UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5878
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FRANKLIN VALUE INVESTORS TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 10/31
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Date of reporting period: 10/31/03
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ITEM 1. REPORTS TO STOCKHOLDERS.
OCTOBER 31, 2003
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Franklin Balance Sheet
Investment Fund
Franklin Large Cap
Value Fund
Franklin MicroCap
Value Fund
Franklin Small Cap
Value Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER | VALUE
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FRANKLIN
VALUE INVESTORS TRUST
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WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
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[LOGO]
FRANKLIN[R] TEMPLETON[R]
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
expertise in growth- and value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style
of value investing, searching aggressively for opportunity among undervalued
stocks, arbitrage situations and distressed companies.
TRUE DIVERSIFICATION
Because our management groups work independently and adhere to distinctly
different investment approaches, Franklin, Templeton and Mutual Series funds
typically have a low overlap of securities. That's why our funds can be used to
build truly diversified portfolios covering every major asset class.
RELIABILITY YOU CAN TRUST
At Franklin Templeton Investments, we seek to consistently provide investors
with exceptional risk-adjusted returns over the long term, as well as the
reliable account services that have helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
Contents
SHAREHOLDER LETTER ........... 1
ANNUAL REPORT
Franklin Balance Sheet
Investment Fund .............. 3
Franklin Large Cap
Value Fund ................... 11
Franklin MicroCap
Value Fund ................... 19
Franklin Small Cap
Value Fund ................... 25
Financial Highlights and
Statements of Investments .... 33
Financial Statements ......... 64
Notes to
Financial Statements ......... 69
Independent
Auditors' Report ............. 80
Tax Designation .............. 81
Board Members
and Officers ................. 82
Proxy Voting Policies
and Procedures ............... 86
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Annual Report
Franklin Balance Sheet Investment Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: 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.
This annual report for Franklin Balance Sheet Investment Fund covers the fiscal
year ended October 31, 2003.
PERFORMANCE OVERVIEW
Franklin Balance Sheet Investment Fund - Class A posted a +24.51% cumulative
total return for the year ended October 31, 2003, as shown in the Performance
Summary beginning on page 6. The Fund underperformed its benchmark index, the
Russell 2000(R) Value Index, which returned 40.29% for the same period.1 Longer
term, the Fund's Class A shares delivered a +11.29% average annual total return
and a +209.36% cumulative total return for the 10-year period ended October 31,
2003. Please note the Fund employs a bottom-up stock selection process and the
managers invest in securities without regard to benchmark comparisons.
ECONOMIC AND MARKET OVERVIEW
During the fiscal year ended October 31, 2003, the U.S. economy surged to its
strongest pace since first quarter 1984. Gross domestic product (GDP) growth
rose from an annualized 3.3% in second quarter 2003 to an annualized 8.2% in
third quarter 2003. Robust consumer spending, especially for autos and homes,
and strong business spending, particularly for equipment and software,
contributed to the accelerated economic activity. Also supporting the economy
were federal spending primarily due to the Iraq conflict, and state and local
spending mainly due to budget improvements.
1. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 38.
Annual Report | 3
[SIDEBAR]
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 10/31/03
[BAR CHART]
Retail Trade 8.9%
Property-Casualty Insurance 6.2%
Producer Manufacturing 6.0%
Life & Health Insurance 5.7%
Consumer Durables 5.6%
Transportation 5.1%
Utilities 4.9%
Non-Energy Minerals 4.2%
Process Industries 4.1%
Finance, Rental & Leasing 3.7%
Specialty Insurance 3.1%
Consumer Non-Durables 2.5%
Financial Conglomerates 2.4%
Consumer Services 2.3%
Industrial Services 1.8%
Electronic Technology 1.6%
Energy Minerals 1.5%
Closed End Mutual Funds 1.5%
Other 3.4%
Short-Term Investments & Other Net Assets 25.5%
The federal funds target rate fell from 1.75% at the beginning of the period to
1.00% in June 2003, the lowest level in 45 years. On October 28, the Federal
Reserve Board reiterated that monetary policy would remain accommodative due to
substantial excess capacity in the economy and possibly lower inflation. They
observed, however, that labor markets seemed to be stabilizing.
Lower interest rates helped reduce financing costs for businesses and consumers.
Consumer spending, which normally accounts for two-thirds of GDP, also benefited
from additional tax cuts and lower retail prices. Although consumer confidence
rose in October, consumers remained anxious about soft labor markets, high debt
levels and steep energy prices. Despite solid gains in corporate profits,
businesses also continued to harbor concerns about the economy. Aided by greater
productivity, businesses seemed to postpone hiring until a sustained economic
rebound looked more assured. Encouragingly, August, September and October
employment reports showed improving job growth.
Overall, increasing signs of an economic recovery contributed to a general
improvement in U.S. equity market performance. For the 12-month reporting
period, the Standard & Poor's 500 Composite Index (S&P 500), a broad measure of
the stock market, posted a 20.79% total return.2
INVESTMENT STRATEGY
Our strategy is to buy shares of financially sound, well-established companies
at a low price-to-book value when we have reasonable confidence that book value
will increase over several years. Book value per share is a company's net worth
or shareholders' equity on an accounting or "book" basis, divided by shares
outstanding. We define "low price-to-book value" as the lower two deciles (20%)
of our investable universe, which we derive from a proprietary database for
screening purposes. This strategy is not aimed at trading gains, nor do we
consider the composition of any index. Rather, we try to identify individual
companies that meet our investment criteria, and we assume at purchase that we
will hold the positions for several years.
MANAGER'S DISCUSSION
On October 31, 2003, we held positions in 97 companies, not including preferred
stock, closed end funds or companies in liquidation. Of these, we owned 82 for
the entire fiscal year, with 25 of the 82 appreciating 50% or more during the
year and another 12 up more than 30%, not including dividends. Several holdings
within
2. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
4 | Annual Report
consumer durables and electronic technology posted strong gains. All five of our
consumer durables holdings rose more than 50% each for the year. In addition,
specific stocks in retail trade gained more than 50% each -- Fred's, Zale,
Haverty Furniture and Federated Department Stores.
Our largest sector weighting at period-end was finance, which includes
insurance, banks and financial companies, at 22.0% of total net assets. On a
sector basis, finance was the biggest contributor to Fund performance. In
particular, CIT Financial Group, National Western Life Insurance and Radian were
up 50% or more, and Amerus, Manulife Financial, MetLife, Prudential Financial
and Selective Insurance appreciated more than 30% during the year.
Conversely, we had several negative performers. The biggest detractors from the
Fund's performance for the year under review included CNH Global, an
agricultural equipment maker, and two holdings that we sold, disability insurer
UnumProvident and Nash Finch, a grocery distributor and retailer.
Two of the fifteen positions we initiated during the Fund's fiscal year,
Airborne and OfficeMax, were the subjects of takeover bids, generating gains
well above 50% during the period. We also had positive performance from other
new holdings. However, early positive price movement can be a mixed blessing for
the Fund because we are price-sensitive buyers and tend to hold positions for
long periods, consistent with our investment strategy. Although immediate
positive returns can produce pleasing short-term performance, such moves may
limit the amount of stock we can buy, and as a consequence we may miss some
potential gains in subsequent periods.
Thank you for your participation in Franklin Balance Sheet Investment Fund. We
look forward to serving your future investment needs.
[SIDEBAR]
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
10/31/03
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COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
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CIT Group Inc. 2.3%
FINANCE, RENTAL & LEASING
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Old Republic International Corp. 2.1%
PROPERTY-CASUALTY INSURANCE
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Aztar Corp. 1.9%
CONSUMER SERVICES
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Pulte Homes Inc. 1.7%
CONSUMER DURABLES
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Prudential Financial Inc. 1.7%
FINANCIAL CONGLOMERATES
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American National Insurance Co. 1.6%
LIFE & HEALTH INSURANCE
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Peabody Energy Corp. 1.5%
ENERGY MINERALS
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United States Steel Corp. 1.5%
NON-ENERGY MINERALS
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Dollar Thrifty Automotive Group Inc. 1.4%
FINANCE, RENTAL & LEASING
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Overseas Shipholding Group Inc. 1.4%
TRANSPORTATION
- -------------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
OCTOBER 31, 2003, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN
INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING
ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE
RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
Annual Report | 5
Performance Summary as of 10/31/03
FRANKLIN BALANCE SHEET INVESTMENT FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A CHANGE 10/31/03 10/31/02
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Net Asset Value (NAV) +$8.46 $45.47 $37.01
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DISTRIBUTIONS (11/1/02-10/31/03)
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Dividend Income $0.2480
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Short-Term Capital Gain $0.0846
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Long-Term Capital Gain $0.1658
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TOTAL $0.4984
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CLASS B CHANGE 10/31/03 10/31/02
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Net Asset Value (NAV) +$8.33 $44.97 $36.64
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DISTRIBUTIONS (11/1/02-10/31/03)
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Dividend Income $0.0051
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Short-Term Capital Gain $0.0846
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Long-Term Capital Gain $0.1658
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TOTAL $0.2555
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CLASS C CHANGE 10/31/03 10/31/02
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Net Asset Value (NAV) +$8.34 $45.01 $36.67
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DISTRIBUTIONS (11/1/02-10/31/03)
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Short-Term Capital Gain $0.0846
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Long-Term Capital Gain $0.1658
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TOTAL $0.2504
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CLASS R CHANGE 10/31/03 10/31/02
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Net Asset Value (NAV) +$8.38 $45.30 $36.92
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DISTRIBUTIONS (11/1/02-10/31/03)
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Dividend Income $0.2204
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Short-Term Capital Gain $0.0846
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Long-Term Capital Gain $0.1658
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TOTAL $0.4708
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6 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
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ADVISOR CLASS CHANGE 10/31/03 10/31/02
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Net Asset Value (NAV) +$8.48 $45.54 $37.06
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DISTRIBUTIONS (11/1/02-10/31/03)
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Dividend Income $0.3283
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Short-Term Capital Gain $0.0846
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Long-Term Capital Gain $0.1658
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TOTAL $0.5787
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Franklin Balance Sheet Investment Fund paid distributions derived from long-term
capital gains of 16.58 cents ($0.1658) per share in December 2002. The Fund
hereby designates such distributions as capital gain dividends per Internal
Revenue Code Section 852 (b)(3).
PERFORMANCE
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +24.51% +66.61% +209.36%
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Average Annual Total Return 2 +17.34% +9.45% +11.29%
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Value of $10,000 Investment 3 $11,734 $15,704 $29,158
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +11.64% +8.40% +10.89%
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CLASS B 1-YEAR INCEPTION (3/1/01)
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Cumulative Total Return 1 +23.58% +27.31%
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Average Annual Total Return 2 +19.58% +8.49%
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Value of $10,000 Investment 3 $11,958 $12,431
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Avg. Ann. Total Return (9/30/03) 4 +13.57% +5.95%
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CLASS C 1-YEAR INCEPTION (3/1/01)
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Cumulative Total Return 1 +23.57% +27.36%
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Average Annual Total Return 2 +21.35% +9.07%
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Value of $10,000 Investment 3 $12,135 $12,607
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Avg. Ann. Total Return (9/30/03) 4 +15.42% +6.60%
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CLASS R 1-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 1 +24.26% +14.90%
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Average Annual Total Return 2 +23.26% +7.90%
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Value of $10,000 Investment 3 $12,326 $11,490
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Avg. Ann. Total Return (9/30/03) 4 +17.21% +4.21%
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ADVISOR CLASS5 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +24.80% +67.61% +211.22%
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Average Annual Total Return 2 +24.80% +10.88% +12.02%
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Value of $10,000 Investment 3 $12,480 $16,761 $31,122
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Avg. Ann. Total Return (9/30/03) 4 +18.71% +9.82% +11.61%
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ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 7
Performance Summary (CONTINUED)
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
includes reinvested dividends. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 10/31/03
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1-Year +17.34%
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5-Year +9.45%
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10-Year +11.29%
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CLASS A (11/1/93-10/31/03)
[LINE CHART]
DATE FRANKLIN BALANCE SHEET INVESTMENT FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
11/1/93 $9,426 $10,000 $10,000
11/30/93 $9,257 $9,740 $10,007
12/31/93 $9,329 $10,026 $10,007
1/31/94 $9,594 $10,384 $10,034
2/28/94 $9,483 $10,354 $10,069
3/31/94 $9,170 $9,889 $10,103
4/30/94 $9,286 $9,987 $10,117
5/31/94 $9,389 $9,973 $10,124
6/30/94 $9,414 $9,712 $10,158
7/31/94 $9,637 $9,892 $10,185
8/31/94 $9,907 $10,281 $10,226
9/30/94 $9,898 $10,172 $10,254
10/31/94 $9,748 $9,986 $10,261
11/30/94 $9,426 $9,583 $10,275
12/31/94 $9,468 $9,871 $10,275
1/31/95 $9,753 $9,823 $10,316
2/28/95 $10,187 $10,187 $10,357
3/31/95 $10,402 $10,237 $10,391
4/30/95 $10,744 $10,541 $10,426
5/31/95 $10,968 $10,767 $10,446
6/30/95 $11,223 $11,135 $10,467
7/31/95 $11,491 $11,541 $10,467
8/31/95 $11,795 $11,884 $10,494
9/30/95 $11,927 $12,062 $10,515
10/31/95 $11,631 $11,580 $10,549
11/30/95 $12,033 $12,040 $10,542
12/31/95 $12,313 $12,413 $10,535
1/31/96 $12,373 $12,495 $10,597
2/29/96 $12,461 $12,691 $10,631
3/31/96 $12,770 $12,958 $10,686
4/30/96 $13,099 $13,311 $10,728
5/31/96 $13,353 $13,648 $10,748
6/30/96 $13,232 $13,487 $10,755
7/31/96 $12,917 $12,770 $10,776
8/31/96 $13,344 $13,324 $10,796
9/30/96 $13,460 $13,688 $10,830
10/31/96 $13,600 $13,847 $10,865
11/30/96 $14,141 $14,592 $10,885
12/31/96 $14,469 $15,065 $10,885
1/31/97 $15,002 $15,297 $10,920
2/28/97 $15,251 $15,442 $10,954
3/31/97 $14,960 $15,028 $10,981
4/30/97 $14,889 $15,249 $10,995
5/31/97 $15,801 $16,463 $10,988
6/30/97 $16,683 $17,296 $11,002
7/31/97 $17,353 $18,022 $11,016
8/31/97 $17,445 $18,308 $11,036
9/30/97 $18,597 $19,526 $11,064
10/31/97 $18,069 $18,995 $11,091
11/30/97 $17,971 $19,203 $11,084
12/31/97 $18,227 $19,854 $11,071
1/31/98 $18,194 $19,495 $11,091
2/28/98 $19,276 $20,673 $11,112
3/31/98 $20,007 $21,512 $11,132
4/30/98 $20,275 $21,618 $11,153
5/31/98 $20,013 $20,853 $11,174
6/30/98 $19,860 $20,735 $11,187
7/31/98 $18,794 $19,111 $11,201
8/31/98 $16,777 $16,118 $11,215
9/30/98 $17,166 $17,028 $11,229
10/31/98 $17,501 $17,534 $11,256
11/30/98 $17,759 $18,008 $11,256
12/31/98 $18,116 $18,573 $11,249
1/31/99 $17,909 $18,152 $11,277
2/28/99 $16,912 $16,912 $11,290
3/31/99 $16,331 $16,773 $11,325
4/30/99 $17,400 $18,304 $11,407
5/31/99 $18,072 $18,866 $11,407
6/30/99 $19,204 $19,550 $11,407
7/31/99 $18,950 $19,086 $11,441
8/31/99 $18,058 $18,388 $11,469
9/30/99 $17,505 $18,020 $11,524
10/31/99 $17,320 $17,660 $11,544
11/30/99 $17,655 $17,751 $11,551
12/31/99 $17,838 $18,297 $11,551
1/31/00 $17,287 $17,818 $11,585
2/29/00 $17,709 $18,907 $11,654
3/31/00 $17,985 $18,996 $11,750
4/30/00 $18,190 $19,108 $11,757
5/31/00 $17,962 $18,817 $11,771
6/30/00 $18,490 $19,367 $11,833
7/31/00 $18,972 $20,012 $11,860
8/31/00 $19,813 $20,907 $11,860
9/30/00 $20,119 $20,788 $11,922
10/31/00 $20,519 $20,714 $11,942
11/30/00 $20,272 $20,293 $11,949
12/31/00 $21,489 $22,473 $11,942
1/31/01 $22,338 $23,093 $12,018
2/28/01 $22,459 $23,061 $12,066
3/31/01 $21,910 $22,692 $12,093
4/30/01 $22,996 $23,742 $12,141
5/31/01 $24,275 $24,352 $12,196
6/30/01 $24,673 $25,332 $12,217
7/31/01 $24,565 $24,764 $12,183
8/31/01 $24,788 $24,678 $12,183
9/30/01 $22,120 $21,954 $12,237
10/31/01 $22,769 $22,528 $12,196
11/30/01 $23,907 $24,146 $12,176
12/31/01 $25,293 $25,625 $12,128
1/31/02 $25,305 $25,965 $12,155
2/28/02 $25,874 $26,123 $12,203
3/31/02 $26,899 $28,079 $12,272
4/30/02 $27,272 $29,068 $12,340
5/31/02 $26,741 $28,106 $12,340
6/30/02 $26,589 $27,484 $12,347
7/31/02 $24,608 $23,400 $12,361
8/31/02 $24,476 $23,296 $12,402
9/30/02 $23,014 $21,632 $12,423
10/31/02 $23,419 $21,958 $12,443
11/30/02 $24,438 $23,710 $12,443
12/31/02 $23,784 $22,697 $12,416
1/31/03 $23,239 $22,058 $12,471
2/28/03 $22,412 $21,316 $12,567
3/31/03 $22,624 $21,544 $12,642
4/30/03 $23,977 $23,590 $12,615
5/31/03 $25,304 $25,999 $12,594
6/30/03 $25,702 $26,440 $12,608
7/31/03 $26,683 $27,758 $12,622
8/31/03 $27,626 $28,813 $12,670
9/30/03 $27,260 $28,482 $12,711
10/31/03 $29,158 $30,805 $12,697
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 10/31/03
- --------------------------------------
1-Year +19.58%
- --------------------------------------
Since Inception (3/1/01) +8.49%
- --------------------------------------
CLASS B (3/1/01-10/31/03)
[LINE CHART]
DATE FRANKLIN BALANCE SHEET INVESTMENT FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
3/1/01 $10,000 $10,000 $10,000
3/31/01 $9,755 $9,840 $10,023
4/30/01 $10,231 $10,295 $10,063
5/31/01 $10,793 $10,560 $10,108
6/30/01 $10,964 $10,985 $10,125
7/31/01 $10,905 $10,738 $10,097
8/31/01 $10,999 $10,701 $10,097
9/30/01 $9,810 $9,520 $10,142
10/31/01 $10,091 $9,768 $10,108
11/30/01 $10,587 $10,470 $10,091
12/31/01 $11,193 $11,111 $10,051
1/31/02 $11,193 $11,259 $10,074
2/28/02 $11,437 $11,327 $10,114
3/31/02 $11,884 $12,176 $10,171
4/30/02 $12,041 $12,604 $10,228
5/31/02 $11,800 $12,188 $10,228
6/30/02 $11,724 $11,918 $10,233
7/31/02 $10,844 $10,147 $10,245
8/31/02 $10,779 $10,102 $10,279
9/30/02 $10,130 $9,380 $10,296
10/31/02 $10,301 $9,521 $10,313
11/30/02 $10,743 $10,281 $10,313
12/31/02 $10,449 $9,842 $10,290
1/31/03 $10,202 $9,565 $10,336
2/28/03 $9,834 $9,243 $10,415
3/31/03 $9,919 $9,342 $10,478
4/30/03 $10,508 $10,229 $10,455
5/31/03 $11,080 $11,274 $10,438
6/30/03 $11,250 $11,465 $10,449
7/31/03 $11,669 $12,037 $10,461
8/31/03 $12,077 $12,494 $10,501
9/30/03 $11,910 $12,351 $10,535
10/31/03 $12,431 $13,358 $10,523
8 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 10/31/03
- --------------------------------------
1-Year +21.35%
- --------------------------------------
Since Inception (3/1/01) +9.07%
- --------------------------------------
CLASS C (3/1/01-10/31/03)
[LINE CHART]
DATE FRANKLIN BALANCE SHEET INVESTMENT FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
3/1/01 $9,899 $10,000 $10,000
3/31/01 $9,660 $9,840 $10,023
4/30/01 $10,128 $10,295 $10,063
5/31/01 $10,681 $10,560 $10,108
6/30/01 $10,855 $10,985 $10,125
7/31/01 $10,802 $10,738 $10,097
8/31/01 $10,893 $10,701 $10,097
9/30/01 $9,717 $9,520 $10,142
10/31/01 $9,992 $9,768 $10,108
11/30/01 $10,486 $10,470 $10,091
12/31/01 $11,084 $11,111 $10,051
1/31/02 $11,084 $11,259 $10,074
2/28/02 $11,326 $11,327 $10,114
3/31/02 $11,769 $12,176 $10,171
4/30/02 $11,927 $12,604 $10,228
5/31/02 $11,685 $12,188 $10,228
6/30/02 $11,613 $11,918 $10,233
7/31/02 $10,739 $10,147 $10,245
8/31/02 $10,675 $10,102 $10,279
9/30/02 $10,032 $9,380 $10,296
10/31/02 $10,202 $9,521 $10,313
11/30/02 $10,639 $10,281 $10,313
12/31/02 $10,350 $9,842 $10,290
1/31/03 $10,103 $9,565 $10,336
2/28/03 $9,753 $9,243 $10,415
3/31/03 $9,826 $9,342 $10,478
4/30/03 $10,409 $10,229 $10,455
5/31/03 $10,974 $11,274 $10,438
6/30/03 $11,142 $11,465 $10,449
7/31/03 $11,560 $12,037 $10,461
8/31/03 $11,960 $12,494 $10,501
9/30/03 $11,795 $12,351 $10,535
10/31/03 $12,607 $13,358 $10,523
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 10/31/03
- --------------------------------------
1-Year +23.26%
- --------------------------------------
Since Inception (1/1/02) +7.90%
- --------------------------------------
CLASS R (1/1/02-10/31/03)
[LINE CHART]
DATE FRANKLIN BALANCE SHEET INVESTMENT FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
1/1/02 $10,000 $10,000 $10,000
1/31/02 $10,002 $10,133 $10,023
2/28/02 $10,227 $10,194 $10,062
3/31/02 $10,631 $10,958 $10,119
4/30/02 $10,777 $11,344 $10,175
5/31/02 $10,564 $10,968 $10,175
6/30/02 $10,499 $10,726 $10,181
7/31/02 $9,713 $9,132 $10,192
