LETTER TO SHAREHOLDERS
Table of Contents
Page
Letter to Shareholders 1
Performance Summary 5
Statement of Investments 7
Financial Statements 13
Notes to Financial Statements 15
Report of Independent Auditors 20
To reduce the volume of mail shareholders receive and to reduce expenses, only
one copy of most Fund reports, such as the Fund's annual and semi-annual
reports, may be mailed to a household. Additional copies may be obtained,
without charge, by calling Fund Information at 1-800/DIAL BEN (1-800/342-5236).
Fund Objective:
Seeks high total return as well as capital appreciation by investing primarily
in securities that we believe are undervalued in the marketplace. The fund will
also seek income when deemed consistent with its objective.
December 15, 1995
Dear Shareholder:
We are pleased to bring you the annual report of the Franklin Balance Sheet
Investment Fund for the period ended October 31, 1995.
The Franklin Balance Sheet Investment Fund has earned an impressive performance
record. In fact, the fund provided a one-year total return of +19.32% on October
31, 1995, and -- since 1993 -- has outperformed its benchmark, the unmanaged
Russell 1000 Value Index, as indicated by the index comparison chart on page 6.
The fund has grown dramatically over the past few years. Investor interest
remains strong, which is gratifying, but also problematic. The managers are
concerned that if the rate of additional investment dollars were to continue
indefinitely at the 1993-95 rate, it would compromise our ability to invest
effectively within our discipline. In order to fulfill our responsibility to
existing shareholders, we have asked the Board of Trustees to act to limit new
fund sales should the fund's total net assets reach $500 million. In October,
the Board voted to accept the managers' recommendation. Accordingly, when the
fund reaches $500 million, no new shareholder accounts will be accepted (apart
from retirement accounts). Existing shareholders will be able to add to
positions, both through additional investments and reinvestment of dividends.
The Board, of course, may vote to re-open the fund to new shareholders should
circumstances warrant. You will receive further notification and explanation of
this decision with your December 1995 statement.
The Franklin Balance Sheet Investment Fund employs a disciplined investment
approach in its search for high total return, generally purchasing securities
that are selling well below the company's tangible book value (book value can be
defined as a company's assets minus its intangible liabilities). We seek to
identify securities that offer the potential for capital appreciation, focusing
on stocks and closed-end funds that we consider undervalued, with the
expectation that their intrinsic value will ultimately be recognized by the
market.
Over the reporting period, a slow growth economic climate and strong corporate
earnings brought a powerful upward surge in security prices. Growth, as measured
by Gross Domestic Product (GDP), rebounded from its second quarter low and
finished the third quarter of 1995 at an annualized rate of 4.2%.* This
environment proved beneficial for the fund.
As at the end of last year, insurance remained our largest group.
Property/casualty and life/ specialty stocks represented 13.4% and 8.6%,
respectively, of total net assets at the end of the period. Two of our five
largest positions come from the latter group. American National Insurance Co.,
our second largest position, trades at a 31% discount to tangible book value,
yields 4.4%, is very strong financially, and has raised its dividends 22 years
running. Home Beneficial, discussed in our semi-annual report dated April 30,
1995 (31 years of dividend increases), is our fourth-largest position.
*Source: U.S. Commerce Department, September 1995.
On October 31, 1994, the market price of Culbro -- currently our third largest
position -- was at $155/8, a 20% discount to a highly understated tangible book
value. How understated was illustrated in May, when a foreign tobacco company
offered to buy half of Culbro's cigar division for $22.81 per Culbro share.
Although the deal was later abandoned, the stock kept rising, and ended the
reporting period at $451/8, roughly triple our original cost.
The natural resources segment remained around 7% of total net assets throughout
the year. Included in this sector are our first and fifth largest portfolio
positions, Total Petroleum (2.45%) and Crown Central Petroleum (1.90%),
respectively. Both are regional refineries with their own chains of gas
station/convenience stores. Crown Central has been selling at an incredible 46%
discount to its tangible book value, while Total sells at a discount of 19%.
Franklin Balance Sheet Investment Fund
Top Fund Holdings on October 31, 1995
As a percentage of total net assets
% of Total
Top 5 Stock Holdings Net Assets
Total Petroleum (North America), Ltd 2.45%
American National Insurance Co. 2.32%
Culbro Corp. 2.09%
Home Beneficial Corp. 2.06%
Crown Central Petroleum, Class B 1.90%
For a complete list of portfolio holdings, please see
page 7 of this report.
Also in this sector is National Convenience Stores (1.2%), a gas
station/convenience store chain in Texas, which traded at a 35% discount to book
value in October 1994. Over the next two months, it fell another 18%, allowing
us to more than double our position at better prices. The company is now in
buyout negotiations, the stock above three times our cost.
