<PAGE>
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Value Investors Trust covers the period ended
October 31, 2000. In June of this year we added a new entry to the Trust's
existing trio of value funds -- Franklin Large Cap Value Fund. As its name
implies, Franklin Large Cap Value Fund focuses on companies with established
businesses, experienced management, strong financials and, of course, stocks
selling at what we consider bargain prices. The major distinction in this
portfolio is its emphasis on much larger companies than those found in the other
three value funds we manage. Currently, the median market capitalization of a
company held in Franklin Large Cap Value Fund is approximately $12 billion. You
can read more about our newest fund beginning on page 14.
The domestic economy began to slow in 2000 after reaching the peak of its
10-year expansion in the fourth quarter of 1999 with an impressive 8.3%
annualized growth rate for U.S. gross domestic product (GDP). GDP then dropped
to an annualized average of just 5.2% in the first half of 2000, followed by a
2.4% annualized rate in the third quarter.(1) The expansion was marked by high
spending, exuberant
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ....................................................... 1
Fund Reports
Franklin Balance Sheet Investment Fund ................................ 5
Franklin Large Cap Value Fund ......................................... 14
Franklin MicroCap Value Fund .......................................... 20
Franklin Value Fund ................................................... 28
Financial Highlights & Statements of Investments ......................... 36
Financial Statements ..................................................... 57
Notes to Financial Statements ............................................ 63
Independent Auditors' Report ............................................. 72
Tax Designation .......................................................... 73
</TABLE>
FUND CATEGORY
[PYRAMID CHART]
(1) Source: Bureau of Economic Analysis, 11/00.
<PAGE>
consumer confidence levels and a savings rate near zero, while the early signs
of deceleration were largely due to higher interest rates, rising energy and
commodity prices, and shrinking consumer spending increases. Although
unemployment hovered near its 30-year low of 3.9% throughout much of the year
under review, consumer confidence dipped after an extended period of gains, as
evidenced by the smallest increase in consumer spending in three years reported
for the second quarter. Consumer prices also fell in August for the first time
in 14 years. By summer's end, investors were shaken by a growing number of
missed earnings forecasts from many well-known companies. While remaining
historically high, consumer confidence reached a 12-month low on October 31,
2000.
There was only a modicum of inflation during the period despite rising commodity
and energy costs, including the significant hike in crude oil prices. In an
effort to restrain inflation, the Federal Reserve Board (the Fed) raised the
federal funds target rate four times for a total of 125 basis points, ending the
period at 6.50%, the highest rate in five years.
U.S. stock markets experienced extreme volatility, with many records shattered
during the Trust's fiscal year. For the year ended October 31, 2000, the
tech-heavy Nasdaq Composite Index was most volatile, climbing 70.3% to a record
high on March 10 only to later record some of its biggest one-day losses and
ending the period with a 14.3% return overall. The Dow Jones(R) Industrial
Average, essentially free of the highly speculative issues found on the
Nasdaq(R), experienced fewer gyrations and ended the fiscal year at 10971.1, or
3.6% higher than its starting point of 10729.9 at the beginning of the period.
While lagging most of the period, the Standard & Poor's 500(TM) Stock Index hit
a record high on March 24, and had a 6.09% return during the
2
<PAGE>
same period.(2) Overall, share volumes traded on the major U.S. markets reached
record proportions, and consumers produced the highest margin and consumer debt
levels in history.
Even as the major stock indexes drifted lower during the second half of the
reporting period after red-hot performances in the first half, there was a wide
disparity in results by industry group. Stocks that benefit from the prospects
of lower interest rates due to a slowdown in economic activity, such as
financials and utilities, performed best during the period. Utilities also
benefited from a shortage of available power in many regions, and many utility
companies that supplied merchant, or unregulated, power to these regions saw
sharp increases in their stock prices.
Value stocks -- out of favor during the first half of the period primarily due
to strong technology sector returns -- began to attract investors in the second
half as "old economy" stocks with solid earnings growth captured interest from
languishing Internet, technology and other "new economy" stocks that had begun
to record disappointing results. Dot-com stocks, in particular, plummeted as
investors' focus returned to fundamental concepts such as earnings, market share
and proven management.
Throughout the reporting period, strategic buyers stepped up acquisition
activity in many of our bargain holdings. During the year under review, 29
announcements of corporate takeovers were made involving the Trust's four funds,
almost all at a premium to prior-day prices.
"Value stocks ... captured interest from languishing Internet, technology and
other 'new economy' stocks that had begun to record disappointing results."
(2) Source: Standard & Poor's Micropal.
The Dow Jones Industrial Average is a price-weighted index based on the average
of 30 blue chip stocks. The Nasdaq Composite Index measures all Nasdaq domestic
and non-U.S.-based common stocks listed on The Nasdaq Stock Market(R). The index
is market-value weighted and includes over 4,800 companies (as of 10/31/00). The
S&P 500 Stock Index consists of 500 domestic stocks, comprising four broad
sectors: industrials, utilities, financials and transportation. The S&P 500
serves as the standard for measuring large-cap U.S. stock market performance.
Since some industries are characterized by companies of relatively small stock
capitalization, the index is not composed of the 500 largest, U.S. publicly
traded companies. The indexes include reinvested dividends.
3
<PAGE>
Franklin Value Investors Trust is organized into four portfolios, each managed
in the same spirit but with a differing focus. While the funds have distinct
investment objectives, our fundamental operating principles remain the same:
prudent investment selection and constant professional supervision. Despite the
atmosphere of increased market volatility, we remain steadfast and committed to
our common-sense value investment strategy. We believe our value funds provide
shareholders with attractively priced portfolios of well-managed, financially
sound companies that possess the potential for solid earnings growth and, with
patience, stock-price appreciation over the long term.
Historically, patient investors achieved favorable results by evaluating their
goals and diversifying their assets. We encourage you to contact your investment
representative to discuss your goals and investment plan. As always, we value
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
4
<PAGE>
FRANKLIN BALANCE SHEET
INVESTMENT FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Balance Sheet Investment Fund seeks high total
return, of which capital appreciation and income are components, by investing
primarily in securities that we believe are undervalued in the marketplace.
--------------------------------------------------------------------------------
It is a pleasure to bring you this annual report for Franklin Balance Sheet
Investment Fund, which covers the period ended October 31, 2000.
After two years of unsatisfactory performance, wherein the Fund lost ground not
only in absolute terms, but in relation to other investment styles, we are
pleased to report that our cumulative total return for the year ended October
31, 2000, was +18.47%. We achieved 12.80% of that gain since our semiannual
report dated April 30, 2000. In that same six-month period the Nasdaq Composite
Index, which for many investors has come to symbolize "the market," declined
12.31%.(1) In last year's letter we talked about a bear market in small, value
stocks. We think our bear market is over.
(1) Source: Standard & Poor's Micropal. The Nasdaq Composite Index measures all
Nasdaq domestic and non-U.S.-based common stocks listed on The Nasdaq Stock
Market. The index is market-value weighted and includes over 4,800 companies (as
of 10/31/00).
Cumulative total return represents the change in value of an investment,
assuming reinvestment of all distributions, and does not include sales charges.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 37.
5
<PAGE>
WHAT IS BOOK VALUE?
Shareholder equity is total assets minus total liabilities. Book value per share
is common shareholder's equity divided by common shares outstanding.
LOOKING BACK
Calendar year 1999 was a year of agony for value investors. The negative
divergence between the growth and value sub-indexes of the Russell 2000(R) Index
-- meaning how much better small growth stocks did than small value stocks --
ended at about 44.6%, on top of a 7.7% negative divergence in 1998.(2) In the
fourth calendar quarter of 1999, which includes the first two months of the
Fund's 2000 fiscal year, the comparative underperformance of the value style
within the small stock universe was 2.5 times worse than in the first nine
months. The great driver in the growth area was technology, and in that sector,
small-capitalization stocks shot up as fast as large-capitalization stocks. On
the value side of the ledger, large cap still beat small cap in 1999.
As of December 31, 1999, most of our companies were solidly profitable or in the
lift-off phase of a turnaround. The portfolio's weighted average
price-to-earnings ratio (P/E) of 13 incorporated dozens of P/Es that were below
10. On a weighted average basis, the portfolio was 10% below book value, with
many individual stocks at deep discounts. In recognition of the extraordinary
values available to us, the Fund's directors approved reopening the Fund to new
investors beginning February 1, 2000. Franklin Balance Sheet Investment Fund had
been closed to all but retirement accounts for more than four years.
Technology's dominance continued into March 2000, but then there were signs of
change. In the last weeks of March the Nasdaq Composite began to slide, and the
Dow Industrials to rise. At one point intra-day in early April the year-to-date
return of the Dow surpassed the Nasdaq's, before the Nasdaq began to
(2) The Russell 2000 Index represents the 2000 smallest stocks in the Russell
3000 Index, comprising approximately 7% of the U.S. equity market
capitalization. The index has been reconstituted annually since 1989.
6
<PAGE>
recover. The crossover looked like "old economy" stocks challenging "new
economy" stocks, and value, meaning any kind of sensitivity to valuation,
reclaiming investors' attention.
The effect in Franklin Balance Sheet Investment Fund was muted, since the
largest, most liquid stocks are most affected in the early stages of market
shifts. What was visible in the Fund was the arrival of take-private
transactions among small, very cheap, old economy companies. The deals proffered
were mostly at prices below the levels we anticipated when we bought the stocks,
although they did represent reasonable premiums to recent trading levels. We
interpreted such moves by managements to take their companies out of the public
markets as a probable bottom in prices. We looked for improving premiums on
subsequent deals to attract investors back to small, value stocks.
The first of these management-led deals was Crown Central Petroleum in early
March. Three more surfaced almost simultaneously in the last days of the first
calendar quarter of 2000: Harding Lawson (environmental engineering), Pulaski
Furniture and Castle & Cooke (real estate development). One of our companies
that hadn't made the move was Cherry Corp., a maker of electronic switches and
specialized computer keyboards in North America and Europe. Cherry had enough
cash, by our calculation, to take itself private at twice the quarter-end price
of $15.18. In July, Cherry did go private at $26.40 per share.(3)
The second calendar quarter of 2000 was notable for volatile markets and for the
fact that value stocks fared relatively well. Among smaller companies, as
represented by the Russell 2000 Index, the value component was up 2.0% compared
with a drop of 7.4% for the growth component, thereby winning back a portion of
the huge lead growth had accumulated over several
(3) Please note: Harding Lawson, Pulaski, Castle & Cooke and Cherry Corp. were
no longer held in the portfolio as of 10/31/00.
7
<PAGE>
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets
10/31/00
<TABLE>
<S> <C>
Finance 26.3%
Retail Trade 9.6%
Utilities 8.1%
Consumer Non-Durables 7.0%
Producer Manufacturing 5.7%
Consumer Durables 5.5%
Electronic Technology 5.3%
Consumer Services 5.2%
Closed-End Funds 5.1%
Transportation 4.7%
Distribution Services 2.8%
Process Industries 2.6%
Industrial Services 1.8%
Health Services 1.2%
Non-Energy Minerals 0.8%
Preferred Stocks 0.7%
Energy Minerals 0.6%
Corporate Bonds 0.1%
Short-Term Investments & Other Net Assets 6.9%
</TABLE>
quarters. Deals were accelerating. By June 30, nearly 12% of the Fund's total
net assets were in companies where takeovers had been announced or where the
boards of directors had hired bankers to advise them on securing shareholder
value.
One of our favorite groups, life insurers, was very much out of favor early in
the calendar year. In April we were able to participate in venerable MetLife's
conversion from mutual to stock form at a 25% discount to book value. MetLife
provides insurance, retirement and investment products to nine million
households, and group and retirement products to 86 of the Fortune 100
companies. Insurance stocks have the virtue of being interest-sensitive but not
economically sensitive. MetLife ended October at $27.625, up more than 90% from
its conversion price. As the chart on the left shows, on October 31, 2000, the
Fund's largest sector weighting was financial services companies, including
insurers, at 26.3% of the Fund's total net assets. This significant exposure to
a single sector may result in the Fund experiencing greater volatility than a
fund with a more broadly diversified portfolio.(4)
The third calendar quarter of 2000 increased our confidence that the dark days
were over from our "value" perspective. The Russell 2000 Value Index
outperformed the Growth Index by 11.3% (+7.34% for Value, -3.97% for Growth).(5)
According to Morgan Stanley Dean Witter, this was "the best relative
outperformance by value since the start of the style indexes in 1993." It was
also the first time the value sub-index had beaten growth for two successive
quarters since 1998. Franklin Balance Sheet
(4) There are specific risks to investing in the financial services industry,
which is sensitive to changes in interest rates, subject to extensive government
regulation, and recently has undergone rapid change related to consolidations
and changes to its regulatory framework.
(5) Source: Standard & Poor's Micropal. The Russell 2000 Value Index measures
the performance of those Russell 2000 companies with lower price-to-book ratios
and lower forecasted growth values. The Russell 2000 Growth Index measures the
performance of those Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
8
<PAGE>
Investment Fund enjoyed solid performance from homebuilders, financial
companies, oil transport and utilities. Two of the Fund's 10 largest positions,
electric utilities Entergy Corp. and Niagara Mohawk Holdings, agreed to be
bought out during the quarter.
For the month of October, the Fund's cumulative total return was +2.00% compared
to -0.36% for the Russell 2000 Value Index, and -8.12% for the Russell 2000
Growth Index.(5) October was more difficult for small companies than for large,
possibly because the effects of tax-motivated sales are generally more
pronounced where liquidity is poorer. We look forward to the annual rebound from
tax selling known as the "January effect," which is also more pronounced among
smaller companies.
TODAY'S OPPORTUNITIES
We are seeing opportunities among well-established, well-positioned companies.
We have witnessed a prolonged period where investors who ignored the "safety
first" principles we live by realized immense returns. The situations we look
for do not hold out the prospect of the returns "momentum" strategies have
racked up over the last few years. Ironically, that perception may have lowered
our returns as the tidal pull of capital into already expensive (by our lights)
stocks and away from out-of-favor value portfolios further depressed the prices
of value stocks. Fund flows -- new money from investors -- continued to favor
momentum/growth vehicles over value funds even during the recent period of value
outperformance. However, according to Morgan Stanley Dean Witter, the last week
of our fiscal year was the first week of positive cash flow for value funds
since August 1999. Money flows generally follow performance, and we would expect
capital flows back into value funds to improve valuations.
One group that hasn't done well this year is retailers. We began buying
Federated Department Stores in the third calendar quarter.
TOP 10 HOLDINGS
Franklin Balance Sheet Investment Fund
10/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR NET ASSETS
------ ------------
<S> <C>
Aztar Corp. 3.4%
Consumer Services
American National
Insurance Co. 3.4%
Finance
Niagara Mohawk
Holdings Inc. 3.1%
Utilities
Charming Shoppes Inc. 2.9%
Retail Trade
Overseas Shipholding
Group Inc. 2.9%
Transportation
Entergy Corp. 2.9%
Utilities
American General Corp. 2.3%
Finance
St. Paul Cos. Inc. 2.1%
Finance
Block Drug Co. Inc. 2.0%
Consumer Non-Durables
Standard Microsystems Corp. 2.0%
Electronic Technology
</TABLE>
9
<PAGE>
Federated has a superior record under its current management, with the exception
of the Fingerhut Companies acquisition in 1999. Credit losses at Fingerhut
hammered Federated's stock price, providing an opportunity for us to acquire an
industry leader at a modest multiple of earnings and cash flow, and below book
value. We expect management to follow through on pledges to fix or shed
Fingerhut within a year. We also started accumulating Consolidated Stores, the
premier closeout retailer. Consolidated's share price is also down on an
unsuccessful acquisition, that of K*B Toys. K*B has been losing money, and
Consolidated is intent on divesting the unit. The basic closeout business is
unaffected, and may become more profitable in coming years thanks to systems
improvements and better focus. In any case the stock is cheap, and we expect
better results once the K*B problem is resolved. And even if consumer spending
weakens going forward, we expect the discount sector will continue to gain share
against other retail channels.
In the branded apparel sphere, Tommy Hilfiger fell from $40 a share and a 20
times P/E in mid-'99 to below $7.00 in June 2000. The Fund began accumulating
this stock in the $9-$10 range in October. We are betting that the franchise is
strong and the brand is still powerful. Indications are that Hilfiger's spring
merchandise has been well received by buyers, and the royalty stream from
licensed products is substantial. We were able to buy a significant position in
the stock at less than eight times current depressed earnings, and 25% below
stated book value.
Another recent purchase was Hutchinson Technology, which makes the suspension
assemblies that read and deposit data to hard disk drives. It has a dominant
market share, upwards of 50%, and is an innovator in its field. However, in the
recent past, it suffered as advances in storage technology have lessened the
number of units needed for a given level of memory. Unit sales
10
<PAGE>
have begun to increase again as disk drives find their way into new
applications.
Genrad is a maker of computer-controlled test equipment, with applications in
electronics manufacturing and service. New management initiated a restructuring
to improve profitability and earnings consistency. At present, Genrad has little
analyst coverage, but is in the kind of business that should attract attention
once earnings comparisons begin improving. The basic business has attractive
margins and return characteristics, so we were pleased to be able to accumulate
shares at prices consistent with our value approach.
RLI Corp. is a high-quality specialty lines insurer, a company we know well and
have followed for years. The company trades at a modest premium to book value,
and should enjoy excellent results as less profitable general lines insurance
companies retrench and raise prices. The property casualty sector is in the
early innings of a cyclical pricing upturn, and takeovers have been widespread.
We had two in the last week of October, Meridian Insurance Group and Farm Family
Holdings, both at significant premiums to the prior trading level.
At the end of last fiscal year the Fund had 133 positions, excluding closed-end
funds. On October 31, 2000, the number was down to 109. We have been finding
good values among larger companies, and we expect the Fund's future growth to be
fueled by small, but not tiny, value stocks.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Fund. 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.
--------------------------------------------------------------------------------
11
<PAGE>
FRANKLIN BALANCE SHEET INVESTMENT FUND
CLASS A: Subject to the maximum 1.50% initial sales charge. Past expense
reductions by the Fund's manager increased the Fund's total returns.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 10/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. 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.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return +18.47%
Net Asset Value (NAV) $34.82 (10/31/00) $29.96 (10/31/99)
Change in NAV +$4.86
Distributions (11/1/99-10/31/00) Dividend Income $0.3106
Long-Term Capital Gain $0.2768
-------------------------------
Total $0.5874
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (4/2/90)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +14.93% +68.68% +368.08% +277.34%
Average Annual Total Return(2) +13.21% +10.69% +16.51% +13.32%
Value of $10,000 Investment(3) $11,321 $16,616 $46,112 $37,164
</TABLE>
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 sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the maximum sales charge.
