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
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1960
(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: 4/30/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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APRIL 30, 2005
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Franklin Balance Sheet
Investment Fund
Franklin Large Cap
Value Fund
Franklin MicroCap
Value Fund
Franklin Small Cap
Value Fund
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER | VALUE
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WANT TO RECEIVE
THIS DOCUMENT
FRANKLIN FASTER VIA EMAIL?
VALUE INVESTORS TRUST
Eligible shareholders can
sign up for edelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
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 recognized
leader in fixed income investing and also brings
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,
it offers investors the broadest global reach in the
industry with offices in over 25 countries.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
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, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the semiannual report
CONTENTS
SHAREHOLDER LETTER ......................................................... 1
SEMIANNUAL REPORT
Economic and Market Overview ............................................... 3
Franklin Balance Sheet Investment Fund ..................................... 5
Franklin Large Cap Value Fund .............................................. 14
Franklin MicroCap Value Fund ............................................... 23
Franklin Small Cap Value Fund .............................................. 30
Financial Highlights and Statements of Investments ......................... 38
Financial Statements ....................................................... 70
Notes to Financial Statements .............................................. 75
Shareholder Information .................................................... 89
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SEMIANNUAL REPORT
ECONOMIC AND MARKET OVERVIEW
During the six months ended April 30, 2005, domestic economic expansion showed
staying power across most industries, sectors and regions. Gross domestic
product (GDP) rose at an annualized 3.8% rate in fourth quarter 2004 and an
annualized 3.5% in first quarter 2005, benefiting from greater business
investment, sizable inventory buildup and consumer spending. Although booming
demand for imported goods and materials fueled the trade gap, a relatively weak
U.S. dollar made U.S. exports more competitive in the global market.
The labor market firmed as employment increased and the unemployment rate
dropped from 5.5% to 5.2% during the reporting period.(1) Hiring rebounded in
many industries, bolstered by healthy business spending and solid business
confidence. High energy prices cooled consumer sentiment. Although core retail
sales generally held strong, they weakened toward period-end. Oil prices hit a
new high of $57.27 per barrel on April 1 before declining to $49.72 on April
30.(2)
The Federal Reserve Board raised the federal funds target rate from 1.75% to
2.75% and said it will respond to changes in economic prospects as needed to
fulfill its obligation to maintain price stability. Inflation remained
relatively contained for the 12 months ended April 30, 2005, as measured by the
2.2% rise for the core Consumer Price Index, which excludes volatile food and
energy costs. Pricing pressures were somewhat eased by continued competition,
globalization and offshoring, as many companies held back in passing along
higher commodity and energy costs to consumers.
(1) Source: Bureau of Labor Statistics.
(2) Source: Bloomberg Energy/Commodity Service.
Semiannual Report | 3
Despite a generally strong economy and improving corporate fundamentals,
investors faced a stock market influenced partly by rising inflation, the
fluctuating dollar and interest rate hikes during the period. Corporate profits
rebounded and dividend payments surged to a record level, with U.S. companies
paying out $181 billion in 2004.(3) The pace of initial public offerings (IPOs)
remained strong through much of the reporting period, supporting investor
confidence. The blue chip stocks of the Dow Jones Industrial Average gained
2.78% for the period under review, while the broader Standard & Poor's 500
Composite Index (S&P 500) rose 3.28%, and the technology-heavy NASDAQ Composite
Index declined 2.39%.(4)
(3) Source: Standard & Poor's, "2005 Buybacks Soar to Record Levels, Says
S&P," standardandpoors.com, 4/7/05.
(4) Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is
price weighted based on the average market price of 30 blue chip stocks of
companies that are generally industry leaders. The S&P 500 consists of 500
stocks chosen for their 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. The NASDAQ Composite Index measures all domestic
and international common stocks listed on The NASDAQ Stock Market. The
index is market value weighted and includes more than 3,000 companies.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF APRIL 30, 2005. THE
INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY,
INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES
CONSIDERED RELIABLE.
4 | Semiannual Report
FRANKLIN BALANCE SHEET INVESTMENT FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Balance Sheet Investment Fund
seeks high total return, of which capital appreciation and income are
components, by investing most of its assets in securities that we believe are
undervalued in the marketplace at the time of purchase and have the potential
for capital appreciation.
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
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We are pleased to bring you Franklin Balance Sheet Investment Fund's semiannual
report for the period ended April 30, 2005.
PERFORMANCE OVERVIEW
Franklin Balance Sheet Investment Fund - Class A posted a +5.84% cumulative
total return for the six months under review. The Fund outperformed its
benchmark, the Russell 2000(R) Value Index, which posted a 1.52% 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.
Although this report covers a six-month period, our investment strategy aims for
long-term results. You can find the Fund's long-term performance data in the
Performance Summary beginning on page 9.
(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 43.
Semiannual Report | 5
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 4/30/05
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
Retail Trade 7.4%
Life & Health Insurance 6.8%
Process Industries 6.2%
Transportation 6.2%
Consumer Durables 5.8%
Producer Manufacturing 5.8%
Finance, Rental & Leasing 5.6%
Property-Casualty Insurance 5.4%
Utilities 5.0%
Non-Energy Minerals 4.9%
Consumer Services 3.4%
Industrial Services 3.1%
Specialty Insurance 2.5%
Consumer Non-Durables 2.2%
Financial Conglomerates 2.1%
Other 7.6%
Short-Term Investments & Other Net Assets 20.0%
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 define "low price-to-book value" as the lowest 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 position for several years.
MANAGER'S DISCUSSION
During the six months under review, we identified three new investment
opportunities: Aspen Insurance Holdings, a Bermuda-based property insurance and
reinsurance provider; MBIA, a financial guarantor active in municipal credit
enhancement and structured finance; and Watson Pharmaceuticals, primarily a
generic pharmaceuticals manufacturer.
Financials have had to contend with rising interest rates and, in some cases,
specific challenges that, in our view, led to attractive valuations. Freddie
Mac, for example, may see regulatory changes as a result of accounting errors on
its part as well as that of competitor Fannie Mae that raised concerns in
Congress. We added to our position in Freddie Mac during the period because we
believed it was attractively priced relative to its book value, and that the
book value will grow in the future under any regulatory framework Congress
enacts.
6 | Semiannual Report
We also increased our position in Corn Products after it reported disappointing
results in first quarter 2005, and we added to our holdings in OfficeMax,
Kellwood and Hanover Compressor. In each case, consistent with our investment
strategy, we believed we were taking advantage of negative market perceptions to
add to or establish positions that may produce positive results in future years.
Cash invested in new or existing positions totaled $78 million for the six
months under review. Portfolio sales totaled $149 million, mostly in response to
price appreciation. Hutchinson Technology and J.G. Boswell were eliminated
completely. Both investments were made in accordance with our stated investment
strategy and the results were consistent with our expectations.
Fund holdings that contributed most to performance during the period included
coal producer Peabody Energy, homebuilders Pulte and D.R. Horton, agribusiness
companies Bunge and Monsanto, steel makers United States Steel and Nucor, car
rental provider Dollar Thrifty Automotive Group, and financial services company
Prudential Financial. We also got strong results from retailers with large real
estate holdings, including Saks, Dillards and Toys R Us. Toys R Us was subject
to a takeover. There were no other takeover announcements in the portfolio
during the six months under review.
Several positions detracted from Fund performance, among them the aforementioned
Freddie Mac. Other detractors included Offshore Logistics, which provides
helicopter transportation services to oil drillers; Aztar, a gaming company; and
Trinity Industries, which primarily manufactures rail cars.
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
4/30/05
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COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
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Bunge Ltd. 2.4%
PROCESS INDUSTRIES
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Pulte Homes Inc. 2.1%
CONSUMER DURABLES
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Freddie Mac 2.1%
FINANCE, RENTAL & LEASING
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CIT Group Inc. 2.0%
FINANCE, RENTAL & LEASING
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Prudential Financial Inc. 1.9%
FINANCIAL CONGLOMERATES
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Peabody Energy Corp. 1.8%
ENERGY MINERALS
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Aztar Corp. 1.8%
CONSUMER SERVICES
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Old Republic International Corp. 1.7%
PROPERTY-CASUALTY INSURANCE
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United States Steel Corp. 1.7%
NON-ENERGY MINERALS
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D.R. Horton Inc. 1.5%
CONSUMER DURABLES
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Semiannual Report | 7
Thank you for your continued participation in Franklin Balance Sheet Investment
Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Bruce C. Baughman
Bruce C. Baughman, CPA
Lead Portfolio Manager
William J. Lippman
Donald Taylor, CPA
Margaret McGee
Portfolio Management Team
Franklin Balance Sheet Investment Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2005, 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 ADVISER 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.
8 | Semiannual Report
PERFORMANCE SUMMARY AS OF 4/30/05
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 reinvestment of the Fund's dividends
and capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FRBSX) CHANGE 4/30/05 10/31/04
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Net Asset Value (NAV) +$1.86 $ 55.81 $ 53.95
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DISTRIBUTIONS (11/1/04-4/30/05)
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Dividend Income $ 0.4300
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Short-Term Capital Gain $ 0.0626
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Long-Term Capital Gain $ 0.8470
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TOTAL $ 1.3396
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CLASS B (SYMBOL: FBSBX) CHANGE 4/30/05 10/31/04
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Net Asset Value (NAV) +$2.00 $ 55.13 $ 53.13
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DISTRIBUTIONS (11/1/04-4/30/05)
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Dividend Income $ 0.0162
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Short-Term Capital Gain $ 0.0626
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Long-Term Capital Gain $ 0.8470
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TOTAL $ 0.9258
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CLASS C (SYMBOL: FCBSX) CHANGE 4/30/05 10/31/04
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Net Asset Value (NAV) +$2.02 $ 55.20 $ 53.18
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DISTRIBUTIONS (11/1/04-4/30/05)
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Short-Term Capital Gain $ 0.0626
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Long-Term Capital Gain $ 0.8470
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TOTAL $ 0.9096
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CLASS R (SYMBOL: FBSRX) CHANGE 4/30/05 10/31/04
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Net Asset Value (NAV) +$1.89 $ 55.58 $ 53.69
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DISTRIBUTIONS (11/1/04-4/30/05)
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Dividend Income $ 0.3011
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Short-Term Capital Gain $ 0.0626
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Long-Term Capital Gain $ 0.8470
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TOTAL $ 1.2107
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ADVISOR CLASS (SYMBOL: FBSAX) CHANGE 4/30/05 10/31/04
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Net Asset Value (NAV) +$1.82 $ 55.87 $ 54.05
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DISTRIBUTIONS (11/1/04-4/30/05)
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Dividend Income $ 0.5389
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Short-Term Capital Gain $ 0.0626
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Long-Term Capital Gain $ 0.8470
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TOTAL $ 1.4485
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Semiannual Report | 9
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.
