SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Value Investors Trust covers the period ended
October 31, 1999.
During the year under review, the domestic economy remained strong, unemployment
continued at a record 29-year low, and inflation stayed in check, helped in part
by the Federal Reserve Board's two, quarter-point increases to the federal funds
target rate, which ended the period at 5.25%. While the overall global economy
improved, most small-cap value stocks were still depressed. For the first 10
months of 1999, the Dow Jones(R) Industrial Average posted an 18.35% increase
while the Standard & Poor's(R) 500 (S&P 500(R)) Index, a broader market measure,
was up 12.03%, amid increased volatility due to inflation, interest rate
concerns as well as year 2000 (Y2K) jitters. The Russell 2000(R) Value Index, a
measure of small-cap stock performance, reflected the unrelenting "value" bear
market and was down 4.92% for the same time period. Investors' momentum remained
with a small percentage of large-cap, brand-name and Internet stocks, while the
more cautious opted for cash.
The major U.S. stock-market news during the reporting period was oil prices
rising from a period low of about $10.76 on December 10, 1998, to $21.75 a
barrel on October 29, 1999, mainly due to OPEC's decision to reduce oil
production and the recent report of depleted U.S. oil inventories. Also
impacting the financial sector toward the end of the period was the agreement
between Congress and the Clinton Administration to roll back the Glass-Steagall
Act, which mandated that banks could not own insurance companies. Once signed
into law, the new Gramm-Leach-Bliley Act may open attractive opportunities for
banks to acquire life insurance companies held by the funds in Franklin Value
Investors Trust.
CONTENTS
Shareholder Letter ..................................................... 1
Fund Reports
Franklin Balance Sheet
Investment Fund ....................................................... 4
Franklin MicroCap
Value Fund ............................................................ 9
Franklin Value Fund ................................................... 15
Financial Highlights &
Statement of Investments ............................................... 22
Financial Statements ................................................... 39
Notes to
Financial Statements ................................................... 44
Independent
Auditors' Report ....................................................... 52
Tax Information ........................................................ 53
[PYRAMID GRAPHIC]
During the period, strategic buyers continued to recognize the deep value of
some of our holdings as evidenced by announcements of corporate takeovers
involving 15 holdings across the Trust's three funds. All acquisitions were at
premiums to prior-day prices. Although value stocks have a long way to go to
receive appropriate recognition in the marketplace, these acquisitions could be
one indicator that the turnaround is not far away.
Value investing is not for the faint of heart. We continue to believe that our
portfolio holdings are fundamentally sound and unrealistically cheap. We cannot
predict when investors will become more logical and discover the value reflected
in the out-of-favor side of the market, but history dictates that "value" stocks
will rally again. One proven long-term investment approach is to participate in
a regularly scheduled investment plan regardless of market fluctuations, which
means buying during market downturns when prices are low and benefiting from
market rallies. We suggest you contact your investment representative to discuss
your goals and set up a regular investment plan.
Franklin Value Investors Trust is organized into three portfolios, each managed
in the same spirit but having different focuses. While the funds have distinct
investment objectives, our fundamental operating principles remain the same:
prudent 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,
/s/ William J. Lippman
William J. Lippman
President
Franklin Value Investors Trust
FRANKLIN BALANCE SHEET INVESTMENT FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Balance Sheet Investment Fund 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 goal.
- --------------------------------------------------------------------------------
The year under review was disappointing for value investors and Franklin Balance
Sheet Investment Fund. While large-cap growth stocks had another strong year,
smaller, value stocks, the fund's typical investments, went largely unnoticed by
investors. For the one-year period under review, the fund's Class A shares
posted a cumulative total return of -1.04%, better than the -7.03% return of its
benchmark, the unmanaged Wilshire Target Small Company Value Index.(1)
The fund's benchmark Wilshire Small Company Value Index recently was redefined
and renamed as Wilshire Target Small Company Value Index by the index provider,
Wilshire Associates, Inc., as of March 31, 1999. The fund's managers have
decided to replace this index with another common, small company value index,
Russell 2000 Value Index, as the fund's new benchmark index. We are changing the
benchmark because the sponsors of the Wilshire Target Small Company Value Index
have decided not to publish the holdings that comprise the index, which would
make it difficult to determine whether the index is an appropriate comparison
for the fund's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the index are either held by the funds or are similar to the funds' holdings.
The Russell 2000 Value Index is widely used as a benchmark in the mutual fund
industry and information regarding the index is readily available. For the year
under review, the Russell 2000 Value Index had a 0.72% total return.
(1) Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The index is unmanaged and includes reinvested dividends. One cannot
invest directly in an index.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 23 of
this report.
Despite such lackluster returns, there were some bright spots during the
one-year period under review. Small-cap value stocks came back with a vengeance
in April 1999 and posted strong results in the spring of 1999. Unfortunately,
during the summer investor sentiment changed again and value stocks once more
fell out of favor. We were heartened to see that at the very end of the period
investors began to broaden their focus to include some smaller value stocks.
Like all value investors, we believe we will come out ahead by "buying our straw
hats in winter," but the past two years have seemed like a prolonged cold spell.
Two observations about our portfolio and investment style deserve mention in
this context. First, we normally acquire many of our holdings when problems are
more visible to investors than future earnings. We generally prefer to be on the
opposite side of a trade from the emotional seller, provided we have confidence
in the company's balance sheet and management's ability and integrity. Second,
we don't base our investments on knowing when or precisely how companies will
resolve their problems. During the reporting period, the fund had several
holdings where the problems that sent the stocks into our hands were settled and
recent earnings were satisfactory, but the stock prices were still below our
cost. We believe this reflects what amounts to a bear market for value stocks in
general, and small-cap, value securities in particular.
Many of these companies' managements have been waiting for investors to
recognize their accomplishments and a number have become somewhat frustrated. It
is clear from comments we have heard from such managements that some are
contemplating taking their companies private, by purchasing all of the shares
available to the public. As long as the markets for these stocks remain
depressed, we think such actions have a good chance of succeeding, which could
awaken interest in the sector, and eventually benefit the fund.
TOP 10 HOLDINGS
Franklin Balance Sheet
Investment Fund
10/31/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- ----------------------------------------------------------------------------
Niagara Mohawk
Holdings Inc. 3.15%
Utilities
CMP Group Inc. 3.12%
Utilities
American National
Insurance Co. 3.03%
Finance
Entergy Corp. 2.82%
Utilities
Aztar Corp. 2.70%
Consumer Services
Handleman Co. 2.56%
Commercial Services
Charming Shoppes Inc. 2.56%
Retail Trade
American General Corp. 2.16%
Finance
Audiovox Corp., A 2.10%
Consumer Durables
Castle & Cooke Inc. 2.06%
Consumer Durables
The positive side to this value bear market is that it provided
us with a number of well-run companies selling at depressed valuations. We
continued to like the utilities industry, and Niagara Mohawk Holdings Inc. and
CMP Group Inc. were the fund's two largest positions on October 31, 1999.
Niagara Mohawk is a highly liquid stock with strong cash flow that we were able
to purchase for less than book value. CMP Group, which we acquired when its
operating future was in some doubt, recently announced that it would be acquired
by Energy East Corp. for $29.50 a share, still an 11% premium to its closing
price at the end of the reporting period. That spread, and the 3.3% dividend
yield, represent an attractive return on a position that can easily be converted
to cash as other opportunities arise. American National Insurance Co., the
fund's third-largest position, is another solid company with a bright future in
our opinion. American National is a well-established, conservatively operated
company and is a prime target for a bank takeover now that the Glass-Steagall
Act has been repealed. These companies are typical of the situations we look for
in Franklin Balance Sheet Investment Fund, wherein we acquire solid businesses
at substantial discounts to their asset values.
Within most value strategies lies the principle that over time, given a
sufficient number of cases, most stocks will trend toward their historical
average valuation. If our "undervalued companies," and their corresponding stock
performance, were to revert to their averages, they would appreciate
considerably. As the movement of these stocks in April made clear, the ignition
can be quick. Although there can be no assurances that between now and our next
report current market trends will reverse in our favor, we have no doubt that
many small, value stocks have significant upside potential.
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 1999, the end of the reporting period. Our strategies and the fund's
portfolio composition will change depending on market and economic conditions.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment and management philosophy.
PERFORMANCE SUMMARY AS OF 10/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 10/31/99 10/31/98
- --------------------------------------------------------------------------------
Net Asset Value -$1.90 $29.96 $31.86
DISTRIBUTIONS (11/1/98 - 10/31/99)
-----------------------------------------
Dividend Income $0.4276
Long-Term Capital Gain $1.0188
Short-Term Capital Gain $0.1441
TOTAL $1.5905
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR (4/2/90)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -1.04% +77.67% +224.84%
Average Annual Total Return(2) -2.54% +11.84% +12.90%
Value of $10,000 Investment(3) $9,746 $17,497 $31,993
10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +19.32% +16.93% +32.86% -3.14% -1.04%
Franklin Balance Sheet Investment Fund paid distributions derived from long-term
capital gains totaling $1.0188 per share in December 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
FRANKLIN BALANCE SHEET INVESTMENT FUND
CLASS A (formerly Class I):
Subject to the maximum 1.50% initial sales charge. Past expense reductions by
the fund's manager increased the fund's total returns.
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the maximum 1.50%
initial sales charge.
(3). These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the sales charge.
(4). One-year 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 sales
charge.
Since markets can go down as well as up, 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.
FRANKLIN BALANCE SHEET INVESTMENT FUND
AVERAGE ANNUAL TOTAL RETURN
10/31/99
CLASS A
- ----------------------------------------------------------------------------
1-Year -2.54%
5-Year +11.84%
Since Inception (4/2/90) +12.90%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, fund expenses,
account fees and reinvested distributions. The unmanaged index differs from the
fund in composition, does not pay management fees or expenses and includes
reinvested dividends. One cannot invest directly in an index. Performance of the
fund's shares exceeded the rate of inflation, as measured by the Consumer Price
Index (CPI).
This graph compares the performance of Franklin Balance Sheet Investment Fund,
as tracked by the growth in value of a $10,000 investment, to that of Wilshire
Target Small Company Value Index, Russell 2000 Value Index and CPI from 4/2/90
- -10/31/99.