Franklin Balance Sheet Investment Fund paid distributions derived from long-term
capital gains of 27.68 cents ($0.2768) per share in December 1999. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236.
12 Past performance does not guarantee future results
<PAGE>
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 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 inflation.
CLASS A (11/1/90-10/31/00)
[LINEGRAPH]
Franklin Value Investors Trust
Annual Report
October 31, 2000
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
1. 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 the
Russell 2000 Value Index and CPI from 11/1/90-10/31/00.
<TABLE>
<CAPTION>
Date Franklin Balance Russell 2000 Value CPI Rus. % CPI %
Sheet Investment Index
Fund
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/01/1990 $9,851 $10,000 $10,000
11/30/1990 $9,488 $10,605 $10,022 6.05% 0.22%
12/31/1990 $10,050 $10,928 $10,022 3.05% 0.00%
01/31/1991 $10,330 $11,868 $10,082 8.60% 0.60%
02/28/1991 $11,045 $13,164 $10,097 10.92% 0.15%
03/31/1991 $12,114 $14,083 $10,112 6.98% 0.15%
04/30/1991 $12,470 $14,192 $10,128 0.77% 0.15%
05/31/1991 $12,810 $14,857 $10,158 4.69% 0.30%
06/30/1991 $13,185 $14,162 $10,187 -4.68% 0.29%
07/31/1991 $12,988 $14,530 $10,203 2.60% 0.15%
08/31/1991 $13,117 $14,972 $10,232 3.04% 0.29%
09/30/1991 $13,193 $14,990 $10,277 0.12% 0.44%
10/31/1991 $13,211 $15,161 $10,293 1.14% 0.15%
11/30/1991 $13,374 $14,545 $10,323 -4.06% 0.29%
12/31/1991 $13,288 $15,488 $10,330 6.48% 0.07%
01/31/1992 $13,954 $16,784 $10,345 8.37% 0.15%
02/29/1992 $14,348 $17,585 $10,383 4.77% 0.36%
03/31/1992 $14,847 $17,393 $10,435 -1.09% 0.51%
04/30/1992 $14,917 $17,151 $10,450 -1.39% 0.14%
05/31/1992 $14,803 $17,618 $10,465 2.72% 0.14%
06/30/1992 $14,970 $17,047 $10,502 -3.24% 0.36%
07/31/1992 $14,908 $17,690 $10,524 3.77% 0.21%
08/31/1992 $15,837 $17,345 $10,554 -1.95% 0.28%
09/30/1992 $15,359 $17,672 $10,583 1.89% 0.28%
10/31/1992 $15,164 $18,084 $10,621 2.33% 0.35%
11/30/1992 $15,449 $19,204 $10,635 6.19% 0.14%
12/31/1992 $16,133 $20,001 $10,628 4.15% -0.07%
01/31/1993 $17,028 $21,063 $10,680 5.31% 0.49%
02/28/1993 $17,409 $21,147 $10,717 0.40% 0.35%
03/31/1993 $17,521 $21,948 $10,755 3.79% 0.35%
04/30/1993 $18,106 $21,421 $10,785 -2.40% 0.28%
05/31/1993 $18,060 $22,094 $10,800 3.14% 0.14%
06/30/1993 $18,573 $22,304 $10,815 0.95% 0.14%
07/31/1993 $18,798 $22,688 $10,815 1.72% 0.00%
08/31/1993 $19,388 $23,575 $10,846 3.91% 0.28%
09/30/1993 $20,925 $24,141 $10,868 2.40% 0.21%
10/31/1993 $20,954 $24,693 $10,913 2.29% 0.41%
11/30/1993 $21,603 $24,051 $10,920 -2.60% 0.07%
12/31/1993 $21,218 $24,758 $10,920 2.94% 0.00%
01/31/1994 $21,382 $25,642 $10,950 3.57% 0.27%
02/28/1994 $21,988 $25,568 $10,987 -0.29% 0.34%
03/31/1994 $21,734 $24,420 $11,025 -4.49% 0.34%
04/30/1994 $21,018 $24,662 $11,040 0.99% 0.14%
05/31/1994 $21,283 $24,627 $11,048 -0.14% 0.07%
06/30/1994 $21,518 $23,984 $11,085 -2.61% 0.34%
07/31/1994 $21,577 $24,428 $11,115 1.85% 0.27%
08/31/1994 $22,088 $25,391 $11,160 3.94% 0.40%
09/30/1994 $22,707 $25,121 $11,190 -1.06% 0.27%
10/31/1994 $22,687 $24,662 $11,198 -1.83% 0.07%
11/30/1994 $22,342 $23,668 $11,212 -4.03% 0.13%
12/31/1994 $21,603 $24,380 $11,212 3.01% 0.00%
01/31/1995 $21,701 $24,261 $11,257 -0.49% 0.40%
02/28/1995 $22,354 $25,158 $11,302 3.70% 0.40%
03/31/1995 $23,348 $25,282 $11,339 0.49% 0.33%
04/30/1995 $23,840 $26,033 $11,377 2.97% 0.33%
05/31/1995 $24,625 $26,590 $11,400 2.14% 0.20%
06/30/1995 $25,138 $27,499 $11,422 3.42% 0.20%
07/31/1995 $25,722 $28,503 $11,422 3.65% 0.00%
08/31/1995 $26,338 $29,349 $11,452 2.97% 0.26%
09/30/1995 $27,035 $29,787 $11,475 1.49% 0.20%
10/31/1995 $27,336 $28,598 $11,513 -3.99% 0.33%
11/30/1995 $26,658 $29,733 $11,505 3.97% -0.07%
12/31/1995 $27,579 $30,655 $11,497 3.10% -0.07%
01/31/1996 $28,222 $30,858 $11,565 0.66% 0.59%
02/29/1996 $28,359 $31,342 $11,602 1.57% 0.32%
03/31/1996 $28,560 $32,000 $11,662 2.10% 0.52%
04/30/1996 $29,269 $32,874 $11,707 2.73% 0.39%
05/31/1996 $30,022 $33,705 $11,730 2.53% 0.19%
06/30/1996 $30,605 $33,308 $11,737 -1.18% 0.06%
07/31/1996 $30,328 $31,536 $11,759 -5.32% 0.19%
08/31/1996 $29,605 $32,904 $11,781 4.34% 0.19%
09/30/1996 $30,583 $33,803 $11,819 2.73% 0.32%
10/31/1996 $30,850 $34,195 $11,857 1.16% 0.32%
11/30/1996 $31,171 $36,035 $11,879 5.38% 0.19%
12/31/1996 $32,411 $37,206 $11,879 3.25% 0.00%
01/31/1997 $33,162 $37,779 $11,917 1.54% 0.32%
02/28/1997 $34,384 $38,138 $11,954 0.95% 0.31%
03/31/1997 $34,954 $37,115 $11,984 -2.68% 0.25%
04/30/1997 $34,288 $37,661 $11,999 1.47% 0.12%
05/31/1997 $34,125 $40,659 $11,991 7.96% -0.06%
06/30/1997 $36,215 $42,716 $12,006 5.06% 0.12%
07/31/1997 $38,237 $44,510 $12,020 4.20% 0.12%
08/31/1997 $39,773 $45,218 $12,043 1.59% 0.19%
09/30/1997 $39,983 $48,225 $12,073 6.65% 0.25%
10/31/1997 $42,625 $46,913 $12,103 -2.72% 0.25%
11/30/1997 $41,414 $47,429 $12,096 1.10% -0.06%
12/31/1997 $41,190 $49,037 $12,081 3.39% -0.12%
01/31/1998 $41,775 $48,150 $12,104 -1.81% 0.19%
02/28/1998 $41,701 $51,063 $12,127 6.05% 0.19%
03/31/1998 $44,179 $53,136 $12,150 4.06% 0.19%
04/30/1998 $45,856 $53,396 $12,172 0.49% 0.18%
05/31/1998 $46,469 $51,506 $12,194 -3.54% 0.18%
06/30/1998 $45,869 $51,217 $12,209 -0.56% 0.12%
07/31/1998 $45,518 $47,207 $12,224 -7.83% 0.12%
08/31/1998 $43,075 $39,815 $12,238 -15.66% 0.12%
09/30/1998 $38,452 $42,064 $12,253 5.65% 0.12%
10/31/1998 $39,345 $43,313 $12,282 2.97% 0.24%
11/30/1998 $40,113 $44,487 $12,282 2.71% 0.00%
12/31/1998 $40,704 $45,884 $12,275 3.14% -0.06%
01/31/1999 $41,521 $44,842 $12,304 -2.27% 0.24%
02/28/1999 $41,048 $41,780 $12,319 -6.83% 0.12%
03/31/1999 $38,762 $41,437 $12,356 -0.82% 0.30%
04/30/1999 $37,431 $45,220 $12,446 9.13% 0.73%
05/31/1999 $39,880 $46,609 $12,446 3.07% 0.00%
06/30/1999 $41,421 $48,296 $12,446 3.62% 0.00%
07/31/1999 $44,015 $47,151 $12,484 -2.37% 0.30%
08/31/1999 $43,434 $45,425 $12,514 -3.66% 0.24%
09/30/1999 $41,388 $44,517 $12,574 -2.00% 0.48%
10/31/1999 $40,120 $43,627 $12,596 -2.00% 0.18%
11/30/1999 $39,696 $43,853 $12,604 0.52% 0.06%
12/31/1999 $40,465 $45,200 $12,604 3.07% 0.00%
01/31/2000 $40,884 $44,020 $12,642 -2.61% 0.30%
02/29/2000 $39,622 $46,710 $12,716 6.11% 0.59%
03/31/2000 $40,588 $46,929 $12,821 0.47% 0.82%
04/30/2000 $41,221 $47,206 $12,828 0.59% 0.06%
05/31/2000 $41,692 $46,484 $12,844 -1.53% 0.12%
06/30/2000 $41,168 $47,841 $12,910 2.92% 0.52%
07/31/2000 $42,380 $49,434 $12,940 3.33% 0.23%
08/31/2000 $43,484 $51,644 $12,940 4.47% 0.00%
09/30/2000 $45,411 $51,350 $13,007 -0.57% 0.52%
10/31/2000 $48,847 $51,165 $13,030 -0.36% 0.17%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year +16.68%
5-Year +11.69%
10-Year +17.19%
Since Inception (4/2/90) +13.41%
</TABLE>
*Source: Standard and Poor's Micropal. The Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios and
lower forecasted growth values. The Russell 2000 Index, from which the Russell
2000 Value Index is constituted, represents the 2,000 smallest stocks in the
Russell 3000 Index, that represent approximately 7% of the U.S. equity market
capitalization. The index has been reconstituted annually since 1989.
Past performance does not guarantee future results.
13
<PAGE>
FRANKLIN LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
Your Fund's Goal: Franklin Large Cap Value Fund seeks long-term capital
appreciation by investing at least 80% of total net assets in securities of
large-capitalization companies that are similar in size to those in the Russell
1000 Index at the time of purchase, and which we believe are undervalued in the
marketplace.(1)
--------------------------------------------------------------------------------
We are pleased to bring you the first annual report for Franklin Large Cap Value
Fund, covering the period from its June 1, 2000, inception to October 31, 2000.
Major stock indexes changed very little since the Fund commenced operations.
However, there was a wide disparity of performance among industry groups. Stocks
that benefit from the prospects of lower interest rates due to a slowdown in
economic activity, such as financials and utilities, performed best during the
period. Utilities also benefited from a shortage of available power in many
regions, and many utility companies that supplied merchant or unregulated power
to these regions saw sharp increases in their stock prices.
(1) The Russell 1000 Index is designed to measure the 1000 largest companies in
the investable U.S. equity market.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 44.
14
<PAGE>
Within this environment, Franklin Large Cap Value Fund - Class A produced a
+11.20% cumulative total return for the five months ended October 31, 2000, as
shown in the Performance Summary on page 18. By comparison, the Fund's
benchmark, the unmanaged Russell 1000(R) Value Index, returned 5.46% for the
same period.(2)
We sought to build the Fund's portfolio by selecting a group of large-company
stocks, diversified across a number of industries, which we believed were
inexpensive relative to their earnings prospects. In this process, we seek to
assure accounting integrity, and pay special attention to our analysis
concerning the quality of current earnings, making certain that each company's
cash flows from continuing operations are strong. We also seek companies that we
believe could enhance shareholder value by selling assets not related to core
operations, or those utilizing excess cash to buy back stocks. Another
characteristic we like to see among the portfolio's companies is a relatively
high or improving return on capital.
Some of our strongest performers during the five-month period were financial
stocks. These came back into investors' favor as interest-rate concerns subsided
following the Fed's rate hike on May 16. Many market participants believed this
would be the last of the recent series of rate increases. Fannie Mae (FNMA or
Federal National Mortgage Assoc.) and Freddie Mac (FHLMC or Federal Home Loan
Mortgage Corp.), two large government-sponsored mortgage agencies, saw their
share prices unduly depressed by fears that proposed additional government
oversight would limit their growth prospects. However, these concerns
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets
10/31/00
[BAR CHART]
<TABLE>
<CAPTION>
<S> <C>
Finance.................. 17.2%
Retail Trade............. 10.4%
Energy Minerals.......... 8.3%
Consumer Durables........ 7.6%
Transportation........... 6.0%
Producer Manufacturing... 5.5%
Insurance................ 5.3%
Communications........... 4.9%
Utilities................ 3.9%
Process Industries....... 2.6%
Non-Energy Minerals...... 2.5%
Consumer Services........ 2.2%
Consumer Non-Durables.... 1.6%
Health Technology........ 1.6%
Industrial Services...... 1.2%
Short Term Investments
& Other Net Assets..... 19.2%
</TABLE>
(2) Source: Standard & Poor's Micropal. The Russell 1000 Value Index is a total
return index that comprises stocks from the Russell 1000 Index with a
less-than-average growth orientation. It represents the universe of stocks from
which value managers typically select. The index has been reconstituted annually
since 1989. Cumulative total return measures the change in value of an
investment for the period indicated and does not include the sales charge. The
index is unmanaged and includes reinvested dividends. One cannot invest directly
in an index.
15
<PAGE>
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
10/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR NET ASSETS
------ ----------
<S> <C>
Federated Department
Stores Inc. 3.2%
Retail Trade
The TJX Companies Inc. 3.1%
Retail Trade
Conoco Inc. 2.8%
Energy Minerals
Family Dollar Stores Inc. 2.7%
Retail Trade
International Paper Co. 2.6%
Process Industries
Masco Corp. 2.6%
Producer Manufacturing
Weyerhaeuser Co. 2.5%
Non-Energy Minerals
Washington Mutual Inc. 2.5%
Finance
Verizon Communications 2.5%
Communications
Freddie Mac (Federal
Home Loan Mortgage Corp.) 2.5%
Finance
</TABLE>
gradually faded, and in late October a compromise was reached that reduced the
threat of excessive regulation.
Other financial stocks offering solid returns for the Fund included life
insurance companies American General, MetLife and John Hancock Financial. These
companies benefited not only from the prospect of lower interest rates, but also
by a new realization that they offer solid growth potential through the sale of
tax-deferred investment products for the large percentage of Americans who are
now approaching retirement age. Another strong performer was Washington Mutual,
a large thrift, which enjoyed expansion in its loan business coupled with rising
fee income.
Two energy-related companies that performed well were Phillips Petroleum and
Duke Energy. Phillips benefited from rising commodity prices and the purchase of
Alaskan oil fields from Atlantic Richfield on what were widely perceived as very
favorable terms. Duke Energy, traditionally a staunchly regulated electric
utility operator, posted impressive results due to rapid expansion within its
merchant energy operations, or sales of electricity outside the utility's
regulated operations.
TJX Companies, an off-price specialty retailer and one of the Fund's largest
holdings, also posted strong results during the period under review. When TJX's
stock price dropped soon after our initial purchase, we continued to accumulate
shares at depressed prices, convinced that fundamentals were still strong. The
stock then rose sharply from its early August lows, confirming our early
analysis.
16
<PAGE>
Some of our holdings declined as their earnings fell amid the increasingly
difficult economic environment. These stocks included Masco and Leggett & Platt,
companies that operate in the home improvement and furniture industries.
Convinced that company fundamentals remained intact, we added to both at what we
considered attractive prices.
Looking forward, we will continue to stay the course and follow our 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, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Fund. 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.
--------------------------------------------------------------------------------
17
<PAGE>
FRANKLIN LARGE CAP
VALUE FUND
CLASS A: Subject to the maximum 5.75% initial sales charge.*
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: 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.*
*The Fund's manager has agreed in advance to waive a portion of its management
fees and to make certain payments to reduce expenses. If the manager had not
taken this action, the Fund's total return would have been lower. The fee waiver
may be discontinued at any time, upon notice to the Fund's Board of Trustees.
PERFORMANCE SUMMARY AS OF 10/31/00
Aggregate total return represents the change in value of an investment for the
period indicated and does not include sales charges. Distributions will vary
based on earnings of the Fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
Aggregate Total Return +11.20%
Net Asset Value (NAV) $11.12 (10/31/00) $10.00 (6/1/00)
Change in NAV +$1.12
CLASS B
Aggregate Total Return +11.10%
Net Asset Value (NAV) $11.11 (10/31/00) $10.00 (6/1/00)
Change in NAV +$1.11
CLASS C
Aggregate Total Return +11.10%
Net Asset Value (NAV) $11.11 (10/31/00) $10.00 (6/1/00)
Change in NAV +$1.11
</TABLE>
18 Past performance does not guarantee future results.
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A (6/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +5.30%
Aggregate Total Return(2) -0.75%
Value of $10,000 Investment(3) $9,925
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (6/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +5.20%
Aggregate Total Return(2) +1.20%
Value of $10,000 Investment(3) $10,120
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C (6/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +5.20%
Aggregate Total Return(2) +3.17%
Value of $10,000 Investment(3) $10,317
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Aggregate total return represents the change in value of an investment since
the Fund's inception, including the maximum sales charge. Since the Fund has
existed for less than one year, average annual total returns are not provided.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the period indicated and include the applicable, maximum sales
charge(s) for that class.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236.