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CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return(1) +5.84% +17.83% +103.37% +244.32%
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Average Annual Total Return(2) -0.24% +11.05% +13.90% +12.49%
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Value of $10,000 Investment(3) $ 9,976 $11,105 $19,170 $32,457
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Avg. Ann. Total Return (3/31/05)(4) +12.12% +15.15% +13.35%
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CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (3/1/01)
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Cumulative Total Return(1) +5.44% +16.95% +32.59% +59.65%
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Average Annual Total Return(2) +1.44% +12.95% +9.02% +11.55%
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Value of $10,000 Investment(3) $10,144 $11,295 $12,959 $15,765
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Avg. Ann. Total Return (3/31/05)(4) +14.07% +11.17% +13.02%
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CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (3/1/01)
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Cumulative Total Return(1) +5.44% +16.97% +32.57% +59.73%
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Average Annual Total Return(2) +4.44% +15.97% +9.85% +11.90%
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Value of $10,000 Investment(3) $10,444 $11,597 $13,257 $15,973
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Avg. Ann. Total Return (3/31/05)(4) +17.08% +11.97% +13.37%
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CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02)
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Cumulative Total Return(1) +5.69% +17.53% +34.58% +45.18%
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Average Annual Total Return(2) +4.69% +16.53% +10.41% +11.87%
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Value of $10,000 Investment(3) $10,469 $11,653 $13,458 $14,518
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Avg. Ann. Total Return (3/31/05)(4) +17.67% +12.53% +13.71%
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ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return(1) +5.95% +18.13% +105.32% +247.61%
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Average Annual Total Return(2) +5.95% +18.13% +15.47% +13.27%
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Value of $10,000 Investment(3) $10,595 $11,813 $20,532 $34,761
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Avg. Ann. Total Return (3/31/05)(4) +19.24% +16.74% +14.13%
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
10 | Semiannual Report
PERFORMANCE SUMMARY (CONTINUED)
ENDNOTES
INVESTING IN SMALLER COMPANIES INVOLVES ADDITIONAL RISKS, AS THE PRICE OF SUCH
SECURITIES CAN BE VOLATILE, PARTICULARLY OVER THE SHORT TERM. INVESTORS SHOULD
EXPECT FLUCTUATION IN THE VALUE OF THEIR INVESTMENT, 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 +66.38% and +13.00%.
Semiannual Report | 11
YOUR FUND'S EXPENSES
FRANKLIN BALANCE SHEET INVESTMENT FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Semiannual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
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BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 10/31/04 VALUE 4/30/05 PERIOD* 10/31/04-4/30/05
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Actual $ 1,000 $ 1,058.40 $ 4.59
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Hypothetical (5% return before expenses) $ 1,000 $ 1,020.33 $ 4.51
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CLASS B
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Actual $ 1,000 $ 1,054.40 $ 8.46
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Hypothetical (5% return before expenses) $ 1,000 $ 1,016.56 $ 8.30
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CLASS C
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Actual $ 1,000 $ 1,054.40 $ 8.46
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Hypothetical (5% return before expenses) $ 1,000 $ 1,016.56 $ 8.30
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CLASS R
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Actual $ 1,000 $ 1,056.90 $ 5.92
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Hypothetical (5% return before expenses) $ 1,000 $ 1,019.04 $ 5.81
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ADVISOR CLASS
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Actual $ 1,000 $ 1,059.50 $ 3.37
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Hypothetical (5% return before expenses) $ 1,000 $ 1,021.52 $ 3.31
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* Expenses are equal to the annualized expense ratio for each class (A:
0.90%; B: 1.66%; C: 1.66%; R: 1.16%; and Advisor: 0.66%), multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
Semiannual Report | 13
FRANKLIN LARGE CAP VALUE FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Large Cap Value Fund seeks
long-term capital appreciation by investing at least 80% of net assets in
securities of large capitalization companies that we believe are undervalued.
Large capitalization companies are those with market capitalizations that are
similar in size at the time of purchase to those in the Russell 1000(R)
Index.(1)
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This semiannual report for Franklin Large Cap Value Fund covers the period ended
April 30, 2005.
PERFORMANCE OVERVIEW
Franklin Large Cap Value Fund - Class A posted a +2.40% cumulative total return
for the six months under review. The Fund underperformed its benchmark, the
Russell 1000 Value Index, which posted a 6.72% total return for the same
period.(2) 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 18.
(1) The Russell 1000 Index is market capitalization weighted and measures
performance of the 1,000 largest companies in the Russell 3000(R) Index,
which represent approximately 92% of total market capitalization in 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 52.
14 | Semiannual Report
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. In addition, the Fund will invest in companies
with valuable intangibles not reflected in the stock price. We believe this
contrarian approach will provide favorable returns for our shareholders over
time.
MANAGER'S DISCUSSION
During the reporting period, the biggest contributor to Fund performance was
Allstate, which provides personal property/casualty and life insurance. Allstate
reported a record quarterly operating profit per diluted share of $1.67 in first
quarter 2005, compared with $1.44 in the prior year period. This strong result
helped enable the company to return additional capital to shareholders by
raising its quarterly dividend 14%. The company also continued to repurchase its
stock, retiring more than 1% of its common shares in first quarter 2005.
Federated Department Stores, operator of Macy's and Bloomingdale's, also had a
significant positive impact on Fund performance. The company benefited from
solid results in its seasonally important fourth quarter, with comparable store
sales up 0.8% and earnings per share (excluding a tax adjustment in the prior
year) up 11.4%. Also helping the stock was a favorable market reaction to the
company's plans to acquire May Department Stores. We sold our Federated holdings
because we believed the stock was no longer attractively valued and we saw risks
and costs associated with the acquisition. Another strong performer during the
period was oil and gas exploration and development company Occidental Petroleum.
The company reported solid earnings for fourth quarter 2004 and first quarter
2005, largely due to high oil and natural gas prices. Occidental also reported a
2.8% increase in proven oil and gas reserves for calendar year 2004.
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets as of 4/30/05
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
Producer Manufacturing 14.3%
Consumer Non-Durables 8.1%
Consumer Services 6.9%
Energy Minerals 6.5%
Major Banks 6.2%
Property-Casualty Insurance 5.9%
Process Industries 4.5%
Finance, Rental & Leasing 4.4%
Health Technology 4.3%
Investment Banks & Brokers 4.0%
Financial Conglomerates 3.4%
Investment Managers 3.1%
Technology Services 3.1%
Regional Banks 2.5%
Life & Health Insurance 2.4%
Multi-Line Insurance 2.2%
Other 5.0%
Short-Term Investments & Other Net Assets 13.2%
Semiannual Report | 15
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
4/30/05
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Allstate Corp. 3.8%
PROPERTY-CASUALTY INSURANCE
- --------------------------------------------------------------------------------
Citigroup Inc. 3.4%
FINANCIAL CONGLOMERATES
- --------------------------------------------------------------------------------
Freddie Mac 3.4%
FINANCE, RENTAL & LEASING
- --------------------------------------------------------------------------------
Gannett Co. Inc. 3.3%
CONSUMER SERVICES
- --------------------------------------------------------------------------------
McDonald's Corp. 3.1%
CONSUMER SERVICES
- --------------------------------------------------------------------------------
Procter & Gamble Co. 3.1%
CONSUMER NON-DURABLES
- --------------------------------------------------------------------------------
Mellon Financial Corp. 3.1%
INVESTMENT MANAGERS
- --------------------------------------------------------------------------------
Bank of America Corp. 3.1%
MAJOR BANKS
- --------------------------------------------------------------------------------
Wachovia Corp. 3.1%
MAJOR BANKS
- --------------------------------------------------------------------------------
International Business Machines Corp. 3.1%
TECHNOLOGY SERVICES
- --------------------------------------------------------------------------------
There were some detractors from Fund performance during the period.
International Business Machines (IBM) had the most negative impact on
performance. Despite higher first quarter 2005 earnings-per-share results, the
company's earnings fell short of analysts' estimates. IBM's management indicated
that although the quarter started strongly, the company had problems closing
transactions in the quarter's final weeks, especially in countries with soft
economic conditions. American International Group (AIG) also hindered Fund
performance during the period. AIG shares fell in value as an investigation into
the company's accounting practices caused management to delay filing its 2004
annual report. Fannie Mae was another detractor from performance. Accounting and
regulatory issues hurt Fannie Mae's stock value. The Securities and Exchange
Commission announced that the company would have to restate earnings by up to $9
billion after Fannie Mae erred in accounting for its derivative contracts. Also
weighing on the company's shares was uncertainty over the terms of new
legislation Congress is considering as a result of the accounting errors at
Fannie Mae and Freddie Mac. During the period, Fannie Mae ousted its chief
executive officer and chief financial officer, and cut its common dividend in
half to help it meet new capital requirements.
During the period under review, we added four new stocks to the Fund's
portfolio: BP, an international oil and gas exploration and production company;
Georgia-Pacific, a forest and paper products company, which also manufactures
consumer tissues; Illinois Tool Works, a manufacturer of engineered components
and industrial systems; and 3M, a diversified manufacturer of health care,
office, industrial and electronic products.
In addition to our sale of Federated Department Stores during the reporting
period, we sold the Fund's position in insurance companies Principal Financial
Group and St. Paul Travelers Companies. In both cases, we believed the stocks
were fully valued in light of the companies' earnings prospects.
