,000 3,328,094
Henderson China Holdings Limited ................................Real Estate 14,000 11,201
Hong Kong & Shanghai Hotels, Ltd. ...............................Leisure & Tourism 731,000 603,742
Hong Kong Electric Holdings, Ltd. ...............................Utilities Electrical & Gas 334,400 1,270,884
Hopewell Holdings, Ltd. ........................................Construction & Housing 347,000 86,425
HSBC Holdings, Plc. .............................................Banking 192,063 4,734,034
IMC Holdings, Ltd. ..............................................Transportation 120,000 30,972
Jardine Matheson Holdings, Ltd. .................................Multi-Industry 24,618 125,552
Jardine Strategic Holdings, Ltd. ................................Multi-Industry 98,125 259,050
K Wah International Holdings, Ltd. ..............................Building Materials & Components 1,013,418 177,861
aLai Fung Holdings, Ltd. ........................................Real Estate 14,952 5,161
Lai Sun Development Co., Ltd. ...................................Real Estate 747,600 246,016
Lai Sun Garment International, Ltd. .............................Multi-Industry 507,000 315,689
aLai Sun Hotels International Ltd., warrants ....................Leisure & Tourism 111,651 432
Laws International Holdings, Ltd. ...............................Textiles & Apparel 882,000 121,789
New World Development Co., Ltd. .................................Real Estate 705,127 2,438,689
Semi-Tech (Global) Co., Ltd. ....................................Appliances & Household Durables 1,353,201 221,779
aSemi-Tech (Global) Co., Ltd., warrants .........................Appliances & Household Durables 31,159 1,126
Sun Hung Kai & Co., Ltd. ........................................Financial Services 1,119,400 193,573
aSun Hung Kai & Co., Ltd, warrants ..............................Financial Services 42,080 1,439
Sun Hung Kai Properties, Ltd. ..................................Real Estate 253,000 1,763,066
Swire Pacific Ltd., Class A .....................................Multi-Industry 210,000 1,151,762
Swire Pacific Ltd., Class B .....................................Multi-Industry 182,000 184,372
Hong Kong (cont.)
Wheelock & Co. Ltd. .............................................Multi-Industry 673,000 $ 785,992
Yue Yuen Industrial Holdings ....................................Recreation & Other Consumer Goods 177,200 375,026
-------------
23,158,664
-------------
India 3.3%
aAndhra Valley Power Supply Co., Ltd. ...........................Utilities Electrical & Gas 3,550 7,222
Arvind Mills, Ltd................................................Textiles & Apparel 143,000 321,932
aBajaj Auto, Ltd.................................................Automobiles 6,400 98,776
Bank of Baroda...................................................Banking 95,700 269,767
Bharat Petroleum Corp., Ltd. ....................................Energy Sources 4,800 50,969
Bombay Dyeing & Manufacturing Co., Ltd. .........................Chemicals 6,700 16,964
BSES, Ltd. ......................................................Utilities Electrical & Gas 3,200 13,959
Cochin Refineries, Ltd. .........................................Energy Sources 71,200 308,776
Grasim Industries, Ltd. Ord INR 10 ..............................Multi-Industry 48,900 435,360
Great Eastern Shipping Co. ......................................Transportation 297,800 349,459
Gujarat Ambuja Cements, Ltd. ....................................Building Materials & Components 2,200 15,490
Gujarat Industries Power, Ltd. ..................................Energy Equipment & Services 52,100 34,888
Gujarat Narmada Valley Fertilizers Co., Ltd. ....................Chemicals 7,000 3,973
Hindalco Industries .............................................Metals & Mining 2,375 45,016
aHindustan Organic Chemicals, Ltd. ..............................Chemicals 25,900 9,514
Hindustan Petroleum Corp., Ltd. .................................Energy Sources 41,400 511,691
India Cements, Ltd. .............................................Building Materials & Components 61,600 105,286
India Cements, Ltd., GDR ........................................Building Materials & Components 3,051 5,797
Indian Aluminium Co., Ltd. ......................................Metals & Mining 47,500 89,365
Indian Petrochemicals Corp., Ltd. ...............................Chemicals 207,200 373,964
Indian Rayon & Industries, Ltd. .................................Multi-Industry 30,525 144,254
Indian Rayon & Industries, Ltd., GDR ............................Multi-Industry 10,670 45,345
Indo Gulf Fertilisers & Chemicals Corp., Ltd. ...................Chemicals 143,300 134,344
Industrial Credit & Investment Corp. of India (ICICI) ...........Financial Services 190,480 371,728
Industrial Development Bank of India ............................Banking 166,300 392,417
ITC Bhadrachalam Paperboards, Ltd. ..............................Forest Products & Paper 66,700 59,128
Larsen and Toubro, Ltd. .........................................Multi-Industry 179,250 927,116
Madras Cements...................................................Building Materials & Components 400 46,684
aMahanagar Telephone Nigam, Ltd. ................................Telecommunications 9,400 61,867
National Aluminium Co., Ltd. ....................................Metals & Mining 598,100 450,101
Oriental Bank of Commerce .......................................Banking 294,800 483,186
Reliance Industries, Ltd. .......................................Chemicals 115,400 487,212
Shipping Corporation of India, Ltd. .............................Transportation 182,200 209,158
Steel Authority of India, Ltd. ..................................Metals & Mining 483,000 120,134
Steel Authority of India, Ltd, GDR, Reg S .......................Metals & Mining 25,000 80,000
Sterlite Industries (India), Ltd. ...............................Metals & Mining 9,100 46,080
Tata Chemicals, Ltd. ............................................Chemicals 76,350 290,208
Tata Engineering & Locomotive Co. Telco .........................Machinery & Engineering 188,500 1,424,570
Tata Hydro-Electric Power, Co. ..................................Utilities Electrical & Gas 20,000 38,138
Tata Iron & Steel Co., Ltd. .....................................Metals & Mining 97,450 333,741
Thermax, Ltd. ...................................................Energy Equipment & Services 3,200 14,204
Wockhardt........................................................Health & Personal Care 1,800 8,483
-------------
9,236,266
-------------
Indonesia 2.2%
Asia Pulp & Paper Co., Ltd., Sponsored ADR ......................Forest Products & Paper 49,500 498,094
PT Bank Dagang Nasional Indonesia, fgn. .........................Banking 1,771,000 112,700
aPT Bank Dagang Nasional Indonesia, warrants ....................Banking 253,000 2,346
PT Bank Danamon, fgn. ...........................................Banking 1,098,000 69,873
aPT Bank International Indonesia, fgn. ..........................Banking 600,000 35,455
PT Bank PDFCI, fgn. .............................................Banking 570,500 181,523
PT Barito Pacific Timber, fgn. ..................................Forest Products & Paper 2,659,000 761,441
PT BBL Dharmala Finance, fgn. ...................................Financial Services 150,000 43,636
PT BDNI Capital Corp., fgn. .....................................Financial Services 411,000 67,255
PT Charoen Pokphand Indonesia ...................................Food & Household Products 2,493,750 136,023
PT Ciputra Dev...................................................Real Estate 800,000 36,364
PT Dharmala Intiland, fgn. ......................................Real Estate 372,400 86,329
Indonesia (cont.)
PT Gadjah Tunggal, TBK, fgn. ....................................Automobiles 6,732,000 $ 642,600
PT Hanjaya Mandala Sampoerna ....................................Beverages & Tobacco 121,000 91,300
PT Indah Kiat Pulp & Paper Corp., fgn. ..........................Forest Products & Paper 1,317,500 233,557
aPT Indah Kiat Pulp & Paper Corp., rights .......................Forest Products & Paper 114,400 3,120
PT Indocement Tunggal Prakar ....................................Building Materials & Components 1,150,500 376,527
PT Indofoods Sukses Makmur ......................................Food & Household Products 230,520 75,443
PT Indosat, fgn. ................................................Telecommunications 59,000 109,418
PT Inter-Pacific Bank, fgn. .....................................Banking 12,000 3,382
PT Jakarta International Hotel & Development ....................Real Estate 481,500 94,111
PT Japfa Comfeed Indonesia ......................................Food & Household Products 337,500 27,614
PT Kalbe Farma ..................................................Health & Personal Care 84,500 14,980
PT Modern Photo Film Co. ........................................Multi-Industry 218,000 63,418
PT Multibreeder Adirama Indonesia TBK ...........................Food & Household Products 441,750 14,056
PT Pabrik Kertas Tjiwi Kimia ....................................Forest Products & Paper 2,009,926 493,345
aPT Pabrik Kertas Tjiwi Kimia, warrants .........................Forest Products & Paper 169,155 9,842
PT Pakuwon Jati..................................................Real Estate 383,500 31,377
PT Semen Cibinong, loc. ........................................Building Materials & Components 746,500 33,932
PT Semen Gresik..................................................Building Materials & Components 318,500 186,757
PT Sinar Mas Agro Resources & Technology Corp. ..................Food & Household Products 745,800 64,410
PT Sinar Mas Multi Artha, fgn. ..................................Financial Services 3,099,250 380,363
aPT Sinar Mas Multi Artha, fgn., warrants .......................Financial Services 232,440 2,958
PT Sumalindo Lestari Jaya TBK ...................................Forest Products & Paper 349,000 49,177
PT Summarecon Agung .............................................Real Estate 678,069 43,150
PT Tambang Timah, fgn. ..........................................Metals & Mining 869,000 932,200
PT Tempo Scan Pacific ...........................................Health & Personal Care 185,000 14,295
PT Ultra Jaya Milk ..............................................Food & Household Products 338,500 61,545
PT Unggul Indah Corp. ...........................................Chemicals 136,400 32,860
PT United Tractors ..............................................Machinery & Engineering 356,000 42,073
-------------
6,158,849
-------------
Israel 1.1%
Bank Hapoalim BM.................................................Banking 329,883 791,093
Clal Industries, Ltd. ...........................................Multi-Industry 225,232 1,266,027
Discount Investment Corp. .......................................Multi-Industry 17,970 502,001
First International Bank of Israel ..............................Banking 248 182,145
Koor Industries, Ltd. ...........................................Multi-Industry 2,966 328,411
-------------
3,069,677
-------------
Jordan .1%
aJordan Cement Factories, Ltd. ..................................Building Materials & Components 36,000 153,289
-------------
Malaysia 1.8%
Berjaya Singer, Bhd. ............................................Appliances & Household Durables 418,000 133,261
Berjaya Singer, Bhd, fgn. .......................................Appliances & Household Durables 89,000 28,374
Boustead Holdings, Bhd., fgn. ...................................Food & Household Products 314,000 259,951
aEdaran Otomobil Nasional, Bhd. .................................Automobiles 1,000 2,044
Federal Flour Mills, Bhd. .......................................Food & Household Products 103,000 82,093
Genting, Bhd.....................................................Leisure & Tourism 219,400 549,981
Hong Leong Industries, Bhd. .....................................Multi-Industry 313,200 318,877
aHong Leong Industries, Bhd., fgn., warrants ....................Multi-Industry 38,000 3,517
Hong Leong Properties, Bhd., fgn. ...............................Real Estate 233,000 42,532
Island & Peninsula, Bhd., fgn. ..................................Real Estate 413,000 276,077
Kian Joo Can Factory, Bhd. ......................................Industrial Components 9,000 8,006
Leader Universal Holdings, Bhd. .................................Industrial Components 880,000 271,500
Malaysian Airline System, Bhd. ..................................Transportation 113,000 90,644
Malaysian International Shipping, Bhd., fgn. ....................Transportation 256,666 376,140
MBF Capital, Bhd. ...............................................Financial Services 517,000 120,294
MBF Capital, Bhd., fgn. .........................................Financial Services 200,000 46,536
Oriental Holdings, Bhd. .........................................Automobiles 3,000 3,671
aPerlis Plantations Oil Palms, Bhd. .............................Multi-Industry 625 482
Perlis Plantations Oil Palms, Bhd., fgn. ........................Multi-Industry 237,500 335,840
Perusahaan Otomobil Nasional, Bhd., fgn. ........................Automobiles 213,000 208,099
Public Bank, Bhd. ...............................................Banking 166,000 51,642
Malaysia (cont.)
iRenong, 4.00%, conv., 5/22/01 ..................................Multi-Industry 26,800 MYR $ 2,825
aRenong, Bhd.....................................................Multi-Industry 1,833,000 848,284
aRenong, Bhd., warrants .........................................Multi-Industry 16,750 2,153
Resorts World, Bhd. .............................................Leisure & Tourism 467,000 786,438
Shangri-La Hotels (Malaysia), Bhd. ..............................Leisure & Tourism 726,000 197,856
Shangri-La Hotels (Malaysia), Bhd., fgn. ........................Leisure & Tourism 237,000 64,589
-------------
5,111,706
-------------
Mexico 16.1%
aCemex SA, Class B ..............................................Building Materials & Components 1,846,000 9,858,447
aCifra SA de CV..................................................Merchandising 160,640 396,101
Cifra SA de CV, Series C ........................................Merchandising 3,087,085 6,923,516
Coca Cola Femsa, SA, Sponsored ADR ..............................Beverages & Tobacco 23,400 1,357,200
Cydea, SA de CV .................................................Chemicals 97,938 273,044
DESC, SA, Class B ...............................................Multi-Industry 98,034 936,549
DESC, SA, Class C ...............................................Multi-Industry 12,515 117,854
Fomento Economico Mexicano, SA de CV, Class B ...................Beverages & Tobacco 159,000 1,270,739
aGrupo Financiero Banamex Accival, SA, Class B ..................Banking 766,000 2,292,163
aGrupo Financiero Banamex Accival, SA, Class L ..................Banking 1,106,137 2,850,833
Grupo Financiero Bancomer, SA de CV, Class B ....................Banking 4,238,000 2,730,636
aGrupo Financiero Bancomer, SA de CV, Class L ...................Banking 2,064,259 821,048
aGrupo Financiero Serfin, SA de CV, Class B .....................Banking 2,613,816 634,791
Telefonos de Mexico SA, Class L, Sponsored ADR ..................Telecommunications 205,000 11,492,812
Vitro, SA .......................................................Food & Household Products 729,849 3,214,935
-------------
45,170,668
-------------
Peru .7%
Telefonica Del Peru, SA, Class B, ADR ...........................Telecommunications 85,700 1,997,881
-------------
Philippines .3%
aA Soriano Corp. ................................................Multi-Industry 2,375,000 92,654
aBelle Corp......................................................Real Estate 36,000 1,387
Filinvest Development Corp. .....................................Real Estate 2,381,000 199,886
aKeppel Philippine Holdings Inc., Class B .......................Machinery & Engineering 690,000 41,570
Metro Pacific Corp. .............................................Multi-Industry 30,000 830
aPhilex Mining Corp., Class B ...................................Metals & Mining 5,146,500 127,074
Philippine Commercial International Bank Inc. ...................Banking 30,000 85,185
aPhilippine National Bank ......................................Banking 24,970 54,872
RFM Corp. .......................................................Food & Household Products 405,000 66,000
RFM Corp., 10.00%, cvt., pfd. ...................................Food & Household Products 79,090 9,139
aSoutheast Asia Cement Holdings Inc. ............................Building Materials & Components 10,000,000 130,864
-------------
809,461
-------------
Poland 1.0%
Bank Przemyslowo-Handlowy, SA ...................................Banking 13,638 708,015
Big Bank Gdanski, SA, Class G ...................................Banking 1,067,350 1,044,640
aBig Bank Gdanski, SA, GDR ......................................Banking 15,333 233,833
aImpexmetal, SA, Class A ........................................Metals & Mining 7,000 56,000
Mostostal Export, SA ............................................Construction & Housing 17,032 43,003
aPolifarb Cieszyn Wroclaw, SA ...................................Chemicals 13,013 61,650
aPolifarb Cieszyu Wroclaw, SA, Class D ..........................Chemicals 5,136 20,544
aRaciborska Fabryka Kotlow, SA ..................................Energy Equipment & Services 10,000 26,667
aRolimpex, SA ...................................................Wholesale & International Trade 53,051 120,399
Warta, SA .......................................................Insurance 25,000 297,163
Wielkopolski Bank Kredytowy, SA .................................Banking 14,742 74,024
Zaklady Cementowo Wapiennicze Gorazdze Chorula ..................Building Materials & Components 8,385 206,949
-------------
2,892,887
-------------
Portugal 3.5%
Banco Comercial Portugues, SA ...................................Banking 277,594 5,677,065
Banco Espirito Santo e Comercial de Lisboa ......................Banking 110,880 3,299,591
Banco Totta & Acores, SA ........................................Banking 9,074 178,177
Espirito Santo Financial Holding, SA, ADR .......................Banking 6,740 136,906
Portugal (cont.)
aPortucel Industrial Empresa Product de Celulose, SA ............Forest Products & Paper 62,900 $ 383,791
Sociedade Portuguesa de Celulose, SA ............................Forest Products & Paper 5,110 144,374
-------------
9,819,904
-------------
Singapore 3.2%
Acer Computer International, Ltd. ...............................Electrical & Electronics 293,000 269,560
aAcer Computer International, Ltd., warrants ....................Electrical & Electronics 22,000 2,530
Acma, Ltd. ......................................................Electrical & Electronics 87,000 59,875
Acma, Ltd., fgn..................................................Electrical & Electronics 184,000 126,633
aAcma, Ltd., fgn., warrants .....................................Electrical & Electronics 46,000 3,139
British American Tobacco, Ltd. ..................................Beverages & Tobacco 18,000 53,984
Cycle & Carriage, Ltd. ..........................................Wholesale & International Trade 108,000 445,328
First Capital Corp., Ltd. .......................................Real Estate 297,000 274,886
First Capital Corp., Ltd., fgn. .................................Real Estate 351,000 324,865
Fraser and Neave, Ltd., fgn. ....................................Beverages & Tobacco 30,000 129,932
GP Batteries International, Ltd. ................................Electrical & Electronics 71,000 184,503
aGP Batteries International, Ltd., warrants .....................Electrical & Electronics 18,000 14,737
Hai Sun Hup Group, Ltd. .........................................Transportation 1,698,000 685,043
aHai Sun Hup Group, Ltd., warrants ..............................Transportation 391,200 31,333
Hinds Hotels International, Ltd. ................................Leisure & Tourism 167,000 143,667
Hinds Hotels International, Ltd., fgn. ..........................Leisure & Tourism 177,000 152,269
Hour Glass, Ltd. ................................................Merchandising 100,000 38,564
aInchcape, Bhd., fgn. ...........................................Wholesale & International Trade 377,000 579,312
Inchcape Marketing Services, fgn. ...............................Broadcasting & Publishing 377,000 111,836
Isetan (Singapore), Ltd., fgn. ..................................Merchandising 75,500 112,880
Jurong Shipyard,Ltd., fgn. ......................................Machinery & Engineering 227,000 1,077,425
Keppel Corp., Ltd. ..............................................Transportation 110,000 315,871
MCL Land, Ltd. ..................................................Real Estate 585,000 338,401
Metro Holdings, Ltd., fgn. ......................................Wholesale & International Trade 100,000 123,999
Natsteel, Ltd. ..................................................Metals & Mining 78,000 105,512
Natsteel, Ltd., fgn. ............................................Metals & Mining 476,000 643,892
Neptune Orient Lines, Ltd. ......................................Transportation 3,000 1,184
Osprey Maritime, Ltd. ...........................................Transportation 367,000 293,948
aOsprey Maritime, Ltd., conv., pfd. .............................Transportation 96,120 43,911
Overseas Union Enterprise, Ltd. .................................Leisure & Tourism 131,000 313,996
Robinson & Co., Ltd. ............................................Merchandising 19,200 68,348
Sembawang Corp., Ltd. ...........................................Multi-Industry 429,000 916,286
United Industrial Corporation Ltd. ..............................Real Estate 164,000 64,218
United Industrial Corporation Ltd., fgn. ........................Real Estate 1,779,000 696,612
Van Der Horst, Ltd. .............................................Machinery & Engineering 198,000 75,770
WBL Corp., Ltd. .................................................Multi-Industry 108,000 99,958
-------------
8,924,207
-------------
Slovak Republic .5%
Nafta Gbely, AS..................................................Utilities Electrical & Gas 7,600 268,987
Slovnaft, AS.....................................................Chemicals 28,010 748,634
Vychodoslovenske Zeleziarne, AS .................................Metals & Mining 20,000 392,460
-------------
1,410,081
-------------
South Africa 3.6%
Aeci, Ltd. ......................................................Chemicals 22,000 68,715
Alpha, Ltd. .....................................................Building Materials & Components 14,000 155,348
Anglo American Industrial Corp., Ltd. ...........................Multi-Industry 30,455 738,461
Anglovaal Industried, Ltd. ......................................Multi-Industry 94,715 175,164
Bonnita Holdings, Ltd. ..........................................Food & Household Products 80,000 20,549
BTR Dunlop, Ltd. ................................................Industrial Components 656,000 202,199
CG Smith, Ltd. ..................................................Multi-Industry 73,000 300,010
Del Monte Royal Foods, Ltd. .....................................Food & Household Products 1,762,900 1,159,207
Edgars Stores, Ltd...............................................Textiles & Apparel 11,203 191,071
Engen, Ltd. .....................................................Energy Sources 361,029 1,836,118
First National Bank Holdings, Ltd. ..............................Banking 24,600 218,627
Foodcorp, Ltd. ..................................................Food & Household Products 10,722 55,081
South Africa (cont.)
Kersaf Investments, Ltd. ........................................Leisure & Tourism 101,800 $ 533,422
Malbak, Ltd. ....................................................Multi-Industry 31,575 30,819
McCarthy Retail, Ltd. ...........................................Appliances & Household Durables 74,266 152,607
iMcCarthy Retail, Ltd., cvt., zero coupon 9/30/03 ...............Appliances & Household Durables 17,000 ZAR 33,186
Palabora Mining Co., Ltd. .......................................Metals & Mining 107,001 1,097,173
aRainbow Chicken, Ltd. ..........................................Food & Household Products 319,985 13,808
Rembrandt Group, Ltd. ...........................................Multi-Industry 9,970 72,729
Reunert, Ltd. ...................................................Electrical & Electronics 276,500 448,854
Sappi, Ltd. .....................................................Forest Products & Paper 128,351 646,173
South African Breweries, Ltd. ...................................Beverages & Tobacco 20,828 513,585
South African Iron & Steel Industrial Corp., Ltd. ...............Metals & Mining 2,534,412 749,934
Sun International (South Africa), Ltd. ..........................Leisure & Tourism 1,066,585 438,338
Toyota South Africa Limited .....................................Automobiles 22,000 114,148
Voltex Holdings, Ltd. ...........................................Electrical & Electronics 153,907 79,065
-------------
10,044,391
-------------
South Korea 1.1%
Asia Cement Co., Ltd. ...........................................Building Materials & Components 16,140 77,605
Boram Bank Co., Ltd. ............................................Banking 101,230 246,655
BYC Co., Ltd. ...................................................Textiles & Apparel 2,760 121,310
Central Banking Corp. ...........................................Financial Services 27,375 13,243
Cho Hung Bank Co., Ltd. .........................................Banking 100,000 204,425
Cho Hung Bank Co., Ltd., GDR ....................................Banking 54,000 102,600
Dae Duck Electronics Co., Ltd. ..................................Electrical & Electronics 820 23,052
Daegu Bank Co., Ltd. ............................................Banking 110,168 248,284
Daewoo Electronics, Co. .........................................Electrical & Electronics 40,000 105,841
Daewoo Electric Components Co., Ltd. ............................Electronic Components & Instruments 9,000 18,982
aDongbu Steel Co., Ltd., fgn. ...................................Metals & Mining 7,000 19,658
Dongkuk Steel Mill Co., Ltd. ....................................Metals & Mining 21,000 83,071
Hae In Corp., Ltd. ..............................................Merchandising 1,000 18,555
Hana Bank .......................................................Banking 9,008 50,115
Hana Bank, GDR...................................................Banking 84,572 496,863
Hankook Cosmetics Co., Ltd. .....................................Health & Personal Care 3,950 15,905
aHotel Shilla, Co. ..............................................Leisure & Tourism 9,200 19,350
aKorea Express Co., Ltd. ........................................Transportation 9,000 35,310
Kyong Nam Bank...................................................Banking 59,410 131,410
LG Electronics, Inc..............................................Electrical & Electronics 27,000 204,690
LG Industrial Systems, Ltd. .....................................Electrical & Electronics 16,000 62,773
Moon Bae Steel Co., Ltd. ........................................Metals & Mining 1,000 12,920
Saehan Precision Co., Ltd. ......................................Electrical & Electronics 4,111 32,136
Samsung Display Devices (L), Ltd. ...............................Electrical & Electronics 9,130 171,558
aSamsung Heavy Industries Co., Ltd. .............................Machinery & Engineering 44,000 97,605
Shin Poong Paper Manufacturing Co., Ltd. ........................Forest Products & Paper 2,720 15,245
Ssangyong Oil Refining Co., Ltd. ................................Energy Equipment & Services 71,640 303,044
Tong Yang Merchant Bank .........................................Financial Services 74,096 146,443
-------------
3,078,648
-------------
Sri Lanka .2%
Associated Motorways, Ltd. ......................................Automobiles 7,960 5,156
National Develpoment Bank of Sri Lanka ..........................Banking 130,000 483,684
-------------
488,840
-------------
Thailand 5.1%
Advanced Info. Service, Ltd., fgn. ..............................Telecommunications 87,300 429,038
American Standard Sanitaryware (THB) Public Co., Ltd., fgn. .....Building Materials & Components 30,800 151,368
Asia Credit Public Co., Ltd., fgn. ..............................Financial Services 22,900 5,015
Asia Credit Public Co., Ltd., loc. ..............................Financial Services 158,000 34,605
Ayudhya Insurance Public Co., Ltd., fgn. ........................Insurance 49,100 187,797
Bangkok Bank Public Co., Ltd. ...................................Banking 838,400 1,540,650
Bangkok Insurance ...............................................Insurance 37,000 213,462
Bangkok Insurance, fgn. .........................................Insurance 4,900 40,833
Bank of Ayudhya Public Co., Ltd., fgn. ..........................Banking 996,000 415,000
Thailand (cont.)
Banpu Public Co., Ltd. ..........................................Energy Sources 27,000 $ 75,000
Chareon Pokphand Feedmill Public Co., Ltd., fgn. ................Food & Household Products 335,700 832,077
Charoen Pokphand Feedmill Public Co., Ltd. ......................Food & Household Products 153,300 186,712
Dusit Thani Public Company, Ltd., fgn. ..........................Leisure & Tourism 75,500 57,270
First Bangkok City Bank Public Co., Ltd., fgn. ..................Banking 659,000 132,363
First Bangkok City Bank Public Co., Ltd., loc. ..................Banking 137,115 27,833
aFirst Bangkok City Bank Public Co., Ltd., SEC ..................Banking 262,885 53,363
Hana Microelectronics Co., Ltd., fgn. ...........................Electrical & Electronics 174,618 400,166
Hana Microelectronics Co., Ltd., loc. ...........................Electrical & Electronics 39,891 80,549
aHana Microelectronics Co., Ltd., SEC ...........................Electronic Components & Instruments 39,891 80,549
Hua Thai Manufacturing Public Co., Ltd. .........................Textiles & Apparel 16,000 13,333
Industrial Finance Corp. of Thailand, fgn. ......................Banking 787,881 124,579
Industrial Finance Corp. of Thailand, loc. ......................Banking 510,819 70,947
Italian-Thai Development Public Co., Ltd., fgn. .................Construction & Housing 109,700 35,160
Jasmine International Public Co., Ltd., fgn. ....................Telecommunications 1,205,000 257,479
aKarat Sanitaryware Public Co., Ltd., fgn. ......................Building Materials & Components 119,150 25,459
Kian Gwan (Thailand) Public Co., Ltd., fgn. .....................Real Estate 50,700 60,125
Land and House Public Co, Ltd., fgn. ............................Multi-Industry 272,556 55,909
Land and House Public Co., Ltd., loc. ...........................Multi-Industry 346,200 66,577
aLand and House Public Co., Ltd., SEC ...........................Multi-Industry 242,609 47,309
Phatra Thanakit Public Co., Ltd., fgn. ..........................Multi-Industry 485,300 277,388
Phatra Thanakit Public Co., Ltd., loc. ..........................Multi-Industry 596,000 286,538
Regional Container Lines Public Co., Ltd., fgn. .................Transportation 291,400 236,607
Regional Container Lines Public Co., Ltd. .......................Transportation 20,600 16,727
aRoyal Ceramic Industry Public Co., Ltd., fgn. ..................Building Materials & Components 256,800 8,231
Saha Pathanapibul Public Co., Ltd., fgn. ........................Food & Household Products 80,700 77,596
Saha Union Public Co,. Ltd., fgn. ...............................Multi-Industry 390,000 268,750
Saha Union Public Co., Ltd., loc. ...............................Multi-Industry 284,800 168,872
Sanyo Universal Electric Public Co., Ltd., fgn. .................Appliances & Household Durables 47,800 10,469
Serm Suk Public Co., Ltd., fgn. .................................Food & Household Products 700 4,936
Serm Suk Public Co., Ltd., loc. .................................Food & Household Products 46,300 257,222
Siam Cement Public Co., Ltd., fgn. ..............................Building Materials & Components 70,100 569,188
Siam Cement Public Co., Ltd., loc. ..............................Building Materials & Components 63,600 326,154
Siam City Bank Public Co., Ltd., fgn. ...........................Banking 1,963,000 136,319
Siam Commercial Bank ............................................Banking 552,333 577,188
Siam Commercial Bank, Ltd., fgn. ................................Banking 569,800 669,637
aSiam Makro Public Company, Ltd., fgn. ..........................Merchandising 200,000 245,727
aSino-Thai Engineering & Construction Public Co., fgn. ..........Construction & Housing 118,900 15,244
Thai Airways International Public Co., Ltd., fgn. ...............Transportation 477,700 546,089
Thai Asahi Glass Public Co., Ltd. ...............................Building Materials & Components 116,410 26,739
Thai Farmers Bank Public Co., Ltd. ..............................Banking 2,153,300 2,760,641
Thai Investments and Securities Ltd. ............................Financial Services 368,100 117,981
Thai Petrochemical Industry Public Co., Ltd., fgn. .................Chemicals 1,469,520 144,440
Thai Plastic and Chemical Co., Ltd., fgn. .......................Chemicals 2,200 4,266
Thai Rayon Public Co., Ltd., fgn. ...............................Textiles & Apparel 2,525 3,399
Thai Rayon Public Co., Ltd., loc. ...............................Textiles & Apparel 42,775 57,582
aThai Telephone & Telecommunication Public Co., Ltd.,fgn. .......Telecommunications 313,100 26,761
Thai Wacoal Public Co., Ltd., fgn. ..............................Textiles & Apparel 26,400 50,769
Thai Wah Public Co., Ltd., fgn. .................................Multi-Industry 8,450 587
Tipco Asphalt Public Co., Ltd., fgn. ............................Building Materials & Components 112,000 90,940
Total Access Communication Public Co., Ltd. .....................Telecommunications 272,000 92,480
United Communications Industries, fgn. ..........................Multi-Industry 534,200 222,583
United Motor Works (Siam) Public Co., Ltd. ......................Machinery & Engineering 4,500 2,236
-------------
14,180,963
-------------
Turkey 9.6%
Akbank...........................................................Banking 103,316,223 9,097,810
Alarko Gayrimenkul Yatirim Ortakigi, AS .........................Real Estate 626,000 16,915
Alarko Sanayii ve Ticaret, SA ...................................Appliances & Household Durables 2,839,999 270,639
aAnadolu Anonim Turk Sigorta Sirketi ............................Insurance 4,705,000 149,834
aAnadolu Anonim Turk Sigorta Sirketi, new .......................Insurance 4,688,000 149,292
Turkey (cont.)
Arcelik, AS .....................................................Appliances & Household Durables 5,678,456 $ 534,282
Beko Elektronik, AS .............................................Appliances & Household Durables 7,018,150 431,756
Borusan, AS .....................................................Industrial Components 1,514,000 70,860
Cimentas Izmir Cimento Fabrikasi Turk, AS .......................Building Materials & Components 3,223,070 353,799
Cimsa Cimento Sanayi ve Ticaret, AS .............................Building Materials & Components 2,523,000 136,954
Erciyas Biracilik ...............................................Food & Household Products 3,392,000 474,635
Eregli Demir ve Celik Fabrikalari, AS ..........................Metals & Mining 17,375,000 2,682,750
Izocam Ticaret ve Sanayii, AS, br. ..............................Building Materials & Components 4,477,142 155,539
Kartonsan........................................................Forest Products & Paper 1,041,000 64,042
Koc Holding, AS..................................................Multi-Industry 12,375,245 2,896,016
Marshall Boya ve Vernik Sanayii, AS .............................Industrial Components 1,545,528 216,262
aNetas Northern Electric Telekomunic Asyon, AS ..................Electrical & Electronics 1,325,000 479,493
Petkim Petrokimya Holding, AS ...................................Chemicals 280,000 151,990
aSabanci Holdings, AS ...........................................Multi-Industry 740,000 45,525
aSabanci Holdings, AS, ADR .....................................Multi-Industry 300,000 4,575,000
Tat Konserve Sanayii, AS ........................................Food & Household Products 5,244,662 247,998
Tofas Turk Otomobil Fabrikasi, AS ...............................Automobiles 15,321,025 868,623
Turk Demir Dokum, br. ...........................................Appliances & Household Durables 4,645,993 257,799
Turkiye Garanti Bankasi, AS .....................................Banking 50,763,330 2,510,611
Vakif Finansal Kiralama, AS......................................Financial Services 5,353,359 68,451
-------------
26,906,875
-------------
Venezuela 2.1%
Ceramica Carabobo, CA, Class A ..................................Building Materials & Components 332,440 250,500
Ceramica Carabobo, CA, Class A, ADR .............................Building Materials & Components 272,288 205,174
aCorporacion Industrial Carabobo Saca SIC, Class B ..............Building Materials & Components 1,716,696 78,295
Electricidad de Caracas .........................................Utilities Electrical & Gas 1,450,882 1,740,598
aIndustrias Ventane .............................................Utilities Electrical & Gas 240,000 27,246
aManufacturera de Aparatos Domesticos, SA .......................Appliances & Household Durables 10,000 7,932
Mavesa, SA, ADR .................................................Food & Household Products 358,000 2,282,250
Siderurgica Venezolana Sivensa Saica Svs., ADR ..................Metals & Mining 118,560 496,491
Siderurgica Venezolana Sivensa Saica Svs., ADR, Class B, new ....Metals & Mining 7,968 37,130
Venezolana de Cementos-Vencemos, #1 .............................Building Materials & Components 321,767 520,008
Venezolana de Cementos-Vencemos, #2 .............................Building Materials & Components 220,161 352,747
-------------
5,998,371
-------------
Zimbabwe .1%
Delta Corp. .....................................................Multi-Industry 600 404
TA Holdings .....................................................Multi-Industry 25,000 3,100
Transarchipel Shipping, Ltd.- TSL ...............................Multi-Industry 587,000 79,111
Zimbabwe Sun, Ltd. ..............................................Multi-Industry 881,488 137,807
-------------
220,422
-------------
Total Long Term Investments (Cost $284,761,895) ................. 251,551,138
-------------
dShort Term Investments 9.3%
U.S. Treasury Bills, 4.89% to 5.18% with maturities to 3/26/98... 26,065,000 25,904,128
-------------
(Cost $25,899,320)
Total Investments (Cost $310,661,215) 99.2% ..................... 277,455,266
Other Assets, less Liabilities .8% .............................. 2,224,785
-------------
Net Assets 100.0% ............................................... $279,680,051
=============
See currency abbreviations on page 147.
