LETTER TO SHAREHOLDERS
TABLE OF CONTENTS PAGE
LETTER TO SHAREHOLDERS............................ 1
FUND REPORTS
Franklin Balance Sheet............................ 3
Investment Fund
Franklin MicroCap................................. 8
Value Fund
Franklin Value Fund............................... 13
FINANCIAL STATEMENTS.............................. 18
NOTES TO FINANCIAL STATEMENTS..................... 36
REPORT OF INDEPENDENT AUDITORS.................... 43
December 13, 1996
Dear Shareholder:
It's a pleasure to bring you the Franklin Value Investors Trust annual report
for the period ended October 31, 1996.
The 12 months covered by this report were a reminder of how volatile the economy
can be. During the first two months of the period, economic growth remained
slow. Gross Domestic Product (GDP) grew at an annualized rate of only .3% in the
fourth quarter of 1995 amidst some speculation that the economy would slip into
a recession.
The story in 1996, however, was different: rising employment and strong personal
income growth helped consumer spending rebound midway through the first quarter
of 1996. A stronger-than-expected employment report on March 8, 1996, drove
interest rates up, causing temporary weakness in the financial markets. The
volatile Dow Jones Industrial Average(R) (the Dow) tumbled 171.24 points on
March 8, 1996. Recovering quickly, it advanced to a new high of 5778.00 on May
22, slid to 5346.55 by July 23, and rebounded strongly to close above the 6000
mark on October 14, 1996. The Dow closed at 6029.38 on October 31, 1996, roughly
26% above its October 31, 1995, closing of 4755.48.
While market volatility can be unsettling, it is important to remember that
financial markets always have been -- and always will be -- subject to
fluctuation. No one can predict the future performance of the securities
markets, but history has shown that, over the long term, stocks and bonds have
delivered impressive results when left to compound. For this reason, we
encourage you to periodically review your investment program with your
investment representative, and focus on long-term investment goals instead of
market movements.
The following pages contain specific information about the performance of the
funds in the Franklin Value Investors Trust. 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, welcome your questions and look forward
to serving your investment needs in the years to come.
Sincerely,
William J. Lippman
President
Franklin Value Investors Trust
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.
When we announced last year that, due to huge inflows of cash, we planned to
close the Franklin Balance Sheet Investment Fund to new investors, we
specifically pointed out that retirement accounts (pension, profit sharing, IRA
and others) would be permitted to continue opening new accounts. This was done
to smooth the flow of new money into the fund in order to facilitate managing a
portfolio of thinly-traded stocks, such as those suitable for the Franklin
Balance Sheet Investment Fund.
Our plan has worked well. We continue to see a regular flow of money into the
fund, but now at a rate we can properly handle. With assets of $655 million at
the October 31, 1996, fiscal year end, our cash position was 18.4% of total net
assets, down significantly from 32.1% on April 30, 1996. We will likely be
reducing the cash position further.
Insurance remains our dominant industry weighting. At year end, life insurance
comprised 12.5% of the fund's total net assets, and property/casualty insurance
represented 10.8%. Two of our five largest positions are in USLIFE , with $8
billion in assets and $168 billion of insurance in force, and American National
with $7.1 billion in assets and $41.5 billion of insurance in force. The trend
of consolidation in the life insurance industry has accelerated, and the
efficiencies that come with consolidation should resolve the problem of low
return on capital.
Banks & thrifts and retail are two sectors that comprised slightly less than 16%
of the fund on October 31, 1996, down from 17.6% a year ago. Of these two
groups, retail has been the most interesting over the past year. The country is
"over stored," with too many feet of shelf and rack space competing for each
price-conscious shopper. Only the most efficient operations will thrive, and
technology is the driving tool. Companies with under-productive assets continue
to invest in systems that will keep them competitive; meanwhile, demographic
changes are leaving some segments of the industry on the beach. Against this
backdrop, investors have left many viable retailers for dead. We believe,
however, that selective purchases in this area will continue to be rewarding for
the fund.
After years of accumulating sound banks for pennies on the dollar and seeing
very little go wrong, the potential reward for new investments in banks &
thrifts is not encouraging. Consolidation will continue, and we will look at
discount situations. Most of what we see now are recently converted mutuals that
are massively over-capitalized. Until a satisfactory method is found to shed the
excess capital, we will concentrate on other areas of investment.
FRANKLIN BALANCE SHEET INVESTMENT FUND
TOP FUND HOLDINGS ON OCTOBER 31, 1996
BASED ON TOTAL NET ASSETS
% OF TOTAL
COMPANY, INDUSTRY NET ASSETS
USLIFE Corp. 2.85%
Insurance -- Life/Specialty
Total Petroleum 2.64%
(NORTH AMERICA) LTD.
Natural Resources
American National Insurance Co. 2.49%
Insurance -- Life/Specialty
Super Food Services, Inc. 2.07%
Food
Haggar Corp. 1.83%
Textiles & Apparel
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE
PAGE 18 OF THIS REPORT.
Fiscal 1996 saw several takeover announcements by companies in which your fund
invests.
For example, Transport Holdings, Inc., which had a tangible book value of around
$49, agreed to merge with Conseco in late September. Conseco was able to offer
$70 in its own stock for each share of Transport because of the efficiencies
that Conseco will achieve by combining two very similar operations. The final
value to the fund may be higher, as Conseco's stock has appreciated since the
share exchange was fixed (our average cost is $38.82). In addition, Super Food
Services, Inc. was acquired by Nash Finch, which has been one of our core
holdings for several years. Takeover announcements by other companies in which
we've invested include Douglas & Lomason Co., International Colin Energy Corp.
(for which we acquired shares of Morgan Hydrocarbon, which in turn was bought
out by Stampeder Exploration), Shopko Stores, Inc., Transnational Re Corp.,
Capco Automotive, Younkers Inc., Duplex Products, and Cliffs Drilling.
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.
Looking ahead to 1997, we see strong potential among home builders, makers of
textiles and apparel (like Haggar, our fourth largest position), and certain
technology-related capital good providers such as Watkins Johnson, a maker of
semi-conductor manufacturing equipment. Overall, our focus on companies selling
below their intrinsic value worked well for us over the one-year reporting
period, and we believe it should continue to do so over the long term.
PERFORMANCE SUMMARY
The Franklin Balance Sheet Investment Fund provided a one-year cumulative total
return of +16.93% for the period ended October 31, 1996. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, and excludes sales charges.
Your fund's share price, as measured by net asset value, increased $2.81 during
the reporting period from $26.34 on October 31, 1995, to $29.15 on October 31,
1996. Over the reporting period, shareholders received distributions totaling
$1.506 per share, including 38 cents ($0.38) 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.
As reflected in the graph on the following page, we are pleased to report that
the Franklin Balance Sheet Investment Fund has consistently outperformed the
unmanaged Russell 1000 Value Index since 1993. The Russell 1000 Value Index is
an index comprised of the 1,000 largest U.S. companies, ranked by market
capitalization. Of course, an index and a fund have inherent performance
differences. Unmanaged market indices don't pay management fees to cover
salaries of security analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. And, unlike unmanaged indices, mutual
funds are never 100% invested because of the need to have cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. Please remember that
an index is simply a measure of performance and one cannot invest in it
directly.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Balance Sheet Investment Fund
Periods ended October 31, 1996
Since
Inception
1-year 5-year (4/2/90)
Cumulative
Total Return1 16.93% 133.07% 155.07%
Average Annual
Total Return2 15.18% 18.08% 15.02%
Value of $10,000
Investment3 $11,693 $23,307 $25,507
10/31/92 10/31/93 10/31/94 10/31/95 10/31/96
Total
Return4 15.51% 39.84% 3.42% 19.32% 16.93%
1. Cumulative total returns measure the change in value of an investment and do
not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment and include the 1.5% initial sales charge. See Note below.
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.
4. Total return represents the change in value of an investment over the
one-year periods ended on the specified dates and does not include the initial
sales charge.
Note: 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.
It is a pleasure to bring you the first annual report of the Franklin MicroCap
Value Fund. Investment results since inception on December 12, 1995, have been
encouraging: the fund registered a +23.72% total return through its abbreviated
fiscal year ended on October 31, 1996.* By comparison, the Russell 2000 Value
Index (an index of small capitalization stocks that we consider to be the most
appropriate benchmark for the fund) was up +19.57% during the same period. The
S&P 500(R) Index, a proxy for larger companies, was up +24.02%. The difference
between the two indices suggests investor preference for large cap stocks during
the reporting period.
Our performance during the abbreviated 11-month period was helped by several
corporate takeovers, including Capco Automotive, Duplex Products, Transport
Holdings, and International Colin Energy Corp. Takeovers are exciting and
dramatic, especially in a new fund where holding periods are short. Granted,
they are not necessary to investment success under the fund's strategy, but we
think they are a logical outcome. We buy companies under very conservative
valuation assumptions. As the prospectus describes, we seek to purchase
micro-cap companies (companies we define as having market capitalization below
$100 million) whose tangible net assets exceed their share price. The premise is
that a going concern is likely to be worth more than the liquidation value of
its parts. While we cannot be sure what liquidation might bring, we can make
reasoned estimates. If our bias is conservative, surprises are more likely to be
positive than negative.
*Cumulative total return measures the change in value of an investment over the
periods indicated and does not include the initial sales charge.