16 | Semiannual Report
Thank you for your continued participation in Franklin Large Cap Value Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Stephen T. Madonna
Stephen T. Madonna, CFA
Lead Portfolio Manager
William J. Lippman
Bruce C. Baughman, CPA
Donald Taylor, CPA
Margaret McGee
Portfolio Management Team
Franklin Large Cap Value Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2005, 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 ADVISER 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 | 17
PERFORMANCE SUMMARY AS OF 4/30/05
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 reinvestment of the Fund's dividends
and capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------
CLASS A (SYMBOL: FLVAX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$0.23 $ 14.24 $ 14.01
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $0.0794
- --------------------------------------------------------------------------
Long-Term Capital Gain $0.0297
- --------------------------------------------------------------------------
TOTAL $0.1091
- --------------------------------------------------------------------------
CLASS B (SYMBOL: FBLCX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $ 14.10 $ 13.85
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $0.0024
- --------------------------------------------------------------------------
Long-Term Capital Gain $0.0297
- --------------------------------------------------------------------------
TOTAL $0.0321
- --------------------------------------------------------------------------
CLASS C (SYMBOL: FLCVX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$0.25 $ 14.10 $ 13.85
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Long-Term Capital Gain $0.0297
- --------------------------------------------------------------------------
CLASS R (SYMBOL: FLCRX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$0.23 $ 14.16 $ 13.93
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $0.0633
- --------------------------------------------------------------------------
Long-Term Capital Gain $0.0297
- --------------------------------------------------------------------------
TOTAL $0.0930
- --------------------------------------------------------------------------
18 | Semiannual Report
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE(1)
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(2) +2.40% +6.27% +15.88% +48.15%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) -3.46% +0.18% +2.99% +7.03%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 9,654 $10,018 $10,924 $13,964
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(5) +1.16% +3.17% +7.61%
- ---------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 3-YEAR INCEPTION (6/1/00)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +2.03% +5.61% +13.81% +43.76%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) -1.97% +1.61% +3.48% +7.36%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 9,803 $10,161 $11,081 $14,176
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(5) +2.59% +3.64% +7.95%
- ---------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 3-YEAR INCEPTION (6/1/00)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +2.01% +5.60% +13.73% +43.74%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +1.01% +4.60% +4.38% +7.67%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,101 $10,460 $11,373 $14,374
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(5) +5.57% +4.56% +8.26%
- ---------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/02)
- ---------------------------------------------------------------------------------------------------------
Cumulative Total Return(2) +2.23% +6.11% +36.83%
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Return(3) +1.23% +5.11% +12.10%
- ---------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,123 $10,511 $13,683
- ---------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(5) +6.09% +13.36%
- ---------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Semiannual Report | 19
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) Past expense reductions by the Fund's manager increased the Fund's total
returns. If the manager had not taken this action, the Fund's total
returns would have been lower.
(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(3) 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.
(4) 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.
(5) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
20 | Semiannual Report
YOUR FUND'S EXPENSES
FRANKLIN LARGE CAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Semiannual Report | 21
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 10/31/04 VALUE 4/30/05 PERIOD* 10/31/04-4/30/05
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,024.00 $ 6.32
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.55 $ 6.31
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,020.30 $ 9.57
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.32 $ 9.54
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,020.10 $ 9.57
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.32 $ 9.54
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,022.30 $ 7.07
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.80 $ 7.05
- --------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
1.26%; B: 1.91%; C: 1.91%; and R: 1.41%), multiplied by the average
account value over the period, multiplied by 181/365 to reflect the
one-half year period.
22 | Semiannual Report
FRANKLIN MICROCAP VALUE FUND
YOUR FUND'S GOAL AND MAIN 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, and
which we believe are undervalued in the marketplace.
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin MicroCap Value Fund's semiannual report for
the period ended April 30, 2005.
PERFORMANCE OVERVIEW
Franklin MicroCap Value Fund - Class A posted a +6.87% cumulative total return
for the six months under review. The Fund outperformed its benchmark, the
Russell 2000 Value Index, which posted a 1.52% 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. Although this
report covers a six-month period, our investment strategy aims for long-term
results. You can find the Fund's long-term performance data in the Performance
Summary beginning on page 26.
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 "microcap." 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.
(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 56.
Semiannual Report | 23
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets as of 4/30/05
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
Producer Manufacturing 17.1%
Consumer Non-Durables 11.4%
Consumer Durables 5.5%
Retail Trade 5.0%
Property-Casualty Insurance 4.9%
Process Industries 4.6%
Industrial Services 4.2%
Transportation 3.6%
Savings Banks 3.2%
Non-Energy Minerals 2.9%
Real Estate Development 2.5%
Utilities 2.0%
Other 9.8%
Short-Term Investments & Other Net Assets 23.3%
MANAGER'S DISCUSSION
On April 30, 2005, the Fund's total net assets were $426 million, and short-term
investments and other net assets stood at 23.3%, compared with total net assets
of $418 million on October 31, 2004, and short-term investments and other net
assets of 25.9%. Net fund outflows from existing shareholders were $18.6 million
during the six-month period. The Fund closed to new investors (with the
exception of select retirement accounts) in January 2004.
Individual positions that contributed most to Fund performance during the period
included several companies involved with "metal bending" manufacturing. For
example, Gehl makes construction and agricultural equipment; Hardinge
manufactures machine tools; Aleris International recycles aluminum and zinc, and
makes common-alloy sheet from recycled aluminum; and Northwest Pipe makes welded
steel pipe. Other holdings that contributed to performance were Stelmar
Shipping, a marine transporter of oil products that was the subject of a
takeover; Healthcare Services Group, a housekeeping and food services provider
to nursing and other extended care facilities; and Haggar, a men's clothing
designer and manufacturer.
Several Fund positions detracted from performance during the six months under
review. Many of the detractors were strong contributors in prior periods, and in
most cases their operating performance was consistent with our expectations. The
largest single drag on performance was Fresh Brands, a Wisconsin-based
supermarket operator and grocery distributor. It was also our single largest
detriment to performance in the same period in 2004. Although the company's
operations seem to be improving under new management, we believe it is too early
to declare victory, especially with the level of competition Fresh Brands faces
from larger companies. Fresh Brands lists us in its 2005 proxy notice as its
largest shareholder with 18.3% of shares outstanding.
We deployed $9.5 million into new and existing positions during the period,
primarily into companies in or serving heavy industry. Our four largest
investments were increases to long-held positions including Hardinge, a machine
tool manufacturer with operations in North America, Europe and the Far East;
Seneca Foods, which cans and distributes vegetables; Mercer International, a
producer of market pulp in Germany and Canada; and Petroleum Helicopter, which
serves the air transportation needs of oil and gas drillers in the Gulf of
Mexico and operates medical air evacuation services on land.
24 | Semiannual Report
We established small positions in two new holdings: American Italian Pasta and
SEMCO Energy. As its name implies, American Italian Pasta produces and
distributes dry pasta primarily in the U.S., as well as in Europe. SEMCO is a
gas distribution utility company with service territories in Michigan and
Alaska. These investments conform to the investment strategy described above.
Proceeds from sales of $20.3 million far exceeded new investment. About half
came from closing out our position in Stelmar, which was acquired by Overseas
Shipping. The Edelbrock takeover also closed during the period, and we exited
small positions in Art's Way Manufacturing and Steel Technologies. Other sales
during the reporting period were in response to price appreciation. These
positions were initiated over several years under varying market conditions. The
investment decisions were consistent with our stated strategy, and we are
pleased that the realized returns were also consistent with our original
expectations.
Thank you for your continued participation in Franklin MicroCap Value Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Bruce C. Baughman
Bruce C. Baughman, CPA
Lead Portfolio Manager
William J. Lippman
Donald Taylor, CPA
Margaret McGee
Portfolio Management Team
Franklin MicroCap Value Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2005, 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 ADVISER 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.
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
4/30/05
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Hardinge Inc. 3.2%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
RTI International Metals Inc. 3.0%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Gehl Co. 2.8%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Seneca Foods Corp., A, B & cvt. pfd. 2.8%
CONSUMER NON-DURABLES
- --------------------------------------------------------------------------------
Aleris International Inc. 2.2%
NON-ENERGY MINERALS
- --------------------------------------------------------------------------------
Delta Apparel Inc. 2.1%
CONSUMER NON-DURABLES
- --------------------------------------------------------------------------------
Haggar Corp. 1.9%
CONSUMER NON-DURABLES
- --------------------------------------------------------------------------------
Northwest Pipe Co. 1.8%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Gibraltar Industries Inc. 1.8%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
International Shipholding Corp. 1.8%
TRANSPORTATION
- --------------------------------------------------------------------------------
Semiannual Report | 25
PERFORMANCE SUMMARY AS OF 4/30/05
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 reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------
CLASS A (SYMBOL: FRMCX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$0.53 $ 35.01 $34.48
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $0.0460
- --------------------------------------------------------------------------
Short-Term Capital Gain $0.0832
- --------------------------------------------------------------------------
Long-Term Capital Gain $1.6975
- --------------------------------------------------------------------------
TOTAL $1.8267
- --------------------------------------------------------------------------
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) +6.87% +9.40% +150.00% +277.12%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +0.73% +3.13% +18.70% +14.47%
- -----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,073 $10,313 $23,567 $35,533
- -----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +4.49% +18.38% +14.90%
- -----------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
26 | Semiannual Report
PERFORMANCE SUMMARY (CONTINUED)
ENDNOTES
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
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 maximum sales
charge.
(4) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
Semiannual Report | 27
YOUR FUND'S EXPENSES
FRANKLIN MICROCAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
28 | Semiannual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 10/31/04 VALUE 4/30/05 PERIOD* 10/31/04-4/30/05
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,068.70 $ 5.64
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.34 $ 5.51
- ---------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio of 1.10%, multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
Semiannual Report | 29
FRANKLIN SMALL CAP VALUE FUND
YOUR FUND'S GOAL AND MAIN 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.
- --------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL
1-800/342-5236 FOR MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Small Cap Value Fund's semiannual report
covering the period ended April 30, 2005.
