LETTER TO SHAREHOLDERS
================================================================================
TABLE OF CONTENTS
PAGE
Letter to Shareholders ....... 1
Performance Summary .......... 4
Statement of Investments ..... 5
Financial Statements ......... 10
Notes to
Financial Statements ......... 12
June 15, 1995
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Franklin Balance Sheet
Investment Fund for the period ended April 30, 1995.
The fund's objective is to seek 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.
Overall, 1994 reminded us that volatility is a fundamental market condition. The
first four months of 1995, however, have been a different story. After raising
interest rates 75 basis points (three-quarters of a percentage point) in
November 1994, the Federal Reserve Board raised rates once more at their
February meeting. Although these actions could have caused a return to 1994's
volatility, markets rallied as investors perceived that additional increases
might be unnecessary. Economic news following this latest hike, to date, has
been fairly positive --
<PAGE>
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growth has slowed, inflation has remained subdued -- and the securities markets
have reacted favorably. For example, the unmanaged Standard & Poor's 500 Stock
Index's(R) six-month cumulative total return was +10.45% on April 30, 1995, up
from the market's +4.98% total return reported on October 31, 1994.
The fund performed well over the reporting period. As discussed in the
Performance Summary on page 4, it posted a six-month total return of +10.22%. In
addition, the fund maintained its five-star rating -- the highest available --
from Morningstar, Inc.*
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 liabilities). We seek to identify
securities that we believe offer the potential for substantial capital
appreciation, focusing on closed-end funds and stocks that we consider to be
undervalued, with the expectation that their intrinsic value will ultimately be
recognized by the market.**
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND
Top Fund Holdings on April 30, 1995
As a percentage of total net assets
--------------------------------------------------
% OF TOTAL
TOP FIVE STOCK HOLDINGS NET ASSETS
--------------------------------------------------
<S> <C>
Home Beneficial 2.82%
--------------------------------------------------
USLife Corporation 2.60%
--------------------------------------------------
Nash-Finch Company 2.33%
--------------------------------------------------
Total Petroleum North America 2.08%
--------------------------------------------------
Bay View Capital Corp. 1.99%
--------------------------------------------------
TOP FIVE CLOSED-END FUND HOLDINGS
--------------------------------------------------
Quest for Value Dual
Purpose Fund, Inc. - Capital Shares 1.25%
--------------------------------------------------
Gemini II, Inc. - Capital Shares 0.83%
--------------------------------------------------
H&Q Healthcare Investors 0.81%
--------------------------------------------------
Future Germany Fund, Inc. 0.79%
--------------------------------------------------
Scudder New Europe Fund, Inc. 0.78%
--------------------------------------------------
</TABLE>
FOR A COMPLETE LIST OF SECURITIES HELD IN THE PORTFOLIO, PLEASE SEE PAGE 5 OF
THIS REPORT.
*Source: Morningstar, 5/26/95. Morningstar proprietary ratings reflect
historical risk-adjusted performance and are subject to change every month.
Funds' returns are adjusted for fees and sales loads. Morningstar ratings are
calculated from the fund's three-, five- and ten-year average annual total
returns in excess of 90-Day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects the fund's performance below 90-Day
T-bill returns. Ten percent of the funds in an investment category receive five
stars. The fund was rated five stars in a category of 1190 and 891 equity funds,
respectively, for the three- and five-year periods ended April 30, 1995. Past
performance cannot guarantee future results.
**The fund's shares are subject to certain risks, such as those related to
investing in securities that may have limited liquidity, which are discussed in
the prospectus.
2
<PAGE>
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Insurance (life/specialty) holdings, consisting of 10 different companies,
continued to be the fund's largest industry concentration, although this
sector's percentage of total net assets decreased to 14% at the end of the
reporting period from 17% on October 31, 1994. The fund's largest single
position (2.82% of total net assets) was Home Beneficial Corporation, a
95-year-old company providing life, accident, and health insurance coverage.
