LETTER TO SHAREHOLDERS
Table of Contents
Page
Letter to Shareholders............................ 1
Fund Reports
Franklin Balance Sheet ............................ 4
Investment Fund
Franklin MicroCap Value Fund....................... 7
Franklin Value Fund................................ 10
Financial Statements............................... 24
Notes to Financial Statements...................... 27
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).
June 17, 1996
Dear Shareholder:
It is a pleasure to bring you the Franklin Value Investors Trust semi-annual
report for the period ended April 30, 1996.
We are pleased to introduce two new funds to the Trust: Franklin MicroCap Value
Fund and the Franklin Value Fund. These new funds were made available to
investors on December 12, 1995, and March 11, 1996, respectively. We're excited
about the prospects for these new additions and encourage you to review the
prospectus of each new fund.
During the reporting period, economic stability, low interest rates and moderate
inflation contributed to strong performances for most financial markets. In the
absence of inflationary threats during the six-month period, the Federal Reserve
Board (the "Fed") continued its bid to promote sustainable growth by making two
additional modest cuts in the federal funds rate -- the interest rate banks
charge each other for overnight loans. By the end of April 1996, the federal
funds rate had been reduced to 5.25% -- 75 basis points below its cyclical high
of 6% in the second quarter of 1995.
A stronger-than-expected employment report, released in March, drove interest
rates up and caused temporary weakness in the financial markets. While inflation
remained in check, hopes for additional federal funds rate reductions dimmed as
the economy began to show signs of improvement. Long bond yields, which had
fallen to a low of 5.95% by December 31, 1995, closed the period at 6.89%, and
the Dow Jones Industrial Average(R) was up 17% to 5569.08 on April 30, 1996,
from 4755.48 on October 31, 1995.
Should inflation remain subdued, the Fed may be prompted to ease monetary policy
further, which may benefit equity and fixed-income markets. 1995's interest rate
fluctuations -- driven primarily by the Fed -- underscored our philosophy that
shareholders should view their investments with a long-term perspective. Much of
the effects of short-term swings dissipate when viewed over the long run.
The following pages contain specific information about each fund's performance.
While the funds have distinct investment objectives, our fundamental operating
principles remain the same: careful investment selection and constant
professional supervision.
As always, we appreciate your support and look forward to serving your
investment needs in the years ahead.
Sincerely,
William J. Lippman
President
Franklin Value Investors Trust
Franklin Balance Sheet Investment
Fund Limits Additional Shares
As indicated in the annual report dated October 31, 1995, the Trustees of the
Franklin Balance Sheet Investment Fund decided to limit the offering of the
fund's shares when assets totaled $500 million. Effective January 30, 1996, the
fund's assets reached this amount, and its offering of shares is now limited --
meaning that no new, non-retirement plan accounts can be established. Existing
shareholders will be able to add to positions, both through additional
investment and reinvestment of dividends. The Trustees reserve the right to
modify the restrictions at any time. If you have any questions regarding your
account, please contact your investment representative, or call a Franklin
Templeton Shareholder Services Representative, toll free, at 1-800/632-2301.
FRANKLIN BALANCE SHEET INVESTMENT FUND
Your Fund's 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. The Franklin Balance
Sheet Investment Fund employs a disciplined approach in its search for high
total return, generally purchasing securities that are selling well below the
company's tangible book value (defined as a company's assets minus its
liabilities). We seek to identify securities that offer the potential for
capital appreciation, focusing on stocks that we consider undervalued, with the
expectation that their intrinsic value will ultimately be recognized by the
market.
As of April 30, 1996, the insurance industry remained our largest industry
sector, with 9.5% of total net assets in life/specialty stocks and 9.4% in
property/casualty. Three of our top five holdings are in this group. USLIFE, our
second largest position, is the oldest life insurance company in the country. It
provides a 3.2% yield, has raised its dividend 21 consecutive years, increased
approximately 12% in value from our average cost and still sells at a 16%
discount to tangible book value. American National Insurance Co., our third
largest position, yields 3.8%, has 21 consecutive years of dividend increases,
is up 18% from our average cost, and sells at a 22% discount to book value.
Franklin Balance Sheet Investment Fund
Top Fund Holdings on April 30, 1996
Based on Total Net Assets
% of Total
Company, Industry Net Assets
Total Petroleum (North America) Ltd. 3.34%
Natural Resources
USLIFE Corp. 2.59%
Insurance - Life/Specialty
American National Insurance Co. 2.17%
Insurance - Life/Specialty
Aztar Corp. 1.57%
Miscellaneous
Home Beneficial Corp., Series B 1.54%
Insurance - Life/Specialty
For a complete list of portfolio holdings, please see page 11 of this report.
Total Petroleum (North America) Ltd., at 3.34% of total net assets, was our
largest position at the end of this reporting period. Total Petroleum has gained
21.6% on our average cost and, although it currently sells at a premium to book
value, we still view it as a good value. Rounding out our top five are Aztar
Corp. (1.57% of total net assets) and Home Beneficial Corp. (1.54% of total net
assets). Aztar has gained 23.5% on our average cost, and sells at a slight
premium to book value. Home Beneficial is a long-term holding, with a 33% gain
from our average cost to date, and is currently trading at roughly a 6% discount
to book.
During the six-month reporting period, two mergers provided substantial profits
for our fund. Silicon Graphics' acquisition of Cray Research, Inc. generated a
$1.3 million gain. The acquisition of Capco Automotive Products by Eaton Corp.
provided an additional profit of $2.4 million, for a 70% gain on our cost.
Obviously, profitable take-overs such as these cannot be predicted and
scheduled. But with an extensive portfolio of companies selling below book
value, quite often we find ourselves pleasantly surprised.
Overall, our focus on companies selling below their intrinsic value worked well
for us during the six-month reporting period. We believe it should continue to
do so over the long term.
This discussion reflects the strategies we employed for the fund and includes
our opinions as of the close of the reporting period. Since economic and market
conditions are constantly changing, our strategies, evaluations, conclusions and
decisions regarding portfolio holdings may change in light of new circumstances.
Although past performance of a specific investment or sector cannot guarantee
future performance, such information can be useful in analyzing the securities
we purchase or sell for the fund.
Performance Summary
The Franklin Balance Sheet Investment Fund provided a six-month cumulative total
return of +12.62% for the period ended April 30, 1996. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains. This calculation does not include the initial sales
charge.
Your fund's share price, as measured by net asset value, increased $1.97 during
the reporting period from $26.34 on October 31, 1995, to $28.31 on April 30,
1996. Over the six-month period, shareholders received distributions totaling
$1.266 per share, including 14 cents ($0.14) per share in dividend income, a
special year-end income distribution of 6.2 cents ($0.062) per share, 71 cents
($0.71) per share in short-term capital gains, and 35.4 cents ($0.354) per share
in long-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 April 30, 1996
Since
Inception
1-Year 5-Year (04/02/90)
- --------------------------------------------------------------------------------
Cumulative
Total Return1 21.92% 134.35% 145.67%
Average Annual
Total Return2 20.10% 18.21% 15.63%
Value of
$10,000
Investment3 $12,010 $23,083 $24,196
- --------------------------------------------------------------------------------
1. Cumulative total returns measure the change in value of an investment over
the specified periods and do not include the maximum 1.5% initial sales charge.