Although the microcap sector is arguably a risky place to invest, we try to make
our approach defensive. For example, when the market, as measured by the S&P
500, fell over 6% between July 1 and July 22, 1996, the Russell 2000 Index
(small stocks, generally) and Russell 2000 Value Index were down over 8% and 5%,
respectively. Our fund, however, was down only 2.5%. We were helped during that
period by the fact that roughly 42% of the fund was in cash.
At the outset, we committed to closing the fund to new investors once total net
assets reached $100 million, which occurred in early July. That provision was
intended to keep the fund from outgrowing the market segment we want to exploit.
We anticipated that rapid flow of cash into the fund would challenge our ability
to put it to work fast enough without compromising our investment discipline.
Price is the bedrock criterion for our purchase and sale decisions, and unless
we are able to be patient buyers and sellers of these small, often thinly-traded
securities, we will not capture the opportunities this poorly mapped corner of
the investment universe offers. By April 1996, we were accumulating cash faster
than we were able to find attractive investment opportunities; we still have not
digested all of it, although we expect to be fully invested by the end of
calendar year 1996.
FRANKLIN MICROCAP VALUE FUND
TOP 10 STOCK HOLDINGS ON OCTOBER 31, 1996
BASED ON TOTAL NET ASSETS
% OF TOTAL
COMPANY, INDUSTRY NET ASSETS
Farm Family Holdings, Inc. 3.32%
Insurance -- Property/Casualty
Oriole Homes Corp. 2.26%
Furniture & Homebuilders
Moore Products Co. 2.14%
Manufacturing
Treadco, Inc. 2.09%
Manufacturing
American Pacific Corp. 2.07%
Manufacturing
GA Financial, Inc. 1.90%
Banks & Thrifts
Hi-Lo Automotive, Inc. 1.65%
Retail
Video Lottery Technologies, Inc. 1.60%
Technology
Meridian Insurance Group, Inc. 1.56%
Insurance -- Property/Casualty
Garan, Inc. 1.45%
Textiles & Apparel
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE
PAGE 24 OF THIS REPORT.
On October 31, 1996, our largest sectors were banks & thrifts, retail,
manufacturers, furniture and home builders, and insurance (primarily
property/casualty). Retail and energy were two sectors where we made money this
year. Other depressed areas where we believe we found value were furniture,
home-building, and textile manufacturing.
Among the cheapest areas we identified were small companies engaged in
environmental consulting and engineering. Just over 3% of the fund's total net
assets were invested in this sector, and we would happily double our exposure if
we could. This area was beaten down during the political reappraisal of
environmental spending at the federal level. While the last Congress finally
approved a relatively benign spending bill, various federal agencies responded
to the overall uncertainty by curtailing actual spending, leading to large
declines in revenues by service providers. We identified a handful of companies
with positive cash flow and healthy balance sheets that are taking the necessary
steps to adjust operations to current realities. We bought these companies at a
discount to net working capital. Meanwhile, there are signs that the public
continues to support, in principle, reasonable environmental controls and
remediation. We believe the fund is well positioned for the year ahead, and we
look forward to reporting our progress.
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 MicroCap Value Fund provided a cumulative total return of +23.72%
for the abbreviated 11-month period ended October 31, 1996. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, and excludes sales charges.
The fund began offering shares to investors on December 12, 1995. Its share
price, as measured by net asset value, increased $3.44 from $15.00 on December
12, 1995, to $18.44 on October 31, 1996.
Your fund distributed its first dividend in March 1996. Over the reporting
period, shareholders received 11 cents ($0.11) per share in dividend income.
Dividends are 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.
The graph on the following page compares the fund's performance to that of the
Russell 2000 Value Index. Of course, an index and a fund have inherent
performance differences. Unmanaged indices don't pay management fees to cover
salaries of security analysts or portfolio managers, or pay market commissions
to buy and sell securities. And, unlike unmanaged indices, mutual funds are
never 100% invested because of the need to have cash on hand to redeem shares.
In addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. Please remember that an index
is simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN MICROCAP VALUE FUND
PERIOD ENDED OCTOBER 31, 1996
SINCE
INCEPTION
(12/12/95)
Cumulative Total Return1 23.72%
Aggregate Total Return2 18.12%
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the initial sales charge. See Note
below.
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.
Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
The fund's manager has waived a portion of management fees and assumed
responsibility for other expenses, which reduced operating expenses and
increased total return to shareholders. Without these reductions, the fund's
total return would have been lower. The fee waiver was discontinued on October
31, 1996.
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 follows a value-investing philosophy. Definitions of
what constitutes value vary widely: some investors argue for a low price
relative to tangible book value, others focus on earnings or cash flow ratios.
Some seek understated assets such as land, or intangibles such as patents or
distribution systems. Another value approach concentrates on "fallen angels" --
former growth companies that have stumbled and suffered sharp price declines,
but still have significant potential.
We seek out investments that meet any of those definitions, plus others that
seem sensible. The result is an eclectic collection of value stocks that meet
one or more of the wide variety of value definitions. The common denominator in
almost all cases is an enterprise currently out of favor.
To profit from this approach generally requires a high degree of patience. One
can never tell when a buyout will occur, when a company's fundamentals will
improve, or when investors will once again love a company previously scorned. We
were fortunate that, in the first six months of the fund's existence, several of
our selections were successful. Tekelec, a "fallen angel" in the technology
sector, was up 39% within a few months of our purchase, and Douglas & Lomason
Co. was acquired by another company at approximately 90% more than our cost.
Although stock market valuations are considered high by most historical
standards and increased volatility is likely, we are confident that your fund's
value approach will serve its shareholders well. In fact, increased volatility
in the market is often welcomed by patient value investors for the attractive
buying opportunities it provides.
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.
FRANKLIN VALUE FUND
TOP 10 HOLDINGS ON OCTOBER 31, 1996
BASED ON TOTAL NET ASSETS
% OF TOTAL
COMPANY, INDUSTRY NET ASSETS
Kenan Transport Co. 3.30%
Transportation
Everen Capital Corp. 2.39%
Financial Services
Matrix Pharmaceutical 2.29%
Health Care
Matrix Capital Corp. 2.13%
Banks & Thrifts
Aztar Corp. 2.11%
Miscellaneous
Morgan Products Ltd. 2.03%
Manufacturing
Lehman Brothers Holdings 1.98%
Financial Services
Haverty Furniture Co., Inc. 1.93%
Furniture & Homebuilders
Health Images, Inc. 1.89%
Health Care
Farm Family Holdings, Inc. 1.88%
Insurance - Property/Casualty
FOR A COMPLETE LIST OF PORTFOLIO HOLDINGS, PLEASE SEE
PAGE 29 OF THIS REPORT.
PERFORMANCE SUMMARY
CLASS I
The Franklin Value Fund provided a cumulative total return of +14.69% for the
abbreviated 8-month period ended October 31, 1996. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, and excludes sales charges.
The fund began offering shares to investors on March 11, 1996. Its share price,
as measured by net asset value, increased $2.15 from $15.00 on March 11, 1996,
to $17.15 on October 31, 1996.
Your fund declared its first dividend distribution in June 1996. Over the
abbreviated reporting period, shareholders received 5 cents ($0.05) per share in
dividend income. Dividends are 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.
The graph on the next page compares the Franklin Value Fund's performance to
that of the Russell 1000 Value Index. Of course, an index and a fund have
inherent performance differences. Unmanaged indices don't pay management fees to
cover salaries of security analysts or portfolio managers, or pay market
commissions to buy and sell securities. And, unlike unmanaged indices, mutual
funds are never 100% invested because of the need to have cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
sales charge, all fund expenses and account fees. Please remember that an index
is simply a measure of performance and one cannot invest in it directly.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
FRANKLIN VALUE FUND -- CLASS I
PERIOD ENDED OCTOBER 31, 1996
SINCE
INCEPTION
(3/11/96)
Cumulative Total Return1 14.69%
Aggregate Total Return2 9.50%
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include the initial sales charge. See Note
below.
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.
Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
The fund's manager has waived a portion of management fees and assumed
responsibility for other expenses, which reduced operating expenses and
increased total return to shareholders. Without these reductions, the fund's
total return would have been lower. The fee waiver was discontinued on October
31, 1996.
PERFORMANCE SUMMARY
CLASS II
The Franklin Value Fund began offering Class II shares to investors on September
3, 1996. Its share price, as measured by net asset value, increased 82 cents
($0.82) from $16.32 on September 3, 1996, to $17.14 on October 31, 1996.
The fund's Class II shares provided a cumulative total return of +5.07% for the
abbreviated 2-month period ended October 31, 1996. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, and excludes sales charges.
The fund distributed its first dividend of .7 cents ($0.007) per Class II share
in September 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 VALUE FUND -- CLASS II
PERIOD ENDED OCTOBER 31, 1996
SINCE
INCEPTION
(9/3/96)
Cumulative Total Return1 5.07%
Aggregate Total Return2 3.06%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges. See Note below.
2. Aggregate total return measures the change in value of an investment since
inception and includes the 1.0% initial sales charge and 1.0% contingent
deferred sales charge (CDSC), applicable to shares redeemed within the first 18
months of investment. Since Class II shares have existed for less than one year,
average annual total returns are not provided.