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>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
<TABLE>
<CAPTION>
SHARES/
Templeton Global Asset Allocation Fund COUNTRY RIGHTS VALUE
<S> <C> <C>
Common Stocks and Rights 52.2%
Aerospace & Military Technology .1%
Raytheon Co., Class A .......................................................... United States 1,915 $ 94,433
-------------
Automobiles .4%
aGeneral Motors Corp. ........................................................... United States 2,700 163,688
Volkswagen, AG ................................................................. Germany 360 201,112
-------------
364,800
-------------
Banking 1.9%
Alpha Credit Bank .............................................................. Greece 3,832 223,764
Banco Bradesco, SA BBD, rights ................................................. Brazil 4,992,350 17,893
Banque Nationale de Paris ...................................................... France 9,193 488,634
Credit Suisse Group ............................................................ Switzerland 4,085 631,622
Korea Long Term Credit Bank .................................................... South Korea 33,346 204,601
PT Bank Bali, fgn. ............................................................. Indonesia 247,500 32,625
PT Lippo Bank, fgn. ............................................................ Indonesia 325,000 35,455
Shinhan Bank ................................................................... South Korea 32,330 144,102
Thai Farmers Bank Public Co., Ltd., fgn. ....................................... Thailand 14,000 26,175
-------------
1,804,871
-------------
Building Materials & Components 1.3%
Gujarat Ambuja Cements, Ltd. ................................................... India 22,600 159,122
Gujarat Ambuja Cements, Ltd., GDR .............................................. India 14,600 104,390
Suez Cement Co. ................................................................ Egypt 45,299 918,628
-------------
1,182,140
-------------
Business & Public Services 1.5%
Columbia HCA Healthcare Corp. .................................................. United States 13,600 402,900
aHumana, Inc. ................................................................... United States 18,200 377,650
Lex Service, Plc. .............................................................. United Kingdom 21,666 165,996
SGS Societe Generale de Surveillance Holdings, SA, Class B ..................... Switzerland 115 220,299
Wheelabrator Technologies, Inc. ................................................ United States 17,000 273,063
-------------
1,439,908
-------------
Chemicals 1.8%
aBeijing Yanhua Petrochemical Co., Ltd., ADR .................................... China 69,740 662,530
Imperial Chemical Industries, Plc. ............................................. United Kingdom 30,000 463,145
Rhone-Poulenc, SA, Class A ..................................................... France 9,870 442,129
Shanghai Petrochemical Co., Ltd., Class H ...................................... China 834,000 130,228
-------------
1,698,032
-------------
Data Processing & Reproduction 2.6%
a3com Corp. ..................................................................... United States 25,400 887,413
aBay Networks, Inc .............................................................. United States 33,026 844,227
International Business Machines Corp. .......................................... United States 7,000 731,938
-------------
2,463,578
-------------
Electrical & Electronics 2.1%
aDSC Communications Corp. ....................................................... United States 4,490 107,760
Motorola, Inc. ................................................................. United States 4,310 245,939
Philips Electronics, NV ........................................................ Netherlands 11,300 677,671
Tadiran, Ltd., Sponsored ADR ................................................... Israel 26,058 921,802
-------------
1,953,172
-------------
Energy Equipment & Services .8%
Sun Co., Inc. .................................................................. United States 17,500 736,094
-------------
Energy Sources .9%
MOL Magyar Olay - Es Gazipari RT, GDS .......................................... Hungary 12,107 294,200
Rao Gazprom, ADR, Reg S ........................................................ Russia 14,201 340,114
Societe Elf Aquitaine, SA ...................................................... France 1,805 209,936
-------------
844,250
-------------
Financial Services 3.3%
AXA-UAP, SA .................................................................... France 14,631 $ 1,132,119
Banca Fideuram, SpA ............................................................ Italy 74,700 332,117
Merrill Lynch & Co., Inc. ...................................................... United States 6,100 444,919
Morgan Stanley, Dean Witter Discover & Co. ..................................... United States 20,000 1,182,500
-------------
3,091,655
-------------
Food & Household Products 1.3%
Archer-Daniels Midland Co. ..................................................... United States 28,140 610,286
aBoston Chicken, Inc. ........................................................... United States 18,800 121,025
Chareon Pokphand Feedmill Public Co., Ltd., fgn. ............................... Thailand 30,000 74,359
IBP, Inc. ...................................................................... United States 19,500 408,281
-------------
1,213,951
-------------
Forest Products & Paper 1.6%
aAsia Pacific Resources International Holdings, Ltd., Class A ................... Indonesia 33,775 63,328
Cartiere Burgo, SpA ............................................................ Italy 34,500 205,693
Enso OY, Class R ............................................................... Finland 10,000 77,626
Georgia Pacific Corp. .......................................................... United States 2,500 151,875
aGeorgia-Pacific Timber Group ................................................... United States 2,500 56,719
Mo Och Domsjoe, AB, Class B .................................................... Sweden 9,575 247,217
aRepap Enterprises, Inc. ........................................................ Canada 4,876,190 614,194
UPM-Kymmene Corp. .............................................................. Finland 4,200 84,783
-------------
1,501,435
-------------
Health & Personal Care .7%
aParagon Trade Brands, Inc. ..................................................... United States 24,800 319,300
aPlaytex Products, Inc. ......................................................... United States 29,000 297,250
-------------
616,550
-------------
Industrial Components 1.0%
BTR, Plc. ...................................................................... United Kingdom 63,400 194,194
Goodyear Tire & Rubber Co. ..................................................... United States 3,600 229,050
Madeco Manufacturera de Cobre, SA, ADR ......................................... Chile 18,685 284,946
Yamato Kogyo Co., Ltd. ......................................................... Japan 37,000 222,448
-------------
930,638
-------------
Insurance 5.9%
Ace, Ltd. ...................................................................... Bermuda 8,400 810,600
HIH Winterthur International Holdings, Ltd. .................................... Australia 95,654 205,107
ING Groep, NV .................................................................. Netherlands 5,097 214,674
Istituto Nazionale Delle Assicurazioni, SpA .................................... Italy 233,000 472,586
National Mutual Asia, Ltd. ..................................................... Hong Kong 489,000 485,908
Partnerre, Ltd. ................................................................ Bermuda 17,500 811,563
Scor ........................................................................... France 18,000 860,746
Torchmark Corp. ................................................................ United States 14,000 588,875
UNUM Corp. ..................................................................... United States 8,000 435,000
Zurich Versicherungsgesellschaft ............................................... Switzerland 1,390 661,882
-------------
5,546,941
-------------
Machinery & Engineering .1%
Pacifica Group, Ltd. ........................................................... Australia 42,439 140,677
-------------
Merchandising 3.1%
aCifra, SA de CV ................................................................ Mexico 96,200 237,207
Coles Myer, Ltd. ............................................................... Australia 60,707 291,600
David Jones, Ltd. .............................................................. Australia 345,909 390,022
Dayton-Hudson Corp. ............................................................ United States 10,000 675,000
Hudson's Bay Co. ............................................................... Canada 20,200 450,208
Merchandising (cont.)
aLojas Americanas, SA, ADR ...................................................... Brazil 10,000 $ 46,593
Somerfield, Plc. ............................................................... United Kingdom 222,600 765,910
-------------
2,856,540
-------------
Metals & Mining 2.7%
AK Steel Holding Corp. ......................................................... United States 5,720 101,173
aAngang New Steel Co., Ltd., Class H, 144A ...................................... China 2,022,000 300,077
Anglo American Platinum Corp., Ltd. ............................................ South Africa 402 5,369
British Steel, Plc. ............................................................ United Kingdom 206,500 446,827
Companhia Siderurgica Nacional, Sponsored ADR .................................. Brazil 7,700 198,756
Companhia Siderurgica Nacional ................................................. Brazil 16,300,000 452,757
Elkem, AS ...................................................................... Norway 14,800 196,664
Oregon Steel Mills, Inc. ....................................................... United States 8,000 170,500
Pohang Iron & Steel Co., Ltd. .................................................. South Korea 6,690 180,965
RGC, Ltd. ...................................................................... Australia 10,314 15,730
Usinas Siderugicas de Minas Gerais, Sponsored ADR .............................. Brazil 28,300 155,650
Vale do Rio Doce, ADR .......................................................... Brazil 15,100 303,745
-------------
2,528,213
-------------
Miscellaneous Materials & Commodities
Korea Chemical Co., Ltd. ....................................................... South Korea 1,580 26,287
-------------
Multi-Industry 1.8%
Alfa, SA de CV, Class A ........................................................ Mexico 127,251 862,478
Harrisons & Crosfield, Plc. .................................................... United Kingdom 133,098 306,033
La Cemento Nacional, SA, Sponsored GDR ......................................... Ecuador 400 83,200
La Cemento Nacional, SA, Sponsored GDR, 144A ................................... Ecuador 1,400 291,200
Metro Pacific Corp., MDI ....................................................... Philippines 4,426,706 122,418
-------------
1,665,329
-------------
Real Estate 3.1%
Cheung Kong Holdings, Ltd. ..................................................... Hong Kong 32,000 209,575
Highwood Properties, Inc. ...................................................... United States 16,600 617,313
Hon Kwok Land Investment Co., Ltd. ............................................. Hong Kong 1,226,456 221,582
Intrawest Corp. ................................................................ Canada 15,200 265,911
Post Properties, Inc. .......................................................... United States 7,600 308,750
Summit Properties, Inc. ........................................................ United States 15,000 316,875
The Rouse Co. .................................................................. United States 13,500 442,125
Unibail Union du Credit Bail Immobilier ........................................ France 2,500 249,647
Weeks Corp. .................................................................... United States 7,500 240,000
-------------
2,871,778
-------------
Recreation & Other Consumer Goods 1.2%
Nintendo Co., Ltd. ............................................................. Japan 7,000 691,583
Yue Yuen Industrial Holdings, Ltd. ............................................. Hong Kong 190,140 402,413
-------------
1,093,996
-------------
Telecommunications 3.6%
AT&T Corp. ..................................................................... United States 7,000 428,750
British Telecommunications, Plc. ............................................... United Kingdom 65,000 512,149
General Motors Corp., Class H .................................................. United States 3,100 114,506
Hong Kong Telecommunications, Ltd. ............................................. Hong Kong 296,000 609,266
Oy Nokia, AB, Class A .......................................................... Finland 12,400 866,990
Telecom SA, Sponsored ADR ...................................................... Argentina 4,000 143,000
Telefonos de Mexico, SA, Class L, Sponsored ADR ................................ Mexico 6,709 376,123
U.S. West Communications Group ................................................. United States 6,000 270,750
-------------
3,321,534
-------------
Textiles & Apparel .6%
aFruit of the Loom, Inc., Class A ............................................... United States 12,450 $ 319,031
Yizheng Chemical Fibre Co., Ltd., Class H ...................................... China 1,332,000 240,650
-------------
559,681
-------------
Transportation 3.2%
Danzas Holdings, AG ............................................................ Switzerland 1,445 283,731
Great Eastern Shipping Co., Ltd., GDR 144A ..................................... India 86,700 474,683
aLandstar System, Inc. .......................................................... United States 13,000 342,875
Railtrack Group, Plc., 144A .................................................... United Kingdom 84,914 1,354,150
Sea Containers, Ltd., Class A .................................................. United Kingdom 7,000 224,000
Tranz Rail Holdings, Ltd., Sponsored ADR ....................................... New Zealand 27,180 312,570
-------------
2,992,009
-------------
Utilities - Electrical & Gas 5.6%
BG, Plc. ....................................................................... United Kingdom 35,294 158,825
British Energy, Ltd., fgn. ..................................................... United Kingdom 66,780 471,062
British Energy, Ltd., fgn., 144A ............................................... United Kingdom 47,700 336,473
Cia Energetica de Minas Gerais, ADR ............................................ Brazil 7,500 325,859
Entergy Corp. .................................................................. United States 30,200 904,113
Evn Energie-Versorgung Niederoesterreich AG .................................... Austria 3,000 394,252
Gas y Electricidad, SA ......................................................... Spain 4,300 310,469
Hong Kong Electric Holdings, Ltd. .............................................. Hong Kong 130,000 494,064
Iberdrola, SA .................................................................. Spain 20,500 269,790
Korea Electric Power Corp. ..................................................... South Korea 39,730 366,829
aMosenergo, ADR ................................................................. Russia 7,099 269,762
Mosenergo, ADR, 144A ........................................................... Russia 10,000 380,000
National Grid Holdings, Plc. ................................................... United Kingdom 93,800 447,140
Texas Utilties Co. ............................................................. United States 1,400 58,188
-------------
5,186,826
-------------
Total Common Stocks and Rights (Cost $42,573,074) .............................. 48,725,318
-------------
Preferred Stocks 4.0%
aBanco Bradesco, SA, pfd. ....................................................... Brazil 116,766,000 1,150,868
Cia de Inversiones en Telecomunicaciones, SA, cvt., pfd., 7.00%, 3/03/98 ....... Argentina 4,700 329,000
Cia de Inversiones en Telecomunicaciones, SA, cvt., pfd., 144A, 7.00%, 3/03/98 . Argentina 7,800 546,000
Cia Vale do Rio Doce, pfd. ..................................................... Brazil 13,400 269,549
Coteminas Cia Tecidos Norte de Minas, pfd ...................................... Brazil 599,000 214,686
aEmpresa Nacional de Comercio Redito Participacoe, pfd. ......................... Brazil 275,000 205
aIntrawest Corp., non-resort pfd. ............................................... Canada 13,679 27,280
aLojas Americanas, SA, pfd. ..................................................... Brazil 4,556,073 21,228
Petrobras Distribuidora, SA, pfd. .............................................. Brazil 19,319,300 337,553
Petrobras-Petroleo Brasileiro, SA, pfd. ........................................ Brazil 3,401,000 795,360
-------------
Total Preferred Stocks (Cost $3,419,821) ....................................... 3,691,729
-------------
PRINCIPAL
AMOUNT*
Bonds 31.0%
<S> <C> <C>
Bepensa, SA, 144A, 9.75%, 9/30/04 .............................................. Mexico 110,000 106,975
Bridas Corp., Yankee, 12.50%, 11/18/99 ......................................... Argentina 100,000 107,750
Buoni Poliennali Del Tes, 10.00%, 8/01/03 ...................................... Italy 855,000,000 ITL 589,655
Cemex, SA, 144A, 10.75%, 7/15/00 ............................................... Mexico 200,000 211,000
Centrais Electricas Brasileiras, SA,
senior unsubordinated notes, 144A, 10.00%, 10/30/98............................. Brazil 150,000 150,000
Federal Republic of Germany,
6.875%, 2/24/99 ................................................................ Germany 310,000 DEM 177,884
Bundesobligation, bonds, Series 110, 5.375%, 2/22/99 ........................... Germany 815,000 DEM 460,323
Unity, bonds, 8.75%, 8/20/01 ................................................... Germany 155,000 DEM 97,773
Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 .................. Australia 1,064,000 AUD $ 816,250
Government of Canada, deb.,
Series A32, 10.50%, 7/01/00 .................................................... Canada 917,000 CAD 718,363
Series A37, 10.50%, 3/01/01 .................................................... Canada 182,000 CAD 146,098
Series J25, 10.00%, 5/01/02 .................................................... Canada 1,025,000 AUD 842,041
Government of Italy,
10.50%, 7/15/00 ................................................................ Italy 1,360,000,000 ITL 866,664
cvt. bonds, 5.00%, 6/28/01 ..................................................... Italy 490,000 ITL 599,638
Government of Netherlands, Series 1 & 2, 7.00%, 3/15/99 ........................ Netherlands 500,000 NLG 254,605
Government of New Zealand, 6.50%, 2/15/00 ...................................... New Zealand 610,000 NZD 346,810
HIH Winterthur International Holdings, Ltd., 8.00% 11/02/01 .................... Australia 7,971 AUD 28,131
Industrias Metalurgicas Pescarmona, 144A, 11.75%, 3/27/98 ...................... Argentina 100,000 100,793
Kingdom of Denmark, bonds, 8.00%, 5/15/03 ...................................... Denmark 3,065,000 DKK 505,070
Kingdom of Spain, 12.25%, 3/25/00 .............................................. Spain 187,750,000 ESP 1,425,594
Kingdom of Sweden,
bonds, Series 1033, 10.25%, 5/05/03 ............................................ Sweden 7,000,000 SEK 1,062,382
deb., Series 1030, 13.00%, 6/15/01 ............................................. Sweden 1,200,000 SEK 185,556
Minfin of Russia, 144A, 10.00%, 6/26/07 ........................................ Russia 500,000 464,125
PT Indah Kiat Financial Mauritius, 10.00%, 7/01/07 ............................. Indonesia 300,000 247,500
Pera Financial Services, 9.375%, 10/15/02 ...................................... Turkey 120,000 116,325
Phillipine Long Distance Telephone Co., 9.25%, 6/30/06 ......................... Philippines 270,000 254,475
Poland Communications, Inc., 9.875%, 11/01/03 .................................. Poland 400,000 391,200
Protexa Construcciones, SA de CV, 144A, 12.125%, 7/24/02 ....................... Mexico 100,000 94,000
Republic of Argentina,
8.75%, 5/09/02 ................................................................. Argentina 100,000 95,200
9.25%, 2/23/01 ................................................................. Argentina 1,025,000 1,041,656
9.75%, 9/19/27 ................................................................. Argentina 540,000 518,940
notes, Series REGS, 11.75%, 2/12/07 ............................................ Argentina 100,000 ARS 94,518
unsecured notes, 11.375%, 1/30/17 .............................................. Argentina 200,000 219,000
unsecured notes, Series BGL4, 11.00%, 10/09/06 ................................. Argentina 75,000 80,813
Republic of Brazil,
bonds, 10.125%, 5/15/27 ........................................................ Brazil 725,000 681,138
cvt., Series L, FRN, 6.9375%, 4/15/12 .......................................... Brazil 775,000 589,969
notes, 8.875%, 11/05/01 ........................................................ Brazil 100,000 100,130
Series C, 8.00%, 4/15/14 ....................................................... Brazil 114,026 90,428
Republic of Ecuador,
144A, 11.25%, 4/25/02 .......................................................... Ecuador 275,000 287,733
11.25%, 4/25/02 ................................................................ Ecuador 450,000 470,835
FRN, 6.4375%, 2/28/25 .......................................................... Ecuador 110,000 83,193
Republic of Germany, Bundesobligation, bonds, Series 118, 5.25%, 2/21/01 ....... Germany 2,100,000 DEM 1,192,062
Republic Of Turkey, 144A, 10.00%, 9/19/97 ...................................... Turkey 520,000 529,100
Republic of Venezuela,
144A, 9.125%, 6/18/07 .......................................................... Venezuela 100,000 98,250
9.25%, 9/15/27 ................................................................. Venezuela 1,463,000 1,314,871
senior unsubordinated deb., 9.125%, 6/18/07 .................................... Venezuela 600,000 589,500
Sei Holdings IX, Inc., 144A, 11.00%, 11/30/00 ..................................Trinidad and Tobago 170,000 176,800
United Kingdom, 8.00%, 12/07/00 ................................................ United Kingdom 490,000 GBP 831,414
U.S. Treasury Bond, 6.375%, 8/15/02 ............................................ United States 405,000 415,632
U.S. Treasury Notes,
7.875%, 11/15/99 ............................................................... United States 505,000 524,565
8.50%, 2/15/00 ................................................................. United States 880,000 929,225
6.125%, 7/31/00 ................................................................ United States 371,000 374,826
6.25%, 8/31/00 ................................................................. United States 1,010,000 1,023,572
6.625%, 4/30/02 ................................................................ United States 1,515,000 1,566,133
7.25%, 8/15/04 ................................................................. United States 596,000 644,426
6.125%, 8/15/07 ................................................................ United States 878,000 902,695
6.125%, 11/15/27 ............................................................... United States 359,000 368,985
United Mexican States,
bonds, 9.875%, 1/15/07 ......................................................... Mexico 155,000 $ 162,169
bonds,11.50%, 5/15/26 .......................................................... Mexico 825,000 978,656
notes, 9.75%, 2/06/01 .......................................................... Mexico 620,000 646,350
-------------
Total Bonds (Cost $29,361,943) ................................................. 28,989,764
-------------
dShort Term Investments .9%
U.S. Treasury Bills 5.16%, 1/22/98 (Cost $854,461) ............................. United States 865,000 862,597
-------------
Total Investments before Repurchase Agreements ($76,209,299) ................... 82,269,408
-------------
gRepurchase Agreements 11.2%
Bank of America, 6.40%, 1/02/98 (Maturity Value $3,351,255)
Collateralized by U.S. Treasury Notes & Bonds ................................. United States 3,530,000 3,530,000
Lehman Brothers, Inc., 6.30%, 1/02/98 (Maturity Value $3,421,197)
Collateralized by U.S. Treasury Notes & Bonds ................................. United States 3,420,000 3,420,000
UBS Securities, Inc., 6.45%, 1/02/98 (Maturity Value $3,528,264)
Collateralized by U.S. Treasury Notes & Bonds ................................. United States 3,527,000 3,527,000
-------------
Total Repurchase Agreements (Cost $10,477,000) ................................. 10,477,000
-------------
Total Investments (Cost $86,686,299) 99.3% ..................................... 92,746,408
Other Assets, less Liabilities .6% ............................................. 555,800
Net Equity in Forward Contracts .1% ............................................ 99,614
-------------
Net Assets 100.0% .............................................................. $93,401,822
=============
See currency abbreviations on page 147.
*Securities traded in U.S. dollars unless otherwise indicated.
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.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
SHARES/
Templeton Global Growth Fund COUNTRY RIGHTS VALUE
Common Stocks and Rights 81.4%
<S> <C> <C>
Aerospace & Military Technology .8%
aBanner Aerospace, Inc. .............................................................. United States 339,000 $ 3,750,187
Raytheon Co., Class A ............................................................... United States 40,944 2,019,051
-------------
5,769,238
-------------
Appliances & Household Durables .3%
Fisher & Paykel Industries, Ltd. .................................................... New Zealand 594,959 1,900,044
-------------
Automobiles 2.5%
Fiat, SpA........................................................................... Italy 1,919,720 5,568,165
Ford Motor Co. ...................................................................... United States 90,000 4,381,875
General Motors Corp. ................................................................ United States 60,000 3,637,500
Volkswagen, AG ..................................................................... Germany 6,300 3,519,455
Volvo, AB, Class B ................................................................. Sweden 68,000 1,824,204
-------------
18,931,199
-------------
Banking 5.0%
Alpha Credit Bank ................................................................... Greece 45,333 2,647,124
Alpha Credit Bank, 144A ............................................................. Greece 7,333 428,219
aBanco Bradesco, SA, pfd., rights .................................................... Brazil 19,303,961 69,187
Banco Santander, SA ................................................................. Spain 225,000 7,517,230
Banque Nationale de Paris ........................................................... France 129,225 6,868,668
Credit Commercial de France ......................................................... France 89,625 6,142,778
Credit Suisse Group, reg. ........................................................... Switzerland 5,475 846,543
Guoco Group, Ltd. ................................................................... Hong Kong 1,633,000 3,993,464
HSBC Holdings, Plc. ................................................................ Hong Kong 2,831 69,779
Komercni Banka, AS, GDR, ............................................................ Czech Republic 171,000 2,094,750
Kookmin Bank ........................................................................ South Korea 175,926 1,015,424
Shinhan Bank ........................................................................ South Korea 123,920 552,340
Singapore Finance, Ltd. ............................................................. Singapore 1,141,000 778,493
aUnibanco Uniao de Bancos Brasileiros, SA, GDR ....................................... Brazil 149,000 4,795,938
-------------
37,819,937
-------------
Broadcasting & Publishing .9%
Cordiant, Plc. ..................................................................... United Kingdom 727,500 1,302,350
Houghton Mifflin Co. ................................................................ United States 105,600 4,052,400
aSaatchi & Saatchi, Plc. ............................................................ United Kingdom 727,500 1,314,298
-------------
6,669,048
-------------
Building Materials & Components 1.0%
Caradon, Plc. ...................................................................... United Kingdom 1,108,600 3,268,192
Keumkang, Ltd. ...................................................................... South Korea 11,227 102,997
Owens Corning ....................................................................... United States 100,600 3,432,975
Siam City Cement Public Co., Ltd., fgn. ............................................. Thailand 771,063 823,785
-------------
7,627,949
-------------
Business & Public Services 2.4%
aHumana, Inc. ........................................................................ United States 250,000 5,187,500
Lex Service, Plc. .................................................................. United Kingdom 466,666 3,575,412
SGS Societe Generale de Surveillance Holdings, Class B .............................. Switzerland 3,000 5,746,930
Wheelabrator Technologies, Inc. ..................................................... United States 240,000 3,855,000
-------------
18,364,842
-------------
Chemicals 1.2%
Courtaulds, Plc. ................................................................... United Kingdom 1,554,900 7,597,273
European Vinyls Corporation Evc International, NV ................................... Netherlands 56,500 1,253,915
-------------
8,851,188
-------------
Construction & Housing .2%
Daito Trust Construction Co. ........................................................ Japan 274,700 1,676,770
-------------
Data Processing & Reproduction 1.6%
aBay Networks, Inc. .................................................................. United States 230,000 $ 5,879,375
aNewbridge Networks Corp. ............................................................ Canada 74,000 2,580,750
aPinnacle Systems, Inc. .............................................................. United States 150,000 3,656,250
-------------
12,116,375
-------------
Electrical & Electronics 2.5%
ABB, AB, Class A .................................................................... Sweden 350,000 4,143,629
aDSC Communications Corp. ............................................................ United States 84,800 2,035,200
Hitachi, Ltd. ...................................................................... Japan 603,500 4,298,499
Matsushita Electric Industrial Co., Ltd. ............................................ Japan 200,000 2,925,634
Motorola, Inc. ...................................................................... United States 100,000 5,706,250
-------------
19,109,212
-------------
Electronic Components & Instruments .8%
BICC, Plc. ......................................................................... United Kingdom 1,366,053 3,859,042
Nanjing Panda Electronics Co., Ltd. ................................................. China 17,794,000 2,319,259
-------------
6,178,301
-------------
Energy Sources 3.1%
MOL Magyar Olay - Es Gazipari RT, GDS ............................................... Hungary 256,358 6,229,499
Petron Corp., fgn. .................................................................. Philippines 8,101,033 670,085
Societe Elf Aquitaine, SA ........................................................... France 41,972 4,881,681
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ........................... Argentina 386,900 4,328,444
Valero Energy Corp., new ............................................................ United States 81,000 2,546,438
YPF Sociedad Anonima, ADR ........................................................... Argentina 155,000 5,299,063
-------------
23,955,210
-------------
Financial Services 4.6%
A.G. Edwards, Inc. .................................................................. United States 146,100 5,807,475
Axa-UAP, SA ........................................................................ France 157,102 12,156,252
Banca Fideuram, SpA ................................................................. Italy 896,800 3,987,186
India Fund, Class B ................................................................. India 720,000 1,064,249
Industrial Credit & Investment Corp. of India, GDR, 144A ............................ India 367,300 4,747,352
London Pacific Group, Ltd. .......................................................... United Kingdom 256,000 744,186
Morgan Stanley, Dean Witter Discover & Co. .......................................... United States 103,100 6,095,787
-------------
34,602,487
-------------
Food & Household Products 4.0%
Archer-Daniels Midland Co. .......................................................... United States 308,700 6,694,931
aBoston Chicken, Inc. ................................................................ United States 251,600 1,619,675
IBP, Inc. ........................................................................... United States 272,543 5,706,369
Northern Foods, Plc. ............................................................... United Kingdom 2,208,797 9,540,691
Oshawa Group, Ltd. Class A .......................................................... Canada 384,200 6,721,248
-------------
30,282,914
-------------
Forest Products & Paper 3.4%
aAsia Pacific Resources International Hldgs., Ltd., Class A .......................... Indonesia 534,975 1,003,078
Assidomaen, AB...................................................................... Sweden 192,100 4,863,046
Carter Holt Harvey, Ltd. ........................................................... New Zealand 688,130 1,062,835
Enso OY, Class R .................................................................... Finland 559,700 4,344,731
Georgia Pacific Corp. ............................................................... United States 34,000 2,065,500
aGeorgia Pacific Timber Group ........................................................ United States 34,000 771,375
Metsa Serla OY, Class B ............................................................. Finland 270,000 2,105,814
Munksjo, AB......................................................................... Sweden 722,500 6,870,206
Primex Forest Products, Ltd. ........................................................ Canada 195,000 832,371
UPM-Kymmene Corp. ................................................................... Finland 88,000 1,776,408
-------------
25,695,364
-------------
Health & Personal Care/Pharmaceutical 2.4%
Medeva, Plc. ....................................................................... United Kingdom 1,614,200 $ 4,281,522
aNycomed ASA Class A, fgn. ........................................................... United Kingdom 100,908 3,817,401
aNycomed ASA Class B, fgn. ........................................................... United Kingdom 29,277 1,063,896
Pacific Chemical Co., Ltd. .......................................................... South Korea 100,000 761,062
Pharmacia & Upjohn ................................................................. United States 218,900 8,017,213
-------------
17,941,094
-------------
Industrial Components 1.7%
BTR, Plc. .......................................................................... United Kingdom 2,326,300 7,125,459
aBTR, Plc., fgn. ..................................................................... United Kingdom 135,000 399,458
Goodyear Tire & Rubber Co. .......................................................... United States 70,000 4,453,750
Yamato Kogyo Co., Ltd. .............................................................. Japan 212,000 1,274,565
-------------
13,253,232
-------------
Insurance 6.5%
Ace, Ltd. ........................................................................... Bermuda 40,500 3,908,250
HIH Winterthur International Holdings, Ltd. ......................................... Australia 2,185,051 4,685,314
ING Groep, NV ....................................................................... Netherlands 105,188 4,430,279
Partnerre, Ltd. ..................................................................... Bermuda 127,900 5,931,363
ReliaStar Financial Corp. ........................................................... United States 48,000 1,977,000
Skandia Foersaekrings, AB ........................................................... Sweden 98,600 4,650,651
Torchmark Corp. ..................................................................... United States 240,000 10,095,000
UNUM Corp. .......................................................................... United States 81,100 4,409,813
Zurich Versicherungsgesellschaft .................................................... Switzerland 19,500 9,285,397
-------------
49,373,067
-------------
Leisure & Tourism 1.1%
Kuoni Reisen Holding, AG, Class B ................................................... Switzerland 2,200 8,240,687
-------------
Machinery & Engineering .6%
Laird Group, Plc. .................................................................. United Kingdom 112,700 820,892
VA Technologie AG................................................................... Austria 25,900 3,932,724
-------------
4,753,616
-------------
Merchandising 2.8%
aCifra SA de CV...................................................................... Mexico 2,132,384 5,257,969
Coles Myer, Ltd. .................................................................... Australia 1,070,971 5,144,302
Galeries Lafayette .................................................................. France 5,388 2,972,196
Matsuzakaya Co., Ltd. ............................................................... Japan 39,000 146,358
Safeway, Plc. ...................................................................... United Kingdom 231,198 1,310,000
The Limited, Inc. ................................................................... United States 97,902 2,496,501
W.H. Smith Group .................................................................... United Kingdom 570,900 3,661,419
-------------
20,988,745
-------------
Metals & Mining 3.4%
Anglo American Platinum Corp., Ltd. ................................................. South Africa 377,263 5,038,959
Boehler Uddeholm, AG ................................................................ Austria 30,000 1,758,698
aChongqing Iron & Steel, Ltd., Class H ............................................... China 9,263,000 1,267,103
Companhia Siderurgica Nacional ...................................................... Brazil 129,100,000 3,585,950
Outokumpu OY, Class A .............................................................. Finland 31,600 374,037
Pechiney, SA, Class A ............................................................... France 84,279 3,327,190
Pechiney, SA, ADR................................................................... France 112,708 2,197,806
Pohang Iron & Steel Co., Ltd. ....................................................... South Korea 100,000 2,705,015
RGC, Ltd. ........................................................................... Australia 1,074,643 1,638,933
WMC, Ltd. ........................................................................... Australia 1,030,300 3,592,516
-------------
25,486,207
-------------
Multi-Industry 4.8%
Alfa SA de CV, Class A .............................................................. Mexico 149,852 1,015,662
Broken Hill Proprietary Co., Ltd. ................................................... Australia 372,100 3,455,857
Multi-Industry (cont.)
CGIP-Compagnie Generale Industrie de Participation .................................. France 23,792 $ 8,538,792
Hutchison Whampoa, Ltd. ............................................................ Hong Kong 168,000 1,053,659
Inversiones y Representacion ........................................................ Argentina 1,136,091 4,227,062
Jardine Strategic Holdings Ltd. ..................................................... Hong Kong 800,000 2,112,000
La Cemento Nacional, SA, Sponsored GDR .............................................. Ecuador 400 83,200
La Cemento Nacional, SA, Sponsored GDR, 144A ........................................ Ecuador 3,600 748,800
Metro Pacific Corp. ................................................................. Philippines 61,256,666 1,694,011
Pacific Dunlop, Ltd. ................................................................ Australia 2,149,000 4,551,987
PT Modern Photo Film Co., fgn. ...................................................... Indonesia 282,000 82,036
Saha Union Public Co., Ltd., fgn. ................................................... Thailand 4,138,400 2,851,782
Swire Pacific, Ltd., Class A ........................................................ Hong Kong 861,000 4,722,222
Swire Pacific, Ltd., Class B ........................................................ Hong Kong 1,166,500 1,181,704
-------------
36,318,774
-------------
Real Estate 4.9%
Cheung Kong Holdings, Ltd. .......................................................... Hong Kong 800,000 5,239,386
General Growth Properties ........................................................... United States 89,000 3,215,125
Highwood Properties, Inc. ........................................................... United States 164,900 6,132,219
Intrawest Corp. ..................................................................... Canada 119,700 2,094,048
Inversiones y Representacion, GDR ................................................... Argentina 2,332 87,741
National Health Investors, Inc. ..................................................... United States 123,400 5,167,375
Post Properties, Inc. ............................................................... United States 150,000 6,093,750
The Rouse Co. ....................................................................... United States 80,000 2,620,000
Unibail Union du Credit Bail Immobilier ............................................. France 32,029 3,198,377
Weeks Corp. ......................................................................... United States 115,000 3,680,000
-------------
37,528,021
-------------
Recreation & Other Consumer Goods .2%
Fila Holding, SpA, ADR .............................................................. Italy 60,600 1,219,575
-------------
Telecommunications 6.4%
AT&T Corp. .......................................................................... United States 127,000 7,778,750
British Telecommunications, Plc. .................................................... United Kingdom 1,074,500 8,466,223
aGeneral Motors Corp., Class H ....................................................... United States 66,000 2,437,875
Oy Nokia, AB, Class A ............................................................... Finland 60,500 4,230,070
PT Indosat, fgn. .................................................................... Indonesia 30,100 581,306
Tele Danmark, AS, Class B ........................................................... Denmark 110,200 6,835,330
Telecom, SA, Sponsored ADR .......................................................... Argentina 100,000 3,575,000
Telecom Italia, SpA ................................................................. Italy 559,450 2,458,228
aTelefonos de Mexico, SA, Class L, Sponsored ADR ..................................... Mexico 86,400 4,843,800
U.S. West Communications Group ...................................................... United States 172,200 7,770,525
-------------
48,977,107
-------------
Textiles & Apparel 1.6%
Courtaulds Textiles, Plc. .......................................................... United Kingdom 734,300 4,299,336
Dawson International, Plc. ......................................................... United Kingdom 1,434,880 1,590,698
aFruit of the Loom, Inc., Class A .................................................... United States 136,500 3,497,812
Tae Kwang Industrial Co., Ltd. ...................................................... South Korea 1,000 182,891
Yizheng Chemical Fibre Co., Ltd., Class H ........................................... China 13,356,000 2,413,008
-------------
11,983,745
-------------
Transportation 1.9%
Danzas Holding, AG ................................................................. Switzerland 12,235 2,425,947
Helikopter Services Group, ASA ...................................................... Norway 180,600 2,203,932
Koninklijke Frans Maas Groep, NV .................................................... Netherlands 50,000 1,716,273
Koninklijke Nedlloyd, NV ............................................................ Netherlands 260,670 5,913,654
aLandstar System, Inc. ............................................................... United States 48,900 1,289,737
Shun Tak Holdings .................................................................. Hong Kong 3,600,000 963,995
-------------
14,513,538
-------------
Utilities - Electrical & Gas 8.8%
BG, Plc. ........................................................................... United Kingdom 1,214,294 5,464,403
British Energy, Ltd., fgn. .......................................................... United Kingdom 655,100 4,621,033
aCentrica, Plc. ..................................................................... United Kingdom 1,376,200 1,988,990
Electrabel, SA ..................................................................... Belgium 40,900 9,460,284
Entergy Corp. ....................................................................... United States 213,700 6,397,644
Evn Energie-Versorgung Niederoesterreich AG ......................................... Austria 35,400 4,652,179
Hong Kong Electric Holdings, Ltd. ................................................... Hong Kong 2,659,000 10,105,504
Iberdrola, SA ...................................................................... Spain 744,700 9,800,614
Korea Electric Power Corp. .......................................................... South Korea 212,500 1,962,021
National Grid Holdings, Plc. ....................................................... United Kingdom 1,834,000 8,742,585
Peco Energy Co. ..................................................................... United States 147,100 3,567,175
-------------
66,762,432
-------------
Total Common Stocks and Rights (Cost $542,232,847) .................................. 616,889,918
-------------
Preferred Stocks 3.1%
Banco Bradesco, SA, pfd. ............................................................ Brazil 451,500,022 4,450,070
Coteminas Cia Tecidos Norte de Minas CTNM, pfd ...................................... Brazil 1,952,000 699,610
aEmpresa Nacional de Comercio Redito Participacoe, pfd ............................... Brazil 1,952,000 1,452
Michaniki, SA, pfd .................................................................. Greece 449,256 1,772,650
Nacional Financiera, SA, cvt. pfd., 11.25%, 05/15/98 ................................ Mexico 6,500 364,000
News Corp., Ltd., pfd. .............................................................. Australia 1,642,771 8,130,717
Telebras-Telecomunicacoes Brasileiras, SA, pfd., ADR ................................ Brazil 75,000 8,732,813
-------------
Total Preferred Stocks (Cost $17,967,416) ........................................... 24,151,312
-------------
PRINCIPAL
AMOUNT*
Bonds 1.7%
Alfa, SA, cvt. 8.00%, 9/15/00 ....................................................... Mexico 1,650,000 2,380,125
Alfa, SA, cvt. 144A, 8.00%, 9/15/00 ................................................. Mexico 2,710,000 3,909,175
Government of Italy, cvt., 5.00%, 6/28/01 ........................................... Italy 4,950,000 6,057,562
MDX Public Co., Ltd., cvt., 4.75%, 9/17/03 .......................................... Thailand 3,602,000 360,200
-------------
Total Bonds (Cost $14,562,189) ...................................................... 12,707,062
-------------
dShort Term Investments 1.0%
U.S. Treasury Bill, 5.16% with maturities to 1/22/98 (Cost $7,576,034) .............. United States 7,600,000 7,578,887
-------------
Total Investments before Repurchase Agreements (Cost $582,338,486) .................. 661,327,179
-------------
gRepurchase Agreements 12.6%
Bank of America, 6.40%, 1/02/98 (Maturity Value $33,011,733)
Collateralized by U.S. Treasury Bill ................................................ United States 33,000,000 33,000,000
Lehman Brothers, Inc., 6.30%, 1/02/98 (Maturity Value $34,011,900)
Collateralized by U.S. Treasury Notes ............................................... United States 34,000,000 34,000,000
Swiss Bank Corp., 6.55%, 1/02/98 (Maturity Value $28,889,509)
Collateralized by U.S. Treasury Notes ............................................... United States 28,879,000 28,879,000
-------------
Total Repurchase Agreements (Cost $95,879,000) ...................................... 95,879,000
-------------
Total Investments (Cost $678,217,486) 99.8% ......................................... 757,206,179
Other Assets, less Liabilities .2% .................................................. 1,238,396
-------------
Net Assets 100.0% ................................................................... $758,444,575
=============
*Securites traded in U.S. dollars unless otherwise indicated.
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.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
PRINCIPAL
Templeton Global Income Securities Trust AMOUNT* VALUE
<S> <C> <C>
Long Term Investments 96.0%
Argentina 4.9%
Republic of Argentina,
8.75%, 5/09/02 ........................................................................... 6,250,000 $ 5,950,000
bonds, 10.95%, 11/01/99 .................................................................. 1,645,000 1,716,969
senior unsecured notes, Series BGLO, 8.375%, 12/20/03 .................................... 1,545,000 1,473,544
-------------
9,140,513
-------------
Australia 4.0%
Government of Australia, bonds, Series 1002, 10.00%, 10/15/02 ............................ 9,543,000AUD 7,320,936
-------------
Brazil 6.6%
Republic of Brazil,
bonds, 10.125%, 5/15/27 .................................................................. 2,300,000 2,160,850
FRN, 6.562%, 4/15/09 ..................................................................... 3,780,000 3,057,075
notes, 8.875%, 11/05/01 .................................................................. 3,905,000 3,910,077
Series C, 8.00%, 4/15/14 ................................................................. 3,848,382 3,051,954
-------------
12,179,956
-------------
Canada 8.0%
Government of Canada, deb.,
Series A32, 10.50%, 7/01/00 .............................................................. 2,641,000CAD 2,068,917
Series A37, 10.50%, 3/01/01 .............................................................. 5,947,000CAD 4,773,871
Series J25, 10.00%, 5/01/02 .............................................................. 9,565,000CAD 7,857,684
-------------
14,700,472
-------------
Denmark 2.0%
Kingdom of Denmark, bonds,
9.00%, 11/15/00 .......................................................................... 6,600,000DKK 1,068,518
8.00%, 5/15/03 ........................................................................... 15,995,000DKK 2,635,759
-------------
3,704,277
-------------
Germany 8.9%
Federal Republic of Germany, Unity, bonds, 8.75%, 8/20/01 ................................ 8,900,000DEM 5,614,074
Government of Germany, Bundesobligation, bonds, Series 118, 5.25%, 2/21/01 ............... 17,855,000DEM 10,135,367
Treuhandanstalt, 7.75%, 10/01/02 ......................................................... 1,190,000DEM 742,444
-------------
16,491,885
-------------
Italy 6.0%
Buoni Poliennali Del Tesoro, 10.00%, 8/01/03 ............................................. 5,980,000,000ITL 4,124,138
Government of Italy, 10.50%, 7/15/00 ..................................................... 10,970,000,000ITL 6,990,662
-------------
11,114,800
-------------
Mexico 7.1%
United Mexican States,
bonds, 9.875%, 1/15/07 ................................................................... 1,700,000 1,778,625
bonds, 11.375%, 9/15/16 .................................................................. 1,745,000 2,008,931
deb., Series A, 6.25%, 12/31/19 .......................................................... 1,250,000 1,045,313
notes, 9.75%, 2/06/01 .................................................................... 7,985,000 8,324,363
-------------
13,157,232
-------------
New Zealand 1.9%
Government of New Zealand, 6.50%, 2/15/00 ................................................ 6,035,000NZD 3,431,142
-------------
Spain 6.0%
Kingdom of Spain, deb., 12.25%, 3/25/00 .................................................. 1,465,450,000ESP 11,127,224
-------------
Sweden 5.2%
Kingdom of Sweden,
bonds, Series 1033, 10.25%, 5/05/03 ...................................................... 36,600,000SEK 5,554,742
deb., Series 1030,13.00%, 6/15/01 ........................................................ 26,500,000SEK 4,097,689
-------------
9,652,431
-------------
United Kingdom 4.0%
United Kingdom Treasury, 8.00%, 12/07/00 ................................................. 4,415,000GBP 7,491,208
-------------
United States 28.7%
U.S. Treasury Bond, 6.375%, 8/15/02 ...................................................... 9,610,000 $ 9,862,272
U.S. Treasury Notes,
6.625%, 4/30/02 .......................................................................... 18,595,000 19,222,600
7.25%, 8/15/04 ........................................................................... 10,344,000 11,184,460
6.125%, 8/15/07 .......................................................................... 8,911,000 9,161,631
6.125%, 11/15/27 ......................................................................... 3,642,000 3,743,295
-------------
53,174,258
-------------
Venezuela 2.7%
Republic of Venezuela,
9.25%, 9/15/27 ........................................................................... 3,376,000 3,034,180
senior unsubordinated deb., 144A, 9.125%, 6/18/07 ........................................ 1,940,000 1,906,050
-------------
.......................................................................................... 4,940,230
-------------
Total Long Term Investments (Cost $180,980,348) .......................................... 177,626,564
-------------
dShort Term Investments
U.S. Treasury Bill, 5.16%, 1/22/98 (Cost $79,748) ........................................ 80,000 79,778
-------------
Total Investments before Repurchase Agreement (Cost $181,060,096) ........................ 177,706,342
-------------
gRepurchase Agreement .8%
UBS Securities, Inc., 6.45%, 1/02/98, (Maturity Value $1,429,512) (Cost $1,429,000) ...... 1,429,000 1,429,000
-------------
Collateralized by U.S. Treasury Note
Total Investments (Cost $182,489,096) 96.8% .............................................. 179,135,342
Other Assets, less Liabilities 2.7% ...................................................... 5,002,903
Net Equity in Forward Contracts .5% ...................................................... 877,929
-------------
Net Assets 100.0% ........................................................................ $185,016,174
=============
See currency abbreviations on page 147.