DATE FRANKLIN WILSHIRE TARGET RUSSELL 2000 CPI*
BALANCE SHEET SMALL CO. VALUE VALUE INDEX*
INVESTMENT FUND INDEX*
- --------------------------------------------------------------------------------
04/02/1990 $9,849 $10,000 $10,000 $10,000
04/30/1990 $9,547 $9,524 $9,641 $10,016
05/31/1990 $9,947 $9,856 $10,135 $10,039
06/30/1990 $9,856 $9,691 $10,124 $10,093
07/31/1990 $9,685 $9,208 $9,697 $10,132
08/31/1990 $8,792 $8,565 $8,509 $10,225
09/30/1990 $7,940 $7,976 $7,802 $10,311
10/31/1990 $7,647 $7,702 $7,287 $10,373
11/30/1990 $8,099 $8,161 $7,728 $10,395
12/31/1990 $8,325 $8,451 $7,964 $10,395
01/31/1991 $8,902 $8,854 $8,649 $10,458
02/28/1991 $9,764 $9,627 $9,593 $10,473
03/31/1991 $10,050 $9,942 $10,263 $10,489
04/30/1991 $10,325 $10,281 $10,342 $10,505
05/31/1991 $10,626 $10,681 $10,827 $10,536
06/30/1991 $10,468 $10,615 $10,320 $10,567
07/31/1991 $10,571 $11,145 $10,588 $10,583
08/31/1991 $10,633 $11,582 $10,910 $10,613
09/30/1991 $10,647 $11,658 $10,923 $10,660
10/31/1991 $10,779 $11,890 $11,048 $10,676
11/30/1991 $10,709 $11,650 $10,599 $10,707
12/31/1991 $11,246 $12,592 $11,286 $10,715
01/31/1992 $11,564 $13,029 $12,231 $10,731
02/29/1992 $11,966 $13,343 $12,814 $10,769
03/31/1992 $12,022 $13,509 $12,675 $10,824
04/30/1992 $11,930 $13,873 $12,498 $10,839
05/31/1992 $12,065 $14,130 $12,838 $10,855
06/30/1992 $12,015 $14,136 $12,422 $10,894
07/31/1992 $12,764 $14,676 $12,891 $10,917
08/31/1992 $12,379 $14,589 $12,639 $10,947
09/30/1992 $12,221 $14,700 $12,878 $10,978
10/31/1992 $12,451 $14,829 $13,178 $11,016
11/30/1992 $13,003 $15,516 $13,994 $11,032
12/31/1992 $13,724 $16,273 $14,575 $11,024
01/31/1993 $14,031 $16,822 $15,349 $11,078
02/28/1993 $14,121 $17,205 $15,410 $11,117
03/31/1993 $14,593 $17,792 $15,994 $11,156
04/30/1993 $14,555 $17,311 $15,610 $11,187
05/31/1993 $14,969 $17,433 $16,101 $11,202
06/30/1993 $15,150 $17,659 $16,254 $11,218
07/31/1993 $15,626 $18,016 $16,533 $11,218
08/31/1993 $16,865 $18,477 $17,180 $11,250
09/30/1993 $16,888 $18,873 $17,592 $11,273
10/31/1993 $17,411 $18,829 $17,995 $11,319
11/30/1993 $17,100 $18,185 $17,527 $11,327
12/31/1993 $17,233 $18,571 $18,042 $11,327
01/31/1994 $17,722 $18,738 $18,686 $11,358
02/28/1994 $17,517 $18,427 $18,632 $11,397
03/31/1994 $16,940 $17,843 $17,795 $11,435
04/30/1994 $17,153 $18,075 $17,972 $11,451
05/31/1994 $17,343 $17,968 $17,946 $11,459
06/30/1994 $17,390 $17,973 $17,478 $11,498
07/31/1994 $17,802 $18,489 $17,801 $11,529
08/31/1994 $18,301 $18,927 $18,503 $11,575
09/30/1994 $18,285 $18,549 $18,307 $11,607
10/31/1994 $18,007 $18,239 $17,972 $11,615
11/30/1994 $17,411 $17,748 $17,247 $11,630
12/31/1994 $17,490 $18,206 $17,767 $11,630
01/31/1995 $18,016 $18,580 $17,679 $11,676
02/28/1995 $18,817 $19,230 $18,334 $11,723
03/31/1995 $19,214 $19,128 $18,423 $11,762
04/30/1995 $19,847 $19,664 $18,971 $11,801
05/31/1995 $20,260 $20,114 $19,377 $11,824
06/30/1995 $20,731 $20,653 $20,039 $11,848
07/31/1995 $21,227 $21,361 $20,771 $11,848
08/31/1995 $21,789 $21,874 $21,388 $11,879
09/30/1995 $22,032 $22,565 $21,706 $11,902
10/31/1995 $21,485 $22,437 $20,840 $11,942
11/30/1995 $22,228 $23,258 $21,668 $11,933
12/31/1995 $22,745 $23,623 $22,339 $11,925
01/31/1996 $22,856 $23,809 $22,487 $11,995
02/29/1996 $23,018 $24,005 $22,840 $12,034
03/31/1996 $23,589 $24,382 $23,319 $12,096
04/30/1996 $24,196 $24,306 $23,956 $12,144
05/31/1996 $24,666 $24,661 $24,562 $12,167
06/30/1996 $24,443 $24,727 $24,272 $12,174
07/31/1996 $23,860 $23,583 $22,981 $12,197
08/31/1996 $24,649 $24,472 $23,978 $12,220
09/30/1996 $24,864 $25,181 $24,633 $12,259
10/31/1996 $25,122 $25,494 $24,919 $12,299
11/30/1996 $26,122 $27,089 $26,259 $12,322
12/31/1996 $26,727 $27,268 $27,113 $12,322
01/31/1997 $27,712 $27,672 $27,530 $12,361
02/28/1997 $28,171 $28,308 $27,792 $12,400
03/31/1997 $27,635 $27,547 $27,047 $12,431
04/30/1997 $27,503 $28,051 $27,445 $12,446
05/31/1997 $29,187 $30,014 $29,629 $12,438
06/30/1997 $30,818 $31,110 $31,128 $12,453
07/31/1997 $32,055 $32,790 $32,436 $12,468
08/31/1997 $32,225 $33,154 $32,951 $12,492
09/30/1997 $34,354 $34,981 $35,143 $12,523
10/31/1997 $33,377 $34,022 $34,187 $12,554
11/30/1997 $33,197 $34,713 $34,563 $12,547
12/31/1997 $33,669 $36,115 $35,735 $12,532
01/31/1998 $33,609 $35,086 $35,088 $12,555
02/28/1998 $35,606 $37,567 $37,211 $12,579
03/31/1998 $36,958 $39,103 $38,721 $12,603
04/30/1998 $37,452 $38,927 $38,911 $12,626
05/31/1998 $36,968 $37,876 $37,534 $12,649
06/30/1998 $36,685 $37,228 $37,323 $12,664
07/31/1998 $34,716 $34,518 $34,401 $12,679
08/31/1998 $30,990 $30,400 $29,014 $12,694
09/30/1998 $31,710 $31,303 $30,653 $12,709
10/31/1998 $32,329 $32,439 $31,564 $12,740
11/30/1998 $32,806 $33,370 $32,419 $12,740
12/31/1998 $33,464 $34,355 $33,437 $12,732
01/31/1999 $33,083 $32,716 $32,678 $12,763
02/28/1999 $31,240 $30,838 $30,446 $12,778
03/31/1999 $30,168 $30,258 $30,196 $12,816
04/30/1999 $32,142 $32,733 $32,953 $12,910
05/31/1999 $33,383 $33,640 $33,965 $12,910
06/30/1999 $35,474 $34,226 $35,194 $12,910
07/31/1999 $35,006 $33,863 $34,360 $12,949
08/31/1999 $33,356 $32,549 $33,103 $12,980
09/30/1999 $32,335 $31,104 $32,441 $13,042
10/31/1999 $31,993 $30,158 $31,792 $13,066
(*)Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
FRANKLIN MICROCAP VALUE FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin MicroCap Value Fund seeks high total return by
investing primarily in securities of companies with market capitalizations under
$200 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
goal.
- --------------------------------------------------------------------------------
The year under review was generally a difficult time for value and small-cap
investors. As Franklin MicroCap Value Fund seeks investments in these two
classes, it was a trying time for the fund as well. Investors, once again,
favored large-cap growth stocks at the expense of almost all others. While the
performance for such large-cap stocks was strong, most others, including value
and small cap, languished. For the year ended October 31, 1999, the fund's
cumulative total return was -1.59%, compared with -7.03% for the unmanaged
Wilshire Target Small Company Value Index, the fund's benchmark, over the same
period.(1)
The fund's benchmark Wilshire Small Company Value Index recently was redefined
and renamed as Wilshire Target Small Company Value Index by the index provider,
Wilshire Associates, Inc., as of March 31, 1999. The fund's managers have
decided to replace this index with another common, small company value index,
Russell 2000 Value Index, as the fund's new benchmark index. We are changing the
benchmark because the sponsors of the Wilshire Target Small Company Value Index
have decided not to publish the holdings that comprise the index, which would
make it difficult to determine whether the index is an appropriate comparison
for the fund's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the index are either held by the funds or are similar to the funds' holdings.
The Russell 2000 Value Index is widely used as a benchmark in the mutual fund
industry and information regarding the index is readily available. For the year
under review, the Russell 2000 Value Index had a 0.72% total return.
(1). Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The index is unmanaged and includes reinvested dividends.
One cannot invest directly in an index.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 29 of
this report.
Despite such lackluster returns, there were some bright spots during the
one-year period under review. Small-cap value stocks came back with a vengeance
in April 1999 and posted strong results in the spring. Unfortunately, during the
summer, investor sentiment changed again and value stocks once more fell out of
favor. We were heartened to see that at the very end of the period investors
began to broaden their focus to include some smaller, value stocks.
Like all value investors, we believe we will come out ahead by "buying our straw
hats in winter," but the past two years have seemed like a prolonged cold spell.
Two observations about our portfolio and investment style deserve mention in
this context. First, we normally acquire many of our holdings when problems are
more visible to investors than future earnings. We generally prefer to be on the
opposite side of a trade from the emotional seller, provided we have confidence
in the company's balance sheet and management's ability and integrity. Second,
we don't base our investments on knowing when or precisely how companies will
resolve their problems. During the reporting period, the fund had several
holdings where the problems that sent the stocks into our hands were settled and
recent earnings were satisfactory, but the stock prices were still below our
cost. We believe this reflects what amounts to a bear market for value stocks in
general, and small-cap value securities in particular.
Many of these companies' managements have been waiting for investors to
recognize their accomplishments and a number have become somewhat frustrated. It
is clear from comments we have heard from such managements that some are
contemplating taking their companies private, by purchasing all of the shares
available to the public. As long as the markets for these stocks remain
depressed, we think such actions have a good chance of succeeding, which could
awaken interest in the sector, and eventually benefit the fund.
In spite of the value bear market, which has depressed stock prices, we feel
strongly about the underlying fundamentals of the fund's companies. Fund holding
Maynard Oil Co. should see its earnings rise on the back of higher oil prices,
and is a potential acquisition target. Vegetable packer Seneca Foods Corp. is
improving its financial performance, as producers with higher costs leave the
business, and pricing power improves for the remaining players. United Retail
Group Inc., a retailer of large-size women's apparel and accessories, has
successfully created a brand identity among its customers and is increasing its
store base to leverage its improving margins. Franklin MicroCap Value Fund
acquired its positions in these companies at discounts to asset values, and we
expect to profit as the assets become more productive.
Over the 12-month period, we undertook a number of major initiatives to improve
the fund's structure and future performance. Most importantly, we reduced the
number of the fund's positions, in part by selling stocks where we deemed the
companies' financial strength inadequate, or where we had concluded that the
companies' managements were not effective in creating shareholder value. We feel
this strengthened the fund by enabling us to concentrate on those companies we
believe have the greatest upside potential.
TOP 10 HOLDINGS
Franklin MicroCap Value Fund
10/31/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Bangor-Hydro-Electric Co. 2.92%
Utilities
Zemex Corp. 2.76%
Non-Energy Minerals
Seneca Foods Corp. 2.42%
Consumer Non-Durables
Maynard Oil Co. 2.38%
Energy Minerals
Crowley Maritime Corp. 2.34%
Transportation
Garan Inc. 2.34%
Consumer Non-Durables
Moore Products Co. 2.29%
Electronic Technology
ECC International Corp. 2.17%
Electronic Technology
United Retail Group Inc. 2.13%
Retail Trade
McNaughton Apparel
Group Inc. 2.09%
Consumer Non-Durables
In addition, there were two major developments concerning Franklin MicroCap
Value Fund. First, the directors voted to reopen the fund to new investors as of
September 15, 1999, to allow the addition of new money at a time when there are
ample opportunities to invest in undervalued stocks. Second, the board raised
the market capitalization size limit from $100 million to $200 million for
companies in which we invest, because companies of this size offer more safety
than the smallest companies, while still being far below the radar screens of
most investors.
Looking forward, we are cautiously optimistic about the coming fiscal year. The
depressed market for small, value stocks offers many excellent opportunities to
invest in strong companies that fit our value criteria, or add to existing
positions whose intrinsic merit we believe is not reflected in current prices.
Because we can now invest in companies with market caps up to $200 million, we
have a much larger choice of stocks, which may upgrade the fund's quality and
performance. We expect the fund's median market-cap size to increase during the
coming year as we build positions in companies with market caps above $100
million, possibly leading to a more stable share price.
- -------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 1999, the end of the reporting period. Our strategies and the fund's
portfolio composition will change depending on market and economic conditions.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment and management philosophy.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 10/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 10/31/99 10/31/98
- --------------------------------------------------------------------------------
Net Asset Value -$1.86 $18.41 $20.27
DISTRIBUTIONS (11/1/98 - 10/31/99)
--------------------------------------------
Long-Term Capital Gain $0.9768
Short-Term Capital Gain $0.5866
TOTAL $1.5634
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 3-YEAR (12/12/95)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -1.59% +18.36% +46.43%
Average Annual Total Return(2) -7.26% +3.72% +8.63%
Value of $10,000 Investment(3) $9,274 $11,158 $13,797
10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +35.05% -10.95% -1.59%
Franklin MicroCap Value Fund paid distributions derived from long-term capital
gains totaling 97.68 cents ($0.9768) per share in December 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852(b)(3).
FRANKLIN MICROCAP VALUE FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Past expense reductions by the fund's manager
increased the fund's total performance.
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge.
(3). These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the current, applicable, maximum
sales charge.
(4). One-year 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 sales
charge.
Since markets can go down as well as up, 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.
FRANKLIN MICROCAP VALUE FUND
AVERAGE ANNUAL TOTAL RETURN
10/31/99
CLASS A
- --------------------------------------------------------------------------------
1-Year -7.26%
3-Year +3.72%
Since Inception (12/12/95) +8.63%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, fund expenses,
account fees and reinvested distributions. The unmanaged index differs from the
fund in composition, does not pay management fees or expenses and includes
reinvested dividends. One cannot invest directly in an index. Performance of the
fund's shares exceeded the rate of inflation, as measured by the Consumer Price
Index (CPI).
This graph compares the performance of Franklin MicroCap Value Fund, as tracked
by the growth in value of a $10,000 investment, to that of Wilshire Target Small
Company Value Index, Russell 2000 Value Index and CPI from 12/12/95 - 10/31/99.
DATE FRANKLIN MICROCAP WILSHIRE TARGET RUSSELL 2000 CPI*
VALUE FUND SMALL COMPANY VALUE INDEX*
VALUE INDEX*
- -------------------------------------------------------------------------------
12/12/1995 $9,422 $10,000 $10,000 $10,000
12/31/1995 $9,560 $10,096 $10,190 $9,996
01/31/1996 $9,585 $10,176 $10,257 $10,055
02/29/1996 $9,856 $10,259 $10,418 $10,087
03/31/1996 $10,629 $10,420 $10,637 $10,140
04/30/1996 $11,139 $10,388 $10,927 $10,179
05/31/1996 $11,429 $10,540 $11,204 $10,198
06/30/1996 $11,416 $10,568 $11,072 $10,205
07/31/1996 $11,082 $10,079 $10,483 $10,224
08/31/1996 $11,246 $10,459 $10,938 $10,243
09/30/1996 $11,499 $10,762 $11,236 $10,276
10/31/1996 $11,657 $10,896 $11,367 $10,309
11/30/1996 $12,042 $11,578 $11,978 $10,329
12/31/1996 $12,152 $11,654 $12,367 $10,329
01/31/1997 $12,515 $11,826 $12,558 $10,362
02/28/1997 $12,735 $12,098 $12,677 $10,394
03/31/1997 $12,489 $11,773 $12,337 $10,420
04/30/1997 $12,204 $11,988 $12,519 $10,432
05/31/1997 $12,917 $12,828 $13,515 $10,426
06/30/1997 $13,571 $13,296 $14,199 $10,439
07/31/1997 $14,070 $14,014 $14,796 $10,451
08/31/1997 $14,466 $14,169 $15,031 $10,471
09/30/1997 $15,885 $14,950 $16,030 $10,497
10/31/1997 $15,742 $14,540 $15,594 $10,523
11/30/1997 $15,619 $14,836 $15,766 $10,517
12/31/1997 $15,520 $15,435 $16,300 $10,504
01/31/1998 $15,375 $14,995 $16,005 $10,524
02/28/1998 $16,066 $16,055 $16,974 $10,544
03/31/1998 $16,917 $16,712 $17,663 $10,564
04/30/1998 $17,712 $16,637 $17,749 $10,583
05/31/1998 $17,449 $16,188 $17,121 $10,603
06/30/1998 $16,979 $15,911 $17,025 $10,615
07/31/1998 $16,336 $14,752 $15,692 $10,628
08/31/1998 $13,881 $12,992 $13,235 $10,641
09/30/1998 $13,853 $13,378 $13,982 $10,653
10/31/1998 $14,019 $13,864 $14,398 $10,679
11/30/1998 $14,413 $14,262 $14,788 $10,679
12/31/1998 $14,471 $14,683 $15,252 $10,673
01/31/1999 $14,598 $13,982 $14,906 $10,698
02/28/1999 $13,879 $13,180 $13,888 $10,711
03/31/1999 $13,392 $12,932 $13,774 $10,743
04/30/1999 $14,179 $13,990 $15,032 $10,822
05/31/1999 $14,891 $14,377 $15,493 $10,822
06/30/1999 $15,220 $14,627 $16,054 $10,822
07/31/1999 $15,415 $14,472 $15,673 $10,854
08/31/1999 $15,056 $13,911 $15,100 $10,880
09/30/1999 $14,014 $13,293 $14,798 $10,932
10/31/1999 $13,797 $12,889 $14,502 $10,952
(*)Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
FRANKLIN VALUE FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Value Fund 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 goal.