Note: All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your 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 has waived a portion of management fees and assumed
responsibility for other expenses, which reduced operating expenses and
increased total return to shareholders. Without these reductions, the fund's
total return would have been lower. The fee waiver was discontinued on October
31, 1996.
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, OCTOBER 31, 1996
<TABLE>
<CAPTION>
VALUE
SHARES FRANKLIN BALANCE SHEET INVESTMENT FUND (NOTE 1)
Common Stocks 81.6%
Closed-End Funds 7.7%
<S> <C> <C>
160,000 Central European Equity Fund ................................ $ 3,140,000
160,000 Convertible Holdings, Inc. .................................. 2,280,000
70,000 Counsellors Tandem Securities Fund, Inc. .................... 1,312,500
200,000 Emerging Markets Infrastructure Fund, Inc. .................. 2,100,000
106,100 Gemini II, Inc., Capital Shares ............................. 2,891,225
300,000 aGlobal Health Sciences Fund ................................ 5,100,000
150,000 Growth Fund of Spain, Inc. .................................. 1,818,750
150,000 H & Q Healthcare Investors .................................. 2,887,500
135,000 Irish Investment Fund, Inc. ................................. 1,890,000
300,000 John Hancock Bank and Thrift Opportunity Fund ............... 8,100,000
100,000 Latin America Investment Fund, Inc. ......................... 1,562,500
225,000 Liberty All Star Growth Fund ................................ 2,221,875
123,800 Morgan Grenfell Smallcap Fund, Inc. ......................... 1,299,900
60,000 Petroleum & Resources Corp. ................................. 2,062,500
110,000 Quest for Value Capital Shares, Inc. ........................ 4,015,000
52,500 Royce Value Trust ........................................... 649,688
250,000 Scudder New Europe Fund, Inc. ............................... 3,500,000
44,800 Southeastern Thrift & Bank Fund, Inc. ....................... 655,200
90,000 The Inefficient Market Fund, Inc. ........................... 1,057,500
100,000 The Swiss Helvetia Fund ..................................... 2,087,500
4,000 Worldwide Value Fund, Inc. .................................. 91,500
-----------
50,723,138
-----------
Banks & Thrifts 7.7%
79,300 Affiliated Community Bancorp ................................ 1,615,738
30,000 Ameriana Bancorp, Inc. ...................................... 420,000
555,150 aBank Plus Corp. ............................................ 6,245,438
139,400 California State Bank ....................................... 2,265,250
70,000 aCalumet Bancorp, Inc. ...................................... 1,977,500
83,900 bChristiania Bank OG Kreditkasse, ADR ....................... 2,301,830
2,000,000 eChristiania Bank OG Kreditkasse (Norway) ................... 5,487,097
61,826 CU Bancorp .................................................. 610,532
225,000 aDime Community Bancorp, Inc. ............................... 3,065,625
21,000 Downey Financial Corp. ...................................... 546,000
1,900 Farmers & Merchants Bank of Long Beach ...................... 3,530,200
144,500 Fidelity Bancorp, Inc. ...................................... 2,438,438
93,000 Fidelity Financial of Ohio, Inc. ............................ 976,500
300,000 First Defiance Financial Corp. .............................. 3,337,500
24,000 dFirst Financial Bancorp, Inc. .............................. 384,000
87 First National Bank of Anchorage ............................ 137,243
Banks & Thrifts (cont.)
30,275 First Shenango Bancorp, Inc. ................................ $ 639,559
232,000 aGA Financial, Inc. ......................................... 3,161,000
48,600 People's Savings Financial Corp. ............................ 1,281,825
59,000 Progressive Bank, Inc. ...................................... 2,020,750
88,000 aQuaker City Bancorp, Inc. .................................. 1,430,000
5,400 Scottdale Savings & Trust/PA ................................ 1,458,000
214,100 Standard Financial, Inc. .................................... 3,813,656
69,000 Westco Bancorp, Inc. ........................................ 1,483,500
-----------
50,627,181
-----------
Environmental Control 0.3%
260,000 dEcology and Environment, Inc., Series A .................... 2,177,500
-----------
Food 4.4%
117,900 Genesee Corp., Class B ...................................... 4,951,800
600,000 dNash Finch Co. ............................................. 9,750,000
98,000 Orange-Co., Inc. ............................................ 759,500
886,500 dSuper Food Services, Inc. .................................. 13,629,938
-----------
29,091,238
-----------
Furniture & Homebuilders 4.3%
18,300 Allen Organ Co., Class B .................................... 729,713
173,200 aAmeriwood Industries International Corp. ................... 1,537,150
107,800 aBaldwin Piano & Organ Co. .................................. 1,617,000
16,300 aBeazer Homes USA, Inc. ..................................... 224,125
45,000 a,dCochrane Furniture, Inc. ................................. 216,563
289,500 Haverty Furniture Co., Inc. ................................. 3,293,063
192,000 dPulaski Furniture Corp. .................................... 2,976,000
439,700 Ryland Group, Inc. .......................................... 5,661,138
547,900 aU.S. Home Corp. ............................................ 11,848,338
-----------
28,103,090
-----------
Insurance - Life & Specialty 12.5%
249,900 American National Insurance Co. ............................. 16,368,450
411,500a FBL Financial Group, Inc., Class A .......................... 9,310,188
100,000 Guarantee Life Companies, Inc. .............................. 1,950,000
371,600 Home Beneficial Corp., Class B .............................. 9,243,550
66,100a National Western Life Insurance Co., Class A ................ 5,089,700
955,000 Presidential Life Corp. ..................................... 10,863,125
45,962a Transport Holdings, Inc., Class A ........................... 3,493,112
Insurance - Life & Specialty (cont.)
600,000 USLIFE Corp. ................................................ $ 18,750,000
255,800 Washington National Corp. ................................... 7,322,275
-----------
82,390,400
-----------
Insurance - Property & Casualty 10.8%
295,000a,d ACMAT Corp., Class A ........................................ 4,056,250
80,000 Allmerica Financial Corp. ................................... 2,430,000
90,000 American Indemnity Financial Corp. .......................... 894,375
50,000 Amwest Insurance Group, Inc. ................................ 612,500
161,000 Argonaut Group, Inc. ........................................ 4,709,250
101,577 Baldwin & Lyons, Class B..................................... 1,822,037
371,400 Chartwell Re Corp. .......................................... 9,424,275
130,710 Financial Security Assurance Holdings Ltd. .................. 3,659,880
137,000a Farm Family Holdings, Inc.................................... 2,722,875
41,200 LaSalle Re Holdings Ltd. .................................... 1,194,800
150,300 Lawyers Title Corp. ......................................... 2,649,038
254,500d Merchants Group, Inc. ....................................... 4,771,875
272,000 Meridian Insurance Group, Inc. .............................. 3,978,000
69,100a Professionals Insurance Company Management Group ............ 1,520,200
45,000 PXRE Corp. .................................................. 1,113,750
257,000e Scor SA (France) ............................................ 9,879,298
300,000 Stewart Information Services Corp. .......................... 6,450,000
360,000d Transnational Re Corp., Class A ............................. 9,045,000
-----------
70,933,403
-----------
Manufacturing 6.9%
131,100a ACX Technologies, Inc. ...................................... 2,327,025
370,400a American Pacific Corp. ...................................... 3,009,500
134,300 Binks Manufacturing Co. ..................................... 3,223,200
675,500d Commonwealth Aluminum Corp. ................................. 10,639,125
97,000 Dynamics Corporation of America ............................. 2,800,875
15,000 Espey Manufacturing & Electronics Corp. ..................... 223,125
400,900 dGreen (A.P.) Industries, Inc. .............................. 4,109,225
424,800 dInsteel Industries, Inc. ................................... 3,186,000
498,000 a,dMatrix Service Co. ....................................... 3,019,125
60,100 Medex, Inc. ................................................. 893,988
44,800 Mine Safety Appliances Co. .................................. 2,251,200
250,000 dMonarch Machine Tool Co. ................................... 2,437,500
92,000 aOroamerica, Inc. ........................................... 529,000
483,000 dOshkosh Truck Corp., Class B ............................... 5,856,375
Manufacturing (cont.)