2. Average annual total returns measure the average annual change in value of an
investment over the specified periods and include the maximum 1.5% initial sales
charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 1.5% initial sales
charge.
All 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.
FRANKLIN MICROCAP VALUE FUND
Your Fund's Objective:
Seeks high total return as well as capital appreciation by investing primarily
in securities of companies with market capitalizations under $100 million at the
time of purchase, and which we believe are undervalued in the marketplace. The
fund will also seek income when deemed consistent with its objective. Our
strategy behind the Franklin MicroCap Value Fund is to search for micro cap
stocks that we believe offer exceptional value to investors. In fact, for the
abbreviated four-month reporting period, the fund posted a cumulative total
return of +18.22%, as shown in the Performance Summary on page 9.
We invest primarily in the securities of companies with market
capitalizationunder $100 million at the time of purchase, and which -- we feel
- -- are undervalued in the marketplace. In our opinion, this area of the market
is attractive because many of these companies remain unnoticed by Wall Street
due to their small size and relatively limited liquidity. Thus, their stocks
tend to trade in a market less efficient than that of larger capitalization
stocks, with correspondingly greater possible returns for patient investors.
What's in a Cap?
Market capitalization is the value of a corporation as determined by the market
price of its issued and outstanding stock. Analysts may look at market
capitalization in relation to book value for an indication as to how investors
perceive a company's future prospects:
Large Cap: Companies whose market capitalization is over $1.2 billion at the
time of purchase.
Mid Cap: Companies whose market capitalization is less than $2 billion but more
than $5.4 million at the time of purchase.
Small Cap: Companies whose market capitalization is less than $1.2 billion but
more than $1.55 million at the time of purchase.
Micro Cap: Companies whose market capitalization is $100 million or less at the
time of purchase.
In selecting stocks for the portfolio, we look for companies that can be
acquired for less than tangible net worth, conducting an in-depth analysis of
the balance sheet to identify these companies. Then we move beyond the balance
sheet to look for other indications that a company is undervalued: trademarks,
access to distribution channels, level of debt, quality of management, and
historical relationship of book value to market price. Essentially, we're
looking at companies with strong balance sheets and the ability to increase in
book value.
We plan to limit the shares of the Franklin MicroCap Value Fund to existing and
to new, non-retirement plan accounts when the fund reaches $100 million in
assets, as we feel that limiting the growth in assets to a reasonable pace will
offer the greatest potential benefit to shareholders. By keeping new fund assets
at a manageable level, we hope to hold proportionately significant positions in
smaller companies in which the fund invests. Existing shareholders will be able
to add to their accounts, both through additional investments and reinvestment
of dividends.
Performance Summary
The Franklin MicroCap Value Fund began offering shares to investors on December
12, 1995. The fund's share price, as measured by net asset value, increased 18%,
from $15.00 on December 12, 1995, to $17.70 on April 30, 1996.
The fund declared its first dividend distribution of 3 cents ($0.03) per share
in March 1996. Dividends will be paid on a quarterly basis and 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 MicroCap Value Fund
Period ended April 30, 1996
Since
Inception
(12/12/95)
- --------------------------------------------------------------------------------
Cumulative Total Return1 18.22%
Aggregate Total Return2 12.88%
- --------------------------------------------------------------------------------
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the maximum 4.5% initial sales charge.
2. Aggregate total return measures the change in value of an investment since
inception and includes the maximum 4.5% initial sales charge. Since the fund has
existed for less than one year, average annual total returns are not provided.
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.
The fund's manager agreed in advance to waive a portion of the management fees,
which reduces operating expenses and increases total return to shareholders.
Without these reductions, the fund's total return would have been lower. Fee
waiver and expense reimbursements may be discontinued at any time upon notice to
the fund's Board of Trustees.
FRANKLIN VALUE FUND
Your Fund's Objective:
Seeks long-term total return by investing in the securities of companies that we
believe are undervalued. The fund will seek income when deemed consistent with
its objective.
The Franklin Value Fund began offering shares to investors on March 11, 1996.
The fund's share price, as measured by net asset value, was $15.00 on March 11,
1996, and had increased 6% to $15.96 on April 30, 1996.
Our investment philosophy for the Franklin Value Fund is simple: search beyond
the balance sheet for value. We attempt to spread our investments across
companies of all different sizes, without selecting stocks based on industry or
market sectors. In addition to seeking companies that sell below tangible book
value, we follow a broad definition of what constitutes good value. Included
would be stocks with a low price relative to earnings, to book value, or to cash
flow, as well as those with tax loss carry-forwards, valuable franchises,
patents, trade names, distribution channels or other intangibles that may not be
reflected in stock prices. Any of these criteria could help us identify
companies that might be underpriced in the market.
The fund expects to begin paying quarterly dividends in June 1996.
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, April 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Franklin Balance Sheet Investment Fund (Note 1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 67.9%
Closed-End Funds 7.0%
160,000 a Central European Equity Fund .............................................................. $ 2,840,000
160,000 a Convertible Holdings, Inc. ................................................................ 2,000,000
70,000 a Counsellors Tandem Securities Fund, Inc. .................................................. 1,233,750
200,000 Emerging Markets Infrastructure Fund, Inc. ................................................ 2,100,000
106,100 Gemini II, Inc., Capital Shares ........................................................... 2,864,700
175,400 a Global Health Sciences Fund ............................................................... 3,244,900
115,500 Growth Fund of Spain, Inc. ................................................................ 1,328,250
130,000 a H & Q Healthcare Investors ................................................................ 2,876,250
135,000 Irish Investment Fund, Inc. ............................................................... 1,738,125
175,000 John Hancock Bank and Thrift Opportunity Fund ............................................. 4,003,125
100,000 Latin America Investment Fund , Inc. ...................................................... 1,650,000
200,000 Liberty All Star Growth Fund............................................................... 1,875,000
130,000 Morgan Grenfell Smallcap Fund, Inc. ....................................................... 1,478,750
60,000 Petroleum & Resources Corp. ............................................................... 1,875,000
110,000 a Quest for Value Capital Shares, Inc. ...................................................... 3,795,000
52,500 Royce Value Trust ......................................................................... 643,125
240,000 a Scudder New Europe Fund, Inc. ............................................................. 2,940,000
44,800 Southeastern Thrift & Bank Fund, Inc. ..................................................... 593,600
90,000 The Inefficient Market Fund, Inc. ......................................................... 1,035,000
100,000 The Swiss Helvetia Fund ................................................................... 2,187,500
4,000 a Worldwide Value Fund, Inc. ................................................................ 82,500
-----------
42,384,575
-----------
Banks & Thrifts 6.0%
61,500 Affiliated Community Bancorp .............................................................. 1,060,875
29,998 Ameriana Bancorp, Inc. .................................................................... 389,974
100,000 Bell Bancorp, Inc. ........................................................................ 3,725,000
139,400 California State Bank ..................................................................... 2,073,575
57,000 a Calumet Bancorp, Inc. ..................................................................... 1,581,750
83,900 d Christiania Bank OG Kreditkasse, ADR....................................................... 1,825,706
21,000 Downey Financial Corp. .................................................................... 454,125
1,100 Farmers & Merchants Bank of Long Beach .................................................... 2,024,000
144,500 Fidelity Bancorp, Inc. .................................................................... 2,257,813
433,250 a Fidelity Federal Bank, Class A ............................................................ 3,953,406
93,000 Fidelity Financial of Ohio................................................................. 930,000
163,400 First Defiance Financial Corp. ............................................................ 1,756,550
24,000 First Financial Bancorp, Inc. ............................................................. 381,000
74 First National Bank of Anchorage .......................................................... 111,000
30,275 First Shenango Bancorp, Inc. .............................................................. 620,638
232,000 a GA Financial, Inc. ........................................................................ 2,581,000
Banks & Thrifts (cont.)
