UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05878
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FRANKLIN VALUE INVESTORS TRUST
------------------------------
(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: 4/30/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
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 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal 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
Franklin Balance Sheet
Investment Fund
Franklin Large Cap
Value Fund
Franklin MicroCap
Value Fund
Franklin Small Cap
Value Fund
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
VALUE
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com. see
inside for details.
FRANKLIN
VALUE INVESTORS TRUST
[GRAPHIC OMITTED]
[LOGO OMITTED]
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. Founded 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the semiannual report
Contents
SHAREHOLDER LETTER .............................. 1
SEMIANNUAL REPORT
Franklin Balance Sheet Investment Fund .......... 3
Franklin Large Cap Value Fund ................... 10
Franklin MicroCap Value Fund .................... 16
Franklin Small Cap Value Fund ................... 22
Financial Highlights and
Statements of Investments ....................... 28
Financial Statements ............................ 59
Notes to Financial Statements ................... 64
Proxy Voting Policies and Procedures ............ 77
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Semiannual 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 semiannual report for Franklin Balance Sheet Investment Fund covers the
period ended April 30, 2004.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Balance Sheet Investment Fund - Class
A posted a +7.67% cumulative total return. The Fund underperformed its
benchmark, the Russell 2000(R) Value Index, which posted a 9.09% total return
for the same period. 1 In line with our long-term investment strategy, we are
pleased with our long-term results. For the 10-year period ended April 30, 2004,
Franklin Balance Sheet Investment Fund - Class A delivered a +238.11% cumulative
total return, compared with the Russell 2000 Value Index's 236.49% cumulative
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. You can find the Fund's long-term performance data in the
Performance Summary beginning on page 7.
ECONOMIC AND MARKET OVERVIEW
During the six months ended April 30, 2004, the U.S. economy strengthened.
Driven in part by massive fiscal and economic stimuli injected into the economy
last year, the second half of 2003 experienced the fastest advance in output of
U.S. made goods and services in nearly 20 years. Annualized gross domestic
product (GDP) rose 4.1% in fourth quarter 2003. The economy showed broad
fundamental improvement as first quarter 2004 GDP increased an annualized 4.4%
amid robust manufacturing activity, home buying and productivity growth. The
U.S. dollar's value declined against most major currencies, particularly versus
the euro, which benefited the competitive position of many products produced by
U.S. companies and contributed to
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 NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 33.
Semiannual Report | 3
corporate profit improvements. Business sentiment rose in 2004 through
period-end. Consumer spending, which had been constrained by slow wage growth
and heavy indebtedness, rebounded by March, further supporting a solid economic
recovery.
Productivity gains, shifting global manufacturing operations, raw materials
shortages, and rising fuel prices, as well as U.S. political uncertainty in an
election year, appeared to inhibit U.S. job growth for much of the reporting
period. Monthly unemployment figures for November 2003 through April 2004 were
below 6%, underscored by a significant and long-awaited rise in hiring since
February. 2 In light of positive economic developments, inflation experienced an
uptick by March, influenced by higher energy and commodity prices.
Domestic equity markets sustained a rally through year-end 2003, spurred by data
showing robust economic growth and improving corporate balance sheets, then
flattened in the first four months of 2004. Despite continued signs of improved
corporate fundamentals through period-end, investors appeared cautious due to
geopolitical uncertainty, escalating military activity in Iraq, and speculation
about when the Federal Reserve Board might act to constrain inflation by pushing
up historically low interest rates. The Standard & Poor's 500 Composite Index
(S&P 500) rose 6.27% for the six months under review. 3 As economic data
improved, some interest rates decreased in fall 2003. However, amid some
lingering concerns about the economic recovery's strength, for a time interest
rates moved within a narrow range before rising toward period-end.
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 given company's net
worth or shareholders' equity on an accounting or "book" basis, divided by
shares outstanding. We generally define "low price-to-book value" as the bottom
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.
2. Source: Bureau of Labor Statistics.
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.
4 | Semiannual Report
MANAGER'S DISCUSSION
On April 30, 2004, we held positions in 102 companies, not including a single
preferred stock issue and 8 closed-end funds. One new holding, Boise Cascade, we
received via Boise's acquisition of OfficeMax. 4 The opportunities we identified
during the period were concentrated among capital-intensive and real-estate
related entities, such as railroads Norfolk Southern and Kansas City Southern,
lodging companies Vail Resorts and La Quinta and basic materials company
MeadWestvaco. 5 We also added specialty insurers Assurant and Midland to the
portfolio. 6 In total we deployed $166.3 million in purchases, including the
value of OfficeMax shares swapped for Boise Cascade. Overall, we added seven new
holdings during the period.
Proceeds from sales were $80.7 million. The largest of these related to the
OfficeMax transaction, and Celanese AG, which was also the object of a buyout.
Other sales were generally in response to price appreciation.
The companies that contributed most positively to the Fund's performance were
generally clustered in sectors that are sensitive to commodity pricing and
economic activity. For example, agribusiness companies Bunge, Corn Products
International and Monsanto; coal producer Peabody Energy; marine petroleum
shippers Overseas Shipholding Group and Teekay Shipping; and steel and heavy
equipment makers United States Steel, Timken, CNH Global and Trinity Industries.
7 Other contributors were staffing company Kelly Services, gaming operator Aztar
and financial companies American National Insurance, Prudential Financial and
MGIC Investment. 8 Note that the companies named tend to be among our larger
positions. Several among our smaller positions produced comparable absolute
returns. These tended to be in similar industries, however, such as J.G. Boswell
in agribusiness and Global Industries in petroleum infrastructure. 9
[sidebar]
[GRAPHIC OMITTED]
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 4/30/04
Retail Trade 8.1%
Transportation 6.2%
Producer Manufacturing 6.2%
Property-Casualty Insurance 6.1%
Life & Health Insurance 6.1%
Consumer Durables 5.3%
Process Industries 4.9%
Utilities 4.6%
Non-Energy Minerals 4.4%
Consumer Services 3.7%
Finance, Rental & Leasing 3.4%
Specialty Insurance 3.2%
Consumer Non-Durables 2.6%
Financial Conglomerates 2.5%
Energy Minerals 2.0%
Other 7.9%
Short-Term Investments & Other Net Assets 22.8%
4. In the SOI, Boise Cascade is in the retail trade sector.
5. In the SOI, Norfolk Southern and Kansas City Southern are in the
transportation sector, Vail Resorts and La Quinta are in the consumer services
sector, and MeadWestvaco is in the process industries sector.
6. In the SOI, Assurant is in the life & health insurance industry and Midland
is in the property-casualty insurance industry.
7. In the SOI, Bunge, Corn Products International and Monsanto are in the
process industries sector, Peabody Energy is in the energy minerals sector,
Overseas Shipholding Group and Teekay Shipping are in the transportation sector,
United States Steel is in the non-energy minerals sector, and Timken, CNH Global
and Trinity Industries are in the producer manufacturing sector.
8. In the SOI, Kelly Services is in the commercial services sector, Aztar is in
the consumer services sector, American National Insurance is in the life &
health insurance industry, Prudential Financial is in the financial
conglomerates sector and MGIC Investment is in the specialty insurance industry.
9. In the SOI, J.G. Boswell is in the process industries sector and Global
Industries is in the industrial services sector.
Semiannual Report | 5
[sidebar]
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
4/30/04
- -----------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -----------------------------------------------------
Aztar Corp. 2.1%
CONSUMER SERVICES
- -----------------------------------------------------
CIT Group Holdings Inc. 2.1%
FINANCE, RENTAL & LEASING
- -----------------------------------------------------
Peabody Energy Corp. 2.0%
ENERGY MINERALS
- -----------------------------------------------------
Old Republic International Corp. 1.9%
PROPERTY-CASUALTY INSURANCE
- -----------------------------------------------------
Pulte Homes Inc. 1.8%
CONSUMER DURABLES
- -----------------------------------------------------
Prudential Financial Inc. 1.8%
FINANCIAL CONGLOMERATES
- -----------------------------------------------------
Bunge Ltd. 1.7%
PROCESS INDUSTRIES
- -----------------------------------------------------
American National Insurance Co. 1.7%
LIFE & HEALTH INSURANCE
- -----------------------------------------------------
United States Steel Corp. 1.6%
NON-ENERGY MINERALS
- -----------------------------------------------------
Trinity Industries Inc. 1.5%
PRODUCER MANUFACTURING
- -----------------------------------------------------
The positions that detracted most from performance were Alaska Air Group,
retailer Fred's, financial guarantee company Radian Group, toymaker Hasbro and
technology company Standard Microsystems. 10 Some of our newer positions, such
as Vail Resorts, MeadWestvaco and activewear maker Russell were below cost at
the end of the period. 11 Consistent with our strategy, this is a circumstance
we generally like, since it gives us a chance to accumulate meaningful positions
at prices we believe are attractive.
Thank you for your continued participation in Franklin Balance Sheet Investment
Fund. We look forward to serving your future investment needs.
10. In the SOI, Alaska Air Group is in the transportation sector, Fred's is in
the retail trade sector, Radian Group is in the specialty insurance industry,
Hasbro is in the consumer durables sector and Standard Microsystems is in the
electronic technology sector.
11. In the SOI, Russell is in the consumer non-durables sector.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
APRIL 30, 2004, 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.
6 | Semiannual Report
Performance Summary as of 4/30/04
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 does 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 4/30/04 10/31/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.98 $48.45 $45.47
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.1668
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3069
- --------------------------------------------------------------------------------------------------
Total $0.4737
- --------------------------------------------------------------------------------------------------
CLASS B CHANGE 4/30/04 10/31/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.93 $47.90 $44.97
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3069
- --------------------------------------------------------------------------------------------------
CLASS C CHANGE 4/30/04 10/31/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.93 $47.94 $45.01
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3069
- --------------------------------------------------------------------------------------------------
CLASS R CHANGE 4/30/04 10/31/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.98 $48.28 $45.30
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.0899
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3069
- --------------------------------------------------------------------------------------------------
Total $0.3968
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 4/30/04 10/31/03
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.94 $48.48 $45.54
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.2655
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3069
- --------------------------------------------------------------------------------------------------
Total $0.5724
- --------------------------------------------------------------------------------------------------
Semiannual Report | Past performance does not guarantee future results. | 7
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- -------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.67% +30.94% +80.44% +238.11%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +1.49% +23.42% +11.20% +12.29%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,149 $12,342 $17,005 $31,872
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +35.28% +13.39% +12.81%
- -------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (3/1/01)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.23% +29.91% +33.43% +36.51%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.23% +25.91% +9.26% +9.56%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,323 $12,591 $13,043 $13,351
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +38.45% +12.36% +11.09%
- -------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (3/1/01)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.23% +29.88% +33.48% +36.56%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +6.23% +28.88% +10.10% +10.35%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,623 $12,888 $13,348 $13,656
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +41.40% +13.15% +11.88%
- -------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (1/1/02)
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.50% +30.56% +23.52%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +6.50% +29.56% +9.52%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,650 $12,956 $12,352
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +42.13% +11.56%
- -------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +7.78% +31.24% +81.71% +240.48%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.78% +31.24% +12.69% +13.03%
- -------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,778 $13,124 $18,171 $34,048
- -------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +43.89% +14.90% +13.56%
- -------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. 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 MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
8 | Past performance does not guarantee future results. | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NON-DIVERSIFIED FUND INVOLVES CERTAIN RISKS, INCLUDING
SUSCEPTIBILITY TO ADVERSE ECONOMIC AND REGULATORY DEVELOPMENTS. 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: Prior to 1/2/01, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares have higher
annual fees and expenses than Class A shares.
CLASS R: Shares 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: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
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. Six-month return has not been annualized.
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.
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 +40.85% and +11.43%.
Semiannual Report | Past performance does not guarantee future results. | 9
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 defined as those that are similar in size to
those in the Russell 1000(R) Index at the time of purchase. 1
We are pleased to bring you Franklin Large Cap Value Fund's semiannual report
for the period ended April 30, 2004.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Large Cap Value Fund - Class A posted
a +9.32% cumulative total return. The Fund outperformed its benchmark, the
Russell 1000 Value Index, which posted an 8.15% 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 industry
weightings. You can find the Fund's long-term performance data in the
Performance Summary beginning on page 13.
ECONOMIC AND MARKET OVERVIEW
During the six months ended April 30, 2004, the U.S. economy strengthened.
Driven in part by massive fiscal and economic stimuli injected into the economy
last year, the second half of 2003 experienced the fastest advance in output of
U.S. made goods and services in nearly 20 years. Annualized gross domestic
product (GDP) rose 4.1% in fourth quarter 2003. The economy showed broad
fundamental improvement as first quarter 2004 GDP increased an annualized 4.4%
amid robust manufacturing activity, home buying and productivity growth. The
U.S. dollar's value declined against most major currencies, particularly versus
the euro, which benefited the competitive position of many products produced by
U.S. companies and contributed to corporate profit improvements. Business
sentiment rose in 2004 through period-end. Consumer spending, which had been
constrained by slow wage growth and heavy indebtedness, rebounded by March,
further supporting a solid economic recovery.
1. The Russell 1000 Index is market capitalization-weighted and measures
performance of the 1,000 largest companies in the Russell 3000 Index, which
represent approximately 92% of 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 NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 42.
10 | Semiannual Report
Productivity gains, shifting global manufacturing operations, raw materials
shortages, and rising fuel prices, as well as U.S. political uncertainty in an
election year, appeared to inhibit U.S. job growth for much of the reporting
period. Monthly unemployment figures for November 2003 through April 2004 were
below 6%, underscored by a significant and long-awaited rise in hiring since
February. 3 In light of positive economic developments, inflation experienced an
uptick by March, influenced by higher energy and commodity prices.
Domestic equity markets sustained a rally through year-end 2003, spurred by data
showing robust economic growth and improving corporate balance sheets, then
flattened in the first four months of 2004. Despite continued signs of improved
corporate fundamentals through period-end, investors appeared cautious due to
geopolitical uncertainty, escalating military activity in Iraq, and speculation
about when the Federal Reserve Board might act to constrain inflation by pushing
up historically low interest rates. The Standard & Poor's 500 Composite Index
(S&P 500) rose 6.27% for the six months under review. 4 As economic data
improved, some interest rates decreased in fall 2003. However, amid some
lingering concerns about the economic recovery's strength, for a time interest
rates moved within a narrow range before rising toward period-end.
INVESTMENT STRATEGY
The Fund seeks to maintain a diversified portfolio of large-capitalization
stocks 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 biggest contributor to the Fund's positive performance during the six months
under review was Transocean, a mobile offshore drilling unit operator. 5
Transocean's sales increased 10.2% in the quarter ended March 31, 2004, compared
with the quarter ended December 31, 2003. Additionally, Becton, Dickinson, which
sells medical supplies and diagnostic systems, boosted Fund performance. 6
Becton,
[sidebar]
[GRAPHIC OMITTED]
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 4/30/04
Consumer Non-Durables 11.4%
Health Technology 9.2%
Producer Manufacturing 6.9%
Consumer Services 6.9%
Major Banks 6.7%
Financial Conglomerates 5.8%
Property-Casualty Insurance 5.1%
Finance, Rental & Leasing 4.7%
Process Industries 3.9%
Multi-Line Insurance 3.0%
Energy Minerals 3.0%
Life & Health Insurance 3.0%
Regional Banks 2.9%
Investment Banks & Brokers 2.8%
Transportation 2.3%
Other 8.9%
Short-Term Investments & Other Net Assets 13.5%
3. Source: Bureau of Labor Statistics.
4. 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.