Past performance does not guarantee future results. 19
<PAGE>
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.
--------------------------------------------------------------------------------
It is a pleasure to bring you this annual report for Franklin MicroCap Value
Fund, which covers the period ended October 31, 2000.
After two years of unsatisfactory performance, wherein the Fund lost ground not
only in absolute terms, but in relation to other investment styles, we are
pleased to report that our cumulative total return for the year ended October
31, 2000, was +11.53%. We achieved 8.51% of that gain since our semiannual
report dated April 30, 2000. In that same six-month period the Nasdaq Composite
Index, which for many investors has come to symbolize "the market," declined
12.31%.(1) In last year's letter we talked about a bear market in small, value
stocks. We think our bear market is over.
(1) Source: Standard & Poor's Micropal. The Nasdaq Composite Index measures all
Nasdaq domestic and non-U.S.-based common stocks listed on The Nasdaq Stock
Market. The index is market-value weighted and includes over 4,800 companies (as
of 10/31/00).
Cumulative total return represents the change in value of an investment,
assuming reinvestment of all distributions, and does not include sales charges.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 47.
20
<PAGE>
LOOKING BACK
Calendar year 1999 was a year of agony for value investors. The negative
divergence between the growth and value sub-indexes of the Russell 2000 Index --
meaning how much better small growth stocks did than small value stocks -- ended
at about 44.6%, on top of a 7.7% negative divergence in 1998.(2) In the fourth
calendar quarter of 1999, which includes the first two months of the Fund's 2000
fiscal year, the comparative underperformance of the value style within the
small stock universe was three times worse than in the first nine months. The
great driver in the growth area was technology, and in that sector,
small-capitalization stocks shot up as fast as large-capitalization stocks. On
the value side of the ledger, large cap still beat small cap in 1999.
The first calendar quarter of 2000 was notable for the arrival of take-private
transactions among the Fund's holdings involving small, very cheap, "old
economy" companies. The deals proffered were mostly at prices below the levels
we anticipated when we bought the stocks, although they did represent reasonable
premiums to recent trading levels. We interpreted such moves by management to
take their companies out of the public markets as a probable bottom in prices.
We looked for improving premiums on subsequent deals to attract investors back
to small, value stocks.
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets
10/31/00
<TABLE>
<S> <C>
Consumer Non-Durables 10.6%
Finance 9.6%
Retail Trade 9.0%
Utilities 8.0%
Consumer Durables 7.8%
Producer Manufacturing 7.3%
Electronic Technology 6.9%
Industrial Services 5.9%
Process Industries 4.9%
Energy Minerals 4.8%
Non-Energy Minerals 4.5%
Transportation 3.9%
Communications 2.9%
Consumer Services 2.7%
Communication Services 2.6%
Distribution Services 0.9%
Health Technology 0.6%
Short-Term Investments & Other Net Assets 7.1%
</TABLE>
(2) The Russell 2000 Index represents the 2000 smallest stocks in the Russell
3000 Index, comprising approximately 7% of the U.S. equity market
capitalization. The index has been reconstituted annually since 1989.
21
<PAGE>
TOP 10 HOLDINGS
Franklin MicroCap Value Fund
10/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Maynard Oil Co. 4.3%
Energy Minerals
Bangor Hydro-Electric Co. 3.1%
Utilities
Atlantic Tele-Network Inc. 2.9%
Communications
Seneca Foods Corp. 2.8%
Consumer Non-Durables
Zemex Corp. 2.8%
Non-Energy Minerals
Casino Data Systems 2.7%
Consumer Services
Courier Corp. 2.6%
Commercial Services
McNaughton Apparel
Group Inc. 2.4%
Consumer Non-Durables
Roy F. Weston Inc. 2.4%
Industrial Services
Allen Organ Co. 2.4%
Consumer Durables
</TABLE>
The second calendar quarter of 2000 was notable for volatile markets and for the
fact that value stocks fared relatively well. Among smaller companies, as
represented by the Russell 2000 Index, the value component was up 2.0% compared
with a drop of 7.4% for the growth component, thereby winning back a portion of
the huge lead growth had accumulated over several quarters. Deals were
accelerating.
The third calendar quarter of 2000 increased our confidence that the dark days
were over from our "value" perspective. The Russell 2000 Value Index
outperformed the Growth Index by 11.3% (+7.34% for Value, -3.97% for Growth).(3)
According to Morgan Stanley Dean Witter, this was "the best relative
outperformance by value since the start of the style indexes in 1993." It was
also the first time the value sub-index had beaten growth for two successive
quarters since 1998.
For the month of October, the Fund's cumulative total return was down 3.03% as
compared to -0.36% for the Russell 2000 Value Index, and -8.12% for the Russell
2000 Growth Index.(3) October was more difficult for small companies than for
large, possibly because the effects of tax-motivated sales are generally more
pronounced where liquidity is poorer. We look forward to the annual rebound from
tax selling known as the "January effect," which is also more pronounced among
smaller companies.
TODAY'S OPPORTUNITIES(4)
We are seeing opportunities among well-established, well-positioned companies.
We have witnessed a prolonged period where investors who ignored the "safety
first" principles we live
(3) Source: Standard & Poor's Micropal. The Russell 2000 Value Index measures
the performance of those Russell 2000 companies with lower price-to-book ratios
and lower forecasted growth values. The Russell 2000 Growth Index measures the
performance of those Russell 2000 companies with higher price-to-book ratios and
higher forecasted growth values.
(4) If not stated otherwise, all figures are quoted as of 10/31/00.
22
<PAGE>
by realized immense returns. The situations we look for do not hold out the
prospect of the returns "momentum" strategies have racked up over the last few
years. Ironically, that perception may have lowered our returns as the tidal
pull of capital into already expensive (by our lights) stocks and away from
out-of-favor value portfolios further depressed the prices of value stocks. We
note that fund flows -- new money from investors -- continued to favor
momentum/growth vehicles over value funds even during the recent period of value
outperformance. However, according to Morgan Stanley Dean Witter, the last week
of our fiscal year was the first week of positive cash flow for value funds
since August 1999. Money flows generally follow performance, and we would expect
capital flows back into value funds to improve valuations. The notes that follow
are intended to highlight the attractive valuations in Franklin MicroCap Value
Fund on October 31, 2000.
Franklin MicroCap Value Fund's portfolio was priced at roughly 10%-20% below
book value and a 9.3 price-to-earnings (P/E) ratio. The average beta (a
statistical measure of market risk) was 0.44, which is considered low. Even
these broad figures somewhat overstate the portfolio valuation, because slightly
more than 15% of the Fund's total net assets were invested in companies that
have agreed to buyouts, or have announced strategic reviews where outright sale
or liquidation is explicitly an option. We are not arbitrageurs who buy shares
after a deal is announced, but we often hold positions until deals are
finalized, for tax or other purposes. In all, there were 11 buyout announcements
in Franklin MicroCap Value Fund in 2000.
WHAT IS BOOK VALUE?
Shareholder equity is total assets minus total liabilities. Book value per share
is common shareholder's equity divided by common shares outstanding.
23
<PAGE>
Schultz Sav-O Stores is a grocery retailer and distributor based in Sheboygan,
Wisconsin. At $11.00, Schultz was trading at 8.2 times earnings and a modest
premium to book value. Schultz, although engaged in strenuous competition with
larger chains, is quite profitable. It easily earns its cost of capital despite
sitting on a cash hoard equal to about $6.00 per share. The main problem at
Schultz is winning new independent grocers to its distribution business, where
it makes its best returns. We think that the company may be sold if management
can not find other sound opportunities to increase shareholder value.
Kenan Transport operates a fleet of 1,031 tanker trucks that carry petroleum
products throughout a 32-state territory that accounts for 80% of U.S. gasoline
consumption. Kenan was earning at around a $2.20 annual rate, so the stock was
trading at about 10-11 times earnings. Book value was approximately $25.50, and
the balance sheet was clean, with only 10% debt to capitalization after
substantial expenditures to increase capacity. A major driver of sales is the
company's logistics management ability. Based on recent capacity additions and
the lag effect of recovering higher fuel prices from customers, Kenan should
enjoy faster earnings growth and increasing free cash flow over the next few
years.
In the semiannual report we described Hardinge Inc., a manufacturer of machine
tools and accessories. At that time, we stated our belief that the down cycle
for Hardinge's machine tools was about over. Six months later, at the Fund's
fiscal year end, sales and earnings had begun to turn up, and the stock was
still very cheap at only four times projected peak earnings. We are comfortable
waiting with a cyclical company that hasn't had a losing month in 50 years.
24
<PAGE>
Hancock Fabrics is a retailer and wholesaler of fabrics and related accessories
for home sewing and decorating. Trading at slightly over book value, and only 8
times earnings, Hancock has already emerged from a slump related to price
deflation in fabric following the Asian currency crisis of 1998. Hancock's
operating margin went from 6.5% in 1997, to 3.4% last year. Same store sales
were tracking higher with less promotion, margins were expanding and inventory
turns were improving.
Looking forward, we think the picture is bright for owners of these very cheap
stocks. We are encouraged by opportunities for investing in strong companies
that fit our value criteria and for adding to existing positions whose merit may
not be reflected in current prices, and we will adhere to our value investment
philosophy.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Fund. 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.
--------------------------------------------------------------------------------
25
<PAGE>
FRANKLIN MICROCAP VALUE FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, 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 returns.
--------------------------------------------------------------------------------
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.
PERFORMANCE SUMMARY AS OF 10/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. 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.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return +11.53%
Net Asset Value (NAV) $18.88 (10/31/00) $18.41 (10/31/99)
Change in NAV +$0.47
Distributions (11/1/99-10/31/00) Long-Term Capital Gain $1.4734
</TABLE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (12/12/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +13.23% -0.11% +68.41%
Average Annual Total Return(2) +6.72% -2.00% +10.09%
Value of $10,000 Investment(3) $10,672 $9,413 $15,867
</TABLE>
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, 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, maximum sales charge.
Franklin MicroCap Value Fund paid distributions derived from long-term capital
gains of $1.4734 per share in November 1999. The Fund hereby designates such
distributions as capital gain dividends per Internal Revenue Code Section 852
(b)(3).
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236.
Past performance does not guarantee future results.
26
<PAGE>
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 inflation.
CLASS A (12/12/95 - 10/31/00)
[GRAPH]
2. 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 the Russell
2000 Value Index and CPI from 12/12/95 - 10/31/00.
<TABLE>
<CAPTION>
Franklin MicroCap Russell 2000 Value Russell 2000
Date Value Fund Index CPI Value Index $T CPI %
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/12/1995 $9,422 $10,000 $10,000
12/31/1995 $9,560 $10,190 $9,996 1.90% -0.04%
01/31/1996 $9,585 $10,257 $10,055 0.66% 0.59%
02/29/1996 $9,856 $10,418 $10,087 1.57% 0.32%
03/31/1996 $10,629 $10,637 $10,140 2.10% 0.52%
04/30/1996 $11,139 $10,927 $10,179 2.73% 0.39%
05/31/1996 $11,429 $11,204 $10,198 2.53% 0.19%
06/30/1996 $11,416 $11,072 $10,205 -1.18% 0.06%
07/31/1996 $11,082 $10,483 $10,224 -5.32% 0.19%
08/31/1996 $11,246 $10,938 $10,243 4.34% 0.19%
09/30/1996 $11,499 $11,236 $10,276 2.73% 0.32%
10/31/1996 $11,657 $11,367 $10,309 1.16% 0.32%
11/30/1996 $12,042 $11,978 $10,329 5.38% 0.19%
12/31/1996 $12,152 $12,367 $10,329 3.25% 0.00%
01/31/1997 $12,515 $12,558 $10,362 1.54% 0.32%
02/28/1997 $12,735 $12,677 $10,394 0.95% 0.31%
03/31/1997 $12,489 $12,337 $10,420 -2.68% 0.25%
04/30/1997 $12,204 $12,519 $10,432 1.47% 0.12%
05/31/1997 $12,917 $13,515 $10,426 7.96% -0.06%
06/30/1997 $13,571 $14,199 $10,439 5.06% 0.12%
07/31/1997 $14,070 $14,796 $10,451 4.20% 0.12%
08/31/1997 $14,466 $15,031 $10,471 1.59% 0.19%
09/30/1997 $15,885 $16,030 $10,497 6.65% 0.25%
10/31/1997 $15,742 $15,594 $10,523 -2.72% 0.25%
11/30/1997 $15,619 $15,766 $10,517 1.10% -0.06%
12/31/1997 $15,520 $16,300 $10,504 3.39% -0.12%
01/31/1998 $15,375 $16,005 $10,524 -1.81% 0.19%
02/28/1998 $16,066 $16,974 $10,544 6.05% 0.19%
03/31/1998 $16,917 $17,663 $10,564 4.06% 0.19%
04/30/1998 $17,712 $17,749 $10,583 0.49% 0.18%
05/31/1998 $17,449 $17,121 $10,603 -3.54% 0.18%
06/30/1998 $16,979 $17,025 $10,615 -0.56% 0.12%
07/31/1998 $16,336 $15,692 $10,628 -7.83% 0.12%
08/31/1998 $13,881 $13,235 $10,641 -15.66% 0.12%
09/30/1998 $13,853 $13,982 $10,653 5.65% 0.12%
10/31/1998 $14,019 $14,398 $10,679 2.97% 0.24%
11/30/1998 $14,413 $14,788 $10,679 2.71% 0.00%
12/31/1998 $14,471 $15,252 $10,673 3.14% -0.06%
01/31/1999 $14,598 $14,906 $10,698 -2.27% 0.24%
02/28/1999 $13,879 $13,888 $10,711 -6.83% 0.12%
03/31/1999 $13,392 $13,774 $10,743 -0.82% 0.30%
04/30/1999 $14,179 $15,032 $10,822 9.13% 0.73%
05/31/1999 $14,891 $15,493 $10,822 3.07% 0.00%
06/30/1999 $15,220 $16,054 $10,822 3.62% 0.00%
07/31/1999 $15,415 $15,673 $10,854 -2.37% 0.30%
08/31/1999 $15,056 $15,100 $10,880 -3.66% 0.24%
09/30/1999 $14,014 $14,798 $10,932 -2.00% 0.48%
10/31/1999 $13,797 $14,502 $10,952 -2.00% 0.18%
11/30/1999 $13,936 $14,577 $10,959 0.52% 0.06%
12/31/1999 $13,895 $15,025 $10,959 3.07% 0.00%
01/31/2000 $14,417 $14,633 $10,992 -2.61% 0.30%
02/29/2000 $14,637 $15,527 $11,056 6.11% 0.59%
03/31/2000 $14,751 $15,600 $11,147 0.47% 0.82%
04/30/2000 $14,213 $15,692 $11,154 0.59% 0.06%
05/31/2000 $14,286 $15,452 $11,167 -1.53% 0.12%
06/30/2000 $14,816 $15,903 $11,225 2.92% 0.52%
07/31/2000 $14,995 $16,432 $11,251 3.33% 0.23%
08/31/2000 $15,908 $17,167 $11,251 4.47% 0.00%
09/30/2000 $15,867 $17,069 $11,310 -0.57% 0.52%
10/31/2000 $15,387 $17,008 $11,329 -0.36% 0.17%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year +5.13%
3-Year -2.70%
Since Inception (12/12/95) +9.22%
</TABLE>
*Source: Standard and Poor's Micropal. The Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios and
lower forecasted growth values. The Russell 2000 Index, from which the Russell
2000 Value Index is constituted, represents the 2,000 smallest stocks in the
Russell 3000 Index, that represent approximately 7% of the U.S. equity market
capitalization. The index has been reconstituted annually since 1989.
Past performance does not guarantee future results.
27
<PAGE>
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.
--------------------------------------------------------------------------------
During the first half of the year under review, the disparity in the
price-to-earnings component between value and growth stocks registered the
widest gap in the market's history. Value stocks, however, did return to favor
in the second and third quarters of 2000, when many "new economy" growth stocks
were besieged by lowered profit expectations, investors' growing interest-rate
concerns and the widespread perception that the growth rates priced into these
issues were largely unsustainable. The popular media referred to the boom of new
economy issues as a "technology bubble," attributable to a frenzy of speculative
trading activity in Internet, media, telecommunications and other
technology-related issues.
Within this challenging environment for domestic equity markets, Franklin Value
Fund - Class A produced a +20.72% cumulative total return for the 12 months
ended October 31,
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 54.
28
<PAGE>
2000. By comparison, the Fund's benchmark, the Russell 2000 Value Index,
returned 17.30% during the same period.(1)
Our value investment strategy focuses on a broad category of what we believe to
be bargain stocks. 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 overlooked assets such as land or tax-loss carry forwards, or
valuable intangibles such as patents or distribution networks that may not be
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. As a rule,
these stocks are out of favor with Wall Street when we buy them, which is why we
can pick them up at bargain prices. If these companies perform as expected,
investors or strategic buyers will often discover them and bid up the prices of
our holdings.
As the chart on page 31 shows, on October 31, 2000, the Fund's largest sector
weighting was financial services companies at 24.3% of the Fund's total net
assets. This significant exposure to a single sector may result in the Fund's
experiencing greater volatility than a fund with a more broadly diversified
portfolio.(2)
WHAT DO "BOOK VALUE" AND "TANGIBLE BOOK VALUE" MEAN?
Book value is a company's worth based on the value of its assets minus its
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.
(1) Source: Standard & Poor's Micropal. The Russell 2000 Value Index measures
the performance of those Russell 2000 companies with lower price-to-book ratios
and lower forecasted growth values. The Russell 2000 Index, from which the
Russell 2000 Value Index is constituted, represents the 2,000 smallest stocks in
the Russell 3000 Index, that represent approximately 7% of U.S. equity market
capitalization. Cumulative total return represents the change in value of an
investment and does not include the sales charge. The index has been
reconstituted annually since 1989. The index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
(2) There are specific risks to investing in the financial services industry,
which is sensitive to changes in interest rates, subject to extensive government
regulation, and recently has undergone rapid change related to consolidations
and changes to its regulatory framework.