PERFORMANCE OVERVIEW
Franklin Small Cap Value Fund - Class A posted a +5.39% cumulative total return
for the six months under review. The Fund outperformed its benchmarks, the
Russell 2000 Value Index and the Russell 2500(TM) Value Index, which posted
total returns of 1.52% and 5.17% for the same period.(1) We replaced the Russell
2000 Value Index with the Russell 2500 Value Index as the Fund's benchmark
because we believe the composition of the Russell 2500 Value Index better
reflects the Fund's investments. You can find the Fund's long-term performance
data in the Performance Summary beginning on page 33.
(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 Russell 2500 Value Index is market capitalization
weighted and measures performance of those Russell 2500 Index companies
with lower price-to-book ratios and lower forecasted growth values. The
indices are unmanaged and include 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 65.
30 | Semiannual Report
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 have the potential for good long-term
earnings or that possess valuable intangibles not reflected in the stock price.
MANAGER'S DISCUSSION
During the period under review, stocks that benefited Fund performance came
mainly from the energy minerals sector. Peabody Energy was the most significant
contributor to performance. The company's share price increased 38% and added to
the energy sector's overall strong performance, aided by high oil prices during
the period. Peabody mines and markets low-sulphur coal primarily for use by
electric utility companies. Another top performer was Archipelago Holdings, an
electronic U.S. stock exchange, which rose 90% in value during the period,
including a significant jump after the New York Stock Exchange (NYSE) announced
in late April 2005 a planned merger with Archipelago.
Despite the Fund's solid performance, several stocks declined in value during
the reporting period. The consumer durables sector underperformed other sectors
in the portfolio. Gift distributor Russ Berrie and Company declined in value
37%, while furniture manufacturer Hooker Furniture fell 24% and Monaco Coach, a
recreational vehicle manufacturer, declined 20%. Russ Berrie continued to report
weak quarterly results and cut its dividend to 10 cents per share from 30 cents.
Fourth quarter earnings were hurt by a sharp decline in gift segment sales
stemming from softness in the independent retail sales channel. Hooker
Furniture's stock performed poorly during the period largely as a result of a
decline in first quarter 2005 operating margins due to higher selling and
administrative expenses and another restructuring charge related to a previously
announced plant closing. Monaco Coach's first quarter results were hampered by
discounting initiatives and a shift of their product mix to a larger percentage
of towable vehicles, which contributed to an increase in direct material costs
and a stock price decline.
PORTFOLIO BREAKDOWN
Franklin Small Cap Value Fund
Based on Total Net Assets as of 4/30/05
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
Producer Manufacturing 18.7%
Retail Trade 9.1%
Consumer Durables 7.7%
Process Industries 7.2%
Industrial Services 6.3%
Property-Casualty Insurance 5.4%
Energy Minerals 5.1%
Transportation 4.9%
Consumer Non-Durables 4.9%
Electronic Technology 3.2%
Non-Energy Minerals 3.0%
Consumer Services 2.6%
Life & Health Insurance 2.1%
Health Technology 1.9%
Health Services 1.5%
Technology Services 1.1%
Other 5.3%
Short-Term Investments & Other Net Assets 10.0%
Semiannual Report | 31
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
4/30/05
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
York International Corp. 2.0%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Bunge Ltd. 1.7%
PROCESS INDUSTRIES
- --------------------------------------------------------------------------------
Peabody Energy Corp. 1.7%
ENERGY MINERALS
- --------------------------------------------------------------------------------
Montpelier Re Holdings Ltd. (Bermuda) 1.7%
PROPERTY-CASUALTY INSURANCE
- --------------------------------------------------------------------------------
Roper Industries Inc. 1.5%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
RPM International Inc. 1.5%
PROCESS INDUSTRIES
- --------------------------------------------------------------------------------
Pharmaceutical Product Development Inc. 1.5%
HEALTH SERVICES
- --------------------------------------------------------------------------------
Mueller Industries Inc. 1.4%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Kennametal Inc. 1.4%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Consol Energy Inc. 1.4%
ENERGY MINERALS
- --------------------------------------------------------------------------------
The Fund experienced significant net inflows during the past six months, and we
used a portion of the proceeds to invest in 13 new positions we believed were
attractively valued. For example, we added Aspen Insurance Holdings, an
insurance holding company; Gibraltar Industries, a processor, manufacturer and
distributor of tools to the metalworking, mining and oil industries; and Mercer
International, a producer of market pulp and paper in Germany and Canada.
During the reporting period, three positions were eliminated from the portfolio.
Archipelago Holdings announced in April that the NYSE had bid for the company at
a 59% premium over the prior day's closing price. We decided to sell our
Archipelago shares as open-market prices exceeded our estimate of the company's
fair value. The remaining liquidations from the Fund's portfolio included
GlobalSantaFe, a stock we sold when it reached our price target, and Tower
Automotive, which we sold because the company's fundamentals deteriorated.
Thank you for your continued participation in Franklin Small Cap Value Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ William J. Lippman
William J. Lippman
Lead Portfolio Manager
Bruce C. Baughman, CPA
Donald Taylor, CPA
Margaret McGee
Portfolio Management Team
Franklin Small Cap Value Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF APRIL 30, 2005, 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 ADVISER 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.
32 | Semiannual Report
PERFORMANCE SUMMARY AS OF 4/30/05
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 reinvestment of the Fund's dividends
and capital gain distributions, if any, and any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------
CLASS A (SYMBOL: FRVLX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$1.60 $35.97 $ 34.37
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $ 0.2617
- --------------------------------------------------------------------------
CLASS B (SYMBOL: FBVAX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$1.60 $ 34.80 $ 33.20
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $ 0.0800
- --------------------------------------------------------------------------
CLASS C (SYMBOL: FRVFX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$1.60 $ 34.46 $ 32.86
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $ 0.0642
- --------------------------------------------------------------------------
CLASS R (SYMBOL: FVFRX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$1.58 $ 35.82 $ 34.24
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $ 0.2462
- --------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FVADX) CHANGE 4/30/05 10/31/04
- --------------------------------------------------------------------------
Net Asset Value (NAV) +$1.61 $ 36.82 $ 35.21
- --------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-4/30/05)
- --------------------------------------------------------------------------
Dividend Income $ 0.3581
- --------------------------------------------------------------------------
Semiannual Report | 33
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) +5.39% +16.65% +91.38% +152.63%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) -0.68% +9.96% +12.52% +9.96%
- ----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $9,932 $10,996 $18,036 $23,803
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +12.41% +14.19% +10.69%
- ----------------------------------------------------------------------------------------------------------
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +5.05% +15.91% +85.43% +90.29%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +1.05% +11.91% +12.90% +10.70%
- ----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,105 $11,191 $18,343 $19,029
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +14.51% +14.57% +11.79%
- ----------------------------------------------------------------------------------------------------------
CLASS C 6-MONTH 1-YEAR 5-YEAR INCEPTION (9/3/96)
- ----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +5.06% +15.92% +85.30% +119.02%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +4.06% +14.92% +13.13% +9.48%
- ----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,406 $11,492 $18,530 $21,902
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +17.48% +14.80% +10.25%
- ----------------------------------------------------------------------------------------------------------
CLASS R 6-MONTH 1-YEAR INCEPTION (8/1/02)
- ----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +5.27% +16.50% +54.48%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +4.27% +15.50% +17.17%
- ----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,427 $11,550 $15,448
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +18.08% +20.08%
- ----------------------------------------------------------------------------------------------------------
ADVISOR CLASS(5) 6-MONTH 1-YEAR 5-YEAR INCEPTION (3/11/96)
- ----------------------------------------------------------------------------------------------------------
Cumulative Total Return(1) +5.55% +17.05% +94.74% +162.54%
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return(2) +5.55% +17.05% +14.26% +11.14%
- ----------------------------------------------------------------------------------------------------------
Value of $10,000 Investment(3) $10,555 $11,705 $19,474 $26,254
- ----------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (3/31/05)(4) +19.70% +15.96% +11.89%
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
34 | Semiannual Report
PERFORMANCE SUMMARY (CONTINUED)
ENDNOTES
THE FUND'S INVESTMENTS IN SMALL- OR NEWER-COMPANY STOCKS INVOLVE SPECIAL RISKS
AS SUCH STOCKS HAVE HISTORICALLY EXHIBITED GREATER PRICE VOLATILITY THAN
LARGE-COMPANY STOCKS, PARTICULARLY OVER THE SHORT TERM. IN ADDITION, SMALLER
COMPANIES OFTEN HAVE RELATIVELY SMALL REVENUES, LIMITED PRODUCT LINES AND SMALL
MARKET SHARES. 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 +103.24% and +8.89%.
Semiannual Report | 35
YOUR FUND'S EXPENSES
FRANKLIN SMALL CAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
36 | Semiannual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ---------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 10/31/04 VALUE 4/30/05 PERIOD* 10/31/04-4/30/05
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,053.90 $ 6.42
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.55 $ 6.31
- ---------------------------------------------------------------------------------------------------------
CLASS B
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1.050.50 $ 9.71
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.32 $ 9.54
- ---------------------------------------------------------------------------------------------------------
CLASS C
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,050.60 $ 9.71
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,015.32 $ 9.54
- ---------------------------------------------------------------------------------------------------------
CLASS R
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,052.70 $ 7.18
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.80 $ 7.05
- ---------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,055.50 $ 4.64
- ---------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,020.28 $ 4.56
- ---------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
1.26%; B: 1.91%; C: 1.91%; R: 1.41%; and Advisor: 0.91%), multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.