*Securities traded in U.S. dollars unless otherwise indicated.
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, December 31, 1997
SHARES/
WARRANTS
Templeton International Equity Fund COUNTRY & RIGHTS VALUE
Common Stocks, Warrants and Rights 75.8%
<S> <C> <C>
Aerospace & Military Technology .1%
Hong Kong Aircraft Engineering Co., Ltd. Hong Kong 513,400 $ 1,291,947
-------------
Appliances & Household Durables 2.6%
Electrolux, AB, Class B ........................................................... Sweden 232,000 16,099,951
Fisher & Paykel Industries, Ltd. .................................................. New Zealand 1,321,125 4,219,107
Thorn, Plc. ....................................................................... United Kingdom 3,295,628 8,497,793
aThorn, Plc., Class B .............................................................. United Kingdom 3,844,900 1,199,795
-------------
30,016,646
-------------
Automobiles 1.9%
Autoliv, Inc. .................................................................... Sweden 317,000 10,320,596
Fiat, SpA ......................................................................... Italy 3,391,410 9,836,815
Volvo, AB, Class B ................................................................ Sweden 91,500 2,454,628
-------------
22,612,039
-------------
Banking 9.7%
Banco Bradesco, SA BBD, rights .................................................... Brazil 22,455,016 80,480
Banco Popular Espanol, SA ......................................................... Spain 62,400 4,362,061
BPI Socieda de Gestora de Participacoes Socias, SA ................................ Portugal 321,978 7,828,588
Credit Commercial de France ....................................................... France 128,800 8,827,781
Daegu Bank ........................................................................ South Korea 155,586 350,642
Deutsche Bank, AG ................................................................. Germany 407,000 28,460,589
Komercni Banka AS, GDR ............................................................ Czech Republic 120,000 1,470,000
Korea Long Term Credit Bank ....................................................... South Korea 175,548 1,077,108
Merita Plc. ....................................................................... Finland 1,254,500 6,860,475
National Bank of Canada ........................................................... Canada 447,000 7,381,967
National Westminster Bank, Plc. ................................................... United Kingdom 641,668 10,638,613
Sparbanken, AB, Class A ........................................................... Sweden 163,000 3,705,525
Svenska Handelsbanken, Class A .................................................... Sweden 155,400 5,372,524
aUniao de Bancos Brasileiros, SA, pfd. ............................................. Brazil 28,412,000 1,934,781
aUniao de Bancos Brasileiros, SA, GDR .............................................. Brazil 548,700 17,661,281
Union Bank of Norway, Primary Capital Certification ............................... Norway 199,000 7,069,559
-------------
113,081,974
-------------
Broadcasting & Publishing 2.4%
Cordiant, Plc. .................................................................... United Kingdom 3,561,500 6,375,698
Marieberg Tidnings, AB, Class A ................................................... Sweden 210,000 4,919,457
NV Holdingmaatschappij de Telegraaf ............................................... Netherlands 504,000 9,495,130
aOriental Press Group, Ltd., warrants .............................................. Hong Kong 121,900 1,101
aSaatchi & Saatchi, Plc. ........................................................... United Kingdom 3,561,500 6,434,191
Sing Tao Holdings, Ltd. .......................................................... Hong Kong 2,480,400 672,195
-------------
27,897,772
-------------
Building Materials & Components 3.3%
Anglian Group, Plc. ............................................................... United Kingdom 2,536,000 9,100,578
Cie de Saint Gobain ............................................................... France 13,292 1,888,288
Hepworth, Plc. .................................................................... United Kingdom 1,330,100 4,794,983
Keumkang Ltd. ..................................................................... South Korea 19,110 175,316
Pioneer International, Ltd. ....................................................... Australia 7,462,117 20,377,800
Siam City Cement Public Co., Ltd., fgn............................................. Thailand 405,100 432,799
Unione Cementi Marchino Emiliane (Unicem), di Risp ................................ Italy 468,000 1,660,090
-------------
38,429,854
-------------
Business & Public Services 1.1%
Adecco, SA ........................................................................ Switzerland 523 147,728
Esselte, AB, Class B .............................................................. Sweden 158,500 3,213,957
Lex Service, Plc. ................................................................ United Kingdom 902,000 6,910,771
aWaste Management International, Plc. .............................................. United Kingdom 710,700 2,054,316
-------------
12,326,772
-------------
Chemicals 3.0%
Akzo Nobel, NV .................................................................... Netherlands 32,300 $ 5,569,048
Courtaulds, Plc. .................................................................. United Kingdom 2,919,000 14,262,293
DSM, NV ........................................................................... Netherlands 19,000 1,735,408
Imperial Chemical Industries, Plc. ................................................ United Kingdom 857,000 13,230,522
-------------
34,797,271
-------------
Construction & Housing 1.6%
Dragados & Construcciones, SA ..................................................... Spain 378,000 8,051,264
Sirti, SpA......................................................................... Italy 1,833,800 11,084,694
-------------
19,135,958
-------------
Electrical & Electronics 3.8%
aGeneral Electric Co., Plc. ........................................................ United Kingdom 1,920,000 12,581,790
Philips Electronics, NV ........................................................... Netherlands 534,307 32,042,873
-------------
44,624,663
-------------
Energy Sources 3.8%
Hafslund, ASA, Class B............................................................ Norway 10 48
Elf Aquitane, SA .................................................................. France 148,024 17,216,383
Total, SA, Class B ................................................................ France 62,039 6,751,773
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ......................... Argentina 221,700 2,480,269
YPF Sociedad Anonima .............................................................. Argentina 25,100 846,031
YPF Sociedad Anonima, ADR ......................................................... Argentina 495,000 16,922,812
-------------
44,217,316
-------------
Financial Services .8%
London Pacific Group, Ltd. ........................................................ United Kingdom 1,618,300 4,704,360
Peregrine Investments Holdings, Ltd. .............................................. Hong Kong 7,155,000 5,078,397
aPeregrine Investments Holdings, Ltd., warrants .................................... Hong Kong 715,500 923
-------------
9,783,680
-------------
Food & Household Products 2.3%
C P Pokphand Co., Ltd. ............................................................ Hong Kong 7,134,100 1,123,190
Hillsdown Holdings, Plc. .......................................................... United Kingdom 2,493,900 6,082,383
McBride, Plc. .................................................................... United Kingdom 1,000,000 2,923,400
Oshawa Group, Ltd., Class A ....................................................... Canada 230,000 4,023,652
Tate & Lyle, Plc. ................................................................. United Kingdom 1,540,500 12,700,877
-------------
26,853,502
-------------
Forest Products & Paper 3.0%
Carter Holt Harvey, Ltd. .......................................................... New Zealand 3,243,400 5,009,519
Cartiere Burgo, SpA ............................................................... Italy 696,200 4,150,832
Enso OY, Class R .................................................................. Finland 209,900 1,629,371
Fletcher Challenge Forests ........................................................ New Zealand 6,020,000 4,998,577
Mayr-Melnhof Karton, AG ........................................................... Austria 39,400 2,121,358
PT Barito Pacific Timber, fgn...................................................... Indonesia 96,500 27,634
PT Indah Kiat Pulp & Paper Corp., fgn ............................................. Indonesia 9,724,297 1,723,853
aPT Indah Kiat Pulp & Paper Corp., rights........................................... Indonesia 818,888 22,333
aPT Indah Kiat Pulp & Paper Corp., warrants ........................................ Indonesia 782,553 30,591
Sappi, Ltd. ...................................................................... South Africa 722,582 3,637,781
Stora Kopparbergs Bergslags, AB, Class B .......................................... Sweden 804,250 9,977,282
Unipapel, SA ...................................................................... Spain 52,200 1,092,996
-------------
34,422,127
-------------
Health & Personal Care 3.7%
Internatio-Mueller, NV ............................................................ Netherlands 240,308 7,561,290
Novartis, AG...................................................................... Switzerland 2,506 4,063,367
Health & Personal Care (cont.)
Nycomed ASA, Class A.............................................................. United Kingdom 188,413 $ 7,127,760
Nycomed ASA, Class B ............................................................. United Kingdom 654,282 23,775,942
-------------
42,528,359
-------------
Industrial Components 1.7%
BTR, Plc. ......................................................................... United Kingdom 4,204,600 12,878,694
aGranges, AB ...................................................................... Sweden 191,000 2,994,937
Meggitt, Plc. ..................................................................... United Kingdom 1,487,610 3,811,378
-------------
19,685,009
-------------
Insurance 5.5%
Ace, Ltd. ......................................................................... Bermuda 227,500 21,953,750
Baloise-Holding................................................................... Switzerland 7,380 13,647,686
GIO Australia Holdings, Ltd. ...................................................... Australia 1,549,534 3,961,874
ING Groep, NV ..................................................................... Netherlands 563,685 23,741,128
-------------
63,304,438
-------------
Leisure & Tourism 1.2%
Kuoni Reisen Holding, AG, Class B ................................................ Switzerland 3,570 13,372,387
-------------
Machinery & Engineering 1.0%
Bucher Holding, AG, br. ........................................................... Switzerland 12,800 11,121,678
-------------
Merchandising 4.2%
David Jones, Ltd. ................................................................. Australia 2,463,527 2,777,696
Hudsons Bay Co. .................................................................. Canada 357,000 7,956,650
Koninklijke Bijenkorf Beheer KBB, NV .............................................. Netherlands 147,900 9,263,581
Kwik Save Group, Plc. ............................................................. United Kingdom 1,330,900 6,338,868
Safeway, Plc. ..................................................................... United Kingdom 1,695,778 9,608,517
Storehouse, Plc. .................................................................. United Kingdom 3,314,000 12,926,603
-------------
48,871,915
-------------
Metals & Mining 2.8%
Anglo American Platinum Corp., Ltd. ............................................... South Africa 417,465 5,575,922
Boehler Uddeholm, AG .............................................................. Austria 33,000 1,934,568
Boehler Uddeholm, AG, 144A ........................................................ Austria 27,055 1,586,053
British Steel, Plc. ............................................................... United Kingdom 4,033,200 8,727,074
Companhia Siderurgica Nacional, Sponsored ADR ..................................... Brazil 276,365 7,133,672
Grupo Mexico, SA de CV, Class B ................................................... Mexico 1,983,600 7,373,521
Pohang Iron & Steel Co., Ltd. ..................................................... South Korea 10,450 282,674
-------------
32,613,484
-------------
Miscellaneous Materials & Commodities .1%
Korea Chemical Co., Ltd. .......................................................... South Korea 57,900 963,292
-------------
Multi-Industry 3.0%
Harrisons & Crosfield, Plc. ....................................................... United Kingdom 5,560,000 12,784,128
Jardine Strategic Holdings, Ltd. .................................................. Hong Kong 2,626,250 6,762,594
Jardine Strategic Holdings, Ltd. .................................................. Hong Kong 484,193 1,278,270
Marine Wendel, SA ................................................................. France 55,849 6,347,215
Swire Pacific Ltd., Class B ....................................................... Hong Kong 7,937,100 8,040,552
-------------
35,212,759
-------------
Real Estate .2%
Cheung Kong Holdings, Ltd. ........................................................ Hong Kong 188,600 1,235,185
Hang Lung Development ............................................................. Hong Kong 779,000 1,095,767
-------------
2,330,952
-------------
Recreation & Other Consumer Goods .8%
SMH, AG, br. ...................................................................... Switzerland 15,400 $ 8,492,047
Yue Yuen Industrial Holdings ...................................................... Hong Kong 394,800 835,556
-------------
9,327,603
-------------
Telecommunications 4.5%
British Telecommunications, Plc. .................................................. United Kingdom 1,446,000 11,393,353
Nokia, AB, Class A................................................................. Finland 155,000 10,837,371
Telefonica de Espana, SA .......................................................... Spain 646,100 18,447,883
Telefonica del Peru, SA, Class B, ADR ............................................. Peru 251,900 5,872,419
Telefonica del Peru, SA, Class B .................................................. Peru 2,445,602 5,465,584
-------------
52,016,610
-------------
Textiles & Apparel .3%
Yizheng Chemical Fibre Co., Ltd., Class H ......................................... China 19,340,200 3,494,164
-------------
Transportation 1.3%
Air New Zealand, Ltd., Class B .................................................... New Zealand 2,322,000 4,651,523
Helikopter Services Group ASA ..................................................... Norway 134,000 1,635,254
aStena Line, AB, Class B........................................................... Sweden 1,288,000 4,250,129
Tranz Rail Holdings, Ltd., Sponsored ADR .......................................... New Zealand 47,765 549,297
Unitor ASA ........................................................................ Norway 295,000 3,600,000
-------------
14,686,203
-------------
Utilities - Electrical & Gas 6.1%
BG, Plc. .......................................................................... United Kingdom 2,566,588 11,549,815
Centrais Eletricas Brasileiras, SA ................................................ Brazil 363,450,000 18,073,989
aCentrica, Plc. ................................................................... United Kingdom 1,290,000 1,864,407
Cia Sevillana de Electricidad, SA ................................................. Spain 246,970 2,310,025
Iberdrola, SA..................................................................... Spain 1,517,800 19,974,985
Korea Electric Power Corp. ........................................................ South Korea 66,000 609,381
Shandong Huaneng Power Co., Ltd. , Sponsored ADR .................................. China 338,300 2,325,812
Thames Water Group, Plc. ......................................................... United Kingdom 978,479 14,639,902
-------------
................................................................................... 71,348,316
-------------
Total Common Stocks, Warrants and Rights (Cost $730,193,114) ...................... 880,368,690
-------------
Preferred Stocks 3.6%
aBanco Bradesco, SA, pfd. .......................................................... Brazil 525,200,000 5,176,471
Banco Itau, SA, pfd. .............................................................. Brazil 4,209,000 2,262,802
News Corp., Ltd., pfd.............................................................. Australia 3,486 17,254
Petrobras-Petroleo Brasileiro, SA, pfd............................................. Brazil 60,000,000 14,031,629
Telebras-Telecomunicacoes Brasileiras, SA, pfd., ADR .............................. Brazil 177,300 20,644,369
-------------
Total Preferred Stocks (Cost $33,631,335) ......................................... 42,132,525
-------------
PRINCIPAL
AMOUNT*
dShort Term Investments 1.1%
U.S. Treasury Bill, 5.16%, 1/22/98 (Cost $12,610,111) ............................. United States 12,650,000 12,614,858
-------------
Total Investments before Repurchase Agreements (Cost $776,434,560) ................ 935,116,073
-------------
gRepurchase Agreements 19.1%
Bank of America, 6.40%, 1/02/98 (Maturity Value $50,017,778)
Collateralized by U.S. Treasury Notes.............................................. United States 50,000,000 $ 50,000,000
Lehman Brothers, Inc. , 6.30%, 1/02/98 (Maturity Value $51,017,850)
Collateralized by U.S. Treasury Notes.............................................. United States 51,000,000 51,000,000
Morgan Stanley, Inc. , 6.23%, 1/02/98 (Maturity Value $34,061,785)
Collateralized by U.S. Treasury Notes ............................................. United States 34,050,000 34,050,000
Swiss Bank Corp., 6.55%, 1/02/98 (Maturity Value $52,018,922)
Collateralized by U.S. Treasury Notes ............................................. United States 52,000,000 52,000,000
UBS Securities, Inc. , 6.45%, 1/02/98 (Maturity Value $35,012,542)
Collateralized by U.S. Treasury Notes ............................................. United States 35,000,000 35,000,000
-------------
Total Repurchase Agreements (Cost $222,050,000) ................................... 222,050,000
-------------
Total Investments (Cost $998,484,560) 99.6% ....................................... 1,157,166,073
Other Assets, less Liabilities .4% ................................................ 4,263,476
-------------
Net Assets 100.0%................................................................. $1,161,429,549
=============
*Securities traded in U.S. dollars unless otherwise indicated.
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.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
Templeton International Smaller Companies Fund COUNTRY SHARES VALUE
<S> <C> <C>
Common Stocks 86.8%
Aerospace & Military Technology .4%
Hong Kong Aircraft Engineering Co., Ltd. .......................................... Hong Kong 55,100 $ 138,657
-------------
Appliances & Household Durables 1.2%
Email, Ltd. ....................................................................... Australia 44,964 106,202
Fisher & Paykel Industries, Ltd. .................................................. New Zealand 49,222 157,194
Guangdong Kelon Electrical Hldgs., Ltd., Class H .................................. China 92,000 94,386
Guangdong Kelon Electrical Hldgs., Ltd., Class H, 144A ............................ China 40,000 41,038
-------------
398,820
-------------
Automobiles 1.9%
Bertrand Faure, SA ................................................................ France 4,300 305,719
Bilia, AB ........................................................................ Sweden 21,400 296,477
-------------
602,196
-------------
Banking 4.5%
Banco de Valencia, SA ............................................................. Spain 3,272 70,766
Banco Pastor, SA .................................................................. Spain 4,000 337,381
Commercial International Bank Ltd., GDR, 144A ..................................... Egypt 13,500 283,500
Korea Long Term Credit Bank ....................................................... South Korea 9,266 56,853
Singapore Finance, Ltd. ........................................................... Singapore 148,000 100,979
aUniao de Bancos Brasileiros, SA, GDR .............................................. Brazil 10,235 329,439
Union Bank of Norway, Primary Capital Certification ............................... Norway 7,170 254,717
-------------
1,433,635
-------------
Beverages & Tobacco .8%
Sinocan Holdings, Ltd. ............................................................ Hong Kong 955,000 264,970
-------------
Broadcasting & Publishing 3.3%
aApt Sattellite Holdings, Ltd., ADR ................................................ Hong Kong 22,000 258,500
GTC Transcontinental Group, Ltd., Class B ........................................ Canada 63,300 575,837
aInchcape Marketing Services, fgn. ................................................. Singapore 94,500 28,033
Marieberg Tidnings, AB, Class A .................................................. Sweden 8,160 191,156
-------------
1,053,526
-------------
Building Materials & Components 5.8%
Caradon, Plc....................................................................... United Kingdom 100,000 294,804
Cementos Diamante, SA, ADR, 144A .................................................. Colombia 26,900 354,015
Cristaleria Espanola, SA .......................................................... Spain 1,291 99,145
Gujarat Ambuja Cements, Ltd. ...................................................... India 47,500 334,439
aMirgor SA Comercial Industrial Financiera Inmobi, Class C, ADR .................... Argentina 24,300 58,320
Sarna Kunststoff Holding, AG ...................................................... Switzerland 52 67,951
Schuttersveld, NV ................................................................. Netherlands 10,932 253,938
Siam City Cement Public Co., Ltd., fgn. ........................................... Thailand 67,621 72,245
Suez Cement Co., GDR, 144A ........................................................ Egypt 16,450 335,991
-------------
1,870,848
-------------
Business & Public Services 4.2%
aISS International Service System, AS, Class B ..................................... Denmark 9,100 334,681
Kardex, AG, br. ................................................................... Switzerland 1,494 403,742
Lex Service, Plc. ................................................................. United Kingdom 54,100 414,493
Scribona, AB, Class B ............................................................. Sweden 19,045 212,280
-------------
1,365,196
-------------
Chemicals .7%
Energia e Industrias Aragonesas Eia, SA ........................................... Spain 34,500 230,981
-------------
Construction & Housing 2.0%
Dragados y Construcciones, SA ..................................................... Spain 14,155 301,496
Hollandsche Beton Groep, NV ....................................................... Netherlands 9,600 178,492
Kumagai Gumi Hong Kong, Ltd. ...................................................... Hong Kong 215,000 163,699
-------------
643,687
-------------
Electrical & Electronics 2.0%
Dongfang Electrical Machinery Co., Ltd., Class H .................................. China 179,000 $ 26,103
Tadiran, Ltd., Sponsored ADR ...................................................... Israel 9,750 344,906
Techtronic Industries Co., Ltd. ................................................... Hong Kong 1,201,000 278,978
-------------
649,987
-------------
Electronic Components & Instruments 1.5%
Swisslog Holding, AG .............................................................. Switzerland 1,000 73,547
VTech Holdings, Ltd. .............................................................. Hong Kong 136,000 401,032
-------------
474,579
-------------
Energy Sources .3%
Transportadora de Gas del Sur, SA, Class B, sponsored ADR ......................... Argentina 7,000 78,313
-------------
Financial Services 2.0%
Industrial Credit & Investment Corp. of India (ICICI).............................. India 170,000 331,760
aMorgan Stanley Growth Fund ........................................................ India 1,275,000 196,779
Peregrine Investments Holdings, Ltd. .............................................. Hong Kong 148,225 105,206
-------------
633,745
-------------
Food & Household Products 9.4%
C P Pokphand Co., Ltd. ............................................................ Hong Kong 200,100 31,504
Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. Thailand 71,300 176,727
Hazlewood Foods, Plc. ............................................................. United Kingdom 252,600 682,445
Hillsdown Holdings, Plc. .......................................................... United Kingdom 100,000 243,890
Illovo Sugar, Ltd., fgn. .......................................................... South Africa 187,000 322,778
McBride, Plc. ..................................................................... United Kingdom 64,100 187,390
Melco International Development, Ltd. ............................................. Hong Kong 470,000 112,208
National Foods, Ltd. .............................................................. Australia 179,017 278,385
Oshawa Group, Ltd., Class A ....................................................... Canada 34,000 594,801
Perkins Foods, Plc. ............................................................... United Kingdom 236,550 405,983
-------------
3,036,111
-------------
Forest Products & Paper 2.4%
Crown-Van Gelder Papier, SA ....................................................... Netherlands 6,115 90,474
aEmpaques Ponderosa, SA de CV, Class B ............................................. Mexico 151,800 130,912
Fletcher Challenge Forests ........................................................ New Zealand 67,441 55,998
Munksjo, AB ...................................................................... Sweden 12,995 123,569
Primex Forest Products, Ltd. ...................................................... Canada 90,000 384,171
-------------
785,124
-------------
Health & Personal Care .7%
Esaote Biomedica, SpA, ADR 144A ................................................... Italy 3,600 95,607
Internatio-Mueller, NV ............................................................ Netherlands 3,744 117,805
-------------
213,412
-------------
Industrial Components 6.7%
aGranges, AB ....................................................................... Sweden 14,679 230,171
Lucas Varity, Plc. ................................................................ United Kingdom 111,000 392,861
Otra, NV .......................................................................... Netherlands 23,500 336,103
Sylea, SA ......................................................................... France 4,447 424,861
Weir Group, Plc. .................................................................. United Kingdom 120,900 533,137
Yamato Kogyo Co., Ltd. ............................................................ Japan 41,000 246,496
-------------
2,163,629
-------------
Leisure & Tourism .3%
Tourism Holdings, Ltd. ............................................................ New Zealand 155,800 106,749
-------------
Machinery & Engineering 2.3%
Arcadis, NV ....................................................................... Netherlands 21,300 $ 235,307
China International Marine Containers, Inc., Class B .............................. China 52,000 46,907
Laird Group, Plc. ................................................................. United Kingdom 62,000 451,600
-------------
733,814
-------------
Merchandising 11.7%
David Jones, Ltd. ................................................................. Australia 243,000 273,989
De Boer Unigro, NV................................................................ Netherlands 7,740 244,303
Det Danske Traelastkompagni, AS ................................................... Denmark 3,752 334,027
Giordano International, Ltd. ...................................................... Hong Kong 807,000 278,581
LI & Fung, Ltd. ................................................................... Hong Kong 241,000 337,444
aMakro Atacadista, SA, ADR ......................................................... Brazil 37,500 302,406
Moebel Walther, AG ................................................................ Germany 7,506 241,994
Northwest Co. Fund ................................................................ Canada 24,915 244,085
Sa des Galeries Lafayette ......................................................... France 810 446,822
Safeway, Plc. ..................................................................... United Kingdom 57,100 323,537
Samas-Groep, NV ................................................................... Netherlands 2,450 114,063
Somerfield, Plc. .................................................................. United Kingdom 82,800 284,894
Storehouse, Plc. .................................................................. United Kingdom 86,900 338,963
-------------
3,765,108
-------------
Metals & Mining 3.9%
Arbed, SA ......................................................................... Belgium 3,240 354,160
Boehler Uddeholm, AG .............................................................. Austria 4,993 292,706
Impala Platinum Holdings, Ltd. .................................................... South Africa 25,000 238,878
PT Tambang Timah, fgn. ............................................................ Indonesia 204,000 218,836
Vallourec ........................................................................ France 2,356 140,534
-------------
1,245,114
-------------
Miscellaneous Materials & Commodities .3%
Korea Chemical Co., Ltd. .......................................................... South Korea 2,900 48,248
Thai Glass Industries Public Co., Ltd., fgn. ...................................... Thailand 73,900 61,583
-------------
109,831
-------------
Multi-Industry 7.0%
aAmer Group, Ltd., Class A ......................................................... Finland 11,300 216,702
Inversiones y Representacion, SA .................................................. Argentina 142,333 529,579
La Cemento Nacional CA, Sponsored GDR, 144A ....................................... Ecuador 1,075 223,600
Marine Wendel, SA ................................................................. France 3,283 373,112
Murray & Roberts Hldgs., Ltd. ..................................................... South Africa 150,000 226,549
Nagron Nationaal Grondbezit, NV ................................................... Netherlands 7,400 180,652
Pioneer Industries International, Ltd. ............................................ Hong Kong 60,000 9,292
Saha Union Public Co., Ltd., fgn. ................................................. Thailand 201,000 138,510
Wagon Industrial Holdings, Plc. ................................................... United Kingdom 34,300 165,901
Zehnder Holding, AG, br. .......................................................... Switzerland 465 190,244
-------------
2,254,141
-------------
Telecommunications .2%
aDigital Telecommunications Philippines, Inc........................................ Philippines 2,072,000 74,694
-------------
Textiles & Apparel 2.1%
Daehan Synthetic Fiber Co., Ltd. .................................................. South Korea 3,200 73,440
Dawson International, Plc. ........................................................ United Kingdom 193,500 214,513
Gamma Holding, NV ................................................................. Netherlands 3,000 152,393
Inner Mongolia Erdos Cashmere Products Co., Ltd., Class B ......................... China 497,000 168,980
Yizheng Chemical Fibre Co., Ltd., Class H ......................................... China 326,000 58,898
-------------
668,224
-------------
Transportation 5.4%
Anangel-American Shipholdings, Ltd., ADR .......................................... Greece 35,000 $ 306,250
Baltrans Holdings, Ltd. ........................................................... Hong Kong 468,000 62,811
Delgro Corp. ...................................................................... Singapore 78,000 95,331
Helikopter Services Group ASA ..................................................... Norway 16,400 200,136
Orient Overseas International, Ltd. ............................................... Hong Kong 250,000 133,888
Osprey Maritime, Ltd. ............................................................. Singapore 350,000 280,332
PT Steady Safe .................................................................... Indonesia 147,702 10,071
aSBS Bus Service, Ltd., fgn. ....................................................... Singapore 39,000 14,115
Stolt Nielsen, SA, ADR ............................................................ Norway 15,000 328,125
Tranz Rail Holdings, Ltd., Sponsored ADR .......................................... New Zealand 25,400 292,100
-------------
1,723,159
-------------
Utilities - Electrical & Gas 1.8%
Gas y Electricidad, SA ............................................................ Spain 5,700 411,552
Guangdong Electric Power Development Co., Ltd., Class B, 144A ..................... China 260,400 153,908
-------------
565,460
-------------
Wholesale & International Trade 2.0%
Dahl International, AB ............................................................ Sweden 4,800 70,731
Dahl International, AB, 144A ...................................................... Sweden 6,300 92,835
Davids, Ltd. ...................................................................... Australia 324,000 221,725
Eurodis Electron, Plc. ............................................................ United Kingdom 50,000 124,409
Inchcape, Bhd., fgn. .............................................................. Singapore 94,500 145,212
-------------
654,912
-------------
Total Common Stocks (Cost $29,274,145) ............................................ 27,938,622
-------------
Preferred Stocks 4.8%
Ballast Nedam, NV, ctf., cvt., pfd. ............................................... Netherlands 6,700 346,953
aBank Austria, AG, new, pfd., 144A ................................................. Austria 6,000 270,752
Cia Brasileira de Petroleo Ipiranga, pfd. ......................................... Brazil 25,141,000 382,955
Coteminas Cia Tecidos Norte de Minas, pfd ......................................... Brazil 335,000 120,066
Moebel Walther, AG, pfd. .......................................................... Germany 4,550 124,942
Weg, SA, pfd. ..................................................................... Brazil 507,200 313,577
-------------
Total Preferred Stocks (Cost $1,501,555) .......................................... 1,559,245
-------------
.......... PRINCIPAL
.......... AMOUNT
dShort Term Investments .9%
U.S. Treasury Bills, 5.16%, 1/22/98 (Cost $284,101) ............................... United States $285,000 284,205
-------------
Total Investments before Repurchase Agreements (Cost $31,059,801) ................. 29,782,072
-------------
gRepurchase Agreements 7.1%
Bank of America, 6.40%, 1/02/98, (Maturity Value $900,320)
Collateralized by U.S. Treasury Notes & Bonds ..................................... United States 900,000 900,000
Lehman Brothers, Inc., 6.30%, 1/02/98 (Maturity Value $875,306)
Collateralized by U.S. Treasury Notes & Bonds ..................................... United States 875,000 875,000
UBS Securities, Inc., 6.45%, 1/02/98 (Maturity Value $513,184)
Collateralized by U.S. Treasury Notes & Bonds ..................................... United States 513,000 513,000
-------------
Total Repurchase Agreements (Cost $2,288,000) ..................................... 2,288,000
-------------
Total Investments (Cost $33,347,801) 99.6% ........................................ 32,070,072
Other Assets, less Liabilities .4% ................................................ 130,633
-------------
Net Assets 100.0% ................................................................. $32,200,705
=============
*Securities traded in U.S. dollars unless otherwise indicated.
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.
gSee Note 1(c) regarding repurchase agreements.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
SHARES/
Templeton Pacific Growth Fund COUNTRY WARRANTS VALUE
Common Stocks and Warrants 98.9%
<S> <C> <C>
Appliances & Household Durables 1.0%
Sony Corp. ........................................................................ Japan 19,400 $ 1,723,520
-------------
Banking 13.0%
Australia & New Zealand Banking Group, Ltd. ....................................... Australia 346,000 2,286,627
Bangkok Bank Public Co., Ltd., fgn. ............................................... Thailand 622,000 1,594,872
Development Bank of Singapore, Ltd., fgn. ......................................... Singapore 518,000 4,425,512
HSBC Holdings, Plc. .............................................................. Hong Kong 216,200 5,328,975
Industrial Finance Corp. of Thailand, fgn. ....................................... Thailand 2,783,133 440,068
Krung Thai Bank Public Co., Ltd., fgn. ........................................... Thailand 2,531,400 540,897
Overseas Union Bank, Ltd., fgn. ................................................... Singapore 472,560 1,808,373
aPhilippine National Bank .......................................................... Philippines 962,500 2,115,123
PT Bank Bali, fgn. ................................................................ Indonesia 3,134,000 413,118
PT Bank Pan Indonesia TBK ......................................................... Indonesia 6,182,625 899,291
aPT Bank Pan Indonesia TBK, warrants ............................................... Indonesia 883,086 7,546
Singapore Finance, Ltd., fgn. ..................................................... Singapore 213,000 145,328
Thai Farmers Bank Public Co., Ltd. ................................................ Thailand 36,570 46,885
Thai Farmers Bank Public Co., Ltd., fgn. .......................................... Thailand 733,440 1,371,282
aThai Farmers Bank Public Co., Ltd., fgn., warrants ................................ Thailand 91,680 9,991
-------------
21,433,888
-------------
Broadcasting & Publishing 2.3%
aInchcape Marketing Services, fgn., ................................................ Singapore 1,240,000 367,843
South China Morning Post, Ltd. .................................................... Hong Kong 4,888,000 3,437,811
-------------
3,805,654
-------------
Chemicals 2.8%
Fauji Fertilizer Co., Ltd. ........................................................ Pakistan 2,418,000 4,629,289
-------------
Construction & Housing 6.1%
City Developments, Ltd., fgn. .................................................... Singapore 888,600 4,112,180
Daito Trust Construction Co. ...................................................... Japan 409,000 2,496,538
Road King Infrastructure, Ltd. .................................................... Hong Kong 3,790,000 3,472,577
-------------
10,081,295
-------------
Electrical & Electronics 2.1%
Hitachi, Ltd. .................................................................... Japan 800 5,698
Matsushita Electric Industrial Co., Ltd. ......................................... Japan 239,000 3,496,132
-------------
3,501,830
-------------
Energy Sources 1.4%
aHub Power Co., Ltd., GDR, reg.S ................................................... Pakistan 74,900 2,331,263
-------------
Financial Services .6%
Commerce Asset-Holding, Bhd, fgn. ................................................. Malaysia 1,572,000 751,747
aCommerce Asset-Holding, Bhd, fgn., warrants ....................................... Malaysia 34,650 1,737
aCommerce Asset-Holding, Bhd, warrants ............................................. Malaysia 163,750 23,576
Public Finance, Bhd., fgn. ........................................................ Malaysia 928,000 255,292
-------------
1,032,352
-------------
Food & Household Products 1.2%
Chareon Pokphand Feedmill Public Co., Ltd., fgn. .................................. Thailand 829,900 2,057,017
-------------
Forest Products & Paper 3.2%
aAsia Pacific Resources International Holdings, Ltd., Class A ...................... Indonesia 525,000 984,375
Carter Holt Harvey, Ltd. ......................................................... New Zealand 2,411,800 3,725,090
PT Tjiwi Kimia TBK................................................................. Indonesia 1,388,741 340,873
aPT Tjiwi Kimia TBK, warrants....................................................... Indonesia 192,880 11,222
PT Barito Pacific Timber, fgn. .................................................... Indonesia 950,000 272,045
aPT Inti Indorayon Utama ........................................................... Indonesia 129,000 12,900
-------------
5,346,505
-------------
Industrial Components 2.1%
Mitsubishi Heavy Industries, Ltd. ................................................. Japan 824,000 $ 3,433,070
-------------
Insurance 5.0%
GIO Australia Holdings, Ltd. ...................................................... Australia 1,720,145 4,398,095
National Mutual Asia, Ltd. ........................................................ Hong Kong 3,860,000 3,835,592
-------------
8,233,687
-------------
Leisure & Tourism .9%
Grand Hotel Holdings, Ltd. ........................................................ Hong Kong 5,415,000 1,415,070
-------------
Machinery & Engineering .5%
Van Der Horst, Ltd. ............................................................... Singapore 2,102,000 804,384
-------------
Merchandising 2.2%
Coles Myer, Ltd. .................................................................. Australia 742,200 3,565,083
-------------
Metals & Mining 1.9%
Capral Aluminium, Ltd. ............................................................ Australia 1,521,000 3,192,025
-------------
Miscellaneous Materials & Commodities 1.8%
Golden Hope Plantations, Bhd., fgn. ............................................... Malaysia 2,607,000 3,016,197
-------------
Multi-Industry 8.6%
Hicom Holdings, Bhd. .............................................................. Malaysia 1,634,000 941,036
Jardine Matheson Holdings, Ltd. ................................................... Hong Kong 632,031 3,223,358
PT Astra International, Inc. ...................................................... Indonesia 4,380,000 1,134,818
Sime Darby, Bhd., fgn. ............................................................ Malaysia 1,798,800 1,729,660
Swire Pacific, Ltd., Class A .................................................... Hong Kong 645,000 3,537,553
Wheelock & Co., Ltd. .............................................................. Hong Kong 3,100,000 3,620,467
-------------
14,186,892
-------------
Real Estate 8.4%
Cheung Kong Holdings, Ltd. ........................................................ Hong Kong 800,000 5,239,386
aFilinvest Land, Inc. .............................................................. Philippines 5,675,000 224,198
Hon Kwok Land Investment Co., Ltd. ................................................ Hong Kong 5,940,438 1,073,250
New World Development Co., Ltd. ................................................... Hong Kong 1,317,778 4,557,549
Parkway Holdings, Ltd., fgn. ...................................................... Singapore 1,217,000 2,743,756
-------------
13,838,139
-------------
Recreation & Other Consumer Goods .6%
Nintendo Co., Ltd. ................................................................ Japan 10,800 1,067,014
-------------
Telecommunications 5.9%
Hong Kong Telecommunications, Ltd. ............................................... Hong Kong 2,438,633 5,019,512
Pakistan Telecommunications Corp., PTC, Class A ................................... Pakistan 6,300,000 4,760,146
-------------
9,779,658
-------------
Textiles & Apparel 4.8%
Nisshinbo Industries, Inc. ........................................................ Japan 700,000 2,948,610
PT Indorama Synthetics ............................................................ Indonesia 3,657,384 1,629,198
PT Panasia Indosyntec ............................................................. Indonesia 3,423,000 155,591
Wacoal Corp. ...................................................................... Japan 330,000 3,285,594
-------------
8,018,993
-------------
Transportation 15.4%
Cathay Pacific Airways, Ltd. ...................................................... Hong Kong 3,000,000 2,439,024
East Japan Railway Co. ............................................................ Japan 1,200 5,413,188
Great Eastern Shipping Co., Ltd., GDR ............................................. India 156,100 854,648
Guangshen Railway Co., Ltd., ADR .................................................. China 181,500 2,438,906
GZI Transport, Ltd. ............................................................... China 1,008,000 338,211
aGZI Transport, Ltd., warrants 144A ................................................ China 201,600 5,984
Hitachi Zosen Corp................................................................ Japan 640,000 1,024,431
Transportation (cont.)