29
<PAGE>
TOP 10 HOLDINGS
Franklin Value Fund
10/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
D.R. Horton Inc. 3.0%
Consumer Durables
The TJX Companies Inc. 3.0%
Retail Trade
JLG Industries Inc. 3.0%
Producer Manufacturing
Allstate Corp. 3.0%
Finance
National Commerce Bancorp. 2.9%
Finance
Presidential Life Corp. 2.6%
Finance
Washington Mutual Inc. 2.5%
Finance
Professionals Group Inc. 2.5%
Finance
Family Dollar Stores 2.4%
Retail Trade
Teekay Shipping Corp. 2.3%
Transportation
</TABLE>
During the reporting period, we focused new purchases on companies possessing
what we consider as strong financials, quality management and bargain prices.
Two examples are National Commerce Bancorporation (NCBC) and Tommy Hilfiger.
NCBC, a $16 billion multi-bank holding company, has increased its dividend for
25 consecutive years and over the last 25 years has been able to grow its net
income at an annual compounded rate greater than 15%, focusing on supermarket
branches. NCBC had a return on equity of 21.55% versus a bank average of 15.63%
for 1999, and NCBC traded at only 13 times 2001 estimated earnings during the
period. Tommy Hilfiger, the popular fashion designer, creates and markets men's,
women's and children's sportswear through its subsidiaries and retail stores
worldwide. Tommy had eight consecutive years of record earnings until it slipped
during its last fiscal year. At less than 8 times this year's earnings estimates
and less than 1 times book value, Tommy appears to be extremely attractive.
Although value investing was out of favor for approximately half of the
reporting period, strategic buyers were still busy picking up bargains.
Consequently, nine of the Fund's holdings announced that they would be acquired
during the period, almost all at
30
<PAGE>
premiums over the prior day's closing price. Our oil-drilling and oil-services
stocks also performed well during the period, as oil prices continued to climb.
Looking forward, we are confident that with the increase in market volatility
investors will continue to return to rational valuations and common-sense
investing. We remain steadfast and committed to our value investment strategy
and believe Franklin Value Fund provides shareholders with a portfolio of
well-managed, financially sound companies with the potential for solid earnings
growth and stock price appreciation over the long term.
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of
October 31, 2000, the end of the reporting period. The information provided is
not a complete analysis of every aspect of any country, industry, security or
the Fund. 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.
--------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN
Franklin Value Fund
Based on Total Net Assets
10/31/00
<TABLE>
<S> <C>
Finance 24.3%
Producer Manufacturing 18.4%
Transportation 9.5%
Industrial Services 7.9%
Consumer Durables 7.4%
Consumer Non-Durables 7.2%
Retail Trade 6.1%
Electronic Technology 3.8%
Non-Energy Minerals 3.6%
Energy Minerals 2.2%
Process Industries 2.0%
Consumer Services 1.6%
Technology Services 1.6%
Health Technology 1.0%
Bonds 0.7%
Short-Term Investments & Other Net Assets 2.7%
</TABLE>
31
<PAGE>
FRANKLIN VALUE FUND
--------------------------------------------------------------------------------
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, 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: 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 10/31/00
One-year total return represents the change in value of an investment for the
period indicated and does not include sales charges. Distributions will vary
based on earnings of the Fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Total Return +20.72%
Net Asset Value (NAV) $20.86 (10/31/00) $17.28 (10/31/99)
Change in NAV +$3.58
CLASS B
One-Year Total Return +19.97%
Net Asset Value (NAV) $20.61 (10/31/00) $17.18 (10/31/99)
Change in NAV +$3.43
CLASS C
One-Year Total Return +19.93%
Net Asset Value (NAV) $20.40 (10/31/00) $17.01 (10/31/99)
Change in NAV +$3.39
ADVISOR CLASS
One-Year Total Return +21.16%
Net Asset Value (NAV) $21.13 (10/31/00) $17.44 (10/31/99)
Change in NAV +$3.69
</TABLE>
Past performance does not guarantee future results.
32
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 3-YEAR (3/11/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +17.88% -19.32% +42.50%
Average Annual Total Return(2) +11.11% -8.72% +6.68%
Value of $10,000 Investment(3) $11,111 $7,605 $13,427
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +17.11% +10.53%
Average Annual Total Return(2) +13.11% +3.68%
Value of $10,000 Investment(3) $11,311 $10,653
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/3/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +17.10% -20.83% +27.27%
Average Annual Total Return(2) +14.96% -7.80% +5.84%
Value of $10,000 Investment(3) $11,496 $7,837 $12,603
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 3-YEAR (3/11/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +18.36% -18.37% +45.77%
Average Annual Total Return(2) +18.36% -6.54% +8.62%
Value of $10,000 Investment(3) $11,836 $8,163 $14,577
</TABLE>
(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.
(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) Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class. Since 1/2/97 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were +12.85% and +3.28%.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236.
Past performance does not guarantee future results.
33
<PAGE>
FRANKLIN VALUE FUND
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------
<S> <C>
1-Year +13.80%
3-Year -6.85%
Since Inception (3/11/96) +6.96%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
<S> <C>
1-Year +15.97%
Since Inception (1/1/99) +4.52%
</TABLE>
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(s), 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 inflation.
CLASS A (3/11/96 - 10/31/00)
[GRAPH]
3. The following line graph compares the performance of the Franklin Value
Fund's Class A shares to that of the Russell 2000 Value Index and to the
Consumer Price Index based on a $10,000 investment from 3/11/96 to 10/31/00.
<TABLE>
<CAPTION>
Franklin Value Russell 2000 Russell 2000
Date Fund - Class A Value Index CPI Value Index $T CPI %
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/11/1996 $9,422 $10,000 $10,000
03/31/1996 $9,541 $10,135 $10,034 1.35% 0.34%
04/30/1996 $10,025 $10,412 $10,073 2.73% 0.39%
05/31/1996 $10,295 $10,675 $10,092 2.53% 0.19%
06/30/1996 $10,088 $10,549 $10,098 -1.18% 0.06%
07/31/1996 $9,717 $9,988 $10,118 -5.32% 0.19%
08/31/1996 $10,308 $10,421 $10,137 4.34% 0.19%
09/30/1996 $10,629 $10,706 $10,169 2.73% 0.32%
10/31/1996 $10,806 $10,830 $10,202 1.16% 0.32%
11/30/1996 $11,581 $11,413 $10,221 5.38% 0.19%
12/31/1996 $12,171 $11,784 $10,221 3.25% 0.00%
01/31/1997 $12,680 $11,965 $10,254 1.54% 0.32%
02/28/1997 $12,757 $12,079 $10,286 0.95% 0.31%
03/31/1997 $12,298 $11,755 $10,311 -2.68% 0.25%
04/30/1997 $12,182 $11,928 $10,324 1.47% 0.12%
05/31/1997 $13,317 $12,877 $10,317 7.96% -0.06%
06/30/1997 $14,163 $13,529 $10,330 5.06% 0.12%
07/31/1997 $15,215 $14,097 $10,342 4.20% 0.12%
08/31/1997 $15,673 $14,321 $10,362 1.59% 0.19%
09/30/1997 $16,641 $15,274 $10,388 6.65% 0.25%
10/31/1997 $15,931 $14,858 $10,414 -2.72% 0.25%
11/30/1997 $15,764 $15,022 $10,408 1.10% -0.06%
12/31/1997 $15,746 $15,531 $10,395 3.39% -0.12%
01/31/1998 $15,485 $15,250 $10,415 -1.81% 0.19%
02/28/1998 $16,196 $16,172 $10,435 6.05% 0.19%
03/31/1998 $16,756 $16,829 $10,454 4.06% 0.19%
04/30/1998 $16,697 $16,911 $10,473 0.49% 0.18%
05/31/1998 $15,635 $16,313 $10,492 -3.54% 0.18%
06/30/1998 $14,899 $16,221 $10,505 -0.56% 0.12%
07/31/1998 $13,310 $14,951 $10,517 -7.83% 0.12%
08/31/1998 $10,906 $12,610 $10,530 -15.66% 0.12%
09/30/1998 $11,127 $13,322 $10,543 5.65% 0.12%
10/31/1998 $11,713 $13,718 $10,568 2.97% 0.24%
11/30/1998 $11,818 $14,090 $10,568 2.71% 0.00%
12/31/1998 $12,006 $14,532 $10,561 3.14% -0.06%
01/31/1999 $11,868 $14,202 $10,587 -2.27% 0.24%
02/28/1999 $10,722 $13,232 $10,600 -6.83% 0.12%
03/31/1999 $10,820 $13,124 $10,631 -0.82% 0.30%
04/30/1999 $11,901 $14,322 $10,709 9.13% 0.73%
05/31/1999 $12,294 $14,762 $10,709 3.07% 0.00%
06/30/1999 $12,995 $15,296 $10,709 3.62% 0.00%
07/31/1999 $12,654 $14,934 $10,741 -2.37% 0.30%
08/31/1999 $12,183 $14,387 $10,767 -3.66% 0.24%
09/30/1999 $11,390 $14,099 $10,819 -2.00% 0.48%
10/31/1999 $11,318 $13,817 $10,838 -2.00% 0.18%
11/30/1999 $11,423 $13,889 $10,845 0.52% 0.06%
12/31/1999 $11,907 $14,316 $10,845 3.07% 0.00%
01/31/2000 $10,932 $13,942 $10,877 -2.61% 0.30%
02/29/2000 $11,187 $14,794 $10,941 6.11% 0.59%
03/31/2000 $12,176 $14,863 $11,031 0.47% 0.82%
04/30/2000 $12,438 $14,951 $11,038 0.59% 0.06%
05/31/2000 $12,752 $14,722 $11,051 -1.53% 0.12%
06/30/2000 $12,412 $15,152 $11,108 2.92% 0.52%
07/31/2000 $12,549 $15,657 $11,134 3.33% 0.23%
08/31/2000 $13,473 $16,357 $11,134 4.47% 0.00%
09/30/2000 $13,427 $16,263 $11,192 -0.57% 0.52%
10/31/2000 $13,662 $16,205 $11,211 -0.36% 0.17%
</TABLE>
CLASS B (1/1/99 - 10/31/00)
[GRAPH]
4. The following line graph compares the performance of the Franklin Value
Fund's Class B shares to that of the Russell 2000 Value Index and to the
Consumer Price Index based on a $10,000 investment from 1/1/99 to 10/31/00.
<TABLE>
<CAPTION>
Franklin
Value Fund - Russell 2000 Russell 2000
Date Class B Value Index CPI Value $T CPI %
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $9,880 $9,773 $10,024 -2.27% 0.24%
02/28/1999 $8,925 $9,106 $10,036 -6.83% 0.12%
03/31/1999 $9,007 $9,031 $10,066 -0.82% 0.30%
04/30/1999 $9,891 $9,855 $10,140 9.13% 0.73%
05/31/1999 $10,213 $10,158 $10,140 3.07% 0.00%
06/30/1999 $10,786 $10,526 $10,140 3.62% 0.00%
07/31/1999 $10,502 $10,276 $10,170 -2.37% 0.30%
08/31/1999 $10,098 $9,900 $10,194 -3.66% 0.24%
09/30/1999 $9,438 $9,702 $10,243 -2.00% 0.48%
10/31/1999 $9,373 $9,508 $10,262 -2.00% 0.18%
11/30/1999 $9,454 $9,557 $10,268 0.52% 0.06%
12/31/1999 $9,853 $9,851 $10,268 3.07% 0.00%
01/31/2000 $9,040 $9,594 $10,299 -2.61% 0.30%
02/29/2000 $9,247 $10,180 $10,360 6.11% 0.59%
03/31/2000 $10,060 $10,228 $10,444 0.47% 0.82%
04/30/2000 $10,262 $10,288 $10,451 0.59% 0.06%
05/31/2000 $10,524 $10,131 $10,463 -1.53% 0.12%
06/30/2000 $10,235 $10,427 $10,518 2.92% 0.52%
07/31/2000 $10,344 $10,774 $10,542 3.33% 0.23%
08/31/2000 $11,097 $11,255 $10,542 4.47% 0.00%
09/30/2000 $11,053 $11,191 $10,597 -0.57% 0.52%
10/31/2000 $10,844 $11,151 $10,615 -0.36% 0.17%
</TABLE>
Past performance does not guarantee future results.
34
<PAGE>
CLASS C (9/3/96 - 10/31/00)
[GRAPH]
5. The following line graph compares the performance of the Franklin Value
Fund's Class C shares to that of the Russell 2000 Value Index and to the
Consumer Price Index based on a $10,000 investment from 9/3/96 to 10/31/00.
<TABLE>
<CAPTION>
Franklin Value Russell 2000 Russell 2000
Date Fund - Class C Value Index CPI Value $T CPI %
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
09/03/1996 $9,903 $10,000 $10,000
09/30/1996 $10,241 $10,273 $10,032 2.73% 0.32%
10/31/1996 $10,405 $10,392 $10,064 1.16% 0.32%
11/30/1996 $11,146 $10,951 $10,083 5.38% 0.19%
12/31/1996 $11,695 $11,307 $10,083 3.25% 0.00%
01/31/1997 $12,185 $11,481 $10,115 1.54% 0.32%
02/28/1997 $12,247 $11,590 $10,147 0.95% 0.31%
03/31/1997 $11,801 $11,280 $10,172 -2.68% 0.25%
04/30/1997 $11,683 $11,446 $10,184 1.47% 0.12%
05/31/1997 $12,767 $12,357 $10,178 7.96% -0.06%
06/30/1997 $13,572 $12,982 $10,191 5.06% 0.12%
07/31/1997 $14,570 $13,527 $10,203 4.20% 0.12%
08/31/1997 $15,003 $13,742 $10,222 1.59% 0.19%
09/30/1997 $15,920 $14,656 $10,248 6.65% 0.25%
10/31/1997 $15,239 $14,257 $10,273 -2.72% 0.25%
11/30/1997 $15,065 $14,414 $10,267 1.10% -0.06%
12/31/1997 $15,041 $14,903 $10,255 3.39% -0.12%
01/31/1998 $14,791 $14,633 $10,274 -1.81% 0.19%
02/28/1998 $15,460 $15,518 $10,294 6.05% 0.19%
03/31/1998 $15,985 $16,149 $10,313 4.06% 0.19%
04/30/1998 $15,922 $16,228 $10,332 0.49% 0.18%
05/31/1998 $14,897 $15,653 $10,351 -3.54% 0.18%
06/30/1998 $14,191 $15,566 $10,363 -0.56% 0.12%
07/31/1998 $12,673 $14,347 $10,375 -7.83% 0.12%
08/31/1998 $10,373 $12,100 $10,388 -15.66% 0.12%
09/30/1998 $10,586 $12,784 $10,400 5.65% 0.12%
10/31/1998 $11,135 $13,163 $10,425 2.97% 0.24%
11/30/1998 $11,229 $13,520 $10,425 2.71% 0.00%
12/31/1998 $11,403 $13,945 $10,419 3.14% -0.06%
01/31/1999 $11,265 $13,628 $10,444 -2.27% 0.24%
02/28/1999 $10,172 $12,697 $10,457 -6.83% 0.12%
03/31/1999 $10,260 $12,593 $10,488 -0.82% 0.30%
04/30/1999 $11,278 $13,743 $10,565 9.13% 0.73%
05/31/1999 $11,642 $14,165 $10,565 3.07% 0.00%
06/30/1999 $12,302 $14,678 $10,565 3.62% 0.00%
07/31/1999 $11,975 $14,330 $10,596 -2.37% 0.30%
08/31/1999 $11,516 $13,805 $10,622 -3.66% 0.24%
09/30/1999 $10,762 $13,529 $10,673 -2.00% 0.48%
10/31/1999 $10,687 $13,259 $10,692 -2.00% 0.18%
11/30/1999 $10,781 $13,328 $10,698 0.52% 0.06%
12/31/1999 $11,227 $13,737 $10,698 3.07% 0.00%
01/31/2000 $10,304 $13,378 $10,730 -2.61% 0.30%
02/29/2000 $10,536 $14,196 $10,794 6.11% 0.59%
03/31/2000 $11,466 $14,262 $10,882 0.47% 0.82%
04/30/2000 $11,705 $14,346 $10,889 0.59% 0.06%
05/31/2000 $12,000 $14,127 $10,902 -1.53% 0.12%
06/30/2000 $11,667 $14,539 $10,958 2.92% 0.52%
07/31/2000 $11,793 $15,024 $10,984 3.33% 0.23%
08/31/2000 $12,654 $15,695 $10,984 4.47% 0.00%
09/30/2000 $12,603 $15,606 $11,041 -0.57% 0.52%
10/31/2000 $12,817 $15,550 $11,060 -0.36% 0.17%
</TABLE>
ADVISOR CLASS (3/11/96 - 10/31/00)**
[GRAPH]
6. The following line graph compares the performance of the Franklin Value
Fund's Advisor Class shares to that of the Russell 2000 Value Index and to the
Consumer Price Index based on a $10,000 investment from 3/11/96 to 10/31/00.