8/31/02 $9,658 $9,091 $10,226
9/30/02 $9,080 $8,442 $10,243
10/31/02 $9,238 $8,569 $10,260
11/30/02 $9,638 $9,253 $10,260
12/31/02 $9,378 $8,857 $10,238
1/31/03 $9,160 $8,608 $10,283
2/28/03 $8,833 $8,319 $10,362
3/31/03 $8,919 $8,408 $10,424
4/30/03 $9,451 $9,206 $10,402
5/31/03 $9,971 $10,146 $10,385
6/30/03 $10,128 $10,318 $10,396
7/31/03 $10,508 $10,833 $10,407
8/31/03 $10,881 $11,244 $10,447
9/30/03 $10,734 $11,115 $10,481
10/31/03 $11,490 $12,021 $10,470
Annual Report | Past performance does not guarantee future results. | 9
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 5 10/31/03
- --------------------------------------
1-Year +24.80%
- --------------------------------------
5-Year +10.88%
- --------------------------------------
10-Year +12.02%
- --------------------------------------
ADVISOR CLASS (11/1/93-10/31/03)5
[LINE CHART]
DATE FRANKLIN BALANCE SHEET INVESTMENT FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
11/1/93 $10,000 $10,000 $10,000
11/30/93 $9,822 $9,740 $10,007
12/31/93 $9,897 $10,026 $10,007
1/31/94 $10,178 $10,384 $10,034
2/28/94 $10,061 $10,354 $10,069
3/31/94 $9,729 $9,889 $10,103
4/30/94 $9,852 $9,987 $10,117
5/31/94 $9,961 $9,973 $10,124
6/30/94 $9,988 $9,712 $10,158
7/31/94 $10,224 $9,892 $10,185
8/31/94 $10,511 $10,281 $10,226
9/30/94 $10,502 $10,172 $10,254
10/31/94 $10,342 $9,986 $10,261
11/30/94 $10,000 $9,583 $10,275
12/31/94 $10,046 $9,871 $10,275
1/31/95 $10,348 $9,823 $10,316
2/28/95 $10,808 $10,187 $10,357
3/31/95 $11,036 $10,237 $10,391
4/30/95 $11,399 $10,541 $10,426
5/31/95 $11,636 $10,767 $10,446
6/30/95 $11,907 $11,135 $10,467
7/31/95 $12,192 $11,541 $10,467
8/31/95 $12,514 $11,884 $10,494
9/30/95 $12,654 $12,062 $10,515
10/31/95 $12,340 $11,580 $10,549
11/30/95 $12,766 $12,040 $10,542
12/31/95 $13,064 $12,413 $10,535
1/31/96 $13,127 $12,495 $10,597
2/29/96 $13,220 $12,691 $10,631
3/31/96 $13,548 $12,958 $10,686
4/30/96 $13,897 $13,311 $10,728
5/31/96 $14,167 $13,648 $10,748
6/30/96 $14,039 $13,487 $10,755
7/31/96 $13,704 $12,770 $10,776
8/31/96 $14,157 $13,324 $10,796
9/30/96 $14,280 $13,688 $10,830
10/31/96 $14,429 $13,847 $10,865
11/30/96 $15,003 $14,592 $10,885
12/31/96 $15,350 $15,065 $10,885
1/31/97 $15,916 $15,297 $10,920
2/28/97 $16,180 $15,442 $10,954
3/31/97 $15,872 $15,028 $10,981
4/30/97 $15,796 $15,249 $10,995
5/31/97 $16,764 $16,463 $10,988
6/30/97 $17,700 $17,296 $11,002
7/31/97 $18,411 $18,022 $11,016
8/31/97 $18,508 $18,308 $11,036
9/30/97 $19,731 $19,526 $11,064
10/31/97 $19,170 $18,995 $11,091
11/30/97 $19,067 $19,203 $11,084
12/31/97 $19,338 $19,854 $11,071
1/31/98 $19,303 $19,495 $11,091
2/28/98 $20,450 $20,673 $11,112
3/31/98 $21,227 $21,512 $11,132
4/30/98 $21,510 $21,618 $11,153
5/31/98 $21,233 $20,853 $11,174
6/30/98 $21,070 $20,735 $11,187
7/31/98 $19,939 $19,111 $11,201
8/31/98 $17,799 $16,118 $11,215
9/30/98 $18,212 $17,028 $11,229
10/31/98 $18,568 $17,534 $11,256
11/30/98 $18,842 $18,008 $11,256
12/31/98 $19,220 $18,573 $11,249
1/31/99 $19,001 $18,152 $11,277
2/28/99 $17,943 $16,912 $11,290
3/31/99 $17,327 $16,773 $11,325
4/30/99 $18,460 $18,304 $11,407
5/31/99 $19,173 $18,866 $11,407
6/30/99 $20,374 $19,550 $11,407
7/31/99 $20,105 $19,086 $11,441
8/31/99 $19,158 $18,388 $11,469
9/30/99 $18,572 $18,020 $11,524
10/31/99 $18,375 $17,660 $11,544
11/30/99 $18,731 $17,751 $11,551
12/31/99 $18,925 $18,297 $11,551
1/31/00 $18,341 $17,818 $11,585
2/29/00 $18,788 $18,907 $11,654
3/31/00 $19,081 $18,996 $11,750
4/30/00 $19,299 $19,108 $11,757
5/31/00 $19,056 $18,817 $11,771
6/30/00 $19,617 $19,367 $11,833
7/31/00 $20,129 $20,012 $11,860
8/31/00 $21,020 $20,907 $11,860
9/30/00 $21,345 $20,788 $11,922
10/31/00 $21,770 $20,714 $11,942
11/30/00 $21,507 $20,293 $11,949
12/31/00 $22,798 $22,473 $11,942
1/31/01 $23,700 $23,093 $12,018
2/28/01 $23,828 $23,061 $12,066
3/31/01 $23,251 $22,692 $12,093
4/30/01 $24,404 $23,742 $12,141
5/31/01 $25,767 $24,352 $12,196
6/30/01 $26,192 $25,332 $12,217
7/31/01 $26,083 $24,764 $12,183
8/31/01 $26,326 $24,678 $12,183
9/30/01 $23,497 $21,954 $12,237
10/31/01 $24,186 $22,528 $12,196
11/30/01 $25,401 $24,146 $12,176
12/31/01 $26,874 $25,625 $12,128
1/31/02 $26,887 $25,965 $12,155
2/28/02 $27,505 $26,123 $12,203
3/31/02 $28,605 $28,079 $12,272
4/30/02 $29,008 $29,068 $12,340
5/31/02 $28,443 $28,106 $12,340
6/30/02 $28,288 $27,484 $12,347
7/31/02 $26,182 $23,400 $12,361
8/31/02 $26,054 $23,296 $12,402
9/30/02 $24,507 $21,632 $12,423
10/31/02 $24,937 $21,958 $12,443
11/30/02 $26,027 $23,710 $12,443
12/31/02 $25,333 $22,697 $12,416
1/31/03 $24,759 $22,058 $12,471
2/28/03 $23,884 $21,316 $12,567
3/31/03 $24,110 $21,544 $12,642
4/30/03 $25,559 $23,590 $12,615
5/31/03 $26,980 $25,999 $12,594
6/30/03 $27,410 $26,440 $12,608
7/31/03 $28,463 $27,758 $12,622
8/31/03 $29,474 $28,813 $12,670
9/30/03 $29,092 $28,482 $12,711
10/31/03 $31,122 $30,805 $12,697
ENDNOTES
THE FUND'S ABILITY TO INVEST IN SMALL, RELATIVELY NEW COMPANIES INVOLVES
ADDITIONAL RISKS SUCH AS SMALL REVENUES, LIMITED PRODUCT LINES AND SMALL MARKET
SHARE. HISTORICALLY, THESE SECURITIES HAVE EXHIBITED GREATER PRICE VOLATILITY
THAN LARGER-COMPANY STOCKS, ESPECIALLY OVER THE SHORT TERM. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
1/2/01, 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.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible investors as
described in the prospectus. These shares have higher annual fees and expenses
than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees; are available to a
limited class of investors.
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 any current, applicable,
maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Effective 3/1/01, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 3/1/01, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge, but reflecting the effect of
the Class A Rule 12b-1 fees; and (b) for periods after 2/28/01, actual Advisor
Class performance is used reflecting all charges and fees applicable to that
class. Since 3/1/01 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +30.68% and +10.55%.
6. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
10 | Past performance does not guarantee future results. | Annual Report
Franklin Large Cap Value Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Large Cap Value Fund seeks
long-term capital appreciation by investing at least 80% of net assets in
securities of large capitalization companies that we believe are undervalued.
Large capitalization companies are those that are similar in size to those in
the Russell 1000(R) Index at the time of purchase. 1
This annual report for Franklin Large Cap Value Fund covers the fiscal year
ended October 31, 2003.
PERFORMANCE OVERVIEW
Franklin Large Cap Value Fund - Class A posted a +19.08% cumulative total return
for the year ended October 31, 2003, as shown in the Performance Summary
beginning on page 14. The Fund underperformed its benchmark, the Russell 1000
Value Index, which posted a 22.87% total return for the same period.2 Please
note the Fund employs a bottom-up stock selection process, and the managers
invest in securities without regard to benchmark comparisons.
ECONOMIC AND MARKET OVERVIEW
During the fiscal year ended October 31, 2003, the U.S. economy surged to its
strongest pace since first quarter 1984. Gross domestic product (GDP) growth
rose from an annualized 3.3% in second quarter 2003 to an annualized 8.2% in
third quarter 2003. Robust consumer spending, especially for autos and homes,
and strong business spending, particularly for equipment and software,
contributed to the accelerated economic activity. Also supporting the economy
were federal spending primarily due to the Iraq conflict, and state and local
spending mainly due to budget improvements.
1. The Russell 1000 Index is market capitalization-weighted and measures
performance of the 1,000 largest companies in the Russell 3000(R) Index, which
represent approximately 92% of the total market capitalization of the Russell
3000 Index.
2. Source: Standard & Poor's Micropal. The Russell 1000 Value Index is market
capitalization-weighted and measures performance of those Russell 1000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 47.
Annual Report | 11
[SIDEBAR]
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets as of 10/31/03
[BAR CHART]
Consumer Non-Durables 9.4%
Health Technology 8.6%
Consumer Services 8.1%
Property-Casualty Insurance 5.6%
Retail Trade 5.4%
Energy Minerals 5.4%
Major Banks 4.4%
Financial Conglomerates 4.1%
Industrial Services 3.7%
Finance, Rental & Leasing 3.7%
Life & Health Insurance 3.0%
Multi-Line Insurance 3.0%
Producer Manufacturing 2.9%
Process Industries 2.7%
Transportation 2.6%
Communications 2.1%
Technology Services 1.9%
Regional Banks 1.8%
Other 6.5%
Short-Term Investments & Other Net Assets 15.1%
The federal funds target rate fell from 1.75% at the beginning of the period to
1.00% in June 2003, the lowest level in 45 years. On October 28, the Federal
Reserve Board reiterated that monetary policy would remain accommodative due to
substantial excess capacity in the economy and possibly lower inflation. They
observed, however, that the labor market seemed to be stabilizing.
Lower interest rates helped reduce financing costs for businesses and consumers.
Consumer spending, which normally accounts for two-thirds of GDP, also benefited
from additional tax cuts and lower retail prices. Although consumer confidence
rose in October, consumers remained anxious about soft labor markets, high debt
levels and steep energy prices. Despite solid gains in corporate profits,
businesses also continued to harbor concerns about the economy. Aided by greater
productivity, businesses seemed to postpone hiring until a sustained economic
rebound looked more assured. Encouragingly, August, September and October
employment reports showed improving job growth.
Overall, increasing signs of an economic recovery contributed to a general
improvement in U.S. equity market performance. For the 12-month reporting
period, the Standard & Poor's 500 Composite Index (S&P 500), a broad measure of
the stock market, posted a 20.79% total return. 3
INVESTMENT STRATEGY
The Fund seeks to maintain a diversified portfolio of large-capitalization
companies that are attractively valued relative to the overall market, the
company's industry group or the company's historical valuation. The Fund
purchases stocks that are out of favor in the market for reasons we believe will
prove to be temporary in nature. We believe this contrarian approach will
provide favorable returns for our shareholders over time.
MANAGER'S DISCUSSION
The Fund's largest gainer was Cendant, which appreciated 77.65% during the year
under review. Cendant began the period trading at $11.50, ended the period at
$20.43, and had earnings per share from continuing operations of $1.48 in the 12
months ended September 2003. Federated Department Stores, which operates the
Macy's and Bloomingdale's stores, also contributed to Fund performance during
the period. The company had stronger-than-anticipated sales in the closing
months of the Fund's fiscal year and paid its first dividend since 1988. Another
positive performer for the Fund was McDonald's. Strong results in the U.S.
contributed to higher earnings for the company in third quarter 2003 for the
first time in more than a year.
3. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
12 | Annual Report
Despite the Fund's double-digit returns for the period, several stocks declined
in value during the period. The stock that most hindered Fund performance was
Sara Lee, a worldwide marketer of food and other consumer products. Although the
stock rallied sharply at the conclusion of the Fund's previous fiscal year, the
shares declined when subsequent earnings reports were disappointing. Another
drag on Fund performance was international oil and gas contract driller
Transocean whose revenues and earnings declined during the period. The price of
government-sponsored mortgage investor Freddie Mac declined when the company
announced it would restate results for years 2000 through 2002, even though the
company indicated the restatement would result in cumulatively higher net income
and shareholder equity.
During the year under review, we added six new companies to the Fund's
portfolio: Kimberly-Clark, a leading marketer of consumer tissue products;
Procter & Gamble, the largest manufacturer of U.S. household products; Pfizer,
the largest U.S. pharmaceutical company; Abbott Laboratories, a provider of
diversified health care products; Gannett, the publisher of USA Today; and
Occidental Petroleum, a major oil and gas producer. Based on 2004 consensus
earnings estimates, as of October 31, 2003, all six stocks traded in the lower
half of their 10-year historical price/earnings ratio range and provided
positive returns on our average cost through period-end.
We sold our positions in four companies during the period as the stocks either
met our price targets or experienced a change in fundamentals. These companies
were oil and gas producer Anadarko Petroleum, media company Clear Channel
Communications, mortgage insurer MGIC Investment and aerospace products
manufacturer Honeywell International.
Thank you for your participation in Franklin Large Cap Value Fund. We look
forward to serving your future investment needs.
[SIDEBAR]
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
10/31/03
- ------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------------
Pfizer Inc. 3.5%
HEALTH TECHNOLOGY
- ------------------------------------------
Allstate Corp. 3.5%
PROPERTY-CASUALTY INSURANCE
- ------------------------------------------
Procter & Gamble Co. 3.4%
CONSUMER NON-DURABLES
- ------------------------------------------
Gannett Co. Inc. 3.4%
CONSUMER SERVICES
- ------------------------------------------
Federated Department Stores Inc. 3.1%
RETAIL TRADE
- ------------------------------------------
McDonald's Corp. 3.0%
CONSUMER SERVICES
- ------------------------------------------
Kimberly-Clark Corp. 3.0%
CONSUMER NON-DURABLES
- ------------------------------------------
MetLife Inc. 3.0%
LIFE & HEALTH INSURANCE
- ------------------------------------------
American International Group Inc. 3.0%
MULTI-LINE INSURANCE
- ------------------------------------------
Sara Lee Corp. 3.0%
CONSUMER NON-DURABLES
- ------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
OCTOBER 31, 2003, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN
INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING
ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE
RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
Annual Report | 13
Performance Summary as of 10/31/03
FRANKLIN LARGE CAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.92 $12.40 $10.48
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/02-10/31/03)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.0676
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.90 $12.29 $10.39
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/02-10/31/03)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.0054
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.89 $12.28 $10.39
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/02-10/31/03)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.0142
- --------------------------------------------------------------------------------------------------
CLASS R CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.86 $12.34 $10.48
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/02-10/31/03)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.0918
- --------------------------------------------------------------------------------------------------
14 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
- -------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 3-YEAR INCEPTION (6/1/00)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +19.08% +14.69% +27.54%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +12.22% +2.62% +5.53%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,222 $10,808 $12,021
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 5 +17.15% +2.95% +4.25%
- -------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (6/1/00)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +18.35% +12.47% +24.96%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +14.35% +3.06% +5.98%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,435 $10,947 $12,196
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 5 +19.62% +3.40% +4.68%
- -------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 3-YEAR INCEPTION (6/1/00)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +18.35% +12.45% +24.94%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +16.23% +3.65% +6.42%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,623 $11,135 $12,370
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 5 +21.34% +3.96% +5.16%
- -------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/02)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +18.77% +17.98%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +17.77% +13.38%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $11,777 $11,698
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 5 +23.24% +10.07%
- -------------------------------------------------------------------------------------------------------
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 15
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes the applicable, maximum sales charge(s), Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvested dividends. It differs from the Fund in composition and does not pay
management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 10/31/03
- --------------------------------------
1-Year +12.22%
- --------------------------------------
3-Year +2.62%
- --------------------------------------
Since Inception (6/1/00) +5.53%
- --------------------------------------
CLASS A (6/1/00-10/31/03)
[LINE CHART]
DATE FRANKLIN LARGE CAP VALUE FUND RUSSELL 1000 VALUE INDEX 6 CPI 6
6/1/00 $9,425 $10,000 $10,000
6/30/00 $9,001 $9,543 $10,052
7/31/00 $9,067 $9,662 $10,076
8/31/00 $9,623 $10,200 $10,076
9/30/00 $9,925 $10,294 $10,128
10/31/00 $10,481 $10,546 $10,146
11/30/00 $10,189 $10,155 $10,152
12/31/00 $11,147 $10,664 $10,146
1/31/01 $11,393 $10,705 $10,210
2/28/01 $11,355 $10,407 $10,251
3/31/01 $11,355 $10,039 $10,274
4/30/01 $11,878 $10,532 $10,315
5/31/01 $12,343 $10,768 $10,362
6/30/01 $12,030 $10,529 $10,379
7/31/01 $12,077 $10,507 $10,350
8/31/01 $11,783 $10,086 $10,350
9/30/01 $11,080 $9,376 $10,396
10/31/01 $11,071 $9,296 $10,362
11/30/01 $11,631 $9,836 $10,344
12/31/01 $12,002 $10,068 $10,303
1/31/02 $11,819 $9,990 $10,327
2/28/02 $11,867 $10,006 $10,367
3/31/02 $12,233 $10,479 $10,426
4/30/02 $12,050 $10,120 $10,484
5/31/02 $12,194 $10,171 $10,484
6/30/02 $11,414 $9,587 $10,490
7/31/02 $10,422 $8,696 $10,501
8/31/02 $10,518 $8,761 $10,536
9/30/02 $9,237 $7,787 $10,554
10/31/02 $10,094 $8,364 $10,571
11/30/02 $10,692 $8,891 $10,571
12/31/02 $10,139 $8,505 $10,548
1/31/03 $9,926 $8,299 $10,595
2/28/03 $9,752 $8,078 $10,676
3/31/03 $9,790 $8,091 $10,741
4/30/03 $10,479 $8,803 $10,717
5/31/03 $11,157 $9,372 $10,700
6/30/03 $11,254 $9,489 $10,711
7/31/03 $11,361 $9,630 $10,723
8/31/03 $11,477 $9,780 $10,764
9/30/03 $11,487 $9,685 $10,799
10/31/03 $12,021 $10,277 $10,787
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 10/31/03
- --------------------------------------
1-Year +14.35%
- --------------------------------------
3-Year +3.06%
- --------------------------------------
Since Inception (6/1/00) +5.98%
- --------------------------------------
CLASS B (6/1/00-10/31/03)
[LINE CHART]
DATE FRANKLIN LARGE CAP VALUE FUND RUSSELL 1000 VALUE INDEX 6 CPI 6
6/1/00 $10,000 $10,000 $10,000
6/30/00 $9,550 $9,543 $10,052
7/31/00 $9,610 $9,662 $10,076
8/31/00 $10,200 $10,200 $10,076
9/30/00 $10,520 $10,294 $10,128
10/31/00 $11,110 $10,546 $10,146
11/30/00 $10,790 $10,155 $10,152
12/31/00 $11,803 $10,664 $10,146
1/31/01 $12,064 $10,705 $10,210
2/28/01 $12,004 $10,407 $10,251
3/31/01 $11,994 $10,039 $10,274
4/30/01 $12,547 $10,532 $10,315
5/31/01 $13,020 $10,768 $10,362
6/30/01 $12,688 $10,529 $10,379
7/31/01 $12,738 $10,507 $10,350
8/31/01 $12,416 $10,086 $10,350
9/30/01 $11,662 $9,376 $10,396
10/31/01 $11,652 $9,296 $10,362
11/30/01 $12,235 $9,836 $10,344
12/31/01 $12,611 $10,068 $10,303
1/31/02 $12,418 $9,990 $10,327
2/28/02 $12,459 $10,006 $10,367
3/31/02 $12,835 $10,479 $10,426
4/30/02 $12,631 $10,120 $10,484
5/31/02 $12,784 $10,171 $10,484
6/30/02 $11,961 $9,587 $10,490
7/31/02 $10,914 $8,696 $10,501
8/31/02 $11,016 $8,761 $10,536
9/30/02 $9,664 $7,787 $10,554
10/31/02 $10,558 $8,364 $10,571
11/30/02 $11,178 $8,891 $10,571
12/31/02 $10,604 $8,505 $10,548
1/31/03 $10,371 $8,299 $10,595
2/28/03 $10,177 $8,078 $10,676
3/31/03 $10,218 $8,091 $10,741
4/30/03 $10,930 $8,803 $10,717
5/31/03 $11,631 $9,372 $10,700
6/30/03 $11,723 $9,489 $10,711
7/31/03 $11,825 $9,630 $10,723
8/31/03 $11,947 $9,780 $10,764
9/30/03 $11,947 $9,685 $10,799
10/31/03 $12,196 $10,277 $10,787
16 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 10/31/03
- --------------------------------------
1-Year +16.23%
- --------------------------------------
3-Year +3.65%
- --------------------------------------
Since Inception (6/1/00) +6.42%
- --------------------------------------
CLASS C (6/1/00-10/31/03)
[LINE CHART]
DATE FRANKLIN LARGE CAP VALUE FUND RUSSELL 1000 VALUE INDEX 6 CPI 6
6/1/00 $9,901 $10,000 $10,000
6/30/00 $9,455 $9,543 $10,052
7/31/00 $9,515 $9,662 $10,076
8/31/00 $10,099 $10,200 $10,076
9/30/00 $10,416 $10,294 $10,128
10/31/00 $11,000 $10,546 $10,146
11/30/00 $10,693 $10,155 $10,152
12/31/00 $11,698 $10,664 $10,146
1/31/01 $11,947 $10,705 $10,210
2/28/01 $11,887 $10,407 $10,251
3/31/01 $11,877 $10,039 $10,274
4/30/01 $12,425 $10,532 $10,315
5/31/01 $12,893 $10,768 $10,362
6/30/01 $12,564 $10,529 $10,379
7/31/01 $12,614 $10,507 $10,350
8/31/01 $12,295 $10,086 $10,350
9/30/01 $11,548 $9,376 $10,396
10/31/01 $11,528 $9,296 $10,362
11/30/01 $12,106 $9,836 $10,344
12/31/01 $12,484 $10,068 $10,303
1/31/02 $12,293 $9,990 $10,327
2/28/02 $12,333 $10,006 $10,367
3/31/02 $12,705 $10,479 $10,426
4/30/02 $12,514 $10,120 $10,484
5/31/02 $12,655 $10,171 $10,484
6/30/02 $11,840 $9,587 $10,490
7/31/02 $10,814 $8,696 $10,501
8/31/02 $10,905 $8,761 $10,536
9/30/02 $9,567 $7,787 $10,554
10/31/02 $10,452 $8,364 $10,571
11/30/02 $11,066 $8,891 $10,571
12/31/02 $10,506 $8,505 $10,548
1/31/03 $10,275 $8,299 $10,595
2/28/03 $10,093 $8,078 $10,676
3/31/03 $10,124 $8,091 $10,741
4/30/03 $10,819 $8,803 $10,717
5/31/03 $11,514 $9,372 $10,700
6/30/03 $11,604 $9,489 $10,711
7/31/03 $11,715 $9,630 $10,723
8/31/03 $11,826 $9,780 $10,764
9/30/03 $11,826 $9,685 $10,799
10/31/03 $12,370 $10,277 $10,787
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 10/31/03
- --------------------------------------
1-Year +17.77%
- --------------------------------------
Since Inception (8/1/02) +13.38%
- --------------------------------------
CLASS R (8/1/02-10/31/03)
[LINE CHART]
DATE FRANKLIN LARGE CAP VALUE FUND RUSSELL 1000 VALUE INDEX 6 CPI 6
8/1/02 $10,000 $10,000 $10,000
8/31/02 $10,092 $10,076 $10,033
9/30/02 $8,854 $8,955 $10,050
10/31/02 $9,686 $9,619 $10,067
11/30/02 $10,249 $10,225 $10,067
12/31/02 $9,733 $9,781 $10,044
1/31/03 $9,518 $9,544 $10,089
2/28/03 $9,350 $9,289 $10,167
3/31/03 $9,397 $9,305 $10,228
4/30/03 $10,050 $10,124 $10,205
5/31/03 $10,684 $10,777 $10,189
6/30/03 $10,777 $10,912 $10,200
7/31/03 $10,889 $11,075 $10,211
8/31/03 $10,991 $11,247 $10,250
9/30/03 $11,000 $11,137 $10,283
10/31/03 $11,698 $11,819 $10,272
Annual Report | Past performance does not guarantee future results. | 17
Performance Summary (CONTINUED)
ENDNOTES
WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. THESE PRICE
MOVEMENTS MAY RESULT FROM FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR
THE SECURITIES MARKETS AS A WHOLE. THE FUND'S PROSPECTUS INCLUDES A DESCRIPTION
OF THE MAIN INVESTMENT RISKS.