5. In the SOI, Transocean is in the industrial services sector.
6. In the SOI, Becton, Dickinson is in the health technology sector.
Semiannual Report | 11
[sidebar]
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
4/30/04
- ----------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ----------------------------------------------
Abbott Laboratories 3.6%
HEALTH TECHNOLOGY
- ----------------------------------------------
Pfizer Inc. 3.5%
HEALTH TECHNOLOGY
- ----------------------------------------------
Bank of America Corp. 3.5%
MAJOR BANKS
- ----------------------------------------------
Procter & Gamble Co. 3.4%
CONSUMER NON-DURABLES
- ----------------------------------------------
Allstate Corp. 3.3%
PROPERTY-CASUALTY INSURANCE
- ----------------------------------------------
Freddie Mac 3.3%
FINANCE, RENTAL & LEASING
- ----------------------------------------------
Wachovia Corp. 3.3%
MAJOR BANKS
- ----------------------------------------------
Citigroup Inc. 3.3%
FINANCIAL CONGLOMERATES
- ----------------------------------------------
Gannett Co. Inc. 3.2%
CONSUMER SERVICES
- ----------------------------------------------
Kimberly-Clark Corp. 3.0%
CONSUMER NON-DURABLES
- ----------------------------------------------
Dickinson's earnings per share from continuing operations increased 14.8% in its
most recent fiscal quarter and the company increased its quarterly dividend 50%
during the period. Kimberly-Clark, a consumer paper products manufacturer, also
benefited the Fund as it reported record sales and earnings in its most recent
quarter. 7
Despite the Fund's positive return, several stocks adversely impacted results
during the period under review. However, the overall impact of these stocks was
modest. The three largest negative contributors to returns, Hewlett-Packard,
U.S. Bancorp and Lehman Brothers Holdings, had a combined negative impact of
less than one-half of one percent. 8
During the six-month period, we added five new companies to our portfolio:
Wachovia, a large regional bank; Praxair, an industrial gases supplier; H.J.
Heinz, a processed food manufacturer; United Technologies, a major aerospace and
building products and services provider; and General Electric, a diversified
manufacturer and financial services company. 9
We sold four stocks during the period. These companies either met our price
objective or we lost confidence in their underlying fundamentals. These
companies were contract oil and gas driller GlobalSantaFe, real estate
investment trust Equity Office Properties Trust, supermarket chain Safeway, and
telecommunication services provider SBC Communications.
Thank you for your continued participation in Franklin Large Cap Value Fund. We
look forward to serving your future investment needs.
7. In the SOI, Kimberly-Clark is in the consumer non-durables sector.
8. In the SOI, Hewlett-Packard is in the electronic technology sector, U.S.
Bancorp is in the regional banks industry and Lehman Brothers Holdings is in the
investment banks and brokers industry.
9. In the SOI, Wachovia is in the major banks industry, Praxair is in the
process industries sector, H.J. Heinz is in the consumer non-durables sector,
and United Technologies and General Electric are in the producer manufacturing
sector.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
APRIL 30, 2004, 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.
12 | Semiannual Report
Performance Summary as of 4/30/04
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 does 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 4/30/04 10/31/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.10 $13.50 $12.40
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0521
- ---------------------------------------------------------------------------------------------------
CLASS B CHANGE 4/30/04 10/31/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.09 $13.38 $12.29
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0072
- ---------------------------------------------------------------------------------------------------
CLASS C CHANGE 4/30/04 10/31/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.10 $13.38 $12.28
- ---------------------------------------------------------------------------------------------------
CLASS R CHANGE 4/30/04 10/31/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.08 $13.42 $12.34
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.0628
- ---------------------------------------------------------------------------------------------------
Semiannual Report | Past performance does not guarantee future results. | 13
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- --------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 3-YEAR INCEPTION (6/1/00)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.32% +25.40% +10.63% +39.42%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.00% +18.18% +1.41% +7.23%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,300 $11,818 $10,429 $13,140
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +27.76% +3.29% +7.68%
- --------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (6/1/00)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.93% +24.54% +8.48% +36.12%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.93% +20.54% +1.80% +7.59%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,493 $12,054 $10,548 $13,312
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +30.70% +3.78% +8.08%
- --------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (6/1/00)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.96% +24.58% +8.48% +36.13%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.96% +23.58% +2.75% +8.20%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,796 $12,358 $10,848 $13,613
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +33.63% +4.69% +8.70%
- --------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/02)
- --------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.29% +25.11% +28.95%
- --------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.29% +24.11% +15.68%
- --------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,829 $12,411 $12,895
- --------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +34.29% +17.30%
- --------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. 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 MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
14 | Past performance does not guarantee future results. | Semiannual Report
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 ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares have higher
annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described in the
prospectus. These shares have higher annual fees and expenses than Class A
shares.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
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. Six-month return has not been annualized.
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. 4. In accordance with SEC rules, we provide standardized average
annual total return information through the latest calendar quarter.
Semiannual Report | Past performance does not guarantee future results. | 15
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 $400 million at the time of purchase
that we believe are undervalued in the marketplace.
We are pleased to bring you Franklin MicroCap Value Fund's semiannual report for
the period ended April 30, 2004.
PERFORMANCE OVERVIEW
For the six months under review, Franklin MicroCap Value Fund - Class A posted a
+12.96% cumulative total return. The Fund outperformed its benchmark, the
Russell 2000 Value Index, which posted a 9.09% 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. You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 20.
ECONOMIC AND MARKET OVERVIEW
During the six months ended April 30, 2004, the U.S. economy strengthened.
Driven in part by massive fiscal and economic stimuli injected into the economy
last year, the second half of 2003 experienced the fastest advance in output of
U.S. made goods and services in nearly 20 years. Annualized gross domestic
product (GDP) rose 4.1% in fourth quarter 2003. The economy showed broad
fundamental improvement as first quarter 2004 GDP increased an annualized 4.4%
amid robust manufacturing activity, home buying and productivity growth. The
U.S. dollar's value declined against most major currencies, particularly versus
the euro, which benefited the competitive position of many products produced by
U.S. companies and contributed to corporate profit improvements. Business
sentiment rose in 2004 through period-end. Consumer spending, which had been
constrained by slow wage growth and heavy indebtedness, rebounded by March,
further supporting a solid economic recovery.
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 NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 46.
16 | Semiannual Report
Productivity gains, shifting global manufacturing operations, raw materials
shortages, and rising fuel prices, as well as U.S. political uncertainty in an
election year, appeared to inhibit U.S. job growth for much of the reporting
period. Monthly unemployment figures for November 2003 through April 2004 were
below 6%, underscored by a significant and long-awaited rise in hiring since
February. 2 In light of positive economic developments, inflation experienced an
uptick by March, influenced by higher energy and commodity prices.
Domestic equity markets sustained a rally through year-end 2003, spurred by data
showing robust economic growth and improving corporate balance sheets, then
flattened in the first four months of 2004. Despite continued signs of improved
corporate fundamentals through period-end, investors appeared cautious due to
geopolitical uncertainty, escalating military activity in Iraq, and speculation
about when the Federal Reserve Board might act to constrain inflation by pushing
up historically low interest rates. The Standard & Poor's 500 Composite Index
(S&P 500) rose 6.27% for the six months under review. 3 As economic data
improved, some interest rates decreased in fall 2003. However, amid some
lingering concerns about the economic recovery's strength, for a time interest
rates moved within a narrow range before rising toward period-end.
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 $400 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.
2. Source: Bureau of Labor Statistics.
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.
Semiannual Report | 17
[sidebar]
[GRAPHIC OMITTED]
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 4/30/04
Producer Manufacturing 12.1%
Consumer Non-Durables 10.3%
Consumer Durables 6.4%
Retail Trade 5.3%
Transportation 5.2%
Property-Casualty Insurance 4.8%
Savings Banks 4.4%
Process Industries 4.4%
Industrial Services 4.1%
Real Estate Development 2.5%
Non-Energy Minerals 2.2%
Other 8.8%
Short-Term Investments & Other Net Assets 29.5%
MANAGER'S DISCUSSION
Franklin MicroCap Value Fund closed to new investors on January 14, 2004, after
having opened fully to new investors on June 30, 2003. Prior to that, the Fund
had been closed for 17 months. During the months it was again open, the Fund
received cash flows that, based on our experience, will likely take us at least
a few more quarters to put to work. In the meantime we are pleased that fund
flows -- cash from existing shareholders -- are running about even with
redemptions.
On April 30, 2004, total net assets were $418.9 million, and short-term
investments and other net assets stood at 29.5% of the Fund, as compared to
total net assets of $311.0 million on October 31, 2003, and short-term
investments and other net assets of 14.3%. Net fund flows from new and existing
shareholders over the six months totaled $64.1 million, excluding dividend
reinvestment.
We deployed $14.6 million into new and already established positions during the
six-month period. The new positions were Bassett Furniture, metal components
manufacturer Ladish, property casualty insurer Mercer Insurance Group and audio
systems company Rockford. 4 The largest addition to an existing position was to
Fresh Brands, a regional grocery chain. 5 Proceeds from portfolio sales totaled
$29.9 million. Two of our holdings, Garden Fresh Restaurant and Invivo, were
taken over. We also closed out our position in Rofin-Sinar, a laser
manufacturer, which reached and exceeded our price-to-book target. Other sales
were generally in response to price appreciation.
The individual positions that contributed most positively to our performance in
the six months were spread among various sectors and tended to be long-held
positions. Three of the sixteen positions that accounted for the bulk of our
positive returns were ocean shippers: International Shipholding, OMI and Stelmar
Shipping. 6 The ocean shippers have been earning more as Chinese demand for raw
materials has in turn increased demand for ocean freight capacity, and oil
demand overall has allowed petroleum tanker companies to secure attractive
rates.
Some of the other holdings that helped our performance have been contending with
cyclical downturns, such as machine tools company Hardinge, titanium products
company RTI International Metals, land drilling services company Layne
Christensen, manufactured housing maker Cavalier Homes and pulp and paper
company Mercer International. 7 Consistent with our strategy, we believe the
positive returns from these companies reflect anticipated future earnings based
on economic recovery, more than they do current results.
4. In the SOI, Basset Furniture and Rockford are in the consumer durables
sector, Ladish is in the electronic technology sector, and Mercer Insurance
Group is in the property-casualty insurance industry.
5. In the SOI, Fresh Brands is in the retail trade sector.
6. In the SOI, International Shipholding, OMI and Stelmar Shipping are in the
transportation sector.
7. In the SOI, Hardinge and RTI International Metals are in the producer
manufacturing sector, Layne Christensen is in the industrial services sector,
Cavalier Homes is in the consumer durables sector, and Mercer International is
in the process industries sector.
18 | Semiannual Report
Several of the positions that drove performance benefited from internal
developments not tied to the economy or to their industries generally. For
example, Wilshire Financial Services Group, Griffin Land & Nurseries and Dixie
Group all divested operations that freed up capital, improved liquidity and
could simplify their operations in the future. 8 Others posted good operating
results, among them Healthcare Services Group, Atlantic Tele-Network and Delta
Apparel. 9 Invivo, a maker of medical monitoring systems, was acquired by
Intermagnetics General in January of this year at a price that was approximately
2.8 times its last reported book value.
Several of our positions gave us negative returns over the six-month period.
American Pacific makes solid propellant for rockets. Its sales declined after
NASA suspended space shuttle flights following the Columbia disaster in 2003. 10
Penn-America Group's operating results were good but stock performance was poor
during the period under review, particularly in April. 11 Investor sentiment
appeared to turn negative on financial stocks as interest rates began to rebound
from historic lows in March. Rising interest rates typically hamper performance
of financial stocks. Share price for First Defiance Financial, an Ohio-based
thrift, also fell in April. 12 First Defiance lowered earnings guidance in April
because loan growth was slower than originally expected. That forecast, along
with interest rate expectations, probably accounted for the drop in the stock
price.
Fresh Brands was the single largest drag on our performance. The Wisconsin-based
grocery chain has reported poor results over the past several quarters, and the
stock price has declined to below our cost, and below book value. The results
reflect both increased competition from Wal-Mart and, in our opinion, poor
operating strategy in recent years. Consistent with our investment strategy, we
added to our position recently after Fresh Brands' board brought back former
management, in whom we have confidence, and abandoned what we consider a poorly
conceived growth strategy. Fresh Brands' proxy statement lists us as their
largest shareholder with 15.4% of shares outstanding.
Thank you for your continued participation in Franklin MicroCap Value Fund. We
look forward to serving your future investment needs.
[sidebar]
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
4/30/04
- -------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -------------------------------------------------------------
Hardinge Inc. 2.0%
PRODUCER MANUFACTURING
- -------------------------------------------------------------
RTI International Metals Inc. 2.0%
PRODUCER MANUFACTURING
- -------------------------------------------------------------
Haggar Corp. 2.0%
CONSUMER NON-DURABLES
- -------------------------------------------------------------
Delta Apparel Inc. 1.8%
CONSUMER NON-DURABLES
- -------------------------------------------------------------
Layne Christensen Co. 1.8%
INDUSTRIAL SERVICES
- -------------------------------------------------------------
Seneca Foods Corp., A & B 1.7%
CONSUMER NON-DURABLES
- -------------------------------------------------------------
Atlantic Tele-Network Inc. 1.7%
COMMUNICATIONS
- -------------------------------------------------------------
Gehl Co. 1.7%
PRODUCER MANUFACTURING
- -------------------------------------------------------------
International Shipholding Corp. 1.7%
TRANSPORTATION
- -------------------------------------------------------------
Wilshire Financial Services Group Inc. 1.6%
SAVINGS BANKS
- -------------------------------------------------------------
8. In the SOI, Wilshire Financial Services Group is in the savings banks
industry, Griffin Land & Nurseries is in the real estate development industry,
and Dixie Group is in the consumer durables sector.
9. In the SOI, Healthcare Services Group is in the health services sector,
Atlantic Tele-Network is in the communications sector and Delta Apparel is in
the consumer non-durables sector.
10. In the SOI, American Pacific is in the process industries sector.
11. In the SOI, Penn-America is in the property-casualty insurance industry.
12. In the SOI, First Defiance Financial is in the savings banks industry.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
APRIL 30, 2004, 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.
Semiannual Report | 19
Performance Summary as of 4/30/04
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 does 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 4/30/04 10/31/03
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$3.27 $33.68 $30.41
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/03-4/30/04)
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.6280
- ---------------------------------------------------------------------------------------------------
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE. CUMULATIVE TOTAL RETURN EXCLUDES
THE SALES CHARGE. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT
INCLUDE THE MAXIMUM SALES CHARGE.
- ---------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (12/12/95)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +12.96% +46.48% +129.06% +244.70%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +6.45% +38.07% +16.64% +15.09%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,645 $13,807 $21,594 $32,478
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +42.48% +18.22% +15.39%
- ---------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. 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 MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
20 | Past performance does not guarantee future results. | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NON-DIVERSIFIED FUND INVOLVES CERTAIN RISKS, INCLUDING
SUSCEPTIBILITY TO ADVERSE ECONOMIC AND REGULATORY DEVELOPMENTS. THE FUND'S
ABILITY TO INVEST IN SMALLER-COMPANY SECURITIES THAT MAY HAVE LIMITED LIQUIDITY
INVOLVES RISKS RELATED TO 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: Prior to 8/3/98, these 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, applicable,
maximum sales charge. Six-month return has not been annualized.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include the current, applicable, maximum
sales charge.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
Semiannual Report | Past performance does not guarantee future results. | 21
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.