43,880 Home Interstate Bancorp ................................................................... $ 581,410
48,600 People's Savings Financial Corp. .......................................................... 996,300
59,000 Progressive Bank, Inc. .................................................................... 1,618,813
88,000 a Quaker City Bancorp, Inc. ................................................................. 1,270,500
5,400 b Scottdale Savings & Trust/PA .............................................................. 1,636,200
214,100 Standard Financial, Inc. .................................................................. 3,184,738
46,000 Westco Bancorp, Inc. ...................................................................... 1,328,250
-----------
36,342,623
-----------
Food 2.1%
87,500 Genesee Corp., Class B .................................................................... 3,948,438
405,600 Nash-Finch Co. ............................................................................ 7,098,000
98,000 Orange-Co., Inc. .......................................................................... 820,750
49,000 Super Food Services, Inc. ................................................................. 624,750
-----------
12,491,938
-----------
Furniture & Homebuilders 1.3%
18,300 Allen Organ Co., Class B .................................................................. 661,088
186,600 a Ameriwood Industries International Corp. .................................................. 1,212,900
107,800 a Baldwin Piano & Organ Co. ................................................................. 1,374,450
45,000 a,b Cochrane Furniture, Inc. .................................................................. 495,000
192,000 b Pulaski Furniture Corp. ................................................................... 3,072,000
59,400 Ryland Group, Inc. ........................................................................ 980,100
-----------
7,795,538
-----------
Insurance - Life & Specialty 9.5%
200,000 American National Insurance Co. ........................................................... 13,150,000
78,700 Guarantee Life Companies, Inc. ............................................................ 1,347,738
351,600 Home Beneficial Corp., Series B ........................................................... 9,317,400
48,000 a National Western Life Insurance Co., Class A............................................... 3,216,000
692,000 Presidential Life Corp. ................................................................... 6,747,000
94,700 a,b Transport Holdings, Inc., Class A ......................................................... 4,024,750
558,100 USLIFE Corp. .............................................................................. 15,696,555
155,800 Washington National Corp. ................................................................. 4,303,975
-----------
57,803,418
-----------
Insurance - Property & Casualty 9.4%
295,000 a,b ACMAT Corp., Class A ...................................................................... 3,650,625
97,300 Allmerica Financial Corp. ................................................................. 2,529,800
90,000 American Indemnity Financial Corp. ........................................................ 1,125,000
50,000 Amwest Insurance Group, Inc. .............................................................. 693,750
Insurance - Property & Casualty (cont.)
125,000 Argonaut Group, Inc. ...................................................................... $ 3,875,000
116,877 Baldwin & Lyons, Class B .................................................................. 1,723,936
323,300 a Chartwell Re Corp. ........................................................................ 7,051,981
87,700 Enhance Financial Services Group, Inc. .................................................... 2,378,863
151,110 Financial Security Assurance .............................................................. 4,079,970
41,200 LaSalle Re Holdings Ltd. .................................................................. 818,850
214,800 Lawyers Title Corp. ....................................................................... 3,866,400
254,500 b Merchants Group, Inc. ..................................................................... 4,549,188
227,300 Meridian Insurance Group, Inc. ............................................................ 3,096,963
69,100 a PICOM Insurance Company ................................................................... 1,502,925
415,000 b Stewart Information Services Corp. ........................................................ 8,248,125
360,000 b Transnational Re Corp., Class A ........................................................... 7,560,000
-----------
56,751,376
-----------
Manufacturing 7.7%
131,100 a ACX Technologies, Inc. .................................................................... 2,540,063
338,400 a American Pacific Corp. .................................................................... 2,411,100
134,300 Binks Manufacturing Co. ................................................................... 2,988,175
187,000 Commonwealth Aluminum Corporation ......................................................... 2,921,875
200,000 Douglas & Lomason Co. ..................................................................... 2,800,000
449,400 a,b Duplex Products ........................................................................... 5,392,800
97,000 Dynamics Corporation of America ........................................................... 2,352,250
15,000 Espey Manufacturing & Electronics Corp. ................................................... 230,625
184,250 Green (A.P.) Industries, Inc. ............................................................. 3,420,141
407,500 Insteel Industries, Inc. .................................................................. 2,750,625
498,000 a,b Matrix Service Co. ........................................................................ 3,361,500
56,700 Medex, Inc. ............................................................................... 694,575
29,500 Mine Safety Appliances Co. ................................................................ 1,349,625
250,000 b Monarch Machine Tool Co. .................................................................. 2,718,750
92,000 a Oroamerica, Inc. .......................................................................... 437,000
350,000 Oshkosh Truck Corp., Class B .............................................................. 5,162,500
18,800 Pitt-Des Moines, Inc. ..................................................................... 770,800
445,000 Windmere Corp. ............................................................................ 4,672,500
-----------
46,974,904
-----------
Miscellaneous 2.8%
975,400 a Aztar Corp. ............................................................................... 9,510,150
260,000 b Ecology and Environment, Inc., Series A ................................................... 2,112,500
56,200 Lehman Brothers Holdings, Inc. ............................................................ 1,426,075
18,000 Noland Co. ................................................................................ 328,500
Miscellaneous (cont.)
