FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST* SEMIANNUAL REPORT
JUNE 30, 1999
TABLE OF CONTENTS
LETTER TO CONTRACT OWNERS .............................................. 2
A WORD ABOUT RISK ...................................................... 5
PORTFOLIO GOALS AND PRIMARY INVESTMENTS ................................ 6
PORTFOLIO SUMMARIES
Portfolios Seeking Capital Growth
Capital Growth Fund ................................................... 9
Global Health Care Securities Fund .................................... 10
Mutual Discovery Securities Fund ...................................... 12
Natural Resources Securities Fund ..................................... 13
Small Cap Fund ........................................................ 14
Templeton Developing Markets Equity Fund .............................. 16
Templeton Global Growth Fund .......................................... 18
Templeton International Equity Fund ................................... 22
Templeton International Smaller Companies Fund ........................ 24
Templeton Pacific Growth Fund ......................................... 26
Portfolios Seeking Growth and Income
Global Utilities Securities Fund ...................................... 27
Growth and Income Fund ................................................ 31
Income Securities Fund ................................................ 33
Mutual Shares Securities Fund ......................................... 35
Real Estate Securities Fund ........................................... 37
Rising Dividends Fund ................................................. 38
Templeton Global Asset Allocation Fund ................................ 41
Value Securities Fund ................................................. 43
Portfolios Seeking Income
High Income Fund ...................................................... 45
Templeton Global Income Securities Fund ............................... 46
U.S. Government Securities Fund ....................................... 47
Zero Coupon Funds ..................................................... 48
Portfolio Seeking Capital Preservation and Income
Money Market Fund ..................................................... 50
FINANCIAL HIGHLIGHTS & STATEMENT OF INVESTMENTS ........................ 51
FINANCIAL STATEMENTS ................................................... 137
NOTES TO FINANCIAL STATEMENTS .......................................... 156
PROSPECTUS SUPPLEMENTS ................................................. 175
[SPECIAL UPDATE GRAPHIC]
*Important: Effective July 1, 1999, we changed the name of the trust from
"Franklin Valuemark Funds" to "Franklin Templeton Variable Insurance Products
Trust" ("Franklin Templeton VIP Trust"). Only the name has changed; your
portfolios remain the same.
Reminder: Franklin Templeton VIP Trust now issues two classes of shares, Class 1
(the original share class) and Class 2. This report covers both share classes.
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PLEASE RETAIN THIS DOCUMENT, INCLUDING THE ENCLOSED PROSPECTUS SUPPLEMENTS ON P.
175, WITH YOUR CURRENT PROSPECTUS, FOR REFERENCE.
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LETTER TO CONTRACT OWNERS
Dear Contract Owners:
During the six-month period under review, financial markets worldwide returned
to a more stable environment, following the turmoil of fall 1998. The U.S.
economy's strength continued to push the domestic stock market higher, despite
the steady rise in interest rates. The global economic situation improved
significantly, as Asian and Latin American economies showed signs of recovery
from the emerging markets crisis of the past two years. In Europe, optimism
created by the launch of the 11-country currency, the euro, led to sustained,
albeit slower than projected, growth. As investors became more comfortable with
the global economy, they began to move back into investments they had dumped
during the crisis. As a result, many stock markets soared to all-time highs, and
yields narrowed between the 30-year Treasury bond and U.S. corporate and high
yield bonds.
The U.S. economy remained the world's growth engine during the period under
review. Gross domestic product (GDP) slowed somewhat from fourth quarter 1998's
torrid 6.0% annualized rate, registering respectable gains of 4.3% and 2.3% in
the first two quarters of 1999. Consumer spending again drove the economy -- low
unemployment, a solid stock market and relatively low interest rates kept
consumer confidence high. The housing market was also strong, as were automobile
and other durable goods sales.
However, the exceptionally strong economy also created hints of inflation.
April's Consumer Price Index (CPI) showed an increase of 0.7%, the highest since
October 1990 and well above the pace in recent months. Much of this was caused
by the 12% increase in the price of a barrel of oil during the month, as
production cutbacks coupled with stronger emerging economies contributed to
greater demand. Investors took note of this and, fearing a tightening from the
Federal Reserve Board (the Fed), generally sold bonds, which pushed interest
rates to their highest levels in more than a year. Indeed, investors were right.
In its late-June meeting, the Fed raised the federal funds target rate 0.25% in
an attempt to deter inflation. At the end of the reporting period, the 30-year
Treasury bond yield stood at 5.98%.
Outside of the U.S., many of the emerging economies hit by the crisis of the
past two years began to show signs of life during the six months under review.
Korea was the standout, with first quarter GDP rising 4.6% compared with the
same period a year earlier, but a turnaround was also evident in Hong Kong and
Thailand and, to a lesser extent, in Malaysia and Indonesia. In Latin America,
the Mexican and Chilean markets rebounded strongly as the crisis faded, due to
their economies' underlying strength. Even the Brazilian economy, which endured
a currency devaluation in January, turned around much faster than previously
expected.
In Europe, the highly touted euro, the common currency of 11 European nations,
quickly lost ground relative to the dollar. Slowing growth and the two-month
NATO war in Yugoslavia dampened investor enthusiasm for the currency. Yet,
toward the end of the period, the outlook began to brighten. Germany reported
first quarter 1999 GDP of 0.4% and Italy's was fractionally positive. While
these numbers were not stellar, they were better than the negative growth many
economists projected.
Global stock markets in general reacted favorably to the healthier global
economy during the six-month period under review. In the U.S., the Standard and
Poor's 500(R) Index (S&P 500(R)) increased 12.4%, while Asian markets returned
22.9%, as measured by the Morgan Stanley Capital International(R) (MSCI) Far
East Index. Latin American markets also performed strongly, evidenced by the
33.3% increase in the MSCI Latin America Index. Only in Europe were returns
negligible, but even in this atmosphere some markets did well, including
Finland's HEX, with +23.76%, and Norway's OBX which increased 20.0%.
Most importantly for U.S. markets, the period saw a return to a more
value-oriented investment approach. Due in large part to the global economic
health, many cyclical companies, such as paper, chemical and heavy machinery,
will likely report strong earnings in the latter half of 1999. In anticipation,
investors rewarded these companies by pushing up share prices. Conversely, many
growth companies suffered during this period, as higher interest rates caused by
the growth discounted these stocks' values.
In the fixed-income sector, investors increasingly became more interested in
corporate and high yield bonds as the threat of a global economic meltdown
diminished, which had been one of the reasons for the rise in Treasury bond
prices during fall 1998. As a result, yield spreads, the interest-rate
difference between Treasuries and lower-quality securities, almost fully
returned to their historical norms since last fall. Furthermore, by April the
emerging debt markets more than recovered their losses from the January
Brazilian devaluation, as evidenced by the 10.6% increase in the J.P. Morgan
Emerging Market Bond Index during the period.
It is important to remember, of course, that securities markets always have
been, and always will be, subject to volatility. No one can predict exactly how
they will perform in the future. For this reason, we urge you to exercise
patience and focus not on day-to-day market movements, but on your long-term
investment goals. As always, we appreciate your support, welcome your questions
and comments, and look forward to serving your investment needs in the years
ahead.
Sincerely,
/s/ Rupert H. Johnson, Jr.
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Rupert H. Johnson, Jr.
Trustee and Vice President
Franklin Templeton Variable Insurance Products Trust
(formerly Franklin Valuemark Funds)
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YEAR 2000 READINESS DISCLOSURE --
HOW FRANKLIN TEMPLETON IS TACKLING THE Y2K PROBLEM
Franklin Templeton formed a company-wide team in 1996 to identify and correct
problems related to the date changeover after December 31, 1999. All but one of
our mission-critical systems are certified as Year 2000 compliant and are
operating in production, as of July 15, 1999. We intend to have our remaining
mission-critical system, a replacement for an existing sales and marketing
system, certified by the end of September 1999.
The Y2K team is also upgrading, testing, and certifying remaining non-critical
systems, as well as integrating and testing links with many external parties.
Our dedicated, business continuity team is building contingency plans worldwide
in the event of Year 2000 failures.
Earlier this year, we successfully completed a series of Securities Industry
Association nationwide tests of transactions with other business partners under
simulated Year 2000 conditions. This summer we also successfully participated in
industry-wide testing of our interfaces with major dealers and real-time market
data services.
You can learn more about Franklin Templeton's Y2K project by visiting our Web
site at www.franklintempleton.com.
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A WORD ABOUT RISK
All of the portfolios are subject to certain risks, which will cause investment
returns and the value of your principal to increase or decrease. Generally,
investments offering the potential for higher returns are accompanied by a
higher degree of risk. For example, stocks and other equities, representing an
ownership interest in an individual company, historically have outperformed
other asset classes over the long term, but tend to rise and fall more
dramatically over the shorter term. Securities of smaller companies, and
companies involved in reorganization or bankruptcy, may have greater price
swings and greater credit and other risks.
Bonds and other debt obligations are affected by the creditworthiness of their
issuers, and changes in interest rates, with prices declining as interest rates
increase. High yield, lower-rated ("junk") bonds generally have greater price
swings and higher default risks than investment grade bonds. An investment in
the Money Market Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The portfolio attempts to
maintain a stable net asset value of $1.00 per share, but there is no assurance
that it will.
Foreign investing, especially in emerging market countries, has additional risks
such as changes in currency values, market price swings, and economic, political
or social instability. These, and other risks pertaining to specific portfolios,
such as specialized industry or geographical sectors or use of complex
securities, are discussed in the portfolios' prospectus. Your investment
representative can help you determine which portfolios may be right for you.
PORTFOLIO GOALS AND PRIMARY INVESTMENTS
The portfolio descriptions are provided for your convenience. For more complete
information, including investment policies and risks, please refer to your
funds' prospectus or contact your investment representative.
PORTFOLIOS SEEKING CAPITAL
GROWTH
GLOBAL GROWTH
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GLOBAL HEALTH CARE Seeks capital appreciation. The portfolio
SECURITIES FUND concentrates its investments in U.S. and foreign
equity securities issued by large and small
capitalization health care companies, including
pharmaceutical, biotechnology, medical and health
services, and medical supply companies.
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MUTUAL DISCOVERY SECURITIES Seeks capital appreciation. Using a value-driven
FUND approach, the portfolio invests primarily in U.S.
and foreign equity securities. Investments include
securities of small capitalization companies,
undervalued stocks, reorganizing companies and
distressed companies.
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NATURAL RESOURCES SECURITIES Seeks capital appreciation, with current income as
FUND a secondary goal. The portfolio concentrates its
investments in U.S. and foreign equity securities
of companies, including those in emerging markets,
that own, produce, refine, process or market
natural resources, as well as those that provide
support services for natural resources companies.
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TEMPLETON DEVELOPING MARKETS Seeks long-term capital appreciation. The
EQUITY FUND portfolio invests primarily in emerging markets
equity securities.
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TEMPLETON GLOBAL GROWTH FUND Seeks long-term capital growth. The portfolio
invests primarily in equity securities of
companies of any nation, including the U.S. and
emerging markets.
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TEMPLETON INTERNATIONAL Seeks long-term capital growth. The portfolio
EQUITY FUND invests primarily in equity securities of
companies with primary operations outside the
U.S., including emerging markets.
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TEMPLETON INTERNATIONAL Seeks long-term capital appreciation. The
SMALLER COMPANIES FUND portfolio invests primarily in equity securities
of smaller companies located outside the U.S.,
including emerging markets.
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TEMPLETON PACIFIC GROWTH Seeks long-term capital growth. The portfolio
FUND invests primarily in equity securities of
companies with primary operations in Pacific Rim
countries, most of which have emerging markets.
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PORTFOLIOS SEEKING CAPITAL
GROWTH (CONT.)
DOMESTIC GROWTH
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CAPITAL GROWTH FUND Seeks capital appreciation. The portfolio invests
primarily in U.S. equity securities of large- or
mid-cap companies, and to a lesser extent in
small-cap companies. The portfolio may also invest
a portion in foreign securities, including
emerging markets.
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SMALL CAP FUND Seeks long-term capital growth. The portfolio
invests primarily in equity securities of U.S.
small capitalization growth companies. The
portfolio may also invest a small portion in
foreign securities.
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PORTFOLIOS SEEKING GROWTH
AND INCOME
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GLOBAL UTILITIES SECURITIES Seeks both capital appreciation and current
FUND income. The portfolio concentrates its investments
in equity securities of companies in the public
utilities industry in any nation, including the
U.S. and emerging markets. The portfolio invests
substantially in telecommunications and
significantly in other utilities such as gas,
electricity and water companies.
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GROWTH AND INCOME FUND Seeks capital appreciation, with current income as
a secondary goal. The portfolio invests primarily
in common stocks offering above-market current
dividend yields, and may invest a smaller portion
in foreign securities, including emerging markets.
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INCOME SECURITIES FUND Seeks to maximize income while maintaining
prospects for capital appreciation. The portfolio
invests in debt and equity securities, including
lower-rated "junk bonds." May also invest in
foreign securities, including emerging markets.
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MUTUAL SHARES SECURITIES Seeks capital appreciation, with income as a
FUND secondary goal. Using a value-driven approach, the
portfolio invests primarily in U.S. equity
securities. Investments include securities of
small capitalization companies, undervalued
stocks, reorganizing companies and distressed
companies. The portfolio may also invest in
foreign securities.
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REAL ESTATE SECURITIES FUND Seeks capital appreciation, with current income as
a secondary goal. The portfolio concentrates its
investments in equity securities of companies,
including small capitalization companies, in the
real estate industry, primarily real estate
investment trusts (REITs).
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RISING DIVIDENDS FUND Seeks long-term capital appreciation. The
portfolio invests primarily in equity securities
of companies that have paid consistently rising
dividends over the past ten years, including small
capitalization companies.
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PORTFOLIOS SEEKING GROWTH
AND INCOME (CONT.)
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TEMPLETON GLOBAL ASSET Seeks high total return. The portfolio will invest
ALLOCATION FUND in equity securities of companies of any nation,
debt securities of companies and governments of
any nation, and in money market instruments. The
portfolio may invest to a lesser extent in
lower-rated "junk bonds."
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VALUE SECURITIES FUND Seeks long-term total return. The portfolio
invests primarily in equity securities of
companies, including small capitalization
companies, which in the portfolio manager's
opinion, are selling substantially below the
underlying value of their assets or private market
value. Such companies may include takeover
candidates, turnarounds and companies emerging
from bankruptcy. The portfolio may also invest a
small portion in foreign securities.
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PORTFOLIOS SEEKING INCOME
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HIGH INCOME FUND Seeks a high level of current income, with capital
appreciation as a secondary goal. The portfolio
invests in debt securities, including lower-rated
"junk bonds," and dividend-paying common and
preferred stocks. The portfolio may also invest in
foreign securities, including emerging markets.
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TEMPLETON GLOBAL INCOME Seeks high current income, with capital
SECURITIES FUND appreciation as a secondary goal. The portfolio
invests in debt securities of governments and
their political subdivisions and agencies,
supranational organizations and companies of any
nation, including emerging markets. The portfolio
may also invest in lower-rated "junk bonds."
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U.S. GOVERNMENT SECURITIES Seeks to earn income. The portfolio invests
FUND exclusively in U.S. government securities,
primarily fixed and variable-rate mortgage-backed
securities.
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THREE ZERO COUPON FUNDS The three zero coupon bond portfolios seek a high
(MATURITY DATES: 2000, 2005, investment return consistent with capital
2010) preservation. The portfolios invest in
dollar-denominated zero coupon securities issued
by the U.S. government, its agencies and
authorities. Each zero coupon portfolio seeks to
return a reasonably assured target dollar amount,
predictable at the time of the investment, on a
specific date in the future. The portfolios may
not be appropriate for those who intend to redeem
units before the maturity dates.
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PORTFOLIO SEEKING CAPITAL
PRESERVATION AND INCOME
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MONEY MARKET FUND Seeks high current income consistent with capital
preservation and liquidity. The portfolio also
tries to maintain a stable share price of $1.00.
The portfolio invests in high-quality U.S.
dollar-denominated money market debt instruments.
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PORTFOLIO SUMMARIES
As you read the following portfolio summaries, please remember the discussions
accurately reflect our views, opinions and portfolio holdings as of June 30,
1999, the end of the reporting period. However, they are not necessarily
complete analyses of every aspect of any industry, security or investment. Keep
in mind that market and economic conditions are changing constantly, which can
be expected to affect our strategies and the portfolios' composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
PORTFOLIOS SEEKING CAPITAL GROWTH
CAPITAL GROWTH FUND
During the six-month reporting period, U.S. gross domestic product and corporate
profits continued to rise, the unmanaged Standard & Poor's 500 (S&P 500) Index
posted a return of 12.4% and several foreign economies rebounded after a
difficult 1998. These events, along with rising commodity prices, prompted a
shift in market psychology, and shares of companies in mature, slower-growth
industries sprang to life after years of underperformance relative to
higher-growth stocks. The period's strong domestic and foreign economic growth
also marked a turning point in U.S. interest rate trends. After steadily
declining for the past two years, U.S. interest rates began to inch up in
February, and on June 30, the Federal Reserve Board raised the federal funds
target rate 0.25%, to 5.00%.
The portfolio's exposure to several technology sectors contributed to its strong
performance during the period. On June 30, 1999, the portfolio's largest
investment was Microsoft Corp., the world's leader in software development and
an array of related information technology fields. Our second-largest position
was Cisco Systems Inc., the world's leading provider of Internet networking
products such as routers, switches, dial-up access servers and software. Shares
of these companies appreciated significantly during the period under review.
Other top technology-related holdings included JDS Uniphase Corp. (formerly
Uniphase Corp.), Intel Corp., Vodafone Air-Touch PLC and Hewlett-Packard Co.
Throughout the period, we sought out future technology leaders with reasonable
valuations, superior management teams and sound, sustainable business growth
models, as well as solid growth companies whose valuations had reached
attractive levels due to unfavorable short-term circumstances.
You will find a complete listing of the portfolios' securities including the
number of shares and dollar value beginning on page 57 of this report.
TOP 10 INDUSTRY BREAKDOWN
Capital Growth Fund
6/30/99
% OF TOTAL
SECTOR NET ASSETS
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Electronic Technology 18.2%
Health Technology 13.4%
Finance 9.6%
Technology Services 7.6%
Retail Trade 5.6%
Utilities 5.4%
Consumer Non-Durables 4.9%
Process Industries 3.4%
Commercial Services 3.2%
Transportation 2.6%
TOP 10 HOLDINGS
Global Health Care Securities Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
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Schering Plough Inc. 5.69%
Pharmaceuticals
American Home Products Corp. 5.18%
Pharmaceuticals
Eli Lilly & Co. 5.08%
Pharmaceuticals
Pharmacia & Upjohn Inc. 4.85%
Pharmaceuticals
Bristol-Myers Squibb Co. 4.80%
Pharmaceuticals
Medtronic Inc. 4.78%
Medical Technology and Supplies
Baxter International Inc. 4.77%
Medical Technology and Supplies
Warner-Lambert Co. 3.99%
Pharmaceuticals
Cardinal Health Inc. 3.66%
Medical Distributors
Bausch & Lomb Inc. 3.30%
Medical Technology and Supplies
For example, we initiated positions in Lucent Technologies Inc. and Tellabs Inc.
during the six-month period.
Stocks in the health technology and health services sectors suffered during the
second half of the period under review, and the portfolio's positions in such
industry leaders as Schering-Plough Corp. and Abbott Laboratories impacted our
returns. However, given these companies' superior long-term growth prospects, we
remain committed to our holdings in these areas and will likely seize
opportunities to buy stocks in this sector if valuations become attractive
again.
Although we cannot predict the future of the U.S. economy, interest rates or
relative performance between various sectors of equity markets, we will adhere
to our core strategy of buying the best growth companies we can, at the best
possible prices. We aim to reduce the portfolio's overall risk by abstaining
from investing in companies whose valuations defy any reasonable basis or
justification. While we recognize the Internet's revolutionary impact upon our
overall economy, and evaluate leading Internet and Internet-related companies as
prospective investments, we initiate positions in such companies only when we
believe we can do so at reasonable prices.
GLOBAL HEALTH CARE SECURITIES FUND
During the six months under review, the portfolio had a total return well below
that of the unmanaged Standard and Poor's 500 (S&P 500) Index, but in line with
the portfolio's benchmark, the unmanaged S&P(R) Health Care Composite Index's
return for the same period. Of course, one cannot invest directly in an index.
There appear to be several reasons for the health care sector's significant
underperformance. First, beginning in April, there was a rapid shift in market
leadership, from the technology and health care sectors, to cyclicals and energy
stocks, spurred by fears of inflation and rising interest rates. Second, rising
interest rates have a greater impact on the perceived value of high
price-to-earnings (P/E) stocks, such as health care stocks. As a result, there
was a significant decline in the average P/E multiple of such stocks. Third,
investors increasingly were concerned about a new, federally funded drug benefit
for Medicare beneficiaries and its potential negative impact for pharmaceutical
companies. In addition, several company-specific issues caused significant
declines in selected securities, impacting the portfolio's performance.
Our largest sector holding throughout the period was in the large-cap
pharmaceutical group, which fell under significant selling pressure due to the
factors cited above. Although proposed government price controls on drugs
certainly threatened the sector's profitability, we believe that increased
access to drugs will generate substantially greater volume for such companies
and result in improved health care for the senior population. Therefore, we took
advantage of this opportunity to increase our weighting in this sector, and at
the end of the period, it represented more than 36.0% of the portfolio's total
net assets. The portfolio's largest position was Schering Plough Corp., and
Bristol-Myers Squibb Co., Warner-Lambert Co., Pharmacia & Upjohn Inc., Eli Lilly
& Co. and American Home Products Corp. were among the portfolio's top 10
positions.
The medical technology sector, making up 24.7% of total net assets, was our
second-largest sector at the end of the period. Such companies manufacture
medical devices for a broad range of conditions. The portfolio's seventh-largest
position, Baxter International Inc., comprising 4.77% of total net assets on
June 30, 1999, is the leading manufacturer of blood products and dialysis
supplies. We believe that Baxter is significantly undervalued and poised for
earnings growth acceleration. We also maintained our core positions in Guidant
Corp. and Medtronic Inc., two large, cardiovascular companies that market
pacemakers, implantable defibrillators and cardiac stents. Due to recent
consolidation, they enjoy stable pricing and dominant market shares.
Over the past six months, the small- and mid-cap health care services area was
particularly challenging for us. As a result, we reduced our weighting in this
area to 30.3% of total net assets at the end of the period, from 36.1% on
December 31, 1998. As a result, the portfolio's average market cap size
increased. Perhaps our largest disappointment was McKesson HBO Inc., the result
of a merger between the leading drug distributor McKesson and the leading health
care information systems vendor HBO & Co. During their year-end audit process,
the company learned of certain accounting improprieties that had occurred in
HBO's operations. This caused the stock to decline more than 50%. The
portfolio's performance was also negatively impacted by earnings disappointments
at Serologicals Corp., a specialty blood products manufacturer, and Pediatrix
Medical Group Inc., the leading operator of neonatal intensive care units.
During the period, we established several new positions. Our largest new
position was MedQuist Inc., a national medical transcription company. We believe
MedQuist is poised to benefit from its acquisition of its two largest
competitors, which should improve the competitive environment. Given increased
consolidation in the hospital sector and movement toward a paperless health care
system, we find the transcription area very attractive. We also initiated a
position in VISX Inc., the number one manufacturer of laser eye correction
devices. We are very excited about the laser eye correction market and believe
that VISX has the most leverage to succeed, based on its leading market
position.
Going forward, we will continue to maintain a sizable portion of the portfolio
in large-cap pharmaceutical and medical technology stocks. Given the recent
decline, we feel that such stocks will be very attractive investments over the
long term owing to their stability and lack of sensitivity to economic cycles.
TOP 10 HOLDINGS
Mutual Discovery Securities Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
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Investor AB, A and B 3.06%
Multi-Industry, Sweden
Compagnie Financiere Richemont AG, Br. A 2.82%
Multi-Industry, Switzerland
Rhone-Poulenc SA 2.06%
Health and Personal Care, France
Invensys PLC 1.91%
Machinery and Engineering, U.K
Suez Lyonnaise des Eaux SA 1.79%
Business and Public Services, France
Compagnie Generale D'Industrie et de Participation 1.76%
Multi-Industry, France
FKI PLC 1.49%
Machinery and Engineering, U.K
Societe Elf Aquataine SA, Br 1.43%
Energy Sources, France
Corporacion Financiera Alba SA 1.42%
Multi-Industry, Spain
Lagardere SCA 1.36%
Multi-Industry, France
We appreciate your participation in Global Health Care Securities Fund and look
forward to serving your investment needs in the years to come. Our goal, as
always, is to seize upon the investment opportunities that present themselves in
the health care sector in a timely and disciplined fashion, as we seek to
provide our shareholders unique opportunities to invest in today's newest and
fastest-growing health care companies.
MUTUAL DISCOVERY SECURITIES FUND
During the six months under review, the domestic economy experienced generally
rising interest rates, low inflation and strong economic growth. In Europe, many
central banks cut interest rates in an attempt to restart their economies, which
were in danger of falling into recessions. The introduction of the euro on
January 1, 1999, was heralded as one of the most significant events in Europe
since the end of World War II. As of June 30, 1999, however, its performance was
somewhat less than impressive, declining by 11.1% compared with the U.S. dollar
for the six-month period under review. At the same time, emerging countries in
Asia and Latin America appeared to be nearly past the crisis of the last two
years, with many posting solid growth.
During the reporting period, we actively hedged our foreign currency exposure,
seeking to lower the portfolio's risk caused by fluctuating currencies. As the
U.S. dollar strengthened considerably against most European currencies, our
hedging activities also helped boost the portfolio's return.
As always, we stayed with our disciplined approach of looking for inexpensive
stocks that we felt were selling at a discount to their intrinsic value. We were
able to identify a number of securities that fit this profile and produced
substantial returns including U.K. engineering company Invensys PLC, French
media conglomerate Pathe SA and Italian telecom operator Telecom Italia SpA, di
Risp.
Invensys is the product of the merger of BTR PLC and Siebe PLC, two U.K.
engineering companies that combined have become a global leader in automation
and controls. After the merger was announced in late 1998, we were surprised to
see both stocks decline. We saw the combination of the two creating an industry
leader that offered restructuring, cost cutting, share buyback potential,
significant potential for asset sales and a clean balance sheet -- at a bargain
price. The market's misunderstanding was our opportunity. During the six-month
period, the stock rose 21.0%. Despite the strong rise, we believe Invensys
continues to offer a compelling valuation.
Pathe's assets include movie production facilities, an extensive film library
and 16.7% of British Sky Broadcasting (BskyB), a large U.K. broadcasting group.
The stock was trading at a discount of more than 50% to what we believed was its
net asset value. Having carefully followed this company for the past few years,
we purchased the company's stock when the price was at its recent lows. Our
patience was rewarded when Vivendi, a large French utility/media conglomerate,
bid for Pathe less than a month later, giving our shareholders a return of more
than 40%.
We owned Telecom Italia coming into 1999 because we felt it was one of the
world's cheapest telecommunication companies, with huge potential for
restructuring. During the reporting period, other investors figured this out and
the company was subject to one of the largest hostile bids ever undertaken. The
stock price rose more than 20.0% over the period.
In addition, we owned several other companies that became the targets of merger
and acquisition proposals during the reporting period, including U.K. food
company Hillsdown Holdings PLC, Swedish trucking company ASG AB, French bank
Societe Generale Paris and French investment bank Paribas. These stocks all made
significant contributions to our performance during the six-month period under
review.
During the reporting period, we began investing in smaller to mid-size companies
in Asia. We believe that many of these securities remain inexpensive when
compared to larger-cap securities. We selectively bought only those companies
where we trust management to look out for their shareholders' interests.
Going forward, we will continue to look for the least expensive stocks offering
the greatest value and having the best potential for substantial future returns.
We will especially watch events unfold in Europe, where we are still in the
infancy of a new, unified Europe. As events rapidly change, we will be there
seeking to take advantage of the volatility and opportunities that will
inevitably arise.
NATURAL RESOURCES SECURITIES FUND
During the reporting period, Natural Resources Securities Fund benefited from
signs of an economic recovery in Asia. Coupled with interest rate cuts by
central banks in many countries, this seemed to bolster investors' enthusiasm
about the global economy and led to a partial recovery in commodity prices.
Many of the portfolio's energy holdings rose in value, including Enron Corp.,
Texaco Inc., Avery Dennison Corp. and Atlantic Richfield Co., which helped the
portfolio's performance. The March OPEC agreement to cut oil production, and the
expectation of higher profits resulting from merger and acquisition synergies
boosted many energy stocks. Announced mergers in this sector included Exxon
Corp.'s acquisition of Mobil Corp., and British Petroleum Co. PLC's acquisitions
of Amoco Corp. and Atlantic Richfield Co., creating two of the world's largest
integrated oil and gas companies.
TOP 10 HOLDINGS
Natural Resources Securities Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Barrett Resources Corp. 4.1%
Energy Minerals, U.S.
Atlantic Richfield Co. 3.4%
Energy Minerals, U.S.
Newfield Exploration Co. 3.1%
Energy Minerals, U.S.
Weatherford International Inc. 3.1%
Industrial Services, U.S.
DeBeers Consolidated Mines AG, ADR 3.1%
Non-Energy Minerals, South Africa
Texaco Inc. 2.9%
Energy Minerals, U.S.
Mobil Corp. 2.8%
Energy Minerals, U.S.
Apache Corp. 2.4%
Energy Minerals, U.S.
Pohang Iron & Steel Co. Ltd., ADR 2.4%
Non-Energy Minerals, South Korea
Cal Dive International Inc. 2.4%
Industrial Services, U.S.
The portfolio increased its exposure to energy minerals during the past six
months due to improving industry fundamentals. We added several oil exploration
and production companies, such as Apache Corp. and Santa Fe Snyder Corp., that
we believe will benefit from higher natural gas prices. In addition, we
continued to hold highly leveraged companies, such as Barrett Resources Corp.
and Newfield Exploration Co., which should also benefit from improving oil and
natural gas prices. In the industrial services industry, we held several
oilfield service companies such as Weatherford International Inc., Cal Dive
International Inc. and Transocean Offshore Inc. Weatherford International is an
oil field services company supplying a wide range of drilling and completion
products to the drilling industry. Cal Dive is a contractor that provides
sub-sea construction, services, maintenance and decommissioning in the Gulf of
Mexico. Transocean Offshore is a leader in the worldwide market for deepwater
offshore drilling.
Hindering the portfolio's performance was its relative underweighting in the
chemical and the paper and forest products sectors, which were better performers
compared to the energy sector in the first quarter. We remained underweighted in
chemicals because of excess manufacturing capacity, which suppressed prices.
However, at the end of the period, we were looking for a re-entry into the paper
and forest products sector due to supply constraints by several producers, which
we believe should help improve their prospects, particularly if an economic
recovery in Asia spurs demand.
Looking forward, we are optimistic about future prospects for Natural Resources
Securities Fund. In our opinion, the downward trend in commodity prices probably
has bottomed out, and prices should rise in the future. However, we do not
purchase securities based solely on the assumption that commodity prices will
rise. The portfolio's holdings tend to have strong market positions, superior
managements, healthy balance sheets and visible earnings growth. We believe
long-term prospects are improving for companies in the natural resources sector
and that the portfolio is well-positioned with investments in companies having
superior management, relatively low costs, and the capability to add value
throughout commodity-price cycles.
SMALL CAP FUND
In keeping with our philosophy, Small Cap Fund seeks growth at a reasonable
price. We look for companies with some competitive advantage, such as
intellectual property, barriers to market entry for competitors or a
faster-than-average growth trend. At the same time, we expect to pay a
reasonable price based on such measurements as price to earnings or price to
sales for that growth. We attempt to do this with portfolio construction and
stock selection based on company-specific research from our equity analysts who
identify target buy and sell prices for the securities they follow.
The first half of 1999 was characterized by gradually resurgent investor
interest in small-cap stocks. In January, small-cap stocks appeared to keep pace
with large caps, only to underperform in February and March as investors sought
refuge in large-cap growth stocks amid fears of corporate earnings and a
post-holiday consumer spending hangover.
As the second quarter progressed, however, investors reemerged from the
large-cap growth refuge to seek investments in long-overlooked cyclical sectors
in the small- and mid-capitalization ranges. In our view, investors rotated into
cyclicals with the belief that improving Asian economies would stimulate
increasing commodity demand and, in turn, give better pricing power for
commodity producers. Concurrent with the sudden, powerful shift into cyclicals
was a more gradual and sustained move into smaller-capitalization stocks.
During April and May, we saw a broadening interest in most small-cap industry
sectors. The portfolio experienced price appreciation in its commercial
services, industrial services, energy, utilities and transportation holdings
that had languished in 1998. In many cases, the rising tide in small-cap stocks
lifted all boats, which made this second quarter less of a stock-picking than a
sector-picking environment. Technology, which is overweight in the portfolio,
was the most notable out-of-favor sector as Internet stocks fell back toward
earth. Since January 1, we have been selling our largest Internet positions.
However, we will likely retain our Internet overweighting relative to the June
30 Russell 2000(R) Index, which is composed of 2,000 small-cap companies with an
average market cap of approximately $525 million, because growth potential in
the Internet industry remains strong. We believe that, as they have in the
second quarter, the portfolio's commercial services, industrial services,
energy, utilities and transportation holdings will somewhat offset summer
volatility in the portfolio's Internet and technology holdings. In the
non-Internet technology sectors, we continue to seek companies that supply
products and consulting services that enable communications service providers to
expand their voice and data infrastructure.
The second quarter broadening of investor interest has returned some liquidity
to small caps and partly closed the valuation disparity between small- and
large-cap stocks. Entering the summer, we cannot predict with any certainty that
small-cap liquidity and investor interest will continue. Moreover, we are
cautious about potential further interest rate increases even though the Federal
Reserve Board (the Fed) adopted a neutral bias in its June meeting. We are
cautious because the potential Asian economic resurgence may raise producers'
materials costs and because we are seeing some anecdotal evidence of rising
consumer prices. If we do indeed enter an inflationary environment of rising
interest rates, we would expect that growth stocks, particularly the technology
stocks that this fund favors, would be more volatile and vulnerable to near-term
price declines. The sharp rally in technology shares during the last week of the
quarter indicates that investors believe that rate increases are unlikely for
the remainder of the year, which we believe is a potentially dangerous
assumption. Nonetheless, despite the high valuations in technology shares we
continue to overweight our investments in this sector. We firmly believe that
technology is steadily increasing global economic productivity and that these
productivity increases will counterbalance inflation over the longer term.
Therefore, despite the risk higher interest rates pose to technology growth
stock valuations, we will continue to seek and invest in the growing Internet,
semiconductor and communications industries whose technologies offer their
customers clear potential for productivity improvement.
TOP 10 INDUSTRY BREAKDOWN
Small Cap Fund
6/30/99
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Electronic Technology 23.0%
Technology Services 20.4%
Finance 8.0%
Telecommunications 6.1%
Energy Minerals 4.6%
Industrial Services 4.5%
Consumer Services 4.4%
Real Estate 3.7%
Producer Manufacturing 3.6%
Commercial Services 3.2%
TOP 10 HOLDINGS
Templeton Developing Markets Equity Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Telefonos de Mexico SA (Telmex), ADR 6.2%
Telecommunications, Mexico
Cemex SA 4.0%
Building Materials and Components, Mexico
Thai Farmers Bank Public Co. Ltd. 3.0%
Banking, Thailand
Akbank 2.6%
Banking, Turkey
Centrais Eletricas Brasileiras SA (Eletrobras) 2.4%
Utilities Electrical and Gas, Brazil
Korea Electric Power Corp. 1.8%
Utilities Electrical and Gas, South Korea
Grupo Financiero Banamex Accival SA de CV 1.7%
Banking, Mexico
Anglo American PLC 1.7%
Multi-Industry, South Africa
CEZ AS 1.5%
Utilities Electrical and Gas, Czech Republic
Sasol Ltd. 1.4%
Energy Sources, South Africa
Going forward, we cannot predict when small-cap stocks will begin to outperform
their larger counterparts. However, it is worth noting that over the long term
small-cap stocks have outperformed large caps. Historically, when there have
been signs that the global economy is beginning a new cyclical upturn, small
caps tended to outperform the market. Although we see signs that the global
economy is improving, the Fed may intervene again to restrain the domestic
economy, which may delay or reverse small-cap growth company share price
appreciation.
TEMPLETON DEVELOPING MARKETS EQUITY FUND
At the beginning of 1999, investor attention was focused on events in Brazil.
Prior to the new year, the Brazilian government had failed in its third attempt
to pass economic reform and as a result, foreign investment dollars fled the
country at a rapid rate. This outflow of funds put the nation's current account
and pegged currency on very shaky ground. It appeared that concern over a
near-collapse of the Brazilian economy, the eighth largest in the world,
severely dampened sentiment toward Latin American investments as well as the
rest of the emerging markets. By mid-January, the Brazilian government announced
that it would no longer support its currency, the real. The currency plummeted
in response, falling 41% against the U.S. dollar by month end. However, while
the currency fell, the stock markets throughout Latin America began a rally,
which continued until May. With the breaking of the real's peg to the U.S.
dollar, investors were finally able to take advantage of the bargains that
existed in the region. The Brazilian government took the market rally as a
positive sign and used the momentum to drive key reform bills through its
congress. Within months, the Brazilian economic situation had dramatically
improved. Interest rates were falling, the currency stabilized and key reforms
stood ready for enactment.
The strength from Latin America spread across the seas to affect other emerging
markets. The advance recorded in Asian markets since September 1998 had been
restricted by the turmoil in Brazil. However, as the Brazilian picture improved,
so did sentiment toward investing in Asia. The Asian rally had resumed by March,
with strong growth recorded throughout the region. Adding to the strength in
Asia was the gradual emergence of positive economic figures, such as slowed or
reversed unemployment growth and shrinking trade surpluses, indicating
increasing domestic spending. As in most emerging markets, Asian economies
continued to face difficulties, but the positive indicators encouraged equity
investors, sending stock markets ever higher.
The laggard in regard to the renewed recovery trend was Eastern Europe. With the
onset of NATO's war against Yugoslavia, concerns about the war's impact on trade
and regional relations kept investors on the sidelines. Another question was the
state of political power in Russia. During the early portion of the year, Russia
continued to renegotiate a rescue package with the International Monetary Fund
(IMF) while almost constantly reshuffling its government. President Yeltsin
faced and ultimately defeated an impeachment attempt and in apparent
retaliation, fired his prime minister. While the political wrangling continued
at home, Russian diplomats were busy trying to broker a peace agreement between
NATO and Yugoslavia. The nation's diminished status on the world political map,
however, meant that its brokerage attempts were difficult, and on more than one
occasion the diplomats "threatened" to stop their search for peace as they felt
no one was listening.
Toward the end of the six-month period, inflation became the overwhelming
concern for emerging markets investors. In April, the U.S. reported a slight
increase in inflation, raising concerns that the Federal Reserve Board would
raise interest rates. The announcement once again stopped the advance of
emerging markets in May as investors took profits ahead of a likely reduction in
liquidity. The threat of inflation was eased in June, however, as May's U.S.
Consumer Price Index (CPI) announcement showed virtually no change from the
previous month. In response, the emerging markets renewed their advance.
For the six months under review, your portfolio outperformed its benchmark, the
unmanaged Morgan Stanley Capital International (MSCI) Emerging Markets Free
Index. This outperformance was due mostly to the portfolio's selection of stocks
in South Africa and Singapore, two markets in which the portfolio was overweight
compared with its benchmark. Of course, one cannot invest directly in an index.
Varying stock performance resulted in some slight changes to the portfolio's
composition, although we made no major restructuring effort during 1999. We sold
the portfolio's holdings in Sri Lanka, Croatia and Jordan as we felt we could
find better bargains elsewhere, while we added Austria to give some exposure to
the future development of the European Union and the euro currency. Strong
growth by our Mexican and South African holdings resulted in an increase in the
portfolio's exposure to these countries. However, the portfolio's regional
exposure remained largely unchanged. As of the end of the six-month period under
review, Mexico comprised the portfolio's greatest country weighting at 13.6% of
total net assets, followed by holdings in South Africa, 10.4%; Brazil, 10.0%;
and Singapore, with 9.6%. Varying individual performances led to the replacement
of four companies in the portfolio's top 10 holdings. South Africa's Anglo
American PLC and Sasol Ltd. replaced Hong Kong's Cheung Kong Holdings Ltd. and
New World Development Co. Ltd. In addition, Grupo Financiero Banamex Accival SA
de CV (Mexico) and Korea Electric Power Corp. (South Korea) replaced Compania de
Telecomunicaciones de Chile SA, ADR (Chile) and Molinos Rio de la Plata SA, B
(Argentina). The outperformance of telecommunications shares saw the portfolio's
exposure to this sector increase by around 30%.
GEOGRAPHIC DISTRIBUTION
Templeton Global Growth Fund
Based on Total Net Assets
6/30/99
[PIE CHART]
Europe 36.3%
North America 24.7%
Asia 19.9%
Latin America 7.3%
Australia/New Zealand 5.6%
Mid-East/Africa 1.6%
Short-Term Investments & Other Net Assets 4.6%
We believe another interest-rate increase in the U.S. has already been
discounted by emerging markets, as reflected by the continued advance despite
Federal Reserve Board Chairman Alan Greenspan's reference to a possible interest
rate increase in his address to Congress. When a second rate increase comes, we
expect the emerging markets to react negatively, but as long as the rate
increase is not unreasonable, most emerging markets should resume their growth
trend after only a short break. As a result, we are treating the rate increase
as a cause of short-term volatility, and are not expecting a wholesale reversal
of the recovery trend. Such volatility could be enhanced by developments in
countries such as Pakistan, India and Korea, where political struggles are
currently playing out. Also, the formation of a new government in countries such
as Indonesia, Mexico and South Africa could add to the uncertainty. While all
these issues remain in the markets, we expect their impact to be short-lived and
the overall long-term recovery and growth trend to be preserved.
TEMPLETON GLOBAL GROWTH FUND
Cautious optimism crept back into the global financial system during the six
months under review, building on the confidence that emerged after the muted
impact of the Brazilian devaluation at the start of 1999. Tentative recoveries
in many of the Asian and Latin American economies appeared more robust, with
Japan surprising most economists when it reported exceptionally strong, first
quarter economic growth. Even in recently volatile Indonesia, the economic
outlook was improving when elections proved far more peaceful than political
pundits predicted. In the U.S., equity investors optimistically looked beyond
rising bond yields toward strong, second quarter earnings resulting from the
continued economic expansion.
However, underneath the headlines, difficulties remained. In Europe, the major
economies were surprisingly weak. This weighed on the value of the euro, the
common currency of the 11-country European Monetary Union (EMU), and caused most
European stock markets to post lackluster gains. In addition, many emerging
countries must maintain the momentum of reform to continue their recent economic
growth.
In the U.S., strong economic data and rising commodity prices led to fears that
inflation might lurk on the horizon and pushed the 30-year Treasury bond yield
above 6% in June, its highest level since 1997. Taking note of this, the Federal
Reserve Board (the Fed) raised the federal funds target rate 0.25%, to 5.00%, in
its late-June meeting. During the reporting period, the stock market shrugged
off the Fed and these bearish indications as investors seemed to focus instead
on the resilience of the longest economic expansion in post-war history.
Against this backdrop, the portfolio's performance benefited from a combination
of factors including a rebound in cyclical companies' and energy companies'
share prices and strong gains in Asian and South American stock markets. For the
portfolio, these positives outweighed the negative effects from its European
positions and a U.S. allocation relatively less than that of the portfolio's
benchmark, Morgan Stanley Capital International (MSCI) AC World Free Index.
During the period, many European markets had marginal or negative returns in
U.S.-dollar terms. The U.S. market's strong performance was less influential
than it might have been, as 20.9% of the portfolio's total net assets
represented U.S. investments on June 30, 1999, compared with 49.4% for the
benchmark.
Our U.S. underweighting was principally because of the high stock valuations in
the U.S. The market is the world's third most expensive, after Israel and
Finland (which is dominated by one stock, Nokia). Much of this performance came
from investors willing to pay more for stocks on a price-to-earnings basis,
which we believe will be difficult to repeat over the next five years.
Despite our underweight position in the U.S., we have more invested in American
companies than those from any other country. During the period, we found some
attractive bargains in a wide range of industries including automobile stocks,
aerospace and defense manufacturers, and insurance companies.
The portfolio's basic industry exposure helped its performance as cyclical
companies rebounded as a result of the improved commodity prices. Before their
recent moves, many of these companies were selling at valuations that were near
20-year lows relative to their respective markets. Our company-specific approach
led us to take advantage of these depressed multiples by establishing
significant positions in chemicals, forest products, metals and mining
companies. Signs of continued expansion in the U.S. coupled with a recovery in
Asia raised the prices of commodities from aluminum to zinc, during the period.
Similarly, an oil price rebound and consolidation within the sector helped our
energy sector holdings.
European markets generally performed poorly in the first half of the year. While
most of the European stock markets were up a respectable amount in local terms,
the weak euro meant that when translated into U.S. dollars, the majority of the
markets reported losses year-to-date. Notable exceptions were those that had not
yet taken part in the monetary union such as Norway, Sweden and the U.K., all of
which finished in positive territory. The portfolio benefited from its exposure
in these countries, particularly the latter where we uncovered bargains in a
number of smaller engineering firms during the period. Many of these stocks
posted sizable gains during the six-month period under review.
TOP 10 HOLDINGS
Templeton Global Growth Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Raytheon Co., A 2.1%
Aerospace and Military Technology, U.S.
Pohang Iron & Steel Co. Ltd. 1.7%
Metals and Mining, South Korea
Pharmacia & Upjohn Inc. 1.7%
Health and Personal Care, U.S.
Nortel Networks Corp. 1.6%
Data Processing and Reproduction, Canada
General Electric Co. PLC 1.6%
Electrical and Electronics, U.K
Iberdrola SA, Br 1.5%
Utilities Electrical and Gas, Spain
AXA SA 1.5%
Financial Services, France
Zurich Allied AG 1.5%
Insurance, Switzerland
Invensys PLC 1.4%
Industrial Components, U.K
Morgan Stanley Dean Witter & Co. 1.4%
Financial Services, U.S.
- --------------------------------------------------------------------------------
WHAT IS ROE?
Return on Equity (ROE) is a measure of a corporation's profitability calculated
by dividing a company's net income by the value of its common stock equity. ROE
tells shareholders how effectively their money is being utilized. When a
company's earnings double, its ROE also doubles but its price-to-earnings ratio
(P/E) is reduced by half.
- --------------------------------------------------------------------------------
It is difficult to overstate the profound impact that the past two years had on
Asian countries. Reforms that were unthinkable a few years ago were forced by
necessity and, in some countries, gained acceptance as they underpinned the
beginning of a recovery. In Thailand, for example, foreigners were able to
purchase property for the first time in 1999. Bankruptcy and foreclosure laws
were being hurried into place to deal with delinquent borrowers. Foreign
companies can now own controlling stakes in financial institutions. The same is
true in Korea, where ownership was limited to 4% of a company prior to the
crisis. Just in the second quarter of 1999, Singapore did away with the
artificial distinction between foreign and local bank shares. Even in Indonesia,
which to this point has been Southeast Asia's worst case during the crisis, the
recent political election represented a step towards stability. Although these
improvements may have blemishes, the direction remains positive.
The rally in Asia continued during the period with many markets posting sizable
gains. For the six months under review, the MSCI Emerging Markets Far East
Index, which excludes Hong Kong and Japan, was up 57.5% in U.S.-dollar terms,
with most of that increase coming in the second quarter of 1999. Outside of the
countries in the index, Hong Kong rose 36.7% while Japan was up 20.9%. The
continued recovery in sentiment toward these markets was all the more impressive
coming in the face of rising U.S. interest rates.
Hong Kong's economy faces formidable challenges. Unemployment continues to rise,
while gross domestic product (GDP) falls. Costs in many sectors are still too
high and further deflation may be needed to restore competitiveness. However,
Hong Kong's pegged exchange rate, while restricting currency flexibility,
mandates a discipline for many companies that may ultimately enhance returns to
shareholders. Rather than relying on a weak currency to make them competitive,
companies are forced to make difficult decisions about where they allocate
capital and how they bring down costs.
Our largest exposure to the region was still in Hong Kong, with 7.4% of the
portfolio's total net assets on June 30, 1999. With the market having almost
doubled from its six-month low in February 1999, we took advantage of the
improved stock prices to trim some of our larger positions. However, we still
maintained an overweight exposure at the end of the reporting period. Selling at
26 times earnings, Hong Kong appeared as expensive as markets in Europe and
North America. However, the comparison was not entirely fair since earnings for
Hong Kong companies remained depressed. Based on MSCI World Index data, the
return on equity (ROE) in Hong Kong for May 1999 was approximately 6% compared
with a five-year average of 12%. That means if Hong Kong were to return to its
historical ROE, earnings would be double their current level, and the
price-to-earnings ratio would be closer to 13. With many of the developed
markets around the world well above their historical norms in valuation terms,
we believe Hong Kong is still an attractive place to invest.
The Japanese market performed strongly throughout the period under review,
rising 26.7% in local currency terms, from 13842 on December 31, 1999, to 17530
at the end of the period. GDP numbers for the first quarter suggested that the
economy was growing at an annualized rate of 8%, a dramatic turnaround from the
previous five consecutive quarterly declines. Some of the strength clearly came
from the rebound in Asian demand. While the growth figure may turn out to have
been an anomaly, the restructuring taking place in corporate Japan gained
considerable momentum over the past six months. From a longer-term standpoint,
this is an even more encouraging sign for the underlying economy.
Why are we still underweight the Japanese market when these positive signs have
started to emerge? First, we do not allocate assets to a market because we see
favorable trends, but instead try to factor what those trends will mean for
specific companies' long-term earnings. We then buy those companies that appear
undervalued compared to all other corporations we study worldwide. Second,
should the recovery in Japan prove sustainable, it would clearly have a very
beneficial impact on our holdings elsewhere in Asia, some of which sell at far
more attractive valuation levels than the majority of Japanese stocks.
Latin American stock markets continued to recover in the second quarter due to
relative currency stability and improved commodity prices. Brazil benefited from
a steady currency, the real, which together with benign inflation and a pickup
in exports allowed interest rates to decline more than 50% from their peak this
year. This was a similar recipe to the one that helped start Asia's recovery,
although Brazil still faces challenges including a high budget deficit. Mexico
is also benefiting from a stable peso, a strong U.S. economy and higher oil
prices. In spite of the rallies in these countries, they remain among the most
attractive globally. At the end of the period under review, Latin America
comprised 7.3% of total net assets.
As noted at the beginning, the rebound in cyclical and energy related companies
coupled with improvement in Asian and Latin American investments accounted for
much of the improved performance in the portfolio so far this year. Although
many of these positions contributed to the portfolio's lackluster performance
experienced in 1998, so far, 1999 has proved a kinder year to value-oriented
investors. We remain steadfast in our conviction that Templeton's value-based
stock picking approach will produce superior returns for investors over the long
term.
GEOGRAPHIC DISTRIBUTION
Templeton International Equity Fund
Based on Total Net Assets
6/30/99
[BAR CHART]
Europe 64.4%
Latin America 11.0%
Asia 9.5%
Australia/New Zealand 6.0%
North America 3.5%
Middle East/Africa 1.2%
Short-Term Investments & Other Net Assets 4.4%
TEMPLETON INTERNATIONAL EQUITY FUND
Templeton International Equity Fund ended the six-month period under review with
a strong performance that was largely due to its exposure to emerging market
stocks, primarily in Latin America, where 11.0% of the portfolio's total net
assets were invested on June 30, 1999. The portfolio's European holdings, 64.4%
of total net assets at the end of the period, benefited from renewed investor
enthusiasm for low-priced cyclical shares, aiding portfolio performance. Hurting
the portfolio's relative performance was its low weighting in Asian stocks,
which performed very well in the first half of 1999. Additionally, the weakness
in the euro's value negatively impacted the value of many of our European
stocks.
The environment for overseas investors improved significantly in the first half
of 1999. The sharp economic setback seen in Asia during 1997-98 appeared to be
over, and the long recovery process has begun. Strong U.S. economic growth
continued to support growth elsewhere, and even the devaluation of the Brazilian
currency, the real, could not undermine growing investor confidence that the
worst economic jolts had already been felt. In Europe, growth was slower than
hoped for, but a more serious recession has been avoided thus far. Overall,
corporate earnings continued moving upward while interest rates rose. Many
investors responded favorably by bidding up share prices of equities that
earlier were considered at risk from the fallout of the Asian economic meltdown.
Meanwhile, the stock prices of companies earlier viewed as safe havens from a
potential worldwide economic downturn mostly suffered as investors reallocated
funds toward economically sensitive equities. Moreover, there remained more than
ample liquidity to support high share valuations in most of the world's stock
markets.
Despite Europe's overall lackluster stock markets, many of our European cyclical
stocks performed strongly, as they appeared to benefit greatly from growing
investor confidence that Asia's earlier problems would not spread throughout the
world. Instead, investor attention refocused on the potential for such
companies' earnings to improve, as commodity price increases became possible
again with rebounding world economic growth. The market value of holdings in
such firms as British Steel PLC, paper maker Stora Enso OYJ, R, and chemical
manufacturer Imperial Chemical Industries PLC all moved up during the reporting
period in response to these trends. The weak euro also improved the export
competitiveness of many European manufacturers, leading to improved customer
demand and greater corporate profits. Although many European shares were less
expensive than those found in the U.S., valuations still remained high by
historical standards for Europe as a whole. Accordingly, we continued to tilt
the portfolio's holdings toward those European shares that met our stringent
valuation criteria. This led us to maintain large weightings in the U.K., with
21.9% of total net assets at the end of the period, and the Nordic stock
markets, 11.6%, which were the only European markets to achieve positive U.S.
dollar returns in the six months under review.
We also achieved strong returns in Latin America in the first half of 1999.
Mexico was the region's standout performer, with the Mexican Bolsa rising 56.5%,
while most of the other Latin markets rose between 15% and 25% as well. The
receding fears of an impending worldwide economic debacle caused by Asia's
earlier economic difficulties restored investor confidence in the region and led
to attractive share price advances. The Brazilian currency devaluation
temporarily upset the market, but it quickly overcame this, because of better
than expected economic reports and sharply falling interest rates. Due to our
large exposure to Brazilian stocks such as Petroleo Brasileiro SA, pfd.,
Telecomunicacoes Brasileiras SA (Telebras) and Unibanco Uniao de Bancos
Brasileiros SA, the rapid rebound in Brazilian equity prices greatly contributed
to the portfolio's performance. Even after this advance, our Brazilian holdings'
valuations remained among the lowest in the world, and we are content to hold on
to these positions. Additionally, YPF SA, an Argentine oil company and a large
portfolio holding, rose strongly in the reporting period due to a takeover offer
from the Spanish oil company Repsol SA.
We found it more difficult to find attractive long-term values in most of the
Asian markets. Many Asian economies began to see meaningful improvement, but the
damage to the banking and corporate sectors will take much time and money to
repair. In particular, we were concerned that while many companies will begin to
see improving sales and operating earnings in the 1999-2000 time period,
earnings per share for such companies often may not recover as much as many
analysts hope. Many of these companies may need to issue new shares as they
raise money to repair weakened balance sheets, which would lower their earnings
per share. Moreover, continued economic problems in Japan and China could pose
additional challenges for the region going forward. Accordingly, we maintained a
low weighting in Asia and purchased only strongly capitalized companies such as
Korea Telecom Corp., ADR and Smartone Telecommunications Holdings Ltd. We
suspect that better bargains will emerge in Asia as the recovery and
recapitalization process moves forward. However, our course may be difficult, as
other investors have rushed to re-establish positions in Asian markets, thereby
ramping up share prices. We will continue to seek out Asian stocks that are
selling at bargain levels based on our long-term earnings per share estimates
while attempting to avoid those stocks where the market may have temporarily
forgotten about the need these companies may have to issue new shares. For
example, Korea was one of the best-performing markets in Asia, but new equity
issuance in the remainder of 1999 might surpass 20% of the current stock market
capitalization.
Looking forward, as the markets move higher we will be looking for opportunities
to exit higher-priced stocks in favor of those that meet our criteria for
attractive long-term value. We suspect that this will mean reducing some of the
portfolio's holdings in Europe while building our positions in well-capitalized
Asian companies. With the global economy's health improving daily, the
environment for investing overseas remains favorable. Moreover, valuations for
foreign shares generally remain below those of U.S. shares. Nevertheless,
valuations overseas are not low by historical standards, and it is more
difficult than ever to identify outstanding bargains. These high valuation
levels represent a potential risk should the economic trends turn unfavorable
and limit corporate earnings growth or lead to higher interest rates. As always,
our research team will be scouring the world for those shares whose prices are
selling at the lowest value in relation to their long-term earnings potential,
since such shares help reduce risk while offering the potential for attractive
long-term returns.
GEOGRAPHIC DISTRIBUTION
Templeton International Smaller Companies Fund
Based on Total Net Assets
6/30/99
[PIE CHART]
Europe 49.9%
Asia 27.1%
North America 5.8%
Latin America 5.7%
Australia/New Zealand 4.1%
Mid-East/Africa 0.8%
Short-Term Investments & Other Net Assets 6.6%
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
During the six months ended June 30, 1999, Templeton International Smaller
Companies Fund performed strongly as foreign small-cap stocks rebounded from a
generally disappointing 1998. The portfolio's performance benefited from a
general resurgence in small companies and a market rotation to out-of-favor
cyclical stocks. As value investors, we had substantial positions in cyclical
stocks, or shares in companies that are particularly sensitive to movements in
the economy. Until April, many cyclical companies were selling at significant
discounts to their underlying value and had been identified as bargain stocks by
our analysts.
The portfolio employs a "bottom-up" value approach to stock-picking, as we look
carefully at companies based on their long-term operating fundamentals. We often
take advantage of short-term volatility, because such disruptions can evoke a
wave of investor selling, which can push the stock price down to a level well
below its intrinsic value. However, we also recognize that value often takes
time to show itself in the form of higher prices. For this reason, we are
long-term investors, typically holding stocks we buy for about five years.
On June 30, 1999, the portfolio's largest country allocations were in the U.K.
(16.3%), Hong Kong (12.9%), the Netherlands (6.0%) and Spain (6.8%). Nearly
fifty percent of the portfolio was invested in European stocks, 27.1% in Asian
stocks, 5.7% in Latin American stocks, 10.7% in other stocks and the balance in
cash instruments.
In local currencies, European exchanges generally rewarded investors during the
first half of 1999. Stock markets in France, Germany, the Netherlands and the
U.K. each returned in excess of 6% in local currency terms. However, because the
U.S. dollar strengthened during the period, dollar-based returns were
significantly lower. Increased merger and acquisition (M&A) activity in the
first half of 1999 helped unlock value in some of our European small-cap shares.
In April, the portfolio benefited as Unigate PLC made an offer to buy fund
holding Terranova Foods PLC, a U.K. convenience foods manufacturer, and
eventually purchased the company at nearly twice the prebid speculation price.
Likewise, Dahl Intressenter AB announced its acquisition of portfolio holding
Dahl International AB, a Swedish plumbing wholesaler, at a healthy premium to
its pre-offer closing price. We believe that corporate activity will continue to
shape the European investment landscape and help focus investor attention on
unjustifiably undervalued small-cap shares.
In Asia, most stock markets recovered sharply during the period. Many banks
resumed lending as interest rates declined. Partially as a result of this,
investor confidence seemed to rebound in banks and property stocks, two sectors
hit hard by tightening credit, as banks were able to make financing available to
corporations and homebuyers. This is especially true in Hong Kong, our largest
weighting in the region. Consequently, our holdings in companies like Dah Sing
Financial Holdings Ltd., a well-managed Hong Kong bank with strong capital
ratios and a quality loan book, performed particularly well for the portfolio.
The period under review saw strong performance from Japan, with the Nikkei
posting a 20.9% return, as foreign investors attempted to rebalance their
historically underweight positions. Although there are signs of economic reform
in Japan, the strong returns were largely driven by technical rather than
fundamental factors in our opinion. Nevertheless, Japan appears to be moving in
the right direction as competitive pressure and greater disclosure requirements
force Japanese companies to take an honest account of their business mix, to
reduce excess capacity or merge. While Japan is the portfolio's second-largest
Asian weighting, Japanese equities still accounted for only 2.9% of the
portfolio's total net assets on June 30, 1999. An example of our Japanese
holdings is Yamato Kogyo Co. Ltd., a leading producer of H-beam steel used to
construct buildings and bridges, which we were able to purchase below what we
felt was the fair value of the company's assets.
Despite the economic problems in Latin America, stock prices in this region
performed very well as investors began looking forward to potentially improved
economic performance. Moreover, the very low valuations of Latin American stocks
relative to those elsewhere attracted investor interest. Brazil remained the
portfolio's largest area of concentration in Latin America, with 4.1% of total
net assets on June 30, 1999. One of the portfolio's Brazilian holdings is Weg
SA, pfd., an integrated motor manufacturer. The company should see significant
opportunities to export its products, particularly to the U.S.
Despite the portfolio's solid performance during the first half of 1999, small
companies or enterprises with less than U.S. $1 billion in market capitalization
generally remain undervalued relative to large companies in most major markets.
This disparity is evident when comparing almost any valuation measure such as
price-to-earnings, price-to-cash flow or price-to-book value. We see this
continued divergence as an unusually good opportunity to uncover bargain
small-cap stocks for the portfolio.
TOP 10 HOLDINGS
Templeton International Smaller Companies Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
GTC Transcontinental Group Ltd., B 3.0%
Broadcasting and Publishing, Canada
Giordano International Ltd. 2.7%
Merchandising, Hong Kong*
Li & Fung Ltd. 2.3%
Merchandising, Hong Kong*
Sa des Galeries Lafayette 2.3%
Merchandising, France
Dah Sing Financial Holdings Ltd. 2.1%
Financial Services, Hong Kong*
Weir Group PLC 2.0%
Industrial Components, U.K
Grupo Dragados SA 2.0%
Construction and Housing, Spain
Lex Service PLC 2.0%
Business and Public Services, U.K
Siam City Cement Public Co. Ltd., fgn 1.9%
Building Materials and Components, Thailand
Gas y Electricidad SA, Br 1.8%
Utilities Electrical and Gas, Spain
*Hong Kong reverted to the sovereignty of China on July 1, 1997.
TOP 10 HOLDINGS
Templeton Pacific Growth Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Development Bank of Singapore Ltd., fgn 4.3%
Banking, Singapore
Fuji Heavy Industries Ltd. 3.9%
Industrial Components, Japan
Wheelock and Co. Ltd. 3.8%
Multi-Industry, Hong Kong*
Singapore Airlines Ltd., fgn 3.6%
Transportation, Singapore
City Developments Ltd. 3.6%
Real Estate, Singapore
Commerce Asset-Holding Bhd. 3.6%
Financial Services, Malaysia
Mitsubishi Heavy Industries Ltd. 3.0%
Industrial Components, Japan
Nisshinbo Industries Inc. 2.8%
Textiles and Apparel, Japan
AXA China Region Ltd. 2.7%
Insurance, Hong Kong
Daito Trust Construction Co. Ltd. 2.6%
Construction and Housing, Japan
*Hong Kong reverted to the sovereignty of China on July 1, 1997.
TEMPLETON PACIFIC GROWTH FUND
Throughout Asia, the announcements of monetary easing and corporate
restructuring in Japan dominated investor attention during the six months under
review. Japan's policymakers finally appeared to be taking strong measures to
shore up the floundering economy. The news, coupled with positive developments
in the Latin American emerging markets, buoyed market sentiment throughout Asia,
with particularly strong performances in Hong Kong, Taiwan, Korea and of course,
Japan. Templeton Pacific Growth Fund benefited from these developments in this
period, as 50.4% of the portfolio's total net assets were in Hong Kong and Japan
on June 30, 1999. Our gains were particularly notable in March, the month in
which Japanese stocks began fully to reflect a fundamental change in foreign
investor attitudes toward Japanese equities.
In our opinion, the fruits of the "big bang," Japan's financial reforms, are
forcing a fundamental shift that promises to benefit portfolio performance over
the long term. Competitive pressure, combined with greater disclosure
requirements, are finally forcing Japanese companies to take honest account of
their business mix, to shut down capacity and/or merge. While this news is
positive and has fueled a surge in Japanese share prices, we remain cautious in
our investment choices as the necessary restructuring is extensive and not all
companies will survive. At the beginning of the reporting period, we held back
from rushing into Japan. However, since then, we have added to several
positions, including Nomura Securities Co. Ltd., Fuji Photo Film Co. Ltd. and
Kurita Water Industries Ltd.
Hong Kong, where we held 23.8% of the portfolio's total net assets on June 30,
1999, experienced improving economic fundamentals, indicated by declining
interest rates, firming real estate prices and low inventories. Recent share
price moves now appear to reflect these improvements. Nevertheless, China's
development exerts considerable influence on Hong Kong's economy. In China,
signs are mounting that they may be forced to devalue their currency before the
end of the year. As the surrounding region stabilizes, the central government's
incentives to maintain the current level of the Chinese currency, the renminbi,
recede. Although we do not believe a devaluation would destroy regional economic
recovery, we would expect both Chinese and Hong Kong shares to retreat. Hence,
we selectively took advantage of the reporting period's rally, by taking profits
on Hong Kong names including Cathay Pacific Airways Ltd., Hon Kwok Land
Investment Co. Ltd., and Cheung Kong Holdings Ltd.
The rest of Asia, particularly countries such as Korea and Thailand that have
already taken great strides in restructuring, will be a big beneficiary of
Japan's economic recovery. Our combined exposure to Korea and Thailand was 2.1%
of the portfolio's total net assets at the end of the reporting period. Our lack
of exposure in Korea reflects our belief that the market has run ahead of itself
in discounting the news of restructuring. Compared to Japan, for example, we
feel that Korea engenders a far greater risk of labor unrest as a consequence of
corporate layoffs and restructuring.
In Thailand, the market response to regional stabilization has been less
enthusiastic than in Korea. We similarly remain on the sidelines, as we would
first like to see whether the government will be able to implement the recently
enacted bankruptcy law. Finally, in Malaysia our weighting increased, from 7.4%
of total net assets on December 31, 1998, to 10.9% on June 30, 1999. This
increased exposure results from a 39% rebound in the Malaysian market rather
than from any portfolio management activity. We continue to maintain our
holdings as a result of capital controls the Malaysian government introduced
last September. However, based on recently announced policy changes, we fully
expect further relaxation of capital controls.
Looking forward, we are optimistic about future prospects for investing in the
Pacific Rim markets. While we are still cautious about Japan, recent economic
reforms designed to make its financial institutions more efficient have the
potential to benefit the country's economic performance over the long term. In
our opinion, the Japanese government now understands what levels of liquidity
are necessary to revive the country's economy, and it appears willing to take
action to achieve this goal. It is also encouraging that other Asian countries,
particularly those that have already taken positive strides in restructuring,
may benefit from Japan's potential economic recovery.
PORTFOLIOS SEEKING GROWTH AND INCOME
GLOBAL UTILITIES SECURITIES FUND
OVERVIEW
Global utility stocks were volatile over the six-month period ended June 30,
1999. While telephone service stocks rose sharply, electric utility stocks
declined approximately 5%-10% and gas stocks were mixed during the period. The
portfolio benefited from this, as our large weighting in telephone and cellular
service stocks performed well, offsetting the electric and gas utilities' weak
performance. For the six months under review, the portfolio outperformed its
benchmark, the unmanaged FT/S&P Actuaries World Utilities Index. Of course, one
cannot invest directly in an index.
Continued strong growth in demand for wireless communications and
better-than-expected growth in data traffic stemming from Internet expansion
drove the telecommunications industry's strong performance. Data traffic
increased as a proportion of total telecommunications traffic as Internet usage
wove its way deeper into our everyday lives. The strong demand for wireless
phone service seen in Europe over the past several years spread elsewhere in the
world. In the U.S., wireless telecommunications subscribers numbered more than
70 million, or approximately 25% of the population, at the end of the reporting
period.
GEOGRAPHIC DISTRIBUTION
Global Utilities Securities Fund
Based on Total Net Assets
6/30/99
[PIE CHART]
North America 65.1%
Europe 23.1%
Asia 4.4%
Latin America 1.4%
Short-Term Investments & Other Net Assets 6.0%
Domestic electric utility companies, 22.3% of the portfolio's total net assets
on June 30, 1999, continued to streamline their financial and operational
structures to prepare for increased competition resulting from deregulation. We
believe many of these companies should create substantial shareholder value over
the coming years, as a result of their restructuring efforts. During the period,
we more than doubled our exposure to the telecommunications industry, from 25.0%
of total net assets on December 31, 1998, to 54.3% on June 30, 1999, as we felt
this sector offered significant value. Our weightings among other portfolio
industries remained relatively stable over the period with electric companies --
domestic and foreign -- at 37.0% and gas companies 3.0% of total net assets at
the end of the reporting period.