We are pleased to bring you Franklin Small Cap Value Fund's semiannual report
for the period ended April 30, 2004.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Small Cap Value Fund - Class A
posted a +10.15% cumulative total return. The Fund outperformed its benchmark,
the Russell 2000 Value Index, which posted a 9.09% total return for the same
period. 1 Please note the Fund employs a bottom-up stock selection process, and
we invest in securities without regard to benchmark comparisons. You can find
the Fund's long-term performance data in the Performance Summary beginning on
page 25.
ECONOMIC AND MARKET OVERVIEW
During the six months ended April 30, 2004, the U.S. economy strengthened.
Driven in part by massive fiscal and economic stimuli injected into the economy
last year, the second half of 2003 experienced the fastest advance in output of
U.S. made goods and services in nearly 20 years. Annualized gross domestic
product (GDP) rose 4.1% in fourth quarter 2003. The economy showed broad
fundamental improvement as first quarter 2004 GDP increased an annualized 4.4%
amid robust manufacturing activity, home buying and productivity growth. The
U.S. dollar's value declined against most major currencies, particularly versus
the euro, which benefited the competitive position of many products produced by
U.S. companies and contributed to corporate profit improvements. Business
sentiment rose in 2004 through period-end. Consumer spending, which had been
constrained by slow wage growth and heavy indebtedness, rebounded by March,
further supporting a solid economic recovery.
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 NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 55.
22 | Semiannual Report
[sidebar]
[GRAPHIC OMITTED]
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 4/30/04
Producer Manufacturing 16.3%
Retail Trade 8.2%
Consumer Durables 7.7%
Industrial Services 7.5%
Energy Minerals 6.9%
Transportation 6.7%
Process Industries 5.9%
Consumer Non-Durables 4.9%
Property-Casualty Insurance
Consumer Services 3.3%
Life & Health Insurance 3.2%
Non-Energy Minerals 2.7%
Electronic Technology 2.7%
Other 11.2%
Short-Term Investments & Other Net Assets 7.9%
Productivity gains, shifting global manufacturing operations, raw materials
shortages, and rising fuel prices, as well as U.S. political uncertainty in an
election year, appeared to inhibit U.S. job growth for much of the reporting
period. Monthly unemployment figures for November 2003 through April 2004 were
below 6%, underscored by a significant and long-awaited rise in hiring since
February. 2 In light of positive economic developments, inflation experienced an
uptick by March, influenced by higher energy and commodity prices.
Domestic equity markets sustained a rally through year-end 2003, spurred by data
showing robust economic growth and improving corporate balance sheets, then
flattened in the first four months of 2004. Despite continued signs of improved
corporate fundamentals through period-end, investors appeared cautious due to
geopolitical uncertainty, escalating military activity in Iraq, and speculation
about when the Federal Reserve Board might act to constrain inflation by pushing
up historically low interest rates. The Standard & Poor's 500 Composite Index
(S&P 500) rose 6.27% for the six months under review. 3 As economic data
improved, some interest rates decreased in fall 2003. However, amid some
lingering concerns about the economic recovery's strength, for a time interest
rates moved within a narrow range before rising toward period-end.
INVESTMENT STRATEGY
We seek to invest in small-capitalization companies (up to $2.5 billion market
capitalization at the time of purchase) that we determine are selling below
their underlying worth. We seek a diversified portfolio of fundamentally sound
companies purchased at what we believe are 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 six months under review, the Fund's performance benefited from
different sectors. The energy minerals sector was the top contributor, mainly
due to three coal positions: Peabody Energy, Consol Energy and Arch Coal, which
returned 41%,
2. Source: Bureau of Labor Statistics.
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.
Semiannual Report | 23
[sidebar]
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
4/30/04
- ---------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ---------------------------------------------------------
Montpelier Re Holdings Ltd. (Bermuda) 2.3%
PROPERTY-CASUALTY INSURANCE
- ---------------------------------------------------------
Peabody Energy Corp. 2.1%
ENERGY MINERALS
- ---------------------------------------------------------
York International Corp. 2.0%
PRODUCER MANUFACTURING
- ---------------------------------------------------------
Consol Energy Inc. 1.9%
ENERGY MINERALS
- ---------------------------------------------------------
Russ Berrie & Co. Inc. 1.9%
CONSUMER DURABLES
- ---------------------------------------------------------
Teekay Shipping Corp. (Bahamas) 1.8%
TRANSPORTATION
- ---------------------------------------------------------
Reliance Steel & Aluminum Co. 1.7%
NON-ENERGY MINERALS
- ---------------------------------------------------------
Arch Coal Inc. 1.7%
ENERGY MINERALS
- ---------------------------------------------------------
Bunge Ltd. 1.6%
PROCESS INDUSTRIES
- ---------------------------------------------------------
Aztar Corp. 1.6%
CONSUMER SERVICES
- ---------------------------------------------------------
34% and 25%, respectively, during the period. One of our best performing stocks
was OMI, an international seaborne transportation services provider for crude
oil and petroleum products, which rose 50%. 4
Despite the Fund's solid performance, several stocks declined during the
reporting period. The electronic technology sector underperformed, especially
Diebold, whose controversial electronic voting machine business had yet to ramp
up as anticipated because some states continued to review product
specifications. Another negative performer was Avocent, a connectivity solutions
supplier for enterprise data centers. Investors viewed a recent acquisition by
Avocent as dilutive over the next fiscal year. We still consider Avocent an
attractive long-term holding trading at 17.7 times next fiscal year's earnings
estimates, with over $6 per share in cash and cash equivalents, and virtually no
long-term debt.
The Fund experienced significant net inflows during the six-month period, and we
used a portion of the proceeds to invest in nine new positions. A recent
addition, Arbor Realty Trust, is a specialized real estate finance company. 5 At
period-end, Arbor traded at 13.0 times 2004 estimated earnings, slightly less
than book value, and the company expects to provide a dividend yield of 7.8%. We
also initiated a holding in EMCOR Group, a worldwide mechanical and electrical
construction and facilities services provider. 6 Additionally, we increased
several existing positions we believed were attractively valued, most notably
Montpelier Re Holdings, a Bermuda-based reinsurance company; and Steris, a
sterilization services supplier. 7
During the period, we eliminated 11 positions from our portfolio. One was due to
a takeover. Allstream announced in March that Manitoba Telecom Services had bid
for the company at a 17% premium over the prior day's closing price. We decided
to sell our Allstream position as open-market prices were in line with our fair
valuation of the shares. The remaining sales included stocks that reached our
price targets or where company fundamentals deteriorated.
Thank you for your continued participation in Franklin Small Cap Value Fund. We
look forward to serving your future investment needs.
4. In the SOI, OMI is in the transportation sector.
5. In the SOI, Arbor Realty Trust is in the real estate investment trusts
industry. 6. In the SOI, EMCOR Group is in the industrial services sector.
7. In the SOI, Montpelier Re Holdings is in the property-casualty insurance
industry and Steris is in the health technology sector.
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
APRIL 30, 2004, 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.
24 | Semiannual Report
Performance Summary as of 4/30/04
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 does 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 4/30/04 10/31/03
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.86 $31.05 $28.19
- -------------------------------------------------------------------------------
CLASS B CHANGE 4/30/04 10/31/03
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.68 $30.09 $27.41
- -------------------------------------------------------------------------------
CLASS C CHANGE 4/30/04 10/31/03
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.65 $29.78 $27.13
- -------------------------------------------------------------------------------
CLASS R CHANGE 4/30/04 10/31/03
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.82 $30.95 $28.13
- -------------------------------------------------------------------------------
ADVISOR CLASS CHANGE 4/30/04 10/31/03
- -------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.97 $31.75 $28.78
- -------------------------------------------------------------------------------
Semiannual Report | Past performance does not guarantee future results. | 25
Performance Summary (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- ---------------------------------------------------------------------------------------------------------
CLASS A 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/11/96)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.15% +35.65% +71.46% +116.56%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.81% +27.83% +10.07% +9.16%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,381 $12,783 $16,159 $20,404
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +43.05% +12.87% +9.67%
- ---------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.78% +34.75% +65.98% +64.17%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +5.78% +30.75% +10.40% +9.62%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,578 $13,075 $16,398 $16,317
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +46.80% +13.20% +10.42%
- ---------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (9/3/96)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.77% +34.75% +65.91% +88.94%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.77% +33.75% +10.66% +8.67%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,877 $13,375 $16,591 $18,894
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +49.83% +13.46% +9.21%
- ---------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/02)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.02% +35.39% +32.60%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.02% +34.39% +17.55%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,902 $13,439 $13,260
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +50.59% +20.69%
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/11/96)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +10.32% +36.09% +74.46% +124.29%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +10.32% +36.09% +11.77% +10.44%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,032 $13,609 $17,446 $22,429
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/04) 4 +52.28% +14.61% +10.96%
- ---------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. 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 MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
26 | Past performance does not guarantee future results. | Semiannual Report
Performance Summary (CONTINUED)
ENDNOTES
INVESTING IN A NON-DIVERSIFIED FUND INVOLVES CERTAIN RISKS, INCLUDING
SUSCEPTIBILITY TO ADVERSE ECONOMIC AND REGULATORY DEVELOPMENTS. 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: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares have higher
annual fees and expenses than Class A shares.
CLASS R: Shares 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: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include a sales charge.
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. Six-month return has not been annualized.
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.
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 +73.64% and +7.82%.
Semiannual Report | Past performance does not guarantee future results. | 27
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
---------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2003 2002 2001 2000 1999
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ........ $45.47 $37.01 $37.21 $34.83 $29.96 $31.86
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income a .................... .13 .13 .25 .77 .31 .37
Net realized and unrealized gains
(losses) ................................... 3.33 8.83 .87 2.95 5.15 (.68)
---------------------------------------------------------------------------------
Total from investment operations ............ 3.46 8.96 1.12 3.72 5.46 (.31)
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.17) (.25) (.15) (.73) (.31) (.43)
Net realized gains ......................... (.31) (.25) (1.17) (.61) (.28) (1.16)
---------------------------------------------------------------------------------
Total distributions ......................... (.48) (.50) (1.32) (1.34) (.59) (1.59)
---------------------------------------------------------------------------------
Net asset value, end of period .............. $48.45 $45.47 $37.01 $37.21 $34.83 $29.96
=================================================================================
Total return b .............................. 7.67% 24.51% 2.85% 10.96% 18.47% (1.04)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ........... $3,342,504 $3,031,714 $2,333,862 $1,491,457 $1,067,893 $1,165,779
Ratios to average net assets:
Expenses ................................... .91% c 1.00% .92% .96% 1.06% .93%
Net investment income ...................... .56% c .35% .63% 2.14% 1.00% 1.19%
Portfolio turnover rate ..................... 2.97% 13.36% 10.59% 26.69% 8.69% 17.53%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cAnnualized.
28 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
--------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2003 2002 2001 D
--------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $44.97 $36.64 $37.04 $37.26
--------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................................... (.06) (.15) (.08) .28
Net realized and unrealized gains (losses) ....................... 3.30 8.74 .91 .06
--------------------------------------------------
Total from investment operations .................................. 3.24 8.59 .83 .34
--------------------------------------------------
Less distributions from:
Net investment income ............................................ -- (.01) (.06) (.56)
Net realized gains ............................................... (.31) (.25) (1.17) --
--------------------------------------------------
Total distributions ............................................... (.31) (.26) (1.23) (.56)
--------------------------------------------------
Net asset value, end of period .................................... $47.90 $44.97 $36.64 $37.04
==================================================
Total return b .................................................... 7.23% 23.58% 2.08% .91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $108,793 $103,877 $89,241 $20,982
Ratios to average net assets:
Expenses ......................................................... 1.71% c 1.75% 1.67% 1.71% c
Net investment income (loss) ..................................... (.24)% c (.40)% (.12)% .73% c
Portfolio turnover rate ........................................... 2.97% 13.36% 10.59% 26.69%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period March 1, 2001 (effective date) to October 31, 2001.
Semiannual Report | 29
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2003 2002 2001 D
------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $45.01 $36.67 $37.06 $37.26
------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................................... (.06) (.15) (.08) .33
Net realized and unrealized gains (losses) ....................... 3.30 8.74 .92 .02
------------------------------------------------
Total from investment operations .................................. 3.24 8.59 .84 .35
------------------------------------------------
Less distributions from:
Net investment income ............................................ -- -- (.06) (.55)
Net realized gains ............................................... (.31) (.25) (1.17) --
------------------------------------------------
Total distributions ............................................... (.31) (.25) (1.23) (.55)
------------------------------------------------
Net asset value, end of period .................................... $47.94 $45.01 $36.67 $37.06
================================================
Total return b .................................................... 7.23% 23.57% 2.10% .94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $126,308 $127,925 $118,219 $29,920
Ratios to average net assets:
Expenses ......................................................... 1.71% c 1.75% 1.67% 1.71% c
Net investment income (loss) ..................................... (.24)% c (.40)% (.12)% .85% c
Portfolio turnover rate ........................................... 2.97% 13.36% 10.59% 26.69%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period March 1, 2001 (effective date) to October 31, 2001.
30 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
-------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31,
CLASS R (UNAUDITED) 2003 2002 D
-------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......................................... $45.30 $36.92 $39.98
-------------------------------------
Income from investment operations:
Net investment income a ...................................................... .06 .03 .07
Net realized and unrealized gains (losses) ................................... 3.32 8.82 (3.07)
-------------------------------------
Total from investment operations .............................................. 3.38 8.85 (3.00)
-------------------------------------
Less distributions from:
Net investment income ........................................................ (.09) (.22) (.06)
Net realized gains ........................................................... (.31) (.25) --
-------------------------------------
Total distributions ........................................................... (.40) (.47) (.06)
-------------------------------------
Net asset value, end of period ................................................ $48.28 $45.30 $36.92
=====================================
Total return b ................................................................ 7.50% 24.26% (7.53)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................................. $15,952 $13,336 $7,754
Ratios to average net assets:
Expenses ..................................................................... 1.21% c 1.25% 1.17% c
Net investment income ........................................................ .26% c .10% .38% c
Portfolio turnover rate ....................................................... 2.97% 13.36% 10.59%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period January 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | 31
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
ADVISOR CLASS (UNAUDITED) 2003 2002 2001 D
------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............................. $45.54 $37.06 $37.21 $37.26
------------------------------------------------
Income from investment operations:
Net investment income a .......................................... .18 .23 .31 .60
Net realized and unrealized gains (losses) ....................... 3.34 8.83 .91 (.02)
------------------------------------------------
Total from investment operations .................................. 3.52 9.06 1.22 .58
------------------------------------------------
Less distributions from:
Net investment income ............................................ (.27) (.33) (.20) (.63)
Net realized gains ............................................... (.31) (.25) (1.17) --
------------------------------------------------
Total distributions ............................................... (.58) (.58) (1.37) (.63)
------------------------------------------------
Net asset value, end of period .................................... $48.48 $45.54 $37.06 $37.21
================================================
Total return b .................................................... 7.78% 24.80% 3.11% 1.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................. $23,828 $22,189 $15,193 $571
Ratios to average net assets:
Expenses ......................................................... .71% c .75% .67% .71% c
Net investment income ............................................ .76% c .60% .88% 1.55% c
Portfolio turnover rate ........................................... 2.97% 13.36% 10.59% 26.69%
aBased on average daily shares outstanding. bTotal return is not annualized for
periods less than one year.
cAnnualized.
dFor the period March 1, 2001 (effective date) to October 31, 2001.