Retailing was also a strong performer. At 11.4% of total net assets, it's our
second largest sector and we found new opportunities as the consumer continued
to disappoint Wall Street. Last year, Fabri-Centers and Younkers were two of our
larger holdings. Younkers recently agreed to merge with another department store
chain, leaving your fund with a 35% gain. Fabri-Centers gave us a 78% gain when
we sold our position this summer after holding it for two years. Meanwhile, we
remain shareowners of K-mart and have recently added shares. Stay tuned.
Banks and thrifts are only 6.2% of your fund now, down from 13.3% last year and
20.2% in October 1993. For several years, the performance of this sector
benefited the fund, but the well has -- at least temporarily -- run dry. This is
the first year when no bank is among our largest positions. Union Bank, last
year's fourth-largest position, gave the fund a total return of 54% in nine
months when we sold it at a 44% premium to book value.
Overall, our focus on companies and closed-end funds selling below their
intrinsic value worked well for us during the reporting period. We believe it
should continue to do so over the long term. The previously mentioned companies
and their relative investment performance should not be construed as indicative
of future performance.
We value your support of the Franklin Balance Sheet Investment Fund and look
forward to serving your investment needs in the months and years ahead.
Sincerely,
William J. Lippman
President
Franklin Balance Sheet Investment Fund
Performance Summary
The Franklin Balance Sheet Investment Fund provided a cumulative total return of
+19.32% for the one-year period ended October 31, 1995. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any. This calculation does not include the
initial sales charge.
Your fund's share price, as measured by net asset value, increased during the
reporting period to $26.34 on October 31, 1995, from $22.68 on October 31, 1994.
Over the one-year reporting period, shareholders received distributions totaling
61.6 cents ($0.616) per share, including 26 cents ($0.26) per share in dividend
income, a special year-end income distribution of one cent ($0.01) per share, 11
cents ($0.11) per share in long-term capital gains, and 23.6 cents ($0.236) per
share in short-term capital gains. Distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in the
portfolio. Past performance is not predictive of future results.
Franklin Balance Sheet Investment Fund
Periods ended October 31, 1995
Since
Inception
1-Year 5-Year (04/02/90)
Cumulative
Total Return1 19.32% 180.98% 118.15%
Average Annual
Total Return2 17.51% 22.59% 14.67%
1. Cumulative total returns measure the change in value of an investment over
the specified periods and do not reflect the maximum 1.5% initial sales charge.
See note below.
2. Average annual total returns represent the average annual change in value of
an investment over the specified periods and include the maximum 1.5% initial
sales charge. See note below.
Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
Past expense reductions by the fund's manager increased the fund's total
returns.
As reflected in the graph to the right, we are pleased to report that the
Franklin Balance Sheet Investment Fund has consistently outperformed the
unmanaged Russell 1000 Value Index since 1993. The Russell 1000 Value Index is a
total return index comprised of the 1,000 largest U.S. companies, ranked by
market capitalization. Of course, an index and a fund have inherent performance
differences. Unmanaged market indices don't pay commissions or market spreads to
buy and sell securities. Further, they don't pay management fees. And, unlike an
index, mutual funds are never 100% invested because of the need to have cash on
hand to redeem shares. In addition, the fund's results include the maximum
initial sales charge, all fund expenses and account fees. Please remember that
an index is simply a measure of performance and one cannot invest in it
directly.
GRAPHIC MATERIAL 1 OMMITTED - SEE APPENDIX AT END OF DOCUMENT
*This performance graph assumes an initial $10,000 investment in the fund and
includes the maximum 1.5% initial sales charge, all fund expenses and account
fees. It also assumes that dividends and capital gains were reinvested. The
Russell 1000 Value Index includes price appreciation or depreciation and
distributions as part of the original investment. Past performance cannot
guarantee future results.