Over the six-month period, the U.S. experienced the strongest performance, with
Europe, Asia and Latin America producing mixed results. The largest geographic
portfolio weightings were in North America at 65.1% and Europe at 23.1%, while
we were underweight relative to our benchmark in Asia and Latin America, with
only 4.4% and 1.4% of total net assets respectively, on June 30, 1999.
UNITED STATES
In the U.S., telecommunications stocks were strong performers during the six
months under review, driven by increasing traffic volumes, continued
deregulation and strong growth in wireless services. Portfolio holdings MCI
WorldCom Inc., Airtouch Communications Inc. (recently acquired by Vodaphone),
Lucent Technologies Inc., Nextel Communications Inc., Primus Telecommunications
Group Inc., Bell Atlantic Corp. and others were up strongly over the period. We
typically seek telecommunications companies that we believe are leaders in their
industry and have the potential to deliver significant shareholder value over
the long term. One of the larger portfolio holdings, Sprint Corp. (PCS Group),
is a good example of the type of company we look for when making investments.
The company is uniquely positioned to take advantage of the growth in wireless
communications due to its strong balance sheet, well-known brand name and
state-of-the-art digital network. Since we purchased this stock, it has
delivered record levels of subscriber growth and is now considered one of the
world's premier wireless telecommunications companies.
The past six months have been challenging for electric and gas utility
investors. Strong domestic economic growth caused many investors to seek
opportunities in other, more economically sensitive industries. The strong,
long-term fundamentals remain in place for these companies given their high
level of free cash flows, strong balance sheets and the noncyclical nature of
their products and services.
Diversification can be a key performance driver for any company, but it is
particularly relevant to an electric utility company because it is difficult for
investors to value a company more highly than its peers based only on its core
transmission and distribution businesses. One company that produced an
outstanding diversification strategy is Montana Power Co., which we first began
acquiring in 1998. Although many electric companies underutilized their systems'
embedded telecommunications networks, Montana Power chose to exploit its
existing right-of-way assets and expertise in constructing and utilizing utility
services by building a nationwide telecommunications network. Considering the
tremendous growth in data and voice transmission network needs, this strategy
resulted in significant returns for Montana Power's shareholders. Over the six
months, with more than a 20% increase in its stock price, Montana Power is
clearly unlocking hidden value. Other holdings that we feel have similar
potential include Edison International, Northwestern Corp., CMS Energy Corp. and
Duke Energy Corp.
EUROPE
The European electric companies had mixed performance over the six-month period.
Strong returns in Italy offset mostly flat returns for the other countries where
we had holdings. All of our investments during the period were in the developed
countries of Western Europe. By avoiding the East European marketplace, we were
not affected by this region's severe economic downturn.
We exited the Italian electric marketplace in February after watching our
investment in AEM SpA rise 120% from our purchase price in the prior year. In
March, we redirected our attention toward the U.K., a market that we had
completely exited during the fall of 1998 over regulatory concerns, and what we
felt were inflated stock prices. However, after watching U.K.-utility stocks
decline significantly from October 1998 through March 1999, we felt this market
was oversold. Five new U.K. investments we made during February and March were
PowerGen PLC, Scottish Power PLC, COLT Telecom Group PLC, Severn Trent PLC and
Scottish & Southern Energy PLC. In our opinion, these companies are high-quality
utility/communications companies with excellent management teams.
European telecommunications companies were solid performers over the reporting
period. Incumbent providers and new entrants moved quickly to improve their
underdeveloped telecommunications infrastructure in Europe. Many regions still
had a significant amount of pent-up demand for basic phone service. Telecom
Italia SpA, a portfolio holding, is an example of a former monopoly provider
that is streamlining its existing operations and achieving success in new areas
such as wireless communications. We also have investments in emerging companies
that are capitalizing on the growing need for bandwidth, such as Equant NV and
COLT Telecom. European telecommunications is one of the fastest growing areas in
the global utilities sector, and we remain very optimistic about this area's
opportunities over the next several years.
TOP 10 HOLDINGS
Global Utilities Securities Fund
6/30/99
% OF TOTAL
COMPANY NET ASSETS
- --------------------------------------------------------------------------------
Frontier Corp. 3.72%
Korea Telecom Corp. 3.29%
Telecom Italia SpA 3.18%
GTE Corp. 3.16%
Equant NV 2.64%
Nextel Communications Inc., A 2.62%
Bell Atlantic Corp. 2.56%
Global TeleSystems Group Inc. 2.22%
MCI WorldCom Inc. 2.22%
Edison International 2.21%
LATIN AMERICA
The portfolio's weighting in Latin American companies was very small during the
period, with approximately 1.4% of total net assets as of June 30, 1999. For
most of the past year, Latin America's financial markets were prone to
significant volatility, repeatedly whipsawed by the latest news of economic
crises engulfing Asia and Eastern Europe. As widely anticipated, the region's
largest economy, Brazil, under severe financial pressures, devalued its
currency, the real, in January 1999. This initially sent stock markets
throughout the region reeling, as speculative pressures on the currencies of
Argentina, Peru and other neighboring countries peaked, and investors
contemplated the long-term economic impact of the devaluation on the region's
intertwined economies.
In the days immediately following the devaluation, we took advantage of the
severe negative market pressure on Telecomunicacoes Brasileiras SA (Telebras)
ADR shares, adding to our existing position at extremely depressed prices. Since
then, the shares, which dipped briefly into the low $50s on the heels of the
devaluation, were trading in the high $80 range just five months later.
ASIA
The portfolio's Asia weighting remained relatively modest during the reporting
period and stood at about 4.4% of total net assets on June 30, 1999. Asian
economies and stock markets underwent significant volatility during the six
months under review as the region attempted to recover from the financial crisis
that began in late 1997. In this environment, we looked for opportunities to
invest in financially sound companies with good growth prospects at attractive
prices.
The widespread negative investor sentiment that enveloped Asian stocks enabled
us to find a few companies whose equities we felt were undervalued. One example
was Nippon Telegraph and Telephone Corp. (NTT) of Japan, the largest telephone
company in the world, in terms of sales. NTT is poised to benefit from the
Japanese telecommunications industry deregulation. We also invested in the
privatization of Korea Telecom Corp. during the reporting period. In our
opinion, the shares were trading at a significant discount to regional peers
despite the company's solid and improving fundamentals. Korea Telecom's
privatization marked the first time that non-Korean investors could purchase
shares in the company.
We believe that the worst of the Asian crisis has passed and that the region
will begin to deliver improved returns to equity investors. The portfolio will
continue to follow its contrarian approach of investing in undervalued Asian
companies that we believe have upside potential commensurate with their risks
and have strong management teams that are capable of navigating these difficult
times.
Looking forward, we are optimistic regarding the potential of global utility
stocks to deliver strong shareholder returns over the long term. While it is
impossible to predict future returns, we believe that utilities such as
telephone, electricity and gas services will continue to play an integral part
in the world's economic development.
- --------------------------------------------------------------------------------
GLOBAL UTILITIES SECURITIES FUND --
CHANGE OF NAME AND RESTATEMENT OF INVESTMENT STRATEGY
Effective November 15, 1999, Global Utilities Securities Fund's name will be
changed to "Global Communications Securities Fund" and the portfolio's strategy
will be restated to one of investing at least 65% of total assets in equity
securities of companies that are primarily engaged in providing communications
services and communications equipment. These changes will reflect better the
portfolio's principal investment strategy of investing primarily in the
communications industries, which have come to represent over 70% of the global
public utilities sector. The portfolio's principal risks are those related to
communications investments. The portfolio's investment goal and its other
investment policies and restrictions will remain the same.
INVESTORS SHOULD CONSIDER CAREFULLY THE SUBSTANTIAL RISKS INVOLVED IN A
PORTFOLIO THAT CONCENTRATES IN A SINGLE INDUSTRY SECTOR RATHER THAN DIVERSIFYING
ACROSS MANY DIFFERENT SECTORS. See "Main Risks - Utilities Industries" in the
portfolio's current prospectus and in the Supplement on page 181 of the
semiannual report.
When reviewing their investments or considering new purchases or transfers,
Contract Owners may wish to consult with their investment representatives.
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUND
The financial markets shifted focus during the first half of 1999 from the
impact of troubled foreign economies on the U.S., to improving global economic
growth conditions. The year started off with a continuation of trends in place
for much of the previous year. While a small number of large-cap growth stocks
- -- the "nifty fifty" -- performed well, many value and smaller capitalization
issues experienced weak results reflecting concerns over corporate
profitability.
However, in the second quarter of 1999 the scenario changed significantly. First
quarter earnings reports were generally stronger than expected, and evidence of
economic improvement abroad mounted, most notably in Asia and Latin America.
Consequently, a greater number of U.S. stocks rose in price, including many
economically sensitive issues. Also, value stocks outperformed growth issues,
reversing a general trend in place over the past five years. Growth and Income
Fund, which utilizes a value discipline, reflected these favorable trends over
the reporting period, with a healthy return for the six-month period.
TOP 10 HOLDINGS
Growth and Income Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Bell Atlantic Corp. 3.1%
Telecommunications
Pharmacia & Upjohn Inc. 2.9%
Health Technology
GTE Corp. 2.5%
Telecommunications
Texaco Inc. 2.2%
Energy Minerals
Royal Dutch Petroleum Co. 2.0%
Energy Minerals
Bank One Corp. 1.9%
Finance
General Mills Inc. 1.8%
Consumer Non-Durables
Lincoln National Corp. 1.8%
Insurance
Chevron Corp. 1.8%
Energy Minerals
Dana Corp. 1.6%
Producer Manufacturing
The portfolio seeks to invest in stocks that offer current income and sell at
attractive valuations. We look for stocks selling at bargain prices according to
measurements such as relative dividend yields, book value, revenues and
normalized earnings. This generally entails investing in stocks of quality
companies at what we feel are temporarily depressed prices. At the same time, we
collect current investment returns, in the form of dividends, which can provide
a cushion against possible stock declines. Our investments typically fall into
three categories: cyclical stocks, "special situation" stocks, and traditional,
high dividend paying stocks such as utilities and real estate investment trusts
(REITs).
Our cyclical stocks were strong performers over the six-month review period,
especially during the second quarter of 1999. Basic material holdings in metals,
chemicals, paper and forest products companies performed best. We took advantage
of market strength to reduce some positions in the paper sector including Union
Camp Corp., which was subject to an attractive acquisition bid. We also
initiated an investment position in E.I. du Pont de Nemours and Co. (DuPont),
the world's largest chemical company. During the period, DuPont announced an
exciting restructuring, which we believe should enhance its growth prospects.
Our energy stocks, which represented 10.4% of the portfolio's total net assets
on June 30, 1999, also did well during the period. One of our recent
acquisitions, Royal Dutch Petroleum Co., typified the portfolio's investment
strategy. Responding to sharply lower oil prices at the beginning of the year,
Royal Dutch declined more than 30% from its 1998 highs, and its relative
dividend yield reached very attractive levels. Oil prices have since rebounded,
and the company's stock price rose more than 36.4% from our purchase price by
the end of the reporting period. One of the portfolio's remaining energy
investments, Atlantic Richfield Co., also responded favorably to an acquisition
bid from another oil company.
Among our "special situation" investments, we determined that our dividend yield
requirements, in the past, were too restrictive for sectors that offer
above-average growth potential, such as technology and health care. Thus, we
took advantage of some recent weakness and modified our criteria a bit to allow
greater participation in these exciting areas. New technology positions include
Motorola Inc., International Business Machines Corp. (IBM) and Automatic Data
Processing Inc. In our opinion, each of these investments offered a combination
of excellent value, current income and attractive earnings growth prospects.
New health care investments included Baxter International Inc. and American Home
Products Corp. Uncertainty over Medicare reform resulted in weak performance for
these and many other health care companies during the period. Unfortunately, we
see this trend continuing over the near term. However, looking forward over
several years, we continue to believe the industry's growth potential remains
very favorable.
Lastly, a standout performer for the period was waste management company
Browning-Ferris Industries Inc. Selling at historically low valuations due to
disappointing short-term earnings, we initiated an investment position late last
year. The company recently received a takeover bid, which resulted in a greater
than 50% appreciation during the first half of this year.
The portfolio's holdings in REITs and high dividend yielding utilities provided
mixed results for the six-month period. Both sectors had disappointing results
during the first quarter; however, they registered superior returns during the
April-through-June period. Our gas utility holdings performed well as they
responded to rising fuel prices and merger activity. One of our holdings,
Consolidated Natural Gas Co., received a buyout proposal during the second
quarter. Although we reduced our overall investments in these sectors, we
remained overweighted relative to applicable indices due to their continued
attractive yields and valuations. As of June 30, 1999, utilities comprised 11.2%
and REITs 4.6% of the portfolio's total net assets. We believe consolidation
activity will accelerate among utility positions. Our REIT holdings, likewise,
should continue to experience solid operating earnings and dividend growth. We
believe that these factors should lead to rising prices for our investments in
both sectors during the coming year.
Looking forward, we anticipate continued high levels of financial market
volatility. The current economic environment, which offers an extraordinary
combination of moderate growth and subdued inflation, is perhaps the best in
decades for stocks. However, valuations are also at historically high levels and
could be affected by rising interest rates. As our investment discipline
attempts to take advantage of such volatility, we believe that the portfolio is
especially well-suited for today's market environment.
INCOME SECURITIES FUND
The U.S. stock market continued to strengthen during the six months under
review, as signs of solid U.S. economic growth and stabilizing international
markets boosted investor confidence. The same stronger economic reports,
however, weighed on the bond market and drove the 30-year Treasury bond yield up
to 5.98% on June 30, 1999, from 5.15% at the beginning of the period.
Performance of the portfolio's bond and stock sectors was mixed over the period
as signs of strong economic growth, benign inflation and rising interest rates
affected the sectors in different ways. Although the portfolio's general sector
weightings were essentially unchanged from year-end 1998, this environment
presented us with several investment opportunities in both the bond and equity
markets.
TOP FIVE STOCK HOLDINGS
Income Securities Fund
6/30/99
% OF TOTAL
COMPANY NET ASSETS
- --------------------------------------------------------------------------------
Philip Morris Cos. Inc. 1.86%
Entergy Corp. 1.38%
Texas Utilities Co. 1.38%
Florida Progress Corp. 1.34%
Dominion Resources Inc. 1.29%
TOP FIVE BOND HOLDINGS
Income Securities Fund
6/30/99
% OF TOTAL
ISSUER NET ASSETS
- --------------------------------------------------------------------------------
U.S. Treasury Bonds 13.46%
Republic of Argentina 5.28%
Republic of Brazil 4.24%
Republic of Korea 2.40%
Consoltex Group Inc. 1.04%
The portfolio's bond holdings consist of corporate, foreign and U.S. Treasury
bonds. Corporate bonds, representing our largest fixed-income weighting,
increased slightly to 25.1% of total net assets on June 30, 1999, compared with
23.5% on December 31, 1998. We received calls or tenders for several of the
portfolio's bond positions during the period and were able to reinvest the
proceeds in corporate bonds with attractive valuations and income yields. New
corporate bond positions included issues from food and beverage company
AmeriServe Food Distribution Inc., chemical manufacturer Lyondell Chemical Co.,
telecommunications and information services company Level 3 Communications Inc.,
cable TV companies Cablevision SA and Charter Communications Holdings LLC, and
communication companies Microcell Telecommunications and NEXTLINK Communications
Inc.
The portfolio's foreign bonds performed well during the reporting period, as
developing countries made progress on economic and political reforms and
investor concerns related to international economic turmoil subsided. The South
Korean government, for example, took steps to reform the country's banking
system and corporate governance structure. We established the portfolio's
position in Korean government bonds in early 1998 and added to the position on
weakness last October. Subsequently, the bonds were upgraded to investment grade
and appreciated above par value. Brazil, Russia and South Africa are also making
progress on reforms and recent performance reflected the encouraging
developments. As a result of recent strong performance, we trimmed the
portfolio's positions in Korea, South Africa and Russia and initiated a position
in Turkey dollar-denominated Eurobonds, which we believe offered an attractive
yield and significant total return potential as the country makes progress
toward joining the European Monetary Union.
After strong performance during most of 1998, Treasury bonds reversed course and
rates generally moved higher during the six months under review. Treasury bonds
reacted negatively to reports of continued strong economic growth and the
Federal Reserve Board's 0.25% increase in the federal funds target rate, to
5.00%, in June. However, we believe the absence of pricing power and continued
weakness abroad will likely keep interest rates from rising significantly. We
therefore maintained the portfolio's U.S. government bond position at
approximately 13.5% of total net assets on June 30, 1999.
The portfolio's equity sectors delivered mixed results during the period under
review, with utility stocks performing poorly due to rising interest rates.
After a solid performance over the past two years, utility stocks retreated as
reports of economic strength drove U.S. Treasury rates higher. We continue to
believe utility stocks offer attractive yields and value relative to the broader
stock market, as well as improving opportunities for growth from companies that
are successfully adapting to a deregulated environment.
The portfolio's energy and real estate sectors rebounded during the period,
while the gold sector experienced weakness related to supply and demand
concerns. We added to the portfolio's energy sector throughout the period
including a new position in Key Energy Services Inc., an oil-field services
company. Energy stocks began to show strength in March on news that OPEC planned
to reduce oil production in an effort to increase the price of oil. This news,
combined with firming global demand, resulted in the price of oil climbing more
than 50% for the six-month period under review. Although energy stocks
appreciated substantially due to the higher oil prices, we believe the sector
has more upside potential at these higher energy prices. In the real estate
sector, we sought to take advantage of attractive valuations and industry
conditions by adding to the portfolio's existing real estate positions including
Meristar Hospitality Corp. and Glenborough Realty Trust Inc., and initiating a
position in Apartment Investment & Management Co. convertible preferred stock.
In our opinion, these companies represent a diverse mix of property types with
attractive dividend yields and valuations.
The portfolio's cable and telecommunications stocks turned in a strong
performance during the period, prompting us to take profits in the sector by
selling the portfolio's CSC Holdings Inc. (Cablevision Systems Corp.) and
MediaOne Group Inc. convertible preferred stocks. In addition, we sold or
trimmed several stock positions with gains that had appreciated during the year
and no longer fit our valuation criteria.
With the stock market near all-time highs and continued economic uncertainty, we
remain selective with respect to new investments. As always, we are committed to
our value-oriented approach and we will continue to utilize fundamental research
in our search for investment opportunities across markets.
MUTUAL SHARES SECURITIES FUND
During the six months under review, the domestic economy experienced generally
rising interest rates, low inflation and strong economic growth. In Europe, many
central banks cut interest rates in an attempt to restart their economies, which
were in danger of falling into recessions. Emerging countries in Asia and Latin
America appeared to be nearly past the crisis of the last two years, with many
posting solid growth during the period.
In this environment, Mutual Shares Securities Fund had an excellent performance
that compared favorably to most of the broader market indices including the S&P
Mid-Cap 400 and the portfolio's benchmark, the unmanaged Standard & Poor's 500
(S&P 500) Index. Of course, one cannot invest directly in an index. Our
disciplined value and special situations approach resulted in gains in a number
of the portfolio's securities. Several of our largest positions, including
LucasVarity PLC, Morton International Inc., Telecom Italia SpA, di Risp, and
MediaOne Group Inc., received take-over bids at large premiums during the
six-month reporting period. As always, we identified these investments by
conducting detailed fundamental analyses of companies with attractive assets
trading at significant discounts to what we believed were their true value.
TOP 10 HOLDINGS
Mutual Shares Securities Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------------------------------
Investor AB, A and B 2.92%
Multi-Industry, Sweden
Bank One Corp. 2.59%
Banking, U.S.
Telephone & Data Systems Inc. 2.10%
Telecommunications, U.S.
First Union Corp. 2.00%
Banking, U.S.
Lockheed Martin Corp. 1.67%
Aerospace and Military Technology, U.S.
United Asset Management Corp. 1.66%
Financial Services, U.S.
MediaOne Group Inc. 1.63%
Broadcasting and Publishing, U.S.
Owens-Illinois Inc. 1.36%
Industrial Components, U.S.
Philip Morris Companies 1.33%
Beverages and Tobacco, U.S.
Chase Manhattan Corp. 1.32%
Banking, U.S.
One of our best performers during the period was Telephone & Data Systems Inc.
(TDS). TDS is a U.S.-based diversified telecommunications services company,
which traded at a 50% discount to what we believed was its intrinsic value. The
company's announcement to sell or spin off Aerial Communications, one of its
most valuable assets, helped narrow this discount. As a result, TDS's stock
price increased 63.3% during the six-month period.
We found several opportunities to invest in companies with undervalued assets in
the U.S. including Bank One Corp., Lockheed Martin Corp. and Washington Post Co.
Bank One owns an outstanding credit card and consumer banking business, First
USA, which we feel is not fully reflected in its share price. Lockheed Martin,
the nation's largest defense company, generates enormous free cash flow, and
Washington Post, a first-class media company, owns attractive and
underappreciated cable assets.
In Europe, we believed Lagardere SCA and Rhone-Poulenc SA were undervalued.
Lagardere, the French media and aerospace conglomerate, took significant steps
to improve shareholder value. Rhone-Poulenc is restructuring to create one of
the world's largest and lowest-cost pharmaceutical companies.
Looking forward, we believe that the U.S. as well as foreign markets should
continue to present us with many profitable investments. By recognizing
opportunity where others may see only bad news, we are able to buy securities at
temporarily depressed prices, which often leads to significant long-term
results. We also expect to find value in many of the companies undergoing
corporate change, such as the purchase or sale of assets, spinoffs and share
buybacks. We will continue to invest in bankruptcy and distressed companies, a
practice that has long been profitable for us.
The favorable merger and acquisition environment should provide attractive
takeover offers for some of our holdings, while at the same time presenting
opportunities to profit by taking advantage of price disparities. As always, we
are mindful of the risks of all of our investments. We focus as much on the
downside risk of our holdings as their upside return.
REAL ESTATE SECURITIES FUND
During the six months under review, the real estate industry continued to
benefit from strong operating fundamentals and low interest rates. In January
1999, real estate investment trusts (REITs) traded at the most attractive
valuations seen in the past several years, as a result of their weak performance
in 1998. However, the combination of strong fundamentals and inexpensive stock
prices helped fuel a rally in REITs toward the end of the period under review.
As we have discussed in prior shareholder reports, the portfolio's strategy is
to focus on property types and geographic regions with strong supply and demand
fundamentals, while attempting to identify those management teams with the
ability to add value through intensive property management and capital markets
experience. Accordingly, we maintained the majority of the portfolio's
investments in the office, diversified, hotel and apartment property sectors
where we anticipate the strongest cash-flow growth and attractive stock
valuations.
Given the reduced domestic economic risk, we believed that office stocks
represented an attractive combination of favorable supply/demand fundamentals
and attractive valuations. As of June 30, 1999, the sector comprised 21.7% of
total net assets, the portfolio's largest property-type weighting. Two of the
portfolio's larger positions in this sector, Equity Office Properties Trust and
Brandywine Realty Trust, performed well during the period, benefiting from
strong rent growth and stable occupancies.
At the end of the reporting period, the diversified property sector represented
the portfolio's second-largest property-type weighting, making up 21.4% of total
net assets. The companies in this segment have real estate portfolios
diversified by property type and location, making them relatively stable
investments. The portfolio's top two positions in the group, Security Capital
Group Inc. and Glenborough Realty Trust Inc., offered excellent value in our
opinion as both stocks traded at significant discounts to their net asset
values.
The hotel sector was the portfolio's third-largest property sector, at 17.5% of
total net assets on June 30, 1999. This sector was the hardest hit as a result
of changing legislation, concerns about excess supply and a potential recession.
Despite this, hotel stocks should do well going forward, as the economy
continues to power ahead and new construction in the industry begins to slow.
The portfolio's largest positions at the end of the reporting period were
industry leaders Host Marriott Corp., MeriStar Hospitality Corp. Inc. and
Starwood Hotels & Resorts Worldwide Inc.
During the six months under review, we made some changes to our apartment REIT
holdings. We reduced our exposure to apartment REITs in the southern and south-
eastern U.S. where we were concerned about excess building potentially leading
to oversupply. As a result, we sold our positions in Gables Residential Trust
and Post Properties Inc. However, we were able to find value in the segment and
added a new apartment position, Apartment Investment and Management Co. (AIMCO).
AIMCO is a national apartment REIT with headquarters in Denver and now owns or
manages approximately 400,000 units, has properties in 49 states and is the
nation's largest apartment owner and operator. We believe AIMCO offers
significant growth prospects over the next several years.
TOP 10 HOLDINGS
Real Estate Securities Fund
6/30/99
SECURITY % OF TOTAL
SECURITY TYPE NET ASSETS
- --------------------------------------------------------------------------------
Security Capital Group Inc. 4.67%
Diversified Property Type
Glenborough Realty Trust Inc. 4.17%
Equity REIT - Diversified
Meristar Hospitality Corp. 4.09%
Equity REIT - Hotels
Equity Residential Properties Trust 3.96%
Equity REIT - Apartments
Public Storage 3.94%
Equity REIT - Storage Centers
Equity Office Properties Trust 3.88%
Equity REIT - Office
Starwood Hotels & Resorts Worldwide Inc. 3.74%
Developer - Hotels
Brandywine Realty Trust 3.44%
Equity REIT - Office
Trinet Corporate Realty Trust Inc. 3.39%
Equity REIT - Office
Simon Property Group Inc. 2.94%
Equity REIT - Retail
Looking ahead, we are still excited about the prospects for investing in REITs,
given the unique combination of steady growth and favorable valuations in the
current market environment. In the near term, the real estate industry
fundamentals should continue to benefit from an environment of supply/demand
balance and relatively low interest rates. In addition, earnings visibility, the
ability of analysts to accurately predict company future earnings, appears to be
excellent relative to the overall market in 1999, given continued stable rent
growth and select development opportunities.
Long term, we remain committed to the area of real estate stocks and REITs, as
this market sector continues to grow in capitalization and diversity. In
addition to our direct experience in real estate and real estate securities
management, we are well-positioned with our team of over 30 equity and credit
analysts who can assist in evaluating the merits of new REITs being formed by a
variety of U.S. corporations. As always, we will focus on top-quality real
estate companies that are creating significant cash flow growth and shareholder
value.
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 consistent and substantial dividend increases, strong
balance sheets and relatively low price/earnings ratios. We seek fundamentally
sound companies that meet our standards and attempt to acquire them at
attractive prices, often when they are out of favor with other investors.
During the six months ended June 30, 1999, the domestic economy demonstrated
solid real growth with only modest inflation. Deflationary fears, however, which
became prevalent in the previous six-month period, all but disappeared. Policy
makers at the Federal Reserve Board (the Fed) grew increasingly concerned that
the economy could not continue its strong growth rate of recent years without
inflation accelerating. As a result, the Fed increased the federal funds target
rate 0.25%, to 5.00%, partially reversing last year's rate cuts. U.S. Treasury
bond yields rose steadily during the period in anticipation of this policy
shift.
Large-capitalization stocks, led once again by the technology sector, continued
to deliver strong returns, especially in the first quarter. By the second
quarter, market leadership appeared to have shifted to more economically
sensitive companies, including many small- and mid-capitalization stocks. This
resulted in a healthy performance for Rising Dividends Fund during the reporting
period.
Despite limited exposure to technology stocks, three of the portfolio's best
performing holdings during the period were in this sector. Cohu Inc., a
manufacturer of semi-conductor test-handling equipment, and Millipore Corp.,
which makes filtration equipment used by the semiconductor industry, benefited
from indications that semi-conductor capital equipment purchases will increase
in the coming quarters. Investors were also pleased with developments at
Hewlett-Packard Co., which recently began articulating its e-commerce strategy.
The Limited Inc. was another of the portfolio's strong performers during the
period. This specialty retailer showed strong operating results from its
Intimate Brands unit, which operates Victoria's Secret and Bath & Body Works
stores. During the six-month period, The Limited's stock price increased 56.9%.
Several stocks in the portfolio reported surprisingly weak quarterly earnings
during the period, and as a result, their share prices fell sharply. Drug store
company Rite Aid Corp. was impacted by losses associated with its extremely fast
pace of new store openings during the months of January and February. In
response, Rite Aid reduced its new store openings considerably to minimize the
short-term drag on earnings that the expansion program created. Importantly,
store-level performance remained on track. First Union Corp., a regional bank
headquartered in North Carolina, also announced that earnings would be lower
than expected, as the combination of expense savings and revenue enhancements
that were anticipated from its acquisition of CoreStates Financial were not as
large as the company planned. Pall Corp., a manufacturer of blood filtration
products, was hurt by the rapid decline in blood filter sales to hospitals
during its quarter ended in January. Pall immediately announced a restructuring
plan intended to deal with this problem. By the next quarter, Pall reported
better than expected earnings as the company was already feeling the benefits of
the restructuring.
New additions to the portfolio during the period include Bank One Corp. and
Lancaster Colony Corp. Bank One has emerged as a leader in the implementation of
Internet banking. The bank broadened its use of technologies developed by Bank
One's credit card unit, First USA, to deliver services to its retail customer
base. Bank One has also increased its dividend each year for the past 28 years.
Lancaster Colony appeared ready to return to its historical earnings growth rate
after several flat quarters. Each of the company's three business segments --
specialty foods, glassware and candles, and automotive -- are showing positive
developments. Lancaster has increased its dividend each year for the past 36
years.
TOP 10 HOLDINGS
Rising Dividends Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Family Dollar Stores Inc. 6.16%
Retail Trade
West Pharmaceutical Services Inc. 4.79%
Health Technology
Leggett & Platt Inc. 4.12%
Consumer Durables
Pall Corp. 3.04%
Process Industries
National Commerce Bancorp 2.94%
Finance
Wallace Computer Services Inc. 2.87%
Commercial Services
Kaydon Corp. 2.66%
Producer Manufacturing
Alberto-Culver Co. 2.60%
Consumer Non-Durables
Teleflex Inc. 2.59%
Producer Manufacturing
Bemis Co. Inc. 2.53%
Process Industries
The only position that we increased significantly during the period was
medical-supply company Becton, Dickinson & Co. The company pre-announced that
earnings would likely fall short of expectations for the coming two quarters,
causing the stock to fall to a level that in our opinion was attractive enough
to purchase. However, we believe Becton, Dickinson's long-term growth prospects
are still intact due to a number of reasons. Of particular interest is "safe
needle" legislation that is proceeding at state and federal levels. Various
legislative initiatives would generally require the use of needles with enhanced
safety features, and Becton, Dickinson, with the leading market share in this
area, would be a beneficiary of these initiatives.
We eliminated several positions from the portfolio including Avery Dennison
Corp., Flowserve Corp. and St. Paul Cos. Inc. We exited our position in Avery
Dennison, as it became less attractively valued than other alternative
investments. Flowserve and St. Paul no longer met the portfolio's dividend
requirements.
The portfolio's largest security sales occurred in the retail sector. We sold
some shares of Family Dollar Stores Inc. because it became a disproportionately
large position. However, Family Dollar remained the portfolio's largest holding
on June 30, 1999. We sold shares of Wal-Mart Stores Inc., as we felt its
valuation became excessive, although in our opinion the company continues to
excel strategically and operationally. In addition, we sold a portion of our
position in The Limited when the company tendered for stock at an above-market
price.
Notable year-over-year dividend increases during the six months included
Washington Mutual Inc. (+20%), Mercury General Corp. (+20%), State Street Corp.
(+15.4%), The Limited Inc. (+15.4%) and Teleflex Inc. (+13%).
As shown on the table on page 39, our ten largest positions on June 30, 1999,
comprised 34.3% 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 raised their dividends 19 years in a row and
by 265% in the last ten years. Their most recent dividend increases averaged
8.6%, for a yield of 1.7% on June 30, 1999, and a dividend payout ratio of 30%.
Long-term debt averaged 22% of capitalization, and the average price/earnings
ratio was 18.5 versus 34.7 for that of the unmanaged Standard & Poor's 500 Stock
Index on the same date. It is our opinion that these companies are
representative of the portfolio's fundamentally high quality.
TEMPLETON GLOBAL ASSET ALLOCATION FUND
At the beginning of the reporting period, the U.S. economy looked to be on a
path of noninflationary economic growth, which many believed would lead to
corporate profit growth coupled with stable to declining interest rates. Against
the backdrop of a seemingly sluggish global economy, the Dow Jones Industrial
Average (the Dow) powered through the 10000 milestone for the first time ever in
March. However, in April global inflationary fears prompted investors to rotate
out of growth stocks in the U.S. and Europe and into cyclicals and value stocks.
This change in investor sentiment quickly sent the Dow through the 11000 mark in
May, as the 30-company index is partially made up of cyclical companies.
These inflationary fears were sparked by a rebound in oil prices, surging
private consumption in the U.S., as well as the first signs of economic growth
in such countries as South Korea and Thailand. Higher-than-expected first
quarter gross domestic product (GDP) figures reported by Germany and Japan, the
respective growth engines for the European and Asian regions, fueled the belief
that the global economy was heating up. In the U.S., the Federal Reserve Board
(the Fed) took note of this and increased the federal funds target rate 0.25%,
to 5.00%, in its late-June meeting in an effort to prevent inflation. The U.S.
bond market also reacted, sending the 30-year Treasury bond yield to 5.98% on
June 30, 1999.
At the end of the reporting period, the U.S. remained the portfolio's largest
country weighting with 15.1% of total net assets. The portfolio's major U.S.
holdings were in the defense and life insurance sectors, two areas where we felt
valuations remained attractive and earnings prospects looked solid.
U.K. equities represented the portfolio's second-largest country weighting, at
10.3% of total net assets on June 30, 1999, and we remain positive for the
outlook of these holdings. The U.K. is further along the economic cycle than the
rest of Europe and appears to be in the midst of an economic slowdown, with some
forecasts predicting GDP growth of only 0.8% in 1999. However, in our opinion
the market was discounting a full-blown recession and in turn pushed many U.K.
engineering stocks lower. We took advantage of this volatility to pick up some
bargain-priced stocks of such high-quality companies as Invensys PLC, Mckechnie
Group PLC, Weir Group PLC and Rolls-Royce PLC. Going forward, we feel the
catalyst for this sector's future outperformance will be lower interest rates.
The U.K. Central Bank cut interest rates 0.25% in June, the seventh consecutive
reduction since October 1998, and we think that rates will come down further as
inflationary pressures subside. The delayed effect on the British currency and
consumption should help improve earnings and performance for this temporarily
out-of-favor sector.
ASSET ALLOCATION
Templeton Global Asset Allocation Fund
Based on Total Net Assets
6/30/99
[PIE CHART]
Equity Securities 65.7%
Fixed-Income Securities 27.7%
Short-Term Investments & Other Net Assets 6.6%
TOP FIVE COUNTRY HOLDINGS
Templeton Global Asset Allocation Fund
6/30/99
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
U.S. 15.1%
U.K. 13.1%
Hong Kong* 7.2%
Italy 5.0%
France 4.7%
*Hong Kong reverted to the sovereignty of China on July 1, 1997.
TOP FIVE INDUSTRY BREAKDOWN
Templeton Global Asset Allocation Fund
6/30/99
% OF TOTAL
NET ASSETS
- --------------------------------------------------------------------------------
Insurance 11.6%
Multi-Industry 7.7%
Aerospace and Military Technology 6.2%
Metals and Mining 4.8%
Electrical and Electronic 3.5%
Emerging equity markets were some of the best performers in the period, shown by
the 39.9% increase in the Morgan Stanley Capital International Emerging Markets
Free Index. Brazil's currency devaluation in January 1999 could represent the
last shoe to drop in an emerging market crisis initiated by Thailand's currency
devaluation in July 1997. This perceived reduction in emerging market volatility
might attract those risk-averse investors who have been standing on the
sidelines. On June 30, 1999, the portfolio held 11.4% of its total net assets in
emerging market equities. Strong emerging market performers during the period
included Singapore Airlines Ltd., Bangkok Bank Public Co. Ltd., fgn. in
Thailand, South Korean steel company Pohang Iron & Steel Co. Ltd., and Hong Kong
property developer Cheung Kong Holdings Ltd. We remain cautiously optimistic for
the prospects of our Latin America and Asia holdings, which are predominantly in
the more liquid telecommunications and banking sectors.
The portfolio held more than 7.2% of total net assets in Hong Kong at the end of
the reporting period, where the Hang Seng Index was up 36.7% during the
six-month period. Compelling valuations, the prospect of peaking real interest
rates, the first signs of economic turnaround in the ASEAN countries, and the
fact that Hong Kong is the most liquid market in non-Japan Asia sparked investor
enthusiasm for the market's equities.
Japan had an impressive start to the year, with the Nikkei rising 10.8% for the
period. However, on June 30, 1999, the portfolio held only 2.8% of total net
assets in Japanese equities, as we felt that the recent moves in equity prices
were driven more by technical than fundamental factors. Before their March 31
financial year-end, Japanese banks and companies went through a process of
buying strong stocks and selling weak performers to improve their portfolios'
profiles. In addition, in 1999 there was a rash of foreign buying as investors
attempted to rebalance their historically underweight Japan position. In our
opinion, these actions caused the strong moves in the Japanese market. We also
feel that Japanese companies must still go through a period of further
restructuring. Although there have been some high-profile restructuring
announcements to lay off employees and reduce unprofitable production, most
companies have yet to do anything. In our opinion, the immediate effect on the
economy will be unfavorable as more companies curtail investments and consumers
cut back on spending.
Global bond markets generally did not perform well in the first six months of
1999, following improved business surveys in Europe and the release of data
indicating a strengthening U.S. economy. During the period under review, the
J.P. Morgan Global Government Bond Index posted a -1.1% total return in local
currency terms, out-performing the -2.8% return of the J.P. Morgan U.S.
Government Bond Index. This better performance was mainly attributable to
declining interest rates in Europe and Japan. However, weakness in the euro and
the Japanese yen resulted in lower returns in U.S.-dollar terms, and the J.P.
Morgan Global Government Bond Index declined 7.2% in U.S.-dollar terms during
the six months ended June 30, 1999.
Although many emerging debt markets suffered temporary losses in January arising
from Brazil's currency devaluation, they recovered during the period, causing
the J.P. Morgan Emerging Market Bond Index to increase 10.6%. Russia, Brazil and
Venezuela were among the top-performing bond markets while Poland and Ecuador
were the only emerging market countries whose fixed-income markets declined.
Ecuador was the worst performer, as bond prices there fell, due in large part to
uncertainty regarding the International Monetary Fund approval of financial aid.
In our opinion, global economic growth may weaken during the rest of 1999. The
extent of this weakness would depend primarily on U.S. economic developments,
which in turn are largely dependent on Latin America's economic stability.
Problems in that region could depress U.S. exports, which might have a negative
effect on European economic performance. We believe, however, that global
economic growth will not decline enough to prompt an economic recession and that
inflation will likely remain benign. This should provide a beneficial
environment for high-quality bonds and for the portfolio's intermediate-term
performance.
VALUE SECURITIES FUND
During the six months under review, the domestic economy remained strong, with
unemployment at a 29-year low. For much of the period, inflation was remarkably
benign, but a hiccup in the Consumer Price Index in April led the Federal
Reserve Board (the Fed) to raise the federal funds target rate 0.25%, to 5.00%,
in its late-June meeting. The major U.S. stock market news during the reporting
period was the continuous flow of capital into equity securities -- mostly
Internet, Internet-related and larger-capitalization brand name stocks. In fact,
the Dow Jones Industrial Average set a number of records, including closing
above the 10000-point mark for the first time in March as the Standard & Poor's
500 and the NASDAQ indices also reached all-time highs.
Larger-cap stocks drove the S&P 500 Index's 5.0% rise in the first quarter of
1999. Small-cap stocks, especially those considered "value," remained out of
favor as indicated by the Wilshire Small Company Value Index, the portfolio's
benchmark, which declined 11.9% for the first three months of 1999. Last year's
divergence between small and large cap and between growth and value continued
during 1999's first quarter. However, we are pleased to report that this gap
began to narrow in April, and in second quarter 1999, small-cap and value stocks
handily outperformed their large-cap peers. Value Securities Fund benefited from
this and posted strong second quarter results.
TOP 10 HOLDINGS
Value Securities Fund
6/30/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
JLG Industries Inc. 4.03%
Producer Manufacturing
Tropical Sportswear International Corp. 4.03%
Consumer Non-Durables
The Timberland Co. 2.87%
Consumer Non-Durables
Presidential Life Corp. 2.76%
Finance
Allstate Corp. 2.72%
Finance
Tidewater Inc. 2.57%
Transportation
Professional Group Inc. 2.56%
Finance
ENSCO International Inc. 2.52%
Industrial Services
Robert Half International Inc. 2.41%
Commercial Services
Rowan Cos. Inc. 2.33%
Industrial Services
Value Securities Fund seeks to take advantage of securities that we believe are
undervalued. Our value investment strategy casts a wide net. Instead of focusing
exclusively on low stock prices relative to book value, earnings or cash flow,
we consider all types of measures, including understated assets such as land or
intangibles, patents and distribution systems. Another focus of the portfolio is
to seek "fallen angels" -- former growth companies that have suffered
short-term, sharp price declines, but in our opinion, still have significant
long-term potential.
Our quest for value normally leads us to relatively inexpensive securities that
have a temporary cloud hanging over them, including out-of-favor companies or
industries, and those with ineffectual management teams or a passive board of
directors. Our strategy is to determine whether the cloud will dissipate or
become a storm. When we find such a company, we then look for a strong balance
sheet and cash flow that will sustain it while it is turning around.
During the reporting period, we began to reduce the number of positions we
typically hold. In doing so, we liquidated many holdings that we felt were too
small to have an impact on the portfolio and several where we felt the reasons
for owning them had changed. We focused new purchases on companies with larger
market capitalizations, such as insurer Allstate Corp., Canadian National
Railway Co., life and disability insurance company StanCorp Financial Group
Inc., aerospace systems and component manufacturer B.F. Goodrich Co. and global
staffing services company Robert Half International Inc. Larger companies
typically have greater name recognition, as more Wall Street analysts follow
these companies and produce research that is read by more shareholders and
potential shareholders. In addition, their greater liquidity enables us to
establish positions more easily and sell faster when we decide it is prudent to
do so.
Although small-company and value investing were clearly out of favor during a
large part of the reporting period, there were several signs that investors were
beginning to recognize some of our relatively inexpensive holdings. During the
first quarter, two of our portfolio holdings -- Executive Risk Inc. and
Unisource Worldwide Inc. -- benefited from announcements of corporate takeovers,
all at significant premiums to prior day prices. In addition, our patience with
the oil drilling and oil services holdings was rewarded as oil prices began to
increase, causing a significant positive move in the stock prices of Atwood
Oceanics Inc., ENSCO International, Rowan Companies Inc. and R&B Falcon Corp. As
experienced value managers we realize that in order to harvest the pot of gold
at the end of the rainbow we must also bear the rain. Although value investing
may have seemed unfavorable during most of the period, we believe the rainbow
has begun to appear on the horizon.
While we were not happy with the bear market for value stocks that existed
during the first quarter of 1999, it is not entirely unfavorable because it
provided patient value investors with many bargain-basement buying
opportunities. We remain confident that our value-investing approach has the
potential to serve our shareholders well over the long term.
PORTFOLIOS SEEKING INCOME
HIGH INCOME FUND
During the six months under review, the domestic economy experienced robust
economic growth, which generally strengthened corporate profitability. However,
the benign inflationary environment seen in the first few months of the year
quickly gave way to concerns of inflation as the strong economic growth
persisted. This caused the 30-year Treasury bond yield to rise, from 5.15% on
January 1, 1999, to 5.98% at the end of the period. Thus, despite the supportive
corporate fundamentals, rising interest rates over the past few months created a
difficult environment for all fixed-income classes, including high yield bonds.
We increased the portfolio's weighting in the telecommunications industry to
25.2% of total net assets at the end of the period, compared with 20.6% on
December 31, 1998. The telecommunications industry outperformed the overall high
yield market during the period and we believe it will continue to do well as a
result of global deregulation, technological convergence and consolidation.
During the six-month period, we focused on companies either constructing or
already having high-quality networks, with strong management teams and solid
access to capital markets. Telecommunications companies that were solid
performers during the period included IntelCom Group Inc. and Northeast Optic
Network Inc. In addition, we maintained a significant weighting in the wireless
communications industry, as revenues continued to grow strongly due to increased
usage, despite pricing pressures. Notable performers in the wireless
communications industry included Nextel Communications Inc., Rogers Cantel
Mobile Inc. and Dobson/Sygnet Communications Co.
We did not significantly alter our weightings in the other industries in which
the portfolio invests. In cable television, we increased our weighting somewhat
to take advantage of the positive merger and acquisition environment, initiating
new positions in Charter Communications and Bresnan Communications Group. We
slightly reduced our allocation to the industrial segment, taking profits in
solid performers such as Simonds Industries Inc. In industries such as consumer
products and media, which in our view offer solid growth potential while
offering insulation from economic cycle fluctuations, we maintained comfortable
weightings.
Several portfolio positions benefited from mergers and acquisition activity or
other positive corporate events during the review period: Pharmerica Inc.,
RC/Arby's Corp., Outdoor Systems Inc., RJR Nabisco Inc., Ascent Entertainment
Group Inc., Shoppers Food Warehouse Corp., Poland Telecom Finance and Diamond
Cable Communications Co. We focused on securities that we believe will benefit
from positive corporate events or improving credit profiles.
INDUSTRY BREAKDOWN
High Income Fund
6/30/99
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Consumer Services 25.5%
Telecommunications 25.2%
Process Industries 8.2%
Transportation 5.0%
Health Services 4.8%
Consumer Non-Durables 4.5%
Energy Minerals 4.2%
Producer Manufacturing 4.2%
Industrial Services 3.6%
Commercial Services 3.1%
Consumer Durables 2.6%
Electronic Technology 2.3%
Finance 1.3%
Retail Trade 1.2%
Technology Services 1.1%
Utilities 0.9%
Non-Energy Minerals 0.5%
Cash & Equivalents 1.8%
Looking forward, we have a positive outlook for the high yield corporate bond
market in general, as well as for the portfolio. Recent economic data suggests
that economic activity should remain solid over the near to intermediate term,
although it will likely slow. Even with April's spike in inflation, high yield
asset valuations are attractive on a historical basis, as yield spreads relative
to Treasury securities remain higher than historical norms. Thus, we believe
that solid economic fundamentals and attractive valuations should create a
relatively favorable environment for high yield bonds going forward.
TEMPLETON GLOBAL INCOME SECURITIES FUND
Global bond markets generally did not perform well during the six-month
reporting period. In January, low inflation, generally weak economic growth for
developed economies, and the possibility of interest rate cuts contributed to a
positive attitude toward bond markets by many investors. However, in February,
stronger-than-expected economic data and reduced expectations of interest rate
cuts resulted in a temporary sell-off in global bond markets. In March,
investors appeared to be more optimistic despite the potential negative effect
higher oil prices might have on inflation. Factors contributing to this optimism
included economic weakness in Europe, Japan and some sectors of the U.S., and
expectations of monetary policy easing by several central banks. At the same
time, the U.K. and U.S. bond markets also benefited from "flight-to-quality"
inflows as a result of the crisis in Yugoslavia. However, during the second half
of the reporting period, investor expectations for global bond markets
deteriorated following improved business surveys in Europe and signs of a
strengthening U.S. economy. Concerned with the possibility of future inflation,
the Federal Reserve Board raised the federal funds target rate 0.25% in late
June to 5.00%. They did, however, indicate a neutral bias going forward.
During the period under review, the portfolio's benchmark J.P. Morgan Global
Government Bond Index posted a -1.1% total return in local currency terms,
outperforming the -2.8% return of the J.P. Morgan U.S. Government Bond Index.
This better performance was mainly attributable to declining interest rates in
Europe and Japan. However, weakness in the euro and the Japanese yen resulted in
lower returns in U.S.-dollar terms, and the J.P. Morgan Global Government Bond
Index declined 7.2% in U.S.-dollar terms during the six months ended June 30,
1999.
Although many emerging debt markets suffered temporary losses in January arising
from Brazil's currency devaluation, they recovered during the period under
review, causing the J.P. Morgan Emerging Market Bond Index to increase 10.6%.
Russia,
[PIE CHART]
GEOGRAPHIC DISTRIBUTION
Templeton Global Income Securities Fund
Based on Total Net Assets
6/30/99
Europe 42.0%
North America 35.3%
Latin America 13.9%
Australia/New Zealand 7.6%
Asia 0.5%
Short-Term Investments
& Other Net Assets 0.7%
Brazil and Venezuela were among the top-performing bond markets, while Poland
and Ecuador were the only emerging market countries whose fixed-income markets
declined. Ecuador was the worst performer, as bond prices there fell due to
uncertainty regarding International Monetary Fund approval of financial aid.
During the reporting period we attempted to maximize the portfolio's return with
an allocation that offered an opportunity for greater long-term returns at the
cost of modestly higher short-term volatility. On June 30, 1999, we held 83.7%
of total net assets in intermediate- and long-term bonds in developed markets
and 16.3% of assets to what we believed were the highest quality and most liquid
bonds available in emerging markets.
The portfolio's country allocations changed only moderately during the six
months under review. Our North American weighting decreased from 42.9% of total
net assets on December 31, 1998, to 35.3% on June 30, 1999, due mainly to a
reduction in the portfolio's Canadian exposure. Our European holdings rose to
42.0% of total net assets at the end of the period, from 35.6% on December 31,
1998, as we increased our exposure to Germany and the U.K., and added a position
in Bulgaria. During the reporting period, our exposure to emerging market bonds,
especially those of Latin America, rose substantially. At the end of the period
under review, Latin America comprised 13.9% of total net assets, compared with
8.7% on December 31, 1999. In an effort to reduce the volatility characteristic
of emerging market securities, we invested in emerging market bonds that
generally have shorter maturities than those of the J.P. Morgan Emerging Market
Bond Index. Most Latin American bonds in the portfolio were U.S.-dollar
denominated sovereign Eurobonds with fixed coupons issued by countries with
strong repayment capacity. This helped eliminate currency risk and added
security to the portfolio. Meanwhile, we will continue to follow a defensive
strategy until we feel volatility and credit risk sensitivity stabilize.
In our opinion, global inflation will likely be quite tame in the period ahead
and global economic growth is likely to pick up slightly in 1999. This is an
ideal environment for high quality bonds, and this makes the management team
positive for the intermediate-term outlook for the portfolio.
U.S. GOVERNMENT SECURITIES FUND
The economy grew at a steady pace during the reporting period, boosted by three
Federal Reserve Board (the Fed) rate cuts in the fall of 1998. Investors in 1999
increasingly demanded securities that offered higher yields than Treasuries,
allowing spreads, the difference in yields between two securities, to narrow and
move back toward their historical levels.
Beginning January 1999, strong economic data weighed on the market and led to
concerns that the Fed would raise interest rates in an effort to slow economic
growth and prevent inflation from developing. This sentiment was magnified in
May with the release of higher-than-expected Consumer (CPI) and Producer (PPI)
Price Indices for April, and again when several Fed officials made hawkish
comments. Therefore, in expectation of the Fed's raising interest rates, bond
yields steadily rose during the six months under review. For example, the
30-year Treasury bond yield rose, from 5.15% on December 31, 1998, to 5.98% on
June 30, 1999. These higher rates worked their way through the economy over
time. For instance, the Federal Home Loan Mortgage Association (FHLMC or Freddie
Mac) conforming 30-year fixed mortgage rate climbed, from 6.83% to 7.63%, over
the same period. The higher interest rates negatively impacted not only Treasury
securities, but also U.S. government agency securities, with their yields rising
as well. Government National Mortgage Association (GNMA or Ginnie Mae)
securities generally outperformed Treasury and agency securities during the
period.
As most economists predicted, on June 30, the Fed's interest-rate setting
committee, the Federal Open Market Committee, or FOMC, met and raised the
federal funds target rate 0.25%, to 5.00%. The bond market initially reacted
positively to the Fed's decision, pushing the 30-year Treasury bond yield down
to just under 6.00% on June 30, 1999.
Looking forward, over the near term the markets will most likely remain
preoccupied with the Fed's actions. As evidence of an economic slowdown has
failed to develop, the fixed-income markets are currently discounting some
further tightening by the Fed over the next year. We will continue to manage
U.S. Government Securities Fund primarily as a mortgage income portfolio,
emphasizing GNMA and other agency mortgage pass-through securities for their
attractive income advantages compared with U.S. Treasury securities. In
addition, the portfolio will continue to invest in non-mortgage securities, such
as Treasury and U.S. government agency securities, for diversification purposes.
ZERO COUPON 2000 FUND
ZERO COUPON 2005 FUND
ZERO COUPON 2010 FUND
The first six months of 1999 were difficult for fixed-income investors. Interest
rates rose significantly, as the U.S. economy extended the longest peacetime
expansion in its history. For example, the yield on the 10-year Treasury bond, a
good proxy for the Zero Coupon 2010 Fund, increased from 4.64% on December 31,
1998, to 5.81% at the end of the reporting period. Interest rates and bond
prices move in an inverse relationship, so as interest rates rise, bond prices
fall. Indeed, the expansion appeared to be on firmer footing at the end of the
reporting period than at the beginning of the year, as economies worldwide began
to recover from recent difficulties. Taking note of this, the Federal Reserve
Board (the Fed) raised the federal funds target rate by 0.25%, to 5.00% in its
late-June meeting. However, in the same meeting, the Fed notified the markets
that it had changed its bias to neutral, signaling that it is likely it will not
raise rates again in the near future.
The bond market appeared to anticipate the Fed would take back most, if not all,
of the 75 basis points (0.75%) from its easing last fall. Bond investors, in
turn, demanded higher returns for bond investments. Still, inflation remained
subdued and most of the forces driving this low inflationary period here in the
U.S., namely the leveraging of new technologies to increase productivity,
remained in place.
The Zero Coupon Funds invest primarily in securities issued by government
sponsored agencies. In our opinion, there is only the slightest amount of
additional risk in these securities relative to direct obligations of the U.S.
government. Due to the inverse relationship zero coupon bonds have with interest
rates, all three portfolios suffered from the rising interest rates during the
year. Keep in mind that, with a little less than one and a half years to target
maturity for the 2000 portfolio, it will begin to take on characteristics
similar to a money market fund. As the target maturity date of December 2000
approaches, this portfolio will become increasingly less sensitive to changes in
interest rates, which will serve to reduce the portfolio's risk but also
diminish any chances for capital appreciation.
Normally, individual zero coupon bonds will return a fixed rate, if held to
maturity. Zero coupon investments, therefore, can be attractive for relatively
short-term investors and risk-averse, long-term investors. Of course, a managed
portfolio of zero coupon bonds will fluctuate with cash flow in or out of the
portfolio, or vary with market conditions. We do not try to time the market;
instead, our portfolio activity mirrors shareholder activity.
Going forward, the prospects for continued low inflation are good and make
fixed-income investments attractive. Zero coupon bonds and our zero coupon
funds, while subject to price fluctuation as a result of interest changes, can
offer investors relatively certain returns if held to maturity. For each
portfolio, we strive to maintain the weighted average maturity as close to the
target maturity as possible so that the portfolio will mirror the features of a
zero coupon bond.
TOP 10 HOLDINGS
Money Market Fund
6/30/99
% OF TOTAL
SECURITY NAME NET ASSETS
- --------------------------------------------------------------------------------
U.S. Treasury Repo. 10.92%
Nestle Capital Corp. 4.29%
CIESCO LP 4.28%
Walt Disney Co. 4.27%
Schering Corp. 4.27%
Merrill Lynch & Co. Inc. 4.27%
International Lease Finance Corp. 4.27%
Archer Daniels Midland Co. 4.26%
Salomon Smith Barney Holdings Inc. 4.26%
General Electric Capital Corp. 4.25%
PORTFOLIOS SEEKING CAPITAL PRESERVATION AND INCOME
MONEY MARKET FUND
During the six-month review period, domestic economic growth continued at a
robust pace, while most foreign economies struggled. U.S. real gross domestic
product (GDP) growth for the first and second quarters were an annualized 4.3%
and 2.3% respectively, averaging above the Federal Reserve Board's (the Fed's)
targeted long-term growth rate of 2.5%.
Over the past year and a half, U.S. economic performance has reflected a balance
between the effects of weakness abroad and a surge in credit-driven spending by
U.S. households. Reduced inflation, associated with recession in much of the
rest of the world, coupled with the Fed's easing in fall 1998 when credit growth
threatened to falter, allowed for substantial declines in interest rates. This
same combination also pushed up equity and real estate prices that, in turn,
powered domestic spending. The result has been an enviable position of rapid
economic growth coupled with low inflation and rising asset prices.
Foreign growth is now beginning to improve, however. The emerging markets crisis
appears to have largely dissipated, and forecasts point to a return to more
normal growth, with Korea and Thailand already posting impressive economic
performances. Even Japan, mired in a deep recession for years, showed signs of
life during the period, with first quarter annualized GDP of 1.9%, well above
estimates. In Europe, Germany and Italy showed signs of improvement, as growth
in the first quarter of 1999 was slightly higher than forecast.
In second quarter 1999, robust domestic demand coupled with stronger
international economies brought fears of inflation to the forefront. In
addition, an unexpected spike in April's inflation number coupled with strength
in oil prices put the market on notice. In response, the Fed raised the federal
funds target rate 0.25%, to 5.00%, in its June meeting.
We continue to invest the portfolio's assets in only high-quality money market
securities. For example, during the period more than 75% of the securities
purchased for the portfolio carried AA or higher long-term credit ratings by
Standard & Poor's and Moody's, national credit rating agencies, with the balance
rated A.* Consistent with the portfolio's objective of providing shareholders
with a higher quality and conservative investment vehicle, we do not invest the
portfolio's cash in derivatives or other potentially volatile securities that we
believe involve undue risk.
*This does not indicate Standard and Poor's and Moody's ratings of the
portfolio.