<TABLE>
<CAPTION>
Franklin Value
Fund - Advisor Russell 2000 Russell 2000
Date Class Value Index CPI Value Index $T CPI %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
03/11/1996 $10,000 $10,000 $10,000
03/31/1996 $10,127 $10,135 $10,034 1.35% 0.34%
04/30/1996 $10,640 $10,412 $10,073 2.73% 0.39%
05/31/1996 $10,927 $10,675 $10,092 2.53% 0.19%
06/30/1996 $10,707 $10,549 $10,098 -1.18% 0.06%
07/31/1996 $10,312 $9,988 $10,118 -5.32% 0.19%
08/31/1996 $10,940 $10,421 $10,137 4.34% 0.19%
09/30/1996 $11,281 $10,706 $10,169 2.73% 0.32%
10/31/1996 $11,469 $10,830 $10,202 1.16% 0.32%
11/30/1996 $12,291 $11,413 $10,221 5.38% 0.19%
12/31/1996 $12,918 $11,784 $10,221 3.25% 0.00%
01/31/1997 $13,464 $11,965 $10,254 1.54% 0.32%
02/28/1997 $13,546 $12,079 $10,286 0.95% 0.31%
03/31/1997 $13,063 $11,755 $10,311 -2.68% 0.25%
04/30/1997 $12,940 $11,928 $10,324 1.47% 0.12%
05/31/1997 $14,152 $12,877 $10,317 7.96% -0.06%
06/30/1997 $15,053 $13,529 $10,330 5.06% 0.12%
07/31/1997 $16,185 $14,097 $10,342 4.20% 0.12%
08/31/1997 $16,679 $14,321 $10,362 1.59% 0.19%
09/30/1997 $17,716 $15,274 $10,388 6.65% 0.25%
10/31/1997 $16,961 $14,858 $10,414 -2.72% 0.25%
11/30/1997 $16,789 $15,022 $10,408 1.10% -0.06%
12/31/1997 $16,775 $15,531 $10,395 3.39% -0.12%
01/31/1998 $16,512 $15,250 $10,415 -1.81% 0.19%
02/28/1998 $17,267 $16,172 $10,435 6.05% 0.19%
03/31/1998 $17,870 $16,829 $10,454 4.06% 0.19%
04/30/1998 $17,814 $16,911 $10,473 0.49% 0.18%
05/31/1998 $16,685 $16,313 $10,492 -3.54% 0.18%
06/30/1998 $15,902 $16,221 $10,505 -0.56% 0.12%
07/31/1998 $14,211 $14,951 $10,517 -7.83% 0.12%
08/31/1998 $11,654 $12,610 $10,530 -15.66% 0.12%
09/30/1998 $11,897 $13,322 $10,543 5.65% 0.12%
10/31/1998 $12,521 $13,718 $10,568 2.97% 0.24%
11/30/1998 $12,638 $14,090 $10,568 2.71% 0.00%
12/31/1998 $12,845 $14,532 $10,561 3.14% -0.06%
01/31/1999 $12,699 $14,202 $10,587 -2.27% 0.24%
02/28/1999 $11,480 $13,232 $10,600 -6.83% 0.12%
03/31/1999 $11,591 $13,124 $10,631 -0.82% 0.30%
04/30/1999 $12,755 $14,322 $10,709 9.13% 0.73%
05/31/1999 $13,173 $14,762 $10,709 3.07% 0.00%
06/30/1999 $13,932 $15,296 $10,709 3.62% 0.00%
07/31/1999 $13,570 $14,934 $10,741 -2.37% 0.30%
08/31/1999 $13,061 $14,387 $10,767 -3.66% 0.24%
09/30/1999 $12,218 $14,099 $10,819 -2.00% 0.48%
10/31/1999 $12,149 $13,817 $10,838 -2.00% 0.18%
11/30/1999 $12,267 $13,889 $10,845 0.52% 0.06%
12/31/1999 $12,790 $14,316 $10,845 3.07% 0.00%
01/31/2000 $11,745 $13,942 $10,877 -2.61% 0.30%
02/29/2000 $12,023 $14,794 $10,941 6.11% 0.59%
03/31/2000 $13,089 $14,863 $11,031 0.47% 0.82%
04/30/2000 $13,375 $14,951 $11,038 0.59% 0.06%
05/31/2000 $13,723 $14,722 $11,051 -1.53% 0.12%
06/30/2000 $13,354 $15,152 $11,108 2.92% 0.52%
07/31/2000 $13,507 $15,657 $11,134 3.33% 0.23%
08/31/2000 $14,503 $16,357 $11,134 4.47% 0.00%
09/30/2000 $14,461 $16,263 $11,192 -0.57% 0.52%
10/31/2000 $14,836 $16,205 $11,211 -0.36% 0.17%
</TABLE>
*Source: Standard and Poor's Micropal. The Russell 2000 Value Index measures the
performance of those Russell 2000 companies with lower price-to-book ratios and
lower forecasted growth values. The Russell 2000 Index, from which the Russell
2000 Value Index is constituted, represents the 2,000 smallest stocks in the
Russell 3000 Index, that represent approximately 7% of the U.S. equity market
capitalization. The index has been reconstituted annually since 1989.
**Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class.
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
<S> <C>
1-Year +17.75%
3-Year -5.92%
Since Inception (9/3/96) +6.15%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
10/31/00
<TABLE>
<CAPTION>
ADVISOR CLASS**
--------------------------------------------------------------------------------
<S> <C>
1-Year +21.16%
3-Year -4.62%
Since Inception (3/11/96) +8.87%
</TABLE>
Past performance does not guarantee future results.
35
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN BALANCE SHEET INVESTMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 29.96 $ 31.86 $ 35.22 $ 29.15 $ 26.34
----------------------------------------------------------------------
Income from investment operations:
Net investment income(a)....................... .31 .37 .50 .48 .47
Net realized and unrealized gains (losses)..... 5.15 (.68) (1.55) 8.40 3.85
----------------------------------------------------------------------
Total from investment operations ............... 5.46 (.31) (1.05) 8.88 4.32
----------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.31) (.43) (.51) (.46) (.44)
Net realized gains ............................ (.28) (1.16) (1.80) (2.35) (1.07)
----------------------------------------------------------------------
Total distributions ............................ (.59) (1.59) (2.31) (2.81) (1.51)
----------------------------------------------------------------------
Net asset value, end of year ................... $ 34.83 $ 29.96 $ 31.86 $ 35.22 $ 29.15
======================================================================
Total return(b) ................................ 18.47% (1.04)% (3.14)% 32.86% 16.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $1,067,893 $1,165,779 $1,467,207 $1,222,953 $657,002
Ratios to average net assets:
Expenses ...................................... 1.06% .93% .93% 1.08% 1.08%
Net investment income ......................... 1.00% 1.19% 1.47% 1.59% 1.69%
Portfolio turnover rate ........................ 8.69% 17.53% 11.81% 24.63% 35.46%
</TABLE>
(a) Based on average shares outstanding effective year ended October 31, 1999.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
See notes to financial statements.
36
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLOSED END MUTUAL FUNDS 5.1%
(a) Central European Equity Fund .................................................................... 250,000 $ 2,968,750
Emerging Markets Infrastructure Fund Inc. ....................................................... 119,619 1,069,095
H & Q Healthcare Investors Fund ................................................................. 150,000 4,968,750
INVESCO Global Health Sciences Fund ............................................................. 325,000 6,479,688
Irish Investment Fund Inc. ...................................................................... 135,000 2,050,313
John Hancock Bank & Thrift Opportunity Fund ..................................................... 1,650,000 12,890,625
(a) Latin America Equity Fund Inc. .................................................................. 175,000 2,023,438
Latin America Investment Fund Inc. .............................................................. 61,453 791,207
Liberty All-Star Growth Fund Inc. ............................................................... 150,000 1,762,500
Mexico Fund ..................................................................................... 625,000 9,882,813
Petroleum & Resources Corp. ..................................................................... 150,000 4,190,625
Royce Focus Trust Inc. .......................................................................... 160,000 920,000
Royce Value Trust ............................................................................... 52,500 728,438
Swiss Helvetia Fund ............................................................................. 250,000 3,562,500
--------------
TOTAL CLOSED END MUTUAL FUNDS (COST $49,286,994)................................................. 54,288,742
--------------
COMMON STOCKS 87.2%
CONSUMER DURABLES 5.6%
(c) Allen Organ Co., B .............................................................................. 73,000 4,234,000
(a) Baldwin Piano & Organ Co. ....................................................................... 124,600 412,738
D.R. Horton Inc. ................................................................................ 545,000 10,082,500
(a) Dixie Group Inc. ................................................................................ 370,000 1,179,375
Engle Homes Inc. ................................................................................ 340,000 6,417,500
Lennar Corp. .................................................................................... 542,337 17,422,576
M.D.C. Holdings Inc. ............................................................................ 570,000 15,603,750
(a) Schuler Homes Inc. .............................................................................. 500,000 4,125,000
--------------
59,477,439
--------------
CONSUMER NON-DURABLES 7.0%
Block Drug Co. Inc., A .......................................................................... 412,000 21,552,750
(a,c) Cyrk Inc. ....................................................................................... 1,085,000 4,204,375
(a,c) Delta Apparel Inc. .............................................................................. 224,000 3,696,000
(c) DIMON Inc. ...................................................................................... 2,236,500 6,849,281
(c) Garan Inc. ...................................................................................... 280,000 6,580,000
Genesee Corp., B ................................................................................ 117,900 4,402,828
(c) Haggar Corp. .................................................................................... 590,000 7,670,000
(a) Tommy Hilfiger Corp. ............................................................................ 1,658,300 19,277,738
--------------
74,232,972
--------------
(a) CONSUMER SERVICES 5.2%
(c) Aztar Corp. ..................................................................................... 2,410,000 36,451,250
Casino Data Systems ............................................................................. 740,000 4,486,250
(c) Champps Entertainment Inc. ...................................................................... 1,000,000 6,750,000
(c) VICORP Restaurants Inc. ......................................................................... 487,063 8,371,395
--------------
56,058,895
--------------
DISTRIBUTION SERVICES 2.8%
(a) GTSI Corp. ...................................................................................... 221,000 676,813
(a,c) Handleman Co. ................................................................................... 1,900,000 18,762,500
(c) Nash-Finch Co. .................................................................................. 890,000 11,013,750
--------------
30,453,063
--------------
</TABLE>
37
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY 5.3%
Cubic Corp. ..................................................................................... 90,000 $ 2,463,750
(a) ESCO Technologies Inc. .......................................................................... 600,000 10,912,500
(a) FSI International Inc. .......................................................................... 665,000 6,192,813
(a) Genrad Inc. ..................................................................................... 250,000 2,281,250
(a) Hutchinson Technology Inc. ...................................................................... 300,000 6,581,250
(a) Silicon Valley Group Inc. ....................................................................... 200,000 6,587,500
(a,c) Standard Microsystems Corp. ..................................................................... 895,000 21,480,000
--------------
56,499,063
--------------
(a) ENERGY MINERALS .6%
Crown Central Petroleum Corp., B ................................................................ 208,800 1,748,700
(c) Maynard Oil Co. ................................................................................. 250,000 4,750,000
--------------
6,498,700
--------------
FINANCE 26.2%
(a,c) ACMAT Corp., A .................................................................................. 293,500 2,769,906
American General Corp. .......................................................................... 300,000 24,150,000
American National Insurance Co. ................................................................. 532,000 36,043,000
Amerus Group Co. ................................................................................ 210,000 5,538,750
(a) Arch Capital Group Ltd. ......................................................................... 380,000 5,890,000
Clarica Life Insurance Co. (Canada) ............................................................. 300,000 7,110,587
(a) Farm Family Holdings Inc. ....................................................................... 236,000 8,156,750
Farmers & Merchants Bank of Long Beach .......................................................... 2,200 4,422,000
FBL Financial Group Inc., A ..................................................................... 750,000 12,046,875
(c) Fidelity Bancorp Inc. ........................................................................... 128,300 2,309,400
First Defiance Financial Corp. .................................................................. 300,000 3,225,000
GA Financial Inc. ............................................................................... 278,200 3,894,800
Kansas City Life Insurance Co. .................................................................. 122,600 3,976,838
LandAmerica Financial Group Inc. ................................................................ 140,000 4,130,000
Manulife Financial Corp. (Canada) ............................................................... 550,000 14,162,500
(c) Merchants Group Inc. ............................................................................ 255,000 4,605,938
Meridian Insurance Group Inc. ................................................................... 275,300 7,751,416
(a) MetLife Inc. .................................................................................... 201,000 5,552,625
MIIX Group Inc. ................................................................................. 440,000 3,520,000
(a) National Western Life Insurance Co., A .......................................................... 100,000 8,850,000
(a) PBOC Holdings Inc. .............................................................................. 251,800 1,495,063
Presidential Life Corp. ......................................................................... 730,000 10,630,625
(a,c) Professionals Group Inc. ........................................................................ 509,850 11,535,356
(a) Quaker City Bancorp Inc. ........................................................................ 137,500 2,603,906
Reinsurance Group of America Inc. ............................................................... 325,000 12,146,875
RLI Corp. ....................................................................................... 149,000 5,829,625
(c) SCPIE Holdings Inc. ............................................................................. 529,000 10,051,000
Selective Insurance Group Inc. .................................................................. 350,000 6,037,500
St. Paul Cos. Inc. .............................................................................. 430,000 22,037,500
StanCorp Financial Group Inc. ................................................................... 435,000 17,726,250
(c) Stewart Information Services Corp. .............................................................. 770,000 12,127,500
--------------
280,327,585
--------------
</TABLE>
38
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
(a) HEALTH SERVICES 1.2%
Trigon Healthcare Inc. .......................................................................... 180,000 $ 12,903,750
--------------
INDUSTRIAL SERVICES 1.8%
(c) Ecology & Environment Inc., A ................................................................... 200,000 1,275,000
(a,c) Kaneb Services Inc. ............................................................................. 2,992,500 13,466,250
(a) Matrix Service Co. .............................................................................. 265,000 1,325,000
(a) Petroleum Helicopters Inc. ...................................................................... 77,500 881,563
(a) Petroleum Helicopters Inc., non-voting .......................................................... 200,000 2,368,750
--------------
19,316,563
--------------
NON-ENERGY MINERALS .8%
Central Steel & Wire Co. ........................................................................ 1,405 695,475
(c) Commonwealth Industries Inc. .................................................................... 1,095,000 6,364,688
(a) LTV Corp. ....................................................................................... 1,070,000 1,270,625
(a) Zemex Corp. ..................................................................................... 38,000 251,750
--------------
8,582,538
--------------
PROCESS INDUSTRIES 2.6%
(a,c) American Pacific Corp. .......................................................................... 414,000 2,484,000
Corn Products International Inc. ................................................................ 400,000 10,050,000
(a,c) Delta Woodside Industries Inc. .................................................................. 2,240,000 3,220,000
J.G. Boswell Co. ................................................................................ 30,000 6,930,000
(a) Mercer International Inc. (Switzerland) ......................................................... 740,000 4,578,750
--------------
27,262,750
--------------
PRODUCER MANUFACTURING 5.7%
(c) Hardinge Inc. ................................................................................... 539,000 6,232,188
(c) Insteel Industries Inc. ......................................................................... 560,000 1,925,000
Nashua Corp. .................................................................................... 249,100 1,447,894
Oshkosh Truck Corp. ............................................................................. 300,000 12,337,500
(c) Pitt-Des Moines Inc. ............................................................................ 415,000 12,968,750
Tecumseh Products Co., A ........................................................................ 362,000 14,434,750
Tecumseh Products Co., B ........................................................................ 114,000 4,446,000
Timken Co. ...................................................................................... 510,000 7,171,875
--------------
60,963,957
--------------
RETAIL TRADE 9.6%
Cato Corp., A ................................................................................... 469,000 5,628,000
(a,c) Charming Shoppes Inc. ........................................................................... 5,100,000 31,237,500
(a) Consolidated Stores Corp. ....................................................................... 125,000 1,484,375
(a,c) Designs Inc. .................................................................................... 1,190,000 2,714,688
(a) Federated Department Stores Inc. ................................................................ 560,000 18,235,000
(c) Fred's Inc. ..................................................................................... 780,000 16,477,500
Haverty Furniture Cos. Inc. ..................................................................... 355,000 3,993,750
(a,c) Jacobson Stores Inc. ............................................................................ 384,300 1,537,200
(a,c) Mayor's Jewelers Inc. ........................................................................... 1,251,400 4,536,325
(a,c) Syms Corp. ...................................................................................... 1,430,000 8,043,750
(a) United Retail Group Inc. ........................................................................ 632,600 3,429,878
(c) Wolohan Lumber Co. .............................................................................. 520,000 5,037,500
--------------
102,355,466
--------------
</TABLE>
39
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 4.7%
(a) Crowley Maritime Corp. .......................................................................... 4,440 $ 3,485,400
(c) International Shipholding Corp. ................................................................. 560,000 3,990,000
(a) Mesa Air Group Inc. ............................................................................. 1,250,000 7,343,750
(a) OMI Corp. ....................................................................................... 650,000 4,509,375
Overseas Shipholding Group Inc. ................................................................. 1,280,000 30,720,000
--------------
50,048,525
--------------
UTILITIES 8.1%
Conectiv Inc. ................................................................................... 215,000 3,856,563
Entergy Corp. ................................................................................... 800,000 30,650,000
(a) Niagara Mohawk Holdings Inc. .................................................................... 2,070,000 33,120,000
Northeast Utilities ............................................................................. 925,000 18,846,875
--------------
86,473,438
--------------
TOTAL COMMON STOCKS (COST $753,326,256) ......................................................... 931,454,704
--------------
PREFERRED STOCKS .7%
Price Enterprises Inc., 8.75%, pfd., A (COST $6,943,575) ........................................ 533,400 7,667,618
--------------
PRINCIPAL
AMOUNT
-----------
(d) CORPORATE BONDS .1%
Hechinger Co., 6.95%, 10/15/03 (COST $5,043,193) ................................................ $ 7,000,000 577,500
--------------
TOTAL LONG TERM INVESTMENTS (COST $814,600,018) ................................................. 993,988,564
--------------
(b) REPURCHASE AGREEMENTS 6.7%
Joint Repurchase Agreement, 6.563%, 11/01/00, (Maturity Value $71,756,375) (COST $71,743,296) ... 71,743,296 71,743,296
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Deutsche Bank Securities
Dresdner Kleinwort Benson, North America LLC
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paribas Corp.
Societe Generale
UBS Warburg
Collateralized by U.S. Treasury Bills and Notes
--------------
TOTAL INVESTMENTS (COST $886,343,314) 99.8% ..................................................... 1,065,731,860
OTHER ASSETS, LESS LIABILITIES .2% .............................................................. 2,161,486
--------------
NET ASSETS 100.0% ............................................................................... $1,067,893,346
==============
</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, 2000, all repurchase
agreements had been entered into on that date.
(c)See Note 7 regarding holdings of 5% voting securities.
(d)See Note 6 regarding defaulted securities.
See notes to financial statements.
40
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN LARGE CAP VALUE FUND
<TABLE>
<CAPTION>
CLASS A
------------------
OCTOBER 31, 2000(c)
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................................... $10.00
------------------
Income from investment operations:
Net investment income(a) ................................................. .09
Net realized and unrealized gains ........................................ 1.03
------------------
Total from investment operations .......................................... 1.12
------------------
Net asset value, end of period ............................................ $11.12
==================
Total return(b) ........................................................... 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................................... $3,418
Ratios to average net assets:
Expenses ................................................................. 1.25%(d)
Expenses excluding waiver and payments by affiliate ...................... 3.22%(d)
Net investment income .................................................... 2.17%(d)
Portfolio turnover rate ................................................... 7.21%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period June 1, 2000 (effective date) to October 31, 2000.