Home Beneficial has paid uninterrupted dividends since 1906, with the amount
increasing every year since 1963. The current yield is 4.3% and the stock sells
at a 26% discount to tangible book value -- an outstanding value in our opinion.
Our second largest position in the group is USLife Corporation, at 2.60% of
total net assets. This company sells at an 11% discount to tangible book value,
at 8.4 times this year's earnings estimate and provides a 3.5% yield, all of
which strike us as good values.
During the six-month period, we realized substantial profits resulting from the
buyout of Trico Products Corporation, which we acquired for the portfolio at
approximately $21-3/8 per share and sold in the lower $80s. We liquidated a
sizable position in Structural Dynamics at an average gain of approximately 85%.
Of course, not all of our trades were this dramatic. There were also losses on
some individual positions, but overall, our focus on companies and closed-end
funds selling below their intrinsic value worked well during the reporting
period. We believe it will continue to do so over the long term.
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
3
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PERFORMANCE SUMMARY
The Franklin Balance Sheet Investment Fund provided a cumulative total return of
+10.22% for the six-month period, and +15.70% for the one-year period ended
April 30, 1995. 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 $24.48 on April 30, 1995, from $22.68 on October 31, 1994.
Over the six-month period, shareholders received distributions totaling 45.6
cents ($0.456) per share, including 10 cents ($0.10) per share in dividend
income, a special year-end distribution of one cent ($0.01) per share, 11 cents
($0.11) 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 fund's
portfolio. Past performance is not predictive of future results.
We have always maintained a long-term perspective and encourage shareholders to
do the same. While the fund may experience volatility from time to time, we are
confident that its performance will be satisfactory over the long term. The
table below illustrates that if you had invested in the fund at its inception in
1990, your cumulative total return would have been more than +101% at the end of
the reporting period.
FRANKLIN BALANCE SHEET INVESTMENT FUND
Periods ended April 30, 1995
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR (04/02/90)
- -----------------------------------------------------
<S> <C> <C> <C>
Cumulative
Total Return(1) 15.70% 107.88% 101.51%
- -----------------------------------------------------
Average Annual
Total Return(2) 13.97% 15.41% 14.44%
- -----------------------------------------------------
</TABLE>
1. Cumulative total returns show the change in value of an investment over the
specified periods and do not reflect the maximum 1.5% initial sales charge.
2. Average annual total return represents the average annual increase in value
of an investment over the specified periods and includes the maximum 1.5%
initial sales charge.
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.
4
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS 88.9%
CLOSED-END FUNDS 9.1%
<S> <C> <C>
90,900 a Charles Allmon Trust, Inc. ................................................... $ 806,738
150,000 Convertible Holdings, Inc. ................................................... 1,518,750
70,000 a Counsellors Tandem Securities Fund, Inc. ..................................... 980,000
110,000 a Emerging Markets Infrastructure Fund, Inc. ................................... 1,141,250
120,000 Future Germany Fund, Inc. .................................................... 1,845,000
100,000 Gemini II, Inc., Capital Shares .............................................. 1,937,500
25,000 a Global Health Sciences Fund .................................................. 287,500
130,000 a H & Q Healthcare Investors.................................................... 1,885,000
135,000 Irish Investment Fund, Inc. .................................................. 1,333,125
130,000 a Morgan Grenfell Smallcap Fund, Inc. .......................................... 1,202,500
40,400 Petroleum & Resources Corp. .................................................. 1,151,400
110,000 Quest for Value Dual Purpose Fund, Inc., Capital Shares ...................... 2,915,000
42,000 Royce Value Trust ............................................................ 498,750
190,000 Scudder New Europe Fund, Inc. ................................................ 1,828,750
25,000 Southeastern Thrift & Bank Fund, Inc. ........................................ 531,250
20,000 a The Global Privatization Fund, Inc. .......................................... 242,500
90,000 The Inefficient Market Fund, Inc. ............................................ 883,125
4,000 Worldwide Value Fund, Inc. ................................................... 59,500
-----------
TOTAL CLOSED-END FUNDS (COST $20,701,897) .............................. 21,047,638