32 | See notes to financial statements. | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CLOSED-END MUTUAL FUNDS 1.2%
a Apollo Investment Corp. ............................................................ 200,000 $ 2,750,000
a Emerging Markets Telecommunications Fund Inc. ...................................... 250,000 1,970,000
H & Q Healthcare Investors Fund .................................................... 150,000 3,060,000
John Hancock Bank & Thrift Opportunity Fund ........................................ 1,650,000 15,064,500
Latin America Equity Fund Inc. ..................................................... 222,015 3,097,109
a Mexico Fund (Mexico) ............................................................... 620,800 11,577,920
New Ireland Fund Inc. (Irish Republic) ............................................. 135,000 2,025,000
Petroleum & Resources Corp. ........................................................ 150,000 3,532,500
---------------
TOTAL CLOSED-END MUTUAL FUNDS (COST $38,030,843) ..................................... 43,077,029
---------------
COMMON STOCKS 75.4%
COMMERCIAL SERVICES 1.2%
Kelly Services Inc., A ............................................................. 1,506,800 44,782,096
---------------
CONSUMER DURABLES 5.3%
D.R. Horton Inc. ................................................................... 1,650,000 47,520,000
Hasbro Inc. ........................................................................ 1,800,000 34,002,000
Lennar Corp., A .................................................................... 480,000 22,488,000
Lennar Corp., B .................................................................... 48,000 2,107,200
M.D.C. Holdings Inc. ............................................................... 363,000 22,429,770
Pulte Homes Inc. ................................................................... 1,300,000 63,921,000
---------------
192,467,970
---------------
CONSUMER NON-DURABLES 2.6%
b DIMON Inc. ......................................................................... 2,504,200 17,354,106
Kellwood Co. ....................................................................... 450,000 17,752,500
Russell Corp. ...................................................................... 515,000 8,564,450
a Tommy Hilfiger Corp. ............................................................... 2,800,000 43,680,000
Universal Corp. .................................................................... 125,000 6,280,000
---------------
93,631,056
---------------
CONSUMER SERVICES 3.7%
a,b Aztar Corp. ........................................................................ 3,000,000 77,700,000
a,b Champps Entertainment Inc. ......................................................... 920,000 7,967,200
a La Quinta Corp. .................................................................... 2,471,900 17,772,961
a Prime Hospitality Corp. ............................................................ 702,800 7,063,140
a Vail Resorts Inc. .................................................................. 1,386,300 21,556,965
---------------
132,060,266
---------------
DISTRIBUTION SERVICES 1.1%
Applied Industrial Technologies Inc. ............................................... 700,000 18,396,000
Handleman Co. ...................................................................... 1,000,000 22,510,000
---------------
40,906,000
---------------
Semiannual Report | 33
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY 1.3%
a ESCO Technologies Inc. ............................................................. 618,400 $ 29,868,720
a FSI International Inc. ............................................................. 600,000 3,600,000
a Hutchinson Technology Inc. ......................................................... 150,000 3,688,500
a Standard Microsystems Corp. ........................................................ 376,700 8,980,528
---------------
46,137,748
---------------
ENERGY MINERALS 2.0%
Peabody Energy Corp. ............................................................... 1,507,000 70,663,230
---------------
FINANCE/RENTAL/LEASING 3.4%
CIT Group Holdings Inc. ............................................................ 2,210,000 75,957,700
a,b Dollar Thrifty Automotive Group Inc. ............................................... 1,800,000 47,430,000
---------------
123,387,700
---------------
FINANCIAL CONGLOMERATES 2.5%
Principal Financial Group Inc. ..................................................... 734,200 25,917,260
Prudential Financial Inc. .......................................................... 1,450,000 63,713,000
---------------
89,630,260
---------------
INDUSTRIAL SERVICES 1.8%
a Global Industries Ltd. ............................................................. 2,400,000 14,400,000
a Offshore Logistics Inc. ............................................................ 900,000 19,755,000
a Petroleum Helicopters Inc. ......................................................... 77,500 1,774,750
a Petroleum Helicopters Inc., non-voting ............................................. 152,000 3,619,880
a Shaw Group Inc. .................................................................... 1,447,200 17,366,400
a,b Xanser Corp. ....................................................................... 2,800,000 7,000,000
---------------
63,916,030
---------------
LIFE/HEALTH INSURANCE 6.1%
American National Insurance Co. .................................................... 647,500 61,013,925
Amerus Group Co. ................................................................... 325,000 12,545,000
Assurant Inc. ...................................................................... 825,700 20,114,052
FBL Financial Group Inc., A ........................................................ 525,000 13,980,750
Kansas City Life Insurance Co. ..................................................... 200,000 8,000,000
Manulife Financial Corp. (Canada) .................................................. 500,000 18,385,000
MetLife Inc. ....................................................................... 401,000 13,834,500
a National Western Life Insurance Co., A ............................................. 150,000 21,795,000
Presidential Life Corp. ............................................................ 726,400 11,687,777
StanCorp Financial Group Inc. ...................................................... 600,000 37,122,000
---------------
218,478,004
---------------
34 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
NON-ENERGY MINERALS 4.4%
Nucor Corp. ........................................................................ 630,000 $ 37,422,000
Reliance Steel & Aluminum Co. ...................................................... 1,175,000 38,798,500
Texas Industries Inc. .............................................................. 800,000 26,968,000
United States Steel Corp. .......................................................... 2,000,000 57,260,000
---------------
160,448,500
---------------
PROCESS INDUSTRIES 4.9%
Bunge Ltd. ......................................................................... 1,650,000 61,132,500
Corn Products International Inc. ................................................... 1,120,000 47,600,000
a,b Delta Woodside Industries Inc. ..................................................... 555,000 588,300
a J.G. Boswell Co. ................................................................... 30,000 11,700,000
MeadWestvaco Corp. ................................................................. 700,000 18,305,000
Monsanto Co. ....................................................................... 853,900 29,536,401
a PolyOne Corp. ...................................................................... 1,400,000 9,576,000
---------------
178,438,201
---------------
PRODUCER MANUFACTURING 6.2%
CNH Global NV (Netherlands) ........................................................ 1,605,000 31,875,300
a,b Insteel Industries Inc. ............................................................ 560,000 1,260,000
Lennox International Inc. .......................................................... 1,115,000 18,631,650
Mueller Industries Inc. ............................................................ 658,900 22,106,095
Oshkosh Truck Corp. ................................................................ 480,000 24,576,000
b Tecumseh Products Co., A ........................................................... 778,900 30,275,843
b Tecumseh Products Co., B ........................................................... 300,000 11,286,300
Timken Co. ......................................................................... 1,350,000 29,781,000
Trinity Industries Inc. ............................................................ 1,806,900 54,731,001
---------------
224,523,189
---------------
PROPERTY-CASUALTY INSURANCE 6.1%
E-L Financial Corp. Ltd. (Canada) .................................................. 100,000 25,449,918
IPC Holdings Ltd. (Bermuda) ........................................................ 1,180,000 43,424,000
Midland Co. ........................................................................ 385,000 10,203,270
Montpelier Re Holdings Ltd. (Bermuda) .............................................. 10,000 342,000
Old Republic International Corp. ................................................... 3,000,000 69,660,000
RLI Corp. .......................................................................... 489,400 17,006,650
Selective Insurance Group Inc. ..................................................... 650,000 23,244,000
St. Paul Travelers Cos. Inc. ....................................................... 777,000 31,600,590
---------------
220,930,428
---------------
REGIONAL BANKS .1%
UMB Financial Corp. ................................................................ 93,400 4,689,614
---------------
RETAIL TRADE 8.1%
a Big Lots Inc. ...................................................................... 1,675,000 23,718,000
Boise Cascade Corp. ................................................................ 343,554 11,588,077
Cato Corp., A ...................................................................... 300,000 6,006,000
a Charming Shoppes Inc. .............................................................. 5,009,200 35,364,952
Dillards Inc., A ................................................................... 2,300,000 38,709,000
Semiannual Report | 35
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE (CONT.)
Federated Department Stores Inc. ................................................... 740,000 $ 36,260,000
Fred's Inc. ........................................................................ 400,000 7,428,000
b Haverty Furniture Cos. Inc. ........................................................ 920,000 16,624,400
a Saks Inc. .......................................................................... 1,508,400 21,720,960
a,b Syms Corp. ......................................................................... 1,430,000 10,953,800
a Toys R Us Inc. ..................................................................... 2,815,000 43,491,750
a Zale Corp. ......................................................................... 711,200 39,770,304
---------------
291,635,243
---------------
SAVINGS BANKS .3%
Farmers & Merchants Bank of Long Beach ............................................. 2,200 11,165,000
First Niagara Financial Group Inc. ................................................. 100,000 1,260,000
---------------
12,425,000
---------------
SPECIALTY INSURANCE 3.2%
MGIC Investment Corp. .............................................................. 440,000 32,392,800
The PMI Group Inc. ................................................................. 1,150,000 49,484,500
Radian Group Inc. .................................................................. 750,000 34,882,500
---------------
116,759,800
---------------
TECHNOLOGY SERVICES .6%
a Intergraph Corp. ................................................................... 850,000 21,428,500
---------------
TRANSPORTATION 6.2%
a ABX Air Inc. ....................................................................... 1,825,000 10,731,000
a,b Alaska Air Group Inc. .............................................................. 1,350,600 29,888,778
Burlington Northern Santa Fe Corp. ................................................. 599,900 19,616,730
a Crowley Maritime Corp. ............................................................. 4,240 4,918,400
a Kansas City Southern ............................................................... 1,498,200 20,750,070
a Mesa Air Group Inc. ................................................................ 450,000 3,181,500
Norfolk Southern Corp. ............................................................. 1,358,600 32,361,852
Overseas Shipholding Group Inc. .................................................... 1,600,000 52,432,000
Teekay Shipping Corp. (Bahamas) .................................................... 850,000 51,680,000
---------------
225,560,330
---------------
UTILITIES 4.3%
Entergy Corp. ...................................................................... 800,000 43,680,000
Northeast Utilities ................................................................ 1,750,000 32,112,500
PNM Resources Inc. ................................................................. 1,242,200 36,247,396
a Sierra Pacific Resources Co. ....................................................... 4,169,000 29,516,520
Xcel Energy Inc. ................................................................... 878,000 14,688,940
---------------
156,245,356
---------------
TOTAL COMMON STOCKS (COST $1,847,035,624) 2,729,144,521
---------------
PREFERRED STOCK (COST $6,943,575) .3%
Price Legacy Corp., 8.75%, pfd., A ................................................. 533,400 8,523,732
---------------
36 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BOND (COST $6,000,000) .3%
UTILITIES
Sierra Pacific Resources Co., cvt., 144A, 7.25%, 2/14/10 ........................... $ 6,000,000 $ 11,107,500
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,898,010,042) .................................... 2,791,852,782
---------------
----------------
SHARES
----------------
SHORT TERM INVESTMENT (COST $164,258,446) 4.5%
c Franklin Institutional Fiduciary Trust Money Market Portfolio ...................... 164,258,446 164,258,446
---------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $2,062,268,488) .................. 2,956,111,228
---------------
----------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENT (COST $671,786,303) 18.6%
d Joint Repurchase Agreement, .971%, 5/03/04 (Maturity Value
$671,840,662) ...................................................................... $671,786,303 671,786,303
ABN AMRO Bank, N.V., New York Branch (Maturity Value $64,610,916)
Banc of America Securities LLC (Maturity Value $64,610,916)
Barclays Capital Inc. (Maturity Value $64,610,916)
Bear, Stearns & Co. Inc. (Maturity Value $32,308,825)
BNP Paribas Securities Corp. (Maturity Value $64,610,916)
Deutsche Bank Securities Inc. (Maturity Value $64,610,916)
Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $64,610,916)
Goldman, Sachs & Co. (Maturity Value $64,610,916)
Lehman Brothers Inc. (Maturity Value $58,033,593)
Morgan Stanley & Co. Inc. (Maturity Value $64,610,916)
UBS Securities LLC (Maturity Value $64,610,916)
Collateralized by U.S. Treasury Bills, Notes, and Bonds,
and U.S. Government Agency Securities
---------------
TOTAL INVESTMENTS (COST $2,734,054,791) 100.3% ....................................... 3,627,897,531
OTHER ASSETS, LESS LIABILITIES (.3)% ................................................. (10,512,374)
---------------
NET ASSETS 100.0% .................................................................... $3,617,385,157
===============
aNon-income producing.
bSee Note 8 regarding holdings of 5% voting securities.
cSee Note 7 regarding investments in affiliated Money Market Portfolio.
dSee Note 1(c) regarding joint repurchase agreement.
Semiannual Report | See notes to financial statements. | 37
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
-------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2003 2002 2001 2000 D
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $12.40 $10.48 $11.66 $11.12 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income a ..................................... .04 .07 .07 .12 .09
Net realized and unrealized gains (losses) .................. 1.11 1.92 (1.08) .50 1.03
-------------------------------------------------------------
Total from investment operations ............................. 1.15 1.99 (1.01) .62 1.12
-------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (.05) (.07) (.07) (.08) --
Net realized gains .......................................... -- -- (.10) -- --
-------------------------------------------------------------
Total distributions .......................................... (.05) (.07) (.17) (.08) --
-------------------------------------------------------------
Net asset value, end of period ............................... $13.50 $12.40 $10.48 $11.66 $11.12
=============================================================
Total return b ............................................... 9.32% 19.08% (8.82)% 5.63% 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $99,204 $59,600 $32,825 $23,544 $3,418
Ratios to average net assets:
Expenses .................................................... 1.29% c 1.38% 1.42% 1.25% 1.25% c
Expenses excluding waiver and payments by affiliate ......... 1.29% c 1.38% 1.42% 1.49% 3.22% c
Net investment income ....................................... .57% c .60% .64% .99% 2.17% c
Portfolio turnover rate ...................................... 10.54% 27.47% 15.33% 29.37% 7.21%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year. cAnnualized.
dFor the period June 1, 2000 (effective date) to October 31, 2000.
38 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2003 2002 2001 2000 D
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $12.29 $10.39 $11.58 $11.11 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .............................. (.01) (.01) -- .05 .08
Net realized and unrealized gains (losses) .................. 1.11 1.92 (1.07) .49 1.03
-------------------------------------------------------------
Total from investment operations ............................. 1.10 1.91 (1.07) .54 1.11
-------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (.01) (.01) (.02) (.07) --
Net realized gains .......................................... -- -- (.10) -- --
-------------------------------------------------------------
Total distributions .......................................... (.01) (.01) (.12) (.07) --
-------------------------------------------------------------
Net asset value, end of period ............................... $13.38 $12.29 $10.39 $11.58 $11.11
=============================================================
Total return b ............................................... 8.93% 18.35% (9.38)% 4.87% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $17,570 $10,865 $4,975 $3,251 $453
Ratios to average net assets:
Expenses .................................................... 1.94% c 2.04% 2.07% 1.86% 1.69% c
Expenses excluding waiver and payments by affiliate ......... 1.94% c 2.04% 2.07% 2.10% 3.66% c
Net investment income (loss) ................................ (.08)% c (.06)% (.01)% .38% 1.81% c
Portfolio turnover rate ...................................... 10.54% 27.47% 15.33% 29.37% 7.21%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period June 1, 2000 (effective date) to October 31, 2000.