(d)Annualized
41
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN LARGE CAP VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
------------------
OCTOBER 31, 2000(c)
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................................... $10.00
------------------
Income from investment operations:
Net investment income(a) ................................................. .08
Net realized and unrealized gains ........................................ 1.03
------------------
Total from investment operations .......................................... 1.11
------------------
Net asset value, end of period ............................................ $11.11
==================
Total return(b) ........................................................... 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................................... $ 453
Ratios to average net assets:
Expenses ................................................................. 1.69%(d)
Expenses excluding waiver and payments by affiliate ...................... 3.66%(d)
Net investment income .................................................... 1.81%(d)
Portfolio turnover rate ................................................... 7.21%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c)For the period June 1, 2000 (effective date) to October 31, 2000.
(d)Annualized
42
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN LARGE CAP VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
------------------
OCTOBER 31, 2000(c)
------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ...................................... $10.00
------------------
Income from investment operations:
Net investment income(a) ................................................. .06
Net realized and unrealized gains ........................................ 1.05
------------------
Total from investment operations .......................................... 1.11
------------------
Net asset value, end of period ............................................ $11.11
==================
Total return(b) ........................................................... 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......................................... $1,911
Ratios to average net assets:
Expenses ................................................................. 1.79%(d)
Expenses excluding waiver and payments by affiliate ...................... 3.76%(d)
Net investment income .................................................... 1.44%(d)
Portfolio turnover rate ................................................... 7.21%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period June 1, 2000 (effective date) to October 31, 2000.
(d)Annualized
See notes to financial statements. 43
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 80.8%
COMMUNICATIONS 4.9%
SBC Communications Inc. ......................................................................... 2,400 $ 138,450
Verizon Communications .......................................................................... 2,500 144,531
----------
282,981
----------
CONSUMER DURABLES 7.6%
Ford Motor Co. .................................................................................. 3,297 86,135
General Motors Corp. ............................................................................ 2,000 124,250
Leggett & Platt Inc. ............................................................................ 7,300 119,538
Newell Rubbermaid Inc. .......................................................................... 5,800 111,288
----------
441,211
----------
CONSUMER NON-DURABLES 1.6%
Philip Morris Cos. Inc. ......................................................................... 2,500 91,563
----------
CONSUMER SERVICES 2.2%
McDonald's Corp. ................................................................................ 4,000 124,000
----------
ENERGY MINERALS 8.3%
Burlington Resources Inc. ....................................................................... 1,400 50,400
Conoco Inc., B .................................................................................. 6,000 163,125
Phillips Petroleum Co. .......................................................................... 2,100 129,675
USX-Marathon Group Inc. ......................................................................... 5,000 135,938
----------
479,138
----------
FINANCE 17.2%
Bank of America Corp. ........................................................................... 2,700 129,769
Fannie Mae ...................................................................................... 1,600 123,200
Freddie Mac ..................................................................................... 2,400 144,000
Household International Inc. .................................................................... 2,200 110,688
(a)John Hancock Financial Services Inc. ............................................................ 3,800 120,175
Lehman Brothers Holdings Inc. ................................................................... 1,200 77,400
U.S. Bancorp .................................................................................... 5,900 142,706
Washington Mutual Inc. .......................................................................... 3,300 145,200
----------
993,138
----------
HEALTH TECHNOLOGY 1.6%
Becton, Dickinson & Co. ......................................................................... 2,800 93,800
----------
INDUSTRIAL SERVICES 1.2%
Transocean Sedco Forex Inc. ..................................................................... 1,300 68,900
----------
INSURANCE 5.3%
Allstate Corp. .................................................................................. 3,200 128,800
American General Corp. .......................................................................... 1,200 96,600
MetLife Inc. .................................................................................... 3,000 82,875
----------
308,275
----------
NON-ENERGY MINERALS 2.5%
Weyerhaeuser Co. ................................................................................ 3,100 145,506
----------
PROCESS INDUSTRIES 2.6%
International Paper Co. ......................................................................... 4,100 150,163
----------
</TABLE>
44
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING 5.5%
Dana Corp. ...................................................................................... 1,800 $ 39,938
Dover Corp. ..................................................................................... 1,300 55,169
Ingersoll-Rand Co. .............................................................................. 2,000 75,500
Masco Corp. ..................................................................................... 8,000 149,500
----------
320,107
----------
RETAIL TRADE 10.4%
Family Dollar Stores Inc. ....................................................................... 8,000 155,500
(a)Federated Department Stores Inc. ................................................................ 5,700 185,603
The Limited Inc. ................................................................................ 3,300 83,325
The TJX Companies Inc. .......................................................................... 6,500 177,125
----------
601,553
----------
TRANSPORTATION 6.0%
(a)AMR Corp. ....................................................................................... 4,300 140,825
Burlington Northern Santa Fe Corp. .............................................................. 4,400 116,875
Delta Air Lines Inc. ............................................................................ 1,900 89,775
----------
347,475
----------
UTILITIES 3.9%
Duke Energy Corp. ............................................................................... 1,200 103,725
TXU Corp. ....................................................................................... 3,300 122,306
----------
226,031
----------
TOTAL COMMON STOCKS (COST $4,130,894) ........................................................... 4,673,841
----------
(e)SHORT TERM INVESTMENTS 18.6%
Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $1,072,770) ................. 1,072,770 1,072,770
----------
TOTAL INVESTMENTS (COST $5,203,664) 99.4% ....................................................... 5,746,611
OTHER ASSETS, LESS LIABILITIES .6% .............................................................. 35,604
----------
NET ASSETS 100.0% ............................................................................... $5,782,215
==========
</TABLE>
(a)Non-income producing.
(e)The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed
by Franklin Advisers, Inc.
See notes to financial statements. 45
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN MICROCAP VALUE FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................... $ 18.41 $ 20.27 $ 24.29 $ 18.44 $ 15.00
------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ............................. .04 (.01) (.02) (.01) .14
Net realized and unrealized gains (losses) .................. 1.90 (.29) (2.51) 6.33 3.41
------------------------------------------------------------------
Total from investment operations ............................. 1.94 (.30) (2.53) 6.32 3.55
------------------------------------------------------------------
Less distributions from:
Net investment income ....................................... -- -- (.01) (.07) (.11)
Net realized gains .......................................... (1.47) (1.56) (1.48) (.40) --
------------------------------------------------------------------
Total distributions .......................................... (1.47) (1.56) (1.49) (.47) (.11)
------------------------------------------------------------------
Net asset value, end of year ................................. $ 18.88 $ 18.41 $ 20.27 $ 24.29 $ 18.44
==================================================================
Total return(b) .............................................. 11.53% (1.59)% (10.95)% 35.05% 23.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................. $ 95,894 $115,999 $175,635 $191,638 $119,664
Ratios to average net assets:
Expenses .................................................... 1.38% 1.27% 1.21% 1.22% 1.24%(d)
Net investment income (loss) ................................ .23% (.05)% (.11)% (.05)% 1.28%(d)
Portfolio turnover rate ...................................... 8.52% 14.12% 31.91% 21.33% 14.15%
</TABLE>
(a)Based on average shares outstanding effective year ended October 31, 1999.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period December 12, 1995 (effective date) to October 31, 1996.
(d)Annualized
46 See notes to financial statements.
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 92.9%
COMMERCIAL SERVICES 2.6%
Courier Corp. ................................................................................. 85,000 $ 2,486,250
-----------
COMMUNICATIONS 2.9%
Atlantic Tele-Network Inc. .................................................................... 240,000 2,760,000
CONSUMER DURABLES 7.8% -----------
Allen Organ Co., B ............................................................................ 39,000 2,262,000
(a)Baldwin Piano & Organ Co. ..................................................................... 49,000 162,313
Engle Homes Inc. .............................................................................. 83,000 1,566,625
M/I Schottenstein Homes Inc. .................................................................. 68,000 1,398,250
(a)Washington Homes Inc. ......................................................................... 213,500 2,054,938
-----------
7,444,126
-----------
CONSUMER NON-DURABLES 10.6%
DIMON Inc. .................................................................................... 300,000 918,750
(a,c)Durango Apparel Inc. .......................................................................... 964,100 9,641
Garan Inc. .................................................................................... 75,000 1,762,500
Genesee Corp., A .............................................................................. 7,000 252,000
Genesee Corp., B .............................................................................. 35,000 1,307,031
(a)McNaughton Apparel Group Inc. ................................................................. 170,000 2,337,500
(a,c)Seneca Foods Corp., A ......................................................................... 191,600 2,490,800
(a)Seneca Foods Corp., B ......................................................................... 12,500 167,188
Standard Commercial Corp. ..................................................................... 229,700 904,444
-----------
10,149,854
-----------
(a)CONSUMER SERVICES 2.7%
Casino Data Systems ........................................................................... 433,000 2,625,063
-----------
(a)DISTRIBUTION SERVICES .9%
Ultrak Inc. ................................................................................... 200,000 875,000
-----------
ELECTRONIC TECHNOLOGY 6.9%
(a)Aehr Test Systems ............................................................................. 90,000 545,625
(a)Datron Systems Inc. ........................................................................... 55,000 632,500
(a,c)ECC International Corp. ....................................................................... 545,000 1,941,563
(c)Espey Manufacturing & Electronics Corp. ....................................................... 80,000 1,340,000
(a)Qualstar Corp. ................................................................................ 87,000 908,063
(a)SPACEHAB Inc. ................................................................................. 124,000 496,000
(a)Sparton Corp. ................................................................................. 136,100 723,031
-----------
6,586,782
-----------
ENERGY MINERALS 4.8%
Home-Stake Oil & Gas Co. ...................................................................... 50,000 525,000
(a)Maynard Oil Co. ............................................................................... 215,000 4,085,000
-----------
4,610,000
-----------
FINANCE 9.6%
(a,c)ACMAT Corp., A ................................................................................ 150,000 1,415,625
(a)Bresler & Reiner Inc. ......................................................................... 78,000 2,145,000
GA Financial Inc. ............................................................................. 139,500 1,953,000
PAULA Financial ............................................................................... 100,000 290,625
</TABLE>
47
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
Penn-America Group Inc. ....................................................................... 115,000 $ 920,000
(a)Pinnacle Global Group Inc. .................................................................... 160,025 820,128
(a)Quaker City Bancorp Inc. ...................................................................... 90,000 1,704,375
(a)Stewart Information Services Corp. ............................................................ 500 7,875
-----------
9,256,628
-----------
(a)HEALTH TECHNOLOGY .6%
Atrion Corp. .................................................................................. 50,100 563,625
-----------
INDUSTRIAL SERVICES 5.9%
Ecology & Environment Inc., A ................................................................. 105,000 669,375
(a)GZA GeoEnvironmental Technologies Inc. ........................................................ 188,800 1,180,000
(a)Petroleum Helicopters Inc. .................................................................... 17,600 200,200
(a)Petroleum Helicopters Inc., non-voting ........................................................ 110,000 1,302,813
(a,c)Roy F. Weston Inc., A ......................................................................... 510,000 2,295,000
-----------
5,647,388
-----------
NON-ENERGY MINERALS 4.5%
Case Pomeroy & Co. Inc., A .................................................................... 220 209,000
Case Pomeroy & Co. Inc., B, cvt. .............................................................. 500 550,000
(a,c)Kentucky Electric Steel Inc. .................................................................. 430,000 940,625
(a)Zemex Corp. (Canada) .......................................................................... 400,000 2,650,000
-----------
4,349,625
-----------
(a)PROCESS INDUSTRIES 4.9%
American Pacific Corp. ........................................................................ 243,000 1,458,000
Flanders Corp. ................................................................................ 760,000 1,377,500
Griffin Land & Nurseries Inc. ................................................................. 130,000 1,836,250
-----------
4,671,750
-----------
PRODUCER MANUFACTURING 7.3%
(a,c)Art's-Way Manufacturing Co. Inc. .............................................................. 120,500 417,984
(a,c)Athey Products Corp. .......................................................................... 198,000 241,313
(a)Continental Materials Corp. ................................................................... 80,000 950,000
Hardinge Inc. ................................................................................. 96,000 1,110,000
Insteel Industries Inc. ....................................................................... 250,000 859,375
Nashua Corp. .................................................................................. 130,100 756,206
(a)Rofin-Sinar Technologies Inc. ................................................................. 175,000 1,695,313
(c)TransPro Inc. ................................................................................. 334,500 961,688
-----------
6,991,879
-----------
RETAIL TRADE 9.0%
(a)Designs Inc. .................................................................................. 680,000 1,551,250
Hancock Fabrics Inc. .......................................................................... 220,000 962,500
(a,c)S&K Famous Brands Inc. ........................................................................ 250,000 1,656,250
Schultz Sav-O Stores Inc. ..................................................................... 61,100 672,100
(a)United Retail Group Inc. ...................................................................... 243,000 1,317,516
(a,c)Village Super Market Inc., A .................................................................. 105,000 1,345,310
Wolohan Lumber Co. ............................................................................ 112,000 1,085,000
-----------
8,589,926
-----------
</TABLE>
48
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 3.9%
(a)Crowley Maritime Corp. ........................................................................ 2,000 $ 1,570,000
Kenan Transport Co. ........................................................................... 47,500 1,116,250
Providence & Worchester Railroad Co. .......................................................... 147,200 938,400
(a,c)TransFinancial Holdings Inc. .................................................................. 254,500 103,391
-----------
3,728,041
-----------
UTILITIES 8.0%
Bangor Hydro-Electric Co. ..................................................................... 121,000 2,972,060
Central Vermont Public Service Corp. .......................................................... 70,000 704,375
Green Mountain Power Corp. .................................................................... 245,000 1,898,750
(c)Maine Public Service Co. ...................................................................... 90,000 2,148,750
-----------
7,723,935
-----------
TOTAL COMMON STOCKS (COST $90,232,074) ........................................................ 89,059,872
-----------
(e)SHORT TERM INVESTMENTS 4.3%
Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $4,183,453) ............... 4,183,453 4,183,453
-----------
TOTAL INVESTMENTS (COST $94,415,527) 97.2% .................................................... 93,243,325
OTHER ASSETS, LESS LIABILITIES 2.8% ........................................................... 2,650,716
-----------
NET ASSETS 100.0% ............................................................................. $95,894,041
===========
</TABLE>
(a)Non-income producing.
(c)See Note 7 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. 49
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights
FRANKLIN VALUE FUND
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................... $ 17.30 $ 17.98 $ 24.68 $ 17.15 $ 15.00
------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ............................. .03 (.04) (.03) .08 .05
Net realized and unrealized gains (losses) .................. 3.53 (.55) (6.45) 7.90 2.15
------------------------------------------------------------------
Total from investment operations ............................. 3.56 (.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 ................................. $ 20.86 $17.30 $17.98 $ 24.68 $ 17.15
==================================================================
Total return(b) .............................................. 20.72% (3.38)% (26.48)% 47.43% 14.69%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................. $ 64,513 $ 65,898 $ 98,288 $ 78,897 $ 7,828
Ratios to average net assets:
Expenses .................................................... 1.58% 1.49% 1.32% 1.32% 1.35%(d)
Expenses excluding waiver and payments by affiliate ......... 1.58% 1.49% 1.38% 1.41% 2.87%(d)
Net investment income (loss) ................................ .16% (.23)% (.16)% .27% .57%(d)
Portfolio turnover rate ...................................... 44.99% 41.21% 36.88% 13.92% 32.52%
</TABLE>
(a)Based on average shares outstanding effective year ended October 31, 1999.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period March 11, 1996 (effective date) to October 31, 1996.
(d)Annualized
50
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS B
---------------------------
YEAR ENDED OCTOBER 31,
---------------------------
2000 1999(c)
---------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 17.21 $ 18.33
---------------------------
Income from investment operations:
Net investment loss(a) (.09) (.15)
Net realized and unrealized gains (losses) 3.49 (.97)
---------------------------
Total from investment operations 3.40 (1.12)
---------------------------
Net asset value, end of year $ 20.61 $ 17.21
===========================
Total return(b) 19.97% (6.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,747 $ 1,293
Ratios to average net assets:
Expenses 2.22% 2.12%(d)
Net investment loss (.47)% (.84)%(d)
Portfolio turnover rate 44.99% 41.21%
</TABLE>
(a)Based on average shares outstanding.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period January 1, 1999 (effective date) to October 31, 1999.
(d)Annualized
51
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996(c)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................... $ 17.03 $ 17.82 $ 24.59 $ 17.14 $ 16.38
------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ............................. (.09) (.16) (.13) (.02) .01
Net realized and unrealized gains (losses) .................. 3.46 (.54) (6.43) 7.84 .76
------------------------------------------------------------------
Total from investment operations ............................. 3.37 (.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 ................................. $ 20.40 $ 17.03 $ 17.82 $ 24.59 $ 17.14
==================================================================
Total return(b) .............................................. 19.93% (4.03)% (26.93)% 46.40% 4.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................. $ 28,555 $ 30,133 $ 41,694 $ 21,554 $ 434
Ratios to average net assets:
Expenses .................................................... 2.24% 2.17% 1.97% 1.87% 2.00%(d)
Expenses excluding waiver and payments by affiliate ......... 2.24% 2.17% 2.03% 1.96% 3.52%(d)
Net investment loss ......................................... (.51)% (.91)% (.81)% (.30)% (.08)%(d)
Portfolio turnover rate ...................................... 44.99% 41.21% 36.88% 13.92% 32.52%
</TABLE>
(a)Based on average shares outstanding effective year ended October 31, 1999.
(b)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c)For the period September 1, 1996 (effective date) to October 31, 1996.
(d)Annualized
52
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Highlights (continued)
FRANKLIN VALUE FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2000 1999 1998 1997(c)
-----------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................ $ 17.46 $ 18.07 $ 24.72 $ 18.75
-----------------------------------------------------
Income from investment operations:
Net investment income(a) ................................................. .09 .01 .04 .10
Net realized and unrealized gains (losses) ............................... 3.58 (.53) (6.45) 5.95
-----------------------------------------------------
Total from investment operations .......................................... 3.67 (.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 .............................................. $ 21.13 $ 17.46 $ 18.07 $ 24.72
=====================================================
Total return(b) ........................................................... 21.16% (2.97)% (26.18)% 32.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................................... $ 3,848 $ 2,941 $ 4,739 $ 4,495
Ratios to average net assets:
Expenses ................................................................. 1.24% 1.17% .97% .98%(d)
Expenses excluding waiver and payments by affiliate ...................... 1.24% 1.17% 1.03% 1.07%(d)
Net investment income .................................................... .49% .09% .19% .59%(d)
Portfolio turnover rate ................................................... 44.99% 41.21% 36.88% 13.92%
</TABLE>
(a)Based on average shares outstanding effective year ended October 31, 1999.