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.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible investors as
described in the prospectus. These shares have higher annual fees and expenses
than Class A shares.
1. 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.
2. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes any applicable maximum
sales charge(s).
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any applicable maximum sales
charge(s).
5. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
6. Source: Standard & Poor's Micropal. The Russell 1000 Value Index is market
capitalization-weighted and measures performance of those Russell 1000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
18 | Past performance does not guarantee future results. | Annual Report
Franklin MicroCap Value Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin MicroCap Value Fund seeks
high total return by investing at least 80% of net assets in securities of
companies with market capitalizations under $300 million at the time of
purchase, and which we believe are undervalued in the marketplace.
This annual report for Franklin MicroCap Value Fund covers the fiscal year ended
October 31, 2003.
PERFORMANCE OVERVIEW
Franklin MicroCap Value Fund - Class A posted a +33.90% cumulative total return
for the year ended October 31, 2003, as shown in the Performance Summary
beginning on page 23. The Fund underperformed its benchmark, the Russell 2000
Value Index, which posted a 40.29% total return for the same period.1 Please
note the Fund employs a bottom-up stock selection process and the managers
invest in securities without regard to benchmark comparisons.
ECONOMIC AND MARKET OVERVIEW
During the fiscal year ended October 31, 2003, the U.S. economy surged to its
strongest pace since first quarter 1984. Gross domestic product (GDP) growth
rose from an annualized 3.3% in second quarter 2003 to an annualized 8.2% in
third quarter 2003. Robust consumer spending, especially for autos and homes,
and strong business spending, particularly for equipment and software,
contributed to the accelerated economic activity. Also supporting the economy
were federal spending primarily due to the Iraq conflict, and state and local
spending mainly due to budget improvements.
The federal funds target rate fell from 1.75% at the beginning of the period to
1.00% in June 2003, the lowest level in 45 years. On October 28, the Federal
Reserve Board reiterated that monetary policy would remain accommodative due to
substantial excess capacity in the economy and possibly lower inflation. They
observed, however, that the labor market seemed to be stabilizing.
1. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 51.
Annual Report | 19
[SIDEBAR]
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets as of 10/31/03
[BAR CHART]
Producer Manufacturing 14.0%
Consumer Non-Durables 12.1%
Consumer Durables 6.5%
Property-Casualty Insurance 6.2%
Transportation 6.1%
Industrial Services 5.9%
Retail Trade 5.8%
Process Industries 5.3%
Savings Banks 4.9%
Non-Energy Minerals 2.8%
Real Estate Development 2.3%
Utilities 2.3%
Health Technology 2.1%
Communications 1.8%
Commercial Services 1.8%
Electronic Technology 1.7%
Consumer Services 1.4%
Real Estate 1.1%
Other 1.6%
Short-Term Investments & Other Net Assets 14.3%
Lower interest rates helped reduce financing costs for businesses and consumers.
Consumer spending, which normally accounts for two-thirds of GDP, also benefited
from additional tax cuts and lower retail prices. Although consumer confidence
rose in October, consumers remained anxious about soft labor markets, high debt
levels and steep energy prices. Despite solid gains in corporate profits,
businesses also continued to harbor concerns about the economy. Aided by greater
productivity, businesses seemed to postpone hiring until a sustained economic
rebound looked more assured. Encouragingly, August, September and October
employment reports showed improving job growth.
Overall, increasing signs of an economic recovery contributed to a general
improvement in U.S. equity market performance. For the 12-month reporting
period, the Standard & Poor's 500 Composite Index (S&P 500), a broad measure of
the stock market, posted a 20.79% total return. 2
INVESTMENT STRATEGY
Our strategy is to buy shares of financially sound, well-established companies
trading at low price-to-book ratios, where we have reasonable confidence that
book value will increase over several years. As a general rule, we limit
purchases to companies with market capitalizations of less than $300 million,
which we define as "micro-cap." Book value per share is a company's net worth or
shareholders' equity on an accounting or "book" basis, divided by shares
outstanding. This strategy is not aimed at trading gains, nor do we consider the
composition of any index. Rather, we try to identify individual companies that
meet our investment criteria, and we assume at purchase that we will hold the
positions for several years.
MANAGER'S DISCUSSION
Franklin MicroCap Value Fund was closed to new investors during the year under
review until June 30, 2003. The Fund experienced net cash outflows of $24
million from Fund sales and redemptions for the period prior to reopening. Net
cash inflows subsequent to reopening were $47 million. During the full year we
put $30 million to work in new or existing positions, and proceeds from sales
totaled $54 million. Portfolio turnover was 13.35%.
2. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
20 | Annual Report
On October 31, 2003, we had positions in 73 companies. The positions that
contributed the most to the Fund's total return for the year under review were
Rofin-Sinar Technologies, a manufacturer of marking and cutting lasers; Matrix
Service Company, an industrial construction and repair contractor; Brown Shoe, a
footwear retailer and distributor; and Elder-Beerman Stores, a department store
operator. These holdings are examples of our buy-and-hold strategy.
Franklin MicroCap Value Fund initiated its position in Rofin-Sinar in April 1999
at approximately 70% of book value. Rofin's book value has increased by about
50% while we have owned it. During fiscal year 2003, Rofin's price-to-book ratio
increased from 0.7 times to 2.0 times reported book value. The Fund first bought
Matrix Service Company in August 2001 at 92% of book value. Since then book
value has grown by about 30%, and the stock closed on October 31 at $25.46, or
around 2.8 times book value, up from 1.0 times book value at the beginning of
the reporting period.
Brown Shoe was trading at a 9% discount to book value when Franklin MicroCap
Value Fund first bought shares in December 2001. The company pays a $.10
quarterly dividend, and its book value has increased about 9% since our
purchase. On October 31, 2002, the stock was trading at 1.3 times book value and
ended the year at $34.60, or nearly twice book value.
Elder-Beerman was a takeover. We bought our shares in October 2001 at $3.05, or
around 20% of its reported book value of $18.87. Bon-Ton Stores purchased
Elder-Beerman for $8.00 a share in October 2003, still a discount to book value
but 162% above our cost.
Besides Elder-Beerman, takeovers affected three other Fund holdings in 2003,
with positive results for the Fund. Zemex, an industrial minerals producer,
agreed to be bought at a price in Canadian dollars that represented a 31.5%
premium over its prior day's market price. ECC International, a maker of
computer-controlled training simulators, was acquired by Cubic Corp. for $5.25,
or about 20% over book value and well over our $3.09 historical average cost.
Finally, Garden Fresh Restaurant agreed to be bought by Fairmont Capital for
$16.35, compared with our average cost of $10.78. We first bought Garden Fresh
shares in April 2002 at a 27% discount to book value. Reported book value had
grown by 11.5% by the time the deal was announced, and the deal price was a
modest premium to book value.
Annual Report | 21
[SIDEBAR]
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
10/31/03
- --------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------
Seneca Foods Corp., A & B 2.4%
CONSUMER NON-DURABLES
- --------------------------------------
Haggar Corp. 2.1%
CONSUMER NON-DURABLES
- --------------------------------------
Standard Commercial Corp. 2.1%
CONSUMER NON-DURABLES
- --------------------------------------
First Defiance Financial Corp. 2.1%
SAVINGS BANKS
- --------------------------------------
Invivo Corp. 2.1%
HEALTH TECHNOLOGY
- --------------------------------------
Hardinge Inc. 2.1%
PRODUCER MANUFACTURING
- --------------------------------------
Gehl Co. 2.0%
PRODUCER MANUFACTURING
- --------------------------------------
American Pacific Corp. 2.0%
PROCESS INDUSTRIES
- --------------------------------------
Commonwealth Industries Inc. 1.9%
NON-ENERGY MINERALS
- --------------------------------------
Matrix Service Co. 1.9%
INDUSTRIAL SERVICES
- --------------------------------------
Two retailers were among the positions that hurt our performance. Fresh Brands
is a grocery retailer and distributor whose results were hampered by increased
competition. At fiscal year-end it traded at a small premium to book value.
Franklin MicroCap Value Fund first bought Fresh Brands in June 2000, paying
around 25% over book value, and has added to the position over time at higher
prices. Book value has increased by around 36% since we have owned it, and the
company has maintained a $.09 quarterly dividend. United Retail Group is a
struggling retailer of plus-size women's apparel. Its balance sheet deteriorated
in recent years. On October 31, 2003, the shares closed at $3.35, less than half
its reported book value of $6.98.
Two other positions that detracted from performance during the past year were
RemedyTemp and AirNet Systems. RemedyTemp is a California-based temporary
staffing company that had to contend with workers compensation insurance issues
as well as a weak economy. Franklin MicroCap Value Fund sold its position prior
to the Fund's fiscal year-end. The Fund also sold out of AirNet Systems, an
airfreight carrier specializing in time-critical freight. We took our losses
there out of our concern that demand for AirNet's mainstay business of
transporting cleared checks for the nation's banking system would continue to
erode.
During the year under review, we established 9 new positions and 12 were
eliminated. We sold Steel Technologies early in the period, and re-initiated it
toward the end at a lower price.
Thank you for your participation in Franklin MicroCap Value Fund. We look
forward to serving your future investment needs.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
OCTOBER 31, 2003, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN
INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING
ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE
RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
22 | Annual Report
Performance Summary as of 10/31/03
FRANKLIN MICROCAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. The performance table and graph do not reflect any taxes due on Fund
dividends, capital gain distributions, if any, or any realized gains on the sale
of Fund shares. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ---------------------------------------------------------------------------------------------------
CLASS A CHANGE 10/31/03 10/31/02
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.32 $30.41 $24.09
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/02-10/31/03)
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.4185
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $1.0181
- ---------------------------------------------------------------------------------------------------
TOTAL $1.4366
- ---------------------------------------------------------------------------------------------------
Franklin MicroCap Value Fund paid distributions derived from long-term capital
gains of $1.0181 per share in December 2002. The Fund hereby designates such
distributions as capital gain dividends per Internal Revenue Code Section 852
(b)(3).
PERFORMANCE
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (12/12/95)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return1 +33.90% +105.10% +205.16%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return2 +26.20% +14.09% +14.33%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment3 $12,620 $19,327 $28,753
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03)4 +18.57% +12.93% +13.57%
- ------------------------------------------------------------------------------------------------------
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results. | 23
Performance Summary (CONTINUED)
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 includes
reinvested dividends. It differs from the Fund in composition and does not pay
management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 10/31/03
- --------------------------------------
1-Year +26.20%
- --------------------------------------
5-Year +14.09%
- --------------------------------------
Since Inception (12/12/95) +14.33%
- --------------------------------------
CLASS A (12/12/95-10/31/03)
[LINE CHART]
DATE FRANKLIN MICROCAP VALUE FUND RUSSELL 2000 VALUE INDEX 5 CPI 5
12/12/95 $9,422 $10,000 $10,000
12/31/95 $9,560 $10,190 $9,996
1/31/96 $9,585 $10,258 $10,055
2/29/96 $9,856 $10,418 $10,087
3/31/96 $10,629 $10,637 $10,139
4/30/96 $11,139 $10,927 $10,178
5/31/96 $11,429 $11,204 $10,198
6/30/96 $11,416 $11,072 $10,204
7/31/96 $11,082 $10,483 $10,224
8/31/96 $11,246 $10,938 $10,243
9/30/96 $11,499 $11,237 $10,276
10/31/96 $11,657 $11,367 $10,309
11/30/96 $12,042 $11,978 $10,328
12/31/96 $12,152 $12,367 $10,328
1/31/97 $12,515 $12,557 $10,361
2/28/97 $12,735 $12,677 $10,393
3/31/97 $12,489 $12,337 $10,419
4/30/97 $12,204 $12,518 $10,432
5/31/97 $12,917 $13,515 $10,426
6/30/97 $13,571 $14,199 $10,439
7/31/97 $14,070 $14,795 $10,452
8/31/97 $14,466 $15,029 $10,471
9/30/97 $15,885 $16,029 $10,497
10/31/97 $15,742 $15,593 $10,523
11/30/97 $15,619 $15,764 $10,517
12/31/97 $15,520 $16,298 $10,504
1/31/98 $15,375 $16,003 $10,523
2/28/98 $16,066 $16,971 $10,543
3/31/98 $16,917 $17,659 $10,563
4/30/98 $17,712 $17,746 $10,582
5/31/98 $17,449 $17,118 $10,602
6/30/98 $16,979 $17,021 $10,615
7/31/98 $16,336 $15,688 $10,628
8/31/98 $13,881 $13,231 $10,641
9/30/98 $13,853 $13,979 $10,654
10/31/98 $14,019 $14,394 $10,680
11/30/98 $14,413 $14,783 $10,680
12/31/98 $14,471 $15,247 $10,673
1/31/99 $14,598 $14,901 $10,699
2/28/99 $13,879 $13,883 $10,712
3/31/99 $13,392 $13,769 $10,745
4/30/99 $14,179 $15,026 $10,823
5/31/99 $14,891 $15,488 $10,823
6/30/99 $15,220 $16,048 $10,823
7/31/99 $15,415 $15,668 $10,856
8/31/99 $15,056 $15,095 $10,882
9/30/99 $14,014 $14,793 $10,934
10/31/99 $13,797 $14,497 $10,953
11/30/99 $13,936 $14,572 $10,960
12/31/99 $13,895 $15,020 $10,960
1/31/00 $14,417 $14,627 $10,992
2/29/00 $14,637 $15,521 $11,057
3/31/00 $14,751 $15,594 $11,149
4/30/00 $14,213 $15,686 $11,155
5/31/00 $14,286 $15,447 $11,168
6/30/00 $14,816 $15,898 $11,227
7/31/00 $14,995 $16,428 $11,253
8/31/00 $15,908 $17,162 $11,253
9/30/00 $15,867 $17,065 $11,311
10/31/00 $15,387 $17,004 $11,331
11/30/00 $15,118 $16,658 $11,337
12/31/00 $15,572 $18,448 $11,331
1/31/01 $16,987 $18,957 $11,403
2/28/01 $17,411 $18,931 $11,448
3/31/01 $18,132 $18,628 $11,474
4/30/01 $19,030 $19,490 $11,520
5/31/01 $20,768 $19,991 $11,572
6/30/01 $20,938 $20,795 $11,591
7/31/01 $21,429 $20,329 $11,559
8/31/01 $21,489 $20,259 $11,559
9/30/01 $20,200 $18,022 $11,611
10/31/01 $20,895 $18,493 $11,572
11/30/01 $20,946 $19,822 $11,552
12/31/01 $21,999 $21,035 $11,507
1/31/02 $22,614 $21,315 $11,533
2/28/02 $22,748 $21,444 $11,578
3/31/02 $23,996 $23,050 $11,644
4/30/02 $25,048 $23,862 $11,709
5/31/02 $25,360 $23,073 $11,709
6/30/02 $25,155 $22,562 $11,715
7/31/02 $22,766 $19,210 $11,728
8/31/02 $22,632 $19,124 $11,767
9/30/02 $21,456 $17,758 $11,787
10/31/02 $21,474 $18,025 $11,806
11/30/02 $22,561 $19,464 $11,806
12/31/02 $22,881 $18,632 $11,780
1/31/03 $22,749 $18,107 $11,832
2/28/03 $21,813 $17,499 $11,924
3/31/03 $21,709 $17,686 $11,995
4/30/03 $22,172 $19,366 $11,969
5/31/03 $23,392 $21,343 $11,950
6/30/03 $24,318 $21,704 $11,963
7/31/03 $25,595 $22,787 $11,976
8/31/03 $26,635 $23,652 $12,021
9/30/03 $26,994 $23,381 $12,060
10/31/03 $28,753 $25,288 $12,047
ENDNOTES
THE FUND'S ABILITY TO INVEST IN SECURITIES THAT MAY HAVE LIMITED LIQUIDITY AND
IN SMALL, RELATIVELY NEW COMPANIES INVOLVES ADDITIONAL RISKS, SUCH AS RELATIVELY
SMALL REVENUES, LIMITED PRODUCT LINES AND SMALL MARKET SHARE. HISTORICALLY,
THESE SECURITIES HAVE EXHIBITED GREATER PRICE VOLATILITY THAN LARGER-COMPANY
STOCKS, ESPECIALLY OVER THE SHORT TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
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.
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.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
24 | Past performance does not guarantee future results. | Annual Report
Franklin Small Cap Value Fund
YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin Small Cap Value Fund seeks
long-term total return by investing at least 80% of net assets in the securities
of small-capitalization companies that we believe are undervalued.
Small-capitalization companies are those with market capitalizations less than
$2.5 billion at the time of purchase.
This annual report for Franklin Small Cap Value Fund covers the fiscal year
ended October 31, 2003.
PERFORMANCE OVERVIEW
Franklin Small Cap Value Fund - Class A posted a +27.27% cumulative total return
for the year ended October 31, 2003, as shown in the Performance Summary
beginning on page 28. The Fund underperformed its benchmark, the Russell 2000
Value Index, which posted a 40.29% total return for the same period.1 Please
note the Fund employs a bottom-up stock selection process, and the managers
invest in securities without regard to benchmark comparisons.
ECONOMIC AND MARKET OVERVIEW
During the fiscal year ended October 31, 2003, the U.S. economy surged to its
strongest pace since first quarter 1984. Gross domestic product (GDP) growth
rose from an annualized 3.3% in second quarter 2003 to an annualized 8.2% in
third quarter 2003. Robust consumer spending, especially for autos and homes,
and strong business spending, particularly for equipment and software,
contributed to the accelerated economic activity. Also supporting the economy
were federal spending primarily due to the Iraq conflict, and state and local
spending mainly due to budget improvements.
The federal funds target rate fell from 1.75% at the beginning of the period to
1.00% in June 2003, the lowest level in 45 years. On October 28, the Federal
Reserve Board reiterated that monetary policy would remain accommodative due to
substantial excess capacity in the economy and possibly lower inflation. They
observed, however, that the labor market seemed to be stabilizing.
1. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
The index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 60.
Annual Report | 25
[SIDEBAR]
PORTFOLIO BREAKDOWN
Franklin Small Cap Value Fund
Based on Total Net Assets as of 10/31/03
[BAR CHART]
Producer Manufacturing 17.6%
Finance 13.7%
Industrial Services 7.8%
Energy Minerals 7.7%
Consumer Durables 7.5%
Retail Trade 6.5%
Transportation 5.9%
Process Industries 5.8%
Consumer Non-Durables 5.2%
Non-Energy Minerals 4.2%
Electronic Technology 3.8%
Consumer Services 2.7%
Technology Services 1.8%
Communications 1.3%
Health Technology 1.0%
Closed End Mutual Funds 1.0%
Utilities 0.6%
Commercial Services 0.4%
Short-Term Investments & Other Net Assets 5.5%
Lower interest rates helped reduce financing costs for businesses and consumers.
Consumer spending, which normally accounts for two-thirds of GDP, also benefited
from additional tax cuts and lower retail prices. Although consumer confidence
rose in October, consumers remained anxious about soft labor markets, high debt
levels and steep energy prices. Despite solid gains in corporate profits,
businesses also continued to harbor concerns about the economy. Aided by greater
productivity, businesses seemed to postpone hiring until a sustained economic
rebound looked more assured. Encouragingly, August, September and October
employment reports showed improving job growth.
Overall, increasing signs of an economic recovery contributed to a general
improvement in U.S. equity market performance. For the 12-month reporting
period, the Standard & Poor's 500 Composite Index (S&P 500), a broad measure of
the stock market, posted a 20.79% total return. 2
INVESTMENT STRATEGY
We seek to invest in small-capitalization companies (up to $2.5 billion market
capitalization) that we determine are selling below their underlying worth. We
seek a diversified portfolio of fundamentally sound companies purchased at
attractive prices, often when they are out of favor with other investors.
Portfolio securities are selected without regard to benchmark comparisons and
are based on several criteria, such as low price relative to earnings, book
value or cash flow. We also consider stocks with recent sharp price declines
that still have significant growth potential or that possess valuable
intangibles not reflected in the stock price.
MANAGER'S DISCUSSION
During the year under review, stocks that benefited Fund performance came from a
variety of different sectors. Avocent, which supplies connectivity solutions for
enterprise data centers, service providers and financial institutions,
appreciated 89.00% during the year and contributed to the electronic technology
sector's overall positive performance. Energy minerals, one of the Fund's top
performing sectors, was led by Consol Energy's 74.19% return for the period.
Consol produces high-BTU coal and coal bed methane gas primarily for the
electric power generation industry. Even after the stock's recent run-up, we
considered Consol still attractively valued at under 14 times 2004 earnings
estimates, less than 2 times book
2. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
26 | Annual Report
value, and yielding 2.58% at period-end. Timberland gained 63.47% during the
Fund's fiscal year largely due to increased footwear and apparel sales, and it
contributed to the Fund's consumer non-durables holdings' positive overall
results.
Several stocks in the portfolio declined in value during the year under review.
Midwest Express Holdings and Atlantic Coast Airlines Holdings each were impacted
by reduced travel, due largely to war in Iraq, continued terrorist threats and
higher fuel prices. Atlantic Coast announced in October 2003 that Mesa Airlines
had bid for the company, and we sold our position as open market prices exceeded
the proposed takeover price. We also sold our holdings in Midwest Express in
July because of deteriorating fundamentals. In the industrial services sector,
several companies recorded unfavorable results during the period.