Hong Kong Ferry Holdings Co., Ltd., Bhd. .......................................... Hong Kong 745,000 $ 865,273
Malaysian International Shipping Corp., fgn. ...................................... Malaysia 3,342,667 4,898,625
Qantas Airways, Ltd., ADR, 144A ................................................... Australia 118,100 2,084,465
Singapore Airlines, Ltd., fgn. .................................................... Singapore 758,000 4,946,900
Tranz Rail Holdings, Ltd., Sponsored ADR .......................................... New Zealand 8,900 102,350
-------------
25,412,005
-------------
Utilities - Electrical & Gas 4.1%
China Light & Power Co., Ltd. ..................................................... Hong Kong 931,000 5,166,215
Shandong Huaneng Power Co., Ltd., Sponsored ADR ................................... China 225,000 1,546,875
-------------
6,713,090
-------------
Wholesale & International Trade 3.0%
Brierley Investments, Ltd. ........................................................ New Zealand 4,177,353 2,983,460
Inchcape, Bhd., fgn............................................................... Singapore 1,240,000 1,905,429
-------------
4,888,889
-------------
Total Investments (Cost $235,321,791) 98.9%........................................ 163,506,809
Other Assets, less Liabilities 1.1% ............................................... 1,897,006
-------------
Net Assets 100.0%.................................................................. $165,403,815
=============
aNon-income producing.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
PRINCIPAL
U.S. Government Securities Fund AMOUNT VALUE
<S> <C> <C>
Mortgage-Backed Securities 74.3%
Government National Mortgage Association (GNMA) - Fixed Rate 44.7%
hGNMA I, 6.00%, 1/01/28 .............................................................................. $ 5,000,000 $ 4,832,813
.GNMA I, SF, 6.00%, 12/15/23 - 1/15/24 ............................................................... 12,098,055 11,741,057
.GNMA II, 6.00%, 1/20/24 - 10/20/24 .................................................................. 2,033,028 1,956,562
hGNMA I , 6.50%, 1/01/28 ............................................................................. 5,000,000 4,950,000
.GNMA I, SF, 6.50%, 5/15/23 - 5/15/24 ................................................................ 52,226,117 51,875,511
.GNMA II, 6.50%, 1/20/26 - 12/20/27 .................................................................. 26,476,869 26,139,328
hGNMA II, 6.50%, 1/01/28 ............................................................................. 4,000,000 3,941,250
.GNMA, PL, 6.50%, 9/15/28 ............................................................................ 8,615,403 8,407,169
.GNMA I, SF, 7.00%, 3/15/22 - 12/15/26 ............................................................... 51,486,196 52,113,978
.GNMA II, 7.00%, 1/20/24 - 10/20/27 .................................................................. 30,867,319 31,056,252
.GNMA I, SF, 7.25%, 11/15/25 ......................................................................... 1,806,904 1,832,074
.GNMA, PL, 7.25%, 5/15/22 - 8/15/22 .................................................................. 2,211,719 2,284,440
.GNMA I, SF, 7.50%, 2/15/17 - 5/15/27 ................................................................ 42,547,392 43,798,392
.GNMA II, 7.50%, 11/20/16 - 11/20/26 ................................................................. 31,939,883 32,685,961
.GNMA I, SF, 8.00%, 4/15/05 - 6/15/25 ................................................................ 26,373,677 27,574,036
.GNMA II, 8.00%, 2/20/16 - 8/20/26 ................................................................... 2,955,633 3,079,998
.GNMA I, SF, 8.25%, 4/15/25 .......................................................................... 2,081,020 2,200,034
.GNMA I, SF, 8.50%, 8/15/21 - 12/15/24 ............................................................... 9,194,784 9,760,666
.GNMA I, SF, 9.00%, 4/15/16 - 2/15/21 ................................................................ 3,499,103 3,821,934
.GNMA I, SF, 9.50%, 7/15/16 - 12/15/21 ............................................................... 8,257,749 9,044,189
.GNMA II, 9.50%, 4/20/25 ............................................................................. 1,254,112 1,346,014
.GNMA I, SF, 10.00%, 8/15/17 - 8/15/21 ............................................................... 6,850,195 7,532,191
-------------
341,973,849
-------------
Government National Mortgage Association (GNMA) - Adjustable Rate 1.4%
.GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.00%, 7/20/17 ............................... 3,275,326 3,376,112
.GNMA, Cap 11.50%, Margin 2.50% + CMT, Resets Annually, 8.00%, 7/20/25 ............................... 2,568,610 2,688,077
.GNMA, Cap 14.00%, Margin 1.50% + CMT, Resets Annually, 7.00%, 1/20/16 ............................... 4,704,237 4,845,232
-------------
10,909,421
-------------
Federal National Mortgage Association (FNMA) - Fixed Rate 7.7%
.FNMA, 6.00%, 10/01/23 - 4/01/24 ..................................................................... 6,495,994 6,292,325
hFNMA, 6.00%, 1/01/28 ................................................................................ 5,000,000 4,820,313
.FNMA, 6.50%, 1/01/24 - 6/01/24 ...................................................................... 14,689,539 14,572,255
.FNMA, 7.00%, 5/01/24 ................................................................................ 1,774,947 1,796,939
.FNMA, PL, 7.00%, 3/17/35 ............................................................................ 7,456,275 7,360,686
.FNMA, 7.50%, 4/01/23 - 8/01/25 ...................................................................... 10,385,606 10,653,116
.FNMA, 8.00%, 7/01/16 - 2/01/25 ...................................................................... 11,859,708 12,344,242
.FNMA, 8.50%, 10/01/19 - 3/01/22 ..................................................................... 875,202 925,420
-------------
58,765,296
-------------
Federal National Mortgage Association (FNMA) - Adjustable Rate 7.6%
.FNMA, Cap 12.059%, Margin 1.25% + COFI, Resets Monthly, 6.149%, 11/01/35 ............................ 8,198,111 8,197,538
.FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.734%, 2/01/19 .............................. 4,438,474 4,644,916
.FNMA, Cap 12.786%, Margin 1.25% + COFI, Resets Monthly, 6.154%, 2/01/03 ............................. 1,145,433 1,145,021
.FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.826%, 9/01/18 ............................ 5,750,370 6,053,312
.FNMA, Cap 12.93%, Margin 2.24% + CMT, Resets Annually, 7.137%, 2/01/27 .............................. 9,223,367 9,483,872
.FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.736%, 7/01/19 ............................ 4,052,468 4,237,444
.FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.695%, 1/01/18 ............................ 12,095,902 12,660,309
.FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 6.138%, 6/01/02 ............................. 5,140,799 5,137,355
.FNMA, Cap 14.808%, Margin 1.825% + 3CMT, Resets Tri-Annually, 8.597%, 7/01/20 ....................... 2,015,250 2,135,823
.FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.524%, 3/01/20 ....................... 4,443,722 4,705,768
-------------
58,401,358
-------------
Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate 9.5%
hFHLMC, 6.00%, 1/01/28 ............................................................................... 5,000,000 4,820,313
.FHLMC, 6.50%, 6/01/08 - 1/01/24 ..................................................................... 20,875,862 20,792,900
.FHLMC, 7.00%, 4/01/24 ............................................................................... 15,914,519 16,140,028
.FHLMC, PL, 7.00%, 9/17/31 ........................................................................... 19,607,350 19,656,368
.FHLMC, 7.50%, 11/01/22 - 5/01/24 .................................................................... 5,399,987 5,556,241
.Federal Home Loan Mortgage Corp. (FHLMC) - Fixed Rate (cont.)
.FHLMC, 8.00%, 5/01/16 - 5/01/22 ..................................................................... $ 3,775,521 $ 3,935,621
.FHLMC, 8.50%, 4/01/18 - 3/01/22 ..................................................................... 1,117,541 1,176,559
.FHLMC, 9.00%, 3/01/03 ............................................................................... 613,956 635,335
-------------
72,713,365
-------------
Federal Home Loan Mortgage Corp. (FHLMC) - Adjustable Rate 3.4%
.FHLMC, Cap 10.99%, Margin 2.225% + CMT, Resets Annually, 8.005%, 6/01/22 ............................ 2,903,738 3,029,441
.FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annnually, 7.653%, 6/01/22 .......................... 4,032,797 4,218,295
.FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.62%, 9/01/19 ............................. 2,276,018 2,385,631
.FHLMC, Cap 13.125%, Margin 2.00% + CMT, Resets Annually, 7.785%, 7/01/18 ............................ 2,870,403 2,994,281
.FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.821%, 2/01/19 ........................... 6,002,770 6,295,706
.FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.728%, 4/01/18 ........................... 6,341,546 6,624,969
-------------
...................................................................................................... 25,548,323
-------------
.Total Mortgage-Backed Securities (Cost $552,232,634) ................................................ 568,311,612
-------------
.Other Agency Securities 24.3%
.Federal Agriculture Mortgage Corp., 7.23%, 1/17/07 .................................................. 5,000,000 5,186,405
.Federal Farm Credit Bank, 5.80%, 9/16/03 ............................................................ 5,000,000 4,894,375
.Federal Home Loan Bank, 0.00%, 8/15/22 .............................................................. 10,000,000 1,495,090
.FICO Strips, 0.00%, 11/11/01 ........................................................................ 3,876,000 3,083,699
.FICO Strips, 0.00%, 3/07/02 ......................................................................... 10,000,000 7,801,960
.FICO Strips, 0.00%, 5/11/02 ......................................................................... 1,925,000 1,485,823
.FICO Strips, 0.00%, 5/11/13 ......................................................................... 10,000,000 3,795,040
.FICO Strips, Series 1, 0.00%, 5/11/99 ............................................................... 15,000,000 13,854,630
.FICO Strips, Series 1, 0.00%, 5/11/09 ............................................................... 1,758,000 866,328
.FICO Strips, Series 13, 0.00%, 6/27/09 .............................................................. 11,024,000 5,386,591
.FICO Strips, Series 15, 0.00%, 9/07/98 .............................................................. 5,000,000 4,808,565
.FICO Strips, Series 16, 0.00%, 4/05/09 .............................................................. 3,202,000 1,588,579
.FICO Strips, Series 16, 0.00%, 10/05/10 ............................................................. 4,745,000 2,134,994
.FICO Strips, Series A, 0.00%, 2/08/09 ............................................................... 2,060,000 1,032,614
.FICO Strips, Series D, 0.00%, 9/26/01 ............................................................... 7,000,000 5,611,480
.Housing Urban Development, Series 96-A, 7.63%, 8/01/14 .............................................. 5,000,000 5,418,920
.Housing Urban Development, Series 96-A, 7.66%, 8/01/15 .............................................. 5,000,000 5,435,450
.Small Business Administration, 6.45%, 12/01/15 ...................................................... 4,492,876 4,551,419
.Small Business Administration, 6.70%, 12/01/16 ...................................................... 4,809,930 4,948,409
.Small Business Administration, 6.85%, 7/01/17 ....................................................... 5,000,000 5,118,750
.Small Business Administration, Cap 10.50%, Margin Prime - 0.50%,
Resets Quarterly, 8.00%, 3/25/19 .................................................................... 7,166,781 7,458,971
.Small Business Administration, Cap 10.85%, Margin Prime - 0.40%,
Resets Quarterly, 8.10%, 6/25/19 .................................................................... 6,796,371 7,153,181
.Small Business Administration, Cap 10.875%, Margin Prime - 0.125%,
Resets Quarterly, 8.375%, 3/25/18 ................................................................... 8,451,433 9,000,777
.Student Loan Marketing Association, 0.00%, 5/15/14 .................................................. 15,000,000 4,313,250
.Student Loan Marketing Association, 6.16%, 12/02/99 ................................................. 5,000,000 4,990,650
.Tennessee Valley Authority, 0.00%, 4/15/03 .......................................................... 10,000,000 7,346,370
.Tennessee Valley Authority, 0.00%, 4/15/42 .......................................................... 6,000,000 2,362,620
.Tennessee Valley Authority, 5.88%, 4/01/36 .......................................................... 5,000,000 5,134,465
.Tennessee Valley Authority, 6.125%, 7/15/03 ......................................................... 5,000,000 5,001,685
.Tennessee Valley Authority, 6.235%, 7/15/45 ......................................................... 19,249,000 19,727,338
.Tennessee Valley Authority, 7.25%, 7/15/43 .......................................................... 10,000,000 10,590,400
.Tennessee Valley Authority, 8.375%, 10/01/99 ........................................................ 1,000,000 1,043,103
.Tennessee Valley Authority, 8.625%, 11/15/29 ........................................................ 12,000,000 12,971,328
-------------
.Total Other Agency Securities (Cost $176,353,866) ................................................... 185,593,259
-------------
.U.S. Government Securities .7%
.U.S. Treasury Strips, 0.00%, 2/15/19 ................................................................ 20,000,000 5,610,480
-------------
.Total U.S. Government Securities (Cost $5,245,833) .................................................. 5,610,480
-------------
.Total Long Term Investments (Cost $733,832,333) ..................................................... 759,515,351
-------------
.fRepurchase Agreement 3.0%
.Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $23,132,563) (Cost $23,124,489) ........ $23,124,489 $ 23,124,489
-------------
. BancAmerica Robertson Stephens (Maturity Value $708,731)
. Barclays Capital Group, Inc., (Maturity Value $2,127,176)
. BT Alex Brown, Inc., (Maturity Value $2,002,942)
. Chase Securities, Inc., (Maturity Value $2,127,176)
. CIBC Wood Gundy Securities Corp., (Maturity Value $2,127,176)
. Deutsche Morgan Grenfell/ C.J. Lawrence, Inc., (Maturity Value $2,127,176)
. Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,127,176)
. Dresdner Kleinwort Benson, North America, L.L.C., (Maturity Value $2,127,176)
. Greenwich Capital Markets, Inc., (Maturity Value $1,276,306)
. Paribus Corp., (Maturity Value $2,127,176)
. SBC Warburg Dillon Read, Inc. (Maturity Value $2,127,176)
. UBS Securities, L.L.C., (Maturity Value $2,127,176)
. Collaterized by U.S. Treasury Bills & Notes
.Total Investments (Cost $752,956,822) 102.3% ................................................................ 782,639,840
.Other Assets, less Liabilities (2.3)% ....................................................................... (17,555,399)
-------------
.Net Assets 100.0% ........................................................................................... $765,084,441
=============
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, December 31, 1997
Utility Equity Fund COUNTRY SHARES VALUE
<S> <C> <C>
Common Stocks 94.4%
aAES Corp. ......................................................................... United States 436,000 $ 20,328,500
aAirTouch Communications, Inc. ..................................................... United States 496,100 20,619,156
Allegheny Energy, Inc. ............................................................ United States 750,000 24,375,000
American Electric Power Co. ....................................................... United States 590,230 30,470,624
Ameritech Corp. ................................................................... United States 100,000 8,050,000
aAscend Communications, Inc. ....................................................... United States 35,600 872,200
aBeijing Datang Power Generation Co., Ltd. ......................................... China 3,291,000 1,507,685
BSES, Ltd., Sponsored GDR, 144A.................................................... India 158,600 2,755,675
aCable & Wireless Communications, Plc, ADR.......................................... United Kingdom 1,186,895 5,175,418
Central & South West Corp. ........................................................ United States 647,400 17,520,263
CINergy Corp. ..................................................................... United States 1,104,800 42,396,700
Companhia Energetica de Minas Gerais, Sponsored ADR ............................... Brazil 33,100 1,438,125
Companhia Paranaense de Energia-Copel, Sponsored ADR .............................. Brazil 83,300 1,140,169
Dominion Resources, Inc. .......................................................... United States 465,000 19,791,563
DPL, Inc. ......................................................................... United States 716,000 20,585,000
Duke Energy Corp. ................................................................. United States 760,000 42,085,000
Edison International............................................................... United States 763,600 20,760,375
Electricidade Sao Paulo ........................................................... Brazil 22,700,000 4,271,314
Empresa Nacional de Electricidad, SA, Sponsored ADR ............................... Chile 978,800 17,312,525
Enova Corp. ....................................................................... United States 732,560 19,824,905
Enron Corp. ....................................................................... United States 1,040,000 43,225,000
Entergy Corp. ..................................................................... United States 996,200 29,823,738
Espoon Sahko Oyj, 144A ............................................................ Finland 195,000 4,294,212
aEsprit Telecom Group, Plc., ADR ................................................... United Kingdom 1,076,300 12,108,375
Florida Progress Corp. ............................................................ United States 932,000 36,581,000
FPL Group, Inc. ................................................................... United States 626,400 37,075,050
France Telecom, SA, Sponsored ADR ................................................. France 69,500 2,520,869
GPU, Inc. ......................................................................... United States 900,000 37,912,500
aGrupo Iusacell, SA, Series D ...................................................... Mexico 55,600 81,294
aGrupo Iusacell, SA, Series L, Sponsored ADR ....................................... Mexico 144,440 3,132,543
Hellenic Telecommunication Organization, SA ....................................... Greece 177,940 3,648,444
Hong Kong Telecommunications, Ltd. ............................................... Hong Kong 1,747,000 3,595,903
Hongkong Electric Holdings, Ltd. ................................................. Hong Kong 1,250,000 4,750,613
aHuaneng Power International, Inc., Sponsored ADR ................................. China 138,000 3,199,875
aICG Communications, Inc. .......................................................... United States 1,380,000 37,605,000
aItron, Inc. ....................................................................... United States 211,400 3,805,200
Korea Electric Power Corp. ........................................................ South Korea 83,420 770,220
Light Servicos de Eletricidade, SA ................................................ Brazil 10,140,600 4,225,061
MCN Corp. ......................................................................... United States 142,000 5,733,250
MidAmerican Energy Holdings Co. ................................................... United States 288,400 6,344,800
National Power, Plc.............................................................. United Kingdom 302,500 2,993,303
New Century Energies, Inc. ........................................................ United States 610,065 29,244,991
New Jersey Resources Corp. ........................................................ United States 210,000 8,413,125
NIPSCO Industries, Inc. ........................................................... United States 649,900 32,129,431
Northern States Power Co. ......................................................... United States 211,800 12,337,350
OGE Energy Corp. .................................................................. United States 111,100 6,061,894
Pacific Enterprises................................................................ United States 229,600 8,638,700
PacifiCorp. ....................................................................... United States 950,000 25,887,500
PG&E Corp. ........................................................................ United States 1,055,150 32,116,128
Pinnacle West Capital Corp. ....................................................... United States 663,000 28,094,625
Portugal Telecom, SA .............................................................. Portugal 239,400 11,108,264
RWE AG............................................................................ Germany 175,000 9,387,160
SBC Communications, Inc. .......................................................... United States 100,000 7,325,000
SCANA Corp. ....................................................................... United States 940,644 28,160,530
Scottish Power, Plc. .............................................................. United Kingdom 590,000 5,198,643
Sonat, Inc. ....................................................................... United States 225,000 10,293,750
Southern Co. ...................................................................... United States 1,836,790 47,526,941
Southern Electric, Plc. ........................................................... United Kingdom 366,091 2,922,090
TECO Energy, Inc. ................................................................. United States 1,555,000 43,734,375
Tele Danmark, AS, Sponsored ADR ................................................... Denmark 315,000 9,705,938
aTelecel-Comunicacaoes Pessoais, SA ................................................ Portugal 42,300 $ 4,506,944
Telecom de Argentina, SA, Sponsored ADR ........................................... Argentina 380,000 13,585,000
Telecom Italia, SpA ............................................................... Italy 5,028,372 22,094,706
Telecomunicacoes Brasileiras, SA, Sponsored ADR ................................... Brazil 20,000 2,328,750
Telefonica de Espana, Sponsored ADR ............................................... Spain 79,400 7,230,363
Telefonica del Peru, SA, Class B, ADR ............................................. Peru 337,500 7,867,969
aTeleWest Communications, Plc., Sponsored ADR ...................................... United Kingdom 69,000 845,250
Texas Utilities Co. ............................................................... United States 611,350 25,409,234
Tokyo Electric Power Co. .......................................................... Japan 135,000 2,460,749
Tokyo Gas Co., Ltd. ............................................................... Japan 2,000,000 4,533,966
Total Access Communication Public Co., Ltd. ....................................... Thailand 916,600 311,644
Transportadora de Gas del Sur, SA, Class B, Sponsored ADR ......................... Argentina 370,000 4,139,375
Viag AG ........................................................................... Germany 6,200 3,394,664
Western Resources, Inc. ........................................................... United States 8,700 374,100
aWorldCom, Inc. .................................................................... United States 150,000 4,537,500
-------------
Total Common Stocks (Cost $871,669,132) ........................................... 1,066,613,096
-------------
Convertible Preferred Stocks 2.4%
cCMS Energy Corp., 7.75%, quarterly cvt. pfd. ...................................... United States 175,000 11,339,701
Nortel Inversora, SA, 10.00%, cvt. pfd............................................. Argentina 240,000 15,225,000
-------------
Total Convertible Preferred Stocks (Cost $18,083,247) ............................. 26,564,701
-------------
Total Long Term Investments (Cost $889,752,379) ................................... 1,093,177,797
-------------
PRINCIPAL
AMOUNT
fRepurchase Agreement 4.3%
Joint Repurchase Agreement, 6.285%, 1/02/98
(Maturity Value $49,138,155) (Cost $49,121,004).................................... United States $49,121,004 49,121,004
-------------
BancAmerica Robertson Stephens (Maturity Value $1,505,529)
Barclays Capital Group, Inc., (Maturity Value $4,518,566)
BT Alex Brown, Inc. (Maturity Value $4,254,694)
Chase Securities, Inc., (Maturity Value $4,518,566)
CIBC Wood Gundy Securities Corp., (Maturity Value $4,518,566)
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $4,518,566)
Dresdner Kleinwort Benson, North America, L.L.C., (Maturity Value $4,518,566)
Duetsche Morgan Grenfell/C.J. Lawrence Inc., (Maturity Value $4,518,566)
Greenwich Capital Markets, Inc. (Maturity Value $2,710,838)
Paribas Corp., (Maturity Value $4,518,566)
SBC Warburg Dillon Read, Inc. (Maturity Value $4,518,566)
UBS Securities, L.L.C., (Maturity Value $4,518,566)
Collateralized U.S. Treasury Bills & Notes
Total Investments (Cost $938,873,383) 101.1% ...................................... 1,142,298,801
Other Assets, less Liabilities (1.1)% ............................................. (12,394,700)
-------------
Net Assets 100.0% ................................................................. $1,129,904,101
=============
aNon-income producing.
cSee Note 8 regarding restricted securities.
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
PRINCIPAL
Zero Coupon Fund - 2000 AMOUNT VALUE
Long Term Investments 100.0%
<S> <C> <C>
Government & Agency Securities 98.3%
FHLB Strips, Series A-1, 0.00%, 2/25/01 ............................................................. $ 7,567,000 $ 6,310,613
FHLB Strips, Series A-1, 0.00%, 8/25/01 ............................................................. 2,884,000 2,334,907
FHLB Strips, Series A-1, 0.00%, 2/25/02 ............................................................. 465,000 365,498
FHLMC, notes, 0.00%, 5/15/00 ........................................................................ 16,175,000 14,107,835
FICO Strips, 0.00%, 3/26/01 ......................................................................... 9,023,000 7,454,613
FICO Strips, 0.00%, 4/06/01 ......................................................................... 2,000,000 1,649,382
FICO Strips, Series 1, 0.00%, 11/11/00 .............................................................. 1,139,000 962,072
FICO Strips, Series 7, 0.00%, 2/03/01 ............................................................... 1,000,000 833,380
FICO Strips, Series 12, 0.00%, 12/06/00 ............................................................. 17,390,000 14,629,146
FICO Strips, Series 15, 0.00%, 9/07/00 .............................................................. 148,000 126,373
FICO Strips, Series 15, 0.00%, 3/07/01 .............................................................. 5,000,000 4,144,380
FICO Strips, Series 17, 0.00%, 10/05/00 ............................................................. 5,875,000 4,992,792
FICO Strips, Series 18, 0.00%, 10/06/00 ............................................................. 6,200,000 5,268,059
FICO Strips, Series D, 0.00%, 9/26/00 ............................................................... 4,965,000 4,226,084
FICO Strips, Series D, 0.00%, 2/03/01 ............................................................... 5,550,000 4,625,259
FNMA Strips, 0.00%, 11/22/99 ........................................................................ 3,800,000 3,405,233
FNMA Strips, 0.00%, 2/12/02 ......................................................................... 1,000,000 785,143
FNMA Strips, Series 1, 0.00%, 2/12/00 ............................................................... 500,000 442,221
FNMA Strips, Series 1, 0.00%, 2/01/01 ............................................................... 1,875,000 1,565,906
FNMA Strips, Series 1, 0.00%, 2/01/02 ............................................................... 1,000,000 786,572
FNMA Strips, Series 2, 0.00%, 8/12/01 ............................................................... 3,000,000 2,426,982
REFCO Strips, 0.00%, 1/15/01 ........................................................................ 9,195,000 7,736,103
Tennessee Valley Authority, 0.00%, 7/15/00 .......................................................... 3,320,000 2,868,457
Tennessee Valley Authority, 0.00%, 10/15/00 ......................................................... 2,500,000 2,128,400
Tennessee Valley Authority, 0.00%, 1/01/01 .......................................................... 65,000 54,342
Tennessee Valley Authority, 0.00%, 4/15/01 .......................................................... 10,500,000 8,681,967
Tennessee Valley Authority, 0.00%, 4/15/02 .......................................................... 1,000,000 779,544
U.S. Treasury Strips, 0.00%, 11/15/00 ............................................................... 1,110,375 940,905
U.S. Treasury Strips, Series QO, 0.00%, 2/15/01 ..................................................... 2,778,750 2,320,598
U.S. Treasury Strips, Series SD, 0.00%, 2/15/01 ..................................................... 3,295,000 2,764,255
-------------
109,717,021
-------------
Other Securities - "AAA" Rated 1.7%
InterAmerican Development Bank, 0.00%, 12/16/00 ..................................................... 220,000 184,756
International Bank for Reconstruction and Development, 0.00%, 2/15/00 ............................... 405,000 358,657
International Bank for Reconstruction and Development, 0.00%, 8/15/00 ............................... 945,000 812,293
International Bank for Reconstruction and Development, 0.00%, 2/15/01 ............................... 735,000 613,323
-------------
1,969,029
-------------
Total Long Term Investments (Cost $105,566,642)...................................................... 111,686,050
-------------
fRepurchase Agreement
Joint Repurchase Agreement, 6.285%, 1/02/98 (Maturity Value $14,065) (Cost $14,060).................. 14,060 14,060
-------------
BancAmerica Robertson Stephens (Maturity Value $433)
Barclays Capital Group, Inc., (Maturity Value $1,293)
BT Alex Brown, Inc. (Maturity Value $1,218)
Chase Securities, Inc., (Maturity Value $1,293)
CIBC Wood Gundy Securities Corp., (Maturity Value $1,293)
Deutsche Morgan Grenfell / C. J. Lawrence, Inc. (Maturity Value $1,293)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,293)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $1,293)
Greenwich Capital Markets, Inc. (Maturity Value $777)
Paribas Corp. (Maturity Value $1,293)
SBC Warburg Dillon Read, Inc., (Maturity Value $1,293)
UBS Securities, L.L.C., (Maturity Value $1,293)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $105,580,702) 100.0%......................................................... 111,700,110
Other Assets, less Liabilities ...................................................................... (49,659)
-------------
Net Assets 100.0% ................................................................................... $111,650,451
=============
fSee Note 1(c) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
PRINCIPAL
Zero Coupon Fund - 2005 AMOUNT VALUE
<S> <C> <C>
Long Term Investments 100.1%
Government & Agency Securities 96.3%
FHLB Strips, Series A-1, 0.00%, 8/25/02 ............................................................. $ 1,000,000 $ 763,845
FHLB Strips, Series A-1, 0.00%, 2/25/04 ............................................................. 800,000 557,829
FHLB Strips, Series A-1P, 0.00%, 2/25/04 ............................................................ 9,110,000 6,352,275
FICO Strips, 0.00%, 10/06/05 ........................................................................ 11,400,000 7,120,098
FICO Strips, Series 1, 0.00%, 5/11/05 ............................................................... 3,500,000 2,240,091
FICO Strips, Series 1, 0.00%, 11/11/05 .............................................................. 829,000 514,695
FICO Strips, Series 2, 0.00%, 11/02/05 .............................................................. 3,509,000 2,181,903
FICO Strips, Series 12, 0.00%, 12/06/05 ............................................................. 11,055,000 6,832,377
FICO Strips, Series 13, 0.00%, 12/27/05 ............................................................. 2,755,000 1,696,135
FICO Strips, Series 15, 0.00%, 9/07/05 .............................................................. 2,620,000 1,644,461
FICO Strips, Series 19, 0.00%, 12/06/05 ............................................................. 10,000,000 6,180,350
FICO Strips, Series D, 0.00%, 9/26/05 ............................................................... 6,799,000 4,253,924
FICO Strips, Series D, 0.00%, 3/26/06 ............................................................... 1,763,000 1,067,819
FICO Strips, Series F, 0.00%, 3/26/05 ............................................................... 5,000,000 3,227,215
FNMA Strips, 0.00%, 2/12/08 ......................................................................... 120,000 64,790
FNMA Strips, Series 1, 0.00%, 8/01/04 ............................................................... 450,000 304,228
FNMA Strips, Series 1, 0.00%, 2/12/05 ............................................................... 1,000,000 653,121
FNMA Strips, Series 1, 0.00%, 8/12/05 ............................................................... 875,000 553,584
FNMA Strips, Series 1, 0.00%, 2/01/06 ............................................................... 4,307,000 2,644,588
FNMA Strips, Series 1, 0.00%, 2/12/06 ............................................................... 250,000 153,201
FNMA Strips, Series 1, 0.00%, 2/01/08 ............................................................... 1,730,000 935,980
FNMA Strips, Series 2, 0.00%, 2/01/05 ............................................................... 6,000,000 3,926,154
FNMA Strips, Series 9, 0.00%, 8/01/06 ............................................................... 530,000 315,416
REFCO Strips, 0.00%, 1/15/06 ........................................................................ 6,500,000 4,060,076
REFCO Strips, Series R, 0.00%, 4/15/06 .............................................................. 3,000,000 1,844,925
Tennessee Valley Authority, 0.00%, 10/15/04 ......................................................... 6,200,000 4,160,708
Tennessee Valley Authority, 0.00%, 4/15/05 .......................................................... 2,260,000 1,468,704
Tennessee Valley Authority, 0.00%, 10/15/05 ......................................................... 1,000,000 630,366
U.S. Treasury Strips, 0.00%, 2/15/06 ................................................................ 12,920,000 8,083,321
-------------
74,432,179
-------------
Other Securities - "AAA" Rated 3.8%
Exxon Corp., 0.00%, 11/15/04 ........................................................................ 1,500,000 996,030
International Bank for Reconstruction and Development, 0.00%, 2/15/07 ............................... 541,000 310,007
International Bank for Reconstruction and Development, 0.00%, 8/15/07 ............................... 2,500,000 1,388,670
International Bank for Reconstruction and Development, Series 2, 0.00%, 2/15/07 ..................... 459,000 262,987
-------------
2,957,694
-------------
Total Long Term Investments (Cost $68,293,384) ...................................................... 77,389,873
-------------
fRepurchase Agreement .1%
Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $49,494) (Cost $49,477)................. 49,777 49,477
-------------
BancAmerica Robertson Stephens (Maturity Value $1,536)
Barclays Capital Group, Inc. (Maturity Value $4,553)
BT Alex Brown, Inc. (Maturity Value $4,258)
Chase Securities, Inc. (Maturity Value $4,553)
CIBC Wood Gundy Securities Corp. (Maturity Value $4,553)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $4,553)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $4,553)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $4,553)
Greenwich Capital Markets, Inc. (Maturity Value $2,723)
Paribas Corp. (Maturity Value $4,553)
SBC Warburg Dillon Read, Inc. (Maturity Value $4,553 )
UBS Securities, L.L.C. (Maturity Value $4,553)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $68,342,861) 100.2% ......................................................... 77,439,350
Other Assets, less Liabilities (.2)% ................................................................ (143,839)
-------------
Net Assets 100.0% ................................................................................... $77,295,511
=============
fSee Note 1(c ) regarding joint repurchase agreement.
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
PRINCIPAL
Zero Coupon Fund - 2010 AMOUNT VALUE
<S> <C> <C>
Long Term Investments 99.9%
Government & Agency Securities 94.3%
FHLMC, capital deb., 0.00%, 11/29/19 ................................................................ $ 4,450,000 $ 1,131,444
FICO Strips, 0.00%, 10/06/10 ........................................................................ 4,040,000 1,817,499
FICO Strips, Series 1, 0.00%, 11/11/10 .............................................................. 16,246,000 7,263,863
FICO Strips, Series 3, 0.00%, 5/30/10 ............................................................... 2,000,000 920,566
FICO Strips, Series 4, 0.00%, 10/06/10 .............................................................. 1,528,000 687,411
FICO Strips, Series 8, 0.00%, 8/03/10 ............................................................... 3,021,000 1,373,933
FICO Strips, Series 11, 0.00%, 2/08/11 .............................................................. 2,837,000 1,247,764
FICO Strips, Series 12, 0.00%, 6/06/09 .............................................................. 4,550,000 2,231,834
FICO Strips, Series 12, 0.00%, 12/06/10 ............................................................. 7,500,000 3,337,853
FICO Strips, Series 19, 0.00%, 6/06/10 .............................................................. 3,000,000 1,379,259
FICO Strips, Series 19, 0.00%, 12/06/10 ............................................................. 2,080,000 925,698
FICO Strips, Series A, 0.00%. 8/08/10 ............................................................... 7,000,000 3,180,618
FICO Strips, Series D, 0.00%, 3/26/10 ............................................................... 860,000 400,391
FICO Strips, Series D, 0.00%, 9/26/10 ............................................................... 860,000 387,589
FICO Strips, Series E, 0.00%, 11/02/10 .............................................................. 12,412,000 5,558,292
FNMA Strips, 0.00%, 8/12/09 ......................................................................... 1,975,000 965,479
FNMA Strips, Series 1, 0.00%, 2/01/10 ............................................................... 5,000,000 2,372,025
FNMA Strips, Series 1, 0.00%, 8/01/10 ............................................................... 8,250,000 3,790,215
FNMA Strips, Series 1, 0.00%, 8/12/10 ............................................................... 1,230,000 563,967
FNMA Strips, Series 1, 0.00%, 2/01/11 ............................................................... 4,450,000 1,979,689
FNMA, sub. deb., 0.00%, 2/01/12 ..................................................................... 3,281,000 1,367,977
REFCO Strips, 0.00%, 10/15/10 ....................................................................... 20,000,000 9,254,880
REFCO Strips, 0.00%, 1/15/11 ........................................................................ 8,000,000 3,642,760
SLMA, 0.00%, 5/15/14 ................................................................................ 8,650,000 2,487,308
Tennessee Valley Authority, 0.00%, 1/01/10 .......................................................... 412,000 192,475
Tennessee Valley Authority, 0.00%, 4/15/10 .......................................................... 12,000,000 5,653,092
Tennessee Valley Authority, 0.00%, 10/15/10 ......................................................... 1,320,000 601,953
Tennessee Valley Authority, 0.00%, 4/15/11 .......................................................... 9,525,000 4,205,745
Tennessee Valley Authority, 0.00%, 10/15/11 ......................................................... 7,295,000 3,115,111
U.S. Treasury Strips, 0.00%, 11/15/10 ............................................................... 18,390,000 8,583,772
-------------
80,620,462
-------------
Other Securities - "AAA" Rated 5.6%
International Bank for Reconstruction and Development, 0.00%, 2/15/11 ............................... 1,392,000 612,897
International Bank for Reconstruction and Development, 0.00%, 2/15/12 ............................... 2,800,000 1,153,580
International Bank for Reconstruction and Development, 0.00%, 2/15/13 ............................... 3,287,000 1,267,811
International Bank for Reconstruction and Development, 0.00%, 8/15/13 ............................... 4,100,000 1,531,206
International Bank for Reconstruction and Development, Series 2, 0.00%, 2/15/11 ..................... 500,000 220,150
-------------
4,785,644
-------------
Total Long Term Investments (Cost $69,604,960) ...................................................... 85,406,106
-------------
fRepurchase Agreement .5%
Joint Repurchase Agreement, 6.285%, 1/02/98, (Maturity Value $461,014) (Cost $460,853)............... 460,853 460,853
-------------
BancAmerica Robertson Stephens (Maturity Value $14,292)
Barclays Capital Group, Inc. (Maturity Value $42,413)
BT Alex Brown, Inc. (Maturity Value $39,648)
Chase Securities, Inc. (Maturity Value $42,413)
CIBC Wood Gundy Securities Corp. (Maturity Value $42,413)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $42,413)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $42,413)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $42,413)
Greenwich Capital Markets, Inc. (Maturity Value $25,357)
Paribas Corp. (Maturity Value $42,413)
SBC Warburg Dillon Read, Inc. (Maturity Value $42,413 )
UBS Securities, L.L.C. (Maturity Value $42,413)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $70,065,813) 100.4% ......................................................... 85,866,959
Other Assets, less Liabilities (.4)% ................................................................ (352,233)
-------------
Net Assets 100.0% ................................................................................... $85,514,726
=============
fSee Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, December 31, 1997
Currency Abbreviations
ARS - Argentina Peso
AUD - Australian Dollar
CAD - Canadian Dollar
DEM - German Mark
DKK - Danish Krone
ESP - Spanish Peseta
GBP - British Pound
ITL - Italian Lira
MYR - Malaysian Ringgit
NLG - Dutch Guilder
NZD - New Zealand Dollar
SEK - Swedish Krone
XEU - European Currency Unit
ZAR - South African Rand
FRANKLIN VALUEMARK FUNDS
Financial Statements
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
December 31, 1997
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost ............................................. $ 76,532,823 $ 947,564,869 $442,926,134 $1,173,620,186 $319,247,968
Value ............................................ 89,751,079 1,251,887,012 463,898,330 1,339,548,605 319,247,968
Repurchase agreements, at value and cost .......... 18,908,076 77,934,388 24,267,113 51,199,502 48,465,000
Cash .............................................. 678,676 28,263 -- 143,304 --
Receivables:
Investment securities sold ....................... 238,155 10,596,577 -- -- --
Capital shares sold .............................. -- -- 488,122 169,009 167,409
Dividends and interest ........................... 64,307 4,231,074 8,351,395 17,665,974 492,561
Total assets ................................. 109,640,293 1,344,677,314 497,004,960 1,408,726,394 368,372,938
Liabilities:
Payables:
Investment securities purchased .................. 214,363 5,630,503 -- 224,375 --
Capital shares redeemed .......................... -- -- 730,371 519,546 765,760
Affiliates ....................................... 66,126 525,591 209,623 550,153 141,045
Payable upon return of securities loaned (Note 9) . -- -- -- 559,000 --
Other liabilities ................................. 4,817 45,094 29,134 86,701 16,994
Total liabilities ............................ 285,306 6,201,188 969,128 1,939,775 923,799
Net assets, at value ........................ $109,354,987 $1,338,476,126 $496,035,832 $1,406,786,619 $367,449,139
Net assets consist of:
Undistributed net investment income ............... $ 534,645 $ 42,883,458 $ 44,013,099 $ 102,009,670 $--
Net unrealized appreciation ....................... 13,218,256 304,312,389 20,958,498 165,916,140 --
Accumulated net realized gain (loss) .............. (194,543) 102,378,676 2,607,265 24,225,942 --
Capital shares .................................... 95,796,629 888,901,603 428,456,970 1,114,634,867 367,449,139
Net assets, at value ............................... $109,354,987 $1,338,476,126 $496,035,832 $1,406,786,619 $367,449,139
Shares outstanding ................................. 8,150,036 63,702,777 34,324,418 76,595,043 367,449,139
Net asset value and offering price per share
(net asset value / shares outstanding) ............ $13.42 $21.01 $14.45 $18.37 $1.00
utual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost ............................................. $184,554,180 $364,589,386 $79,505,232 $295,217,467 $534,160,098
Value ............................................ 195,034,457 389,434,962 70,974,881 425,517,598 764,654,772
Repurchase agreements, at value and cost .......... -- -- 5,016,854 28,786,173 9,991,318
Cash .............................................. 2,222,385 846,702 110,563 317,226 160,991
Receivables:
Investment securities sold ....................... 717,572 4,190,776 311,252 -- 4,616,323
Capital shares sold .............................. 151,062 404,414 -- -- --
Dividends and interest ........................... 410,060 565,058 54,697 1,768,181 1,356,872
Unrealized gain on forward exchange contracts
(Note 6) .......................................... 1,355,167 832,599 -- -- --
Deposits with brokers for securities sold short ... -- 1,149,867 -- -- --
Total assets ................................. 199,890,703 397,424,378 76,468,247 456,389,178 780,780,276
Liabilities:
Payables:
Investment securities purchased .................. 799,249 8,282,485 955,655 -- --
Capital shares redeemed .......................... 17,356 25,229 -- -- --
Affiliates ....................................... 155,892 237,140 38,993 186,221 461,613
Securities sold short, at value (Proceeds $983,153) -- 907,500 -- -- --
Payable upon return of securities loaned (Note 9) . -- -- 531,327 15,635,000 --
Unrealized loss on forward exchange contracts
(Note 6) .......................................... 229,621 145,911 -- -- --
Other liabilities ................................. 35,823 38,781 17,962 13,694 20,879
Total liabilities ............................ 1,237,941 9,637,046 1,543,937 15,834,915 482,492
Net assets, at value ........................ $198,652,762 $387,787,332 $74,924,310 $440,554,263 $780,297,784
Net assets consist of:
Undistributed net investment income ............... $ 2,888,764 $ 4,591,164 $ 940,017 $ 14,187,335 $ 8,595,033
Net unrealized appreciation (depreciation) ........ 11,605,823 25,607,917 (8,530,354) 130,300,131 230,494,674
Accumulated net realized gain (loss) .............. 2,608,666 4,047,825 (6,434,773) 9,319,347 105,085,509
Capital shares .................................... 181,549,509 353,540,426 88,949,420 286,747,450 436,122,568
Net assets, at value ............................... $198,652,762 $387,787,332 $74,924,310 $440,554,263 $780,297,784
Shares outstanding ................................. 16,326,424 31,841,450 6,564,617 17,207,897 39,640,221
Net asset value and offering price per share
(net asset value / shares outstanding) ............ $12.17 $12.18 $11.41 $25.60 $19.68
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
Assets:
Investments in securities:
<S> <C> <C> <C> <C> <C>
Cost ............................................. $262,349,184 $310,661,215 $76,209,299 $582,338,486 $181,060,096
Value ............................................ 286,990,796 277,455,266 82,269,408 661,327,179 177,706,342
Repurchase agreements, at value and cost .......... 28,471,188 -- 10,477,000 95,879,000 1,429,000
Cash .............................................. 248,511 489,876 6,256 39,225 114
Receivables:
Investment securities sold ....................... 3,723,239 2,450,884 1,216,966 -- 11,264,113
Capital shares sold .............................. -- -- -- 139,177 932
Dividends and interest ........................... 231,053 329,949 1,037,031 2,041,367 5,125,551
Unrealized gain on forward exchange contracts
(Note 6) .......................................... -- -- 102,249 -- 1,212,654
Total assets ................................. 319,664,787 280,725,975 95,108,910 759,425,948 196,738,706
Liabilities:
Payables:
Investment securities purchased .................. -- 46,325 1,511,439 252,059 11,237,513
Capital shares redeemed .......................... -- 202,267 40,400 12,987 18,105
Affiliates ....................................... 190,241 292,901 63,055 697,414 86,414
Payable upon return of securities loaned (Note 9) . 6,002,929 -- -- -- --
Unrealized loss on forward exchange contracts
(Note 6) .......................................... -- -- 2,635 -- 334,725
Other liabilities ................................. 10,078 504,431 89,559 18,913 45,775
Total liabilities ............................ 6,203,248 1,045,924 1,707,088 981,373 11,722,532
Net assets, at value ........................ $313,461,539 $279,680,051 $93,401,822 $758,444,575 $185,016,174
Net assets consist of:
Undistributed net investment income ............... $ 160,082 $ 4,921,147 $ 2,954,949 $ 17,068,595 $ 11,163,308
Net unrealized appreciation (depreciation) ........ 24,641,612 (33,205,949) 6,165,196 78,988,693 (2,566,930)
Accumulated net realized gain (loss) .............. 25,718,276 14,728,610 3,861,293 73,505,215 (3,177,047)
Capital shares .................................... 262,941,569 293,236,243 80,420,384 588,882,072 179,596,843
Net assets, at value ............................... $313,461,539 $279,680,051 $93,401,822 $758,444,575 $185,016,174
Shares outstanding ................................. 20,826,160 27,183,878 6,808,249 49,430,801 14,265,198
Net asset value and offering price per share
(net asset value / shares outstanding) ............ $15.05 $10.29 $13.72 $15.34 $12.97
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost ............................................. $ 776,434,560 $31,059,801 $235,321,791 $733,832,333
Value ............................................ 935,116,073 29,782,072 163,506,809 759,515,351
Repurchase agreements, at value and cost .......... 222,050,000 2,288,000 -- 23,124,489
Cash .............................................. 840,840 6,763 279,895 125,080
Receivables:
Investment securities sold ....................... 2,751,394 555,418 1,854,395 611,035
Capital shares sold .............................. -- 30,191 -- --
Dividends and interest ........................... 3,871,790 88,068 715,486 5,831,991
Total assets ................................. 1,164,630,097 32,750,512 166,356,585 789,207,946
Liabilities:
Payables:
Investment securities purchased .................. 51,687 484,112 -- 23,384,542
Capital shares redeemed .......................... 1,937,632 -- 680,520 399,547
Affiliates ....................................... 787,084 27,171 152,163 311,577
Other liabilities ................................. 424,145 38,524 120,087 27,839
Total liabilities ............................ 3,200,548 549,807 952,770 24,123,505
Net assets, at value ........................ $1,161,429,549 $32,200,705 $165,403,815 $765,084,441
Net assets consist of:
Undistributed net investment income ............... $ 33,171,270 $ 716,993 $ 1,603,896 $ 50,857,742
Net unrealized appreciation (depreciation) ........ 158,681,513 (1,300,307) (71,814,982) 25,683,018
Accumulated net realized gain (loss) .............. 69,446,620 603,229 1,235,091 (15,731,355)
Capital shares .................................... 900,130,146 32,180,790 234,379,810 704,275,036
Net assets, at value ............................... $1,161,429,549 $32,200,705 $165,403,815 $765,084,441
Shares outstanding ................................. 72,046,407 2,922,545 17,827,473 54,949,206
Net asset value and offering price per share
(net asset value / shares outstanding) ............ $16.12 $11.02 $9.28 $13.92
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
Assets:
Investments in securities:
<S> <C> <C> <C> <C>
Cost ............................................. $ 889,752,379 $105,566,642 $68,293,384 $69,604,960
Value ............................................ 1,093,177,797 111,686,050 77,389,873 85,406,106
Repurchase agreements, at value and cost .......... 49,121,004 14,060 49,477 460,853
Cash .............................................. 51 -- -- --
Receivables:
Capital shares sold .............................. 442,323 25,000 6,550 28,583
Dividends and interest ........................... 2,268,909 -- -- --
Total assets ................................. 1,145,010,084 111,725,110 77,445,900 85,895,542
Liabilities:
Payables:
Capital shares redeemed .......................... 499,013 38,116 121,659 169,666
Affiliates ....................................... 436,311 27,321 21,811 203,820
Payable upon return of securities loaned (Note 9) . 14,089,259 -- -- --
Other liabilities ................................. 81,400 9,222 6,919 7,330
Total liabilities ............................ 15,105,983 74,659 150,389 380,816
Net assets, at value ........................ $1,129,904,101 $111,650,451 $77,295,511 $85,514,726
Net assets consist of:
Undistributed net investment income ............... $ 42,429,889 $ 7,759,277 $ 4,789,906 $ 4,883,419
Net unrealized appreciation ....................... 203,423,054 6,119,408 9,096,489 15,801,146
Accumulated net realized gain ..................... 61,863,922 1,248,202 1,108,097 582,493
Capital shares .................................... 822,187,236 96,523,564 62,301,019 64,247,668
Net assets, at value ............................... $1,129,904,101 $111,650,451 $77,295,511 $85,514,726
Shares outstanding ................................. 55,569,232 7,375,291 4,533,896 4,797,365
Net asset value and offering price per share
(net asset value / shares outstanding) ............ $20.33 $15.14 $17.05 $17.83
Statements of Operations
for the year ended December 31, 1997
Capital Growth and High Income Money
Growth Fund Income Fund Income Fund Securities Fund Market Fund
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends ......................................... $ 491,488 $ 44,739,580 $ 1,370,622 $ 32,771,601 $--
Interest .......................................... 617,203 3,747,799 45,071,762 76,059,238 22,550,711
Total investment income ...................... 1,108,691 48,487,379 46,442,384 108,830,839 22,550,711
Expenses:
Management fees (Note 3) .......................... 558,503 5,667,415 2,305,480 6,348,820 2,072,982
Custodian fees .................................... 796 34,920 10,276 104,689 3,628
Other ............................................. 11,243 244,419 102,289 294,937 85,746
Total expenses ............................... 570,542 5,946,754 2,418,045 6,748,446 2,162,356
Expenses waived/paid by affiliate (Note 3) ... -- -- -- -- (332,792)
Net expenses ................................ 570,542 5,946,754 2,418,045 6,748,446 1,829,564
Net investment income ...................... 538,149 42,540,625 44,024,339 102,082,393 20,721,147
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................... (54,593) 102,523,832 2,609,308 24,253,143 --
Foreign currency transactions .................... (3,494) (31,309) (9,714) (82,093) --
Net realized gain (loss) ..................... (58,087) 102,492,523 2,599,594 24,171,050 --
Net unrealized appreciation (depreciation) on:
Investments ...................................... 11,235,806 149,153,600 2,737,304 88,394,873 --
Translation of assets and liabilities denominated
in foreign currencies ............................. -- (9,962) (12,945) (8,446) --
Net unrealized appreciation .................. 11,235,806 149,143,638 2,724,359 88,386,427 --
Net realized and unrealized gain ................... 11,177,719 251,636,161 5,323,953 112,557,477 --
Net increase in net assets resulting from operations $11,715,868 $294,176,786 $49,348,292 $214,639,870 $20,721,147
+Net of foreign taxes of $4,403, $858,133 and $168,931 for the Capital Growth
Fund, the Growth and Income Fund and the Income Securities Fund, respectively.