- --------------------------------------------------------------------------------
Franklin Value Fund attempts to take advantage of stock price volatility to make
long-term investments in securities we believe are undervalued. These bargains
can come in a variety of different forms. Some sell at a low price to earnings,
cash flow or book value relative to where they traded in the past or to other
companies in the industry. Others have valuable intangibles such as patents,
distribution networks or tax loss carry forwards that we believe are not fully
represented in their stock prices. Still others are "fallen angels" -- former
growth companies suffering short-term setbacks and sharp price declines, but
which we believe still have significant long-term potential.
These bargains frequently have one characteristic in common. They are generally
out of favor with Wall Street, sometimes because of poor recent results,
sometimes because they are too small to reach the analysts' radar screens.
However, if we believe their balance sheets are strong and their managements
honest and effective, we are willing to make investments in these companies and
wait for their stock prices to turn around.
The past one-year period, however, was a trying time for value investors as
evidenced in the Performance Summary beginning on page 18. The fund's Class A
shares registered a cumulative total return of -3.38% for the year ended October
31, 1999, compared with the -7.03% cumulative total return for the unmanaged
Wilshire Target Small Company Value Index, the fund's benchmark.(1)
WHAT DO "BOOK VALUE" AND "TANGIBLE BOOK VALUE" MEAN?
Book value is a company's worth based on the value of its assets minus
liabilities as they are stated on its balance sheet. Tangible book value
excludes intangible items such as patents and goodwill. Comparing a company's
stock price to its book value per share is a common method of determining how
"expensive" a stock is. Stocks with a low price-to-book value per share are
generally considered to be value stocks.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 36 of
this report.
TOP 10 HOLDINGS
Franklin Value Fund
10/31/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Timberland Co., A 4.56%
Consumer Non-Durables
JLG Industries Inc. 4.25%
Producer Manufacturing
Presidential Life Corp. 3.19%
Finance
Robert Half International Inc. 3.02%
Commercial Services
Professionals Group Inc. 2.40%
Finance
West Pharmaceutical
Services Inc. 2.24%
Health Technology
Allstate Corp. 2.24%
Finance
Kenan Transport Co. 2.23%
Transportation
Rowan Cos. Inc. 2.17%
Industrial Services
Tidewater Inc. 2.15%
Transportation
The fund's benchmark Wilshire Small Company Value Index recently was redefined
and renamed as Wilshire Target Small Company Value Index by the index provider,
Wilshire Associates, Inc., as of March 31,1999. The fund's managers have decided
to replace this index with another common, small company value index, Russell
2000 Value Index, as the fund's new benchmark index. We are changing the
benchmark because the sponsors of the Wilshire Target Small Company Value Index
have decided not to publish the holdings that comprise the index, which would
make it difficult to determine whether the index is an appropriate comparison
for the fund's performance. We believe the new benchmark, the Russell 2000 Value
Index, is an appropriate benchmark because many of the holdings that comprise
the index are either held by the funds or are similar to the funds' holdings.
The Russell 2000 Value Index is widely used as a benchmark in the mutual fund
industry and information regarding the index is readily available. For the year
under review, the Russell 2000 Value Index had a 0.72% total return.
Although we were disappointed that the turnaround of small-cap value stocks
witnessed during the April-to-July period reversed itself during the most recent
quarter, we continue to believe that the market at some point will again
discover these compelling bargains.
During the reporting period, we continued to reduce the number of positions held
by the fund and redirected these freed-up assets into larger, more liquid
companies. These typically provide greater name recognition, and their increased
liquidity usually enables us to establish positions more easily and sell more
quickly when we decide it is prudent to do so. We made several such additions to
our portfolio at attractive valuations during the year under review including
conglomerate Lancaster Colony Corp. and Canadian National Railway Co.
Furthermore, we sold many holdings that were too small to have a meaningful
impact on the portfolio and several where we felt the reasons for owning them
had changed.
(1). Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The index is unmanaged and includes reinvested dividends.
One cannot invest directly in an index.
We found exceptional values in the depressed financial sector during the fund's
fiscal year and took positions in such fundamentally sound companies as American
National Insurance Co., a $2 billion insurance underwriter that has raised its
dividends annually since 1989; Manulife Financial Corp., a $6 billion life and
health insurer trading at only 1.3 times tangible book value; and Washington
Mutual Inc., a $21 billion diversified financial services provider that has
raised its dividend every quarter since 1995 and every year since 1990. While
the financial sector provided many bargains during the period, it was also a
major contributor to the fund's poor performance. However, with the imminent
congressional rollback of the Glass-Steagall Act, which mandated that banks
could not own insurance companies, we are hopeful that some of the fund's
financial holdings will benefit from increased acquisition activity and possible
market appreciation.
Although value and small-company investing were clearly out of favor during most
of the reporting period, there were signs that a number of strategic buyers or
market investors were beginning to recognize some of our bargain holdings.
During the period, four of our portfolio's companies benefited from
announcements of corporate takeovers at premiums to prior-day prices. In
addition, the fund's oil-drilling and oil-services holdings, such as Tidewater
Inc., Rowan Cos. Inc. and Ensco International Inc., continued to perform well as
oil prices returned to $20-plus levels.
Looking forward, we continue to stay the course and follow our value investment
philosophy. Patience is an essential ingredient for success in value investing
and we remain confident that our investment approach will be rewarding over the
long term.
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 1999, the end of the reporting period. Our strategies and the fund's
portfolio composition will change depending on market and economic conditions.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment and management philosophy.
FRANKLIN VALUE FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ.(*)
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.(*)
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.(*)
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.(*)
(*)Past expense reductions by the fund's manager increased the fund's total
returns.
PERFORMANCE SUMMARY AS OF 10/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 10/31/99 10/31/98
- --------------------------------------------------------------------------------
Net Asset Value -$0.70 $17.28 $17.98
DISTRIBUTIONS (11/1/98 - 10/31/99)
--------------------------------------
Long-Term Capital Gain $0.0929
CLASS B CHANGE 10/31/99 1/1/99
- --------------------------------------------------------------------------------
Net Asset Value -$1.15 $17.18 $18.33
CLASS C CHANGE 10/31/99 10/31/98
- --------------------------------------------------------------------------------
Net Asset Value -$0.81 $17.01 $17.82
DISTRIBUTIONS (11/1/98 - 10/31/99)
---------------------------------------
Long-Term Capital Gain $0.0929
ADVISOR CLASS CHANGE 10/31/99 10/31/98
- --------------------------------------------------------------------------------
Net Asset Value -$0.63 $17.44 $18.07
DISTRIBUTIONS (11/1/98 - 10/31/99)
-------------------------------------
Long-Term Capital Gain $0.0929
Franklin Value Fund paid distributions derived from long-term capital gains
totaling 9.29 cents ($0.0929) per share in December 1998. The fund hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
Past performance is not predictive of future results.
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 3-YEAR (3/11/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -3.38% +4.74% +20.12%
Average Annual Total Return(2) -8.95% -0.44% +3.46%
Value of $10,000 Investment(3) $9,105 $9,870 $11,318
10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +47.43% -26.48% -3.38%
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -6.27%
Aggregate Total Return(2) -10.02%
Value of $10,000 Investment(3) $8,998
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/3/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -4.03% +2.71% +7.92%
Average Annual Total Return(2) -5.93% +0.56% +2.13%
Value of $10,000 Investment(3) $9,407 $10,170 $10,687
10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +46.46% -26.93% -4.03%
INCEPTION
ADVISOR CLASS(5) 1-YEAR 3-YEAR (3/11/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) -2.97% +6.78% +22.46%
Average Annual Total Return(2) -2.97% +2.21% +5.72%
Value of $10,000 Investment(3) $9,703 $10,678 $12,246
10/31/97 10/31/98 10/31/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +47.89% -26.18% -2.97%
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge(s) for that class. Since Class B shares have
existed for less than one year, aggregate total return for that class represents
total return since inception, including the maximum sales charge.
(3). These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
(4). One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
(5). On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were -5.20% and -1.87% respectively.
Since markets can go down as well as up, 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.
FRANKLIN VALUE FUND
AVERAGE ANNUAL TOTAL RETURN
10/31/99
CLASS A
- ------------------------------------
1-Year -8.95%
3-Year -0.44%
Since Inception (3/11/96) +3.46%
AGGREGATE TOTAL RETURN
10/31/99
CLASS B
- ------------------------------------
Since Inception (1/1/99) -10.02%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge, fund expenses,
account fees and reinvested distributions. The unmanaged index differs from the
fund in composition, does not pay management fees or expenses and includes
reinvested dividends. One cannot invest directly in an index. The Consumer Price
Index (CPI) is a commonly used measure of the inflation rate.
This graph compares the performance of Franklin Value Fund - Class A, as tracked
by the growth in value of a $10,000 investment, to that of Wilshire Target Small
Company Value Index, Russell 2000 Value Index and CPI from 3/11/96 - 10/31/99.
DATE FRANKLIN WILSHIRE TARGET RUSSELL CPI*
VALUE FUND - SMALL COMPANY 2000 VALUE
CLASS A VALUE INDEX* INDEX*
- ------------------------------------------------------------------------
03/11/1996 $9,422 $10,000 $10,000 $10,000
03/31/1996 $9,541 $10,101 $10,135 $10,034
04/30/1996 $10,025 $10,070 $10,412 $10,073
05/31/1996 $10,295 $10,217 $10,675 $10,092
06/30/1996 $10,088 $10,244 $10,549 $10,098
07/31/1996 $9,717 $9,770 $9,988 $10,118
08/31/1996 $10,308 $10,138 $10,421 $10,137
09/30/1996 $10,629 $10,432 $10,706 $10,169
10/31/1996 $10,806 $10,562 $10,830 $10,202
11/30/1996 $11,581 $11,223 $11,413 $10,221
12/31/1996 $12,171 $11,297 $11,784 $10,221
01/31/1997 $12,680 $11,464 $11,965 $10,254
02/28/1997 $12,757 $11,728 $12,079 $10,286
03/31/1997 $12,298 $11,412 $11,755 $10,311
04/30/1997 $12,182 $11,621 $11,928 $10,324
05/31/1997 $13,317 $12,435 $12,877 $10,317
06/30/1997 $14,163 $12,888 $13,529 $10,330
07/31/1997 $15,215 $13,584 $14,097 $10,342
08/31/1997 $15,673 $13,735 $14,321 $10,362
09/30/1997 $16,641 $14,492 $15,274 $10,388
10/31/1997 $15,931 $14,095 $14,858 $10,414
11/30/1997 $15,764 $14,381 $15,022 $10,408
12/31/1997 $15,746 $14,962 $15,531 $10,395
01/31/1998 $15,485 $14,536 $15,250 $10,415
02/28/1998 $16,196 $15,563 $16,172 $10,435
03/31/1998 $16,756 $16,200 $16,829 $10,454
04/30/1998 $16,697 $16,127 $16,911 $10,473
05/31/1998 $15,635 $15,692 $16,313 $10,492
06/30/1998 $14,899 $15,423 $16,221 $10,505
07/31/1998 $13,310 $14,300 $14,951 $10,517
08/31/1998 $10,906 $12,594 $12,610 $10,530
09/30/1998 $11,127 $12,968 $13,322 $10,543
10/31/1998 $11,713 $13,439 $13,718 $10,568
11/30/1998 $11,818 $13,825 $14,090 $10,568
12/31/1998 $12,006 $14,233 $14,532 $10,561
01/31/1999 $11,868 $13,554 $14,202 $10,587
02/28/1999 $10,722 $12,776 $13,232 $10,600
03/31/1999 $10,820 $12,536 $13,124 $10,631
04/30/1999 $11,901 $13,561 $14,322 $10,709
05/31/1999 $12,294 $13,937 $14,762 $10,709
06/30/1999 $12,995 $14,179 $15,296 $10,709
07/31/1999 $12,654 $14,029 $14,934 $10,741
08/31/1999 $12,183 $13,485 $14,387 $10,767
09/30/1999 $11,390 $12,886 $14,099 $10,819
10/31/1999 $11,318 $12,494 $13,817 $10,838
*Source: Standard and Poor's Micropal.
This graph compares the performance of Franklin Value Fund - Class B, as tracked
by the growth in value of a $10,000 investment, to that of Wilshire Target Small
Company Value Index, Russell 2000 Value Index and CPI from 1/1/99 - 10/31/99.
DATE FRANKLIN WILSHIRE TARGET RUSSELL 2000 CPI*
VALUE FUND - SMALL COMPANY VALUE INDEX*
CLASS B VALUE INDEX*
- --------------------------------------------------------------------------------
01/01/1999 $10,000 $10,000 $10,000 $10,000
01/31/1999 $9,880 $9,523 $9,773 $10,024
02/28/1999 $8,925 $8,976 $9,106 $10,036
03/31/1999 $9,007 $8,808 $9,031 $10,066
04/30/1999 $9,891 $9,528 $9,855 $10,140
05/31/1999 $10,213 $9,792 $10,158 $10,140
06/30/1999 $10,786 $9,962 $10,526 $10,140
07/31/1999 $10,502 $9,857 $10,276 $10,170
08/31/1999 $10,098 $9,474 $9,900 $10,194
09/30/1999 $9,438 $9,054 $9,702 $10,243
10/31/1999 $8,998 $8,778 $9,508 $10,262
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
This graph compares the performance of Franklin Value Fund - Class C, as tracked
by the growth in value of a $10,000 investment, to that of Wilshire Target Small
Company Value Index, Russell 2000 Value Index and CPI from 9/3/96 - 10/31/99.