223,700 a Price Enterprises, Inc. ................................................................... $ 3,607,163
6,100 a Vicorp Restaurants, Inc. .................................................................. 85,400
-----------
17,069,788
-----------
Natural Resources 6.9%
85,800 a Cliffs Drilling Co. ....................................................................... 2,166,450
500,000 a,b Crown Central Petroleum, Class B .......................................................... 9,187,500
211,200 a Devcon International Corp. ................................................................ 1,874,400
104,500 b ENEX Resources Corp. ...................................................................... 992,750
73,000 a International Colin Energy Corp............................................................ 355,875
459,900 a Pool Energy Services Co. .................................................................. 5,806,238
24,300 Rochester & Pittsburgh Coal Co. ........................................................... 801,900
1,652,000 Total Petroleum (North America), Ltd. ..................................................... 20,237,000
31,000 a Tucker Drilling Co., Inc. ................................................................. 317,750
-----------
41,739,863
-----------
Retail 8.0%
450,200 a,b Buttrey Food and Drug Stores Co. .......................................................... 3,320,225
51,000 DEB Shops, Inc. ........................................................................... 248,625
201,100 a Evans, Inc. ............................................................................... 257,669
669,900 b Fred's, Inc. .............................................................................. 5,777,888
210,000 a Good Guys, Inc. ........................................................................... 1,916,250
1,040,000 a Hechinger Co., Class A .................................................................... 4,420,000
297,200 b Jacobson Stores, Inc. ..................................................................... 2,823,400
590,000 Kmart Corp. ............................................................................... 5,973,750
192,000 a Little Switzerland, Inc. .................................................................. 1,116,000
401,200 a,b Luria (L.) & Son, Inc. .................................................................... 2,056,150
550,000 Shopko Stores, Inc. ....................................................................... 8,525,000
300,000 Strawbridge & Clothier, Class A ........................................................... 5,550,000
357,900 a Syms Corp. ................................................................................ 2,818,463
349,625 b Wolohan Lumber Co. ........................................................................ 3,452,547
-----------
48,255,967
-----------
Technology 1.9%
150,000 a Aydin Corp. ............................................................................... 2,475,000
173,000 a Cherry Corp., Class A ..................................................................... 1,600,250
121,500 a Cherry Corp., Class B ..................................................................... 1,184,625
46,410 a Cray Research, Inc. ....................................................................... 1,369,095
280,000 a ESCO Electronics Corp. .................................................................... 3,675,000
63,000 TransTechnology Corp. ..................................................................... 1,039,500
-----------
11,343,470
-----------
Textiles & Apparel 4.3%
756,000 a,b Chic by H.I.S., Inc. ...................................................................... $ 5,197,500
1,000,000 Delta Woodside Industries., Inc. .......................................................... 5,625,000
582,200 a,b Dixie Yarns, Inc. ......................................................................... 2,474,350
231,100 Garan, Inc. ............................................................................... 3,870,925
510,800 b Haggar Corp. .............................................................................. 7,853,550
89,000 a Sun Sportswear, Inc. ...................................................................... 278,125
84,400 Thomaston Mills, Inc., Class A ............................................................ 886,200
-----------
26,185,650
-----------
Transportation .6%
58,750 International Shipholding Corp. ........................................................... 1,127,266
53,100 Petroleum Helicopters, Inc. - Voting ...................................................... 730,125
150,000 Petroleum Helicopters, Inc. - Non Voting .................................................. 2,025,000
-----------
3,882,391
-----------
Utilities .4%
300,000 a Niagara Mohawk Power Corp. ................................................................ 2,250,000
-----------
Total Long Term Investments (Cost $370,341,527)...................................... 411,271,501
-----------
Face
Amount
- ---------------
c Receivables from Repurchase Agreements 33.1%
$199,794,887 Joint Repurchase Agreement, 5.326%, 05/01/96
(Maturity Value $200,503,581) (Cost $200,473,922)
Bear Stearns & Co., Inc., (Maturity Value $40,176,156)
Collateral: U.S. Treasury Notes, 5.625% - 8.75%, 04/30/97 - 10/31/00
B.T. Securities Corp., (Maturity Value $40,176,156)
Collateral: U.S. Treasury Notes, 6.125% - 7.25%, 11/30/96 - 05/15/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $40,176,156)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 02/28/97 - 11/15/99
Fuji Securities, Inc., (Maturity Value $40,176,156)
Collateral: U.S. Treasury Bills, 09/26/96 - 01/09/97
U.S. Treasury Notes, 6.25% - 9.125%, 05/15/99 - 08/31/00
SBC Capital Markets, Inc., (Maturity Value $39,798,957)
Collateral: U.S. Treasury Notes, 6.875% - 8.25%, 07/15/98 - 7/31/99 .................... 200,473,922
-----------
Total Investments (Cost $570,815,449) 101% ..................................... 611,745,423
Liabilities in Excess of Other Assets, Net (1.0%) .............................. (5,931,372)
-----------
Net Assets 100% ................................................................ $605,814,051
===========
At April 30, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $570,815,449 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ................................................... $ 55,336,582
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ................................................... (14,406,608)
-----------
Net unrealized appreciation ............................................................. $ 40,929,974
===========
aNon-income producing.
bSee Note 7 regarding holdings of 5% voting securities.
cFace amount for repurchase agreements is for the underlying collateral. See note 1(h) regarding joint repurchase agreement.
dPurchased in a private placement transaction; resale may only be to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, April 30, 1996 (unaudited)
Value
Shares Franklin MicroCap Value Fund (Note 1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 82.4%
Banks & Thrifts 13.0%
25,900 Affiliated Community Bancorp................................................................... $ 446,775
33,600 American National Bancorp, Inc. ............................................................... 340,200
35,000 a FFD Financial Corp. ........................................................................... 367,500
106,000 Fidelity Financial of Ohio, Inc................................................................ 1,060,000
200 FirstFed Bancshares, Inc. ..................................................................... 4,500
2,500 First Financial Bancorp, Inc. ................................................................. 39,688
59,000 a GA Financial, Inc. ............................................................................ 656,375
10,100 a Hallmark Capital Corp. ........................................................................ 151,500
68,700 a HF Bancorp, Inc. .............................................................................. 669,825
51,700 Landmark Bancshares, Inc. ..................................................................... 775,500
4,000 a Pacific Bank N.A. ............................................................................. 82,000
14,700 People's Savings Financial Corp. .............................................................. 301,350
29,700 a Quaker City Bancorp, Inc. ..................................................................... 428,794
25,500 a Sho-Me Financial Corp. ........................................................................ 401,625
23,300 Troy Hill Bancorp, Inc. ....................................................................... 326,200
-----------
6,051,832
-----------
Food 2.1%
600 Genesee Corp., Class A ........................................................................ 27,000
21,500 Genesee Corp., Class B ........................................................................ 970,188
-----------
997,188
-----------
Furniture & Homebuilders 7.1%
18,800 Allen Organ Co., Class B ...................................................................... 679,150
62,600 a American Woodmark Corp. ....................................................................... 301,263
33,700 a Ameriwood Industries International Corp. ...................................................... 219,050
5,000 a Baldwin Piano & Organ Co. ..................................................................... 63,750
50,000 a Oriole Homes Corp., Class B.................................................................... 400,000
80,000 Pulaski Furniture Corp. ....................................................................... 1,280,000
60,400 a River Oaks Furniture, Inc. .................................................................... 362,400
-----------
3,305,613
-----------
Insurance - Life & Specialty 2.3%
6,000 Guarantee Life Companies, Inc. ................................................................ 102,750
22,100 a Transport Holdings, Inc., Class A ............................................................. 939,250
-----------
1,042,000
-----------
Insurance - Property & Casualty 3.1%
1,000 American Indemnity Financial Corp. ............................................................ 12,500
41,400 Meridian Insurance Group, Inc. ................................................................ 564,075
Insurance - Property & Casualty (cont.)