-----------
BANKS & THRIFTS 12.7%
22,500 Ameriana Bancorp, Inc. ....................................................... 348,750
188,500 Bay View Capital Corp. ....................................................... 4,665,375
100,000 Bell Bancorp, Inc. ........................................................... 2,800,000
139,400 California State Bank ........................................................ 1,707,650
57,000 a Calumet Bancorp, Inc. ........................................................ 1,517,625
142 Farmers & Merchants Bank of Long Beach ....................................... 246,725
134,500 Fidelity Bancorp, Inc. ....................................................... 1,597,187
1,100,000 a Fidelity Federal Bank, Series A .............................................. 3,850,000
24,000 a First Financial Bancorp, Inc. ................................................ 354,000
33,500 First Palm Beach Bancorp ..................................................... 603,000
30,275 First Shenango Bancorp, Inc. ................................................. 469,263
50,000 First Southeast Financial Corp. .............................................. 725,000
17,000 GP Financial Corp. ........................................................... 406,938
10,000 a Haven Bancorp, Inc. .......................................................... 176,250
26,241 Home Interstate Bancorp ...................................................... 255,719
19,000 Long Island Bancorp, Inc. .................................................... 351,500
35,000 MSB Bancorp, Inc. ............................................................ 778,750
15,500 People's Savings Financial Corp. ............................................. 279,000
37,500 Plains Spirit Financial Corp. ................................................ 1,110,938
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
BANKS & THRIFTS (CONT.)
59,000 Progressive Bank, Inc. ....................................................... $ 1,430,750
18,500 Queens County Bancorp, Inc. .................................................. 564,250
116,000 Union Bank ................................................................... 4,495,000
46,000 Westco Bancorp, Inc. ......................................................... 1,012,000
-----------
29,745,670
-----------
FOOD & TOBACCO 4.9%
168,800 a Culbro Corp. ................................................................. 3,333,800
57,650 Genesee Corp., Class B ....................................................... 2,147,463
342,700 Nash-Finch Co. ............................................................... 5,461,781
98,000 a Orange-Co., Inc. ............................................................. 588,000
1,700 Super Food Services, Inc. .................................................... 18,913
-----------
11,549,957
-----------
INSURANCE - LIFE & SPECIALTY 14.4%
150,000 ACE, Ltd. .................................................................... 3,975,000
60,000 American National Insurance Co. .............................................. 3,810,000
220,700 Capital Guaranty Corp. ....................................................... 3,917,425
120,000 Capital RE Corp. ............................................................. 2,790,000
330,000 Home Beneficial Corp., Series B .............................................. 6,600,000
17,500 Lawyers Title Corp. .......................................................... 258,125
579,500 Presidential Life Corp. ...................................................... 3,404,563
63,800 Stewart Information Services Corp. ........................................... 1,180,300
160,000 USLIFE Corp. ................................................................. 6,080,000
100,000 Washington National Corp. .................................................... 1,837,500
-----------
33,852,913
-----------
INSURANCE - PROPERTY & CASUALTY 7.5%
300,000 a,b ACMAT Corp., Class A ......................................................... 3,562,500
57,000 American Indemnity Financial Corp. ........................................... 705,375
50,000 Amwest Insurance Group, Inc. ................................................. 718,750
125,000 Argonaut Group, Inc. ......................................................... 3,781,250
141,700 Merchants Group, Inc. ........................................................ 2,639,163
100,500 Meridian Insurance Group, Inc. ............................................... 1,180,875
90,000 MMI Companies, Inc. .......................................................... 1,631,250
167,500 a Transnational Re Corp., Class A .............................................. 3,391,875
-----------
17,611,038
-----------
MANUFACTURING 10.0%
23,500 Allen Organ Co., Class B ..................................................... 969,375
500,000 Aviall, Inc. ................................................................. 3,812,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
MANUFACTURING (CONT.)