FRANKLIN VALUEMARK FUNDS
Financial Highlights
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GROWTH FUND
Class 1
1996(4) $10.00 $ .03 $ 1.33 $ 1.36 $ -- $ -- $ -- $11.36
1997 11.36 .06 2.02 2.08 (.02) -- (.02) 13.42
1998 13.42 .10 2.62 2.72 (.06) -- (.06) 16.08
1999(8),(9) 16.08 .07 1.91 1.98 -- -- -- 18.06
Class 2
1999(7),(9) 16.47 .04 1.51 1.55 -- -- -- 18.02
GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(6) 10.00 .03 .68 .71 -- -- -- 10.71
1999(8),(9) 10.71 .01 (1.56) (1.55) -- -- -- 9.16
Class 2
1999(7),(9) 10.77 -- (1.63) (1.63) -- -- -- 9.14
GLOBAL UTILITIES SECURITIES FUND
Class 1
1994 17.14 .95 (2.94) (1.99) (.62) (.11) (.73) 14.42
1995 14.42 .84 3.54 4.38 (.90) -- (.90) 17.90
1996 17.90 .91 .29 1.20 (.92) -- (.92) 18.18
1997 18.18 .90 3.54 4.44 (.96) (1.33) (2.29) 20.33
1998 20.33 .76 1.41 2.17 (.83) (1.22) (2.05) 20.45
1999(8),(9) 20.45 .23 1.61 1.84 -- -- -- 22.29
Class 2
1999(7),(9) 21.02 .20 1.04 1.24 -- -- -- 22.26
GROWTH AND INCOME FUND
Class 1
1994 13.99 .19 (.47) (.28) (.09) (.20) (.29) 13.42
1995 13.42 .41 3.92 4.33 (.20) (.41) (.61) 17.14
1996 17.14 .62 1.64 2.26 (.41) (1.44) (1.85) 17.55
1997 17.55 .67 4.05 4.72 (.64) (.62) (1.26) 21.01
1998 21.01 .69 .99 1.68 (.69) (1.64) (2.33) 20.36
1999(8),(9) 20.36 .30 1.31 1.61 -- -- -- 21.97
Class 2
1999(7),(9) 20.71 .24 .98 1.22 -- -- -- 21.93
HIGH INCOME FUND
Class 1
1994 13.13 .88 (1.18) (.30) (.55) (.07) (.62) 12.21
1995 12.21 1.06 1.30 2.36 (.91) -- (.91) 13.66
1996 13.66 1.20 .56 1.76 (1.20) (.06) (1.26) 14.16
1997 14.16 1.33 .22 1.55 (1.22) (.04) (1.26) 14.45
1998 14.45 1.43 (1.25) .18 (1.27) (.08) (1.35) 13.28
1999(8),(9) 13.28 .71 (.54) .17 -- -- -- 13.45
Class 2
1999(7),(9) 13.36 .66 (.59) .07 -- -- -- 13.43
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME (LOSS) PORTFOLIO
TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
RETURN(+) (000'S) NET ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL GROWTH FUND
Class 1
1996(4) 13.60% $ 44,667 .77%* .96%* 3.91%
1997 18.31 109,355 .77 .72 19.90
1998 20.29 220,952 .77 1.00 12.17
1999(8),(9) 12.31 355,537 .77* .82* 9.04
Class 2
1999(7),(9) 9.47 307 1.07* .52* 9.04
GLOBAL HEALTH CARE SECURITIES FUND
Class 1
1998(6) 7.10 8,990 .84* .84* 40.80
1999(8),(9) (14.85) 10,386 .81* .26* 85.79
Class 2
1999(7),(9) (15.51) 42 1.11* (.08)* 85.79
GLOBAL UTILITIES SECURITIES FUND
Class 1
1994 (11.56) 1,155,110 .52 5.58 11.74
1995 31.35 1,423,446 .50 5.14 13.27
1996 7.07 1,202,290 .50 4.20 29.69
1997 26.76 1,129,904 .50 3.91 17.00
1998 11.19 986,755 .50 3.15 33.85
1999(8),(9) 9.05 891,973 .51* 2.25* 44.03
Class 2
1999(7),(9) 5.85 268 .81* 1.95* 44.03
GROWTH AND INCOME FUND
Class 1
1994 (3.41) 517,877 .54 1.81 99.21
1995 32.83 889,487 .52 3.30 116.54
1996 14.19 1,077,989 .50 4.06 23.01
1997 27.74 1,338,476 .49 3.53 36.71
1998 8.33 1,318,743 .49 3.27 27.32
1999(8),(9) 7.86 1,202,586 .49* 2.93* 19.48
Class 2
1999(7),(9) 5.89 511 .79* 2.34* 19.48
HIGH INCOME FUND
Class 1
1994 (2.26) 255,036 .60 9.45 22.94
1995 19.76 360,904 .56 9.63 20.65
1996 13.90 446,096 .54 9.63 27.16
1997 11.47 496,036 .53 9.64 36.38
1998 .99 446,609 .53 9.96 41.71
1999(8),(9) 1.28 383,705 .55* 10.54* 13.95
Class 2
1999(7),(9) .52 107 .85* 10.16* 13.95
</TABLE>
FRANKLIN VALUEMARK FUNDS
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME SECURITIES FUND
Class 1
1994 $ 15.80 $ .82 $ (1.80) $ (.98) $ (.44) $ (.07) $ (.51) $ 14.31
1995 14.31 1.16 1.96 3.12 (.89) (.07) (.96) 16.47
1996 16.47 1.32 .44 1.76 (.87) (.15) (1.02) 17.21
1997 17.21 1.40 1.38 2.78 (1.33) (.29) (1.62) 18.37
1998 18.37 1.37 (1.07) .30 (1.42) (.33) (1.75) 16.92
1999(8),(9) 16.92 .64 (.34) .30 -- -- -- 17.22
Class 2
1999(7),(9) 17.07 .57 (.44) .13 -- -- -- 17.20
MONEY MARKET FUND
Class 1
1994 1.00 .04 -- .04 (.04) -- (.04) 1.00
1995 1.00 .06 -- .06 (.06) -- (.06) 1.00
1996 1.00 .05 -- .05 (.05) -- (.05) 1.00
1997 1.00 .05 -- .05 (.05) -- (.05) 1.00
1998 1.00 .05 -- .05 (.05) -- (.05) 1.00
1999(8),(9) 1.00 .02 -- .02 (.02) -- (.02) 1.00
Class 2
1999(7),(9) 1.00 .02 -- .02 (.02) -- (.02) 1.00
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(5) 10.00 .02 .19 .21 -- -- -- 10.21
1997 10.21 .13 1.84 1.97 (.01) -- (.01) 12.17
1998 12.17 .20 (.76) (.56) (.17) (.15) (.32) 11.29
1999(8),(9) 11.29 .13 1.23 1.36 -- -- -- 12.65
Class 2
1999(7),(9) 11.65 .16 .83 .99 -- -- -- 12.64
MUTUAL SHARES SECURITIES FUND
Class 1
1996(5) 10.00 .02 .33 .35 -- -- -- 10.35
1997 10.35 .13 1.71 1.84 (.01) -- (.01) 12.18
1998 12.18 .28 (.25) .03 (.13) (.12) (.25) 11.96
1999(8),(9) 11.96 .11 1.63 1.74 -- -- -- 13.70
Class 2
1999(7),(9) 12.36 .09 1.23 1.32 -- -- -- 13.68
NATURAL RESOURCES SECURITIES FUND
Class 1
1994 14.46 .16 (.45) (.29) (.08) -- (.08) 14.09
1995 14.09 .22 .12 .34 (.20) (.15) (.35) 14.08
1996 14.08 .15 .44 .59 (.20) (.18) (.38) 14.29
1997 14.29 .15 (2.83) (2.68) (.20) -- (.20) 11.41
1998 11.41 .15 (3.02) (2.87) (.15) -- (.15) 8.39
1999(8),(9) 8.39 .04 2.41 2.45 -- -- -- 10.84
Class 2
1999(7),(9) 8.70 .02 2.11 2.13 -- -- -- 10.83
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
PERIOD TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN(+) (000'S) NET ASSETS NET ASSETS RATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME SECURITIES FUND
Class 1
1994 (6.27)% $1,000,002 .54% 7.27% 13.33%
1995 22.40 1,266,538 .51 8.05 33.14
1996 11.28 1,350,659 .50 7.96 15.28
1997 17.09 1,406,787 .50 7.53 14.68
1998 1.64 1,185,840 .49 6.94 12.22
1999(8),(9) 1.77 971,091 .52* 7.62* 6.41
Class 2
1999(7),(9) .76 471 .80* 7.39* 6.41
MONEY MARKET FUND
Class 1
1994 3.82 518,618 .4610 4.05 --
1995 5.74 429,547 .4010 5.58 --
1996 5.16 408,930 .4310 5.04 --
1997 5.24 367,449 .4510 5.11 --
1998 5.22 414,341 .4510 5.08 --
1999(8),(9) 2.23 347,024 .52* 4.38* --
Class 2
1999(7),(9) 2.00 2,732 .82* 4.08* --
MUTUAL DISCOVERY SECURITIES FUND
Class 1
1996(5) 2.10 15,418 1.37* 2.11* .14
1997 19.25 198,653 1.06 1.19 55.93
1998 (5.00) 224,656 1.00 1.94 93.99
1999(8),(9) 12.05 204,736 .98* 2.24* 55.77
Class 2
1999(7),(9) 8.50 187 1.28* 2.76* 55.77
MUTUAL SHARES SECURITIES FUND
Class 1
1996(5) 3.50 27,677 1.00* 2.56* 1.31
1997 17.73 387,787 .80 2.10 49.01
1998 .09 482,444 .77 2.60 70.19
1999(8),(9) 14.55 496,877 .78* 1.72* 41.81
Class 2
1999(7),(9) 10.68 442 1.08* 1.42* 41.81
NATURAL RESOURCES SECURITIES FUND
Class 1
1994 (2.01) 125,078 .68 1.63 7.66
1995 2.35 105,109 .66 1.40 15.66
1996 4.00 109,579 .65 1.00 21.77
1997 (18.98) 74,924 .69 1.00 85.22
1998 (25.38) 45,927 .64 1.21 64.68
1999(8),(9) 29.20 50,308 .67* .90* 27.86
Class 2
1999(7),(9) 24.48 44 .97* .42* 27.86
</TABLE>
FRANKLIN VALUEMARK FUNDS
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
---------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE SECURITIES FUND
Class 1
1994 $15.04 $ .38 $ .06 $ .44 $ (.17) $ -- $ (.17) $15.31
1995 15.31 .78 1.83 2.61 (.52) -- (.52) 17.40
1996 17.40 .79 4.74 5.53 (.78) -- (.78) 22.15
1997 22.15 .72 3.72 4.44 (.67) (.32) (.99) 25.60
1998 25.60 1.45 (5.60) (4.15) (.94) (.58) (1.52) 19.93
1999(8),(9) 19.93 .68 .44 1.12 -- -- -- 21.05
Class 2
1999(7),(9) 20.21 .38 .43 .81 -- -- -- 21.02
RISING DIVIDENDS FUND
Class 1
1994 10.57 .26 (.69) (.43) (.17) -- (.17) 9.97
1995 9.97 .27 2.66 2.93 (.24) -- (.24) 12.66
1996 12.66 .25 2.77 3.02 (.28) -- (.28) 15.40
1997 15.40 .22 4.77 4.99 (.26) (.45) (.71) 19.68
1998 19.68 .23 1.07 1.30 (.22) (2.65) (2.87) 18.11
1999(8),(9) 18.11 .12 .39 .51 -- -- -- 18.62
Class 2
1999(7),(9) 18.28 .10 .21 .31 -- -- -- 18.59
SMALL CAP FUND
Class 1
1995(3) 10.00 .03 .21 .24 -- -- -- 10.24
1996 10.24 .02 2.95 2.97 (.01) -- (.01) 13.20
1997 13.20 .01 2.24 2.25 (.03) (.37) (.40) 15.05
1998 15.05 .07 (.20) (.13) (.01) (1.19) (1.20) 13.72
1999(8),(9) 13.72 (.01) 2.27 2.26 -- -- -- 15.98
Class 2
1999(7),(9) 14.25 (.01) 1.71 1.70 -- -- -- 15.95
TEMPLETON DEVELOPING MARKETS
EQUITY FUND
Class 1
1994(1) 10.00 .07 (.51) (.44) -- -- -- 9.56
1995 9.56 .09 .18 .27 (.04) (.01) (.05) 9.78
1996 9.78 .12 1.97 2.09 (.10) (.18) (.28) 11.59
1997 11.59 .18 (1.10) (.92) (.15) (.23) (.38) 10.29
1998 10.29 .20 (2.35) (2.15) (.29) (.94) (1.23) 6.91
1999(8),(9) 6.91 .06 2.42 2.48 -- -- -- 9.39
Class 2
1999(7),(9) 7.22 .05 2.11 2.16 -- -- -- 9.38
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME (LOSS) PORTFOLIO
PERIOD TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN(1) (000'S) NET ASSETS NET ASSETS RATE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REAL ESTATE SECURITIES FUND
Class 1
1994 2.89% $195,697 .62% 4.00% 11.73%
1995 17.53 213,473 .59 4.74 22.15
1996 32.82 322,721 .57 4.80 10.32
1997 20.70 440,554 .54 3.59 11.62
1998 (16.82) 282,290 .54 5.44 13.21
1999(8),(9) 5.52 224,451 .57* 4.09* 4.94
Class 2
1999(7),(9) 3.91 44 .87* 3.79* 4.94
RISING DIVIDENDS FUND
Class 1
1994 (4.08) 309,929 .80 2.71 24.07
1995 29.74 463,253 .78 2.72 18.72
1996 24.18 597,424 .76 1.96 27.97
1997 33.03 780,298 .74 1.24 37.04
1998 6.92 751,869 .72 1.20 26.44
1999(8),(9) 2.82 621,230 .74* 1.35* 3.33
Class 2
1999(7),(9) 1.70 331 1.05* 1.13* 3.33
SMALL CAP FUND
Class 1
1995(3) 2.30 13,301 .90* 2.70* 16.04
1996 28.95 170,969 .77 .63 63.72
1997 17.42 313,462 .77 .06 64.07
1998 (.98) 315,460 .77 .51 53.01
1999(8),(9) 16.47 299,177 .80* (.08)* 23.08
Class 2
1999(7),(9) 11.93 78 1.08* (.09)* 23.08
TEMPLETON DEVELOPING MARKETS
EQUITY FUND
Class 1
1994(1) (4.40) 98,189 1.53* 1.85* 1.15
1995 2.77 158,084 1.41 2.01 19.96
1996 21.59 272,098 1.49 1.68 12.42
1997 (8.72) 279,680 1.42 1.57 20.59
1998 (21.61) 162,433 1.41 2.04 36.58
1999(8),(9) 35.89 188,803 1.40* 1.51* 14.04
Class 2
1999(7),(9) 29.92 587 1.71* 1.38* 14.04
</TABLE>
FRANKLIN VALUEMARK FUNDS
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON GLOBAL ASSET
ALLOCATION FUND
Class 1
1995(2) $10.00 $ .18 $ .52 $ .70 $ (.18) $ -- $ (.18) $10.52
1996 10.52 .34 1.75 2.09 (.01) (.01) (.02) 12.59
1997 12.59 .42 1.04 1.46 (.26) (.07) (.33) 13.72
1998 13.72 .61 (.59) .02 (.49) (.58) (1.07) 12.67
1999(8),(9) 12.67 .23 .42 .65 -- -- -- 13.32
Class 2
1999(7),(9) 12.94 .23 .12 .35 -- -- -- 13.29
TEMPLETON GLOBAL GROWTH FUND
Class 1
1994(1) 10.15 .07 .26 .33 -- -- -- 10.48
1995 10.48 .16 1.17 1.33 (.06) -- (.06) 11.75
1996 11.75 .25 2.22 2.47 (.21) (.21) (.42) 13.80
1997 13.80 .33 1.53 1.86 (.24) (.08) (.32) 15.34
1998 15.34 .35 .98 1.33 (.41) (1.49) (1.90) 14.77
1999(8),(9) 14.77 .25 1.52 1.77 -- -- -- 16.54
Class 2
1999(7),(9) 15.34 .26 .92 1.18 -- -- -- 16.52
TEMPLETON GLOBAL INCOME
SECURITIES FUND
Class 1
1994 13.31 .86 (1.52) (.66) (.33) (.13) (.46) 12.19
1995 12.19 .29 1.47 1.76 (.49) -- (.49) 13.46
1996 13.46 1.02 .17 1.19 (1.04) -- (1.04) 13.61
1997 13.61 1.05 (.73) .32 (.96) -- (.96) 12.97
1998 12.97 1.07 (.19) .88 (.98) -- (.98) 12.87
1999(8),(9) 12.87 .35 (1.02) (.67) -- -- -- 12.20
Class 2
1999(7),(9) 12.93 .32 (1.07) (.75) -- -- -- 12.18
TEMPLETON INTERNATIONAL
EQUITY FUND
Class 1
1994 12.50 .19 (.07) .12 (.04) (.07) (.11) 12.51
1995 12.51 .37 .94 1.31 (.22) (.28) (.50) 13.32
1996 13.32 .40 2.58 2.98 (.38) (.47) (.85) 15.45
1997 15.45 .30 1.51 1.81 (.45) (.69) (1.14) 16.12
1998 16.12 .56 .42 .98 (.53) (1.05) (1.58) 15.52
1999(8),(9) 15.52 .23 1.55 1.78 -- -- -- 17.30
Class 2
1999(7),(9) 16.24 .26 .77 1.03 -- -- -- 17.27
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
PERIOD TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN(+) (000'S) NET ASSETS NET ASSETS RATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEMPLETON GLOBAL ASSET
ALLOCATION FUND
Class 1
1995(2) 7.01% $14,729 .90%* 3.84%* 30.00%
1996 19.84 56,274 .86 4.21 52.35
1997 11.71 93,402 .94 4.22 61.93
1998 (.04) 81,670 .84 4.32 59.03
1999(8),(9) 5.13 70,553 .83* 3.73* 14.40
Class 2
1999(7),(9) 2.70 43 1.11* 3.74* 14.40
TEMPLETON GLOBAL GROWTH FUND
Class 1
1994(1) 3.25 158,856 1.14* 2.49* 7.14
1995 12.72 338,755 .97 2.46 30.92
1996 21.28 579,877 .93 2.20 12.32
1997 13.50 758,445 .88 2.49 24.81
1998 8.98 747,080 .88 2.27 32.30
1999(8),(9) 11.98 732,164 .88* 2.65* 10.64
Class 2
1999(7),(9) 7.69 1,481 1.18* 3.37* 10.64
TEMPLETON GLOBAL INCOME
SECURITIES FUND
Class 1
1994 (4.99) 254,311 .71 7.99 79.38
1995 14.68 243,194 .64 7.59 152.89
1996 9.56 221,722 .61 7.30 140.96
1997 2.55 185,016 .62 7.03 181.61
1998 7.08 150,941 .63 6.86 84.17
1999(8),(9) (5.21) 113,609 .66* 5.57* 39.79
Class 2
1999(7),(9) (5.80) 82 .97* 5.40* 39.79
TEMPLETON INTERNATIONAL
EQUITY FUND
Class 1
1994 .87 785,124 .99 2.17 12.22
1995 10.59 850,117 .92 2.87 16.42
1996 22.98 1,108,099 .89 3.07 27.52
1997 11.69 1,161,430 .89 3.01 26.96
1998 5.56 955,900 .88 2.90 5.98
1999(8),(9) 11.47 824,806 .91* 2.82* 8.28
Class 2
1999(7),(9) 6.34 4,293 1.20* 3.22* 8.28
</TABLE>
FRANKLIN VALUEMARK FUNDS
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
Class 1
1996(4) $10.00 $ .10 $ 1.15 $ 1.25 $ -- $ -- $ -- $11.25
1997 11.25 .23 (.39) (.16) (.07) -- (.07) 11.02
1998 11.02 .25 (1.52) (1.27) (.25) (.30) (.55) 9.20
1999(8),(9) 9.20 .16 1.41 1.57 -- -- -- 10.77
Class 2
1999(7),(9) 9.44 .07 1.25 1.32 -- -- -- 10.76
TEMPLETON PACIFIC GROWTH FUND
Class 1
1994 14.61 .22 (1.50) (1.28) (.03) (.06) (.09) 13.24
1995 13.24 .33 .71 1.04 (.26) (.11) (.37) 13.91
1996 13.91 .21 1.34 1.55 (.44) (.26) (.70) 14.76
1997 14.76 .29 (5.49) (5.20) (.28) -- (.28) 9.28
1998 9.28 .21 (1.52) (1.31) (.35) (.11) (.46) 7.51
1999(8),(9) 7.51 .05 2.11 2.16 -- -- -- 9.67
Class 2
1999(7),(9) 7.63 .07 1.95 2.02 -- -- -- 9.65
U.S. GOVERNMENT SECURITIES FUND
Class 1
1994 13.92 .96 (1.59) (.63) (.67) (.05) (.72) 12.57
1995 12.57 .93 1.46 2.39 (.96) -- (.96) 14.00
1996 14.00 .75 (.31) .44 (.97) -- (.97) 13.47
1997 13.47 1.00 .21 1.21 (.76) -- (.76) 13.92
1998 13.92 .99 .01 1.00 (1.03) -- (1.03) 13.89
1999(8),(9) 13.89 .44 (.62) (.18) -- -- -- 13.71
Class 2
1999(7),(9) 13.89 .39 (.59) (.20) -- -- -- 13.69
VALUE SECURITIES FUND
Class 1
1998(6) 10.00 .02 (2.23) (2.21) -- -- -- 7.79
1999(8),(9) 7.79 .02 .83 .85 -- -- -- 8.64
Class 2
1999(7),(9) 7.97 .01 .65 .66 -- -- -- 8.63
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
---------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
PERIOD TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN(+) (000'S) NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND
Class 1
1996(4) 12.50% $16,255 1.16%* 2.51%* --%
1997 (1.50) 32,201 1.06 2.74 21.38
1998 (12.27) 24,999 1.10 2.26 18.45
1999(8),(9) 17.07 24,281 1.13* 3.39* 6.04
Class 2
1999(7),(9) 13.98 515 1.42* 1.74* 6.04
TEMPLETON PACIFIC GROWTH FUND
Class 1
1994 (8.79) 375,832 1.07 2.04 4.29
1995 7.97 331,936 1.01 2.08 36.06
1996 11.10 356,759 .99 1.51 12.85
1997 (35.95) 165,404 1.03 1.97 11.87
1998 (13.13) 98,769 1.10 2.60 12.55
1999(8),(9) 28.76 112,950 1.09* 1.31* 6.04
Class 2
1999(7),(9) 26.47 298 1.38* 1.50* 6.04
U.S. GOVERNMENT SECURITIES FUND
Class 1
1994 (4.55) 579,039 .53 6.87 18.25**
1995 19.46 643,165 .52 6.72 18.68**
1996 3.62 843,858 .51 6.66 12.93***
1997 9.31 765,084 .50 6.49 16.84
1998 7.44 710,832 .50 6.22 31.34
1999(8),(9) (1.30) 598,705 .54* 6.28* 7.26
Class 2
1999(7),(9) (1.44) 1,601 .83* 5.86* 7.26
VALUE SECURITIES FUND
Class 1
1998(6) (22.10) 9,013 .83* .95* 22.79
1999(8),(9) 10.91 11,815 .87* .61* 42.40
Class 2
1999(7),(9) 8.28 60 1.12* .33* 42.40
</TABLE>
FRANKLIN VALUEMARK FUNDS
Financial Highlights (continued)
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
--------------------------------------------------------------------------------------------------
NET NET DISTRI-
ASSET NET REALIZED & TOTAL DISTRIBUTIONS BUTIONS
VALUE, INVEST- UNREALIZED FROM FROM NET FROM NET TOTAL NET ASSET
PERIOD BEGINNING MENT GAINS INVESTMENT INVESTMENT REALIZED DISTRI- VALUE, END
ENDED OF PERIOD INCOME (LOSSES) OPERATIONS INCOME GAINS BUTIONS OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ZERO COUPON FUND - 2000
1994 $ 15.44 $ .68 $ (1.71) $ (1.03) $ (.69) $ (.10) $ (.79) $ 13.62
1995 13.62 .75 2.03 2.78 (.67) -- (.67) 15.73
1996 15.73 .98 (.65) .33 (.86) (.01) (.87) 15.19
1997 15.19 1.15 (.12) 1.03 (1.06) (.02) (1.08) 15.14
1998 15.14 1.22 (.15) 1.07 (1.21) (.19) (1.40) 14.81
1999(8),(9) 14.81 .49 (.34) .15 -- -- -- 14.96
ZERO COUPON FUND - 2005
1994 16.08 .71 (2.24) (1.53) (.60) (.19) (.79) 13.76
1995 13.76 .78 3.53 4.31 (.69) -- (.69) 17.38
1996 17.38 .96 (1.13) (.17) (.86) -- (.86) 16.35
1997 16.35 1.14 .63 1.77 (1.06) (.01) (1.07) 17.05
1998 17.05 1.01 1.03 2.04 (1.10) (.25) (1.35) 17.74
1999(8),(9) 17.74 .49 (1.38) (.89) -- -- -- 16.85
ZERO COUPON FUND - 2010
1994 15.68 .55 (2.27) (1.72) (.63) (.31) (.94) 13.02
1995 13.02 .76 4.75 5.51 (.49) -- (.49) 18.04
1996 18.04 1.02 (1.65) (.63) (.88) (.24) (1.12) 16.29
1997 16.29 1.02 1.54 2.56 (1.01) (.01) (1.02) 17.83
1998 17.83 1.09 1.39 2.48 (1.11) (.15) (1.26) 19.05
1999(8),(9) 19.05 .50 (2.18) (1.68) -- -- -- 17.37
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------
RATIO OF NET
NET RATIO OF INVESTMENT
ASSETS, END EXPENSES INCOME PORTFOLIO
PERIOD TOTAL OF PERIOD TO AVERAGE TO AVERAGE TURNOVER
ENDED RETURN(+) (000'S) NET ASSETS NET ASSETS RATE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ZERO COUPON FUND - 2000
1994 (6.76)% $ 94,230 .40%(10) 6.37% --%
1995 20.67 137,357 .40(10) 6.14 1.63
1996 2.43 129,601 .40(10) 6.14 .58
1997 7.11 111,650 .40(10) 6.47 6.16
1998 7.50 93,543 .40(10) 6.67 17.70
1999(8),(9) 1.01 79,882 .66(*) 6.64(*) 9.70
ZERO COUPON FUND - 2005
1994 (9.60) 51,499 .40(10) 6.53 2.00
1995 31.76 83,222 .40(10) 6.19 1.72
1996 (.50) 82,603 .40(10) 6.15 2.06
1997 11.37 77,296 .40(10) 6.16 4.52
1998 12.53 84,487 .40(10) 5.82 3.87
1999(8),(9) (4.96) 73,966 .66(*) 5.69(*) 4.28
ZERO COUPON FUND - 2010
1994 (10.97) 45,361 .40(10) 6.57 4.34
1995 42.79 85,633 .40(10) 6.41 31.45
1996 (2.69) 78,816 .40(10) 6.24 16.10
1997 16.57 85,515 .40(10) 6.21 12.20
1998 14.45 93,515 .40(10) 5.55 15.92
1999(8),(9) (8.82) 79,282 .66(*) 5.48(*) 9.23
</TABLE>
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***The portfolio turnover rate excludes transactions related to the liquidation
of the Investment Grade Intermediate Bond Fund and the Adjustable U.S.
Government Fund and mortgage dollar roll transactions.
+Total return does not include any fees, charges or expenses imposed by the
variable annuity and life insurance contracts for which the Franklin
Valuemark Funds serve as an underlying investment vehicle. Total return is
not annualized for periods less than one year.
(1)For the period March 15, 1994 (effective date) to December 31, 1994.
(2)For the period April 19, 1995 (seed date) to December 31, 1995.
(3)For the period November 1, 1995 (effective date) to December 31, 1995.
(4)For the period May 1, 1996 (effective date) to December 31, 1996.
(5)For the period November 8, 1996 (effective date) to December 31, 1996.
(6)For the period May 1, 1998 (effective date) to December 31, 1998.
(7)For the period January 6, 1999 (effective date) to June 30, 1999.
(8)For the six months ended June 30, 1999.
(9)Based on average shares outstanding.
(10)During the periods indicated below, Franklin Advisers, Inc., the investment
manager, agreed to waive in advance a portion of its management fees
incurred by the Funds in the Trust. Had such action not been taken, the
ratio of expenses to average net assets would have been as follows:
<TABLE>
<CAPTION>
MONEY MARKET FUND ZERO COUPON FUND - 2000 ZERO COUPON FUND - 2005 ZERO COUPON FUND - 2010
<S> <C> <C> <C> <C> <C> <C> <C>
1994 ........... .54% 1994 ........... .66% 1994 ........... .68% 1994 ........... .68%
1995 ........... .53 1995 ........... .63 1995 ........... .66 1995 ........... .66
1996 ........... .53 1996 ........... .62 1996 ........... .65 1996 ........... .65
1997 ........... .53 1997 ........... .63 1997 ........... .65 1997 ........... .65
1998 ........... .53 1998 ........... .66 1998 ........... .66 1998 ........... .66
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 88.2%
COMMERCIAL SERVICES 3.2%
(a)Concord EFS Inc. ...................................... 140,000 $ 5,923,750
Equifax Inc. .......................................... 100,000 3,568,750
(a)Robert Half International Inc. ........................ 75,000 1,950,000
-----------
11,442,500
-----------
CONSUMER DURABLES 2.0%
(a)Electronic Arts Inc. .................................. 50,000 2,712,500
Mattel Inc. ........................................... 160,000 4,230,000
-----------
6,942,500
-----------
Consumer Non-Durables 4.9%
Campbell Soup Co. ..................................... 30,000 1,391,250
Coca-Cola Co. ......................................... 17,000 1,062,500
Hershey Foods Corp. ................................... 75,000 4,453,125
Nike Inc., B .......................................... 50,000 3,165,625
PepsiCo Inc. .......................................... 30,000 1,160,625
Philip Morris Cos. Inc. ............................... 85,000 3,415,938
Procter & Gamble Co. .................................. 30,000 2,677,500
-----------
17,326,563
-----------
CONSUMER SERVICES 3.0%
McDonald's Corp. ...................................... 100,000 4,131,250
(a)Mirage Resorts Inc. ................................... 110,000 1,842,500
Time Warner Inc. ...................................... 64,000 4,704,000
-----------
10,677,750
-----------
ELECTRONIC TECHNOLOGY 18.5%
(a)3Com Corp. ............................................ 85,000 2,268,438
(a)Applied Materials Inc. ................................ 55,000 4,063,125
(a)Cisco Systems Inc. .................................... 110,000 7,095,000
Compaq Computer Corp. ................................. 100,000 2,368,750
Hewlett-Packard Co. ................................... 65,000 6,532,500
Intel Corp. ........................................... 50,000 2,975,000
International Business Machines Corp. ................. 50,000 6,462,500
(a)KLA-Tencor Corp. ...................................... 50,000 3,243,750
Linear Technology Corp. ............................... 65,000 4,371,250
Lucent Technologies Inc. .............................. 30,000 2,023,125
Molex Inc. ............................................ 63,437 2,347,169
(a)Synopsys Inc. ......................................... 70,000 3,863,125
(a)Tellabs Inc. .......................................... 24,000 1,621,500
(a)Uniphase Corp. ........................................ 40,000 6,640,000
United Technologies Corp. ............................. 60,000 4,301,250
(a)Xilinx Inc. ........................................... 100,000 5,725,000
-----------
65,901,482
-----------
ENERGY MINERALS 1.9%
(a)Barrett Resources Corp. ............................... 58,200 2,233,425
Royal Dutch Petroleum Co., N.Y. shs., ADR (Netherlands) 75,000 4,518,750
-----------
6,752,175
-----------
FINANCE 9.6%
American International Group Inc. ..................... 33,550 3,927,447
Associates First Capital Corp., A ..................... 70,000 3,101,875
Bank One Corp. ........................................ 85,000 5,062,813
Charles Schwab Corp. .................................. 32,500 3,570,938
Citigroup Inc. ........................................ 127,500 6,056,250
Fannie Mae ............................................ 75,000 5,128,125
(a)Goldman Sachs Group Inc. .............................. 22,600 1,632,850
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
Providian Financial Corp. ........................ 38,000 $ 3,553,000
(a)TD Waterhouse Group Inc. ......................... 89,900 2,253,119
-----------
34,286,417
-----------
HEALTH SERVICES 1.0%
McKesson HBOC Inc. ............................... 59,000 1,895,375
Omnicare Inc. .................................... 120,000 1,767,500
-----------
3,662,875
-----------
HEALTH TECHNOLOGY 13.8%
Abbott Laboratories .............................. 110,000 5,005,000
American Home Products Corp. ..................... 60,000 3,450,000
(a)Amgen Inc. ....................................... 90,000 5,478,750
Baxter International Inc. ........................ 70,000 4,243,750
(a)Boston Scientific Corp. .......................... 85,000 3,734,688
Bristol-Myers Squibb Co. ......................... 80,000 5,635,000
(a)Centocor Inc. .................................... 21,000 979,125
Eli Lilly & Co. .................................. 40,000 2,865,000
(a)Guidant Corp. .................................... 5,000 257,188
Johnson & Johnson ................................ 55,000 5,390,000
Medtronic Inc. ................................... 50,000 3,893,750
Merck & Co. Inc. ................................. 15,000 1,110,000
Pfizer Inc. ...................................... 22,000 2,414,500
Schering-Plough Corp. ............................ 90,000 4,770,000
-----------
49,226,751
-----------
INDUSTRIAL SERVICES 3.6%
(a)AES Corp. ........................................ 65,000 3,778,125
(a)Republic Services Inc., A ........................ 164,500 4,071,375
Schlumberger Ltd. ................................ 75,000 4,776,563
-----------
12,626,063
-----------
NON-ENERGY MINERALS 1.0%
De Beers Consolidated Mines AG, ADR (South Africa) 150,000 3,581,250
-----------
PROCESS INDUSTRIES 3.4%
Air Products & Chemicals Inc. .................... 70,000 2,817,500
Millipore Corp. .................................. 60,000 2,433,750
(a)Owens-Illinois Inc. .............................. 60,000 1,961,250
Pall Corp. ....................................... 110,000 2,440,625
Sigma-Aldrich Corp. .............................. 70,000 2,410,625
-----------
12,063,750
-----------
PRODUCER MANUFACTURING 1.8%
Avery Dennison Corp. ............................. 30,000 1,811,250
Emerson Electric Co. ............................. 40,000 2,515,000
Minnesota Mining & Manufacturing Co. ............. 25,000 2,173,438
-----------
6,499,688
-----------
RETAIL TRADE 4.5%
Albertson's Inc. ................................. 85,000 4,382,813
Tiffany & Co. .................................... 60,000 5,790,000
Wal-Mart Stores Inc. ............................. 120,000 5,790,000
-----------
15,962,813
-----------
TECHNOLOGY SERVICES 6.6%
Automatic Data Processing Inc. ................... 150,000 6,600,000
(a)Computer Sciences Corp. .......................... 50,000 3,459,375
(a)EMC Corp. ........................................ 50,000 2,750,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES (CONT.)
(a)Microsoft Corp. ............................... 80,000 $ 7,215,000
(a)Oracle Corp. .................................. 90,000 3,341,250
-----------
23,365,625
-----------
TELECOMMUNICATIONS 2.4%
GTE Corp. ..................................... 50,000 3,787,500
Vodafone AirTouch PLC, ADR (United Kingdom) ... 25,000 4,925,000
-----------
8,712,500
-----------
TRANSPORTATION 2.6%
Air Express International Corp. ............... 150,000 3,806,250
Expeditors International of Washington Inc. ... 120,000 3,270,000
Southwest Airlines Co. ........................ 70,000 2,178,750
-----------
9,255,000
-----------
UTILITIES 4.4%
CMS Energy Corp. .............................. 117,000 4,899,375
Dominion Resources Inc. ....................... 42,000 1,819,125
Enron Corp. ................................... 60,000 4,905,000
PECO Energy Co. ............................... 50,000 2,093,750
MCN Energy Group Inc. ......................... 90,100 1,869,570
-----------
15,586,820
-----------
TOTAL LONG TERM INVESTMENTS (COST $238,302,547) 313,872,522
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
(f)REPURCHASE AGREEMENT 11.8%
<S> <C> <C>
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $42,082,284) (Cost $42,076,712) $ 42,076,712 42,076,712
Barclays Capital Inc. (Maturity Value $5,308,259)
Bear, Stearns & Co. Inc. (Maturity Value $4,683,758)
Chase Securities Inc. (Maturity Value $866,895)
CIBC Oppenheimer Corp. (Maturity Value $5,308,259)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,747,007)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $3,747,007)
Goldman, Sachs & Co. (Maturity Value $1,873,503)
NationsBanc Montgomery Securities LLC (Maturity Value $3,747,007)
Paine Webber Inc. (Maturity Value $3,747,007)
Paribas Corp. (Maturity Value $3,745,323)
Warburg Dillon Read LLC (Maturity Value $5,308,259)
Collateralized by U.S. Treasury Bills & Notes
-------------
TOTAL INVESTMENTS (COST $280,379,259) 100.0% ............................................... 355,949,234
OTHER ASSETS, LESS LIABILITIES ............................................................. (105,172)
-------------
NET ASSETS 100.0% .......................................................................... $ 355,844,062
=============
</TABLE>
(a)Non-income producing.
(f)See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL HEALTH CARE SECURITIES FUND SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.1%
(a)CONSUMER SERVICES 1.3%
drkoop.com Inc. ........................................ 8,700 $ 138,656
HEALTH SERVICES 31.4%
Cardinal Health Inc. ................................... 5,950 381,544
(a)CareInsite Inc. ........................................ 5,500 259,875
(a)CyBear Inc. ............................................ 10,300 143,556
(a)Express Scripts Inc., A ................................ 3,400 204,638
(a)LCA-Vision Inc. ........................................ 29,000 270,063
McKesson HBOC Inc. ..................................... 9,280 298,120
(a)MedQuist Inc. .......................................... 7,100 310,625
Omnicare Inc. .......................................... 24,100 304,263
(a)Pharmaceutical Product Development Inc. ................ 11,000 301,125
(a)Quintiles Transnational Corp. .......................... 7,600 319,200
(a)Renal Care Group Inc. .................................. 8,800 227,700
(a)Wellpoint Health Networks Inc. ......................... 3,000 254,625
----------
3,275,333
----------
HEALTH TECHNOLOGY 63.4%
American Home Products Corp. ........................... 9,400 540,500
(a)Amgen Inc. ............................................. 5,000 304,375
Bausch & Lomb Inc. ..................................... 4,500 344,250
Baxter International Inc. .............................. 8,200 497,125
Becton, Dickinson & Co. ................................ 500 15,000
(a)Boston Scientific Corp. ................................ 7,000 307,563
Bristol-Myers Squibb Co. ............................... 7,100 500,106
Eli Lilly & Co. ........................................ 7,400 530,025
(a)Guidant Corp. .......................................... 500 25,719
Medtronic Inc. ......................................... 6,400 498,400
Merck & Co. Inc. ....................................... 500 37,000
(a)Molecular Devices Corp. ................................ 6,600 247,500
(a)Ocular Sciences Inc. ................................... 14,000 243,250
(a)OrthoLogic Corp. ....................................... 43,000 106,158
Pfizer Inc. ............................................ 2,900 318,275
Pharmacia & Upjohn Inc. ................................ 8,900 505,631
Roche Holding AG (Switzerland) ......................... 16 164,467
Schering-Plough Corp. .................................. 11,200 593,600
SmithKline Beecham PLC, ADR (United Kingdom) ........... 2,000 132,125
(a)VISX Inc. .............................................. 3,500 277,156
Warner-Lambert Co. ..................................... 6,000 416,250
----------
6,604,475
----------
TOTAL LONG TERM INVESTMENTS (COST $9,596,134) ............. 10,018,464
----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
GLOBAL HEALTH CARE SECURITIES FUND AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(f)REPURCHASE AGREEMENT 3.3%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $346,464) (COST $346,418) ................. $346,418 $ 346,418
Barclays Capital Inc. (Maturity Value $43,701)
Bear, Stearns & Co. Inc. (Maturity Value $38,560)
Chase Securities Inc. (Maturity Value $7,137)
CIBC Oppenheimer Corp. (Maturity Value $43,701)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $30,848)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $30,848)
Goldman, Sachs & Co. (Maturity Value $15,424)
NationsBanc Montgomery Securities LLC (Maturity Value $30,848)
Paine Webber Inc. (Maturity Value $30,848)
Paribas Corp. (Maturity Value $30,848)
Warburg Dillon Read LLC (Maturity Value $43,701)
Collateralized by U.S. Treasury Bills & Notes
TOTAL INVESTMENTS (COST $9,942,552) 99.4% .............................................................. 10,364,882
-----------
OTHER ASSETS, LESS LIABILITIES .6% ..................................................................... 63,065
-----------
NET ASSETS 100.0% ...................................................................................... $10,427,947
===========
</TABLE>
(a) Non-income producing.
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL UTILITIES SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 92.4%
UTILITIES AND TELECOMMUNICATIONS
(a)3Com Corp. ............................................................. United States 420,000 $11,208,750
(a)Advanced Fibre Communications Inc. ..................................... United States 600,000 9,375,000
(a)AES Corp. .............................................................. United States 185,000 10,753,125
AT&T Corp. ............................................................. United States 219,000 12,222,938
Avista Corp. ........................................................... United States 448,000 7,280,000
Bell Atlantic Corp. .................................................... United States 350,000 22,881,250
BellSouth Corp. ........................................................ United States 200,000 9,375,000
BSES Ltd., GDR, 144A ................................................... India 158,600 1,589,965
Central & South West Corp. ............................................. United States 300,000 7,012,500
Cincinnati Bell Inc. ................................................... United States 480,000 11,970,000
Cinergy Corp. .......................................................... United States 100,000 3,200,000
(a)Cisco Systems Inc. ..................................................... United States 47,000 3,031,500
(a)Citizens Utilities Co., B .............................................. United States 600,000 6,675,000
(a)Clarent Corp. .......................................................... United States 8,900 133,500
(a)Clearnet Communications Inc., A ........................................ Canada 173,000 2,411,188
CMS Energy Corp. ....................................................... United States 250,000 10,468,750
Coastal Corp. .......................................................... United States 230,000 9,200,000
(a)COLT Telecom Group PLC ................................................. United Kingdom 270,000 5,677,312
Companhia Paranaense de Energia-Copel, ADR ............................. Brazil 83,300 697,638
Corning Inc. ........................................................... United States 62,800 4,403,850
Duke Energy Corp. ...................................................... United States 310,000 16,856,250
Edison International ................................................... United States 738,600 19,757,550
Electricidade de Portugal SA ........................................... Portugal 324,000 5,833,804
Endesa SA .............................................................. Spain 718,400 15,320,730
Enron Corp. ............................................................ United States 140,000 11,445,000
(a)Equant NV, N.Y. shs .................................................... Netherlands 250,000 23,531,250
Estonia Telecom GDR, 144A .............................................. Estonia 71,500 1,419,275
Fortum Corp. ........................................................... Finland 1,239,300 5,993,933
FPL Group Inc. ......................................................... United States 200,000 10,925,000
Frontier Corp. ......................................................... United States 562,000 33,158,000
(a)Global TeleSystems Group Inc. .......................................... United States 245,000 19,845,000
GPU Inc. ............................................................... United States 250,000 10,546,875
GTE Corp. .............................................................. United States 372,000 28,179,000
Hellenic Telecommunications Organization SA ............................ Greece 532,110 11,405,254
(a)ICG Communications Inc. ................................................ United States 408,000 8,721,000
Illinova Corp. ......................................................... United States 200,000 5,450,000
Korea Telecom Corp. .................................................... South Korea 442,100 29,333,287
Lucent Technologies Inc. ............................................... United States 145,035 9,780,798
(a)MCI WorldCom Inc. ...................................................... United States 230,000 19,794,375
MDU Resources Group Inc. ............................................... United States 400,000 9,125,000
Montana Power Co. ...................................................... United States 221,500 15,615,750
New Century Energies Inc. .............................................. United States 100,000 3,881,250
(a)Nextel Communications Inc., A .......................................... United States 465,000 23,337,188
(a)NEXTLINK Communications Inc., A ........................................ United States 70,000 5,206,250
Nippon Telegraph & Telephone Corp. ..................................... Japan 460 5,358,559
Northern States Power Co. .............................................. United States 250,000 6,046,875
Northwestern Corp. ..................................................... United States 363,000 8,780,063
(a)Pacific Gateway Exchange Inc. .......................................... United States 390,000 11,358,750
PECO Energy Co. ........................................................ United States 53,500 2,240,313
PG&E Corp. ............................................................. United States 500,000 16,250,000
Pinnacle West Capital Corp. ............................................ United States 304,200 12,244,050
Portugal Telecom SA .................................................... Portugal 370,000 15,052,594
PowerGen PLC ........................................................... United Kingdom 1,200,000 12,909,429
(a)Primus Telecommunications Group Inc. ................................... United States 193,900 4,350,631
(a)Qwest Communications International Inc. ................................ United States 350,000 11,571,875
SBC Communications Inc. ................................................ United States 300,000 17,400,000
Scottish & Southern Energy PLC ......................................... United Kingdom 972,600 9,980,180
Scottish Power PLC ..................................................... United Kingdom 850,000 7,322,042
Sempra Energy .......................................................... United States 200,000 4,525,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GLOBAL UTILITIES SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES AND TELECOMMUNICATIONS (CONT.)
Severn Trent PLC ....................................................... United Kingdom 455,250 $ 6,716,592
Southern Co. ........................................................... United States 600,000 15,900,000
(a)Sprint Corp. (PCS Group) ............................................... United States 300,000 17,137,500
Swisscom AG ............................................................ Switzerland 47,700 17,949,633
TECO Energy Inc. ....................................................... United States 450,000 10,237,500
Telebras SA, ADR ....................................................... Brazil 42,000 3,787,875
Telecel-Comunicacoes Pessoais SA ....................................... Portugal 70,000 9,023,409
Telecom Italia SpA ..................................................... Italy 5,222,000 28,406,775
(a)Telecomunicacoes Brasileiras SA, ADR ................................... Brazil 42,000 2,625
Telefonica SA, ADR ..................................................... Spain 90,118 13,258,614
(a)Tellabs Inc. ........................................................... United States 80,000 5,405,000
Tokyo Electric Power Co. ............................................... Japan 135,000 2,849,678
Transportadora de Gas del Sur SA, ADR .................................. Argentina 370,000 3,468,750
U.S. West Inc. ......................................................... United States 243,000 14,276,250
Unicom Corp. ........................................................... United States 179,000 6,902,688
VEBA AG ................................................................ Germany 147,500 8,700,629
Vodafone AirTouch PLC, ADR ............................................. United Kingdom 37,500 7,387,500
Washington Gas Light Co. ............................................... United States 400,000 10,400,000
Williams Cos. Inc. ..................................................... United States 81,800 3,481,613
-----------
TOTAL COMMON STOCKS (COST $672,006,921) 824,712,077
-----------
CONVERTIBLE PREFERRED STOCKS 1.6%
CMS Energy Trust I, 7.75%, cvt. pfd .................................... United States 175,000 9,493,747
Nortel Inversora SA, 10.00%, cvt. pfd .................................. Argentina 96,300 4,953,431
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $15,164,784) .................. 14,447,178
-----------
TOTAL LONG TERM INVESTMENTS (COST $687,171,705) ........................ 839,159,255
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C> <C>
(f)REPURCHASE AGREEMENT 3.5%
Joint Repurchase Agreement, 4.767%, 7/01/99,
(Maturity Value $30,932,474) (Cost $30,928,379) ........................ United States $30,928,379 30,928,379
Barclays Capital Inc. (Maturity Value $3,901,669)
Bear, Stearns & Co. Inc. (Maturity Value $3,442,649)
Chase Securities Inc. (Maturity Value $637,158)
CIBC Oppenheimer Corp. (Maturity Value $3,901,669)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $2,754,120)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $2,754,120)
Goldman, Sachs & Co. (Maturity Value $1,377,060)
NationsBanc Montgomery Securities LLC (Maturity Value $2,754,120)
Paine Webber Inc. (Maturity Value $2,754,120)
Paribas Corp. (Maturity Value $2,754,120)
Warburg Dillon Read LLC (Maturity Value $3,901,669)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $718,100,084) 97.5% ............................... 870,087,634
OTHER ASSETS, LESS LIABILITIES 2.5% ....................................... 22,152,842
------------
NET ASSETS 100.0% ......................................................... $892,240,476
============
</TABLE>
(a) Non-income producing.
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 94.8%
COMMERCIAL SERVICES 1.0%
Dun & Bradstreet Corp. ........................................ United States 345,200 $ 12,233,025
------------
CONSUMER DURABLES 3.4%
Eastman Kodak Co. ............................................. United States 218,000 14,769,500
Ford Motor Co. ................................................ United States 312,500 17,636,719
General Motors Corp. .......................................... United States 135,500 8,943,000
------------
41,349,219
------------
CONSUMER NON-DURABLES 8.3%
Anheuser-Busch Cos. Inc. ...................................... United States 180,700 12,818,406
Fortune Brands Inc. ........................................... United States 185,200 7,662,650
General Mills Inc. ............................................ United States 273,500 21,982,563
H.J. Heinz Co. ................................................ United States 383,000 19,197,875
Kellogg Co. ................................................... United States 165,000 5,445,000
Philip Morris Cos. Inc. ....................................... United States 437,800 17,594,088
UST Inc. ...................................................... United States 510,000 14,917,500
------------
99,618,082
------------
ELECTRONIC TECHNOLOGY 2.2%
EG&G Inc. ..................................................... United States 159,400 5,678,625
International Business Machines Corp. ......................... United States 70,000 9,047,500
Motorola Inc. ................................................. United States 122,000 11,559,500
------------
26,285,625
------------
ENERGY MINERALS 10.4%
Atlantic Richfield Co. ........................................ United States 215,000 17,965,938
Chevron Corp. ................................................. United States 224,000 21,322,000
Exxon Corp. ................................................... United States 152,000 11,723,000
Mobil Corp. ................................................... United States 134,000 13,266,000
Royal Dutch Petroleum Co., N.Y. shs ........................... Netherlands 400,000 24,100,000
Texaco Inc. ................................................... United States 426,400 26,650,000
Ultramar Diamond Shamrock Corp. ............................... United States 447,800 9,767,638
------------
124,794,576
------------
FINANCE 10.0%
Bank of America Corp. ......................................... United States 240,000 17,595,000
Bank One Corp. ................................................ United States 378,710 22,556,914
BankBoston Corp. .............................................. United States 367,000 18,762,875
First Union Corp. ............................................. United States 201,000 9,447,000
J.P. Morgan & Co. Inc. ........................................ United States 125,900 17,688,950
National City Corp. ........................................... United States 275,000 18,012,500
PNC Bank Corp. ................................................ United States 282,900 16,302,113
------------
120,365,352
------------
HEALTH TECHNOLOGY 6.8%
American Home Products Corp. .................................. United States 272,500 15,668,750
Baxter International Inc. ..................................... United States 235,000 14,246,875
Glaxo Wellcome PLC, ADR ....................................... United Kingdom 300,800 17,032,800
Pharmacia & Upjohn Inc. ....................................... United States 615,000 34,939,688
------------
81,888,113
------------
INDUSTRIAL SERVICES 1.3%
Browning-Ferris Industries Inc. ............................... United States 370,000 15,910,000
------------
INSURANCE 6.0%
Lincoln National Corp. ........................................ United States 416,800 21,803,850
SAFECO Corp. .................................................. United States 404,000 17,826,500
St. Paul Cos. Inc. ............................................ United States 592,000 18,833,000
XL Capital Ltd., A ............................................ Bermuda 249,348 14,088,162
------------
72,551,512
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
NON-ENERGY MINERALS 3.4%
British Steel PLC, ADR ............................................ United Kingdom 380,000 $ 9,903,750
De Beers Consolidated Mines AG, ADR ............................... South Africa 503,000 12,009,125
Weyerhaeuser Co. .................................................. United States 265,500 18,253,125
--------------
40,166,000
--------------
PROCESS INDUSTRIES 4.3%
Dow Chemical Co. .................................................. United States 96,800 12,281,500
E. I. du Pont de Nemours and Co. .................................. United States 170,000 11,613,125
Imperial Chemical Industries PLC, ADR ............................. United Kingdom 354,400 14,087,400
Pall Corp. ........................................................ United States 618,600 13,725,188
--------------
51,707,213
--------------
PRODUCER MANUFACTURING 8.8%
Avery Dennison Corp. .............................................. United States 270,000 16,301,250
Dana Corp. ........................................................ United States 424,600 19,558,138
Deere & Co. ....................................................... United States 200,800 7,956,700
Delphi Automotive Systems Corp. ................................... United States 94,705 1,757,962
Diebold Inc. ...................................................... United States 379,500 10,910,625
Federal Signal Corp. .............................................. United States 431,000 9,131,813
General Electric Co. .............................................. United States 92,200 10,418,600
Minnesota Mining & Manufacturing Co. .............................. United States 170,500 14,822,844
Pitney Bowes Inc. ................................................. United States 235,000 15,098,750
--------------
105,956,682
--------------
REAL ESTATE 4.6%
Arden Realty Inc. ................................................. United States 479,200 11,800,300
Equity Residential Properties Trust ............................... United States 325,300 14,658,831
FelCor Lodging Trust Inc. ......................................... United States 398,100 8,260,575
Glenborough Realty Trust Inc. ..................................... United States 350,000 6,125,000
Simon Property Group Inc. ......................................... United States 544,700 13,821,763
--------------
54,666,469
--------------
RETAIL TRADE 2.2%
J.C. Penney Co. Inc. .............................................. United States 366,900 17,817,581
May Department Stores Co. ......................................... United States 210,000 8,583,750
--------------
26,401,331
--------------
TECHNOLOGY SERVICES .9%
Automatic Data Processing Inc. .................................... United States 239,000 10,516,000
Telecommunications 10.0%
Ameritech Corp. ................................................... United States 242,000 17,787,000
AT&T Corp. ........................................................ United States 345,000 19,255,313
Bell Atlantic Corp. ............................................... United States 564,632 36,912,817
GTE Corp. ......................................................... United States 389,500 29,504,625
U.S. West Inc. .................................................... United States 293,100 17,219,625
--------------
120,679,380
--------------
UTILITIES 11.2%
Cinergy Corp. ..................................................... United States 509,000 16,288,000
Consolidated Natural Gas Co. ...................................... United States 222,000 13,486,500
Constellation Energy Group Inc. ................................... United States 522,000 15,464,250
Dominion Resources Inc. ........................................... United States 303,500 13,145,344
GPU Inc. .......................................................... United States 383,300 16,170,469
MCN Energy Group Inc. ............................................. United States 710,000 14,732,500
National Fuel Gas Co. ............................................. United States 303,800 14,734,300
New Century Energies Inc. ......................................... United States 273,900 10,630,744
OGE Energy Corp. .................................................. United States 364,000 8,645,000
Sempra Energy ..................................................... United States 516,585 11,687,730
--------------
134,984,837
--------------
TOTAL LONG TERM INVESTMENTS (COST $892,898,162) ................... 1,140,073,416
--------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
GROWTH AND INCOME FUND COUNTRY AMOUNT VALUE
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(f)REPURCHASE AGREEMENT 5.3%
Joint Repurchase Agreement, 4.767%, 7/01/99,
(Maturity Value $63,638,415) (COST $63,629,989) ............................. United States $63,629,989 $63,629,989
Barclays Capital Inc. (Maturity Value $8,027,034)
Bear Stearns & Co. Inc. (Maturity Value $7,082,678)
Chase Securities Inc. (Maturity Value $1,310,849)
CIBC Oppenheimer Corp. (Maturity Value $8,027,035)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $5,666,143)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $5,666,143)
Goldman, Sachs & Co. (Maturity Value $2,833,071)
NationsBanc Montgomery Securities LLC (Maturity Value $5,666,143)
Paine Webber Inc. (Maturity Value $5,666,143)
Paribas Corp. (Maturity Value $5,666,143)
Warburg Dillon Read LLC (Maturity Value $8,027,033)
Collateralized by U.S. Treasury Bills & Notes
TOTAL INVESTMENTS (COST $956,528,151) 100.1% ................................... 1,203,703,405
---------------
OTHER ASSETS, LESS LIABILITIES (.1%) .......................................... (606,775)
---------------
NET ASSETS 100.0% .............................................................. $ 1,203,096,630
===============
</TABLE>
(f)See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
HIGH INCOME FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) COMMON STOCKS AND WARRANTS .2%
CONSUMER SERVICES
Foodmaker Inc. ............................................................... United States 210 $ 5,959
----------
NON-ENERGY MINERALS
Gulf States Steel Inc., wts., 4/15/03 ........................................ United States 5,000 100
----------
TELECOMMUNICATIONS .2%
International Wireless Communications Holdings Inc., wts., 8/15/01 ........... United States 7,800 47
Loral Space & Communications Ltd., wts., 1/15/07 ............................. United States 1,500 12,805
Nextel Communications Inc., A ................................................ United States 15,346 770,177
Nextel International Inc., wts., 4/15/07 ..................................... United States 7,000 17,500
Poland Telecom Finance, wts., 144A, 12/01/07 ................................. Poland 8,000 48,000
----------
848,529
----------
UTILITIES
Empire Gas Corp., wts., 7/15/04 .............................................. United States 6,900 1,725
----------
Total Common Stocks and Warrants (Cost $628,399) ............................. 856,313
----------
PREFERRED STOCKS .4%
INDUSTRIAL SERVICES .4%
R&B Falcon Corp., 13.875%, pfd., 144A, PIK (Cost $1,500,000) ................. United States 1,500 1,545,000
----------
PRINCIPAL
AMOUNT
---------
BONDS 97.6%
COMMERCIAL SERVICES 3.1%
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ..................... United States $2,000,000 1,890,000
Fleming Cos. Inc., senior sub. note, B, 10.625%, 7/31/07 ..................... United States 2,000,000 1,870,000
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 .................. United Kingdom 3,700,000 3,607,500
Outdoor Systems Inc., senior sub. note, 8.875%, 6/15/07 ...................... United States 4,250,000 4,457,188
----------
11,824,688
----------
CONSUMER DURABLES 2.6%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ................... United States 3,000,000 1,515,000
Pillowtex Corp., senior sub. note, B, 9.00%, 12/15/07 ........................ United States 2,900,000 2,900,000
Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02,
10.875% thereafter, 12/15/07 ............................................... United States 1,500,000 982,500
True Temper Sports Inc., senior sub. note, 144A, 10.875%, 12/01/08 ........... United States 4,000,000 3,400,000
Windmere-Durable Holdings Inc., senior sub. note, 10.00%, 7/31/08 ............ United States 1,200,000 1,152,000
----------
9,949,500
----------
CONSUMER NON-DURABLES 4.5%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 .............................. Argentina 1,250,000 990,625
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 ......................... United States 2,197,000 2,262,910
Packaged Ice Inc., senior sub. note, B, 9.75%, 2/01/05 ....................... United States 2,600,000 2,561,000
Revlon Worldwide Corp., senior disc. note, B, zero cpn., 3/15/01 ............. United States 8,500,000 5,822,500
Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ................. United States 3,000,000 2,925,000
United Industries Corp., senior sub. note, 144A, 9.875%, 4/01/09 ............. United States 3,000,000 2,722,500
----------
17,284,535
----------
CONSUMER SERVICES 25.5%
Advanstar Communications, senior sub. note, 9.25%, 5/01/08 ................... United States 5,000,000 4,925,000
Ascent Entertainment Group Inc., senior disc. note, zero cpn. to 12/15/02,
11.875% thereafter, 12/15/04 ............................................... United States 3,000,000 2,175,000
Aztar Corp., senior sub. note, 144A, 8.875%, 5/15/07 ......................... United States 4,500,000 4,342,500
Chancellor Media Corp., senior note, 8.00%, 11/01/08 ......................... United States 3,500,000 3,438,750
Chancellor Media Corp., senior sub. note, 9.00%, 10/01/08 .................... United States 4,500,000 4,601,250
Charter Communications Holdings LLC, senior disc. note, 144A,
zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ............................ United States 5,750,000 3,536,250
CSC Holdings Inc., B, 8.125%, 8/15/09 ........................................ United States 1,500,000 1,513,125
CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ......................... United States 3,000,000 3,375,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ......................... United States 4,500,000 4,860,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
CONSUMER SERVICES (cont.)
Diamond Cable Communication Co. PLC, senior disc. note, zero cpn. to 12/15/00,
11.75% thereafter, 12/15/05 ...................................................... United Kingdom $2,700,000 $ 2,443,500
Diamond Cable Communication Co. PLC, senior disc. note, zero cpn. to 2/15/02,
10.75% thereafter, 2/15/07 United Kingdom ........................................ 1,500,000 1,177,500
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ................................. United Kingdom 3,000,000 3,022,500
Exide Electronics Group Inc., senior sub. note, B, 11.50%, 3/15/06 ................. United States 2,000,000 2,340,000
Friendly Ice Cream Corp., senior note, 10.50%, 12/01/07 ............................ United States 5,000,000 4,475,000
Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 .................. United States 4,500,000 4,601,250
Hard Rock Hotel Inc., senior sub. note, B, 9.25%, 4/01/05 .......................... United States 400,000 379,000
Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 .................... United States 4,500,000 4,342,500
Hollinger International Publishing Inc., senior sub. note, 9.25%, 3/15/07 .......... United States 4,500,000 4,635,000
Horseshoe Gaming Holding Corp., senior sub. note, 144A, 8.625%, 5/15/09 ............ United States 4,500,000 4,353,750
La Petite Academy Inc., senior note, B, 10.00%, 5/15/08 ............................ United States 5,000,000 4,787,500
LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03,
10.00% thereafter, 3/01/08 ....................................................... United States 2,600,000 1,748,500
LIN Television Corp., senior sub. note, 8.375%, 3/01/08 ............................ United States 2,800,000 2,702,000
Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%, 1/15/09 ...... United States 5,000,000 4,625,000
Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ............................... United States 5,000,000 4,700,000
SFX Broadcasting Inc., senior sub. note, B, 10.75%, 5/15/06 ........................ United States 1,304,000 1,388,760
Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ................... United States 2,500,000 2,562,500
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ........................ United States 2,700,000 2,676,375
Telewest Communications PLC, senior disc. deb., zero cpn. to 10/01/00,
11.00% thereafter, 10/01/07 United Kingdom ......................................... 8,000,000 7,160,000
Telewest Communications PLC, senior disc. note, 144A, zero cpn. to 4/15/04,
9.25% thereafter, 4/15/09 United Kingdom ......................................... 1,750,000 1,172,500
----------
98,060,010
----------
ELECTRONIC TECHNOLOGY 2.3%
Bresnan Communications Group LLC, senior disc. note, 144A, zero cpn. to 11/01/00,
9.25% thereafter, 8/15/07 United States .......................................... 1,300,000 854,750
L-3 Communications Corp., B, 8.00%, 8/01/08 ........................................ United States 750,000 716,250
L-3 Communications Corp., senior sub. note, 10.375%, 5/01/07 ....................... United States 3,500,000 3,718,750
Telecommunication Techniques Co., senior sub. note, 9.75%, 5/15/08 ................. United States 3,500,000 3,552,500
----------
8,842,250
----------
ENERGY MINERALS 4.2%
Abraxas Petroleum Corp., senior note, D, 11.50%, 11/01/04 ........................... United States 4,300,000 2,709,000
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 .................................. United States 5,000,000 4,418,750
Mesa Operating Co., zero cpn. to 7/01/01,11.625% thereafter, 7/01/06 ................ United States 1,800,000 1,372,500
Nuevo Energy Co., senior sub. note, B, 8.875%, 6/01/08 .............................. United States 1,300,000 1,267,500
P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ............................ United States 1,000,000 1,007,500
P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ....................... United States 4,500,000 4,500,000
Pogo Producing Co., senior sub. note, B, 8.75%, 5/15/07 ............................. United States 1,000,000 965,000
----------
16,240,250
----------
FINANCE 1.3%
Willis Corron Corp., senior sub. note, 144A, 9.00%, 2/01/09 ......................... United States 5,000,000 4,931,250
Health Services 4.8%
Abbey Healthcare Group Inc., senior sub. note, 9.50%, 11/01/02 ...................... United States 7,770,000 7,731,150
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ..................... United States 2,750,000 2,365,000
Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 .................................. United States 1,250,000 1,268,750
Tenet Healthcare Corp., senior note, 8.625%, 12/01/03 ............................... United States 2,400,000 2,424,000
Tenet Healthcare Corp., senior sub. note, 8.625%, 1/15/07 ........................... United States 3,250,000 3,217,500
(b) Vencor Operating Inc., 9.875%, 5/01/05 .............................................. United States 4,200,000 1,281,000
----------
18,287,400
----------
INDUSTRIAL SERVICES 3.2%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 .................... United States 5,500,000 5,115,000
(b) Dailey International Inc., senior note, B, 9.50%, 2/15/08 ........................... United States 1,550,000 992,000
R&B Falcon Corp., senior note, 144A, 12.25%, 3/15/06 ................................ United States 1,750,000 1,811,250
RBF Finance Co., senior secured note, 144A, 11.375%, 3/15/09 ........................ United States 1,500,000 1,552,500
Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03,
9.875% thereafter, 2/15/08 ........................................................ United States 4,650,000 2,964,375
----------
12,435,125
----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
NON-ENERGY MINERALS .5%
Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 ...................... United States $1,800,000 $ 1,764,000
Process Industries 8.2%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 .................... United States 3,750,000 3,825,000
Asia Pulp & Paper Co. Ltd., 12.00%, 12/29/49 ..................................... Indonesia 4,500,000 2,925,000
Climachen Inc., senior sub. note, B, 10.75%, 12/01/07 ............................ United States 1,200,000 1,153,500
(h)Consolidated Container Co. LLC, senior sub. note, 144A, 10.125%, 7/15/09 ......... United States 2,500,000 2,537,500
Four M Corp., senior note, B, 12.00%, 6/01/06 .................................... United States 7,700,000 6,025,250
Graham Packaging Co., senior disc. note, B, zero cpn., to 1/15/03,
10.75% thereafter, 1/15/09 ..................................................... United States 900,000 616,500
Lyondell Chemical Co., secured note, 144A, 9.875%, 5/01/07 ....................... United States 1,750,000 1,780,625
(b)Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 ............ Indonesia 4,250,000 1,062,500
Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 .............................. United States 4,000,000 3,100,000
Radnor Holdings Inc., senior note, 10.00%, 12/01/03 .............................. United States 5,000,000 5,025,000
Repap New Brunswick, senior note, 9.00%, 6/01/04 ................................. Canada 2,000,000 1,895,000
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ...................... Indonesia 2,000,000 1,450,000
31,395,875
PRODUCER MANUFACTURING 4.2%
Goss Graphic Systems Inc., senior sub. note, 12.00%, 10/15/06 .................... United States 3,200,000 1,104,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 ................................... United States 5,500,000 5,541,250
Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ............................ United States 2,000,000 2,000,000
Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ................ United States 2,900,000 2,508,500
Terex Corp., senior sub. note, 8.875%, 4/01/08 ................................... United States 3,550,000 3,301,500
Terex Corp., senior sub. note, 144A, 8.875%, 4/01/08 ............................. United States 1,000,000 930,000
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ................ Canada 750,000 705,000
16,090,250
RETAIL TRADE 1.2%
Hollywood Entertainment Corp., senior sub. note, B, 10.625%, 8/15/04 ............. United States 4,000,000 3,940,000
Shoppers Food Warehouse Corp., senior note, 9.75%, 6/15/04 ....................... United States 750,000 803,438
4,743,438
TECHNOLOGY SERVICES 1.1%
Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 .............................. United States 4,000,000 4,220,000
Decisionone Corp., senior sub. note, 9.75%, 8/01/07 .............................. United States 1,000,000 50,000
Decisionone Holding Corp., senior disc. deb., zero cpn. to 8/01/02,
11.50% thereafter, 8/01/08 ..................................................... United States 2,500,000 37,500
4,307,500
TELECOMMUNICATIONS 25.0%
Arch Communications Group, senior disc. note, zero cpn. to 3/15/01,
10.875% thereafter, 3/15/08 .................................................... United States 6,000,000 2,670,000
Arch Escrow Corp., senior note, 144A, 13.75%, 4/15/08 ............................ United States 1,500,000 1,327,500
Call-Net Enterprises Inc., senior note, 9.375%, 5/15/09 .......................... Canada 4,250,000 4,069,373
Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04,
10.125% thereafter, 5/01/09 .................................................... Canada 6,500,000 3,737,500
Dobson/Sygnet Communications Co., 144A, 12.25%, 12/15/08 ......................... United States 4,500,000 4,691,250
Global Crossing Holdings Ltd., senior note, 9.625%, 5/15/08 ...................... Bermuda 5,000,000 5,225,000
Hermes Europe Railtel BV, senior note, 11.50%, 8/15/07 ........................... Netherlands 2,000,000 2,115,000
ICO Global Communications, 15.00%, 8/01/05 ....................................... Bermuda 5,000,000 2,050,000
IntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01,
12.50% thereafter, 5/01/06 ..................................................... United States 3,250,000 2,535,000
Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02,
11.25% thereafter, 7/15/07 ..................................................... United States 5,000,000 3,600,000
Intermedia Communications Inc., senior note, B, 9.50%, 3/01/09 ................... United States 2,000,000 1,955,000
(b),(c)International Wireless Communications, senior disc. note, zero cpn., 8/15/01 ..... United States 7,800,000 624,000
Iridium LLC/CAP, senior note, D, 10.875%, 7/15/05 ................................ Bermuda 5,350,000 1,150,250
IXC Communications Inc., senior sub. note, 9.00%, 4/15/08 ........................ United States 2,250,000 2,162,813
Level 3 Communications Inc., senior note, 9.125%, 5/01/08 ........................ United States 5,000,000 4,937,500
Level 3 Communications Inc., zero cpn. to 12/01/03,10.50% thereafter, 12/01/08 ... United States 3,000,000 1,863,750
Loral Space and Communications Ltd., senior disc. note, zero cpn. to 1/15/02,
12.50% thereafter, 1/15/07 ..................................................... United States 1,500,000 832,500
McCaw International Ltd., senior disc. note, zero cpn. to 4/15/02,
13.00% thereafter, 4/15/07 ..................................................... United States 7,000,000 4,261,250
McLeod USA Inc., senior note, 144A, 8.125%, 2/15/09 .............................. United States 4,000,000 3,700,000
Metrocall Inc., senior sub. note, 144A, 11.00%, 9/15/08 .......................... United States 5,000,000 3,925,000
Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01,
13.50% thereafter, 6/01/06 ..................................................... Luxembourg 9,300,000 6,835,500
Netia Holdings BV, senior disc. note, B, zero cpn. to 11/01/01,
11.25% thereafter, 11/01/07 .................................................... Poland 2,000,000 1,250,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
HIGH INCOME FUND COUNTRY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS (CONT.)
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONT.)
Netia Holdings BV, senior note, B, 10.25%, 11/01/07 ............................. Poland $1,300,000 $ 1,098,500
Nextel Communications Inc., senior disc. note, zero cpn. to 9/15/02,
10.65% thereafter, 9/15/07 .................................................... United States 7,000,000 5,127,500
Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02,
9.75% thereafter, 10/31/07 United States ..................................... 3,000,000 2,122,500
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ..................... United States 1,400,000 1,368,500
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ....................... United States 3,600,000 3,420,000
Northeast Optic Network Inc., senior note, 12.75%, 8/15/08 ...................... United States 3,500,000 3,622,500
Poland Telecom Finance, B, senior note, 14.00%, 12/01/07 ........................ Poland 8,000,000 7,300,000
Rogers Cantel Mobile Inc., senior secured deb., 9.75%, 6/01/16 .................. Poland 3,000,000 3,277,500
RSL Communications PLC, senior note, 12.00%, 11/01/08 ........................... United Kingdom 1,500,000 1,575,000
Spectrasite Holdings Inc., senior disc. note, 144A, zero cpn. to 4/15/04,
11.25% thereafter, 4/15/09 .................................................... United States 2,500,000 1,437,500
------------
95,867,686
------------
TRANSPORTATION 5.0%
American Commercial Lines LLC, senior note, 10.25%, 6/30/08 ..................... United States 3,100,000 3,131,000
Eletson Holdings, first mortgage, 9.25%, 11/15/03 ............................... Greece 1,600,000 1,512,000
Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 ............................ Bermuda 4,500,000 4,657,500
GS Superhighway (Holdings) Ltd., senior note, 10.25%, 8/15/07 ................... China 6,000,000 3,060,000
The Holt Group Inc., senior note, 144A, 9.75%, 1/15/06 .......................... United States 5,250,000 3,491,250
MRS Logistica SA, B, 144A, 10.625%, 8/15/05 ..................................... Brazil 5,000,000 3,175,000
------------
19,026,750
------------
UTILITIES .9%
AES Corp., senior note, 9.50%, 6/01/09 .......................................... United States 1,000,000 1,027,500
Empire Gas Corp., senior secured note, 7.00% to 7/15/99,
12.875% thereafter, 7/15/04 ................................................... United States 5,000,000 2,675,000
------------
3,702,500
------------
TOTAL BONDS (COST $425,921,458) ................................................. 374,753,007
------------
TOTAL LONG TERM INVESTMENTS (COST $428,049,857) ................................. 377,154,320
------------
(F)REPURCHASE AGREEMENT .3%
Joint Repurchase Agreement 4.767%, 7/01/99, (Maturity Value $1,034,419)
(Cost $1,034,282) ............................................................. United States 1,034,282 1,034,282
Barclays Capital Inc. (Maturity Value $130,476)
Bear, Stearns & Co. Inc. (Maturity Value $115,127)
Chase Securities Inc. (Maturity Value $21,308)
CIBC Oppenheimer Corp. (Maturity Value $130,476)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $92,101)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $92,101)
Goldman, Sachs & Co. (Maturity Value $46,051)
NationsBanc Montgomery Securities LLC (Maturity Value $92,101)
Paine Webber Inc. (Maturity Value $92,101)
Paribas Corp. (Maturity Value $92,101)
Warburg Dillon Read LLC (Maturity Value $130,476)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $429,084,139) 98.5% ..................................... 378,188,602
------------
OTHER ASSETS, LESS LIABILITIES 1.5% ............................................. 5,623,024
------------
NET ASSETS 100.0% ............................................................... $383,811,626
============
</TABLE>
(a)Non-income producing.
(b)See Note 7 regarding defaulted securities.
(c)See Note 8 regarding restricted securities
(f)See Note 1(c) regarding joint repurchase agreement.
(h)Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
INCOME SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 34.7%
CONSUMER DURABLES .2%
General Motors Corp. ......................................... United States 30,000 $ 1,980,000
-----------
CONSUMER NON-DURABLES 2.1%
Nabisco Group Holdings Corp. ................................. United States 60,000 1,173,750
Philip Morris Cos. Inc. ...................................... United States 450,000 18,084,375
R.J. Reynolds Tobacco Holdings Inc. .......................... United States 20,000 630,000
-----------
19,888,125
-----------
(a)ELECTRONIC TECHNOLOGY .1%
Anacomp Inc. ................................................. United States 60,900 1,035,298
-----------
ENERGY MINERALS 3.2%
Athabasca Oil Sands Trust .................................... Canada 450,000 6,964,469
BP Prudhoe Bay Royalty Trust ................................. United States 50,000 368,750
Canadian Oil Sands Trust Units ............................... Canada 500,000 8,045,781
Enron Oil & Gas Co. .......................................... United States 340,000 6,885,000
Pioneer Natural Resources Co. ................................ United States 302,226 3,324,486
(a)Santa Fe Snyder Corp. ........................................ United States 341,142 2,601,208
Ultramar Diamond Shamrock Corp. .............................. United States 125,000 2,726,563
-----------
30,916,257
-----------
NON-ENERGY MINERALS 2.3%
Anglo American Platinum Corp. Ltd., ADR ...................... South Africa 223,161 5,206,904
AngloGold Ltd., ADR .......................................... South Africa 395,000 8,492,500
De Beers Consolidated Mines AG, ADR .......................... South Africa 40,000 955,000
Freeport-McMoRan Copper & Gold Inc., A ....................... United States 110,000 1,842,500
Impala Platinum Holdings Ltd., ADR ........................... South Africa 216,500 5,446,144
-----------
21,943,048
-----------
PROCESS INDUSTRIES 1.1%
(a)Dan River Inc., A ............................................ United States 173,256 1,277,763
Lyondell Chemical Co. ........................................ United States 100,000 2,062,500
McDermott International Inc. ................................. United States 260,000 7,345,000
-----------
10,685,263
-----------
PRODUCER MANUFACTURING .1%
Delphi Automotive Systems Corp. .............................. United States 20,967 389,200
(a)Harvard Industries Inc. ...................................... United States 137,330 978,474
-----------
1,367,674
-----------
REAL ESTATE .7%
FelCor Lodging Trust Inc. .................................... United States 275,000 5,706,250
Meditrust Cos ................................................ United States 120,160 1,569,590
-----------
7,275,840
-----------
TELECOMMUNICATIONS .4%
U.S. West Inc. ............................................... United States 60,000 3,525,000
Utilities 24.5%
American Electric Power Co. Inc. ............................. United States 255,000 9,578,438
Central & South West Corp. ................................... United States 449,500 10,507,063
Cinergy Corp. ................................................ United States 280,000 8,960,000
Conectiv Inc. ................................................ United States 270,000 6,598,125
Dominion Resources Inc. ...................................... United States 290,000 12,560,625
Edison International ......................................... United States 360,000 9,630,000
Energy East Corp. ............................................ United States 230,000 5,980,000
Entergy Corp. ................................................ United States 430,000 13,437,500
FirstEnergy Corp. ............................................ United States 245,000 7,595,000
Florida Progress Corp. ....................................... United States 315,000 13,013,438
FPL Group Inc. ............................................... United States 165,000 9,013,125
GPU Inc. ..................................................... United States 200,000 8,437,500
Hawaiian Electric Industries Inc. ............................ United States 70,000 2,485,000
KeySpan Corp. ................................................ United States 200,000 5,275,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
INCOME SECURITIES FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES (CONT.)