18,900 Pitt-Des Moines, Inc......................................... $ 765,450
5,000 Treadco, Inc. ............................................... 56,250
-----------
45,326,963
-----------
Miscellaneous 4.5%
1,100,400 aAztar Corp. ................................................ 8,940,750
200,000 Lehman Brothers Holdings, Inc. .............................. 5,025,000
21,900 Noland Co. .................................................. 509,175
370,800 Price Enterprises, Inc. ..................................... 6,164,550
336,000 The Rouse Co. ............................................... 8,526,000
6,100 aVicorp Restaurants, Inc. ................................... 88,450
-----------
29,253,925
-----------
Natural Resources 4.6%
500,000 a,dCrown Central Petroleum, Class B ......................... 6,812,500
211,200 aDevcon International Corp. ................................. 1,372,800
104,500 dEnex Resources Corp. ....................................... 888,250
153 Kentucky River Coal Corp. ................................... 435,285
101,200 Rochester & Pittsburgh Coal Co. ............................. 3,238,400
13,247 aStampeder Exploration Ltd. ................................. 66,237
1,800,000 Total Petroleum (North America) Ltd. ........................ 17,325,000
-----------
30,138,472
-----------
Retail 7.8%
467,700 a,dButtrey Food and Drug Stores Co. ......................... 3,741,600
51,000 DEB Shops, Inc. ............................................. 239,063
201,100 aEvans, Inc. ................................................ 402,200
670,600 dFred's, Inc. ............................................... 5,448,625
500,000 aGood Guys, Inc. ............................................ 3,500,000
1,400,000 aHechinger Co., Class A ..................................... 4,462,500
200,000 aHi-Lo Automotive, Inc. ..................................... 525,000
297,200 dJacobson Stores, Inc. ...................................... 2,489,050
590,000 Kmart Corp. ................................................. 5,752,500
192,000 aLittle Switzerland, Inc. ................................... 936,000
401,200 a,dLuria (L.) & Son, Inc. ................................... 1,504,500
450,000 Shopko Stores, Inc. ......................................... 7,256,250
330,500 Strawbridge & Clothier, Class A ............................. 5,618,500
548,500 aSyms Corp. ................................................. 4,593,688
385,500 dWolohan Lumber Co. ......................................... 4,770,563
-----------
51,240,039
-----------
Technology 2.7%
209,500 aAydin Corp. ................................................ $ 2,121,188
295,100 aCherry Corp., Class A ...................................... 3,172,325
219,900 aCherry Corp., Class B ...................................... 2,253,975
498,000 aESCO Electronics Corp. ..................................... 4,855,500
46,410 aSilicon Graphics, Inc. ..................................... 858,585
50,000 aSilicon Valley Group, Inc. ................................. 831,250
46,981 aSterling Commerce, Inc. .................................... 1,321,360
29,500 aSterling Software, Inc...................................... 958,750
81,000 Watkins-Johnson Co. ......................................... 1,468,125
-----------
17,841,058
-----------
Textile & Apparel 4.9%
756,000 a,dChic by H.I.S., Inc. ..................................... 3,496,500
1,385,200 dDelta Woodside Industries, Inc. ............................ 7,964,900
600,000 a,dDixie Yarns, Inc. ........................................ 3,000,000
267,300 dGaran, Inc. ................................................ 4,510,688
800,000 dHaggar Corp. ............................................... 12,000,000
89,000 aSun Sportswear, Inc. ....................................... 155,750
84,400 Thomaston Mills, Inc., Class A............................... 886,200
-----------
32,014,038
-----------
Transportation 1.5%
15,300 aAnuhco, Inc................................................. 118,575
309,800 International Shipholding Corp. ............................. 5,576,400
27,500 Overseas Shipholding Group, Inc. ............................ 467,500
150,000 Petroleum Helicopters, Inc. - Non Voting .................... 2,550,000
53,100 Petroleum Helicopters, Inc. - Voting ........................ 929,250
-----------
9,641,725
-----------
Utilities 1.0%
120,400 Central Maine Power Co. ..................................... 1,414,700
567,700 aNiagara Mohawk Power Corp. ................................. 4,825,450
-----------
6,240,150
-----------
Total Long Term Investments (Cost $493,014,990)........ 535,742,320
-----------
cReceivables from Repurchase Agreements 18.8%
$ 123,290,889 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $123,850,886)
(Cost $123,831,868)
B.A. Securities, Inc., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $10,999,428)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $10,999,428)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $12,832,666)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $1,023,940)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $14,665,904)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 .... $123,831,868
--------------
Total Investments (Cost $616,846,858) 100.4%................... 659,574,188
Liabilities in Excess of Other Assets (0.4)%................... (2,572,063)
--------------
Net Assets 100% $657,002,125
==============
At October 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$616,846,858 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost....................................... $ 64,832,640
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ...................................... (22,105,310)
-------------
Net unrealized appreciation .............................................. $ 42,727,330
=============
</TABLE>
aNon-income producing.
bPurchased in a private placement transaction; resale may only be qualified
institutional buyers.
cFace amount for repurchase agreements is for the underlying collateral. See
note 1(h) regarding joint repurchase agreement.
dSee Note 6 regarding holdings of 5% voting securities.
eSecurities traded in currency of country indicated and valued in U.S. dollars.
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, October 31, 1996
<TABLE>
<CAPTION>
Value
Shares Franklin MicroCap Value Fund (Note 1)
Common Stocks 73.6%
Banks & Thrifts 11.5%
<S> <C> <C>
34,000 Affiliated Community Bancorp ................................ $ 692,750
49,000 American National Bancorp, Inc. ............................. 575,750
20,300 aCalumet Bancorp, Inc. ...................................... 573,475
35,000 FFD Financial Corp. ......................................... 424,375
116,000 Fidelity Financial of Ohio, Inc. ............................ 1,218,000
300 FirstFed Bancshares, Inc. ................................... 5,063
2,500 First Financial Bancorp, Inc. ............................... 40,000
167,000 aGA Financial, Inc. ......................................... 2,275,375
10,100 aHallmark Capital Corp. ..................................... 172,963
100,000 aHF Bancorp, Inc. ........................................... 1,087,500
9,000 HF Financial Corp. .......................................... 145,125
51,700 Landmark Bancshares, Inc. ................................... 840,125
100,000 Little Falls Bancorp, Inc. .................................. 1,150,000
4,000 aPacific Bank N.A. .......................................... 100,000
14,700 People's Savings Financial Corp. ............................ 387,713
70,000 aQuaker City Bancorp, Inc. .................................. 1,137,500
101,500 aRedFed Bancorp, Inc. ....................................... 1,192,625
25,900 aSho-Me Financial Corp. ..................................... 539,044
45,000 Somerset Group, Inc. ........................................ 753,750
26,000 Troy Hill Bancorp, Inc. ..................................... 520,000
-----------
13,831,133
-----------
Environmental Control 3.2%
5,000 aChempower, Inc. ............................................ 28,125
109,600 dEcology and Environment, Inc., Series A .................... 917,900
305,000 aEmcon, Inc. ................................................ 972,188
500 aGZA GeoEnvironmental Technologies, Inc. .................... 1,750
145,000 aHarding Lawson Associates Group ............................ 1,005,938
245,000 aRoy F. Weston, Inc., Class A ............................... 888,125
-----------
3,814,026
-----------
Food 1.3%
600 Genesee Corp., Class A ...................................... 22,800
36,000 Genesee Corp., Class B ...................................... 1,512,000
-----------
1,534,800
-----------
Furniture & Homebuilders 6.3%
18,800 Allen Organ Co., Class B .................................... 749,650
12,000 American Woodmark Corp. ..................................... 100,500
36,800 aAmeriwood Industries International Corp. ................... 326,600
5,000 aBaldwin Piano & Organ Co. .................................. 75,000
Furniture & Homebuilders (cont.)
13,900 aBeazer Homes USA, Inc. ..................................... $ 191,125
360,000 a,dOriole Homes Corp., Class B .............................. 2,700,000
80,000 Pulaski Furniture Corp. ..................................... 1,240,000
334,400 a,dRiver Oaks Furniture, Inc. ............................... 1,316,700
33,000 aSeaman Furniture Co. ....................................... 624,938
63,600 aWashington Homes, Inc. ..................................... 246,450
-----------
7,570,963
-----------
Insurance - Life & Specialty 0.1%
6,000 Guarantee Life Companies, Inc. .............................. 117,000
-----------
Insurance - Property & Casualty 7.8%
10,000 American Indemnity Financial Corp. .......................... 99,375
113,000 Amwest Insurance Group, Inc. ................................ 1,384,250
200,000 aFarm Family Holdings, Inc. ................................. 3,975,000
128,000 Meridian Insurance Group, Inc. .............................. 1,872,000
28,604 aMotor Club of America ...................................... 239,559
4,000 National Security Group, Inc. ............................... 54,000
75,500 aProfessionals Insurance Company Management Group ........... 1,661,000
-----------
9,285,184
-----------
Manufacturing 16.4%
304,400 aAmerican Pacific Corp. ..................................... 2,473,250
82,500 a,dArt's-Way Manufacturing Co., Inc. ........................ 412,500
14,900 aAstec Industries, Inc. ..................................... 134,100
15,500 aAthey Products Corp. ....................................... 65,875
45,000 Binks Manufacturing Co. ..................................... 1,080,000
50,000 aContinental Materials Corp. ................................ 950,000
14,500 Dynamics Corporation of America ............................. 418,688
54,800 Espey Manufacturing & Electronics Corp. ..................... 815,150
7,500 Federal Screw Works ......................................... 211,875
113,000 aGehl Co. ................................................... 904,000
140,000 Green (A.P.) Industries, Inc. ............................... 1,435,000
177,600 Insteel Industries, Inc. .................................... 1,332,000
100,000 aKentucky Electric Steel, Inc. .............................. 587,500
12,500 Medex, Inc. ................................................. 185,938
92,100 Monarch Machine Tool Co. .................................... 897,975
134,700 a,dMoore Products Co. ....................................... 2,559,300
51,300 aOroamerica, Inc. ........................................... 294,975
200 Pitt-Des Moines, Inc. ....................................... 8,100
Manufacturing (cont.)