Semiannual Report | 39
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2003 2002 2001 2000 D
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $12.28 $10.39 $11.57 $11.11 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .............................. (.01) (.01) -- .05 .06
Net realized and unrealized gains (losses) .................. 1.11 1.91 (1.07) .48 1.05
-------------------------------------------------------------
Total from investment operations ............................. 1.10 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 period ............................... $13.38 $12.28 $10.39 $11.57 $11.11
=============================================================
Total return b ............................................... 8.96% 18.35% (9.34)% 4.80% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $49,553 $32,592 $17,738 $10,648 $1,911
Ratios to average net assets:
Expenses .................................................... 1.94% c 2.06% 2.04% 1.89% 1.79% c
Expenses excluding waiver and payments by affiliate ......... 1.94% c 2.06% 2.04% 2.13% 3.76% c
Net investment income (loss) ................................ (.08)% c (.08)% .02% .38% 1.44% c
Portfolio turnover rate ...................................... 10.54% 27.47% 15.33% 29.37% 7.21%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period June 1, 2000 (effective date) to October 31, 2000.
40 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
----------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31,
CLASS R (UNAUDITED) 2003 2002 D
----------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........................................... $12.34 $10.48 $10.55
----------------------------------------
Income from investment operations:
Net investment income a ....................................................... .03 .05 .01
Net realized and unrealized gains (losses) .................................... 1.11 1.90 (.08)
----------------------------------------
Total from investment operations ............................................... 1.14 1.95 (.07)
----------------------------------------
Less distributions from net investment income .................................. (.06) (.09) --
----------------------------------------
Net asset value, end of period ................................................. $13.42 $12.34 $10.48
========================================
Total return b ................................................................. 9.29% 18.77% (.66)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............................................. $2,628 $826 $65
Ratios to average net assets:
Expenses ...................................................................... 1.44% c 1.54% 1.59% c
Net investment income ......................................................... .42% c .44% .47% c
Portfolio turnover rate ........................................................ 10.54% 27.47% 15.33%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period August 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | See notes to financial statements. | 41
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS 86.5%
COMMUNICATIONS .8%
Verizon Communications Inc. ........................................... 37,000 $ 1,396,380
-------------
CONSUMER NON-DURABLES 11.4%
H.J. Heinz Co. ........................................................ 97,000 3,704,430
Kimberly-Clark Corp. .................................................. 78,000 5,105,100
Procter & Gamble Co. .................................................. 54,000 5,710,500
Sara Lee Corp. ........................................................ 202,000 4,662,160
-------------
19,182,190
-------------
CONSUMER SERVICES 6.9%
Cendant Corp. ......................................................... 65,000 1,539,200
Gannett Co. Inc. ...................................................... 63,000 5,460,840
McDonald's Corp. ...................................................... 169,000 4,601,870
-------------
11,601,910
-------------
ELECTRONIC TECHNOLOGY 1.6%
Hewlett-Packard Co. ................................................... 136,000 2,679,200
-------------
ENERGY MINERALS 3.0%
ConocoPhillips ........................................................ 24,000 1,711,200
Marathon Oil Corp. .................................................... 37,000 1,241,720
Occidental Petroleum Corp. ............................................ 45,000 2,124,000
-------------
5,076,920
-------------
FINANCE/RENTAL/LEASING 4.7%
Fannie Mae ............................................................ 35,000 2,405,200
Freddie Mac ........................................................... 95,000 5,548,000
-------------
7,953,200
-------------
FINANCIAL CONGLOMERATES 5.8%
Citigroup Inc. ........................................................ 115,000 5,530,350
Principal Financial Group ............................................. 122,000 4,306,600
-------------
9,836,950
-------------
HEALTH TECHNOLOGY 9.2%
Abbott Laboratories ................................................... 137,000 6,030,740
Becton, Dickinson & Co. ............................................... 71,000 3,589,050
Pfizer Inc. ........................................................... 165,000 5,900,400
-------------
15,520,190
-------------
INDUSTRIAL SERVICES 1.9%
a Transocean Inc. ....................................................... 117,000 3,249,090
-------------
INVESTMENT BANKS/BROKERS 2.8%
Lehman Brothers Holdings Inc. ......................................... 41,000 3,009,400
Morgan Stanley ........................................................ 33,000 1,695,870
-------------
4,705,270
-------------
42 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
INVESTMENT MANAGERS .9%
Mellon Financial Corp. ................................................ 49,000 $ 1,452,360
-------------
LIFE/HEALTH INSURANCE 3.0%
MetLife Inc. .......................................................... 146,000 5,037,000
-------------
MAJOR BANKS 6.7%
Bank of America Corp. ................................................. 72,875 5,865,709
Wachovia Corp. ........................................................ 121,000 5,535,750
-------------
11,401,459
-------------
MULTI-LINE INSURANCE 3.0%
American International Group Inc. ..................................... 71,000 5,087,150
-------------
PROCESS INDUSTRIES 3.9%
International Paper Co. ............................................... 72,000 2,903,040
Praxair Inc. .......................................................... 101,000 3,691,550
-------------
6,594,590
-------------
PRODUCER MANUFACTURING 6.9%
General Electric Co. .................................................. 127,000 3,803,650
Masco Corp. ........................................................... 152,000 4,257,520
United Technologies Corp. ............................................. 42,000 3,622,920
-------------
11,684,090
-------------
PROPERTY-CASUALTY INSURANCE 5.1%
Allstate Corp. ........................................................ 121,000 5,553,900
St. Paul Travelers Cos. Inc. .......................................... 75,000 3,050,250
-------------
8,604,150
-------------
REGIONAL BANKS 2.9%
U.S. Bancorp .......................................................... 194,000 4,974,160
-------------
RETAIL TRADE 1.4%
Federated Department Stores Inc. ...................................... 28,000 1,372,000
The TJX Cos. Inc. ..................................................... 38,000 933,660
-------------
2,305,660
-------------
SAVINGS BANKS 1.0%
Washington Mutual Inc. ................................................ 42,000 1,654,380
-------------
TECHNOLOGY SERVICES 1.3%
International Business Machines Corp. ................................. 25,000 2,204,250
-------------
TRANSPORTATION 2.3%
Burlington Northern Santa Fe Corp. .................................... 120,000 3,924,000
-------------
TOTAL COMMON STOCKS (COST $128,826,412) ............................... 146,124,549
-------------
Semiannual Report | 43
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENT (COST $25,111,449) 14.9%
b Franklin Institutional Fiduciary Trust Money Market Portfolio .........25,111,449 $ 25,111,449
-------------
TOTAL INVESTMENTS (COST $153,937,861) 101.4% .......................... 171,235,998
OTHER ASSETS, LESS LIABILITIES (1.4)% ................................. (2,280,964)
-------------
NET ASSETS 100.0% $168,955,034
=============
aNon-income producing.
bSee Note 7 regarding investments in affiliated Money Market Portfolio.
44 | See notes to financial statements. | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
-------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2003 2002 2001 2000 1999
-------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $30.41 $24.09 $24.64 $18.88 $18.41 $20.27
-------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a .................. .03 (.04) (.01) .11 .04 (.01)
Net realized and unrealized gains (losses) ...... 3.87 7.80 .68 6.37 1.90 (.29)
-------------------------------------------------------------------------
Total from investment operations ................. 3.90 7.76 .67 6.48 1.94 (.30)
-------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... -- -- (.08) (.09) -- --
Net realized gains .............................. (.63) (1.44) (1.14) (.63) (1.47) (1.56)
-------------------------------------------------------------------------
Total distributions .............................. (.63) (1.44) (1.22) (.72) (1.47) (1.56)
-------------------------------------------------------------------------
Net asset value, end of period ................... $33.68 $30.41 $24.09 $24.64 $18.88 $18.41
=========================================================================
Total return b ................................... 12.96% 33.90% 2.77% 35.80% 11.53% (1.59)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $418,883 $310,995 $230,562 $268,969 $95,894 $115,999
Ratios to average net assets:
Expenses ........................................ 1.08% c 1.23% 1.18% 1.19% 1.38% 1.27%
Net investment income (loss) .................... .17% c (.16)% (.02)% .46% .23% (.05)%
Portfolio turnover rate .......................... 5.09% 13.35% 28.35% 23.62% 8.52% 14.12%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cAnnualized.
Semiannual Report | See notes to financial statements. | 45
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 68.4%
COMMERCIAL SERVICES 1.5%
Courier Corp. ......................................................................... 150,000 $ 6,112,500
-------------
COMMUNICATIONS 1.7%
Atlantic Tele-Network Inc. ............................................................ 225,000 7,121,250
-------------
CONSUMER DURABLES 6.4%
Allen Organ Co., B .................................................................... 94,800 4,503,000
a Baldwin Piano & Organ Co. ............................................................. 100 --
Bassett Furniture Industries Inc. ..................................................... 53,500 959,790
a Cavalier Homes Inc. ................................................................... 700,000 4,438,000
a Chromcraft Revington Inc. ............................................................. 200,000 2,842,000
a Dixie Group Inc. ...................................................................... 405,000 5,467,500
Edelbrock Corp. ....................................................................... 217,268 3,227,516
Flexsteel Industries Inc. ............................................................. 60,000 1,307,460
a National R.V. Holdings Inc. ........................................................... 261,700 3,519,865
a Rockford Corp. ........................................................................ 80,100 492,615
-------------
26,757,746
-------------
CONSUMER NON-DURABLES 10.3%
Brown Shoe Co. Inc. ................................................................... 165,000 6,035,700
b Delta Apparel Inc. .................................................................... 340,000 7,633,000
DIMON Inc. ............................................................................ 640,000 4,435,200
b Haggar Corp. .......................................................................... 420,000 8,248,800
a,b Seneca Foods Corp., A ................................................................. 256,600 4,928,003
a,b Seneca Foods Corp., B ................................................................. 121,500 2,300,602
Standard Commercial Corp. ............................................................. 350,000 6,478,500
Tandy Brands Accessories Inc. ......................................................... 245,000 3,209,500
-------------
43,269,305
-------------
DISTRIBUTION SERVICES .5%
a GTSI Corp. ............................................................................ 203,100 2,331,588
-------------
ELECTRONIC TECHNOLOGY 1.3%
b Espey Manufacturing & Electronics Corp. ............................................... 78,000 2,039,700
a Ladish Co. Inc. ....................................................................... 21,200 202,248
a Printronix Inc. ....................................................................... 130,000 1,797,900
a Sparton Corp. ......................................................................... 160,650 1,450,669
-------------
5,490,517
-------------
HEALTH SERVICES 1.0%
Healthcare Services Group Inc. ........................................................ 260,400 4,088,280
-------------
46 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES 4.1%
b Ecology & Environment Inc., A ......................................................... 215,000 $ 2,266,100
a Exponent Inc. ......................................................................... 100,000 2,503,000
a Layne Christensen Co. ................................................................. 530,000 7,404,100
a Matrix Service Co. .................................................................... 266,000 2,761,080
a Petroleum Helicopters Inc. ............................................................ 17,600 403,040
a Petroleum Helicopters Inc., non-voting ................................................ 78,000 1,857,570
-------------
17,194,890
-------------
NON-ENERGY MINERALS 2.2%
a Commonwealth Industries Inc. .......................................................... 780,000 6,162,000
a,b Continental Materials Corp. ........................................................... 99,500 2,883,012
-------------
9,045,012
-------------
PROCESS INDUSTRIES 2.3%
b American Pacific Corp. ................................................................ 659,000 5,028,170
a Mercer International Inc. (Germany) ................................................... 545,400 4,586,814
-------------
9,614,984
-------------
PRODUCER MANUFACTURING 12.1%
a,b Art's-Way Manufacturing Co. Inc. ...................................................... 134,500 712,850
Central Steel & Wire Co. .............................................................. 3,640 1,638,000
CIRCOR International Inc. ............................................................. 247,500 4,841,100
a,b Gehl Co. .............................................................................. 420,000 7,077,000
Gibraltar Steel Corp. ................................................................. 238,000 5,854,800
b Hardinge Inc. ......................................................................... 705,000 8,445,900
a Insteel Industries Inc. ............................................................... 250,000 562,500
a,b Nashua Corp. .......................................................................... 475,000 4,256,000
a Northwest Pipe Co. .................................................................... 310,300 4,685,530
a Powell Industries Inc. ................................................................ 23,900 380,010
a RTI International Metals Inc. ......................................................... 567,900 8,319,735
Smith Investment Co. .................................................................. 42,400 2,459,200
Steel Technologies Inc. ............................................................... 2,100 40,509
a TransPro Inc. ......................................................................... 265,000 1,385,950
-------------
50,659,084
-------------
PROPERTY-CASUALTY INSURANCE 4.8%
a,b ACMAT Corp., A ........................................................................ 392,800 5,509,020
Baldwin & Lyons Inc., B ............................................................... 153,875 4,262,338
a Mercer Insurance Group Inc. ........................................................... 9,100 108,108
b Merchants Group Inc. .................................................................. 190,000 4,646,450
Penn-America Group Inc. ............................................................... 280,000 3,413,200
Safety Insurance Group Inc. ........................................................... 95,000 2,052,950
-------------
19,992,066
-------------
Semiannual Report | 47
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE DEVELOPMENT 2.5%
a Bresler & Reiner Inc. ................................................................. 89,000 $ 5,073,000
Case Pomeroy & Co. Inc., A ............................................................ 220 270,600
Case Pomeroy & Co. Inc., cvt., B ...................................................... 533 559,650
a Griffin Land & Nurseries Inc. ......................................................... 173,000 4,702,140
-------------
10,605,390
-------------
REAL ESTATE INVESTMENT TRUSTS 1.0%
Arbor Realty Trust, 144A (units consisting of common stock and warrants) .............. 45,000 4,140,923
-------------
RETAIL TRADE 5.3%
a,b Duckwall-ALCO Stores Inc. ............................................................. 330,000 5,593,500
a,b Fresh Brands Inc. ..................................................................... 758,100 6,671,280
a,b S&K Famous Brands Inc. ................................................................ 260,000 4,695,600
a,b United Retail Group Inc. .............................................................. 678,900 1,894,131
b Village Super Market Inc., A .......................................................... 110,675 3,521,679
-------------
22,376,190
-------------
SAVINGS BANKS 4.4%
First Defiance Financial Corp. ........................................................ 235,000 5,569,500
GA Financial Inc. ..................................................................... 172,000 6,009,680
a Wilshire Financial Services Group Inc. ................................................ 700,000 6,860,000
-------------
18,439,180
-------------
TRANSPORTATION 5.2%
a Crowley Maritime Corp. ................................................................ 2,342 2,716,720
a,b International Shipholding Corp. ....................................................... 480,000 7,051,200
OMI Corp. ............................................................................. 410,000 4,128,700
Providence & Worchester Railroad Co. .................................................. 205,000 2,080,750
Stelmar Shipping Ltd. (Greece) ........................................................ 240,000 5,916,000
-------------
21,893,370
-------------
UTILITIES 1.8%
Central Vermont Public Service Corp. .................................................. 70,000 1,410,500
Green Mountain Power Corp. ............................................................ 201,700 5,157,469
Maine & Maritimes Corp. ............................................................... 27,100 869,910
-------------
7,437,879
-------------
TOTAL COMMON STOCKS (COST $182,342,428) ................................................. 286,570,154
-------------
----------------
PRINCIPAL AMOUNT
----------------
CONVERTIBLE BOND (COST $7,000,000) 2.1%
PROCESS INDUSTRIES
Mercer International Inc., cvt., 144A, 8.50%, 10/15/10 (Germany) ...................... $ 7,000,000 8,750,000
-------------
TOTAL LONG TERM INVESTMENTS (COST $189,342,428) ......................................... 295,320,154
-------------
48 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENT (COST $105,029,854) 25.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio ......................... 105,029,854 $105,029,854
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $294,372,282) ....................... 400,350,008
-------------
----------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENT (COST $19,029,384) 4.5%
d Joint Repurchase Agreement, .971%, 5/03/04 (Maturity
Value $19,030,924) .................................................................... $ 19,029,384 19,029,384
ABN AMRO Bank, N.V., New York Branch (Maturity Value $1,830,204)
Banc of America Securities LLC (Maturity Value $1,830,204)
Barclays Capital Inc. (Maturity Value $1,830,204)
Bear, Stearns & Co. Inc (Maturity Value $915,197)
BNP Paribas Securities Corp. (Maturity Value $1,830,204)
Deutsche Bank Securities Inc. (Maturity Value $1,830,204)
Dresdner Kleinwort Wasserstein Securities LLC (Maturity Value $1,830,204)
Goldman, Sachs & Co. (Maturity Value $1,830,204)
Lehman Brothers Inc. (Maturity Value $1,643,891)
Morgan Stanley & Co. Inc. (Maturity Value $1,830,204)
UBS Securities LLC (Maturity Value $1,830,204)
Collateralized by U.S. Treasury Bills, Notes, and Bonds,
and U.S. Government Agency Securities
-------------
TOTAL INVESTMENTS (COST $313,401,666) 100.1% ............................................ 419,379,392
OTHER ASSETS, LESS LIABILITIES (.1)% .................................................... (496,216)
-------------
NET ASSETS 100.0% ....................................................................... $418,883,176
=============
aNon-income producing.
bSee Note 8 regarding holdings of 5% voting securities.
cSee Note 7 regarding investments in affiliated Money Market Portfolio.
dSee Note 1(c) regarding joint repurchase agreement.