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, October 31, 1995
Value
Shares Franklin Balance Sheet Investment Fund (Note 1)
Common Stocks 83.5%
Closed-End Funds 7.4%
<S> <C> <C>
160,000 a Central European Equity Fund ................................................. $ 2,560,000
150,000 Charles Allmon Trust, Inc. ................................................... 1,387,500
160,000 a Convertible Holdings, Inc. ................................................... 1,860,000
70,000 a Counsellors Tandem Securities Fund, Inc. ..................................... 1,128,750
200,000 Emerging Markets Infrastructure Fund, Inc. ................................... 1,900,000
100,000 Gemini II, Inc., Capital Shares .............................................. 2,450,000
90,000 a Global Health Sciences Fund .................................................. 1,327,500
130,000 a H & Q Healthcare Investors ................................................... 2,356,250
135,000 Irish Investment Fund, Inc. .................................................. 1,518,750
130,000 Morgan Grenfell Smallcap Fund, Inc. .......................................... 1,511,250
60,000 Petroleum & Resources Corp. .................................................. 1,627,500
110,000 Quest for Value Capital Shares Inc. .......................................... 3,410,000
52,500 Royce Value Trust ............................................................ 675,938
230,000 a Scudder New Europe Fund, Inc. ................................................ 2,357,500
22,400 Southeastern Thrift & Bank Fund, Inc. ........................................ 593,600
90,000 The Inefficient Market Fund, Inc. ............................................ 945,000
40,000 The Swiss Helvetia Fund ...................................................... 840,000
4,000 a Worldwide Value Fund, Inc. ................................................... 62,500
-----------
Total Closed-End Funds (Cost $25,474,399) .............................. 28,512,038
-----------
Banks & Thrifts 6.2%
33,600 Affiliated Community Bancorp ................................................. 554,400
22,500 Ameriana Bancorp, Inc. ....................................................... 405,000
188,500 Bay View Capital Corp. ....................................................... 4,995,250
100,000 Bell Bancorp, Inc. ........................................................... 2,925,000
139,400 California State Bank ........................................................ 1,951,600
57,000 a Calumet Bancorp, Inc. ........................................................ 1,574,625
20,000 Downey Financial Corp. ....................................................... 407,500
142 Farmers & Merchants Bank of Long Beach ....................................... 263,410
144,500 Fidelity Bancorp, Inc. ....................................................... 2,131,375
1,100,000 a Fidelity Federal Bank, Series A .............................................. 2,200,000
24,000 a First Financial Bancorp, Inc. ................................................ 375,000
30,275 First Shenango Bancorp, Inc. ................................................. 654,697
41,791 Home Interstate Bancorp ...................................................... 511,940
10,000 MSB Bancorp, Inc. ............................................................ 185,000
36,300 People's Savings Financial Corp. ............................................. 698,775
59,000 Progressive Bank, Inc. ....................................................... 1,637,250
5,400 b Scottdale Savings & Trust/PA ................................................. 1,296,000
46,000 Westco Bancorp, Inc. ......................................................... 1,230,500
-----------
23,997,322
-----------
Food & Tobacco 4.7%
179,300 a Culbro Corp. ................................................................. $ 8,090,913
67,600 Genesee Corp., Class B ....................................................... 3,033,550
360,000 Nash-Finch Co. ............................................................... 6,435,000
98,000 a Orange-Co., Inc. ............................................................. 710,500
5,400 Super Food Services, Inc. .................................................... 72,225
-----------
18,342,188
-----------
Insurance - Life & Specialty 8.6%
158,000 American National Insurance Co. .............................................. 9,006,000
330,000 Home Beneficial Corp., Series B .............................................. 8,002,500
5,000 a National Western Life Insurance Co., Class A ................................. 275,625
579,500 Presidential Life Corp. ...................................................... 5,505,250
5,962 Transport Holdings, Inc. - Class A ........................................... 234,009
240,000 USLIFE Corp. ................................................................. 6,840,000
155,800 Washington National Corp. .................................................... 3,544,450
-----------
33,407,834
-----------
Insurance - Property & Casualty 13.4%
150,000 ACE, Ltd. .................................................................... 5,100,000
295,000 a,b ACMAT Corp., Class A ......................................................... 3,466,250
97,300 Allmerica Financial Corp. .................................................... 2,444,663
90,000 American Indemnity Financial Corp. ........................................... 900,000
50,000 Amwest Insurance Group, Inc. ................................................. 762,500
125,000 Argonaut Group, Inc. ......................................................... 3,687,500
225,000 Capital Guaranty Corp. ....................................................... 4,978,125
120,000 Capital RE Corp. ............................................................. 3,390,000
50,200 Enhance Financial Services Group, Inc. ....................................... 1,022,825
214,800 Lawyers Title Corp. .......................................................... 3,517,350
254,500 b Merchants Group, Inc. ........................................................ 4,581,000
146,000 Meridian Insurance Group, Inc. ............................................... 2,007,500
63,100 a PICOM Insurance Company ...................................................... 1,135,800
94,700 a Prudential Reinsurance Holdings, Inc. ........................................ 1,929,513
303,000 Stewart Information Services Corp. ........................................... 6,249,375
312,000 a,b Transnational RE Corp., Class A .............................................. 6,981,000
-----------
52,153,401
-----------
Manufacturing 9.6%
18,300 Allen Organ Co., Class B ..................................................... 816,638
128,800 a Ameriwood Industries International Corp. ..................................... 644,000
93,000 a Baldwin Piano & Organ Co. .................................................... 1,197,375
88,800 Binks Manufacturing Co. ...................................................... 2,186,700
Manufacturing (cont.)