<S> <C> <C>
93,000 a Baldwin Piano & Organ Co. .................................................... $ 1,081,125
10,100 Binks Manufacturing Co. ...................................................... 238,613
80,100 a Chic by H.I.S., Inc. ......................................................... 851,063
45,000 a,b Cochrane Furniture, Inc. ..................................................... 585,000
356,500 Dixie Yarns, Inc. ............................................................ 2,228,125
278,800 a Duplex Products .............................................................. 2,334,950
82,950 Green (A.P.) Industries, Inc. ................................................ 1,721,213
30,000 Insteel Industries, Inc. ..................................................... 225,000
100,000 a Marietta Corp. ............................................................... 1,087,500
189,500 b Monarch Machine Tool Co. ..................................................... 1,847,625
261,400 Oshkosh Truck Corp., Class B ................................................. 3,267,500
160,500 b Pulaski Furniture Corp. ...................................................... 3,149,813
-----------
23,399,402
-----------
MISCELLANEOUS 2.4%
93,000 a Atkinson (G.F.) Co. .......................................................... 732,375
25,000 Ecology and Environment, Inc., Series A ...................................... 200,000
30,000 First Albany Companies, Inc. ................................................. 255,000
150,000 Hughes Supply, Inc. .......................................................... 2,906,250
46,200 Lehman Brothers Holdings, Inc. ............................................... 900,900
81,500 Petroleum Helicopter, Inc. ................................................... 692,750
-----------
5,687,275
-----------
NATURAL RESOURCES 9.1%
88,000 a Arethusa (Off-Shore) Ltd. .................................................... 1,254,000
75,000 a Chieftain International, Inc. ................................................ 1,059,375
50,100 a Cliffs Drilling Co. .......................................................... 670,087
200,000 a Crown Central Petroleum, Class B ............................................. 2,925,000
182,800 a Devcon International Corp. ................................................... 1,508,100
100,000 b ENEX Resources Corp. ......................................................... 1,000,000
165,200 a Nord Resources Corp. ......................................................... 681,450
474,000 a Pool Energy Services Co. ..................................................... 4,029,000
390,300 Total Petroleum (North America), Ltd. ........................................ 4,878,750
31,000 a Tucker Drilling Co., Inc. .................................................... 217,000
150,000 Valero Energy Corp. .......................................................... 3,243,750
-----------
21,466,512
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL 10.5%
<S> <C> <C>
20,200 a Advanced Marketing Services, Inc. ............................................ $ 128,775
137,900 a Buttrey Food and Drug Stores Co. ............................................. 1,103,200
131,000 a Evans, Inc. .................................................................. 204,688
127,500 a Fabri-Centers of America ..................................................... 2,358,750
392,500 Hechinger Co., Class A ....................................................... 3,851,406
114,900 Jacobson Stores, Inc. ........................................................ 1,350,075
150,000 Kmart Corp. .................................................................. 2,081,250
194,100 a Luria (L.) & Son, Inc. ....................................................... 1,164,600
60,000 Mercantile Stores Co., Inc. .................................................. 2,655,000
237,000 a National Convenience Stores, Inc. ............................................ 2,458,875
350,000 Shopko Stores, Inc. .......................................................... 3,893,750
122,100 Syms Corp. ................................................................... 847,069
135,500 a Younkers, Inc. ............................................................... 2,523,688
-----------
24,621,126
-----------
TECHNOLOGY 5.5%
60,000 a Aydin Corp. .................................................................. 900,000
170,000 a Cray Research, Inc. .......................................................... 3,357,500
122,500 Cubic Corp. .................................................................. 2,495,938
62,775 a Dynamics Research Corp. ...................................................... 262,870
220,000 a ESCO Electronics Corp. ....................................................... 1,815,000
51,000 a Harris Computer Systems Corp. ................................................ 777,750
234,900 a Inacom Corp. ................................................................. 2,260,913
90,500 TransTechnology Corp. ........................................................ 1,018,125
24,700 United Industrial Corp. ...................................................... 151,287
-----------
13,039,383
-----------
UTILITIES 2.8%
120,000 Pennsylvania Enterprises, Inc. ............................................... 3,885,000
133,300 a Southern Union Co. ........................................................... 2,216,112
31,300 TNP Enterprises, Inc. ........................................................ 496,887
-----------
6,597,999
-----------
TOTAL COMMON STOCKS (COST $195,284,419) ................................ 208,618,913
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
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STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, APRIL 30, 1995 (CONT.)