Semiannual Report | 37
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period... $ 53.95 $ 45.47 $ 37.01 $ 37.21 $ 34.83 $ 29.96
------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ............. 0.15 0.33 0.13 0.25 0.77 0.31
Net realized and unrealized gains
(losses) ............................. 3.05 8.63 8.83 0.87 2.95 5.15
------------------------------------------------------------------------------------------
Total from investment operations ...... 3.20 8.96 8.96 1.12 3.72 5.46
------------------------------------------------------------------------------------------
Less distributions from:
Net investment income ................ (0.43) (0.17) (0.25) (0.15) (0.73) (0.31)
Net realized gains ................... (0.91) (0.31) (0.25) (1.17) (0.61) (0.28)
------------------------------------------------------------------------------------------
Total distributions ................... (1.34) (0.48) (0.50) (1.32) (1.34) (0.59)
------------------------------------------------------------------------------------------
Redemption fees ....................... --(c) --(c) -- -- -- --
------------------------------------------------------------------------------------------
Net asset value, end of period ........ $ 55.81 $ 53.95 $ 45.47 $ 37.01 $ 37.21 $ 34.83
==========================================================================================
Total return(b) ....................... 5.84% 19.87% 24.51% 2.85% 10.96% 18.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .... $ 4,052,099 $3,716,567 $3,031,714 $2,333,862 $1,491,457 $1,067,893
Ratios to average net assets:
Expenses ............................. 0.90%(d) 0.91% 1.00% 0.92% 0.96% 1.06%
Net investment income ................ 0.54%(d) 0.67% 0.35% 0.63% 2.14% 1.00%
Portfolio turnover rate ............... 2.18% 7.03% 13.36% 10.59% 26.69% 8.69%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
38 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
----------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001(e)
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 53.13 $44.97 $ 36.64 $ 37.04 $ 37.26
----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ............... (0.06) (0.06) (0.15) (0.08) 0.28
Net realized and unrealized gains (losses) .... 2.99 8.53 8.74 0.91 0.06
----------------------------------------------------------------------------
Total from investment operations ............... 2.93 8.47 8.59 0.83 0.34
----------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (0.02) -- (0.01) (0.06) (0.56)
Net realized gains ............................ (0.91) (0.31) (0.25) (1.17) --
----------------------------------------------------------------------------
Total distributions ............................ (0.93) (0.31) (0.26) (1.23) (0.56)
----------------------------------------------------------------------------
Redemption fees ................................ --(c) --(c) -- -- --
----------------------------------------------------------------------------
Net asset value, end of period ................. $ 55.13 $ 53.13 $ 44.97 $ 36.64 $ 37.04
============================================================================
Total return(b) ................................ 5.44% 18.94% 23.58% 2.08% 0.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 116,962 $ 114,891 $ 103,877 $ 89,241 $ 20,982
Ratios to average net assets:
Expenses ...................................... 1.66%(d) 1.69% 1.75% 1.67% 1.71%(d)
Net investment income (loss) .................. (0.22)%(d) (0.11)% (0.40)% (0.12)% 0.73%(d)
Portfolio turnover rate ........................ 2.18% 7.03% 13.36% 10.59% 26.69%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period March 1, 2001 (effective date) to October 31, 2001.
Semiannual Report | See notes to financial statements. | 39
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
---------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001(e)
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period............ $ 53.18 $ 45.01 $ 36.67 $ 37.06 $ 37.26
---------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ............... (0.06) (0.06) (0.15) (0.08) 0.33
Net realized and unrealized gains (losses) .... 2.99 8.54 8.74 0.92 0.02
---------------------------------------------------------------------------
Total from investment operations ............... 2.93 8.48 8.59 0.84 0.35
---------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... -- -- -- (0.06) (0.55)
Net realized gains ............................ (0.91) (0.31) (0.25) (1.17) --
---------------------------------------------------------------------------
Total distributions ............................ (0.91) (0.31) (0.25) (1.23) (0.55)
---------------------------------------------------------------------------
Redemption fees ................................ --(c) --(c) -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................. $ 55.20 $ 53.18 $ 45.01 $ 36.67 $ 37.06
===========================================================================
Total return(b) ................................ 5.44% 18.95% 23.57% 2.10% 0.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 129,430 $ 129,399 $ 127,925 $ 118,219 $ 29,920
Ratios to average net assets:
Expenses ...................................... 1.66%(d) 1.69% 1.75% 1.67% 1.71%(d)
Net investment income (loss) .................. (0.22)%(d) (0.11)% (0.40)% (0.12)% 0.85%(d)
Portfolio turnover rate ........................ 2.18% 7.03% 13.36% 10.59% 26.69%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period March 1, 2001 (effective date) to October 31, 2001.
40 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS R (UNAUDITED) 2004 2003 2002(e)
------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ......................... $ 53.69 $ 45.30 $ 36.92 $ 39.98
------------------------------------------------------------
Income from investment operations:
Net investment income(a) .................................... 0.08 0.20 0.03 0.07
Net realized and unrealized gains (losses) .................. 3.02 8.59 8.82 (3.07)
------------------------------------------------------------
Total from investment operations ............................. 3.10 8.79 8.85 (3.00)
------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (0.30) (0.09) (0.22) (0.06)
Net realized gains .......................................... (0.91) (0.31) (0.25) --
------------------------------------------------------------
Total distributions .......................................... (1.21) (0.40) (0.47) (0.06)
------------------------------------------------------------
Redemption fees .............................................. --(c) --(c) -- --
------------------------------------------------------------
Net asset value, end of period ............................... $ 55.58 $ 53.69 $ 45.30 $ 36.92
============================================================
Total return(b) .............................................. 5.69% 19.55% 24.26% (7.53)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................ $ 22,463 $ 21,020 $ 13,336 $ 7,754
Ratios to average net assets:
Expenses .................................................... 1.16%(d) 1.19% 1.25% 1.17%(d)
Net investment income ....................................... 0.28%(d) 0.39% 0.10% 0.38%(d)
Portfolio turnover rate ...................................... 2.18% 7.03% 13.36% 10.59%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period January 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | See notes to financial statements. | 41
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND (CONTINUED)
---------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
ADVISOR CLASS (UNAUDITED) 2004 2003 2002 2001(e)
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $ 54.05 $ 45.54 $ 37.06 $ 37.21 $ 37.26
---------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ...................... 0.22 0.44 0.23 0.31 0.60
Net realized and unrealized gains (losses) .... 3.05 8.65 8.83 0.91 (0.02)
---------------------------------------------------------------------------
Total from investment operations ............... 3.27 9.09 9.06 1.22 0.58
---------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (0.54) (0.27) (0.33) (0.20) (0.63)
Net realized gains ............................ (0.91) (0.31) (0.25) (1.17) --
---------------------------------------------------------------------------
Total distributions ............................ (1.45) (0.58) (0.58) (1.37) (0.63)
---------------------------------------------------------------------------
Redemption fees ................................ --(c) --(c) -- -- --
---------------------------------------------------------------------------
Net asset value, end of period ................. $ 55.87 $54.05 $ 45.54 $ 37.06 $ 37.21
===========================================================================
Total return(b) ................................ 5.95% 20.17% 24.80% 3.11% 1.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $ 28,728 $ 26,701 $ 22,189 $ 15,193 $ 571
Ratios to average net assets:
Expenses ...................................... 0.66%(d) 0.69% 0.75% 0.67% 0.71%(d)
Net investment income ......................... 0.78%(d) 0.89% 0.60% 0.88% 1.55%(d)
Portfolio turnover rate ........................ 2.18% 7.03% 13.36% 10.59% 26.69%
(a) Based on average daily shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period March 1, 2001 (effective date) to October 31, 2001.
42 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
CLOSED END MUTUAL FUNDS 1.1%
Apollo Investment Corp. ........................................................... 200,000 $ 3,172,000
(a)Emerging Markets Telecommunications Fund Inc. ..................................... 250,000 2,347,500
H & Q Healthcare Investors Fund ................................................... 150,000 2,553,000
John Hancock Bank & Thrift Opportunity Fund ....................................... 1,650,000 15,889,500
Latin America Equity Fund Inc. .................................................... 222,015 4,768,882
Mexico Fund Inc. (Mexico) ......................................................... 620,800 13,223,040
New Ireland Fund Inc. (Ireland) ................................................... 135,000 2,862,000
Petroleum & Resources Corp. ....................................................... 150,000 4,087,500
---------------
TOTAL CLOSED END MUTUAL FUNDS (COST $38,030,843)................................... 48,903,422
---------------
COMMON STOCKS 78.4%
COMMERCIAL SERVICES 0.9%
Kelly Services Inc., A ............................................................ 1,506,800 39,568,568
---------------
CONSUMER DURABLES 5.8%
D.R. Horton Inc. .................................................................. 2,200,000 67,100,000
Hasbro Inc. ....................................................................... 1,800,000 34,056,000
Lennar Corp., A ................................................................... 480,000 24,705,600
Lennar Corp., B ................................................................... 48,000 2,299,680
M.D.C. Holdings Inc. .............................................................. 471,900 30,852,822
Pulte Homes Inc. .................................................................. 1,300,000 92,885,000
---------------
251,899,102
---------------
CONSUMER NON-DURABLES 2.2%
(b)DIMON Inc. ........................................................................ 2,504,200 14,899,990
Kellwood Co. ...................................................................... 750,000 19,155,000
Russell Corp. ..................................................................... 1,498,000 26,229,980
(a)Tommy Hilfiger Corp. .............................................................. 2,800,000 30,632,000
Universal Corp. ................................................................... 125,000 5,706,250
---------------
96,623,220
---------------
CONSUMER SERVICES 3.4%
(a),(b)Aztar Corp. ....................................................................... 2,840,000 77,560,400
(a),(b)Champps Entertainment Inc. ........................................................ 920,000 8,096,000
(a)La Quinta Corp. ................................................................... 2,482,300 21,596,010
(a)Vail Resorts Inc. ................................................................. 1,525,000 39,451,750
---------------
146,704,160
---------------
DISTRIBUTION SERVICES 1.0%
Applied Industrial Technologies Inc. .............................................. 937,500 26,156,250
Handleman Co. ..................................................................... 1,000,000 17,350,000
---------------
43,506,250
---------------
ELECTRONIC TECHNOLOGY 1.2%
(a)ESCO Technologies Inc. ............................................................ 618,400 45,341,088
(a)FSI International Inc. ............................................................ 600,000 1,980,000
(a)Standard Microsystems Corp. ....................................................... 376,700 5,330,305
---------------
52,651,393
---------------
Semiannual Report | 43