153,300 Capco Automotive Products Corp. .............................................. $ 1,168,913
45,000 a,b Cochrane Furniture, Inc. ..................................................... 551,250
200,000 Douglas & Lomason Co. ........................................................ 2,200,000
450,000 a,b Duplex Products............................................................... 3,375,000
15,000 Espey Manufacturing & Electronics Corp. ...................................... 206,250
137,750 Green (A.P.) Industries, Inc. ................................................ 2,720,563
90,000 Hardinge, Inc. ............................................................... 2,205,000
210,100 Insteel Industries, Inc. ..................................................... 1,418,175
100,000 a Marietta Corp. ............................................................... 825,000
703,000 a,b Matrix Service Co. ........................................................... 2,812,000
5,000 Medex, Inc. .................................................................. 55,000
240,900 b Monarch Machine Tool Co. ..................................................... 2,800,463
77,000 a Oroamerica, Inc. ............................................................. 317,625
350,000 Oshkosh Truck Corp., Class B ................................................. 4,987,500
18,800 Pitt-Des Moines, Inc. ........................................................ 690,900
192,000 b Pulaski Furniture Corp. ...................................................... 3,216,000
445,000 Windmere Corp. ............................................................... 2,781,250
-----------
37,175,602
-----------
Miscellaneous 4.5%
600,500 Aviall, Inc. ................................................................. 5,029,188
536,600 a Aztar Corp. .................................................................. 4,359,875
200,500 Ecology and Environment, Inc., Series A ...................................... 1,578,938
26,500 First Albany Companies, Inc. ................................................. 241,813
145,000 Hughes Supply, Inc. .......................................................... 3,498,125
56,200 Lehman Brothers Holdings, Inc. ............................................... 1,222,350
10,000 Noland Co. ................................................................... 185,000
83,000 a Price Enterprises, Inc. ...................................................... 1,224,250
-----------
17,339,539
-----------
Natural Resources 7.6%
57,500 a Cliffs Drilling Co. .......................................................... 776,250
500,000 a,b Crown Central Petroleum, Class B ............................................. 7,375,000
200,000 a Devcon International Corp. ................................................... 1,550,000
104,500 b ENEX Resources Corp. ......................................................... 901,313
303,000 Giant Industries, Inc. ....................................................... 2,916,375
600,000 a Pool Energy Services Co. ..................................................... 5,550,000
15,000 Rochester & Pittsburg Coal Co. ............................................... 472,500
939,500 Total Petroleum (North America), Ltd. ........................................ 9,512,428
31,000 a Tucker Drilling Co., Inc. .................................................... 248,000
-----------
29,301,866
-----------
Retail 11.4%
32,300 a Advanced Marketing Services, Inc. ............................................ $ 266,475
227,200 a Buttrey Food and Drug Stores Co. ............................................. 1,675,600
51,000 Deb Shops, Inc. .............................................................. 184,875
201,100 a Evans, Inc. .................................................................. 251,375
463,300 Fred's, Inc. ................................................................. 3,706,400
1,040,000 Hechinger Co., Class A ....................................................... 4,550,000
297,200 b Jacobson Stores, Inc. ........................................................ 2,749,100
410,000 Kmart Corp. .................................................................. 3,331,250
325,000 a,b Luria (L.) & Son, Inc. ....................................................... 1,706,250
190,000 a National Convenience Stores, Inc. ............................................ 4,655,000
475,000 Shopko Stores, Inc. .......................................................... 5,106,250
240,200 Strawbridge & Clothier, Class A .............................................. 4,563,800
346,000 a Syms Corp. ................................................................... 2,465,250
300,000 Wolohan Lumber Co. ........................................................... 2,850,000
275,000 a Younkers, Inc. ............................................................... 6,015,625
-----------
44,077,250
-----------
Technology 3.7%
60,000 a Aydin Corp. .................................................................. 982,500
210,000 a Cray Research, Inc. .......................................................... 4,357,500
122,500 Cubic Corp. .................................................................. 2,786,875
3,100 a Dynamics Research Corp. ...................................................... 17,825
280,000 a ESCO Electronics Corp. ....................................................... 2,240,000
61,000 a Harris Computer Systems Corp. ................................................ 861,625
197,000 a Inacom Corp. ................................................................. 1,970,000
100,000 TransTechnology Corp. ........................................................ 1,337,500
-----------
14,553,825
-----------