Semiannual Report | See notes to financial statements. | 49
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
--------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2003 2002 2001 2000 1999
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $28.19 $22.15 $22.49 $20.86 $17.30 $17.98
--------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................... .01 (.02) .02 .09 .03 (.04)
Net realized and unrealized gains (losses) ....... 2.85 6.06 (.33) 1.59 3.53 (.55)
--------------------------------------------------------------------------
Total from investment operations .................. 2.86 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 period .................... $31.05 $28.19 $22.15 $22.49 $20.86 $17.30
==========================================================================
Total return b .................................... 10.15% 27.27% (1.41)% 8.06% 20.72% (3.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $241,575 $200,181 $140,202 $95,029 $64,513 $65,898
Ratios to average net assets:
Expenses ......................................... 1.38% c 1.44% 1.37% 1.36% 1.58% 1.49%
Net investment income (loss) ..................... .05% c (.07)% .09% .37% .16% (.23)%
Portfolio turnover rate ........................... 10.02% 14.14% 12.74% 43.33% 44.99% 41.21%
aBased on average daily shares outstanding.
bTotal return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
cAnnualized.
50 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2003 2002 2001 2000 1999 e
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $27.41 $21.67 $22.13 $20.61 $17.21 $18.33
--------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................... (.09) (.17) (.14) (.07) (.09) (.15)
Net realized and unrealized gains (losses) ....... 2.77 5.91 (.32) 1.59 3.49 (.97)
--------------------------------------------------------------------------
Total from investment operations .................. 2.68 5.74 (.46) 1.52 3.40 (1.12)
--------------------------------------------------------------------------
Less distributions from net investment income ..... -- -- -- -- d -- --
--------------------------------------------------------------------------
Net asset value, end of period .................... $30.09 $27.41 $21.67 $22.13 $20.61 $17.21
==========================================================================
Total return b .................................... 9.78% 26.49% (2.08)% 7.38% 19.97% (6.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $56,429 $47,551 $29,535 $11,220 $2,747 $1,293
Ratios to average net assets:
Expenses ......................................... 2.03% c 2.09% 2.02% 2.02% 2.22% 2.12% c
Net investment income (loss) ..................... (.60)% c (.72)% (.56)% (.32)% (.47)% (.84)% c
Portfolio turnover rate ........................... 10.02% 14.14% 12.74% 43.33% 44.99% 41.21%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dThe Fund made a dividend distribution of $.002.
eFor the period January 1, 1999 (effective date) to October 31, 1999.
Semiannual Report | 51
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2003 2002 2001 2000 1999
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $27.13 $21.46 $21.90 $20.40 $17.03 $17.82
--------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) a ................... (.09) (.17) (.13) (.07) (.09) (.16)
Net realized and unrealized gains (losses) ....... 2.74 5.84 (.31) 1.57 3.46 (.54)
--------------------------------------------------------------------------
Total from investment operations .................. 2.65 5.67 (.44) 1.50 3.37 (.70)
--------------------------------------------------------------------------
Less distributions from net realized gains ........ -- -- -- -- -- (.09)
--------------------------------------------------------------------------
Net asset value, end of period .................... $29.78 $27.13 $21.46 $21.90 $20.40 $17.03
==========================================================================
Total return b .................................... 9.77% 26.42% (2.01)% 7.35% 19.93% (4.03)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $123,352 $109,353 $81,186 $51,313 $28,555 $30,133
Ratios to average net assets:
Expenses ......................................... 2.03% c 2.10% 1.99% 2.01% 2.24% 2.17%
Net investment income (loss) ..................... (.60)% c (.73)% (.53)% (.29)% (.51)% (.91)%
Portfolio turnover rate ........................... 10.02% 14.14% 12.74% 43.33% 44.99% 41.21%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
52 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
---------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31,
CLASS R (UNAUDITED) 2003 2002 d
---------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................................ $28.13 $22.14 $23.34
---------------------------------------
Income from investment operations:
Net investment income (loss) a ..................................................... (.01) (.07) (.04)
Net realized and unrealized gains (losses) ......................................... 2.83 6.06 (1.16)
---------------------------------------
Total from investment operations .................................................... 2.82 5.99 (1.20)
---------------------------------------
Net asset value, end of period ...................................................... $30.95 $28.13 $22.14
=======================================
Total return b ...................................................................... 10.02% 27.06% (5.14)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................................................... $18,110 $6,914 $1,097
Ratios to average net assets:
Expenses ........................................................................... 1.53% c 1.59% 1.52% c
Net investment income (loss) ....................................................... (.10)% c (.22)% (.06)% c
Portfolio turnover rate ............................................................. 10.02% 14.14% 12.74%
aBased on average daily shares outstanding.
bTotal return does not reflect the contingent deferred sales charge, and is not
annualized for periods less than one year.
cAnnualized.
dFor the period August 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | 53
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2004 YEAR ENDED OCTOBER 31,
ADVISOR CLASS (UNAUDITED) 2003 2002 2001 2000 1999
--------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .............. $28.78 $22.53 $22.82 $21.13 $17.46 $18.07
--------------------------------------------------------------------------
Income from investment operations:
Net investment income a .......................... .06 .07 .10 .17 .09 .01
Net realized and unrealized gains (losses) ....... 2.91 6.18 (.34) 1.62 3.58 (.53)
--------------------------------------------------------------------------
Total from investment operations .................. 2.97 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 period .................... $31.75 $28.78 $22.53 $22.82 $21.13 $17.46
==========================================================================
Total return b .................................... 10.32% 27.74% (1.07)% 8.43% 21.16% (2.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ................. $19,755 $13,089 $9,586 $4,622 $3,848 $2,941
Ratios to average net assets:
Expenses ......................................... 1.03% c 1.09% 1.02% 1.02% 1.24% 1.17%
Net investment income ............................ .40% c .28% .44% .70% .49% .09%
Portfolio turnover rate ........................... 10.02% 14.14% 12.74% 43.33% 44.99% 41.21%
aBased on average daily shares outstanding.
bTotal return is not annualized for periods less than one year.
cAnnualized.
54 | See notes to financial statements. | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 92.1%
COMMERCIAL SERVICES .4%
ABM Industries Inc. ................................................................... 90,000 $ 1,661,400
-------------
CONSUMER DURABLES 7.7%
Action Performance Cos. Inc. .......................................................... 50,000 784,000
Bassett Furniture Industries Inc. ..................................................... 57,400 1,029,756
Briggs & Stratton Corp. ............................................................... 77,000 5,390,000
D.R. Horton Inc. ...................................................................... 56,250 1,620,000
Hooker Furniture Corp. ................................................................ 60,360 1,375,001
La-Z-Boy Inc. ......................................................................... 236,800 4,934,912
M/I Homes Inc. ........................................................................ 65,900 2,810,635
Monaco Coach Corp. .................................................................... 251,000 6,543,570
Russ Berrie & Co. Inc. ................................................................ 298,300 8,510,499
Thor Industries Inc. .................................................................. 85,000 2,368,100
-------------
35,366,473
-------------
CONSUMER NON-DURABLES 4.9%
Brown Shoe Co. Inc. ................................................................... 180,200 6,591,716
Lancaster Colony Corp. ................................................................ 60,000 2,478,000
Oshkosh B'Gosh Inc., A ................................................................ 150,000 3,468,000
Russell Corp. ......................................................................... 63,000 1,047,690
Standard Commercial Corp. ............................................................. 129,000 2,387,790
a Timberland Co., A ..................................................................... 107,000 6,711,040
-------------
22,684,236
-------------
CONSUMER SERVICES 3.3%
a Aztar Corp. ........................................................................... 290,000 7,511,000
Intrawest Corp. (Canada) .............................................................. 245,000 3,743,600
a La Quinta Corp. ....................................................................... 535,500 3,850,245
-------------
15,104,845
-------------
ELECTRONIC TECHNOLOGY 2.7%
a Avocent Corp. ......................................................................... 175,000 5,615,750
Cohu Inc. ............................................................................. 136,000 2,380,000
Diebold Inc. .......................................................................... 95,000 4,378,550
-------------
12,374,300
-------------
ENERGY MINERALS 6.9%
Arch Coal Inc. ........................................................................ 250,000 7,652,500
Consol Energy Inc. .................................................................... 310,000 8,875,300
Holly Corp. ........................................................................... 45,000 1,511,550
Peabody Energy Corp. .................................................................. 210,000 9,846,900
Pioneer Natural Resources Co. ......................................................... 115,000 3,761,650
-------------
31,647,900
-------------
FINANCE .6%
The PMI Group Inc. .................................................................... 60,000 2,581,800
-------------
Semiannual Report | 55
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINANCE/RENTAL/LEASING .8%
a Dollar Thrifty Automotive Group Inc. .................................................. 140,000 $ 3,689,000
-------------
HEALTH SERVICES 1.5%
a Pharmaceutical Product Development Inc. ............................................... 235,000 6,948,950
-------------
HEALTH TECHNOLOGY 1.9%
a Steris Corp. .......................................................................... 209,700 4,646,952
West Pharmaceutical Services Inc. ..................................................... 109,000 4,229,200
-------------
8,876,152
-------------
INDUSTRIAL SERVICES 7.5%
a Atwood Oceanics Inc. .................................................................. 88,000 3,225,200
a EMCOR Group Inc. ...................................................................... 93,000 3,803,700
ENSCO International Inc. .............................................................. 87,000 2,381,190
a Global Industries Ltd. ................................................................ 800,000 4,800,000
GlobalSantaFe Corp. ................................................................... 37,000 975,690
a Lone Star Technologies Inc. ........................................................... 260,000 5,330,000
a Offshore Logistics Inc. ............................................................... 155,700 3,417,615
a Oil States International Inc. ......................................................... 300,000 4,062,000
a Rowan Cos. Inc. ....................................................................... 143,000 3,188,900
a Shaw Group Inc. ....................................................................... 166,800 2,001,600
a Transocean Inc. ....................................................................... 44,500 1,235,765
-------------
34,421,660
-------------
INSURANCE BROKERS/SERVICES 1.5%
Arthur J. Gallagher & Co. ............................................................. 215,000 6,929,450
-------------
LIFE/HEALTH INSURANCE 3.2%
American National Insurance Co. ....................................................... 56,800 5,352,264
Presidential Life Corp. ............................................................... 213,900 3,441,651
Protective Life Corp. ................................................................. 82,500 2,966,700
StanCorp Financial Group Inc. ......................................................... 45,000 2,784,150
-------------
14,544,765
-------------
NON-ENERGY MINERALS 2.7%
Reliance Steel & Aluminum Co. ......................................................... 234,500 7,743,190
United States Steel Corp. ............................................................. 165,000 4,723,950
-------------
12,467,140
-------------
PROCESS INDUSTRIES 5.9%
AptarGroup Inc. ....................................................................... 126,000 4,951,800
Bunge Ltd. ............................................................................ 203,000 7,521,150
Cabot Corp. ........................................................................... 150,000 5,070,000
Myers Industries Inc. ................................................................. 185,000 2,610,350
RPM International Inc. ................................................................ 445,700 6,721,156
-------------
26,874,456
-------------
56 | Semiannual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING 16.3%
American Woodmark Corp. ............................................................... 6,400 $ 410,880
a Cable Design Technologies Corp. ....................................................... 154,200 1,315,326
Carlisle Cos. Inc. .................................................................... 32,000 1,896,000
CIRCOR International Inc. ............................................................. 162,000 3,168,720
CNH Global NV (Netherlands) ........................................................... 174,000 3,455,640
a Genlyte Group Inc. .................................................................... 60,000 3,439,200
Graco Inc. ............................................................................ 225,000 6,345,000
JLG Industries Inc. ................................................................... 237,400 3,511,146
a Mettler-Toledo International Inc. (Switzerland) ....................................... 165,000 7,395,300
Mueller Industries Inc. ............................................................... 154,900 5,196,895
a Powell Industries Inc. ................................................................ 107,900 1,715,610
Roper Industries Inc. ................................................................. 150,000 7,282,500
Stewart & Stevenson Services Inc. ..................................................... 111,500 1,781,770
Superior Industries International Inc. ................................................ 200,000 6,816,000
Teleflex Inc. ......................................................................... 70,000 3,195,500
Thomas Industries Inc. ................................................................ 80,000 2,700,000
Timken Co. ............................................................................ 69,600 1,535,376
a Tower Automotive Inc. ................................................................. 165,800 848,896
Watts Water Technologies Inc., A ...................................................... 150,000 3,673,500
York International Corp. .............................................................. 231,000 9,055,200
-------------
74,738,459
-------------
PROPERTY-CASUALTY INSURANCE 4.9%
Harleysville Group Inc. ............................................................... 87,500 1,662,500
IPC Holdings Ltd. (Bermuda) ........................................................... 115,000 4,232,000
Montpelier Re Holdings Ltd. (Bermuda) ................................................. 315,000 10,773,000
RLI Corp. ............................................................................. 162,100 5,632,975
-------------
22,300,475
-------------
REAL ESTATE INVESTMENT TRUSTS .7%
Arbor Realty Trust Inc. ............................................................... 175,000 3,403,750
-------------
REGIONAL BANKS 1.4%
Chemical Financial Corp. .............................................................. 3,100 106,175
Corus Bankshares Inc. ................................................................. 15,800 596,450
Hancock Holding Co. ................................................................... 88,700 2,475,617
Peoples Bancorp Inc. .................................................................. 145,000 3,469,850
-------------
6,648,092
-------------
Semiannual Report | 57
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, APRIL 30, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE 8.2%
a American Eagle Outfitters Inc. ........................................................ 170,000 $ 4,367,300
Casey's General Stores Inc. ........................................................... 146,800 2,431,008
Christopher & Banks Corp. ............................................................. 130,000 2,325,700
Dillards Inc., A ...................................................................... 300,000 5,049,000
a Linens 'n Things Inc. ................................................................. 165,000 5,352,600
a The Men's Wearhouse Inc. .............................................................. 206,000 5,250,940
Pier 1 Imports Inc. ................................................................... 262,400 5,421,184
a West Marine Inc. ...................................................................... 208,900 6,074,812
a Zale Corp. ............................................................................ 23,100 1,291,752
-------------
37,564,296
-------------
SAVINGS BANKS .2%
First Indiana Corp. ................................................................... 49,200 897,900
-------------
TECHNOLOGY SERVICES 1.5%
Reynolds & Reynolds Co., A ............................................................ 245,000 6,997,200
-------------
TRANSPORTATION 6.7%
a Kansas City Southern .................................................................. 185,900 2,574,715
OMI Corp. ............................................................................. 673,400 6,781,138
Overseas Shipholding Group Inc. ....................................................... 147,000 4,817,190
SkyWest Inc. .......................................................................... 275,000 5,005,000
Teekay Shipping Corp. (Bahamas) ....................................................... 138,700 8,432,960
Tidewater Inc. ........................................................................ 120,000 3,385,200
-------------
30,996,203
-------------
UTILITIES .7%
a Sierra Pacific Resources Co. .......................................................... 482,000 3,412,560
-------------
TOTAL COMMON STOCKS (COST $335,497,164) ............................................... 423,131,462
-------------
SHORT TERM INVESTMENT (COST $43,475,585) 9.5%
b Franklin Institutional Fiduciary Trust Money Market Portfolio ......................... 43,475,585 43,475,585
-------------
TOTAL INVESTMENTS (COST $378,972,749) 101.6% .......................................... 466,607,047
OTHER ASSETS, LESS LIABILITIES (1.6)% ................................................. (7,385,858)
-------------
NET ASSETS 100.0% ..................................................................... $459,221,189
=============
aNon-income producing.
bSee Note 7 regarding investments in affiliated Money Market Portfolio.