The Fund experienced net inflows during its fiscal year, and we used the
proceeds to invest in 17 new positions. A recent addition, Allstream, is a
Canadian provider of communications services. At period-end, Allstream traded at
12.8 times 2004 estimated earnings and 2 times book value, had negligible
long-term debt and a substantial tax-loss carryforward. We also initiated a
position in Montpelier Re Holdings, a Bermuda-based reinsurer for the global
insurance market. Montpelier was attractively valued at period-end at 1.3 times
book value and 8 times 2004 earnings estimates. Early in the reporting period,
we added Peoples Bancorp, which has increased earnings for 29 consecutive years
and raised its dividend every year since 1993.
During the year, 13 positions were eliminated from the portfolio, including
three takeovers. We sold two takeovers after the acquiring companies announced
bids because of higher prices in the open market than the proposed takeover
prices. We continued to hold a third takeover target, Airborne (now ABX Air),
because the deal included Air Freight stock in addition to cash. The remaining
liquidations from the Fund's portfolio included stocks that had reached our
price targets or where the companies' fundamentals deteriorated.
Thank you for your participation in Franklin Small Cap Value Fund. We look
forward to serving your future investment needs.
[SIDEBAR]
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
10/31/03
- ------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------------
York International Corp. 2.1%
PRODUCER MANUFACTURING
- ------------------------------------------
Russ Berrrie & Co. Inc. 1.9%
CONSUMER DURABLES
- ------------------------------------------
Peabody Energy Corp. 1.9%
ENERGY MINERALS
- ------------------------------------------
Reliance Steel & Aluminum Co. 1.8%
NON-ENERGY MINERALS
- ------------------------------------------
Consol Energy Inc. 1.8%
ENERGY MINERALS
- ------------------------------------------
Roper Industries Inc. 1.8%
PRODUCER MANUFACTURING
- ------------------------------------------
Teekay Shipping Corp. (Bahamas) 1.8%
TRANSPORTATION
- ------------------------------------------
Timberland Co., A 1.7%
CONSUMER NON-DURABLES
- ------------------------------------------
Mettler-Toledo International Inc.
(Switzerland) 1.7%
PRODUCER MANUFACTURING
- ------------------------------------------
Arthur J. Gallagher & Co. 1.7%
FINANCE
- ------------------------------------------
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
OCTOBER 31, 2003, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN
INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING
ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE
RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED
RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT
PHILOSOPHY.
Annual Report | 27
Performance Summary as of 10/31/03
FRANKLIN SMALL CAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
due on Fund dividends, capital gain distributions, if any, or any realized gains
on the sale of Fund shares. Total return reflects the Fund's dividend income,
capital gain distributions, if any, and any unrealized gains or losses.
PRICE INFORMATION
- --------------------------------------------------------------------------------------------------
CLASS A CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.04 $28.19 $22.15
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$5.74 $27.41 $21.67
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$5.67 $27.13 $21.46
- --------------------------------------------------------------------------------------------------
CLASS R CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$5.99 $28.13 $22.14
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 10/31/03 10/31/02
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.25 $28.78 $22.53
- --------------------------------------------------------------------------------------------------
28 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
- ------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (3/11/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +27.27% +58.16% +96.61%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +19.96% +8.31% +8.40%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,996 $14,904 $18,525
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +15.60% +7.56% +7.27%
- ------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (1/1/99)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +26.49% +33.01% +49.55%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +22.49% +9.14% +8.38%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,249 $13,001 $14,755
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +17.85% +6.60% +6.56%
- ------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (9/3/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +26.42% +53.07% +72.12%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +24.15% +8.67% +7.73%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,415 $15,154 $17,045
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +19.65% +7.91% +6.53%
- ------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (8/1/02)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +27.06% +20.52%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +26.06% +15.34%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,606 $11,952
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +21.50% +8.18%
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS5 1-YEAR 5-YEAR INCEPTION (3/11/96)
- ------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +27.74% +61.09% +103.31%
- ------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +27.74% +10.01% +9.73%
- ------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,774 $16,109 $20,331
- ------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/03) 4 +23.09% +9.23% +8.59%
- ------------------------------------------------------------------------------------------------------
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. 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 MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | Past performance does not guarantee future results.| 29
Performance Summary (CONTINUED)
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
includes reinvested dividends. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS A 10/31/03
- --------------------------------------
1-Year +19.96%
- --------------------------------------
5-Year +8.31%
- --------------------------------------
Since Inception (3/11/96) +8.40%
- --------------------------------------
CLASS A (3/11/96-10/31/03)
[LINE CHART]
DATE FRANKLIN SMALL CAP VALUE FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
3/11/96 $9,422 $10,000 $10,000
3/31/96 $9,541 $10,135 $10,034
4/30/96 $10,025 $10,412 $10,073
5/31/96 $10,295 $10,675 $10,092
6/30/96 $10,088 $10,549 $10,098
7/31/96 $9,717 $9,988 $10,118
8/31/96 $10,308 $10,422 $10,137
9/30/96 $10,629 $10,706 $10,169
10/31/96 $10,806 $10,830 $10,202
11/30/96 $11,581 $11,413 $10,221
12/31/96 $12,171 $11,784 $10,221
1/31/97 $12,680 $11,965 $10,253
2/28/97 $12,757 $12,078 $10,285
3/31/97 $12,298 $11,754 $10,311
4/30/97 $12,182 $11,927 $10,324
5/31/97 $13,317 $12,877 $10,318
6/30/97 $14,163 $13,528 $10,330
7/31/97 $15,215 $14,096 $10,343
8/31/97 $15,673 $14,320 $10,363
9/30/97 $16,641 $15,272 $10,388
10/31/97 $15,931 $14,857 $10,414
11/30/97 $15,764 $15,020 $10,408
12/31/97 $15,746 $15,529 $10,395
1/31/98 $15,485 $15,248 $10,414
2/28/98 $16,196 $16,170 $10,434
3/31/98 $16,756 $16,826 $10,453
4/30/98 $16,697 $16,909 $10,472
5/31/98 $15,635 $16,310 $10,492
6/30/98 $14,899 $16,218 $10,504
7/31/98 $13,310 $14,948 $10,517
8/31/98 $10,906 $12,607 $10,530
9/30/98 $11,127 $13,319 $10,543
10/31/98 $11,713 $13,714 $10,569
11/30/98 $11,818 $14,085 $10,569
12/31/98 $12,006 $14,527 $10,562
1/31/99 $11,868 $14,197 $10,588
2/28/99 $10,722 $13,228 $10,601
3/31/99 $10,820 $13,119 $10,633
4/30/99 $11,901 $14,317 $10,711
5/31/99 $12,294 $14,757 $10,711
6/30/99 $12,995 $15,291 $10,711
7/31/99 $12,654 $14,928 $10,743
8/31/99 $12,183 $14,382 $10,769
9/30/99 $11,390 $14,095 $10,820
10/31/99 $11,318 $13,813 $10,840
11/30/99 $11,423 $13,884 $10,846
12/31/99 $11,907 $14,311 $10,846
1/31/00 $10,932 $13,937 $10,878
2/29/00 $11,187 $14,789 $10,943
3/31/00 $12,176 $14,858 $11,033
4/30/00 $12,438 $14,946 $11,039
5/31/00 $12,752 $14,718 $11,052
6/30/00 $12,412 $15,148 $11,110
7/31/00 $12,549 $15,653 $11,136
8/31/00 $13,473 $16,352 $11,136
9/30/00 $13,427 $16,260 $11,194
10/31/00 $13,663 $16,202 $11,213
11/30/00 $13,263 $15,872 $11,220
12/31/00 $14,553 $17,577 $11,213
1/31/01 $15,353 $18,063 $11,284
2/28/01 $15,660 $18,038 $11,329
3/31/01 $15,535 $17,748 $11,355
4/30/01 $16,565 $18,570 $11,400
5/31/01 $17,096 $19,047 $11,452
6/30/01 $16,615 $19,814 $11,471
7/31/01 $16,359 $19,370 $11,439
8/31/01 $16,129 $19,302 $11,439
9/30/01 $13,681 $17,172 $11,490
10/31/01 $14,764 $17,620 $11,452
11/30/01 $15,611 $18,886 $11,432
12/31/01 $16,754 $20,043 $11,387
1/31/02 $16,616 $20,309 $11,413
2/28/02 $17,220 $20,432 $11,458
3/31/02 $18,644 $21,962 $11,523
4/30/02 $19,123 $22,735 $11,587
5/31/02 $18,650 $21,984 $11,587
6/30/02 $17,927 $21,497 $11,594
7/31/02 $15,424 $18,303 $11,606
8/31/02 $15,371 $18,222 $11,645
9/30/02 $13,853 $16,920 $11,664
10/31/02 $14,556 $17,175 $11,684
11/30/02 $15,391 $18,545 $11,684
12/31/02 $15,141 $17,753 $11,658
1/31/03 $14,306 $17,253 $11,710
2/28/03 $13,846 $16,673 $11,800
3/31/03 $13,853 $16,851 $11,871
4/30/03 $15,042 $18,451 $11,845
5/31/03 $16,245 $20,335 $11,826
6/30/03 $16,607 $20,680 $11,838
7/31/03 $16,725 $21,711 $11,851
8/31/03 $17,487 $22,536 $11,896
9/30/03 $16,994 $22,278 $11,935
10/31/03 $18,525 $24,094 $11,922
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS B 10/31/03
- --------------------------------------
1-Year +22.49%
- --------------------------------------
3-Year +9.14%
- --------------------------------------
Since Inception (1/1/99) +8.38%
- --------------------------------------
CLASS B (1/1/99-10/31/03)
[LINE CHART]
DATE FRANKLIN SMALL CAP VALUE FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
1/1/99 $10,000 $10,000 $10,000
1/31/99 $9,880 $9,773 $10,024
2/28/99 $8,925 $9,106 $10,037
3/31/99 $9,007 $9,031 $10,067
4/30/99 $9,891 $9,855 $10,140
5/31/99 $10,213 $10,158 $10,140
6/30/99 $10,786 $10,526 $10,140
7/31/99 $10,502 $10,276 $10,171
8/31/99 $10,098 $9,900 $10,195
9/30/99 $9,438 $9,702 $10,244
10/31/99 $9,373 $9,508 $10,262
11/30/99 $9,454 $9,558 $10,268
12/31/99 $9,853 $9,851 $10,268
1/31/00 $9,040 $9,594 $10,299
2/29/00 $9,247 $10,180 $10,360
3/31/00 $10,060 $10,228 $10,445
4/30/00 $10,262 $10,288 $10,451
5/31/00 $10,524 $10,131 $10,464
6/30/00 $10,235 $10,427 $10,519
7/31/00 $10,344 $10,775 $10,543
8/31/00 $11,097 $11,256 $10,543
9/30/00 $11,053 $11,193 $10,598
10/31/00 $11,244 $11,153 $10,616
11/30/00 $10,911 $10,926 $10,622
12/31/00 $11,969 $12,100 $10,616
1/31/01 $12,619 $12,434 $10,683
2/28/01 $12,859 $12,417 $10,726
3/31/01 $12,751 $12,217 $10,750
4/30/01 $13,591 $12,783 $10,793
5/31/01 $14,017 $13,112 $10,842
6/30/01 $13,613 $13,639 $10,860
7/31/01 $13,400 $13,333 $10,830
8/31/01 $13,204 $13,287 $10,830
9/30/01 $11,196 $11,820 $10,879
10/31/01 $12,074 $12,129 $10,842
11/30/01 $12,762 $13,001 $10,824
12/31/01 $13,684 $13,797 $10,781
1/31/02 $13,564 $13,980 $10,805
2/28/02 $14,049 $14,065 $10,848
3/31/02 $15,206 $15,118 $10,909
4/30/02 $15,588 $15,650 $10,970
5/31/02 $15,195 $15,133 $10,970
6/30/02 $14,600 $14,798 $10,976
7/31/02 $12,549 $12,599 $10,988
8/31/02 $12,500 $12,543 $11,025
9/30/02 $11,261 $11,647 $11,043
10/31/02 $11,823 $11,822 $11,062
11/30/02 $12,500 $12,766 $11,062
12/31/02 $12,287 $12,220 $11,037
1/31/03 $11,600 $11,876 $11,086
2/28/03 $11,223 $11,477 $11,171
3/31/03 $11,223 $11,600 $11,239
4/30/03 $12,183 $12,701 $11,214
5/31/03 $13,149 $13,998 $11,196
6/30/03 $13,433 $14,235 $11,208
7/31/03 $13,520 $14,945 $11,220
8/31/03 $14,131 $15,513 $11,263
9/30/03 $13,722 $15,335 $11,300
10/31/03 $14,755 $16,586 $11,287
30 | Past performance does not guarantee future results. | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS C 10/31/03
- --------------------------------------
1-Year +24.15%
- --------------------------------------
5-Year +8.67%
- --------------------------------------
Since Inception (9/3/96) +7.73%
- --------------------------------------
CLASS C (9/3/96-10/31/03)
[LINE CHART]
DATE FRANKLIN SMALL CAP VALUE FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
9/3/96 $9,903 $10,000 $10,000
9/30/96 $10,241 $10,273 $10,032
10/31/96 $10,405 $10,392 $10,064
11/30/96 $11,146 $10,951 $10,083
12/31/96 $11,695 $11,307 $10,083
1/31/97 $12,185 $11,481 $10,114
2/28/97 $12,247 $11,590 $10,146
3/31/97 $11,801 $11,279 $10,172
4/30/97 $11,683 $11,445 $10,184
5/31/97 $12,767 $12,356 $10,178
6/30/97 $13,572 $12,981 $10,191
7/31/97 $14,570 $13,526 $10,203
8/31/97 $15,003 $13,741 $10,223
9/30/97 $15,920 $14,654 $10,248
10/31/97 $15,239 $14,256 $10,273
11/30/97 $15,065 $14,412 $10,267
12/31/97 $15,041 $14,901 $10,254
1/31/98 $14,791 $14,631 $10,273
2/28/98 $15,460 $15,516 $10,292
3/31/98 $15,985 $16,145 $10,312
4/30/98 $15,922 $16,225 $10,331
5/31/98 $14,897 $15,650 $10,350
6/30/98 $14,191 $15,562 $10,362
7/31/98 $12,673 $14,343 $10,375
8/31/98 $10,373 $12,097 $10,388
9/30/98 $10,586 $12,780 $10,401
10/31/98 $11,135 $13,159 $10,426
11/30/98 $11,229 $13,516 $10,426
12/31/98 $11,403 $13,939 $10,420
1/31/99 $11,265 $13,623 $10,445
2/28/99 $10,172 $12,693 $10,458
3/31/99 $10,260 $12,588 $10,490
4/30/99 $11,278 $13,737 $10,566
5/31/99 $11,642 $14,160 $10,566
6/30/99 $12,302 $14,672 $10,566
7/31/99 $11,975 $14,324 $10,598
8/31/99 $11,516 $13,800 $10,623
9/30/99 $10,762 $13,525 $10,674
10/31/99 $10,687 $13,254 $10,693
11/30/99 $10,781 $13,323 $10,699
12/31/99 $11,227 $13,732 $10,699
1/31/00 $10,304 $13,373 $10,731
2/29/00 $10,536 $14,190 $10,795
3/31/00 $11,466 $14,257 $10,884
4/30/00 $11,705 $14,341 $10,890
5/31/00 $12,000 $14,122 $10,903
6/30/00 $11,667 $14,535 $10,960
7/31/00 $11,793 $15,019 $10,985
8/31/00 $12,654 $15,691 $10,985
9/30/00 $12,603 $15,602 $11,043
10/31/00 $12,817 $15,546 $11,062
11/30/00 $12,440 $15,230 $11,068
12/31/00 $13,646 $16,866 $11,062
1/31/01 $14,388 $17,332 $11,132
2/28/01 $14,664 $17,308 $11,176
3/31/01 $14,538 $17,030 $11,202
4/30/01 $15,493 $17,819 $11,246
5/31/01 $15,977 $18,277 $11,297
6/30/01 $15,525 $19,012 $11,316
7/31/01 $15,280 $18,586 $11,284
8/31/01 $15,054 $18,521 $11,284
9/30/01 $12,760 $16,477 $11,335
10/31/01 $13,759 $16,907 $11,297
11/30/01 $14,545 $18,122 $11,278
12/31/01 $15,594 $19,232 $11,233
1/31/02 $15,462 $19,487 $11,259
2/28/02 $16,015 $19,606 $11,303
3/31/02 $17,334 $21,074 $11,367
4/30/02 $17,768 $21,816 $11,430
5/31/02 $17,315 $21,094 $11,430
6/30/02 $16,643 $20,627 $11,437
7/31/02 $14,306 $17,562 $11,449
8/31/02 $14,256 $17,484 $11,488
9/30/02 $12,836 $16,235 $11,507
10/31/02 $13,483 $16,480 $11,526
11/30/02 $14,249 $17,795 $11,526
12/31/02 $14,011 $17,034 $11,500
1/31/03 $13,232 $16,555 $11,551
2/28/03 $12,804 $15,998 $11,640
3/31/03 $12,792 $16,169 $11,710
4/30/03 $13,885 $17,705 $11,685
5/31/03 $14,984 $19,513 $11,666
6/30/03 $15,311 $19,843 $11,678
7/31/03 $15,412 $20,833 $11,691
8/31/03 $16,109 $21,624 $11,736
9/30/03 $15,644 $21,376 $11,774
10/31/03 $17,045 $23,119 $11,761
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
CLASS R 10/31/03
- --------------------------------------
1-Year +26.06%
- --------------------------------------
Since Inception (8/1/02) +15.34%
- --------------------------------------
CLASS R (8/1/02-10/31/03)
[LINE CHART]
Date Franklin Small Cap Value Fund Russell 2000 Value Index 6 CPI 6
8/1/02 $10,000 $10,000 $10,000
8/31/02 $9,966 $9,956 $10,033
9/30/02 $8,977 $9,244 $10,050
10/31/02 $9,433 $9,383 $10,067
11/30/02 $9,974 $10,132 $10,067
12/31/02 $9,808 $9,699 $10,044
1/31/03 $9,267 $9,426 $10,089
2/28/03 $8,969 $9,109 $10,167
3/31/03 $8,969 $9,207 $10,228
4/30/03 $9,740 $10,081 $10,205
5/31/03 $10,516 $11,111 $10,189
6/30/03 $10,746 $11,299 $10,200
7/31/03 $10,822 $11,862 $10,211
8/31/03 $11,317 $12,313 $10,250
9/30/03 $10,997 $12,172 $10,283
10/31/03 $11,952 $13,164 $10,272
Annual Report | Past performance does not guarantee future results. | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------
ADVISOR CLASS 5 10/31/03
- --------------------------------------
1-Year +27.74%
- --------------------------------------
5-Year +10.01%
- --------------------------------------
Since Inception (3/11/96) +9.73%
- --------------------------------------
ADVISOR CLASS (3/11/96-10/31/03) 5
[LINE CHART]
DATE FRANKLIN SMALL CAP VALUE FUND RUSSELL 2000 VALUE INDEX 6 CPI 6
3/11/96 $10,000 $10,000 $10,000
3/31/96 $10,127 $10,135 $10,034
4/30/96 $10,640 $10,412 $10,073
5/31/96 $10,927 $10,675 $10,092
6/30/96 $10,707 $10,549 $10,098
7/31/96 $10,312 $9,988 $10,118
8/31/96 $10,940 $10,422 $10,137
9/30/96 $11,281 $10,706 $10,169
10/31/96 $11,469 $10,830 $10,202
11/30/96 $12,291 $11,413 $10,221
12/31/96 $12,918 $11,784 $10,221
1/31/97 $13,464 $11,965 $10,253
2/28/97 $13,546 $12,078 $10,285
3/31/97 $13,063 $11,754 $10,311
4/30/97 $12,940 $11,927 $10,324
5/31/97 $14,152 $12,877 $10,318
6/30/97 $15,053 $13,528 $10,330
7/31/97 $16,185 $14,096 $10,343
8/31/97 $16,679 $14,320 $10,363
9/30/97 $17,716 $15,272 $10,388
10/31/97 $16,961 $14,857 $10,414
11/30/97 $16,789 $15,020 $10,408
12/31/97 $16,775 $15,529 $10,395
1/31/98 $16,512 $15,248 $10,414
2/28/98 $17,267 $16,170 $10,434
3/31/98 $17,870 $16,826 $10,453
4/30/98 $17,814 $16,909 $10,472
5/31/98 $16,685 $16,310 $10,492
6/30/98 $15,902 $16,218 $10,504
7/31/98 $14,211 $14,948 $10,517
8/31/98 $11,654 $12,607 $10,530
9/30/98 $11,897 $13,319 $10,543
10/31/98 $12,521 $13,714 $10,569
11/30/98 $12,638 $14,085 $10,569
12/31/98 $12,845 $14,527 $10,562
1/31/99 $12,699 $14,197 $10,588
2/28/99 $11,480 $13,228 $10,601
3/31/99 $11,591 $13,119 $10,633
4/30/99 $12,755 $14,317 $10,711
5/31/99 $13,173 $14,757 $10,711
6/30/99 $13,932 $15,291 $10,711
7/31/99 $13,570 $14,928 $10,743
8/31/99 $13,061 $14,382 $10,769
9/30/99 $12,218 $14,095 $10,820
10/31/99 $12,149 $13,813 $10,840
11/30/99 $12,267 $13,884 $10,846
12/31/99 $12,790 $14,311 $10,846
1/31/00 $11,745 $13,937 $10,878
2/29/00 $12,023 $14,789 $10,943
3/31/00 $13,089 $14,858 $11,033
4/30/00 $13,375 $14,946 $11,039
5/31/00 $13,723 $14,718 $11,052
6/30/00 $13,354 $15,148 $11,110
7/31/00 $13,507 $15,653 $11,136
8/31/00 $14,503 $16,352 $11,136
9/30/00 $14,461 $16,260 $11,194
10/31/00 $14,719 $16,202 $11,213
11/30/00 $14,294 $15,872 $11,220
12/31/00 $15,696 $17,577 $11,213
1/31/01 $16,560 $18,063 $11,284
2/28/01 $16,888 $18,038 $11,329
3/31/01 $16,761 $17,748 $11,355
4/30/01 $17,878 $18,570 $11,400
5/31/01 $18,458 $19,047 $11,452
6/30/01 $17,939 $19,814 $11,471
7/31/01 $17,673 $19,370 $11,439
8/31/01 $17,429 $19,302 $11,439
9/30/01 $14,792 $17,172 $11,490
10/31/01 $15,960 $17,620 $11,452
11/30/01 $16,883 $18,886 $11,432
12/31/01 $18,118 $20,043 $11,387
1/31/02 $17,978 $20,309 $11,413
2/28/02 $18,636 $20,432 $11,458
3/31/02 $20,184 $21,962 $11,523
4/30/02 $20,710 $22,735 $11,587
5/31/02 $20,205 $21,984 $11,587
6/30/02 $19,427 $21,497 $11,594
7/31/02 $16,715 $18,303 $11,606
8/31/02 $16,666 $18,222 $11,645
9/30/02 $15,026 $16,920 $11,664
10/31/02 $15,790 $17,175 $11,684
11/30/02 $16,701 $18,545 $11,684
12/31/02 $16,435 $17,753 $11,658
1/31/03 $15,531 $17,253 $11,710
2/28/03 $15,040 $16,673 $11,800
3/31/03 $15,054 $16,851 $11,871
4/30/03 $16,350 $18,451 $11,845
5/31/03 $17,661 $20,335 $11,826
6/30/03 $18,054 $20,680 $11,838
7/31/03 $18,194 $21,711 $11,851
8/31/03 $19,028 $22,536 $11,896
9/30/03 $18,495 $22,278 $11,935
10/31/03 $20,331 $24,094 $11,922
ENDNOTES
THE FUND'S INVESTMENTS IN SMALL- OR NEWER-COMPANY STOCKS INVOLVE SPECIAL RISKS
AS SUCH STOCKS HAVE HISTORICALLY EXHIBITED GREATER PRICE VOLATILITY THAN
LARGE-COMPANY STOCKS, PARTICULARLY OVER THE SHORT TERM. IN ADDITION, THESE
COMPANIES CAN BE PARTICULARLY SENSITIVE TO CHANGING ECONOMIC CONDITIONS, AND
THEIR GROWTH PROSPECTS ARE LESS CERTAIN THAN THOSE OF LARGE, ESTABLISHED
COMPANIES. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
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.
CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed
within 18 months of investment; are available to certain eligible investors as
described in the prospectus. These shares have higher annual fees and expenses
than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees; are available to a
limited class of investors.
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 any current, applicable,
maximum sales charge(s).
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include any current, applicable, maximum
sales charge(s).
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. 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, but reflecting the effect of
the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, actual Advisor
Class performance is used reflecting 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 +57.39% and +6.86%.
6. Source: Standard & Poor's Micropal. The Russell 2000 Value Index is market
capitalization-weighted and measures performance of those Russell 2000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
32 | Past performance does not guarantee future results. | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2003 2002 2001 2000 1999
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $37.01 $37.21 $34.83 $29.96 $31.86
---------------------------------------------------------------------
Income from investment operations:
Net investment income a ............................. .13 .25 .77 .31 .37
Net realized and unrealized gains (losses) .......... 8.83 .87 2.95 5.15 (.68)
---------------------------------------------------------------------
Total from investment operations ..................... 8.96 1.12 3.72 5.46 (.31)
---------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (.25) (.15) (.73) (.31) (.43)
Net realized gains .................................. (.25) (1.17) (.61) (.28) (1.16)
---------------------------------------------------------------------
Total distributions .................................. (.50) (1.32) (1.34) (.59) (1.59)
---------------------------------------------------------------------
Net asset value, end of year ......................... $45.47 $37.01 $37.21 $34.83 $29.96
---------------------------------------------------------------------
Total return b ....................................... 24.51% 2.85% 10.96% 18.47% (1.04)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $3,031,714 $2,333,862 $1,491,457 $1,067,893 $1,165,779
Ratios to average net assets:
Expenses ............................................ 1.00% .92% .96% 1.06% .93%
Net investment income ............................... .35% .63% 2.14% 1.00% 1.19%
Portfolio turnover rate .............................. 13.36% 10.59% 26.69% 8.69% 17.53%
<FN>
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.
</FN>
Annual Report | 33
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
----------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2003 2002 2001 C
----------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................ $36.64 $37.04 $37.26
----------------------------------------
Income from investment operations:
Net investment income (loss) a ........................... (.15) (.08) .28
Net realized and unrealized gains (losses) ............... 8.74 .91 .06
----------------------------------------
Total from investment operations .......................... 8.59 .83 .34
----------------------------------------
Less distributions from:
Net investment income .................................... (.01) (.06) (.56)
Net realized gains ....................................... (.25) (1.17) --
----------------------------------------
Total distributions ....................................... (.26) (1.23) (.56)
----------------------------------------
Net asset value, end of year .............................. $44.97 $36.64 $37.04
----------------------------------------
Total return b ............................................ 23.58% 2.08% .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................... $103,877 $89,241 $20,982
Ratios to average net assets:
Expenses ................................................. 1.75% 1.67% 1.71%d
Net investment income (loss) ............................. (.40)% (.12)% .73%d
Portfolio turnover rate ................................... 13.36% 10.59% 26.69%
<FN>
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 March 1, 2001 (effective date) to October 31, 2001.
d Annualized.
</FN>
34 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2003 2002 2001 C
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $36.67 $37.06 $37.26
------------------------------------
Income from investment operations:
Net investment income (loss) a .................................... (.15) (.08) .33
Net realized and unrealized gains (losses) ........................ 8.74 .92 .02
------------------------------------
Total from investment operations ................................... 8.59 .84 .35
------------------------------------
Less distributions from:
Net investment income ............................................. -- (.06) (.55)
Net realized gains ................................................ (.25) (1.17) --
------------------------------------
Total distributions ................................................ (.25) (1.23) (.55)
------------------------------------
Net asset value, end of year ....................................... $45.01 $36.67 $37.06
------------------------------------
Total return b ..................................................... 23.57% 2.10% .94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $127,925 $118,219 $29,920
Ratios to average net assets:
Expenses .......................................................... 1.75% 1.67% 1.71%d
Net investment income (loss) ...................................... (.40)% (.12)% .85%d
Portfolio turnover rate ............................................ 13.36% 10.59% 26.69%
<FN>
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 March 1, 2001 (effective date) to October 31, 2001.
d Annualized.
</FN>
Annual Report | 35
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
-------------------------
YEAR ENDED
OCTOBER 31,
CLASS R 2003 2002 C
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $36.92 $39.98
-------------------------
Income from investment operations:
Net investment income a ........................................... .03 .07
Net realized and unrealized gains (losses) ........................ 8.82 (3.07)
-------------------------
Total from investment operations ................................... 8.85 (3.00)
-------------------------
Less distributions from:
Net investment income ............................................. (.22) (.06)
Net realized gains ................................................ (.25) --
-------------------------
Total distributions ................................................ (.47) (.06)
-------------------------
Net asset value, end of year ....................................... $45.30 $36.92
-------------------------
Total return b ..................................................... 24.26% (7.53)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $13,336 $7,754
Ratios to average net assets:
Expenses .......................................................... 1.25% 1.17%d
Net investment income ............................................. .10% .38%d
Portfolio turnover rate ............................................ 13.36% 10.59%
<FN>
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 January 1, 2002 (effective date) to October 31, 2002.
d Annualized.
</FN>
36 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
------------------------------------
YEAR ENDED OCTOBER 31,
ADVISOR CLASS 2003 2002 2001 C
------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $37.06 $37.21 $37.26
------------------------------------
Income from investment operations:
Net investment income a ......................................... .23 .31 .60
Net realized and unrealized gains (losses) ...................... 8.83 .91 (.02)
------------------------------------
Total from investment operations ................................. 9.06 1.22 .58
------------------------------------
Less distributions from:
Net investment income ........................................... (.33) (.20) (.63)
Net realized gains .............................................. (.25) (1.17) --
------------------------------------
Total distributions .............................................. (.58) (1.37) (.63)
------------------------------------
Net asset value, end of year ..................................... $45.54 $37.06 $37.21
------------------------------------
Total return b ................................................... 24.80% 3.11% 1.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $22,189 $15,193 $571
Ratios to average net assets:
Expenses ........................................................ .75% .67% .71%d
Net investment income ........................................... .60% .88% 1.55%d
Portfolio turnover rate .......................................... 13.36% 10.59% 26.69%
<FN>
a Based on average shares outstanding.
b Total return is not annualized for periods less than one year.
c For the period March 1, 2001 (effective date) to October 31, 2001.
d Annualized.
</FN>
Annual Report | See notes to financial statements. | 37
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CLOSED END MUTUAL FUNDS 1.5%
a Emerging Markets Telecommunications Fund Inc. .................................... 250,000 $ 1,725,000
H & Q Healthcare Investors Fund .................................................. 150,000 2,736,000
High Income Opportunity Fund Inc. ................................................ 765,600 5,481,696
John Hancock Bank & Thrift Opportunity Fund ...................................... 1,650,000 15,922,500
Latin America Equity Fund Inc. ................................................... 222,015 3,014,964
Managed High Income Portfolio Inc. ............................................... 695,800 4,842,768
Mexico Fund (Mexico) ............................................................. 620,800 9,547,904
a New Ireland Fund Inc. (Irish Republic) ........................................... 135,000 1,864,350
Petroleum & Resources Corp. ...................................................... 150,000 3,168,000
---------------
TOTAL CLOSED END MUTUAL FUNDS (COST $48,469,883) ................................. 48,303,182
---------------
COMMON STOCKS 72.7%
COMMERCIAL SERVICES 1.1%
Kelly Services Inc., A ........................................................... 1,506,800 36,916,600
---------------
CONSUMER DURABLES 5.6%
D.R. Horton Inc. ................................................................. 1,100,000 43,780,000
Hasbro Inc. ...................................................................... 1,800,000 39,240,000
Lennar Corp., A .................................................................. 240,000 22,044,000
Lennar Corp., B .................................................................. 24,000 2,084,400
M.D.C. Holdings Inc. ............................................................. 330,000 22,215,600
Pulte Homes Inc. ................................................................. 650,000 56,231,500
---------------
185,595,500
---------------
CONSUMER NON-DURABLES 2.5%
b DIMON Inc. ....................................................................... 2,504,200 18,030,240
a Genesee Corp., B ................................................................. 116,800 526,768
Kellwood Co. ..................................................................... 450,000 16,816,500
Russell Corp. .................................................................... 16,800 307,104
a Tommy Hilfiger Corp. ............................................................. 2,800,000 41,132,000
Universal Corp. .................................................................. 125,000 5,447,500
---------------
82,260,112
---------------
CONSUMER SERVICES 2.3%
a,b Aztar Corp. .................................................................... 3,000,000 62,640,000
a,b Champps Entertainment Inc. ..................................................... 920,000 7,231,200
a Prime Hospitality Corp. .......................................................... 702,800 6,395,480
---------------
76,266,680
---------------
DISTRIBUTION SERVICES 1.2%
Applied Industrial Technologies Inc. ............................................. 700,000 15,785,000
b Handleman Co. .................................................................... 1,300,000 23,075,000
---------------
38,860,000
---------------
38 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY 1.6%
a ESCO Technologies Inc. ........................................................... 618,400 $ 26,888,032
a FSI International Inc. ........................................................... 650,000 4,095,000
a Hutchinson Technology Inc. ....................................................... 158,300 5,304,633
a Standard Microsystems Corp. ...................................................... 500,000 15,000,000
---------------
51,287,665
---------------
ENERGY MINERALS 1.5%
Peabody Energy Corp. ............................................................. 1,507,000 50,228,310
---------------
FINANCE/RENTAL/LEASING 3.7%
CIT Group Inc. ................................................................... 2,210,000 74,300,200
a,b Dollar Thrifty Automotive Group Inc. ........................................... 1,800,000 47,142,000
---------------
121,442,200
---------------
FINANCIAL CONGLOMERATES 2.4%
Principal Financial Group ........................................................ 734,200 23,017,170
Prudential Financial Inc. ........................................................ 1,450,000 56,028,000
---------------
79,045,170
---------------
INDUSTRIAL SERVICES 1.8%
a Global Industries Ltd. ........................................................... 2,361,000 10,907,820
a Offshore Logistics Inc. .......................................................... 900,000 19,620,000
a Petroleum Helicopters Inc. ....................................................... 77,500 2,394,750
a Petroleum Helicopters Inc., non-voting ........................................... 152,000 4,332,000
a Shaw Group Inc. .................................................................. 1,098,500 14,994,525
a,b Xanser Corp. ................................................................... 2,800,000 6,944,000
---------------
59,193,095
---------------
LIFE/HEALTH INSURANCE 5.7%
American National Insurance Co. .................................................. 637,200 52,932,841
Amerus Group Co. ................................................................. 325,000 12,268,750
FBL Financial Group Inc., A ...................................................... 525,000 13,702,500
Kansas City Life Insurance Co. ................................................... 170,000 7,983,200
Manulife Financial Corp. (Canada) ................................................ 500,000 15,165,000
MetLife Inc. ..................................................................... 401,000 12,591,400
a National Western Life Insurance Co., A ........................................... 150,000 21,571,650
Presidential Life Corp. .......................................................... 900,000 13,824,000
StanCorp Financial Group Inc. .................................................... 600,000 37,830,000
---------------
187,869,341
---------------
NON-ENERGY MINERALS 4.2%
Nucor Corp. ...................................................................... 630,000 34,542,900
Reliance Steel & Aluminum Co. .................................................... 1,175,000 33,722,500
Texas Industries Inc. ............................................................ 800,000 21,736,000
United States Steel Corp. ........................................................ 2,100,000 49,665,000
---------------
139,666,400
---------------
Annual Report | 39
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES 4.1%
Bunge Ltd. ....................................................................... 1,650,000 $ 44,715,000
Celanese AG (Germany) ............................................................ 400,000 13,800,000
Corn Products International Inc. ................................................. 1,120,000 37,956,800
a,b Delta Woodside Industries Inc. ................................................. 560,000 1,148,000
J.G. Boswell Co. ................................................................. 30,000 9,000,000
Monsanto Co. ..................................................................... 853,900 21,390,195
a Polyone Corp. .................................................................... 1,500,000 7,245,000
---------------
135,254,995
---------------
PRODUCER MANUFACTURING 6.0%
CNH Global NV (Netherlands) ...................................................... 1,605,000 21,442,800
a,b Insteel Industries Inc. ........................................................ 560,000 375,200
Lennox International Inc. ........................................................ 1,115,000 18,442,100
a Mueller Industries Inc. .......................................................... 650,000 20,514,000
Oshkosh Truck Corp. .............................................................. 480,000 21,998,400
b Tecumseh Products Co., A ......................................................... 778,900 31,919,322
b Tecumseh Products Co., B ......................................................... 300,000 12,000,000
Timken Co. ....................................................................... 1,400,000 23,492,000
Trinity Industries Inc. .......................................................... 1,806,900 45,985,605
---------------
196,169,427
---------------
PROPERTY-CASUALTY INSURANCE 6.2%
E-L Financial Corp. Ltd. (Canada) ................................................ 100,000 22,571,223
IPC Holdings Ltd. (Bermuda) ...................................................... 1,180,000 44,191,000
a Montpelier Re Holdings Ltd. (Bermuda) ............................................ 10,000 331,200
Old Republic International Corp. ................................................. 1,897,500 68,196,150
RLI Corp. ........................................................................ 489,400 16,443,840
Selective Insurance Group Inc. ................................................... 650,000 19,955,000
St. Paul Cos. Inc. ............................................................... 827,000 31,533,510
---------------
203,221,923
---------------
REGIONAL BANKS .1%
UMB Financial Corp. .............................................................. 93,400 4,671,868
---------------
RETAIL TRADE 8.9%
a Big Lots Inc. .................................................................... 1,425,000 21,389,250
Cato Corp., A .................................................................... 300,000 6,330,000
a Charming Shoppes Inc. ............................................................ 5,200,000 34,060,000
Dillards Inc., A ................................................................. 2,300,000 37,191,000
Federated Department Stores Inc. ................................................. 825,000 39,228,750
Fred's Inc. ...................................................................... 500,000 18,840,000
b Haverty Furniture Cos. Inc. ...................................................... 920,000 19,090,000
a Officemax Inc. ................................................................... 1,491,000 14,283,780
a Saks Inc. ........................................................................ 1,508,400 20,966,760
a,b Syms Corp. ..................................................................... 1,430,000 9,581,000
40 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE (CONT.)
a Toys R Us Inc. ................................................................... 2,815,000 $ 36,595,000
a Zale Corp. ....................................................................... 711,200 36,811,712
---------------
294,367,252
---------------
SAVINGS BANKS .3%
Farmers & Merchants Bank of Long Beach ........................................... 2,200 9,130,000
First Niagara Financial Group Inc. ............................................... 100,000 1,429,000
---------------
10,559,000
---------------
SPECIALTY INSURANCE 3.1%
MGIC Investment Corp. ............................................................ 440,000 22,576,400
The PMI Group Inc. ............................................................... 1,150,000 43,964,500
Radian Group Inc. ................................................................ 700,000 37,030,000
---------------
103,570,900
---------------
TECHNOLOGY SERVICES .7%
a Intergraph Corp. ................................................................. 850,000 22,151,000
---------------
TRANSPORTATION 5.1%
a ABX Air Inc. ..................................................................... 1,825,000 6,387,500
a,b Alaska Air Group Inc. .......................................................... 1,350,600 38,883,774
Burlington Northern Santa Fe Corp. ............................................... 599,900 17,361,106
a Crowley Maritime Corp. ........................................................... 4,240 4,443,520
a Kansas City Southern ............................................................. 244,000 3,228,120
a Mesa Air Group Inc. .............................................................. 800,000 8,616,000
Norfolk Southern Corp. ........................................................... 150,000 3,022,500
Overseas Shipholding Group Inc. .................................................. 1,700,000 46,342,000
Teekay Shipping Corp. (Bahamas) .................................................. 850,000 40,910,500
---------------
169,195,020
---------------
UTILITIES 4.6%
Entergy Corp. .................................................................... 800,000 43,120,000
Northeast Utilities .............................................................. 1,750,000 32,970,000
PNM Resources Inc. ............................................................... 1,242,200 35,129,416
a Sierra Pacific Resources Co. ..................................................... 4,169,000 24,888,930
Xcel Energy Inc. ................................................................. 878,000 14,399,200
---------------
150,507,546
---------------
TOTAL COMMON STOCKS (COST $1,723,059,082) ........................................ 2,398,300,004
---------------
CONVERTIBLE PREFERRED STOCK (COST $6,943,575) .3%
Price Legacy Corp., 8.75%, pfd., A ............................................... 533,400 8,641,080
---------------
Annual Report | 41
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS (COST $6,000,000) .3%
UTILITIES
Sierra Pacific Resources Co., cvt., 144A, 7.25%, 2/14/10 ......................... $ 6,000,000 $ 9,630,000
---------------
CORPORATE BOND (COST $4,384,610)
c Hechinger Co., 6.95%, 10/15/03 ................................................... 7,000,000 --
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,788,857,150) 2,464,874,266
---------------
------------------
SHARES
------------------
SHORT TERM INVESTMENT (COST $148,758,184) 4.5%
d Franklin Institutional Fiduciary Trust Money Market Portfolio .................... 148,758,184 148,758,184
---------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $1,937,615,334) 2,613,632,450
---------------
------------------
PRINCIPAL AMOUNT
------------------
REPURCHASE AGREEMENT (COST $694,612,020) 21.0%
e Joint Repurchase Agreement, 1.004%, 11/3/03 (Maturity Value $694,670,146) ........ $694,612,020 694,612,020
ABN AMRO Bank, N.V., New York Branch (Maturity Value $66,716,121)
Banc of America Securities LLC (Maturity Value $64,722,417)
Barclays Capital Inc. (Maturity Value $66,716,121)
Bear, Stearns & Co. Inc. (Maturity Value $39,832,386)
BNP Paribas Securities Corp. (Maturity Value $64,722,417)
Deutsche Bank Securities Inc. (Maturity Value $66,716,121)
Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $64,722,417)
Goldman, Sachs & Co. (Maturity Value $64,722,417)
Lehman Brothers Inc. (Maturity Value $66,438,253)
Morgan Stanley & Co. Inc. (Maturity Value $64,729,366)
UBS Securities LLC (Maturity Value $64,632,110)
Collateralized by U.S. Treasury Bills, Notes, and Bonds, and
U.S. Government Agency Securities
---------------
TOTAL INVESTMENTS (COST $2,632,227,354) 100.3% ................................... 3,308,244,470
OTHER ASSETS, LESS LIABILITIES (.3)% ............................................. (9,203,184)
---------------
NET ASSETS 100.0% ................................................................ $3,299,041,286
---------------
<FN>
a Non-income producing.
b See Note 8 regarding holdings of 5% voting securities.
c The Fund discontinues accruing income on defaulted securities. See Note 7.
d See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
e See Note 1(c) regarding joint repurchase agreement.
</FN>
42 | See notes to financial statements. | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2003 2002 2001 2000 C
------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................... $10.48 $11.66 $11.12 $10.00
------------------------------------------------
Income from investment operations:
Net investment income a .................................................... .07 .07 .12 .09
Net realized and unrealized gains (losses) ................................. 1.92 (1.08) .50 1.03
------------------------------------------------
Total from investment operations ............................................ 1.99 (1.01) .62 1.12
------------------------------------------------
Less distributions from:
Net investment income ...................................................... (.07) (.07) (.08) --
Net realized gains ......................................................... -- (.10) -- --
------------------------------------------------
Total distributions ......................................................... (.07) (.17) (.08) --
------------------------------------------------
Net asset value, end of year ................................................ $12.40 $10.48 $11.66 $11.12
------------------------------------------------
Total return b .............................................................. 19.08% (8.82)% 5.63% 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................. $59,600 $32,825 $23,544 $3,418
Ratios to average net assets:
Expenses ................................................................... 1.38% 1.42% 1.25% 1.25%d
Expenses excluding waiver and payments by affiliate ........................ 1.38% 1.42% 1.49% 3.22%d
Net investment income ...................................................... .60% .64% .99% 2.17%d
Portfolio turnover rate ..................................................... 27.47% 15.33% 29.37% 7.21%
<FN>
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.
</FN>
Annual Report | 43
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-----------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2003 2002 2001 2000 C
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................... $10.39 $11.58 $11.11 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income (loss) a .............................................. (.01) -- .05 .08
Net realized and unrealized gains (losses) .................................. 1.92 (1.07) .49 1.03
-----------------------------------------------
Total from investment operations ............................................. 1.91 (1.07) .54 1.11
-----------------------------------------------
Less distributions from:
Net investment income ....................................................... (.01) (.02) (.07) --
Net realized gains .......................................................... -- (.10) -- --
-----------------------------------------------
Total distributions .......................................................... (.01) (.12) (.07)
-----------------------------------------------
Net asset value, end of year ................................................. $12.29 $10.39 $11.58 $11.11
-----------------------------------------------
Total return b ............................................................... 18.35% (9.38)% 4.87% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .............................................. $10,865 $4,975 $3,251 $453
Ratios to average net assets:
Expenses .................................................................... 2.04% 2.07% 1.86% 1.69%d
Expenses excluding waiver and payments by affiliate ......................... 2.04% 2.07% 2.10% 3.66%d
Net investment income (loss) ................................................ (.06)% (.01)% .38% 1.81%d
Portfolio turnover rate ...................................................... 27.47% 15.33% 29.37% 7.21%
<FN>
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.
</FN>
44 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-----------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2003 2002 2001 2000 C
-----------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................................ $10.39 $11.57 $11.11 $10.00
-----------------------------------------------
Income from investment operations:
Net investment income (loss) a ............................................... (.01) -- .05 .06
Net realized and unrealized gains (losses) ................................... 1.91 (1.07) .48 1.05
-----------------------------------------------
Total from investment operations .............................................. 1.90 (1.07) .53 1.11
-----------------------------------------------
Less distributions from:
Net investment income ........................................................ (.01) (.01) (.07) --
Net realized gains ........................................................... -- (.10) -- --
-----------------------------------------------
Total distributions ........................................................... (.01) (.11) (.07) --
-----------------------------------------------
Net asset value, end of year .................................................. $12.28 $10.39 $11.57 $11.11
-----------------------------------------------
Total return b ................................................................ 18.35% (9.34)% 4.80% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................... $32,592 $17,738 $10,648 $1,911
Ratios to average net assets:
Expenses ..................................................................... 2.06% 2.04% 1.89% 1.79%d
Expenses excluding waiver and payments by affiliate .......................... 2.06% 2.04% 2.13% 3.76%d
Net investment income (loss) ................................................. (.08)% .02% .38% 1.44%d
Portfolio turnover rate ....................................................... 27.47% 15.33% 29.37% 7.21%
<FN>
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.