<TABLE>
<CAPTION>
FACE VALUE
AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
c,d RECEIVABLES FROM REPURCHASE AGREEMENTS 12.0%
$28,424,376 Joint Repurchase Agreement, 5.975%, 05/01/95 (Maturity Value $28,177,969)
(COST $28,163,946)
Collateral: U.S. Treasury Notes, 4.75% - 9.00%, 07/15/96 - 01/31/00 ........ $ 28,163,946
------------
TOTAL INVESTMENTS (COST $223,448,365) 100.9% ...................... 236,782,859
OPEN CALL OPTION WRITTEN (PREMIUMS RECEIVED $203,656)** ............ (132,188)
LIABILITIES IN EXCESS OF OTHER ASSETS, NET (.9)% .................. (1,867,881)
------------
NET ASSETS 100.0% ................................................. $234,782,790
============
At April 30, 1995, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$223,448,365 was as follows: Aggregate gross unrealized
appreciation for all investments in which there was an
excess of value over tax cost ............................................. $ 18,890,719
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value .......................... (5,484,757)
------------
Net unrealized appreciation ................................................ $ 13,405,962
============
</TABLE>
**Open call options written at April 30, 1995 were as follows:
<TABLE>
<CAPTION>
SHARES
SUBJECT EXPIRATION
TO CALL ISSUE MONTH/PRICE VALUE
- -------------------------------------------------------------------
<S> <C> <C> <C>
35,000 Mercantile Stores Co., Inc..... June/$45 $63,438
20,000 Mercantile Stores Co., Inc..... September/$45 68,750
</TABLE>
a Non-income producing.
b See Note 7 regarding holdings of 5% voting securities.
c Face amount for repurchase agreements is for the underlying collateral.
d See Note 1(f) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $195,284,419) $208,618,913
Receivables from repurchase
agreements, at value and cost 28,163,946
Cash 763,565
Receivables:
Dividends 105,364
Investment securities sold 2,062,523
Capital shares sold 1,888,440
Unamortized organization costs (Note 2) 3,400
------------
Total assets 241,606,151
------------
Liabilities:
Covered call options at value (premiums
received $203,656) 132,188
Payables:
Investment securities purchased 6,190,358
Capital shares repurchased 127,751
Distribution fees 168,453
Management fees 103,219
Shareholder servicing costs 4,809
Accrued expenses and other liabilities 96,583
------------
Total liabilities 6,823,361
------------
Net assets, at value $234,782,790
============
Net assets consist of:
Undistributed net investment income $ 410,114
Unrealized appreciation on investments 13,405,962
Accumulated net realized gain 8,094,488
Capital shares 95,889
Additional paid-in capital 212,776,337
------------
Net assets, at value $234,782,790
============
Net asset value per share*:
($234,782,790 / 9,588,897
shares outstanding) $ 24.48
</TABLE> ============
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 1,721,105
Interest 559,017
-----------
Total income $ 2,280,122
Expenses:
Management fees (Note 6) 488,080
Distribution fees (Note 6) 396,537
Shareholder servicing costs
(Note 6) 38,139
Registration fees 60,600
Reports to shareholders 36,831
Professional fees 14,522
Custodian fees 8,097
Trustees' fees and expenses 7,493
Amortization of organization
cost 3,396
Other 5,210
-----------
Total expenses 1,058,905
-----------
Net investment income 1,221,217
-----------
Realized and unrealized gain
on investments:
Net realized gain from investments 8,097,528
Net unrealized appreciation
on investments 10,421,645
-----------
Net realized and unrealized gain
from investments 18,519,173
-----------
Net increase in net assets resulting
from operations $19,740,390
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
FINANCIAL STATEMENTS (CONT.)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1995 OCTOBER 31, 1994
-------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................... $ 1,221,217 $ 697,086