Mutual Discovery Mutual Shares Natural Real Estate Rising
Securities Fund Securities Fund Resources Fund Securities Fund Dividends Fund
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends ......................................... $ 1,827,250 $ 2,311,245 $ 1,267,004 $14,794,688 $ 12,716,936
Interest .......................................... 1,691,859 3,804,433 311,901 1,157,595 972,132
Total investment income ...................... 3,519,109 6,115,678 1,578,905 15,952,283 13,689,068
Expenses:
Management fees (Note 3) .......................... 930,954 1,265,341 584,675 1,988,023 4,942,390
Administrative fees (Note 3) ...................... 174,553 314,146 -- -- --
Custodian fees .................................... 94,798 48,403 33,430 3,719 6,761
Other ............................................. 37,998 53,942 24,698 80,943 142,390
Total expenses ............................... 1,238,303 1,681,832 642,803 2,072,685 5,091,541
Net investment income ....................... 2,280,806 4,433,846 936,102 13,879,598 8,597,527
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................... 2,035,894 3,798,128 (6,079,954) 9,523,858 105,385,082
Foreign currency transactions .................... 1,203,986 447,294 3,942 -- --
Net realized gain (loss) ..................... 3,239,880 4,245,422 (6,076,012) 9,523,858 105,385,082
Net unrealized appreciation (depreciation) on:
Investments ...................................... 10,292,427 24,304,412 (13,798,260) 50,445,063 80,215,085
Translation of assets and liabilities denominated
in foreign currencies ............................. 1,125,546 735,162 (5,465) -- --
Net unrealized appreciation (depreciation) ... 11,417,973 25,039,574 (13,803,725) 50,445,063 80,215,085
Net realized and unrealized gain (loss) ............ 14,657,853 29,284,996 (19,879,737) 59,968,921 185,600,167
Net increase (decrease) in net assets resulting
from operations ................................... $16,938,659 $33,718,842 $(18,943,635) $73,848,519 $194,197,694
+Net of foreign taxes of $157,090, $94,318, $74,795 and $54,295 for the Mutual
Discovery Securities Fund, the Mutual Shares Securities Fund, the Natural
Resources Securities Fund and the Rising Dividends Fund, respectively.
Templeton
Developing Templeton Templeton Templeton
Small Markets Global Asset Global Global Income
Cap Fund Equity Fund Allocation Fund Growth Fund Securities Fund
Investment income:+
<S> <C> <C> <C> <C> <C>
Dividends ......................................... $ 1,088,027 $ 8,531,300 $1,448,280 $17,924,444 $ 5,695
Interest .......................................... 1,001,390 1,692,421 2,725,350 5,833,856 15,430,920
Total investment income ...................... 2,089,417 10,223,721 4,173,630 23,758,300 15,436,615
Expenses:
Management fees (Note 3) .......................... 1,878,273 4,277,977 526,125 5,894,743 1,133,609
Administrative fees (Note 3) ...................... -- -- 121,414 -- --
Custodian fees .................................... 5,037 482,850 89,883 160,925 67,170
Other ............................................. 51,141 83,549 19,631 127,289 48,460
Total expenses ............................... 1,934,451 4,844,376 757,053 6,182,957 1,249,239
Net investment income ....................... 154,966 5,379,345 3,416,577 17,575,343 14,187,376
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................... 25,783,169 15,052,246 3,383,385 73,599,265 (4,646,984)
Foreign currency transactions .................... 212 (237,474) 122,781 169,136 4,418,051
Net realized gain (loss) ..................... 25,783,381 14,814,772 3,506,166 73,768,401 (228,933)
Net unrealized appreciation (depreciation) on:
Investments ...................................... 14,228,539 (53,104,360) 1,045,000 (9,386,358) (8,948,608)
Translation of assets and liabilities denominated
in foreign currencies ............................. -- -- 100,033 -- (290,292)
Net unrealized appreciation (depreciation) ... 14,228,539 (53,104,360) 1,145,033 (9,386,358) (9,238,900)
Net realized and unrealized gain (loss) ............ 40,011,920 (38,289,588) 4,651,199 64,382,043 (9,467,833)
Net increase (decrease) in net assets resulting
from operations ................................... $40,166,886 $(32,910,243) $8,067,776 $81,957,386 $ 4,719,543
+Net of foreign taxes of $24,227, $549,004, $131,101, $1,431,245 and $154,832
for the Small Cap Fund, the Templeton Developing Markets Equity Fund, the
Templeton Global Asset Allocation Fund, the Templeton Global Growth Fund and the
Templeton Global Income Securities Fund, respectively.
Templeton
Templeton International Templeton
International Smaller Pacific U.S. Government
Equity Fund Companies Fund Growth Fund Securities Fund
Investment income:+
<S> <C> <C> <C> <C>
Dividends ......................................... $ 38,098,457 $ 675,415 $ 8,160,792 $--
Interest .......................................... 9,105,784 394,612 319,823 54,815,051
Total investment income ...................... 47,204,241 1,070,027 8,480,615 54,815,051
Expenses:
Management fees (Note 3) .......................... 9,676,740 239,272 2,608,312 3,775,626
Administrative fees (Note 3) ...................... -- 42,223 -- --
Custodian fees .................................... 845,000 11,366 223,700 7,516
Other ............................................. 246,706 6,902 73,556 172,631
Total expenses ............................... 10,768,446 299,763 2,905,568 3,955,773
Net investment income ....................... 36,435,795 770,264 5,575,047 50,859,278
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................... 73,418,575 603,229 6,171,926 84,959
Foreign currency transactions .................... (2,362,261) (30,139) (181,458) --
Net realized gain ............................ 71,056,314 573,090 5,990,468 84,959
Net unrealized appreciation (depreciation) on:
Investments ...................................... 24,358,754 (2,381,801) (112,006,306) 18,636,570
Translation of assets and liabilities
denominated in foreign currencies ................. -- (22,578) -- --
Net unrealized appreciation (depreciation)... 24,358,754 (2,404,379) (112,006,306) 18,636,570
Net realized and unrealized gain (loss) ............ 95,415,068 (1,831,289) (106,015,838) 18,721,529
Net increase (decrease) in net assets resulting from operations $131,850,863 $(1,061,025) $(100,440,791) $69,580,807
+Net of foreign taxes of $4,053,015, $71,448, $726,232 for the Templeton
International Equity Fund, the Templeton International Smaller Companies Fund
and the Templeton Pacific Growth Fund, respectively.
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
Investment income:+
<S> <C> <C> <C> <C>
Dividends ......................................... $ 46,674,953 $-- $-- $--
Interest .......................................... 1,229,006 8,233,122 5,102,879 5,199,207
Total investment income ...................... 47,903,959 8,233,122 5,102,879 5,199,207
Expenses:
Management fees (Note 3) .......................... 5,139,011 724,202 485,690 491,457
Custodian fees .................................... 80,885 1,273 940 800
Other ............................................. 229,163 30,120 20,828 21,227
Total expenses ............................... 5,449,059 755,595 507,458 513,484
Expenses waived/paid by affiliate (Note 3) ... -- (281,519) (194,726) (197,837)
Net expenses ................................ 5,449,059 474,076 312,732 315,647
Net investment income ...................... 42,454,900 7,759,046 4,790,147 4,883,560
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ...................................... 61,873,020 1,248,982 1,112,714 1,001,612
Foreign currency transactions .................... (22,920) -- -- --
Net realized gain ............................ 61,850,100 1,248,982 1,112,714 1,001,612
Net unrealized appreciation (depreciation) on:
Investments ...................................... 150,457,511 (926,957) 2,363,992 6,324,375
Translation of assets and liabilities
denominated in foreign currencies ................. (2,364) -- -- --
Net unrealized appreciation (depreciation) ... 150,455,147 (926,957) 2,363,992 6,324,375
Net realized and unrealized gain ................... 212,305,247 322,025 3,476,706 7,325,987
Net increase in net assets resulting from operations $254,760,147 $8,081,071 $8,266,853 $12,209,547
+Net of foreign taxes of $772,053 for the Utility Equity Fund.
Statements of Changes in Net Assets
for the years ended December 31, 1997 and 1996
Capital Growth Fund Growth and Income Fund High Income Fund
1997 1996* 1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ............... $ 538,149 $ 110,214 $ 42,540,625 $ 39,513,404 $ 44,024,339 $ 37,008,728
Net realized gain (loss) from investments
and foreign currency transactions .... (58,087) (140,413) 102,492,523 37,811,712 2,599,594 1,210,500
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign
currencies ........................... 11,235,806 1,982,450 149,143,638 55,138,252 2,724,359 13,294,221
Net increase in net assets resulting
from operations ...................... 11,715,868 1,952,251 294,176,786 132,463,368 49,348,292 51,513,449
Distributions to shareholders from:
Net investment income ................ (109,761) -- (39,059,424) (22,230,774) (37,006,747) (31,018,152)
Net realized gains ................... -- -- (37,881,070) (78,714,626) (1,213,933) (1,646,547)
Total distributions to shareholders ... (109,761) -- (76,940,494) (100,945,400) (38,220,680) (32,664,699)
Capital share transactions (Note 2)... 53,082,169 42,714,460 43,250,826 156,983,572 38,812,695 66,343,229
Net increase in net assets ...... 64,688,276 44,666,711 260,487,118 188,501,540 49,940,307 85,191,979
Net assets:
Beginning of year .................... 44,666,711 -- 1,077,989,008 889,487,468 446,095,525 360,903,546
End of year .......................... $109,354,987 $44,666,711 $1,338,476,126 $1,077,989,008 $496,035,832 $446,095,525
Undistributed net investment income
included in net assets
End of year ......................... $ 534,645 $ 109,751 $ 42,883,458 $ 39,433,566 $ 44,013,099 $ 37,005,221
*For the period May 1, 1996 (effective date) to December 31, 1996.
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund
1997 1996 1997 1996 1997 1996**
Increase (decrease) in net assets:
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income ............... $ 102,082,393 $ 103,698,698 $ 20,721,147 $ 22,043,733 $ 2,280,806 $ 24,287
Net realized gain from investments and
foreign currency transactions ........ 24,171,050 19,810,309 -- -- 3,239,880 1,860
Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign
currencies ........................... 88,386,427 16,747,285 -- -- 11,417,973 187,850
Net increase in net assets resulting
from operations ...................... 214,639,870 140,256,292 20,721,147 22,043,733 16,938,659 213,997
Distributions to shareholders from:
Net investment income ................ (99,613,761) (66,927,738) (20,721,147) (22,043,733) (49,403) --
Net realized gains ................... (21,398,124) (11,125,807) -- -- -- --
Total distributions to shareholders ... (121,011,885) (78,053,545) (20,721,147) (22,043,733) (49,403) --
Capital share transactions (Note 2) ... (37,500,786) 21,919,171 (41,480,674) (20,617,040) 166,345,776 15,203,733
Net increase (decrease) in
net assets ........................... 56,127,199 84,121,918 (41,480,674) (20,617,040) 183,235,032 15,417,730
Net assets:
Beginning of year .................... 1,350,659,420 1,266,537,502 408,929,813 429,546,853 15,417,730 --
End of year .......................... $1,406,786,619 $1,350,659,420 $367,449,139 $408,929,813 $198,652,762 $15,417,730
Undistributed net investment income
included in net assets
End of year ......................... $ 102,009,670 $ 99,623,131 $-- $-- $ 2,888,764 $ 26,147
**For the period November 8, 1996 (effective date) to December 31, 1996.
Mutual Shares
Securities Fund Natural Resource Fund Real Estate Securities Fund
1997 1996** 1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................... $ 4,433,846 $ 50,601 $ 936,102 $ 1,257,532 $ 13,879,598 $ 11,638,350
Net realized gain (loss) from investments
and foreign currency transactions ........ 4,245,422 (3,049) (6,076,012) (188,566) 9,523,858 5,460,333
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies ............................... 25,039,574 568,343 (13,803,725) 935,906 50,445,063 57,769,186
Net increase (decrease) in net assets
resulting from operations ................ 33,718,842 615,895 (18,943,635) 2,004,872 73,848,519 74,867,869
Distributions to shareholders from:
Net investment income .................... (87,831) -- (1,423,769) (1,593,439) (10,951,988) (9,713,587)
Net realized gains ....................... -- -- -- (1,460,667) (5,229,900) --
Total distributions to shareholders ....... (87,831) -- (1,423,769) (3,054,106) (16,181,888) (9,713,587)
Capital share transactions (Note 2)....... 326,479,399 27,061,027 (14,286,871) 5,519,005 60,166,437 44,093,562
Net increase (decrease) in
net assets ............................... 360,110,410 27,676,922 (34,654,275) 4,469,771 117,833,068 109,247,844
Net assets:
Beginning of year ........................ 27,676,922 -- 109,578,585 105,108,814 322,721,195 213,473,351
End of year .............................. $387,787,332 $27,676,922 $ 74,924,310 $109,578,585 $440,554,263 $322,721,195
Undistributed net investment income included
in net assets
End of year ............................. $ 4,591,164 $ 50,601 $ 940,017 $ 1,214,989 $ 14,187,335 $ 11,259,725
**For the period November 8, 1996 (effective date) to December 31, 1996.
Templeton Developing
Rising Dividends Fund Small Cap Fund Markets Equity Fund
1997 1996 1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................... $ 8,597,527 $ 9,955,580 $ 154,966 $ 585,485 $ 5,379,345 $ 3,874,067
Net realized gain from investments and
foreign currency transactions ............ 105,385,082 31,514,069 25,783,381 6,726,182 14,814,772 6,246,440
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies............................... 80,215,085 71,866,460 14,228,539 10,251,252 (53,104,360) 29,692,572
Net increase (decrease) in net assets
resulting from operations................ 194,197,694 113,336,109 40,166,886 17,562,919 (32,910,243) 39,813,079
Distributions to shareholders from:
Net investment income .................... (9,956,520) (10,368,611) (573,457) (33,640) (3,987,427) (2,182,460)
Net realized gains ....................... (17,001,263) -- (6,796,191) (2,727) (6,324,884) (4,037,551)
Total distributions to shareholders....... (26,957,783) (10,368,611) (7,369,648) (36,367) (10,312,311) (6,220,011)
Capital share transactions (Note 2) ....... 15,634,172 31,202,926 109,695,331 140,140,940 50,804,184 80,421,511
Net increase in net assets .......... 182,874,083 134,170,424 142,492,569 157,667,492 7,581,630 114,014,579
Net assets:
Beginning of year ........................ 597,423,701 463,253,277 170,968,970 13,301,478 272,098,421 158,083,842
End of year .............................. $780,297,784 $597,423,701 $313,461,539 $170,968,970 $279,680,051 $272,098,421
Undistributed net investment income
included in net assets
End of year ............................. $ 8,595,033 $ 9,954,026 $ 160,082 $ 578,335 $ 4,921,147 $ 3,577,713
Templeton Global Templeton Global Templeton Global Income
Asset Allocation Fund Growth Fund Securities Fund
1997 1996 1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................... $ 3,416,577 $ 1,438,196 $ 17,575,343 $ 10,065,463 $ 14,187,376 $ 16,565,628
Net realized gain (loss)
from investments and
foreign currency transactions............ 3,506,166 477,024 73,768,401 5,117,524 (228,933) 419,588
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies ............................... 1,145,033 4,638,002 (9,386,358) 73,557,750 (9,238,900) 3,321,562
Net increase in net assets resulting
from operations .......................... 8,067,776 6,553,222 81,957,386 88,740,737 4,719,543 20,306,778
Distributions to shareholders from:
Net investment income .................... (1,548,504) (14,806) (11,070,041) (7,356,652) (14,522,463) (17,028,466)
Net realized gains ....................... (446,684) (29,614) (3,690,014) (7,356,653) -- --
Total distributions to shareholders ....... (1,995,188) (44,420) (14,760,055) (14,713,305) (14,522,463) (17,028,466)
Capital share transactions (Note 2) ....... 31,055,108 35,036,621 111,369,857 167,094,838 (26,903,375) (24,749,927)
Net increase (decrease) in net assets 37,127,696 41,545,423 178,567,188 241,122,270 (36,706,295) (21,471,615)
Net assets:
Beginning of year ........................ 56,274,126 14,728,703 579,877,387 338,755,117 221,722,469 243,194,084
End of year .............................. $93,401,822 $56,274,126 $758,444,575 $579,877,387 $185,016,174 $221,722,469
Undistributed net investment income included
in net assets
End of year ............................. $ 2,954,949 $ (6,078) $ 17,068,595 $ 10,394,157 $ 11,163,308 $ 12,596,126
Templeton International Templeton International Templeton
Equity Fund Smaller Companies Fund Pacific Growth Fund
1997 1996 1997 1996* 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................... $ 36,435,795 $ 30,226,760 $ 770,264 $ 141,365 $ 5,575,047 $ 5,661,152
Net realized gain (loss) from investments
and foreign currency transactions ........ 71,056,314 49,297,270 573,090 (8,721) 5,990,468 (4,312,669)
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign currencies ........ 24,358,754 122,637,885 (2,404,379) 1,104,072 (112,006,306) 36,732,857
Net increase (decrease) in net
assets resulting from operations ......... 131,850,863 202,161,915 (1,061,025) 1,236,716 (100,440,791) 38,081,340
Distributions to shareholders from:
Net investment income .................... (32,476,317) (25,386,301) (155,776) -- (5,815,823) (10,991,812)
Net realized gains ....................... (49,797,020) (31,064,815) -- -- -- (6,370,262)
Total distributions to shareholders ....... (82,273,337) (56,451,116) (155,776) -- (5,815,823) (17,362,074)
Capital share transactions (Note 2) ....... 3,752,649 112,271,953 17,162,468 15,018,322 (85,098,729) 4,104,011
Net increase (decrease) in
net assets ............................... 53,330,175 257,982,752 15,945,667 16,255,038 (191,355,343) 24,823,277
Net assets:
Beginning of year ........................ 1,108,099,374 850,116,622 16,255,038 -- 356,759,158 331,935,881
End of year ..............................$1,161,429,549 $1,108,099,374 $32,200,705 $16,255,038 $165,403,815 $356,759,158
Undistributed net investment income
included in net assets
End of year ............................. $ 33,171,270 $ 27,747,634 $ 716,993 $ 132,644 $ 1,603,896 $ 2,026,130
*For the period May 1, 1996 (effective date) to December 31, 1996.
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
1997 1996 1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income ................$ 50,859,278 $ 42,987,658 $ 42,454,900 $ 54,454,052 $ 7,759,046 $ 8,152,035
Net realized gain (loss) from
investments and foreign currency
transactions .......................... 84,959 (158,758) 61,850,100 82,602,515 1,248,982 183,983
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign currencies ..... 18,636,570 (18,937,072) 150,455,147 (53,557,473) (926,957) (5,248,940)
Net increase in net assets
resulting from operations ............. 69,580,807 23,891,828 254,760,147 83,499,094 8,081,071 3,087,078
Distributions to shareholders from:
Net investment income ................. (42,870,826) (41,654,771) (54,348,880) (65,540,030) (8,152,085) (7,341,063)
Net realized gains .................... -- -- (75,198,357) -- (184,468) (72,481)
Total distributions to shareholders .... (42,870,826) (41,654,771) (129,547,237) (65,540,030) (8,336,553) (7,413,544)
Capital share transactions (Note 2) ....(105,483,057) 218,454,989 (197,599,129) (239,114,944) (17,695,009) (3,429,313)
Net increase (decrease) in
net assets ............................ (78,773,076) 200,692,046 (72,386,219) (221,155,880) (17,950,491) (7,755,779)
Net assets:
Beginning of year ..................... 843,857,517 643,165,471 1,202,290,320 1,423,446,200 129,600,942 137,356,721
End of year ...........................$765,084,441 $843,857,517 $1,129,904,101 $1,202,290,320 $111,650,451 $129,600,942
Undistributed net investment income
included in net assets
End of year ..........................$ 50,857,742 $ 42,920,983 $ 42,429,889 $ 54,346,789 $ 7,759,277 $ 8,152,316
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
1997 1996 1997 1996
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income ................................................ $ 4,790,147 $ 4,940,116 $ 4,883,560 $ 4,878,408
Net realized gain (loss) from investments and
foreign currency transactions.......................................... 1,112,714 19,477 1,001,612 (191,720)
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated in foreign currencies .............. 2,363,992 (5,309,151) 6,324,375 (6,860,589)
Net increase (decrease) in net assets
resulting from operations ............................................. 8,266,853 (349,558) 12,209,547 (2,173,901)
Distributions to shareholders from:
Net investment income ................................................. (4,939,956) (4,218,190) (4,878,501) (4,092,016)
Net realized gains .................................................... (17,170) -- (39,001) (1,109,315)
Total distributions to shareholders .................................... (4,957,126) (4,218,190) (4,917,502) (5,201,331)
Capital share transactions (Note 2) .................................... (8,617,685) 3,949,514 (593,065) 558,186
Net increase (decrease) in net assets ............................ (5,307,958) (618,234) 6,698,980 (6,817,046)
Net assets:
Beginning of year ..................................................... 82,603,469 83,221,703 78,815,746 85,632,792
End of year ........................................................... $77,295,511 $82,603,469 $85,514,726 $78,815,746
Undistributed net investment income included in net assets
End of year ........................................................... $ 4,789,906 $ 4,939,715 $ 4,883,419 $ 4,878,360
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements
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-three
series (the Funds). All Funds are diversified except the Templeton Global Income
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>
<S> <C> <C> <C>
Capital Growth Growth and Income High Current Income Capital Preservation and Income
Capital Growth Fund Growth and Income Fund High Income Fund Money Market Fund
Mutual Discovery Securities Fund Income Securities Fund Templeton Global Income Securities Fund
Natural Resources Fund Mutual Shares Securities Fund U.S. Government Securities Fund
Small Cap Fund Real Estate Securities Fund Zero Coupon Fund - 2000
Templeton Developing Markets Equity Fund Rising Dividends Fund Zero Coupon Fund - 2005
Templeton Global Growth Fund Templeton Global Asset
Allocation Fund Zero Coupon Fund - 2010
Templeton International Equity Fund Utility Equity Fund
Templeton International
Smaller Companies Fund
Templeton Pacific Growth Fund
</TABLE>
Effective May 1, 1997, the name of the Precious Metals Fund changed to the
Natural Resources Fund. Before May 1, 1997, the portfolio had different
investment objectives and policies.
The following 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 December 31, 1997, 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 is 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 with 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
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.
2. SHARES OF BENEFICIAL INTEREST
At December 31, 1997, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
Capital Growth Fund* Growth and Income Fund High Income Fund
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................................... 7,609,203 $95,467,235 11,852,804 $227,366,997 15,001,724 $213,493,612
Shares issued on reinvestment of distributions . 8,739 109,761 4,094,758 76,940,493 2,802,103 38,220,680
Shares redeemed ................................ (3,398,734) (42,494,827) (13,651,515) (261,056,664) (14,990,766) (212,901,597)
Net increase .................................... 4,219,208 $53,082,169 2,296,047 $ 43,250,826 2,813,061 $ 38,812,695
1996
Shares sold .................................... 4,551,652 $49,307,053 17,103,384 $291,261,819 14,886,206 $203,832,754
Shares issued on reinvestment of distributions . -- -- 6,313,033 100,945,400 2,553,925 32,664,699
Shares redeemed ................................ (620,824) (6,592,593) (13,907,925) (235,223,647) (12,349,882) (170,154,224)
Net increase .................................... 3,930,828 $42,714,460 9,508,492 $156,983,572 5,090,249 $ 66,343,229
Mutual Discovery
Income Securities Fund Money Market Fund Securities Fund**
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................................... 8,990,147 $157,499,453 748,100,457 $748,100,457 17,092,095 $192,828,736
Shares issued on reinvestment of distributions . 7,246,221 121,011,885 20,721,280 20,721,280 4,419 49,403
Shares redeemed ................................(18,135,171)(316,012,124) (810,302,411) (810,302,411) (2,280,587) (26,532,363)
Net increase (decrease) ......................... (1,898,803)$ (37,500,786) (41,480,674)$ (41,480,674) 14,815,927 $166,345,776
1996
Shares sold .................................... 12,978,656 $215,025,216 624,484,193 $624,484,193 1,510,497 $ 15,203,733
Shares issued on reinvestment of distributions . 4,981,081 78,053,545 22,025,506 22,025,506 -- --
Shares redeemed ................................(16,378,905)(271,159,590) (667,126,739) (667,126,739) -- --
Net increase (decrease) ......................... 1,580,832 $ 21,919,171 (20,617,040)$ (20,617,040) 1,510,497 $ 15,203,733
Mutual Shares Natural Real Estate
Securities Fund** Resources Fund Securities Fund
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................................... 31,512,828 $353,477,935 3,255,526 $44,002,036 5,979,601 $139,175,365
Shares issued on reinvestment of distributions . 7,793 87,831 107,292 1,423,769 722,405 16,181,889
Shares redeemed ................................ (2,353,072) (27,086,367) (4,466,321) (59,712,676) (4,062,121) (95,190,817)
Net increase (decrease) ......................... 29,167,549 $326,479,399 (1,103,503) $(14,286,871) 2,639,885 $ 60,166,437
1996
Shares sold .................................... 2,673,916 $ 27,061,180 5,826,772 $92,609,906 4,215,417 $ 80,007,020
Shares issued on reinvestment of distributions . -- -- 200,533 3,054,106 541,263 9,713,587
Shares redeemed ................................ (15) (153) (5,826,876) (90,145,007) (2,455,248) (45,627,045)
Net increase .................................... 2,673,901 $ 27,061,027 200,429 $ 5,519,005 2,301,432 $ 44,093,562
*For 1996, figures are for the period May 1, 1996 (effective date) to December 31, 1996.
**For 1996, figures are for the period November 8, 1996 (effective date) to December 31, 1996.
2. SHARES OF BENEFICIAL INTEREST (cont.)
Rising Templeton Developing
Dividends Fund Small Cap Fund Markets Equity Fund
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................................... 9,172,221 $162,728,294 15,767,713 $223,364,294 10,816,139 $137,500,694
Shares issued on reinvestment of distributions . 1,563,677 26,957,783 542,684 7,369,648 774,197 10,312,311
Shares redeemed ................................ (9,887,381)(174,051,905) (8,440,306) (121,038,611) (7,874,889) (97,008,821)
Net increase .................................... 848,517 $ 15,634,172 7,870,091 $109,695,331 3,715,447 $50,804,184
1996
Shares sold .................................... 9,416,748 $128,553,979 17,929,579 $214,314,899 12,008,203 $131,040,673
Shares issued on reinvestment of distributions . 776,095 10,368,611 2,914 36,368 568,038 6,220,011
Shares redeemed ................................ (7,989,700)(107,719,664) (6,275,212) (74,210,327) (5,266,029) (56,839,173)
Net increase .................................... 2,203,143 $ 31,202,926 11,657,281 $140,140,940 7,310,212 $80,421,511
Templeton Global Asset Templeton Templeton Global
Allocation Fund Global Growth Fund Income Securities Fund
Shares Amount Shares Amount Shares Amount
1997
Shares sold .................................... 2,863,159 $38,251,762 13,313,319 $200,497,392 1,379,330 $18,167,921
Shares issued on reinvestment of distributions . 149,676 1,995,188 971,695 14,760,055 1,145,305 14,522,463
Shares redeemed ................................ (673,877) (9,191,842) (6,882,077) (103,887,590) (4,546,864) (59,593,759)
Net increase (decrease) ......................... 2,338,958 $31,055,108 7,402,937 $111,369,857 (2,022,229) $(26,903,375)
1996
Shares sold .................................... 3,324,255 $37,900,419 16,172,059 $204,037,772 1,774,907 $23,229,506
Shares issued on reinvestment of distributions . 3,931 44,420 1,172,375 14,713,305 1,374,371 17,028,466
Shares redeemed ................................ (258,845) (2,908,218) (4,156,855) (51,656,239) (4,932,897) (65,007,899)
Net increase (decrease) ......................... 3,069,341 $35,036,621 13,187,579 $167,094,838 (1,783,619) $(24,749,927)
Templeton
Templeton International Smaller Templeton
International Equity Fund Companies Fund* Pacific Growth Fund
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold .................................... 18,290,362 $299,526,246 2,609,483 $30,517,402 6,602,123 $ 85,539,550
Shares issued on reinvestment of distributions . 5,084,879 82,273,337 13,269 155,776 396,714 5,815,823
Shares redeemed ................................(23,047,242)(378,046,934) (1,145,466) (13,510,710) (13,342,125) (176,454,102)
Net increase (decrease) ......................... 327,999 $ 3,752,649 1,477,286 $17,162,468 (6,343,288) $ (85,098,729)
1996
Shares sold .................................... 16,304,017 $233,298,562 1,887,934 $19,652,954 11,017,347 $162,907,832
Shares issued on reinvestment of distributions . 4,023,601 56,451,117 -- -- 1,175,496 17,362,074
Shares redeemed ................................(12,410,252)(177,477,726) (442,675) (4,634,632) (11,892,182) (176,165,895)
Net increase .................................... 7,917,366 $112,271,953 1,445,259 $15,018,322 300,661 $ 4,104,011
*For 1996, figures are for the period May 1, 1996 (effective date) to December 31, 1996.
2. SHARES OF BENEFICIAL INTEREST (cont.)
U.S. Government
Securities Fund Utility Equity Fund Zero Coupon Fund - 2000
Shares Amount Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................................... 6,114,131 $ 83,399,898 1,963,946 $ 36,229,864 510,404 $ 7,615,267
Shares issued on reinvestment of distributions 3,245,331 42,870,826 7,553,775 129,547,236 575,729 8,336,552
Shares redeemed ...............................(17,077,659)(231,753,781) (20,093,040) (363,376,229) (2,241,078) (33,646,828)
Net decrease ................................... (7,718,197)$(105,483,057) (10,575,319)$(197,599,129) (1,154,945) $(17,695,009)
1996
Shares sold ................................... 4,777,016 $ 64,263,777 4,951,179 $ 87,970,395 1,346,751 $20,406,633
Shares issued in connection with
substitution transaction***.................... 22,031,312 292,135,204 -- -- -- --
Shares issued on reinvestment of distributions 3,298,082 41,654,771 3,882,703 65,540,030 517,344 7,413,544
Shares redeemed ...............................(13,383,651)(179,598,763) (22,222,999) (392,625,369) (2,064,008) (31,249,490)
Net increase (decrease) ........................ 16,722,759 $218,454,989 (13,389,117)$(239,114,944) (199,913) $ (3,429,313)
Zero Coupon Fund - 2005 Zero Coupon Fund - 2010
Shares Amount Shares Amount
1997
<S> <C> <C> <C> <C>
Shares sold ................................................................ 597,716 $ 9,749,533 1,745,371 $28,766,689
Shares issued on reinvestment of distributions ............................. 315,539 4,957,126 313,017 4,917,502
Shares redeemed ............................................................ (1,431,881) (23,324,344) (2,100,095) (34,277,256)
Net decrease ................................................................ (518,626)$ (8,617,685) (41,707) $ (593,065)
1996
Shares sold ................................................................ 1,047,318 $16,865,102 2,638,570 $42,320,073
Shares issued on reinvestment of distributions ............................. 282,342 4,218,190 361,957 5,201,331
Shares redeemed ............................................................ (1,065,563) (17,133,778) (2,908,691) (46,963,218)
Net increase ................................................................ 264,097 $ 3,949,514 91,836 $ 558,186
</TABLE>
***During the fiscal year ended December 31, 1996, the U.S. Government
Securities Fund acquired the net assets of the Investment Grade Intermediate
Bond Fund and the Adjustable U.S. Government Fund pursuant to a plan of
reorganization approved by Funds' shareholders.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
Entity Affiliation
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisory Services, Inc. Investment manager
(Advisory Services)
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. Transfer agent
(Investor Services)
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except the Capital Growth Fund, the Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Rising Dividends Fund,
the Small Cap Fund, the Templeton Developing Markets Equity Fund, the Templeton
Global Asset Allocation Fund, the Templeton Global Growth Fund, the Templeton
International Equity Fund, the Templeton International Smaller Companies Fund
and the Templeton Pacific Growth Fund as follows:
Annualized Fee Rate Average Daily Net Assets
.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 net assets of
the Funds as follows:
Annualized Fee Rate Average Daily Net Assets
1% First $100 million
.90 of 1% over $100 million, up to and including $250 million
.80 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
The Rising Dividends Fund pays an investment management fee to Advisory Services
based on the average net assets 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 net assets of the Fund as follows:
Annualized Fee Rate Average Daily Net Assets
1% First $100 million
.90 of 1% over $100 million, up to and including $250 million
.80 of 1% over $250 million, up to and including $500 million
Fees are further reduced on net assets over $500 million.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Templeton Global Asset Allocation Fund pays an investment management fee to
TGAL based on the average 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 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 Mutual Discovery
Securities Fund, the Mutual Shares Securities Fund, the Templeton Global Asset
Allocation Fund and the Templeton International Smaller Companies Fund. The fee
is paid by Advisers based on the average daily net assets, and is not an
additional expense of the Funds.