</FN>
Annual Report | 45
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-----------------------
YEAR ENDED
OCTOBER 31,
CLASS R 2003 2002 C
-----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $10.48 $10.55
-----------------------
Income from investment operations:
Net investment income a ........................................ .05 .01
Net realized and unrealized gains (losses) ..................... 1.90 (.08)
-----------------------
Total from investment operations ................................ 1.95 (.07)
-----------------------
Less distributions from net investment income ................... (.09) --
-----------------------
Net asset value, end of year .................................... $12.34 $10.48
-----------------------
Total return b .................................................. 18.77% (.66)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $826 $65
Ratios to average net assets:
Expenses ....................................................... 1.54% 1.59%d
Net investment income .......................................... .44% .47%d
Portfolio turnover rate ......................................... 27.47% 15.33%
<FN>
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 August 1, 2002 (effective date) to October 31, 2002.
d Annualized.
</FN>
46 | See notes to financial statements. | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 84.9%
COMMUNICATIONS 2.1%
SBC Communications Inc. .................................................................. 40,000 $ 959,200
Verizon Communications Inc. .............................................................. 37,000 1,243,200
-------------
2,202,400
-------------
CONSUMER NON-DURABLES 9.4%
Kimberly-Clark Corp. ..................................................................... 59,000 3,115,790
Procter & Gamble Co. ..................................................................... 36,000 3,538,440
Sara Lee Corp. ........................................................................... 154,000 3,069,220
-------------
9,723,450
-------------
CONSUMER SERVICES 8.1%
a Cendant Corp. ............................................................................ 87,000 1,777,410
Gannett Co. Inc. ......................................................................... 42,000 3,532,620
McDonald's Corp. ......................................................................... 126,000 3,151,260
-------------
8,461,290
-------------
ELECTRONIC TECHNOLOGY 1.1%
Hewlett-Packard Co. ...................................................................... 51,000 1,137,810
-------------
ENERGY MINERALS 5.4%
Conocophillips ........................................................................... 26,000 1,485,900
Marathon Oil Corp. ....................................................................... 94,000 2,779,580
Occidental Petroleum Corp. ............................................................... 38,000 1,339,880
-------------
5,605,360
-------------
FINANCE/RENTAL/LEASING 3.7%
Fannie Mae ............................................................................... 29,000 2,079,010
Freddie Mac .............................................................................. 31,000 1,740,030
-------------
3,819,040
-------------
FINANCIAL CONGLOMERATES 4.1%
Citigroup Inc. ........................................................................... 63,000 2,986,200
Principal Financial Group ................................................................ 41,000 1,285,350
-------------
4,271,550
-------------
HEALTH TECHNOLOGY 8.6%
Abbott Laboratories ...................................................................... 63,000 2,685,060
Becton, Dickinson & Co. .................................................................. 71,000 2,595,760
Pfizer Inc. .............................................................................. 115,000 3,634,000
-------------
8,914,820
-------------
Annual Report | 47
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES 3.7%
GlobalSantaFe Corp. ...................................................................... 55,000 $ 1,238,050
a Transocean Inc. .......................................................................... 138,000 2,648,220
-------------
3,886,270
-------------
INVESTMENT BANKS/BROKERS 1.3%
Lehman Brothers Holdings Inc. ............................................................ 6,000 432,000
Morgan Stanley ........................................................................... 17,000 932,790
-------------
1,364,790
-------------
INVESTMENT MANAGERS 1.0%
Mellon Financial Corp. ................................................................... 34,000 1,015,580
-------------
LIFE/HEALTH INSURANCE 3.0%
MetLife Inc. ............................................................................. 99,000 3,108,600
-------------
MAJOR BANKS 4.4%
Bank of America Corp. .................................................................... 36,000 2,726,280
Fleet Boston Financial Corp. ............................................................. 47,000 1,898,330
-------------
4,624,610
-------------
MULTI-LINE INSURANCE 3.0%
American International Group Inc. ........................................................ 51,000 3,102,330
-------------
PROCESS INDUSTRIES 2.7%
International Paper Co. .................................................................. 72,000 2,833,200
-------------
PRODUCER MANUFACTURING 2.9%
Masco Corp. .............................................................................. 109,000 2,997,500
-------------
PROPERTY-CASUALTY INSURANCE 5.6%
Allstate Corp. ........................................................................... 91,000 3,594,500
St. Paul Cos. Inc. ....................................................................... 59,000 2,249,670
-------------
5,844,170
-------------
REAL ESTATE 1.6%
Equity Office Properties Trust ........................................................... 58,000 1,624,580
-------------
REGIONAL BANKS 1.8%
U.S. Bancorp ............................................................................. 68,000 1,850,960
-------------
48 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE 5.4%
Federated Department Stores Inc. ......................................................... 67,000 $ 3,185,850
a Safeway Inc. ............................................................................. 77,000 1,624,700
The TJX Cos. Inc. ........................................................................ 38,000 797,620
-------------
5,608,170
-------------
SAVINGS BANKS 1.5%
Washington Mutual Inc. ................................................................... 36,000 1,575,000
-------------
TECHNOLOGY SERVICES 1.9%
International Business Machines Corp. .................................................... 22,000 1,968,560
-------------
TRANSPORTATION 2.6%
Burlington Northern Santa Fe Corp. ....................................................... 93,000 2,691,420
-------------
TOTAL COMMON STOCKS (COST $80,699,469) ................................................... 88,231,460
-------------
SHORT TERM INVESTMENT (COST $15,684,996) 15.1%
b Franklin Institutional Fiduciary Trust Money Market Portfolio ............................ 15,684,996 15,684,996
-------------
TOTAL INVESTMENTS (COST $96,384,465) 100.0% .............................................. 103,916,456
OTHER ASSETS, LESS LIABILITIES ........................................................... (33,230)
-------------
NET ASSETS 100.0% ........................................................................ $103,883,226
-------------
<FN>
a Non-income producing.
b See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
</FN>
Annual Report | See notes to financial statements. | 49
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
2003 2002 2001 2000 1999
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $24.09 $24.64 $18.88 $18.41 $20.27
----------------------------------------------------------
Income from investment operations:
Net investment income (loss)a .................................. (.04) (.01) .11 .04 (.01)
Net realized and unrealized gains (losses) ..................... 7.80 .68 6.37 1.90 (.29)
----------------------------------------------------------
Total from investment operations ................................ 7.76 .67 6.48 1.94 (.30)
----------------------------------------------------------
Less distributions from:
Net investment income .......................................... -- (.08) (.09) -- --
Net realized gains ............................................. (1.44) (1.14) (.63) (1.47) (1.56)
----------------------------------------------------------
Total distributions ............................................. (1.44) (1.22) (.72) (1.47) (1.56)
----------------------------------------------------------
Net asset value, end of year .................................... $30.41 $24.09 $24.64 $18.88 $18.41
----------------------------------------------------------
Total return b .................................................. 33.90% 2.77% 35.80% 11.53% (1.59)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $310,995 $230,562 $268,969 $95,894 $115,999
Ratios to average net assets:
Expenses ....................................................... 1.23% 1.18% 1.19% 1.38% 1.27%
Net investment income (loss) ................................... (.16)% (.02)% .46% .23% (.05)%
Portfolio turnover rate ......................................... 13.35% 28.35% 23.62% 8.52% 14.12%
<FN>
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.
</FN>
50 | See notes to financial statements. | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 83.4%
COMMERCIAL SERVICES 1.8%
Courier Corp. ....................................................................... 100,000 $ 5,482,000
-------------
COMMUNICATIONS 1.8%
Atlantic Tele-Network Inc. .......................................................... 225,000 5,667,750
-------------
CONSUMER DURABLES 6.5%
Allen Organ Co., B .................................................................. 94,800 4,597,800
a Baldwin Piano & Organ Co. ........................................................... 100 --
a Cavalier Homes Inc. ................................................................. 800,000 2,352,000
a Chromcraft Revington Inc. ........................................................... 200,000 2,450,000
a Dixie Group Inc. .................................................................... 405,000 2,916,000
Edelbrock Corp. ..................................................................... 194,100 2,234,091
Flexsteel Industries Inc. ........................................................... 60,000 1,183,200
a National R.V. Holdings Inc. ......................................................... 400,000 4,320,000
-------------
20,053,091
-------------
CONSUMER NON-DURABLES 12.1%
Brown Shoe Co. Inc. ................................................................. 165,000 5,709,000
b Delta Apparel Inc. .................................................................. 340,000 5,521,600
DIMON Inc. .......................................................................... 640,000 4,608,000
b Haggar Corp. ........................................................................ 420,000 6,678,000
a,b Seneca Foods Corp., A ............................................................. 256,600 5,126,868
a,b Seneca Foods Corp., B ............................................................. 121,500 2,490,750
Standard Commercial Corp. ........................................................... 350,000 6,678,000
Tandy Brands Accessories Inc. ....................................................... 57,200 855,712
-------------
37,667,930
-------------
CONSUMER SERVICES 1.4%
a Garden Fresh Restaurant Corp. ....................................................... 270,000 4,355,100
-------------
DISTRIBUTION SERVICES .7%
a GTSI Corp. .......................................................................... 203,100 2,258,472
-------------
ELECTRONIC TECHNOLOGY 1.7%
b Espey Manufacturing & Electronics Corp. ............................................. 78,000 1,901,640
a Printronix Inc. ..................................................................... 130,000 1,834,300
a Sparton Corp. ....................................................................... 153,000 1,690,650
-------------
5,426,590
-------------
HEALTH SERVICES .9%
Healthcare Services Group Inc. ...................................................... 173,600 2,829,680
-------------
HEALTH TECHNOLOGY 2.1%
a,b Invivo Corp. ...................................................................... 402,000 6,572,700
-------------
Annual Report | 51
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES 5.9%
b Ecology & Environment Inc., A ....................................................... 230,000 $ 2,311,500
a Exponent Inc. ....................................................................... 100,000 2,113,000
a Layne Christensen Co. ............................................................... 530,000 5,178,100
a Matrix Service Co. .................................................................. 230,000 5,855,800
a Petroleum Helicopters Inc. .......................................................... 17,600 543,840
a Petroleum Helicopters Inc., non-voting .............................................. 78,000 2,223,000
-------------
18,225,240
-------------
NON-ENERGY MINERALS 2.8%
b Commonwealth Industries Inc. ........................................................ 870,000 5,959,500
a,b Continental Materials Corp. ....................................................... 99,500 2,735,753
-------------
8,695,253
-------------
PROCESS INDUSTRIES 3.0%
a,b American Pacific Corp. ............................................................ 668,900 6,153,880
a Mercer International Inc. (Germany) ................................................. 545,400 3,403,296
-------------
9,557,176
-------------
PRODUCER MANUFACTURING 14.0%
a,b Art's-Way Manufacturing Co. Inc. .................................................. 134,500 650,845
Central Steel & Wire Co. ............................................................ 3,400 1,326,000
CIRCOR International Inc. ........................................................... 247,500 5,098,500
a,b Gehl Co. .......................................................................... 405,200 6,231,976
Gibraltar Steel Corp. ............................................................... 238,000 5,716,760
b Hardinge Inc. ....................................................................... 700,000 6,475,000
a Insteel Industries Inc. ............................................................. 250,000 167,500
a,b Nashua Corp. ...................................................................... 475,000 4,137,250
a Northwest Pipe Co. .................................................................. 177,300 2,377,593
a Powell Industries Inc. .............................................................. 23,900 463,182
a Rofin-Sinar Technologies Inc. ....................................................... 114,700 2,724,125
a RTI International Metals Inc. ....................................................... 415,000 4,984,150
Smith Investment Co. ................................................................ 42,400 1,886,800
Steel Technologies Inc. ............................................................. 2,100 32,361
a TransPro Inc. ....................................................................... 290,000 1,157,100
-------------
43,429,142
-------------
PROPERTY-CASUALTY INSURANCE 6.2%
a,b ACMAT Corp., A .................................................................... 392,800 4,935,532
Baldwin & Lyons Inc., B ............................................................. 153,875 3,777,631
b Merchants Group Inc. ................................................................ 190,000 4,297,800
Penn-America Group Inc. ............................................................. 310,000 4,727,500
Safety Insurance Group Inc. ......................................................... 95,000 1,496,250
-------------
19,234,713
-------------
52 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE 1.1%
a Arbor Realty Trust, 144A ............................................................ 45,000 $ 3,380,625
-------------
REAL ESTATE DEVELOPMENT 2.3%
a Bresler & Reiner Inc. ............................................................... 89,000 4,016,125
Case Pomeroy & Co. Inc., A .......................................................... 220 276,320
Case Pomeroy & Co. Inc., cvt., B .................................................... 533 677,443
a Griffin Land & Nurseries Inc. ....................................................... 173,000 2,266,300
-------------
7,236,188
-------------
RETAIL TRADE 5.8%
a,b Duckwall-ALCO Stores Inc. ......................................................... 300,000 4,464,000
b Fresh Brands Inc. ................................................................... 264,000 3,358,080
a,b S&K Famous Brands Inc. ............................................................ 260,000 4,425,200
a,b United Retail Group Inc. .......................................................... 830,000 2,780,500
b Village Super Market Inc., A ........................................................ 110,675 2,989,332
-------------
18,017,112
-------------
SAVINGS BANKS 4.9%
First Defiance Financial Corp. ...................................................... 235,000 6,636,400
GA Financial Inc. ................................................................... 172,000 4,871,040
a Wilshire Financial Services Group Inc. .............................................. 757,100 3,777,929
-------------
15,285,369
-------------
TRANSPORTATION 6.1%
a Crowley Maritime Corp. .............................................................. 2,342 2,454,416
a,b International Shipholding Corp. ................................................... 480,000 4,783,200
a OMI Corp. ........................................................................... 680,000 4,590,000
Providence & Worchester Railroad Co. ................................................ 205,000 1,853,200
Stelmar Shipping Ltd. (Greece) ...................................................... 266,000 5,242,860
-------------
18,923,676
-------------
UTILITIES 2.3%
Central Vermont Public Service Corp. ................................................ 70,000 1,610,000
Green Mountain Power Corp. .......................................................... 201,700 4,580,607
Maine & Maritimes Corp. ............................................................. 27,100 957,987
-------------
7,148,594
-------------
TOTAL COMMON STOCKS (COST $181,530,330) ............................................. 259,446,401
-------------
Annual Report | 53
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS (COST $7,000,000) 2.3%
PROCESS INDUSTRIES
Mercer International Inc., cvt., 144A, 8.50%, 10/15/10 (Germany) .................... $ 7,000,000 $ 7,000,000
-------------
TOTAL LONG TERM INVESTMENTS (COST $188,530,330) ..................................... 266,446,401
-------------
--------------
SHARES
--------------
SHORT TERM INVESTMENT (COST $41,625,085) 13.4%
c Franklin Institutional Fiduciary Trust Money Market Portfolio ....................... 41,625,085 41,625,085
-------------
TOTAL INVESTMENTS (COST $230,155,415) 99.1% ......................................... 308,071,486
OTHER ASSETS, LESS LIABILITIES .9% .................................................. 2,923,248
-------------
NET ASSETS 100.0% ................................................................... $310,994,734
-------------
<FN>
a Non-income producing.
b See Note 8 regarding holdings of 5% voting securities.
c See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
</FN>
54 | See notes to financial statements. | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2003 2002 2001 2000 1999
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $22.15 $22.49 $20.86 $17.30 $17.98
-----------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................................... (.02) .02 .09 .03 (.04)
Net realized and unrealized gains (losses) ....................... 6.06 (.33) 1.59 3.53 (.55)
-----------------------------------------------------------
Total from investment operations .................................. 6.04 (.31) 1.68 3.56 (.59)
-----------------------------------------------------------
Less distributions from:
Net investment income ............................................ -- -- (.05) -- --
Net realized gains ............................................... -- -- -- -- (.09)
Tax return of capital ............................................ -- (.03) -- -- --
-----------------------------------------------------------
Total distributions ............................................... -- (.03) (.05) -- (.09)
-----------------------------------------------------------
Net asset value, end of year ...................................... $28.19 $22.15 $22.49 $20.86 $17.30
-----------------------------------------------------------
Total return b .................................................... 27.27% (1.41)% 8.06% 20.72% (3.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $200,181 $140,202 $95,029 $64,513 $65,898
Ratios to average net assets:
Expenses ......................................................... 1.44% 1.37% 1.36% 1.58% 1.49%
Net investment income (loss) ..................................... (.07)% .09% .37% .16% (.23)%
Portfolio turnover rate ........................................... 14.14% 12.74% 43.33% 44.99% 41.21%
<FN>
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.
</FN>
Annual Report | 55
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2003 2002 2001 2000 1999 D
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................... $21.67 $22.13 $20.61 $17.21 $18.33
------------------------------------------------------------
Income from investment operations:
Net investment income (loss)a ................................... (.17) (.14) (.07) (.09) (.15)
Net realized and unrealized gains (losses) ...................... 5.91 (.32) 1.59 3.49 (.97)
------------------------------------------------------------
Total from investment operations ................................. 5.74 (.46) 1.52 3.40 (1.12)
------------------------------------------------------------
Less distributions from net investment income .................... -- -- --c -- --
------------------------------------------------------------
Net asset value, end of year ..................................... $27.41 $21.67 $22.13 $20.61 $17.21
------------------------------------------------------------
Total return b ................................................... 26.49% (2.08)% 7.38% 19.97% (6.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................. $47,551 $29,535 $11,220 $2,747 $1,293
Ratios to average net assets:
Expenses ........................................................ 2.09% 2.02% 2.02% 2.22% 2.12%e
Net investment income (loss) .................................... (.72)% (.56)% (.32)% (.47)% (.84)%e
Portfolio turnover rate .......................................... 14.14% 12.74% 43.33% 44.99% 41.21%
<FN>
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 The Fund made a dividend distribution of $.002.
d For the period January 1, 1999 (effective date) to October 31, 1999.
e Annualized.
</FN>
56 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2003 2002 2001 2000 1999
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $21.46 $21.90 $20.40 $17.03 $17.82
----------------------------------------------------------
Income from investment operations:
Net investment income (loss)a .................................... (.17) (.13) (.07) (.09) (.16)
Net realized and unrealized gains (losses) ....................... 5.84 (.31) 1.57 3.46 (.54)
----------------------------------------------------------
Total from investment operations .................................. 5.67 (.44) 1.50 3.37 (.70)
----------------------------------------------------------
Less distributions from net realized gains ........................ -- -- -- -- (.09)
----------------------------------------------------------
Net asset value, end of year ...................................... $27.13 $21.46 $21.90 $20.40 $17.03
----------------------------------------------------------
Total return b .................................................... 26.42% (2.01)% 7.35% 19.93% (4.03)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $109,353 $81,186 $51,313 $28,555 $30,133
Ratios to average net assets:
Expenses ......................................................... 2.10% 1.99% 2.01% 2.24% 2.17%
Net investment income (loss) ..................................... (.73)% (.53)% (.29)% (.51)% (.91)%
Portfolio turnover rate ........................................... 14.14% 12.74% 43.33% 44.99% 41.21%
<FN>
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.
</FN>
Annual Report | 57
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
----------------------
YEAR ENDED
OCTOBER 31,
CLASS R 2003 2002 C
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ....................................... $22.14 $23.34
----------------------
Income from investment operations:
Net investment income (loss)a ........................................... (.07) (.04)
Net realized and unrealized gains (losses) .............................. 6.06 (1.16)
----------------------
Total from investment operations ......................................... 5.99 (1.20)
----------------------
Net asset value, end of year ............................................. $28.13 $22.14
----------------------
Total return b ........................................................... 27.06% (5.14)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................................... $6,914 $1,097
Ratios to average net assets:
Expenses ................................................................ 1.59% 1.52%d
Net investment income (loss) ............................................ (.22)% (.06)%d
Portfolio turnover rate .................................................. 14.14% 12.74%
<FN>
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 August 1, 2002 (effective date) to October 31, 2002.
d Annualized.
</FN>
58 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
ADVISOR CLASS 2003 2002 2001 2000 1999
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................ $22.53 $22.82 $21.13 $17.46 $18.07
----------------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .07 .10 .17 .09 .01
Net realized and unrealized gains (losses) ....................... 6.18 (.34) 1.62 3.58 (.53)
----------------------------------------------------------
Total from investment operations .................................. 6.25 (.24) 1.79 3.67 (.52)
----------------------------------------------------------
Less distributions from:
Net investment income ............................................ -- -- (.10) -- --
Net realized gains ............................................... -- -- -- -- (.09)
Tax return of capital ............................................ -- (.05) -- -- --
----------------------------------------------------------
Total distributions ............................................... -- (.05) (.10) -- (.09)
----------------------------------------------------------
Net asset value, end of year ...................................... $28.78 $22.53 $22.82 $21.13 $17.46
----------------------------------------------------------
Total return b .................................................... 27.74% (1.07)% 8.43% 21.16% (2.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................... $13,089 $9,586 $4,622 $3,848 $2,941
Ratios to average net assets:
Expenses ......................................................... 1.09% 1.02% 1.02% 1.24% 1.17%
Net investment income ............................................ .28% .44% .70% .49% .09%
Portfolio turnover rate ........................................... 14.14% 12.74% 43.33% 44.99% 41.21%
<FN>
a Based on average shares outstanding.
b Total return is not annualized for periods less than one year.