21,104 a Motor Club of America ......................................................................... $ 145,090
33,500 a PICOM Insurance Co............................................................................. 728,625
-----------
1,450,290
-----------
Manufacturing 18.2%
256,400 a American Pacific Corp. ........................................................................ 1,826,850
45,000 Binks Manufacturing Co. ....................................................................... 1,001,250
71,600 Capco Automotive Products Corp. ............................................................... 895,000
37,300 a Continental Materials Corp. ................................................................... 550,175
39,000 a Duplex Products ............................................................................... 468,000
14,500 Dynamics Corp. of America ..................................................................... 351,620
13,500 Espey Manufacturing & Electronics Corp. ....................................................... 207,563
7,500 Federal Screw Works ........................................................................... 172,500
31,000 a Gehl Co. ...................................................................................... 240,250
55,000 Green (A.P.) Industries, Inc. ................................................................. 1,020,938
92,500 Insteel Industries, Inc. ...................................................................... 624,375
4,900 a International Jensen, Inc. .................................................................... 47,775
7,800 Medex, Inc. ................................................................................... 95,550
3,815 a Moore Products Co. ............................................................................ 66,286
22,800 a Oroamerica, Inc. .............................................................................. 108,300
40,000 a Sifco Industries, Inc. ........................................................................ 300,000
68,500 TAB Products Co. .............................................................................. 470,938
-----------
8,447,370
-----------
Miscellaneous 3.6%
28,500 a Allou Health & Beauty, Inc., Class A........................................................... 188,813
2,400 a Chempower, Inc. ............................................................................... 9,150
67,000 Ecology and Environment, Inc., Series A........................................................ 544,375
26,700 a Emcon, Inc. ................................................................................... 113,475
18,600 Noland Co. .................................................................................... 339,450
26,900 Trans-Lux Corp. ............................................................................... 292,538
14,100 a Vicorp Restaurants, Inc. ...................................................................... 197,400
-----------
1,685,201
-----------
Natural Resources 3.2%
13,500 a Cliffs Drilling Co. ........................................................................... 340,875
69,900 a Devcon International Corp. .................................................................... 620,360
600 Enex Resources Corp. .......................................................................... 5,700
73,000 a International Colin Energy Corp. .............................................................. 355,875
4,900 Rochester & Pittsburgh Coal Co. ............................................................... 161,700
-----------
1,484,510
-----------
Retail 18.1%
105,600 a Buttrey Food and Drug Stores Co................................................................ $ 778,800
150,000 a,b Cosmetic Center, Inc., Class A ................................................................ 731,250
118,000 DEB Shops, Inc. ............................................................................... 575,250
75,300 Fred's, Inc. .................................................................................. 649,463
64,000 a Gantos, Inc. .................................................................................. 232,000
39,800 a Good Guys, Inc. ............................................................................... 363,175
186,300 a Hi-Lo Automotive, Inc. ........................................................................ 1,071,225
29,900 Jacobson Stores, Inc. ......................................................................... 284,050
210,000 a Little Switzerland, Inc. ...................................................................... 1,220,625
37,900 a Luria (L.) & Son, Inc. ........................................................................ 194,238
117,300 a S & K Famous Brands, Inc. ..................................................................... 960,394
9,500 Seaway Food Town, Inc. ........................................................................ 155,563
142,500 a Shoe Carnival, Inc. ........................................................................... 525,469
22,600 a Syms Corp. .................................................................................... 177,975
43,900 Wolohan Lumber Co. ............................................................................ 433,513
2,000 Zions Co-Op Mercantile Inst. .................................................................. 24,250
-----------
8,377,240
-----------
Technology 4.2%
7,000 Analysis & Technology, Inc. ................................................................... 99,750
50,000 a Aydin Corp. ................................................................................... 825,000
21,200 Hathaway Corp. ................................................................................ 39,089
165,000 a Video Lottery Technologies, Inc. .............................................................. 969,375
-----------
1,933,214
-----------
Textiles & Apparel 5.1%
73,600 a Chic by H.I.S., Inc. .......................................................................... 506,000
27,600 a Dixie Yarns, Inc. ............................................................................. 117,300
65,700 Garan, Inc. ................................................................................... 1,100,475
49,600 a Sun Sportswear, Inc. .......................................................................... 155,000
47,300 Thomaston Mills, Inc., Class A ................................................................ 496,650
-----------
2,375,425
-----------
Transportation 2.4%
16,000 Petroleum Helicopters, Inc. - Voting .......................................................... 220,000
64,500 Petroleum Helicopters, Inc. - Non Voting ...................................................... 870,750
-----------
1,090,750
-----------
Total Long Term Investments (Cost $35,052,557) .......................................... 38,240,633
-----------
c Receivables from Repurchase Agreements 9.0%...................................................
$4,170,445 Joint Repurchase Agreement, 5.326%, 05/01/96
(Maturity Value $4,185,468) (Cost $4,184,849)
Bear Stearns & Co., Inc., (Maturity Value $838,668)
Collateral: U.S. Treasury Notes, 5.625% - 8.75%, 04/30/97 - 10/31/00
B.T. Securities Corp., (Maturity Value $838,668)
Collateral: U.S. Treasury Notes, 6.125% - 7.25%, 11/30/96 - 05/15/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $838,668)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 02/28/97 - 11/15/99
Fuji Securities, Inc., (Maturity Value $838,668)
Collateral: U.S. Treasury Bills, 09/26/96 - 01/09/97
U.S. Treasury Notes, 6.25% - 9.125%, 05/15/99 - 08/31/00
SBC Capital Markets, Inc., (Maturity Value $830,796)
Collateral: U.S. Treasury Notes, 6.875% - 8.25%, 07/15/98 - 07/31/99 ....................... 4,184,849
-----------
Total Investments (Cost $39,237,406) 91.4%.......................................... 42,425,482
Other Assets and Liabilities, Net 8.6%.............................................. 3,998,935
-----------
Net Assets 100% .................................................................... $46,424,417
===========
At April 30, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of $39,237,406 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ....................................................... $ 3,460,256
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ....................................................... (272,180)
-----------
Net unrealized appreciation ................................................................. $ 3,188,076
===========
aNon-income producing.
bSee Note 7 regarding holdings of 5% voting securities.