Textile & Apparel 3.4%
587,500 a,b Chic by H.I.S., Inc. ......................................................... 3,231,250
750,000 Delta Woodside Industries., Inc. ............................................. 4,875,000
500,000 Dixie Yarns, Inc. ............................................................ 2,437,500
100,000 Garan, Inc. .................................................................. 1,837,500
89,000 a Sun Sportswear, Inc. ......................................................... 311,500
39,400 Thomaston Mills, Inc., Class A ............................................... 477,725
-----------
13,170,475
-----------
Transportation 0.6%
8,600 International Shipholding Corp. .............................................. 205,325
53,100 Petroleum Helicopters, Inc. - Voting ......................................... 574,144
150,000 Petroleum Helicopters, Inc. - Non-Voting ..................................... 1,593,750
-----------
2,373,219
-----------
Utilities 2.4%
100,000 Central Maine Power Co. ...................................................... $ 1,387,500
120,000 Pennsylvania Enterprises, Inc. ............................................... 4,170,000
153,300 a Southern Union Co. ........................................................... 3,123,488
31,300 TNP Enterprises, Inc. ........................................................ 567,313
-----------
9,248,301
-----------
Total Common Stocks (Cost $299,927,442) ................................ 323,652,860
-----------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
Short Term Investments
Commercial Paper 5.6%
<S> <C> <C>
$11,000,000 American Express Credit Corp., 5.48%, 03/18/96 ............................... 10,758,000
11,000,000 Societe Generale, 5.50%, 03/22/1996 .......................................... 10,751,290
-----------
Total Commercial Paper (Cost $21,530,288) .............................. 21,509,290
-----------
Total Investments before Repurchase Agreements (Cost $321,457,730) ..... 345,162,150
-----------
c,d Receivables from Repurchase Agreements 11.3%
43,266,761 Joint Repurchase Agreement, 5.887%, 11/01/95 (Cost $43,957,662)............... 43,957,662
Daiwa Securities America, Inc., (Maturity Value $9,672,267)
Collateral: U.S. Treasury Bills, 4/25/96
U.S. Treasury Notes, 6.25% , 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $11,430,861)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $11,430,861)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $11,430,861)
Collateral: U.S. Treasury Notes, 5.125% - 8.5%, 11/15/95 - 01/31/00 -----------
Total Investments (Cost $365,415,392) 100.4% ...................... 389,119,812
Liabilities in Excess of Other Assets, Net (.4)% .................. (1,580,280)
-----------
Net Assets 100.0% ................................................. $387,539,532
===========
At October 31, 1995, the net unrealized appreciation based on the cost of
investments for income tax purposes of $365,415,392 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ...................................... $ 43,107,122
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ...................................... (19,402,702)
-----------
Net unrealized appreciation ................................................ $ 23,704,420
===========
aNon-income producing.
bSee Note 7 regarding holdings of 5% voting securities.
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Franklin Balance Sheet Investment Fund
Financial Statements
Statement of Assets and Liabilities
October 31, 1995
Assets:
Investments in securities, at value
(identified cost $321,457,730) $345,162,150
Receivables from repurchase agreements,
at value and cost 43,957,662
Cash 913,139
Receivables:
Dividends 229,661
Investment securities sold 553,833
Capital shares sold 1,417,732
------------
Total assets 392,234,177
------------
Liabilities:
Payables:
Investment securities purchased 3,926,508
Capital shares repurchased 154,331
Management fees 163,668
Distribution fees 406,637
Shareholder servicing costs 24,200
Accrued expenses and other liabilities 19,301
------------
Total liabilities 4,694,645
------------
Net assets, at value $387,539,532
============
Net assets consist of:
Undistributed net investment income $ 440,664
Unrealized appreciation on investments 23,704,420
Accumulated net realized gain 17,015,080
Capital shares 147,131
Additional paid-in capital 346,232,237
------------
Net assets, at value $387,539,532
============
Computation of net asset value and
offering price per share:
Net asset value*
($387,539,532 O 14,713,128
shares outstanding) $26.34
============
Maximum offering price
(100/98.5 of $26.34) $26.74
============
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
Statement of Operations
for the year ended October 31, 1995
Investment income:
Dividends $4,061,720
Interest 1,945,976
-----------
Total income $ 6,007,696
Expenses:
Management fees (Note 6) 1,325,910
Distribution fees (Note 6) 1,068,865
Shareholder servicing costs
(Note 6) 152,805
Registration fees 109,280
Reports to shareholders 106,534
Professional fees 25,573
Custodian fees 20,142
Trustees' fees and expenses 13,293
Amortization of organization
costs 6,796
Other 12,212
-----------
Total expenses 2,841,410
---------
Net investment income 3,166,286
---------
Realized and unrealized gain
from investments:
Realized gain from security
transactions:
From transactions in written
options which expired
(Note 5) 224,393
From other security
transactions 16,790,687
----------
Net realized gain 17,015,080
Net unrealized appreciation
on investments 20,720,103
-----------
Net realized and unrealized
gain from investments 37,735,183
-----------
Net increase in net assets resulting
from operations $40,901,469
===========