100,000 aSteel of West Virginia, Inc. ............................... $ 625,000
105,000 TAB Products Co.............................................. 800,625
265,500 a,dTemtex Industries, Inc. .................................. 879,469
222,200 Treadco, Inc. ............................................... 2,499,750
-----------
19,571,070
-----------
Miscellaneous 2.2%
127,000 a,dAllstate Financial Corp. ................................. 825,500
230,000 a,dAmerican Physicians Service Group, Inc. .................. 1,365,625
19,900 Trans-Lux Corp. ............................................. 253,725
14,100 aVicorp Restaurants, Inc. ................................... 204,450
-----------
2,649,300
-----------
Natural Resources 1.2%
153,000 aDevcon International Corp. ................................. 994,500
23,600 Enex Resources Corp. ........................................ 200,600
4,900 Rochester & Pittsburgh Coal Co. ............................. 156,800
13,247 aStampeder Exploration Ltd. ................................. 66,236
-----------
1,418,136
-----------
Retail 10.5%
184,300 aButtrey Food & Drug Stores Co. ............................. 1,474,400
192,000 aCosmetic Center, Inc., Class A ............................. 1,056,000
150,000 DEB Shops, Inc. ............................................. 703,125
78,300 Fred's, Inc. ................................................ 636,188
8,500 aGantos, Inc. ............................................... 29,750
39,800 aGood Guys, Inc. ............................................ 278,600
752,000 a,dHi-Lo Automotive, Inc. ................................... 1,974,000
60,000 Jacobson Stores, Inc. ....................................... 502,500
273,000 aLittle Switzerland, Inc. ................................... 1,330,875
37,900 aLuria (L.) & Son, Inc. ..................................... 142,125
165,200 aS & K Famous Brands, Inc. .................................. 1,280,300
13,614 Seaway Food Town, Inc. ...................................... 285,894
155,000 aShoe Carnival, Inc. ........................................ 600,625
74,900 aSyms Corp. ................................................. 627,288
125,500 Wolohan Lumber Co. .......................................... 1,553,063
5,000 Zions Co-Op Mercantile Inst. ................................ 58,742
-----------
12,533,475
-----------
Technology 4.0%
32,800 Analysis & Technology, Inc. ................................. $ 475,600
109,600 aAydin Corp. ................................................ 1,109,700
7,400 aBel Fuse, Inc. ............................................. 77,700
36,000 aDBA Systems, Inc. .......................................... 220,500
138,300 aGovernment Technology Services, Inc. ....................... 898,950
23,300 aHathaway Corp. ............................................. 87,375
526,900 aVideo Lottery Technologies, Inc. ........................... 1,910,013
-----------
4,779,838
-----------
Textiles & Apparel 4.5%
72,000 a,fBibb Co. ................................................. 585,000
194,100 aChic by H.I.S., Inc. ....................................... 897,713
23,900 aConcord Fabrics, Inc., Class A ............................. 162,819
218,900 aDixie Yarns, Inc. .......................................... 1,094,500
102,500 Garan, Inc. ................................................. 1,729,688
74,500 aSun Sportswear, Inc. ....................................... 130,375
77,300 Thomaston Mills, Inc., Class A .............................. 811,650
200 Vulcan International Corp. .................................. 5,450
-----------
5,417,195
-----------
Transportation 2.5%
211,700 aAnuhco, Inc. ............................................... 1,640,675
64,500 Petroleum Helicopters, Inc. - Non Voting..................... 1,096,500
16,000 Petroleum Helicopters, Inc. - Voting......................... 280,000
-----------
3,017,175
-----------
Utilities 0.4%
4,600 aCitizens Electric Co. ...................................... 132,250
21,000 Maine Public Service Co. .................................... 404,250
-----------
536,500
-----------
Wholesale/Distribution 1.7%
234,600 a,dAllou Health & Beauty, Inc., Class A ..................... 1,554,225
22,700 Noland Co. .................................................. 527,775
-----------
2,082,000
-----------
Total Long Term Investments (Cost $83,731,283)......... 88,157,795
-----------
cReceivables from Repurchase Agreements 26.8%
$31,881,284 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $32,026,480)
(Cost $32,021,562)
B.A. Securities, Inc., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $2,844,331)
Collateral: U.S. Treasury Notes, 5.875% , 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $2,844,331)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $3,318,386)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $264,780)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $3,792,442)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 .... $ 32,021,562
-----------
Total Investments (Cost $115,752,845) 100.4% .................. 120,179,357
Liabilities In Excess of Other Assets (0.4)% .................. (515,651)
-----------
Net Assets 100% ............................................... $119,663,706
===========
At October 31, 1996, the net unrealized appreciation based on
the cost of investments for income tax purposes of
$115,752,845 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost .............................. $ 8,595,046
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value .............................. (4,168,534)
-----------
Net unrealized appreciation ............................................ $ 4,426,512
===========
</TABLE>
aNon-income producing.
cFace amount for repurchase agreements is for the underlying collateral. See
Note 1(h) regarding joint repurchase agreement.
dSee Note 6 regarding holdings of 5% voting securities.
fSee Note 7 regarding restricted securities.
FRANKLIN VALUE INVESTORS TRUST
Statement of Investments in Securities and Net Assets, October 31, 1996
<TABLE>
<CAPTION>
Value
Shares Franklin Value Fund (Note 1)
Common Stocks 97.9%
Banks & Thrifts 8.1%
<S> <C> <C>
1,750 BankAtlantic Bancorp, Inc., Class A .............................. $ 23,406
7,000 BankAtlantic Bancorp, Inc., Class B .............................. 91,875
12,100 aBank Plus Corp. ................................................. 136,125
35,000 eChristiania Bank OG Kreditkasse (Norway) ........................ 96,025
2,000 Fidelity Financial of Ohio, Inc. ................................. 21,000
5,000 aGA Financial, Inc. .............................................. 68,125
16,000 aMatrix Capital Corp. ............................................ 176,000
4,500 aRedFed Bancorp, Inc. ............................................ 52,875
---------
665,431
---------
Financial Services 5.1%
10,000 aEVEREN Capital Corp. ............................................ 197,500
5,800 aFirst Enterprise Financial Group, Inc. .......................... 61,625
6,500 Lehman Brothers Holdings, Inc. ................................... 163,313
---------
422,438
---------
Food 3.5%
8,700 Nash Finch Co. ................................................... 141,375
10,000 Schultz Sav-O Stores, Inc. ....................................... 145,000
---------
286,375
---------
Furniture & Homebuilders 8.4%
2,500 aAmerican Buildings Co. .......................................... 52,422
10,000 aBeazer Homes USA, Inc. .......................................... 137,500
3,900 Butler Manufacturing Co. ......................................... 122,850
14,000 Haverty Furniture Co., Inc. ...................................... 159,250
7,900 Ryland Group, Inc. ............................................... 101,713
5,400 aU.S. Home Corp. ................................................. 116,775
---------
690,510
---------
Health Care 4.2%
12,500 Health Images, Inc. .............................................. 156,250
25,000 aMatrix Pharmaceutical, Inc. ..................................... 189,063
---------
345,313
---------
Insurance - Life & Specialty 4.8%
300 ALLIED Life Financial Corp. ...................................... 5,475
1,600 American National Insurance Co. .................................. 104,800
3,500 aFBL Financial Group, Inc., Class A .............................. 79,188
Insurance - Life & Specialty (cont.)
10,200 Presidential Life Corp. .......................................... $ 116,025
3,000 USLIFE Corp. ..................................................... 93,750
---------
399,238
---------
Insurance - Property & Casualty 11.5%
1,600 Argonaut Group, Inc. ............................................. 46,800
500 Chartwell Re Corp. ............................................... 12,688
7,800 aFarm Family Holdings, Inc. ...................................... 155,025
3,900 Financial Security Assurance Holdings Ltd. ....................... 109,200
2,500 GCR Holdings, Ltd. ............................................... 58,125
5,900 Guaranty National Corp. .......................................... 92,925
800 Harleysville Group, Inc. ......................................... 22,400
6,000 Leucadia National Corp. .......................................... 141,750
2,000 aProfessionals Insurance Company Management Group ................ 44,000
4,500 RLI Corp. ........................................................ 124,313
3,700 eScor SA (France) ................................................ 142,231
---------
949,457
---------
Manufacturing 21.0%
8,000 aAmerican Pacific Corp. .......................................... 65,000
3,100 Ameron International Corp. ....................................... 128,263
12,000 aAstec Industries, Inc............................................ 108,000
11,600 Commercial Intertech Corp. ....................................... 129,050
5,000 aDura Automotive Systems, Inc. ................................... 120,000
19,700 aEkco Group, Inc. ................................................ 66,488
14,000 Ennis Business Forms ............................................. 154,000
8,800 Flexsteel Industries, Inc. ....................................... 116,600
11,000 aGehl Co. ........................................................ 88,000
10,000 Haskel International, Inc., Class A .............................. 78,750
22,400 aMorgan Products, Ltd. ........................................... 168,000
9,700 Oshkosh Truck Corp., Class B ..................................... 117,613
700 Patrick Industries, Inc. ......................................... 10,850
4,400 Schweitzer-Manduit International, Inc. ........................... 135,300
28,000 United Industrial Corp. .......................................... 150,500
3,800 West Company, Inc. ............................................... 102,125
---------
1,738,539
---------
Miscellaneous 5.5%
17,700 aAllou Health and Beauty, Inc., Class A .......................... 117,263
8,800 aAmerican Physicians Service Group, Inc. ......................... 52,250
Miscellaneous (cont.)