(b)Total return is not annualized for periods less than one year.
(c)For the period January 2, 1997 (effective date) to October 31, 1997.
(d)Annualized
See notes to financial statements.
53
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN VALUE FUND SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 96.6%
CONSUMER DURABLES 7.4%
Briggs & Stratton Corp. .......................................... 27,000 $ 963,563
D.R. Horton Inc. ................................................. 160,993 2,978,371
Engle Homes Inc. ................................................. 8,700 164,213
La-Z-Boy Inc. .................................................... 98,000 1,543,500
Leggett & Platt Inc. ............................................. 68,000 1,113,500
M/I Schottenstein Homes Inc. ..................................... 29,500 606,594
----------
7,369,741
----------
CONSUMER NON-DURABLES 7.2%
Block Drug Co. Inc., A ........................................... 27,000 1,412,438
DIMON Inc. ....................................................... 215,000 658,438
Standard Commercial Corp. ........................................ 245,800 967,838
(a)Timberland Co., A ................................................ 25,800 1,331,925
(a)Tommy Hilfiger Corp. ............................................. 79,000 918,375
(a)Tropical Sportswear International Corp. .......................... 52,000 819,000
Wolverine World Wide Inc. ........................................ 102,000 1,102,875
----------
7,210,889
----------
CONSUMER SERVICES 1.6%
(a)Aztar Corp. ...................................................... 63,300 957,413
Wendy's International Inc. ....................................... 27,500 598,125
----------
1,555,538
----------
ELECTRONIC TECHNOLOGY 3.8%
Cohu Inc. ........................................................ 59,000 932,938
Diebold Inc. ..................................................... 70,000 1,820,000
(a)ESCO Technologies Inc. ........................................... 28,000 509,250
(a)SPACEHAB Inc. .................................................... 123,000 492,000
----------
3,754,188
----------
ENERGY MINERALS 2.2%
(a)Nuevo Energy Co. ................................................. 51,000 924,375
USX-Marathon Group Inc. .......................................... 46,000 1,250,625
----------
2,175,000
----------
FINANCE 24.3%
Allstate Corp. ................................................... 73,000 2,938,250
American General Corp. ........................................... 4,200 338,100
American National Insurance Co. .................................. 25,700 1,741,175
Harleysville Group Inc. .......................................... 65,500 1,510,594
Household International Inc. ..................................... 39,000 1,962,188
(a)John Hancock Financial Services Inc. ............................. 10,700 338,388
Manulife Financial Corp. (Canada) ................................ 49,000 1,261,750
National Commerce Bancorp. ....................................... 135,000 2,868,750
(a)PBOC Holdings Inc. ............................................... 64,000 380,000
Penn-America Group Inc. .......................................... 105,000 840,000
The PMI Group Inc. ............................................... 20,000 1,477,500
Presidential Life Corp. .......................................... 178,000 2,592,125
(a)Professionals Group Inc. ......................................... 108,500 2,454,813
</TABLE>
54
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN VALUE FUND SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
FINANCE (CONT.)
Reinsurance Group of America Inc. .................................. 17,700 $ 661,538
(a)Seibels Bruce Group Inc. ........................................... 101,000 94,688
StanCorp Financial Group Inc. ...................................... 6,000 244,500
Washington Mutual Inc. ............................................. 57,000 2,508,000
----------
24,212,359
----------
HEALTH TECHNOLOGY 1.0%
West Pharmaceutical Services Inc. .................................. 44,000 968,000
----------
INDUSTRIAL SERVICES 7.9%
(a)Atwood Oceanics Inc. ............................................... 38,500 1,292,156
ENSCO International Inc. ........................................... 50,000 1,662,500
(a)R&B Falcon Corp. ................................................... 82,500 2,062,500
(a)Rowan Cos. Inc. .................................................... 59,000 1,486,063
Santa Fe International Corp. ....................................... 37,000 1,350,500
----------
7,853,719
----------
NON-ENERGY MINERALS 2.1%
Commonwealth Industries Inc. ....................................... 103,000 598,688
LTV Corp. .......................................................... 187,000 222,063
Reliance Steel & Aluminum Co. ...................................... 55,000 1,306,250
----------
2,127,001
----------
PROCESS INDUSTRIES 2.0%
Myers Industries Inc. .............................................. 87,000 1,152,750
Sherwin-Williams Co. ............................................... 21,000 455,438
Tuscarora Inc. ..................................................... 30,500 396,500
----------
2,004,688
----------
PRODUCER MANUFACTURING 19.9%
Baldor Electric Co. ................................................ 50,000 993,750
CIRCOR International Inc. .......................................... 47,750 528,234
Dana Corp. ......................................................... 45,000 998,438
Federal Signal Corp. ............................................... 50,000 1,168,750
Graco Inc. ......................................................... 30,000 1,078,125
JLG Industries Inc. ................................................ 213,000 2,968,688
Kaydon Corp. ....................................................... 42,000 921,375
Lancaster Colony Corp. ............................................. 67,000 1,582,875
(a)Lone Star Technologies Inc. ........................................ 36,000 1,445,400
(a)Mueller Industries Inc. ............................................ 55,000 1,282,188
Patrick Industries Inc. ............................................ 5,600 32,900
Superior Industries International Inc. ............................. 53,000 1,805,313
Teleflex Inc. ...................................................... 38,500 1,330,656
Timken Co. ......................................................... 107,900 1,517,344
(a)Tower Automotive Inc. .............................................. 136,000 1,496,001
Watts Industries Inc., A ........................................... 59,000 660,063
----------
19,810,100
----------
</TABLE>
55
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2000 (CONT.)
<TABLE>
<CAPTION>
FRANKLIN VALUE FUND SHARES VALUE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
RETAIL TRADE 6.1%
Family Dollar Stores Inc. .................................................. 124,000 $ 2,410,250
Schultz Sav-O Stores Inc. .................................................. 63,250 695,750
The TJX Companies Inc. ..................................................... 109,000 2,970,250
-----------
6,076,250
-----------
TECHNOLOGY SERVICES 1.6%
Reynolds & Reynolds Co., A ................................................. 68,500 1,224,438
(a)Ultrak Inc. ................................................................ 93,000 406,875
-----------
1,631,313
-----------
TRANSPORTATION 9.5%
Airborne Freight Corp. ..................................................... 49,000 496,126
(a)Atlantic Coast Airlines Holdings Inc. ...................................... 25,500 911,625
Delta Air Lines Inc. ....................................................... 12,000 567,000
Kenan Transport Co. ........................................................ 66,500 1,562,750
(a)Midwest Express Holdings Inc. .............................................. 41,000 779,000
(a)Motor Cargo Industries Inc. ................................................ 113,000 628,563
Teekay Shipping Corp. ...................................................... 62,000 2,317,250
Tidewater Inc. ............................................................. 47,000 2,170,799
-----------
9,433,113
-----------
TOTAL COMMON STOCKS (COST $98,304,754) ..................................... 96,181,899
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C>
BONDS .7%
(d)CORPORATE BONDS
Hechinger Co., senior notes, 6.95%, 10/15/03 (COST $334,590) ............... $ 500,000 41,250
(a)CONVERTIBLE BONDS .7%
SPACEHAB Inc., cvt. sub. notes, 144A, 8.00%, 10/15/07 (COST $1,000,000) .... 1,000,000 696,250
----------
TOTAL BONDS (COST $1,334,590) .............................................. 737,500
----------
TOTAL LONG TERM INVESTMENTS (COST $99,639,344) ............................. 96,919,399
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
(e)SHORT TERM INVESTMENTS 2.6%
Franklin Institutional Fiduciary Trust Money Market Portfolio
(COST $2,594,913) ......................................................... 2,594,913 2,594,913
-----------
TOTAL INVESTMENTS (COST $102,234,257) 99.9% ................................ 99,514,312
OTHER ASSETS, LESS LIABILITIES .1% ......................................... 149,129
-----------
NET ASSETS 100.0% .......................................................... $99,663,441
===========
</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.
56 See notes to financial statements.
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP FRANKLIN
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................ $ 601,116,801 $5,203,664 $71,966,533 $102,234,257
Cost - Non-controlled affiliated issuers ........... 285,226,513 -- 22,448,994 --
================================================================
Value - Unaffiliated issuers ....................... 760,009,870 5,746,611 75,935,385 99,514,312
Value - Non-controlled affiliated issuers .......... 305,721,990 -- 17,307,940 --
Receivables:
Investment securities sold ......................... 1,758,843 -- 2,914,353 301,806
Capital shares sold ................................ 4,187,607 94,830 156,721 332,619
Dividends and interest ............................. 474,711 5,753 15,400 44,331
Offering costs (Note 1) .............................. -- 28,130 -- --
Other assets ......................................... 85,600 -- 56,500 200
----------------------------------------------------------------
Total assets ..................................... 1,072,238,621 5,875,324 96,386,299 100,193,268
----------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................... -- 88,634 -- --
Capital shares redeemed ............................ 2,839,043 -- 363,035 294,259
Affiliates ......................................... 1,273,367 3,992 101,743 147,414
Shareholders ....................................... 60,418 -- 2,163 8,603
Registration fees .................................. -- -- -- 41,850
Other liabilities .................................... 172,447 483 25,317 37,701
----------------------------------------------------------------
Total liabilities ................................ 4,345,275 93,109 492,258 529,827
----------------------------------------------------------------
Net assets, at value ............................ $1,067,893,346 $5,782,215 $95,894,041 $ 99,663,441
================================================================
Net assets consist of:
Undistributed net investment income ................ $ 322,193 $ 42,368 $ 234,896 $ --
Net unrealized appreciation (depreciation) ......... 179,388,546 542,947 (1,172,202) (2,719,945)
Accumulated net realized gain (loss) ............... 16,642,095 (20,643) 3,156,108 (30,741,696)
Capital shares ..................................... 871,540,512 5,217,543 93,675,239 133,125,082
----------------------------------------------------------------
Net assets, at value ............................ $1,067,893,346 $5,782,215 $95,894,041 $ 99,663,441
================================================================
</TABLE>
See notes to financial statements. 57
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP FRANKLIN
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
--------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CLASS A:
Net assets, at value ..................................... $1,067,893,346 $3,417,734 $95,894,041 $64,513,125
================================================================
Shares outstanding ....................................... 30,661,219 307,456 5,080,114 3,092,660
================================================================
Net asset value per share(a) ............................. $ 34.83 $ 11.12 $ 18.88 $ 20.86
================================================================
Maximum offering price per share
(net asset value per share / 94.25%) ..................... $ 35.36(b) $ 11.80 $ 20.03 $ 22.13
================================================================
CLASS B:
Net assets, at value ..................................... -- $ 453,396 -- $ 2,746,950
================================================================
Shares outstanding ....................................... -- 40,825 -- 133,254
================================================================
Net asset value and maximum offering price per share(a) .. -- $ 11.11 -- $ 20.61
================================================================
CLASS C:
Net assets, at value ..................................... -- $1,911,085 -- $28,555,211
================================================================
Shares outstanding ....................................... -- 172,087 -- 1,399,460
================================================================
Net asset value per share(a) ............................. -- $ 11.11 -- $ 20.40
================================================================
Maximum offering price per share
(net asset value per share / 99%) ....................... -- $ 11.22 -- $ 20.61
================================================================
ADVISOR CLASS:
Net assets, at value ..................................... -- -- -- $ 3,848,155
================================================================
Shares outstanding ....................................... -- -- -- 182,085
================================================================
Net asset value and maximum offering price per share ..... -- -- -- $ 21.13
================================================================
</TABLE>
(a)Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
(b)The maximum offering price for the Franklin Balance Sheet Investment Fund is
calculated at $34.83 / 98.50%.
58 See notes to financial statements.
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP FRANKLIN
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Dividends(a)
Unaffiliated issuers ............................... $ 14,689,954 $ 44,926 $ 1,288,962 $ 1,548,121
Non-controlled affiliated issuers (Note 7) ......... 3,430,171 -- 338,825 --
Interest ............................................ 3,280,317 6,511 6,885 80,626
-------------------------------------------------------------------
Total investment income ......................... 21,400,442 51,437 1,634,672 1,628,747
-------------------------------------------------------------------
Expenses:
Management fees (Note 3) ............................ 4,933,240 8,355 745,660 696,027
Administrative fees (Note 3) ........................ -- 3,038 -- --
Distribution fees (Note 3)
Class A ........................................... 2,595,935 3,354 253,474 207,341
Class B ........................................... -- 1,072 -- 19,285
Class C ........................................... -- 3,784 -- 275,406
Transfer agent fees (Note 3) ......................... 3,023,296 976 299,189 299,823
Custodian fees ....................................... 21,459 14 1,186 841
Reports to shareholders .............................. 138,662 21 33,307 36,766
Registration and filing fees ......................... 84,004 250 19,309 91,015
Professional fees (Note 3) ........................... 87,541 11,039 24,468 23,038
Trustees' fees and expenses .......................... 98,957 -- 17,848 16,135
Amortization of offering costs (Note 1) .............. -- 20,093 -- --
Other ................................................ 38,177 10 5,335 3,071
-------------------------------------------------------------------
Total expenses ................................... 11,021,271 52,006 1,399,776 1,668,748
Expenses waived/paid by affiliate (Note 3) ....... -- (30,124) -- --
-------------------------------------------------------------------
Net expenses .................................... 11,021,271 21,882 1,399,776 1,668,748
-------------------------------------------------------------------
Net investment income (loss) .................... 10,379,171 29,555 234,896 (40,001)
-------------------------------------------------------------------
</TABLE>
See notes to financial statements. 59
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS (continued)
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<CAPTION>
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP FRANKLIN
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated issuers ..................................... $(33,961,734) $(20,643) $ 3,122,326 $(1,493,490)
Non-controlled affiliated issuers (Note 7) ............... 50,933,161 -- 40,315 --
Closed-end funds distributions ........................... 1,414,946 -- -- --
Foreign currency transactions .............................. (184,380) -- -- 8
-------------------------------------------------------------
Net realized gain (loss) ................................ 18,201,993 (20,643) 3,162,641 (1,493,482)
Net unrealized appreciation on:
Investments ............................................... 145,427,922 542,947 7,610,584 18,556,166
Translation of assets and liabilities denominated in
foreign currencies ....................................... 53,586 -- -- (15)
-------------------------------------------------------------
Net unrealized appreciation ............................... 145,481,508 542,947 7,610,584 18,556,151
-------------------------------------------------------------
Net realized and unrealized gain ............................ 163,683,501 522,304 10,773,225 17,062,669
-------------------------------------------------------------
Net increase in net assets resulting from operations ........ $174,062,672 $551,859 $11,008,121 $17,022,668
=============================================================
</TABLE>
(a)Net of foreign taxes and fees of $2,419 for the Franklin Value Fund.
60 See notes to financial statements.
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
FRANKLIN BALANCE SHEET INVESTMENT FUND VALUE FUND
2000 1999 2000(a)
------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ......................................... $ 10,379,171 $ 16,294,986 $ 29,555
Net realized gain (loss) from investments and
foreign currency transactions ................................ 18,201,993 8,435,693 (20,643)
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities denominated in
foreign currencies ........................................... 145,481,508 (33,780,186) 542,947
-----------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ........................................... 174,062,672 (9,049,507) 551,859
Distributions to shareholders from:
Net investment income:
Class A ...................................................... (10,313,130) (18,737,781) --
Net realized gains:
Class A ...................................................... (10,252,922) (53,832,197) --
-----------------------------------------------------
Total distributions to shareholders ............................ (20,566,052) (72,569,978) --
Capital share transactions: (Note 2)
Class A ...................................................... (251,382,049) (219,808,908) 3,093,760
Class B ...................................................... -- -- 413,229
Class C ...................................................... -- -- 1,723,367
-----------------------------------------------------
Total capital share transactions ............................... (251,382,049) (219,808,908) 5,230,356
Net increase (decrease) in net assets ...................... (97,885,429) (301,428,393) 5,782,215
Net assets:
Beginning of year .............................................. 1,165,778,775 1,467,207,168 --
-----------------------------------------------------
End of year .................................................... $1,067,893,346 $1,165,778,775 $5,782,215
=====================================================
Undistributed net investment income included in net assets:
End of year .................................................... $ 322,193 $ 440,532 $ 42,368
=====================================================
</TABLE>
(a)For the period June 1, 2000 (effective date) to October 31, 2000.
See notes to financial statements. 61
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED OCTOBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND FRANKLIN VALUE FUND
---------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ..................... $ 234,896 $ (73,394) $ (40,001) $ (513,905)
Net realized gain (loss) from investments and
foreign currency transactions ................... 3,162,641 9,110,832 (1,493,482) (29,248,166)
Net unrealized appreciation (depreciation)
on investments and translation of
assets and liabilities denominated in
foreign currencies .............................. 7,610,584 (9,966,758) 18,556,151 24,916,452
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... 11,008,121 (929,320) 17,022,668 (4,845,619)
Distributions to shareholders from:
Net realized gains:
Class A ......................................... (9,053,240) (13,333,988) -- (484,796)
Class C ......................................... -- -- -- (215,275)
Advisor Class ................................... -- -- -- (13,287)
--------------------------------------------------------------------
Total distributions to shareholders ................ (9,053,240) (13,333,988) -- (713,358)
Capital share transactions: (Note 2)
Class A ......................................... (22,059,929) (45,372,974) (12,521,737) (28,835,655)
Class B ......................................... -- -- 1,066,377 1,378,201
Class C ......................................... -- -- (6,446,551) (9,739,449)
Advisor Class ................................... -- -- 277,662 (1,699,686)
--------------------------------------------------------------------
Total capital share transactions ................... (22,059,929) (45,372,974) (17,624,249) (38,896,589)
Net decrease in net assets ................... (20,105,048) (59,636,282) (601,581) (44,455,566)
Net assets:
Beginning of year ................................. 115,999,089 175,635,371 100,265,022 144,720,588
--------------------------------------------------------------------
End of year ....................................... $ 95,894,041 $115,999,089 $ 99,663,441 $100,265,022
====================================================================
Undistributed net investment income included
in net assets:
End of year ..................................... $ 234,896 $ -- $ -- $ --
====================================================================
</TABLE>
62 See notes to financial statements.
<PAGE>
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 investment company, consisting of four series
(the Funds). All Funds are non-diversified except the Franklin Large Cap Value
Fund. The Funds' investment objectives are growth and income.