Nevada Power Co. ................................................................. United States 100,000 $ 2,500,000
New Century Energies Inc. ........................................................ United States 210,000 8,150,625
New England Electric System ...................................................... United States 210,000 10,526,250
Northern States Power Co. ........................................................ United States 210,000 5,079,375
PacifiCorp ....................................................................... United States 65,000 1,194,375
PECO Energy Co. .................................................................. United States 259,500 10,866,563
PG&E Corp. ....................................................................... United States 375,000 12,187,500
Potomac Electric Power Co. ....................................................... United States 245,000 7,212,188
Public Service Enterprise Group Inc. ............................................. United States 275,000 11,240,625
Reliant Energy Inc. .............................................................. United States 225,000 6,215,625
SCANA Corp. ...................................................................... United States 100,000 2,337,500
Sempra Energy .................................................................... United States 450,000 10,181,250
Southern Co. ..................................................................... United States 320,000 8,480,000
Texas Utilities Co. .............................................................. United States 325,000 13,406,250
Western Resources Inc. ........................................................... United States 215,000 5,724,375
-----------
238,373,315
-----------
TOTAL COMMON STOCKS (COST $291,101,038) .......................................... 336,989,820
-----------
PREFERRED STOCKS .2%
Freeport-McMoRan Copper & Gold Inc., 0.00%, pfd., Gold (COST $3,846,805) ......... United States 108,800 1,734,000
-----------
CONVERTIBLE PREFERRED STOCKS 9.7%
CONSUMER SERVICES .4%
Host Marriott Corp., 6.75%, cvt. pfd ............................................. United States 100,000 4,150,000
-----------
ENERGY MINERALS 1.5%
Chesapeake Energy Corp., 7.00%, cvt. pfd., 144A .................................. United States 85,000 2,231,250
Devon Financing Trust, $3.25, cvt. pfd., 144A .................................... United States 60,000 3,607,500
Lomak Financing Trust, 5.75%, cvt. pfd ........................................... United States 140,000 3,447,500
Nuevo Financing, 5.75%, cvt. pfd., A ............................................. United States 140,000 4,305,000
Patina Oil & Gas Corp., 7.125%, cvt. pfd ......................................... United States 39,525 918,956
-----------
14,510,206
-----------
INDUSTRIAL SERVICES .5%
Weatherford International Inc., 5.00%, cvt. pfd., 144A ........................... United States 125,000 4,859,375
-----------
NON-ENERGY MINERALS 1.6%
Armco Inc., $3.625, cvt. pfd., B ................................................. United States 65,000 3,266,250
Battle Mountain Gold Co., $3.25, cvt. pfd ........................................ United States 66,300 2,258,344
Coeur D'Alene Mines Corp., 7.00%, cvt. pfd ....................................... United States 135,000 810,000
Cyprus Amax Minerals Co., $4.00, cvt. pfd., A .................................... United States 55,000 2,530,000
Hecla Mining Co., 7.00%, cvt. pfd., B ............................................ United States 70,000 2,047,500
Kinam Gold Inc., $3.75, cvt. pfd., B ............................................. United States 150,000 5,006,250
-----------
15,918,344
-----------
REAL ESTATE 3.8%
Apartment Investment & Management Co., 8.00%, cvt. pfd., K ....................... United States 160,000 4,300,000
Archstone Communities Trust, $1.75, cvt. pfd., A ................................. United States 400,000 11,900,000
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A ............................... United States 365,000 6,935,000
Innkeepers USA Trust, 8.625%, cvt. pfd., A ....................................... United States 175,000 3,007,813
ProLogis Trust, 7.00%, cvt. pfd., B .............................................. United States 135,000 3,501,563
Reckson Associates Realty Corp., 7.625%, cvt. pfd., A ............................ United States 180,000 4,106,250
Vornado Realty Trust, 6.50%, cvt. pfd., A ........................................ United States 60,000 3,030,000
-----------
36,780,626
-----------
TELECOMMUNICATIONS .8%
Nortel Inversora SA, 10.00%, cvt. pfd ............................................ Argentina 150,000 7,715,625
-----------
TRANSPORTATION .2%
Union Pacific Capital Trust, 6.25%, cvt. pfd ..................................... United States 40,000 2,060,000
-----------
UTILITIES .9%
CMS Energy Trust I, 7.75%, cvt. pfd .............................................. United States 160,000 8,680,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $109,633,208) ........................... 94,674,176
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 17.4%
COMMERCIAL SERVICES .1%
AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 ......... United States $ 1,000,000 $ 855,000
-----------
CONSUMER DURABLES .2%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 .................... United States 3,750,000 1,893,750
-----------
CONSUMER NON-DURABLES 3.7%
Compania De Alimentos Fargo SA, 13.25%, 8/01/08 ............................... Argentina 2,000,000 1,585,000
Del Monte Corp., senior sub. note, B, 12.25%, 4/15/07 ......................... United States 2,575,000 2,999,875
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 .......................... United States 2,197,000 2,262,910
Evenflo Co. Inc., senior note, 144A, 11.75%, 8/15/06 .......................... United States 2,000,000 2,030,000
Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ............................ United States 8,300,000 8,528,250
International Home Foods Inc., senior sub. note, 10.375%, 11/01/06 ............ United States 4,100,000 4,346,000
Playtex Family Products Corp., senior sub. note, 9.00%, 12/15/03 .............. United States 8,000,000 8,160,000
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ............. United States 2,000,000 1,880,000
Specialty Foods Corp., senior note, 11.25%, 8/15/01 ........................... United States 4,000,000 3,954,360
The William Carter Co., senior sub. note, A, 10.375%, 12/01/06 ................ United States 500,000 517,500
-----------
36,263,895
-----------
CONSUMER SERVICES 2.2%
AMF Bowling Worldwide Inc., senior sub. note, B, 10.875%, 3/15/06 ............. United States 650,000 542,750
Cablevision SA, 144A, 13.75%, 5/01/09 ......................................... United States 3,000,000 2,820,000
Coast Hotels & Casinos Inc., senior sub. note, 144A, 9.50%, 4/01/09 ........... United States 1,000,000 962,500
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 .......................... United States 4,000,000 4,320,000
Eldorado Resorts LLC, senior sub. note, 10.50%, 8/15/06 ....................... United States 500,000 520,000
Hard Rock Hotel Inc., senior sub. note, B, 9.25%, 4/01/05 ..................... United States 1,000,000 947,500
Harvey's Casino Resorts, senior sub. note, 10.625%, 6/01/06 ................... United States 2,200,000 2,288,000
Helicon Group, S.F., senior secured note, B, 11.00%, 11/01/03 ................. United States 7,300,000 7,665,000
Venetian Casino/Las Vegas Sands, mortgage note, 12.25%, 11/15/04 .............. United States 1,000,000 985,000
-----------
21,050,750
-----------
ELECTRONIC TECHNOLOGY 1.1%
Anacomp Inc., senior sub. note, B, 10.875%, 4/01/04 ........................... United States 6,000,000 6,330,000
Samsung Electronics America Inc., A, 9.75%, 5/01/03 ........................... United States 4,000,000 4,100,000
-----------
10,430,000
-----------
ENERGY MINERALS 2.0%
Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ................ United States 3,000,000 2,880,000
Chesapeake Energy Corp., senior note, B, 7.875%, 3/15/04 ...................... United States 500,000 437,500
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ................. Mexico 9,000,000 8,640,000
Denbury Management Inc., senior sub. note, 9.00%, 3/01/08 ..................... United States 4,000,000 3,540,000
Mesa Operating Co., senior sub. note, 10.625%, 7/01/06 ........................ United States 1,000,000 1,102,500
Plains Resources Inc., senior sub. note, B, 10.25%, 3/15/06 ................... United States 1,000,000 1,015,000
R&B Falcon Corp., senior note, B, 6.50%, 4/15/03 .............................. United States 2,000,000 1,725,000
-----------
19,340,000
-----------
FINANCE .3%
IBJ Preferred Capital Co. LLC, A, 8.79%, 12/29/49 ............................. United States 4,000,000 3,360,000
-----------
HEALTH TECHNOLOGY .6%
Dade International Inc., senior sub. note, B, 11.125%, 5/01/06 ................ United States 3,000,000 3,187,500
ICN Pharmaceuticals Inc., senior note, B, 9.25%, 8/15/05 ...................... United States 3,000,000 3,000,000
-----------
6,187,500
-----------
INDUSTRIAL SERVICES .2%
First Wave Marine Inc., senior note, 11.00%, 2/01/08 .......................... United States 1,000,000 915,000
Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ............ United States 1,000,000 1,035,000
-----------
1,950,000
-----------
PROCESS INDUSTRIES 4.5%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 ................. United States 6,000,000 6,120,000
Asia Pulp & Paper Co. Ltd., 12.00%, 12/29/49 .................................. Indonesia 6,000,000 3,900,000
Consoltex Group Inc., senior sub.note, B, 11.00%, 10/01/03 .................... United States 10,000,000 10,150,000
Four M Corp., senior note, B, 12.00%, 6/01/06 ................................. United States 2,000,000 1,565,000
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
Lyondell Chemical Co., secured, 144A, 9.625%, 5/01/07 ......................... United States $ 600,000 $ 613,500
Lyondell Chemical Co., 144A, 10.875%, 5/01/09 ................................. United States 600,000 619,500
Packaging Resources Inc., senior note, 11.625%, 5/01/03 ....................... United States 3,000,000 3,090,000
Printpack Inc., senior sub. note, B, 10.625%, 8/15/06 ......................... United States 4,000,000 3,740,000
RBX Corp., senior sub. note, B, 11.25%, 10/15/05 .............................. United States 10,000,000 3,800,000
Riverwood International, senior sub. note, 10.875%, 4/01/08 ................... United States 4,500,000 4,410,000
Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ................... Indonesia 6,670,000 4,835,750
UCC Investors, senior note, 10.50%, 5/01/02 ................................... United States 725,000 757,190
-----------
43,600,940
-----------
PRODUCER MANUFACTURING 1.3%
Collins & Aikman Products., senior sub. note, 11.50%, 4/15/06 ................. United States 4,000,000 4,060,000
Nortek Inc., senior sub. note, 9.875%, 3/01/04 ................................ United States 2,000,000 2,015,000
Outsourcing Services Group Inc., senior sub. note, 144A, 10.875%, 3/01/06 ..... United States 2,000,000 1,910,000
Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 ....................... United States 2,696,000 2,736,440
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ............. Canada 2,350,000 2,209,000
-----------
12,930,440
-----------
TELECOMMUNICATIONS .9%
Metrocall Inc., senior sub. note, 144A, 11.00%, 9/15/08 ....................... United States 3,000,000 2,355,000
NEXTLINK Communications Inc., 144A, 10.75%, 6/01/09 ........................... United States 4,000,000 4,100,000
Paging Network Inc., senior sub. note, 10.125%, 8/01/07 ....................... United States 3,000,000 2,325,000
-----------
8,780,000
-----------
UTILITIES .3%
Midland Funding Corp. I, C-94, 10.33%, 7/23/02 ................................ United States 2,683,185 2,834,637
-----------
TOTAL BONDS (COST $179,810,272) ............................................... 169,476,912
-----------
CONVERTIBLE BONDS 5.3%
ELECTRONIC TECHNOLOGY .8%
Trans-Lux Corp., cvt. sub. note, 7.50%, 12/01/06 .............................. United States 8,000,000 7,800,000
-----------
ENERGY MINERALS 1.2%
Kerr McGee Corp., cvt. sub. deb., 7.50%, 5/15/14 .............................. United States 3,815,000 3,791,156
Swift Energy Co., cvt. sub. note, 6.25%, 11/15/06 ............................. United States 5,500,000 4,310,625
Key Energy Services Inc., cvt., 5.00%, 9/15/04 ................................ United States 4,000,000 2,500,000
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ........................... United States 1,000,000 660,000
-----------
11,261,781
-----------
(b)HEALTH SERVICES .1%
Continucare Corp., cvt. sub. note, 144A, 8.00%, 10/31/02 ...................... United States 9,500,000 475,000
-----------
INDUSTRIAL SERVICES .3%
Air & Water Technology Corp., cvt. sub. deb., 8.00%, 5/15/15 .................. United States 3,700,000 3,205,125
-----------
NON-ENERGY MINERALS .8%
Ashanti Capital Ltd., cvt., 5.50%, 3/15/03 .................................... Ghana 5,000,000 4,275,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02 .............. United Kingdom 100,000 61,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 .................... United States 6,000,000 3,735,000
-----------
8,071,000
-----------
PROCESS INDUSTRIES .2%
APP Finance VI Mauritius Ltd., cvt., 11/18/12 ................................. Singapore 11,500,000 2,371,875
-----------
PRODUCER MANUFACTURING .3%
Exide Corp., cvt. senior sub. note, 144A, 2.90%, 12/15/05 ..................... United States 5,000,000 3,025,000
-----------
REAL ESTATE 1.6%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ........................... United States 5,500,000 5,170,000
Meristar Hospitality Corp., cvt. sub. note, 4.75%, 10/15/04 ................... United States 6,500,000 4,980,625
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21 ........................... Canada 7,000,000 4,821,250
-----------
14,971,875
-----------
TOTAL CONVERTIBLE BONDS (COST $64,480,430) .................................... 51,181,656
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME SECURITIES FUND COUNTRY AMOUNT* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ZERO COUPON/STEP-UP BONDS 2.4%
AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01,
12.25% thereafter, 3/15/06 ................................................. United States $ 2,438,000 $ 1,499,370
Charter Communications Holdings LLC, senior disc. note, 144A,
zero cpn. to 4/01/04,9.92% thereafter, 4/01/11 ............................. United States 4,000,000 2,460,000
Level 3 Communications Inc., zero cpn. to 12/01/03,
10.50% thereafter, 12/01/08 ................................................ United States 4,000,000 2,485,000
Mesa Operating Co., zero cpn. to 7/01/01, 11.625% thereafter, 7/01/06 ........ United States 1,300,000 991,250
Microcell Telecommunications, 144A, zero cpn. to 6/01/04,
12.00% thereafter, 6/01/09 ................................................. United States 3,000,000 1,725,000
Nextel Communications Inc., senior disc. note, zero cpn. to 2/15/03,
9.95% thereafter, 2/15/08 .................................................. United States 8,500,000 5,886,250
Nextel International Inc., senior disc. note, zero cpn. to 4/15/03,
12.125% thereafter, 4/15/08 ................................................ United States 5,000,000 2,462,500
Nextlink Communications Inc., 144A, zero cpn. to 6/01/04,
12.25% thereafter, 6/01/09 ................................................. United States 4,000,000 2,330,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 ........................ United States 4,200,000 2,877,000
Specialty Foods Corp., zero cpn. to 6/15/05,
11.00% thereafter, 12/15/09 ................................................ United States 100,600 7,163
Spectrasite Holdings Inc., senior disc. note, 144A,
zero cpn. to 4/15/04, 11.25% thereafter, 4/15/09 ........................... United States 1,750,000 1,006,250
------------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $25,616,741) ........................... 23,729,783
------------
U.S. GOVERNMENT SECURITIES 13.5%
U.S. Treasury Bond, 7.125%, 2/15/23 .......................................... United States 20,000,000 22,100,000
U.S. Treasury Bond, 6.25%, 8/15/23 ........................................... United States 86,000,000 86,107,500
U.S. Treasury Bond, 6.00%, 2/15/26 ........................................... United States 13,000,000 12,646,569
U.S. Treasury Note, 6.125%, 11/15/27 ......................................... United States 10,000,000 9,909,380
------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $125,023,994) ......................... 130,763,449
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 14.6%
ESCOM, E168, utility deb., 11.00%, 6/01/08 ................................... South Africa 60,000,000ZAR 7,805,121
Republic of Argentina, L-GP FRN, 6.00%, 3/31/23 .............................. Argentina 80,000,000 51,250,000
Republic of Brazil, 11.625%, 4/15/04 ......................................... Brazil 2,000,000 1,882,500
Republic of Brazil, A FRN, 6.063%, 1/01/01 ................................... Brazil 4,920,000 4,707,825
Republic of Brazil, EI-L FRN, 5.875%, 4/15/06 ................................ Brazil 15,200,000 12,065,000
Republic of Brazil, FRN, 5.50%, 4/15/24 ...................................... Brazil 39,000,000 22,522,500
Republic of Korea, 8.875%, 4/15/08 ........................................... South Korea 22,000,000 23,347,500
Republic of South Africa, 12.00%, 2/28/05 .................................... South Africa 40,000,000ZAR 5,982,269
Republic of Turkey, 12.375%, 6/15/09 ......................................... Turkey 5,000,000 4,962,500
Russia Ministry of Finance, 11.75%, 6/10/03 .................................. Russia 7,000,000 4,217,498
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 ........................... Russia 6,000,000 3,022,499
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES (COST $136,568,835) ........... 141,765,212
------------
TOTAL INVESTMENTS (COST $936,081,323) 97.8% .................................. 950,315,008
OTHER ASSETS, LESS LIABILITIES 2.2% .......................................... 21,246,611
------------
NET ASSETS 100.0% ............................................................ $971,561,619
============
</TABLE>
See glossary of current abbreviations on page 136.
* Securities traded in U.S. Dollars unless otherwise indicated.
(a) Non-income producing.
(b) See Note 7 regarding defaulted securities.
See notes to financial statements
Franklin Valuemark Funds
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
MONEY MARKET FUND AMOUNT VALUE
------------- -------------
<S> <C> <C>
BANK NOTES 2.8%
Nations Bank N.A., Charlotte Branch, 4.94%, 10/18/99 ............................... $ 5,000,000 $ 5,000,000
Wachovia Bank N.A., North Carolina Branch, 4.92%, 8/26/99 .......................... 5,000,000 5,000,077
-------------
TOTAL BANK NOTES (COST $10,000,077) ................................................ 10,000,077
-------------
CERTIFICATES OF DEPOSIT 17.2%
ABN Amro Bank NV, Chicago Branch, 5.10%, 4/07/00 ................................... 5,000,000 4,998,887
Bank of Montreal, Chicago Branch, 5.12%, 4/10/00 ................................... 5,000,000 4,999,757
Bank of Nova Scotia, Portland Branch, 4.97%, 9/02/99 ............................... 5,000,000 5,000,086
Banque Nationale de Paris, New York Branch, 4.92%, 8/04/99 ......................... 5,000,000 5,000,000
Bayerische Vereinsbank, New York Branch, 4.83%, 7/16/99 ............................ 5,000,000 5,000,000
Credit Agricole Indosuez, New York Branch, 4.90%, 10/12/99 ......................... 5,000,000 5,000,000
Credit Communal de Belgique, New York Branch, 5.01%, 9/03/99 ....................... 5,000,000 5,000,176
Deutsche Bank AG, New York Branch, 5.27% - 5.285%, 3/03/00 - 5/22/00 ............... 10,000,000 9,995,874
Rabobank Nederland NV, New York Branch, 5.41%, 6/01/00 ............................. 5,000,000 4,998,231
Toronto Dominion Bank, New York Branch, 5.10%, 2/22/00 ............................. 5,000,000 4,998,910
UBS AG, New York Branch, 4.86%, 7/15/99 ............................................ 5,000,000 5,000,000
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $59,991,921) ................................... 59,991,921
-------------
(d)COMMERCIAL PAPER 65.7%
Abbey National North America Corp., 4.81%, 7/22/99 ................................. 5,000,000 4,985,971
American Express Credit Corp., 4.79%, 7/01/99 ...................................... 5,000,000 5,000,000
Archer Daniels Midland Co., 4.83%, 8/16/99 - 8/18/99 ............................... 15,000,000 14,905,413
Associates Corp. of North America, 4.96%, 8/19/99 - 8/23/99 ........................ 10,000,000 9,929,733
Bellsouth Telecommunications Inc., 4.76%, 7/08/99 .................................. 6,000,000 5,994,447
BIL North America Inc., 4.805%, 7/23/99 ............................................ 5,000,000 4,985,318
Chevron U.K. Investment PLC, 4.82% - 4.85%, 9/01/99 - 9/10/99 ...................... 10,000,000 9,910,706
CIESCO LP, 4.80%, 7/12/99 - 7/14/99 ................................................ 15,000,000 14,976,000
CocaCola Co., 4.93%, 8/24/99 ....................................................... 5,000,000 4,963,025
Dupont de Nemours & Co., 4.85%, 8/12/99 - 8/13/99 .................................. 10,000,000 9,942,743
General Electric Capital Corp., 4.74% - 4.84%, 7/19/99 - 11/22/99 .................. 15,000,000 14,878,815
International Lease Finance Corp., 4.80% - 4.86%, 8/05/99 - 8/11/99 ................ 15,000,000 14,924,742
Merrill Lynch & Co. Inc., 4.80%, 7/29/99 - 8/03/99 ................................. 15,000,000 14,938,000
Morgan Stanley Dean Witter & Co., 4.93%, 8/25/99 ................................... 5,000,000 4,962,340
National Rural Utilities Cooperative Finance Corp., 4.85% - 4.92%, 8/20/99 - 9/13/99 15,000,000 14,867,919
Nestle Capital Corp., 4.71%, 7/02/99 - 7/07/99 ..................................... 15,000,000 14,992,150
Province of British Columbia, 4.77% - 4.78%, 8/09/99 - 10/18/99 .................... 10,000,000 9,901,799
Salomon Smith Barney Holdings Inc., 4.80% - 5.09%, 7/30/99 - 8/31/99 ............... 15,000,000 14,895,126
Schering Corp., 4.83% - 4.88%, 7/21/99 - 8/10/99 ................................... 15,000,000 14,946,056
Societe Generale N.A. Inc., 4.88%, 8/17/99 ......................................... 5,000,000 4,968,144
Walt Disney Co., 4.74%, 7/26/99 - 7/28/99 .......................................... 15,000,000 14,948,650
Westpac Capital Corp., 4.80%, 11/09/99 ............................................. 5,000,000 4,912,667
-------------
TOTAL COMMERCIAL PAPER (COST $229,729,764) ......................................... 229,729,764
-------------
U.S. GOVERNMENT AGENCY SECURITIES 4.5%
FHLMC, 4.76%, 8/27/99 .............................................................. 10,920,000 10,837,699
FNMA, 4.60%, 7/09/99 ............................................................... 5,000,000 4,994,889
-------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $15,832,588) ......................... 15,832,588
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $315,554,350) ................. 315,554,350
-------------
(g)REPURCHASE AGREEMENTS 10.9%
Chase Securities Inc., 4.50%, 7/01/99, (Maturity Value $19,107,388)
Collateralized by U.S. Treasury Notes ............................................. 19,105,000 19,105,000
Goldman Sachs & Co., 4.65%, 7/01/99, (Maturity Value $19,107,468)
Collateralized by U.S. Treasury Notes ............................................. 19,105,000 19,105,000
TOTAL REPURCHASE AGREEMENTS (COST $38,210,000) ..................................... 38,210,000
-------------
TOTAL INVESTMENTS (COST $353,764,350) 101.1% ....................................... 353,764,350
OTHER ASSETS, LESS LIABILITIES (1.1%) .............................................. (4,009,146)
-------------
NET ASSETS 100.0% .................................................................. $ 349,755,204
=============
</TABLE>
(d)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
(g)See Note 1(c) regarding repurchase agreements.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
MUTUAL DISCOVERY SECURITIES FUND COUNTRY WARRANTS VALUE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 82.2%
AEROSPACE & MILITARY TECHNOLOGY .4%
Lockheed Martin Corp. ................... United States 23,600 $ 879,100
-----------
879,100
-----------
AUTOMOBILES 2.4%
Consorcio G Grupo Dina SA de CV, L, ADR . Mexico 262,400 229,600
(a)Daimlerchrysler AG ...................... Germany 4,700 410,529
Delphi Automotive Systems Corporation ... United States 84,458 1,567,752
General Motors Corp. .................... United States 11,100 732,600
(a)SPX Corp. ............................... United States 600 50,100
TRW Inc. ................................ United States 35,200 1,931,600
-----------
4,922,181
-----------
BANKING 6.4%
(a)Banca Nazionale del Lavoro SpA .......... Italy 546,500 1,723,417
Bank One Corp. .......................... United States 18,500 1,101,906
(a)BHF-Bank AG ............................. Germany 21,700 738,476
Chittenden Corp. ........................ United States 81,641 2,551,281
Christiania Bank OG Kreditkasse ......... Norway 226,400 813,860
(a)Credit Commercial de France CCF ......... France 4,700 507,951
First American Corp. Tennessee .......... United States 11,900 494,594
First Union Corp. ....................... United States 22,200 1,043,400
Hibernia Corp., A ....................... United States 28,000 439,250
Merita AS ............................... Finland 264,200 1,501,229
Paribas ................................. France 5,300 594,112
Societe Generale Paris .................. France 3,800 669,712
UST Corp., Inc. ......................... United States 32,859 993,985
-----------
13,173,173
-----------
BEVERAGES & TOBACCO 4.2%
Allied Domecq PLC ....................... United Kingdom 75,700 732,038
Austria Tabak AG ........................ Austria 4,200 244,715
(a)Buenos Aires Embotelladora SA, B ........ Argentina 8,947,351 447,412
(a)Buenos Aires Embotelladora SA, B, ADR ... Argentina 137,409 8,657
Farmer Brothers Co. ..................... United States 7,000 1,417,500
Gallaher Group PLC ...................... United Kingdom 122,900 755,509
Gallaher Group PLC, ADR ................. United Kingdom 4,600 112,413
Greenalls Group PLC ..................... United Kingdom 84,690 475,232
Kita Kyushu Coca-Cola Bottling Co. Ltd... Japan 35,400 2,012,161
Mikuni Coca-Cola Bottling Co. ........... Japan 35,000 711,335
Philip Morris Companies Inc. ............ United States 34,800 1,398,525
Swedish Match AB ........................ Sweden 101,900 363,158
-----------
8,678,655
-----------
BROADCASTING & PUBLISHING 6.1%
(a)Capstar Broadcasting Corp., A ........... United States 19,800 542,025
(a)Chancellor Media Corp., A ............... United States 23,500 1,295,438
Dow Jones & Co. Inc. .................... United States 31,500 1,671,469
(a)MediaOne Group Inc. ..................... United States 15,700 1,167,688
(a)Modern Times Group AB ................... Sweden 115,300 2,502,100
NV Holdingsmij de Telegraaf ............. Netherlands 108,378 2,134,701
(a)Publicis SA ............................. France 3,400 718,779
Scripps Co., A .......................... United States 10,100 480,381
Seat Pagine Gialle SpA, di Risp ......... Italy 1,422,100 1,212,092
Washington Post Co., B .................. United States 1,300 699,075
-----------
12,423,748
-----------
BUSINESS & PUBLIC SERVICES 3.9%
Corporate Services Group PLC, A ......... United Kingdom 699,419 937,086
Hillenbrand Industries Inc. ............. United States 27,600 1,193,700
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL DISCOVERY SECURITIES FUND COUNTRY WARRANTS VALUE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
BUSINESS & PUBLIC SERVICES (CONT.)
(a)Republic Services Inc. ......................... United States 9,900 $ 245,025
Sophus Berendsen AS, B ......................... Denmark 72,918 1,966,920
(a)Suez Lyonnaise des Eaux SA ..................... France 20,379 3,675,746
----------
8,018,477
----------
CHEMICALS 2.5%
Arch Chemicals Inc. ............................ United States 12,100 294,181
Bayer AG, Br. .................................. Germany 21,700 902,955
(a)Bush Boake Allen Inc. .......................... United States 62,000 1,813,500
Chemfirst Inc. ................................. United States 43,000 1,045,438
Crompton & Knowles Corp. ....................... United States 34,800 680,775
Olin Corp. ..................................... United States 29,900 394,306
Witco Corp. .................................... United States 4,900 98,000
----------
5,229,155
----------
CONSTRUCTION & HOUSING 1.5%
Groupe GTM ..................................... France 4,300 461,174
(a)Grupo Ferrovial SA ............................. Spain 105,300 2,551,872
----------
3,013,046
----------
(a)DATA PROCESSING & REPRODUCTION .2%
Cadence Design Systems Inc. .................... United States 18,200 232,050
Tecnost Mael SpA ............................... Italy 99,300 245,255
----------
477,305
----------
ELECTRICAL & ELECTRONICS 1.0%
Honeywell Inc. ................................. United States 800 92,700
(a)Level One Communications Inc. .................. United States 400 19,575
Racal Electronics PLC .......................... United Kingdom 314,504 1,916,015
----------
2,028,290
----------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .4%
Amphenol Corp., A .............................. United States 9,632 382,872
NBS Technologies Inc. .......................... Canada 42,200 36,044
Quantum Corp. .................................. United States 16,200 390,825
----------
809,741
----------
ENERGY EQUIPMENT & SERVICES 1.4%
Baker Hughes Inc. .............................. United States 10,700 358,450
(a)BJ Services Co. ................................ United States 20,000 588,750
(a)Cooper Cameron Corp. ........................... United States 29,200 1,082,225
ISIS SA ........................................ France 5,078 358,712
(a)Weatherford International Inc. ................. United States 13,900 509,088
----------
2,897,225
----------
ENERGY SOURCES 1.8%
Atlantic Richfield Co. ......................... United States 5,700 476,306
(a)Santa Fe Snyder Corp. .......................... United States 38,300 292,038
Societe Elf Aquitaine SA ....................... France 15,920 2,336,203
Societe Elf Aquitaine SA, ADR .................. France 8,200 603,213
----------
3,707,760
----------
FINANCIAL SERVICES 7.6%
Bear Stearns Co. Inc. .......................... United States 18,840 880,770
(a)CEI Citicorp Holdings SA, B .................... Argentina 171,700 497,980
Cir Cie Industriali Riunite SpA Torino ......... Italy 955,600 1,271,243
Cir Cie Industriali Riunite SpA Torino, di Risp. Italy 132,400 144,456
CIT Group Inc., A .............................. United States 33,900 978,863
Greenpoint Financial Corp. ..................... United States 62,564 2,052,882
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL DISCOVERY SECURITIES FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
FINANCIAL SERVICES (CONT.)
Household International Inc. ............................ United States 45,900 $ 2,174,513
(c)Laser Mortgage Management Inc. ........................ United States 81,700 280,844
Lehman Brothers Holdings Inc. ........................... United States 22,500 1,400,625
(a)Mercury European Privatization Trust PLC, wts., 7/31/04 United Kingdom 540,000 751,159
Metris Cos. Inc. ...................................... United States 25,800 1,051,350
(a)MFN Financial Corp. ................................... United States 20,269 201,423
Morgan Stanley, Dean Witter & Co. ..................... United States 5,900 604,750
Newcourt Credit Group Inc. ............................ Canada 2,200 28,787
Newcourt Credit Group Inc., fgn. ...................... Canada 56,900 736,144
Pargesa Holdings SA, Br. .............................. Switzerland 972 1,475,569
Pioneer Group Inc. .................................... United States 60,300 1,040,175
Power Financial Corp. ................................. Canada 4,500 86,095
-----------
15,657,628
-----------
FOOD & HOUSEHOLD PRODUCTS 2.2%
Earthgrains Company ................................... United States 30,800 795,025
(a)Fine Host Corp. ....................................... United States 49,920 549,120
Hillsdown Holdings PLC ................................ United Kingdom 518,900 1,185,973
Interstate Bakeries Corp. ............................. United States 600 13,463
Kikkoman Corp. ........................................ Japan 71,500 605,482
U.S. Industries Inc. .................................. United States 81,100 1,378,700
-----------
4,527,763
-----------
HEALTH & PERSONAL CARE 2.5%
McKesson HBOC Inc. .................................... United States 10,100 324,463
Rhone-Poulenc SA ...................................... France 92,200 4,213,037
Sankyo Co. Ltd. ....................................... Japan 15,800 398,133
Ventas Inc. ........................................... United States 12,300 66,113
-----------
5,001,746
-----------
INDUSTRIAL COMPONENTS 2.2%
DT Industries Inc. .................................... United States 68,500 629,344
(a)Owens-Illinois Inc. ................................... United States 62,800 2,052,775
(a)Thermo Electron Corp. ................................. United States 86,900 1,743,431
-----------
4,425,550
-----------
INSURANCE 3.4%
Allmerica Financial Corp. ............................. United States 18,900 1,149,356
American Bankers Insurance Group Inc. ................. United States 5,300 288,519
Assurances Generales de France AGF .................... France 30,866 1,486,483
(a)Companhia de Seguros Mundial Confianca SA ............. Portugal 5,600 220,951
Corporacion Mapfre PLC ................................ Spain 38,200 778,024
Horace Mann Educators Corp. ........................... United States 35,500 965,156
(a)Old Republic International Corp. ...................... United States 3,400 58,863
Provident Companies Inc. .............................. United States 6,100 244,000
Radian Group Inc. ..................................... United States 11,233 548,311
Sampo Insurance Co. PLC, A ............................ Finland 13,100 379,612
Berkeley W R Corp. .................................... United States 35,600 890,000
-----------
7,009,275
-----------
LEISURE & TOURISM 1.7%
Pathe SA .............................................. France 18,600 2,232,691
(a)Promus Hotel Corp. .................................... United States 42,500 1,317,500
-----------
3,550,191
-----------
MACHINERY & ENGINEERING 6.2%
Case Corp. ............................................ United States 3,700 178,063
FKI PLC ............................................... United Kingdom 987,084 3,049,533
IMI PLC ............................................... United Kingdom 484,454 1,962,496
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL DISCOVERY SECURITIES FUND COUNTRY WARRANTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MACHINERY & ENGINEERING (CONT.)
Invensys PLC ......................................... United Kingdom 828,108 $ 3,922,424
Toyoda Automatic Loom Works Ltd. ..................... Japan 25,000 424,446
TT Group PLC ......................................... United Kingdom 708,948 1,503,003
United Dominion Industries Ltd. ...................... Canada 65,600 1,590,800
------------
12,630,765
------------
MERCHANDISING 1.0%
(a)Boyds Collection Ltd. ................................ United States 30,800 533,225
(a)Federated Department Stores Inc. ..................... United States 11,100 587,606
Rite Aid Corp. ....................................... United States 35,545 875,282
------------
1,996,113
------------
MULTI-INDUSTRY 16.4%
(a)Alleghany Corp. ...................................... United States 2,360 436,600
Berkshire-Hathaway Inc., A ........................... United States 24 1,653,600
(a)Brierley Investments Ltd. ............................ New Zealand 4,767,154 1,338,840
Compagnie Financiere Richemont AG, Br., A ............ Switzerland 3,000 5,769,973
Compagnie Generale D'Industrie et de Participation ... France 74,548 3,605,549
Corporacion Financiera Alba SA ....................... Spain 17,956 2,907,180
Imasco Ltd. .......................................... Canada 42,900 1,163,738
Investor AB, A ....................................... Sweden 145,700 1,602,323
Investor AB, B ....................................... Sweden 417,776 4,668,163
Invik & Co. AB, B .................................... Sweden 24,256 1,425,061
Kansas City Southern Industries Inc. ................. United States 25,900 1,652,744
Kinnevik AB, B ....................................... Sweden 79,587 1,497,756
Lagardere SCA ........................................ France 74,959 2,790,574
Power Corp. of Canada ................................ Canada 12,100 233,153
Saab AB, B ........................................... Sweden 155,600 1,207,904
Trelleborg AB, B ..................................... Sweden 193,641 1,708,195
------------
33,661,353
------------
REAL ESTATE .8%
Castellum AB ...................................... Sweden 65,600 617,267
(a,c)Security Capital European Realty .................. United States 11,745 203,508
(a)Security Capital US Realty ........................ United States 39,200 744,800
------------
1,565,575
------------
TELECOMMUNICATIONS 2.3%
BCE Inc. ............................................. Canada 22,100 1,083,481
(a)Superior Telecom Inc. ................................ United States 9,400 235,000
(a)Telecom Italia SpA, di Risp .......................... Italy 178,800 972,641
Telephone & Data Systems Inc. ........................ United States 24,800 1,811,950
Telesp Participacoes SA .............................. Brazil 5,412,000 70,379
Vodafone Group PLC, ADR .............................. United Kingdom 2,320 457,040
------------
4,630,491
------------
TRANSPORTATION 2.2%
ASG AB, B .......................................... Sweden 27,200 847,801
Florida East Coast Industries Inc. ................. United States 25,900 1,146,075
(a,c)Golden Ocean Group Ltd., wts., 8/31/01 ............. United States 615 --
Railtrack Group PLC ................................ United Kingdom 121,532 2,484,584
------------
4,478,460
------------
UTILITIES ELECTRICAL & GAS 1.5%
(a)Citizens Utilities Co., B ............................ United States 176,812 1,967,034
Veba AG .............................................. Germany 19,300 1,138,455
------------
3,105,489
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $155,960,063) 168,498,255
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
MUTUAL DISCOVERY SECURITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS .4%
Tele Centro Sul Participacoes SA, ADR, pfd ................... Brazil 7,180 $ 398,490
Tele Norte Leste Participacoes SA, ADR, pfd .................. Brazil 25,500 473,344
----------
TOTAL PREFERRED STOCKS (COST $669,506) ....................... 871,834
----------
PRINCIPAL
AMOUNT*
--------------
BONDS 1.9%
Abraxas Petroleum Corp., Series D, 11.50%, 11/01/04 .......... United States $ 170,000 107,100
Aiken Cnty. S C Indl. Rev. Ref. Belott, 6.00%, 12/01/11 ...... United States 20,000 12,200
(a)Consorcio G Grupo Dina SA de CV, cvt., 8.00%, 8/08/04 ........ Mexico 2,150,000 1,075,000
Eurotunnel Finance Ltd., Equity Note, 12/31/03 ............... United Kingdom 188,008 GBP 145,210
Eurotunnel PLC:
12/31/12, Tier 1 ........................................... United Kingdom 198,414 GBP 256,454
12/31/18, Tier 2 ........................................... United Kingdom 456,578 GBP 532,562
12/31/25, Tier 3 ........................................... United Kingdom 158,000 GBP 161,880
12/31/50, Resettable Advance R5 ............................ United Kingdom 202,650 GBP 135,756
Stabilization Advance S8 Tier 1 ............................ United Kingdom 34,346 GBP 12,993
Stabilization Advance S8 Tier 2 ............................ United Kingdom 26,670 GBP 8,408
(a,c)Golden Ocean Group Ltd., 10.00%, 8/31/01 .................... United States 570,000 62,700
Eurotunnel SA:
5.28%, 7/07/02, Tier 2 (Pibor) ............................. France 18,558 EUR 14,162
12/31/18, Tier 2 (Libor) ................................... France 103,401 EUR 78,374
Stabilization Advance S8 Tier 1 ............................ France 4,573 EUR 1,132
Stabilization Advance S8 Tier 2 ............................ France 3,519 EUR 726
Hvide Marine Inc., 8.375%, 2/15/08 ........................... United States 70,000 33,950
MFN Financial Corp.:
Series A, 10.00%, 4/23/01 .................................. United States 83,342 78,758
Series B, 10.00%, 4/23/01 .................................. United States 143,342 135,458
Port Seattle Wash. Rev. Ref-Beloit Proj., 6.00%, 12/01/17 .... United States 10,000 6,100
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03 ....... United States 380,000 292,363
Southwest Royalties Inc., B, 10.50%, 10/15/04 ................ United States 675,000 327,375
TFM SA de CV:
10.25%, 6/15/07 ............................................ Mexico 250,000 221,875
0/11.75%., 6/15/09 ......................................... Mexico 450,000 272,250
----------
TOTAL BONDS (COST $4,439,859) ................................ 3,972,786
----------
(a)BONDS & NOTES IN REORGANIZATION 1.7%
Altos Hornos de Mexico SA:
5.50%, 12/15/01 ............................................ Mexico 10,000 4,000
Series A, 11.375%, 4/30/02 ................................. Mexico 40,000 18,000
Series B, 11.875%, 4/15/04 ................................. Mexico 25,000 11,250
Brunos Inc., Bank Claim:
Revolver Commitment ........................................ United States 107,300 61,698
Tranche A .................................................. United States 180,100 97,254
Tranche B .................................................. United States 85,000 45,900
Buenos Aires Embotelladore SA:
Series A, 8/03/05 .......................................... Argentina 116000 66,120
Series B, 12.00%, 8/03/05 .................................. Argentina 17000 14,450
144A, 12.00%, 9/01/05 ...................................... Argentina 273000 221,130
Crown Leasing, Bank Claim .................................... Japan 41,502,615 JPY 54,433
Dow Corning Corp., 9.375%, 2/20/99 ........................... United States 300,000 384,750
Harnischfeger Industries Inc.:
8.90%, 3/01/22 ............................................. United States 120,000 73,200
8.70%, 6/15/22 ............................................. United States 57,000 34,770
6.875%, 2/15/27 ............................................ United States 144,000 87,840
Koninklijke Nederlandse Vliegtuigenfabriek Fokker, Trade Claim Netherlands 431,091 EUR 355,649
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL DISCOVERY SECURITIES FUND COUNTRY AMOUNT* VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)BONDS & NOTES IN REORGANIZATION (CONT.)
Loewen Group Inc.:
Bank Claim, Revolver Commitment ........................... United States $ 73,749 $ 46,093
144A, 6.70%, 10/01/99 ..................................... Canada 160,000 96,800
Series 3, 7.50%, 4/15/01 .................................. Canada 15,000 9,450
Series 5, 6.10%, 10/02/02 ................................. Canada 140,000 CAD 57,875
Series 2, 8.25%, 4/15/03 .................................. Canada 55,000 34,375
Series 6, 7.20%, 6/01/03 .................................. Canada 623,000 398,720
Series 4, 8.25%, 10/15/03 ................................. Canada 360,000 225,000
Series 7, 7.60%, 6/01/08 .................................. Canada 445,000 282,575
Nippon Credit Bank Ltd., Bank Claim ......................... Japan 21,126,309 JPY 27,889
Nippon Total Finance, Bank Claim ............................ Japan 21,418,136 JPY 10,526
Tribasa Toll Road Trust I, 10.50%, 12/01/11 ................. Mexico 183,987 95,673
Vencor Inc., 9.875%, 5/01/05 ................................ United States 675,000 205,875
Vencor Inc., Bank Claim:
Commitment Revolver ....................................... United States 31,650 26,903
Term Loan A ............................................... United States 23,480 19,782
Term Loan B ............................................... United States 177,735 146,632
Ventas Inc., Bank Claim:
Commitment Revolver, Tranche B ............................ United States 10,817 8,870
Tranche A ................................................. United States 32,000 29,760
Tranche C ................................................. United States 31,300 29,422
Tranche D ................................................. United States 78,077 72,612
-------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $3,437,004) ..... 3,355,276
-------------
TOTAL LONG TERM INVESTMENTS (COST $164,506,432) ............. 176,698,151
-------------
(d)SHORT TERM INVESTMENTS 5.7%
Fannie Mae, 5.14%, 12/08/99 ................................. United States 2,000,000 1,956,534
Federal Home Loan Bank, 5.10%, 11/05/99 ..................... United States 2,000,000 1,965,640
Federal Home Loan Mortgage Corp., 4.68% to 4.77% with
maturities to 10/18/99 .................................... United States 7,835,000 7,758,728
-------------
TOTAL SHORT TERM INVESTMENTS (COST $11,677,438) ............. 11,680,902
-------------
TOTAL INVESTMENTS (COST $176,183,870) 91.9% ................. 188,379,053
SECURITIES SOLD SHORT (.8%) ................................. (1,675,073)
NET EQUITY IN FORWARD CONTRACTS 2.4% ........................ 4,914,282
OTHER ASSETS, LESS LIABILITIES 6.5% ......................... 13,305,094
-------------
TOTAL NET ASSETS 100.0% ..................................... $ 204,923,356
=============
(a,i)SECURITIES SOLD SHORT
</TABLE>
<TABLE>
<CAPTION>
ISSUER COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allied Signal Inc. .......................................... United States 1,400 $ 88,200
BP Amoco PLC, ADR ........................................... United Kingdom 1,900 206,150
DST Systems Inc. ............................................ United States 5,700 358,387
Intel Corp. ................................................. United States 400 23,800
Nortel Networks Corp. ....................................... Canada 8,800 757,636
Unum Corp. .................................................. United States 4,400 240,900
-------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $1,429,493) ........... $ 1,675,073
=============
</TABLE>
<TABLE>
<CAPTION>
(a,j)CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
SECURITY COUNTRY SHARES 6/30/99 GAIN/LOSS
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BP Amoco PLC, cfd. 10.3574 ............. United Kingdom 6,400 $114,801 $(10,316)
BP Amoco PLC, cfd. 10.9450 ............. United Kingdom 2,500 44,844 (1,714)
BP Amoco PLC, cfd. 11.2992 ............. United Kingdom 4,800 86,101 (611)
Vodafone Group PLC, cfd. 11.2893 ....... United Kingdom 14,000 275,401 (26,276)
Vodafone Group PLC, cfd. 12.2720 ....... United Kingdom 9,200 180,978 (3,016)
-------- --------
TOTAL CONTRACT FOR DIFFERENCES ......... $702,125 $(41,933)
======== ========
</TABLE>
See glossary of currency abbreviations on page 136.
*Securities traded in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(c)See Note 8 regarding restricted securities.
(d)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
(i)See Note 1(g) regarding securities sold short.
(j)See Note 1(e) regarding contracts for differences.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
MUTUAL SHARES SECURITIES FUND COUNTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 78.2%
AEROSPACE & MILITARY TECHNOLOGY 3.1%
(a)Coltec Industries Inc. ................... United States 168,800 $ 3,660,850
(a)Hexcel Corp. ............................. United States 42,000 425,250
Lockheed Martin Corp. .................... United States 223,300 8,317,925
Northrop Grumman Corp. ................... United States 48,000 3,183,000
-----------
15,587,025
-----------
APPLIANCES & HOUSEHOLD DURABLES .6%
Premark International Inc. ............... United States 79,500 2,981,250
-----------
AUTOMOBILES 4.5%
Borg-Warner Automotive Inc. .............. United States 50,000 2,750,000
(a)Consorcio G Grupo Dina SA de CV, L, ADR .. Mexico 635,600 556,150
Delphi Automotive Systems Corp. .......... United States 254,557 4,725,214
(a)General Motors Corp. ..................... United States 86,900 5,735,400
Lear Corp. ............................... United States 95,500 4,751,125
TRW Inc. ................................. United States 70,400 3,863,200
-----------
22,381,089
-----------
BANKING 6.9%
Bank One Corp. ........................... United States 216,600 12,901,238
Banknorth Group Inc. ..................... United States 8,900 293,700
Chase Manhattan Corp. .................... United States 75,600 6,548,850
First American Corp. Tennessee ........... United States 30,900 1,284,281
First Union Corp. ........................ United States 211,882 9,958,454
Peoples Heritage Financial Group Inc. .... United States 40,800 767,550
U.S. Bancorp ............................. United States 74,600 2,536,400
Western Bancorp .......................... United States 4,200 182,700
-----------
34,473,173
-----------
BEVERAGES & TOBACCO 3.2%
Allied Domecq PLC ........................ United Kingdom 118,400 1,144,958
Gallaher Group PLC ....................... United Kingdom 293,500 1,804,246
Gallaher Group PLC, ADR .................. United Kingdom 14,300 349,456
Nabisco Group Holdings Corp. ............. United States 74,600 1,459,363
Philip Morris Companies Inc. ............. United States 164,500 6,610,844
UST Inc. ................................. United States 149,500 4,372,875
-----------
15,741,742
-----------
BROADCASTING & PUBLISHING 6.9%
(a)AT&T Corp. - Liberty Media Group, A ...... United States 78,648 2,890,314
Central Newspapers Inc., A ............... United States 115,900 4,360,738
Dow Jones & Co. Inc. ..................... United States 67,800 3,597,638
Media General Inc., A .................... United States 53,900 2,748,900
(a)MediaOne Group Inc. ...................... United States 108,900 8,099,438
Meredith Corp. ........................... United States 41,100 1,423,088
Scripps Co., A ........................... United States 121,400 5,774,088
Washington Post Co., B ................... United States 10,100 5,431,275
-----------
34,325,479
-----------
BUILDING MATERIALS & COMPONENTS .9%
(a)American Standard Companies Inc. ......... United States 78,800 3,782,400
Armstrong World Industries Inc. .......... United States 15,100 872,969
-----------
4,655,369
-----------
BUSINESS & PUBLIC SERVICES 1.5%
Hillenbrand Industries Inc. .............. United States 12,400 536,300
(a)Republic Services Inc. ................... United States 24,700 611,325
Suez Lyonnaise des Eaux SA ............... France 34,849 6,285,542
-----------
7,433,167
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL SHARES SECURITIES FUND COUNTRY WARRANTS VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
CHEMICALS 1.3%
Arch Chemicals Inc. ................... United States 54,500 $ 1,325,031
Crompton & Knowles Corp. .............. United States 84,200 1,647,163
(a)Cytec Industries Inc. ................. United States 48,700 1,552,313
Olin Corp. ............................ United States 104,900 1,383,369
(a)W.R. Grace & Co. ...................... United States 19,700 361,988
Witco Corp. ........................... United States 12,300 246,000
-----------
6,515,864
-----------
(a)DATA PROCESSING & REPRODUCTION .1%
Cadence Design Systems Inc. ........... United States 43,600 577,575
-----------
ELECTRICAL & ELECTRONICS .1%
Honeywell Inc. ........................ United States 1,700 196,988
(a)Level One Communications Inc. ......... United States 4,000 195,750
-----------
392,738
-----------
(a)ELECTRONIC COMPONENTS & INSTRUMENTS .2%
Quantum Corp. ......................... United States 44,300 1,068,738
-----------
ENERGY EQUIPMENT & SERVICES 1.1%
Baker Hughes Inc. ..................... United States 30,000 1,005,000
(a)Cooper Cameron Corp. .................. United States 68,900 2,553,606
(a)Weatherford International Inc. ........ United States 48,750 1,785,469
-----------
5,344,075
-----------
ENERGY SOURCES 1.9%
Atlantic Richfield Co. ................ United States 11,800 986,038
Shell Transport & Trading Co. PLC ..... United Kingdom 521,300 3,905,107
Societe Elf Aquitaine SA .............. France 29,650 4,351,031
-----------
9,242,176
-----------
FINANCIAL SERVICES 9.1%
Bear Stearns Co. Inc. ................. United States 124,775 5,833,231
CIT Group Inc., A ..................... United States 119,300 3,444,788
Finova Group Inc. ..................... United States 26,500 1,394,563
Greenpoint Financial Corp. ............ United States 150,230 4,929,422
Household International Inc. .......... United States 133,730 6,335,459
(c)Laser Mortgage Management Inc. ........ United States 186,700 641,781
Lehman Brothers Holdings Inc. ......... United States 94,000 5,851,500
(a)MFN Financial Corp. ................... United States 39,765 395,167
Morgan Stanley, Dean Witter & Co. ..... United States 28,400 2,911,000
Newcourt Credit Group Inc. ............ Canada 1,900 24,862
Newcourt Credit Group Inc., fgn ....... Canada 104,000 1,345,500
Power Financial Corp. ................. Canada 10,700 204,715
The PMI Group Inc. .................... United States 56,900 3,574,031
United Asset Management Corp. ......... United States 362,000 8,235,500
-----------
45,121,519
-----------
FOOD & HOUSEHOLD PRODUCTS 1.8%
(a)Fine Host Corp. ....................... United States 139,062 1,529,682
U.S. Industries Inc. .................. United States 248,300 4,221,100
Van Melle NV .......................... Netherlands 45,490 2,920,236
-----------
8,671,018
-----------
FOREST PRODUCTS & PAPER 1.4%
Rayonier Inc. ......................... United States 107,400 5,349,863
St. Joe Co. ........................... United States 55,400 1,495,800
-----------
6,845,663
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL DISCOVERY SECURITIES FUND COUNTRY WARRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
HEALTH & PERSONAL CARE 4.1%
(a)Beverly Enterprises Inc. ........................ United States 166,400 $ 1,341,600
(a)Foundation Health Systems, A .................... United States 142,170 2,132,550
(a)Healthsouth Corp. ............................... United States 181,800 2,715,638
McKesson HBOC Inc. .............................. United States 47,800 1,535,575
(a)Pacificare Health Systems Inc. .................. United States 48,700 3,503,356
Rhone-Poulenc SA ................................ France 112,800 5,154,345
Sankyo Co. Ltd. ................................. Japan 11,600 292,300
(a)Tenet Healthcare Corp. .......................... United States 198,100 3,677,231
Ventas Inc. ..................................... United States 31,800 170,925
-----------
20,523,520
-----------
(a)INDUSTRIAL COMPONENTS 1.9%
Owens-Illinois Inc. ............................. United States 206,600 6,753,238
Thermo Electron Corp. ........................... United States 132,600 2,660,288
-----------
9,413,526
-----------
INSURANCE 1.6%
Allmerica Financial Corp. ....................... United States 49,900 3,034,544
American Bankers Insurance Group Inc. ........... United States 10,300 560,706
(a)Old Republic International Corp. ................ United States 11,700 202,556
Provident Companies Inc. ........................ United States 11,800 472,000
Sampo Insurance Co. PLC., A ..................... Finland 6,800 197,051
Torchmark Corp. ................................. United States 36,400 1,242,150
White Mountain Insurance Group Inc. ............. United States 15,600 2,199,600
-----------
7,908,607
-----------
LEISURE & TOURISM 3.3%
(a)Park Place Entertainment Corp. .................. United States 301,000 2,915,938
Pathe SA ........................................ France 28,500 3,421,058
(a)Promus Hotel Corp. .............................. United States 171,200 5,307,200
Starwood Hotels & Resorts Worldwide Inc. ........ United States 157,000 4,798,313
-----------
16,442,509
-----------
MACHINERY & ENGINEERING 1.2%
Case Corp. ...................................... United States 8,200 394,625
Invensys PLC .................................... United Kingdom 1,206,152 5,713,071
-----------
6,107,696
-----------
MERCHANDISING 3.9%
(a)Barney's Inc. ................................... United States 45,635 410,715
(a)Barney's Inc., wts., 5/15/00 .................... United States 11,018 26,994
(a)Federated Department Stores Inc. ................ United States 88,700 4,695,556
JC Penney Co. Inc. .............................. United States 100,900 4,899,956
(a)Payless Shoesource Inc. ......................... United States 51,100 2,733,850
Rite Aid Corp. .................................. United States 170,600 4,201,025
(a)Toys R Us Inc. .................................. United States 122,070 2,525,323
-----------
19,493,419
-----------
METALS & MINING .4%
Allegheny Teledyne Inc. ......................... United States 95,680 2,164,760
-----------
Multi-Industry 8.3%
(a)Alleghany Corp. ................................. United States 15,558 2,878,230
(a)Berkshire Hathaway Inc. ......................... United States 22 49,280
(a)Berkshire-Hathaway Inc., A ...................... United States 57 3,927,300
Compagnie Financiere Richemont AG, Br., A ....... Switzerland 2,390 4,596,745
Compagnie Generale D'Industrie et de Participation France 57,210 2,766,989
Corporacion Financiera Alba SA .................. Spain 19,000 3,076,209
Investor AB, A .................................. Sweden 658,360 7,240,256
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
MUTUAL SHARES SECURITIES FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
<S> <C> <C> <C>
MULTI-INDUSTRY (CONT.)
Investor AB, B ......................................... Sweden 652,800 $ 7,294,284
Kansas City Southern Industries Inc. ................... United States 38,900 2,482,306
Kinnevik AB, B ......................................... Sweden 10,200 191,955
Lagardere SCA .......................................... France 95,862 3,568,751
Ogden Corp. ............................................ United States 88,500 2,383,969
Power Corp. of Canada .................................. Canada 29,400 566,505
----------
41,022,779
----------
(a) REAL ESTATE .4%
Alexander's Inc. ....................................... United States 8,000 591,000
Cadillac Fairview Corp. ................................ Canada 62,000 1,175,606
(c) Security Capital European Realty ....................... United States 23,055 399,479
----------
2,166,085
----------
TELECOMMUNICATIONS 4.5%
BCE Inc. ............................................... Canada 45,750 2,242,954
General Motors Corp., H ................................ United States 25,500 1,434,375
(a) Telecom Italia SpA, di Risp ............................ Italy 486,200 2,644,844
Telephone & Data Systems Inc. .......................... United States 142,900 10,440,631
(a) United States Cellular Corp. ........................... United States 85,100 4,552,850
Vodafone Airtouch PLC, ADR ............................. United Kingdom 5,050 994,850
----------
22,310,504
----------
TEXTILES & APPAREL .6%
Liz Claiborne Inc. ..................................... United States 77,300 2,821,450
Transportation 2.3%
Burlington Northern Santa Fe Corp. ..................... United States 53,200 1,649,200
Florida East Coast Industries Inc. ..................... United States 114,500 5,066,625
(a,c) Golden Ocean Group Ltd., wts., 8/31/01 ............... United States 1,120 --
Railtrack Group PLC .................................... United Kingdom 239,552 4,897,370
----------
11,613,195
----------
UTILITIES ELECTRICAL & GAS 1.1%
(a) MidAmerican Energy Holding Co. ......................... United States 91,700 3,175,113
Veba AG ................................................ Germany 38,100 2,247,417
5,422,530
TOTAL COMMON STOCKS AND WARRANTS (COST $335,816,480) ... 388,768,240
PREFERRED STOCKS .6%
Embratel Participacoes SA, ADR, pfd .................... Brazil 36,350 504,345
Tele Centro Sul Participacoes SA, ADR, pfd ............. Brazil 17,570 975,135
Tele Norte Leste Participacoes SA, ADR, pfd ............ Brazil 81,650 1,515,628
----------
TOTAL PREFERRED STOCKS (COST $2,607,608) ............... 2,995,108
----------
PRINCIPAL
AMOUNT*
-------
BONDS 2.7%
Abraxas Petroleum Corp., 11.50%, 11/01/04 ................ United States $ 415,000 261,450
Aiken Cnty S C Indl. Rev. Ref. Belott, 6.00%, 12/01/11 ... United States 45,000 27,450
Consorcio G Grupo Dina SA de CV, cvt., 8.00%, 8/08/04 .... Mexico 4,250,000 2,125,000
Eurotunnel Finance Ltd., Equity Note, 12/31/03 ........... United Kingdom 481,406 371,818
Eurotunnel PLC:
12/31/12, Tier 1 ....................................... United Kingdom 406,877 GBP 525,896
12/31/18, Tier 2 ....................................... United Kingdom 1,051,800 GBP 1,226,840
12/31/25, Tier 3 ....................................... United Kingdom 281,758 GBP 288,677
12/31/50, Resettable Advance R5 ........................ United Kingdom 408,583 GBP 273,711
4/30/40, ptc loan note ................................. United Kingdom 220,000 GBP 149,113
Stabilization Advance S8 Tier 1 ........................ United Kingdom 70,043 GBP 26,497
Stabilization Advance S8 Tier 2 ........................ United Kingdom 54,215 GBP 17,091
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Eurotunnel SA:
5.28%, 7/07/02, Tier 1 ............................. France $ 46,223 EUR $ 38,610
5.28%, 7/07/02, Tier 2 ............................. France 133,474 EUR 101,857
5.28%, 7/07/02, Tier 3 ............................. France 166,595 EUR 109,952
12/31/12, Tier 1 (Libor) ........................... France 155,834 EUR 130,170
12/31/18, Tier 2 (Libor) ........................... France 471,681 EUR 357,519
12/31/25, Tier 3 (Libor) ........................... France 367,578 EUR 242,601
12/31/50, Resettable Advance R4 .................... France 392,330 EUR 167,904
Eurotunnel Stabilization Facility
Stabilization Advance Tier 1 ....................... France 24,850 EUR 6,150
Stabilization Advance Tier 1 ....................... France 11,279 EUR 2,792
Stabilization Advance Tier 2 ....................... France 29,666 EUR 6,119
Golden Books Publishing, 7.65%, 9/15/02 ............ United States 190,000 75,050
(a,c) Golden Ocean Group Ltd., 10.00%, 8/31/01 ........... United States 1,050,000 115,500
Hechinger Co., 6.95%, 10/15/03 ......................... United States 1,702,000 178,710
HIH Capital Ltd., cvt., 7.50%, 9/25/06 ................. United Kingdom 1,235,000 845,975
Hvide Marine Inc., 8.375%, 2/15/08 ..................... United States 170,000 82,450
Kelley Oil & Gas Corp.
144A, 14.00%, 4/15/03 .............................. United States 190,000 195,700
10.375%, 10/15/06 .................................. United States 95,000 54,625
Series D, 10.375%, 10/15/06 ........................ United States 120,000 69,000
MFN Financial Corp.;
Series A, 10.00%, 4/23/01 .......................... United States 158,828 150,092
Series B, 10.00%, 4/23/01 .......................... United States 278,828 263,492
Port Seattle Wash. Rev. Ref-Beloit Proj., 6.00%, 12/01/17 United States 20,000 12,200
(c) Roil Limited, 12.779%, 12/05/02 ...................... Cayman Islands 2,328,000 814,800
Security Capital US Realty, cvt., 144A, 2.00%, 5/22/03 United States 2,208,000 1,698,780
Southwest Royalties Inc., B, 10.50%, 10/15/04 ........ United States 1,475,000 715,375
Specialty Foods Corp.:
11.00%, 8/15/09 .................................. United States 111,297 11
13.25%, 8/15/09 .................................. United States 1,180,000 920,400
TFM SA de CV:
10.25%, 6/15/07 .................................. Mexico 250,000 221,875
0/11.75%, 6/15/09 ................................ Mexico 885,000 535,425
-----------
TOTAL BONDS (COST $16,965,502) ....................... 13,406,677
-----------
(a) BONDS & NOTES IN REORGANIZATION 2.9%
Altos Hornos de Mexico SA:
5.50%, 12/15/01 .................................. Mexico 20,000 8,000
Series A, 11.375%, 4/30/02 ....................... Mexico 95,000 42,750
Series B, 11.875%, 4/15/04 ....................... Mexico 60,000 27,000
APS Inc., bank claim ................................. United States 242,324 104,199
Brunos Inc., Bank Claim:
Revolver Commitment .............................. United States 201,200 115,690
Tranche A ........................................ United States 360,300 194,562
Tranche B ........................................ United States 292,000 157,680
Crown Leasing, Bank Claim ............................ Japan 87,565,976JPY 114,847
Decision One, Bank Claim:
Revolver Commitment .............................. United States 266,219 116,471
Tranche A ........................................ United States 477,294 208,816
Tranche B ........................................ United States 139,690 61,114
Dictaphone Corporation, Bank Claim
Revolver Commitment .............................. United States 305,800 266,046
Tranche C Term Loan .............................. United States 116,000 102,080
Dow Corning Corp.:
Bank Debt #1 ......................................... United States 100,000 128,250
9.375%, 2/20/99 ...................................... United States 550,000 705,375
Harnischfeger Industries Inc.
8.90%, 3/01/22 ................................... United States 290,000 176,900
8.70%, 6/15/22 ................................... United States 145,000 88,450
6.875%, 2/15/27 .................................. United States 353,000 215,330
</TABLE>
FRANKLIN VALUEMARK FUNDS
Statement of Investments, June 30, 1999 (unaudited) (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------
(a) BONDS & NOTES IN REORGANIZATION (CONT.)
<S> <C> <C> <C>
Integrated Health Services Inc., Tranche B, Term Loan .. United States $ 239,392 $ 221,438
Koninklijke Nederlandse Vliegtuigenfabriek Fokker, Trade Claim Netherlands 550,118 EUR 453,846
Loewen Group Inc.:
Bank Claim, Revolver Commitment ........................ United States 129,798 81,124
144A, 6.70%, 10/01/99 ................................ Canada 355,000 214,775
Series 3, 7.50%, 4/15/01 ............................. Canada 90,000 56,700
Series 7, 7.75%, 10/15/01 ............................ Canada 170,000 107,100
Series 5, 6.10%, 10/02/02 ............................ Canada 250,000CAD 103,348
Series 4, 8.25%, 4/15/03 ............................. Canada 190,000 118,750
Series 6, 7.20%, 6/01/03 ............................. Canada 1,550,000 992,000
Series 2, 8.25%, 10/15/03 ............................ Canada 555,000 346,875
Series 7, 7.60%, 6/01/08 ............................. Canada 1,235,000 784,225
Nippon Credit Bank Ltd., Bank Claim .................... Japan 44,574,201 JPY 58,842
Nippon Total Finance, Bank Claim ....................... Japan 45,189,925 JPY 22,209
Paging Network Inc., Revolver Commitment, A ............ United States 1,650,000 1,485,000
Peregrine Investments Holdings Ltd., zero cpn., 2/28/99 Hong Kong 5,000,000 JPY 4,596
Philip Services Corp.
Bank Claim, Canadian Operating ....................... Canada 448,166 CAD 131,678
Bank Claim, Canadian Operating, fgn .................. Canada 9,144 3,932
Tranche 1 ............................................ United States 319,116 137,220
Tranche 2 ............................................ United States 296,498 127,494
Tranche 3 ............................................ United States 148,249 63,747
PIV Investment Finance (Cayman) Ltd., 12/01/00 ......... Hong Kong 12,060,000 3,316,500
Pratama Datakom Asia BV
Reg S, 12.75%, 7/15/05 ............................... Indonesia 140,000 32,900
144A, 12.75%, 7/15/05 ................................ Indonesia 665,000 156,275
Ritvik Holdings, Bank Claim:
Term Loan B .......................................... United States 55,000 46,750
Term Loan C .......................................... United States 137,000 116,450
Tribasa Toll Road Trust I, 10.50%, 12/01/11 ............ Mexico 165,589 86,106
Vencor Operating Inc., 9.875%, 5/01/05 ................. United States 1,635,000 498,675
Vencor Inc., Bank Claim:
Commitment Revolver .................................. United States 78,150 66,428
Term Loan A .......................................... United States 432,469 356,787
Term Loan B .......................................... United States 57,755 48,658
Ventas Inc., Bank Claim:
Commitment Revolver, Tranche B ....................... United States 194,782 181,147
Tranche A ............................................ United States 79,500 73,935
Tranche C ............................................ United States 75,300 70,782
Tranche D ............................................ United States 26,626 21,833
United Companies Financial Corp, revolver .............. United States 1,883,700 1,054,872
------------
TOTAL BONDS & NOTES IN REORGANIZATION (COST $12,023,218) 14,476,557
------------
TOTAL LONG TERM INVESTMENTS (COST $367,412,808) ........ 419,646,582
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
MUTUAL SHARES SECURITIES FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
(d) SHORT TERM INVESTMENTS 11.3%
<S> <C> <C> <C>
Fannie Mae, 4.69% to 5.140% with maturities to 12/08/99 United States $ 22,578,000 $ 12,133,547
Federal Home Loan Bank, 4.72% to 5.10% with maturities
to 11/05/99 ...................................... United States 7,000,000 6,887,678
Federal Home Loan Mortgage Corp., 4.67% to 5.10% with
maturities to 3/08/00 ............................ United States 37,550,000 37,110,346
--------------
TOTAL SHORT TERM INVESTMENTS (COST $56,121,702) ...... 56,131,571
--------------
TOTAL INVESTMENTS (COST $423,534,510) 95.7% .......... 475,778,153
(i) SECURITIES SOLD SHORT (.7%) .......................... (3,295,800)
NET EQUITY IN FORWARD CONTRACTS .6% .................. 3,203,691
OTHER ASSETS, LESS LIABILITIES 4.4% .................. 21,643,295
--------------
TOTAL NET ASSETS 100.0% .............................. $ 497,329,339
==============
</TABLE>
<TABLE>
<CAPTION>
(a)(i)SECURITIES SOLD SHORT
ISSUER COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allied Signal Inc. ................................... United States 3,100 $ 195,300
BP Amoco PLC, ADR .................................... United Kingdom 4,200 455,700
DST Systems Inc. ..................................... United States 6,300 396,112
Intel Corp. .......................................... United States 3,400 202,300
Nortel Networks Corp. ................................ Canada 18,300 1,575,538
Unum Corp. ........................................... United States 8,600 470,850
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $3,132,279) .... $ 3,295,800
============
</TABLE>
<TABLE>
<CAPTION>
(a)(j)CONTRACTS FOR DIFFERENCES VALUE AT UNREALIZED
SECURITY COUNTRY SHARES 6/30/99 GAIN/LOSS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BP Amoco PLC, cfd. 10.3574 .............................. United Kingdom 13,600 $ 234,952 $ (21,921)
BP Amoco PLC, cfd. 10.9450 .............................. United Kingdom 5,500 98,657 (3,771)
BP Amoco PLC, cfd. 11.2992 .............................. United Kingdom 10,200 182,964 (1,299)
Vodafone Group PLC, cfd. 11.2893 ........................ United Kingdom 30,000 590,145 (56,305)
Vodafone Group PLC, cfd 12.272 .......................... United Kingdom 20,000 393,430 (6,557)
---------- ----------
TOTAL CONTRACT FOR DIFFERENCES .......................... $1,500,148 $ (89,853)
========== ==========
</TABLE>
See glossary of currency abbreviations on page 136.
* Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(c) See Note 8 regarding restricted securities.
(d) Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
(i) See Note 1(g) regarding securities sold short.