21,500 aAztar Corp. ..................................................... $ 174,689
4,500 The Rouse Co. .................................................... 114,188
---------
458,390
---------
Natural Resources 5.9%
11,400 Oil-Dri Corporation of America ................................... 153,900
2,500 Rochester & Pittsburgh Coal Co. .................................. 80,000
13,700 Total Petroleum (North America) Ltd. ............................. 131,863
8,000 Wiser Oil Co. .................................................... 126,000
---------
491,763
---------
Retail 5.3%
18,200 aLittle Switzerland, Inc. ........................................ 88,725
12,000 aS & K Famous Brands, Inc. ....................................... 93,000
4,700 Stanhome, Inc. ................................................... 124,550
16,100 aSyms Corp. ...................................................... 134,838
---------
441,113
---------
Technology 10.2%
2,000 Adobe Systems, Inc. .............................................. 69,250
10,900 aAdvanced Logic Research, Inc. ................................... 109,000
8,000 Analysis & Technology, Inc. ...................................... 116,000
10,000 aCognex Corp. .................................................... 128,750
12,100 aESCO Electronics Corp. .......................................... 117,975
4,000 aMapInfo Corp. ................................................... 43,500
3,800 aSilicon Graphics, Inc. .......................................... 70,300
4,300 aTekelec ......................................................... 63,425
6,800 Watkins-Johnson Co. .............................................. 123,250
---------
841,450
---------
Transportation 3.6%
1,700 aFritz Companies, Inc. ........................................... 27,200
13,150 Kenan Transport Co. .............................................. 272,863
---------
300,063
---------
Utilities .8%
7,500 aNiagara Mohawk Power Corp. ...................................... 63,750
---------
Total Long Term Investments (Cost $7,780,683) .............. 8,093,830
---------
cReceivables from Repurchase Agreements 1.1%
$ 87,443 Joint Repurchase Agreements, 5.529%, 11/01/96 (Maturity Value $88,213)
(Cost $88,200)
B.A. Securities, Inc., (Maturity Value $10,446)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $10,446)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $7,834)
Collateral: U.S. Treasury Notes, 5.875% , 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $7,834)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $10,446)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $9,140)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $10,446)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $729)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $10,446)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $10,446)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 ............... $ 88,200
-------------
Total Investments (Cost $7,868,883) 99.0%................................. 8,182,030
Other Assets & Liabilities, Net 1.0%...................................... 79,743
-------------
Net Assets 100.0% ........................................................ $8,261,773
=============
At October 31, 1996, the net unrealized appreciation based on the
cost of investments for income tax purposes of $7,868,883 was as
follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ...................................................... $ 512,122
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ...................................................... (198,975)
-------------
Net unrealized appreciation ....................................................... $ 313,147
=============
</TABLE>
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.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements
Statements of Assets and Liabilities
October 31, 1996
<TABLE>
<CAPTION>
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
---------- --------- -------
Assets:
Investments in securities:
<S> <C> <C>
At identified cost..................................................... $493,014,990$ 83,731,283 $7,780,683
========== ========= =======
At value............................................................... 535,742,320 88,157,795 8,093,830
Receivables from repurchase agreements, at value and cost............... 123,831,868 32,021,562 88,200
Cash.................................................................... 467,033 2,806 8,061
Receivables:
Dividends and interest................................................. 267,868 62,710 4,447
Investment securities sold............................................. 127,300 28,500 --
Capital shares sold.................................................... 813,562 324,250 43,659
From affiliates........................................................ -- -- 37,035
Other assets............................................................ -- -- 2,600
---------- --------- -------
Total assets....................................................... 661,249,951 120,597,623 8,277,832
---------- --------- -------
Liabilities:
Payables:
Investment securities purchased........................................ 3,065,949 568,419 --
Capital shares repurchased............................................. 107,767 195,996 --
Distribution fees...................................................... 745,235 72,850 7,118
Shareholder servicing costs............................................ 27,800 10,000 505
Management fees........................................................ 267,676 75,252 4,241
Accrued expenses and other liabilities.................................. 33,399 11,400 4,195
---------- --------- -------
Total liabilities.................................................. 4,247,826 933,917 16,059
---------- --------- -------
Net assets, at value..................................................... $657,002,125$119,663,706 $8,261,773
========== ========= =======
Net assets consist of:
Undistributed net investment income..................................... $ 1,188,669 $ 226,652 $ 627
Net unrealized appreciation on investments ............................ 42,727,330 4,426,512 313,147
Undistributed net realized gain from investments and foreign
currency transactions 53,682,795 2,640,347 210,414
Class I capital shares.................................................. 559,403,331 112,370,195 7,305,688
Class II capital shares................................................. -- -- 431,897
---------- --------- -------
Net assets, at value..................................................... $657,002,125$119,663,706 $8,261,773
========== ========= =======
Class I shares:
Net assets, at value.................................................... $657,002,125$119,663,706 $7,827,926
========== ========= =======
Shares outstanding...................................................... 22,535,474 6,488,300 456,407
========== ========= =======
Net asset value per share*.............................................. $29.15 $18.44 $17.15
========== ========= =======
Maximum offering price per share (100/98.5, 100/95.5, 100/95.5 of net asset value per
share, respectively).................................................... $29.59 $19.31 $17.96
========== ========= =======
Class II shares:
Net assets, at value.................................................... -- -- $433,847
========== ========= =======
Shares outstanding...................................................... -- -- 25,318
========== ========= =======
Net asset value per share*.............................................. -- -- $17.14
========== ========= =======
Maximum offering price per share (100/99 of net asset value per share).. -- -- $17.31
========== ========= =======
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1996
<TABLE>
<CAPTION>
Balance Sheet MicroCap
Investment Fund Value Fund* Value Fund**
----------- --------- --------
Investment income:
<S> <C> <C> <C>
Dividends........................................................... $ 7,770,425 $ 452,953 $ 32,442
Interest (Note 1)................................................... 7,847,753 969,308 17,234
----------- --------- --------
Total income................................................... 15,618,178 1,422,261 49,676
----------- --------- --------
Expenses:
Management fees (Note 5)............................................ 2,785,163 425,197 19,727
Distribution fees - Class I (Note 5)................................ 2,501,482 135,400 9,000
Distribution fees - Class II (Note 5)............................... -- -- 265
Shareholder servicing costs (Note 5)................................ 355,389 59,815 1,833
Reports to shareholders............................................. 185,390 20,595 9,588
Registration and filing fees........................................ 142,607 29,647 26,877
Professional fees................................................... 51,654 23,752 5,913
Trustees' fees and expenses......................................... 20,299 1,879 224
Custodian fees...................................................... 19,169 372 54
Other............................................................... 12,699 2,305 1,016
Management fees waived by manager (Note 5).......................... -- -- (19,727)
Other expenses assumed by manager (Note 5).......................... -- -- (19,813)
----------- --------- --------
Total expenses................................................. 6,073,852 698,962 34,957
----------- --------- --------
Net investment income.......................................... 9,544,326 723,299 14,719
----------- --------- --------
Realized and unrealized gain from investments and foreign currency:
Net realized gain (loss) from:
Investments........................................................ 53,701,657 2,640,347 210,414
Foreign currency transactions...................................... (22,867) -- (539)
Net unrealized appreciation on investments.......................... 19,022,910 4,426,512 313,147
Net realized and unrealized gain on investments and foreign currencies 72,701,700 7,066,859 523,022
----------- --------- --------
Net increase in net assets resulting from operations $82,246,026 $7,790,158 $537,741
=========== ========= ========
</TABLE>
*For the period December 12, 1995 (effective date) to October 31, 1996. **For
the period March 11, 1996 (effective date) to October 31, 1996.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1996 and 1995
<TABLE>
<CAPTION>
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
--------------------- ---------- ---------
<S> <C> <C> <C> <C>
1996 1995 1996* 1996**
---------- ---------- ---------- ---------
Increase in net assets:
Operations:
Net investment income.................................. $ 9,544,326 $ 3,166,286 $ 723,299 $ 14,719
Net realized gain from investments and foreign currency
transactions........................................... 53,678,790 17,015,080 2,640,347 209,875
Net unrealized appreciation on investments ............ 19,022,910 20,720,103 4,426,512 313,147
---------- ---------- ---------- ---------
Net increase in net assets resulting from operations 82,246,026 40,901,469 7,790,158 537,741
Distributions to shareholders from:
Undistributed net investment income Class I............ (8,792,315) (2,726,560) (496,647) (13,553)
Net realized capital gains............................. (17,015,078) (2,224,227) -- --
Increase in net assets from capital share transactions
(Note 2)............................................... 213,023,960 217,333,993 112,370,195 7,737,585
---------- ---------- ---------- ---------
Net increase in net assets........................ 269,462,593 253,284,675 119,663,706 8,261,773
Net assets:
Beginning of period.................................... 387,539,532 134,254,857 -- --
---------- ---------- ---------- ---------
End of period.......................................... $657,002,125 $387,539,532 $119,663,706 $8,261,773
========== ========== ========== =========
Undistributed net investment income included in net assets:
Beginning of period.................................... $ 440,663 $ 937 $ -- $ --
========== ========== ========== =========
End of period.......................................... $ 1,188,669 $ 440,663 $ 226,652 $ 627
========== ========== ========== =========
</TABLE>
*For the period December 12, 1995 (effective date) to October 31, 1996.