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST Franklin Balance Sheet Investment Fund
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1995 and 1994
1995 1994
---------- ----------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income......................................................... $ 3,166,286 $ 697,086
Net realized gain from investments............................................ 17,015,080 2,224,227
Net unrealized appreciation on investments.................................... 20,720,103 384,302
---------- ----------
Net increase in net assets resulting from operations...................... 40,901,469 3,305,615
Distributions to shareholders from:
Undistributed net investment income........................................... (2,726,560) (718,426)
Net realized gain on investments.............................................. (2,224,227) (1,042,553)
Increase in net assets from capital share transactions (Note 4 )............... 217,333,993 110,393,038
---------- ----------
Net increase in net assets................................................ 253,284,675 111,937,674
Net assets:
Beginning of year.............................................................. 134,254,857 22,317,183
---------- ----------
End of year (including undistributed net investment
income of $440,664 at 10/31/95 and $938 at 10/31/94)........................... $387,539,532 $134,254,857
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Franklin Balance Sheet Investment Fund
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Investors Trust (the Trust) is an open-end, non-diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. On September 21, 1995, the Board of Trustees
approved a name change for the Trust, formerly known as the Franklin Balance
Sheet Investment Fund. At October 31, 1995, the Trust consisted of one Fund, the
Balance Sheet Investment Fund (the Fund).
On September 21, 1995, the Board of Trustees approved the addition of a new fund
to the series. A registration statement relating to the new fund has been filed
with the Securities and Exchange Commission, but had not become effective as of
October 31, 1995.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Securities Valuations:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
securities for which market quotations are readily available are valued at
current market values, obtained from pricing services, which are based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined by
the Manager. Other securities for which market quotations are not available, if
any, are valued in accordance with procedures established by the Board of
Trustees.
Open option contracts are valued at their last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day,
options are valued at the mean between the current closing bid and asked prices.
b. Income Taxes:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. Option Transactions:
The Fund may write covered call options in which the premiums received are
recorded as a liability which is marked to market to reflect the current value
of the options written. A covered call option gives the holder the right to buy
the underlying security which the Fund owns at any time during the option period
at a predetermined exercise price. The risk in writing a covered call option is
that the Fund gives up the opportunity to participate in any increase in the
price of the underlying security beyond the exercise price. Proceeds from call
options exercised are increased by the amount of premiums received. If an option
expires or is cancelled in a closing transaction, the Fund will realize a gain
or loss depending on whether the cost of the closing transaction is less than or
greater than the premium originally received.
f. Repurchase Agreements:
The Fund may enter into a Joint Repurchase Agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements with government securities dealers recognized by the
Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the Joint Repurchase Agreement are allocated to the
Fund based on its pro-rata interest.
In a repurchase agreement, the Fund purchases a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At October 31, 1995, the outstanding joint repurchase agreement
held by the Fund had been entered into on that date.
2. ORGANIZATION COSTS
The organization costs of the Fund have been fully amortized on a straight line
basis over a period of five years from April 2, 1990 (the effective date of
registration under the Securities Act of 1933).
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1995, for tax purposes, the Fund had accumulated net realized
gains of $17,015,080.
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Fund are the same as for financial statement purposes at October 31,
1995.
<TABLE>
<CAPTION>
4. TRUST SHARES
At October 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in the Fund's shares for the year
ended October 31, 1995 and 1994 were as follows:
Year Ended October 31,
1995 1994
-------------------- ---------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold...................... 6,640,006 $165,283,384 3,102,569 $ 69,215,528
Shares issued in reinvestment of
distributions................... 180,557 4,192,576 65,077 1,429,626
Shares redeemed.................. (775,560) (19,041,654) (257,614) (5,750,140)
Changes from exercise of
exchange privilege:
Shares sold.................... 3,629,054 88,601,302 2,330,986 52,017,896
Shares redeemed................ (881,566) (21,701,615) (291,775) (6,519,872)
-------- ---------- -------- ----------
Net increase..................... 8,792,491 $217,333,993 4,949,243 $110,393,038
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended October 31, 1995 aggregated $224,871,428 and
$60,656,555, respectively.