(j) See Note 1(e) regarding contracts for differences.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS 98.1%
<S> <C> <C> <C>
ENERGY MINERALS 38.7%
Apache Corp. ......................................... United States 30,800 $ 1,201,200
Atlantic Richfield Co. ............................... United States 20,700 1,729,744
(a) Barrett Resources Corp. .............................. United States 54,100 2,076,088
(a) Basin Exploration Inc. ............................... United States 53,600 1,075,350
Chesapeake Energy Corp. .............................. United States 210,000 616,875
Conoco Inc., A ....................................... United States 27,000 752,625
Devon Energy Corp. ................................... United States 8,000 286,000
Enron Oil & Gas Co. .................................. United States 50,500 1,022,625
(a) Gulf Canada Resources Ltd. ........................... Canada 190,200 796,463
Houston Exploration Co. .............................. United States 27,000 511,313
Mobil Corp. .......................................... United States 14,200 1,405,800
(a) Newfield Exploration Co. ............................. United States 55,700 1,583,969
(a) Nuevo Energy Co. ..................................... United States 54,500 722,125
Royal Dutch Petroleum Co., N.Y. shs .................. Netherlands 9,400 566,350
(a) Santa Fe Snyder Corp. ................................ United States 61,900 471,988
Texaco Inc. .......................................... United States 23,400 1,462,500
Tosco Corp. .......................................... United States 38,250 992,109
Ultramar Diamond Shamrock Corp. ...................... United States 33,500 730,719
Unocal Corp. ......................................... United States 18,000 713,250
Valero Energy Corp. .................................. United States 36,000 771,750
----------
19,488,843
----------
INDUSTRIAL SERVICES 24.4%
(a) AES Corp. ............................................ United States 14,000 813,750
(a) Atwood Oceanics Inc. ................................. United States 15,600 487,500
Baker Hughes Inc. .................................... United States 12,600 422,100
(a) BJ Services Co. ...................................... United States 13,950 410,653
(a) Cal Dive International Inc. .......................... United States 39,800 1,189,025
(a) Casella Waste Systems Inc., A ........................ United States 35,800 930,800
Diamond Offshore Drilling Inc. ....................... United States 27,000 766,125
ENSCO International Inc. ............................. United States 18,500 368,844
Halliburton Co. ...................................... United States 17,000 769,250
(a) Marine Drilling Cos. Inc. ............................ United States 20,000 273,750
(a) Safety-Kleen Corp. ................................... United States 30,000 543,750
Schlumberger Ltd. .................................... United States 15,600 993,525
Transocean Offshore Inc. ............................. United States 33,000 866,250
(a) Tuboscope Inc. ....................................... United States 54,000 739,125
(a) Varco International Inc. ............................. United States 102,000 1,115,625
(a) Weatherford International Inc. ....................... United States 42,900 1,571,213
----------
12,261,285
----------
NON-ENERGY MINERALS 16.1%
Aluminum Co. of America .............................. United States 14,200 878,625
Barrick Gold Corp. ................................... Canada 40,195 778,778
De Beers Consolidated Mines AG, ADR .................. South Africa 64,800 1,547,100
(a) Franco-Nevada Mining Corp. Ltd. ...................... Canada 42,400 663,451
Freeport-McMoRan Copper & Gold Inc., A ............... United States 13,718 229,777
Ispat International NV, A, N.Y. shs .................. Netherlands 30,000 331,870
Newmont Mining Corp. ................................. United States 15,455 307,168
Pohang Iron & Steel Co. Ltd., ADR .................... South Korea 35,600 1,197,050
Potash Corp. of Saskatchewan Inc. .................... Canada 11,100 574,425
Rio Tinto PLC ........................................ United Kingdom 60,129 1,017,915
(a) Stillwater Mining Co. ................................ United States 18,450 603,084
----------
8,129,243
----------
PROCESS INDUSTRIES 13.3%
(a) Abitibi-Consolidated Inc. ............................ Canada 35,000 398,125
(a) Asia Pulp & Paper Co. Ltd., ADR ...................... Indonesia 82,000 789,250
(a) Asia Pulp & Paper Co. Ltd., wts., 7/27/00 ............ Indonesia 15,000 39,375
Bemis Co. Inc. ....................................... United States 3,500 139,125
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
NATURAL RESOURCES SECURITIES FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
PROCESS INDUSTRIES (CONT.)
<S> <C> <C> <C>
Bowater Inc. ......................................... United States 13,500 $ 637,875
E. I. du Pont de Nemours and Co. ..................... United States 5,000 341,563
Ecolab Inc. .......................................... United States 3,300 143,963
Hercules Inc. ........................................ United States 9,800 385,263
Monsanto Co. ......................................... United States 5,900 232,681
(a) Owens-Illinois Inc. .................................. United States 27,100 885,831
Praxair Inc. ......................................... United States 14,100 690,019
Sigma-Aldrich Corp. .................................. United States 33,000 1,136,438
(a) Smurfit-Stone Container Corp. ........................ United States 43,100 886,244
------------
6,705,752
------------
PRODUCER MANUFACTURING 3.3%
Avery Dennison Corp. ................................. United States 17,000 1,026,375
Masco Corp. .......................................... United States 10,600 306,075
Reliance Steel & Aluminum Co. ........................ United States 8,400 327,600
------------
1,660,050
------------
UTILITIES 2.3%
Enron Corp. .......................................... United States 14,000 1,144,500
------------
TOTAL LONG TERM INVESTMENTS ($47,714,139) ............. 49,389,673
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C> <C>
(f) REPURCHASE AGREEMENT 2.5%
Joint Repurchase Agreement, 4.767%, 7/01/99,
(Maturity Value $1,259,270) (Cost $1,259,103) .... United States $ 1,259,103 1,259,103
Barclays Capital Inc. (Maturity Value $158,828)
Bear, Stearns & Co. Inc. (Maturity Value $140,158)
Chase Securities Inc. (Maturity Value $25,940)
CIBC Oppenheimer Corp. (Maturity Value $158,828)
Donaldson, Lufkin & Jenrette Securities Corp.
(Maturity Value $112,125)
Dresdner Kleinwort Benson, North America LLC
(Maturity Value $112,125)
Goldman, Sachs & Co. (Maturity Value $56,063)
Nationsbanc Montgomery Securities LLC
(Maturity Value $112,125)
Paine Webber Inc. (Maturity Value $112,125)
Paribas Corp. (Maturity Value $112,125)
Warburg Dillon Read LLC (Maturity Value $158,828)
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $48,973,242) 100.6% .......... 50,648,776
OTHER ASSETS, LESS LIABILITIES (.6%) ................. (296,789)
--------------
NET ASSETS 100.0% .................................... $ 50,351,987
==============
</TABLE>
(a) Non-income producing.
(f) See note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES FUND SHARES VALUE
- ------------------------------------------------------------------------------------------
COMMON STOCKS 97.1%
<S> <C> <C>
EQUITY REIT - APARTMENTS 13.4%
Apartment Investment & Management Co., A ...... 135,000 $ 5,771,250
Archstone Communities Trust ................... 290,035 6,362,643
Avalonbay Communities Inc. .................... 100,000 3,700,000
Camden Property Trust ......................... 96,733 2,685,451
Charles E. Smith Residential Realty Inc. ...... 79,000 2,681,063
Equity Residential Properties Trust ........... 197,500 8,899,844
-----------
30,100,251
-----------
EQUITY REIT - DIVERSIFIED PROPERTY TYPE 14.7%
Crescent Real Estate Equities Co. ............. 137,650 3,269,188
Duke Realty Investments Inc. .................. 185,000 4,174,063
Glenborough Realty Trust Inc. ................. 536,000 9,380,000
Liberty Property Trust ........................ 250,000 6,218,750
Spieker Properties Inc. ....................... 160,000 6,220,000
Vornado Realty Trust .......................... 103,300 3,647,781
-----------
32,909,782
-----------
EQUITY REIT - HEALTH CARE 1.6%
OMEGA Healthcare Investors Inc. ............... 142,000 3,665,375
-----------
EQUITY REIT - HOTELS 10.5%
FelCor Lodging Trust Inc. ..................... 215,300 4,467,475
Host Marriott Corp. ........................... 441,590 5,243,881
Innkeepers USA Trust .......................... 224,400 2,244,000
MeriStar Hospitality Corp. .................... 410,000 9,199,375
Winston Hotels Inc. ........................... 233,900 2,455,950
-----------
23,610,681
-----------
EQUITY REIT - INDUSTRIAL 3.6%
Cabot Industrial Trust ........................ 165,000 3,506,250
ProLogis Trust ................................ 225,400 4,564,350
-----------
8,070,600
-----------
EQUITY REIT - OFFICE 21.7%
Alexandria Real Estate Equities Inc. .......... 203,000 6,343,750
Arden Realty Inc. ............................. 235,600 5,801,650
Brandywine Realty Trust ....................... 390,700 7,740,744
Equity Office Properties Trust ................ 340,008 8,712,705
Highwoods Properties Inc. ..................... 180,000 4,938,750
Mack-Cali Realty Corp. ........................ 160,000 4,950,000
SL Green Realty Corp. ......................... 128,400 2,624,175
Trinet Corporate Realty Trust Inc. ............ 275,000 7,614,063
-----------
48,725,837
-----------
EQUITY REIT - RESIDENTIAL COMMUNITIES 3.4%
Manufactured Home Communities Inc. ............ 120,000 3,120,000
Sun Communities Inc. .......................... 130,000 4,615,000
-----------
7,735,000
-----------
EQUITY REIT - RETAIL - COMMUNITY CENTERS 5.4%
Developers Diversified Realty Corp. ........... 23,000 382,375
Kimco Realty Corp. ............................ 148,000 5,790,500
Regency Realty Corp. .......................... 270,712 5,938,745
-----------
12,111,620
-----------
EQUITY REIT - RETAIL - REGIONAL MALLS 5.1%
The Macerich Co. .............................. 138,000 3,622,500
Mills Corp. ................................... 54,400 1,179,800
Simon Property Group Inc. ..................... 260,000 6,597,500
-----------
11,399,800
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
EQUITY REIT - STORAGE 4.0%
Public Storage Inc. .................................................... 316,600 $ 8,864,800
(a) Diversified Property Type 6.7% -----------
Crescent Operating Inc. ................................................ 27,500 187,344
Security Capital Group Inc., B ......................................... 720,200 10,487,913
Security Capital US Realty (Luxembourg) ................................ 232,300 4,413,700
-----------
15,088,957
-----------
HOTELS 7.0%
(a) Candlewood Hotel Co. Inc. .............................................. 350,000 1,312,500
(a) MeriStar Hotels & Resorts Inc. ......................................... 350,000 1,203,125
(a) Prime Hospitality Corp. ................................................ 199,500 2,394,000
Starwood Hotels & Resorts Worldwide Inc. ............................... 275,000 8,404,688
(a) Wyndham International Inc. ............................................. 542,038 2,439,171
-----------
15,753,484
-----------
TOTAL LONG TERM INVESTMENTS (COST $205,902,433) ........................ 218,036,187
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
(f) REPURCHASE AGREEMENT 1.7%
Joint Repurchase Agreement, 4.767%, 7/01/99,
(Maturity Value $3,713,995) (COST $3,713,503) ........................ $ 3,713,503 3,713,503
Barclays Capital Inc. (Maturity Value $468,446)
Bear, Stearns & Co. Inc. (Maturity Value $413,330)
Chase Securities Inc. (Maturity Value $76,509)
CIBC Oppenheimer Corp. (Maturity Value $468,446)
Donaldson, Lufkin & Jenrette Securities Corp.
(Maturity Value $330,694)
Dresdner Kleinwort Benson, North America LLC
(Maturity Value $330,694)
Goldman, Sachs & Co. (Maturity Value $165,348)
NationsBanc Montgomery Securities LLC
(Maturity Value $330,694)
Paine Webber Inc. (Maturity Value $330,694)
Paribas Corp. (Maturity Value $330,694)
Warburg Dillon Read LLC (Maturity Value $468,446)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $209,615,936) 98.8% ............................ 221,749,690
OTHER ASSETS, LESS LIABILITIES 1.2% .................................... 2,745,619
------------
NET ASSETS 100.0% ...................................................... $224,495,309
============
</TABLE>
(a) Non-income producing.
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
RISING DIVIDENDS FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 97.1%
COMMERCIAL SERVICES 6.8%
Ennis Business Forms Inc. .............................................. 205,200 $ 1,757,025
Reynolds & Reynolds Co., A ............................................. 501,000 11,679,563
Standard Register Co. .................................................. 360,500 11,085,375
Wallace Computer Services Inc. ......................................... 713,800 17,845,000
----------
42,366,963
----------
CONSUMER DURABLES 6.4%
Leggett & Platt Inc. ................................................... 921,500 25,629,219
Newell Rubbermaid Inc. ................................................. 309,300 14,382,450
----------
40,011,669
----------
CONSUMER NON-DURABLES 6.7%
Alberto-Culver Co., A .................................................. 708,000 16,151,250
Block Drug Co. Inc., A ................................................. 211,539 8,818,532
DIMON Inc. ............................................................. 573,900 2,977,106
Philip Morris Cos. Inc. ................................................ 120,000 4,822,500
Universal Corp. ........................................................ 314,300 8,937,906
----------
41,707,294
----------
ELECTRONIC TECHNOLOGY 3.5%
Cohu Inc. .............................................................. 359,500 12,717,313
Hewlett-Packard Co. .................................................... 89,900 9,034,950
----------
21,752,263
----------
ENERGY MINERALS 1.1%
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands) ..................... 114,300 6,886,575
----------
FINANCE 14.7%
Bank One Corp. ......................................................... 25,000 1,489,063
Fannie Mae ............................................................. 63,200 4,321,300
First Union Corp. ...................................................... 189,226 8,893,622
Mercantile Bankshares Corp. ............................................ 190,525 6,739,822
National Commerce Bancorp .............................................. 836,200 18,291,875
State Street Corp. ..................................................... 108,600 9,271,725
TrustCo Bank Corp., N.Y. shs ........................................... 336,880 9,053,650
U.S. Bancorp ........................................................... 361,800 12,301,200
Washington Mutual Inc. ................................................. 389,400 13,775,025
Wilmington Trust Corp. ................................................. 120,000 6,885,000
----------
91,022,282
----------
HEALTH TECHNOLOGY 6.0%
Becton, Dickinson & Co. ................................................ 135,800 4,074,000
Superior Uniform Group Inc. ............................................ 265,800 3,322,500
(e) West Pharmaceutical Services Inc. ...................................... 759,300 29,802,525
----------
37,199,025
----------
INSURANCE 11.1%
American Heritage Life Investment Corp. ................................ 200,500 4,912,250
American International Group Inc. ...................................... 87,150 10,201,997
Chubb Corp. ............................................................ 143,000 9,938,500
Harleysville Group Inc. ................................................ 167,600 3,435,800
Mercury General Corp. .................................................. 272,700 9,271,800
MMI Cos. Inc. .......................................................... 442,100 7,460,438
ReliaStar Financial Corp. .............................................. 320,100 14,004,375
RLI Corp. .............................................................. 251,856 9,759,420
----------
68,984,580
----------
NON-ENERGY MINERALS .6%
Nucor Corp. ............................................................ 82,000 3,889,875
----------
PROCESS INDUSTRIES 10.4%
Bemis Co. Inc. ......................................................... 395,900 15,737,025
Brady Corp., A ......................................................... 109,500 3,558,750
Donaldson Co. Inc. ..................................................... 108,200 2,650,900
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
RISING DIVIDENDS FUND SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES (CONT.)
Hanna (M.A.) Co. .......................................................... 345,200 $ 5,674,225
Lancaster Colony Corp. .................................................... 33,900 1,169,550
Millipore Corp. ........................................................... 135,400 5,492,163
Pall Corp. ................................................................ 851,100 18,883,781
Sherwin-Williams Co. ...................................................... 407,000 11,294,250
-------------
64,460,644
-------------
PRODUCER MANUFACTURING 19.0%
Baldor Electric Co. ....................................................... 468,333 9,308,118
Diebold Inc. .............................................................. 242,900 6,983,375
Dover Corp. ............................................................... 244,100 8,543,500
General Electric Co. ...................................................... 41,600 4,700,800
Graco Inc. ................................................................ 187,100 5,496,063
Hubbell Inc., B ........................................................... 278,500 12,636,938
Kaydon Corp. .............................................................. 492,500 16,560,313
Kimball International Inc., B ............................................. 589,300 9,944,438
Myers Industries Inc. ..................................................... 483,260 9,665,200
Superior Industries International Inc. .................................... 238,100 6,503,106
Teleflex Inc. ............................................................. 370,300 16,084,906
Watts Industries Inc., A .................................................. 605,300 11,614,194
-------------
118,040,951
-------------
RETAIL TRADE 9.3%
Family Dollar Stores Inc. ................................................. 1,596,300 38,311,200
The Limited Inc. .......................................................... 121,523 5,514,106
Rite Aid Corp. ............................................................ 307,300 7,567,263
Schultz Sav-O Stores Inc. ................................................. 227,700 3,643,200
Wal-Mart Stores Inc. ...................................................... 60,600 2,923,946
-------------
57,959,715
-------------
TRANSPORTATION 1.5%
Circle International Group Inc. ........................................... 413,900 9,054,063
-------------
TOTAL COMMON STOCKS (COST $475,537,695) ................................... 603,335,899
-------------
CONVERTIBLE PREFERRED STOCKS .2%
American Heritage Corp., 8.50%, cvt. pfd. (COST $1,210,000) ............... 24,200 1,600,225
-------------
TOTAL LONG TERM INVESTMENTS (COST $476,747,695) ........................... 604,936,124
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
(f) Repurchase Agreement 1.7%
Joint Repurchase Agreement,4.767%,7/01/99, (Maturity Value $10,571,070)
(COST $10,569,670) ................................................ $10,569,670 10,569,670
Barclays Capital Inc. (Maturity Value $1,333,383)
Bear, Stearns & Co. Inc. (Maturity Value $1,176,513)
Chase Securities Inc. (Maturity Value $217,747)
CIBC Oppenheimer Corp. (Maturity Value $1,333,383)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $941,211)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $941,211)
Goldman, Sachs & Co. (Maturity Value $470,606)
NationsBanc Montgomery Securities LLC (Maturity Value $941,211)
Paine Webber Inc. (Maturity Value $941,211)
Paribas Corp. (Maturity Value $941,211)
Warburg Dillon Read LLC (Maturity Value $1,333,383)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $487,317,365) 99.0% ............................ 615,505,794
OTHER ASSETS, LESS LIABILITIES 1.0% .................................... 6,055,353
------------
NET ASSETS 100.0% ...................................................... $621,561,147
============
</TABLE>
(e) See Note 9 regarding holding of 5% voting securities.
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
SMALL CAP FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND RIGHTS 96.9%
COMMERCIAL SERVICES 3.2%
<S> <C> <C>
(a) 24/7 Media Inc. ........................................................ 28,800 $ 1,108,800
(a) Applied Graphics Technologies Inc. ..................................... 88,700 1,119,838
(a) Corporate Executive Board Co. .......................................... 5,700 202,706
(a) Exchange Applications Inc. ............................................. 13,500 550,125
(a) Inet Technologies Inc. ................................................. 24,300 583,200
Norrell Corp. .......................................................... 82,100 1,544,506
(a) NOVA Corp. ............................................................. 55,900 1,397,500
(a) RemedyTemp Inc., A ..................................................... 29,500 398,250
(a) Smith-Gardner & Associates Inc. ........................................ 4,100 33,056
(a) SOS Staffing Services Inc. ............................................. 75,500 396,375
(a) Sylvan Learning Systems Inc. ........................................... 64,100 1,742,719
(a) WESCO International Inc. ............................................... 29,100 596,550
-----------
9,673,625
-----------
(a) CONSUMER DURABLES .4%
Activision Inc. ........................................................ 75,700 1,102,381
-----------
CONSUMER NON-DURABLES 2.5%
Alberto-Culver Co., A .................................................. 7,100 157,407
(a) Sola International Inc. ................................................ 24,400 474,275
(a) Tommy Hilfiger Corp. ................................................... 66,800 4,909,800
(a) Tropical Sportswear International Corp. ................................ 33,700 1,074,188
Wolverine World Wide Inc. .............................................. 55,000 770,000
-----------
7,385,670
-----------
(a) CONSUMER SERVICES 4.4%
DeVry Inc. ............................................................. 77,800 1,740,775
Entercom Communications Corp. .......................................... 1,300 55,575
Foodmaker Inc. ......................................................... 37,400 1,061,225
Harrah's Entertainment Inc. ............................................ 59,900 1,317,800
Intelligent Life Corp. ................................................. 61,600 404,250
Jones Intercable Inc. .................................................. 2,100 100,800
Jones Intercable Inc., A ............................................... 29,100 1,425,900
MeriStar Hotels & Resorts Inc. ......................................... 120,000 412,500
Prime Hospitality Corp. ................................................ 238,000 2,856,000
Radio One Inc. ......................................................... 5,700 265,050
SFX Entertainment Inc. ................................................. 39,300 2,515,200
Vail Resorts Inc. ...................................................... 51,700 904,750
-----------
13,059,825
-----------
(a) ELECTRONIC TECHNOLOGY 23.0%
Advanced Energy Industries Inc. ........................................ 48,800 1,979,450
Alpha Industries Inc. .................................................. 17,000 809,625
ANTEC Corp. ............................................................ 5,000 160,313
Aspect Telecommunications Corp. ........................................ 61,200 596,700
AVT Corp. .............................................................. 51,200 1,939,200
Brocade Communications Systems Inc. .................................... 1,400 135,013
Carrier Access Corp. ................................................... 23,300 1,020,831
Catapult Communications Corp. .......................................... 37,000 698,375
Coherent Inc. .......................................................... 178,400 3,322,700
Com21 Inc. ............................................................. 75,000 1,279,688
Copper Mountain Networks Inc. .......................................... 1,100 84,975
Cymer Inc. ............................................................. 6,500 162,500
EMCORE Corp. ........................................................... 28,400 571,550
Etec Systems Inc. ...................................................... 38,100 1,266,825
E-Tek Dynamics Inc. .................................................... 6,500 309,156
Excel Switching Corp. .................................................. 23,800 712,513
Flextronics International Ltd. ......................................... 52,000 2,886,000
FLIR Systems Inc. ...................................................... 90,000 1,361,250
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
SMALL CAP FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a)ELECTRONIC TECHNOLOGY (CONT.)
FVC.COM Inc. .......................................... 24,000 $ 156,000
Gemstar International Group Ltd. ...................... 70,400 4,593,600
Harmonic Inc. ......................................... 30,500 1,751,844
hi/fn Inc. ............................................ 3,000 228,375
H.T.E. Inc. ........................................... 47,500 160,313
Itron Inc. ............................................ 62,800 537,725
Jabil Circuit Inc. .................................... 55,000 2,481,875
Javelin Systems Inc. .................................. 29,200 357,700
Komag Inc. ............................................ 317,800 1,052,713
Ladish Co. Inc. ....................................... 58,800 455,700
Latitude Communications Inc. .......................... 5,800 75,400
Lattice Semiconductor Corp. ........................... 10,300 641,175
Maker Communications Inc. ............................. 1,000 31,000
Mettler-Toledo International Inc. ..................... 122,000 3,027,125
Micrel Inc. ........................................... 7,500 555,000
Natural MicroSystems Corp. ............................ 80,900 773,606
Novellus Systems Inc. ................................. 18,400 1,255,800
Perceptron Inc. ....................................... 85,000 387,813
Photronics Inc. ....................................... 8,400 205,800
PLX Technology Inc. ................................... 5,200 246,350
PMC-Sierra Inc. ....................................... 106,000 6,247,375
Sanmina Corp. ......................................... 26,800 2,033,450
Security Dynamics Technologies Inc. ................... 155,700 3,308,625
SIPEX Corp. ........................................... 27,000 553,500
Synopsys Inc. ......................................... 100,000 5,518,750
Tekelec ............................................... 115,900 1,412,532
TriStar Aerospace Co. ................................. 31,400 259,050
Uniphase Corp. ........................................ 40,900 6,789,400
Veeco Instruments Inc. ................................ 6,800 231,200
Waters Corp. .......................................... 70,000 3,718,750
Wavecom SA, ADR (Frances) ............................. 8,200 107,625
Western Digital Corp. ................................. 60,000 390,000
-----------
68,841,835
-----------
ENERGY MINERALS 4.6%
(a)Barrett Resources Corp. ............................... 113,900 4,370,913
(a)Denbury Resources Inc. ................................ 85,800 375,375
(a)Forest Oil Corp. ...................................... 56,700 712,294
(a)Newfield Exploration Co. .............................. 125,800 3,577,438
Range Resources Corp. ................................. 125,000 765,625
(a)Santa Fe Snyder Corp. ................................. 262,810 2,003,926
(a)Titan Exploration Inc. ................................ 128,300 641,500
(a)Tom Brown Inc. ........................................ 95,000 1,478,438
-----------
13,925,509
-----------
FINANCE 8.0%
(a)Affiliated Managers Group Inc. ........................ 44,700 1,349,381
Allied Capital Corp. .................................. 40,000 960,000
Bank United Corp., A .................................. 50,000 2,009,375
(a)DLJdirect ............................................. 32,300 952,850
Espirito Santo Financial Group SA, ADR (Luxembourg) ... 25,900 424,113
EVEREN Capital Corp. .................................. 42,000 1,252,125
E.W. Blanch Holdings Inc. ............................. 5,000 340,938
Federated Investors Inc., B ........................... 122,900 2,204,519
(a)First Sierra Financial Inc. ........................... 25,800 645,000
Freedom Securities Corp. .............................. 26,300 450,388
(a)Golden State Bancorp Inc. ............................. 118,000 2,596,000
(a)Hambrecht & Quist Group ............................... 20,000 742,500
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
SMALL CAP FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
FINANCE (CONT.)
(a)HealthCare Financial Partners Inc. .................... 39,100 $ 1,339,175
Heller Financial Inc. ................................. 18,800 522,875
(a)Knight/Trimark Group Inc., A .......................... 25,100 1,513,844
Mutual Risk Management Ltd. ........................... 42,600 1,421,775
(a)Radian Group Inc ...................................... 31,038 1,515,045
(a)Silicon Valley Bancshares ............................. 97,400 2,410,650
Westamerica Bancorp ................................... 27,900 1,018,350
(a)WIT Capital Group Inc. ................................ 3,800 129,200
-----------
23,798,103
-----------
(a)HEALTH SERVICES 2.6%
American Dental Partners Inc. ......................... 20,300 225,838
Beverly Enterprises Inc. .............................. 136,900 1,103,756
Eclipsys Corp. ........................................ 1,422 34,039
Integrated Health Services Inc. ....................... 54,000 432,000
New American Healthcare Corp. ......................... 8,100 18,731
PAREXEL International Corp. ........................... 65,000 865,313
Pharmaceutical Product Development Inc. ............... 85,000 2,326,875
Renal Care Group Inc. ................................. 94,650 2,449,069
Total Renal Care Holdings Inc. ........................ 15,933 247,957
-----------
7,703,578
-----------
(a)HEALTH TECHNOLOGY 1.1%
Heska Corp. ........................................... 39,300 90,881
Inhale Therapeutic Systems Inc. ....................... 59,300 1,412,081
OrthoLogic Corp. ...................................... 226,700 559,677
Serologicals Corp. .................................... 138,750 1,127,344
SkyePharma PLC, ADR (United Kingdom) .................. 24,391 187,506
SkyePharma PLC, rts., 3/31/00 (United Kingdom) ........ 83,600 --
-----------
3,377,489
-----------
(a)INDUSTRIAL SERVICES 4.5%
Atwood Oceanics Inc. .................................. 3,400 106,250
Casella Waste Systems Inc., A ......................... 12,700 330,200
Catalytica Inc. ....................................... 193,733 2,712,262
Core Laboratories NV (Netherlands) .................... 110,400 1,538,700
Dycom Industries Inc. ................................. 15,700 879,200
KTI Inc. .............................................. 3,000 42,750
Marine Drilling Cos. Inc. ............................. 71,100 973,181
Safety-Kleen Corp. .................................... 25,000 453,125
Tuboscope Inc. ........................................ 121,300 1,660,294
US Liquids Inc. ....................................... 74,800 1,561,450
Varco International Inc. .............................. 300,800 3,290,000
-----------
13,547,412
-----------
INSURANCE 2.5%
Financial Security Assurance Holdings Ltd. ............ 63,000 3,276,000
HCC Insurance Holdings Inc. ........................... 32,300 732,806
Life USA Holding Inc. ................................. 21,200 429,300
Reinsurance Group of America Inc. ..................... 37,300 1,314,825
(a)Risk Capital Holdings Inc. ............................ 125,000 1,687,500
-----------
7,440,431
-----------
NON-ENERGY MINERALS .5%
Carpenter Technology Corp. ............................ 50,000 1,428,125
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
SMALL CAP FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
PROCESS INDUSTRIES 1.6%
ChemFirst Inc. ........................................ 85,100 $ 2,068,994
(a)CUNO Inc. ............................................. 29,000 554,625
Optical Coating Laboratory Inc. ....................... 24,600 2,057,175
-----------
4,680,794
-----------
PRODUCER MANUFACTURING 3.6%
(a)Gentex Corp. .......................................... 127,800 3,578,400
Gibraltar Steel Corp. ................................. 100,000 2,475,000
JLG Industries Inc. ................................... 111,400 2,269,775
(a)Polycom Inc. .......................................... 10,800 421,200
Reliance Steel & Aluminum Co. ......................... 9,000 351,000
Roper Industries Inc. ................................. 57,400 1,836,800
-----------
10,932,175
-----------
REAL ESTATE 3.7%
Arden Realty Inc. ..................................... 86,000 2,117,750
Camden Property Trust ................................. 75,000 2,081,250
Colonial Properties Trust ............................. 15,400 435,050
FelCor Lodging Trust Inc. ............................. 50,000 1,037,500
Glenborough Realty Trust Inc. ......................... 54,100 946,750
Innkeepers USA Trust .................................. 98,900 989,000
MeriStar Hospitality Corp. ............................ 130,000 2,916,875
SL Green Realty Corp. ................................. 30,900 631,519
-----------
11,155,694
-----------
RETAIL TRADE 1.0%
(a)Beyond.com Corp. ...................................... 54,500 1,563,469
Claire's Stores Inc. .................................. 34,000 871,250
(a)Guitar Center Inc. .................................... 55,000 574,063
-----------
3,008,782
-----------
(a)TECHNOLOGY SERVICES 20.4%
Affiliated Computer Services Inc., A .................. 135,300 6,849,563
BackWeb Technologies Ltd. ............................. 1,100 30,113
Brightpoint Inc. ...................................... 12,900 78,206
Brio Technology Inc. .................................. 13,000 260,000
BroadVision Inc. ...................................... 26,600 1,961,750
Check Point Software Technologies Ltd. ................ 11,700 627,413
Citrix Systems Inc. ................................... 37,800 2,135,700
Complete Business Solutions Inc. ...................... 69,600 1,248,450
Concord Communications Inc. ........................... 30,000 1,350,000
Deltek Systems Inc. ................................... 13,800 136,275
Documentum Inc. ....................................... 40,000 522,500
DoubleClick Inc. ...................................... 19,100 1,752,425
Entrust Technologies Inc. ............................. 55,200 1,835,400
Exodus Communications Inc. ............................ 9,600 1,151,400
High Speed Access Corp. ............................... 9,600 246,000
HNC Software Inc. ..................................... 90,000 2,773,125
i2 Technologies Inc. .................................. 117,600 5,056,800
Integrated Systems Inc. ............................... 98,100 1,152,675
International Network Services ........................ 88,200 3,561,075
Intuit Inc. ........................................... 21,800 1,964,725
ISS Group Inc. ........................................ 8,000 302,000
Keane Inc. ............................................ 30,000 678,750
Legato Systems Inc. ................................... 39,200 2,263,800
Marimba Inc. .......................................... 900 47,419
Media Metrix Inc. ..................................... 13,900 740,175
Micromuse Inc. ........................................ 57,000 2,842,875
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
SMALL CAP FUND RIGHTS VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
(a)TECHNOLOGY SERVICES (cont.)
MicroStrategy Inc. .................................... 19,500 $ 738,563
Mpath Interactive Inc. ................................ 2,000 44,000
Proxicom Inc. ......................................... 8,400 215,775
Sapient Corp. ......................................... 41,300 2,338,613
Serena Software Inc. .................................. 22,200 298,313
SS&C Technologies Inc. ................................ 2,800 21,350
StarMedia Network Inc. ................................ 23,500 1,506,938
Sykes Enterprises Inc. ................................ 5,300 176,888
TenFold Corp. ......................................... 3,400 107,950
Transaction Systems Architects Inc., A ................ 42,000 1,638,000
Vantive Corp. ......................................... 50,400 576,450
Verio Inc. ............................................ 56,000 3,892,000
VERITAS Software Corp. ................................ 35,000 3,322,813
Vignette Corp. ........................................ 13,800 1,035,000
Whittman-Hart Inc. .................................... 55,500 1,762,125
Wind River Systems Inc. ............................... 121,050 1,944,366
------------
61,187,758
------------
(a)TELECOMMUNICATIONS 6.1%
AT&T Canada Inc., B ................................... 7,300 467,656
Clearnet Communications Inc., A ....................... 19,300 268,994
ICG Communications Inc. ............................... 126,000 2,693,250
ITC DeltaCom Inc. ..................................... 18,500 518,000
Millicom International Cellular SA (Luxembourg) ....... 58,100 1,830,150
Pacific Gateway Exchange Inc. ......................... 54,300 1,581,488
Pinnacle Holdings Inc. ................................ 65,600 1,607,200
Primus Telecommunications Group Inc. .................. 87,800 1,970,013
Rhythms NetConnections Inc. ........................... 2,900 169,288
Rural Cellular Corp., A ............................... 109,300 2,186,000
Time Warner Telecom Inc. .............................. 11,000 319,000
VoiceStream Wireless Corp. ............................ 83,100 2,363,156
Western Wireless Corp., A ............................. 83,100 2,243,685
------------
18,217,880
------------
TRANSPORTATION 3.2%
Air Express International Corp. ....................... 60,000 1,522,500
(a)Atlantic Coast Airlines Holdings Inc. ................. 121,000 2,299,000
C.H. Robinson Worldwide Inc. .......................... 72,600 2,668,050
Expeditors International of Washington Inc. ........... 109,600 2,986,600
(a)Mesaba Holdings Inc. .................................. 12,900 164,475
------------
9,640,625
------------
TOTAL LONG TERM INVESTMENTS (COST $246,346,501) ....... 290,107,691
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
SMALL CAP FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(f)REPURCHASE AGREEMENT 6.1%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $18,108,725) (COST $18,106,327) ... $ 18,106,327 $ 18,106,327
Barclays Capital Inc. (Maturity Value $2,284,235)
Bear, Stearns & Co. Inc. (Maturity Value $2,015,138)
Chase Securities Inc. (Maturity Value $373,040)
CIBC Oppenheimer Corp. (Maturity Value $2,284,235)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $1,612,401)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $1,612,401)
Goldman, Sachs & Co. (Maturity Value $805,837)
NationsBanc Montgomery Securities LLC (Maturity Value $1,612,401)
Paine Webber Inc. (Maturity Value $1,612,401)
Paribas Corp. (Maturity Value $1,612,401)
Warburg Dillon Read LLC (Maturity Value $2,284,235)
Collateralized by U.S. Treasury Bills & Notes
-------------
TOTAL INVESTMENTS (COST $264,452,828) 103.0% ................................................... 308,214,018
OTHER ASSETS, LESS LIABILITIES (3.0%) .......................................................... (8,958,782)
-------------
NET ASSETS 100.0% .............................................................................. $ 299,255,236
=============
</TABLE>
(a)Non-income producing.
(f)See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
WARRANTS
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY & RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS 98.6%
ARGENTINA 4.3%
(a)Atanor Cia Nacional Para la Industria Quimica SA, D ........ Chemicals 152,050 $ 74,512
Banco de Galicia y Buenos Aires SA de CV, B ................ Banking 59,765 306,625
(a)Buenos Aires Embotelladora SA, B, ADR ...................... Beverages & Tobacco 56,200 3,541
(a)Capex SA, A ................................................ Utilities Electrical & Gas 48,735 284,153
(a)Molinos Rio de la Plata SA, B .............................. Food & Household Products 923,413 1,551,489
Perez Companc SA, B ........................................ Energy Sources 295,695 1,700,416
Quilmes Industrial SA, ADR ................................. Beverages & Tobacco 144,600 1,789,427
(a)Sociedad Comercial del Plata Cadelplata Come ............... Multi-Industry 1,140,960 438,172
Telecom Argentina Stet-France SA, ADR ...................... Telecommunications 34,200 914,850
Telefonica De Argentina SA, ADR ............................ Telecommunications 34,610 1,085,889
-----------
8,149,074
-----------
AUSTRIA 1.0%
Austria Tabak AG ........................................... Beverages & Tobacco 7,000 407,858
Bank Austria AG ............................................ Banking 19,810 1,041,879
OMV AG ..................................................... Energy Sources 5,300 472,720
-----------
1,922,457
-----------
BRAZIL 10.0%
Aracruz Celulose SA, ADR ................................... Forest Products & Paper 119,000 2,618,000
Banco Bradesco SA .......................................... Banking 59,329,083 236,978
Banco Bradesco SA, pfd ..................................... Banking 40,276,150 206,839
Banco do Brasil SA ......................................... Banking 75,902,976 303,178
Brasmotor SA, pfd .......................................... Multi-Industry 3,246,000 259,124
Centrais Eletricas Brasileiras SA (Electrobras) ............ Utilities Electrical & Gas 45,251,000 862,416
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd .... Utilities Electrical & Gas 183,925,000 3,746,718
Centrais Geradoras Do Sul Do Brasil SA, B, pfd ............. Utilities Electrical & Gas 209,667,000 169,887
Cia Cervejaria Brahma, pfd ................................. Beverages & Tobacco 473,000 269,630
Cia Energetica de Minas Gerais Cemig, Br., pfd ............. Utilities Electrical & Gas 40,185,000 848,643
(a)Cia Mesbla SA, pfd ......................................... Merchandising 7,400,000 31,838
Cia Vale do Rio Doce, A, pfd ............................... Metals & Mining 50,900 1,010,739
Copene-Petroquimica do Nordeste SA, A, pfd ................. Chemicals 2,864,700 449,525
Duratex SA, pfd. ........................................... Forest Products & Paper 52,566,800 1,409,780
Embratel Participacoes SA, pfd ............................. Telecommunications 15,877,000 222,867
Investimentos Itau SA ...................................... Multi-Industry 89,527 47,876
(a)Investimentos Itau SA, pfd ................................. Multi-Industry 2,200,200 1,180,136
(a)Mannesmann SA .............................................. Machinery & Engineering 2,048,500 151,607
(a)Mannesmann SA, pfd ......................................... Machinery & Engineering 307,200 23,226
Tele Celular Sul Participacoes SA, pfd. .................... Telecommunications 15,877,000 33,974
Tele Centro Oeste Celular Participacoes SA, pfd. ........... Telecommunications 2,629,000 3,345
Tele Centro Sul Participacoes SA, pfd. ..................... Telecommunications 71,999,000 800,720
Tele Leste Celular Participacoes SA, pfd. .................. Telecommunications 15,877,000 9,513
Tele Nordeste Celular Participacoes SA, pfd. ............... Telecommunications 15,877,000 21,924
Tele Norte Celular Participacoes SA, pfd. .................. Telecommunications 15,877,000 9,060
Tele Norte Leste Participacoes SA, pfd. .................... Telecommunications 55,911,000 1,027,295
Tele Sudeste Celular Participacoes SA, pfd. ................ Telecommunications 109,402,000 627,383
Telemig Celular Participacoes SA, pfd. ..................... Telecommunications 15,877,000 20,203
Telesp Celular Participacoes SA, pfd. ...................... Telecommunications 15,877,000 168,509
Telesp Participacoes SA, ADR ............................... Telecommunications 47,500 1,086,563
Telesp Participacoes SA, pfd. .............................. Telecommunications 15,877,000 375,975
Unibanco Uniao de Bamncos Brasileiros SA ................... Banking 15,439,000 704,776
-----------
18,938,247
-----------
CHILE 2.8%
Cia Cervecerias Unidas SA, ADR ............................. Beverages & Tobacco 15,000 429,375
Compania de Telecomunicaciones de Chile SA, ADR ............ Telecommunications 105,300 2,606,175
Empresa Nacional de Electricidad SA, ADR ................... Electrical & Electronics 103,142 1,250,597
Enersis SA, ADR ............................................ Utilities Electrical & Gas 26,642 609,436
Quinenco SA, ADR ........................................... Multi-Industry 47,900 449,063
-----------
5,344,646
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY & RIGHTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
CHINA 1.6%
China Vanke Co. Ltd., B .................................... Real Estate 2,857,867 $ 1,919,033
Shandong Huaneng Power Development Co. Ltd., ADR ........... Utilities Electrical & Gas 96,500 500,594
(a)Shanghai Dazhong Taxi Shareholding Co. Ltd., B ............. Transportation 455,300 309,604
Shanghai Petrochemical Co. Ltd., H ......................... Chemicals 1,060,500 250,129
------------
2,979,360
------------
COLOMBIA .7%
Bavaria SA ................................................. Beverages & Tobacco 202,807 753,258
Cementos Argos SA .......................................... Building Materials & Components 255,000 662,105
------------
1,415,363
------------
(a)CZECH REPUBLIC 2.1%
CEZ AS ..................................................... Utilities Electrical & Gas 1,408,880 2,899,671
SPT Telecom AS ............................................. Telecommunications 66,310 1,076,554
------------
3,976,225
------------
GHANA .1%
Ashanti Goldfields Co. Ltd., GDR ........................... Metals & Mining 21,164 146,825
------------
HONG KONG 6.4%
Cheung Kong Holdings Ltd. .................................. Multi-Industry 276,000 2,454,487
Citic Pacific Ltd. ......................................... Multi-Industry 458,000 1,460,977
Dairy Farm International Holdings Ltd. ..................... Merchandising 237,772 285,326
Hang Lung Development Co. Ltd. ............................. Real Estate 980,000 1,212,551
Hong Kong & Shanghai Hotels Ltd. ........................... Leisure & Tourism 568,000 483,164
Hong Kong Electric Holdings Ltd. ........................... Utilities Electrical & Gas 168,682 543,515
Hong Kong Land Holdings Ltd. ............................... Real Estate 5,000 8,100
HSBC Holdings PLC .......................................... Banking 41,078 1,498,299
Jardine Matheson Holdings Ltd. ............................. Multi-Industry 240,815 1,204,075
New World Development Co. Ltd. ............................. Real Estate 827,632 2,480,064
Sun Hung Kai Properties Ltd. ............................... Real Estate 54,739 499,144
------------
12,129,702
------------
HUNGARY 1.2%
Borsodchem RT .............................................. Chemicals 29,330 711,600
Gedeon Richter Ltd. ........................................ Health & Personal Care 10,180 442,966
Matav RT ................................................... Telecommunications 13,800 74,625
Mol Magyar Olay-Es Gazipari RT ............................. Energy Sources 21,800 525,442
Tiszai Vegyi Kombinat RT ................................... Chemicals 44,001 460,239
------------
2,214,872
------------
INDIA .8%
Bajaj Auto Ltd. ............................................ Automobiles 25 312
(a)Bank of Baroda ............................................. Banking 100 151
Hindustan Petroleum Corporation Ltd. ....................... Energy Sources 35,600 204,021
Indian Aluminium Co Ltd .................................... Metals & Mining 45,000 63,565
Indian Petrochemicals Corp. Ltd. ........................... Chemicals 100 237
Larsen and Toubro Ltd. ..................................... Multi-Industry 120,924 798,978
*National Aluminum Co Ltd., 14.50%, 3/08/05 ................. Metals & Mining 3,085,500 INR 75,167
Reliance Industries Ltd. ................................... Chemicals 87,500 356,568
Tata Iron & Steel Co., Ltd. ................................ Metals & Mining 100 323
------------
1,499,322
------------
INDONESIA 4.9%
(a)Asia Pulp & Paper Co. Ltd., ADR ............................ Forest Products & Paper 82,900 797,913
(a)Asia Pulp & Paper Co. Ltd., wts., 7/27/00 .................. Forest Products & Paper 18,340 48,143
PT Gudang Garamm ........................................... Beverages & Tobacco 226,000 613,827
(a)PT Indah Kiat Pulp & Paper Corp. ........................... Forest Products & Paper 3,938,000 1,830,298
(a)PT Indocement Tunggal Prakarsa ............................. Building Materials & Components 1,408,500 721,127
(a)PT Indofoods Sukses Makmurr ................................ Food & Household Products 594,020 811,008
PT Indosat ................................................. Telecommunications 197,000 377,691
PT Semen Gresik (Persero) .................................. Building Materials & Components 338,617 737,728
PT Tambang Timah ........................................... Metals & Mining 1,002,000 873,203
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY & RIGHTS VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
INDONESIA (CONT.)
PT Telekomunikasi Indonesia (Persero), B ................... Telecommunications 3,348,260 $ 1,945,249
(a)PT Tjiwi Kimia ............................................. Forest Products & Paper 1,520,926 585,396
-----------
9,341,583
-----------
ISRAEL .3%
(a)Formula Systems (1985) Ltd. ................................ Data Processing & Reproduction 9,780 296,868
Koor Industries Ltd. ....................................... Multi-Industry 2,686 309,692
-----------
606,560
-----------
MALAYSIA 4.1%
Boustead Holdings Bhd ...................................... Food & Household Products 384,000 349,642
Federal Flour Mills Bhd .................................... Food & Household Products 99,000 93,789
Genting Bhd ................................................ Leisure & Tourism 326,400 1,245,474
Golden Hope Plantations Bhd ................................ Misc Materials & Commodities 37,000 31,742
Hong Leong Industries Bhd .................................. Multi-Industry 336,200 396,362
Island & Peninsula Bhd ..................................... Real Estate 454,000 444,442
Kian Joo Can Factory Bhd ................................... Industrial Components 59,000 107,132
(a)Leader Universal Holdings Bhd .............................. Industrial Components 982,000 410,889
Malaysian Airlines System Bhd .............................. Transportation 197,000 269,579
Malaysian International Shipping Corp., fgn ................ Transportation 207,666 379,810
Oriental Holdings Bhd ...................................... Automobiles 45,000 123,158
Perlis Plantations Bhd ..................................... Multi-Industry 374,500 437,574
Perusahaan Otomobil Nasional Bhd ........................... Automobiles 214,000 495,579
Public Bank Bhd ............................................ Banking 149,000 113,318
Public Bank Bhd., fgn ...................................... Banking 20,000 20,947
Resorts World Bhd .......................................... Leisure & Tourism 789,000 1,858,303
Shangri La Hotels (Malaysia) Bhd ........................... Leisure & Tourism 886,000 324,089
Tanjong PLC ................................................ Recreation & Other Consumer Goods 214,000 532,184
Technology Resources Industries Bhd ........................ Multi-Industry 104,000 84,842
-----------
7,718,855
-----------
MEXICO 13.6%
Cemex SA ................................................... Building Materials & Components 54,810 271,855
Cemex SA, B ................................................ Building Materials & Components 1,454,500 7,253,086
(a)Cifra SA de CV, V .......................................... Merchandising 209,000 419,562
(a)Coca Cola Femsa SA de CV, L, ADR ........................... Beverages & Tobacco 45,000 871,875
DESC SA de CV DESC, B ...................................... Multi-Industry 460,170 506,113
Fomento Economico Mexicano SA de CV Fems ................... Beverages & Tobacco 5,000 199,375
(a)Grupo Financiero Banamex Accival SA de CV .................. Banking 1,250,885 3,205,685
Panamerican Beverages Inc., A .............................. Food & Household Products 2,900 69,056
Telefonos de Mexico SA (Telmex), ADR ....................... Telecommunications 144,800 11,701,650
Vitro SA de CV, A .......................................... Food & Household Products 718,349 1,239,564
-----------
25,737,821
-----------
PAKISTAN .5%
Pakistan Telecommunications Corp., A ....................... Telecommunications 2,222,000 854,781
-----------
PERU .9%
Telefonica del Peru SA, ADR ................................ Telecommunications 109,500 1,656,188
-----------
PHILIPPINES 1.5%
Petron Corp. ............................................... Energy Sources 3,695,000 393,292
Philippine Long Distance Telephone Co., ADR ................ Telecommunications 71,700 2,159,963
San Miguel Corp., B ........................................ Food & Household Products 132,700 289,464
(a)Southeast Asia Cement Holdings Inc. ........................ Building Materials & Components 1,772,577 25,622
-----------
2,868,341
-----------
POLAND .5%
Bank Slaski SA W Katowicach ................................ Banking 700 34,255
Telekomunikacja Polska SA .................................. Telecommunications 40,416 283,278
Warta SA ................................................... Insurance 28,395 557,261
-----------
874,794
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY & RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
RUSSIA .5%
GAZ Auto Works ............................................. Automobiles 1,310 $ 46,164
Irkutskenergo .............................................. Utilities Electrical & Gas 439,500 44,741
Irkutskenergo, ADR ......................................... Utilities Electrical & Gas 7,000 35,630
Lukoil Holdings, ADR ....................................... Energy Sources 3,360 133,056
Mosenergo .................................................. Utilities Electrical & Gas 2,052,000 91,930
Mosenergo, ADR ............................................. Utilities Electrical & Gas 3,000 13,500
(a)Rostelecom ................................................. Telecommunications 2,000 3,160
(a)Rostelecom, ADR ............................................ Telecommunications 11,900 116,769
Unified Energy Systems ..................................... Utilities Electrical & Gas 610,600 53,428
Unified Energy Systems, ADR ................................ Utilities Electrical & Gas 12,000 105,900
(a)Vimpel Communications, ADR ................................. Telecommunications 10,950 253,903
-----------
898,181
-----------
SINGAPORE 9.6%
City Developments Ltd. ..................................... Real Estate 367,500 2,352,863
Cycle & Carriage Ltd. ...................................... Automobiles 45,000 259,031
First Capital Corp. Ltd. ................................... Real Estate 262,000 407,812
Fraser and Neave Ltd. ...................................... Beverages & Tobacco 445,000 1,973,421
Hai Sun Hup Group Ltd. ..................................... Transportation 1,315,000 780,117
Inchcape Motors Ltd. ....................................... Wholesale & International Trade 163,000 262,332
Jurong Shipyard Ltd. ....................................... Machinery & Engineering 224,000 1,098,620
Keppel Corp., Ltd. ......................................... Transportation 725,000 2,469,897
Natsteel Ltd. .............................................. Metals & Mining 1,008,000 1,764,370
Overseas Chinese Banking Corp. Ltd., fgn ................... Banking 198,000 1,651,454
Overseas Union Enterprise Ltd. ............................. Leisure & Tourism 173,400 549,991
Sembcorp Industries Ltd. ................................... Multi-Industry 1,119,769 1,775,845
United Industrial Corporation Ltd. ......................... Real Estate 1,371,000 926,079
United Overseas Bank Ltd., fgn ............................. Banking 284,000 1,985,081
-----------
18,256,913
-----------
SLOVAK REPUBLIC .2%
Nafta Gbely AS ............................................. Utilities Electrical & Gas 4,800 63,378
(a)Slovnaft AS ................................................ Chemicals 28,010 369,836
(a)Vychodoslovenske Zeleziarne AS ............................. Metals & Mining 8,400 34,421
-----------
467,635
-----------
SOUTH AFRICA 10.4%
Anglo American PLC ......................................... Metals & Mining 68,395 3,196,187
Barlow Ltd. ................................................ Multi-Industry 205,300 1,183,932
CG Smith Ltd. .............................................. Multi-Industry 618,600 1,778,558
De Beers/Centenary Linked Units ............................ Misc Materials & Commodities 66,740 1,599,238
Firstrand Ltd. ............................................. Insurance 79,000 90,331
Iscor Ltd. ................................................. Metals & Mining 3,395,912 1,063,597
Kersaf Investments Ltd. .................................... Leisure & Tourism 2,000 8,949
(a)Liberty International PLC .................................. Insurance 27,075 179,241
Liberty Life Association of Africa Ltd. .................... Insurance 62,070 795,097
Palabora Mining Co. Ltd. ................................... Metals & Mining 114,000 812,329
Rembrandt Group Ltd. ....................................... Multi-Industry 156,170 1,301,740
Sappi Ltd. ................................................. Forest Products & Paper 311,651 2,282,703
Sasol Ltd. ................................................. Energy Sources 378,900 2,703,065
South African Breweries PLC ................................ Beverages & Tobacco 251,244 2,181,653
Tongaat-Hulett Group Ltd. .................................. Multi-Industry 96,043 587,288
-----------
19,763,908
-----------
SOUTH KOREA 5.7%
Hana Bank .................................................. Banking 27,132 398,483
Hana Bank, GDR, Reg S ...................................... Banking 94,732 1,364,141
Korea Electric Power Corp. ................................. Utilities Electrical & Gas 83,100 3,453,227
LG Electronics Inc. ........................................ Electrical & Electronics 13,900 384,276
Pohang Iron & Steel Co. Ltd., ADR .......................... Metals & Mining 15,500 521,188
Samsung Display Devices Ltd. ............................... Electrical & Electronics 27,586 1,501,441
Samsung Electronics Co. Ltd. ............................... Electrical & Electronics 19,481 2,137,440
(a)Samsung Heavy Industries Co. Ltd. .......................... Machinery & Engineering 190,082 1,034,572
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS
TEMPLETON DEVELOPING MARKETS EQUITY FUND INDUSTRY & RIGHTS VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG TERM INVESTMENTS (CONT.)
SOUTH KOREA (CONT.)
SK Corp. ........................................................... Energy Sources 1,410 $ 40,564
Tong Yang Merchant Bank ............................................ Financial Services 118 731
------------
10,836,063
------------
THAILAND 8.5%
Advanced Info Service Public Co. Ltd., fgn ......................... Telecommunications 100,300 1,360,000
American Standard Sanitaryware Public Co. Ltd., fgn ................ Building Materials & Components 30,800 154,522
(a)Bangkok Bank Public Co. Ltd. ....................................... Banking 922,400 2,013,646
(a)Bangkok Bank Public Co. Ltd., fgn .................................. Banking 23,000 86,075
(a)Chareon Pokphand Feedmill Public Co. Ltd., fgn ..................... Food & Household Products 511,500 832,271
(a)Hana Microelectronics Co. Ltd., fgn ................................ Electrical & Electronics 160,400 482,831
Hua Thai Manufacturing Public Co. Ltd., fgn ........................ Textiles & Apparel 8,000 11,260
Industrial Finance Corp. of Thailand, fgn .......................... Financial Services 1,078,700 687,443
(a)Land and House Public Co. Ltd., fgn ................................ Real Estate 5,800 10,538
(a)Siam Cement Public Co. Ltd. ........................................ Building Materials & Components 68,100 1,277,972
(a)Siam Commercial Bank, cvt., 144A, 5.25%, fgn., pfd ................. Banking 40,000 56,949
Siam Makro Public Company Ltd., fgn ................................ Merchandising 376,000 715,802
(a)Telecomasia Corp. Public Co. Ltd., fgn ............................. Telecommunications 54,000 54,549
(a)Thai Airways International Public Co. Ltd., fgn .................... Transportation 408,700 802,437
(a)Thai Farmers Bank Public Co. Ltd. .................................. Banking 1,984,200 3,981,852
(a)Thai Farmers Bank Public Co. Ltd., fgn ............................. Banking 569,800 1,761,551
(a)Total Access Communication Public Co. Ltd. ......................... Telecommunications 419,800 1,343,360
(a)United Communications Industries, fgn .............................. Telecommunications 471,700 535,979
------------
16,169,037
------------
TURKEY 4.1%
Akbank ............................................................. Banking 332,362,112 4,882,815
Anadolu Anonim Turk Sigorta Sirketi, Br ............................ Insurance 28,898,000 126,680
(a)Arcelik AS, Br ..................................................... Appliances & Household Durables 14,110,456 501,533
(a)Erciyas Biracilik .................................................. Food & Household Products 8,638,000 198,542
(a)Eregli Demir ve Celik Fabrikalari AS ............................... Metals & Mining 57,961,000 810,317
Haci Omer Sabanci Holding AS, ADR, 144A ............................ Multi-Industry 150,100 818,045
(a)Tofas Turk Otomobil Fabrikasi AS ................................... Automobiles 17,732,561 70,380
(a)Tofas Turk Otomobil Fabrikasi AS, rts .............................. Automobiles 14,186,035 39,329
(a)Turkiye Garanti Bankasi AS ......................................... Banking 40,231,380 300,291
------------
7,747,932
------------
VENEZUELA 2.3%
Compania Anonima Nacional Telefonos de Venezuela, ADR .............. Telecommunications 54,700 1,490,575
Electricidad De Caracas Saica Saca, ADR ............................ Utilities Electrical & Gas 95,528 1,869,626
Mavesa SA, ADR ..................................................... Food & Household Products 306,300 995,475
------------
4,355,676
------------
TOTAL LONG TERM INVESTMENTS (COST $175,744,154) .................... 186,870,361
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
(d)SHORT TERM INVESTMENTS (COST $711,331) .4%
U.S. Treasury Bills, 4.59% to 4.81%, with maturities to 12/02/99 ... $ 729,000 717,422
------------
TOTAL INVESTMENTS (COST $176,455,485) 99.0% ........................ 187,587,783
OTHER ASSETS, LESS LIABILITIES 1.0% ................................ 1,802,110
------------
TOTAL NET ASSETS 100.0% ............................................ $189,389,893
============
</TABLE>
See glossary of currency abbreviations on page 136.
*Securities traded in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(d)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the fund.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 63.7%
AEROSPACE & MILITARY TECHNOLOGY 6.2%
Alvis PLC ................................... United Kingdom 140,990 $ 382,243
Boeing Co. .................................. United States 21,217 937,526
Hong Kong Aircraft Engineering Co. Ltd. ..... Hong Kong 363,200 702,166
Kaman Corp., A .............................. United States 40,300 632,206
Raytheon Co., A ............................. United States 17,615 1,213,233
Rolls-Royce PLC ............................. United Kingdom 121,085 512,935
----------
4,380,309
----------
APPLIANCES & HOUSEHOLD DURABLES .9%
Laox Co. Ltd. ............................... Japan 70,000 607,237
----------
AUTOMOBILES .3%
Delphi Automotive Systems Corp. ............. United States 1,887 35,030
General Motors Corp. ........................ United States 2,700 178,200
----------
213,230
----------
(a)BANKING 2.0%
Banca Nazionale Del Lavoro SpA .............. Italy 225,160 710,054
Bangkok Bank Public Co. Ltd., fgn ........... Thailand 193,400 723,775
----------
1,433,829
----------
BUILDING MATERIALS & COMPONENTS 1.5%
Caradon PLC ................................. United Kingdom 295,300 695,869
Gujarat Ambuja Cements Ltd. ................. India 200 1,476
Gujarat Ambuja Cements Ltd., GDR, 144A ...... India 14,600 119,720
Plettac AG .................................. Germany 5,192 263,428
----------
1,080,493
----------
BUSINESS & PUBLIC SERVICES .8%
Columbia HCA Healthcare Corp. ............... United States 13,600 310,250
(a)Humana Inc. ................................. United States 18,200 235,463
(a)Lifepoint Hospitals Inc. .................... United States 716 9,618
(a)Triad Hospitals Inc. ........................ United States 715 9,653
----------
564,984
----------
CHEMICALS 1.0%
Akzo Nobel NV ............................... Netherlands 12,105 509,316
Shanghai Petrochemical Co. Ltd., H .......... China 834,000 196,707
----------
706,023
----------
(a)DATA PROCESSING & REPRODUCTION 1.0%
3Com Corp. .................................. United States 25,400 677,863
----------
ELECTRICAL & ELECTRONICS 3.5%
General Electric Co. PLC .................... United Kingdom 101,500 1,031,927
Koninklijke Philips Electronics NV .......... Netherlands 10,396 1,025,448
Motorola Inc. ............................... United States 4,310 408,373
----------
2,465,748
----------
ENERGY EQUIPMENT & SERVICES .8%
Sunoco Inc. ................................. United States 17,500 528,281
----------
ENERGY SOURCES 1.0%
MOL Magyar Olay-Es Gazipari RT, GDS, 144A ... Hungary 12,107 289,963
(a)Rao Gazprom, Reg S, ADR ..................... Russia 14,201 160,116
Societe Elf Aquitaine SA, Br ................ France 1,805 264,877
----------
714,956
----------
FINANCIAL SERVICES 3.0%
AXA SA ...................................... France 11,271 1,375,022
ING Groep NV ................................ Netherlands 13,432 727,215
----------
2,102,237
----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOOD & HOUSEHOLD PRODUCTS .7%
Archer-Daniels Midland Co. ............................. United States 29,547 $ 456,132
----------
FOREST PRODUCTS & PAPER 1.0%
Cartiere Burgo SpA ..................................... Italy 34,500 221,615
Georgia Pacific Corp. .................................. United States 5,000 236,875
Mo Och Domsjoe AB, B ................................... Sweden 9,575 222,989
----------
681,479
----------
HEALTH & PERSONAL CARE .6%
Rhone-Poulenc SA, A .................................... France 9,870 451,005
INDUSTRIAL COMPONENTS 1.3%
Goodyear Tire & Rubber Co. ............................. United States 3,600 211,725
Madeco Manufacturera de Cobre SA, ADR .................. Chile 18,685 189,186
Weir Group PLC ......................................... United Kingdom 123,370 517,266
----------
918,177
----------
INSURANCE 10.1%
Ace Ltd. ............................................... Bermuda 25,200 711,900
Aetna Inc. ............................................. United States 7,190 643,056
AXA China Region Ltd. .................................. Hong Kong 489,000 390,754
Partnerre Ltd. ......................................... Bermuda 17,500 654,063
Reinsurance Australia Corp. Ltd. ....................... Australia 375,684 313,319
Reliastar Financial Corp. .............................. United States 18,310 801,063
SCOR SA ................................................ France 18,000 892,853
Torchmark Corp. ........................................ United States 22,400 764,400
UNUM Corp. ............................................. United States 18,530 1,014,518
Waddell & Reed Financial Inc., B ....................... United States 5,485 148,095
Zurich Allied AG ....................................... Switzerland 1,390 790,403
----------
7,124,424
----------
LEISURE & TOURISM .6%
Mandarin Oriental International Ltd. ................... Singapore 524,000 461,120
----------
MACHINERY & ENGINEERING 3.3%
Invensys PLC ........................................... United Kingdom 186,454 883,160
Makita Corp. ........................................... Japan 59,000 667,308
Mckechnie Group PLC .................................... United Kingdom 101,800 779,041
----------
2,329,509
----------
MERCHANDISING 1.4%
Best Denki Co. Ltd. .................................... Japan 24,000 190,549
David Jones Ltd. ....................................... Australia 345,909 338,857
Matsuzakaya Co. Ltd. ................................... Japan 115,000 494,052
----------
1,023,458
----------
METALS & MINING 4.0%
Anglo American Platinum Corp. Ltd. ..................... South Africa 402 9,380
Companhia Siderurgica Nacional Sid Nacional CSN ........ Brazil 16,300,000 430,171
Companhia Siderurgica Nacional Sid Nacional CSN, ADR ... Brazil 7,700 202,125
Elkem ASA, A ........................................... Norway 49,700 883,836
Industrias Penoles SA .................................. Mexico 168,200 490,321
Pohang Iron & Steel Co. Ltd. ........................... South Korea 6,690 834,046
----------
2,849,879
----------
MULTI-INDUSTRY 7.7%
Alfa SA de CV, A ....................................... Mexico 127,251 531,968
Broken Hill Proprietary Co. Ltd. ....................... Australia 75,894 879,100
Cheung Kong Holdings Ltd. .............................. Hong Kong 89,500 795,930
Elementis PLC .......................................... United Kingdom 82,194 136,683
Hunting PLC ............................................ United Kingdom 261,410 607,767
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Hutchison Whampoa Ltd. .................................... Hong Kong 79,000 $ 715,280
Pilkington PLC ............................................ United Kingdom 454,300 643,977
Saab AB, B ................................................ Sweden 54,400 422,301
Swire Pacific Ltd., B ..................................... Hong Kong 945,000 706,419
-----------
5,439,425
-----------
REAL ESTATE 2.2%
Highwoods Properties Inc. ................................. United States 16,600 455,463
Hon Kwok Land Investment Co. Ltd. ......................... Hong Kong 1,226,456 126,458
Rouse Co. ................................................. United States 13,500 342,563
Summit Properties Inc. .................................... United States 15,000 296,250
Union du Credit Bail Immobilier Unibail ................... France 2,500 319,944
-----------
1,540,678
-----------
RECREATION & OTHER CONSUMER GOODS .6%
Yue Yuen Industrial (Holdings) Ltd. ....................... Hong Kong 190,140 438,661
-----------
TELECOMMUNICATIONS 2.9%
Hong Kong Telecommunications Ltd. ......................... Hong Kong 291,700 757,555
(a)Rostelecom, ADR ........................................... Russia 25,300 248,256
Telecom Argentina Stet-France SA, ADR ..................... Argentina 4,000 107,000
Telefonica de Argentina SA, B, ADR ........................ Argentina 13,120 411,640
Telefonos de Mexico SA (Telmex), L, ADR ................... Mexico 6,709 542,171
-----------
2,066,622
-----------
TEXTILES & APPAREL .7%
(a)Fruit of the Loom Inc., A ................................. United States 12,450 121,388
Yizheng Chemical Fibre Co. Ltd., H ........................ China 1,332,000 347,642
-----------
469,030
-----------
TRANSPORTATION 2.1%
British Airways PLC ....................................... United Kingdom 71,020 490,878
Singapore Airlines Ltd., fgn .............................. Singapore 102,000 970,573
-----------
1,461,451
-----------
UTILITIES ELECTRICAL & GAS 2.5%
Hong Kong Electric Holdings Ltd. .......................... Hong Kong 130,000 418,877
Korea Electric Power Corp. ................................ South Korea 19,280 801,182
National Grid Group PLC ................................... United Kingdom 79,730 554,536
-----------
1,774,595
-----------
TOTAL COMMON STOCKS (COST $41,199,212) .................... 44,960,835
-----------
PREFERRED STOCKS 2.0%
Banco Bradesco SA, pfd .................................... Brazil 121,758,350 625,293
Cia Energetica de Minas Gerais Cemig, ADR, pfd ............ Brazil 9,178 193,825
Cia Vale do Rio Doce, A, pfd .............................. Brazil 13,400 266,088
Cia Vale do Rio Doce, A, ADR, pfd ......................... Brazil 15,100 299,846
Coteminas Cia Tecidos Norte de Minas, pfd ................. Brazil 599,000 50,586
(a)Empresa Nacional de Comercio Redito Participacoes, pfd .... Brazil 275,000 237
-----------
TOTAL PREFERRED STOCKS (COST $2,103,925) .................. 1,435,875
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
-------
<S> <C> <C> <C>
BONDS 27.7%
Buoni Poliennali del Tesoro, 10.50%, 7/15/00 .............. Italy $ 581,013 EUR 643,626
Fannie Mae, 5.25%, 1/15/09 ................................ United States 495,000 452,862
Federal Republic of Germany, 5.25%, 2/21/01 ............... Germany 613,550 EUR 653,513
Government of Australia, 10.00%, 10/15/07 ................. Australia 988,000 AUD 811,189
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL ASSET ALLOCATION FUND COUNTRY AMOUNT* VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Government of Canada, 7.00%, 12/01/06 ................................ Canada $ 470,000 CAD $ 350,244
Government of Italy:
cvt., 5.00%, 6/28/01 ............................................... Italy 640,000 1,056,000
7.75%, 11/01/06 .................................................... Italy 723,038 EUR 894,981
Government of New Zealand, 7.00%, 7/15/09 ............................ New Zealand 540,000 NZD 296,352
Hypothekenbank In Essen AG, 5.25%, 1/22/08 ........................... Germany 1,242,439 EUR 1,322,518
Kingdom of Belgium, 6.25%, 3/28/07 ................................... Belgium 677,989 EUR 775,524
Kingdom of Denmark, 7.00%, 11/15/07 .................................. Denmark 2,867,000 DKK 459,768
Protexa Construcciones SA de CV, 144A, 12.125%, 7/24/02 .............. Mexico 100,000 80,500
PT Indah Kiat Finance Mauritius Ltd., 10.00%, 7/01/07 ................ Indonesia 300,000 204,000
Republic of Argentina, Reg S, 11.75%, 2/12/07 ........................ Argentina 100,000 ARS 80,383
Republic of Ecuador:
Reg S, 11.25%, 4/25/02 ............................................. Ecuador 450,000 280,125
144A, 11.25%, 4/25/02 .............................................. Ecuador 275,000 171,188
Republic of Turkey, 12.375%, 6/15/09 ................................. Turkey 35,000 34,738
Republic of Venezuela:
144A, 9.125%, 6/18/07 .............................................. Venezuela 100,000 76,000
Reg S, 9.125%, 6/18/07 ............................................. Venezuela 600,000 456,000
SEI Holdings IX Inc., 144A, 11.00%, 11/30/00 ......................... Trinidad and Tobago 170,000 176,800
Kingdom of Sweden, 6.0%, 2/09/05 ..................................... Sweden 5,500,000 SEK 688,212
U.S. Treasury Notes:
8.50%, 2/15/00 ..................................................... United States 880,000 898,150
6.25%, 8/31/00 ..................................................... United States 1,010,000 1,019,469
4.50%, 1/31/01 ..................................................... United States 2,000,000 1,970,626
7.25%, 8/15/04 ..................................................... United States 576,000 612,000
5.25%, 11/15/28 .................................................... United States 2,000,000 1,770,626
United Kingdom:
6.50%, 12/07/03 .................................................... United Kingdom 880,000 GBP 1,476,284
7.50%, 12/07/06 .................................................... United Kingdom 280,000 GBP 497,620
United Mexican States:
9.75%, 2/06/01 ..................................................... Mexico 620,000 646,195
11.375%, 9/15/16 ................................................... Mexico 430,000 462,465
11.50%, 5/15/26 .................................................... Mexico 220,000 245,843
-----------
TOTAL BONDS (COST $20,689,242) ....................................... 19,563,801
-----------
TOTAL LONG TERM INVESTMENTS (63,992,379) ............................. 65,960,511
-----------
(g)REPURCHASE AGREEMENTS 6.0%
CIBC Oppenheimer Corp., 4.80%, 7/01/99 (Maturity Value $2,100,280)
Collateralized by U.S. Treasury Notes & Bonds ...................... United States 2,100,000 2,100,000
Deutsche Bank AG, 4.75%, 7/01/99 (Maturity Value $2,120,280)
Collateralized by U.S. Treasury Notes & Bonds ...................... United States 2,120,000 2,120,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $4,220,000) ........................ 4,220,000
-----------
TOTAL INVESTMENTS (COST $68,212,379) 99.4% ........................... 70,180,511
NET EQUITY IN FORWARD CONTRACTS ...................................... 5,130
OTHER ASSETS, LESS LIABILITIES .6% ................................... 410,604
-----------
TOTAL NET ASSETS 100.0% .............................................. $70,596,245
===========
</TABLE>
See glossary of currency abbreviations on page 136.