</FN>
Annual Report | See notes to financial statements. | 59
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CLOSED END MUTUAL FUNDS 1.0%
High Income Opportunity Fund Inc. ................................................ 206,000 $ 1,474,960
High Yield Income Fund Inc. ...................................................... 116,800 647,072
Managed High Income Portfolio Inc. ............................................... 210,000 1,461,600
-------------
TOTAL CLOSED END MUTUAL FUNDS (COST $4,586,854) .................................. 3,583,632
-------------
COMMON STOCKS 93.5%
COMMERCIAL SERVICES .4%
ABM Industries Inc. .............................................................. 90,000 1,400,400
-------------
COMMUNICATIONS 1.3%
a Allstream Inc., B (Canada) ....................................................... 101,000 5,075,250
-------------
CONSUMER DURABLES 7.5%
Action Performance Cos. Inc. ..................................................... 152,000 3,112,960
Briggs & Stratton Corp. .......................................................... 77,000 5,005,770
D.R. Horton Inc. ................................................................. 37,500 1,492,500
Hooker Furniture Corp. ........................................................... 30,000 1,170,000
La-Z-Boy Inc. .................................................................... 180,000 3,636,000
M/I Schottenstein Homes Inc. ..................................................... 17,000 707,710
a Monaco Coach Corp. ............................................................... 251,000 6,046,590
Russ Berrie & Co. Inc. ........................................................... 200,000 7,170,000
-------------
28,341,530
-------------
CONSUMER NON-DURABLES 5.2%
Brown Shoe Co. Inc. .............................................................. 180,200 6,234,920
Lancaster Colony Corp. ........................................................... 60,000 2,382,600
Oshkosh B'Gosh Inc., A ........................................................... 50,700 1,093,092
Russell Corp. .................................................................... 2,000 36,560
Standard Commercial Corp. ........................................................ 129,000 2,461,320
a Timberland Co., A ................................................................ 125,000 6,493,750
Wolverine World Wide Inc. ........................................................ 44,500 898,900
-------------
19,601,142
-------------
CONSUMER SERVICES 2.7%
a Aztar Corp. ...................................................................... 290,000 6,055,200
Intrawest Corp. (Canada) ......................................................... 245,000 4,118,450
-------------
10,173,650
-------------
ELECTRONIC TECHNOLOGY 3.8%
a Avocent Corp. .................................................................... 165,000 6,237,000
Cohu Inc. ........................................................................ 136,000 2,729,520
Diebold Inc. ..................................................................... 95,000 5,420,700
a SPACEHAB Inc. .................................................................... 123,000 138,990
-------------
14,526,210
-------------
60 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
ENERGY MINERALS 7.7%
Arch Coal Inc. ................................................................... 250,000 $ 6,125,000
Consol Energy Inc. ............................................................... 310,000 6,727,000
Holly Corp. ...................................................................... 45,000 1,121,400
a Nuevo Energy Co. ................................................................. 250,000 4,920,000
Peabody Energy Corp. ............................................................. 210,000 6,999,300
a Pioneer Natural Resources Co. .................................................... 115,000 3,041,750
-------------
28,934,450
-------------
FINANCE 13.7%
American National Insurance Co. .................................................. 46,000 3,821,266
Arthur J. Gallagher & Co. ........................................................ 215,000 6,275,850
Chemical Financial Corp. ......................................................... 3,100 107,725
Corus Bankshares Inc. ............................................................ 7,900 464,520
a Dollar Thrifty Automotive Group Inc. ............................................. 140,000 3,666,600
First Indiana Corp. .............................................................. 49,200 897,900
Hancock Holding Co. .............................................................. 47,500 2,718,425
Harleysville Group Inc. .......................................................... 117,000 2,604,420
IPC Holdings Ltd. (Bermuda) ...................................................... 115,000 4,306,750
a Montpelier Re Holdings Ltd. (Bermuda) ............................................ 175,000 5,796,000
Peoples Bancorp Inc. ............................................................. 103,950 2,914,758
The PMI Group Inc. ............................................................... 60,000 2,293,800
Presidential Life Corp. .......................................................... 330,000 5,068,800
Protective Life Corp. ............................................................ 82,500 2,678,775
RLI Corp. ........................................................................ 162,100 5,446,560
StanCorp Financial Group Inc. .................................................... 45,000 2,837,250
-------------
51,899,399
-------------
HEALTH TECHNOLOGY 1.0%
a Steris Corp. ..................................................................... 6,000 124,920
West Pharmaceutical Services Inc. ................................................ 109,000 3,602,450
-------------
3,727,370
-------------
INDUSTRIAL SERVICES 7.8%
a Atwood Oceanics Inc. ............................................................. 88,000 2,278,320
ENSCO International Inc. ......................................................... 87,000 2,292,450
a Global Industries Ltd. ........................................................... 800,000 3,696,000
GlobalSantaFe Corp. .............................................................. 62,000 1,395,620
a Lone Star Technologies Inc. ...................................................... 260,000 3,619,200
a Offshore Logistics Inc. .......................................................... 155,700 3,394,260
a Oil States International Inc. .................................................... 300,000 3,675,000
a Rowan Cos. Inc. .................................................................. 143,000 3,424,850
a Shaw Group Inc. .................................................................. 97,300 1,328,145
Tidewater Inc. ................................................................... 120,000 3,289,200
a Transocean Inc. .................................................................. 44,500 853,955
-------------
29,247,000
-------------
Annual Report | 61
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
NON-ENERGY MINERALS 4.2%
Olin Corp. ....................................................................... 200,200 $ 3,485,482
Reliance Steel & Aluminum Co. .................................................... 234,500 6,730,150
United States Steel Corp. ........................................................ 240,000 5,676,000
-------------
15,891,632
-------------
PROCESS INDUSTRIES 5.8%
AptarGroup Inc. .................................................................. 126,000 4,510,800
Bunge Ltd. ....................................................................... 203,000 5,501,300
Cabot Corp. ...................................................................... 113,000 3,152,700
Myers Industries Inc. ............................................................ 276,400 3,372,080
RPM International Inc. ........................................................... 360,000 5,202,000
-------------
21,738,880
-------------
PRODUCER MANUFACTURING 17.6%
American Woodmark Corp. .......................................................... 6,400 314,240
a Cable Design Technologies Corp. .................................................. 244,600 2,357,943
Carlisle Cos. Inc. ............................................................... 32,000 1,835,200
CIRCOR International Inc. ........................................................ 162,000 3,337,200
CNH Global NV (Netherlands) ...................................................... 174,000 2,324,640
a Genlyte Group Inc. ............................................................... 71,000 3,348,360
Graco Inc. ....................................................................... 150,000 5,715,000
JLG Industries Inc. .............................................................. 237,400 2,834,556
a Mettler-Toledo International Inc. (Switzerland) .................................. 165,000 6,326,100
a Mueller Industries Inc. .......................................................... 150,000 4,734,000
a Powell Industries Inc. ........................................................... 107,900 2,091,102
Roper Industries Inc. ............................................................ 136,000 6,721,120
Stewart & Stevenson Services Inc. ................................................ 111,500 1,864,280
Superior Industries International Inc. ........................................... 105,000 4,462,500
Teleflex Inc. .................................................................... 70,000 3,220,700
Thomas Industries Inc. ........................................................... 80,000 2,416,000
Timken Co. ....................................................................... 69,600 1,167,888
a Tower Automotive Inc. ............................................................ 165,800 659,884
Watts Water Technologies Inc., A ................................................. 150,000 2,664,000
York International Corp. ......................................................... 200,000 7,948,000
-------------
66,342,713
-------------
RETAIL TRADE 6.5%
a American Eagle Outfitters Inc. ................................................... 170,000 2,718,300
Dillards Inc., A ................................................................. 300,000 4,851,000
Fresh Brands Inc. ................................................................ 63,500 807,720
a Linens n Things Inc. ............................................................. 165,000 4,870,800
a The Men's Wearhouse Inc. ......................................................... 180,000 5,302,800
a West Marine Inc. ................................................................. 208,900 4,629,224
a Zale Corp. ....................................................................... 23,100 1,195,656
-------------
24,375,500
-------------
62 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2003 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES 1.8%
a NetIQ Corp. ...................................................................... 182,500 $ 2,215,550
Reynolds & Reynolds Co., A ....................................................... 170,000 4,617,200
-------------
6,832,750
-------------
TRANSPORTATION 5.9%
a ABX Air Inc. ..................................................................... 70,000 245,000
a Kansas City Southern ............................................................. 27,600 365,148
a OMI Corp. ........................................................................ 880,000 5,940,000
Overseas Shipholding Group Inc. .................................................. 147,000 4,007,220
SkyWest Inc. ..................................................................... 275,000 5,084,750
Teekay Shipping Corp. (Bahamas) .................................................. 138,700 6,675,631
-------------
22,317,749
-------------
UTILITIES .6%
a Sierra Pacific Resources Co. ..................................................... 365,000 2,179,050
-------------
TOTAL COMMON STOCKS (COST $299,780,836) .......................................... 352,604,675
-------------
----------------
PRINCIPAL AMOUNT
----------------
CORPORATE BOND (COST $287,548)
b Hechinger Co., 6.95%, 10/15/03 ................................................... $ 500,000 --
-------------
TOTAL LONG TERM INVESTMENTS (COST $304,655,238) .................................. 356,188,307
-------------
----------------
SHARES
----------------
SHORT TERM INVESTMENT (COST $21,492,303) 5.7%
c Franklin Institutional Fiduciary Trust Money Market Portfolio .................... 21,492,303 21,492,303
-------------
TOTAL INVESTMENTS (COST $326,147,541) 100.2% ..................................... 377,680,610
OTHER ASSETS, LESS LIABILITIES (.2)% ............................................. (591,560)
-------------
NET ASSETS 100.0% ................................................................ $377,089,050
-------------
<FN>
a Non-income producing.
b The Fund discontinues accruing income on defaulted securities. See Note 7.
c See Note 6 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
</FN>
Annual Report | See notes to financial statements. | 63
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2003
--------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
--------------------------------------------------------------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................ $ 1,715,859,004 $ 96,384,465 $ 158,991,014 $ 326,147,541
Cost - Non-controlled affiliated issuers ........... 221,756,330 -- 71,164,401 --
--------------------------------------------------------------------
Value - Unaffiliated issuers ....................... 2,335,572,714 103,916,456 213,090,580 377,680,610
Value - Non-controlled affiliated issuers .......... 278,059,736 -- 94,980,906 --
Repurchase agreements, at value and cost ............ 694,612,020 -- -- --
Receivables:
Investment securities sold ......................... -- -- -- 252,797
Capital shares sold ................................ 5,072,056 1,001,622 3,931,424 1,393,780
Dividends and interest ............................. 1,073,604 129,845 120,959 108,028
Other assets ........................................ 85,600 -- 56,500 --
--------------------------------------------------------------------
Total assets ................................... 3,314,475,730 105,047,923 312,180,369 379,435,215
--------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................... 6,611,681 690,573 -- 641,131
Funds advanced by custodian ........................ -- 553 -- --
Capital shares redeemed ............................ 5,023,224 292,122 836,196 1,003,552
Affiliates ......................................... 2,422,652 146,953 275,100 544,959
Shareholders ....................................... 221,221 10,711 27,170 80,658
Unaffiliated transfer agent fees ................... 1,062,088 7,654 23,890 43,702
Other liabilities ................................... 93,578 16,131 23,279 32,163
--------------------------------------------------------------------
Total liabilities .............................. 15,434,444 1,164,697 1,185,635 2,346,165
--------------------------------------------------------------------
Net assets, at value .......................... $ 3,299,041,286 $ 103,883,226 $ 310,994,734 $ 377,089,050
--------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................. $ 4,719,559 $ 168,362 $ -- $ --
Net unrealized appreciation (depreciation) .......... 676,017,116 7,531,991 77,916,071 51,533,069
Accumulated net realized gain (loss) ................ 22,681,708 (2,823,651) 6,940,863 (30,761,240)
Capital shares ...................................... 2,595,622,903 99,006,521 226,137,800 356,317,221
--------------------------------------------------------------------
Net assets, at value .......................... $ 3,299,041,286 $ 103,883,226 $ 310,994,734 $ 377,089,050
--------------------------------------------------------------------
64 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2003
-----------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------
CLASS A:
Net assets, at value .................................. $3,031,713,846 $59,599,502 $310,994,734 $200,181,341
-----------------------------------------------------------------
Shares outstanding .................................... 66,674,820 4,806,500 10,227,898 7,101,002
-----------------------------------------------------------------
Net asset value per share a ........................... $45.47 $12.40 $30.41 $28.19
-----------------------------------------------------------------
Maximum offering price per share (net asset value
per share / 94.25%) ................................. $48.24 $13.16 $32.27 $29.91
-----------------------------------------------------------------
CLASS B:
Net assets, at value .................................. $ 103,876,833 $10,865,468 -- $ 47,551,350
-----------------------------------------------------------------
Shares outstanding .................................... 2,310,096 884,235 -- 1,734,947
-----------------------------------------------------------------
Net asset value and maximum offering price
per share a ......................................... $44.97 $12.29 -- $27.41
-----------------------------------------------------------------
CLASS C:
Net assets, at value .................................. $ 127,924,711 $32,592,042 -- $109,352,603
-----------------------------------------------------------------
Shares outstanding .................................... 2,842,142 2,654,437 -- 4,030,498
-----------------------------------------------------------------
Net asset value per share a ........................... $45.01 $12.28 -- $27.13
-----------------------------------------------------------------
Maximum offering price per share (net asset value
per share / 99%) .................................... $45.46 $12.40 -- $27.40
-----------------------------------------------------------------
CLASS R:
Net assets, at value .................................. $ 13,336,470 $ 826,214 -- $ 6,914,313
-----------------------------------------------------------------
Shares outstanding .................................... 294,413 66,936 -- 245,811
-----------------------------------------------------------------
Net asset value and maximum offering price
per share a ......................................... $45.30 $12.34 -- $28.13
-----------------------------------------------------------------
ADVISOR CLASS:
Net assets, at value .................................. $ 22,189,426 -- -- $ 13,089,443
-----------------------------------------------------------------
Shares outstanding .................................... 487,228 -- -- 454,832
-----------------------------------------------------------------
Net asset value and maximum offering price
per share ........................................... $45.54 -- -- $28.78
-----------------------------------------------------------------
<FN>
a Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
</FN>
Annual Report | See notes to financial statements. | 65
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended October 31, 2003
-------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------
Investment income:
Dividends
Unaffiliated issuers ..................................... $ 27,053,571 $ 1,405,070 $ 1,635,509 $ 4,092,051
Non-controlled affiliated issuers (Note 8) ............... 2,130,578 -- 844,151 --
Interest .................................................. 8,088,498 -- 41,536 25,267
-------------------------------------------------------------
Total investment income .............................. 37,272,647 1,405,070 2,521,196 4,117,318
-------------------------------------------------------------
Expenses:
Management fees (Note 3) .................................. 12,199,191 359,576 1,733,760 2,213,920
Administrative fees (Note 3) .............................. -- 141,229 -- --
Distribution fees (Note 3)
Class A .................................................. 6,346,077 137,381 591,928 560,307
Class B .................................................. 915,163 66,345 -- 361,705
Class C .................................................. 1,164,273 234,095 -- 911,386
Class R .................................................. 49,060 1,808 -- 19,274
Transfer agent fees (Note 3) .............................. 7,782,917 162,031 473,141 861,990
Custodian fees ............................................ 24,914 589 2,041 2,780
Reports to shareholders ................................... 115,767 9,817 35,308 61,541
Registration and filing fees .............................. 230,379 45,054 25,739 83,578
Professional fees ......................................... 78,158 14,514 21,010 25,636
Trustees' fees and expenses ............................... 140,374 712 11,842 14,783
Other ..................................................... 161,777 5,127 15,084 19,997
-------------------------------------------------------------
Total expenses ....................................... 29,208,050 1,178,278 2,909,853 5,136,897
-------------------------------------------------------------
Net investment income (loss) ........................ 8,064,597 226,792 (388,657) (1,019,579)
-------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated issuers .................................... 28,567,324 (1,197,959) 9,213,736 (8,512,879)
Non-controlled affiliated issuers (Note 8) .............. (8,687,006) -- (1,956,982) --
Closed end funds distributions .......................... 2,485,174 -- -- --
Foreign currency transactions ............................ 4,709 -- -- --
-------------------------------------------------------------
Net realized gain (loss) ............................ 22,370,201 (1,197,959) 7,256,754 (8,512,879)
Net unrealized appreciation (depreciation) on investments . 605,667,050 13,788,782 64,006,345 85,145,032
-------------------------------------------------------------
Net realized and unrealized gain (loss) .................... 628,037,251 12,590,823 71,263,099 76,632,153
-------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ........................................... $ 636,101,848 $ 12,817,615 $ 70,874,442 $ 75,612,574
-------------------------------------------------------------
66 | See notes to financial statements. | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended October 31, 2003 and 2002
----------------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
----------------------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .......................... $ 8,064,597 $ 13,972,003 $ 226,792 $ 204,126
Net realized gain (loss) from investments and
foreign currency transactions ................. 22,370,201 30,145,934 (1,197,959) (1,617,513)
Net unrealized appreciation (depreciation)
on investments ................................ 605,667,050 (117,728,341) 13,788,782 (5,833,769)
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................. 636,101,848 (73,610,404) 12,817,615 (7,247,156)
Distributions to shareholders from:
Net investment income:
Class A ....................................... (15,859,670) (7,078,917) (219,664) (155,176)
Class B ....................................... (12,389) (69,151) (2,700) (5,806)
Class C ....................................... (224) (89,632) (25,501) (15,081)
Class R ....................................... (48,332) (1,483) (608) --
Advisor Class ................................. (136,670) (6,612) -- --
Net realized gains:
Class A ....................................... (16,010,960) (49,569,027) -- (210,973)
Class B ....................................... (608,470) (920,168) -- (30,457)
Class C ....................................... (796,029) (1,266,468) -- (101,418)
Class R ....................................... (60,002) -- -- --
Advisor Class ................................. (104,241) (28,156) -- --
----------------------------------------------------------------------
Total distributions to shareholders ............. (33,636,987) (59,029,614) (248,473) (518,911)
Capital share transactions: (Note 2)
Class A ......................................... 145,187,768 951,100,027 19,537,776 13,864,084
Class B ......................................... (4,723,653) 77,220,210 4,694,580 2,375,667
Class C ......................................... (14,490,811) 100,100,704 10,811,167 9,621,016
Class R ......................................... 3,342,448 8,671,892 666,777 65,313
Advisor Class ................................... 2,990,936 16,885,865 -- --
----------------------------------------------------------------------
Total capital share transactions ................ 132,306,688 1,153,978,698 35,710,300 25,926,080
Net increase (decrease) in net assets ....... 734,771,549 1,021,338,680 48,279,442 18,160,013
Net assets:
Beginning of year ............................... 2,564,269,737 1,542,931,057 55,603,784 37,443,771
----------------------------------------------------------------------
End of year ..................................... $3,299,041,286 $2,564,269,737 $103,883,226 $55,603,784
----------------------------------------------------------------------
Undistributed net investment income included
in net assets:
End of year .................................... $ 4,719,559 $ 7,822,660 $ 168,362 $ 190,046
----------------------------------------------------------------------
Annual Report | 67
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the years ended October 31, 2003 and 2002
--------------------------------------------------------------------
FRANKLIN FRANKLIN
MICROCAP VALUE FUND SMALL CAP VALUE FUND
--------------------------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ........................ $ (388,657) $ (60,578) $ (1,019,579) $ (355,176)
Net realized gain (loss) from investments ........... 7,256,754 17,438,766 (8,512,879) (2,418,283)
Net unrealized appreciation (depreciation)
on investments ..................................... 64,006,345 (8,779,224) 85,145,032 (23,073,577)
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ....................... 70,874,442 8,598,964 75,612,574 (25,847,036)
Distributions to shareholders from:
Net investment income:
Class A ............................................ -- (861,539) -- --
Net realized gains:
Class A ............................................ (13,669,360) (11,780,291) -- --
Tax return of capital:
Class A ............................................ -- -- -- (116,877)
Advisor Class ...................................... -- -- -- (11,812)
--------------------------------------------------------------------
Total distributions to shareholders .................. (13,669,360) (12,641,830) -- (128,689)
Capital share transactions: (Note 2)
Class A ............................................ 23,227,153 (34,363,479) 19,380,987 58,390,038
Class B ............................................ -- -- 8,827,006 22,495,635
Class C ............................................ -- -- 6,169,326 37,439,975
Class R ............................................ -- -- 4,689,321 1,104,926
Advisor Class ...................................... -- -- 804,441 5,965,488
--------------------------------------------------------------------
Total capital share transactions ..................... 23,227,153 (34,363,479) 39,871,081 125,396,062
Net increase (decrease) in net assets ............ 80,432,235 (38,406,345) 115,483,655 99,420,337
Net assets:
Beginning of year .................................... 230,562,499 268,968,844 261,605,395 162,185,058
--------------------------------------------------------------------
End of year .......................................... $310,994,734 $230,562,499 $377,089,050 $261,605,395
--------------------------------------------------------------------
Undistributed net investment income included in
net assets:
End of year ........................................... $ -- $ -- $ -- $ --
--------------------------------------------------------------------
68 | See notes to financial statements. | Annual Report
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.
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 last 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. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. JOINT REPURCHASE AGREEMENT
The Franklin Balance Sheet Investment Fund may enter into a joint repurchase
agreement whereby its uninvested cash balance is deposited into a joint cash
account to be used to invest in one or more repurchase agreements. The value and
face amount of the joint repurchase agreement are allocated to the Fund based on
its pro-rata interest. A repurchase agreement is accounted for as a loan by the
Fund to the seller, collateralized by securities which are delivered to the
Fund's custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of the dollar amount invested
by the Fund, with the value of the underlying securities marked to market daily
to maintain coverage of at least 100%. At October 31, 2003, all repurchase
agreements had been entered into on that date.
Annual Report | 69
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. 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.
E. 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.
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.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. REDEMPTION FEES
The Funds may charge a 2% redemption fee to market timers who redeem shares held
for less than 90 days. Such fees are retained by the Funds and accounted for as
additional paid-in capital.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Funds' organizational documents, their officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Funds. Additionally, in the normal course of business, the Funds
enter into contracts with service providers that contain general indemnification
clauses. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against the Funds that have not yet
occurred. However, based on experience, the Funds expect the risk of loss to be
remote.
70 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, contingent deferred sales
charges, distribution fees, voting rights on matters affecting a single class
and its exchange privilege.