The Mutual Discovery Securities Fund, the Mutual Shares Securities Fund, the
Templeton Global Asset Allocation Fund and the Templeton International Smaller
Companies Fund pay business management fees to FT Services based on the average
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 December 31, 1997, 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.
4. INCOME TAXES
At December 31, 1997, the following Funds had deferred capital losses [deferred
currency losses] occurring subsequent to October 31, 1997. For tax purposes,
such losses will be reflected in the year ending December 31, 1998.
<TABLE>
<CAPTION>
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 $2,975,651 $1,482,029 $8,793 $49,814 $49,790
</TABLE>
At December 31, 1997, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes were as follows:
<TABLE>
<CAPTION>
Capital Growth and High Income Mutual Discovery
Growth Fund Income Fund Income Fund Securities FundSecurities Fund
<S> <C> <C> <C> <C> <C>
Investments at cost ..................................... $95,511,124 $1,025,509,034 $467,193,247 $1,224,819,688 $184,795,464
Unrealized appreciation ................................. 16,189,770 315,546,114 28,533,114 212,978,533 17,862,627
Unrealized depreciation ................................. (3,041,739) (11,233,748) (7,560,918) (47,050,114) (7,623,634)
Net unrealized appreciation ............................. $13,148,031 $ 304,312,366 $ 20,972,196 $ 165,928,419 $ 10,238,993
Templeton
Natural Developing
Mutual Shares Resources Real Estate Rising Small Markets
Securities Fund Fund Securities FundDividends Fund Cap Fund Equity Fund
<S> <C> <C> <C> <C> <C> <C>
Investments at cost .........................$364,625,175 $84,522,086 $324,003,640 $544,447,532 $290,941,949 $320,534,036
Unrealized appreciation .......................36,289,971 5,014,724 132,762,871 241,277,868 50,477,243 62,689,127
Unrealized depreciation .....................(11,480,184) (13,545,075) (2,462,740) (11,079,310) (25,957,208) (105,767,897)
Net unrealized appreciation (depreciation) ..$ 24,809,787 $ (8,530,351) $130,300,131 $230,198,558 $ 24,520,035 $ (43,078,770)
Templeton
Templeton Templeton Templeton Templeton International Templeton
Global Asset Global Global Income International Smaller Pacific
Allocation Fund Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund
<S> <C> <C> <C> <C> <C> <C>
Investments at cost ....................... $86,686,299 $678,229,520 $182,489,096 $998,484,560 $33,347,801 $238,877,023
Unrealized appreciation ................... 12,093,267 148,317,069 1,652,651 235,186,887 3,071,062 15,316,223
Unrealized depreciation ................... (6,033,158) (69,340,410) (5,006,405) (76,505,374) (4,348,791) (90,686,437)
Net unrealized appreciation (depreciation) $ 6,060,109 $ 78,976,659 $ (3,353,754) $158,681,513 $ (1,277,729) $ (75,370,214)
US Government Utility Zero Coupon Zero Coupon Zero Coupon
Securities Fund Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C> <C>
Investments at cost ................................... $756,956,822 $938,873,383 $105,580,702 $68,342,861 $70,157,903
Unrealized appreciation ............................... 26,607,574 237,376,254 6,160,727 9,144,852 15,709,056
Unrealized depreciation ............................... (924,556) (33,950,836) (41,319) (48,363) --
Net unrealized appreciation ........................... $ 25,683,018 $203,425,418 $ 6,119,408 $ 9,096,489 $15,709,056
</TABLE>
4. INCOME TAXES (cont.)
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 IncomeU.S. Government
Growth Fund Market Fund Resources Fund Securities FundSecurities Fund
Capital loss carryovers expiring in:
<S> <C> <C> <C> <C> <C>
2000 ................................................. $ -- $ 418 $-- $-- $--
2001 ................................................. -- 523 -- -- --
2002 ................................................. -- 7,568 -- -- 14,556,689
2003 ................................................. -- -- -- 3,177,046 826,481
2004 ................................................. 52,275 -- 146,066 -- --
2005 ................................................. 72,043 -- 3,313,056 -- 117,217
$124,318 $8,509 $3,459,122 $3,177,046 $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 year
ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Mutual
Capital Growth and High Income Discovery Mutual Shares
Growth Fund Income Fund Income Fund Securities FundSecurities FundSecurities Fund
<S> <C> <C> <C> <C> <C> <C>
Purchases .............................. $53,313,651 $414,215,808 $181,050,190 $190,117,572 $194,371,303 $328,584,654
Sales .................................. $12,529,762 $432,694,455 $158,999,308 $246,716,352 $ 51,699,659 $ 76,226,746
Templeton
Developing Templeton
Natural Real Estate Rising Markets Global Asset
Resources Fund Securities FundDividends Fund Small Cap Fund Equity Fund Allocation Fund
<S> <C> <C> <C> <C> <C> <C>
Purchases .............................. $75,994,137 $112,311,261 $248,171,154 $240,959,022 $144,803,070 $70,509,868
Sales .................................. $90,416,734 $ 42,363,479 $250,457,133 $150,179,483 $100,117,840 $41,707,470
Templeton
Templeton Templeton Templeton International Templeton
Global Global Income International Smaller Pacific U.S. Government
Growth Fund Securities Fund Equity Fund Companies Fund Growth Fund Securities Fund
<S> <C> <C> <C> <C> <C> <C>
Purchases .............................. $213,511,561 $335,843,030 $276,913,365 $25,746,255 $ 32,727,397 $129,256,468
Sales .................................. $150,419,188 $352,329,328 $426,441,780 $ 4,470,071 $112,719,806 $237,707,776
Utility Zero Coupon Zero Coupon Zero Coupon
Equity Fund Fund - 2000 Fund - 2005 Fund - 2010
<S> <C> <C> <C> <C>
Purchases .............................. $181,219,988 $ 7,386,810 $ 3,520,500 $ 9,571,090
Sales .................................. $484,923,207 $33,868,007 $17,256,706 $15,909,091
</TABLE>
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Each of the Funds listed below has 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 December
31, 1997, 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.
Mutual Discovery Securities Fund
<TABLE>
<CAPTION>
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
<S> <C> <C> <C> <C>
1,218,798 Australian Dollar............................................. U.S. $ 863,610 2/06/98 $ 68,595
41,039,048 Belgium Franc ................................................ 1,159,295 2/09/98 51,400
6,570,885 British Pound ................................................ 10,929,390 1/20/98 148,493
995,103 British Pound ................................................ 1,682,719 2/17/98 52,199
1,851,590 Canadian Dollar .............................................. 1,349,129 2/27/98 51,064
21,153,939 Danish Krone ................................................. 3,128,841 1/26/98 37,230
3,351,757 Dutch Guilder ................................................ 1,704,313 3/17/98 43,575
4,227,511 Dutch Guilder ................................................ 2,122,244 6/10/98 17,544
18,330,699 Finnish Markka ............................................... 3,428,767 3/03/98 51,905
16,184,931 French Franc ................................................. 2,787,011 4/17/98 81,503
13,506,223 French Franc ................................................. 2,329,138 2/17/98 78,727
6,276,784 French Franc ................................................. 1,059,493 2/27/98 13,070
6,057,828 French Franc ................................................. 1,020,960 6/11/98 5,280
1,710,297 German Mark .................................................. 964,787 3/18/98 9,839
3,165,367,394 Italian Lira ................................................. 1,800,141 7/02/98 8,973
1,950,000 New Zealand Dollar............................................ 1,212,900 2/17/98 85,024
2,529,410 Norwegian Krone .............................................. 352,256 3/09/98 7,929
1,245,225 Norwegian Krone .............................................. 172,612 3/10/98 3,092
49,419,666 Spanish Peseta ............................................... 329,062 2/18/98 4,270
1,075,344 Swedish Krona ................................................ 142,524 1/21/98 7,006
55,360,775 Swedish Krona ................................................ 7,379,370 3/18/98 392,366
3,051,782 Swiss Franc .................................................. 2,153,047 6/10/98 26,444
9,116,335 Swedish Krona ................................................ 1,185,309 5/15/98 33,333
-------------
U.S.$49,256,918 $1,278,861
Contracts to Buy (Foreign exchange currency)
4,500,000 Hong Kong Dollar.............................................. U.S. $ 576,960 1/14/98 $ 3,411
Net unrealized gain on offsetting forward foreign currency contracts ......... 72,895
-------------
Unrealized gain on forward foreign currency contracts ..................... $1,355,167
=============
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (cont.)
Mutual Discovery Securities Fund (cont.)
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
1,773,227 British Pound ................................................ U.S.$ 2,860,215 1/20/98 $ (49,131)
1,057,341 British Pound ................................................ 1,674,723 3/18/98 (55,246)
301,000 Canadian Dollar .............................................. 210,108 2/27/98 (910)
1,523,517 French Franc ................................................. 249,075 1/20/98 (4,367)
22,048,393 French Franc ................................................. 3,663,201 2/27/98 (12,560)
5,905,464 Hong Kong Dollar ............................................. 760,181 1/14/98 (1,454)
19,795,842 Norwegian Krone .............................................. 2,684,546 3/10/98 (10,392)
91,016,871 Spanish Peseta ............................................... 584,810 2/18/98 (13,365)
5,610,413 Swedish Krona ................................................ 701,523 1/21/98 (5,520)
----------- -------------
U.S.$13,388,382 $ (152,945)
Contracts to Buy (Foreign exchange currency)
18,000,000 Belgium Franc ................................................ U.S. $ 505,618 2/09/98 $ (19,688)
1,437,029 German Mark .................................................. 811,582 3/18/98 (9,214)
500,000 New Zealand Dollar ........................................... 312,650 2/17/98 (23,451)
5,644,361 Swedish Krona ................................................ 735,645 1/21/98 (24,323)
----------- -------------
U.S.$ 2,365,495 (76,676)
Unrealized loss on forward foreign currency contracts ..................... (229,621)
-------------
Net unrealized gain on forward foreign currency contracts .............. $1,125,546
=============
Mutual Shares Securities Fund
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
7,885,890 British Pound ................................................ U.S.$13,131,664 1/20/98 $ 193,229
1,080,604 British Pound ................................................ 1,827,301 2/17/98 56,684
4,939,902 Dutch Guilder ................................................ 2,503,944 3/17/98 56,308
1,907,788 Dutch Guilder ................................................ 957,725 6/10/98 7,917
15,194,102 French Franc ................................................. 2,631,394 2/17/98 99,748
12,674,052 French Franc ................................................. 2,180,088 4/17/98 61,466
17,534,756 French Franc ................................................. 2,984,995 6/11/98 45,048
984,084,375 Italian Lira ................................................. 559,648 7/02/98 2,790
6,611,554 Norwegian Krone .............................................. 909,025 3/09/98 8,997
33,400,385 Swedish Krona ................................................ 4,299,779 1/21/98 90,550
29,230,434 Swedish Krona ................................................ 3,896,300 3/18/98 207,169
----------- -------------
U.S.$35,881,863 829,906
Net unrealized gain on offsetting forward foreign currency contracts ......... 2,693
-------------
Unrealized gain on forward foreign currency contracts ..................... $ 832,599
=============
Contracts to Sell (Foreign exchange currency)
1,084,524 British Pound ................................................ U.S.$ 1,717,777 3/18/98 $ (56,666)
15,390,000 French Franc ................................................. 2,498,377 1/20/98 (61,802)
5,833,762 French Franc ................................................. 970,030 2/27/98 (2,536)
2,936,392 Norwegian Krone .............................................. 398,209 3/10/98 (1,541)
----------- -------------
U.S.$ 5,584,393 $ (122,545)
Contracts to Buy (Foreign exchange currency)
3,242,429 French Franc ................................................. U.S. $ 562,755 1/20/98 $ (23,366)
-------------
Unrealized loss on forward foreign currency contracts ..................... (145,911)
-------------
Net unrealized gain on forward foreign currency contracts .............. $ 686,688
=============
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)
858,000 Australian Dollar ............................................ U.S. $ 591,162 1/30/98 $ 31,574
173,000 New Zealand Dollar ........................................... 106,879 1/12/98 6,537
173,000 New Zealand Dollar ........................................... 102,589 2/17/98 2,526
2,430,000 German Mark .................................................. 1,379,036 1/16/98 26,967
202,000 Australian Dollar ............................................ 132,795 1/20/98 1,081
497,500 German Mark .................................................. 281,077 1/20/98 4,196
1,492,000 German Mark .................................................. 839,830 1/21/98 9,139
152,000 Australian Dollar ............................................ 99,227 1/21/98 113
86,500 New Zealand Dollar ........................................... 50,499 1/22/98 373
101,000 Australian Dollar ............................................ 66,801 1/22/98 941
995,000 German Mark .................................................. 562,147 1/23/98 8,285
----------- -------------
U.S.$ 4,212,042 91,732
Net unrealized gain on offsetting forward foreign currency contracts ......... 10,517
-------------
Unrealized gain on forward foreign currency contracts ..................... $ 102,249
=============
Contracts to Sell (Foreign exchange currency)
86,500 New Zealand Dollar ........................................... U.S. $ 49,828 1/21/98 $ (302)
Contracts to buy (Foreign exchange currency)
202,000 Australian Dollar ............................................ U.S. $ 134,078 1/30/98 $ (2,333)
-------------
Unrealized loss on forward foreign currency contracts ..................... (2,635)
-------------
Net unrealized gain on forward foreign currency contracts .............. $ 99,614
=============
Templeton Global Income Fund
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
1,745,000 Australian Dollar ............................................ U.S.$ 1,147,163 1/20/98 $ 9,335
1,308,000 Australian Dollar ............................................ 853,875 1/21/98 974
872,500 Australian Dollar ............................................ 577,072 1/22/98 8,131
7,423,000 Australian Dollar ............................................ 5,114,447 1/30/98 273,160
21,320,000 German Mark .................................................. 12,099,200 1/16/98 236,601
4,325,000 German Mark .................................................. 2,443,530 1/20/98 36,482
8,650,000 German Mark .................................................. 4,851,374 1/21/98 36,984
4,325,000 German Mark .................................................. 2,449,662 1/21/98 42,467
8,650,000 German Mark .................................................. 4,887,006 1/23/98 72,028
1,714,000 New Zealand Dollar ........................................... 1,058,909 1/12/98 64,762
857,000 New Zealand Dollar ........................................... 500,317 1/22/98 3,694
1,714,000 New Zealand Dollar ........................................... 1,016,402 2/17/98 25,028
----------- -------------
U.S. $36,998,957 809,646
Net unrealized gain on offsetting forward foreign currency contracts ......... 403,008
-------------
Unrealized gain on forward foreign currency contracts ..................... $1,212,654
=============
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (cont.)
Templeton Global Income Fund (cont.)
In Unrealized
Contracts to Sell (Foreign exchange currency) Exchange for Settlement Date Gain (Loss)
857,000 New Zealand Dollar ........................................... U.S. $ 493,675 1/21/98 $ (2,992)
Contracts to Buy (Foreign exchange currency)
1,745,000 Australian Dollar ............................................ U.S.$ 1,158,244 1/30/98 $ (20,153)
Net unrealized loss on offsetting forward foreign currency contracts ......... (311,580)
Unrealized loss on forward foreign currency contracts ..................... (334,725)
-------------
Net unrealized gain on forward foreign currency contracts .............. $ 877,929
=============
</TABLE>
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund and the Income Securities Fund have 93.5% and 37.2%,
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 December 31, 1997 the Income Securities Fund
held defaulted security with a value of $1,650,000 representing .1% 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 their total net assets
in the Wireless Communication industry. Such concentration may subject the Fund
more significantly to economic changes occuring 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 December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Quantity Issuer Acquisition Date Cost Value
Income Securities Fund
<S> <C> <C> <C> <C> <C>
419,424 Bibb Co. ............................................................. 3/30/93 - 9/27/96 $6,112,066 $ 3,512,676
$160,000 CMS Energy Corp., 7.75% quarterly cvt. pfd. .......................... 6/18/97 8,000,000 10,367,730
-------------
Total Restricted Securities (0.99% of Net Assets) ............................ $13,880,406
=============
Real Estate Securities Fund
866,067 Pacific Retail Trust (2.56% Net Assets) .............................. 8/30/96 - 4/30/97 $9,841,261 $11,258,871
=============
Utility Equity Fund
$175,000 CMS Energy Corp., 7.75%, quarterly cvt. Pfd. (1.00% of Net Assets) ... 6/18/97 $8,750,000 $11,339,701
=============
8. RESTRICTED SECURITIES (cont.)
Quantity Issuer Acquisition Date Value
Mutual Discovery Securities Fund
<S> <C> <C>
272,449 RE Acquisition LLC ...................................................................... 4/11/97 $ 272,449
115,000 Laser Mortgage Management Inc. .......................................................... 11/26/97 1,667,500
515 Golden Ocean Group Ltd, wts ............................................................. 8/25/97 2,575
$250,000 Golden Ocean Group Ltd., 10.00%, 8/31/01 ................................................ 8/25/97 205,000
-------------
Total Restricted Securities (0.01% of Net Assets) ............................................... $ 2,147,524
=============
Mutual Shares Securities Fund
220,000 Laser Mortgage Management Inc. .......................................................... 11/26/97 $ 3,190,000
935 Golden Ocean Group Ltd, wts ............................................................. 8/25/97 4,675
$450,000 Golden Ocean Group Ltd., 10.00%, 8/31/01................................................. 8/25/97 369,000
-------------
Total Restricted Securities (0.09% of Net Assets) ............................................... $ 3,563,675
=============
</TABLE>
9. LENDING OF PORTFOLIO SECURITIES
The Income Securities Fund, the Natural Resources Fund, the Real Estate
Securities Fund, the Small Cap Fund, and the Utility Equity 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 December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Income Natural Real Estate Utility
Securities FundResources Fund Securities FundSmall Cap Fund Equity Fund
<S> <C> <C> <C> <C> <C>
Interest income ...........................................$ 8,189 $ 4,428 $ 161,287 $ 110,873 $ 33,855
Value of loaned securities ...............................$521,375 $519,638 $15,121,695 $5,756,505 $13,567,125
</TABLE>
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.
FRANKLIN VALUEMARK FUNDS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Valuemark Funds:
We have audited the accompanying statements of assets and liabilities of each of
the twenty-three Funds comprising the Franklin Valuemark Funds including each
Fund's statement of investments, as of December 31, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds comprising the Franklin Valuemark Funds, as of December 31, 1997,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 3, 1998
Franklin Valuemark Funds Annual Report December 31, 1997.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the Capital
Growth Fund to that of the S&P 500 and Russell 1000 Index, based on a $10,000
investment from 5/1/96 to 12/31/97.
Capital Growth Fund S&P500 Russell 1000
5/1/96 $10,000 $10,000 $10,000
5/31/96 $10,220 $10,258 $10,240
6/30/96 $10,180 $10,297 $10,251
7/31/96 $ 9,790 $9,842 $9,757
8/31/96 $10,180 $10,050 $10,023
9/30/96 $10,910 $10,615 $10,586
10/31/96 $10,880 $10,908 $10,820
11/30/96 $11,750 $11,733 $11,618
12/31/96 $11,360 $11,501 $11,430
1/31/97 $11,910 $12,219 $12,108
2/28/97 $11,470 $12,315 $12,154
3/31/97 $10,870 $11,809 $11,607
4/30/97 $11,290 $12,514 $12,235
5/31/97 $12,270 $13,276 $13,018
6/30/97 $12,479 $13,870 $13,557
7/31/97 $13,290 $14,974 $14,666
8/31/97 $12,959 $14,136 $13,974
9/30/97 $13,740 $14,911 $14,739
10/31/97 $13,099 $14,413 $14,262
11/30/97 $13,320 $15,080 $14,881
12/31/97 $13,440 $15,339 $15,183
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the Mutual
Discovery Securities Fund to that of the S&P 500 and Russell 2000 Index, based
on a $10,000 investment from 11/8/96 to 12/31/97.
Mutual Discovery Securities S&P500 Russell 2000
11/8/96 $10,000 $10,000 $10,000
11/30/96 $10,130 $10,554 $10,302
12/31/96 $10,200 $10,345 $10,572
1/31/97 $10,660 $10,992 $10,783
2/28/97 $10,790 $11,078 $10,523
3/31/97 $10,690 $10,622 $10,026
4/30/97 $10,630 $11,257 $10,054
5/31/97 $10,910 $11,942 $11,172
6/30/97 $11,325 $12,477 $11,651
7/31/97 $11,735 $13,470 $12,193
8/31/97 $11,715 $12,716 $12,472
9/30/97 $12,356 $13,413 $13,385
10/31/97 $11,975 $12,965 $12,798
11/30/97 $12,025 $13,565 $12,714
12/31/97 $12,175 $13,798 $12,937
GRAPHIC MATERIAL (3)
This chart shows in pie format the Natural Resources Securities Fund's sector
breakdown on December 31, 1997, based on total net assets.
Energy 53.3%
Gold & Precious Metals 19.9%
Chemicals 7.7%
REITs 4.0%
Steel 3.5%
Paper & Forest Products 2.4%
Service/Related Industries 2.2%
Base Metals 1.7%
Cash & Equivalents 5.3%
GRAPHIC MATERIAL (4)
The following line graph hypothetically compares the performance of the Natural
Resources Securities Fund to that of the S&P 500 and FT/S&P Actuaries World
(Energy 50%/Basic Industries 50%) Composite Index, based on a $10,000 investment
from 1/24/89 to 12/31/97.
Natural FT/S&P Actuaries World:
Resources Energy 50% / Basic Industries 50%
Securities Fund S&P 500 Composite Index
01/24/89 $10,000 $ 10,000 $ 10,000
01/31/89 $10,020 $ 10,165 $ 10,114
02/28/89 $10,080 $ 9,912 $ 10,247
03/31/89 $10,150 $ 10,143 $ 10,553
04/30/89 $10,220 $ 10,670 $ 10,698
05/31/89 $10,090 $ 11,102 $ 10,298
06/30/89 $10,360 $ 11,038 $ 10,079
07/31/89 $10,500 $ 12,035 $ 10,937
08/31/89 $10,750 $ 12,271 $ 10,710
09/30/89 $11,110 $ 12,221 $ 10,961
10/31/89 $11,180 $ 11,937 $ 10,774
11/30/89 $12,230 $ 12,181 $ 11,276
12/31/89 $12,430 $ 12,473 $ 11,869
01/31/90 $12,920 $ 11,636 $ 11,489
02/28/90 $12,180 $ 11,786 $ 11,209
03/31/90 $12,038 $ 12,099 $ 10,547
04/30/90 $11,258 $ 11,797 $ 10,297
05/31/90 $11,947 $ 12,948 $ 11,287
06/30/90 $11,380 $ 12,861 $ 11,083
07/31/90 $12,038 $ 12,820 $ 11,812
08/31/90 $11,694 $ 11,661 $ 11,021
09/30/90 $11,501 $ 11,093 $ 10,082
10/31/90 $10,448 $ 11,045 $ 10,669
11/30/90 $10,185 $ 11,759 $ 10,360
12/31/90 $10,651 $ 12,087 $ 10,419
01/31/91 $9,831 $ 12,614 $ 10,397
02/28/91 $10,701 $ 13,516 $ 11,592
03/31/91 $10,610 $ 13,843 $ 11,174
04/30/91 $10,560 $ 13,876 $ 11,391
05/31/91 $10,853 $ 14,474 $ 11,435
06/30/91 $11,258 $ 13,811 $ 10,847
07/31/91 $11,382 $ 14,455 $ 11,388
08/31/91 $10,814 $ 14,797 $ 11,278
09/30/91 $10,834 $ 14,550 $ 11,586
10/31/91 $11,227 $ 14,745 $ 11,828
11/30/91 $11,361 $ 14,151 $ 11,009
12/31/91 $10,617 $ 15,770 $ 11,468
01/31/92 $11,340 $ 15,476 $ 11,242
02/29/92 $11,165 $ 15,676 $ 10,982
03/31/92 $10,752 $ 15,370 $ 10,584
04/30/92 $10,607 $ 15,822 $ 11,099
05/31/92 $11,123 $ 15,900 $ 11,627
06/30/92 $11,407 $ 15,663 $ 11,098
07/31/92 $11,492 $ 16,303 $ 11,038
08/31/92 $11,120 $ 15,969 $ 11,260
09/30/92 $10,982 $ 16,156 $ 11,164
10/31/92 $10,313 $ 16,211 $ 10,600
11/30/92 $9,612 $ 16,762 $ 10,512
12/31/92 $9,941 $ 16,968 $ 10,616
01/31/93 $9,867 $ 17,111 $ 10,679
02/28/93 $10,355 $ 17,344 $ 11,122
03/31/93 $11,343 $ 17,710 $ 11,834
04/30/93 $12,108 $ 17,281 $ 12,523
05/31/93 $13,658 $ 17,742 $ 12,796
06/30/93 $13,737 $ 17,794 $ 12,490
07/31/93 $14,957 $ 17,723 $ 12,800
08/31/93 $13,823 $ 18,394 $ 13,277
09/30/93 $12,689 $ 18,253 $ 13,010
10/31/93 $13,887 $ 18,631 $ 13,234
11/30/93 $13,769 $ 18,454 $ 12,481
12/31/93 $15,471 $ 18,677 $ 13,048
01/31/94 $15,578 $ 19,312 $ 14,054
02/28/94 $14,925 $ 18,789 $ 13,836
03/31/94 $15,096 $ 17,969 $ 13,351
04/30/94 $14,390 $ 18,199 $ 14,044
05/31/94 $14,861 $ 18,498 $ 14,085
06/30/94 $14,559 $ 18,045 $ 14,034
07/31/94 $14,839 $ 18,637 $ 14,571
08/31/94 $15,495 $ 19,401 $ 14,964
09/30/94 $16,508 $ 18,927 $ 14,687
10/31/94 $15,915 $ 19,353 $ 15,332
11/30/94 $14,645 $ 18,649 $ 14,452
12/31/94 $15,172 $ 18,925 $ 14,449
01/31/95 $13,385 $ 19,415 $ 14,268
02/28/95 $13,988 $ 20,172 $ 14,381
03/31/95 $15,291 $ 20,767 $ 15,135
04/30/95 $15,442 $ 21,378 $ 15,775
05/31/95 $15,334 $ 22,233 $ 15,759
06/30/95 $15,319 $ 22,748 $ 15,427
07/31/95 $15,815 $ 23,504 $ 16,178
08/31/95 $15,716 $ 23,563 $ 15,699
09/30/95 $15,782 $ 24,557 $ 15,872
10/31/95 $14,018 $ 24,468 $ 15,540
11/30/95 $15,242 $ 25,543 $ 16,082
12/31/95 $15,529 $ 26,036 $ 16,682
1/31/96 $18,098 $ 26,921 $ 16,992
2/29/96 $18,231 $ 27,171 $ 17,108
3/31/96 $18,319 $ 27,432 $ 17,820
4/30/96 $18,418 $ 27,835 $ 18,299
5/31/96 $19,124 $ 28,553 $ 18,222
6/30/96 $16,862 $ 28,662 $ 18,169
7/31/96 $16,512 $ 27,395 $ 17,562
8/31/96 $17,144 $ 27,973 $ 17,893
9/30/96 $16,184 $ 29,548 $ 18,444
10/31/96 $16,297 $ 30,363 $ 18,835
11/30/96 $16,150 $ 32,659 $ 19,505
12/31/96 $16,150 $ 32,012 $ 19,408
1/31/97 $15,347 $ 34,013 $ 19,509
2/28/97 $17,099 $ 34,278 $ 19,358
3/31/97 $15,314 $ 32,870 $ 19,629
4/30/97 $14,466 $ 34,832 $ 19,631
5/31/97 $15,359 $ 36,953 $ 20,768
6/30/97 $14,771 $ 38,609 $ 21,499
7/31/97 $14,828 $ 41,682 $ 22,271
8/31/97 $15,104 $ 39,348 $ 21,240
9/30/97 $16,113 $ 41,504 $ 22,136
10/31/97 $14,817 $ 40,118 $ 20,815
11/30/97 $13,154 $ 41,975 $ 20,063
12/31/97 $13,085 $ 42,697 $ 19,688
GRAPHIC MATERIAL (5)
The following line graph hypothetically compares the performance of the Small
Cap Fund to that of the S&P 500 and Russell 2500 Index, based on a $10,000
investment from 11/1/95 to 12/31/97.
Small Cap Fund S&P500 Russell 2500
11/1/95 $10,000 $10,000 $10,000
11/30/95 $ 9,700 $10,439 $10,427
12/31/95 $10,230 $10,640 $10,605
1/31/96 $10,370 $11,002 $10,681
2/29/96 $10,850 $11,105 $11,002
3/31/96 $11,140 $11,211 $11,227
4/30/96 $12,250 $11,376 $11,745
5/31/96 $12,760 $11,669 $12,063
6/30/96 $12,154 $11,714 $11,693
7/31/96 $11,054 $11,196 $10,837
8/31/96 $12,114 $11,432 $11,460
9/30/96 $12,654 $12,076 $11,957
10/31/96 $12,404 $12,409 $11,878
11/30/96 $12,964 $13,347 $12,451
12/31/96 $13,204 $13,083 $12,622
1/31/97 $13,494 $13,901 $12,970
2/28/97 $12,864 $14,009 $12,777
3/31/97 $11,954 $13,433 $12,198
4/30/97 $12,034 $14,235 $12,353
5/31/97 $13,744 $15,102 $13,491
6/30/97 $14,269 $15,779 $14,043
7/31/97 $15,175 $17,035 $14,866
8/31/97 $15,330 $16,081 $15,072
9/30/97 $16,813 $16,962 $16,058
10/31/97 $16,103 $16,396 $15,337
11/30/97 $15,721 $17,155 $15,406
12/31/97 $15,504 $17,450 $15,697
GRAPHIC MATERIAL (6)
This chart shows in pie format the Templeton Developing Market Equity Fund's
geographic distribution on December 31, 1997, based on total net assets.
Asia 37.3%
Latin America 36.8%
Europe 10.5%
Mid-East/Africa 5.3%
Short-Term & Other Net Assets 10.1%
GRAPHIC MATERIAL (7)
The following line graph hypothetically compares the performance of the
Templeton Developing Markets Equity Fund to that of the MSCI World Index and IFC
Investable Composite Index, based on a $10,000 investment from 3/15/94 to
12/31/97.
FVF Templeton
Developing IFC Investable
Markets Equity MSCI World Composite
Portfolio Index Index
INCEPT $10,000 $10,000 $10,000
Mar-94 $10,000 $ 9,774 $ 9,452
Apr-94 $10,060 $10,078 $ 9,272
May-94 $10,040 $10,105 $ 9,491
Jun-94 $ 9,990 $10,079 $ 9,154
Jul-94 $10,250 $10,272 $ 9,811
Aug-94 $10,530 $10,583 $11,073
Sep-94 $10,520 $10,307 $11,347
Oct-94 $10,410 $10,602 $10,972
Nov-94 $10,000 $10,144 $10,551
Dec-94 $ 9,560 $10,245 $ 9,434
Jan-95 $ 8,910 $10,093 $ 8,173
Feb-95 $ 8,780 $10,242 $ 8,067
Mar-95 $ 9,150 $10,737 $ 8,052
Apr-95 $ 9,540 $11,114 $ 8,385
May-95 $ 9,800 $11,211 $ 8,698
Jun-95 $ 9,855 $11,210 $ 8,749
Jul-95 $10,438 $11,773 $ 9,028
Aug-95 $10,167 $11,513 $ 8,786
Sep-95 $10,096 $11,850 $ 8,722
Oct-95 $ 9,735 $11,666 $ 8,391
Nov-95 $ 9,664 $12,073 $ 8,349
Dec-95 $ 9,825 $12,428 $ 8,639
Jan-96 $10,880 $12,655 $ 9,375
Feb-96 $10,659 $12,734 $ 9,156
Mar-96 $10,860 $12,949 $ 9,290
Apr-96 $11,222 $13,255 $ 9,662
May-96 $11,382 $13,269 $ 9,580
Jun-96 $11,390 $13,339 $ 9,692
Jul-96 $10,782 $12,870 $ 9,056
Aug-96 $10,957 $13,021 $ 9,336
Sep-96 $11,194 $13,533 $ 9,474
Oct-96 $11,184 $13,629 $ 9,271
Nov-96 $11,617 $14,396 $ 9,408
Dec-96 $11,947 $14,168 $ 9,449
Jan-97 $12,833 $14,340 $10,117
Feb-97 $13,214 $14,508 $10,611
Mar-97 $12,957 $14,224 $10,350
Apr-97 $13,101 $14,691 $10,174
May-97 $13,730 $15,601 $10,519
Jun-97 $14,275 $16,381 $10,974
Jul-97 $14,826 $17,138 $11,084
Aug-97 $13,449 $15,994 $ 9,669
Sep-97 $14,243 $16,865 $ 9,985
Oct-97 $11,573 $15,980 $ 8,343
Nov-97 $10,958 $16,266 $ 7,943
Dec-97 $10,905 $16,466 $ 8,047
GRAPHIC MATERIAL (8)
This chart shows in pie format the Templeton Global Growth Fund's geographic
distribution on December 31, 1997, based on total net assets.
Europe 39.1%
North America 25.3%
Asia 8.9%
Latin America 7.7%
Australia/New Zealand 4.5%
Mid-East/Africa 0.7%
Short-Term & Other Net Assets 13.8%
GRAPHIC MATERIAL (9)
The following line graph hypothetically compares the performance of the
Templeton Global Growth Fund to that of the MSCI World Index, based on a $10,000
investment from 3/15/94 to 12/31/97.
Templeton Global Growth Fund MSCI World Index
3/15/94 $10,000 $10,000
3/31/94 $10,030 $ 9,774
4/30/94 $10,079 $10,077
5/31/94 $10,118 $10,105
6/30/94 $10,020 $10,079
7/31/94 $10,295 $10,272
8/31/94 $10,551 $10,583
9/30/94 $10,482 $10,307
10/31/94 $10,492 $10,602
11/30/94 $10,285 $10,144
12/31/94 $10,315 $10,245
1/31/95 $10,226 $10,093
2/28/95 $10,335 $10,242
3/31/95 $10,335 $10,737
4/30/95 $10,630 $11,114
5/31/95 $10,896 $11,211
6/30/95 $11,053 $11,209
7/31/95 $11,498 $11,773
8/31/95 $11,399 $11,512
9/30/95 $11,617 $11,850
10/31/95 $11,231 $11,666
11/30/95 $11,310 $12,073
12/31/95 $11,627 $12,428
1/31/96 $12,132 $12,655
2/29/96 $12,181 $12,734
3/31/96 $12,379 $12,949
4/30/96 $12,706 $13,255
5/31/96 $12,894 $13,269
6/30/96 $12,886 $13,339
7/31/96 $12,416 $12,870
8/31/96 $12,814 $13,021
9/30/96 $12,988 $13,533
10/31/96 $13,080 $13,629
11/30/96 $13,672 $14,396
12/31/96 $14,102 $14,168
1/31/97 $14,510 $14,340
2/28/97 $14,592 $14,508
3/31/97 $14,561 $14,224
4/30/97 $14,623 $14,691
5/31/97 $15,287 $15,601
6/30/97 $16,058 $16,381
7/31/97 $16,684 $17,138
8/31/97 $16,246 $15,994
9/30/97 $17,164 $16,865
10/31/97 $15,891 $15,980
11/30/97 $15,839 $16,265
12/31/97 $16,006 $16,466
GRAPHIC MATERIAL (10)
This chart shows in pie format the Templeton International Equity Fund's
geographic distribution on December 31, 1997, based on total net assets.
Europe 56.8%
Latin America 10.8%
Australia/New Zealand 4.0%
North America 3.6%
Asia 3.4%
Mid-East/Africa 0.8%
Short-Term & Other Net Assets 20.6%
GRAPHIC MATERIAL (11)
The following line graph hypothetically compares the performance of the
Templeton International Equity Fund to that of the MSCI EAFE Index and MSCI All
Country World ex-U.S. Free Index, based on a $10,000 investment from 1/27/92 to
12/31/97.
Templeton International MSCI EAFE MSCI AC World
Equity Fund Index ex-U.S. Free Index
1/27/92 $10,000 $10,000 $10,000
1/31/92 $10,000 $10,183 $9,837
2/29/92 $10,000 $9,821 $9,535
3/31/92 $10,000 $9,176 $8,958
4/30/92 $10,010 $9,221 $8,988
5/31/92 $10,270 $9,841 $9,534
6/30/92 $10,040 $9,378 $9,074
7/31/92 $9,760 $9,141 $8,880
8/31/92 $9,860 $9,717 $9,354
9/30/92 $9,740 $9,529 $9,162
10/31/92 $9,570 $9,032 $8,760
11/30/92 $9,670 $9,119 $8,808
12/31/92 $9,760 $9,169 $8,882
1/31/93 $9,630 $9,171 $8,881
2/28/93 $9,770 $9,451 $9,153
3/31/93 $9,930 $10,277 $9,906
4/30/93 $10,200 $11,255 $10,781
5/31/93 $10,410 $11,496 $11,021
6/30/93 $10,218 $11,319 $10,889
7/31/93 $10,419 $11,718 $11,251
8/31/93 $11,132 $12,353 $11,855
9/30/93 $11,042 $12,078 $11,611
10/31/93 $11,694 $12,453 $12,031
11/30/93 $11,403 $11,367 $11,115
12/31/93 $12,547 $12,190 $11,982
1/31/94 $13,461 $13,224 $12,967
2/28/94 $13,230 $13,190 $12,869
3/31/94 $12,748 $12,624 $12,280
4/30/94 $12,868 $13,163 $12,696
5/31/94 $12,939 $13,090 $12,701
6/30/94 $12,601 $13,278 $12,791
7/31/94 $13,117 $13,409 $12,999
8/31/94 $13,512 $13,729 $13,436
9/30/94 $13,249 $13,299 $13,104
10/31/94 $13,461 $13,746 $13,456
11/30/94 $12,885 $13,088 $12,807
12/31/94 $12,652 $13,173 $12,777
1/31/95 $12,389 $12,670 $12,197
2/28/95 $12,571 $12,637 $12,131
3/31/95 $12,531 $13,429 $12,816
4/30/95 $13,087 $13,937 $13,316
5/31/95 $13,330 $13,775 $13,257
6/30/95 $13,624 $13,537 $13,074
7/31/95 $14,202 $14,383 $13,816
8/31/95 $13,897 $13,838 $13,337
9/30/95 $14,202 $14,112 $13,565
10/31/95 $13,792 $13,736 $13,202
11/30/95 $13,824 $14,122 $13,512
12/31/95 $13,992 $14,695 $14,046
1/31/96 $14,464 $14,759 $14,239
2/29/96 $14,801 $14,812 $14,240
3/31/96 $15,032 $15,130 $14,505
4/30/96 $15,473 $15,574 $14,945
5/31/96 $15,693 $15,291 $14,721
6/30/96 $15,714 $15,381 $14,795
7/31/96 $15,235 $14,935 $14,303
8/31/96 $15,692 $14,972 $14,519
9/30/96 $15,848 $15,373 $14,745
10/31/96 $16,137 $15,220 $14,597
11/30/96 $16,750 $15,829 $15,160
12/31/96 $17,207 $15,629 $14,985
1/31/97 $17,507 $15,086 $14,709
2/28/97 $17,786 $15,336 $14,979
3/31/97 $18,042 $15,395 $14,948
4/30/97 $17,886 $15,481 $15,074
5/31/97 $18,565 $16,492 $16,005
6/30/97 $19,587 $17,406 $16,888
7/31/97 $20,100 $17,690 $17,230
8/31/97 $19,683 $16,373 $15,874
9/30/97 $21,077 $17,294 $16,733
10/31/97 $19,659 $15,968 $15,308
11/30/97 $19,194 $15,809 $15,117
12/31/97 $19,218 $15,951 $15,291
GRAPHIC MATERIAL (12)
This chart shows in pie format the Templeton International Smaller Companies
Fund's geographic distribution on December 31, 1997, based on total net assets.