*Securities traded in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(g)See Note 1(c) regarding repurchase agreements.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 90.8%
AEROSPACE & MILITARY TECHNOLOGY 3.7%
Boeing Co. ........................................... United States 210,769 $ 9,313,355
(a) Fairchild Corp., A ................................... United States 204,957 2,613,202
Raytheon Co., A ...................................... United States 222,644 15,334,606
------------
27,261,163
------------
APPLIANCES & HOUSEHOLD DURABLES .9%
Laox Co. Ltd. ........................................ Japan 725,000 6,289,243
------------
AUTOMOBILES 4.4%
Autoliv Inc., SDR .................................... Sweden 246,100 7,497,048
Delphi Automotive Systems Corp. ...................... United States 41,935 778,418
Fiat SpA ............................................. Italy 1,919,720 6,101,451
Ford Motor Co. ....................................... United States 90,000 5,079,375
General Motors Corp. ................................. United States 60,000 3,960,000
Volkswagen AG ........................................ Germany 63,000 4,065,082
Volvo AB, B .......................................... Sweden 171,900 4,983,927
------------
32,465,301
------------
BANKING 2.9%
HSBC Holdings PLC .................................... Hong Kong 223,724 8,160,216
Kookmin Bank GDR, 144A ............................... South Korea 293,927 5,981,414
Merita AS ............................................ Finland 320,600 1,821,704
Shinhan Bank Co. Ltd. ................................ South Korea 169,682 1,905,711
Unibanco Uniao de Bancos Brasileiros SA, GDR ......... Brazil 149,000 3,585,313
------------
21,454,358
------------
BUILDING MATERIALS & COMPONENTS 2.8%
Caradon PLC .......................................... United Kingdom 2,752,600 6,486,455
Nichiha Corp. ........................................ Japan 193,500 2,047,864
Okumura Corp. ........................................ Japan 2,093,000 7,781,312
(a) Siam City Cement Public Co. Ltd., fgn ................ Thailand 1,057,641 4,359,632
------------
20,675,263
------------
(a) BUSINESS & PUBLIC SERVICES .5%
Complete Business Solutions Inc. ..................... United States 23,600 423,325
Humana Inc. .......................................... United States 250,000 3,234,375
------------
3,657,700
------------
CHEMICALS 1.1%
BASF AG .............................................. Germany 70,900 3,114,716
Kemira OY ............................................ Finland 847,900 5,123,950
------------
8,238,666
------------
(a) DATA PROCESSING & REPRODUCTION 1.1%
3Com Corp. ........................................... United States 220,600 5,887,263
Newbridge Networks Corp. ............................. Canada 74,000 2,127,500
------------
8,014,763
------------
ELECTRICAL & ELECTRONICS 4.7%
(a) ABB Ltd. ............................................. Sweden 55,976 5,234,150
Catic Shenzhen Holdings Ltd., H ...................... China 9,945,000 1,358,668
Dongfang Electrical Machinery Co. Ltd., H ............ China 5,506,000 702,545
General Electric Co. PLC ............................. United Kingdom 1,160,300 11,796,499
Hitachi Ltd. ......................................... Japan 603,500 5,659,059
Motorola Inc. ........................................ United States 100,000 9,475,000
------------
34,225,921
------------
ELECTRONIC COMPONENTS & INSTRUMENTS .5%
BICC PLC ............................................. United Kingdom 1,397,152 1,993,037
(a) Nanjing Panda Electronics Co. Ltd., H ................ China 17,794,000 1,720,036
------------
3,713,073
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
ENERGY SOURCES 4.0%
MOL Magyar Olay-Es Gazipari RT, GDS, 144A ............ Hungary 256,358 $ 6,139,774
Norsk Hydro ASA ...................................... Norway 117,000 4,413,973
(a) Ranger Oil Ltd. ...................................... Canada 273,050 1,333,999
(a) Renaissance Energy Ltd. .............................. Canada 254,800 3,447,243
Shell Transport & Trading Co. PLC .................... United Kingdom 608,900 4,561,327
Societe Elf Aquitaine SA, Br ......................... France 67,072 9,842,576
------------
29,738,892
------------
FINANCIAL SERVICES 4.3%
AXA SA ............................................... France 92,702 11,309,319
ICICI Ltd., GDR, 144A ................................ India 396,700 4,086,010
ING Groep NV ......................................... Netherlands 105,188 5,694,926
Morgan Stanley, Dean Witter & Co. .................... United States 103,100 10,567,750
------------
31,658,005
------------
FOOD & HOUSEHOLD PRODUCTS 3.1%
Archer-Daniels Midland Co. ........................... United States 625,065 9,649,441
IBP Inc. ............................................. United States 272,543 6,472,896
Northern Foods PLC ................................... United Kingdom 2,208,797 4,543,489
Showa Sangyo Co. ..................................... Japan 958,000 1,994,514
------------
22,660,340
------------
FOREST PRODUCTS & PAPER 2.3%
Assidoman AB ......................................... Sweden 249,730 3,759,756
Carter Holt Harvey Ltd. .............................. New Zealand 940,712 1,126,571
Georgia Pacific Corp. ................................ United States 68,000 3,221,500
Georgia Pacific Timber Group ......................... United States 34,000 858,500
Metsa Serla OY, B .................................... Finland 270,000 2,294,318
Stora Enso OYJ, R .................................... Finland 559,700 6,002,764
------------
17,263,409
------------
HEALTH & PERSONAL CARE 2.1%
Medeva PLC ........................................... United Kingdom 1,614,200 2,646,146
Pharmacia & Upjohn Inc. .............................. United States 218,900 12,436,256
------------
15,082,402
------------
INSURANCE 5.0%
Ace Ltd. ............................................. Bermuda 121,500 3,432,375
HIH Insurance Ltd. ................................... Australia 2,244,429 2,778,053
Partnerre Ltd. ....................................... Bermuda 127,900 4,780,263
Reliastar Financial Corp. ............................ United States 48,000 2,100,000
Torchmark Corp. ...................................... United States 240,000 8,190,000
UNUM Corp. ........................................... United States 81,100 4,440,225
Zurich Allied AG ..................................... Switzerland 19,500 11,088,383
------------
36,809,299
------------
MACHINERY & ENGINEERING 5.7%
First Tractor Company Ltd., H ........................ China 6,860,000 2,033,549
Invensys PLC ......................................... United Kingdom 2,244,442 10,631,046
KCI Konecranes International PLC ..................... Finland 211,700 7,272,071
Laird Group PLC ...................................... United Kingdom 1,783,700 7,422,477
Makita Corp. ......................................... Japan 653,000 7,385,633
VA Technologie AG, Br ................................ Austria 25,900 2,346,411
Valmet OY ............................................ Finland 392,800 4,455,811
------------
41,546,998
------------
MERCHANDISING 4.1%
Coles Myer Ltd. ...................................... Australia 1,070,971 6,231,027
Hudson's Bay Co. ..................................... Canada 67,100 756,508
Marks & Spencer PLC .................................. United Kingdom 1,516,900 8,751,070
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
MERCHANDISING (CONT.)
Matsuzakaya Co. Ltd. ................................. Japan 51,000 $ 219,101
Safeway PLC .......................................... United Kingdom 1,738,498 6,953,499
Sears Roebuck & Co. .................................. United States 155,900 6,947,294
-----------
29,858,499
-----------
METALS & MINING 7.7%
Anglo American Platinum Corp. Ltd. ................... South Africa 377,265 8,802,537
Boehler-Uddeholm AG .................................. Austria 93,200 4,612,424
Companhia Siderurgica Nacional Sid Nacional CSN ...... Brazil 129,100,000 3,407,061
Iluka Resources Ltd. ................................. Australia 704,562 1,523,100
Industrias Penoles SA ................................ Mexico 1,104,000 3,218,281
Iscor Ltd. ........................................... South Africa 9,558,700 2,993,776
Outokumpu OY, A ...................................... Finland 342,200 3,846,530
Pechiney SA, A ....................................... France 84,279 3,622,511
Pechiney SA, ADR ..................................... France 112,708 2,409,134
Pohang Iron & Steel Co. Ltd. ......................... South Korea 100,000 12,467,059
WMC Ltd. ............................................. Australia 2,150,656 9,238,653
-----------
56,141,066
-----------
MULTI-INDUSTRY 5.8%
Beijing Datang Power Generation Co. Ltd., H .......... China 6,860,000 2,210,379
Broken Hill Proprietary Co. Ltd. ..................... Australia 867,854 10,052,585
Cheung Kong Holdings Ltd. ............................ Hong Kong 1,180,000 10,493,823
Hutchison Whampoa Ltd. ............................... Hong Kong 642,600 5,818,214
La Cemento Nacional CA, GDR, 144A .................... Ecuador 3,600 259,200
La Cemento Nacional SA, GDR, Reg S ................... Ecuador 400 28,800
Pacific Dunlop Ltd. .................................. Australia 2,149,000 3,100,887
Saab AB, B ........................................... Sweden 296,997 2,305,552
Saha Union Public Co. Ltd., fgn ...................... Thailand 574,400 257,020
Swire Pacific Ltd., A ................................ Hong Kong 1,421,800 7,036,754
Swire Pacific Ltd., B ................................ Hong Kong 1,304,000 974,784
-----------
42,537,998
-----------
REAL ESTATE 3.0%
China Resources Beijing Land Ltd. .................... China 4,652,000 1,067,241
General Growth Properties ............................ United States 164,500 5,839,750
Hang Lung Development Co. Ltd. ....................... Hong Kong 3,624,000 4,483,963
Highwoods Properties Inc. ............................ United States 164,900 4,524,444
Inversiones y Representacion SA ...................... Argentina 1,156,326 3,561,840
Inversiones y Representacion SA, GDR ................. Argentina 2,374 73,283
National Health Investors Inc. ....................... United States 123,400 2,815,063
-----------
22,365,584
-----------
(a) RECREATION & OTHER CONSUMER GOODS .1%
Fila Holding SpA, ADR ................................ Italy 60,600 715,838
-----------
TELECOMMUNICATIONS 6.3%
AT&T Corp. ........................................... United States 90,450 5,048,241
Embratel Participacoes SA ............................ Brazil 27,300,000 205,626
(a) General Motors Corp., H .............................. United States 66,000 3,712,500
Hong Kong Telecommunications Ltd. .................... Hong Kong 2,905,746 7,546,322
Nortel Networks Corp. ................................ Canada 138,000 11,980,125
Telecom Argentina Stet-France SA, ADR ................ Argentina 100,000 2,675,000
Telefonica De Argentina SA, ADR ...................... Argentina 217,000 6,808,375
Telefonos de Mexico SA (Telmex), ADR ................. Mexico 92,900 7,507,481
Telesp Participacoes SA .............................. Brazil 44,600,000 579,991
-----------
46,063,661
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
TEXTILES & APPAREL .9%
Courtaulds Textiles PLC .............................. United Kingdom 734,300 $ 1,909,768
(a) Fruit of the Loom Inc., A ............................ United States 136,500 1,330,875
Yizheng Chemical Fibre Co. Ltd., H ................... China 13,356,000 3,485,813
-----------
6,726,456
-----------
TRANSPORTATION 3.9%
British Airways PLC .................................. United Kingdom 1,205,032 8,328,970
Koninklijke Frans Maas Groep NV ...................... Netherlands 160,970 4,813,994
Koninklijke Nedlloyd Groep NV ........................ Netherlands 260,670 6,451,562
Singapore Airlines Ltd., fgn ......................... Singapore 944,600 8,988,264
-----------
28,582,790
-----------
UTILITIES ELECTRICAL & GAS 9.9%
Bses Ltd., GDR, 144A ................................. India 202,200 2,027,055
Electrabel SA ........................................ Belgium 23,500 7,585,336
Entergy Corp. ........................................ United States 283,900 8,871,875
Evn AG ............................................... Austria 35,400 5,176,570
Hong Kong Electric Holdings Ltd. ..................... Hong Kong 2,944,000 9,485,942
Iberdrola SA, Br ..................................... Spain 744,700 11,342,909
Korea Electric Power Corp. ........................... South Korea 186,600 7,754,177
National Grid Group PLC .............................. United Kingdom 1,075,100 7,477,505
National Power PLC ................................... United Kingdom 747,800 5,430,927
Transportadora de Gas del Sur SA, ADR ................ Argentina 386,900 3,627,188
Veba AG .............................................. Germany 67,000 3,952,150
-----------
72,731,634
-----------
TOTAL COMMON STOCKS (COST $564,389,255) .............. 666,478,322
-----------
PREFERRED STOCKS 2.7%
Banco Bradesco SA, pfd ............................... Brazil 451,500,022 2,318,688
Centrais Eletricas Brasileiras SA (Electrobras), ADR, pfd. Brazil 176,400 1,796,713
Centrais Geradoras Do Sul Do Brasil SA, ADR, pfd ..... Brazil 17,640 71,466
Coteminas Cia Tecidos Norte de Minas, pfd ............ Brazil 1,952,000 164,848
Embratel Participacoes SA, ADR, pfd .................. Brazil 98,400 1,365,300
(a) Empresa Nacional de Comercio Redito Participacoes, pfd. Brazil 1,952,000 1,682
News Corp. Ltd., pfd ................................. Australia 903,781 6,885,438
Tele Celular Sul Participacoes SA, ADR, pfd .......... Brazil 9,840 213,405
Tele Centro Oeste Celular Participacoes SA, ADR, pfd . Brazil 32,799 129,146
Tele Centro Sul Participacoes SA, ADR, pfd ........... Brazil 19,680 1,092,240
Tele Leste Celular Participacoes SA, ADR, pfd ........ Brazil 1,968 58,548
Tele Nordeste Celular Participacoes SA, ADR, pfd ..... Brazil 4,920 132,840
Tele Norte Celular Participacoes SA, ADR, pfd ........ Brazil 1,968 53,259
Tele Norte Leste Participacoes SA, ADR, pfd .......... Brazil 98,400 1,826,550
Tele Sudeste Celular Participacoes SA, ADR, pfd ...... Brazil 19,680 570,720
(a) Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd . Brazil 98,400 6,150
Telemig Celular Participacoes SA, ADR, pfd ........... Brazil 4,920 121,155
Telesp Celular Participacoes SA, ADR, pfd ............ Brazil 39,360 1,052,880
Telesp Participacoes SA, ADR, pfd .................... Brazil 98,400 2,250,900
-----------
TOTAL PREFERRED STOCKS (COST $22,367,260) ............ 20,111,928
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL GROWTH FUND COUNTRY AMOUNT* VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
BONDS 1.8%
<S> <C> <C> <C>
Alfa SA de CV:
cvt., 8.00%, 9/15/00 ................................................. Mexico $ 1,650,000 $ 1,683,000
cvt., 144A, 8.00%, 9/15/00 ........................................... Mexico 2,710,000 2,764,200
Government of Italy, cvt., 5.00%, 6/28/01 ............................... Italy 4,950,000 8,167,500
RGC Ltd, zero cpn., 12/31/00 ............................................ Australia 1,074,643 AUD 284,523
------------
TOTAL BONDS (COST $12,833,850) .......................................... 12,899,223
------------
(d) SHORT TERM INVESTMENT (COST $1,397,176) .2%
U.S. Treasury Bill, 4.41%, 8/26/99 ...................................... United States 1,407,000 1,397,716
------------
TOTAL LONG TERM INVESTMENTS (COST $600,987,541) ......................... 700,887,189
------------
(g) REPURCHASE AGREEMENTS 5.6%
Barclays Bank PLC, 4.75%, 7/01/99 (Maturity Value $21,330,814)
Collateralized by U.S. Treasury Notes & Bonds ........................ United States 21,328,000 21,328,000
Deutsche Bank,AG, 4.75%, 7/01/99 (Maturity Value $20,002,639)
Collateralized by U.S. Treasury Notes & Bonds ........................ United States 20,000,000 20,000,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $41,328,000) .......................... 41,328,000
------------
TOTAL INVESTMENTS (COST $642,315,541) 101.1% ............................ 742,215,189
OTHER ASSETS, LESS LIABILITIES (1.1%) ................................... (8,570,369)
------------
TOTAL NET ASSETS 100.0% ................................................. $733,644,820
============
</TABLE>
See glossary of currency abbreviations on page 136.
(*) Securities traded in U.S. dollars unless otherwise indicated.
(a) Non-income producing.
(g) See Note 1(c) regarding repurchase agreements.
(d) Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 99.3%
<S> <C> <C>
ARGENTINA 1.5%
Republic of Argentina, 10.95%, 11/01/99 .......................................... $ 1,645,000 $ 1,661,450
------------
AUSTRALIA 5.2%
Government of Australia, 10.00%, 10/15/07 ........................................ 7,220,000 AUD 5,927,922
------------
BELGIUM 5.3%
Kingdom of Belgium, 6.25%, 3/28/07 ............................................... 5,291,039 EUR 6,052,203
------------
BRAZIL .9%
Republic of Brazil, FRN, 5.938%, 4/15/09 ......................................... 1,510,000 1,041,900
------------
BULGARIA 1.8%
Republic of Bulgaria, Series A, FRN, 5.875%, 7/28/24 ............................. 2,970,000 2,030,738
------------
CANADA 1.5%
Government of Canada, 7.00%, 12/01/06 ............................................ 2,345,000 CAD 1,747,494
------------
DENMARK 2.1%
Kingdom of Denmark, 7.00%, 11/15/07 .............................................. 14,838,000 DKK 2,379,506
------------
ECUADOR 1.4%
Republic of Ecuador, FRN, 6.00%, 2/28/25 ......................................... 3,500,000 1,638,455
------------
GERMANY 13.5%
Federal Republic of Germany, 5.25%, 2/21/01 ...................................... 9,129,117 EUR 9,723,728
Hypothekenbank In Essen AG, 5.25%, 1/22/08 ....................................... 5,279,089 EUR 5,619,341
------------
15,343,069
------------
ITALY 5.8%
Buoni Poliennali del Tesoro, 10.50%, 7/15/00 ..................................... 2,272,406 EUR 2,517,293
Government of Italy, 7.75%, 11/01/06 ............................................. 3,305,318 EUR 4,091,341
------------
6,608,634
------------
MEXICO 8.1%
United Mexican States:
9.75%, 4/06/05 ................................................................. 6,000,000 6,097,500
9.875%, 1/15/07 ................................................................ 1,700,000 1,721,250
11.50%, 5/15/26 ................................................................ 1,230,000 1,374,525
------------
9,193,275
------------
NEW ZEALAND 2.4%
Government of New Zealand, 7.00%, 7/15/09 ........................................ 5,050,000 NZD 2,771,439
------------
PERU .7%
Republic of Peru, FRN, 4.50%, 3/07/17 ............................................ 1,300,000 801,944
------------
SWEDEN 3.2%
Kingdom of Sweden, 6.00%, 2/09/05 ................................................ 28,700,000 SEK 3,591,213
------------
TURKEY .5%
Republic of Turkey, 12.375%, 6/15/09 ............................................. 535,000 530,988
------------
UNITED KINGDOM 10.3%
United Kingdom:
6.50%, 12/07/03 ................................................................ 5,400,000 GBP 9,059,015
7.50%, 12/07/06 ................................................................ 1,500,000 GBP 2,665,821
------------
11,724,836
------------
UNITED STATES 33.8%
U.S. Treasury Notes:
4.50%, 1/31/01 ................................................................. 11,000,000 10,838,443
7.25%, 8/15/04 ................................................................. 5,519,000 5,863,938
5.25%, 11/15/28 ................................................................ 24,500,000 21,690,167
------------
38,392,548
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON GLOBAL INCOME SECURITIES FUND AMOUNT* VALUE
- --------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONT.)
<S> <C> <C>
VENEZUELA 1.3%
Republic of Venezuela, 144A, 9.125%, 6/18/07 ..................................... $ 1,940,000 $ 1,474,400
------------
TOTAL LONG TERM INVESTMENTS (COST $120,116,180) .................................. 112,912,014
NET EQUITY IN FORWARD CONTRACTS .................................................. 31,411
OTHER ASSETS, LESS LIABILITIES .7% ............................................... 747,904
------------
TOTAL NET ASSETS 100.0% .......................................................... $113,691,329
============
</TABLE>
See glossary of currency abbreviations on page 136.
(*) Securities traded in U.S. dollars unless otherwise indicated.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS 93.1%
<S> <C> <C> <C>
AEROSPACE & MILITARY TECHNOLOGY .1%
Hong Kong Aircraft Engineering Co. Ltd. ................................... Hong Kong 513,400 $ 992,544
-----------
APPLIANCES & HOUSEHOLD DURABLES 3.4%
Electrolux AB, B .......................................................... Sweden 1,160,000 24,286,050
Fisher & Paykel Ltd. ...................................................... New Zealand 1,321,125 4,200,382
-----------
28,486,432
-----------
AUTOMOBILES 2.8%
Autoliv Inc., SDR ......................................................... Sweden 317,000 9,656,904
Fiat SpA .................................................................. Italy 3,391,410 10,778,927
Volvo AB, B ............................................................... Sweden 91,500 2,652,876
-----------
23,088,707
-----------
BANKING 9.8%
Banco Popular Espanol SA .................................................. Spain 62,400 4,488,398
BPI Socieda de Gestora de Participacoes Socias SA ......................... Portugal 321,978 6,756,989
Credit Commercial de France CCF ........................................... France 128,800 13,920,017
Foreningssparbanken AB, A ................................................. Sweden 244,500 3,450,953
Kookmin Bank .............................................................. South Korea 96,678 1,962,793
Merita AS ................................................................. Finland 1,254,500 7,128,282
National Bank of Canada ................................................... Canada 447,000 5,894,841
National Westminster Bank PLC ............................................. United Kingdom 641,668 13,593,547
Svenska Handelsbanken, A .................................................. Sweden 466,200 5,593,084
Unibanco Uniao de Bancos Brasileiros SA, GDR .............................. Brazil 548,700 13,203,094
Unibanco Uniao de Bancos Brasileiros SA, unit ............................. Brazil 28,412,000 1,296,981
Union Bank of Norway ...................................................... Norway 199,000 3,715,846
-----------
81,004,825
-----------
BROADCASTING & PUBLISHING 2.4%
Cordiant Communications Group PLC ......................................... United Kingdom 3,561,500 9,852,200
NV Holdingsmig de Telegraaf ............................................... Netherlands 504,000 9,927,194
-----------
19,779,394
-----------
BUILDING MATERIALS & COMPONENTS 4.6%
Anglian Group PLC ......................................................... United Kingdom 2,028,800 10,473,062
Cie de Saint Gobain ....................................................... France 13,292 2,117,783
Hepworth PLC .............................................................. United Kingdom 1,330,100 4,130,224
Pioneer International Ltd. ................................................ Australia 7,462,117 19,015,853
Unione Cementi Marchino Emiliane (Unicem), di Risp ........................ Italy 468,000 2,195,937
-----------
37,932,859
-----------
BUSINESS & PUBLIC SERVICES 1.2%
Esselte AB, B ............................................................. Sweden 158,500 1,640,555
Lex Service PLC ........................................................... United Kingdom 902,000 8,296,034
-----------
9,936,589
-----------
CHEMICALS 1.9%
Akzo Nobel NV ............................................................. Netherlands 129,200 5,436,073
DSM NV, Br. ............................................................... Netherlands 19,000 2,037,744
Imperial Chemical Industries PLC .......................................... United Kingdom 857,000 8,523,801
-----------
15,997,618
-----------
CONSTRUCTION & HOUSING 2.0%
Fairview Holdings PLC ..................................................... United Kingdom 623,475 1,321,796
Fletcher Challenge Building Ltd. .......................................... New Zealand 4,627,000 6,742,575
Sirti SpA ................................................................. Italy 1,833,800 8,850,350
-----------
16,914,721
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
<S> <C> <C> <C>
ELECTRICAL & ELECTRONICS 4.8%
General Electric Co. PLC .............................................. United Kingdom 1,920,000 $ 19,520,192
Koninklijke Philips Electronics NV .................................... Netherlands 201,762 19,901,596
(a) Meto AG ............................................................... Sweden 158,500 784,857
------------
40,206,645
------------
ENERGY SOURCES 3.6%
Societe Elf Aquitaine SA, Br. ......................................... France 148,024 21,721,992
(a) Total Fina SA, B ...................................................... France 62,039 8,003,588
------------
29,725,580
------------
FINANCIAL SERVICES 1.9%
ING Groep NV .......................................................... Netherlands 288,685 15,629,537
------------
FOOD & HOUSEHOLD PRODUCTS 1.4%
McBride PLC ........................................................... United Kingdom 1,000,000 1,749,630
Tate & Lyle PLC ....................................................... United Kingdom 1,540,500 9,658,174
------------
11,407,804
------------
FOREST PRODUCTS & PAPER 4.7%
Carter Holt Harvey Ltd. ............................................... New Zealand 3,243,400 3,884,208
Cartiere Burgo SpA .................................................... Italy 696,200 4,472,136
Fletcher Challenge Ltd. Forestry Division ............................. New Zealand 6,020,000 3,381,395
Kimberly Clark de Mexico SA de CV, A .................................. Mexico 1,115,000 4,619,541
Mayr-Melnhof Karton AG ................................................ Austria 39,400 1,787,769
(a) PT Indah Kiat Pulp & Paper Corp. TBK .................................. Indonesia 9,724,297 4,519,644
(a) PT Indah Kiat Pulp & Paper Corp. TBK, wts., 4/13/01 ................... Indonesia 782,553 340,982
(a) PT Indah Kiat Pulp & Paper Corp. TBK, wts., 7/11/02 ................... Indonesia 818,888 249,770
Stora Enso OYJ ........................................................ Finland 1,167,304 12,631,377
Stora Enso OYJ, R ..................................................... Finland 186,900 2,004,496
Unipapel SA, Br. ...................................................... Spain 104,400 1,185,360
------------
39,076,678
------------
HEALTH & PERSONAL CARE 2.0%
Internatio-Muller NV .................................................. Netherlands 240,308 5,290,890
Nycomed Amersham PLC .................................................. United Kingdom 1,575,700 11,208,536
------------
16,499,426
------------
INDUSTRIAL COMPONENTS .9%
Granges AB ............................................................ Sweden 191,000 3,235,004
Meggitt PLC ........................................................... United Kingdom 1,487,610 4,584,152
------------
7,819,156
------------
INSURANCE 4.5%
Ace Ltd. .............................................................. Bermuda 682,500 19,280,625
Baloise-Holding ....................................................... Switzerland 7,380 6,019,452
Muenchener Rueckversicherungs-Gesellschaft ............................ Germany 33,000 6,217,490
(a) Muenchener Rueckversicherungs-Gesellschaft, 144A ...................... Germany 33,000 6,159,637
------------
37,677,204
------------
LEISURE & TOURISM 1.7%
Kuoni Reisen Holding AG, B ............................................ Switzerland 3,570 13,766,982
------------
MACHINERY & ENGINEERING 4.1%
Bucher Holding AG, Br. ................................................ Switzerland 12,800 10,662,550
IHC Caland NV ......................................................... Netherlands 375,000 14,695,267
Invensys PLC .......................................................... United Kingdom 1,820,854 8,624,675
------------
33,982,492
------------
MERCHANDISING 3.3%
David Jones Ltd. ...................................................... Australia 2,463,527 2,413,304
Hudsons Bay Co. ....................................................... Canada 357,000 4,024,940
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
<S> <C> <C> <C>
MERCHANDISING (CONT.)
Safeway PLC ........................................................... United Kingdom 1,695,778 $ 6,782,631
Somerfield PLC ........................................................ United Kingdom 1,552,716 7,281,186
Storehouse ............................................................ United Kingdom 3,314,000 7,130,308
------------
27,632,369
------------
METALS & MINING 4.9%
Anglo American Platinum Corp. Ltd. .................................... South Africa 417,465 9,740,504
Boehler-Uddeholm AG ................................................... Austria 33,000 1,633,155
Boehler-Uddeholm AG, 144A ............................................. Austria 27,055 1,338,939
British Steel PLC ..................................................... United Kingdom 4,033,200 10,441,870
Companhia Siderurgica Nacional CSN, ADR ............................... Brazil 276,365 7,254,581
Grupo Mexico SA de CV, B .............................................. Mexico 1,983,600 8,493,578
Pohang Iron & Steel Co. Ltd. .......................................... South Korea 10,450 1,302,808
------------
40,205,435
------------
MISC MATERIALS & COMMODITIES .9%
Korea Chemical Co. Ltd. ............................................... South Korea 57,900 5,202,246
Unitor ASA ............................................................ Norway 295,000 2,548,111
------------
7,750,357
------------
MULTI-INDUSTRY 2.4%
Cheung Kong Holdings Ltd. ............................................. Hong Kong 188,600 1,677,233
Elementis PLC ......................................................... United Kingdom 3,336,000 5,547,555
Jardine Strategic Holdings Ltd. ....................................... Hong Kong 2,574,940 6,694,844
Swire Pacific Ltd., B ................................................. Hong Kong 7,937,100 5,933,248
------------
19,852,880
------------
REAL ESTATE .1%
Hang Lung Development Co. Ltd. ........................................ Hong Kong 779,000 963,854
------------
RECREATION & OTHER CONSUMER GOODS 1.4%
Swatch Group AG, Br. .................................................. Switzerland 15,400 10,361,765
Yue Yuen Industrial (Holdings) Ltd. ................................... Hong Kong 394,800 910,821
------------
11,272,586
------------
TELECOMMUNICATIONS 11.3%
Hong Kong Telecommunications Ltd. ..................................... Hong Kong 7,908,279 20,538,072
Korea Telecom Corp., ADR .............................................. South Korea 308,300 12,332,000
Nokia Corp., A ........................................................ Finland 178,600 15,655,357
Smartone Telecommunications Holdings Ltd. ............................. Hong Kong 1,602,000 5,698,680
(a) Telecomunicacoes Brasileiras SA (Telebras), ADR ....................... Brazil 177,300 15,990,244
Telefonica del Peru SA, B ............................................. Peru 2,445,602 3,673,352
Telefonica del Peru SA, B, ADR ........................................ Peru 251,900 3,809,988
(a) Telefonica SA ......................................................... Spain 323,100 15,563,577
------------
93,261,270
------------
TEXTILES & APPAREL .6%
Yizheng Chemical Fibre Co. Ltd., H .................................... China 19,340,200 5,047,643
------------
TRANSPORTATION 1.3%
Air New Zealand Ltd., B ............................................... New Zealand 1,132,000 2,339,401
(a) Helikopter Services Group ASA ......................................... Norway 134,000 995,745
Mayne Nickless Ltd., A ................................................ Australia 2,125,500 7,273,521
Tranz Rail Holdings Ltd., ADR ......................................... New Zealand 47,765 253,752
------------
10,862,419
------------
UTILITIES ELECTRICAL & GAS 9.1%
BG PLC ................................................................ United Kingdom 2,566,588 15,666,454
Centrais Eletricas Brasileiras SA (Electrobras) ....................... Brazil 363,450,000 6,926,807
(a) Centrais Geradoras do Sul do Brasil SA ................................ Brazil 363,450,000 290,345
Centrica PLC .......................................................... United Kingdom 1,161,000 2,731,302
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON INTERNATIONAL EQUITY FUND COUNTRY WARRANTS VALUE
-------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONT.)
<S> <C> <C> <C>
UTILITIES ELECTRICAL & GAS (CONT.)
Compania Sevillana de Electricidad SA .................................. Spain 246,970 $ 2,862,682
Iberdrola SA, Br. ...................................................... Spain 1,517,800 23,118,393
(a) Korea Electric Power Corp. ............................................. South Korea 66,000 2,742,635
Shandong Huaneng Power Development Co. Ltd., ADR ....................... China 338,300 1,754,931
Thames Water Group PLC ................................................. United Kingdom 896,939 14,236,903
Transportadora de Gas del Sur SA, B, Reg S, ADR ........................ Argentina 516,300 4,840,310
-------------
75,170,762
-------------
TOTAL COMMON STOCKS AND WARRANTS (COST $615,619,099) ................... 771,944,768
-------------
PREFERRED STOCKS 2.5%
Banco Bradesco SA, pfd. ................................................ Brazil 525,200,000 2,697,175
Banco Itau SA, pfd. .................................................... Brazil 4,209,000 2,185,558
News Corp. Ltd., pfd. .................................................. Australia 3,486 26,558
Petroleo Brasileiro SA, pfd. ........................................... Brazil 60,000,000 9,415,121
Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. .................. Brazil 177,300 11,081
Usinas Siderurgicas de Minas, ADR, 144A, pfd. .......................... Brazil 1,851,400 6,296,345
-------------
TOTAL PREFERRED STOCKS (COST $24,671,639) .............................. 20,631,838
-------------
TOTAL LONG TERM INVESTMENTS (COST $640,290,738) ........................ 792,576,606
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C> <C>
(g) REPURCHASE AGREEMENT (COST $31,109,000) 3.7%
Morgan Stanley Inc., 4.88%, 7/01/99 (Maturity Value $31,113,217)
Collateralized by U.S. Treasury Notes & Bonds ......................... United States $31,109,000 31,109,000
------------
TOTAL INVESTMENTS (COST $671,399,738) 99.3% ............................ 823,685,606
OTHER ASSETS, LESS LIABILITIES .7% ..................................... 5,413,340
------------
TOTAL NET ASSETS 100.0% ................................................ $829,098,946
============
</TABLE>
(a) Non-income producing.
(g) See Note 1(c) regarding repurchase agreements.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 90.9%
APPLIANCES & HOUSEHOLD DURABLES 1.8%
Fisher & Paykel Ltd. ........................................ New Zealand 70,222 $ 223,264
Guangdong Kelon Electrical Holdings Ltd., H ................. China 92,000 107,310
Guangdong Kelon Electrical Holdings Ltd., H, 144A ........... China 40,000 46,656
(a) Konka Group Co. Ltd., B ..................................... China 56,900 63,509
-----------
440,739
-----------
AUTOMOBILES 2.4%
Bilia AB, A ................................................. Sweden 28,100 261,103
Volvo AB, B ................................................. Sweden 11,600 336,321
-----------
597,424
-----------
BANKING 4.8%
Banco de Valencia SA ........................................ Spain 9,816 77,844
Banco Pastor SA ............................................. Spain 8,000 407,961
Bank Austria AG, 144A ....................................... Austria 6,000 315,562
Unibanco Uniao de Bancos Brasileiros SA, GDR ................ Brazil 10,235 246,280
Union Bank of Norway ........................................ Norway 7,170 133,883
-----------
1,181,530
-----------
BROADCASTING & PUBLISHING 3.0%
GTC Transcontinental Group Ltd., B .......................... Canada 63,300 737,455
-----------
BUILDING MATERIALS & COMPONENTS 6.8%
Caradon PLC ................................................. United Kingdom 117,500 276,887
Cristaleria Espanola SA, Br. ................................ Spain 1,291 63,372
Det Danske Traelastkompagni AS .............................. Denmark 3,752 284,321
Gujarat Ambuja Cements Ltd. ................................. India 47,500 350,543
Sarna Kunststoff Holding AG ................................. Switzerland 52 58,870
Schuttersveld NV ............................................ Netherlands 11,146 178,736
(a) Siam City Cement Public Co. Ltd., fgn. ...................... Thailand 112,701 464,557
-----------
1,677,286
-----------
BUSINESS & PUBLIC SERVICES 4.4%
Kardex AG, Br. .............................................. Switzerland 1,494 389,213
Lex Service PLC ............................................. United Kingdom 54,100 497,578
Scribona AB, B .............................................. Sweden 19,045 55,554
Sifo Group AB ............................................... Sweden 20,745 146,401
-----------
1,088,746
-----------
CHEMICALS 2.1%
Energia e Industrias Aragonesas Eia SA ...................... Spain 34,500 185,006
Yule Catto & Company PLC .................................... United Kingdom 61,600 338,867
-----------
523,873
-----------
CONSTRUCTION & HOUSING 2.5%
Grupo Dragados SA ........................................... Spain 42,465 497,914
Hollandsche Beton Groep NV .................................. Netherlands 9,600 122,760
-----------
620,674
-----------
ELECTRICAL & ELECTRONICS 3.1%
Dongfang Electrical Machinery Co. Ltd., H ................... China 179,000 22,840
Techtronic Industries Co. Ltd. .............................. Hong Kong 1,791,000 357,791
Varitronix International Ltd. ............................... Hong Kong 187,500 390,280
-----------
770,911
-----------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.2%
Swisslog Holding AG ......................................... Switzerland 1,000 121,092
VTech Holdings Ltd. ......................................... Hong Kong 136,000 432,074
-----------
553,166
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES 3.0%
Dah Sing Financial Holdings Ltd. ......................... Hong Kong 134,800 $ 513,393
Housing Development Finance Corp. Ltd. ................... India 4,331 221,937
Morgan Stanley Growth Fund ............................... India 7,100 1,179
-----------
736,509
-----------
FOOD & HOUSEHOLD PRODUCTS 6.8%
(a) Charoen Pokphand Feedmill Public Co. Ltd., fgn. .......... Thailand 78,430 127,615
Geest PLC ................................................ United Kingdom 44,750 349,158
Hazlewood Foods PLC ...................................... United Kingdom 111,770 229,911
Illovo Sugar Ltd. ........................................ South Africa 187,000 206,073
McBride PLC .............................................. United Kingdom 64,100 112,151
National Foods Ltd. ...................................... Australia 182,091 322,649
Perkins Foods PLC ........................................ United Kingdom 189,240 343,031
-----------
1,690,588
-----------
FOREST PRODUCTS & PAPER 2.7%
Crown Van Gelder Papierfabrieken NV ...................... Netherlands 6,115 89,546
(a) Empaques Ponderosa SA de CV, B ........................... Mexico 151,800 110,223
Munksjo AB ............................................... Sweden 12,995 94,765
Primex Forest Products Ltd. .............................. Canada 46,632 372,801
-----------
667,335
-----------
HEALTH & PERSONAL CARE 3.4%
Internatio-Muller NV ..................................... Netherlands 5,844 128,668
Moulin International Holdings Ltd. ....................... Hong Kong 1,278,000 136,714
Ono Pharmaceutical Co. Ltd. .............................. Japan 12,000 409,451
(a) SkyePharma PLC ........................................... United Kingdom 200,000 156,048
-----------
830,881
-----------
INDUSTRIAL COMPONENTS 5.4%
Granges AB ............................................... Sweden 14,679 248,621
Sylea SA ................................................. France 4,447 283,412
Weir Group PLC ........................................... United Kingdom 120,900 506,910
Yamato Kogyo Co. Ltd. .................................... Japan 41,000 298,422
-----------
1,337,365
-----------
INSURANCE 1.0%
HIH Insurance Ltd. ....................................... Australia 193,879 239,975
-----------
MACHINERY & ENGINEERING 2.3%
Arcadis NV ............................................... Netherlands 37,875 318,327
Laird Group PLC .......................................... United Kingdom 62,000 257,999
-----------
576,326
-----------
MERCHANDISING 14.7%
David Jones Ltd. ......................................... Australia 243,000 238,046
Giordano International Ltd. .............................. Hong Kong 933,000 661,374
Li & Fung Ltd. ........................................... Hong Kong 241,000 577,740
Makro Atacadista SA, ADR, 144A ........................... Brazil 37,500 393,723
Moebel Walther AG ........................................ Germany 7,506 119,204
Northwest Company Fund ................................... Canada 31,365 332,188
Sa des Galeries Lafayette ................................ France 4,300 568,929
(a) Samas-Groep NV ........................................... Netherlands 11,125 164,632
Somerfield PLC ........................................... United Kingdom 82,800 388,276
Storehouse ............................................... United Kingdom 90,613 194,960
-----------
3,639,072
-----------
METALS & MINING 5.1%
Arbed SA ................................................. Luxembourg 1,448 132,302
Boehler-Uddeholm AG ...................................... Austria 4,993 247,101
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
METALS & MINING (CONT.)
Elkem ASA, A ..................................................... Norway 23,850 $ 424,135
Pohang Iron & Steel Co. Ltd. ..................................... South Korea 2,625 327,260
PT Tambang Timah ................................................. Indonesia 165,500 144,227
------------
1,275,025
------------
MULTI-INDUSTRY 3.7%
Amer Group Ltd., A ............................................... Finland 11,300 162,561
Elementis PLC .................................................... United Kingdom 142,000 236,137
Nagron Nationaal Grondbezit NV ................................... Netherlands 7,400 183,149
Saha Union Public Co. Ltd., fgn. ................................. Thailand 201,000 89,939
Zehnder Holding AG, Br. .......................................... Switzerland 465 242,281
------------
914,067
------------
REAL ESTATE 1.2%
Inversiones y Representacion SA .................................. Argentina 96,000 295,710
------------
(a) TELECOMMUNICATIONS .5%
Digital Telecommunications Philippines Inc. ...................... Philippines 2,198,000 135,173
------------
TEXTILES & APPAREL 1.4%
Gamma Holding NV ................................................. Netherlands 3,000 129,937
Inner Mongolia Erdos Cashmere Products Co. Ltd., B ............... China 497,000 141,148
Yizheng Chemical Fibre Co. Ltd., H ............................... China 326,000 85,083
------------
356,168
------------
TRANSPORTATION 3.3%
(a) Anangel-American Shipholdings Ltd., ADR .......................... Greece 35,000 189,219
Orient Overseas International Ltd. ............................... Hong Kong 362,000 132,971
(a) Osprey Maritime Ltd. ............................................. Singapore 350,000 240,529
Stolt Nielsen SA, ADR ............................................ Norway 15,000 256,875
------------
819,594
------------
UTILITIES ELECTRICAL & GAS 2.7%
Gas y Electricidad SA, Br. ....................................... Spain 5,700 448,206
Guangdong Electric Power Development Co. Ltd., B, ................ China 338,520 232,985
------------
681,191
------------
WHOLESALE & INTERNATIONAL TRADE .6%
Eurodis Electron PLC ............................................. United Kingdom 120,300 158,334
------------
TOTAL COMMON STOCKS (COST $21,544,631) ........................... 22,545,117
------------
PREFERRED STOCKS 2.5%
Ballast Nedam NV, pfd. ........................................... Netherlands 6,700 177,570
Fertilizantes Fosfatados SA, pfd. ................................ Brazil 41,995,000 155,759
Moebel Walther AG, pfd. .......................................... Germany 4,550 70,617
Tele Leste Celulare Participacoes SA, ADR, pfd. .................. Brazil 200 5,950
Weg SA, pfd. ..................................................... Brazil 507,200 206,930
------------
TOTAL PREFERRED STOCKS (COST $1,022,449) ......................... 616,826
------------
TOTAL LONG TERM INVESTMENTS (COST $22,567,080) ................... 23,161,943
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND COUNTRY AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(g) REPURCHASE AGREEMENTS 5.7%
Barclays Bank PLC, 4.70%, 7/01/99, (Maturity Value $700,091)
Collateralized by U.S. Treasury Notes & Bonds ................... United States $700,000 $ 700,000
Morgan Stanley Inc., 4.70%, 7/01/99, (Maturity Value $717,094)
Collateralized by U.S. Treasury Notes & Bonds ................... United States 717,000 717,000
-----------
TOTAL REPURCHASE AGREEMENTS (COST $1,417,000) .................... 1,417,000
-----------
TOTAL INVESTMENTS (COST $23,984,080) 99.1% ....................... 24,578,943
OTHER ASSETS, LESS LIABILITIES .9% ............................... 217,355
-----------
TOTAL NET ASSETS 100.0% .......................................... $24,796,298
===========
</TABLE>
(a) Non-income producing.
(g) See Note 1(c) regarding repurchase agreements.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 90.2%
BANKING 13.5%
Development Bank of Singapore Ltd., fgn. ............................. Singapore 401,000 $ 4,899,148
HSBC Holdings PLC .................................................... Hong Kong 31,000 1,130,709
Overseas Union Bank Ltd., fgn. ....................................... Singapore 519,816 2,503,666
(a) Philippine National Bank ............................................. Philippines 962,500 2,605,453
(a) PT Bank Pan Indonesia TBK ............................................ Indonesia 6,182,625 1,795,970
(a) Thai Farmers Bank Public Co. Ltd. .................................... Thailand 36,570 73,388
(a) Thai Farmers Bank Public Co. Ltd., fgn. .............................. Thailand 733,440 2,267,448
------------
15,275,782
------------
BROADCASTING & PUBLISHING 2.4%
South China Morning Post Ltd. ........................................ Hong Kong 4,888,000 2,740,458
------------
BUILDING MATERIALS & COMPONENTS 3.0%
Gujarat Ambuja Cements Ltd., GDR, Reg S .............................. India 208,000 1,705,600
Okumura Corp. ........................................................ Japan 467,000 1,736,203
------------
3,441,803
------------
BUSINESS & PUBLIC SERVICES 1.5%
Kurita Water Industries Ltd. ......................................... Japan 93,000 1,667,300
------------
CHEMICALS
Fauji Fertilizer Co. Ltd. ............................................ Pakistan 10,000 7,897
------------
CONSTRUCTION & HOUSING 7.0%
Daito Trust Construction Co. Ltd. .................................... Japan 260,200 2,902,098
Road King Infrastructure Ltd. ........................................ Hong Kong 3,831,977 2,716,366
Toda Corp. ........................................................... Japan 470,000 2,259,914
------------
7,878,378
------------
ELECTRICAL & ELECTRONICS 1.0%
Fuji Photo Film Co. Ltd. ............................................. Japan 28,000 1,059,484
Hitachi Ltd. ......................................................... Japan 800 7,502
------------
1,066,986
------------
FINANCIAL SERVICES 5.9%
Commerce Asset-Holding Bhd. .......................................... Malaysia 1,572,000 3,888,632
(a) Commerce Asset-Holding Bhd., wts., 6/16/02 ........................... Malaysia 163,750 179,263
Nomura Securities Co. Ltd. ........................................... Japan 143,000 1,674,083
Public Finance Bhd., fgn. ............................................ Malaysia 928,000 976,842
------------
6,718,820
------------
FOREST PRODUCTS & PAPER 3.1%
Carter Holt Harvey Ltd. .............................................. New Zealand 2,411,800 2,888,307
(a) PT Inti Indorayon Utama .............................................. Indonesia 129,000 15,458
(a) PT Tjiwi Kimia TBK. .................................................. Indonesia 1,388,741 534,519
(a) PT Tjiwi Kimia TBK, wts. ............................................. Indonesia 192,880 49,726
------------
3,488,010
------------
INDUSTRIAL COMPONENTS 6.9%
Fuji Heavy Industries Ltd. ........................................... Japan 577,000 4,452,396
Mitsubishi Heavy Industries Ltd. ..................................... Japan 824,000 3,342,564
------------
7,794,960
------------
INSURANCE 2.7%
AXA China Region Ltd. ................................................ Hong Kong 3,860,000 3,084,478
------------
LEISURE & TOURISM 1.4%
Toei Co. Ltd. ........................................................ Japan 397,000 1,623,554
------------
MERCHANDISING .7%
Takashimaya Co. Ltd. ................................................. Japan 81,418 778,260
------------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
METALS & MINING 1.5%
Capral Aluminum Ltd. ............................................ Australia 1,074,400 $ 1,656,971
------------
MISC MATERIALS & COMMODITIES 2.0%
Golden Hope Plantations Bhd. .................................... Malaysia 2,607,000 2,236,532
------------
MULTI-INDUSTRY 13.5%
Broken Hill Proprietary Co. Ltd. ................................ Australia 211,000 2,444,069
Cheung Kong Holdings Ltd. ....................................... Hong Kong 270,000 2,401,129
Hutchison Whampoa Ltd. .......................................... Hong Kong 188,000 1,702,185
SIME Darby Bhd. ................................................. Malaysia 1,798,800 2,357,375
Swire Pacific Ltd., A ........................................... Hong Kong 435,000 2,152,896
Wheelock and Company Ltd. ....................................... Hong Kong 3,100,000 4,255,141
------------
15,312,795
------------
REAL ESTATE 5.4%
City Developments Ltd. .......................................... Singapore 639,600 4,094,943
New World Development Co. Ltd. .................................. Hong Kong 658,978 1,974,679
------------
6,069,622
------------
TELECOMMUNICATIONS 2.1%
Hong Kong Telecommunications Ltd. ............................... Hong Kong 918,139 2,384,439
------------
TEXTILES & APPAREL 5.3%
Nisshinbo Industries Inc. ....................................... Japan 700,000 3,186,550
Wacoal Corp. .................................................... Japan 280,000 2,849,967
------------
6,036,517
------------
TRANSPORTATION 9.8%
East Japan Railway Co. .......................................... Japan 300 1,611,038
Guangshen Railway Co. Ltd., H, ADR .............................. China 142,800 1,088,850
Hitachi Zosen Corp. ............................................. Japan 843,000 1,016,837
Hong Kong Ferry Holdings Co. Ltd. ............................... Hong Kong 487,200 618,509
Malaysian International Shipping Corp., fgn. .................... Malaysia 1,467,267 2,683,554
Singapore Airlines Ltd., fgn. ................................... Singapore 432,300 4,113,515
------------
11,132,303
------------
UTILITIES ELECTRICAL & GAS 1.5%
CLP Holdings Ltd. ............................................... Hong Kong 363,000 1,763,805
------------
TOTAL LONG TERM INVESTMENTS (COST $122,176,287) ................. 102,159,670
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C> <C>
(g) REPURCHASE AGREEMENTS 6.3%
Barclays Bank PLC, 4.7%, 7/01/99, (Maturity Value $3,500,457)
Collateralized by U.S. Treasury Notes & Bonds United States $3,500,000 3,500,000
Morgan Stanley Inc., 4.7%, 7/01/99, (Maturity Value $3,675,480)
Collateralized by U.S. Treasury Notes & Bonds United States 3,675,000 3,675,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $7,175,000) 7,175,000
------------
TOTAL INVESTMENTS (COST $129,351,287) 96.5% 109,334,670
OTHER ASSETS, LESS LIABILITIES 3.5% 3,913,115
------------
TOTAL NET ASSETS 100.0% $113,247,785
============
</TABLE>
(a) Non-income producing.
(g) See Note 1(c) regarding repurchase agreements.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE-BACKED SECURITIES 75.9%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - FIXED RATE 54.1%
GNMA I, SF, 5.50%, 11/15/28 - 1/15/29 ..................................................... $ 6,902,316 $ 6,287,388
GNMA II, 5.50%, 9/20/28 - 1/20/29 ......................................................... 3,175,007 2,878,003
GNMA I, SF, 6.00%, 11/15/23 - 11/15/28 .................................................... 18,374,810 17,354,108
GNMA II, 6.00%, 1/20/24 - 1/20/29 ......................................................... 61,161,744 57,170,345
(h) GNMA I, SF, 6.50%, 5/15/23 - 2/15/29 ...................................................... 71,478,466 69,307,659
GNMA II, 6.50%, 3/20/28 ................................................................... 23,941,494 22,991,505
GNMA I, SF, 7.00%, 3/15/22 - 5/15/28 ...................................................... 65,173,498 64,591,880
GNMA I, SF, 7.25%, 11/15/25 ............................................................... 1,224,606 1,231,350
GNMA, PL, 7.25%, 5/15/22 - 8/15/22 ........................................................ 2,160,506 2,150,059
GNMA I, SF, 7.50%, 2/15/17 - 5/15/28 ...................................................... 27,224,607 27,628,505
GNMA II, 7.50%, 3/20/17 - 11/20/26 ........................................................ 18,290,820 18,459,470
GNMA I, SF, 8.00%, 4/15/05 - 6/15/24 ...................................................... 15,378,690 15,894,379
GNMA II, 8.00%, 2/20/16 - 8/20/26 ......................................................... 1,476,942 1,517,890
GNMA I, SF, 8.25%, 4/15/25 ................................................................ 612,404 639,219
GNMA I, SF, 8.50%, 8/15/21 - 12/15/24 ..................................................... 4,502,494 4,727,176
GNMA I, SF, 9.00%, 4/15/16 - 2/15/21 ...................................................... 2,079,068 2,217,129
GNMA I, SF, 9.50%, 7/15/16 - 12/15/21 ..................................................... 4,519,527 4,879,404
GNMA II, 9.50%, 4/20/25 ................................................................... 471,579 504,148
GNMA I, SF, 10.00%, 8/15/17 - 8/15/21 ..................................................... 3,961,499 4,334,390
------------
324,764,007
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FIXED RATE 8.4%
FNMA, 6.00%, 10/01/23 - 10/01/28 .......................................................... 25,107,740 23,712,790
FNMA, 6.50%, 1/01/24 - 5/01/24 ............................................................ 11,869,452 11,571,970
FNMA, 7.00%, 5/01/24 ...................................................................... 1,272,428 1,263,545
FNMA, PL, 7.00%, 3/17/35 .................................................................. 3,297,674 3,229,660
FNMA, 7.50%, 4/01/23 - 7/01/25 ............................................................ 4,874,827 4,943,998
FNMA, 8.00%, 7/01/16 - 2/01/25 ............................................................ 5,327,012 5,494,164
FNMA, 8.50%, 10/01/19 - 2/01/22 ........................................................... 307,892 323,069
------------
50,539,196
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - ADJUSTABLE RATE 4.4%
FNMA, Cap 12.49%, Margin 2.00% + CMT, Resets Annually, 7.184%, 02/01/19 ................... 2,986,880 3,071,837
FNMA, Cap 12.819%, Margin 2.127% + CMT, Resets Annually, 7.074%, 09/01/18 ................. 3,931,958 4,057,211
FNMA, Cap 13.313%, Margin 2.126% + CMT, Resets Annually, 7.084%, 07/01/19 ................. 2,772,654 2,852,513
FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 6.978%, 01/01/18 ................. 9,234,834 9,504,633
FNMA, Cap 14.625%, Margin 1.25% + COFI, Resets Monthly, 5.769%, 06/01/02 .................. 4,617,449 4,533,550
FNMA, Cap 15.156%, Margin 2.284% + 3CMT, Resets Tri-Annually, 8.032%, 03/01/20 ............ 2,360,438 2,409,042
------------
26,428,786
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - FIXED RATE 7.9%
FHLMC, 6.00%, 1/01/24 - 8/01/28 ........................................................... 9,507,235 8,979,633
FHLMC, 6.50%, 6/01/08 - 5/01/29 ........................................................... 20,925,102 20,427,638
FHLMC, 7.00%, 4/01/24 ..................................................................... 11,702,966 11,632,176
FHLMC, 7.50%, 11/01/22 - 5/01/24 .......................................................... 3,322,243 3,373,600
FHLMC, 8.00%, 5/01/16 - 5/01/22 ........................................................... 1,839,497 1,898,668
FHLMC, 8.50%, 4/01/18 - 3/01/22 ........................................................... 630,136 661,215
FHLMC, 9.00%, 3/01/03 ..................................................................... 318,792 329,649
------------
47,302,579
------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) - ADJUSTABLE RATE 1.1%
FHLMC, Cap 12.522%, Margin 2.105% + CMT, Resets Annually, 6.953%, 06/01/22 ................ 2,374,052 2,437,867
FHLMC, Cap 13.458%, Margin 2.195% + CMT, Resets Annually, 7.264%, 02/01/19 ................ 3,852,704 3,958,121
------------
6,395,988
------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $456,027,151) ...................................... 455,430,556
------------
OTHER AGENCY SECURITIES 22.7%
Federal Agriculture Mortgage Corp., 7.23%, 1/17/07 ........................................ 5,000,000 5,017,365
Federal Farm Credit Bank, 5.80%, 9/16/03 .................................................. 5,000,000 4,872,740
Federal Home Loan Bank, 0.00%, 8/15/22 .................................................... 17,500,000 2,874,200
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER AGENCY SECURITIES (CONT.)
Federal Home Loan Bank, 0.00%, 1/23/23 ............................................................. $ 10,000,000 $ 1,718,900
FICO, Strip, 0.00%, 12/06/14 ....................................................................... 13,569,000 4,797,401
FICO, Strip, 0.00%, 6/06/15 ........................................................................ 15,001,000 5,114,051
FICO, Strip, 0.00%, 5/11/13 ........................................................................ 10,000,000 3,963,100
FICO, Strip, 1, 0.00%, 5/11/09 ..................................................................... 1,758,000 924,165
FICO, Strip, 12, 0.00%, 6/06/14 .................................................................... 9,454,000 3,461,941
FICO, Strip, 13, 0.00%, 6/27/09 .................................................................... 11,024,000 5,741,112
FICO, Strip, 16, 0.00%, 4/05/09 .................................................................... 3,202,000 1,694,975
FICO, Strip, 16, 0.00%, 10/05/10 ................................................................... 4,745,000 2,259,987
FICO, Strip, A, 0.00%, 2/08/09 ..................................................................... 2,060,000 1,102,732
Housing Urban Development, 96-A, 7.63%, 8/01/14 .................................................... 5,000,000 5,160,900
Housing Urban Development, 96-A, 7.66%, 8/01/15 .................................................... 5,000,000 5,158,710
Small Business Administration, 6.00%, 9/01/18 ...................................................... 9,830,318 9,319,893
Small Business Administration, 6.45%, 12/01/15 ..................................................... 3,986,916 3,908,833
Small Business Administration, 6.70%, 12/01/16 ..................................................... 4,440,519 4,399,359
Small Business Administration, 6.85%, 7/01/17 ...................................................... 4,523,895 4,510,597
Small Business Administration, Cap 10.85%, Margin Prime - 0.40%, Resets Quarterly, 8.10%, 6/25/19 .. 3,732,353 3,844,324
Small Business Administration, Cap 10.875%, Margin Prime - 0.125%, Resets Quarterly, 8.375%, 3/25/18 4,782,588 4,941,012
Student Loan Marketing Association, 0.00%, 5/15/14 ................................................. 15,000,000 4,445,100
Tennessee Valley Authority, 0.00%, 4/15/42 ......................................................... 6,000,000 2,439,360
Tennessee Valley Authority, 0.00%, 7/15/43 ......................................................... 7,000,000 5,321,540
Tennessee Valley Authority, 5.88%, 4/01/36 ......................................................... 10,000,000 9,804,780
Tennessee Valley Authority, 6.235%, 7/15/45 ........................................................ 19,249,000 19,424,166
Tennessee Valley Authority, 7.25%, 7/15/43 ......................................................... 10,000,000 9,874,460
------------
TOTAL OTHER AGENCY SECURITIES (COST $136,093,024) .................................................. 681,402,631 136,095,703
------------
TOTAL LONG TERM INVESTMENTS (COST $592,120,175) .................................................... 591,526,259
------------
(f)REPURCHASE AGREEMENT .7%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $4,447,852) (COST $4,447,263) ......... 4,447,263 4,447,263
Barclays Capital Inc. (Maturity Value $561,030)
Bear, Stearns & Co. Inc. (Maturity Value $495,027)
Chase Securities Inc. (Maturity Value $91,619)
CIBC Oppenheimer Corp. (Maturity Value $561,030)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $396,021)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $396,021)
Goldman, Sachs & Co. (Maturity Value $198,011)
NationsBanc Montgomery Securities LLC (Maturity Value $396,021)
Paine Webber Inc. (Maturity Value $396,021)
Paribas Corp. (Maturity Value $396,021)
Warburg Dillon Read LLC (Maturity Value $561,030)
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $596,567,438) 99.3% ........................................................ 595,973,522
OTHER ASSETS, LESS LIABILITIES .7% ................................................................. 4,332,554
------------
NET ASSETS 100.0% .................................................................................. $600,306,076
============
</TABLE>
(f) See Note 1(c) regarding joint repurchase agreement.
(h) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SHARES/
VALUE SECURITIES FUND RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 96.3%
COMMERCIAL SERVICES 3.8%
Reynolds & Reynolds Co., A .............................................................. 7,000 $ 163,188
(a) Robert Half International Inc. .......................................................... 11,000 286,000
----------
449,188
----------
CONSUMER DURABLES 1.4%
D.R. Horton Inc. ........................................................................ 1,800 29,925
Engle Homes Inc. ........................................................................ 3,000 41,250
Flexsteel Industries Inc. ............................................................... 2,300 30,619
M/I Schottenstein Homes Inc. ............................................................ 2,300 42,406
(a) TBC Corp. ............................................................................... 3,500 24,719
----------
168,919
----------
CONSUMER NON-DURABLES 13.1%
Block Drug Co. Inc., A .................................................................. 3,000 125,063
DIMON Inc. .............................................................................. 15,000 77,813
Schweitzer-Mauduit International Inc. ................................................... 4,000 60,000
(a) Sola International Inc. ................................................................. 7,000 136,063
Standard Commercial Corp. ............................................................... 13,000 76,375
(a) The Timberland Co., A ................................................................... 5,000 340,313
(a) Tropical Sportswear International Corp. ................................................. 15,000 478,125
Wolverine World Wide Inc. ............................................................... 19,000 266,000
----------
1,559,752
----------
CONSUMER SERVICES 1.6%
Aztar Corp. ............................................................................. 20,000 183,750
----------
ELECTRONIC TECHNOLOGY 1.7%
(a) ESCO Electronics Corp. .................................................................. 600 7,688
(a) NCR Corp. ............................................................................... 1,800 87,863
(a) SPACEHAB Inc. ........................................................................... 13,500 69,188
United Industrial Corp. ................................................................. 3,200 35,400
----------
200,139
----------
ENERGY MINERALS .7%
Nuevo Energy Co. ........................................................................ 6,000 79,500
----------
FINANCE 23.9%
(a) Acceptance Insurance Cos. Inc. .......................................................... 4,000 60,250
Allstate Corp. .......................................................................... 9,000 322,875
American National Insurance Co. ......................................................... 1,900 135,375
(a) American Safety Insurance Group Ltd. .................................................... 9,000 75,938
The Centris Group Inc. .................................................................. 9,000 91,125
Harleysville Group Inc. ................................................................. 11,100 227,550
HCC Insurance Holdings Inc. ............................................................. 7,500 170,156
Household International Inc. ............................................................ 4,000 189,500
PBOC Holdings Inc. ...................................................................... 12,500 125,000
Penn-America Group Inc. ................................................................. 9,500 98,563
The PMI Group Inc. ...................................................................... 3,000 188,438
Presidential Life Corp. ................................................................. 16,700 327,738
(a) Professionals Group Inc. ................................................................ 9,000 303,750
Reinsurance Group of America Inc. ....................................................... 3,000 100,500
(a) The Seibels Bruce Group Inc. ............................................................ 9,000 45,000
(a) StanCorp Financial Group Inc. ........................................................... 9,000 270,000
Terra Nova (Bermuda) Holdings Ltd., A ................................................... 4,000 107,750
----------
2,839,508
----------
HEALTH TECHNOLOGY 2.2%
(a) OrthoLogic Corp. ........................................................................ 9,200 22,713
(a) SkyePharma PLC, rts., 3/31/00 (United Kingdom) .......................................... 4,900 --
West Pharmaceutical Services Inc. ....................................................... 6,000 235,500
----------
258,213
----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/
VALUE SECURITIES FUND RIGHTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
INDUSTRIAL SERVICES 9.5%
(a) Atwood Oceanics Inc. ............................................................ 7,000 $ 218,750
ENSCO International Inc. ........................................................ 15,000 299,063
(a) Perini Corp. .................................................................... 7,000 39,813
(a) R&B Falcon Corp. ................................................................ 14,500 135,938
(a) Rowan Cos. Inc. ................................................................. 15,000 276,563
Santa Fe International Corp. .................................................... 7,000 161,000
-----------
1,131,127
-----------
NON-ENERGY MINERALS 3.9%
Carpenter Technology Corp. ...................................................... 4,000 $ 114,250
(a) Lone Star Technologies Inc. ..................................................... 10,000 177,500
LTV Corp. ....................................................................... 26,000 173,875
-----------
465,625
-----------
PROCESS INDUSTRIES 4.4%
B.F. Goodrich Co. ............................................................... 5,000 212,500
Lancaster Colony Corp. .......................................................... 2,100 72,450
RPM Inc. ........................................................................ 7,500 106,406
Tuscarora Inc. .................................................................. 10,000 135,625
-----------
526,981
-----------
PRODUCER MANUFACTURING 18.7%
Baldor Electric Co. ............................................................. 8,200 162,975
Commercial Intertech Corp. ...................................................... 400 6,375
Commonwealth Industries Inc. .................................................... 6,500 81,250
Dana Corp. ...................................................................... 6,000 276,375
Easco Inc. ...................................................................... 8,100 85,556
(a) Global Industrial Technologies Inc. ............................................. 5,700 68,756
(a) Holophane Corp. ................................................................. 4,000 152,500
JLG Industries Inc. ............................................................. 23,500 478,813
(a) Keystone Consolidated Industries Inc. ........................................... 4,400 29,150
Myers Industries Inc. ........................................................... 10,500 210,000
Patrick Industries Inc. ......................................................... 2,200 34,375
Superior Industries International Inc. .......................................... 6,200 169,338
Timken Co. ...................................................................... 13,000 253,500
Watts Industries Inc., A ........................................................ 11,000 211,063
-----------
2,220,026
-----------
RETAIL TRADE 1.4%
Schultz Sav-O Stores Inc. ....................................................... 3,800 60,800
(a) Syms Corp. ...................................................................... 13,500 109,688
-----------
170,488
-----------
(a) TECHNOLOGY SERVICES .6%
Ultrak Inc. ..................................................................... 11,900 69,913
-----------
TRANSPORTATION 9.4%
Air Express International Corp. ................................................. 7,500 190,303
(a) Atlantic Coast Airlines Holdings Inc. ........................................... 8,600 163,400
Canadian National Railway Co. (Canada) .......................................... 2,000 134,000
(a) Fritz Cos. Inc. ................................................................. 5,000 53,750
Kenan Transport Co. ............................................................. 4,300 132,225
(a) Midwest Express Holdings ........................................................ 4,000 136,000
Tidewater Inc. .................................................................. 10,000 305,000
-----------
1,114,678
-----------
TOTAL LONG TERM INVESTMENTS (COST $10,545,736) .................................. 11,437,807
-----------
</TABLE>
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
VALUE SECURITIES FUND AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(f) REPURCHASE AGREEMENT 4.4%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $524,499) (Cost $524,430) ...... $ 524,430 $ 524,430
Barclays Capital Inc. (Maturity Value $66,158)
Bear, Stearns & Co. Inc. (Maturity Value $58,374)
Chase Securities Inc. (Maturity Value $10,804)
CIBC Oppenheimer Corp. (Maturity Value $66,158)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $46,699)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $46,699)
Goldman, Sachs & Co. (Maturity Value $23,351)
NationsBanc Montgomery Securities LLC (Maturity Value $46,699)
Paine Webber Inc. (Maturity Value $46,699)
Paribas Corp. (Maturity Value $46,699)
Warburg Dillon Read LLC (Maturity Value $66,159)
Collateralized by U.S. Treasury Bills & Notes
-----------
TOTAL INVESTMENTS (COST $11,070,166) 100.7% ................................................. 11,962,237
OTHER ASSETS, LESS LIABILITIES (.7%) ........................................................ (88,025)
-----------
NET ASSETS 100.0% ........................................................................... $11,874,212
===========
</TABLE>
(a) Non-income producing.