DATE FRANKLIN WILSHIRE TARGET RUSSELL 2000 CPI*
VALUE FUND - SMALL COMPANY VALUE INDEX*
CLASS C VALUE INDEX*
- --------------------------------------------------------------------------------
09/03/1996 $9,903 $10,000 $10,000 $10,000
09/30/1996 $10,241 $10,290 $10,273 $10,032
10/31/1996 $10,405 $10,418 $10,392 $10,064
11/30/1996 $11,146 $11,070 $10,951 $10,083
12/31/1996 $11,695 $11,143 $11,307 $10,083
01/31/1997 $12,185 $11,308 $11,481 $10,115
02/28/1997 $12,247 $11,568 $11,590 $10,147
03/31/1997 $11,801 $11,257 $11,280 $10,172
04/30/1997 $11,683 $11,463 $11,446 $10,184
05/31/1997 $12,767 $12,265 $12,357 $10,178
06/30/1997 $13,572 $12,713 $12,982 $10,191
07/31/1997 $14,570 $13,399 $13,527 $10,203
08/31/1997 $15,003 $13,548 $13,742 $10,222
09/30/1997 $15,920 $14,294 $14,656 $10,248
10/31/1997 $15,239 $13,903 $14,257 $10,273
11/30/1997 $15,065 $14,185 $14,414 $10,267
12/31/1997 $15,041 $14,758 $14,903 $10,255
01/31/1998 $14,791 $14,337 $14,633 $10,274
02/28/1998 $15,460 $15,351 $15,518 $10,294
03/31/1998 $15,985 $15,979 $16,149 $10,313
04/30/1998 $15,922 $15,907 $16,228 $10,332
05/31/1998 $14,897 $15,478 $15,653 $10,351
06/30/1998 $14,191 $15,213 $15,566 $10,363
07/31/1998 $12,673 $14,105 $14,347 $10,375
08/31/1998 $10,373 $12,423 $12,100 $10,388
09/30/1998 $10,586 $12,792 $12,784 $10,400
10/31/1998 $11,135 $13,256 $13,163 $10,425
11/30/1998 $11,229 $13,636 $13,520 $10,425
12/31/1998 $11,403 $14,039 $13,945 $10,419
01/31/1999 $11,265 $13,369 $13,628 $10,444
02/28/1999 $10,172 $12,602 $12,697 $10,457
03/31/1999 $10,260 $12,365 $12,593 $10,488
04/30/1999 $11,278 $13,376 $13,743 $10,565
05/31/1999 $11,642 $13,747 $14,165 $10,565
06/30/1999 $12,302 $13,986 $14,678 $10,565
07/31/1999 $11,975 $13,838 $14,330 $10,596
08/31/1999 $11,516 $13,301 $13,805 $10,622
09/30/1999 $10,762 $12,710 $13,529 $10,673
10/31/1999 $10,687 $12,324 $13,259 $10,692
*Source: Standard and Poor's Micropal.
This graph compares the performance of Franklin Value Fund - Advisor Class, as
tracked by the growth in value of a $10,000 investment, to that of Wilshire
Target Small Company Value Index, Russell 2000 Value Index and CPI from 3/11/96
- - 10/31/99.**
DATE FRANKLIN VALUE WILSHIRE TARGET RUSSELL CPI*
FUND - ADVISOR SMALL COMPANY 2000 VALUE
CLASS VALUE INDEX* INDEX*
- --------------------------------------------------------------------------------
03/11/1996 $10,000 $10,000 $10,000 $10,000
03/31/1996 $10,127 $10,101 $10,135 $10,034
04/30/1996 $10,640 $10,070 $10,412 $10,073
05/31/1996 $10,927 $10,217 $10,675 $10,092
06/30/1996 $10,707 $10,244 $10,549 $10,098
07/31/1996 $10,312 $9,770 $9,988 $10,118
08/31/1996 $10,940 $10,138 $10,421 $10,137
09/30/1996 $11,281 $10,432 $10,706 $10,169
10/31/1996 $11,469 $10,562 $10,830 $10,202
11/30/1996 $12,291 $11,223 $11,413 $10,221
12/31/1996 $12,918 $11,297 $11,784 $10,221
01/31/1997 $13,573 $11,464 $11,965 $10,254
02/28/1997 $13,546 $11,728 $12,079 $10,286
03/31/1997 $13,063 $11,412 $11,755 $10,311
04/30/1997 $12,940 $11,621 $11,928 $10,324
05/31/1997 $14,152 $12,435 $12,877 $10,317
06/30/1997 $15,053 $12,888 $13,529 $10,330
07/31/1997 $16,185 $13,584 $14,097 $10,342
08/31/1997 $16,679 $13,735 $14,321 $10,362
09/30/1997 $17,716 $14,492 $15,274 $10,388
10/31/1997 $16,961 $14,095 $14,858 $10,414
11/30/1997 $16,789 $14,381 $15,022 $10,408
12/31/1997 $16,775 $14,962 $15,531 $10,395
01/31/1998 $16,512 $14,536 $15,250 $10,415
02/28/1998 $17,267 $15,563 $16,172 $10,435
03/31/1998 $17,870 $16,200 $16,829 $10,454
04/30/1998 $17,814 $16,127 $16,911 $10,473
05/31/1998 $16,685 $15,692 $16,313 $10,492
06/30/1998 $15,902 $15,423 $16,221 $10,505
07/31/1998 $14,211 $14,300 $14,951 $10,517
08/31/1998 $11,654 $12,594 $12,610 $10,530
09/30/1998 $11,897 $12,968 $13,322 $10,543
10/31/1998 $12,521 $13,439 $13,718 $10,568
11/30/1998 $12,638 $13,825 $14,090 $10,568
12/31/1998 $12,845 $14,233 $14,532 $10,561
01/31/1999 $12,699 $13,554 $14,202 $10,587
02/28/1999 $11,480 $12,776 $13,232 $10,600
03/31/1999 $11,591 $12,536 $13,124 $10,631
04/30/1999 $12,755 $13,561 $14,322 $10,709
05/31/1999 $13,173 $13,937 $14,762 $10,709
06/30/1999 $13,932 $14,179 $15,296 $10,709
07/31/1999 $13,570 $14,029 $14,934 $10,741
08/31/1999 $13,061 $13,485 $14,387 $10,767
09/30/1999 $12,218 $12,886 $14,099 $10,819
10/31/1999 $12,246 $12,494 $13,817 $10,838
*Source: Standard and Poor's Micropal.
AVERAGE ANNUAL TOTAL RETURN
10/31/99
CLASS C
- ------------------------------------
1-Year -5.93%
3-Year +0.56%
Since Inception (9/3/96) +2.13%
AVERAGE ANNUAL TOTAL RETURN
10/31/99
ADVISOR CLASS(**)
- ------------------------------------
1-Year -2.97%
3-Year +2.21%
Since Inception (3/11/96) +5.72%
(*)Source: Standard and Poor's Micropal.
(**)On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to Advisor Class
shares.
Past performance is not predictive of future results.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN BALANCE SHEET INVESTMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
1999(***) 1998 1997 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........... $ 31.86 $ 35.22 $ 29.15 $ 26.34 $ 22.68
-----------------------------------------------------------------------
Income from investment operations:
Net investment income ....................... .37 .50 .48 .47 .30
Net realized and unrealized gains (losses) .. (.68) (1.55) 8.40 3.85 3.98
-----------------------------------------------------------------------
Total from investment operations ............. (.31) (1.05) 8.88 4.32 4.28
-----------------------------------------------------------------------
Less distributions from:
Net investment income ....................... (.43) (.51) (.46) (.44) (.27)
Net realized gains .......................... (1.16) (1.80) (2.35) (1.07) (.35)
-----------------------------------------------------------------------
Total distributions .......................... (1.59) (2.31) (2.81) (1.51) (.62)
-----------------------------------------------------------------------
Net asset value, end of year ................. $ 29.96 $ 31.86 $ 35.22 $ 29.15 $ 26.34
-----------------------------------------------------------------------
Total return(*) .............................. (1.04%) (3.14%) 32.86% 16.93% 19.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............. $1,165,779 $1,467,207 $1,222,953 $ 657,002 $ 387,540
Ratios to average net assets:
Expenses .................................... .93% .93% 1.08% 1.08% 1.17%
Net investment income ....................... 1.19% 1.47% 1.59% 1.69% 1.30%
Portfolio turnover rate ...................... 17.53% 11.81% 24.63% 35.46% 28.63%
</TABLE>
(*)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(***)Based on average shares outstanding.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLOSED END MUTUAL FUNDS 4.8%
Central European Equity Fund ............................................. 250,000 $ 3,125,000
Emerging Markets Infrastructure Fund ..................................... 300,000 2,587,500
H & Q Healthcare Investors Fund .......................................... 150,000 2,446,875
INVESCO Global Health Sciences Fund ...................................... 325,000 5,321,875
Irish Investment Fund Inc. ............................................... 135,000 2,210,625
John Hancock Bank & Thrift Opportunity Fund .............................. 1,650,000 15,675,000
Latin America Investment Fund Inc. ....................................... 175,000 1,892,188
Latin American Equity Fund Inc. .......................................... 175,000 1,640,625
Liberty All-Star Growth Fund Inc. ........................................ 150,000 1,546,875
Mexico Fund .............................................................. 625,000 8,945,313
(a) Morgan Grenfell SmallCap Fund ............................................ 123,800 1,284,425
Petroleum & Resources Corp. .............................................. 100,000 3,300,000
Royce Focus Trust Inc. ................................................... 160,000 775,000
Royce Micro-Cap Trust Inc. ............................................... 50,000 412,500
Royce Value Trust ........................................................ 52,500 636,563
Swiss Helvetia Fund ...................................................... 250,000 3,578,125
----------
TOTAL CLOSED END MUTUAL FUNDS (COST $55,387,135) ......................... 55,378,489
----------
COMMON STOCKS 89.9%
(c) COMMERCIAL SERVICES 3.1%
(a) Handleman Co. ............................................................ 1,850,000 29,831,250
Nash-Finch Co. ........................................................... 950,000 6,234,375
----------
36,065,625
----------
CONSUMER DURABLES 8.6%
(c) Allen Organ Co., B ....................................................... 83,000 3,195,500
(a,c) Audiovox Corp., A ........................................................ 1,200,000 24,450,000
(a) Baldwin Piano & Organ Co. ................................................ 124,600 1,027,950
(a) Beazer Homes USA Inc. .................................................... 205,700 3,934,013
(a,c) Castle & Cooke Inc. ...................................................... 1,729,000 23,989,875
(a) Dixie Group Inc. ......................................................... 400,000 2,700,000
Engle Homes Inc. ......................................................... 340,000 3,442,500
(a,c) Jan Bell Marketing Inc. .................................................. 1,251,400 3,441,350
M.D.C. Holdings Inc. ..................................................... 640,000 10,000,000
(c) Pulaski Furniture Corp. .................................................. 192,000 3,072,000
(a) Schuler Homes Inc. ....................................................... 537,400 3,425,925
(a) U.S. Home Corp. .......................................................... 590,000 16,520,000
(a) Washington Homes Inc. .................................................... 94,400 531,000
----------
99,730,113
----------
CONSUMER NON-DURABLES 4.3%
Block Drug Co. Inc., A ................................................... 400,000 13,950,000
(a,c) Chic By H.I.S. Inc. ...................................................... 756,000 567,000
(a,c) Cyrk Inc. ................................................................ 1,150,000 7,510,938
DIMON Inc. ............................................................... 2,145,000 7,507,500
(c) Garan Inc. ............................................................... 285,100 9,087,563
Genesee Corp., B ......................................................... 117,900 2,505,375
(c) Haggar Corp. ............................................................. 827,000 9,019,469
(a) Hampton Industries Inc. .................................................. 64,670 161,675
----------
50,309,520
----------
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
CONSUMER SERVICES 4.0%
(a,c) Aztar Corp. .......................................................... 3,250,000 $31,484,375
(a) Casino Data Systems .................................................. 790,000 2,765,000
(a,c) Champps Entertainment Inc. ........................................... 985,000 2,154,688
(a,c) VICORP Restaurants Inc. .............................................. 606,700 10,238,063
----------
46,642,126
----------
ELECTRONIC TECHNOLOGY 3.4%
(a,c) Cherry Corp. ......................................................... 654,900 7,858,800
Cubic Corp. .......................................................... 150,200 3,154,200
(a,c) ESCO Electronics Corp. ............................................... 800,000 9,350,000
(a) FSI International Inc. ............................................... 900,000 7,200,000
(a,c) Standard Microsystems Corp. .......................................... 1,315,000 11,917,188
----------
39,480,188
----------
ENERGY MINERALS 1.4%
(a,c) Crown Central Petroleum Corp., B ..................................... 397,800 2,113,313
Kentucky River Coal Corp. ............................................ 1,498 4,325,475
(a,c) Maynard Oil Co. ...................................................... 260,000 2,470,000
Ultramar Diamond Shamrock Corp. ...................................... 285,000 6,982,500
----------
15,891,288
----------
FINANCE 26.5%
(a,c) ACMAT Corp., A ....................................................... 295,000 2,728,750
American General Corp. ............................................... 340,000 25,223,750
American National Insurance Co. ...................................... 516,400 35,373,400
AmerUs Life Holdings Inc., A ......................................... 225,000 5,428,125
Amwest Insurance Group Inc. .......................................... 19,000 169,813
Baldwin & Lyons Inc., B .............................................. 91,000 1,876,875
Capital Re Corp. ..................................................... 400,000 5,650,000
(a) Clarica Life Insurance Co. (Canada) .................................. 362,000 5,857,366
(a,c) Echelon International Corp. Inc. ..................................... 408,700 9,783,256
(a) Farm Family Holdings Inc. ............................................ 220,000 8,552,500
Farmers & Merchants Bank of Long Beach ............................... 2,200 6,094,000
FBL Financial Group Inc., A .......................................... 790,000 14,466,875
(c) Fidelity Bancorp Inc. ................................................ 128,300 2,205,156
First Defiance Financial Corp. ....................................... 300,000 3,487,500
GA Financial Inc. .................................................... 278,200 3,790,475
Guarantee Life Cos. Inc. ............................................. 280,000 8,697,500
Kansas City Life Insurance Co. ....................................... 87,600 3,405,450
LandAmerica Financial Group Inc. ..................................... 140,000 2,598,750
(a) Manulife Financial Corp. (Canada) .................................... 638,800 7,705,525
(c) Merchants Group Inc. ................................................. 257,800 5,929,400
Meridian Insurance Group Inc. ........................................ 299,200 4,955,500
MIIX Group Inc. ...................................................... 262,500 4,200,000
MMI Cos. Inc. ........................................................ 400,000 3,275,000
(a) National Western Life Insurance Co., A ............................... 99,000 8,458,313
(a) PBOC Holdings Inc. ................................................... 251,800 2,234,725
Presidential Life Corp. .............................................. 736,600 13,535,025
(a,c) Professionals Group Inc. ............................................. 463,500 11,152,969
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
PXRE Group Ltd. .......................................................... 225,000 $ 2,756,250
(a) Quaker City Bancorp Inc. ................................................. 137,500 2,328,906
Reinsurance Group of America Inc. ........................................ 341,440 11,352,880
(a) Risk Capital Holdings Inc. ............................................... 467,000 6,100,188
Rouse Co. ................................................................ 280,000 6,195,000
Scor (France) ............................................................ 200,000 9,984,970
SCPIE Holdings Inc. ...................................................... 559,000 19,634,875
Selective Insurance Group Inc. ........................................... 190,000 3,550,625
St. Paul Cos. Inc. ....................................................... 520,000 16,640,000
StanCorp Financial Group Inc. ............................................ 479,900 12,177,463
(c) Stewart Information Services Corp. ....................................... 780,000 11,602,500
-----------
309,159,655
-----------
HEALTH SERVICES .7%
(a) Trigon Healthcare Inc. ................................................... 273,300 7,754,888
-----------
INDUSTRIAL SERVICES .6%
(c) Ecology & Environment Inc., A ............................................ 235,000 1,410,000
(a) Harding Lawson Associates Group Inc. ..................................... 135,800 1,086,400
(a) Matrix Service Co. ....................................................... 431,800 1,781,175
Petroleum Helicopters Inc. ............................................... 77,500 755,625
Petroleum Helicopters Inc., non-voting ................................... 210,000 2,047,500