Europe 49.0%
Asia 18.3%
Latin America 8.8%
North America 5.6%
Mid-East/Africa 5.3%
Australia/New Zealand 4.6%
Short-Term & Other Net Assets 8.4%
GRAPHIC MATERIAL (13)
The following line graph hypothetically compares the performance of the
Templeton International Smaller Companies Fund to that of the MSCI EAFE Index
and Salomon World ex-U.S. Extended Market Index, based on a $10,000 investment
from 5/1/96 to 12/31/97.
Templeton International Smaller Companies Fund Sal. World ex-US EMI
INCEPT $10,000 $10,000
May-96 $10,150 $9,922
Jun-96 $10,330 $9,923
Jul-96 $10,210 $9,548
Aug-96 $10,330 $9,644
Sep-96 $10,410 $9,698
Oct-96 $10,690 $9,660
Nov-96 $10,890 $9,819
Dec-96 $11,250 $9,638
Jan-97 $11,330 $9,430
Feb-97 $11,450 $9,588
Mar-97 $11,490 $9,461
Apr-97 $11,440 $9,320
May-97 $11,670 $9,917
Jun-97 $11,936 $10,141
Jul-97 $12,026 $9,988
Aug-97 $12,117 $9,562
Sep-97 $12,569 $9,732
Oct-97 $11,574 $9,347
Nov-97 $11,232 $8,930
Dec-97 $11,081 $8,733
GRAPHIC MATERIAL (14)
The following line graph hypothetically compares the performance of the
Templeton Pacific Growth Fund to that of the MSCI Pacific Index, based on a
$10,000 investment from 1/27/92 to 12/31/97.
Templeton Pacific Growth MSCI Pacific
Fund Index
1/27/92 $10,000 $10,000
1/31/92 $10,000 $9,949
2/29/92 $10,000 $9,253
3/31/92 $10,000 $8,375
4/30/92 $10,010 $7,993
5/31/92 $10,210 $8,618
6/30/92 $10,450 $7,942
7/31/92 $9,900 $7,834
8/31/92 $9,570 $8,908
9/30/92 $9,790 $8,706
10/31/92 $10,230 $8,401
11/30/92 $10,110 $8,561
12/31/92 $9,880 $8,465
1/31/93 $9,980 $8,450
2/28/93 $10,330 $8,862
3/31/93 $10,270 $9,935
4/30/93 $10,920 $11,519
5/31/93 $11,290 $11,856
6/30/93 $11,100 $11,664
7/31/93 $11,230 $12,355
8/31/93 $11,770 $12,723
9/30/93 $11,840 $12,249
10/31/93 $13,110 $12,522
11/30/93 $12,970 $10,757
12/31/93 $14,610 $11,509
1/31/94 $14,720 $12,843
2/28/94 $14,300 $13,177
3/31/94 $13,330 $12,451
4/30/94 $13,520 $12,991
5/31/94 $14,080 $13,302
6/30/94 $13,704 $13,739
7/31/94 $13,956 $13,446
8/31/94 $14,549 $13,682
9/30/94 $14,006 $13,342
10/31/94 $14,097 $13,681
11/30/94 $13,191 $12,920
12/31/94 $13,322 $13,009
1/31/95 $12,356 $12,189
2/28/95 $12,869 $11,889
3/31/95 $13,191 $12,804
4/30/95 $13,372 $13,351
5/31/95 $13,895 $12,820
6/30/95 $13,639 $12,279
7/31/95 $14,166 $13,166
8/31/95 $14,001 $12,672
9/30/95 $14,259 $12,792
10/31/95 $13,691 $12,172
11/30/95 $13,763 $12,772
12/31/95 $14,384 $13,398
1/31/96 $15,552 $13,423
2/29/96 $15,500 $13,273
3/31/96 $15,531 $13,683
4/30/96 $16,224 $14,381
5/31/96 $16,276 $13,759
6/30/96 $16,132 $13,764
7/31/96 $15,255 $13,134
8/31/96 $15,634 $12,790
9/30/96 $15,862 $13,210
10/31/96 $15,353 $12,599
11/30/96 $16,176 $12,943
12/31/96 $15,981 $12,272
1/31/97 $15,732 $11,241
2/28/97 $15,797 $11,477
3/31/97 $15,201 $11,059
4/30/97 $15,299 $11,291
5/31/97 $16,165 $12,397
6/30/97 $16,457 $13,167
7/31/97 $16,733 $12,854
8/31/97 $14,030 $11,581
9/30/97 $14,350 $11,538
10/31/97 $11,714 $10,139
11/30/97 $10,688 $9,582
12/31/97 $10,236 $9,163
GRAPHIC MATERIAL (15)
The following line graph hypothetically compares the performance of the Growth
and Income Fund to that of the S&P 500 and Consumer Price Index, based on a
$10,000 investment from 1/24/89 to 12/31/97.
Growth & Income Fund S&P 500 CPI
1/24/89 $10,000 $ 10,000 $ 10,000
1/31/89 $10,020 $ 10,165 $ 10,011
2/28/89 $10,080 $ 9,912 $ 10,052
3/31/89 $10,150 $ 10,143 $ 10,111
4/30/89 $10,210 $ 10,670 $ 10,176
5/31/89 $10,280 $ 11,102 $ 10,234
6/30/89 $9,990 $ 11,038 $ 10,259
7/31/89 $10,530 $ 12,035 $ 10,284
8/31/89 $11,020 $ 12,271 $ 10,300
9/30/89 $10,680 $ 12,221 $ 10,333
10/31/89 $10,040 $ 11,937 $ 10,383
11/30/89 $10,110 $ 12,181 $ 10,407
12/31/89 $10,290 $ 12,473 $ 10,424
1/31/90 $9,760 $ 11,636 $ 10,531
2/28/90 $9,920 $ 11,786 $ 10,581
3/31/90 $10,159 $ 12,099 $ 10,639
4/30/90 $9,958 $ 11,797 $ 10,656
5/31/90 $10,824 $ 12,948 $ 10,681
6/30/90 $10,693 $ 12,861 $ 10,738
7/31/90 $10,623 $ 12,820 $ 10,779
8/31/90 $9,736 $ 11,661 $ 10,878
9/30/90 $9,343 $ 11,093 $ 10,970
10/31/90 $9,242 $ 11,045 $ 11,036
11/30/90 $9,776 $ 11,759 $ 11,060
12/31/90 $10,048 $ 12,087 $ 11,060
1/31/91 $10,683 $ 12,614 $ 11,126
2/28/91 $11,127 $ 13,516 $ 11,143
3/31/91 $11,147 $ 13,843 $ 11,160
4/30/91 $11,177 $ 13,876 $ 11,176
5/31/91 $11,600 $ 14,474 $ 11,210
6/30/91 $10,853 $ 13,811 $ 11,242
7/31/91 $11,243 $ 14,455 $ 11,259
8/31/91 $11,623 $ 14,797 $ 11,292
9/30/91 $11,541 $ 14,550 $ 11,342
10/31/91 $11,664 $ 14,745 $ 11,359
11/30/91 $11,161 $ 14,151 $ 11,392
12/31/91 $12,054 $ 15,770 $ 11,400
1/31/92 $12,577 $ 15,476 $ 11,417
2/29/92 $12,587 $ 15,676 $ 11,458
3/31/92 $12,125 $ 15,370 $ 11,516
4/30/92 $12,146 $ 15,822 $ 11,532
5/31/92 $12,218 $ 15,900 $ 11,548
6/30/92 $11,943 $ 15,663 $ 11,590
7/31/92 $12,295 $ 16,303 $ 11,614
8/31/92 $12,119 $ 15,969 $ 11,647
9/30/92 $12,420 $ 16,156 $ 11,679
10/31/92 $12,658 $ 16,211 $ 11,720
11/30/92 $13,135 $ 16,762 $ 11,737
12/31/92 $13,259 $ 16,968 $ 11,729
1/31/93 $13,363 $ 17,111 $ 11,786
2/28/93 $13,280 $ 17,344 $ 11,827
3/31/93 $13,653 $ 17,710 $ 11,869
4/30/93 $13,477 $ 17,281 $ 11,902
5/31/93 $13,840 $ 17,742 $ 11,919
6/30/93 $13,676 $ 17,794 $ 11,935
7/31/93 $13,477 $ 17,723 $ 11,935
8/31/93 $13,979 $ 18,394 $ 11,969
9/30/93 $13,896 $ 18,253 $ 11,994
10/31/93 $14,105 $ 18,631 $ 12,043
11/30/93 $13,990 $ 18,454 $ 12,051
12/31/93 $14,627 $ 18,677 $ 12,051
1/31/94 $15,453 $ 19,312 $ 12,084
2/28/94 $15,255 $ 18,789 $ 12,125
3/31/94 $14,345 $ 17,969 $ 12,166
4/30/94 $14,429 $ 18,199 $ 12,183
5/31/94 $14,471 $ 18,498 $ 12,192
6/30/94 $13,815 $ 18,045 $ 12,233
7/31/94 $14,215 $ 18,637 $ 12,266
8/31/94 $14,689 $ 19,401 $ 12,315
9/30/94 $14,257 $ 18,927 $ 12,349
10/31/94 $14,457 $ 19,353 $ 12,357
11/30/94 $13,920 $ 18,649 $ 12,373
12/31/94 $14,131 $ 18,925 $ 12,373
1/31/95 $14,246 $ 19,415 $ 12,423
2/28/95 $14,815 $ 20,172 $ 12,472
3/31/95 $15,236 $ 20,767 $ 12,514
4/30/95 $15,689 $ 21,378 $ 12,555
5/31/95 $16,173 $ 22,233 $ 12,580
6/30/95 $16,273 $ 22,748 $ 12,605
7/31/95 $16,547 $ 23,504 $ 12,605
8/31/95 $16,744 $ 23,563 $ 12,638
9/30/95 $17,467 $ 24,557 $ 12,663
10/31/95 $17,335 $ 24,468 $ 12,705
11/30/95 $18,014 $ 25,543 $ 12,696
12/31/95 $18,770 $ 26,036 $ 12,687
1/31/96 $19,153 $ 26,921 $ 12,762
2/29/96 $18,956 $ 27,171 $ 12,803
3/31/96 $19,153 $ 27,432 $ 12,870
4/30/96 $19,252 $ 27,835 $ 12,920
5/31/96 $19,449 $ 28,553 $ 12,944
6/30/96 $19,810 $ 28,662 $ 12,952
7/31/96 $19,077 $ 27,395 $ 12,977
8/31/96 $19,346 $ 27,973 $ 13,001
9/30/96 $19,859 $ 29,548 $ 13,043
10/31/96 $20,445 $ 30,363 $ 13,085
11/30/96 $21,422 $ 32,659 $ 13,110
12/31/96 $21,434 $ 32,012 $ 13,110
1/31/97 $22,045 $ 34,013 $ 13,151
2/28/97 $22,558 $ 34,278 $ 13,192
3/31/97 $22,069 $ 32,870 $ 13,225
4/30/97 $22,362 $ 34,832 $ 13,241
5/31/97 $23,547 $ 36,953 $ 13,233
6/30/97 $24,227 $ 38,609 $ 13,249
7/31/97 $25,478 $ 41,682 $ 13,265
8/31/97 $24,970 $ 39,348 $ 13,290
9/30/97 $26,364 $ 41,504 $ 13,323
10/31/97 $25,595 $ 40,118 $ 13,357
11/30/97 $26,742 $ 41,975 $ 13,349
12/31/97 $27,381 $ 42,697 $ 13,333
GRAPHIC MATERIAL (16)
The following line graph hypothetically compares the performance of the Income
Securities Fund to that of the Lehman Brothers Government/Corporate Bond Index,
the S&P 500 and the Lipper Income Average, based on a $10,000 investment from
1/24/89 to 12/31/97.
Income LB Gov't/Corp. Bond Lipper Income
Securities Fund Index S&P500 Average
1/24/89 $10,000 $10,000 $10,000 $10,000
3/31/89 $10,150 $10,007 $10,143 $10,244
6/30/89 $10,280 $10,811 $11,039 $10,809
9/30/89 $10,460 $10,913 $12,221 $11,240
12/31/89 $10,900 $11,307 $12,473 $11,395
3/31/90 $10,693 $11,178 $12,097 $11,190
6/30/90 $11,030 $11,580 $12,858 $11,528
9/30/90 $10,101 $11,650 $11,092 $10,903
12/31/90 $10,091 $12,244 $12,085 $11,387
3/31/91 $11,754 $12,573 $13,841 $12,374
6/30/91 $12,452 $12,763 $13,809 $12,595
9/30/91 $13,448 $13,497 $14,548 $13,461
12/31/91 $13,999 $14,216 $15,767 $14,203
3/31/92 $14,935 $14,003 $15,369 $14,352
6/30/92 $15,515 $14,572 $15,661 $14,777
9/30/92 $15,855 $15,283 $16,154 $15,300
12/31/92 $15,983 $15,293 $16,966 $15,597
3/31/93 $16,979 $16,006 $17,708 $16,395
6/30/93 $17,671 $16,488 $17,795 $16,763
9/30/93 $18,367 $17,035 $18,254 $17,306
12/31/93 $18,954 $16,986 $18,677 $17,486
3/31/94 $18,151 $16,451 $17,969 $16,949
6/30/94 $17,816 $16,247 $18,045 $16,879
9/30/94 $18,175 $16,328 $18,927 $17,224
12/31/94 $17,729 $16,388 $18,923 $16,988
3/31/95 $18,460 $17,204 $20,767 $17,934
6/30/95 $19,869 $18,319 $22,750 $19,012
9/30/95 $20,804 $18,669 $24,558 $19,907
12/31/95 $21,700 $19,539 $26,037 $20,801
3/31/96 $21,938 $19,082 $27,435 $21,200
6/30/96 $22,576 $19,172 $28,667 $21,586
9/30/96 $22,955 $19,511 $29,553 $22,009
12/31/96 $24,148 $20,108 $32,017 $23,048
3/31/97 $24,344 $19,935 $32,875 $23,037
6/30/97 $25,750 $20,661 $38,615 $24,847
9/30/97 $27,089 $21,384 $41,508 $26,343
12/31/97 $28,275 $22,070 $42,697 $26,799
GRAPHIC MATERIAL (17)
The following line graph hypothetically compares the performance of the Mutual
Shares Securities Fund to that of the S&P 500 and the Lipper Growth & Income
Average, based on a $10,000 investment from 11/8/96 to 12/31/97.
Mutual Shares Lipper Growth
Securities Fund S&P500 & Income Average
11/8/96 $10,000 $10,000 $10,000
11/30/96 $10,120 $10,554 $10,477
12/31/96 $10,350 $10,345 $10,367
1/31/97 $10,620 $10,992 $10,813
2/28/97 $10,730 $11,078 $10,869
3/31/97 $10,420 $10,622 $10,481
4/30/97 $10,510 $11,257 $10,858
5/31/97 $10,890 $11,942 $11,538
6/30/97 $11,145 $12,477 $11,982
7/31/97 $11,685 $13,470 $12,864
8/31/97 $11,625 $12,716 $12,434
9/30/97 $12,115 $13,413 $13,064
10/31/97 $11,805 $12,965 $12,606
11/30/97 $11,915 $13,565 $12,944
12/31/97 $12,185 $13,798 $13,160
GRAPHIC MATERIAL (18)
The following line graph hypothetically compares the performance of the Real
Estate Securities Fund to that of the S&P 500 and the Wilshire Real Estate
Securities Index, based on a $10,000 investment from 1/24/89 to 12/31/97.
Real Estate Securities Fund S&P 500 Wilshire Real Estate
Securities Index
1/24/89 $10,000 $ 10,000 $ 10,000
1/31/89 $10,020 $ 10,165 $ 10,037
2/28/89 $10,080 $ 9,912 $ 10,063
3/31/89 $10,150 $ 10,143 $ 10,133
4/30/89 $10,220 $ 10,670 $ 10,318
5/31/89 $10,290 $ 11,102 $ 10,495
6/30/89 $10,540 $ 11,038 $ 10,613
7/31/89 $10,850 $ 12,035 $ 10,948
8/31/89 $10,990 $ 12,271 $ 10,832
9/30/89 $10,750 $ 12,221 $ 10,808
10/31/89 $10,450 $ 11,937 $ 10,268
11/30/89 $10,490 $ 12,181 $ 10,115
12/31/89 $10,480 $ 12,473 $ 10,111
1/31/90 $10,170 $ 11,636 $ 9,634
2/28/90 $10,150 $ 11,786 $ 9,631
3/31/90 $10,249 $ 12,099 $ 9,608
4/30/90 $10,107 $ 11,797 $ 9,422
5/31/90 $10,178 $ 12,948 $ 9,381
6/30/90 $10,259 $ 12,861 $ 9,398
7/31/90 $10,137 $ 12,820 $ 9,038
8/31/90 $9,427 $ 11,661 $ 7,983
9/30/90 $8,808 $ 11,093 $ 7,058
10/31/90 $8,564 $ 11,045 $ 6,549
11/30/90 $9,102 $ 11,759 $ 6,816
12/31/90 $9,224 $ 12,087 $ 6,728
1/31/91 $10,158 $ 12,614 $ 7,383
2/28/91 $10,381 $ 13,516 $ 7,817
3/31/91 $11,081 $ 13,843 $ 8,513
4/30/91 $11,274 $ 13,876 $ 8,444
5/31/91 $11,406 $ 14,474 $ 8,575
6/30/91 $11,096 $ 13,811 $ 8,152
7/31/91 $11,233 $ 14,455 $ 8,118
8/31/91 $11,191 $ 14,797 $ 8,020
9/30/91 $11,413 $ 14,550 $ 7,928
10/31/91 $11,265 $ 14,745 $ 7,750
11/30/91 $11,180 $ 14,151 $ 7,493
12/31/91 $11,909 $ 15,770 $ 8,076
1/31/92 $12,987 $ 15,476 $ 8,456
2/29/92 $12,628 $ 15,676 $ 8,435
3/31/92 $12,396 $ 15,370 $ 8,253
4/30/92 $12,216 $ 15,822 $ 8,116
5/31/92 $12,501 $ 15,900 $ 8,148
6/30/92 $12,390 $ 15,663 $ 7,903
7/31/92 $12,886 $ 16,303 $ 7,932
8/31/92 $12,746 $ 15,969 $ 7,812
9/30/92 $12,929 $ 16,156 $ 8,109
10/31/92 $13,135 $ 16,211 $ 8,196
11/30/92 $13,286 $ 16,762 $ 8,267
12/31/92 $13,804 $ 16,968 $ 8,673
1/31/93 $14,365 $ 17,111 $ 9,276
2/28/93 $14,883 $ 17,344 $ 9,725
3/31/93 $15,854 $ 17,710 $ 10,378
4/30/93 $15,228 $ 17,281 $ 9,789
5/31/93 $15,099 $ 17,742 $ 9,635
6/30/93 $15,619 $ 17,794 $ 9,888
7/31/93 $15,925 $ 17,723 $ 10,089
8/31/93 $16,351 $ 18,394 $ 10,298
9/30/93 $17,192 $ 18,253 $ 10,765
10/31/93 $17,072 $ 18,631 $ 10,463
11/30/93 $16,013 $ 18,454 $ 10,006
12/31/93 $16,428 $ 18,677 $ 9,994
1/31/94 $16,723 $ 19,312 $ 10,294
2/28/94 $17,411 $ 18,789 $ 10,715
3/31/94 $16,799 $ 17,969 $ 10,219
4/30/94 $17,072 $ 18,199 $ 10,334
5/31/94 $17,334 $ 18,498 $ 10,548
6/30/94 $17,010 $ 18,045 $ 10,341
7/31/94 $16,976 $ 18,637 $ 10,364
8/31/94 $16,921 $ 19,401 $ 10,357
9/30/94 $16,644 $ 18,927 $ 10,184
10/31/94 $16,047 $ 19,353 $ 9,811
11/30/94 $15,471 $ 18,649 $ 9,428
12/31/94 $16,943 $ 18,925 $ 10,159
1/31/95 $16,323 $ 19,415 $ 9,830
2/28/95 $16,611 $ 20,172 $ 10,138
3/31/95 $16,733 $ 20,767 $ 10,197
4/30/95 $16,689 $ 21,378 $ 10,123
5/31/95 $17,364 $ 22,233 $ 10,459
6/30/95 $17,658 $ 22,748 $ 10,641
7/31/95 $18,024 $ 23,504 $ 10,812
8/31/95 $18,413 $ 23,563 $ 10,944
9/30/95 $18,940 $ 24,557 $ 11,145
10/31/95 $18,551 $ 24,468 $ 10,800
11/30/95 $18,860 $ 25,543 $ 10,912
12/31/95 $19,912 $ 26,036 $ 11,545
1/31/96 $20,359 $ 26,921 $ 11,704
2/29/96 $20,622 $ 27,171 $ 11,936
3/31/96 $20,645 $ 27,432 $ 12,033
4/30/96 $20,702 $ 27,835 $ 12,087
5/31/96 $21,114 $ 28,553 $ 12,356
6/30/96 $21,341 $ 28,662 $ 12,603
7/31/96 $21,174 $ 27,395 $ 12,491
8/31/96 $22,188 $ 27,973 $ 13,022
9/30/96 $22,889 $ 29,548 $ 13,348
10/31/96 $23,343 $ 30,363 $ 13,709
11/30/96 $24,107 $ 32,659 $ 14,278
12/31/96 $26,447 $ 32,012 $ 15,802
1/31/97 $26,782 $ 34,013 $ 16,028
2/28/97 $26,746 $ 34,278 $ 16,037
3/31/97 $26,949 $ 32,870 $ 16,092
4/30/97 $26,256 $ 34,832 $ 15,572
5/31/97 $27,212 $ 36,953 $ 16,036
6/30/97 $28,455 $ 38,609 $ 16,832
7/31/97 $29,228 $ 41,682 $ 17,385
8/31/97 $29,191 $ 39,348 $ 17,257
9/30/97 $32,034 $ 41,504 $ 18,958
10/31/97 $30,837 $ 40,118 $ 18,152
11/30/97 $31,386 $ 41,975 $ 18,517
12/31/97 $31,922 $ 42,697 $ 18,930
GRAPHIC MATERIAL (19)
The following line graph hypothetically compares the performance of the Rising
Dividends Fund to that of the Wilshire MidCap Growth Index, based on a $10,000
investment from 1/27/92 to 12/31/97.
Rising Dividends Fund Wilshire MidCap Growth Index
1/27/92 $10,000 $ 10,000
1/31/92 $10,000 $ 10,039
2/29/92 $10,000 $ 10,208
3/31/92 $ 9,930 $ 9,801
4/30/92 $ 9,980 $ 9,568
5/31/92 $10,130 $ 9,448
6/30/92 $ 9,990 $ 9,019
7/31/92 $10,350 $ 9,513
8/31/92 $10,240 $ 9,315
9/30/92 $10,410 $ 9,478
10/31/92 $10,540 $ 9,864
11/30/92 $10,860 $ 10,620
12/31/92 $10,980 $ 10,945
1/31/93 $10,860 $ 11,192
2/28/93 $10,670 $ 10,815
3/31/93 $10,760 $ 11,147
4/30/93 $10,390 $ 10,681
5/31/93 $10,530 $ 11,290
6/30/93 $10,418 $ 11,364
7/31/93 $10,418 $ 11,263
8/31/93 $10,588 $ 11,834
9/30/93 $10,588 $ 12,131
10/31/93 $10,749 $ 12,196
11/30/93 $10,478 $ 12,005
12/31/93 $10,598 $ 12,669
1/31/94 $10,739 $ 13,116
2/28/94 $10,378 $ 13,186
3/31/94 $ 9,916 $ 12,401
4/30/94 $ 9,936 $ 12,451
5/31/94 $10,077 $ 12,261
6/30/94 $10,054 $ 11,643
7/31/94 $10,156 $ 11,927
8/31/94 $10,584 $ 12,948
9/30/94 $10,340 $ 12,845
10/31/94 $10,309 $ 13,159
11/30/94 $10,064 $ 12,576
12/31/94 $10,166 $ 12,785
1/31/95 $10,442 $ 12,787
2/28/95 $10,748 $ 13,554
3/31/95 $10,982 $ 14,055
4/30/95 $11,064 $ 14,264
5/31/95 $11,441 $ 14,498
6/30/95 $11,565 $ 15,410
7/31/95 $11,815 $ 16,704
8/31/95 $12,013 $ 16,960
9/30/95 $12,409 $ 17,433
10/31/95 $12,304 $ 16,819
11/30/95 $12,940 $ 17,702
12/31/95 $13,190 $ 17,766
1/31/96 $13,451 $ 18,073
2/29/96 $13,648 $ 18,749
3/31/96 $13,648 $ 18,976
4/30/96 $13,617 $ 20,102
5/31/96 $13,992 $ 20,703
6/30/96 $14,146 $ 19,574
7/31/96 $13,731 $ 17,899
8/31/96 $14,008 $ 19,204
9/30/96 $14,731 $ 20,112
10/31/96 $15,167 $ 19,543
11/30/96 $16,220 $ 20,643
12/31/96 $16,379 $ 20,370
1/31/97 $16,709 $ 20,961
2/28/97 $17,177 $ 20,565
3/31/97 $16,645 $ 19,309
4/30/97 $17,071 $ 19,969
5/31/97 $18,390 $ 21,620
6/30/97 $19,055 $ 22,371
7/31/97 $20,671 $ 23,952
8/31/97 $20,250 $ 23,768
9/30/97 $21,313 $ 25,332
10/31/97 $20,793 $ 24,123
11/30/97 $21,291 $ 24,266
12/31/97 $21,789 $ 24,472
GRAPHIC MATERIAL (20)
This chart shows in pie format the Templeton Global Asset Allocation Fund's
asset allocation on December 31, 1997, based on total net assets.
Equity Securities 56.2%
Fixed-Income Securities 31.0%
Short-Term & Other Net Assets 12.8%
GRAPHIC MATERIAL (21)
The following line graph hypothetically compares the performance of the
Templeton Global Asset Allocation Fund to that of the MSCI World Index and the
JP Morgan Global Government Bond Index, based on a $10,000 investment from
5/1/95 to 12/31/97.
TempletonGlobal Asset MSCI World JP Morgan Global
Allocation Index Government Bond Index
5/01/95 $10,000 $10,000 $10,000
5/31/95 $10,060 $10,088 $10,279
6/30/95 $10,120 $10,086 $10,343
7/31/95 $10,330 $10,593 $10,392
8/31/95 $10,280 $10,359 $10,103
9/30/95 $10,380 $10,663 $10,331
10/31/95 $10,310 $10,497 $10,432
11/30/95 $10,420 $10,863 $10,548
12/31/95 $10,690 $11,183 $10,679
1/31/96 $11,066 $11,387 $10,569
2/29/96 $11,137 $11,458 $10,508
3/31/96 $11,208 $11,651 $10,491
4/30/96 $11,411 $11,927 $10,453
5/31/96 $11,513 $11,940 $10,463
6/30/96 $11,569 $12,002 $10,555
7/31/96 $11,396 $11,581 $10,749
8/31/96 $11,640 $11,716 $10,794
9/30/96 $11,915 $12,177 $10,853
10/31/96 $12,047 $12,264 $11,069
11/30/96 $12,587 $12,953 $11,227
12/31/96 $12,810 $12,748 $11,148
1/31/97 $13,024 $12,904 $10,870
2/28/97 $13,136 $13,054 $10,794
3/31/97 $13,055 $12,799 $10,712
4/30/97 $13,085 $13,219 $10,652
5/31/97 $13,502 $14,038 $10,903
6/30/97 $14,009 $14,739 $11,027
7/31/97 $14,760 $15,421 $10,987
8/31/97 $14,655 $14,392 $10,973
9/30/97 $15,396 $15,175 $11,217
10/31/97 $14,342 $14,379 $11,455
11/30/97 $14,228 $14,636 $11,317
12/31/97 $14,311 $14,816 $11,305
GRAPHIC MATERIAL (22)
The following line graph hypothetically compares the performance of the Utility
Equity Fund to that of the S&P 500, the Consumer Price Index and the FT/S&P
Actuaries World Utilities Index, based on a $10,000 investment from 1/24/89 to
12/31/97.
Utility FT/S&P Actuaries World
Equity Fund S&P500 CPI Utilities Index
1/24/89 $10,000 $ 10,000 $ 10,000 $10,000
1/31/89 $10,020 $ 10,165 $ 10,011 $10,076
2/28/89 $10,080 $ 9,912 $ 10,052 $ 9,731
3/31/89 $10,150 $ 10,143 $ 10,111 $ 9,424
4/30/89 $10,210 $ 10,670 $ 10,176 $ 9,821
5/31/89 $10,610 $ 11,102 $ 10,234 $ 9,842
6/30/89 $10,730 $ 11,038 $ 10,259 $ 9,718
7/31/89 $11,260 $ 12,035 $ 10,284 $10,818
8/31/89 $11,100 $ 12,271 $ 10,300 $10,348
9/30/89 $11,160 $ 12,221 $ 10,333 $10,740
10/31/89 $11,260 $ 11,937 $ 10,383 $10,587
11/30/89 $11,500 $ 12,181 $ 10,407 $11,178
12/31/89 $12,140 $ 12,473 $ 10,424 $11,720
1/31/90 $11,680 $ 11,636 $ 10,531 $10,829
2/28/90 $11,750 $ 11,786 $ 10,581 $10,524
3/31/90 $11,668 $ 12,099 $ 10,639 $10,021
4/30/90 $11,153 $ 11,797 $ 10,656 $ 9,769
5/31/90 $11,607 $ 12,948 $ 10,681 $10,744
6/30/90 $11,678 $ 12,861 $ 10,738 $10,436
7/31/90 $11,839 $ 12,820 $ 10,779 $10,377
8/31/90 $11,103 $ 11,661 $ 10,878 $ 9,566
9/30/90 $11,113 $ 11,093 $ 10,970 $ 9,095
10/31/90 $11,899 $ 11,045 $ 11,036 $10,159
11/30/90 $12,192 $ 11,759 $ 11,060 $10,152
12/31/90 $12,363 $ 12,087 $ 11,060 $10,362
1/31/91 $12,232 $ 12,614 $ 11,126 $10,563
2/28/91 $12,676 $ 13,516 $ 11,143 $11,060
3/31/91 $12,888 $ 13,843 $ 11,160 $10,830
4/30/91 $12,989 $ 13,876 $ 11,176 $10,925
5/31/91 $12,968 $ 14,474 $ 11,210 $11,016
6/30/91 $12,871 $ 13,811 $ 11,242 $10,552
7/31/91 $13,379 $ 14,455 $ 11,259 $11,140
8/31/91 $13,742 $ 14,797 $ 11,292 $11,331
9/30/91 $14,218 $ 14,550 $ 11,342 $11,720
10/31/91 $14,426 $ 14,745 $ 11,359 $11,884
11/30/91 $14,706 $ 14,151 $ 11,392 $11,694
12/31/91 $15,276 $ 15,770 $ 11,400 $12,515
1/31/92 $14,757 $ 15,476 $ 11,417 $11,978
2/29/92 $14,726 $ 15,676 $ 11,458 $11,830
3/31/92 $14,633 $ 15,370 $ 11,516 $11,451
4/30/92 $15,068 $ 15,822 $ 11,532 $11,838
5/31/92 $15,358 $ 15,900 $ 11,548 $12,128
6/30/92 $15,541 $ 15,663 $ 11,590 $11,985
7/31/92 $16,377 $ 16,303 $ 11,614 $12,447
8/31/92 $16,314 $ 15,969 $ 11,647 $12,752
9/30/92 $16,388 $ 16,156 $ 11,679 $12,519
10/31/92 $16,282 $ 16,211 $ 11,720 $12,260
11/30/92 $16,303 $ 16,762 $ 11,737 $12,512
12/31/92 $16,737 $ 16,968 $ 11,729 $12,831
1/31/93 $17,001 $ 17,111 $ 11,786 $13,004
2/28/93 $17,922 $ 17,344 $ 11,827 $13,661
3/31/93 $18,081 $ 17,710 $ 11,869 $14,447
4/30/93 $18,091 $ 17,281 $ 11,902 $14,726
5/31/93 $18,017 $ 17,742 $ 11,919 $14,983
6/30/93 $18,457 $ 17,794 $ 11,935 $15,273
7/31/93 $18,824 $ 17,723 $ 11,935 $15,647
8/31/93 $19,343 $ 18,394 $ 11,969 $16,312
9/30/93 $19,245 $ 18,253 $ 11,994 $16,063
10/31/93 $19,127 $ 18,631 $ 12,043 $16,349
11/30/93 $18,220 $ 18,454 $ 12,051 $15,497
12/31/93 $18,501 $ 18,677 $ 12,051 $15,982
1/31/94 $18,123 $ 19,312 $ 12,084 $16,533
2/28/94 $17,205 $ 18,789 $ 12,125 $15,846
3/31/94 $16,601 $ 17,969 $ 12,166 $15,231
4/30/94 $16,989 $ 18,199 $ 12,183 $15,507
5/31/94 $16,104 $ 18,498 $ 12,192 $15,254
6/30/94 $15,353 $ 18,045 $ 12,233 $14,912
7/31/94 $16,141 $ 18,637 $ 12,266 $15,303
8/31/94 $16,298 $ 19,401 $ 12,315 $15,643
9/30/94 $15,893 $ 18,927 $ 12,349 $15,209
10/31/94 $16,197 $ 19,353 $ 12,357 $15,431
11/30/94 $16,287 $ 18,649 $ 12,373 $14,803
12/31/94 $16,219 $ 18,925 $ 12,373 $14,698
1/31/95 $17,164 $ 19,415 $ 12,423 $14,817
2/28/95 $17,232 $ 20,172 $ 12,472 $14,838
3/31/95 $16,984 $ 20,767 $ 12,514 $15,255
4/30/95 $17,344 $ 21,378 $ 12,555 $15,792
5/31/95 $18,300 $ 22,233 $ 12,580 $16,005
6/30/95 $18,282 $ 22,748 $ 12,605 $16,095
7/31/95 $18,317 $ 23,504 $ 12,605 $16,557
8/31/95 $18,496 $ 23,563 $ 12,638 $16,504
9/30/95 $19,543 $ 24,557 $ 12,663 $17,296
10/31/95 $19,984 $ 24,468 $ 12,705 $17,135
11/30/95 $20,317 $ 25,543 $ 12,696 $17,356
12/31/95 $21,305 $ 26,036 $ 12,687 $17,943
1/31/96 $21,686 $ 26,921 $ 12,762 $18,194
2/29/96 $21,293 $ 27,171 $ 12,803 $17,995
3/31/96 $21,281 $ 27,432 $ 12,870 $17,826
4/30/96 $20,841 $ 27,835 $ 12,920 $18,304
5/31/96 $21,305 $ 28,553 $ 12,944 $18,147
6/30/96 $22,247 $ 28,662 $ 12,952 $18,381
7/31/96 $21,080 $ 27,395 $ 12,977 $17,486
8/31/96 $21,531 $ 27,973 $ 13,001 $17,494
9/30/96 $21,657 $ 29,548 $ 13,043 $17,718
10/31/96 $22,360 $ 30,363 $ 13,085 $18,147
11/30/96 $22,761 $ 32,659 $ 13,110 $19,034
12/31/96 $22,811 $ 32,012 $ 13,110 $19,457
1/31/97 $23,301 $ 34,013 $ 13,151 $19,611
2/28/97 $23,276 $ 34,278 $ 13,192 $19,719
3/31/97 $22,510 $ 32,870 $ 13,225 $19,161
4/30/97 $22,297 $ 34,832 $ 13,241 $19,440
5/31/97 $23,715 $ 36,953 $ 13,233 $20,725
6/30/97 $24,493 $ 38,609 $ 13,249 $21,683
7/31/97 $25,076 $ 41,682 $ 13,265 $21,988
8/31/97 $24,223 $ 39,348 $ 13,290 $20,920
9/30/97 $25,489 $ 41,504 $ 13,323 $22,326
10/31/97 $25,062 $ 40,118 $ 13,357 $22,002
11/30/97 $26,726 $ 41,975 $ 13,349 $23,542
12/31/97 $28,918 $ 42,697 $ 13,333 $24,521
GRAPHIC MATERIAL (23)
The following line graph hypothetically compares the performance of the High
Income Fund to that of the CS First Boston High Yield Index and the Consumer
Price Index, based on a $10,000 investment from 1/24/89 to 12/31/97.