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
ENERGY MINERALS 1.8%
Peabody Energy Corp. .............................................................. 1,800,000 $ 78,786,000
---------------
FINANCE/RENTAL/LEASING 5.6%
CIT Group Inc. .................................................................... 2,210,000 89,018,800
(a),(b)Dollar Thrifty Automotive Group Inc. .............................................. 1,800,000 60,930,000
Freddie Mac ....................................................................... 1,490,000 91,664,800
---------------
241,613,600
---------------
FINANCIAL CONGLOMERATES 2.1%
Principal Financial Group Inc. .................................................... 225,000 8,793,000
Prudential Financial Inc. ......................................................... 1,450,000 82,867,500
---------------
91,660,500
---------------
HEALTH TECHNOLOGY 0.6%
(a)Watson Pharmaceuticals Inc. ....................................................... 900,000 27,000,000
---------------
INDUSTRIAL SERVICES 3.1%
(a)Global Industries Ltd. ............................................................ 1,017,200 9,805,808
(a)Hanover Compressor Co. ............................................................ 1,500,000 15,555,000
(a)Offshore Logistics Inc. ........................................................... 900,000 26,073,000
(a)Petroleum Helicopters Inc. ........................................................ 77,500 2,247,500
(a)Petroleum Helicopters Inc., non voting ............................................ 152,000 4,408,000
(a)Quanta Services Inc. .............................................................. 1,500,000 11,970,000
(a)Shaw Group Inc. ................................................................... 1,430,800 25,854,556
(a)Universal Compression Holdings Inc. ............................................... 850,000 29,835,000
(a),(b)Xanser Corp. 2,800,000 7,532,000
---------------
133,280,864
---------------
LIFE/HEALTH INSURANCE 6.8%
American National Insurance Co. ................................................... 647,500 66,433,500
Amerus Group Co. .................................................................. 325,000 15,278,250
Assurant Inc. ..................................................................... 825,700 27,322,413
FBL Financial Group Inc., A ....................................................... 525,000 13,755,000
Genworth Financial Inc., A ........................................................ 1,600,000 44,720,000
Kansas City Life Insurance Co. .................................................... 222,789 10,179,229
Manulife Financial Corp. (Canada) ................................................. 500,000 22,925,000
MetLife Inc. ...................................................................... 401,000 15,598,900
(a)National Western Life Insurance Co., A ............................................ 150,000 24,798,000
Presidential Life Corp. ........................................................... 515,000 7,472,650
StanCorp Financial Group Inc. ..................................................... 600,000 45,912,000
---------------
294,394,942
---------------
NON-ENERGY MINERALS 4.9%
Nucor Corp. ....................................................................... 1,184,000 60,502,400
Reliance Steel & Aluminum Co. ..................................................... 1,155,900 43,612,107
Texas Industries Inc. ............................................................. 800,000 36,944,000
United States Steel Corp. ......................................................... 1,702,200 72,786,072
---------------
213,844,579
---------------
44 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES 6.2%
Bunge Ltd. ........................................................................ 1,812,000 $ 102,921,600
Corn Products International Inc. .................................................. 2,464,000 54,257,280
(a),(b)Delta Woodside Industries Inc. 555,000 338,550
MeadWestvaco Corp. ................................................................ 844,000 24,855,800
Monsanto Co. ...................................................................... 835,000 48,947,700
(a)PolyOne Corp. ..................................................................... 1,400,000 10,808,000
Westlake Chemical Corp. ........................................................... 1,046,900 27,481,125
---------------
269,610,055
---------------
PRODUCER MANUFACTURING 5.7%
A.O. Smith Corp. .................................................................. 893,600 25,467,600
CNH Global NV (Netherlands) ....................................................... 1,605,000 28,825,800
(a)Insteel Industries Inc. ........................................................... 158,800 1,510,188
Lennox International Inc. ......................................................... 1,115,000 21,798,250
Mueller Industries Inc. ........................................................... 659,400 17,078,460
Oshkosh Truck Corp. ............................................................... 480,000 36,072,000
Superior Industries International Inc. ............................................ 300,000 6,099,000
(b)Tecumseh Products Co., A .......................................................... 778,900 27,058,986
(b)Tecumseh Products Co., B .......................................................... 300,000 10,470,000
Timken Co. ........................................................................ 1,315,000 32,664,600
Trinity Industries Inc. ........................................................... 1,806,900 42,191,115
---------------
249,235,999
---------------
PROPERTY-CASUALTY INSURANCE 5.4%
Aspen Insurance Holdings Ltd. ..................................................... 154,300 4,212,390
E-L Financial Corp. Ltd. (Canada) ................................................. 104,666 32,688,637
IPC Holdings Ltd. ................................................................. 1,180,000 44,403,400
Midland Co. ....................................................................... 385,000 12,089,000
Montpelier Re Holdings Ltd. (Bermuda) ............................................. 10,000 331,900
Old Republic International Corp. .................................................. 3,100,000 73,160,000
RLI Corp. ......................................................................... 489,400 20,995,260
Selective Insurance Group Inc. .................................................... 650,000 28,697,500
St. Paul Travelers Cos. Inc. ...................................................... 575,000 20,585,000
---------------
237,163,087
---------------
REGIONAL BANKS 0.1%
UMB Financial Corp. ............................................................... 93,400 5,055,742
---------------
RETAIL TRADE 7.4%
(a)Big Lots Inc. ..................................................................... 2,250,000 22,905,000
Cato Corp., A ..................................................................... 300,000 7,710,000
(a)Charming Shoppes Inc. ............................................................. 5,000,000 37,200,000
Dillards Inc., A .................................................................. 1,500,000 34,905,000
Federated Department Stores Inc. .................................................. 685,000 39,387,500
Fred's Inc. ....................................................................... 400,000 5,776,000
(b)Haverty Furniture Cos. Inc. ....................................................... 920,000 13,202,000
Officemax Inc. .................................................................... 700,000 22,736,000
Semiannual Report | 45
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE (CONT.)
(a)Saks Inc. ......................................................................... 2,008,400 $ 34,223,136
(b)Syms Corp. ........................................................................ 1,430,000 17,160,000
(a)Toys R Us Inc. .................................................................... 1,935,000 49,052,250
(a)Zale Corp. ........................................................................ 1,422,400 38,447,472
---------------
322,704,358
---------------
SAVINGS BANKS 0.3%
Farmers & Merchants Bank of Long Beach ............................................ 2,200 12,265,000
First Niagara Financial Group Inc. ................................................ 100,000 1,254,000
---------------
13,519,000
---------------
SPECIALTY INSURANCE 2.5%
MBIA Inc. ......................................................................... 130,000 6,809,400
MGIC Investment Corp. ............................................................. 440,000 25,960,000
The PMI Group Inc. ................................................................ 1,150,000 40,434,000
Radian Group Inc. ................................................................. 800,000 35,544,000
---------------
108,747,400
---------------
TECHNOLOGY SERVICES 0.6%
(a)Intergraph Corp. .................................................................. 850,000 25,134,500
---------------
TRANSPORTATION 6.2%
(a)ABX Air Inc. ...................................................................... 1,825,000 13,450,250
(a)Alaska Air Group Inc. ............................................................. 1,350,600 36,020,502
Burlington Northern Santa Fe Corp. ................................................ 599,900 28,945,175
(a)Crowley Maritime Corp. ............................................................ 4,240 5,406,000
(a)Kansas City Southern .............................................................. 2,410,000 45,597,200
(a)Mesa Air Group Inc. ............................................................... 450,000 2,398,500
Norfolk Southern Corp. ............................................................ 1,358,600 42,660,040
Overseas Shipholding Group Inc. ................................................... 756,000 42,661,080
Teekay Shipping Corp. (Bahamas) ................................................... 1,240,000 52,005,600
---------------
269,144,347
---------------
UTILITIES 4.6%
Entergy Corp. ..................................................................... 800,000 58,640,000
Northeast Utilities ............................................................... 1,550,000 28,380,500
PNM Resources Inc. ................................................................ 1,863,300 51,520,245
(a)Sierra Pacific Resources .......................................................... 4,169,000 45,108,580
Xcel Energy Inc. .................................................................. 878,000 15,084,040
---------------
198,733,365
---------------
TOTAL COMMON STOCKS (COST $2,043,521,714).......................................... 3,410,581,031
---------------
---------------
PRINCIPAL
AMOUNT
---------------
BOND (COST $5,523,074) 0.1%
PRODUCER MANUFACTURING 0.1%
Mueller Industries Inc., 6.00%, 11/01/14 .......................................... $ 5,604,000 5,463,900
---------------
46 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
FRANKLIN BALANCE SHEET INVESTMENT FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE BOND (COST $6,000,000) 0.4%
UTILITIES 0.4%
Sierra Pacific Resources, cvt., senior note, 144A, 7.25%, 2/14/10 ................. $ 6,000,000 $ 15,270,000
---------------
TOTAL LONG TERM INVESTMENTS (COST $2,093,075,631).................................. 3,480,218,353
---------------
------------
SHARES
------------
SHORT TERM INVESTMENTS 20.1%
MONEY FUND (COST $164,801,923) 3.8%
(c)Franklin Institutional Fiduciary Trust Money Market Portfolio ..................... 164,801,923 164,801,923
---------------
------------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENT (COST $711,097,952) 16.3%
(d)Joint Repurchase Agreement, 2.889%, 5/02/05 (Maturity Value $711,269,149) ......... $711,097,952 711,097,952
ABN AMRO Bank, N.V., New York Branch (Maturity Value $67,470,991)
Banc of America Securities LLC (Maturity Value $67,470,991)
Barclays Capital Inc. (Maturity Value $67,470,991)
Bear, Stearns & Co., Inc. (Maturity Value $44,987,777)
BNP Paribas Securities Corp. (Maturity Value $67,470,991)
Deutsche Bank Securities Inc. (Maturity Value $67,470,991)
Greenwich Capital Markets Inc. (Maturity Value $67,470,991)
Lehman Brothers Inc. (Maturity Value $59,028,227)
Merrill Lynch Government Securities Inc. (Maturity Value $67,470,991)
Morgan Stanley & Co. Inc. (Maturity Value $67,478,104)
UBS Securities LLC (Maturity Value $67,478,104)
Collateralized by U.S. Government Agency Securities, 1.75% - 7.25%,
7/15/05 - 3/15/10;
(e) U.S. Government Agency Discount Notes, 5/10/05 - 12/30/05;
(e)U.S. Treasury Bills, 10/06/05 - 10/13/05; and U.S. Treasury
Notes, 1.625% - 2.375%, 2/28/06 - 8/15/06
---------------
TOTAL INVESTMENTS (COST $2,968,975,506) 100.1% .................................... 4,356,118,228
OTHER ASSETS, LESS LIABILITIES (0.1)% ............................................. (6,435,751)
---------------
NET ASSETS 100.0% ................................................................. $ 4,349,682,477
===============
(a) Non-income producing.