-----------
7,080,700
-----------
NON-ENERGY MINERALS 2.9%
Central Steel & Wire Co. ................................................. 1,405 996,848
Corus Group PLC (United Kingdom) ......................................... 9,120,000 17,284,631
LTV Corp. ................................................................ 4,180,000 15,152,500
(a) Zemex Corp. .............................................................. 50,000 400,000
-----------
33,833,979
-----------
PROCESS INDUSTRIES 2.6%
(a)(c)American Pacific Corp. ................................................... 421,100 2,947,700
Corn Products International Inc. ......................................... 300,000 9,768,750
(c) Delta Woodside Industries Inc. ........................................... 2,283,500 5,280,594
J.G. Boswell Co. ......................................................... 6,000 6,930,000
Mercer International Inc. (Switzerland) .................................. 744,000 3,487,500
(a) Orange-co Inc. ........................................................... 170,000 1,190,000
Terra Industries Inc. .................................................... 147,500 175,156
-----------
29,779,700
-----------
PRODUCER MANUFACTURING 8.1%
(c) Commonwealth Industries Inc. ............................................. 1,174,300 11,743,000
(a) Genesis Worldwide Inc. ................................................... 140,000 770,000
(a) Global Industrial Technologies Inc. ...................................... 1,100,000 13,475,000
Hardinge Inc. ............................................................ 430,000 6,235,000
(c) Insteel Industries Inc. .................................................. 570,000 4,239,375
(a)(c)Nashua Corp. ............................................................. 299,100 2,504,963
Oshkosh Truck Corp. ...................................................... 382,500 11,498,906
(c) Pitt-Des Moines Inc. ..................................................... 446,500 10,102,063
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING (CONT.)
Tecumseh Products Co., A ......................................................... 394,000 $ 18,887,375
Tecumseh Products Co., B ......................................................... 114,000 5,016,000
Timken Co. ....................................................................... 495,000 8,879,063
TransPro Inc. .................................................................... 250,000 1,531,250
-------------
94,881,995
-------------
RETAIL TRADE 7.8%
Cato Corp., A .................................................................... 500,000 5,750,000
(a)(c)Charming Shoppes Inc. ............................................................ 6,000,000 29,812,500
(a)(c)Designs Inc. ..................................................................... 1,190,000 1,487,500
(c) Fred's Inc. ...................................................................... 969,000 11,628,000
Haverty Furniture Cos. Inc. ...................................................... 360,000 4,950,000
(a) HomeBase Inc. .................................................................... 1,860,000 7,091,250
(a)(c)Jacobson Stores Inc. ............................................................. 298,100 1,602,288
(a) Kmart Corp. ...................................................................... 590,000 5,936,875
(a) Lechters Inc. .................................................................... 587,600 1,193,563
(a) PriceSmart Inc. .................................................................. 26,500 954,000
(a)(c)Syms Corp. ....................................................................... 1,443,200 7,937,600
(a) United Retail Group Inc. ......................................................... 632,600 6,326,000
(c) Wolohan Lumber Co. ............................................................... 520,000 6,435,000
-------------
91,104,576
-------------
TECHNOLOGY SERVICES
(a) Government Technology Services Inc. .............................................. 194,500 540,953
-------------
TRANSPORTATION 3.4%
(a) Crowley Maritime Corp. ........................................................... 4,440 5,883,000
(c) International Shipholding Corp. .................................................. 587,900 6,025,975
(a)(c)KLLM Transport Services Inc. ..................................................... 295,900 1,405,525
(a) Mesa Air Group Inc. .............................................................. 1,000,000 5,625,000
(a) OMI Corp. ........................................................................ 875,000 1,640,625
Overseas Shipholding Group Inc. .................................................. 1,463,000 18,836,125
-------------
39,416,250
-------------
UTILITIES 12.5%
Central Vermont Public Service Corp. ............................................. 53,700 694,744
CMP Group Inc. ................................................................... 1,366,600 36,385,725
Conectiv Inc. .................................................................... 215,000 4,192,500
Entergy Corp. .................................................................... 1,100,000 32,931,250
(a)(c)Kaneb Services Inc. .............................................................. 3,190,000 14,355,000
(a) Niagara Mohawk Holdings Inc. ..................................................... 2,310,000 36,671,250
(a) Northeast Utilities .............................................................. 1,009,400 21,008,128
-------------
146,238,597
-------------
COMPANY IN LIQUIDATION
(a) S & C Liquidating Trust .......................................................... 330,500 --
-------------
TOTAL COMMON STOCKS (COST $1,010,366,715) ........................................ 1,047,910,153
-------------
PREFERRED STOCKS .6%
Price Enterprises Inc., 8.75%, pfd., A (COST $ 6,943,575) ........................ 533,400 7,467,600
-------------
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
FRANKLIN BALANCE SHEET INVESTMENT FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS .1%
(d) Hechinger Co., senior note, 6.95%, 10/15/03 (COST $5,043,193) ................................. $ 7,000,000 $ 945,000
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,077,740,618) ............................................. 1,111,701,242
--------------
(b) REPURCHASE AGREEMENTS 4.9%
Joint Repurchase Agreement, 5.199%, 11/01/99, (Maturity Value $57,220,115)
(COST $57,195,335) ............................................................................ 57,195,335 57,195,335
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
CIBC Oppenheimer Corp.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Goldman, Sachs & Co.
Paine Webber Inc.
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $1,134,935,953) 100.3% ................................................ 1,168,896,577
OTHER ASSETS, LESS LIABILITIES (.3%) .......................................................... (3,117,802)
--------------
NET ASSETS 100.0% $1,165,778,775
==============
</TABLE>
(a) Non-income producing.
(b) Investment is through participation in a joint account with other funds
managed by the investment advisor. At October 31, 1999, all repurchase
agreements had been entered into on October 29, 1999.
(c) See Note 8 regarding holdings of 5% voting securities.
(d) See Note 6 regarding defaulted securities.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN MICROCAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1999(***) 1998 1997 1996(1)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 20.27 $ 24.29 $ 18.44 $ 15.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ........................ (.01) (.02) (.01) .14
Net realized and unrealized gains (losses) .......... (.29) (2.51) 6.33 3.41
------------------------------------------------------------------------
Total from investment operations ..................... (.30) (2.53) 6.32 3.55
------------------------------------------------------------------------
Less distributions from:
Net investment income ............................... -- (.01) (.07) (.11)
Net realized gains .................................. (1.56) (1.48) (.40) --
------------------------------------------------------------------------
Total distributions .................................. (1.56) (1.49) (.47) (.11)
------------------------------------------------------------------------
Net asset value, end of year ......................... $ 18.41 $ 20.27 $ 24.29 $ 18.44
------------------------------------------------------------------------
Total return(*) ...................................... (1.59%) (10.95%) 35.05% 23.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $115,999 $175,635 $191,638 $119,664
Ratios to average net assets:
Expenses ............................................ 1.27% 1.21% 1.22% 1.24%(**)
Net investment income (loss) ........................ (.05%) (.11%) (.05%) 1.28%(**)
Portfolio turnover rate .............................. 14.12% 31.91% 21.33% 14.15%
</TABLE>
(*)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(**)Annualized
(***)Based on average shares outstanding.
(1)For the period December 12, 1995 (effective date) to October 31, 1996.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 97.4%
COMMERCIAL SERVICES 3.7%
(a),(c)Allou Health & Beauty Care Inc., A ..................................... 300,000 $ 1,725,000
Courier Corp. ............................................................ 75,000 1,666,406
Noland Co. ............................................................... 45,500 864,500
----------
4,255,906
----------
CONSUMER DURABLES 6.8%
(a) Acorn Products Inc........................................................ 150,000 393,750
Allen Organ Co., B........................................................ 42,000 1,617,000
(a) Baldwin Piano & Organ Co. ................................................ 50,500 416,625
(a) Dixie Group Inc. ......................................................... 70,000 472,500
Engle Homes Inc. ......................................................... 85,000 860,625
M/I Schottenstein Homes Inc. ............................................. 72,000 1,287,000
(a) OroAmerica Inc. .......................................................... 44,700 310,106
Pulaski Furniture Corp. .................................................. 80,000 1,280,000
(a) Washington Homes Inc. .................................................... 220,000 1,237,500
----------
7,875,106
----------
CONSUMER NON-DURABLES 8.9%
(a) Chic By H.I.S. Inc. ...................................................... 214,100 160,575
Garan Inc. ............................................................... 85,000 2,709,375
Genesee Corp., A ......................................................... 7,000 148,750
Genesee Corp., B ......................................................... 36,000 765,000
(a) Hampton Industries Inc. .................................................. 240,382 600,955
(a) McNaughton Apparel Group Inc. ............................................ 306,000 2,428,875
(a),(c)Seneca Foods Corp., A .................................................. 191,600 2,299,200
(a) Seneca Foods Corp., B .................................................... 42,500 512,656
Standard Commercial Corp. ................................................ 234,800 704,400
----------
10,329,786
----------
(a) CONSUMER SERVICES 2.1%
Casino Data Systems ...................................................... 607,000 2,124,500
Champps Entertainment Inc. ............................................... 133,000 290,938
----------
2,415,438
----------
ELECTRONIC TECHNOLOGY 7.8%
(a) Aehr Test Systems ........................................................ 108,500 495,031
(a) Datron Systems Inc. ...................................................... 100,000 650,000
(a),(c)ECC International Corp. ................................................ 682,000 2,514,875
(c) Espey Manufacturing & Electronics Corp. .................................. 90,000 1,350,000
Moore Products Co. ....................................................... 118,000 2,655,000
(a) SPACEHAB Inc. ............................................................ 137,700 705,713
(a) Sparton Corp. ............................................................ 136,100 689,006
----------
9,059,625
----------
ENERGY MINERALS 4.0%
(a) Crystal Gas Storage Inc. ................................................. 30,000 1,620,000
Home-Stake Oil & Gas Co. ................................................. 50,000 259,375
(a),(c)Maynard Oil Co. ........................................................ 290,000 2,755,000
----------
4,634,375
----------
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE 13.0%
(a),(c)ACMAT Corp., A ......................................................... 150,000 $ 1,387,500
Amwest Insurance Group Inc. .............................................. 185,000 1,653,438
(a) Bresler & Reiner Inc. .................................................... 78,000 2,174,250
GA Financial Inc. ........................................................ 145,300 1,979,713
(a) Meemic Holdings Inc. ..................................................... 55,500 867,188
Meridian Insurance Group Inc. ............................................ 110,000 1,821,875
National Security Group Inc. ............................................. 7,000 85,750
Old Guard Group Inc. ..................................................... 165,500 2,068,750
PAULA Financial .......................................................... 100,000 543,750
(a) Pinnacle Global Group Inc. ............................................... 184,525 968,756
(a) Quaker City Bancorp Inc. ................................................. 90,000 1,524,375
----------
15,075,345
----------
HEALTH SERVICES 1.0%
(a) Prime Medical Services Inc. .............................................. 117,000 1,155,375
----------
HEALTH TECHNOLOGY .4%
(a) Atrion Corp. ............................................................. 50,100 472,819
----------
INDUSTRIAL SERVICES 6.4%
Ecology & Environment Inc., A ............................................ 108,000 648,000
(a),(c)GZA GeoEnvironmental Technologies Inc. ................................. 310,000 1,395,000
(a),(c)Harding Lawson Associates Group Inc. ................................... 300,900 2,407,200
(a) Matrix Service Co. ....................................................... 49,000 202,125
Petroleum Helicopters Inc. ............................................... 17,600 171,600
Petroleum Helicopters Inc., non-voting ................................... 110,000 1,072,500
(a),(c)Roy F. Weston Inc., A .................................................. 633,000 1,542,938
----------
7,439,363
----------
NON-ENERGY MINERALS 4.6%
Case Pomeroy & Co Inc., A ................................................ 220 220,000
Case Pomeroy & Co. Inc., B ............................................... 500 550,000
(a),(c)Kentucky Electric Steel Inc. ........................................... 450,000 1,378,125
(a) Zemex Corp. .............................................................. 400,000 3,200,000
----------
5,348,125
----------
(a) PROCESS INDUSTRIES 4.8%
American Pacific Corp. ................................................... 297,000 2,079,000
Flanders Corp. ........................................................... 800,000 2,025,000
Griffin Land & Nurseries Inc. ............................................ 133,600 1,503,000
----------
5,607,000
----------
PRODUCER MANUFACTURING 8.0%
(a),(c)Art's-Way Manufacturing Co. Inc. ....................................... 120,500 459,406
(a),(c)Athey Products Corp. ................................................... 198,000 266,063
(a) Continental Materials Corp. .............................................. 95,000 2,161,250
(a) Genesis Worldwide Inc. ................................................... 45,000 247,500
Insteel Industries Inc. .................................................. 257,000 1,911,438
(a) Nashua Corp. ............................................................. 130,100 1,089,588
(a) Rofin-Sinar Technologies Inc. ............................................ 200,000 1,475,000
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING (CONT.)