**For the period March 11, 1996 (effective date) to October 31, 1996.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Investors Trust (the Trust) is an open-end, non-diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. 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 Value Fund offers two classes of shares, Class I and Class II. Class I
shares are sold with a higher front-end sales charge. Class II shares are sold
with a lower front-end sales charge, but may be subject to a contingent deferred
sales charge. Each class of shares has the same rights, except with respect to
the effect of the respective sales charges, the distribution fees borne by each
class, voting rights on matters affecting a single class, and the exchange
privilege of each class. The offering of Class II shares began September 3,
1996, at which time all previously outstanding shares became Class I shares.
Realized and unrealized gains or losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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 (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 ask 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, 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.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
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 expenses during
the reporting period. Actual results could differ from those estimates.
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 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 its uninvested
cash balance is deposited into a joint cash account to be used to invest in one
or more repurchase agreements with government securities dealers recognized by
the Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the joint repurchase agreement are allocated to the
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 October 31, 1996, all outstanding repurchase agreements held by
the Funds had been entered into on that date.
2. TRUST SHARES
At October 31, 1996, there were an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Fund's shares for
the years ended October 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Balance Sheet Investment Fund MicroCap Value Fund* Value Fund**
-------------------- ------------------- ----------------
Class I Shares: Shares Amount Shares Amount Shares Amount
--------- ----------- -------- ---------- ------- ----------
1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold ....................... 11,153,902 $306,981,566 6,856,466 $118,962,310 498,882 $7,986,201
Shares issued in reinvestment of
distributions ..................... 814,937 21,999,091 24,443 435,536 737 12,020
Shares redeemed ................... (4,146,493) (115,956,697) (392,609) (7,027,651) (43,212) (692,533)
--------- ----------- -------- ---------- ------- ----------
Net increase ...................... 7,822,346 $213,023,960 6,488,300 $112,370,195 456,407 $7,305,688
========= =========== ======== ========== ======= ==========
</TABLE>
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
========= ===========
Value Fund
----------------
Class II Shares:*** Shares Amount
------- ----------
1996
Shares sold ............................................ 25,854 $440,955
Shares redeemed ........................................ (536) (9,058)
------- ----------
Net increase ........................................... 25,318 $431,897
======= ==========
*For the period December 12, 1995 (effective date) to October 31, 1996.
**For the period March 11, 1996 (effective date) to October 31, 1996.
***For the period September 1,1996 (effective date) to October 31, 1996.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1996, for tax purposes, the Funds had accumulated net realized
gains as follows:
Balance Sheet MicroCap
Investment Fund Value Fund Value Fund
----------- ---------- ---------
Accumulated net realized gains....... $53,682,795 $2,640,347 $210,414
For tax purposes, the aggregate cost of securities and unrealized appreciation
of the Trust are the same for financial reporting purposes at October 31,1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended October 31, 1996, were as follows:
Balance Sheet MicroCap
Investment Fund Value Fund* Value Fund**
----------- ---------- ---------
Purchases ......................... $286,556,495 $87,447,313 $8,887,858
Sales ............................. $148,829,264 $ 6,420,957 $1,289,689
*For the period December 12, 1995 (effective date) to October 31, 1996.
**For the period March 11, 1996 (effective date) to October 31, 1996.
5. 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
-------------- ------------------------------------------
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% 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
--------------
0.750% Daily net assets
Value Fund
Annualized Fee Rate Daily Net Assets
-------------- ------------------------------------------
0.750% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.500% Over $1 billion
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 year ended October 31, 1996,
the Fund's expenses did not exceed these limitations. However, Advisory agreed
in advance to waive the management fees and assume payments of certain other
expenses 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 service 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 year ended October 31, 1996 aggregated $417,037, all of which was paid to
Investor Services.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
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 will reimburse Franklin/Templeton Distributors, Inc.
(Distributors), in an amount up to a maximum of 0.50%, 0.25% and 0.35% per
annum, respectively, for Class I, and 1.00% per annum for Class II, if
applicable, of the average daily net assets of such class 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 Fund's shares of beneficial interest.
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 Funds. Distributors may
also make payments, out of its own resources, to dealers for certain sales of
the Fund's shares. Commissions received by Distributors and the amounts paid to
other dealers, and any applicable contingent deferred sales charges for the year
ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
Balance Sheet MicroCap Value
Class I Investment Fund Value Fund* Fund**
----------- --------- --------
<S> <C> <C> <C>
Total commissions received............................................ $1,655,404 $3,785,060 $131,694
Paid to other dealers................................................. $2,244,061 $3,469,098 $122,806
Contingent deferred sales charges..................................... $ 15,126 -- --
Class II***
Total commissions received............................................ -- -- $187
Paid to other dealers................................................. -- -- $186
</TABLE>
*For the period December 12, 1995 (effective date) to October 31, 1996.
**For the period March 11, 1996 (effective date) to October 31, 1996.
***For the period September 1,1996 (effective date) to October 31, 1996.
D. OTHER AFFILIATES AND RELATED PARTY TRANSACTIONS:
Certain officers and trustees of the Trust are also officers and/or directors of
Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of
Franklin Resources, Inc. (Resources).
At October 31, 1996, Resources owned 1.03% of the MicroCap Value Fund and 13.88%
of the Value Fund.
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio companies, 5% or more whose outstanding voting
securities are held by the Funds, are defined in the Investment Company Act of
1940 as affiliated companies. The Funds had investments in such affiliated
companies at October 31, 1996, as follows:
<TABLE>
<CAPTION>
Purchase Market Dividend
Fund Affiliate Cost Value Income
- ------------------------- ------------------------------- --------- --------- -------
<S> <C> <C> <C>
Balance Sheet Investment Fund ACMAT Corp., Class A $ 2,597,225 $ 4,056,250 $--
Balance Sheet Investment Fund Buttery Food and Drug Stores Co. 3,370,668 3,741,600 --
Balance Sheet Investment Fund Chic by H.I.S., Inc. 6,417,527 3,496,500 --
Balance Sheet Investment Fund Cochrane Furniture, Inc. 641,250 216,563 --
Balance Sheet Investment Fund Commonwealth Aluminum Corp. 10,593,284 10,639,125 76,425
Balance Sheet Investment Fund Crown Central Petroleum, Class B 7,490,542 6,812,500 --
Balance Sheet Investment Fund Delta Woodside Industries, Inc. 9,694,323 7,964,900 163,900
6. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (cont.)
Purchase Market Dividend
Fund Affiliate Cost Value Income
- -------------------------- ------------------------------- --------- --------- -------
Balance Sheet Investment Fund Dixie Yarns, Inc. $ 4,397,304 $ 3,000,000 $--
Balance Sheet Investment Fund Ecology and Environment, Inc., Series A 2,163,212 2,177,500 81,600
Balance Sheet Investment Fund Enex Resources Corp. 827,100 888,250 20,900
Balance Sheet Investment Fund First Financial Bancorp, Inc. 222,688 384,000 --
Balance Sheet Investment Fund Fred's, Inc. 5,509,428 5,448,625 124,295
Balance Sheet Investment Fund Garan, Inc. 4,341,174 4,510,688 168,800
Balance Sheet Investment Fund Green (A.P.) Industries, Inc. 3,971,295 4,109,225 48,996
Balance Sheet Investment Fund Haggar Corp. 11,874,087 12,000,000 101,040
Balance Sheet Investment Fund Insteel Industries, Inc. 2,961,844 3,186,000 90,438
Balance Sheet Investment Fund Jacobson Stores, Inc. 3,116,509 2,489,050 148,600
Balance Sheet Investment Fund Luria (L.) & Sons, Inc. 3,033,210 1,504,500 --
Balance Sheet Investment Fund Matrix Services, Co. 1,525,125 3,019,125 --
Balance Sheet Investment Fund Merchants Group, Inc. 4,032,157 4,771,875 50,900
Balance Sheet Investment Fund Monarch Machine Tools Co. 2,653,583 2,437,500 50,000
Balance Sheet Investment Fund Nash Finch Co. 9,860,664 9,750,000 325,107
Balance Sheet Investment Fund Oshkosh Truck Corp., Class B 5,641,368 5,856,375 190,250
Balance Sheet Investment Fund Pulaski Furniture Corp. 3,624,086 2,976,000 122,880
Balance Sheet Investment Fund Super Food Services, Inc. 9,189,403 13,629,938 101,570
Balance Sheet Investment Fund Transnational Re Corp., Class A 7,302,397 9,045,000 68,700
Balance Sheet Investment Fund Wolohan Lumber Co. 4,220,530 4,770,563 99,913
MicroCap Value Fund Allou Health & Beauty, Inc., Class A 1,543,912 1,554,225 --
MicroCap Value Fund Allstate Financial Corp. 722,133 825,500 --
MicroCap Value Fund American Physicans Service Group, Inc. 1,558,718 1,365,625 --
MicroCap Value Fund Art's-Way Manufacturing Co., Inc. 381,350 412,500 --
MicroCap Value Fund Ecology and Environment, Inc., Series A 888,067 917,900 11,200
MicroCap Value Fund Hi-Lo Automotive, Inc. 3,327,231 1,974,000 --
MicroCap Value Fund Moore Products Co. 2,410,693 2,559,300 --
MicroCap Value Fund Oriole Homes Corp., Class B 2,781,602 2,700,000 --
MicroCap Value Fund River Oaks Furniture, Inc. 1,222,598 1,316,700 --
MicroCap Value Fund Temtex Industries, Inc. 829,125 879,469 --
</TABLE>
7. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Trust may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such a sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Trust values these
restricted securities as disclosed in Note 1. At October 31, 1996, the MicroCap
Value Fund held the following restricted security:
<TABLE>
<CAPTION>
Acquisition
Shares Security Date Cost Value
----- ------------------------- ------------ ------ ------
<S> <C> <C> <C>
72,000 Bibb Co......................... 10/16/96-10/24/96 $596,874 $585,000
</TABLE>
8. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period by Fund, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------- -----------------------------------
Ratio of
Expenses
to Average
Net Assets
Net Ratio (Net Assets Ratio
Asset Distri- Distri- Net of (before fee of Net
Value Net Total butions butions Net Assets Expen waiver and Investment
at Beg-Net Realized & From From NetFrom Asset at End ses to expense Income to Average
inning Invest-Unrealized Invest- Invest- Realized Total Value of Per-Average reduction Aver- Portfolio Commis-
Year of ment Gain on ment Op- ment Capital Distri- at End Total iod (in Net (see age Net Turnover sion
Ended Period Income Securities erations Income Gains butions of PeriodReturn++000's)Assets Note 5) Assets Rate Rate**
Balance Sheet Investment Fund
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 3.421 34,255 1.19+ 1.34 0.99 24.96 --
1995 22.68 .300 3.980 4.280 (.270) (.350) (.620) 26.34 19.323 87,540 1.17 1.17 1.30 28.63 --
1996 26.34 .470 3.846 4.316 (.442) (1.064) (1.506) 29.15 16.936 57,002 1.08 1.08 1.69 35.46 .0453
Franklin MicroCap Value Fund
19961 15.00 .140 3.410 3.550 (.110) -- (.110) 18.44 23.72 119,664 1.24* 1.24* 1.28* 14.15 .0476
Franklin Value Fund
Class I Shares:
19962 15.00 .053 2.147 2.200 (.050) -- (.050) 17.15 14.69 7,828 1.35*+ 2.87* 0.57* 32.52 .0464
Class II Shares:
19963 16.38 .006 .761 .767 (.007) -- (.007) 17.14 4.68 434 2.00*+ 3.52* (.08)* 32.52 .0464
</TABLE>
1For the period December 12, 1995 (effective date) to October 31, 1996.