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ZERO COUPON FUND - 2000 AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 97.4%
FHLB, Strip, A-1, 2/25/01 ................................................................ $ 7,567,000 $ 6,880,938
FHLB, Strip, A-1, 2/25/02 ................................................................ 465,000 397,687
FHLMC, Strip, 5/15/00 .................................................................... 16,175,000 15,443,081
FICO, Strip, 10/06/00 .................................................................... 6,200,000 5,773,403
FICO, Strip, 1, 11/11/00 ................................................................. 1,139,000 1,054,648
FICO, Strip, 12, 12/06/00 ................................................................ 17,390,000 16,031,806
FICO, Strip, 15, 9/07/00 ................................................................. 148,000 138,462
FICO, Strip, 17, 10/05/00 ................................................................ 5,875,000 5,471,646
FICO, Strip, D, 9/26/00 .................................................................. 4,965,000 4,631,114
FNMA, Strip, 11/22/99 .................................................................... 3,800,000 3,724,787
FNMA, Strip, 2/12/00 ..................................................................... 500,000 484,159
FNMA, Strip, 8/12/01 ..................................................................... 3,000,000 2,652,123
Tennessee Valley Authority, Strip, 7/15/00 ............................................... 3,320,000 3,134,163
Tennessee Valley Authority, Strip, 10/15/00 .............................................. 2,500,000 2,324,640
U.S. Treasury, Strip, 11/15/00 ........................................................... 6,600,000 6,133,801
U.S. Treasury, Strip, QO, 11/15/00 ....................................................... 1,110,375 1,029,188
U.S. Treasury, Strip, QO, 2/15/01 ........................................................ 2,778,750 2,536,315
-----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $75,596,134) ........................... 77,841,961
-----------
OTHER SECURITIES - AAA RATED 2.7%
Interamerican Development Bank, Strip, 12/16/00 .......................................... 220,000 202,774
International Bank for Reconstruction and Development, 2/15/00 ........................... 405,000 391,274
International Bank for Reconstruction and Development, 8/15/00 ........................... 945,000 884,399
International Bank for Reconstruction and Development, 2/15/01 ........................... 735,000 666,103
-----------
TOTAL OTHER SECURITIES - AAA RATED (COST $2,072,756) ..................................... 2,144,550
-----------
TOTAL LONG TERM INVESTMENTS (COST $77,668,890) ........................................... 79,986,511
-----------
(f) REPURCHASE AGREEMENT .1%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $59,894) (COST $59,886) ..... 59,886 59,886
Barclays Capital Inc. (Maturity Value $7,555)
Bear, Stearns & Co. Inc. (Maturity Value $6,666)
Chase Securities Inc. (Maturity Value $1,233)
CIBC Oppenheimer Corp. (Maturity Value $7,554)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $5,333)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $5,333)
Goldman, Sachs & Co. (Maturity Value $2,666)
NationsBanc Montgomery Securities LLC (Maturity Value $5,333)
Paine Webber Inc. (Maturity Value $5,333)
Paribas Corp. (Maturity Value $5,333)
Warburg Dillon Read LLC (Maturity Value $7,555)
Collateralized by U.S. Treasury Bills & Notes
-----------
TOTAL INVESTMENTS (COST $77,728,776) 100.2% .............................................. 80,046,397
OTHER ASSETS, LESS LIABILITIES (.2%) ..................................................... (164,453)
-----------
NET ASSETS 100.0% ........................................................................ $79,881,944
===========
</TABLE>
(f) See Notes 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ZERO COUPON FUND - 2005 AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 95.8%
FHLB, Strip, A-1, 8/25/02 ............................................................... $ 1,000,000 $ 828,543
FHLB, Strip, A-1, 2/25/04 ............................................................... 9,110,000 6,841,592
FHLB, Strip, A-1P, 2/25/04 .............................................................. 800,000 600,798
FICO, Strip, 3/26/05 .................................................................... 5,000,000 3,491,840
FICO, Strip, 10/06/05 ................................................................... 11,400,000 7,688,491
FICO, Strip, 1, 5/11/05 ................................................................. 3,500,000 2,425,056
FICO, Strip, 1, 11/11/05 ................................................................ 829,000 555,822
FICO, Strip, 12, 12/06/05 ............................................................... 11,055,000 7,376,172
FICO, Strip, 19, 12/06/05 ............................................................... 10,000,000 6,672,250
FICO, Strip, D, 9/26/05 ................................................................. 6,799,000 4,593,459
FICO, Strip, E, 11/02/05 ................................................................ 3,509,000 2,356,195
FNMA, Strip, 2/12/06 .................................................................... 250,000 165,263
FNMA, Strip, 1, 8/01/04 ................................................................. 450,000 329,805
FNMA, Strip, 1, 2/01/05 ................................................................. 6,000,000 4,244,122
FNMA, Strip, 1, 2/12/05 ................................................................. 1,000,000 705,884
FNMA, Strip, 1, 8/12/05 ................................................................. 875,000 597,690
FNMA, Strip, 1, 2/01/06 ................................................................. 4,307,000 2,853,267
FNMA, Strip, 1, 8/01/06 ................................................................. 530,000 340,101
FNMA, Strip, 1, 2/01/08 ................................................................. 1,730,000 1,003,853
FNMA, Strip, 1, 2/12/08 ................................................................. 120,000 69,456
REFCO, Strip, 1/15/06 ................................................................... 6,500,000 4,383,841
REFCO, Strip, 4/15/06 ................................................................... 3,000,000 1,991,331
Tennessee Valley Authority, Strip, 10/15/04 ............................................. 6,200,000 4,471,186
Tennessee Valley Authority, Strip, 4/15/05 .............................................. 2,260,000 1,575,491
Tennessee Valley Authority, Strip, 10/15/05 ............................................. 1,000,000 674,771
U.S. Treasury, Strip, 2/15/06 ........................................................... 5,900,000 3,988,164
-----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $64,558,962) .......................... 70,824,443
-----------
OTHER SECURITIES - AAA RATED 4.2%
Exxon Capital Corp., 11/15/04 ........................................................... 1,500,000 1,069,854
International Bank for Reconstruction and Development, 2/15/07 .......................... 541,000 323,339
International Bank for Reconstruction and Development, 8/15/07 .......................... 2,500,000 1,444,008
International Bank for Reconstruction and Development, 2, 2/15/07 ....................... 459,000 274,344
-----------
TOTAL OTHER SECURITIES - AAA RATED (COST $3,051,444) .................................... 3,111,545
-----------
TOTAL LONG TERM INVESTMENTS (COST $67,610,406) .......................................... 73,935,988
-----------
(f) REPURCHASE AGREEMENT .1%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $107,019) (COST $107,005) .. 107,005 107,005
Barclays Capital Inc. (Maturity Value $13,499)
Bear, Stearns & Co. Inc. (Maturity Value $11,911)
Chase Securities Inc. (Maturity Value $2,202)
CIBC Oppenheimer Corp. (Maturity Value $13,499)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $9,529)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $9,529)
Goldman, Sachs & Co. (Maturity Value $4,764)
NationsBanc Montgomery Securities LLC (Maturity Value $9,529)
Paine Webber Inc. (Maturity Value $9,529)
Paribas Corp. (Maturity Value $9,529)
Warburg Dillon Read LLC (Maturity Value $13,499)
Collateralized by U.S. Treasury Bills & Notes
-----------
TOTAL INVESTMENTS (COST $67,717,411) 100.1% ............................................. 74,042,993
OTHER ASSETS, LESS LIABILITIES (.1%) .................................................... (76,793)
-----------
NET ASSETS 100.0% ....................................................................... $73,966,200
===========
</TABLE>
(f)See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
ZERO COUPON FUND - 2010 AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES 93.7%
FICO, Strip, 3/26/10 ..................................................................... $ 860,000 $ 424,976
FICO, Strip, 1, 11/11/10 ................................................................. 16,246,000 7,684,017
FICO, Strip, 3, 5/30/10 .................................................................. 2,000,000 976,190
FICO, Strip, 4, 10/06/10 ................................................................. 1,528,000 727,631
FICO, Strip, 8, 8/03/10 .................................................................. 3,021,000 1,456,264
FICO, Strip, 11, 2/08/11 ................................................................. 2,837,000 1,319,066
FICO, Strip, 12, 6/06/09 ................................................................. 4,550,000 2,379,614
FICO, Strip, 12, 12/06/10 ................................................................ 7,500,000 3,529,950
FICO, Strip, 19, 6/06/10 ................................................................. 9,800,000 4,777,059
FICO, Strip, 19, 12/06/10 ................................................................ 2,080,000 978,973
FICO, Strip, A, 8/08/10 .................................................................. 7,000,000 3,371,039
FICO, Strip, D, 9/26/10 .................................................................. 860,000 410,356
FICO, Strip, GEN, 10/06/10 ............................................................... 4,040,000 1,923,840
FICO, Strip, GEN, 4/06/11 ................................................................ 5,000,000 2,298,660
FNMA, Strip, 8/12/09 ..................................................................... 1,975,000 1,028,065
FNMA, Strip, 8/12/10 ..................................................................... 1,230,000 597,647
FNMA, Strip, 1, 2/01/10 .................................................................. 5,000,000 2,520,030
FNMA, Strip, 1, 8/01/10 .................................................................. 8,250,000 4,017,024
REFCO, Strip, 10/15/10 ................................................................... 20,000,000 9,821,320
Sallie Mae, zero cpn., 5/15/14 ........................................................... 8,650,000 2,563,341
Tennessee Valley Authority, Strip, 1/01/10 ............................................... 412,000 198,740
Tennessee Valley Authority, Strip, 4/15/10 ............................................... 12,000,000 5,951,244
Tennessee Valley Authority, Strip, 10/15/10 .............................................. 1,320,000 632,324
Tennessee Valley Authority, Strip, 4/15/11 ............................................... 9,525,000 4,406,332
Tennessee Valley Authority, Strip, 10/15/11 .............................................. 7,295,000 3,258,385
U.S. Treasury, Strip, 11/15/10 ........................................................... 14,180,000 7,042,313
-----------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $65,824,226) ........................... 74,294,400
-----------
OTHER SECURITIES- AAA RATED 6.0%
International Bank for Reconstruction and Development, 2/15/11 ........................... 1,392,000 616,094
International Bank for Reconstruction and Development, 2/15/12 ........................... 2,800,000 1,149,229
International Bank for Reconstruction and Development, 2/15/13 ........................... 3,287,000 1,249,583
International Bank for Reconstruction and Development, 8/15/13 ........................... 4,100,000 1,499,444
International Bank for Reconstruction and Development, Series 2, 2/15/11 ................. 500,000 221,298
-----------
TOTAL OTHER SECURITIES- AAA RATED (COST $4,473,671) ...................................... 4,735,648
-----------
TOTAL LONG TERM INVESTMENTS (COST $70,297,897) ........................................... 79,030,048
-----------
(f) REPURCHASE AGREEMENT .4%
Joint Repurchase Agreement, 4.767%, 7/01/99, (Maturity Value $357,478) (COST $357,431) ... 357,431 357,431
Barclays Capital Inc. (Maturity Value $45,092)
Bear, Stearns & Co. Inc. (Maturity Value $39,786)
Chase Securities Inc. (Maturity Value $7,364)
CIBC Oppenheimer Corp. (Maturity Value $45,091)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $31,828)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $31,828)
Goldman, Sachs & Co. (Maturity Value $15,914)
NationsBanc Montgomery Securities LLC (Maturity Value $31,828)
Paine Webber Inc. (Maturity Value $31,828)
Paribas Corp. (Maturity Value $31,828)
Warburg Dillon Read LLC (Maturity Value $45,091)
Collateralized by U.S. Treasury Bills & Notes
-----------
TOTAL INVESTMENTS (COST $70,655,328) 100.1% .............................................. 79,387,479
OTHER ASSETS, LESS LIABILITIES (.1%) ..................................................... (105,308)
-----------
NET ASSETS 100.0% ........................................................................ $79,282,171
===========
</TABLE>
(f) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (UNAUDITED)
CURRENCY ABBREVIATIONS
AUD - Australian Dollar
ARS - Argentinian Peso
CAD - Canadian Dollar
DKK - Danish Krone
EUR - Eurodollar
GBP - British Pound
INR - Indian Rupee
JPY - Japanese Yen
NZD - New Zealand Dollar
SEK - Swedish Krona
ZAR - South African Rand
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL
CAPITAL HEALTH CARE GLOBAL UTILITIES GROWTH AND HIGH
GROWTH FUND SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ................................... $ 238,302,547 $ 9,596,134 $ 687,171,705 $ 892,898,162 $ 428,049,857
==================================================================================
Value .................................. 313,872,522 10,018,464 839,159,255 1,140,073,416 377,154,320
Repurchase agreements, at value and cost ... 42,076,712 346,418 30,928,379 63,629,989 1,034,282
Receivables:
Investment securities sold ............. 1,657,275 889,289 25,117,984 10,081,880 --
Capital shares sold .................... 967,061 7,021 1,229 12,787 932,326
Dividends and interest ................. 688,532 7,106 1,852,884 3,041,410 7,601,610
----------------------------------------------------------------------------------
Total assets ...................... 359,262,102 11,268,298 897,059,731 1,216,839,482 386,722,538
----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........ 2,374,950 831,990 3,637,590 12,041,510 2,500,000
Capital shares redeemed ................ 811,754 17 723,911 1,123,169 181,273
Affiliates ............................. 210,988 6,128 352,437 468,198 161,832
Custodian fees ......................... 881 21 23,883 21,670 4,205
Postage and mailing fees ............... 10,911 646 14,624 24,340 16,658
Other liabilities .......................... 8,556 1,549 66,810 63,965 46,944
----------------------------------------------------------------------------------
Total liabilities ................. 3,418,040 840,351 4,819,255 13,742,852 2,910,912
----------------------------------------------------------------------------------
Net assets, at value ............. $ 355,844,062 $ 10,427,947 $ 892,240,476 $1,203,096,630 $ 383,811,626
==================================================================================
Net assets consist of:
Undistributed net investment income ........ $ 2,753,548 $ 37,454 $ 43,191,352 $ 61,413,191 $ 69,541,329
Net unrealized appreciation (depreciation) . 75,569,975 422,330 151,970,306 247,175,254 (50,895,537)
Accumulated net realized gain (loss) ....... 1,195,711 (1,417,637) 190,340,293 189,965,847 15,306,348
Capital shares ............................. 276,324,828 11,385,800 506,738,525 704,542,338 349,859,486
----------------------------------------------------------------------------------
Net assets, at value .................. $ 355,844,062 $ 10,427,947 $ 892,240,476 $1,203,096,630 $ 383,811,626
==================================================================================
CLASS 1:
Net assets, at value ....................... $ 355,536,656 $ 10,386,034 $ 891,972,748 $1,202,585,998 $ 383,705,064
==================================================================================
Shares outstanding ......................... 19,689,451 1,134,290 40,018,839 54,749,803 28,536,369
==================================================================================
Net asset value and offering price per share $ 18.06 $ 9.16 $ 22.29 $ 21.97 $ 13.45
==================================================================================
CLASS 2:
Net assets, at value ....................... $ 307,406 $ 41,913 $ 267,728 $ 510,632 $ 106,562
==================================================================================
Shares outstanding ......................... 17,055 4,584 12,030 23,282 7,932
==================================================================================
Net asset value and offering price per share $ 18.02 $ 9.14 $ 22.26 $ 21.93 $ 13.43
==================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Natural
Income Money Mutual Discovery Mutual Shares Resources
Securities Fund Market Fund Securities Fund Securities Fund Securities Fund
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ........................................... $936,081,323 $315,554,350 $176,183,870 $423,534,510 $ 47,714,139
==============================================================================
Value .......................................... 950,315,008 315,554,350 188,379,053 475,778,153 49,389,673
Repurchase agreements, at value and cost ........ -- 38,210,000 -- -- 1,259,103
Cash ............................................ -- -- 7,685,804 12,358,049 --
Receivables:
Investment securities sold ..................... 10,218,668 -- 3,811,474 6,285,733 --
Capital shares sold ............................ -- 81,226 18,965 56,716 --
Dividends and interest ......................... 11,748,298 762,517 638,243 1,156,679 10,305
Unrealized gain on forward exchange contracts
(Note 6) ....................................... -- -- 5,242,102 3,417,587 --
Deposits with brokers for securities sold short . -- -- 3,249,751 7,772,566 --
------------------------------------------------------------------------------
Total assets ................................ 972,281,974 354,608,093 209,025,392 506,825,483 50,659,081
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............... 174,551 -- 1,694,920 5,274,802 103,964
Capital shares redeemed ....................... -- 4,675,531 101,237 270,516 170,579
Affiliates .................................... 386,845 159,672 164,284 299,331 25,411
Custodian fees ................................ 41,982 3,080 4,393 5,231 495
Postage and mailing fees ...................... 51,507 7,288 1,513 -- 1,415
Securities sold short, at value (proceeds
$1,429,493 and $3,132,279, respectively) ...... -- -- 1,675,073 3,295,800 --
Due to broker, variation margin ................. -- -- 36,496 77,867 --
Unrealized loss on forward exchange contracts
(Note 6) ...................................... -- -- 327,820 213,896 --
Other liabilities ............................... 65,470 7,318 96,300 58,701 5,230
------------------------------------------------------------------------------
Total liabilities ............................. 720,355 4,852,889 4,102,036 9,496,144 307,094
------------------------------------------------------------------------------
Net assets, at value ........................ $971,561,619 $349,755,204 $204,923,356 $497,329,339 $ 50,351,987
==============================================================================
Net assets consist of:
Undistributed net investment income ........... $122,233,431 $ -- $ 6,414,204 $ 15,676,564 $ 933,095
Net unrealized appreciation ................... 14,239,546 -- 16,737,331 55,193,958 1,675,534
Accumulated net realized gain (loss) .......... 63,040,408 -- (8,498,065) 12,647,786 (23,266,021)
Capital shares ................................ 772,048,234 349,755,204 190,269,886 413,811,031 71,009,379
------------------------------------------------------------------------------
Net assets, at value ........................ $971,561,619 $349,755,204 $204,923,356 $497,329,339 $ 50,351,987
==============================================================================
CLASS 1:
Net assets, at value ............................ $971,090,696 $347,023,568 $204,736,486 $496,887,152 $ 50,308,431
==============================================================================
Shares outstanding .............................. 56,396,814 347,023,568 16,178,470 36,256,033 4,640,233
==============================================================================
Net asset value and offering price per share .... $ 17.22 $ 1.00 $ 12.65 $ 13.70 $ 10.84
==============================================================================
CLASS 2:
Net assets, at value ............................ $ 470,923 $ 2,731,636 $ 186,870 $ 442,187 $ 43,556
==============================================================================
Shares outstanding .............................. 27,386 2,731,636 14,781 32,326 4,021
==============================================================================
Net asset value and offering price per share .... $ 17.20 $ 1.00 $ 12.64 $ 13.68 $ 10.83
==============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Templeton
Developing Templeton
Real Estate Rising Small Cap Markets Global Asset
Securities Fund Dividends Fund Fund Equity Fund Allocation Fund
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost - Unaffiliated issuers .................... $ 205,902,433 $ 455,267,272 $ 246,346,501 $ 176,455,485 $ 63,992,379
Cost - Non-controlled affiliated issuers ....... -- 21,480,423 -- -- --
==============================================================================
Value - Unaffiliated issuers ................... 218,036,187 575,133,599 290,107,691 187,587,783 65,960,511
Value - Non-controlled affiliated issuers ...... 29,802,525 -- -- --
Repurchase agreements, at value and cost ......... 3,713,503 10,569,670 18,106,327 -- 4,220,000
Cash ............................................. -- -- -- 336,898 561
Receivables:
Investment securities sold ..................... 1,564,823 6,272,368 846,042 2,824,516 --
Capital shares sold ............................ -- 13,806 450,470 583 50
Dividends and interest ......................... 1,700,313 881,873 147,406 840,659 533,811
Unrealized gain on forward exchange contracts
(Note 6) ...................................... -- -- -- -- 5,130
------------------------------------------------------------------------------
Total assets ................................. 225,014,826 622,673,841 309,657,936 191,590,439 70,720,063
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ................ -- -- 537,835 1,386,072 24,462
Capital shares redeemed ........................ 388,092 690,522 -- 185,016 46,386
Affiliates ..................................... 104,969 369,674 179,512 191,123 --
Custodian fees ................................. 1,186 2,488 1,757 56,601 42,285
Postage and mailing fees ....................... 9,020 15,440 9,648 12,341 3,844
Payable upon return of securities loaned (Note 10) -- -- 9,656,982 -- --
Deferred tax liability (Note 1j) ................. -- -- -- 341,012 --
Other liabilities ................................ 16,250 34,570 16,966 28,381 6,841
------------------------------------------------------------------------------
Total liabilities ............................ 519,517 1,112,694 10,402,700 2,200,546 123,818
------------------------------------------------------------------------------
Net assets, at value ........................ $ 224,495,309 $ 621,561,147 $ 299,255,236 $ 189,389,893 $ 70,596,245
==============================================================================
Net assets consist of:
Undistributed net investment income ............ $ 23,943,538 $ 13,735,865 $ 1,414,424 $ 4,420,885 $ 4,133,697
Net unrealized appreciation .................... 12,133,754 128,188,429 43,761,190 10,791,286 1,968,270
Accumulated net realized gain (loss) ........... 35,206,692 144,195,780 15,284,342 (62,868,325) 2,302,385
Capital shares ................................. 153,211,325 335,441,073 238,795,280 237,046,047 62,191,893
------------------------------------------------------------------------------
Net assets, at value ........................ $ 224,495,309 $ 621,561,147 $ 299,255,236 $ 189,389,893 $ 70,596,245
==============================================================================
CLASS 1:
Net assets, at value ............................ $ 224,450,881 $ 621,229,866 $ 299,177,022 $ 188,802,531 $ 70,553,184
==============================================================================
Shares outstanding .............................. 10,665,086 33,361,377 18,724,755 20,102,042 5,297,517
==============================================================================
Net asset value and offering price per share .... $ 21.05 $ 18.62 $ 15.98 $ 9.39 $ 13.32
==============================================================================
CLASS 2:
==============================================================================
Net assets, at value ............................ $ 44,428 $ 331,281 $ 78,214 $ 587,362 $ 43,061
==============================================================================
Shares outstanding .............................. 2,114 17,822 4,903 62,613 3,239
==============================================================================
Net asset value and offering price per share .... $ 21.02 $ 18.59 $ 15.95 $ 9.38 $ 13.29
==============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ....................................... $ 600,987,541 $ 120,116,180 $ 640,290,738 $ 22,567,080 $ 122,176,287
===============================================================================
Value ...................................... 700,887,189 112,912,014 792,576,606 23,161,943 102,159,670
Repurchase agreements, at value and cost ..... 41,328,000 -- 31,109,000 1,417,000 7,175,000
Cash ......................................... 1,959,957 -- 400,884 783 3,510,332
Receivables:
Investment securities sold ................. 230,944 -- 1,306,512 97,454 --
Capital shares sold ........................ 749,832 113 1,974,355 55,667 807,857
Dividends and interest ..................... 3,759,218 1,882,841 3,501,787 100,737 408,121
Unrealized gain on forward exchange contracts
(Note 6) .................................... -- 31,411 -- -- --
-------------------------------------------------------------------------------
Total assets ............................ 748,915,140 114,826,379 830,869,144 24,833,584 114,060,980
-------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........... 14,267,674 -- 157,553 5,660 --
Capital shares redeemed ................... 408,130 171,188 627,401 4,069 152,426
Affiliates ................................ 498,068 54,811 565,730 19,253 100,904
Custodian fees ............................ 54,160 25,009 248,787 4,830 34,086
Postage and mailing fees .................. 1,062 12,541 75,097 23 5,550
Funds advanced by custodian ................. -- 853,913 -- -- --
Deferred tax liability (Note 1j) ............ -- -- -- -- 490,909
Other liabilities ........................... 41,226 17,588 95,630 3,451 29,320
-------------------------------------------------------------------------------
Total liabilities ...................... 15,270,320 1,135,050 1,770,198 37,286 813,195
-------------------------------------------------------------------------------
Net assets, at value ................... $ 733,644,820 $ 113,691,329 $ 829,098,946 $ 24,796,298 $ 113,247,785
===============================================================================
Net assets consist of:
Undistributed net investment income ......... $ 24,158,413 $ 8,638,389 $ 42,455,389 $ 1,010,826 $ 634,906
Net unrealized appreciation (depreciation) .. 99,899,648 (7,200,204) 152,285,868 594,863 (20,507,526)
Accumulated net realized gain (loss) ........ 92,699,126 (4,272,425) 113,791,000 (3,474,245) (52,406,774)
Capital shares .............................. 516,887,633 116,525,569 520,566,689 26,664,854 185,527,179
-------------------------------------------------------------------------------
Net assets, at value .................... $ 733,644,820 $ 113,691,329 $ 829,098,946 $ 24,796,298 $ 113,247,785
===============================================================================
CLASS 1:
Net assets, at value ........................ $ 732,163,775 $ 113,608,897 $ 824,805,932 $ 24,281,036 $ 112,949,839
===============================================================================
Shares outstanding .......................... 44,256,213 9,311,962 47,685,867 2,254,156 11,676,480
===============================================================================
Net asset value and offering price per share $ 16.54 $ 12.20 $ 17.30 $ 10.77 $ 9.67
===============================================================================
CLASS 2:
Net assets, at value ........................ $ 1,481,045 $ 82,432 $ 4,293,014 $ 515,262 $ 297,946
===============================================================================
Shares outstanding .......................... 89,660 6,766 248,579 47,890 30,876
===============================================================================
Net asset value and offering price per share $ 16.52 $ 12.18 $ 17.27 $ 10.76 $ 9.65
===============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT VALUE ZERO COUPON ZERO COUPON ZERO COUPON
SECURITIES FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND -2010
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ...................................... $ 592,120,175 $ 10,545,736 $ 77,668,890 $ 67,610,406 $ 70,297,897
===============================================================================
Value ..................................... 591,526,259 11,437,807 79,986,511 73,935,988 79,030,048
Repurchase agreements, at value and cost .... 4,447,263 524,430 59,886 107,005 357,431
Receivables:
Investment securities sold ................ 144,419 5,087 -- -- --
Capital shares sold ....................... 306 -- -- -- --
Dividends and interest .................... 4,968,361 10,030 -- -- --
-------------------------------------------------------------------------------
Total assets ........................... 601,086,608 11,977,354 80,046,397 74,042,993 79,387,479
-------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........... -- 91,788 -- -- --
Capital shares redeemed ................... 430,211 -- 106,084 22,835 48,219
Affiliates ................................ 246,593 6,953 41,573 38,093 39,854
Custodian fees ............................ 2,681 133 404 437 1,218
Postage and mailing fees .................. 48,929 1,471 4,323 4,185 6,961
Other liabilities ........................... 52,118 2,797 12,069 11,243 9,056
-------------------------------------------------------------------------------
Total liabilities ...................... 780,532 103,142 164,453 76,793 105,308
-------------------------------------------------------------------------------
Net assets, at value ................... $ 600,306,076 $ 11,874,212 $ 79,881,944 $ 73,966,200 $ 79,282,171
===============================================================================
Net assets consist of:
Undistributed net investment income ........ $ 65,469,885 $ 55,218 $ 9,600,671 $ 6,908,463 $ 7,288,616
Net unrealized appreciation (depreciation) . (593,916) 892,071 2,317,621 6,325,582 8,732,151
Accumulated net realized gain (loss) ....... (11,325,526) (477,785) 2,369,018 1,148,783 3,401,964
Capital shares ............................. 546,755,633 11,404,708 65,594,634 59,583,372 59,859,440
===============================================================================
Net assets, at value ................... $ 600,306,076 $ 11,874,212 $ 79,881,944 $ 73,966,200 $ 79,282,171
===============================================================================
CLASS 1:
Net assets, at value ....................... $ 598,705,147 $ 11,814,650 $ 79,881,944 $ 73,966,200 $ 79,282,171
===============================================================================
Shares outstanding ......................... 43,671,421 1,367,038 5,340,568 4,388,389 4,563,563
===============================================================================
Net asset value and offering price per
share ..................................... $ 13.71 $ 8.64 $ 14.96 $ 16.85 $ 17.37
===============================================================================
CLASS 2:
Net assets, at value ....................... $ 1,600,929 $ 59,562 -- -- --
===============================================================================
Shares outstanding ......................... 116,900 6,901 -- -- --
===============================================================================
Net asset value and offering price per share $ 13.69 $ 8.63 -- -- --
===============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GLOBAL
CAPITAL HEALTH CARE GLOBAL UTILITIES GROWTH AND HIGH
GROWTH FUND SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:+
Dividends ...................................... $ 1,166,373 $ 30,094 $ 11,971,588 $ 19,753,412 $ 52,325
Interest ....................................... 1,245,140 21,647 534,762 1,407,992 22,957,372
-----------------------------------------------------------------------------
Total investment income .................... 2,411,513 51,741 12,506,350 21,161,404 23,009,697
-----------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ....................... 1,141,192 29,511 2,157,610 2,889,139 1,077,280
Administrative fees (Note 3) ................... -- 7,441 -- -- --
Distribution fees (Note 3)
Class 2 ...................................... 198 17 142 306 79
Custodian fees ................................. 1,351 57 54,640 21,206 4,751
Reports to shareholders ........................ 18,685 1,091 53,936 69,996 36,576
Professional fees .............................. 4,961 906 20,219 28,474 10,847
Trustees' fees and expenses .................... 785 53 3,926 5,095 1,868
Other .......................................... 784 298 24,115 7,572 20,616
-----------------------------------------------------------------------------
Total expenses ............................. 1,167,956 39,374 2,314,588 3,021,788 1,152,017
-----------------------------------------------------------------------------
Net investment income ...................... 1,243,557 12,367 10,191,762 18,139,616 21,857,680
-----------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................. 4,715,973 (1,155,604) 111,252,257 71,119,583 2,775,729
Foreign currency transactions ................ -- (583) (827,994) (237,791) (1,982)
-----------------------------------------------------------------------------
Net realized gain (loss) ..................... 4,715,973 (1,156,187) 110,424,263 70,881,792 2,773,747
Net unrealized appreciation (depreciation) on:
Investments ................................. 30,659,765 (453,663) (45,720,421) 2,261,901 (18,528,514)
Translation of assets and liabilities
denominated in foreign currencies .......... -- -- (17,244) 5,820 465
-----------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) ......................... 30,659,765 (453,663) (45,737,665) 2,267,721 (18,528,049)
Net realized and unrealized gain (loss) ......... 35,375,738 (1,609,850) 64,686,598 73,149,513 (15,754,302)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................ $ 36,619,295 $ (1,597,483) $ 74,878,360 $ 91,289,129 $ 6,103,378
==============================================================================
</TABLE>
+Net of foreign taxes and fees of $13,674, $477, $415,034, and $236,846 for the
Capital Growth Fund, the Global Health Care Securities Fund, the Global
Utilities Securities Fund, and the Growth and Income Fund, respectively.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NATURAL
INCOME MONEY MUTUAL DISCOVERY MUTUAL SHARES RESOURCES
SECURITIES MARKET SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:+
Dividends ......................................... $ 12,678,277 $ -- $ 2,586,017 $ 3,173,746 $ 318,904
Interest .......................................... 29,309,887 9,665,523 736,265 2,795,696 40,325
-------------------------------------------------------------------------
Total investment income ........................ 41,988,164 9,665,523 3,322,282 5,969,442 359,229
-------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 2,500,719 998,583 830,969 1,430,056 145,311
Administrative fees (Note 3) ...................... -- -- 155,103 336,639 --
Distribution fees (Note 3)
Class 2 .......................................... 214 976 132 296 31
Custodian fees .................................... 43,219 2,108 12,314 16,100 664
Reports to shareholders ........................... 90,743 15,156 9,511 28,800 3,434
Professional fees ................................. 22,723 6,875 4,586 18,500 1,819
Trustees' fees and expenses ....................... 4,360 1,673 764 1,900 208
Other ............................................. 14,723 -- -- 29,294 1,724
-------------------------------------------------------------------------
Total expenses .................................. 2,676,701 1,025,371 1,013,379 1,861,585 153,191
-------------------------------------------------------------------------
Net investment income .......................... 39,311,463 8,640,152 2,308,903 4,107,857 206,038
-------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ....................................... 34,354,839 208 1,833,708 20,421,696 141,339
Foreign currency transactions ..................... (68,540) -- 1,365,905 1,923,527 (882)
-------------------------------------------------------------------------
Net realized gain ................................. 34,286,299 208 3,199,613 22,345,223 140,457
Net unrealized appreciation (depreciation) on:
Investments ....................................... (58,479,138) -- 11,865,780 35,521,440 11,868,065
Translation of assets and liabilities denominated
in foreign currencies ............................ 6,494 -- 5,832,711 3,031,844 --
-------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ..... (58,472,644) -- 17,698,491 38,553,284 11,868,065
-------------------------------------------------------------------------
Net realized and unrealized gain (loss) ............ (24,186,345) 208 20,898,104 60,898,507 12,008,522
-------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 15,125,118 $ 8,640,360 $ 23,207,007 $65,006,364 $ 12,214,560
=========================================================================
</TABLE>
+Net of foreign taxes and fees of $18,221, $247,535, $157,586, and $9,779 for
the Income Securities Fund, the Mutual Discovery Securities Fund, the Mutual
Shares Securities Fund, and the Natural Resources Securities Fund, respectively.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON
DEVELOPING TEMPLETON
REAL ESTATE RISING MARKETS GLOBAL ASSET
SECURITIES DIVIDENDS SMALL CAP EQUITY ALLOCATION
FUND FUND FUND FUND FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:+
Dividends ......................................... $ 5,613,414 $ 6,579,081 $ 695,579 $ 2,475,116 $ 830,102
Interest .......................................... 122,726 193,549 321,047 6,057 831,921
--------------------------------------------------------------------------
Total investment income ............................ 5,736,140 6,772,630 1,016,626 2,481,173 1,662,023
--------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 671,739 2,328,514 1,101,012 1,041,397 237,031
Administrative fees (Note 3) ...................... -- -- -- -- 54,699
Distribution fees (Note 3)
Class 2 ........................................... 29 212 32 39 30
Custodian fees .................................... 1,630 3,568 1,757 105,800 --
Reports to shareholders ........................... 20,000 42,305 19,744 8,000 7,200
Professional fees ................................. 5,832 14,441 7,859 11,500 1,900
Trustees' fees and expenses ....................... 1,224 2,884 1,228 600 --
Other ............................................. 1,852 4,297 3,105 69 379
--------------------------------------------------------------------------
Total expenses .................................... 702,306 2,396,221 1,134,737 1,167,405 301,239
--------------------------------------------------------------------------
Net investment income (loss) ..................... 5,033,834 4,376,409 (118,111) 1,313,768 1,360,784
--------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ....................................... 10,710,550* 50,831,307* 15,619,206 (26,187,877) (1,148,042)
Foreign currency transactions ..................... -- -- -- (45,691) (32,423)
--------------------------------------------------------------------------
Net realized gain (loss) ......................... 10,710,550 50,831,307 15,619,206 (26,233,568) (1,180,042)
Net unrealized appreciation (depreciation) on:
Investments ....................................... (3,935,850) (44,209,040) 27,500,843 77,326,037 3,153,775
Deferred taxes (Note 1j) ........................... -- -- -- (341,012) --
Translation of assets and liabilities denominated
in foreign currencies ............................. -- -- -- -- (5,174)
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ....... (3,935,850) (44,209,040) 27,500,843 76,985,025 3,148,601
--------------------------------------------------------------------------
Net realized and unrealized gain ................... 6,774,700 6,622,267 43,120,049 50,751,457 1,968,136
--------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 11,808,534 $ 10,998,676 $ 43,001,938 $ 52,065,225 $ 3,328,920
==========================================================================
</TABLE>
+Net of foreign taxes and fees of $79,290, $319,010, and $81,106 for the Small
Cap Fund, the Templeton Developing Markets Equity Fund, and the Templeton Global
Asset Allocation Fund, respectively.
*Includes non-controlled affiliated issuer in the amount of ($1,793,962) for the
Real Estate Securities Fund and $281,428 for the Rising Dividends Fund.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON TEMPLETON TEMPLETON INTERNATIONAL TEMPLETON
GLOBAL GLOBAL INCOME INTERNATIONAL SMALLER PACIFIC
GROWTH FUND SECURITIES FUND EQUITY FUND COMPANIES FUND GROWTH FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:+
Dividends ...................................... $ 11,344,030 $ -- $ 14,953,862 $ 511,983 $ 1,141,457
Interest ....................................... 1,288,395 4,131,998 1,189,313 7,576 19,696
------------------------------------------------------------------------------
Total investment income .................... 12,632,425 4,131,998 16,143,175 519,559 1,161,153
------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ....................... 2,983,965 393,647 3,540,668 97,875 484,190
Administrative fees (Note 3) ................... -- -- -- 17,272 --
Distribution fees (Note 3)
Class 2 ........................................ 442 32 1,313 25 40
Custodian fees ................................. 111,000 26,200 299,100 10,900 40,617
Reports to shareholders ........................ 33,100 12,800 79,300 2,000 --
Professional fees .............................. 15,600 3,400 21,400 1,350 1,100
Trustees' fees and expenses .................... 2,800 400 4,000 150 300
Other .......................................... 6,134 556 5,334 121 --
------------------------------------------------------------------------------
Total expenses ............................. 3,153,041 437,035 3,951,115 129,693 526,247
------------------------------------------------------------------------------
Net investment income ..................... 9,479,384 3,694,963 12,192,060 389,866 634,906
------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................... 17,344,632 (921,611) 90,886,731 (924,716) (27,812,132)
Foreign currency transactions .................. (506,819) 147,984 (1,165,446) (5,559) 83,252
------------------------------------------------------------------------------
Net realized gain (loss) .................. 16,837,813 (773,627) 89,721,285 (930,275) (27,728,880)
Net unrealized appreciation (depreciation) on:
Investments ..................................... 54,339,968 (10,006,919) (10,209,283) 4,119,484 54,174,109
Deferred taxes (Note 1j) ........................ -- -- -- -- (490,909)
Translation of assets and liabilities denominated
in foreign currencies ......................... -- (46,104) -- -- (572,161)
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) . 54,339,968 (10,053,023) (10,209,283) 4,119,484 53,111,039
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) ......... 71,177,781 (10,826,650) 79,512,002 3,189,209 25,382,159
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................ $ 80,657,165 $ (7,131,687) $ 91,704,062 $ 3,579,075 $ 26,017,065
==============================================================================
</TABLE>
+Net of foreign taxes and fees of $1,090,514, $1,715,049, $66,353, and $79,360
for the Templeton Global Growth Fund, the Templeton International Equity Fund,
the Templeton International Smaller Companies Fund, and the Templeton Pacific
Growth Fund, respectively.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF OPERATIONS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT VALUE ZERO COUPON ZERO COUPON ZERO COUPON
SECURITIES FUND SECURITIES FUND FUND - 2000 FUND - 2005 FUND -2010
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends ......................................... $ -- $ 51,283 $ -- $ -- $ --
Interest .......................................... 21,940,933 14,715 3,168,371 2,535,200 2,667,814
---------------------------------------------------------------------------
Total investment income ....................... 21,940,933 65,998 3,168,371 2,535,200 2,667,814
---------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 1,604,660 27,429 268,911 247,643 269,530
Administrative fees (Note 3) ...................... -- 6,911 -- -- --
Distribution fees (Note 3)
Class 2 ........................................... 875 43 -- -- --
Custodian fees .................................... 3,870 148 544 629 474
Reports to shareholders ........................... 75,375 2,351 7,624 6,591 7,658
Professional fees ................................. 12,813 1,016 2,802 2,488 2,514
Trustees' fees and expenses ....................... 2,709 285 388 342 357
Other ............................................. 18,815 773 4,352 4,711 4,942
---------------------------------------------------------------------------
Total expenses ................................ 1,719,117 38,956 284,621 262,404 285,475
---------------------------------------------------------------------------
Net investment income ........................ 20,221,816 27,042 2,883,750 2,272,796 2,382,339
---------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments ......... 1,596,888 (387,745) 617,145 695,508 1,175,571
Net unrealized appreciation (depreciation)
on investments ................................... (29,783,067) 1,294,459 (2,662,964) (7,064,769) (11,551,249)
---------------------------------------------------------------------------
Net realized and unrealized gain (loss) ............ (28,186,179) 906,714 (2,045,819) (6,369,261) (10,375,678)
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... $ (7,964,363) $ 933,756 $ 837,931 $ (4,096,465) $ (7,993,339)
============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GLOBAL HEALTH CARE
CAPITAL GROWTH FUND SECURITIES FUND
-------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998*
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 1,243,557 $ 1,514,533 $ 12,367 $ 25,087
Net realized gain (loss) from
investments and foreign
currency transactions ............. 4,715,973 (3,325,719) (1,156,187) (261,450
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ................ 30,659,765 31,691,954 (453,663) 875,993
------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............... 36,619,295 29,880,768 (1,597,483) 639,630
Distributions to shareholders from:
Net investment income:
Class 1 ........................... -- (539,187) -- --
Net realized gains:
Class 1 ........................... -- -- -- --
------------------------------------------------------------------
Total distributions to
shareholders ..................... -- (539,187) -- --
Capital share transactions:
(Note 2)
Class 1 ........................... 97,982,258 82,255,070 2,993,105 8,350,695
Class 2 ........................... 290,871 -- 42,000 --
------------------------------------------------------------------
Total capital share transactions ... 98,273,129 82,255,070 3,035,105 8,350,695
Net increase (decrease)
in net assets ..................... 134,892,424 111,596,651 1,437,622 8,990,325
Net assets:
Beginning of period ............... 220,951,638 109,354,987 8,990,325 --
------------------------------------------------------------------
End of period ..................... $ 355,844,062 $220,951,638 $ 10,427,947 $ 8,990,325
==================================================================
Undistributed net investment
income included in net assets:
End of period ................. $ 2,753,548 $ 1,509,991 $ 37,454 $ 25,087
==================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL UTILITIES SECURITIES FUND
-----------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 10,191,762 $ 33,039,638
Net realized gain (loss) from
investments and foreign
currency transactions ............. 110,424,263 80,008,445
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ................ (45,737,665) (5,715,083)
-----------------------------------
Net increase (decrease)
in net assets resulting
from operations ............... 74,878,360 107,333,000
Distributions to shareholders from:
Net investment income:
Class 1 ........................... -- (42,481,848)
Net realized gains:
Class 1 ........................... -- (61,944,426)
-----------------------------------
Total distributions to
shareholders ..................... -- (104,426,274)
Capital share transactions:
(Note 2)
Class 1 ........................... (169,644,303) (146,055,631)
Class 2 ........................... 251,223 --
-----------------------------------
Total capital share transactions ... (169,393,080) (146,055,631)
Net increase (decrease)
in net assets ..................... (94,514,720) (143,148,905)
Net assets:
Beginning of period ............... 986,755,196 1,129,904,101
-----------------------------------
End of period ..................... $ 892,240,476 $ 986,755,196
===================================
Undistributed net investment
income included in net assets:
End of period ................. $ 43,191,352 $ 32,999,590
===================================
</TABLE>
*For the period May 1, 1998 (effective date) to December 31, 1998.
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND HIGH INCOME FUND
---------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........... $ 18,139,616 $ 44,009,803 $ 21,857,680 $ 48,463,944
Net realized gain from
investments and foreign
currency transactions .......... 70,881,792 119,155,296 2,773,747 11,863,739
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............. 2,267,721 (59,404,856) (18,528,049) (53,325,986)
---------------------------------------------------------------------------
Net increase in net
assets resulting from
operations .................. 91,289,129 103,760,243 6,103,378 7,001,697
Distributions to shareholders from:
Net investment income:
Class 1 ........................ -- (43,569,458) -- (44,113,847)
Net realized gains:
Class 1 ........................ -- (102,500,145) -- (2,617,950)
---------------------------------------------------------------------------
Total distributions to
shareholders .................... -- (146,069,603) -- (46,731,797)
Capital share transactions:
(Note 2)
Class 1 ........................ (207,410,551) 22,576,507 (69,006,753) (9,697,227)
Class 2 ........................ 474,779 -- 106,496 --
---------------------------------------------------------------------------
Total capital share transactions . (206,935,772) 22,576,507 (68,900,257) (9,697,227)
Net decrease in
net assets ................. (115,646,643) (19,732,853) (62,796,879) (49,427,327)
Net assets:
Beginning of period .............. 1,318,743,273 1,338,476,126 446,608,505 496,035,832
---------------------------------------------------------------------------
End of period .................... $ 1,203,096,630 $ 1,318,743,273 $ 383,811,626 $ 446,608,505
===========================================================================
Undistributed net investment
income included in net assets:
End of period ................... $ 61,413,191 $ 43,273,575 $ 69,541,329 $ 48,138,649
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
INCOME SECURITIES FUND
----------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........... $ 39,311,463 $ 90,721,586
Net realized gain from
investments and foreign
currency transactions .......... 34,286,299 21,750,117
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............. (58,472,644) (93,203,950)
----------------------------------
Net increase in net
assets resulting from
operations .................. 15,125,118 19,267,753
Distributions to shareholders from:
Net investment income:
Class 1 ........................ -- (102,762,930)
Net realized gains:
Class 1 ........................ -- (24,268,308)
----------------------------------
Total distributions to
shareholders .................... -- (127,031,238)
Capital share transactions:
(Note 2)
Class 1 ........................ (229,868,833) (113,183,247)
Class 2 ........................ 465,447 --
----------------------------------
Total capital share transactions . (229,403,386) (113,183,247)
Net decrease in
net assets ................. (214,278,268) (220,946,732)
Net assets:
Beginning of period .............. 1,185,839,887 1,406,786,619
----------------------------------
End of period .................... $ 971,561,619 $ 1,185,839,887
==================================
Undistributed net investment
income included in net assets:
End of period ................... $ 122,233,431 $ 82,921,968
==================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY MARKET FUND MUTUAL DISCOVERY SERIES FUND
--------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 8,640,152 $ 19,603,887 $ 2,308,903 $ 4,620,204
Net realized gain (loss) from
investments and foreign
currency transactions ............ 208 (371) 3,199,613 (11,326,928)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ................ -- -- 17,698,491 (12,566,983)
----------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations .............. 8,640,360 19,603,516 23,207,007 (19,273,707)
Distributions to shareholders from:
Net investment income:
Class 1 .......................... (8,627,302) (19,603,516) -- (3,306,778)
Class 2 .......................... (13,058) -- -- --
Net realized gains:
Class 1 .......................... -- -- -- (3,076,305)
----------------------------------------------------------------
Total distributions to
shareholders ..................... (8,640,360) (19,603,516) -- (6,383,083)
Capital share transactions:
(Note 2)
Class 1 ......................... (67,317,190) 46,891,619 (43,112,110) 51,660,205
Class 2 ......................... 2,731,636 -- 172,282 --
----------------------------------------------------------------
Total capital share transactions ... (64,585,554) 46,891,619 (42,939,828) 51,660,205
Net increase (decrease)
in net assets .................. (64,585,554) 46,891,619 (19,732,821) 26,003,415
Net assets:
Beginning of period ............... 414,340,758 367,449,139 224,656,177 198,652,762
===============================================================
End of period ..................... $ 349,755,204 $ 414,340,758 $ 204,923,356 $ 224,656,177
Undistributed net investment
income included in net assets:
End of period ................... $ -- $ -- $ 6,414,204 $ 4,105,301
================================================================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
----------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............. $ 4,107,857 $ 12,337,999
Net realized gain (loss) from
investments and foreign
currency transactions ............ 22,345,223 (9,502,532)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... 38,553,284 (8,967,243)
-------------------------------
Net increase (decrease)
in net assets resulting
from operations .............. 65,006,364 (6,131,776)
Distributions to shareholders from:
Net investment income:
Class 1 .......................... -- (5,124,853)
Class 2 .......................... -- --
Net realized gains:
Class 1 .......................... -- (4,478,333)
-------------------------------
Total distributions to
shareholders ..................... -- (9,603,186)
Capital share transactions:
(Note 2)
Class 1 ......................... (50,529,383) 110,391,317
Class 2 ......................... 408,671 --
-------------------------------
Total capital share transactions ... (50,120,712) 110,391,317
Net increase (decrease)
in net assets .................. 14,885,652 94,656,355
Net assets:
Beginning of period ............... 482,443,687 387,787,332
===============================
End of period ..................... $ 497,329,339 $ 482,443,687
Undistributed net investment
income included in net assets:
End of period ................... $ 15,676,564 $ 11,568,707
===============================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NATURAL RESOURCES SECURITIES FUND REAL ESTATE SECURITIES FUND
--------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............ $ 206,038 $ 751,162 $ 5,033,834 $ 20,084,431
Net realized gain (loss) from
investments and foreign
currency transactions ........... 140,457 (16,988,914) 10,710,550 24,686,332
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... 11,868,065 (1,662,177) (3,935,850) (114,230,527)
--------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations .............. 12,214,560 (17,899,929) 11,808,534 (69,459,764)
Distributions to shareholders from:
Net investment income:
Class 1 ........................ -- (946,913) -- (15,362,062)
Net realized gains:
Class 1 ......................... -- -- -- (9,509,537)
--------------------------------------------------------------------
Total distributions to
shareholders .................... -- (946,913) -- (24,871,599)
Capital share transactions:
(Note 2)
Class 1 ........................ (7,827,532) (10,150,422) (69,646,316) (63,932,493)
Class 2 ........................ 37,913 -- 42,684 --
--------------------------------------------------------------------
Total capital share transactions . (7,789,619) (10,150,422) (69,603,632) (63,932,493)
Net increase (decrease)
in net assets ............... 4,424,941 (28,997,264) (57,795,098) (158,263,856)
Net assets:
Beginning of period .............. 45,927,046 74,924,310 282,290,407 440,554,263
--------------------------------------------------------------------
End of period .................... $ 50,351,987 $ 45,927,046 $ 224,495,309 $ 282,290,407
====================================================================
Undistributed net investment
income included in net assets:
End of period ................... $ 933,095 $ 727,057 $ 23,943,538 $ 18,909,704
====================================================================
</TABLE>
<TABLE>
<CAPTION>
RISING DIVIDENDS FUND
-------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............ $ 4,376,409 $ 9,364,650
Net realized gain (loss) from
investments and foreign
currency transactions ........... 50,831,307 93,670,542
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............... (44,209,040) (58,097,205)
-----------------------------------
Net increase (decrease)
in net assets resulting
from operations .............. 10,998,676 44,937,987
Distributions to shareholders from:
Net investment income:
Class 1 ......................... -- (8,600,227)
Net realized gains:
Class 1 ......................... -- (105,391,578)
-----------------------------------
Total distributions to
shareholders .................... -- (113,991,805)
Capital share transactions:
(Note 2)
Class 1 ......................... (141,612,078) 40,625,030
Class 2 ......................... 305,553 --
-----------------------------------
Total capital share transactions . (141,306,525) 40,625,030
Net increase (decrease)
in net assets ............... (130,307,849) (28,428,788)
Net assets:
Beginning of period .............. 751,868,996 780,297,784
-----------------------------------
End of period .................... $ 621,561,147 $ 751,868,996
==================================
Undistributed net investment
income included in net assets:
End of period ................... $ 13,735,865 $ 9,359,456
==================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING
SMALL CAP FUND MARKETS EQUITY FUND
-----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ..... $ (118,111) $ 1,603,412 $ 1,313,768 $ 4,306,111
Net realized gain (loss) from
investments and foreign
currency transactions ........... 15,619,206 (229,426) (26,233,568) (27,689,978)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies .............. 27,500,843 (8,381,265) 76,985,025 (32,987,790)
-----------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............. 43,001,938 (7,007,279) 52,065,225 (56,371,657)
Distributions to shareholders from:
Net investment income:
Class 1 ......................... -- (201,399) -- (7,007,398)
Net realized gains:
Class 1 ......................... -- (25,854,889) -- (22,786,132)
-----------------------------------------------------------------------
Total distributions to
shareholders .................... -- (26,056,288) -- (29,793,530)
Capital share transactions:
(Note 2)
Class 1 ......................... (59,278,260) 35,061,886 (25,684,352) (31,081,577)
Class 2 ......................... 71,700 -- 575,733 --
-----------------------------------------------------------------------
Total capital share transactions . (59,206,560) 35,061,886 (25,108,619) (31,081,577)
Net increase (decrease)
in net assets ............... (16,204,622) 1,998,319 26,956,606 (117,246,764)
Net assets:
Beginning of period .............. 315,459,858 313,461,539 162,433,287 279,680,051
-----------------------------------------------------------------------
End of period .................... $ 299,255,236 $ 315,459,858 $ 189,389,893 $ 162,433,287
=======================================================================
Undistributed net investment
income included in net assets:
End of period ................... $ 1,414,424 $ 1,532,535 $ 4,420,885 $ 3,107,117
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
---------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ..... $ 1,360,784 $ 3,890,233
Net realized gain (loss) from
investments and foreign
currency transactions ........... (1,180,465) 2,718,229
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies .............. 3,148,601 (7,345,527)
--------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............. 3,328,920 (737,065)
Distributions to shareholders from:
Net investment income:
Class 1 .......................... -- (3,274,568)
Net realized gains:
Class 1 ......................... -- (3,894,373)
--------------------------------------
Total distributions to
shareholders .................... -- (7,168,941)
Capital share transactions:
(Note 2)
Class 1 ......................... (14,443,463) (3,826,198)
Class 2 ......................... 41,170 --
--------------------------------------
Total capital share transactions . (14,402,293) (3,826,198)
Net increase (decrease)
in net assets ............... (11,073,373) (11,732,204)
Net assets:
Beginning of period .............. 81,669,618 93,401,822
--------------------------------------
End of period .................... $ 70,596,245 $ 81,669,618
======================================
Undistributed net investment
income included in net assets:
End of period ................... $ 4,133,697 $ 2,772,913
======================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON GLOBAL GROWTH FUND TEMPLETON GLOBAL INCOME SECURITIES FUND
------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......... $ 9,479,384 $ 17,620,120 $ 3,694,963 $ 11,448,872
Net realized gain (loss) from
investments and foreign
currency transactions ......... 16,837,813 76,153,893 (773,627) (5,620,478)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............ 54,339,968 (33,429,013) (10,053,023) 5,419,749
---------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............ 80,657,165 60,345,000 (7,131,687) 11,248,143
Distributions to shareholders from:
Net investment income:
Class 1 ....................... -- (20,206,508) -- (12,370,027)
Net realized gains:
Class 1 ....................... -- (73,600,973) -- --
---------------------------------------------------------------------------
Total distributions to
shareholders .................... -- (93,807,481) -- (12,370,027)
Capital share transactions:
(Note 2)
Class 1 ....................... (95,532,793) 22,098,260 (30,201,573) (32,953,553)
Class 2 ....................... 1,440,094 -- 83,852 --
---------------------------------------------------------------------------
Total capital share transactions.. (94,092,699) 22,098,260 (30,117,721) (32,953,553)
Net decrease in
net assets .................. (13,435,534) (11,364,221) (37,249,408) (34,075,437)
Net assets:
Beginning of period .............. 747,080,354 758,444,575 150,940,737 185,016,174
---------------------------------------------------------------------------
End of period .................... $ 733,644,820 $ 747,080,354 $ 113,691,329 $ 150,940,737
===========================================================================
Undistributed net investment
income included in net assets:
End of period ................. $ 24,158,413 $ 14,679,029 $ 8,638,389 $ 4,943,426
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL EQUITY FUND
------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........... $ 12,192,060 $ 32,119,117
Net realized gain (loss) from
investments and foreign
currency transactions .......... 89,721,285 24,006,171
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............. (10,209,283) 3,813,638
-----------------------------------
Net increase (decrease)
in net assets resulting
from operations .............. 91,704,062 59,938,926
Distributions to shareholders from:
Net investment income:
Class 1 ........................ -- (34,702,026)
Net realized gains:
Class 1 ........................ -- (69,708,108)
-----------------------------------
Total distributions to
shareholders ..................... -- (104,410,134)
Capital share transactions:
(Note 2)
Class 1 ........................ (222,596,332) (161,058,239)
Class 2 ........................ 4,091,114 --
-----------------------------------
Total capital share transactions... (218,505,218) (161,058,239)
Net decrease in
net assets ................... (126,801,156) (205,529,447)
Net assets:
Beginning of period ............... 955,900,102 1,161,429,549
-----------------------------------
End of period ..................... $ 829,098,946 $ 955,900,102
===================================
Undistributed net investment
income included in net assets:
End of period .................. $ 42,455,389 $ 30,263,329
===================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL
SMALLER COMPANIES FUND TEMPLETON PACIFIC GROWTH FUND
----------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......... $ 389,866 $ 691,086 $ 634,906 $ 3,011,920
Net realized gain (loss) from
investments and foreign
currency transactions ......... (930,275) (2,334,096) (27,728,880) (24,149,643)
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............ 4,119,484 (2,224,314) 53,111,039 (1,803,583)
-------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations ............ 3,579,075 (3,867,324) 26,017,065 (22,941,306)
Distributions to shareholders from:
Net investment income:
Class 1 ...................... -- (741,651) -- (5,322,439)
Net realized gains:
Class 1 ...................... -- (858,571) -- (1,619,542)
-------------------------------------------------------------------
Total distributions to
shareholders ..................... -- (1,600,222) -- (6,941,981)
Capital share transactions:
(Note 2)
Class 1 ...................... (4,294,799) (1,733,715) (11,826,568) (36,751,143)
Class 2 ...................... 512,578 -- 287,903 --
-------------------------------------------------------------------
Total capital share transactions . (3,782,221) (1,733,715) (11,538,665) (36,751,143)
Net increase (decrease)
in net assets ............... (203,146) (7,201,261) 14,478,400 (66,634,430)
Net assets:
Beginning of period .............. 24,999,444 32,200,705 98,769,385 165,403,815
-------------------------------------------------------------------
End of period .................... $ 24,796,298 $ 24,999,444 $ 113,247,785 $ 98,769,385
===================================================================
Undistributed net investment
income included in net assets:
End of period ................... $ 1,010,826 $ 620,960 $ 634,906 $ --
===================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
-----------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......... $ 20,221,816 $ 45,349,259
Net realized gain (loss) from
investments and foreign
currency transactions ......... 1,596,888 2,808,941
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies ............ (29,783,067) 3,506,133
---------------------------------
Net increase (decrease)
in net assets resulting
from operations ............ (7,964,363) 51,664,333
Distributions to shareholders from:
Net investment income:
Class 1 ...................... -- (50,958,932)
Net realized gains:
Class 1 ...................... -- --
---------------------------------
Total distributions to
shareholders ..................... -- (50,958,932)
Capital share transactions:
(Note 2)
Class 1 ......................... (104,181,877) (54,957,919)
Class 2 ......................... 1,620,393 --
---------------------------------
Total capital share transactions . (102,561,484) (54,957,919)
Net increase (decrease)
in net assets ............... (110,525,847) (54,252,518)
Net assets:
Beginning of period .............. 710,831,923 765,084,441
---------------------------------
End of period .................... $ 600,306,076 $ 710,831,923
=================================
Undistributed net investment
income included in net assets:
End of period ................... $ 65,469,885 $ 45,248,069
=================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
VALUE SECURITIES FUND ZERO COUPON FUND - 2000
--------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998* JUNE 30, 1999 DECEMBER 31, 1998
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 27,042 $ 28,176 $ 2,883,750 $ 6,767,257
Net realized gain (loss) from investments ....... (387,745) (90,040) 617,145 1,752,805
Net unrealized appreciation (depreciation)
on investments ................................ 1,294,459 (402,388) (2,662,964) (1,138,823)
-----------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................... 933,756 (464,252) 837,931 7,381,239
Distributions to shareholders from:
Net investment income:
Class 1 ......................................... -- -- -- (7,809,331)
Net realized gains:
Class 1 ......................................... -- -- -- (1,249,416)
-----------------------------------------------------------------------
Total distributions to shareholders ................ -- -- -- (9,058,747)
Capital share transactions: (Note 2)
Class 1 ........................................... 1,874,914 9,477,723 (14,498,813) (16,430,117)
Class 2 ........................................... 52,071 -- -- --
-----------------------------------------------------------------------
Total capital share transactions ................... 1,926,985 9,477,723 (14,498,813) (16,430,117)
Net increase (decrease) in net assets ......... 2,860,741 9,013,471 (13,660,882) (18,107,625)
Net assets:
Beginning of period .............................. 9,013,471 -- 93,542,826 111,650,451
-----------------------------------------------------------------------
End of period .................................... $ 11,874,212 $ 9,013,471 $ 79,881,944 $ 93,542,826
=======================================================================
Undistributed net investment income included
in net assets:
End of period .................................... $ 55,218 $ 28,176 $ 9,600,671 $ 6,716,921
=======================================================================
</TABLE>
*For the period May 1, 1998 (effective date) to December 31, 1998
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ZERO COUPON FUND - 2005 ZERO COUPON FUND - 2010
-------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 2,272,796 $ 4,640,880 $ 2,382,339 $ 4,911,607
Net realized gain from investments ....... 695,508 454,474 1,175,571 2,320,295
Net unrealized appreciation (depreciation)
on investments ........................ (7,064,769) 4,293,862 (11,551,249) 4,482,254
-----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......... (4,096,465) 9,389,216 (7,993,339) 11,714,156
Distributions to shareholders from:
Net investment income ................. -- (4,795,119) -- (4,888,749)
Net realized gains .................... -- (1,109,296) -- (676,395)
-----------------------------------------------------------------------
Total distributions to shareholders ....... -- (5,904,415) -- (5,565,144)
Capital share transactions (Note 2) ....... (6,424,720) 3,707,073 (6,239,625) 1,851,397
-----------------------------------------------------------------------
Net increase (decrease) in net assets . (10,521,185) 7,191,874 (14,232,964) 8,000,409
Net assets:
Beginning of period ....................... 84,487,385 77,295,511 93,515,135 85,514,726
-----------------------------------------------------------------------
End of period ............................. $ 73,966,200 $ 84,487,385 $ 79,282,171 $ 93,515,135
=======================================================================
Undistributed net investment income
included in net assets:
End of period ........................... $ 6,908,463 $ 4,635,667 $ 7,288,616 $ 4,906,277
=======================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Valuemark Funds (the Trust) is registered under the Investment Company
Act of 1940, as an open-end investment company, consisting of twenty-five series
(the Funds). All Funds are diversified except the Global Health Care Securities
Fund, the Templeton Global Income Securities Fund, and the Value Securities
Fund. Shares of the Funds are sold only to insurance company separate accounts
to fund the benefits of variable life insurance policies or variable annuity
contracts. The Funds and their investment objectives are:
<TABLE>
<CAPTION>
CAPITAL PRESERVATION
CAPITAL GROWTH GROWTH AND INCOME CURRENT INCOME AND INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Growth Fund Global Utilities Securities Fund High Income Fund Money Market Fund
Global Health Care Securities Fund Growth and Income Fund Templeton Global
Mutual Discovery Securities Fund Income Securities Fund Income Securities
Natural Resources Securities Fund Mutual Shares Securities Fund Fund
Small Cap Fund Real Estate Securities Fund U.S. Government
Templeton Developing Markets Equity Fund Rising Dividends Fund Securities Fund
Templeton Global Growth Fund Templeton Global Asset Allocation Fund Zero Coupon Fund - 2000
Templeton International Equity Fund Value Securities Fund Zero Coupon Fund - 2005
Templeton International Smaller Companies Fund Zero Coupon Fund - 2010
Templeton Pacific Growth Fund
</TABLE>
Effective July 1, 1999, the name of the Trust, Franklin Valuemark Funds, changed
to Franklin Templeton Variable Insurance Products Trust. The Funds' investment
objectives and other policies did not change as a result of the name change.
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).
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.
c. REPURCHASE AGREEMENTS
Certain funds may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements. The value and face amount of the
joint repurchase agreement are allocated to the funds based on their pro-rata
interest. Certain funds may enter into repurchase agreements which are accounted
for as a loan by the fund to the seller, collateralized by securities which are
delivered to the funds' custodian. The market value, including accrued interest,
of the initial collateralization is required to be at least 102% of the dollar
amount invested by the funds, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At June 30, 1999, all
outstanding repurchase agreements had been entered into on that date.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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 each Fund's equity
therein is included in the Statements of Assets and Liabilities. Realized and
unrealized gains and losses are included in the Statements of Operations.
e. CONTRACTS FOR DIFFERENCES
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund are
engaged in short contracts for differences. Short contracts for differences are
contracts entered into between a broker and the fund under which the parties
agree to make payments to each other so as to replicate the economic
consequences that would apply had a short sale of the underlying security taken
place. Upon entering into short contracts for differences, the funds are
required to pledge to the broker an amount of cash and/or other assets equal to
a certain percentage of the contract amount ("initial margin"). Subsequent
payments known as "variation margin", are made or received by the funds
periodically, depending on fluctuations in the value of the underlying security.
When the contract is closed, the funds record a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed. Should market conditions move unexpectedly,
the fund may not achieve the anticipated benefits of the contracts for the
differences and may realize a loss.
f. OPTIONS
In order to produce incremental income or protect against changes in the value
of the underlying securities, the Mutual Discovery Securities Fund and the
Mutual Shares Securities Fund may write put and covered call options.
Premiums received by these funds upon writing put or covered call options are
recorded as an asset and an equivalent liability which is subsequently adjusted
daily to equal the current market value of the option written. Each fund will
realize a gain or loss upon the expiration or closing of the option transaction.
When an option is exercised, the proceeds on sales for a written call option or
the purchase cost for a written put option is adjusted by the amount of the
premium received or paid. The risk in writing a call option is that the funds
give up the opportunity for profit if the market price of the security increases
and the option is exercised. The risk in writing a put option is that the funds
may incur a loss if the market price of the security decreases and the option is
exercised. All collateral covering written options are held in a segregated
account by the custodian bank.
g. SECURITIES SOLD SHORT
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund are
engaged in selling securities short, which obligates the funds to replace a
security borrowed with the same security at the current market value. The funds
would incur a loss if the price of the security increases between the date of
the short sale and the date on which the funds replace the borrowed security.
The funds would realize a gain if the price of the security declines between
those dates.
The funds are 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 funds must maintain a deposit for the broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short.
h. INCOME TAXES
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
i. 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,
dividends from net investment income and capital gains or losses are normally
declared daily. Such distributions are reinvested in additional shares of the
fund.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
i. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
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.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
j. DEFERRED TAXES
Deferred taxes are recorded for estimated tax liabilities inherent in the fund's
portfolio securities which may arise from subsequent sales of those securities
and asset repatriations from countries that impose such taxes.
k. 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 expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
Effective January 6, 1999, all funds except the Zero Coupon Fund - 2000, the
Zero Coupon Fund - 2005, and the Zero Coupon Fund - 2010 offered two classes of
shares: Class 1 and Class 2. Outstanding shares before that date were designated
Class 1 shares. Each class of shares differ by their distribution fees, voting
rights on matters affecting a single class and the exchange privilege of each
class.