(a),(c)Temtex Industries Inc. ............................................................. 265,500 $ 489,516
TransPro Inc. ........................................................................ 184,500 1,130,063
-----------
9,229,824
-----------
RETAIL TRADE 10.3%
(a)Catherines Stores Corp. ............................................................ 140,000 1,855,000
(a)Designs Inc. ....................................................................... 688,000 860,000
(a)Jacobson Stores Inc. ............................................................... 86,200 463,325
(a)Lechters Inc. ...................................................................... 557,000 1,131,406
(a),(c)S&K Famous Brands Inc. ............................................................. 250,000 1,875,000
(a) United Retail Group Inc. .......................................................... 247,000 2,470,000
(a),(c)Village Super Market Inc., A ....................................................... 108,500 1,546,125
Wolohan Lumber Co. .................................................................... 138,000 1,707,750
-----------
11,908,606
-----------
(a)TECHNOLOGY SERVICES 2.4%
Government Technology Services Inc. .................................................... 455,500 1,266,859
Ultrak Inc. ............................................................................ 275,000 1,529,688
-----------
2,796,547
-----------
TRANSPORTATION 5.0%
(a)Crowley Maritime Corp. ................................................................. 2,050 2,716,250
Providence & Worchester Railroad Co. ................................................. 147,400 1,474,000
(a),(c)TransFinancial Holdings Inc. ....................................................... 300,000 1,631,250
-----------
5,821,500
-----------
UTILITIES 8.2%
(c)Atlantic Tele-Network Inc. ............................................................. 270,000 2,227,500
Bangor Hydro-Electric Co. .............................................................. 207,000 3,389,625
Central Vermont Public Service Corp. ................................................... 30,000 388,125
Green Mountain Power Corp. ............................................................. 150,000 1,509,372
(c)Maine Public Service Co. ............................................................... 118,000 2,035,500
-----------
9,550,122
-----------
TOTAL LONG TERM INVESTMENTS (COST $121,757,648) ........................................ 112,974,862
-----------
SHORT TERM INVESTMENTS 2.9%
(e)Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $3,390,784) ........ 3,390,784
3,390,784
-----------
TOTAL INVESTMENTS (COST $125,148,432) 100.3% ........................................... 116,365,646
OTHER ASSETS, LESS LIABILITIES (.3%) ................................................... (366,557)
-----------
NET ASSETS 100.0% ....................................................................... $ 115,999,089
-----------
</TABLE>
(a) Non-income producing.
(c) See Note 8 regarding holdings of 5% voting securities.
(e) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers Inc.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
1999(***) 1998 1997 1996(2)
---------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................ $ 17.98 $ 24.68 $ 17.15 $ 15.00
---------------------------------------------------
Income from investment operations:
Net investment income (loss) ................................. (.04) (.03) .08 .05
Net realized and unrealized gains (losses) ................... (.55) (6.45) 7.90 2.15
---------------------------------------------------
Total from investment operations .............................. (.59) (6.48) 7.98 2.20
---------------------------------------------------
Less distributions from:
Net investment income ........................................ -- (.01) (.08) (.05)
Net realized gains ........................................... (.09) (.21) (.37) --
---------------------------------------------------
Total distributions ........................................... (.09) (.22) (.45) (.05)
---------------------------------------------------
Net asset value, end of year .................................. $ 17.30 $ 17.98 $ 24.68 $ 17.15
===================================================
Total return(*) ............................................... (3.38%) (26.48%) 47.43% 14.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $65,898 $98,288 $78,897 $ 7,828
Ratios to average net assets:
Expenses ..................................................... 1.49% 1.32% 1.32% 1.35%(**)
Expenses excluding waiver and payments by affiliate .......... 1.49% 1.38% 1.41% 2.87%(**)
Net investment income (loss) ................................. (.23%) (.16%) .27% .57%(**)
Portfolio turnover rate ....................................... 41.21% 36.88% 13.92% 32.52%
</TABLE>
(*)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(**)Annualized
(***)Based on average shares outstanding.
(2)For the period March 11, 1996 (effective date) to October 31, 1996.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
------------------------
YEAR ENDED
OCTOBER 31, 1999(3)(***)
------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................................................. $18.33
------------------------
Income from investment operations:
Net investment loss ................................................................................ (.15)
Net realized and unrealized losses ................................................................. (.97)
------------------------
Total from investment operations .................................................................... (1.12)
------------------------
Net asset value, end of year ........................................................................ $17.21
========================
Total return(*) ..................................................................................... (6.27%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................................................................... $1,293
Ratios to average net assets:
Expenses ........................................................................................... 2.12%(**)
Net investment loss ................................................................................ (.84%)(**)
Portfolio turnover rate ............................................................................. 41.21%
</TABLE>
(*)Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(**)Annualized
(***)Based on average shares outstanding.
(3)For the period January 1, 1999 (effective date) to October 31, 1999.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1999(***) 1998 1997 1996(4)
-----------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 17.82 $ 24.59 $ 17.14 $16.38
-----------------------------------------------------
Income from investment operations:
Net investment income (loss) ...................... (.16) (.13) (.02) .01
Net realized and unrealized gains (losses) ........ (.54) (6.43) 7.84 .76
-----------------------------------------------------
Total from investment operations ................... (.70) (6.56) 7.82 .77
-----------------------------------------------------
Less distributions from:
Net investment income ............................. -- -- -- (.01)
Net realized gains ................................ (.09) (.21) (.37) --
-----------------------------------------------------
Total distributions ................................ (.09) (.21) (.37) (.01)
-----------------------------------------------------
Net asset value, end of year ....................... $ 17.03 $ 17.82 $ 24.59 $17.14
=====================================================
Total return(*) .................................... (4.03%) (26.93%) 46.40% 4.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $30,133 $41,694 $21,554 $ 434
Ratios to average net assets:
Expenses .......................................... 2.17% 1.97% 1.87% 2.00%(**)
Expenses excluding waiver and
payments by affiliate ........................... 2.17% 2.03% 1.96% 3.52%(**)
Net investment loss ............................... (.91%) (.81%) (.30%) (.08%)(**)
Portfolio turnover rate ............................ 41.21% 36.88% 13.92% 32.52%
</TABLE>
(*)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(**)Annualized
(***)Based on average shares outstanding.
(4) For the period September 1, 1996 (effective date) to October 31, 1996.
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------
1999(***) 1998 1997(5)
------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $18.07 $ 24.72 $18.75
------------------------------------
Income from investment operations:
Net investment income ............................. .01 .04 .10
Net realized and unrealized gains (losses) ........ (.53) (6.45) 5.95
------------------------------------
Total from investment operations ................... (.52) (6.41) 6.05
------------------------------------
Less distributions from:
Net investment income ............................. -- (.03) (.08)
Net realized gains ................................ (.09) (.21) --
------------------------------------
Total distributions ................................ (.09) (.24) (.08)
------------------------------------
Net asset value, end of year ....................... $17.46 $ 18.07 $24.72
====================================
Total return(*) .................................... (2.97%) (26.18%) 32.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $2,941 $ 4,739 $4,495
Ratios to average net assets:
Expenses .......................................... 1.17% .97% .98%(**)
Expenses excluding waiver and
payments by affiliate ........................... 1.17% 1.03% 1.07%(**)
Net investment income ............................. .09% .19% .59%(**)
Portfolio turnover rate ............................ 41.21% 36.88% 13.92%
</TABLE>
(*)Total return is not annualized for periods less than one year.
(**)Annualized
(***)Based on average shares outstanding.
(5) For the period January 2, 1997 (effective date) to October 31, 1997.
See notes to financial statements
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE FUND RIGHTS VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS 97.0%
COMMERCIAL SERVICES 3.0%
(a) Robert Half International Inc. ....... 112,000 $ 3,031,000
-----------
CONSUMER DURABLES 2.2%
D.R. Horton Inc. ..................... 63,700 752,456
Engle Homes Inc. ..................... 38,000 384,750
Flexsteel Industries Inc. ............ 37,700 499,525
M/I Schottenstein Homes Inc. ......... 29,500 527,313
-----------
2,164,044
-----------
CONSUMER NON-DURABLES 12.0%
Block Drug Co. Inc., A ............... 37,900 1,321,763
DIMON Inc. ........................... 105,000 367,500
(a) Sola International Inc. .............. 58,000 812,000
Standard Commercial Corp. ............ 245,800 737,400
(a) Timberland Co., A .................... 92,500 4,567,188
(a) Tropical Sportswear International Corp. 107,000 2,126,625
Wolverine World Wide Inc. ............ 200,000 2,050,000
-----------
11,982,476
-----------
CONSUMER SERVICES 1.4%
(a) Aztar Corp. .......................... 147,000 1,424,063
-----------
ELECTRONIC TECHNOLOGY 3.1%
(a) Aehr Test Systems .................... 61,400 280,138
B.F. Goodrich Co. .................... 59,000 1,397,563
(a) ESCO Electronics Corp. ............... 43,000 502,563
(a) Spacehab Inc. ........................ 178,000 912,250
-----------
3,092,514
-----------
ENERGY MINERALS 1.3%
(a) Nuevo Energy Co. ..................... 92,500 1,312,344
-----------
FINANCE 22.2%
(a) Acceptance Insurance Cos. Inc. ....... 65,000 938,438
Allstate Corp. ....................... 78,000 2,242,500
American National Insurance Co. ...... 10,500 719,250
(a) American Safety Insurance Group Ltd. .. 133,000 947,625
Harleysville Group Inc. .............. 60,000 1,023,750
Household International Inc. ......... 36,500 1,628,813
(a) Manulife Financial Corp. (Canada) .... 55,400 668,263
(a) Matrix Bancorp Inc. .................. 69,000 836,625
MMI Cos. Inc. ........................ 52,500 429,844
(a) PBOC Holdings Inc. ................... 100,000 887,500
Penn-America Group Inc. .............. 105,000 774,375
The PMI Group Inc. ................... 40,000 2,075,000
Presidential Life Corp. .............. 174,300 3,202,763
(a) Professionals Group Inc. ............. 100,000 2,406,250
Reinsurance Group of America Inc. .... 19,000 631,750
(a) Seibels Bruce Group Inc. ............. 108,000 236,250
StanCorp Financial Group Inc. ........ 58,000 1,471,750
Washington Mutual Inc. ............... 32,500 1,167,969
-----------
22,288,715
-----------
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE FUND RIGHTS VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
HEALTH TECHNOLOGY 2.2%
(a) SkyePharma PLC, rts., 3/31/00
(United Kingdom) .................. 155,800 $ 16
West Pharmaceutical Services Inc. .... 65,000 2,246,563
-----------
2,246,579
-----------
INDUSTRIAL SERVICES 9.0%
(a) Atwood Oceanics Inc. ................. 60,500 1,758,281
Ensco International Inc. ............. 105,000 2,034,375
(a) Perini Corp. ......................... 54,200 216,800
(a) R&B Falcon Corp. ..................... 153,000 1,902,938
(a) Rowan Cos. Inc. ...................... 140,000 2,178,750
Santa Fe International Corp. ......... 42,500 895,156
-----------
8,986,300
-----------
NON-ENERGY MINERALS 2.6%
(a) Lone Star Technologies Inc. .......... 76,000 1,591,250
LTV Corp. ............................ 187,000 677,875
Southdown Inc. ....................... 7,800 376,838
-----------
2,645,963
-----------
PROCESS INDUSTRIES 3.0%
Lancaster Colony Corp. ............... 14,500 506,594
RPM Inc. ............................. 167,600 2,000,725
Tuscarora Inc. ....................... 37,400 462,825
-----------
2,970,144
-----------
PRODUCER MANUFACTURING 18.7%
Baldor Electric Co. .................. 67,000 1,302,313
(a) Circor International Inc ............. 47,750 453,625
Commercial Intertech Corp. ........... 24,800 314,650
Commonwealth Industries Inc. ......... 117,500 1,175,000
Dana Corp. ........................... 67,000 1,980,688
(a) Global Industrial Technologies Inc. .. 124,000 1,519,000
JLG Industries Inc. .................. 332,500 4,260,156
Kaydon Corp. ......................... 20,000 496,250
(a) Keystone Consolidated Industries Inc. 7,500 37,500
Myers Industries Inc. ................ 93,940 1,321,031
Patrick Industries Inc. .............. 43,000 456,875
Superior Industries International Inc. 36,600 976,763
Teleflex Inc. ........................ 5,000 170,313
Timken Co. ........................... 105,000 1,883,438
(a) Tower Automotive Inc. ................ 67,000 1,092,938
Watts Industries Inc., A ............. 95,500 1,307,156
-----------
18,747,696
-----------
RETAIL TRADE 1.9%
Rite Aid Corp. ....................... 104,000 910,000
Schultz Sav-O Stores Inc. ............ 63,250 956,656
-----------
1,866,656
-----------
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
FRANKLIN VALUE FUND RIGHTS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS AND RIGHTS (CONT.)