cFace amount for repurchase agreements is for the underlying collateral. See Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, April 30, 1996
(unaudited)
Value
Shares Franklin Value Fund (Note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 59.9%
Banks & Thrifts 7.4%
14,000 e Christiania Bank OG Kreditkasse (Norway) .......................................................... $ 30,464
3,500 a Fidelity Federal Bank, Class A .................................................................... 31,937
2,000 Fidelity Financial of Ohio, Inc. .................................................................. 19,999
4,000 a GA Financial, Inc.................................................................................. 44,498
-----------
126,898
-----------
Food 3.0%
1,600 Nash-Finch Co. .................................................................................... 27,998
1,900 Super Food Services, Inc........................................................................... 24,224
-----------
52,222
-----------
Furniture & Homebuilders 6.8%
7,400 a American Woodmark Corp............................................................................. 35,612
2,500 a Beazer Homes USA, Inc. ............................................................................ 39,999
2,500 Ryland Group, Inc. ................................................................................ 41,248
-----------
116,859
-----------
Industrial 2.3%
3,000 Oil-Dri Corporation of America .................................................................... 40,873
-----------
Insurance - Life & Specialty 8.3%
750 American National Insurance Co..................................................................... 49,312
5,000 Presidential Life Corp............................................................................. 48,748
1,600 USLIFE Corp........................................................................................ 44,999
-----------
143,059
-----------
Insurance - Property & Casualty 2.5%
2,000 a PICOM Insurance Co. ............................................................................... 43,498
-----------
Manufacturing 11.1%
5,200 a American Pacific Corp.............................................................................. 37,049
1,750 Douglas & Lomason Co. ............................................................................. 24,499
600 a Duplex Products.................................................................................... 7,199
4,000 Ennis Business Forms............................................................................... 42,999
3,000 Flexsteel Industries, Inc.......................................................................... 29,999
4,000 Medex, Inc......................................................................................... 48,998
-----------
190,743
-----------
Miscellaneous 3.4%
6,000 a Aztar Corp. ....................................................................................... 58,498
-----------
Retail 5.7%
8,000 a Little Switzerland, Inc. .......................................................................... $ 46,499
700 a S & K Famous Brands, Inc........................................................................... 5,730
2,500 Strawbridge & Clothier, Class A.................................................................... 46,249
-----------
98,478
-----------
Technology 7.0%
1,000 Adobe Systems, Inc. ............................................................................... 42,999
2,000 Analysis & Technology, Inc. ....................................................................... 28,499
3,000 a Symantec Corp. .................................................................................... 48,373
-----------
119,871
-----------
Utilities 2.4%
5,500 a Niagara Mohawk Power Corp. ........................................................................ 41,249
-----------
Total Long Term Investments (Cost $955,834).................................................. 1,032,248
-----------
Face
Amount
- ----------
$674,433 c Receivables from Repurchase Agreements 39.3%
Joint Repurchase Agreement, 5.326%, 05/01/96,
(Maturity Value $676,355) (Cost $676,255)
Bear Stearns & Co., Inc., (Maturity Value $135,526)
Collateral: U.S. Treasury Notes, 5.625% - 8.75%, 04/30/97 - 10/31/00
B.T. Securities Corp., (Maturity Value $135,526)
Collateral: U.S. Treasury Notes, 6.125% - 7.25%, 11/30/96 - 05/15/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $135,526)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 02/28/97 - 11/15/99
Fuji Securities, Inc., (Maturity Value $135,526)
Collateral: U.S. Treasury Bills, 09/26/96 - 01/09/97
U.S. Treasury Notes, 6.25% - 9.125%, 05/15/99 - 08/31/00
SBC Capital Markets, Inc., (Maturity Value $134,251)
Collateral: U.S. Treasury Notes, 6.875% - 8.25%, 07/15/98 - 07/31/99 ........................... 676,255
-----------
Total Investments (Cost $1,632,089) 99.2%............................................... 1,708,503
Other Assets & Liabilities, Net .8%..................................................... 14,208
-----------
Net Assets 100.0% ...................................................................... $1,722,711
===========
At April 30, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $1,632,089 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost............................................................ $ 86,293
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ........................................................... (9,879)
-----------
Net unrealized appreciation ..................................................................... $ 76,414
===========
aNon-income producing.
cFace amount for repurchase agreements is for the underlying collateral. See Note 1(h) regarding joint repurchase agreement.
eSecurities traded in currency of country indicated and valued in U.S. dollars.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements
Statements of Assets and Liabilities
April 30, 1996 (unaudited)
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
---------- --------- --------
Assets:
<S> <C> <C> <C>
Investments in securities:
At identified cost............................................................. $370,341,527 $35,052,557 $ 955,834
========== ========= ========
At value ...................................................................... 411,271,501 38,240,633 1,032,248
Receivables from repurchase agreements, at value and cost ...................... 200,473,922 4,184,849 676,255
Cash ........................................................................... 552,234 1,149,653 2,345
Foreign currencies (Cost $30,934)............................................... -- -- 30,819
Receivables:
Dividends and interest......................................................... 325,006 21,437 1,015
Investment securities sold..................................................... 581,544 486,600 --
Capital shares sold............................................................ 1,146,311 3,428,270 54,605
Prepaid Expenses................................................................ 63,324 12,324 --
Unamortized organization costs (Note 2)......................................... -- -- 2,900
---------- --------- --------
Total assets............................................................... 614,413,842 47,523,766 1,800,187
---------- --------- --------
Liabilities:
Payables:
Investment securities purchased................................................ 7,601,546 1,059,420 72,868
Distributions payable to shareholders.......................................... 211 -- --
Capital shares repurchased..................................................... 38,256 18 --
Management fees................................................................ 240,545 21,559 792
Distribution fees.............................................................. 689,256 12,733 620
Shareholder servicing costs.................................................... 28,354 3,357 --
Accrued expenses and other liabilities.......................................... 1,623 2,262 3,196
---------- --------- --------
Total liabilities.......................................................... 8,599,791 1,099,349 77,476
---------- --------- --------
Net assets, at value............................................................. $605,814,051 $46,424,417 $1,722,711
========== ========= ========
Net assets consist of:
Undistributed net investment income............................................. $ 1,893,545 $ 6,960 $ 3,972
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies....................... 40,929,974 3,188,076 76,299
Undistributed net realized gains from investment
and foreign currency transactions.............................................. 36,094,668 261,472 4,325
Capital shares.................................................................. 526,895,864 42,967,909 1,638,115
---------- --------- --------
Net assets, at value............................................................. $605,814,051 $46,424,417 $1,722,711
========== ========= ========
Shares outstanding............................................................... 21,399,259 2,623,044 107,960
========== ========= ========
Net asset value per share*....................................................... $28.31 $17.70 $15.96
========== ========= ========
Maximum offering price per share (100/98.5, 100/95.5,
100/95.5, of net asset value per share, respectively)............................ $28.74 $18.53 $16.71
========== ========= ========
*Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (cont.)
Statements of Operations
for the six months ended April 30, 1996 (unaudited)
Balance Sheet MicroCap
Investment Fund Value Fund* Value Fund**
----------- --------- --------
Investment income:
<S> <C> <C> <C>
Dividends ..................................................................... $ 3,783,741 $ 75,857 $ 1,115
Interest (Note 1) ............................................................. 3,902,759 35,256 5,250
----------- --------- --------
Total income.............................................................. 7,686,500 111,113 6,365
----------- --------- --------
Expenses:
Management fees (Note 6)....................................................... 1,240,221 47,087 1,330
Distribution fees (Note 6)..................................................... 1,190,575 19,576 620
Shareholder servicing costs (Note 6)........................................... 142,281 1,323 57
Reports to shareholders ....................................................... 62,891 492 100
Registration and filing fees .................................................. 62,482 924 --
Custodian fees ................................................................ 14,535 1,876 --
Professional fees.............................................................. 13,803 2,050 680
Trustees' fees and expenses ................................................... 7,142 87 5
Amortization of organization costs (Note 2).................................... -- -- 100
Other ......................................................................... 8,322 42 118
Management fees waived by manager (Note 6)..................................... -- -- (617)
----------- --------- --------
Total expenses ........................................................... 2,742,252 73,457 2,393
----------- --------- --------
Net investment income..................................................... 4,944,248 37,656 3,972
----------- --------- --------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain from investments ........................................... 36,098,208 261,472 4,325
Net unrealized appreciation on:
Investments.................................................................. 17,225,553 3,188,076 76,414
Translation of assets and liabilities
denominated in foreign currencies........................................... -- -- (115)
----------- --------- --------
Net realized and unrealized gain from
investments and foreign currencies............................................. 53,323,761 3,449,548 80,624
----------- --------- --------
Net increase in net assets resulting from operations............................ $58,268,009 $3,487,204 $84,596
=========== ========= ========
*For the period December 12, 1995 (effective date) to April 30, 1996.