Net realized gain from investments .............................. 8,097,528 2,224,227
Net unrealized appreciation on investments ...................... 10,421,645 384,302
------------- -------------
Net increase in net assets resulting from operations ........ 19,740,390 3,305,615
Distributions to shareholders from:
Undistributed net investment income ............................. (812,041) (718,426)
Net realized gain on investments ................................ (2,227,267) (1,042,553)
Increase in net assets from capital share transactions (Note 4)... 83,826,851 110,393,038
------------- -------------
Net increase in net assets .................................. 100,527,933 111,937,674
Net assets:
Beginning of period .............................................. 134,254,857 22,317,183
------------- -------------
End of period (including undistributed net investment income of
$410,114 - 4/30/95 and $938 - 10/31/94) ......................... $ 234,782,790 $ 134,254,857
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Balance Sheet Investment Fund (the Fund) is an open-end,
non-diversified management investment company (mutual fund), registered under
the Investment Company Act of 1940, as amended.
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 ask
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 ask prices.
b. INCOME TAXES: The Fund 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.
e. OPTION TRANSACTIONS: The Fund may write covered call options in which
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 has been allocated to the Fund based on its prorata 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
12
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT.)
f. REPURCHASE AGREEMENTS (CONT):
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 April 30, 1995, the outstanding joint repurchase
agreement held by the Fund had been entered into on that date.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Fund are 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). In the event Franklin Resources, Inc. (which
was the sole shareholder prior to April 2, 1990) redeems its shares within the
five-year period, the pro-rata share of the then-unamortized deferred
organization cost will be deducted from the redemption price paid to Franklin
Resources, Inc. New investors purchasing shares of the Fund subsequent to that
date bear such costs during the amortization period only as such charges are
accrued daily against investment income.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1994, for tax purposes, the Fund had accumulated undistributed
net realized gains of $2,224,227.
For income tax purposes, the aggregate cost of securities and unrealized
appreciation are the same as for financial statement purposes at April 30, 1995.
4. Capital Shares
At April 30, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized and paid-in capital aggregated $212,872,226.
Transactions in the Fund's shares for the six months ended April 30, 1995 and
for the year ended October 31, 1994 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1995 OCTOBER 31, 1994
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold ...................... 2,412,612 $ 55,180,234 3,102,569 $ 69,215,528
Shares issued in reinvestment of
distributions ................... 119,566 2,591,203 65,077 1,429,626
Shares redeemed .................. (350,567) (7,931,049) (257,614) (5,750,140)
Changes from exercise of
exchange privilege:
Shares sold .................... 1,858,384 42,437,200 2,330,986 52,017,896
Shares redeemed ................ (371,735) (8,450,737) (291,775) (6,519,872)
---------- ------------ ---------- -------------
Net increase ..................... 3,668,260 $ 83,826,851 4,949,243 $ 110,393,038
========== ============ ========== =============
</TABLE>
13
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the six months ended April 30, 1995 aggregated $93,138,590 and
$24,869,179, respectively.