Effective June 1, 2000, the Trust began offering shares of the Franklin Large
Cap Value Fund.
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. 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. dollars
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. 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.
63
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
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.
e. OFFERING COSTS:
Offering costs are amortized on a straight line basis over twelve months.
f. 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. 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 CLASS A, CLASS B, CLASS C, & ADVISOR CLASS
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin Value Fund
Franklin MicroCap Value Fund
</TABLE>
At October 31, 2000, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND(a)
---------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended October 31, 2000
Shares sold ......................................... 8,763,884 $ 274,492,049 318,950 $3,210,530
Shares issued in reinvestment of distributions ...... 622,150 18,880,696 -- --
Shares redeemed ..................................... (17,641,297) (544,754,794) (11,494) (116,770)
---------------------------------------------------------------------------
Net increase (decrease) ............................. (8,255,263) $(251,382,049) 307,456 $3,093,760
===========================================================================
Year ended October 31, 1999
Shares sold ......................................... 13,927,778 $ 431,957,836
Shares issued in reinvestment of distributions ...... 2,197,329 67,192,593
Shares redeemed ..................................... (23,260,066) (718,959,337)
-------------------------------------
Net decrease ........................................ (7,134,959) $(219,808,908)
=====================================
</TABLE>
64
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST (CONT.)
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
VALUE FUND(a)
-----------------------------
SHARES AMOUNT
-----------------------------
<S> <C> <C>
CLASS B SHARES:
Year ended October 31, 2000
Shares sold ............................................................................... 42,846 $ 432,861
Shares redeemed ........................................................................... (2,021) (19,632)
-----------------------------
Net increase .............................................................................. 40,825 $ 413,229
=============================
CLASS C SHARES:
Year ended October 31, 2000
Shares sold ............................................................................... 174,652 $1,749,531
Shares redeemed ........................................................................... (2,565) (26,164)
-----------------------------
Net increase .............................................................................. 172,087 $1,723,367
=============================
</TABLE>
(a)For the period June 1, 2000 (effective date) to October 31, 2000.
<TABLE>
<CAPTION>
FRANKLIN MICROCAP VALUE FUND FRANKLIN VALUE FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Year ended October 31, 2000
Shares sold ....................................... 1,721,645 $ 31,141,869 2,758,921 $ 51,360,898
Shares issued in reinvestment of distributions .... 482,151 8,118,898 -- --
Shares redeemed ................................... (3,425,938) (61,320,696) (3,475,775) (63,882,635)
-----------------------------------------------------------------------
Net decrease ...................................... (1,222,142) $(22,059,929) (716,854) $(12,521,737)
=======================================================================
Year ended October 31, 1999
Shares sold ....................................... 867,659 $ 16,807,823 1,856,763 $ 34,066,206
Shares issued in reinvestment of distributions .... 644,741 12,063,077 25,433 439,189
Shares redeemed ................................... (3,876,306) (74,243,874) (3,538,676) (63,341,050)
-----------------------------------------------------------------------
Net decrease ...................................... (2,363,906) $(45,372,974) (1,656,480) $(28,835,655)
=======================================================================
CLASS B SHARES:
Year ended October 31, 2000
Shares sold ................................................................................ 78,091 $ 1,443,951
Shares redeemed ............................................................................ (19,992) (377,574)
-----------------------------
Net increase ............................................................................... 58,099 $ 1,066,377
=============================
Year ended October 31, 1999(b)
Shares sold ................................................................................ 77,515 $ 1,420,965
Shares redeemed ............................................................................ (2,360) (42,764)
-----------------------------
Net increase ............................................................................... 75,155 $ 1,378,201
=============================
</TABLE>
(b)For the period January 1, 1999 (effective date) to October 31, 1999.
65
<PAGE>
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 C SHARES:
Year ended October 31, 2000
Shares sold .................................................................. 528,629 $ 9,598,269
Shares redeemed .............................................................. (898,672) (16,044,820)
-------------------------------------------
Net decrease ................................................................. (370,043) $ (6,446,551)
===========================================
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)
===========================================
ADVISOR CLASS:
Year ended October 31, 2000
Shares sold .................................................................. 33,192 $ 628,215
Shares redeemed .............................................................. (19,511) (350,553)
-------------------------------------------
Net increase ................................................................. 13,681 $ 277,662
===========================================
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)
===========================================
</TABLE>
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.
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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
---------------------------------------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
</TABLE>
Fees are further reduced on net assets over $10 billion.
66
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Franklin Large Cap Value Fund pays an investment management fee to Advisory
Services based on the average net assets of the fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
--------------------------------------------------------------------------------------------------
<S> <C>
.550% First $500 million
.450% Over $500 million, up to and including $1 billion
.400% Over $1 billion, up to and including $1.5 billion
</TABLE>
Fees are further reduced on net assets over $1.5 billion.
The Franklin MicroCap Value Fund pays an investment management fee to Advisory
Services of .75% 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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
------------------------------------------------------------------------------------------------------
<S> <C>
.750% First $500 million
.625% Over $500 million, up to and including $1 billion
.500% Over $1 billion
</TABLE>
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 (the Sweep Money Fund.)
The Franklin Large Cap Value Fund pays an administrative fee to FT Services of
.20% per year of the fund's average net assets.
Under an agreement with Advisory Services, FT Services provides administrative
services to the Franklin Balance Sheet Investment Fund, the Franklin MicroCap
Value Fund, and the Franklin Value Fund. The fee is paid by Advisory Services
based on average daily net assets, and is not an additional expense of the
funds.
FT Services and Advisory Services agreed in advance to waive administrative and
management fees and assume payment of other expenses for the Franklin Large Cap
Value Fund, as noted in the Statement of Operations.
The Funds reimburse Distributors for costs incurred in marketing the Funds'
shares up to a certain percentage per year of their average daily net assets of
each class as follows:
<TABLE>
<CAPTION>
FRANKLIN
BALANCE SHEET FRANKLIN LARGE CAP FRANKLIN MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND FRANKLIN VALUE FUND
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A ...................... .25% .35% .25% .35%
Class B ...................... -- 1.00% -- 1.00%
Class C ...................... -- 1.00% -- 1.00%
</TABLE>
67
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
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
BALANCE SHEET FRANKLIN LARGE CAP FRANKLIN MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND FRANKLIN VALUE FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net commissions received (paid) ............ $(977,170) $(14,811) $2,757 $(141,483)
Contingent deferred sales charges .......... $ 5,998 $ -- $1,297 $ 36,143
</TABLE>
The Funds paid transfer agent fees of $3,623,284, of which $1,475,401 was paid
to Investor Services.
At October 31, 2000, Advisory Services and/or investment companies managed by
Franklin Advisers, Inc. owned 38.45% of the Franklin Large Cap Value Fund.
Included in professional fees are legal fees of $60,002 that were paid to a law
firm in which a partner of the law firm was an officer of the Funds.
4. INCOME TAXES
At October 31, 2000, certain funds had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
<TABLE>
<CAPTION>
FRANKLIN LARGE CAP
VALUE FUND FRANKLIN VALUE FUND
---------------------------------------------------
<S> <C> <C>
Capital loss carryovers expiring in:
2007 ....................................... $ -- $29,248,206
2008 ....................................... 20,643 1,120,571
-------------------------------------------
$20,643 $30,368,777
===========================================
</TABLE>
At October 31, 2000, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
FRANKLIN
BALANCE SHEET FRANKLIN LARGE CAP FRANKLIN MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND FRANKLIN VALUE FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment at cost ........................ $888,153,123 $5,203,664 $94,415,527 $102,607,176
======================================================================================
Unrealized appreciation ................... $290,138,748 $ 634,285 $18,075,202 $ 15,776,553
Unrealized depreciation ................... (112,560,011) (91,338) (19,247,404) (18,869,417)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $177,578,737 $ 542,947 $(1,172,202) $ (3,092,864)
======================================================================================
</TABLE>
68
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
4. INCOME TAXES (CONT.)
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities, foreign currency
transactions, and offering costs.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatments 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, 2000 were as follows:
<TABLE>
<CAPTION>
FRANKLIN
BALANCE SHEET FRANKLIN LARGE CAP FRANKLIN MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND FRANKLIN VALUE FUND
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchases ................... $ 86,347,505 $4,347,121 $ 8,277,681 $41,250,996
Sales ....................... $366,050,567 $ 195,585 $42,943,135 $59,430,752
</TABLE>
6. DEFAULTED SECURITIES
At October 31, 2000, the Franklin Balance Sheet Investment Fund and the Franklin
Value Fund held defaulted securities with a value aggregating $577,500 and
$41,250, representing .05% and .04% of each of the funds' net assets,
respectively. For information as to specific securities, see the accompanying
Statements of Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide an estimate for losses on interest receivable.
7. 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 and net realized capital gains and losses at October 31, 2000 were as
follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES NUMBER
HELD AT OF SHARES NET REALIZED
BEGINNING GROSS GROSS HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER 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 -- 1,500 293,500 $ 2,769,906 $ -- $ 2,249
Allen Organ Co., B .............. 83,000 -- 10,000 73,000 4,234,000 43,680 173,731
American Pacific Corp. .......... 421,100 -- 7,100 414,000 2,484,000 -- (1,651)
Audiovox Corp., A ............... 1,200,000 -- 1,200,000 -- (a) -- 32,028,673
Aztar Corp. ..................... 3,250,000 -- 840,000 2,410,000 36,451,250 -- 4,081,753
Castle & Cooke Inc. ............. 1,729,000 -- 1,729,000 -- (a) -- 5,143,251
</TABLE>
69
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
7. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS (CONT.)
<TABLE>
<CAPTION>
NUMBER
OF SHARES NUMBER
HELD AT OF SHARES NET REALIZED
BEGINNING GROSS GROSS HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME (LOSSES)
-----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET
INVESTMENT FUND (CONT.)
<S> <C> <C> <C> <C> <C> <C> <C>
Champps Entertainment Inc. ....... 985,000 133,000 118,000 1,000,000 $ 6,750,000 $ -- $ (325,960)
Charming Shoppes Inc. ............ 6,000,000 -- 900,000 5,100,000 31,237,500 -- 1,947,259
Cherry Corp., B .................. 654,900 -- 654,900 -- (a) -- 9,881,601
Commonwealth Industries Inc. ..... 1,174,300 -- 79,300 1,095,000 6,364,688 219,500 (425,552)
Crown Central Petroleum Corp., B . 397,800 -- 189,000 208,800 (a) -- (1,575,452)
Cyrk Inc. ........................ 1,150,000 -- 65,000 1,085,000 4,204,375 -- (126,167)
Delta Apparel Inc. ............... -- 224,000 -- 224,000 3,696,000 -- --
Delta Woodside Industries Inc. ... 2,283,500 -- 43,500 2,240,000 3,220,000 -- (280,935)
Designs Inc. ..................... 1,190,000 -- -- 1,190,000 2,714,688 -- --
DIMON Inc. ....................... 2,145,000 91,500 -- 2,236,500 6,849,281 442,725 --
Durango Apparel Inc.(b)........... 756,000 -- 756,000 -- (a) -- (6,341,927)
Echelon International Corp. Inc. . 408,700 -- 408,700 -- (a) -- 4,051,851
Ecology & Environment Inc., A .... 235,000 -- 35,000 200,000 1,275,000 69,216 (106,175)
ESCO Electronics Corp. ........... 800,000 -- 200,000 600,000 (a) -- 586,444
Fidelity Bancorp Inc. ............ 128,300 -- -- 128,300 2,309,400 61,584 --
Fred's Inc. ...................... 969,000 -- 189,000 780,000 16,477,500 181,945 1,203,643
Garan Inc. ....................... 285,100 -- 5,100 280,000 6,580,000 509,355 61,272
GTSI Corp.(d)..................... 194,500 448,500 422,000 221,000 (a) -- 771,041
Haggar Corp. ..................... 827,000 -- 237,000 590,000 7,670,000 129,075 (823,909)
Handleman Co. .................... 1,850,000 260,600 210,600 1,900,000 18,762,500 -- 695,090
Hardinge Inc. .................... 430,000 109,000 -- 539,000 6,232,188 287,210 --
Insteel Industries Inc. .......... 570,000 -- 10,000 560,000 1,925,000 134,400 6,497
International Shipholding Corp. .. 587,900 -- 27,900 560,000 3,990,000 141,875 (209,900)
Jacobson Stores Inc. ............. 298,100 86,200 -- 384,300 1,537,200 -- --
Kaneb Services Inc. .............. 3,190,000 -- 197,500 2,992,500 13,466,250 -- (71,581)
KLLM Transport Services Inc. ..... 295,900 -- 295,900 -- (a) -- (355,989)
Maynard Oil Co. .................. 260,000 -- 10,000 250,000 4,750,000 -- 117,318
Mayor's Jewelers Inc.(c).......... 1,251,400 -- -- 1,251,400 4,536,325 -- --
Merchants Group Inc. ............. 257,800 -- 2,800 255,000 4,605,938 102,560 (8,000)
Nash-Finch Co. ................... 950,000 -- 60,000 890,000 11,013,750 328,050 (730,733)
Nashua Corp. ..................... 299,100 -- 50,000 249,100 (a) 2,491 (268,908)
Pitt-Des Moines Inc. ............. 446,500 -- 31,500 415,000 12,968,750 326,505 (85,766)
Professionals Group Inc. ......... 463,500 46,350 -- 509,850 11,535,356 -- --
Pulaski Furniture Corp. .......... 192,000 -- 192,000 -- (a) 65,280 599,773
SCPIE Holdings Inc. .............. 559,000 -- 30,000 529,000 10,051,000 207,920 (66,464)
Standard Microsystems Corp. ...... 1,315,000 -- 420,000 895,000 21,480,000 -- 1,078,427
Stewart Information Services Corp. 780,000 -- 10,000 770,000 12,127,500 31,200 5,995
Syms Corp. ....................... 1,443,200 -- 13,200 1,430,000 8,043,750 -- (135,883)
VICORP Restaurants Inc. .......... 606,700 -- 119,637 487,063 8,371,395 -- 438,245
Wolohan Lumber Co. ............... 520,000 -- -- 520,000 5,037,500 145,600 --
------------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $305,721,990 $3,430,171 $50,933,161
==========================================
</TABLE>
70
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Notes to Financial Statements (continued)
7. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO ISSUERS (CONT.)
<TABLE>
<CAPTION>
NUMBER
OF SHARES NUMBER
HELD AT OF SHARES NET REALIZED
BEGINNING GROSS GROSS HELD AT VALUE AT DIVIDEND CAPITAL GAINS
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME (LOSSES)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FRANKLIN MICROCAP VALUE FUND
ACMAT Corp., A ......................... 150,000 -- -- 150,000 $1,415,625 $ -- $ --
Allou Health & Beauty Care Inc., A ..... 300,000 -- 300,000 -- (a) -- (164,932)
Art's-Way Manufacturing Co. Inc. ....... 120,500 -- -- 120,500 417,984 -- --
Athey Products Corp. ................... 198,000 -- -- 198,000 241,313 -- --
Atlantic Tele-Network Inc. ............. 270,000 -- 30,000 240,000 (a) 164,100 (175,573)
Durango Apparel Inc.(b)................. 214,100 756,000 6,000 964,100 9,641 -- (36,045)
ECC International Corp. ................ 682,000 -- 137,000 545,000 1,941,563 -- (21,561)
Espey Manufacturing & Electronics Corp. 90,000 -- 10,000 80,000 1,340,000 16,850 (27,624)
GZA GeoEnvironmental Technologies Inc. . 310,000 -- 121,200 188,800 (a) -- 89,175
Harding Lawson Associates Group Inc. ... 300,900 -- 300,900 -- (a) -- 1,085,578
Kentucky Electric Steel Inc. ........... 450,000 -- 20,000 430,000 940,625 -- (88,127)
Maine Public Service Co. ............... 118,000 -- 28,000 90,000 2,148,750 130,200 132,723
Maynard Oil Co. ........................ 290,000 -- 75,000 215,000 (a) -- 362,582
Roy F. Weston Inc., A .................. 633,000 -- 123,000 510,000 2,295,000 -- (243,310)
S&K Famous Brands Inc. ................. 250,000 -- -- 250,000 1,656,250 -- --
Seneca Foods Corp., A .................. 191,600 -- -- 191,600 2,490,800 -- --
Temtex Industries Inc. ................. 265,500 -- 265,500 -- (a) -- (669,830)
TransFinancial Holdings Inc. ........... 300,000 -- 45,500 254,500 103,391 -- (194,239)
TransPro Inc. .......................... 184,500 150,000 -- 334,500 961,688 27,675 --
Village Super Market Inc., A ........... 108,500 -- 3,500 105,000 1,345,310 -- (8,502)
-------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $17,307,940 $ 338,825 $ 40,315
=====================================
</TABLE>
(a)As of October 31, 2000, no longer an affiliate.
(b)Name change on June 28, 2000, previously known as Chic By H.I.S. Inc.
(c)Name change on July 17, 2000, previously known as Jan Bell Marketing Inc.
(d)Name change on July 31, 2000, previously known as Government Technology
Services Inc.
71
<PAGE>
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 included in this
report constituting the Franklin Value Investors Trust (hereafter referred to as
the "Funds") at October 31, 2000, 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 accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' 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 generally accepted in the United States of America, which
require that we plan and perform the audit 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, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 6, 2000
72
<PAGE>
FRANKLIN VALUE INVESTORS TRUST
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended October 31, 2000:
<TABLE>
<CAPTION>
FRANKLIN BALANCE SHEET FRANKLIN
INVESTMENT FUND MICROCAP VALUE FUND
---------------------------------------------------------------------------
<S> <C>
$18,452,328 $2,451,926
</TABLE>
Under Section 854(b)(2) of the Internal Revenue Code, the Franklin Balance Sheet
Investment Fund hereby designates 100% of the ordinary income dividends as
income qualifying for the dividends received deduction for the fiscal year ended
October 31, 2000.
73
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