**For the period March 11, 1996 (effective date) to April 30, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (cont.)
Statements of Changes in Net Assets for the six months ended April 30, 1996
(unaudited) and the year ended October 31, 1995
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
--------------------- ---------- ----------
Six months Year ended For the period For the period
ended 4/30/96 10/31/95 ended 4/30/96* ended 4/30/96**
---------- ---------- --------- ----------
Increase in net assets:
<S> <C> <C> <C> <C>
Operations:
Net investment income ......................................... $ 4,944,248 $ 3,166,286 $ 37,656 $ 3,972
Net realized gain from investments and foreign
currency transactions ........................................ 36,098,208 17,015,080 261,472 4,325
Net unrealized appreciation on investments and
translation of assets and liabilities denominated
in foreign currencies......................................... 17,225,553 20,720,103 3,188,076 76,299
---------- ---------- --------- ----------
Net increase in net assets
resulting from operations ................................ 58,268,009 40,901,469 3,487,204 84,596
Distributions to shareholders from:
Undistributed net investment income............................. (3,491,366) (2,726,560) (30,696) --
Net realized capital gains...................................... (17,018,620) (2,224,227) -- --
Increase in net assets from capital
share transactions (Note 3)..................................... 180,516,496 217,333,993 42,967,909 1,638,115
---------- ---------- --------- ----------
Net increase in net assets................................. 218,274,519 253,284,675 46,424,417 1,722,711
Net assets:
Beginning of period............................................. 387,539,532 134,254,857 -- --
---------- ---------- --------- ----------
End of period................................................... $605,814,051 $387,539,532 $46,424,417 $1,722,711
========== ========== ========= ==========
Undistributed net investment income included in net assets:
Beginning of period............................................ $ 440,663 $ 937 -- --
========== ========== ========= ==========
End of period.................................................. $ 1,893,545 $ 440,663 $ 6,960 $ 3,972
========== ========== ========= ==========
*For the period December 12, 1995 (effective date) to April 30, 1996.
**For the period March 11, 1996 (effective date) to April 30, 1996.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (unaudited)
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. The Trust's shares are offered in three
different series (the Funds) with each Fund, in effect, representing a separate
fund and each of the Funds maintaining a totally separate investment portfolio.
The investment objective of the Funds is capital growth and income.
The MicroCap Value Fund became effective December 12, 1995. The Value Fund
became effective March 11, 1996.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. The Trust may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Trustees (the Board). Securities for which
market quotations are not available are valued in accordance with procedures
established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked price is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, then
these securities will be valued in accordance with procedures established by the
Board.
The fair values of securities restricted as to resale are determined following
procedures established by the Board.
b. Income Taxes:
The Funds intend 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 shareholders which will be sufficient to relieve the
Funds from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.
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.
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. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expense during
the reporting period. Actual results could differ from those estimates.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
The Trust does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade date and settlement dates on security transactions, the
difference between the amounts of dividends and interest, and foreign
withholding taxes recorded on the Trust's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized appreciation or
depreciation on translation of assets and liabilities denominated in foreign
currencies arise from changes in the value of assets and liabilities other than
investments in securities at the end of the reporting period, resulting from
changes in exchange rates.
h. Repurchase Agreements:
The Funds may enter into a joint repurchase agreement whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements 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
Funds based on their pro-rata interest.
A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Funds, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At April 30, 1996, all
outstanding repurchase agreements held by the Funds had been entered into on
that date.
2. UNAMORTIZED ORGANIZATION COSTS
The organization costs of the Funds are amortized on a straight-line basis over
a period of five years from the effective date of registration under the
Securities Act of 1933. In the event Franklin Resources, Inc. (Resources), which
was the sole shareholder prior to the effective date of registration, 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 Resources. New investors purchasing shares of the Funds subsequent
to that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.
<TABLE>
<CAPTION>
3. TRUST SHARES
At April 30, 1996, there were an unlimited number of .01 par value shares of
beneficial interest authorized. Transactions in each of the Funds' shares were
as follows:
Balance Sheet Investment Fund MicroCap Value Fund* Value Fund**
-------------------- ------------------ ----------------
Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Six months ended April 30, 1996
Shares sold................................ 7,932,824 $214,708,419 2,637,591 $43,197,954 108,191 $1,641,624
Shares issued in reinvestment
of distributions.......................... 656,752 17,442,987 1,538 24,297 -- --
Shares redeemed ........................... (1,903,445) (51,634,910) (16,085) (254,342) (231) (3,509)
--------- ----------- -------- ---------- ------- ----------
Net increase ............................... 6,686,131 $180,516,496 2,623,044 $42,967,909 107,960 $1,638,115
========= =========== ======== ========== ======= ==========
Year ended October 31, 1995
Shares sold................................ 10,269,060 $253,884,686
Shares issued in reinvestment
of distributions.......................... 180,557 4,192,576
Shares redeemed ........................... (1,657,126) (40,743,269)
--------- -----------
Net increase ............................... 8,792,491 $217,333,993
========= ===========
</TABLE>
*For the period December 12, 1995 (effective date) to April 30, 1996.
**For the period March 11, 1996 (effective date) to April 30, 1996.
4. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1995, for tax purposes, the Balance Sheet Investment Fund had
accumulated net realized gains of $17,015,080.
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Trust are the same as for financial reporting purposes at April 30, 1996.
<TABLE>
<CAPTION>
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the period ended April 30, 1996, were as follows:
Balance Sheet MicroCap
Investment Fund Value Fund* Value Fund**
----------- ---------- ---------
<S> <C> <C> <C>
Purchases ............................................... $137,177,842 $35,447,930 $982,834
Sales ................................................... $102,319,293 $ 656,845 $ 31,325
*For the period December 12, 1995 (effective date) to April 30, 1996.
**For the period March 11, 1996 (effective date) to April 30, 1996.
</TABLE>
<TABLE>
<CAPTION>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisory Services, Inc.