High Income Fund CS First Boston High Yield CPI
1/24/89 $10,000 $ 10,000 $ 10,000
1/31/89 $10,020 $ 10,045 $ 10,011
2/28/89 $10,080 $ 10,092 $ 10,052
3/31/89 $10,150 $ 10,019 $ 10,111
4/30/89 $10,220 $ 9,995 $ 10,176
5/31/89 $10,290 $ 10,233 $ 10,234
6/30/89 $10,300 $ 10,380 $ 10,259
7/31/89 $10,330 $ 10,403 $ 10,284
8/31/89 $10,370 $ 10,402 $ 10,300
9/30/89 $10,300 $ 10,166 $ 10,333
10/31/89 $10,070 $ 9,912 $ 10,383
11/30/89 $10,050 $ 9,931 $ 10,407
12/31/89 $10,130 $ 9,887 $ 10,424
1/31/90 $9,920 $ 9,539 $ 10,531
2/28/90 $9,770 $ 9,362 $ 10,581
3/31/90 $9,924 $ 9,632 $ 10,639
4/30/90 $9,831 $ 9,672 $ 10,656
5/31/90 $9,893 $ 9,874 $ 10,681
6/30/90 $10,152 $ 10,185 $ 10,738
7/31/90 $10,379 $ 10,514 $ 10,779
8/31/90 $9,893 $ 10,028 $ 10,878
9/30/90 $9,251 $ 9,263 $ 10,970
10/31/90 $8,879 $ 9,030 $ 11,036
11/30/90 $9,076 $ 9,212 $ 11,060
12/31/90 $9,251 $ 9,256 $ 11,060
1/31/91 $9,345 $ 9,510 $ 11,126
2/28/91 $9,934 $ 10,330 $ 11,143
3/31/91 $10,286 $ 10,971 $ 11,160
4/30/91 $10,566 $ 11,426 $ 11,176
5/31/91 $10,659 $ 11,483 $ 11,210
6/30/91 $10,907 $ 11,784 $ 11,242
7/31/91 $11,168 $ 12,182 $ 11,259
8/31/91 $11,372 $ 12,404 $ 11,292
9/30/91 $11,519 $ 12,686 $ 11,342
10/31/91 $11,803 $ 13,105 $ 11,359
11/30/91 $11,939 $ 13,210 $ 11,392
12/31/91 $12,007 $ 13,307 $ 11,400
1/31/92 $12,392 $ 13,848 $ 11,417
2/29/92 $12,608 $ 14,185 $ 11,458
3/31/92 $12,778 $ 14,396 $ 11,516
4/30/92 $12,857 $ 14,408 $ 11,532
5/31/92 $13,038 $ 14,604 $ 11,548
6/30/92 $13,161 $ 14,748 $ 11,590
7/31/92 $13,411 $ 14,975 $ 11,614
8/31/92 $13,637 $ 15,182 $ 11,647
9/30/92 $13,744 $ 15,281 $ 11,679
10/31/92 $13,577 $ 15,122 $ 11,720
11/30/92 $13,839 $ 15,349 $ 11,737
12/31/92 $13,993 $ 15,522 $ 11,729
1/31/93 $14,255 $ 15,946 $ 11,786
2/28/93 $14,481 $ 16,261 $ 11,827
3/31/93 $14,695 $ 16,605 $ 11,869
4/30/93 $14,754 $ 16,699 $ 11,902
5/31/93 $14,897 $ 16,943 $ 11,919
6/30/93 $15,206 $ 17,250 $ 11,935
7/31/93 $15,317 $ 17,429 $ 11,935
8/31/93 $15,403 $ 17,577 $ 11,969
9/30/93 $15,403 $ 17,677 $ 11,994
10/31/93 $15,921 $ 18,001 $ 12,043
11/30/93 $16,020 $ 18,228 $ 12,051
12/31/93 $16,192 $ 18,457 $ 12,051
1/31/94 $16,537 $ 18,786 $ 12,084
2/28/94 $16,414 $ 18,814 $ 12,125
3/31/94 $15,637 $ 18,261 $ 12,166
4/30/94 $15,415 $ 18,016 $ 12,183
5/31/94 $15,465 $ 18,119 $ 12,192
6/30/94 $15,619 $ 17,998 $ 12,233
7/31/94 $15,593 $ 18,082 $ 12,266
8/31/94 $15,710 $ 18,212 $ 12,315
9/30/94 $15,762 $ 18,285 $ 12,349
10/31/94 $15,788 $ 18,298 $ 12,357
11/30/94 $15,684 $ 18,086 $ 12,373
12/31/94 $15,853 $ 18,278 $ 12,373
1/31/95 $16,112 $ 18,469 $ 12,423
2/28/95 $16,735 $ 18,924 $ 12,472
3/31/95 $16,904 $ 19,138 $ 12,514
4/30/95 $17,398 $ 19,562 $ 12,555
5/31/95 $17,878 $ 20,114 $ 12,580
6/30/95 $17,971 $ 20,247 $ 12,605
7/31/95 $18,221 $ 20,561 $ 12,605
8/31/95 $18,277 $ 20,618 $ 12,638
9/30/95 $18,471 $ 20,855 $ 12,663
10/31/95 $18,721 $ 21,087 $ 12,705
11/30/95 $18,666 $ 21,186 $ 12,696
12/31/95 $18,985 $ 21,455 $ 12,687
1/31/96 $19,347 $ 21,863 $ 12,762
2/29/96 $19,541 $ 21,979 $ 12,803
3/31/96 $19,402 $ 21,919 $ 12,870
4/30/96 $19,500 $ 22,038 $ 12,920
5/31/96 $19,652 $ 22,216 $ 12,944
6/30/96 $19,701 $ 22,265 $ 12,952
7/31/96 $19,899 $ 22,465 $ 12,977
8/31/96 $20,250 $ 22,710 $ 13,001
9/30/96 $20,739 $ 23,101 $ 13,043
10/31/96 $20,938 $ 23,295 $ 13,085
11/30/96 $21,319 $ 23,658 $ 13,110
12/31/96 $21,625 $ 24,120 $ 13,110
1/31/97 $21,762 $ 24,296 $ 13,151
2/28/97 $22,144 $ 24,752 $ 13,192
3/31/97 $21,594 $ 24,475 $ 13,225
4/30/97 $21,854 $ 24,693 $ 13,241
5/31/97 $22,358 $ 25,189 $ 13,233
6/30/97 $22,671 $ 25,532 $ 13,249
7/31/97 $23,271 $ 26,073 $ 13,265
8/31/97 $23,321 $ 26,214 $ 13,290
9/30/97 $23,788 $ 26,733 $ 13,323
10/31/97 $23,605 $ 26,730 $ 13,357
11/30/97 $23,888 $ 26,920 $ 13,349
12/31/97 $24,105 $ 27,165 $ 13,333
GRAPHIC MATERIAL (24)
This chart shows in pie format the Templeton Global Income Securities Fund's
geographic distribution on December 31, 1997, based on total net assets.
North America 36.7%
Europe 32.1%
Latin America 21.3%
Australia/New Zealand 5.9%
Short-Term & Other Net Assets 4.0%
GRAPHIC MATERIAL (25)
The following line graph hypothetically compares the performance of the
Templeton Global Income Securities Fund to that of the JP Morgan Global
Government Bond Index and the Consumer Price Index, based on a $10,000
investment from 1/24/89 to 12/31/97.
Templeton Global Income JP Morgan Global
Securities Fund Gov. Bond Index CPI
1/24/89 $10,000 $10,000 $10,000
1/31/89 $10,020 $ 9,977 $10,012
2/28/89 $10,080 $ 9,961 $10,052
3/31/89 $10,150 $ 9,877 $10,110
4/30/89 $10,220 $10,039 $10,176
5/31/89 $10,290 $ 9,931 $10,234
6/30/89 $10,330 $10,157 $10,259
7/31/89 $10,510 $10,561 $10,285
8/31/89 $10,610 $10,249 $10,301
9/30/89 $10,600 $10,411 $10,333
10/31/89 $10,570 $10,545 $10,384
11/30/89 $10,760 $10,639 $10,408
12/31/89 $10,930 $10,763 $10,424
1/31/90 $10,920 $10,602 $10,531
2/28/90 $10,850 $10,488 $10,581
3/31/90 $10,965 $10,423 $10,639
4/30/90 $10,944 $10,382 $10,656
5/31/90 $11,138 $10,714 $10,681
6/30/90 $11,454 $10,908 $10,738
7/31/90 $11,729 $11,229 $10,779
8/31/90 $11,627 $11,141 $10,878
9/30/90 $11,617 $11,245 $10,969
10/31/90 $11,688 $11,690 $11,035
11/30/90 $11,882 $11,896 $11,060
12/31/90 $12,004 $12,028 $11,060
1/31/91 $12,147 $12,301 $11,126
2/28/91 $12,412 $12,313 $11,143
3/31/91 $12,147 $11,928 $11,159
4/30/91 $12,320 $12,072 $11,175
5/31/91 $12,463 $12,082 $11,208
6/30/91 $12,359 $11,921 $11,242
7/31/91 $12,605 $12,173 $11,258
8/31/91 $12,648 $12,426 $11,291
9/30/91 $12,982 $12,879 $11,341
10/31/91 $13,154 $13,006 $11,357
11/30/91 $13,132 $13,218 $11,390
12/31/91 $13,486 $13,886 $11,399
1/31/92 $13,454 $13,614 $11,415
2/29/92 $13,464 $13,575 $11,457
3/31/92 $13,475 $13,449 $11,515
4/30/92 $13,604 $13,561 $11,531
5/31/92 $13,871 $13,946 $11,547
6/30/92 $13,868 $14,327 $11,589
7/31/92 $14,014 $14,642 $11,614
8/31/92 $13,846 $15,032 $11,646
9/30/92 $13,197 $15,017 $11,679
10/31/92 $13,477 $14,642 $11,721
11/30/92 $13,253 $14,383 $11,737
12/31/92 $13,432 $14,519 $11,729
1/31/93 $13,533 $14,765 $11,787
2/28/93 $13,734 $15,003 $11,828
3/31/93 $14,148 $15,233 $11,870
4/30/93 $14,574 $15,511 $11,903
5/31/93 $14,809 $15,609 $11,919
6/30/93 $14,778 $15,622 $11,936
7/31/93 $14,825 $15,628 $11,935
8/31/93 $15,155 $16,091 $11,969
9/30/93 $15,107 $16,261 $11,993
10/31/93 $15,461 $16,253 $12,044
11/30/93 $15,155 $16,134 $12,052
12/31/93 $15,673 $16,299 $12,051
1/31/94 $15,967 $16,453 $12,085
2/28/94 $15,602 $16,272 $12,127
3/31/94 $15,131 $16,198 $12,168
4/30/94 $15,119 $16,185 $12,185
5/31/94 $15,178 $16,051 $12,192
6/30/94 $14,440 $16,242 $12,233
7/31/94 $14,670 $16,395 $12,266
8/31/94 $14,792 $16,353 $12,317
9/30/94 $14,779 $16,433 $12,349
10/31/94 $14,864 $16,679 $12,358
11/30/94 $14,864 $16,469 $12,374
12/31/94 $14,755 $16,508 $12,374
1/31/95 $14,658 $16,841 $12,423
2/28/95 $14,888 $17,276 $12,473
3/31/95 $15,155 $18,155 $12,514
4/30/95 $15,494 $18,444 $12,555
5/31/95 $15,869 $18,958 $12,580
6/30/95 $15,940 $19,077 $12,605
7/31/95 $16,041 $19,167 $12,605
8/31/95 $15,839 $18,635 $12,639
9/30/95 $16,191 $19,054 $12,662
10/31/95 $16,455 $19,241 $12,704
11/30/95 $16,594 $19,455 $12,695
12/31/95 $16,921 $19,696 $12,687
1/31/96 $16,845 $19,494 $12,761
2/29/96 $16,644 $19,380 $12,803
3/31/96 $16,694 $19,350 $12,869
4/30/96 $16,820 $19,279 $12,918
5/31/96 $16,908 $19,298 $12,943
6/30/96 $17,135 $19,467 $12,951
7/31/96 $17,204 $19,825 $12,976
8/31/96 $17,421 $19,908 $13,001
9/30/96 $17,694 $20,017 $13,042
10/31/96 $18,048 $20,415 $13,083
11/30/96 $18,484 $20,706 $13,108
12/31/96 $18,552 $20,562 $13,108
1/31/97 $18,320 $20,048 $13,149
2/28/97 $18,239 $19,909 $13,189
3/31/97 $18,171 $19,758 $13,222
4/30/97 $18,266 $19,647 $13,237
5/31/97 $18,416 $20,110 $13,229
6/30/97 $18,615 $20,339 $13,245
7/31/97 $18,747 $20,264 $13,261
8/31/97 $18,689 $20,239 $13,286
9/30/97 $19,040 $20,688 $13,320
10/31/97 $18,806 $21,127 $13,353
11/30/97 $18,879 $20,873 $13,345
12/31/97 $19,011 $20,850 $13,333
GRAPHIC MATERIAL (26)
The following line graph hypothetically compares the performance of the U.S.
Government Securities Fund to that of the Lehman Brothers Intermediate
Government Bond Index and the Consumer Price Index, based on a $10,000
investment from 3/14/89 to 12/31/97.
U.S. Government
Securities Fund LB Interm Gov't Bond Index CPI
3/14/89 $10,000 $ 10,000 $ 10,000
3/31/89 $10,000 $ 10,026 $ 10,032
4/30/89 $10,000 $ 10,228 $ 10,097
5/31/89 $10,000 $ 10,426 $ 10,155
6/30/89 $10,050 $ 10,692 $ 10,179
7/31/89 $10,190 $ 10,909 $ 10,203
8/31/89 $10,080 $ 10,761 $ 10,220
9/30/89 $10,140 $ 10,813 $ 10,252
10/31/89 $10,370 $ 11,040 $ 10,302
11/30/89 $10,470 $ 11,149 $ 10,326
12/31/89 $10,540 $ 11,182 $ 10,343
1/31/90 $10,420 $ 11,112 $ 10,449
2/28/90 $10,480 $ 11,153 $ 10,498
3/31/90 $10,510 $ 11,167 $ 10,556
4/30/90 $10,398 $ 11,130 $ 10,573
5/31/90 $10,671 $ 11,368 $ 10,597
6/30/90 $10,793 $ 11,518 $ 10,655
7/31/90 $10,964 $ 11,680 $ 10,695
8/31/90 $10,894 $ 11,637 $ 10,794
9/30/90 $10,974 $ 11,741 $ 10,884
10/31/90 $11,096 $ 11,904 $ 10,950
11/30/90 $11,318 $ 12,084 $ 10,974
12/31/90 $11,480 $ 12,251 $ 10,974
1/31/91 $11,652 $ 12,377 $ 11,039
2/28/91 $11,753 $ 12,452 $ 11,056
3/31/91 $11,813 $ 12,521 $ 11,073
4/30/91 $11,904 $ 12,650 $ 11,089
5/31/91 $11,995 $ 12,721 $ 11,122
6/30/91 $12,011 $ 12,731 $ 11,155
7/31/91 $12,178 $ 12,868 $ 11,171
8/31/91 $12,398 $ 13,113 $ 11,204
9/30/91 $12,649 $ 13,336 $ 11,253
10/31/91 $12,806 $ 13,488 $ 11,270
11/30/91 $12,890 $ 13,646 $ 11,303
12/31/91 $13,235 $ 13,977 $ 11,311
1/31/92 $13,046 $ 13,843 $ 11,328
2/29/92 $13,162 $ 13,886 $ 11,368
3/31/92 $13,067 $ 13,830 $ 11,426
4/30/92 $13,172 $ 13,955 $ 11,442
5/31/92 $13,465 $ 14,163 $ 11,458
6/30/92 $13,672 $ 14,367 $ 11,500
7/31/92 $13,953 $ 14,643 $ 11,524
8/31/92 $14,116 $ 14,792 $ 11,556
9/30/92 $14,278 $ 14,996 $ 11,588
10/31/92 $14,040 $ 14,816 $ 11,629
11/30/92 $14,072 $ 14,755 $ 11,645
12/31/92 $14,332 $ 14,946 $ 11,637
1/31/93 $14,635 $ 15,224 $ 11,694
2/28/93 $14,895 $ 15,448 $ 11,735
3/31/93 $14,971 $ 15,505 $ 11,776
4/30/93 $15,057 $ 15,626 $ 11,809
5/31/93 $15,101 $ 15,583 $ 11,826
6/30/93 $15,374 $ 15,809 $ 11,842
7/31/93 $15,476 $ 15,841 $ 11,842
8/31/93 $15,702 $ 16,077 $ 11,875
9/30/93 $15,702 $ 16,143 $ 11,900
10/31/93 $15,781 $ 16,182 $ 11,949
11/30/93 $15,577 $ 16,102 $ 11,957
12/31/93 $15,724 $ 16,168 $ 11,957
1/31/94 $15,928 $ 16,328 $ 11,990
2/28/94 $15,611 $ 16,105 $ 12,030
3/31/94 $15,058 $ 15,870 $ 12,071
4/30/94 $14,911 $ 15,767 $ 12,088
5/31/94 $14,934 $ 15,778 $ 12,097
6/30/94 $14,761 $ 15,781 $ 12,138
7/31/94 $15,129 $ 15,987 $ 12,171
8/31/94 $15,118 $ 16,034 $ 12,219
9/30/94 $14,809 $ 15,901 $ 12,252
10/31/94 $14,738 $ 15,904 $ 12,261
11/30/94 $14,738 $ 15,834 $ 12,277
12/31/94 $14,928 $ 15,886 $ 12,277
1/31/95 $15,260 $ 16,145 $ 12,326
2/28/95 $15,676 $ 16,457 $ 12,375
3/31/95 $15,759 $ 16,547 $ 12,416
4/30/95 $15,996 $ 16,739 $ 12,457
5/31/95 $16,697 $ 17,211 $ 12,482
6/30/95 $16,788 $ 17,321 $ 12,507
7/31/95 $16,737 $ 17,330 $ 12,507
8/31/95 $16,953 $ 17,472 $ 12,539
9/30/95 $17,132 $ 17,589 $ 12,565
10/31/95 $17,361 $ 17,783 $ 12,606
11/30/95 $17,590 $ 18,000 $ 12,597
12/31/95 $17,832 $ 18,178 $ 12,588
1/31/96 $17,947 $ 18,331 $ 12,663
2/29/96 $17,641 $ 18,136 $ 12,703
3/31/96 $17,514 $ 18,053 $ 12,769
4/30/96 $17,399 $ 18,000 $ 12,819
5/31/96 $17,323 $ 17,991 $ 12,843
6/30/96 $17,571 $ 18,175 $ 12,851
7/31/96 $17,613 $ 18,231 $ 12,875
8/31/96 $17,585 $ 18,251 $ 12,900
9/30/96 $17,928 $ 18,487 $ 12,941
10/31/96 $18,312 $ 18,790 $ 12,983
11/30/96 $18,587 $ 19,017 $ 13,007
12/31/96 $18,477 $ 18,915 $ 13,007
1/31/97 $18,559 $ 18,987 $ 13,049
2/28/97 $18,600 $ 19,017 $ 13,089
3/31/97 $18,504 $ 18,908 $ 13,122
4/30/97 $18,779 $ 19,122 $ 13,138
5/31/97 $18,957 $ 19,271 $ 13,130
6/30/97 $19,167 $ 19,437 $ 13,146
7/31/97 $19,588 $ 19,795 $ 13,161
8/31/97 $19,457 $ 19,719 $ 13,186
9/30/97 $19,718 $ 19,934 $ 13,219
10/31/97 $19,950 $ 20,168 $ 13,253
11/30/97 $20,008 $ 20,212 $ 13,245
12/31/97 $20,197 $ 20,376 $ 13,229
GRAPHIC MATERIAL (27)
The following line graph hypothetically compares the performance of the Zero
Coupon 2000 Fund to that of the Merrill Lynch 5-Year Zero Index and the Consumer
Price Index, based on a $10,000 investment from 3/14/89 to 12/31/97.
Zero Coupon
2000 Fund ML 5-Yr Zero Index CPI
3/14/89 $10,000 $ 10,000 $ 10,000
3/31/89 $10,000 $ 10,040 $ 10,032
4/30/89 $10,000 $ 10,257 $ 10,097
5/31/89 $9,990 $ 10,571 $ 10,155
6/30/89 $10,560 $ 10,951 $ 10,179
7/31/89 $10,790 $ 11,344 $ 10,203
8/31/89 $10,460 $ 11,021 $ 10,220
9/30/89 $10,480 $ 11,066 $ 10,252
10/31/89 $10,910 $ 11,389 $ 10,302
11/30/89 $11,010 $ 11,534 $ 10,326
12/31/89 $11,080 $ 11,543 $ 10,343
1/31/90 $10,610 $ 11,346 $ 10,449
2/28/90 $10,600 $ 11,357 $ 10,498
3/31/90 $10,592 $ 11,356 $ 10,556
4/30/90 $10,170 $ 11,240 $ 10,573
5/31/90 $10,664 $ 11,582 $ 10,597
6/30/90 $10,932 $ 11,771 $ 10,655
7/31/90 $11,076 $ 11,979 $ 10,695
8/31/90 $10,582 $ 11,822 $ 10,794
9/30/90 $10,715 $ 11,935 $ 10,884
10/31/90 $10,973 $ 12,179 $ 10,950
11/30/90 $11,518 $ 12,504 $ 10,974
12/31/90 $11,734 $ 12,721 $ 10,974
1/31/91 $11,868 $ 12,850 $ 11,039
2/28/91 $11,889 $ 12,895 $ 11,056
3/31/91 $11,868 $ 12,943 $ 11,073
4/30/91 $12,064 $ 13,149 $ 11,089
5/31/91 $12,054 $ 13,190 $ 11,122
6/30/91 $11,987 $ 13,162 $ 11,155
7/31/91 $12,147 $ 13,350 $ 11,171
8/31/91 $12,615 $ 13,748 $ 11,204
9/30/91 $13,072 $ 14,100 $ 11,253
10/31/91 $13,157 $ 14,321 $ 11,270
11/30/91 $13,338 $ 14,566 $ 11,303
12/31/91 $13,933 $ 14,914 $ 11,311
1/31/92 $13,487 $ 14,668 $ 11,328
2/29/92 $13,572 $ 14,693 $ 11,368
3/31/92 $13,465 $ 14,546 $ 11,426
4/30/92 $13,519 $ 14,670 $ 11,442
5/31/92 $13,848 $ 15,035 $ 11,458
6/30/92 $14,249 $ 15,363 $ 11,500
7/31/92 $14,880 $ 15,802 $ 11,524
8/31/92 $15,080 $ 16,060 $ 11,556
9/30/92 $15,501 $ 16,410 $ 11,588
10/31/92 $15,102 $ 16,049 $ 11,629
11/30/92 $14,947 $ 15,869 $ 11,645
12/31/92 $15,379 $ 16,164 $ 11,637
1/31/93 $15,789 $ 16,659 $ 11,694
2/28/93 $16,387 $ 17,051 $ 11,735
3/31/93 $16,587 $ 17,124 $ 11,776
4/30/93 $16,664 $ 17,328 $ 11,809
5/31/93 $16,653 $ 17,239 $ 11,826
6/30/93 $17,308 $ 17,631 $ 11,842
7/31/93 $17,412 $ 17,645 $ 11,842
8/31/93 $17,863 $ 18,059 $ 11,875
9/30/93 $17,979 $ 18,148 $ 11,900
10/31/93 $18,129 $ 18,157 $ 11,949
11/30/93 $17,701 $ 17,974 $ 11,957
12/31/93 $17,863 $ 18,069 $ 11,957
1/31/94 $18,176 $ 18,324 $ 11,990
2/28/94 $17,528 $ 17,895 $ 12,030
3/31/94 $16,938 $ 17,433 $ 12,071
4/30/94 $16,729 $ 17,220 $ 12,088
5/31/94 $16,729 $ 17,233 $ 12,097
6/30/94 $16,694 $ 17,196 $ 12,138
7/31/94 $17,023 $ 17,513 $ 12,171
8/31/94 $17,023 $ 17,571 $ 12,219
9/30/94 $16,694 $ 17,272 $ 12,252
10/31/94 $16,596 $ 17,236 $ 12,261
11/30/94 $16,511 $ 17,101 $ 12,277
12/31/94 $16,621 $ 17,255 $ 12,277
1/31/95 $16,950 $ 17,422 $ 12,326
2/28/95 $17,475 $ 17,924 $ 12,375
3/31/95 $17,573 $ 17,998 $ 12,416
4/30/95 $17,829 $ 18,278 $ 12,457
5/31/95 $18,756 $ 19,149 $ 12,482
6/30/95 $18,909 $ 19,306 $ 12,507
7/31/95 $18,781 $ 19,211 $ 12,507
8/31/95 $18,998 $ 19,395 $ 12,539
9/30/95 $19,138 $ 19,543 $ 12,565
10/31/95 $19,482 $ 19,850 $ 12,606
11/30/95 $19,814 $ 20,219 $ 12,597
12/31/95 $20,056 $ 20,474 $ 12,588
1/31/96 $20,286 $ 20,697 $ 12,663
2/29/96 $19,890 $ 20,303 $ 12,703
3/31/96 $19,648 $ 20,046 $ 12,769
4/30/96 $19,495 $ 19,819 $ 12,819
5/31/96 $19,406 $ 19,722 $ 12,843
6/30/96 $19,637 $ 20,012 $ 12,851
7/31/96 $19,691 $ 19,694 $ 12,875
8/31/96 $19,664 $ 19,962 $ 12,900
9/30/96 $19,988 $ 20,331 $ 12,941
10/31/96 $20,435 $ 20,853 $ 12,983
11/30/96 $20,746 $ 21,214 $ 13,007
12/31/96 $20,543 $ 20,940 $ 13,007
1/31/97 $20,610 $ 20,982 $ 13,049
2/28/97 $20,610 $ 20,963 $ 13,089
3/31/97 $20,448 $ 20,716 $ 13,122
4/30/97 $20,678 $ 21,019 $ 13,138
5/31/97 $20,854 $ 21,212 $ 13,130
6/30/97 $21,029 $ 21,443 $ 13,146
7/31/97 $21,465 $ 22,091 $ 13,161
8/31/97 $21,348 $ 21,817 $ 13,186
9/30/97 $21,581 $ 22,170 $ 13,219
10/31/97 $21,828 $ 22,552 $ 13,253
11/30/97 $21,843 $ 22,556 $ 13,245
12/31/97 $22,002 $ 22,842 $ 13,229
GRAPHIC MATERIAL (28)
The following line graph hypothetically compares the performance of the Zero
Coupon 2005 Fund to that of the Merrill Lynch 10-Year Zero Index and the
Consumer Price Index, based on a $10,000 investment from 3/14/89 to 12/31/97.
Zero Coupon
2005 Fund ML 10-Yr Zero Index CPI
3/14/89 $10,000 $ 10,000 $ 10,000
3/31/89 $10,000 $ 10,064 $ 10,032
4/30/89 $10,000 $ 10,339 $ 10,097
5/31/89 $10,070 $ 10,762 $ 10,155
6/30/89 $11,310 $ 11,405 $ 10,179
7/31/89 $11,290 $ 11,714 $ 10,203
8/31/89 $10,850 $ 11,360 $ 10,220
9/30/89 $10,870 $ 11,408 $ 10,252
10/31/89 $11,500 $ 11,874 $ 10,302
11/30/89 $11,580 $ 11,973 $ 10,326
12/31/89 $11,530 $ 11,972 $ 10,343
1/31/90 $10,630 $ 11,486 $ 10,449
2/28/90 $10,640 $ 11,460 $ 10,498
3/31/90 $10,598 $ 11,451 $ 10,556
4/30/90 $10,024 $ 11,131 $ 10,573
5/31/90 $10,746 $ 11,663 $ 10,597
6/30/90 $11,065 $ 11,939 $ 10,655
7/31/90 $11,171 $ 12,069 $ 10,695
8/31/90 $10,290 $ 11,498 $ 10,794
9/30/90 $10,502 $ 11,629 $ 10,884
10/31/90 $10,746 $ 12,005 $ 10,950
11/30/90 $11,521 $ 12,527 $ 10,974
12/31/90 $11,840 $ 12,809 $ 10,974
1/31/91 $11,978 $ 12,938 $ 11,039
2/28/91 $11,978 $ 12,955 $ 11,056
3/31/91 $11,893 $ 13,047 $ 11,073
4/30/91 $12,127 $ 13,260 $ 11,089
5/31/91 $11,999 $ 13,244 $ 11,122
6/30/91 $11,857 $ 13,151 $ 11,155
7/31/91 $12,066 $ 13,383 $ 11,171
8/31/91 $12,663 $ 13,914 $ 11,204
9/30/91 $13,292 $ 14,393 $ 11,253
10/31/91 $13,237 $ 14,462 $ 11,270
11/30/91 $13,303 $ 14,666 $ 11,303
12/31/91 $14,065 $ 15,468 $ 11,311
1/31/92 $13,579 $ 14,821 $ 11,328
2/29/92 $13,612 $ 14,910 $ 11,368
3/31/92 $13,513 $ 14,718 $ 11,426
4/30/92 $13,480 $ 14,658 $ 11,442
5/31/92 $13,976 $ 15,084 $ 11,458
6/30/92 $14,216 $ 15,437 $ 11,500
7/31/92 $15,016 $ 16,152 $ 11,524
8/31/92 $15,132 $ 16,334 $ 11,556
9/30/92 $15,711 $ 16,792 $ 11,588
10/31/92 $15,143 $ 16,303 $ 11,629
11/30/92 $15,271 $ 16,288 $ 11,645
12/31/92 $15,793 $ 16,852 $ 11,637
1/31/93 $16,291 $ 17,524 $ 11,694
2/28/93 $17,196 $ 18,210 $ 11,735
3/31/93 $17,358 $ 18,261 $ 11,776
4/30/93 $17,346 $ 18,516 $ 11,809
5/31/93 $17,346 $ 18,414 $ 11,826
6/30/93 $18,520 $ 19,425 $ 11,842
7/31/93 $18,724 $ 19,585 $ 11,842
8/31/93 $19,360 $ 20,333 $ 11,875
9/30/93 $19,564 $ 20,575 $ 11,900
10/31/93 $19,840 $ 20,661 $ 11,949
11/30/93 $19,084 $ 19,973 $ 11,957
12/31/93 $19,300 $ 20,149 $ 11,957
1/31/94 $19,864 $ 20,737 $ 11,990
2/28/94 $18,748 $ 19,748 $ 12,030
3/31/94 $17,728 $ 18,733 $ 12,071
4/30/94 $17,452 $ 18,439 $ 12,088
5/31/94 $17,416 $ 18,347 $ 12,097
6/30/94 $17,163 $ 18,209 $ 12,138
7/31/94 $17,691 $ 18,732 $ 12,171
8/31/94 $17,641 $ 18,764 $ 12,219
9/30/94 $16,999 $ 18,088 $ 12,252
10/31/94 $16,899 $ 17,956 $ 12,261
11/30/94 $16,999 $ 18,042 $ 12,277
12/31/94 $17,314 $ 18,356 $ 12,277
1/31/95 $17,704 $ 18,841 $ 12,326
2/28/95 $18,295 $ 19,566 $ 12,375
3/31/95 $18,446 $ 19,701 $ 12,416
4/30/95 $18,862 $ 20,085 $ 12,457
5/31/95 $20,497 $ 21,768 $ 12,482
6/30/95 $20,647 $ 22,056 $ 12,507
7/31/95 $20,279 $ 21,692 $ 12,507
8/31/95 $20,712 $ 22,121 $ 12,539
9/30/95 $21,080 $ 22,486 $ 12,565
10/31/95 $21,657 $ 23,055 $ 12,606
11/30/95 $22,248 $ 23,761 $ 12,597
12/31/95 $22,812 $ 24,341 $ 12,588
1/31/96 $22,891 $ 24,392 $ 12,663
2/29/96 $21,802 $ 23,233 $ 12,703
3/31/96 $21,461 $ 22,787 $ 12,769
4/30/96 $21,067 $ 22,251 $ 12,819
5/31/96 $20,830 $ 22,109 $ 12,843
6/30/96 $21,295 $ 22,604 $ 12,851
7/31/96 $21,295 $ 22,598 $ 12,875
8/31/96 $21,101 $ 22,353 $ 12,900
9/30/96 $21,670 $ 23,017 $ 12,941
10/31/96 $22,531 $ 23,959 $ 12,983
11/30/96 $23,197 $ 24,776 $ 13,007
12/31/96 $22,698 $ 24,129 $ 13,007
1/31/97 $22,614 $ 24,037 $ 13,049
2/28/97 $22,587 $ 24,016 $ 13,089
3/31/97 $22,115 $ 23,355 $ 13,122
4/30/97 $22,614 $ 23,960 $ 13,138
5/31/97 $22,850 $ 24,257 $ 13,130
6/30/97 $23,188 $ 24,716 $ 13,146
7/31/97 $24,285 $ 26,075 $ 13,161
8/31/97 $23,737 $ 25,314 $ 13,186
9/30/97 $24,285 $ 26,040 $ 13,219
10/31/97 $24,893 $ 26,827 $ 13,253
11/30/97 $24,923 $ 26,990 $ 13,245
12/31/97 $25,279 $ 27,519 $ 13,229
GRAPHIC MATERIAL (29)
The following line graph hypothetically compares the performance of the Zero
Coupon 2010 Fund to that of the Merrill Lynch 20-Year Zero Index, the Merrill
Lynch 10-Year Zero Index and the Consumer Price Index, based on a $10,000
investment from 3/14/89 to 12/31/97.
Zero Coupon ML 20-Yr
2010 Fund ML 10-Yr Zero Index Zero Index CPI
3/14/89 $10,000 $ 10,000 $ 10,000 $ 10,000
3/31/89 $10,000 $ 10,064 $ 10,109 $ 10,032
4/30/89 $10,000 $ 10,339 $ 10,494 $ 10,097
5/31/89 $10,000 $ 10,762 $ 11,218 $ 10,155
6/30/89 $11,290 $ 11,405 $ 12,388 $ 10,179
7/31/89 $11,250 $ 11,714 $ 12,458 $ 10,203
8/31/89 $10,790 $ 11,360 $ 11,840 $ 10,220
9/30/89 $10,860 $ 11,408 $ 11,945 $ 10,252
10/31/89 $11,630 $ 11,874 $ 12,745 $ 10,302
11/30/89 $11,720 $ 11,973 $ 12,972 $ 10,326
12/31/89 $11,610 $ 11,972 $ 12,904 $ 10,343
1/31/90 $10,580 $ 11,486 $ 11,934 $ 10,449
2/28/90 $10,530 $ 11,460 $ 11,668 $ 10,498
3/31/90 $10,400 $ 11,451 $ 11,557 $ 10,556
4/30/90 $9,652 $ 11,131 $ 10,869 $ 10,573
5/31/90 $10,617 $ 11,663 $ 11,932 $ 10,597
6/30/90 $11,064 $ 11,939 $ 12,425 $ 10,655
7/31/90 $11,136 $ 12,069 $ 12,374 $ 10,695
8/31/90 $9,912 $ 11,498 $ 11,011 $ 10,794
9/30/90 $10,150 $ 11,629 $ 11,240 $ 10,884
10/31/90 $10,358 $ 12,005 $ 11,566 $ 10,950
11/30/90 $11,271 $ 12,527 $ 12,608 $ 10,974
12/31/90 $11,676 $ 12,809 $ 12,940 $ 10,974
1/31/91 $11,853 $ 12,938 $ 13,206 $ 11,039
2/28/91 $11,811 $ 12,955 $ 13,087 $ 11,056
3/31/91 $11,666 $ 13,047 $ 13,182 $ 11,073
4/30/91 $11,946 $ 13,260 $ 13,421 $ 11,089
5/31/91 $11,686 $ 13,244 $ 13,267 $ 11,122
6/30/91 $11,412 $ 13,151 $ 13,000 $ 11,155
7/31/91 $11,619 $ 13,383 $ 13,273 $ 11,171
8/31/91 $12,362 $ 13,914 $ 14,056 $ 11,204
9/30/91 $13,061 $ 14,393 $ 14,781 $ 11,253
10/31/91 $12,864 $ 14,462 $ 14,549 $ 11,270
11/30/91 $12,744 $ 14,666 $ 14,670 $ 11,303
12/31/91 $13,749 $ 15,468 $ 15,854 $ 11,311
1/31/92 $13,246 $ 14,821 $ 15,164 $ 11,328
2/29/92 $13,290 $ 14,910 $ 15,233 $ 11,368
3/31/92 $13,235 $ 14,718 $ 14,986 $ 11,426
4/30/92 $13,050 $ 14,658 $ 14,715 $ 11,442
5/31/92 $13,759 $ 15,084 $ 15,337 $ 11,458
6/30/92 $13,776 $ 15,437 $ 15,380 $ 11,500
7/31/92 $14,598 $ 16,152 $ 16,413 $ 11,524
8/31/92 $14,679 $ 16,334 $ 16,359 $ 11,556
9/30/92 $14,923 $ 16,792 $ 16,307 $ 11,588
10/31/92 $14,378 $ 16,303 $ 15,968 $ 11,629
11/30/92 $14,772 $ 16,288 $ 16,341 $ 11,645
12/31/92 $15,467 $ 16,852 $ 17,034 $ 11,637
1/31/93 $15,792 $ 17,524 $ 17,595 $ 11,694
2/28/93 $16,707 $ 18,210 $ 18,677 $ 11,735
3/31/93 $17,054 $ 18,261 $ 18,546 $ 11,776
4/30/93 $16,881 $ 18,516 $ 18,774 $ 11,809
5/31/93 $16,985 $ 18,414 $ 18,956 $ 11,826
6/30/93 $18,058 $ 19,425 $ 20,442 $ 11,842
7/31/93 $18,664 $ 19,585 $ 21,338 $ 11,842
8/31/93 $19,617 $ 20,333 $ 22,712 $ 11,875
9/30/93 $19,778 $ 20,575 $ 22,639 $ 11,900
10/31/93 $20,162 $ 20,661 $ 23,054 $ 11,949
11/30/93 $19,332 $ 19,973 $ 22,125 $ 11,957
12/31/93 $19,407 $ 20,149 $ 22,047 $ 11,957
1/31/94 $20,186 $ 20,737 $ 22,929 $ 11,990
2/28/94 $18,788 $ 19,748 $ 21,356 $ 12,030
3/31/94 $17,662 $ 18,733 $ 20,013 $ 12,071
4/30/94 $17,365 $ 18,439 $ 19,496 $ 12,088
5/31/94 $17,092 $ 18,347 $ 18,900 $ 12,097
6/30/94 $16,534 $ 18,209 $ 18,599 $ 12,138
7/31/94 $17,392 $ 18,732 $ 19,779 $ 12,171
8/31/94 $17,041 $ 18,764 $ 19,179 $ 12,219
9/30/94 $16,248 $ 18,088 $ 18,101 $ 12,252
10/31/94 $16,131 $ 17,956 $ 17,996 $ 12,261
11/30/94 $16,417 $ 18,042 $ 18,436 $ 12,277
12/31/94 $16,924 $ 18,356 $ 19,119 $ 12,277
1/31/95 $17,366 $ 18,841 $ 19,856 $ 12,326
2/28/95 $17,886 $ 19,566 $ 20,479 $ 12,375
3/31/95 $18,068 $ 19,701 $ 20,733 $ 12,416
4/30/95 $18,561 $ 20,085 $ 21,191 $ 12,457
5/31/95 $20,862 $ 21,768 $ 24,264 $ 12,482
6/30/95 $20,964 $ 22,056 $ 24,591 $ 12,507
7/31/95 $20,415 $ 21,692 $ 23,898 $ 12,507
8/31/95 $21,018 $ 22,121 $ 24,842 $ 12,539
9/30/95 $21,527 $ 22,486 $ 25,562 $ 12,565
10/31/95 $22,532 $ 23,055 $ 26,984 $ 12,606
11/30/95 $23,295 $ 23,761 $ 27,998 $ 12,597
12/31/95 $24,166 $ 24,341 $ 29,297 $ 12,588
1/31/96 $24,112 $ 24,392 $ 29,016 $ 12,663
2/29/96 $22,264 $ 23,233 $ 26,341 $ 12,703
3/31/96 $21,728 $ 22,787 $ 25,335 $ 12,769
4/30/96 $21,152 $ 22,251 $ 24,417 $ 12,819
5/31/96 $20,951 $ 22,109 $ 24,420 $ 12,843
6/30/96 $21,596 $ 22,604 $ 25,270 $ 12,851
7/31/96 $21,553 $ 22,598 $ 25,204 $ 12,875
8/31/96 $21,077 $ 22,353 $ 24,370 $ 12,900
9/30/96 $21,928 $ 23,017 $ 25,583 $ 12,941
10/31/96 $23,155 $ 23,959 $ 27,321 $ 12,983
11/30/96 $24,224 $ 24,776 $ 28,946 $ 13,007
12/31/96 $23,516 $ 24,129 $ 27,644 $ 13,007
1/31/97 $23,170 $ 24,037 $ 27,138 $ 13,049
2/28/97 $23,127 $ 24,016 $ 27,016 $ 13,089
3/31/97 $22,434 $ 23,355 $ 25,803 $ 13,122
4/30/97 $23,155 $ 23,960 $ 26,775 $ 13,138
5/31/97 $23,444 $ 24,257 $ 27,164 $ 13,130
6/30/97 $23,954 $ 24,716 $ 28,204 $ 13,146
7/31/97 $25,798 $ 26,075 $ 31,275 $ 13,161
8/31/97 $24,738 $ 25,314 $ 29,496 $ 13,186
9/30/97 $25,645 $ 26,040 $ 31,083 $ 13,219
10/31/97 $26,644 $ 26,827 $ 32,851 $ 13,253
11/30/97 $26,859 $ 26,990 $ 33,879 $ 13,245
12/31/97 $27,413 $ 27,519 $ 34,747 $ 13,229