Transactions in written options for the six months ended April 30, 1995 were as
follows:
<TABLE>
<CAPTION>
CALL
---------------------
NUMBER OF
AMOUNT OF SHARES
PREMIUMS OPTIONED
--------- ---------
<S> <C> <C>
Options outstanding at October 31, 1994............................ $224,393 20,000
Options sold....................................................... 203,656 55,000
Options expired.................................................... (224,393) (20,000)
-------- -------
Options outstanding at April 30, 1995.............................. $203,656 55,000
======== =======
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., 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 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
$488,080 for the six months ended April 30, 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 Fund's
shares are registered. For the six months ended April 30, 1995, the Fund's
expenses did not exceed these limitations.
In its capacity as underwriter for the shares of the Fund, Franklin/Templeton
Distributors, Inc. received commissions on sales of the Fund's shares for the
six months ended April 30, 1995 totalling $638,608, all of which was paid to
other dealers. Commissions are deducted from the gross proceeds received from
the sale of the shares of the Fund and as such are not expenses of the Fund.
Under the terms of a shareholder service agreement with Franklin/Templeton
Investor Services, Inc., the Fund pays costs on a per shareholder account basis.
Such costs incurred for the six months ended April 30, 1995 were $38,139, all of
which was paid to Franklin/Templeton Investor Services, Inc.
Under the terms of a distribution agreement pursuant to Rule 12b-1 of the
Investment Company Act of 1940, the Franklin Balance Sheet Investment Fund will
reimburse Franklin/Templeton Distributors, Inc. 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 the
Franklin Balance Sheet Investment Fund under the agreement aggregated $396,537
for the six months ended April 30, 1995.
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.
14
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONT.)
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 affiliated companies at April 30, 1995,
which amounted to $10,144,938.
8. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31, APRIL 2, 1990+
ENDED ---------------------------------------- TO OCTOBER 31,
APRIL 30, 1995 1994 1993 1992 1991 1990
-------------- ------- ---------- ------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value at beginning of period...... $22.68 $22.97 $17.37 $15.54 $11.48 $15.00
-------- -------- ------ ------ ------ ------
Net investment income....................... .04 .23 .39 .53 .52 .29
Net realized and unrealized gain (loss)
on securities.............................. 2.22 .51 6.26 1.83 4.10 (3.63)
-------- -------- ------ ------ ------ ------
Total from investment operations............ 2.26 .74 6.65 2.36 4.62 (3.34)
-------- -------- ------ ------ ------ ------
Less distributions:
Dividends from net investment income....... (.11) (.26) (.43) (.53) (.56) (.18)
Distributions from capital gains........... (.35) (.77) (.62) -- -- --
-------- -------- ------ ------ ------ ------
Total distributions......................... (.46) (1.03) (1.05) (.53) (.56) (.18)
-------- -------- ------ ------ ------ ------
Net asset value at end of period............ $24.48 $22.68 $22.97 $17.37 $15.54 $11.48
======== ======== ====== ====== ====== ======
TOTAL RETURN*............................... 10.22% 3.42% 37.78% 15.51% 40.96% (22.36)%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in 000's)...... $234,783 $134,255 22,317 $5,149 $3,572 $1,405
Ratio of expenses to average net assets..... 1.25%++ 1.19%+++ --%+++ --%+++ --%+++ --%+++
Ratio of expenses to average net assets
(excluding waiver and payment of expenses
by manager) (Note 6)....................... 1.25%++ 1.34% 1.85% 2.60% 3.16% 3.54%++
Ratio of net income to average net assets... 1.44%++ .99% 1.89% 3.16% 3.79% 2.31%++
Portfolio turnover rate..................... 16.20% 24.96% 31.36% 30.86% 31.94% 5.34%
</TABLE>
* Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum initial sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value.
+ Effective date of registration.
++ Annualized.
+++ During the periods indicated, Franklin Advisers, Inc., the investment
manager,
agreed in advance to waive a portion of the management fees.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
15
<PAGE>