At June 30, 1999, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND GLOBAL HEALTH CARE SECURITIES FUND(2)
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 10,973,145 $ 182,013,202 854,024 $ 8,285,607
Shares redeemed .............................. (5,024,170) (84,030,944) (559,224) (5,292,502)
-----------------------------------------------------------------------
Net increase (decrease) ...................... 5,948,975 $ 97,982,258 294,800 $ 2,993,105
=======================================================================
Year ended December 31, 1998
Shares sold .................................. 9,664,745 $ 140,653,465 1,315,108 $ 12,754,095
Shares issued in reinvestment of distributions 37,058 539,187 -- --
Shares redeemed .............................. (4,111,363) (58,937,582) (475,618) (4,403,400)
-----------------------------------------------------------------------
Net increase (decrease) ...................... 5,590,440 $ 82,255,070 839,490 $ 8,350,695
=======================================================================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 33,409 $ 565,484 4,584 $ 42,000
Shares redeemed .............................. (16,354) (274,613) -- --
-----------------------------------------------------------------------
Net increase ................................. 17,055 $ 290,871 4,584 $ 42,000
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL UTILITIES SECURITIES FUND
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 710,275 $ 14,567,401
Shares redeemed .............................. (8,952,145) (184,211,704)
---------------------------------
Net increase (decrease) ...................... (8,241,870) $(169,644,303)
=================================
Year ended December 31, 1998
Shares sold .................................. 2,621,862 $ 52,650,625
Shares issued in reinvestment of distributions 5,388,353 104,426,274
Shares redeemed .............................. (15,318,738) (303,132,530)
---------------------------------
Net increase (decrease) ...................... (7,308,523) $(146,055,631)
=================================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 12,466 $ 259,822
Shares redeemed .............................. (436) (8,599)
---------------------------------
Net increase ................................. 12,030 $ 251,223
=================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND HIGH INCOME FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 2,726,021 $ 55,863,148 7,113,530 $ 95,541,636
Shares redeemed .............................. (12,758,646) (263,273,699) (12,198,106) (164,548,389)
--------------------------------------------------------------
Net decrease ................................. (10,032,625) $(207,410,551) (5,084,576) $ (69,006,753)
==============================================================
Year ended December 31, 1998
Shares sold .................................. 9,617,417 $ 198,201,953 12,350,296 $ 169,850,148
Shares issued in reinvestment of distributions 7,392,186 146,069,603 3,423,575 46,731,797
Shares redeemed .............................. (15,929,952) (321,695,049) (16,477,344) (226,279,172)
--------------------------------------------------------------
Net increase (decrease) ...................... 1,079,651 $ 22,576,507 (703,473) $ (9,697,227)
==============================================================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 27,862 $ 574,506 11,540 $ 155,205
Shares redeemed .............................. (4,580) (99,727) (3,608) (48,709)
--------------------------------------------------------------
Net increase ................................. 23,282 $ 474,779 7,932 $ 106,496
==============================================================
</TABLE>
<TABLE>
<CAPTION>
INCOME SECURITIES FUND
---------------------------
SHARES AMOUNT
---------------------------
<S> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 1,457,863 $ 24,398,652
Shares redeemed .............................. 15,134,841) (254,267,485)
---------------------------
Net decrease ................................. 13,676,978) $(229,868,833)
===========================
Year ended December 31, 1998
Shares sold .................................. 5,561,398 $ 97,914,458
Shares issued in reinvestment of distributions 7,512,196 127,031,238
Shares redeemed .............................. 19,594,845) (338,128,943)
---------------------------
Net increase (decrease) ...................... (6,521,251) $(113,183,247)
===========================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 27,417 $ 465,971
Shares redeemed .............................. (31) (524)
---------------------------
Net increase ................................. 27,386 $ 465,447
===========================
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND MUTUAL DISCOVERY SECURITIES FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 352,013,600 $ 352,013,600 585,114 $ 6,880,312
Shares issued in reinvestment of distributions 8,627,323 8,627,323 -- --
Shares redeemed .............................. (427,958,113) (427,958,113) (4,311,293) (49,992,422)
----------------------------------------------------------------
Net decrease ................................. (67,317,190) $ (67,317,190) (3,726,179) $ (43,112,110)
================================================================
Year ended December 31, 1998
Shares sold .................................. 748,602,052 $ 748,602,052 7,041,503 $ 90,113,407
Shares issued in reinvestment of distributions 19,603,629 19,603,629 482,835 6,383,083
Shares redeemed .............................. (721,314,062) (721,314,062) (3,946,113) (44,836,285)
----------------------------------------------------------------
Net increase ................................. 46,891,619 $ 46,891,619 3,578,225 $ 51,660,205
================================================================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 25,924,734 $ 25,924,734 14,784 $ 172,322
Shares issued in reinvestment of distributions 13,057 13,057 -- --
Shares redeemed .............................. (23,206,155) (23,206,155) (3) (40)
----------------------------------------------------------------
Net increase ................................. 2,731,636 $ 2,731,636 14,781 $ 172,282
================================================================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES SECURITIES FUND
-------------------------------
SHARES AMOUNT
-------------------------------
<S> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 1,558,491 $ 19,723,160
Shares issued in reinvestment of distributions
Shares redeemed .............................. (5,637,705) (70,252,543)
-------------------------------
Net decrease ................................. (4,079,214) $ (50,529,383)
===============================
Year ended December 31, 1998
Shares sold .................................. 12,012,852 $ 150,206,617
Shares issued in reinvestment of distributions 760,950 9,603,186
Shares redeemed .............................. (4,280,005) (49,418,486)
-------------------------------
Net increase ................................. 8,493,797 $ 110,391,317
===============================
CLASS 2 SHARES:
Period ended June 30, 19991
Shares sold .................................. 32,375 $ 409,335
Shares issued in reinvestment of distributions -- --
Shares redeemed .............................. (49) (664)
-------------------------------
Net increase ................................. 32,326 $ 408,671
===============================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
NATURAL RESOURCES
SECURITIES FUND REAL ESTATE SECURITIES FUND RISING DIVIDENDS FUND
-----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................... 2,402,323 $ 21,970,485 375,550 $ 7,528,431 1,699,792 $ 29,257,585
Shares redeemed ................ (3,238,289) (29,798,017) (3,875,018) (77,174,747) (9,864,878) (170,869,663)
-----------------------------------------------------------------------------------------
Net decrease ................... (835,966) $ (7,827,532) (3,499,468) $ (69,646,316) (8,165,086) $(141,612,078)
=========================================================================================
Year ended December 31, 1998
Shares sold .................... 3,505,454 $ 36,314,081 1,938,333 $ 46,066,967 10,051,992 $ 190,031,986
Shares issued in reinvestment of
distributions ................. 91,844 946,913 1,117,322 24,871,599 6,443,856 113,991,805
Shares redeemed ................ (4,685,716) (47,411,416) (6,098,998) (134,871,059) (14,609,606) (263,398,761)
-----------------------------------------------------------------------------------------
Net increase (decrease) ........ (1,088,418) $(10,150,422) (3,043,343) $ (63,932,493) 1,886,242 $ 40,625,030
==========================================================================================
CLASS 2 SHARES:
Period ended June 30, 1999(1)
Shares sold .................... 4,023 $ 37,935 2,118 $ 42,776 18,737 $ 320,600
Shares redeemed ................ (2) (22) (4) (92) (915) (15,047)
-----------------------------------------------------------------------------------------
Net increase ................... 4,021 $ 37,913 2,114 $ 42,684 17,822 $ 305,553
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING TEMPLETON GLOBAL
SMALL CAP FUND MARKETS EQUITY FUND ASSET ALLOCATION FUND
-------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................... 2,246,067 $ 32,245,949 2,116,590 $ 16,820,342 312,654 $ 3,996,393
Shares redeemed ................ (6,520,641) (91,524,209) (5,519,923) (42,504,694) (1,461,637) (18,439,856)
-------------------------------------------------------------------------------------------
Net decrease ................... (4,274,574) $ (59,278,260) (3,403,333) $ (25,684,352) (1,148,983) $(14,443,463)
===========================================================================================
Year ended December 31, 1998
Shares sold .................... 10,354,452 $ 146,238,628 6,171,249 $ 49,413,698 1,163,365 $ 15,880,669
Shares issued in reinvestment of
distributions ................. 1,866,496 26,056,288 4,042,542 29,793,530 556,595 7,168,941
Shares redeemed ................ (10,047,779) (137,233,030) (13,892,294) (110,288,805) (2,081,709) (26,875,808)
-------------------------------------------------------------------------------------------
Net increase (decrease) ........ 2,173,169 $ 35,061,886 (3,678,503) $ (31,081,577) (361,749) $ (3,826,198)
===========================================================================================
CLASS 2 SHARES:
Period ended June 30, 1999(1)
Shares sold .................... 4,906 $ 71,741 62,613 $ 575,733 3,263 $ 41,492
Shares redeemed ................ (3) (41) -- -- (24) (322)
-------------------------------------------------------------------------------------------
Net increase ................... 4,903 $ 71,700 62,613 $ 575,733 3,239 $ 41,170
===========================================================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON
GLOBAL GROWTH FUND GLOBAL INCOME SECURITIES FUND INTERNATIONAL EQUITY FUND
-------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................... 1,782,998 $ 27,617,265 588,496 $ 7,453,070 5,410,230 $ 87,114,718
Shares redeemed ................ (8,111,183) (123,150,058) (3,001,716) (37,654,643) (19,308,547) (309,711,050)
-------------------------------------------------------------------------------------------
Net decrease ................... (6,328,185) $ (95,532,793) (2,413,220) $ (30,201,573) (13,898,317) $(222,596,332)
===========================================================================================
Year ended December 31, 1998
Shares sold .................... 6,659,421 $ 103,474,286 884,521 $ 11,354,195 6,071,020 $ 98,428,488
Shares issued in reinvestment of
distributions ................. 6,496,363 93,807,481 1,004,061 12,370,027 6,374,245 104,410,134
Shares redeemed ................ (12,002,187) (175,183,507) (4,428,598) (56,677,775) (22,907,488) (363,896,861)
-------------------------------------------------------------------------------------------
Net increase (decrease) ........ 1,153,597 $ 22,098,260 (2,540,016) $ (32,953,553) (10,462,223) $(161,058,239)
===========================================================================================
CLASS 2 SHARES:
Period ended June 30, 1999(1)
Shares sold .................... 93,482 $ 1,500,766 7,971 $ 98,979 1,304,309 $ 22,266,015
Shares redeemed ................ (3,822) (60,672) (1,205) (15,127) (1,055,730) (18,174,901)
-------------------------------------------------------------------------------------------
Net increase ................... 89,660 $ 1,440,094 6,766 $ 83,852 248,579 $ 4,091,114
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL TEMPLETON U.S. GOVERNMENT
SMALLER COMPANIES FUND PACIFIC GROWTH FUND SECURITIES FUND
-------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................... 168,815 $ 1,720,634 17,387,718 $ 143,677,196 2,461,939 $ 34,158,528
Shares redeemed ................ (633,167) (6,015,433) (18,864,053) (155,503,764) (9,984,254) (138,340,405)
-------------------------------------------------------------------------------------------
Net decrease ................... (464,352) $ (4,294,799) (1,476,335) $ (11,826,568) (7,522,315) $(104,181,877)
===========================================================================================
Year ended December 31, 1998
Shares sold .................... 1,335,385 $ 13,968,902 12,315,500 $ 91,136,520 10,470,243 $ 144,337,382
Shares issued in reinvestment of
distributions ................. 147,758 1,600,222 1,116,074 6,941,981 3,808,590 50,958,932
Shares redeemed ................ (1,687,180) (17,302,839) (18,106,232) (134,829,644) (18,034,303) (250,254,233)
-------------------------------------------------------------------------------------------
Net decrease ................... (204,037) $ (1,733,715) (4,674,658) $ (36,751,143) (3,755,470) $ (54,957,919)
===========================================================================================
CLASS 2 SHARES:
Period ended June 30, 1999(1)
Shares sold .................... 47,894 $ 512,620 57,566 $ 543,041 117,127 $ 1,623,528
Shares redeemed ................ (4) (42) (26,690) (255,138) (227) (3,135)
-------------------------------------------------------------------------------------------
Net increase ................... 47,890 $ 512,578 30,876 $ 287,903 116,900 $ 1,620,393
===========================================================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
VALUE SECURITIES FUND(2) ZERO COUPON FUND - 2000 ZERO COUPON FUND - 2005
-------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................... 1,036,592 $ 8,039,374 205,058 $ 3,048,719 401,763 $ 6,940,753
Shares redeemed ................ (826,346) (6,164,460) (1,179,809) (17,547,532) (775,269) (13,365,473)
-------------------------------------------------------------------------------------
Net increase (decrease) ........ 210,246 $ 1,874,914 (974,751) $(14,498,813) (373,506) $ (6,424,720)
=====================================================================================
Year ended December 31, 1998
Shares sold .................... 1,367,931 $ 11,279,710 646,397 $ 9,539,377 977,903 $ 16,942,756
Shares issued in reinvestment of
distributions ................. -- -- 637,042 9,058,747 357,194 5,904,415
Shares redeemed ................ (211,139) (1,801,987) (2,343,411) (35,028,241) (1,107,098) (19,140,098)
-------------------------------------------------------------------------------------
Net increase (decrease) ........ 1,156,792 $ 9,477,723 (1,059,972) $(16,430,117) 227,999 $ 3,707,073
=====================================================================================
CLASS 2 SHARES:
Period ended June 30, 1999(1)
Shares sold .................... 6,901 $ 52,071
------------------------
Net increase ................... 6,901 $ 52,071
========================
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON FUND - 2010
--------------------------
SHARES AMOUNT
--------------------------
<S> <C> <C>
CLASS 1 SHARES:
Period ended June 30, 1999
Shares sold .................................. 998,298 $ 18,201,492
Shares redeemed .............................. (1,343,609) (24,441,117)
--------------------------
Net decrease ................................. (345,311) $ (6,239,625)
==========================
Year ended December 31, 1998
Shares sold .................................. 2,622,702 $ 48,365,327
Shares issued in reinvestment of distributions 314,060 5,565,143
Shares redeemed .............................. (2,825,253) (52,079,073)
--------------------------
Net increase ................................. 111,509 $ 1,851,397
==========================
</TABLE>
(1) For the period January 6, 1999 (effective date) to June 30, 1999.
(2) For the period May 1, 1998 (effective date) to December 31, 1998.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
- -----------------------------------------------------------------------------------------------
<S> <C>
Franklin Templeton Services, Inc. (FT Services) Administrative manager
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Advisory Services, LLC (Advisory Services) Investment manager
Franklin Mutual Advisers, LLC (Franklin Mutual) Investment manager
Templeton Asset Management Ltd. (TAML) Investment manager
Templeton Global Advisors Ltd. (TGAL) Investment manager
Templeton Investment Counsel, Inc. (TICI) Investment manager
Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services, Inc. (Investor Services) Transfer agent
</TABLE>
The Funds pay an investment management fee to Advisers based on the average net
assets of the Funds, except the Capital Growth Fund, the Global Health Care
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Rising Dividends Fund, the Small Cap Fund, the Templeton
Developing Markets Equity Fund, the Templeton Global Asset Allocation Fund, the
Templeton Global Growth Fund, the Templeton International Equity Fund, the
Templeton International Smaller Companies Fund, the Templeton Pacific Growth
Fund, and the Value Securities Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.50% over $100 million, up to and including $250 million
.45% over $250 million, up to and including $10 billion
</TABLE>
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
each Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
</TABLE>
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 each Fund as follows:
<TABLE>
Annualized Fee Rate Daily Net Assets
- -------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Global Health Care Securities Fund and the Value Securities Fund pay an
investment management fee to Advisers and Advisory Services, respectively, based
on the average net assets of each Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.60% First $200 million
.50% over $200 million, up to and including $1.3 billion
.40% over $1.3 billion
</TABLE>
The Rising Dividends Fund pays an investment management fee to Advisory Services
based on the average net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.75% First $500 million
.625% over $500 million, up to and including $1 billion
.50% over $1 billion
</TABLE>
The Templeton Global Growth Fund pays an investment management fee to TGAL based
on the average net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
1.00% First $100 million
.90% over $100 million, up to and including $250 million
.80% over $250 million, up to and including $500 million
</TABLE>
Fees are further reduced on net assets over $500 million.
The Templeton Global Asset Allocation Fund pays an investment management fee to
TGAL based on the average net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.65% First $200 million
.585% over $200 million, up to and including $1.3 billion
.52% over $1.3 billion
</TABLE>
Under a subadvisory agreement, TICI provides subadvisory services to the
Templeton Global Asset Allocation Fund and receives from TGAL fees based on the
average daily net assets of the Fund.
The Templeton International Smaller Companies Fund pays an investment management
fee to TICI based on the average daily net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.85% First $200 million
.765% over $200 million, up to and including $1.3 billion
.68% over $1.3 billion
</TABLE>
The Mutual Discovery Securities Fund and the Mutual Shares Securities Fund pay
an investment management fee to Franklin Mutual of .80% and .60%, 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% per year of the average daily net assets of the Fund.
Under an agreement with their respective investment managers, FT Services
provides administrative services to the Funds, except for the Global Health Care
Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton
International Smaller Companies Fund, and the Value Securities Fund. The fee is
paid by each Fund's respective investment managers based on average daily net
assets, and is not an additional expense of the Funds.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Global Health Care Securities Fund, the Mutual Discovery Securities Fund,
the Mutual Shares Securities Fund, the Templeton Global Asset Allocation Fund,
the Templeton International Smaller Companies Fund, and the Value Securities
Fund pay administrative fees to FT Services based on the average daily net
assets of each Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE DAILY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
.15% First $200 million
.135% over $200 million, up to and including $700 million
.10% over $700 million, up to and including $1.2 billion
</TABLE>
Fees are further reduced on net assets over $1.2 billion.
The Funds reimburse Distributors up to .30% per year of the Fund's average daily
net assets of Class 2, for costs incurred in marketing the Fund's shares.
Effective July 1, 1999, the distribution rate changed from .30% to .25%.
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, 1998, certain funds had tax basis capital losses, which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
GLOBAL HEALTH MUTUAL MUTUAL NATURAL
CAPITAL CARE MONEY DISCOVERY SHARES RESOURCES
GROWTH SECURITIES MARKET SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in:
2000 $ -- $ -- $ 418 $ -- $ -- $ --
2001 -- -- 523 -- -- --
2002 -- -- 7,568 -- -- --
2004 52,275 -- -- -- -- 146,066
2005 72,043 -- -- -- -- 3,313,053
2006 3,304,340 239,954 371 12,201,956 9,766,336 14,821,804
--------------------------------------------------------------------------------------
$ 3,428,658 $ 239,954 $ 8,880 $12,201,956 $ 9,766,336 $18,280,923
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON U.S.
DEVELOPING TEMPLETON INTERNATIONAL PACIFIC GOVERNMENT VALUE
MARKETS GLOBAL INCOME SMALLER GROWTH SECURITIES SECURITIES
EQUITY FUND SECURITIES FUND COMPANIES FUND FUND FUND FUND
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital loss carryovers expiring in:
2002 $ -- $ -- $ -- $ -- $11,604,729 $ --
2003 -- 1,035,267 -- -- 826,481 --
2005 -- -- -- -- 169,754 --
2006 21,632,762 -- 2,543,971 24,460,805 -- 64,007
-------------------------------------------------------------------------------------------
$21,632,762 $ 1,035,267 $ 2,543,971 $24,460,805 $12,600,964 $ 64,007
===========================================================================================
</TABLE>
At December 31, 1998, the following funds had deferred capital losses and/or
deferred currency losses occurring subsequent to October 31, 1998. For tax
purposes, such losses will be reflected in the year ending December 31, 1999.
<TABLE>
<CAPTION>
MUTUAL MUTUAL NATURAL TEMPLETON TEMPLETON TEMPLETON TEMPLETON
DISCOVERY SHARES RESOURCES SMALL DEVELOPING GLOBAL ASSET GLOBAL INCOME PACIFIC VALUE
SECURITIES SECURITIES SECURITIES CAP MARKETS ALLOCATION SECURITIES GROWTH SECURITIES
FUND FUND FUND FUND EQUITY FUND FUND FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$812,344 $187,467 $5,103,017 $542,078 $7,956,080 $1,267,941 $3,913,734 $217,089 $7,486
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES (CONT.)
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.
At June 30, 1999, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
GLOBAL GLOBAL GROWTH
CAPITAL HEALTH CARE UTILITIES AND HIGH
GROWTH SECURITIES SECURITIES INCOME INCOME
FUND FUND FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 280,470,863 $ 10,027,568 $ 718,100,084 $ 956,551,110 $ 429,084,139
======================================================================================
Unrealized appreciation .................. $ 84,387,502 $ 1,003,621 $ 185,989,820 $ 274,228,883 $ 5,580,890
Unrealized depreciation .................. (8,909,131) (666,307) (34,002,270) (27,076,588) (56,476,427)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ 75,478,371 $ 337,314 $ 151,987,550 $ 247,152,295 $ (50,895,537)
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
MUTUAL MUTUAL NATURAL REAL
INCOME DISCOVERY SHARES RESOURCES ESTATE
SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 936,081,323 $ 176,725,321 $ 423,596,088 $ 48,995,780 $ 209,615,936
======================================================================================
Unrealized appreciation .................. $ 105,734,764 $ 22,839,363 $ 67,094,931 $ 7,592,788 $ 31,664,183
Unrealized depreciation .................. (91,501,079) (11,185,631) (14,912,866) (5,939,792) (19,530,429)
--------------------------------------------------------------------------------------
Net unrealized appreciation .............. $ 14,233,685 $ 11,653,732 $ 52,182,065 $ 1,652,996 $ 12,133,754
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON
RISING DEVELOPING GLOBAL ASSET GLOBAL
DIVIDENDS SMALL CAP MARKETS ALLOCATION GROWTH
FUND FUND EQUITY FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 487,727,476 $ 264,489,704 $ 182,176,860 $ 68,212,379 $ 642,315,541
======================================================================================
Unrealized appreciation .................. $ 158,376,890 $ 85,662,298 $ 39,408,521 $ 9,394,774 $ 165,648,704
Unrealized depreciation .................. (30,598,572) (41,937,984) (33,997,598) (7,426,642) (65,749,056)
--------------------------------------------------------------------------------------
Net unrealized appreciation .............. $ 127,778,318 $ 43,724,314 $ 5,410,923 $ 1,968,132 $ 99,899,648
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
GLOBAL TEMPLETON INTERNATIONAL TEMPLETON U.S.
INCOME INTERNATIONAL SMALLER PACIFIC GOVERNMENT
SECURITIES EQUITY COMPANIES GROWTH SECURITIES
FUND FUND FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ...................... $ 120,118,841 $ 671,399,738 $ 23,984,080 $ 129,351,287 $ 596,567,438
======================================================================================
Unrealized appreciation .................. $ 250,959 $ 233,918,478 $ 4,383,387 $ 10,459,918 $ 11,489,597
Unrealized depreciation .................. (7,457,786) (81,632,610) (3,788,524) (30,476,535) (12,083,513)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $ (7,206,827) $ 152,285,868 $ 594,863 $ (20,016,617) $ (593,916)
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
VALUE ZERO ZERO ZERO
SECURITIES COUPON COUPON COUPON
FUND FUND - 2000 FUND - 2005 FUND - 2010
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments at cost ........................................ $ 11,243,939 $ 77,728,776 $ 67,768,879 $ 70,808,787
===============================================================
Unrealized appreciation .................................... $ 1,497,406 $ 2,330,599 $ 6,744,548 $ 9,328,362
Unrealized depreciation .................................... (779,108) (12,978) (470,434) (749,670)
---------------------------------------------------------------
Net unrealized appreciation ................................ $ 718,298 $ 2,317,621 $ 6,274,114 $ 8,578,692
===============================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
GLOBAL GLOBAL GROWTH
CAPITAL HEALTH CARE UTILITIES AND HIGH
GROWTH SECURITIES SECURITIES INCOME INCOME
FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $114,912,051 $ 12,025,509 $387,290,179 $228,601,685 $ 57,569,929
Sales ... $ 23,060,993 $ 7,824,152 $559,334,055 $397,261,179 $ 94,240,399
</TABLE>
<TABLE>
<CAPTION>
MUTUAL MUTUAL NATURAL REAL
INCOME DISCOVERY SHARES RESOURCES ESTATE
SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES
FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $ 66,791,523 $ 99,419,287 $169,196,103 $ 12,507,061 $ 11,927,238
Sales ... $249,943,953 $117,237,471 $183,503,607 $ 17,693,772 $ 72,115,352
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
RISING SMALL DEVELOPING TEMPLETON GLOBAL
DIVIDENDS CAP MARKETS GLOBAL ASSET GROWTH
FUND FUND EQUITY FUND ALLOCATION FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $ 21,417,273 $ 65,748,292 $ 23,424,347 $ 10,046,297 $ 71,767,665
Sales ... $157,739,616 $113,762,405 $ 49,653,926 $ 22,062,869 $144,487,083
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON TEMPLETON U.S.
GLOBAL INCOME TEMPLETON INTERNATIONAL PACIFIC GOVERNMENT
SECURITIES INTERNATIONAL SMALLER GROWTH SECURITIES
FUND EQUITY FUND COMPANIES FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $ 50,784,921 $ 66,261,915 $ 1,366,416 $ 5,856,216 $ 47,441,883
Sales ... $ 71,307,694 $204,436,689 $ 4,990,720 $ 29,637,490 $133,096,586
</TABLE>
<TABLE>
<CAPTION>
VALUE ZERO ZERO ZERO
SECURITIES COUPON COUPON COUPON
FUND FUND - 2000 FUND - 2005 FUND - 2010
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases .. $ 6,266,197 $ 8,326,710 $ 3,407,650 $ 8,019,290
Sales ...... $ 3,700,583 $22,387,084 $ 9,840,570 $14,859,891
</TABLE>
Transactions in call options written during the period ended June 30, 1999 were
as follows:
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ....... 9 $ 1,346
Options written ................................ 14 5,776
Options expired ................................ (23) (7,122)
Options exercised .............................. -- --
Options closed ................................. -- --
--------------------
Options outstanding at June 30, 1999 ........... -- --
====================
</TABLE>
MUTUAL SHARES SECURITIES FUND
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
----------------------
<S> <C> <C>
Options outstanding at December 31, 1998 ..... 12 $ 1,795
Options written .............................. 31 12,682
Options expired .............................. (43) (14,477)
Options exercised ............................ -- --
Options closed ............................... -- --
--------------------
Options outstanding at June 30, 1999 ......... -- --
====================
</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
Statements 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.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
A forward exchange contract is an agreement between two parties to exchange
different currencies at a specific rate at an agreed future date. At June 30,
1999, certain 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 each Fund's 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.
As of June 30, 1999, all forward exchange contracts in the Templeton Global
Asset Allocation Fund and the Templeton Global Income Securities Fund were
offset.
MUTUAL DISCOVERY SECURITIES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR DATE GAIN / (LOSS)
- ---------------------------------------------- ----------------- ----------- ---------------
<S> <C> <C> <C>
3,975,680 Norwegian Krone ................. U.S. $ 500,000 9/10/99 U.S. $ 3,933
------------ ----------
CONTRACTS TO SELL
- ----------------------------------------------
16,251,010 British Pounds .................. U.S. $ 26,911,672 7/20/99 U.S. $1,292,634
2,328,902 British Pounds .................. 3,769,403 5/22/00 83,176
1,357,353 Canadian Dollars ................ 931,984 10/29/99 2,937
12,687,355 Danish Krone .................... 1,834,169 10/27/99 55,987
1,680,835 European Unit ................... 1,905,892 7/19/99 170,065
1,202,826 European Unit ................... 1,323,834 8/31/99 77,546
13,600,350 European Unit ................... 14,839,102 9/10/99 736,064
5,620,475 European Unit ................... 6,071,405 10/12/99 228,326
12,187,113 European Unit ................... 13,813,334 10/27/99 1,128,458
3,468,834 European Unit ................... 3,697,104 11/29/99 77,114
2,245,897 European Unit ................... 2,377,079 12/17/99 29,955
396,610,506 Japanese Yen .................... 3,388,569 9/24/99 69,108
2,277,014 New Zealand Dollars ............. 1,278,373 11/17/99 67,799
12,538,644 Norwegian Krone ................. 1,608,085 9/10/99 18,763
10,889,014 Swedish Krona ................... 1,416,777 7/21/99 134,362
15,547,043 Swedish Krona ................... 2,998,421 8/17/99 175,450
12,347,230 Swedish Krona ................... 1,527,544 9/15/99 68,216
46,159,548 Swedish Krona ................... 5,671,403 9/20/99 213,962
35,271,263 Swedish Krona ................... 4,303,078 10/19/99 124,675
16,879,167 Swedish Krona ................... 2,145,176 11/17/99 141,565
9,122,385 Swiss Francs .................... 6,260,076 9/10/99 342,007
------------ ----------
U.S. $108,072,480 U.S. $5,238,169
------------ ----------
Unrealized gain on forward exchange contracts U.S. $5,242,102
----------
CONTRACTS TO BUY
- ----------------------------------------------
5,183,294 British Pounds .................. U.S. $ 8,430,833 7/20/99 U.S. $ (259,587)
670,301 British Pounds .................. 1,081,195 8/17/99 (24,272)
150,000 Canadian Dollars ................ 102,740 10/29/99 (72)
138,421,064 Japanese Yen .................... 1,188,174 9/24/99 (29,648)
3,380,915 Norwegian Krone ................. 431,082 9/10/99 (2,537)
3,141,395 Swedish Krona ................... 371,236 7/21/99 (2,341)
------------ ----------
U.S. $ 11,605,260 U.S. $ (318,457)
------------ ----------
CONTRACTS TO SELL
- ----------------------------------------------
774,031 Canadian Dollars ................ U.S. $ 528,736 10/29/99 U.S. $ (1,053)
54,150,000 Japanese Yen .................... 448,039 9/24/99 (5,174)
4,027,906 Norwegian Krone ................. 507,805 9/10/99 (2,748)
876,426 Swedish Krona ................... 103,647 11/17/99 (388)
------------ ----------
U.S. $ 1,588,227 U.S. $ (9,363)
------------ ----------
Unrealized loss on forward exchange contracts U.S. $ (327,820)
----------
Net unrealized gain on forward exchange
contracts ............................ U.S. $4,914,282
==========
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONT.)
MUTUAL SHARES SECURITIES FUND
<TABLE>
<CAPTION>
IN SETTLEMENT UNREALIZED
CONTRACTS TO BUY EXCHANGE FOR DATE GAIN / (LOSS)
- ---------------------------------------------- ----------------- ----------- ---------------
<S> <C> <C> <C>
1,985,093 Canadian Dollars ................. U.S. $ 1,331,850 10/29/99 U.S. $ 26,857
3,178,135 European Unit .................... 3,455,904 9/10/99 160,300
----------- ----------
U.S. $ 4,787,754 U.S. $ 187,157
----------- ----------
CONTRACTS TO SELL
- ----------------------------------------------
10,496,325 British Pounds ................... U.S. $17,381,915 7/20/99 U.S. $ 834,896
614,633 British Pounds ................... 1,054,916 8/17/99 32,090
117,327 British Pounds ................... 189,131 1/18/00 3,725
1,969,895 British Pounds ................... 3,188,880 5/22/00 70,896
3,398,413 European Unit .................... 3,885,050 7/19/99 375,451
2,801,080 European Unit .................... 3,110,003 8/31/99 186,986
4,682,833 European Unit .................... 5,146,930 9/10/99 291,011
6,138,910 European Unit .................... 6,711,250 10/12/99 329,201
6,214,800 European Unit .................... 6,770,547 10/27/99 301,914
2,431,582 European Unit .................... 2,602,756 11/29/99 65,218
2,447,499 European Unit .................... 2,589,567 12/17/99 31,755
43,669,556 Japanese Yen ..................... 377,706 9/24/99 12,210
5,500,000 Swedish Krona .................... 646,959 8/17/99 51,806
30,236,278 Swedish Krona .................... 3,732,205 9/15/99 158,559
35,950,730 Swedish Krona .................... 4,413,469 9/20/99 163,016
19,759,585 Swedish Krona .................... 2,413,532 10/19/99 72,717
8,000,000 Swedish Krona .................... 1,005,856 11/17/99 56,230
5,735,403 Swiss Francs ..................... 3,913,542 9/10/99 192,749
----------- ----------
U.S. $69,134,214 U.S. $3,230,430
----------- ----------
Unrealized gain on forward exchange contracts U.S. $3,417,587
----------
CONTRACTS TO BUY
- ----------------------------------------------
1,674,217 British Pounds ................... U.S. $ 2,689,362 7/20/99 U.S. $ (50,030)
500,000 British Pounds ................... 809,600 8/17/99 (21,205)
534,439 Canadian Dollars ................. 367,312 10/29/99 (1,513)
23,032,556 Japanese Yen ..................... 197,706 9/24/99 (4,933)
----------- ----------
U.S. $ 4,063,980 U.S. $ (77,681)
----------- ----------
CONTRACTS TO SELL
- ----------------------------------------------
5,983,869 Canadian Dollars ................. U.S. $ 3,964,550 10/29/99 U.S. $ (131,133)
16,964,800 Swedish Krona .................... 2,000,000 9/15/99 (5,082)
----------- ----------
U.S. $ 5,964,550 U.S. $ (136,215)
----------- ----------
Unrealized loss on forward exchange contracts U.S. $ (213,896)
----------
Net unrealized gain on forward exchange
contracts ........................... U.S. $3,203,691
==========
</TABLE>
7. CREDIT RISK AND DEFAULTED SECURITIES
The High Income Fund and the Income Securities Fund have 99.1% and 37.5%,
respectively, of their portfolios invested in lower rated and comparable quality
unrated high yield securities, which tend to be more sensitive to economic
conditions than higher rated securities. The risk of loss due to default by the
issuer may be significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuer. At June 30, 1999, the High Income Fund and the
Income Securities Fund held defaulted securities with a value aggregating
$3,959,500 representing 1.0% and $475,000, representing .1%, respectively, of
each Fund's net assets. For information as to specific securities, see the
accompanying Statement of Investments.
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
7. CREDIT RISK AND DEFAULTED SECURITIES (CONT.)
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
The following funds have investments in excess of 10% of their total net assets
in the following:
High Income Fund - Consumer Services and Telecommunications industries.
Templeton Global Income Securities Fund - Germany and United Kingdom.
Such concentration may subject each Fund more significantly to economic changes
occurring within these countries or industries.
Investing in equity securities of Russian companies includes certain risks not
typically associated with investing in countries with more developed securities
markets, such as political, economic and legal uncertainties, delays in settling
portfolio transactions and the risk of loss from Russia's underdeveloped systems
of securities registration and transfer.
8. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT/ ACQUISITION
SHARES/WARRANTS ISSUER DATE COST VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HIGH INCOME FUND
$7,800,000 International Wireless Communications, senior disc.
note, zero cpn., 8/15/01 ........................... 8/09/96 $3,965,050 $ 624,000
----------
TOTAL RESTRICTED SECURITIES (.2% of Net Assets) ...... $ 624,000
==========
MUTUAL DISCOVERY SECURITIES FUND
615 Golden Ocean Group Ltd., wts., 8/31/01 ............... 8/25/97 $ 375 $ --
$ 570,000 Golden Ocean Group Ltd., 10.00%, 8/31/01 ............. 8/26/97 412,147 62,700
81,700 Laser Mortgage Management Inc. ....................... 11/26/97 883,177 280,844
11,745 Security Capital European Realty ..................... 4/08/98 234,900 203,508
----------
TOTAL RESTRICTED SECURITIES (.3% of Net Assets) ...... $ 547,052
==========
MUTUAL SHARES SECURITIES FUND
1,120 Golden Ocean Group Ltd., wts., 8/31/01 ............... 8/25/97 $ 1,611 $ --
$1,050,000 Golden Ocean Group Ltd., 10.00%, 8/31/01 ............. 8/26/97 756,829 115,500
186,700 Laser Mortgage Management Inc. ....................... 11/26/97 2,018,227 641,781
$2,328,000 Roil Limited, 12.779%, 12/05/02 ...................... 5/08/98 2,315,850 814,800
23,055 Security Capital European Realty ..................... 4/08/98 461,100 399,479
----------
TOTAL RESTRICTED SECURITIES (.4% of Net Assets) ...... $1,971,560
==========
</TABLE>
FRANKLIN VALUEMARK FUNDS
Notes to Financial Statements (unaudited) (continued)
9. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 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 June 30, 1999 were
as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES HELD
AT NUMBER OF SHARES CAPITAL
BEGINNING GROSS GROSS HELD VALUE AT GAINS/
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS END OF PERIOD END OF PERIOD LOSSES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RISING DIVIDENDS FUND
West Pharmaceutical Services Inc. 784,300 -- (25,000) 759,300 $29,802,525 $ 281,428
REAL ESTATE SECURITIES FUND
Candlewood Hotel Co. Inc. ........ 650,000 -- (300,000) 350,000 * $(1,793,962)
</TABLE>
*As of June 30, 1999, no longer an affiliate.
10. LENDING OF PORTFOLIO SECURITIES
The Small Cap Fund loans 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 was $77,779 for the period ended June
30, 1999. The value of the loaned securities was $9,147,404 at June 30, 1999.
The Fund has received sufficient cash collateral to meet this commitment.
11. OTHER CONSIDERATIONS
Advisers, as the High Income Fund's Manager, may serve as a member of various
bondholder's steering committees, representing bondholder's interests in certain
corporate restructuring negotiations, or on creditors committees. Currently, the
Manager serves on the Official Committee of Unsecured Creditors of International
Wireless Communications Holdings Inc. As a result of this involvement, Advisers
may be in possession of certain material non-public information. The Fund's
Manager has not nor does it intend to sell any of its holdings in these
securities while in possession of such information.
FRANKLIN VALUEMARK FUNDS
Tax Information
At December 31, 1998, more than 50% of the Templeton Developing Markets Equity
Fund, Templeton Global Asset Allocation Fund, Templeton Global Growth Fund,
Templeton International Equity Fund, and Templeton International Smaller
Companies Fund total assets were invested in securities of foreign issuers. In
most instances, foreign taxes were withheld from dividends paid to the Funds on
these investments. Each Fund intends to make an election under Section 853 of
the Internal Revenue Code. This election will allow shareholders to treat their
proportionate share of foreign taxes paid by the funds as having been paid
directly to them.
The following tables provide a breakdown by country of foreign source income and
foreign taxes paid to Class 1 and Class 2 shareholders in July 1999.
TEMPLETON DEVELOPING MARKETS EQUITY FUND
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
-----------------------------------------------------
FOREIGN FOREIGN FOREIGN FOREIGN
TAXES SOURCE TAXES SOURCE
WITHHELD INCOME WITHHELD INCOME
COUNTRY PER SHARE PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $ 0.0000 $ 0.0068 $ 0.0000 $ 0.0068
Brazil ................. 0.0096 0.0462 0.0096 0.0462
Chile .................. 0.0003 0.0007 0.0003 0.0007
China .................. 0.0000 0.0045 0.0000 0.0045
Colombia ............... 0.0000 0.0024 0.0000 0.0024
Czech Republic ......... 0.0001 0.0004 0.0001 0.0004
Ghana .................. 0.0001 0.0004 0.0001 0.0004
Greece ................. 0.0000 0.0102 0.0000 0.0102
Hong Kong .............. 0.0000 0.0198 0.0000 0.0198
Hungary ................ 0.0003 0.0012 0.0003 0.0012
India .................. 0.0000 0.0087 0.0000 0.0087
Indonesia .............. 0.0001 0.0006 0.0001 0.0006
Israel ................. 0.0001 0.0004 0.0001 0.0004
Jordan ................. 0.0000 0.0002 0.0000 0.0002
Korea (South) .......... 0.0006 0.0021 0.0006 0.0021
Malaysia ............... 0.0019 0.0050 0.0019 0.0050
Mexico ................. 0.0000 0.0161 0.0000 0.0161
Pakistan ............... 0.0007 0.0028 0.0007 0.0028
Peru ................... 0.0000 0.0015 0.0000 0.0015
Philippines ............ 0.0001 0.0002 0.0001 0.0002
Poland ................. 0.0005 0.0020 0.0005 0.0020
Portugal ............... 0.0015 0.0061 0.0015 0.0061
Singapore .............. 0.0040 0.0105 0.0040 0.0105
Slovak Republic ........ 0.0003 0.0012 0.0003 0.0012
South Africa ........... 0.0000 0.0170 0.0000 0.0170
Sri Lanka .............. 0.0001 0.0004 0.0001 0.0004
Thailand ............... 0.0003 0.0021 0.0003 0.0021
Turkey ................. 0.0000 0.0297 0.0000 0.0297
Venezuela .............. 0.0000 0.0024 0.0000 0.0024
Zimbabwe ............... 0.0001 0.0006 0.0001 0.0006
------------------------------------------------------
TOTAL .................. $ 0.0207 $ 0.2022 $ 0.0207 $ 0.2022
======================================================
</TABLE>
TEMPLETON GLOBAL ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
-----------------------------------------------------
FOREIGN FOREIGN FOREIGN FOREIGN
TAXES SOURCE TAXES SOURCE
WITHHELD INCOME WITHHELD INCOME
Country PER SHARE PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $ 0.0000 $ 0.0118 $ 0.0000 $ 0.0118
Australia .............. 0.0009 0.0170 0.0009 0.0170
Bermuda ................ 0.0000 0.0039 0.0000 0.0039
Brazil ................. 0.0079 0.0528 0.0079 0.0528
Bulgaria ............... 0.0000 0.0001 0.0000 0.0001
Canada ................. 0.0004 0.0021 0.0004 0.0021
Chile .................. 0.0007 0.0024 0.0007 0.0024
China .................. 0.0000 0.0064 0.0000 0.0064
Ecuador ................ 0.0000 0.0025 0.0000 0.0025
Egypt .................. 0.0000 0.0097 0.0000 0.0097
Finland ................ 0.0002 0.0013 0.0002 0.0013
France ................. 0.0025 0.0200 0.0025 0.0200
Greece ................. 0.0000 0.0015 0.0000 0.0015
Hong Kong .............. 0.0000 0.0324 0.0000 0.0324
Hungary ................ 0.0000 0.0007 0.0000 0.0007
India .................. 0.0003 0.0083 0.0003 0.0083
Indonesia .............. 0.0000 0.0002 0.0000 0.0002
Israel ................. 0.0003 0.0010 0.0003 0.0010
Italy .................. 0.0004 0.0020 0.0004 0.0020
Japan .................. 0.0004 0.0021 0.0004 0.0021
Korea (South) .......... 0.0005 0.0024 0.0005 0.0024
Mexico ................. 0.0000 0.0143 0.0000 0.0143
Netherlands ............ 0.0004 0.0029 0.0004 0.0029
New Zealand ............ 0.0003 0.0019 0.0003 0.0019
Norway ................. 0.0012 0.0065 0.0012 0.0065
Peru ................... 0.0000 0.0002 0.0000 0.0002
Russia ................. 0.0002 0.0013 0.0002 0.0013
Singapore .............. 0.0007 0.0027 0.0007 0.0027
Spain .................. 0.0004 0.0023 0.0004 0.0023
Sweden ................. 0.0003 0.0018 0.0003 0.0018
Switzerland ............ 0.0012 0.0066 0.0012 0.0066
Turkey ................. 0.0000 0.0002 0.0000 0.0002
United Kingdom ......... 0.0145 0.0981 0.0145 0.0981
Venezuela .............. 0.0000 0.0009 0.0000 0.0009
------------------------------------------------------
TOTAL .................. $ 0.0337 $ 0.3203 $ 0.0337 $ 0.3203
======================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Tax Information (continued)
TEMPLETON GLOBAL GROWTH FUND
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
-----------------------------------------------------
FOREIGN FOREIGN FOREIGN FOREIGN
TAXES SOURCE TAXES SOURCE
WITHHELD INCOME WITHHELD INCOME
Country PER SHARE PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $ 0.0000 $ 0.0130 $ 0.0000 $ 0.0130
Australia .............. 0.0010 0.0151 0.0010 0.0151
Austria ................ 0.0009 0.0046 0.0009 0.0046
Belgium ................ 0.0019 0.0096 0.0019 0.0096
Bermuda ................ 0.0000 0.0025 0.0000 0.0025
Brazil ................. 0.0029 0.0209 0.0029 0.0209
Canada ................. 0.0007 0.0035 0.0007 0.0035
China .................. 0.0000 0.0030 0.0000 0.0030
Denmark ................ 0.0010 0.0051 0.0010 0.0051
Ecuador ................ 0.0000 0.0008 0.0000 0.0008
Finland ................ 0.0019 0.0098 0.0019 0.0098
France ................. 0.0021 0.0141 0.0021 0.0141
Germany ................ 0.0001 0.0008 0.0001 0.0008
Greece ................. 0.0000 0.0052 0.0000 0.0052
Hong Kong .............. 0.0000 0.0367 0.0000 0.0367
Hungary ................ 0.0001 0.0017 0.0001 0.0017
India .................. 0.0000 0.0056 0.0000 0.0056
Indonesia .............. 0.0000 0.0001 0.0000 0.0001
Italy .................. 0.0006 0.0031 0.0006 0.0031
Japan .................. 0.0005 0.0026 0.0005 0.0026
Korea (South) .......... 0.0007 0.0026 0.0007 0.0026
Mexico ................. 0.0000 0.0042 0.0000 0.0042
Netherlands ............ 0.0015 0.0078 0.0015 0.0078
New Zealand ............ 0.0006 0.0032 0.0006 0.0032
Norway ................. 0.0004 0.0017 0.0004 0.0017
Singapore .............. 0.0011 0.0032 0.0011 0.0032
South Africa ........... 0.0000 0.0062 0.0000 0.0062
Spain .................. 0.0014 0.0071 0.0014 0.0071
Sweden ................. 0.0019 0.0103 0.0019 0.0103
Switzerland ............ 0.0019 0.0096 0.0019 0.0096
Thailand ............... 0.0002 0.0018 0.0002 0.0018
United Kingdom ......... 0.0214 0.1079 0.0214 0.1079
------------------------------------------------------
TOTAL .................. $ 0.0448 $ 0.3234 $ 0.0448 $ 0.3234
======================================================
</TABLE>
TEMPLETON INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
-----------------------------------------------------
FOREIGN FOREIGN FOREIGN FOREIGN
TAXES SOURCE TAXES SOURCE
WITHHELD INCOME WITHHELD INCOME
Country PER SHARE PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $ 0.0000 $ 0.0115 $ 0.0000 $ 0.0115
Australia .............. 0.0026 0.0204 0.0026 0.0204
Austria ................ 0.0006 0.0030 0.0006 0.0030
Bermuda ................ 0.0000 0.0040 0.0000 0.0040
Brazil ................. 0.0109 0.0765 0.0109 0.0765
Canada ................. 0.0015 0.0079 0.0015 0.0079
China .................. 0.0000 0.0021 0.0000 0.0021
Finland ................ 0.0017 0.0087 0.0017 0.0087
France ................. 0.0022 0.0170 0.0022 0.0170
Germany ................ 0.0009 0.0070 0.0009 0.0070
Hong Kong .............. 0.0000 0.0142 0.0000 0.0142
Italy .................. 0.0053 0.0169 0.0053 0.0169
Korea (South) .......... 0.0003 0.0009 0.0003 0.0009
Mexico ................. 0.0000 0.0016 0.0000 0.0016
Netherlands ............ 0.0056 0.0293 0.0056 0.0293
New Zealand ............ 0.0024 0.0128 0.0024 0.0128
Norway ................. 0.0019 0.0098 0.0019 0.0098
Peru ................... 0.0000 0.0043 0.0000 0.0043
Portugal ............... 0.0006 0.0029 0.0006 0.0029
South Africa ........... 0.0000 0.0058 0.0000 0.0058
Spain .................. 0.0054 0.0293 0.0054 0.0293
Sweden ................. 0.0049 0.0264 0.0049 0.0264
Switzerland ............ 0.0029 0.0154 0.0029 0.0154
United Kingdom ......... 0.0346 0.2758 0.0346 0.2758
------------------------------------------------------
TOTAL .................. $ 0.0843 $ 0.6035 $ 0.0843 $ 0.6035
======================================================
</TABLE>
FRANKLIN VALUEMARK FUNDS
Tax Information (continued)
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND
<TABLE>
<CAPTION>
CLASS 1 CLASS 2
-----------------------------------------------------
FOREIGN FOREIGN FOREIGN FOREIGN
TAXES SOURCE TAXES SOURCE
WITHHELD INCOME WITHHELD INCOME
Country PER SHARE PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina .............. $ 0.0000 $ 0.0042 $ 0.0000 $ 0.0042
Australia .............. 0.0010 0.0136 0.0010 0.0136
Austria ................ 0.0008 0.0044 0.0008 0.0044
Brazil ................. 0.0059 0.0357 0.0059 0.0357
Canada ................. 0.0033 0.0156 0.0033 0.0156
China .................. 0.0000 0.0087 0.0000 0.0087
Colombia ............... 0.0000 0.0015 0.0000 0.0015
Denmark ................ 0.0005 0.0025 0.0005 0.0025
Ecuador ................ 0.0000 0.0035 0.0000 0.0035
Egypt .................. 0.0000 0.0100 0.0000 0.0100
France ................. 0.0011 0.0071 0.0011 0.0071
Germany ................ 0.0005 0.0035 0.0005 0.0035
Hong Kong .............. 0.0000 0.0294 0.0000 0.0294
India .................. 0.0000 0.0098 0.0000 0.0098
Indonesia .............. 0.0002 0.0008 0.0002 0.0008
Israel ................. 0.0003 0.0008 0.0003 0.0008
Japan .................. 0.0002 0.0008 0.0002 0.0008
Korea (South) .......... 0.0003 0.0007 0.0003 0.0007
Luxembourg ............. 0.0004 0.0017 0.0004 0.0017
Netherlands ............ 0.0054 0.0251 0.0054 0.0251
New Zealand ............ 0.0017 0.0080 0.0017 0.0080
Norway ................. 0.0027 0.0150 0.0027 0.0150
Singapore .............. 0.0023 0.0063 0.0023 0.0063
South Africa ........... 0.0000 0.0066 0.0000 0.0066
Spain .................. 0.0032 0.0170 0.0032 0.0170
Sweden ................. 0.0039 0.0184 0.0039 0.0184
Switzerland ............ 0.0017 0.0085 0.0017 0.0085
Thailand ............... 0.0001 0.0006 0.0001 0.0006
United Kingdom ......... 0.0174 0.0788 0.0174 0.0788
------------------------------------------------------
TOTAL .................. $ 0.0529 $ 0.3386 $ 0.0529 $ 0.3386
======================================================
</TABLE>
SUPPLEMENT DATED JULY 1, 1999
TO THE PROSPECTUS
OF
FRANKLIN VALUEMARK(R) LIFE
SINGLE PREMIUM VARIABLE LIFE INSURANCE
ALLIANZ LIFE VARIABLE ACCOUNT A
DATED MAY 1, 1999
ALLIANZ VALUE LIFE
A FLEXIBLE UNIVERSAL LIFE INSURANCE POLICY
ALLIANZ LIFE VARIABLE ACCOUNT A
DATED MAY 1, 1999, AS AMENDED JUNE 1, 1999
FRANKLIN VALUEMARK(R) II, III AND IV
FLEXIBLE PAYMENT VARIABLE ANNUITIES
ALLIANZ LIFE VARIABLE ACCOUNT B
DATED MAY 1, 1999
FRANKLIN VALUEMARK(R) II AND IV
FLEXIBLE PREMIUM VARIABLE ANNUITY
PREFERRED LIFE VARIABLE ACCOUNT C
DATED MAY 1, 1999
FRANKLIN TEMPLETON VALUEMARK INCOME PLUS
AN INDIVIDUAL IMMEDIATE VARIABLE ANNUITY
ALLIANZ LIFE VARIABLE ACCOUNT B
DATED MAY 1, 1999
The Board of Trustees of Franklin Valuemark Funds (the Trust), has approved a
change in the name of the Trust to Franklin Templeton Variable Insurance
Products Trust. References to Franklin Valuemark Funds or to the Trust in the
Contract's profile or prospectus should be deemed to refer to Franklin Templeton
Variable Insurance Products Trust. The names of the Portfolios of the Trust
available under the Contract remain unchanged.
SUPPLEMENT DATED JULY 1, 1999
TO THE PROSPECTUS DATED MAY 1, 1999
OF
FRANKLIN VALUEMARK(R) FUNDS
CLASS 1
The Board of Trustees of Franklin Valuemark Funds (the Trust), has approved a
change in the name of the Trust to Franklin Templeton Variable Insurance
Products Trust. References in the prospectus to Franklin Valuemark Funds or to
the Trust should be deemed to refer to Franklin Templeton Variable Insurance
Products Trust. The names of the series of the Trust remain unchanged.
SUPPLEMENT DATED JULY 1, 1999
TO THE PROSPECTUS
OF
FRANKLIN(R) VALUEMARK(R) CHARTER
A FLEXIBLE PREMIUM VARIABLE ANNUITY
ALLIANZ LIFE VARIABLE ACCOUNT B
DATED MAY 1, 1999
1. The Board of Trustees of Franklin Valuemark Funds (the Trust), has approved a
change in the name of the Trust to Franklin Templeton Variable Insurance
Products Trust. References to Franklin Valuemark Funds or to the Trust in the
Contract's profile or prospectus should be deemed to refer to Franklin Templeton
Variable Insurance Products Trust. The names of the Portfolios of the Trust
available under the Contract remain unchanged.
2. The charts on pages 4 and 5 of the profile's section "5. Expenses" are
replaced with the following charts (to reflect a reduction in each Portfolio's
class 2 12b-1 expenses to 0.25% per year):
CHART 1. EXPENSES FOR CONTRACTS WITH TRADITIONAL DEATH BENEFIT:
<TABLE>
<CAPTION>
TOTAL TOTAL ANNUAL
ANNUAL CLASS 2 TOTAL EXAMPLES:
INSURANCE PORTFOLIO ANNUAL EXPENSES AT END OF:
VARIABLE OPTION CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth .......................... 1.25% 1.02% 2.27% $ 23 $260
Global Health Care Securities(1)......... 1.25% 1.09% 2.34% $ 24 $267
Global Utilities Securities ............. 1.25% .75% 2.00% $ 20 $232
Growth and Income ....................... 1.25% .74% 1.99% $ 20 $231
High Income ............................. 1.25% .78% 2.03% $ 21 $235
Income Securities ....................... 1.25% .74% 1.99% $ 20 $231
Money Market ............................ 1.25% .78% 2.03% $ 21 $235
Mutual Discovery Securities ............. 1.25% 1.25% 2.50% $ 25 $284
Mutual Shares Securities ................ 1.25% 1.02% 2.27% $ 23 $260
Natural Resources Securities ............ 1.25% .89% 2.14% $ 22 $247
Real Estate Securities .................. 1.25% .79% 2.04% $ 21 $236
Rising Dividends ........................ 1.25% .97% 2.22% $ 23 $255
Small Cap ............................... 1.25% 1.02% 2.27% $ 23 $260
Templeton Developing Markets Equity ..... 1.25% 1.66% 2.91% $ 29 $324
Templeton Global Asset Allocation ....... 1.25% 1.09% 2.34% $ 24 $267
Templeton Global Growth ................. 1.25% 1.13% 2.38% $ 24 $272
Templeton Global Income Securities ...... 1.25% .88% 2.13% $ 22 $246
Templeton International Equity .......... 1.25% 1.13% 2.38% $ 24 $272
Templeton International Smaller Companies 1.25% 1.35% 2.60% $ 26 $294
Templeton Pacific Growth ................ 1.25% 1.35% 2.60% $ 26 $294
U.S. Government Securities .............. 1.25% .75% 2.00% $ 20 $232
Value Securities(1)...................... 1.25% 1.08% 2.33% $ 24 $266
</TABLE>
(1.) Estimated for 1999
CHART 2. EXPENSES FOR CONTRACTS WITH ENHANCED DEATH BENEFIT:
<TABLE>
<CAPTION>
TOTAL ANNUAL
TOTAL ANNUAL CLASS 2 EXAMPLES:
INSURANCE PORTFOLIO TOTAL ANNUAL EXPENSES AT END OF:
VARIABLE OPTION CHARGES EXPENSES EXPENSES 1 YEAR 10 YEARS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital Growth .......................... 1.45% 1.02% 2.47% $ 25 $281
Global Health Care Securities(1)......... 1.45% 1.09% 2.54% $ 26 $288
Global Utilities Securities ............. 1.45% .75% 2.20% $ 22 $253
Growth and Income ....................... 1.45% .74% 2.19% $ 22 $252
High Income ............................. 1.45% .78% 2.23% $ 23 $256
Income Securities ....................... 1.45% .74% 2.19% $ 22 $252
Money Market ............................ 1.45% .78% 2.23% $ 23 $256
Mutual Discovery Securities ............. 1.45% 1.25% 2.70% $ 27 $303
Mutual Shares Securities ................ 1.45% 1.02% 2.47% $ 25 $281
Natural Resources Securities ............ 1.45% .89% 2.34% $ 24 $267
Real Estate Securities .................. 1.45% .79% 2.24% $ 23 $257
Rising Dividends ........................ 1.45% .97% 2.42% $ 25 $276
Small Cap ............................... 1.45% 1.02% 2.47% $ 25 $281
Templeton Developing Markets Equity ..... 1.45% 1.66% 3.11% $ 31 $343
Templeton Global Asset Allocation ....... 1.45% 1.09% 2.54% $ 26 $288
Templeton Global Growth ................. 1.45% 1.13% 2.58% $ 26 $292
Templeton Global Income Securities ...... 1.45% .88% 2.33% $ 24 $266
Templeton International Equity .......... 1.45% 1.13% 2.58% $ 26 $292
Templeton International Smaller Companies 1.45% 1.35% 2.80% $ 28 $313
Templeton Pacific Growth ................ 1.45% 1.35% 2.80% $ 28 $313
U.S. Government Securities .............. 1.45% .75% 2.20% $ 22 $253
Value Securities(1)...................... 1.45% 1.08% 2.53% $ 26 $287
</TABLE>
(1.) Estimated for 1999
3. The last two sentences of the profile's section "8. Performance" are replaced
with the following language:
"Effective July 1, 1999, Class 2 shares have 12b-1 plan expenses currently equal
to 0.25% per year of each portfolio's average net assets which will affect
future performance. Prior to July 1, 1999 the Class 2 shares had 12b-1 plan
expenses equal to .30% per year of each portfolio's average net assets. Past
performance is not a guarantee of future results."
4. The table on page 5 of the prospectus is replaced with the following table:
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST'S
ANNUAL EXPENSES: CLASS 2 SHARES
(as a percentage of each Portfolio's average net assets)
The Management and Portfolio Administration Fees and Total Annual Expenses for
each Portfolio are based on a percentage of that Portfolio's average net assets
for the most recent fiscal year. Class 2 shares have a distribution plan which
is referred to as a Rule 12b-1 plan. See the accompanying Franklin Templeton
Variable Insurance Products Trust prospectus for a description of these fees and
the Rule 12b-1 plan. While the maximum amount payable under each Portfolio's
Class 2 Rule 12b-1 plan is 0.35% per year of the Portfolio's average daily net
assets, effective July 1, 1999, the Board of Trustees of Franklin Templeton
Variable Insurance Products Trust has set the current rate at 0.25% per year.
Prior to July 1, 1999 the Class 2 shares had 12b-1 plan expenses equal to .30%
per year of each portfolio's average net assets. Because Class 2 shares are new,
the figures below (other than Rule 12b-1 plan fees) are based on the expenses of
each Portfolio's Class 1 shares for the most recent fiscal year, except as
noted.
<TABLE>
<CAPTION>
MANAGEMENT
AND PORTFOLIO TOTAL
ADMINISTRATION 12b-1 OTHER ANNUAL
FEES(1) FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth Fund .......................... .75% .25% .02% 1.02%
Global Health Care Securities Fund(2) ........ .75% .25% .09% 1.09%
Global Utilities Securities Fund ............. .47% .25% .03% .75%
Growth and Income Fund ....................... .47% .25% .02% .74%
High Income Fund ............................. .50% .25% .03% .78%
Income Securities Fund ....................... .47% .25% .05% .74%
Money Market Fund ............................ .51% .25% .02% .78%
Mutual Discovery Securities Fund ............. .95% .25% .05% 1.25%
Mutual Shares Securities Fund ................ .74% .25% .03% 1.02%
Natural Resources Securities Fund ............ .62% .25% .02% .89%
Real Estate Securities Fund .................. .52% .25% .02% .79%
Rising Dividends Fund ........................ .70% .25% .02% .97%
Small Cap Fund ............................... .75% .25% .02% 1.02%
Templeton Developing Markets Equity Fund ..... 1.25% .25% .16% 1.66%
Templeton Global Asset Allocation Fund ....... .80% .25% .04% 1.09%
Templeton Global Growth Fund ................. .83% .25% .05% 1.13%
Templeton Global Income Securities Fund ...... .57% .25% .06% .88%
Templeton International Equity Fund .......... .80% .25% .08% 1.13%
Templeton International Smaller Companies Fund 1.00% .25% .10% 1.35%
Templeton Pacific Growth Fund ................ .99% .25% .11% 1.35%
U.S. Government Securities Fund .............. .48% .25% .02% .75%
Value Securities Fund(2) ..................... .75% .25% .08% 1.08%
</TABLE>
(1.) The Portfolio Administration Fee is a direct expense for the Global Health
Care Securities Fund, the Mutual Discovery Securities Fund, the Mutual Shares
Securities Fund, the Templeton Global Asset Allocation Fund, the Templeton
International Smaller Companies Fund, and the Value Securities Fund; other
Portfolios pay for similar services indirectly through the Management Fee. See
the accompanying Franklin Templeton Variable Insurance Products Trust prospectus
for further information regarding these fees.
(2.) The Global Health Care Securities Fund and the Value Securities Fund
commenced operations May 1, 1998. The expenses shown above for these Portfolios
are therefore estimated for 1999.
5. The charts on pages 6 and 7 of the prospectus are replaced with the following
charts:
CHART 1. CONTRACTS WITH TRADITIONAL DEATH BENEFIT OPTION
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money regardless of whether you surrender your Contract at
the end of each time period:
<TABLE>
<CAPTION>
VARIABLE OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth .......................... $ 23 $ 71 $121 $260
Global Health Care Securities* .......... $ 24 $ 73 $125 $267
Global Utilities Securities ............. $ 20 $ 63 $108 $232
Growth and Income ....................... $ 20 $ 62 $107 $231
High Income ............................. $ 21 $ 64 $109 $235
Income Securities ....................... $ 20 $ 62 $107 $231
Money Market ............................ $ 21 $ 64 $109 $235
Mutual Discovery Securities ............. $ 25 $ 78 $133 $284
Mutual Shares Securities ................ $ 23 $ 71 $121 $260
Natural Resources Securities ............ $ 22 $ 67 $115 $247
Real Estate Securities .................. $ 21 $ 64 $110 $236
Rising Dividends ........................ $ 23 $ 69 $119 $255
Small Cap ............................... $ 23 $ 71 $121 $260
Templeton Developing Markets Equity ..... $ 29 $ 90 $153 $324
Templeton Global Asset Allocation ....... $ 24 $ 73 $125 $267
Templeton Global Growth ................. $ 24 $ 74 $127 $272
Templeton Global Income Securities ...... $ 22 $ 67 $114 $246
Templeton International Equity .......... $ 24 $ 74 $127 $272
Templeton International Smaller Companies $ 26 $ 81 $138 $294
Templeton Pacific Growth ................ $ 26 $ 81 $138 $294
U.S. Government Securities .............. $ 20 $ 63 $108 $232
Value Securities* ....................... $ 24 $ 73 $124 $266
</TABLE>
*Estimated
CHART 2. CONTRACTS WITH ENHANCED DEATH BENEFIT OPTION
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on your money regardless of whether you surrender your Contract at
the end of each time period:
<TABLE>
<CAPTION>
VARIABLE OPTION 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Growth .......................... $ 25 $ 77 $132 $281
Global Health Care Securities* .......... $ 26 $ 79 $135 $288
Global Utilities Securities ............. $ 22 $ 69 $118 $253
Growth and Income ....................... $ 22 $ 68 $117 $252
High Income ............................. $ 23 $ 70 $119 $256
Income Securities ....................... $ 22 $ 68 $117 $252
Money Market ............................ $ 23 $ 70 $119 $256
Mutual Discovery Securities ............. $ 27 $ 84 $143 $303
Mutual Shares Securities ................ $ 25 $ 77 $132 $281
Natural Resources Securities ............ $ 24 $ 73 $125 $267
Real Estate Securities .................. $ 23 $ 70 $120 $257
Rising Dividends ........................ $ 25 $ 75 $129 $276
Small Cap ............................... $ 25 $ 77 $132 $281
Templeton Developing Markets Equity ..... $ 31 $ 96 $163 $343
Templeton Global Asset Allocation ....... $ 26 $ 79 $135 $288
Templeton Global Growth ................. $ 26 $ 80 $137 $292
Templeton Global Income Securities ...... $ 24 $ 73 $124 $266
Templeton International Equity .......... $ 26 $ 80 $137 $292
Templeton International Smaller Companies $ 28 $ 87 $148 $313
Templeton Pacific Growth ................ $ 28 $ 87 $148 $313
U.S. Government Securities .............. $ 22 $ 69 $118 $253
Value Securities* ....................... $ 26 $ 79 $135 $287
</TABLE>
*Estimated
6. The last two sentences of paragraph two under "8. Performance" on page 17 of
the prospectus are replaced with the following language:
"Class 2 shares are relatively new and effective July 1, 1999 currently have
Rule 12b-1 Plan expenses of 0.25% per year which will affect future performance.
Prior to July 1, 1999 the Class 2 shares had 12b-1 plan expenses of .30% per
year. The information is based upon the historical experience of the Portfolio's
Class 1 shares and does not represent past performance or predict future
performance."
SUPPLEMENT DATED JULY 1, 1999
TO THE PROSPECTUS DATED MAY 1, 1999
OF
FRANKLIN VALUEMARK(R) FUNDS
CLASS 2
The Board of Trustees of Franklin Valuemark Funds (the Trust), has approved the
following changes:
- - A change in the name of the Trust to Franklin Templeton Variable Insurance
Products Trust. References in the prospectus to Franklin Valuemark Funds or
to the Trust should be deemed to refer to Franklin Templeton Variable
Insurance Products Trust. The names of the series of the Trust remain
unchanged.
- - A reduction in the maximum allowable fees which may be charged to class 2 of
each fund under its distribution plan. The last sentence under "Distribution
and Service (12b-1) fees" on page 71 is amended to read:
"While the maximum fee is up to 0.35% per year, the Board of Trustees has set
the current rate of 0.25% of a fund's class 2 average daily net assets,
effective July 1, 1999."
SUPPLEMENT DATED AUGUST 9, 1999
TO THE PROSPECTUSES DATED MAY 1, 1999
OF
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
CLASS 1 AND CLASS 2
I. EFFECTIVE NOVEMBER 15, 1999, Global Utilities Securities Fund's name will be
changed to "Franklin Global Communications Securities Fund" and the fund's
strategy will be restated to one of investing at least 65% of total assets in
equity securities of companies that are primarily engaged in providing
communications services and communications equipment. These changes will reflect
better the fund's principal investment strategy of investing primarily in the
communications industries which have come to represent over 70% of the global
public utilities sector. The fund's principal risks are those related to
communications investments.
II. EFFECTIVE AS OF THE DATE OF THIS SUPPLEMENT, the prospectus information for
the Global Utilities Securities Fund is amended by:
a) Under "Principal Investments," replacing the sentence which reads "The
manager expects to invest substantially in the electricity and
telecommunications sectors." with the following:
Because telecommunications industries have increasingly come to dominate the
global utilities sector, the fund will invest substantially in communications
companies. These are companies that are involved in the development, manufacture
or sale of communications services and communications equipment (communications
companies). These may include, for example, companies that provide
- - local and long distance telephone services or equipment;
- - cellular and other wireless communications, paging, and local and wide area
network services or equipment;
- - satellite, microwave, cable and other pay television services or equipment;
and internet-related services or equipment, including internet service
providers, web hosting and web content providers and internet portals.
b) Under "Main Risks - Utilities Industries," adding the following as the second
paragraph of the section:
Moreover, by investing substantially in the securities of communications
companies within the utilities sector, the fund carries greater risk of adverse
developments affecting these companies than a fund that invests more broadly.
The securities of communications companies may experience more price volatility
than securities of companies in other industries. For example, communications
companies are subject to significant competitive pressures, such as new market
entrants, aggressive pricing and competition for market share and the potential
for falling profit margins. These companies also face the risks that new
services, equipment or technologies will not be accepted by consumers and
businesses or will become rapidly obsolete. These factors can affect the
profitability of communications companies and, as a result, the value of their
securities. In addition, many wireless telecommunication and internet-related
companies are in the emerging stage of development and are particularly
vulnerable to the risks of rapidly changing technologies. Prices of these
companies' securities historically have been more volatile than other
securities, especially over the short term.
c) Under "Main Risks - Utilities Industries," replacing the last sentence of the
section with the following:
Water supply company securities are often thinly traded and their markets, less
liquid, than other utility securities.
III. The section "Management" for the Small Cap Fund is amended by adding
Michael McCarthy to the portfolio manager team:
MICHAEL MCCARTHY
VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the fund since its inception in 1995. He
joined the Franklin Templeton Group in 1992.