Transactions in written options for the year ended October 31, 1995 were as
follows:
Call
----------------------
Number of
Amount of Shares
Premiums Optioned
--------- ---------
<S> <C> <C>
Options outstanding at October 31, 1994............................ $224,393 20,000
Options sold....................................................... 219,129 60,000
Options expired.................................................... (224,393) (20,000)
Options exercised.................................................. (219,129) (60,000)
Options outstanding at October 31, 1995............................ $ -- --
========== ==========
Premiums received on expired written call options resulted in a net realized gain of $224,393 for the year ended October
31, 1995.
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., ("Manager" or "Advisers") under the terms of a
management agreement, provides investment advice, administrative services,
office space and facilities to the Fund, and receives fees computed daily on the
net assets of the Fund at an annualized rate of 5/8 of 1% of the first $100
million of net assets of the Fund; 1/2 of 1% of the net assets in excess of $100
million up to $250 million, 45/100 of 1% of net assets in excess of $250 million
up to $10 billion, 44/100 of 1% of net assets in excess of $10 billion up to
$12.5 billion, 42/100 of 1% of net assets in excess of $12.5 billion up to $15
billion and 40/100 of 1% of net assets in excess of $15 billion. Fees incurred
by the Fund aggregated $1,325,910 for the year ended October 31, 1995. The terms
of the management agreement provide that annual aggregate expenses of the Fund
be limited to the extent necessary to comply with the limitations set forth in
the laws, regulations and administrative interpretations of the states in which
the funds shares are registered. For the year ended October 31, 1995, the Fund's
expenses did not exceed these limitations.
Pursuant to a shareholder service agreement with Franklin/Templeton Investor
Services, Inc., ("Investor Services") the Fund pays costs on a per shareholder
account basis. Such costs incurred for the year ended October 31, 1995
aggregated $152,805 of which $135,740 was paid to Investor Services.
Under the terms of a Distribution Plan pursuant to Rule 12b-1 of the Investment
Company Act of 1940, Franklin Balance Sheet Investment Fund will reimburse
Franklin/Templeton Distributors, Inc. ("Distributors") in an amount up to 0.50%
per annum of the Fund's average daily net assets for the costs incurred in the
promotion, offering and marketing of the Fund's shares. Costs incurred by
Franklin Balance Sheet Investment Fund under the agreement aggregated $1,068,865
for the year ended October 31, 1995.
In its capacity as underwriter for the capital stock of the Fund, Distributors
received commissions on sales of the Fund's capital stock. Commissions are
deducted from the gross proceeds received from the sale of the capital stock of
the Fund and as such are not expenses of the Fund. Distributors may also make
payments out of its own resources, to dealers for certain sales of capital
stock.
Commissions received by Distributors for the year ended October 31, 1995
amounted to $1,968,071, all of which was paid to other dealers.
Certain officers and trustees of the Fund are also officers and/or directors of
Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and
Franklin/Templeton Investor Services, Inc., all wholly-owned subsidiaries of
Franklin Resources, Inc.
7. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities held by
the Fund are defined in the Investment Company Act of 1940 as affiliated
companies. The Fund had investments in such affiliated companies at October 31,
1995, which amounted to $45,041,876.
<TABLE>
<CAPTION>
8. FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout the year
are as follows:
Year Ended October 31
-------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year........................ $22.68 $22.97 $17.37 $15.54 $11.48
------- ------- ------- ------- -------
Net investment income....................................... .30 .23 .39 .53 .52
Net realized and unrealized gain on securities.............. 3.98 .51 6.26 1.83 4.10
------- ------- ------- ------- -------
Total from investment operations............................ 4.28 .74 6.65 2.36 4.62
------- ------- ------- ------- -------
Less distributions:
From net investment income................................. (.27) (.26) (.43) (.53) (.56)
From capital gains......................................... (.35) (.77) (.62) -- --
------- ------- ------- ------- -------
Total distributions......................................... (.62) (1.03) (1.05) (.53) (.56)
------- ------- ------- ------- -------
Net asset value at end of year.............................. $26.34 $22.68 $22.97 $17.37 $15.54
======= ======= ======= ======= =======
TOTAL RETURN*............................................... 19.32% 3.42% 37.78% 15.51% 40.96%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in 000's)........................ $387,540 $134,255 $22,317 $5,149 $3,572
Ratio of expenses to average net assets..................... 1.17% 1.19% -- -- --
Ratio of expenses to average net assets
(before fee waiver and expense reduction) (Note 6)......... 1.17% 1.34% 1.85% 2.60% 3.16%
Ratio of net investment income to average net assets........ 1.30% .99% 1.89% 3.16% 3.79%
Portfolio turnover rate..................................... 28.63% 24.96% 31.36% 30.86% 31.94%
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value.