(b) See Note 8 regarding holdings of 5% voting securities.
(c) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
(d) See Note 1(c) regarding joint repurchase agreement.
(e) A portion or all of the security is traded on a discount basis with no
stated coupon rate.
Semiannual Report | See notes to financial statements. | 47
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000(e)
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 14.01 $ 12.40 $ 10.48 $ 11.66 $ 11.12 $ 10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... 0.07 0.08 0.07 0.07 0.12 0.09
Net realized and unrealized gains (losses) ... 0.27 1.58 1.92 (1.08) 0.50 1.03
--------------------------------------------------------------------------------
Total from investment operations .............. 0.34 1.66 1.99 (1.01) 0.62 1.12
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.08) (0.05) (0.07) (0.07) (0.08) --
Net realized gains ........................... (0.03) -- -- (0.10) -- --
--------------------------------------------------------------------------------
Total distributions ........................... (0.11) (0.05) (0.07) (0.17) (0.08) --
--------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 14.24 $ 14.01 $ 12.40 $ 10.48 $ 11.66 $ 11.12
=================================================================================
Total return(b) ............................... 2.40% 13.45% 19.08% (8.82)% 5.63% 11.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 159,930 $127,267 $59,600 $ 32,825 $ 23,544 $ 3,418
Ratios to average net assets:
Expenses ..................................... 1.26%(d) 1.31% 1.38% 1.42% 1.49% 3.22%(d)
Expenses net of waiver and payments
by affiliate ................................ 1.26%(d) 1.31% 1.38% 1.42% 1.25% 1.25%(d)
Net investment income ........................ 0.95%(d) 0.59% 0.60% 0.64% 0.99% 2.17%(d)
Portfolio turnover rate ....................... 10.56% 21.69% 27.47% 15.33% 29.37% 7.21%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period June 1, 2000 (commencement date) to October 31, 2000.
48 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001 2000(f)
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 13.85 $ 12.29 $ 10.39 $ 11.58 $ 11.11 $ 10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. 0.02 (0.01) (0.01) -- 0.05 0.08
Net realized and unrealized gains (losses) 0.26 1.58 1.92 (1.07) 0.49 1.03
--------------------------------------------------------------------------------
Total from investment operations .............. 0.28 1.57 1.91 (1.07) 0.54 1.11
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ --(c) (0.01) (0.01) (0.02) (0.07) --
Net realized gains ........................... (0.03) -- -- (0.10) -- --
--------------------------------------------------------------------------------
Total distributions ........................... (0.03) (0.01) (0.01) (0.12) (0.07) --
--------------------------------------------------------------------------------
Redemption fees ............................... --(d) --(d) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 14.10 $ 13.85 $ 12.29 $ 10.39 $ 11.58 $ 11.11
================================================================================
Total return(b) ............................... 2.03% 12.76% 18.35% (9.38)% 4.87% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 23,520 $ 21,794 $10,865 $ 4,975 $ 3,251 $ 453
Ratios to average net assets:
Expenses ..................................... 1.91%(e) 1.96% 2.04% 2.07% 2.10% 3.66%(e)
Expenses net of waiver and payments
by affiliate ................................ 1.91%(e) 1.96% 2.04% 2.07% 1.86% 1.69%(e)
Net investment income (loss) ................. 0.30%(e) (0.06)% (0.06)% (0.01)% 0.38% 1.81%(e)
Portfolio turnover rate ....................... 10.56% 21.69% 27.47% 15.33% 29.37% 7.21%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) The fund made a dividend distribution of $0.0024.
(d) Amount is less than $0.01 per share.
(e) Annualized.
(f) For the period June 1, 2000 (commencement date) to October 31, 2000.
Semiannual Report | See notes to financial statements. | 49
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001 2000(e)
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 13.85 $ 12.28 $ 10.39 $11.57 $ 11.11 $ 10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. 0.02 (0.01) (0.01) -- 0.05 0.06
Net realized and unrealized gains (losses) 0.26 1.58 1.91 (1.07) 0.48 1.05
--------------------------------------------------------------------------------
Total from investment operations .............. 0.28 1.57 1.90 (1.07) 0.53 1.11
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ -- -- (0.01) (0.01) (0.07) --
Net realized gains ........................... (0.03) -- -- (0.10) -- --
--------------------------------------------------------------------------------
Total distributions ........................... (0.03) -- (0.01) (0.11) (0.07) --
--------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 14.10 $ 13.85 $ 12.28 $ 10.39 $ 11.57 $ 11.11
================================================================================
Total return(b) ............................... 2.01% 12.78% 18.35% (9.34)% 4.80% 11.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 62,715 $ 57,966 $32,592 $17,738 $ 10,648 $ 1,911
Ratios to average net assets:
Expenses ..................................... 1.91%(d) 1.96% 2.06% 2.04% 2.13% 3.76%(d)
Expenses net of waiver and payments
by affiliate ................................ 1.91%(d) 1.96% 2.06% 2.04% 1.89% 1.79%(d)
Net investment income (loss) ................. 0.30%(d) (0.06)% (0.08)% 0.02% 0.38% 1.44%(d)
Portfolio turnover rate ....................... 10.56% 21.69% 27.47% 15.33% 29.37% 7.21%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period June 1, 2000 (commencement date) to October 31, 2000.
50 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND (CONTINUED)
-----------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS R (UNAUDITED) 2004 2003 2002(e)
-----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 13.93 $ 12.34 $ 10.48 $ 10.55
-----------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... 0.06 0.06 0.05 0.01
Net realized and unrealized gains (losses) ... 0.26 1.59 1.90 (0.08)
-----------------------------------------------------------
Total from investment operations .............. 0.32 1.65 1.95 (0.07)
-----------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.06) (0.06) (0.09) --
Net realized gains ........................... (0.03) -- -- --
-----------------------------------------------------------
Total distributions ........................... (0.09) (0.06) (0.09) --
-----------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- --
-----------------------------------------------------------
Net asset value, end of period ................ $ 14.16 $ 13.93 $ 12.34 $ 10.48
===========================================================
Total return(b) ............................... 2.23% 13.44% 18.77% (0.66)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 5,140 $ 3,414 $ 826 $ 65
Ratios to average net assets:
Expenses ..................................... 1.41%(d) 1.46% 1.54% 1.59%(d)
Net investment income ........................ 0.80%(d) 0.44% 0.44% 0.47%(d)
Portfolio turnover rate ....................... 10.56% 21.69% 27.47% 15.33%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge,and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period August 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | See notes to financial statements. | 51
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 86.8%
COMMUNICATIONS 0.4%
Verizon Communications Inc. ............................................................ 26,000 $ 930,800
---------------
CONSUMER NON-DURABLES 8.1%
H.J. Heinz Co. ......................................................................... 205,000 7,554,250
Kimberly-Clark Corp. ................................................................... 78,000 4,871,100
Procter & Gamble Co. ................................................................... 145,000 7,851,750
---------------
20,277,100
---------------
CONSUMER SERVICES 6.9%
Cendant Corp. .......................................................................... 65,000 1,294,150
Gannett Co. Inc. ....................................................................... 107,000 8,239,000
McDonald's Corp. ....................................................................... 268,000 7,855,080
---------------
17,388,230
---------------
ELECTRONIC TECHNOLOGY 1.4%
Hewlett-Packard Co. .................................................................... 166,000 3,398,020
---------------
ENERGY MINERALS 6.5%
BP PLC, ADR (United Kingdom) ........................................................... 103,200 6,284,880
ConocoPhillips ......................................................................... 48,000 5,032,800
Occidental Petroleum Corp. ............................................................. 73,000 5,037,000
---------------
16,354,680
---------------
FINANCE/RENTAL/LEASING 4.4%
Fannie Mae ............................................................................. 50,000 2,697,500
Freddie Mac ............................................................................ 137,000 8,428,240
---------------
11,125,740
---------------
FINANCIAL CONGLOMERATES 3.4%
Citigroup Inc. ......................................................................... 180,000 8,452,800
---------------
HEALTH TECHNOLOGY 4.3%
Abbott Laboratories .................................................................... 51,000 2,507,160
Becton Dickinson & Co. ................................................................. 78,000 4,564,560
Pfizer Inc. ............................................................................ 139,000 3,776,630
---------------
10,848,350
---------------
INVESTMENT BANKS/BROKERS 4.0%
Lehman Brothers Holdings Inc. .......................................................... 72,000 6,603,840
Morgan Stanley ......................................................................... 67,000 3,525,540
---------------
10,129,380
---------------
INVESTMENT MANAGERS 3.1%
Mellon Financial Corp. ................................................................. 282,000 7,808,580
---------------
52 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
LIFE/HEALTH INSURANCE 2.4%
MetLife Inc. ........................................................................... 152,000 $ 5,912,800
---------------
MAJOR BANKS 6.2%
Bank of America Corp. .................................................................. 172,000 7,746,880
Wachovia Corp. ......................................................................... 151,000 7,728,180
---------------
15,475,060
---------------
MULTI-LINE INSURANCE 2.2%
American International Group Inc. ...................................................... 109,900 5,588,415
---------------
PROCESS INDUSTRIES 4.5%
Georgia-Pacific Corp. .................................................................. 150,000 5,140,500
Praxair Inc. ........................................................................... 134,000 6,275,220
---------------
11,415,720
---------------
PRODUCER MANUFACTURING 14.3%
3M Co. ................................................................................. 84,000 6,423,480
General Electric Co. ................................................................... 198,000 7,167,600
Illinois Tool Works Inc. ............................................................... 71,000 5,951,220
Johnson Controls Inc. .................................................................. 96,000 5,267,520
Masco Corp. ............................................................................ 152,000 4,786,480
United Technologies Corp. .............................................................. 63,000 6,408,360
---------------
36,004,660
---------------
PROPERTY-CASUALTY INSURANCE 5.9%
Allstate Corp. ......................................................................... 170,000 9,547,200
Chubb Corp. ............................................................................ 64,000 5,233,920