58 | See notes to financial statements. | Semiannual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2004 (unaudited)
-----------------------------------------------------------------
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 .......................... $1,685,012,560 $128,826,412 $121,158,553 $335,497,164
Cost - Non-controlled affiliated issuers ............. 212,997,482 -- 68,183,875 --
Cost - Sweep money fund (Note 7) ..................... 164,258,446 25,111,449 105,029,854 43,475,585
=================================================================
Value - Unaffiliated issuers ......................... 2,533,524,055 146,124,549 199,918,157 423,131,462
Value - Non-controlled affiliated issuers ............ 258,328,727 -- 95,401,997 --
Value - Sweep money fund (Note 7) .................... 164,258,446 25,111,449 105,029,854 43,475,585
Repurchase agreements, at value and cost .............. 671,786,303 -- 19,029,384 --
Receivables:
Capital shares sold ................................... 3,455,498 930,222 635,608 1,167,652
Dividends and interest ................................ 4,137,671 205,979 117,179 106,188
Other assets ........................................... 85,600 -- 56,500 --
-----------------------------------------------------------------
Total assets ...................................... 3,635,576,300 172,372,199 420,188,679 467,880,887
-----------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ....................... 9,110,316 2,902,386 310,072 7,118,446
Capital shares redeemed ............................... 4,754,202 258,120 552,750 629,724
Affiliates ............................................ 2,597,055 227,491 312,572 716,835
Shareholders .......................................... 477,035 14,530 115,110 88,403
Unaffiliated transfer agent fees ...................... 1,165,370 12,185 10,500 89,667
Other liabilities ...................................... 87,165 2,453 4,499 16,623
-----------------------------------------------------------------
Total liabilities ................................. 18,191,143 3,417,165 1,305,503 8,659,698
-----------------------------------------------------------------
Net assets, at value ............................. $3,617,385,157 $168,955,034 $418,883,176 $459,221,189
=================================================================
Net assets consist of:
Undistributed net investment income (loss) ............. $ 2,342,758 $ 77,423 $ 339,080 $ (441,425)
Net unrealized appreciation (depreciation) ............. 893,842,740 17,298,137 105,977,726 87,634,298
Accumulated net realized gain (loss) ................... 25,300,467 (2,219,614) 16,037,760 (28,350,702)
Capital shares ......................................... 2,695,899,192 153,799,088 296,528,610 400,379,018
-----------------------------------------------------------------
Net assets, at value ............................. $3,617,385,157 $168,955,034 $418,883,176 $459,221,189
=================================================================
Semiannual Report | 59
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2004 (unaudited)
-----------------------------------------------------------------
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 ................................. $3,342,503,871 $ 99,204,112 $418,883,176 $241,575,164
=================================================================
Shares outstanding ................................... 68,982,217 7,350,110 12,438,310 7,780,814
=================================================================
Net asset value per share a .......................... $48.45 $13.50 $33.68 $31.05
=================================================================
Maximum offering price per share
(net asset value per
share / 94.25%) ...................................... $51.41 $14.32 $35.73 $32.94
=================================================================
CLASS B:
Net assets, at value ................................. $ 108,793,418 $ 17,569,733 -- $ 56,428,846
=================================================================
Shares outstanding ................................... 2,271,396 1,313,125 -- 1,875,419
=================================================================
Net asset value and maximum offering
price per share a .................................... $47.90 $13.38 -- $30.09
=================================================================
CLASS C:
Net assets, at value ................................. $ 126,307,898 $ 49,552,925 -- $123,351,715
=================================================================
Shares outstanding ................................... 2,634,610 3,704,319 -- 4,141,770
=================================================================
Net asset value and maximum offering
price per share a .................................... $47.94 $13.38 -- $29.78
=================================================================
CLASS R:
Net assets, at value ................................. $ 15,952,206 $ 2,628,264 -- $ 18,110,186
=================================================================
Shares outstanding ................................... 330,412 195,826 -- 585,150
=================================================================
Net asset value and maximum offering
price per share a .................................... $48.28 $13.42 -- $30.95
=================================================================
ADVISOR CLASS:
Net assets, at value ................................. $ 23,827,764 -- -- $ 19,755,278
=================================================================
Shares outstanding ................................... 491,498 -- -- 622,222
=================================================================
Net asset value and maximum offering
price per share ...................................... $48.48 -- -- $31.75
=================================================================
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge and redemption fees retained by the Fund.
60 | See notes to financial statements. | Semiannual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended April 30, 2004 (unaudited)
-------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------
Investment income:
Dividends
Unaffiliated issuers ..................................... $ 20,682,004 $ 1,208,351 $ 1,300,683 $ 2,954,333
Non-controlled affiliated issuers (Note 8) ............... 1,335,126 -- 485,597 --
Sweep money fund (Note 7) ................................ 587,633 78,260 327,006 116,782
Interest .................................................. 3,552,465 -- 339,788 --
-------------------------------------------------------------
Total investment income .............................. 26,157,228 1,286,611 2,453,074 3,071,115
-------------------------------------------------------------
Expenses:
Management fees (Note 3) .................................. 7,839,963 343,904 1,310,436 1,554,123
Administrative fees (Note 3) .............................. -- 138,176 -- --
Distribution fees (Note 3)
Class A .................................................. 3,249,551 142,613 468,062 395,989
Class B .................................................. 544,954 71,869 -- 266,947
Class C .................................................. 654,721 211,795 -- 614,936
Class R .................................................. 37,814 5,904 -- 31,487
Transfer agent fees (Note 3) .............................. 4,388,040 113,260 251,991 532,848
Custodian fees ............................................ 14,068 411 2,070 1,738
Reports to shareholders ................................... 86,125 6,480 20,551 36,414
Registration and filing fees .............................. 144,267 30,286 40,927 46,260
Professional fees ......................................... 42,278 10,957 5,975 12,617
Trustees' fees and expenses ............................... 83,690 2,857 8,664 9,700
Other ..................................................... 75,499 2,612 5,493 9,481
-------------------------------------------------------------
Total expenses ....................................... 17,160,970 1,081,124 2,114,169 3,512,540
Expenses paid indirectly (Note 4) .................... (387) -- (175) --
-------------------------------------------------------------
Net expenses ........................................ 17,160,583 1,081,124 2,113,994 3,512,540
-------------------------------------------------------------
Net investment income (loss) ....................... 8,996,645 205,487 339,080 (441,425)
-------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated issuers .................................... 19,452,832 604,037 10,715,797 2,410,623
Non-controlled affiliated issuers (Note 8) .............. 4,051,789 -- 5,432,091 --
Closed-end funds distributions .......................... 1,562,318 -- -- --
Foreign currency transactions ............................ (1,892) -- -- (85)
-------------------------------------------------------------
Net realized gain (loss) ........................... 25,065,047 604,037 16,147,888 2,410,538
Net unrealized appreciation (depreciation) on investments . 217,825,624 9,766,146 28,061,655 36,101,229
-------------------------------------------------------------
Net realized and unrealized gain (loss) .................... 242,890,671 10,370,183 44,209,543 38,511,767
-------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations ................................................ $251,887,316 $10,575,670 $44,548,623 $38,070,342
=============================================================
Semiannual Report | See notes to financial statements. | 61
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS for the six months ended April 30, 2004
(unaudited) and the year ended October 31, 2003
----------------------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003 APRIL 30, 2004 OCTOBER 31, 2003
----------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 8,996,645 $ 8,064,597 $ 205,487 $ 226,792
Net realized gain (loss) from investments
and foreign currency transactions ........... 25,065,047 22,370,201 604,037 (1,197,959)
Net unrealized appreciation (depreciation)
on investments .............................. 217,825,624 605,667,050 9,766,146 13,788,782
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... 251,887,316 636,101,848 10,575,670 12,817,615
Distributions to shareholders from:
Net investment income:
Class A ................................... (11,216,419) (15,859,670) (277,348) (219,664)
Class B ................................... -- (12,389) (7,129) (2,700)
Class C ................................... -- (224) -- (25,501)
Class R ................................... (27,347) (48,332) (11,952) (608)
Advisor Class ............................. (129,680) (136,670) -- --
Net realized gains:
Class A ................................... (20,640,023) (16,010,960) -- --
Class B ................................... (706,734) (608,470) -- --
Class C ................................... (856,261) (796,029) -- --
Class R ................................... (93,367) (60,002) -- --
Advisor Class ............................. (149,903) (104,241) -- --
----------------------------------------------------------------------------
Total distributions to shareholders ......... (33,819,734) (33,636,987) (296,429) (248,473)
Capital share transactions: (Note 2)
Class A ..................................... 110,186,615 145,187,768 33,812,404 19,537,776
Class B ..................................... (1,892,392) (4,723,653) 5,636,926 4,694,580
Class C ..................................... (9,930,681) (14,490,811) 13,730,403 10,811,167
Class R ..................................... 1,720,227 3,342,448 1,612,834 666,777
Advisor Class ............................... 192,520 2,990,936 -- --
----------------------------------------------------------------------------
Total capital share transactions ............ 100,276,289 132,306,688 54,792,567 35,710,300
Net increase (decrease) in net
assets ...................................... 318,343,871 734,771,549 65,071,808 48,279,442
Net assets:
Beginning of period ......................... 3,299,041,286 2,564,269,737 103,883,226 55,603,784
----------------------------------------------------------------------------
End of period ............................... $3,617,385,157 $3,299,041,286 $168,955,034 $103,883,226
============================================================================
Undistributed net investment income included
in net assets:
End of period .............................. $ 2,342,758 $ 4,719,559 $ 77,423 $ 168,365
============================================================================
62 | Semiannual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) for the six months ended April
30, 2004 (unaudited) and the year ended October 31, 2003
----------------------------------------------------------------------------
FRANKLIN FRANKLIN
MICROCAP VALUE FUND SMALL CAP VALUE FUND
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003 APRIL 30, 2004 OCTOBER 31, 2003
----------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................ $ 339,080 $ (388,657) $ (441,425) $ (1,019,579)
Net realized gain (loss) from
investments and foreign currency
transactions ................................. 16,147,888 7,256,754 2,410,538 (8,512,879)
Net unrealized appreciation (depreciation)
on investments ............................... 28,061,655 64,006,345 36,101,229 85,145,032
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .................... 44,548,623 70,874,442 38,070,342 75,612,574
Distributions to shareholders from:
Net realized gains:
Class A .................................... (7,050,991) (13,669,360) -- --
----------------------------------------------------------------------------
Total distributions to shareholders .......... (7,050,991) (13,669,360) -- --
Capital share transactions: (Note 2)
Class A .................................... 70,390,810 23,227,153 21,192,562 19,380,987
Class B .................................... -- -- 4,191,089 8,827,006
Class C .................................... -- -- 3,079,676 6,169,326
Class R .................................... -- -- 10,315,160 4,689,321
Advisor Class .............................. -- -- 5,283,310 804,441
----------------------------------------------------------------------------
Total capital share transactions ............. 70,390,810 23,227,153 44,061,797 39,871,081
Net increase (decrease) in net
assets ....................................... 107,888,442 80,432,235 82,132,139 115,483,655
Net assets:
Beginning of period .......................... 310,994,734 230,562,499 377,089,050 261,605,395
----------------------------------------------------------------------------
End of period ................................ $418,883,176 $310,994,734 $459,221,189 $377,089,050
============================================================================
Undistributed net investment income (loss)
included in net assets:
End of period ................................. $ 339,080 $ -- $ (441,425) $ --
============================================================================
Semiannual Report | See notes to financial statements. | 63
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 investment objectives of the Funds included in this report are:
- --------------------------------------------------------------------------------
CAPITAL APPRECIATION TOTAL RETURN
- --------------------------------------------------------------------------------
Franklin Large Cap Value Fund Franklin Balance Sheet Fund
Franklin Microcap Value Fund
Franklin Small Cap Value Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange are valued at the
last reported sales price. Securities listed or traded on NASDAQ are valued at
their official closing 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. Debt securities are valued by independent pricing services
or market makers under procedures approved by the Board of Trustees. Foreign
securities are valued at the close of trading of the foreign exchange or the
NYSE, whichever is earlier. If events occur that materially affect the values of
securities after the prices or foreign exchange rates are determined, but prior
to 4:00 p.m.Eastern time or the close of trading on the NYSE, whichever is
earlier, or if market quotations are deemed not readily available or reliable,
the securities will be valued at fair value as determined following procedures
approved by the Board of Trustees. Investments in open-end mutual funds are
valued at the closing net asset value.
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.
64 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. JOINT REPURCHASE AGREEMENT
The Funds may enter into a joint repurchase agreement whereby their 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 Funds based on their 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 Funds, with
the value of the underlying securities marked to market daily to maintain
coverage of at least 100%. At April 30, 2004, all repurchase agreements had been
entered into on that date.
D. FOREIGN CURRENCY CONTRACTS
When the Funds purchase or sell foreign securities they may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
E. 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.
F. 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.
G. 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.
Semiannual Report | 65
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. REDEMPTION FEES
Redemptions and exchanges of the Funds' shares held 30 days or less, 90 days
prior to January 2, 2004, may be subject to the Funds' redemption fee, which is
2% of the amount redeemed. Such fees are retained by the Funds and accounted for
as additional paid in capital.
I. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust
enters into contracts with service providers that contain general
indemnification clauses. The Trust's maximum exposure under these arrangements
is unknown as this would involve future claims that may be made against the
Trust that have not yet occurred. However, based on experience, the Trust
expects the risk of loss to be remote.