+ During the periods indicated, Advisers agreed in advance to waive all or a
portion of its management fees and pay all or a portion of the other expenses of
the Fund.
</TABLE>
Under IRC 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
99.62% of its ordinary income dividends paid during the fiscal year ended
October 31, 1995, as income qualifying for the dividends received deduction.
FRANKLIN VALUE INVESTORS TRUST
Franklin Balance Sheet Investment Fund
Report of Independent Auditors
To the Shareholders and Board of Trustees of Franklin Value Investors Trust:
We have audited the accompanying statement of assets and liabilities of the fund
comprising the Franklin Value Investors Trust, including the Fund's statement of
investments in securities and net assets, as of October 31, 1995, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
fund comprising the Franklin Value Investors Trust as of October 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 8, 1995
Franklin Balance Sheet Investment Fund
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PERSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the
Franklin Balance Sheet Fund to that of the Russell 1000 Value and the
Consumer Price Index, based on a $10,000 investment from 4/2/90 to 10/31/95.
Period Ending Balance Sheet Russell 1000 CPI
4/2/90 $9,849 $10,000 $10,000
4/30/90 $9,547 $9,610 $10,016
5/31/90 $9,947 $10,408 $10,039
6/30/90 $9,856 $10,171 $10,093
7/31/90 $9,685 $10,083 $10,132
8/31/90 $8,792 $9,197 $10,225
9/30/90 $7,940 $8,751 $10,311
10/31/90 $7,647 $8,632 $10,373
11/30/90 $8,099 $9,230 $10,395
12/31/90 $8,325 $9,464 $10,395
1/31/91 $8,902 $9,890 $10,458
2/28/91 $9,764 $10,548 $10,473
3/31/91 $10,050 $10,704 $10,489
4/30/91 $10,325 $10,783 $10,505
5/31/91 $10,626 $11,185 $10,536
6/30/91 $10,468 $10,714 $10,567
7/31/91 $10,571 $11,162 $10,583
8/31/91 $10,633 $11,365 $10,613
9/30/91 $10,647 $11,281 $10,660
10/31/91 $10,779 $11,469 $10,676
11/30/91 $10,709 $10,880 $10,707
12/31/91 $11,246 $11,792 $10,715
1/31/92 $11,564 $11,811 $10,731
2/29/92 $11,966 $12,100 $10,769
3/31/92 $12,022 $11,925 $10,824
4/30/92 $11,930 $12,439 $10,839
5/31/92 $12,065 $12,501 $10,855
6/30/92 $12,015 $12,423 $10,894
7/31/92 $12,764 $12,903 $10,917
8/31/92 $12,379 $12,508 $10,947
9/30/92 $12,221 $12,681 $10,978
10/31/92 $12,451 $12,692 $11,016
11/30/92 $13,003 $13,108 $11,032
12/31/92 $13,724 $13,420 $11,024
1/31/93 $14,031 $13,810 $11,078
2/28/93 $14,121 $14,296 $11,117
3/31/93 $14,593 $14,717 $11,156
4/30/93 $14,555 $14,529 $11,187
5/31/93 $14,969 $14,821 $11,202
6/30/93 $15,150 $15,147 $11,218
7/31/93 $15,626 $15,317 $11,218
8/31/93 $16,865 $15,870 $11,250
9/30/93 $16,888 $15,895 $11,273
10/31/93 $17,411 $15,884 $11,319
11/30/93 $17,100 $15,557 $11,327
12/31/93 $17,233 $15,852 $11,327
1/31/94 $17,722 $16,452 $11,358
2/28/94 $17,517 $15,889 $11,397
3/31/94 $16,940 $15,298 $11,435
4/30/94 $17,153 $15,592 $11,451
5/31/94 $17,343 $15,771 $11,459
6/30/94 $17,390 $15,394 $11,498
7/31/94 $17,802 $15,873 $11,529
8/31/94 $18,301 $16,328 $11,575
9/30/94 $18,285 $15,786 $11,607
10/31/94 $18,007 $16,006 $11,615
11/30/94 $17,411 $15,359 $11,630
12/31/94 $17,490 $15,536 $11,630
1/31/95 $18,016 $16,014 $11,676
2/28/95 $18,817 $16,647 $11,723
3/31/95 $19,214 $17,011 $11,762
4/30/95 $19,846 $17,549 $11,801
5/31/95 $20,260 $18,288 $11,824
6/30/95 $20,731 $18,536 $11,848
7/31/95 $21,227 $19,181 $11,848
8/31/95 $21,789 $19,452 $11,879
9/30/95 $22,032 $20,156 $11,902
10/31/95 $21,485 $19,956 $11,942