TECHNOLOGY SERVICES 2.5%
(a) Chartered Semiconductor Manufacturing Ltd. ....... 8,800 $ 292,050
Reynolds & Reynolds Co., A ....................... 75,500 1,373,156
(a) Ultrak Inc. ...................................... 153,600 854,400
------------
2,519,606
------------
TRANSPORTATION 11.9%
Air Express International Corp. .................. 48,000 1,278,000
(a) Atlantic Coast Airlines Holdings Inc. ............ 66,200 1,539,150
Canadian National Railway Co. (Canada) ........... 53,000 1,616,500
(a) Fritz Cos. Inc. .................................. 43,800 490,013
Kenan Transport Co. .............................. 66,500 2,236,063
(a) Midwest Express Holdings ......................... 48,000 1,407,000
(a) Motor Cargo Industries Inc. ...................... 117,800 714,152
Teekay Shipping Corp. ............................ 34,000 510,000
Tidewater Inc. ................................... 72,000 2,160,000
------------
11,950,878
------------
TOTAL COMMON STOCKS AND RIGHTS
(COST $118,025,090) ............................ 97,228,978
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
CORPORATE BONDS .1%
(d) Hechinger Co., senior notes, 6.95%, 10/15/03
(COST $287,500) ................................ $ 500,000 67,500
------------
CONVERTIBLE BONDS .7%
(a),(f) SPACEHAB, Inc., cvt. sub. notes, 144A, 8.00%,
10/15/07 (COST $1,000,000) ..................... 1,000,000 740,000
------------
TOTAL BONDS (COST $1,287,500) .................... 807,500
------------
TOTAL LONG TERM INVESTMENTS (COST $119,312,590) .. 98,036,478
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------
<S> <C> <C>
SHORT TERM INVESTMENTS 1.8%
(e) Franklin Institutional Fiduciary Trust Money
Market Portfolio (COST $1,806,488) ............. 1,806,488 1,806,488
------------
TOTAL INVESTMENTS (COST $121,119,078) 99.6% ...... 99,842,966
OTHER ASSETS, LESS LIABILITIES .4% ............... 422,056
------------
NET ASSETS 100.0% ................................ $100,265,022
============
</TABLE>
(a) Non-income producing.
(d) See Note 6 regarding defaulted securities.
(e) The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers Inc.
(f) See Note 7 regarding restricted securities.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................ $ 743,969,355 $ 91,231,882 $121,119,078
Cost - Non-controlled affiliated issuers ............... 390,966,598 33,916,550 --
================================================
Value - Unaffiliated issuers ........................... 808,591,716 87,080,448 99,842,966
Value - Non-controlled affiliated issuers .............. 360,304,861 29,285,198 --
Receivables:
Investment securities sold ............................. 7,261,196 222,996 1,424,573
Capital shares sold .................................... 467,439 39,546 132,793
Dividends and interest ................................. 531,895 8,070 43,584
Other assets ............................................ 85,600 56,500 800
------------------------------------------------
Total assets ....................................... 1,177,242,707 116,692,758 101,444,716
------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ........................ 245,087 -- 496,770
Capital shares redeemed ................................ 9,907,171 521,749 420,475
Affiliates ............................................. 1,060,079 134,794 214,212
Shareholders ........................................... 115,818 19,091 23,902
Other liabilities ....................................... 135,777 18,035 24,335
------------------------------------------------
Total liabilities .................................. 11,463,932 693,669 1,179,694
------------------------------------------------
Net assets, at value .............................. $1,165,778,775 $115,999,089 $100,265,022
================================================
Net assets consist of:
Undistributed net investment income ..................... $ 440,532 $ -- $ --
Net unrealized appreciation (depreciation) .............. 33,907,038 (8,782,786) (21,276,096)
Accumulated net realized gain (loss) .................... 8,508,644 9,053,216 (29,248,206)
Capital shares .......................................... 1,122,922,561 115,728,659 150,789,324
------------------------------------------------
Net assets, at value ............................... $1,165,778,775 $115,999,089 $100,265,022
================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
---------------------------------------------------
<S> <C> <C> <C>
CLASS A:
Net assets, at value ................ $1,165,778,775 $115,999,089 $65,897,671
===================================================
Shares outstanding .................. 38,916,482 6,302,256 3,809,514
===================================================
Net asset value per share(*) ........ $ 29.96 $ 18.41 $ 17.30
===================================================
Maximum offering price per share
(net asset value per share / 98.50%,
94.25%, 94.25%, respectively) ...... $ 30.42 $ 19.53 $ 18.36
===================================================
CLASS B:
Net assets, at value ................ -- -- $ 1,293,072
===================================================
Shares outstanding .................. -- -- 75,155
===================================================
Net asset value and maximum offering
price per share(*) ................. -- -- $ 17.21
===================================================
CLASS C:
Net assets, at value ................ -- -- $30,133,323
===================================================
Shares outstanding .................. -- -- 1,769,503
===================================================
Net asset value per share(*) ........ -- -- $ 17.03
===================================================
Maximum offering price per share
(net asset value per share / 99.00%) -- -- $ 17.20
===================================================
ADVISOR CLASS:
Net assets, at value ................ -- -- $ 2,940,956
===================================================
Shares outstanding .................. -- -- 168,404
===================================================
Net asset value and maximum offering
price per share .................... -- -- $ 17.46
===================================================
</TABLE>
(*)Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
-----------------------------------------------------
<S> <C> <C> <C>
Investment income:(+)
Dividends
Unaffiliated issuers ............................. $ 18,252,633 $ 1,196,590 $ 1,302,862
Non-controlled affiliated issuers (Note 8) ....... 3,163,453 391,909 --
Interest .......................................... 7,629,105 243,647 219,779
-----------------------------------------------------
Total investment income ...................... 29,045,191 1,832,146 1,522,641
-----------------------------------------------------
Expenses:
Management fees (Note 3) .......................... 6,414,944 1,122,724 892,181
Distribution fees (Note 3)
Class A .......................................... 3,407,595 369,786 255,876
Class B .......................................... -- -- 5,427
Class C .......................................... -- -- 364,216
Transfer agent fees (Note 3) ...................... 2,356,155 337,208 384,231
Custodian fees .................................... 52,124 2,104 1,140
Reports to shareholders ........................... 160,317 36,244 31,440
Registration and filing fees ...................... 251,854 25,960 93,860
Professional fees ................................. 61,574 6,815 4,956
Trustees' fees and expenses ....................... 27,317 2,699 3,219
Other ............................................. 18,325 2,000 --
-----------------------------------------------------
Total expenses ............................... 12,750,205 1,905,540 2,036,546
-----------------------------------------------------
Net investment income (loss) ................ 16,294,986 (73,394) (513,905)
-----------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated issuers ............................ 8,725,674 10,310,078 (29,248,206)
Non-controlled affiliated issuers (Note 8) ...... (3,414,837) (1,199,246) --
Closed-end funds distributions .................. 3,206,429 -- --
Foreign currency transactions .................... (81,573) -- 40
-----------------------------------------------------
Net realized gain (loss) ..................... 8,435,693 9,110,832 (29,248,166)
Net unrealized appreciation (depreciation) on:
Investments ...................................... (33,726,600) (9,966,758) 24,916,437
Translation of assets and liabilities denominated
in foreign currencies .......................... (53,586) -- 15
-----------------------------------------------------
Net unrealized appreciation (depreciation) ... (33,780,186) (9,966,758) 24,916,452
-----------------------------------------------------
Net realized and unrealized loss ................... (25,344,493) (855,926) (4,331,714)
-----------------------------------------------------
Net decrease in net assets resulting
from operations .................................. $ (9,049,507) $ (929,320) $ (4,845,619)
=====================================================
</TABLE>
(+) Net of foreign taxes and fees of $309,488 and $405 for the Franklin Balance
Sheet Investment Fund and the Franklin Value Fund, respectively.
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN BALANCE FRANKLIN MICROCAP FRANKLIN
SHEET INVESTMENT FUND VALUE FUND VALUE FUND
---------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income
(loss) .................... $ 16,294,986 $ 21,675,728 $ (73,394) $ (215,492) $ (513,905) $ (500,662)
Net realized gain (loss)
from investments and
foreign currency
transactions .............. 8,435,693 53,773,930 9,110,832 13,627,885 (29,248,166) 692,870
Net unrealized appreciation
(depreciation) on invest-
ments and translation of
assets and liabilities
denominated in
foreign currencies ........ (33,780,186) (140,502,353) (9,966,758) (36,789,537) 24,916,452 (54,892,244)
---------------------------------------------------------------------------------------------------
Net decrease in net
assets resulting from
operations ................ (9,049,507) (65,052,695) (929,320) (23,377,144) (4,845,619) (54,700,036)
Distributions to shareholders
from:
Net investment income:
Class A .................. (18,737,781) (21,386,657) -- (64,132) -- (43,246)
Advisor Class ............ -- -- -- -- -- (5,419)
Net realized gains:
Class A .................. (53,832,197) (65,036,050) (13,333,988) (11,892,928) (484,796) (750,851)
Class C .................. -- -- -- -- (215,275) (237,831)
Advisor Class ............ -- -- -- -- (13,287) (40,254)
---------------------------------------------------------------------------------------------------
Total distributions
to shareholders ............ (72,569,978) (86,422,707) (13,333,988) (11,957,060) (713,358) (1,077,601)
</TABLE>
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED OCTOBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
FRANKLIN BALANCE FRANKLIN MICROCAP FRANKLIN
SHEET INVESTMENT FUND VALUE FUND VALUE FUND
----------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital share transactions:
(Note 2)
Class A ....................... $ (219,808,908) $ 395,729,810 $ (45,372,974) $ 19,331,621 $ (28,835,655) $ 57,685,763
Class B ....................... -- -- -- -- 1,378,201 --
Class C ....................... -- -- -- -- (9,739,449) 35,364,755
Advisor Class ................. -- -- -- -- (1,699,686) 2,501,351
----------------------------------------------------------------------------------------------
Total capital share
transactions ................... (219,808,908) 395,729,810 (45,372,974) 19,331,621 (38,896,589) 95,551,869
Net increase (decrease)
in net assets ............. (301,428,393) 244,254,408 (59,636,282) (16,002,583) (44,455,566) 39,774,232
Net assets:
Beginning of year ............... 1,467,207,168 1,222,952,760 175,635,371 191,637,954 144,720,588 104,946,356
----------------------------------------------------------------------------------------------
End of year ..................... $ 1,165,778,775 $1,467,207,168 $ 115,999,089 $ 175,635,371 $ 100,265,022 $144,720,588
==============================================================================================
Undistributed net investment
income (accumulated distributions
in excess of net investment
income) included in net assets:
End of year .................... $ 440,532 $ 2,965,881 $ -- $ -- $ -- $ --
==============================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Investors Trust (the Trust) is registered under the Investment
Company Act of 1940 as an open-end, non-diversified investment company,
consisting of three series (the Funds). The Funds' investment objectives are
growth and income.
The following summarizes the Funds' significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Trustees.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because each fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets. Other expenses are
charged to each fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The classes of shares offered within each of the Funds are indicated below.
Effective January 1, 1999, Class I and Class II were renamed Class A and Class
C, respectively, and the Franklin Value Fund began offering a new class of
shares, Class B. Each class of shares differs by its initial sales load,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
<TABLE>
<CAPTION>
CLASS A CLASS A, CLASS B, CLASS C, & ADVISOR CLASS
---------------------------------------------------------------------------------------
<S> <C>
Franklin Balance Sheet Investment Fund Franklin Value Fund
Franklin MicroCap Value Fund
</TABLE>
At October 31, 1999, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN BALANCE FRANKLIN MICROCAP FRANKLIN
SHEET INVESTMENT FUND VALUE FUND VALUE FUND
----------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
Year ended October 31, 1999
Shares sold ....................... 13,927,778 $431,957,836 867,659 $16,807,823 1,856,763 $ 34,066,206
Shares issued in reinvestment of
distributions .................... 2,197,329 67,192,593 644,741 12,063,077 25,433 439,189
Shares redeemed ................... (23,260,066) (718,959,337) (3,876,306) (74,243,874) (3,538,676) (63,341,050)
----------------------------------------------------------------------------------------
Net decrease ...................... (7,134,959) $(219,808,908) (2,363,906) $(45,372,974) (1,656,480) $(28,835,655)
========================================================================================
Year ended October 31, 1998
Shares sold ....................... 18,222,491 $633,618,542 2,069,052 $48,313,995 5,324,861 $124,490,260
Shares issued in reinvestment of
distributions .................... 2,376,759 78,351,007 486,486 10,804,862 30,315 723,006
Shares redeemed ................... (9,270,237) (316,239,739) (1,778,377) (39,787,236) (3,086,439) (67,527,503)
----------------------------------------------------------------------------------------
Net increase ...................... 11,329,013 $395,729,810 777,161 $19,331,621 2,268,737 $ 57,685,763
========================================================================================
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN
VALUE FUND
----------------------
SHARES AMOUNT
----------------------
<S> <C> <C>
CLASS B SHARES:
Year ended October 31, 1999(*)
Shares sold ................................................................... 77,515 $ 1,420,965
Shares redeemed ............................................................... (2,360) (42,764)
---------- -----------
Net increase .................................................................. 75,155 $ 1,378,201
---------- -----------
CLASS C SHARES:
Year ended October 31, 1999
Shares sold ................................................................... 653,697 $11,754,271
Shares issued in reinvestment of distributions ................................ 11,693 200,090
Shares redeemed ............................................................... (1,235,879) (21,693,810)
---------- -----------
Net decrease .................................................................. (570,489) $(9,739,449)
---------- -----------
Year ended October 31, 1998
Shares sold ................................................................... 2,011,944 $46,831,107
Shares issued in reinvestment of distributions ................................ 9,086 215,872
Shares redeemed ............................................................... (557,458) (11,682,224)
---------- -----------
Net increase .................................................................. 1,463,572 $35,364,755
---------- -----------
ADVISOR CLASS SHARES:
Year ended October 31, 1999
Shares sold ................................................................... 45,867 $ 843,626
Shares issued in reinvestment of distributions ................................ 758 13,180
Shares redeemed ............................................................... (140,454) (2,556,492)
---------- -----------
Net decrease .................................................................. (93,829) $(1,699,686)
---------- -----------
Year ended October 31, 1998
Shares sold ................................................................... 306,114 $7,058,256
Shares issued in reinvestment of distributions ................................ 1,904 45,486
Shares redeemed ............................................................... (227,624) (4,602,391)
---------- -----------
Net increase .................................................................. 80,394 $2,501,351
---------- -----------
</TABLE>
(*) For the period January 1, 1999 (effective date) to October 31, 1999.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisory Services, LLC (Advisory Services), Franklin/Templeton
Distributors, Inc. (Distributors), Franklin Templeton Services, Inc. (FT
Services), and Franklin/Templeton Investor Services, Inc. (Investor Services),
the Funds' investment manager, principal underwriter, administrative manager,
and transfer agent, respectively.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Balance Sheet Investment Fund pays an investment management fee to
Advisory Services based on the average net assets of the fund as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
The Franklin MicroCap Value Fund pays an investment management fee to Advisory
Services of .750% per year of the average daily net assets of the fund.