2For the period March 11, 1996 (effective date) to October 31, 1996. 3For the
period September 3, 1996 (effective date) to October 31, 1996.
+During the period indicated, Advisory agreed in advance to waive all or a
portion of its management fees and pay all or a portion of other expenses
incurred.
++Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the 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 12b-1 distribution
plans for Class I, the sales charges on reinvested dividends were eliminated.
The total return may differ from that reported in the Manager's Discussion due
to differences between the net asset values quoted and the net asset values
calculated for financial reporting purposes.
*Annualized.
**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.
Under IRC 854(b)(2) of the Internal Revenue Code, the Funds hereby designate the
following percentage amounts of their ordinary income dividends paid by the
Funds during the fiscal year ended October 31, 1996, as income quali-fying for
the dividends received deduction.
Balance Sheet Investment Fund 27.84% MicroCap Value Fund 46.00% Value Fund
65.93%
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.
FRANKLIN VALUE INVESTORS TRUST
Report of Independent Accountants
To the Shareholders and Board of Trustees
of Franklin Value Investors Trust:
We have audited the accompanying statements of assets and liabilities of the
three funds comprising the Franklin Value Investors Trust (the Trust), including
each Fund's statement of investments in securities and net assets, as of
October 31, 1996, and the related statement of operations, statements of changes
in net assets, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures include confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
three funds comprising the Franklin Value Investors Trust as of October 31,
1996, the results of their operations, the changes in their net assets, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 4, 1996
Franklin Value Investors Trust Annual Report 10/31/96.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 1000 Value Index and the Consumer Price Index, based on
a $10,000 investment from 4/2/90 to 10/31/96.
Period Ending Fund Index Index
4/2/90 $9,849 $10,000 $10,000
4/30/90 $9,547 $9,610 $10,016
5/31/90 $9,947 $10,408 $10,039
6/30/90 $9,856 $10,171 $10,093
7/31/90 $9,685 $10,083 $10,132
8/31/90 $8,792 $9,197 $10,225
9/30/90 $7,940 $8,751 $10,311
10/31/90 $7,647 $8,632 $10,373
11/30/90 $8,100 $9,230 $10,395
12/31/90 $8,325 $9,464 $10,395
1/31/91 $8,902 $9,890 $10,458
2/28/91 $9,764 $10,548 $10,473
3/31/91 $10,050 $10,704 $10,489
4/30/91 $10,325 $10,783 $10,505
5/31/91 $10,626 $11,185 $10,536
6/30/91 $10,468 $10,714 $10,567
7/31/91 $10,571 $11,162 $10,583
8/31/91 $10,633 $11,365 $10,613
9/30/91 $10,647 $11,281 $10,660
10/31/91 $10,779 $11,469 $10,676
11/30/91 $10,709 $10,880 $10,707
12/31/91 $11,246 $11,792 $10,715
1/31/92 $11,564 $11,811 $10,731
2/29/92 $11,966 $12,100 $10,769
3/31/92 $12,022 $11,925 $10,824
4/30/92 $11,930 $12,439 $10,839
5/31/92 $12,065 $12,501 $10,855
6/30/92 $12,015 $12,423 $10,894
7/31/92 $12,764 $12,903 $10,917
8/31/92 $12,379 $12,508 $10,947
9/30/92 $12,221 $12,681 $10,978
10/31/92 $12,451 $12,692 $11,016
11/30/92 $13,003 $13,108 $11,032
12/31/92 $13,724 $13,420 $11,024
1/31/93 $14,031 $13,810 $11,078
2/28/93 $14,121 $14,296 $11,117
3/31/93 $14,593 $14,717 $11,156
4/30/93 $14,555 $14,529 $11,187
5/31/93 $14,969 $14,821 $11,202
6/30/93 $15,150 $15,147 $11,218
7/31/93 $15,626 $15,317 $11,218
8/31/93 $16,865 $15,870 $11,250
9/30/93 $16,888 $15,895 $11,273
10/31/93 $17,411 $15,884 $11,319
11/30/93 $17,100 $15,557 $11,327
12/31/93 $17,233 $15,852 $11,327
1/31/94 $17,722 $16,452 $11,358
2/28/94 $17,517 $15,889 $11,397
3/31/94 $16,940 $15,298 $11,435
4/30/94 $17,153 $15,592 $11,451
5/31/94 $17,343 $15,771 $11,459
6/30/94 $17,390 $15,394 $11,498
7/31/94 $17,802 $15,873 $11,529
8/31/94 $18,301 $16,328 $11,575
9/30/94 $18,285 $15,786 $11,607
10/31/94 $18,007 $16,006 $11,615
11/30/94 $17,411 $15,359 $11,630
12/31/94 $17,490 $15,536 $11,630
1/31/95 $18,016 $16,014 $11,676
2/28/95 $18,817 $16,647 $11,723
3/31/95 $19,214 $17,011 $11,762
4/30/95 $19,847 $17,549 $11,801
5/31/95 $20,260 $18,288 $11,824
6/30/95 $20,731 $18,536 $11,848
7/31/95 $21,227 $19,181 $11,848
8/31/95 $21,789 $19,452 $11,879
9/30/95 $22,032 $20,156 $11,902
10/31/95 $21,485 $19,956 $11,942
11/30/95 $22,228 $20,968 $11,933
12/31/95 $22,745 $21,495 $11,925
1/31/96 $22,856 $22,165 $11,995
2/29/96 $23,018 $22,334 $12,034
3/31/96 $23,589 $22,713 $12,096
4/30/96 $24,196 $22,800 $12,144
5/31/96 $24,666 $23,085 $12,167
6/30/96 $24,443 $23,103 $12,174
7/31/96 $23,860 $22,230 $12,197
8/31/96 $24,649 $22,866 $12,220
9/30/96 $24,864 $23,773 $12,259
10/31/96 $25,122 $24,693 $12,299
GRAPHIC MATERIAL (2)
The following line graph hypothetically compares the performance of the fund's
shares with the Russell 2000 Value Index, based on a $10,000 investment from
12/12/95 to 10/31/96.
Period Ending Fund Index
12/12/95 $9,548 $10,000
12/31/95 $9,688 $10,190
1/31/96 $9,714 $10,257
2/29/96 $9,987 $10,418
3/31/96 $10,772 $10,637
4/30/96 $11,288 $10,927
5/31/96 $11,581 $11,204
6/30/96 $11,569 $11,072
7/31/96 $11,230 $10,483
8/31/96 $11,396 $10,938
9/30/96 $11,652 $11,236
10/31/96 $11,812 $11,367
GRAPHIC MATERIAL (3)
The following line graph hypothetically compares the performance of the fund's
Class I shares with the Russell 1000 Value Index, based on a $10,000 investment
from 3/11/96 to 10/31/96.
Period Ending Fund Index
3/11/96 $9,548 $10,000
3/31/96 $9,669 $10,110
4/30/96 $10,159 $10,148
5/31/96 $10,433 $10,275
6/30/96 $10,223 $10,283
7/31/96 $9,846 $9,895
8/31/96 $10,446 $10,178
9/30/96 $10,771 $10,582
10/31/96 $10,950 $10,991