- -----------------------------------------------------------------------------------------------------
CLASS A, CLASS B, CLASS C CLASS A, CLASS B, CLASS C,
CLASS A & CLASS R CLASS R & ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------
Franklin MicroCap Value Fund Franklin Large Cap Value Fund Franklin Balance Sheet Investment Fund
Franklin Small Cap Value Fund
At October 31, 2003, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:
----------------------------------------------------------------
FRANKLIN BALANCE FRANKLIN LARGE CAP
SHEET INVESTMENT FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended October 31, 2003
Shares sold ....................... 20,697,756 $ 809,263,017 2,547,880 $ 29,190,304
Shares issued in reinvestment
of distributions ................. 778,906 28,920,773 17,273 182,921
Shares redeemed ................... (17,858,438) (692,996,022) (891,670) (9,835,449)
----------------------------------------------------------------
Net increase (decrease) ........... 3,618,224 $ 145,187,768 1,673,483 $ 19,537,776
----------------------------------------------------------------
Year ended October 31, 2002
Shares sold ....................... 38,685,312 $ 1,575,410,983 2,184,193 $ 25,756,549
Shares issued in reinvestment
of distributions ................. 1,327,957 51,840,208 24,451 293,655
Shares redeemed ................... (17,038,659) (676,151,164) (1,094,478) (12,186,120)
----------------------------------------------------------------
Net increase (decrease) ........... 22,974,610 $ 951,100,027 1,114,166 $ 13,864,084
----------------------------------------------------------------
CLASS B SHARES:
Year ended October 31, 2003
Shares sold ....................... 133,698 $ 5,117,716 537,665 $ 6,120,339
Shares issued in reinvestment
of distributions ................. 15,648 578,344 210 2,212
Shares redeemed ................... (274,853) (10,419,713) (132,518) (1,427,971)
----------------------------------------------------------------
Net increase (decrease) ........... (125,507) $ (4,723,653) 405,357 $ 4,694,580
----------------------------------------------------------------
Year ended October 31, 2002
Shares sold ....................... 2,107,279 $ 86,324,468 289,903 $ 3,414,959
Shares issued in reinvestment
of distributions ................. 23,278 903,754 2,310 27,646
Shares redeemed ................... (261,449) (10,008,012) (94,061) (1,066,938)
----------------------------------------------------------------
Net increase (decrease) ........... 1,869,108 $ 77,220,210 198,152 $ 2,375,667
----------------------------------------------------------------
Annual Report | 71
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN BALANCE FRANKLIN LARGE CAP
SHEET INVESTMENT FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS C SHARES:
Year ended October 31, 2003
Shares sold ...................... 226,204 $ 8,747,145 1,545,808 $ 17,336,290
Shares issued in reinvestment
of distributions ................ 19,810 732,949 2,084 21,990
Shares redeemed .................. (627,665) (23,970,905) (599,970) (6,547,113)
----------------------------------------------------------------
Net increase (decrease) .......... (381,651) $ (14,490,811) 947,922 $ 10,811,167
----------------------------------------------------------------
Year ended October 31, 2002
Shares sold ...................... 2,832,198 $ 116,149,306 1,170,025 $ 13,799,522
Shares issued in reinvestment
of distributions ................ 32,442 1,260,427 8,984 107,535
Shares redeemed .................. (448,136) (17,309,029) (392,477) (4,286,041)
----------------------------------------------------------------
Net increase (decrease) .......... 2,416,504 $ 100,100,704 786,532 $ 9,621,016
----------------------------------------------------------------
CLASS R SHARES:
Year ended October 31, 2003
Shares sold ...................... 161,943 $ 6,348,241 79,757 $ 874,524
Shares issued in reinvestment
of distributions ................ 2,908 107,759 50 521
Shares redeemed .................. (80,456) (3,113,552) (19,106) (208,268)
----------------------------------------------------------------
Net increase (decrease) .......... 84,395 $ 3,342,448 60,701 $ 666,777
----------------------------------------------------------------
Period ended October 31, 2002a
Shares sold ...................... 259,417 $ 10,603,936 6,235 $ 65,313
Shares issued in reinvestment
of distributions ................ 35 1,469 -- --
Shares redeemed .................. (49,434) (1,933,513) -- --
----------------------------------------------------------------
Net increase (decrease) .......... 210,018 $ 8,671,892 6,235 $ 65,313
----------------------------------------------------------------
ADVISOR CLASS SHARES:
Year ended October 31, 2003
Shares sold ...................... 153,679 $ 5,954,959
Shares issued in reinvestment
of distributions ................ 3,674 136,339
Shares redeemed .................. (80,066) (3,100,362)
------------------------------
Net increase (decrease) .......... 77,287 $ 2,990,936
------------------------------
Year ended October 31, 2002
Shares sold ...................... 435,466 $ 18,532,784
Shares issued in reinvestment
of distributions ................ 859 33,612
Shares redeemed .................. (41,732) (1,680,531)
------------------------------
Net increase (decrease) .......... 394,593 $ 16,885,865
------------------------------
72 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended October 31, 2003
Shares sold ...................... 3,186,352 $ 86,356,640 2,842,450 $ 68,246,391
Shares issued in reinvestment
of distributions ................ 520,399 12,317,864 -- --
Shares redeemed .................. (3,049,998) (75,447,351) (2,070,696) (48,865,404)
----------------------------------------------------------------
Net increase (decrease) .......... 656,753 $ 23,227,153 771,754 $ 19,380,987
----------------------------------------------------------------
Year ended October 31, 2002
Shares sold ...................... 4,231,090 $ 107,810,709 5,083,372 $ 132,849,233
Shares issued in reinvestment
of distributions ................ 458,924 10,927,121 4,092 103,439
Shares redeemed .................. (6,033,298) (153,101,309) (2,984,302) (74,562,634)
----------------------------------------------------------------
Net increase (decrease) .......... (1,343,284) $ (34,363,479) 2,103,162 $ 58,390,038
----------------------------------------------------------------
CLASS B SHARES:
Year ended October 31, 2003
Shares sold ...................... 633,600 $ 14,738,289
Shares redeemed .................. (261,303) (5,911,283)
----------------------------
Net increase (decrease) .......... 372,297 $ 8,827,006
----------------------------
Year ended October 31, 2002
Shares sold ...................... 1,175,097 $ 30,003,089
Shares redeemed .................. (319,533) (7,507,454)
----------------------------
Net increase (decrease) .......... 855,564 $ 22,495,635
----------------------------
CLASS C SHARES:
Year ended October 31, 2003
Shares sold ...................... 1,221,987 $ 28,165,091
Shares redeemed .................. (974,388) (21,995,765)
----------------------------
Net increase (decrease) .......... 247,599 $ 6,169,326
----------------------------
Year ended October 31, 2002
Shares sold ...................... 2,449,061 $ 61,628,044
Shares redeemed .................. (1,009,398) (24,188,069)
----------------------------
Net increase (decrease) .......... 1,439,663 $ 37,439,975
----------------------------
CLASS R SHARES:
Year ended October 31, 2003
Shares sold ...................... 234,973 $ 5,623,929
Shares redeemed .................. (38,705) (934,608)
----------------------------
Net increase (decrease) .......... 196,268 $ 4,689,321
----------------------------
Year ended October 31, 2002
Shares sold ...................... 49,629 $ 1,106,802
Shares redeemed .................. (86) (1,876)
----------------------------
Net increase (decrease) .......... 49,543 $ 1,104,926
----------------------------
Annual Report | 73
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------
FRANKLIN SMALL CAP
VALUE FUND
-------------------------
SHARES AMOUNT
-------------------------
ADVISOR CLASS SHARES:
Year ended October 31, 2003
Shares sold ............................................................ 153,439 $ 3,802,161
Shares redeemed ........................................................ (123,980) (2,997,720)
-------------------------
Net increase (decrease) ................................................ 29,459 $ 804,441
-------------------------
Period ended October 31, 2002 b
Shares sold ............................................................ 293,953 $ 7,769,844
Shares issued in reinvestment of distributions ......................... 410 10,656
Shares redeemed ........................................................ (71,566) (1,815,012)
-------------------------
Net increase (decrease) ................................................ 222,797 $ 5,965,488
-------------------------
<FN>
a For the period January 1, 2002 (effective date) to October 31, 2002, and
August 1, 2002 (effective date) to October 31, 2002, for the Franklin Balance
Sheet Investment Fund and the Franklin Large Cap Value Fund, respectively.
b For the period August 1, 2002 (effective date) to October 31, 2002.
</FN>
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 Services
LLC (FT Services), Franklin/Templeton Distributor Inc. (Distributors), and
Franklin/Templeton Investor Services LLC (Investor Services), the Funds'
investment manager, administrative manager, principal underwriter, and transfer
agent, respectively.
The Franklin Balance Sheet Investment Fund pays an investment management fee to
Advisory Services based on the net assets of the fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
The Franklin Large Cap Value Fund pays an investment management fee to Advisory
Services based on the net assets of the fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------------
.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
Fees are further reduced on net assets over $1.5 billion.
74 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 Small Cap Value Fund pays an investment management fee to Advisory
Services based on the net assets of the fund as follows:
- --------------------------------------------------------------------------
ANNUALIZED FEE RATE AVERAGE DAILY NET ASSETS
- --------------------------------------------------------------------------
.750% First $500 million
.625% Over $500 million, up to and including $1 billion
.500% Over $1 billion
The Franklin Large Cap Value Fund pays an administrative fee to FT Services of
..20% per year of the fund's average daily 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 Small Cap Value Fund. The fee is paid by Advisory
Services based on average daily net assets, and is not an additional expense of
the funds.
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:
-------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------
Class A ...................................... .25% .35% .25% .35%
Class B ...................................... 1.00% 1.00% -- 1.00%
Class C ...................................... 1.00% 1.00% -- 1.00%
Class R ...................................... .50% .50% -- .50%
Distributors received (paid) net commissions from (on) sales of the Funds'
shares, and received contingent deferred sales charges for the year as follows:
-------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------
Net commissions received (paid) .............. $(965,731) $ (179,757) $ 97,268 $ (611,762)
Contingent deferred sales charges ............ $ 290,954 $ 31,361 $ 784 $ 109,090
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were paid to Investor Services.
-------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------
Transfer agent fees .......................... $3,701,833 $119,399 $321,229 $ 606,296
Annual Report | 75
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
At October 31, 2003, the Funds had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
---------------------------
FRANKLIN FRANKLIN
LARGE CAP SMALL CAP
VALUE FUND VALUE FUND
---------------------------
Capital loss carryovers expiring in:
2007 ........................................ $ -- $ 18,385,987
2008 ........................................ -- 1,120,571
2010 ........................................ 1,617,513 2,477,451
2011 ........................................ 1,075,480 8,539,454
---------------------------
$2,692,993 $ 30,523,463
---------------------------
The tax character of distributions paid during the years ended October 31, 2003
and 2002, was as follows:
--------------------------------------------------------
FRANKLIN BALANCE FRANKLIN LARGE CAP
SHEET INVESTMENT FUND VALUE FUND
--------------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------
Distributions paid from:
Ordinary income ........................... $21,999,961 $17,405,967 $248,473 $486,562
Long term capital gain .................... 11,637,026 41,623,647 -- 32,349
--------------------------------------------------------
$33,636,987 $59,029,614 $248,473 $518,911
--------------------------------------------------------
--------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
--------------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------
Distributions paid from:
Ordinary income ........................... $ 3,874,717 $ 2,280,259 $ -- $ --
Long term capital gain .................... 9,794,643 10,361,571 -- --
--------------------------------------------------------
13,669,360 12,641,830 -- --
Return of capital ......................... -- -- -- 128,689
--------------------------------------------------------
$13,669,360 $12,641,830 $ -- $128,689
--------------------------------------------------------
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
partnership distribution.
Net realized gains (losses) differs for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, and partnership distribution.
The Franklin Balance Sheet Investment Fund and the Franklin MicroCap Value Fund
utilized earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for tax purposes.
76 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES (CONTINUED)
At October 31, 2003, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
-----------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------
Cost of investments ............... $ 2,632,890,694 $ 96,515,123 $ 230,265,270 $ 326,385,318
-----------------------------------------------------------------
Unrealized appreciation ........... 776,212,162 10,065,385 84,993,581 68,868,539
Unrealized depreciation ........... (100,858,386) (2,664,052) (7,187,365) (17,573,247)
-----------------------------------------------------------------
Net unrealized appreciation
(depreciation) ................... $ 675,353,776 $ 7,401,333 $ 77,806,216 $ 51,295,292
-----------------------------------------------------------------
Undistributed ordinary income ..... $ 5,621,972 $ 168,362 $ -- $ --
Undistributed long term capital
gains ............................ 22,442,635 -- 7,050,718 --
-----------------------------------------------------------------
Distributable earnings ............ $ 28,064,607 $ 168,362 $ 7,050,718 $ --
-----------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended October 31, 2003 were as follows:
--------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
--------------------------------------------------------------
Purchases ........................... $ 306,958,704 $42,173,515 $ 30,137,945 $ 67,750,088
Sales ............................... $ 266,241,449 $17,177,980 $ 54,025,528 $ 40,917,099
6. INVESTMENTS IN THE FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET
PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers Inc. (an affiliate of the investment manager). Management fees
paid by the Funds are reduced on assets invested in the Sweep Money Fund, in an
amount not to exceed the management fees paid by the Sweep Money Fund.
The Funds earned dividend income from investment in the Sweep Money Fund for the
year ended October 31, 2003, as follows:
------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
------------------------------------------------------
Dividend income .............................. $1,479,682 $76,840 $112,191 $110,831
Annual Report | 77
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEFAULTED SECURITIES
The Franklin Balance Sheet Investment Fund and the Franklin Small Cap Value Fund
held defaulted securities for which the income has been deemed uncollectible.
The funds discontinue accruing income on these securities and provide an
estimate for losses on interest receivable. For information as to specific
securities, see the accompanying Statement of Investments.
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" to include
investments in portfolio companies in which a fund owns 5% or more of the
outstanding voting securities. Investments in "affiliated companies" for the
Franklin Balance Sheet Investment Fund and the Franklin MicroCap Value Fund at
October 31, 2003 were as shown below.
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES HELD NUMBER OF
AT BEGINNING GROSS GROSS SHARES HELD AT VALUE AT DIVIDEND REALIZED
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND
Alaska Air Group Inc. 1,350,600 -- -- 1,350,600 $38,883,774 $ -- $ --
Aztar Corp. 3,000,000 -- -- 3,000,000 62,640,000 -- --
Champps Entertainment Inc. 950,000 -- 30,000 920,000 7,231,200 -- 106,798
Delta Woodside Industries Inc. 560,000 -- -- 560,000 1,148,000 -- --
DIMON Inc. 2,504,200 -- -- 2,504,200 18,030,240 751,260 --
Dollar Thrifty Automotive Group Inc. 1,705,700 94,300 -- 1,800,000 47,142,000 -- --
ESCO Technologies Inc. 669,000 -- 50,600 618,400 a -- 1,322,318
Handleman Co. 1,750,000 -- 450,000 1,300,000 23,075,000 95,718 4,299,053
Haverty Furniture Cos. Inc. 920,000 -- -- 920,000 19,090,000 211,600 --
Insteel Industries Inc. 560,000 -- -- 560,000 375,200 -- --
Kaneb Services LLC 997,500 -- 997,500 -- a -- 3,629,759
Nash-Finch Co. 800,000 -- 800,000 -- a 72,000 (8,757,353)
Syms Corp. 1,430,000 -- -- 1,430,000 9,581,000 -- --
Tecumseh Products Co., A 500,000 278,900 -- 778,900 31,919,322 640,000 --
Tecumseh Products Co., B 275,000 25,000 -- 300,000 12,000,000 360,000 --
Tommy Hilfiger Corp 4,543,600 -- 1,743,600 2,800,000 a -- (8,517,642)
Xanser Corp. 2,986,700 -- 186,700 2,800,000 6,944,000 -- (769,939)
------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $278,059,736 $2,130,578 $(8,687,006)
------------------------------------
78 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES HELD NUMBER OF
AT BEGINNING GROSS GROSS SHARES HELD AT VALUE AT DIVIDEND REALIZED
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS END OF YEAR END OF YEAR INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND
ACMAT Corp., A 443,500 -- 50,700 392,800 $ 4,935,532 $ -- $ (275,524)
Airnet System Inc. 641,000 -- 641,000 -- a -- (2,293,464)
American Pacific Corp. 680,000 -- 11,100 668,900 6,153,880 -- 3,880
Art's-Way Manufacturing Co. Inc. 134,500 -- -- 134,500 650,845 -- --
Commonwealth Industries Inc. 1,000,000 -- 130,000 870,000 5,959,500 140,000 131,195
Continental Materials Corp. 100,000 4,500 5,000 99,500 2,735,753 -- 28,761
Delta Apparel Inc. 435,000 -- 95,000 340,000 5,521,600 84,300 671,897
Duckwall-ALCO Stores Inc. 231,100 68,900 -- 300,000 4,464,000 -- --
ECC International Corp. 500,000 -- 500,000 -- a -- 1,046,991
Ecology & Environment Inc., A 290,000 -- 60,000 230,000 2,311,500 85,500 (25,589)
Espey Manufacturing & Electronics Corp. 79,800 -- 1,800 78,000 1,901,640 70,268 6,918
Fresh Brands Inc. 264,000 -- -- 264,000 3,358,080 95,040 --
GA Financial Inc. 270,000 -- 98,000 172,000 a 165,400 935,194
Gehl Co. 332,500 72,700 -- 405,200 6,231,976 -- --
Haggar Corp. 567,900 -- 147,900 420,000 6,678,000 92,845 52,741
Hardinge Inc. 706,000 70,600 76,600 700,000 6,475,000 13,910 (337,784)
International Shipholding Corp. 560,000 -- 80,000 480,000 4,783,200 -- (14,098)
Invivo Corp. 280,000 134,000 12,000 402,000 6,572,700 -- 36,765
Layne Christensen Co. 750,000 -- 220,000 530,000 a -- (356,453)
Merchants Group Inc. 225,000 -- 35,000 190,000 4,297,800 82,500 109,480
Nashua Corp. 470,000 25,000 20,000 475,000 4,137,250 -- (89,293)
National R.V. Holdings Inc. 574,500 -- 174,500 400,000 a -- (1,466,175)
S&K Famous Brands Inc. 286,000 -- 26,000 260,000 4,425,200 -- 94,937
Seneca Foods Corp., A 262,600 -- 6,000 256,600 5,126,868 -- 18,700
Seneca Foods Corp., B 121,500 -- -- 121,500 2,490,750 -- --
United Retail Group Inc. 1,000,600 -- 170,600 830,000 2,780,500 -- (836,604)
Village Super Market Inc., A 110,675 -- -- 110,675 2,989,332 14,388 --
Zemex Corp. (Canada) 480,000 -- 480,000 -- a -- 600,543
--------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $94,980,906 $844,151 $(1,956,982)
--------------------------------------
<FN>
a As of October 31, 2003, no longer an affiliate.
</FN>
Annual Report | 79
Franklin Value Investors Trust
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS 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, 2003, 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 auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 3, 2003
80 | Annual Report
Franklin Value Investors Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended October 31, 2003:
----------------------------
FRANKLIN FRANKLIN
BALANCE SHEET MICROCAP
INVESTMENT FUND VALUE FUND
----------------------------
$23,195,872 $7,256,754
Under Section 854(b)(2) of the Code, the Funds hereby designate the following
maximum amounts as qualified dividends for purposes of the maximum rate under
Section 1(h)(11) of the Code for the fiscal year ended October 31, 2003.
---------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
---------------------------------------------
$21,915,195 $1,119,934 $1,795,299
In January 2004, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2003.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 854(b)(2) of the Code, the Funds hereby designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended October 31, 2003:
-------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
-------------------------------------------
100.00% 100.00% 60.30%
Annual Report | 81
Board Members and Officers
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton
Investments fund complex are shown below. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK T. CROHN (79) Trustee Since 1989 5 Director, Unity Mutual Life Insurance
One Franklin Parkway Company
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Eastport Lobster & Fish Company; and FORMERLY, Chief Executive Officer and Chairman, Financial Benefit Life Insurance
Company (insurance and annuities) (until 1996); Chief Executive Officer National Benefit Life Insurance Co. (insurance)
(1963-1982); and Director, AmVestors Financial Corporation (until 1997).
- ------------------------------------------------------------------------------------------------------------------------------------
BURTON J. GREENWALD (73) Trustee Since 2001 12 Director, Fiduciary Emerging Markets
One Franklin Parkway Bond Fund PLC and Fiduciary
San Mateo, CA 94403-1906 International Ireland Limited.
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Managing Director, B.J. Greenwald Associates, management consultants to the financial services industry.
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES RUBENS II (73) Trustee Since 1989 12 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor.
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LEONARD RUBIN (78) Trustee Since 1989 12 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Partner in LDR Equities, LLC (manages personal investments); and FORMERLY, President, F.N.C. Textiles, Inc.; and Chairman of the
Board, Carolace Embroidery Co., Inc. (until 1996)
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82 | Annual Report
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**WILLIAM J. LIPPMAN (78) Trustee, Trustee and 18 None
One Parker Plaza, 9th Floor President and President since
Fort Lee, NJ 07024 Chief 1989 and Chief
Executive Executive Officer
Officer- - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Private Client Group, Inc.; President, Franklin Advisory Services, LLC.; and officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of two of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (58) Vice President Since 1989 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member-Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services,
Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.
and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (43) Vice President Since 1995 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive
Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating
Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin
Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory
Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director or trustee, as the case may be, of some of
the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 83
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer-
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.;
officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and
Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (56) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc.,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC,
Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
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RUPERT H. JOHNSON, JR. (63) Vice President Since 1989 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member-Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice
President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
84 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (66) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch Chemicals,
600 Fifth Avenue -AML Inc. and Lingnan Foundation.
Rockefeller Center Compliance
New York, NY 10048-0772
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; and officer and/or director, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment companies in Franklin Templeton
Investments.
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KIMBERLEY H. MONASTERIO (39) Treasurer and Treasurer since Not Applicable None
One Franklin Parkway Chief Financial 2000 and Chief
San Mateo, CA 94403-1906 Officer Financial Officer
since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; and officer of 51 of the investment companies in Franklin Templeton
Investments.
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MURRAY L. SIMPSON (66) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case may be, of some of
the subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and
Director, Templeton Asset Management Ltd. (until 1999).
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* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment adviser or affiliated
investment advisers.
**William J. Lippman is considered an interested person of the Trust under the
federal securities laws due to his position as an officer of some of the
subsidiaries of Franklin Resources, Inc., which is the parent company of the
Trust's adviser and distributor.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK T. CROHN AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. CROHN, WHO CURRENTLY IS A DIRECTOR OF VARIOUS COMPANIES AND
CHAIRS THE FUNDS AUDIT COMMITTEE, QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS
BUSINESS BACKGROUND AND EXPERIENCE, WHICH INCLUDES SERVICE AS CHIEF EXECUTIVE
OFFICER OF NATIONAL BENEFIT LIFE INSURANCE COMPANY (1963-1982), CHIEF EXECUTIVE
OFFICER OF FINANCIAL BENEFIT LIFE INSURANCE COMPANY (1982-1996), AND SERVICE AS
A DIRECTOR OF AMVESTORS FINANCIAL CORPORATION UNTIL 1997. AS A RESULT OF SUCH
BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. CROHN HAS
ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. CROHN IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 85
Franklin Value Investors Trust
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures (Policies) that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group.
86 | Annual Report
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Literature Request
For a brochure and prospectus, which contains more complete information,
including charges and expenses, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, we may
monitor, record and access telephone calls to or from our service departments.
These calls can be identified by the presence of a regular beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 3
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 4
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 5
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 6
Franklin's AGE High Income Fund
Franklin Federal Money Fund 6,7
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 4
Franklin Income Fund
Franklin Money Fund 6,7
Franklin Short-Intermediate U.S. Government Securities Fund 6
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio 6
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 6
Templeton Global Bond Fund
TAX-FREE INCOME 8
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 6,7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC 8
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 11
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
3. Effective June 30, 2003, the fund reopened to all new investors.
4. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
5. Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
6. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
7. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
8. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable.
9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
money market portfolios (CA and NY).
11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
11/03 Not part of the annual report
[LOGO]
FRANKLIN[R] TEMPLETON[R] One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN VALUE INVESTORS TRUST
INVESTMENT MANAGER
Franklin Advisory Services, LLC
One Parker Plaza
Ninth Floor
Fort Lee, NJ 07024
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Franklin Value
Investors Trust prospectus, which contains more complete information including
charges, expenses and risks.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FVIT A2003 12/03
ITEM 2. CODE OF ETHICS.
(A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL
EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER.
(C) N/A
(D) N/A
(F) PURSUANT TO ITEM 10(A), THE REGISTRANT IS ATTACHING AS AN EXHIBIT A COPY OF
ITS CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICERS FINANCIAL
AND ACCOUNTING OFFICER.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(A)(1) THE REGISTRANT HAS AN AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS
AUDIT COMMITTEE.
(2) THE AUDIT COMMITTEE FINANCIAL EXPERT IS FRANK T. CROHN, AND HE IS
"INDEPENDENT" AS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 10. EXHIBITS.
(A) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS.
(B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
(B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND
KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN VALUE INVESTORS TRUST
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 31, 2003
By /s/Kimberley H. Monasterio
Chief Financial Officer
Date December 31, 2003