(Advisory) provides investment advice, administrative services, office space and
facilities to each Fund and receives fees computed daily on the net assets of
each Fund as follows:
Balance Sheet
Investment Fund
Annualized Fee Rate Daily Net Assets
-------------- --------------------------------------
<C> <C>
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
MicroCap Value Fund
Annualized Fee Rate
--------------
<C> <C>
0.75% Daily net assets
Value Fund
Annualized Fee Rate Daily Net Assets
-------------- --------------------------------------
<C> <C>
0.75% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.50% Over $1 billion
</TABLE>
The terms of the management agreement provide that annual aggregate expenses of
each 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 each Fund's shares are registered. For the six months ended April 30,
1996, the Funds' expenses did not exceed these limitations. However, Advisory
agreed in advance to waive management fees for the Value Fund, as noted in the
statement of operations, in an effort to minimize the Value Fund's expenses.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the six months ended April 30, 1996, aggregated $143,661, all of which was paid
to Investor Services.
c. Distribution Plans and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Balance Sheet Investment Fund, MicroCap
Value Fund and Value Fund reimburse Franklin/Templeton Distributors, Inc.
(Distributors), in an amount up to 0.50%, 0.25% and 0.35% per annum,
respectively, of average daily net assets for costs incurred in the promotion,
offering and marketing of each Fund's shares.
The Plans do not permit nor require payments of excess costs after termination.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' shares of beneficial interest.
Commissions are deducted from the gross proceeds received from the sale of the
shares of the Funds, and as such are not expenses of the Funds. Distributors may
also make payments, out of its own resources, to the dealers for certain sales
of the Funds' shares. Commissions received by Distributors, the amounts paid to
other dealers, and any applicable contingent deferred sales charges for the six
months ended April 30, 1996, were as follows:
<TABLE>
<CAPTION>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Distribution Plans and Underwriting Agreement (cont.)
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
----------- --------- --------
<S> <C> <C> <C>
Total commissions received..................................... $1,117,903 $1,344,863 $11,433
Paid to other dealers.......................................... $1,653,778 $1,192,932 $10,117
Contingent deferred sales charges.............................. $ 15,126 $ -- $ --
</TABLE>
d. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisory, and Investor Services, all wholly-owned subsidiaries of
Resources.
At April 30, 1996, Resources owned 2% of the MicroCap Value Fund and 62% of the
Value Fund.
<TABLE>
<CAPTION>
7. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio companies, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated companies. The Funds had investments in such
affiliated companies at April 30, 1996, as follows:
Purchase Market Dividend
Fund Affiliate Cost Value Income
- ------------------------- ------------------------------- --------- --------- -------
<S> <C> <C> <C> <C>
Balance Sheet Investment Fund ACMAT Corp., Class A $2,597,225 $3,650,625 $--
Balance Sheet Investment Fund Buttrey Food and Drug Stores Co. 3,233,011 3,320,225 --
Balance Sheet Investment Fund Chic by H.I.S., Inc. 6,417,527 5,197,500 --
Balance Sheet Investment Fund Cochrane Furniture, Inc. 641,250 495,000 --
Balance Sheet Investment Fund Crown Central Petroleum, Class B 7,490,542 9,187,500 --
Balance Sheet Investment Fund Dixie Yarns, Inc. 4,307,585 2,474,350 --
Balance Sheet Investment Fund Duplex Products 4,127,736 5,392,800 --
Balance Sheet Investment Fund Ecology and Environment, Inc., Series A 2,163,212 2,112,500 40,000
Balance Sheet Investment Fund ENEX Resources Corp. 827,100 992,750 10,450
Balance Sheet Investment Fund Fred's, Inc. 5,503,809 5,777,888 57,235
Balance Sheet Investment Fund Haggar Corp. 7,558,274 7,853,550 21,040
Balance Sheet Investment Fund Jacobson Stores, Inc. 3,116,509 2,823,400 74,300
Balance Sheet Investment Fund Luria (L.) & Son, Inc. 3,033,210 2,056,150 --
Balance Sheet Investment Fund Matrix Service Co. 1,525,125 3,361,500 --
Balance Sheet Investment Fund Merchants Group, Inc. 4,032,157 4,549,188 25,450
Balance Sheet Investment Fund Monarch Machine Tool Co. 2,653,583 2,718,750 25,000
Balance Sheet Investment Fund Pulaski Furniture Corp. 3,624,086 3,072,000 61,440
Balance Sheet Investment Fund Scottdale Savings & Trust/PA 1,017,900 1,636,200 2,700
Balance Sheet Investment Fund Stewart Information Services Corp. 7,988,301 8,248,125 39,180
Balance Sheet Investment Fund Transnational Re Corp., Class A 7,302,397 7,560,000 32,700
Balance Sheet Investment Fund Transport Holdings, Inc., Class A 3,676,556 4,024,750 --
Balance Sheet Investment Fund Wolohan Lumber Co. 3,850,250 3,452,547 47,859
MicroCap Value Fund Cosmetic Center, Inc., Class A 764,863 731,250 --
</TABLE>
<TABLE>
<CAPTION>
8. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period, by Fund, are as follows:
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------- -----------------------------------
Ratio of Ratio
Expenses of
Net to Average Net
Net Real- Distri- Net Assets Invest-
Asset ized & Total Distri- butions Ratio of (before ment
Value Unreal- From butions From Net Net Expenses fee waiver Income Port- Aver-
at Net ized Invest- From Net Real- Asset Assets to and ex- to folio age
Begin- Invest- Gain on ment Invest- ized Total Value at End Average pense re- Average turn- Commis-
Period ning of ment Securi- Oper- ment Capital Distri- at End Total of Period Net duction) Net over sion
Ended Period Income ties ations Income Gains butions of Period Return*(in 000's) Assets (Note 6) Assets Rate Rate**
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Investment Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $11.48 $.520 $4.100 $4.620 $(.560) $-- $(.560) $15.54 40.96% $ 3,572 --%++ 3.16% 3.79% 31.94%
1992 15.54 .530 1.830 2.360 (.530) -- (.530) 17.37 15.51 5,149 -- ++ 2.60 3.16 30.86
1993 17.37 .390 6.260 6.650 (.430) (.620) (1.050) 22.97 37.78 22,317 -- ++ 1.85 1.89 31.36
1994 22.97 .230 .510 .740 (.260) (.770) (1.030) 22.68 3.42 134,255 1.19++ 1.34 0.99 24.96
1995 22.68 .300 3.980 4.280 (.270) (.350) (.620) 26.34 19.32 387,540 1.17 1.17 1.30 28.63
19961 26.34 .261 2.976 3.237 (.202) (1.064) (1.266) 28.31 12.62 605,814 1.114 1.114 2.004 28.87 .0490
MicroCap Value Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19962 15.00 .003 2.730 2.733 (.030) -- (.030) 17.70 18.22 46,424 0.974 0.974 0.504 3.88 .0497
Value Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19963 15.00 .037 .923 .960 -- -- -- 15.96 6.40 1,723 1.354,++ 1.814 2.234 3.92 .0403
</TABLE>
1For the six months ended April 30, 1996.
2For the period December 12, 1995 (effective date) to April 30, 1996.
3For the period March 11, 1996 (effective date) to April 30, 1996.
4Annualized
++During the periods indicated, Advisory 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.
*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 or contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains at net asset value. Prior to May 1, 1994, dividends
were reinvested at the maximum offering price, and capital gains at net asset
value. Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan, the sales charge on reinvested dividends was eliminated.
**Represents the average broker commission rate per share paid by the Fund in
connection with the execution of the Fund's portfolio transactions in equity
securities.