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 April 30, 2004, 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:
Six months ended April 30, 2004
Shares sold .......................... 11,087,671 $ 534,889,069 2,996,780 $39,814,987
Shares issued in reinvestment of
distributions ....................... 633,147 29,099,457 18,852 239,983
Shares redeemed ...................... (9,413,421) (453,801,911) (472,022) (6,242,566)
--------------------------------------------------------------
Net increase (decrease) .............. 2,307,397 $ 110,186,615 2,543,610 $33,812,404
==============================================================
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
==============================================================
66 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
--------------------------------------------------------------
FRANKLIN BALANCE FRANKLIN LARGE CAP
SHEET INVESTMENT FUND VALUE FUND
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS B SHARES:
Six months ended April 30, 2004
Shares sold .......................... 58,735 $ 2,807,507 507,263 $ 6,672,887
Shares issued in reinvestment of
distributions ....................... 14,457 658,813 471 5,958
Shares redeemed ...................... (111,892) (5,358,712) (78,844) (1,041,919)
--------------------------------------------------------------
Net increase (decrease) .............. (38,700) $ (1,892,392) 428,890 $ 5,636,926
==============================================================
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
==============================================================
CLASS C SHARES:
Six months ended April 30, 2004
Shares sold .......................... 78,420 $ 3,737,263 1,469,588 $19,289,207
Shares issued in reinvestment of
distributions ....................... 17,212 785,232 -- --
Shares redeemed ...................... (303,164) (14,453,176) (419,706) (5,558,804)
--------------------------------------------------------------
Net increase (decrease) .............. (207,532) $ (9,930,681) 1,049,882 $13,730,403
==============================================================
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
==============================================================
CLASS R SHARES:
Six months ended April 30, 2004
Shares sold .......................... 75,592 $ 3,643,837 184,969 $ 2,352,950
Shares issued in reinvestment of
distributions ....................... 2,633 120,715 944 11,952
Shares redeemed ...................... (42,226) (2,044,325) (57,023) (752,068)
--------------------------------------------------------------
Net increase (decrease) .............. 35,999 $ 1,720,227 128,890 $ 1,612,834
==============================================================
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
==============================================================
Semiannual Report | 67
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
-------------------------------
FRANKLIN BALANCE
SHEET INVESTMENT FUND
SHARES AMOUNT
-------------------------------
ADVISOR CLASS SHARES:
Six months ended April 30, 2004
Shares sold .......................... 57,314 $ 2,775,955
Shares issued in reinvestment of
distributions ....................... 4,065 186,793
Shares redeemed ...................... (57,109) (2,770,228)
-------------------------------
Net increase (decrease) .............. 4,270 $ 192,520
===============================
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
===============================
--------------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Six months ended April 30, 2004
Shares sold .......................... 3,393,491 $ 109,690,552 1,419,130 $ 43,868,569
Shares issued in reinvestment of
distributions ....................... 200,779 6,332,554 -- --
Shares redeemed ...................... (1,383,858) (45,632,296) (739,318) (22,676,007)
--------------------------------------------------------------
Net increase (decrease) .............. 2,210,412 $ 70,390,810 679,812 $ 21,192,562
==============================================================
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
==============================================================
CLASS B SHARES:
Six months ended April 30, 2004
Shares sold .......................... 269,859 $ 8,042,954
Shares issued in reinvestment of
distributions ....................... -- --
Shares redeemed ...................... (129,387) (3,851,865)
----------------------------
Net increase (decrease) .............. 140,472 $ 4,191,089
============================
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
============================
68 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------
FRANKLIN SMALL CAP
VALUE FUND
SHARES AMOUNT
----------------------------
CLASS C SHARES:
Six months ended April 30, 2004
Shares sold ............................................................ 635,231 $ 18,557,399
Shares issued in reinvestment of distributions ......................... -- --
Shares redeemed ........................................................ (523,959) (15,477,723)
----------------------------
Net increase (decrease) ................................................ 111,272 $ 3,079,676
============================
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
============================
CLASS R SHARES:
Six months ended April 30, 2004
Shares sold ............................................................ 481,091 $ 14,836,621
Shares issued in reinvestment of distributions ......................... -- --
Shares redeemed ........................................................ (141,752) (4,521,461)
----------------------------
Net increase (decrease) ................................................ 339,339 $ 10,315,160
============================
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
============================
ADVISOR CLASS SHARES:
Six months ended April 30, 2004
Shares sold ............................................................ 201,714 $ 6,364,786
Shares issued in reinvestment of distributions ......................... -- --
Shares redeemed ........................................................ (34,324) (1,081,476)
----------------------------
Net increase (decrease) ................................................ 167,390 $ 5,283,310
============================
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
============================
Semiannual Report | 69
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
the following entities:
- ---------------------------------------------------------------------------------------------------
ENTITY AFFILIATION
- ---------------------------------------------------------------------------------------------------
Franklin Advisory Services LLC (Advisory Services) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin/Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services LLC (Investor Services) Transfer agent
The Franklin Balance Sheet Investment Fund pays an investment management fee to
Advisory Services based on the average daily net assets of the fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE 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 average daily net assets of the fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE 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.
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 average daily net assets of the fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE 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.
70 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 under a Rule 12b-1 plan 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 has advised the Funds it received (paid) net commissions from (on)
sales of the Funds' shares, and received contingent deferred sales charges for
the period 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) ............... $(494,546) $(220,599) $34,422 $(306,080)
Contingent deferred sales charges ............. $ 84,053 $ 13,439 $35,272 $ 55,768
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 ........................... $2,157,553 $95,753 $223,221 $350,478
4. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an arrangement with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Funds' custodian expenses. During the period ended April 30, 2004, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 71
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. 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
=============================
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatment of foreign currency transactions.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
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.
At April 30, 2004, the net unrealized appreciation (depreciation) based on the
cost of investments for income tax purposes was as follows:
--------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
--------------------------------------------------------------
Cost of investments ............... $2,734,718,131 $153,942,024 $313,511,521 $379,210,526
==============================================================
Unrealized appreciation ........... $ 968,000,461 $ 17,943,033 $111,382,521 $ 94,429,823
Unrealized depreciation ........... (74,821,061) (649,059) (5,514,650) (7,033,302)
--------------------------------------------------------------
Net unrealized appreciation
(depreciation) ................... $ 893,179,400 $ 17,293,974 $105,867,871 $ 87,396,521
==============================================================
72 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended April 30, 2004 were as follows:
-----------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------
Purchases ............................ $166,310,031 $59,957,424 $14,590,400 $68,192,281
Sales ................................ $ 80,661,528 $12,392,773 $29,925,958 $39,752,442
7. INVESTMENTS IN AFFILIATED 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.
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
April 30, 2004 were as shown below.
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND
Alaska Air Group Inc. ........... 1,350,600 -- -- 1,350,600 $ 29,888,778 $ -- $ --
Aztar Corp. ..................... 3,000,000 -- -- 3,000,000 77,700,000 -- --
Champps Entertainment Inc. ....... 920,000 -- -- 920,000 7,967,200 -- --
Delta Woodside
Industries Inc. ................... 560,000 -- 5,000 555,000 588,300 -- (70,126)
DIMON Inc. ....................... 2,504,200 -- -- 2,504,200 17,354,106 375,630 --
Dollar Thrifty Automotive
Group Inc. ........................ 1,800,000 -- -- 1,800,000 47,430,000 -- --
Handleman Co. .................... 1,300,000 -- 300,000 1,000,000 a 154,000 4,121,915
Haverty Furniture Cos. Inc. ...... 920,000 -- -- 920,000 16,624,400 115,000 --
Insteel Industries Inc. .......... 560,000 -- -- 560,000 1,260,000 -- --
Syms Corp. ....................... 1,430,000 -- -- 1,430,000 10,953,800 -- --
Tecumseh Products Co., A ......... 778,900 -- -- 778,900 30,275,843 498,496 --
Tecumseh Products Co., B ......... 300,000 -- -- 300,000 11,286,300 192,000 --
Xanser Corp. ..................... 2,800,000 -- -- 2,800,000 7,000,000 -- --
-------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS ...................................... $258,328,727 $1,335,126 $4,051,789
=====================================
Semiannual Report | 73
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND
ACMAT Corp., A ................... 392,800 -- -- 392,800 $ 5,509,020 $ -- $ --
American Pacific Corp. ........... 668,900 -- 9,900 659,000 5,028,170 280,938 37,955
Art's-Way Manufacturing
Co. Inc. .......................... 134,500 -- -- 134,500 712,850 -- --
Commonwealth
Industries Inc. ................... 870,000 -- 90,000 780,000 a -- 376,763
Continental
Materials Corp. ................... 99,500 -- -- 99,500 2,883,012 -- --
Delta Apparel Inc. ............... 340,000 -- -- 340,000 7,633,000 40,800 --
Duckwall-ALCO
Stores Inc. ....................... 300,000 30,000 -- 330,000 5,593,500 -- --
Ecology & Environment
Inc., A ........................... 230,000 -- 15,000 215,000 2,266,100 39,100 27,628
Espey Manufacturing &
Electronics Corp. ................. 78,000 -- -- 78,000 2,039,700 19,500 --
Fresh Brands Inc. ................ 264,000 494,100 -- 758,100 6,671,280 23,760 --
Gehl Co. ......................... 405,200 14,800 -- 420,000 7,077,000 -- --
Haggar Corp. ..................... 420,000 -- -- 420,000 8,248,800 21,000 --
Hardinge Inc. .................... 700,000 5,000 -- 705,000 8,445,900 7,004 --
International Shipholding
Corp. ............................. 480,000 -- -- 480,000 7,051,200 -- --
Invivo Corp. ..................... 402,000 -- 402,000 -- a -- 5,589,550
Merchants Group Inc. ............. 190,000 -- -- 190,000 4,646,450 38,000 --
Nashua Corp. ..................... 475,000 -- -- 475,000 4,256,000 -- --
S&K Famous Brands Inc. ........... 260,000 -- -- 260,000 4,695,600 -- --
Seneca Foods Corp., A ............ 256,600 -- -- 256,600 4,928,003 -- --
Seneca Foods Corp., B ............ 121,500 -- -- 121,500 2,300,602 -- --
United Retail Group Inc. ......... 830,000 -- 151,100 678,900 1,894,131 -- (599,805)
Village Super Market
Inc., A ........................... 110,675 -- -- 110,675 3,521,679 15,495 --
------------------------------------
TOTAL NON-CONTROLLED AFFILIATED ISSUERS $95,401,997 $485,597 $5,432,091
====================================
aAs of April 30, 2004, no longer an affiliate.
9. REGULATORY MATTERS
MASSACHUSETTS ADMINISTRATIVE PROCEEDING
On February 4, 2004, the Securities Division of the Office of the Secretary of
the Commonwealth of Massachusetts filed an administrative complaint against
Franklin Resources, Inc. and certain of its subsidiaries (the "Company")
claiming violations of the Massachusetts Uniform Securities Act ("Massachusetts
Act") with respect to an alleged arrangement to permit market timing (the "Mass.
Proceeding"). On February 14, 2004, the Company filed an answer denying all
violations of the Massachusetts Act.
74 | Semiannual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
GOVERNMENTAL INVESTIGATIONS
As part of ongoing investigations by the U.S. Securities and Exchange Commission
(SEC), the U.S. Attorney for the Northern District of California, the New York
Attorney General, the California Attorney General, the U.S. Attorney for the
District of Massachusetts, the Florida Department of Financial Services and the
Commissioner of Securities, the West Virginia Attorney General and the Vermont
Department of Banking, Insurance, Securities, and Health Care Administration,
relating to certain practices in the mutual fund industry, including late
trading, market timing and payments to securities dealers who sell Fund shares,
the Company and its subsidiaries, as well as certain current or former
executives and employees of the Company, have received requests for information
and/or subpoenas to testify or produce documents. The Company and its current
employees are providing documents and information in response to these requests
and subpoenas. In addition, the Company has responded to requests for similar
kinds of information from regulatory authorities in some of the foreign
countries where the Company conducts its global asset management business.
The staff of the SEC has informed the Company that it intends to recommend that
the SEC authorize a civil injunctive action against an affiliate of the Trust's
investment manager. The SEC's investigation is focused on the activities that
are the subject of the Mass. Proceeding described above and other instances of
alleged market timing by a limited number of third parties that ended in 2000.
The Company currently believes that the charges the SEC staff is contemplating
are unwarranted. There are discussions underway with the SEC staff in an effort
to resolve the issues raised in their investigation.
In response to requests for information and subpoenas from the SEC and the
California Attorney General, the Company has provided documents and testimony
has been taken relating to payments to security dealers who sell Fund shares.
Effective November 28, 2003, the Company determined not to direct any further
brokerage commissions where the allocation is based, not only on best execution,
but also on the sale of Fund shares.
OTHER LEGAL PROCEEDINGS
The Trust, in addition to other entities within Franklin Templeton Investments,
including the Company and certain of its subsidiaries, other funds, and current
and former officers, employees, and directors have been named in multiple
lawsuits in different federal courts in Nevada, California, Illinois, New York,
New Jersey, and Florida, alleging violations of various federal securities laws
and seeking, among other things, monetary damages and costs. Specifically, the
lawsuits claim breach of duty with respect to alleged arrangements to permit
market timing and/or late trading activity, or breach of duty with respect to
the valuation of the portfolio securities of certain funds managed by Company
subsidiaries, resulting in alleged market timing activity. The majority of these
lawsuits duplicate, in whole or in part, the allegations asserted in the Mass.
Proceeding detailed above. The lawsuits are styled as class actions or
derivative actions.
Semiannual Report | 75
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
In addition, the Company and its subsidiaries, as well as certain current and
former officers, employees, and directors have been named in multiple lawsuits
alleging violations of various securities laws and pendent state law claims
relating to the disclosure of directed brokerage payments and payment of
allegedly excessive commissions and advisory fees. These lawsuits are styled as
class actions and derivative actions.
Management strongly believes that the claims made in each of these lawsuits are
without merit and intends to vigorously defend against them.
The Company cannot predict with certainty the eventual outcome of the foregoing
Mass. Proceeding, other governmental investigations or class actions or other
lawsuits. The impact, if any, of these matters on the Trust is uncertain at this
time. If the Company determines that it bears responsibility for any unlawful or
inappropriate conduct that caused losses to the Trust, it is committed to making
the Trust or its shareholders whole, as appropriate.
76 | Semiannual Report
Franklin Value Investors Trust
PROXY VOTING POLICIES AND PROCEDURES
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.
Semiannual Report | 77
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Literature Request
For a brochure and prospectus, which contains more complete information,
including charges, expenses and risks, 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 2
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
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 4
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 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5,6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 3
Franklin Income Fund
Franklin Money Fund 5,6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 5
Templeton Global Bond Fund
TAX-FREE INCOME 7
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 8
Tax-Exempt Money Fund 5,6
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 7
Alabama
Arizona
California 9
Colorado
Connecticut
Florida 9
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 8
Michigan 8
Minnesota 8
Missouri
New Jersey
New York 9
North Carolina
Ohio 8
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust 10
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.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.
4.Upon reaching approximately $350 million in assets, the fund intends to close
to all investors.
5.An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6.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.
7.For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
8.Portfolio of insured municipal securities.
9.These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
10.The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
02/04 Not part of the semiannual report
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
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.
SEMIANNUAL 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
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
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 S2004 06/04
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. 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 11. EXHIBITS.
(A) Code of Ethics
(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
Galen G. Vetter, 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
Galen G. Vetter, 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 June 30, 2004
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 June 30, 2004
By /s/Galen G. Vetter
Chief Financial Officer
Date June 30, 2004