The Franklin Value Fund pays an investment management fee to Advisory Services
based on the average net assets of the fund as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
.750% First $500 million
.625% Over $500 million, up to and including $1 billion
.500% Over $1 billion
For the Franklin MicroCap Value Fund and the Franklin Value Fund, management
fees were reduced on assets invested in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
Under an agreement with Advisory Services, FT Services provides administrative
services to the Funds. The fee is paid by Advisory Services based on average
daily net assets, and is not an additional expense of the Funds.
The Franklin Balance Sheet Investment Fund and the Franklin MicroCap Fund
reimburse Distributors up to .25% per year of their average daily net assets,
and the Franklin Value Fund reimburses Distributors up to .35%, 1.00%, and 1.00%
per year of the average daily net assets of Class A, Class B, and Class C,
respectively, for costs incurred in marketing the Funds' shares.
Distributors received (paid) net commissions on sales of the Funds' shares, and
received contingent deferred sales charges for the year as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
-----------------------------------------
<S> <C> <C> <C>
Net commissions received (paid) .................................... $(1,268,399) $14,866 $(117,010)
Contingent deferred sales charges .................................. $ 8,343 $1,457 $ 84,599
</TABLE>
The Funds paid transfer agent fees of $3,077,594, of which $1,743,359 was paid
to Investor Services.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES
At October 31, 1999, the Franklin Value Fund had tax basis capital losses of
$29,248,206 which may be carried over to offset future capital gains. Such
losses expire in 2007.
At October 31, 1999, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
--------------------------------------------------------
<S> <C> <C> <C>
Investments at cost ............................................ $1,136,680,093 $125,148,432 $121,119,078
======================================================
Unrealized appreciation ........................................ $ 223,801,083 $ 14,879,889 $ 8,472,396
Unrealized depreciation ........................................ (191,584,599) (23,662,675) (29,748,508)
------------------------------------------------------
Net unrealized appreciation (depreciation) ..................... $ 32,216,484 $ (8,782,786) $(21,276,112)
======================================================
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sales and foreign currency
transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP VALUE
INVESTMENT FUND VALUE FUND FUND
-------------------------------------------------------
<S> <C> <C> <C>
Purchases .......................................................... $217,146,711 $20,260,280 $48,625,737
Sales .............................................................. $234,084,100 $68,383,031 $85,342,834
</TABLE>
6. DEFAULTED SECURITIES
At October 31, 1999, the Franklin Balance Sheet Investment Fund and Franklin
Value Fund held defaulted securities with a value aggregating $945,000 and
$67,500, representing .10% and .10% of the Fund's net assets, respectively. For
information as to specific securities, see the accompanying Statement of
Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
7. RESTRICTED SECURITIES
The Funds may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at October 31, 1999 were as follows:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUER ACQUISITION DATE COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRANKLIN VALUE FUND
$1,000,000 SPACEHAB Inc., cvt. sub. notes, 144A, 8.00%, 10/15/07 (.7% of Net Assets) ....... 10/31/97 $1,000,000 $740,000
</TABLE>
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS
The Investment Company Act of 1940 defines "affiliated companies" as investments
in portfolio companies in which the fund owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies", including dividend
income at October 31, 1999 were as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF REALIZED
SHARES HELD AT GROSS GROSS SHARES HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME (LOSSES)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN BALANCE SHEET
INVESTMENT FUND
ACMAT Corp., A 295,000 -- -- 295,000 $ 2,728,750 $ -- $ --
Allen Organ Co., B 83,000 -- -- 83,000 3,195,500 46,480 --
American Pacific Corp. 421,100 -- -- 421,100 2,947,700 -- --
Audiovox Corp., A 1,720,000 -- 520,000 1,200,000 24,450,000 -- 2,298,599
Aydin Corp. 270,000 -- 270,000 -- * -- 245,748
Aztar Corp. 3,400,000 -- 150,000 3,250,000 31,484,375 -- 151,527
Castle & Cooke Inc. 1,782,400 -- 53,400 1,729,000 23,989,875 -- (239,117)
Champps Entertainment Inc.** 985,000 -- -- 985,000 2,154,688 -- --
Charming Shoppes Inc. 6,600,000 -- 600,000 6,000,000 29,812,500 -- 1,094,122
Cherry Corp. 679,900 -- 25,000 654,900 7,858,800 -- 24,417
Chic By H.I.S. Inc. 756,000 -- -- 756,000 567,000 -- --
Commonwealth Industries Inc. 1,300,000 -- 125,700 1,174,300 11,743,000 253,515 (366,617)
Crown Central Petroleum Corp., B 500,000 -- 102,200 397,800 2,113,313 -- (923,523)
Cyrk Inc. 1,187,400 -- 37,400 1,150,000 7,510,938 -- (155,233)
Delta Woodside Industries Inc. 2,400,000 -- 116,500 2,283,500 5,280,594 178,000 (321,749)
Designs Inc. 1,200,000 -- 10,000 1,190,000 1,487,500 -- (36,969)
Dixie Group Inc. 600,000 -- 200,000 400,000 * -- (325,955)
Echelon International Corp. Inc. 500,000 -- 91,300 408,700 9,783,256 -- (85,774)
Ecology & Environment Inc., A 260,000 -- 25,000 235,000 1,410,000 79,200 (25,606)
ESCO Electronics Corp. 840,000 -- 40,000 800,000 9,350,000 -- 74,407
Fidelity Bancorp Inc. 144,500 -- 16,200 128,300 2,205,156 59,334 202,014
Fred's Inc. 850,000 119,000 -- 969,000 11,628,000 189,460 --
Garan Inc. 285,100 -- -- 285,100 9,087,563 470,415 --
Good Guys Inc. 987,500 -- 987,500 -- * -- (3,615,295)
Haggar Corp. 850,000 -- 23,000 827,000 9,019,469 127,500 (59,168)
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS (CONT.)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF REALIZED
SHARES HELD AT GROSS GROSS SHARES HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME (LOSSES)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN BALANCE SHEET
INVESTMENT FUND (CONT.)
Handleman Co. 2,409,000 -- 559,000 1,850,000 $ 29,831,250 $ -- $2,885,779
HomeBase Inc. 3,300,000 -- 1,440,000 1,860,000 * -- (6,780,128)
Insteel Industries Inc. 580,000 -- 10,000 570,000 4,239,375 138,000 (14,952)
International Shipholding Corp. 660,000 -- 72,100 587,900 6,025,975 151,481 (83,529)
Jacobson Stores Inc. 298,100 -- -- 298,100 1,602,288 -- --
Jan Bell Marketing Inc. 443,700 807,700 -- 1,251,400 3,441,350 -- --
Kaneb Services Inc. 3,200,000 -- 10,000 3,190,000 14,355,000 -- (9,851)
KLLM Transport Services Inc. 322,000 -- 26,100 295,900 1,405,525 -- (177,917)
Lechters Inc. 861,600 -- 274,000 587,600 * -- (376,737)
Maynard Oil Co. 268,000 -- 8,000 260,000 2,470,000 -- 2,157
Merchants Group Inc. 257,800 -- -- 257,800 5,929,400 77,340 --
Monarchs Machine Tool Co. 250,000 -- 250,000 -- * 32,000 (500,488)
Nash-Finch Co. 1,000,000 -- 50,000 950,000 6,234,375 446,400 (578,399)
Nashua Corp. 299,100 -- -- 299,100 2,504,963 -- --
Oshkosh Truck Corp. 460,400 -- 77,900 382,500 * 171,663 6,014,238
Pitt-Des Moines Inc. 360,000 86,500 -- 446,500 10,102,063 282,905 --
Professionals Group Inc. 184,350 279,150 -- 463,500 11,152,969 -- --
Pulaski Furniture Corp. 192,000 -- -- 192,000 3,072,000 130,560 --
Standard Microsystems Corp. 1,375,000 -- 60,000 1,315,000 11,917,188 -- (148,281)
Stewart Information Services Corp. 400,000 370,000 10,000 780,000 11,602,500 121,600 135,339
Syms Corp. 1,110,000 333,200 -- 1,443,200 7,937,600 -- --
TransFinancial Holdings, Inc. 270,000 -- 270,000 -- * -- (1,242,055)
TransPro, Inc. 370,000 -- 120,000 250,000 * 62,000 (475,841)
VICORP Restaurants Inc. 480,000 126,700 -- 606,700 10,238,063 -- --
Wolohan Lumber Co. 520,000 -- -- 520,000 6,435,000 145,600 --
------------ ---------- ------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $360,304,861 $3,163,453 $(3,414,837)
============ ========== ============
FRANKLIN MICROCAP VALUE FUND
ACMAT Corp., A 150,000 -- -- 150,000 $ 1,387,500 $ -- $ --
Aerovox Inc. 530,000 -- 530,000 -- * -- (1,036,390)
Allou Health & Beauty Care Inc., A 457,000 26,000 183,000 300,000 1,725,000 -- 798,923
Allstate Financial Corp. 209,000 -- 209,000 -- * -- (1,057,587)
American Physicians Service 247,000 -- 247,000 -- * -- (766,618)
Group Inc.
Art's-Way Manufacturing Co. Inc. 82,500 38,000 -- 120,500 459,406 -- --
Athey Products Corp. 200,000 -- 2,000 198,000 266,063 -- (4,705)
Atlantic Tele-Network Inc. 300,000 -- 30,000 270,000 2,227,500 178,500 (172,559)
ECC International Corp. 800,000 -- 118,000 682,000 2,514,875 -- (72,531)
Ecology & Environment Inc., A 110,000 -- 2,000 108,000 * 35,200 (4,410)
EMCON 650,000 -- 650,000 -- * -- 1,802,518
Espey Manufacturing & Electronics 93,000 -- 3,000 90,000 1,350,000 23,175 (8,703)
Corp.
</TABLE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS (CONT.)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF REALIZED
SHARES HELD AT GROSS GROSS SHARES HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER BEGINNING OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME (LOSSES)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN MICROCAP VALUE FUND (CONT.)
GZA GeoEnvironmental Technologies Inc. 310,000 -- -- 310,000 $ 1,395,000 $ -- $ --
Harding Lawson Associates Group Inc. 304,900 -- 4,000 300,900 2,407,200 -- (2,877)
Kentucky Electric Steel Inc. 450,000 -- -- 450,000 1,378,125 -- --
Maine Public Service Co. 120,000 -- 2,000 118,000 2,035,500 125,400 (741)
Maynard Oil Co. 298,500 -- 8,500 290,000 2,755,000 -- 769
Moore Products Co. 134,700 -- 16,700 118,000 (*) 29,634 91,100
NSC Corp. 485,000 315,000 800,000 -- (*) -- (131,639)
Oriole Homes Corp., B 359,500 -- 359,500 -- (*) -- (2,343,987)
Roy F. Weston Inc., A 633,000 -- -- 633,000 1,542,938 -- --
S&K Famous Brands Inc. 60,000 205,000 15,000 250,000 1,875,000 -- (38,441)
Seneca Foods Corp., A 175,600 16,000 -- 191,600 2,299,200 -- --
Spaghetti Warehouse Inc. 550,000 -- 550,000 -- (*) -- 1,439,349
TEI Inc. 955,000 -- 955,000 -- (*) -- 15,968
Temtex Industries Inc. 265,500 -- -- 265,500 489,516 -- --
TransFinancial Holdings Inc. 336,000 -- 36,000 300,000 1,631,250 -- (112,666)
Treadco Inc. 261,400 24,600 286,000 -- (*) -- 405,981
Village Super Market Inc., A 95,000 13,500 -- 108,500 1,546,125 -- --
------------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $ 29,285,198 $391,909 $(1,199,246)
==========================================
</TABLE>
(*) As of October 31, 1999, no longer an affiliate.
(**) Name change on July 29, 1999, previously known as Unique Casual Restaurants
Inc.
FRANKLIN VALUE INVESTORS TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN VALUE INVESTORS TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds constituting the
Franklin Value Investors Trust, (hereafter referred to as the "Trust") at
October 31, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
December 6, 1999
FRANKLIN VALUE INVESTORS TRUST
Tax Information
Under Section 852(b)(3)C) of the Internal Revenue Code, the Trust hereby
designates the following amounts as capital gain dividends for the fiscal year
ended October 31, 1999:
FRANKLIN BALANCE FRANKLIN MICROCAP
SHEET INVESTMENT FUND VALUE FUND
---------------------------------------------------
$10,259,843 $9,046,707
Under Section 854(b)(2) of the Internal Revenue Code, the Trust hereby
designates the following percentage amounts of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
October 31, 1999:
FRANKLIN BALANCE FRANKLIN MICROCAP
SHEET INVESTMENT FUND VALUE FUND
---------------------------------------------------
69.70% 31.73%