---------------
14,781,120
---------------
REGIONAL BANKS 2.5%
U.S. Bancorp ........................................................................... 221,000 6,165,900
---------------
RETAIL TRADE 1.1%
The TJX Cos. Inc. ...................................................................... 126,000 2,853,900
---------------
SAVINGS BANKS 1.1%
Washington Mutual Inc. ................................................................. 70,000 2,892,400
---------------
TECHNOLOGY SERVICES 3.1%
International Business Machines Corp. .................................................. 101,000 7,714,380
---------------
TRANSPORTATION 1.0%
Burlington Northern Santa Fe Corp. ..................................................... 53,000 2,557,250
---------------
TOTAL COMMON STOCKS (COST $196,225,443)................................................. 218,075,285
---------------
Semiannual Report | 53
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENT (COST $34,030,551) 13.5%
MONEY FUND 13.5%
(a)Franklin Institutional Fiduciary Trust Money Market Portfolio .......................... 34,030,551 $ 34,030,551
---------------
TOTAL INVESTMENTS (COST $230,255,994) 100.3%............................................ 252,105,836
OTHER ASSETS, LESS LIABILITIES (0.3)%................................................... (800,568)
---------------
NET ASSETS 100.0%....................................................................... $ 251,305,268
===============
SELECTED PORTFOLIO ABBREVIATION:
ADR - American Depository Receipt
(a) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
54 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
-------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 34.48 $ 30.41 $ 24.09 $ 24.64 $ 18.88 $ 18.41
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. 0.07 0.05 (0.04) (0.01) 0.11 0.04
Net realized and unrealized gains (losses) ... 2.29 4.65 7.80 0.68 6.37 1.90
-------------------------------------------------------------------------------
Total from investment operations .............. 2.36 4.70 7.76 0.67 6.48 1.94
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.05) -- -- (0.08) (0.09) --
Net realized gains ........................... (1.78) (0.63) (1.44) (1.14) (0.63) (1.47)
-------------------------------------------------------------------------------
Total distributions ........................... (1.83) (0.63) (1.44) (1.22) (0.72) (1.47)
-------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
-------------------------------------------------------------------------------
Net asset value, end of period ................ $ 35.01 $ 34.48 $ 30.41 $ 24.09 $ 24.64 $ 18.88
===============================================================================
Total return(b) ............................... 6.87% 15.64% 33.90% 2.77% 35.80% 11.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 426,433 $ 418,464 $ 310,995 $ 230,562 $ 268,969 $ 95,894
Ratios to average net assets:
Expenses ..................................... 1.10%(d) 1.12% 1.23% 1.18% 1.19% 1.38%
Net investment income (loss) ................. 0.39%(d) 0.13% (0.16)% (0.02)% 0.46% 0.23%
Portfolio turnover rate ....................... 2.85% 11.38% 13.35% 28.35% 23.62% 8.52%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
Semiannual Report | See notes to financial statements. | 55
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 73.6%
COMMERCIAL SERVICES 1.7%
Courier Corp. ...................................................................... 150,000 $ 7,317,000
---------------
COMMUNICATIONS 1.6%
Atlantic Tele-Network Inc. ......................................................... 225,000 6,862,500
---------------
CONSUMER DURABLES 5.5%
Allen Organ Co., B ................................................................. 94,800 4,934,340
(a)Baldwin Piano & Organ Co. .......................................................... 100 --
Bassett Furniture Industries Inc. .................................................. 105,600 2,073,984
(a)Cavalier Homes Inc. ................................................................ 700,000 2,905,000
(a)Chromcraft Revington Inc. .......................................................... 200,000 2,470,000
(a)Dixie Group Inc. ................................................................... 405,000 6,075,000
Flexsteel Industries Inc. .......................................................... 60,000 882,480
(a)National R.V. Holdings Inc. ........................................................ 261,700 2,501,852
(a),(b)Rockford Corp. ..................................................................... 575,000 1,667,500
---------------
23,510,156
---------------
CONSUMER NON-DURABLES 10.2%
American Italian Pasta Co., A ...................................................... 28,700 679,042
Brown Shoe Co. Inc. ................................................................ 165,000 5,098,500
(b)Delta Apparel Inc. ................................................................. 340,000 8,993,000
DIMON Inc. ......................................................................... 640,000 3,808,000
(b)Haggar Corp. ....................................................................... 420,000 8,148,000
(a),(b)Seneca Foods Corp., A .............................................................. 256,600 4,516,160
(a),(b)Seneca Foods Corp., B .............................................................. 121,500 2,049,705
Standard Commercial Corp. .......................................................... 350,000 6,107,500
Tandy Brands Accessories Inc. ...................................................... 300,000 4,185,000
---------------
43,584,907
---------------
DISTRIBUTION SERVICES 1.8%
(b)D & K Healthcare Resources Inc. .................................................... 750,000 5,812,500
(a)GTSI Corp. ......................................................................... 203,100 1,872,582
---------------
7,685,082
---------------
ELECTRONIC TECHNOLOGY 1.5%
(b)Espey Manufacturing & Electronics Corp. ............................................ 78,000 1,950,000
(a)Ladish Co. Inc. .................................................................... 70,000 843,500
Printronix Inc. .................................................................... 130,000 1,820,000
Sparton Corp. ...................................................................... 188,657 1,848,838
---------------
6,462,338
---------------
HEALTH SERVICES 1.5%
Healthcare Services Group Inc. ..................................................... 260,400 6,575,100
---------------
INDUSTRIAL SERVICES 4.2%
(b)Ecology & Environment Inc., A ...................................................... 215,000 1,348,050
(a)Exponent Inc. ...................................................................... 100,000 2,383,000
(a)Layne Christensen Co. .............................................................. 450,000 6,975,000
(a),(c)Matrix Service Co. ................................................................. 587,000 2,283,430
56 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES (CONT.)
(a)Petroleum Helicopters, Inc. ........................................................ 17,600 $ 510,400
(a)Petroleum Helicopters, Inc., non-voting ............................................ 153,000 4,437,000
---------------
17,936,880
---------------
NON-ENERGY MINERALS 2.9%
(a)Aleris International Inc. .......................................................... 430,300 9,234,238
(a),(b)Continental Materials Corp. ........................................................ 99,500 3,024,800
---------------
12,259,038
---------------
PROCESS INDUSTRIES 2.7%
(a),(b)American Pacific Corp. ............................................................. 659,000 5,140,200
(a)Mercer International Inc. (Germany) ................................................ 761,400 6,296,778
---------------
11,436,978
---------------
PRODUCER MANUFACTURING 17.1%
Alamo Group Inc. ................................................................... 45,000 861,750
Central Steel & Wire Co. ........................................................... 3,740 2,150,500
CIRCOR International Inc. .......................................................... 247,500 5,892,975
(a),(b)Gehl Co. ........................................................................... 420,000 12,054,000
Gibraltar Industries Inc. .......................................................... 357,000 7,500,570
(b)Hardinge Inc. ...................................................................... 925,600 13,745,160
(a)Insteel Industries Inc. ............................................................ 229,400 2,181,594
(a),(b)Nashua Corp. ....................................................................... 475,000 4,455,500
(a)Northwest Pipe Co. ................................................................. 333,000 7,659,000
(a)Powell Industries Inc. ............................................................. 23,900 432,351
(a)RTI International Metals Inc. ...................................................... 561,500 12,628,135
Smith Investment Co. ............................................................... 42,400 1,982,200
(a)TransPro Inc. ...................................................................... 193,700 1,278,420
---------------
72,822,155
---------------
PROPERTY-CASUALTY INSURANCE 4.9%
(a),(b)ACMAT Corp., A ..................................................................... 392,800 5,106,400
Baldwin & Lyons Inc., B ............................................................ 153,875 3,839,181
(a)Mercer Insurance Group Inc. ........................................................ 20,000 260,000
(b)Merchants Group Inc. ............................................................... 190,000 4,951,400
Safety Insurance Group Inc. ........................................................ 95,000 2,699,900
(a)United America Indemnity Ltd. ...................................................... 217,168 3,913,368
---------------
20,770,249
---------------
REAL ESTATE DEVELOPMENT 2.5%
Bresler & Reiner Inc. .............................................................. 178,000 5,295,500
Case Pomeroy & Co. Inc., A ......................................................... 220 280,500
Case Pomeroy & Co. Inc., cvt., B ................................................... 533 546,325
(a)Griffin Land & Nurseries Inc. ...................................................... 173,000 4,435,720
---------------
10,558,045
---------------
Semiannual Report | 57
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
REAL ESTATE INVESTMENT TRUSTS 1.6%
Arbor Realty Trust Inc. ............................................................ 270,000 $ 6,615,000
---------------
REGIONAL BANKS 0.1%
First Commonwealth Financial Corp. ................................................. 36,656 482,393
---------------
RETAIL TRADE 5.0%
(a),(b)Duckwall-ALCO Stores Inc. .......................................................... 330,000 6,332,700
(a),(b)Fresh Brands Inc. .................................................................. 900,000 5,634,000
(a),(b)S&K Famous Brands Inc. ............................................................. 260,000 4,160,000
(b)Village Super Market Inc., A ....................................................... 115,175 5,136,805
---------------
21,263,505
---------------
SAVINGS BANKS 3.2%
Beverly Hills Bancorp Inc. ......................................................... 700,000 7,308,000
First Defiance Financial Corp. ..................................................... 235,000 6,516,550
---------------
13,824,550
---------------
TRANSPORTATION 3.6%
(a)Crowley Maritime Corp. ............................................................. 2,342 2,986,050
(a),(b)International Shipholding Corp. .................................................... 480,000 7,488,000
OMI Corp. .......................................................................... 120,000 2,182,800
Providence & Worchester Railroad Co. ............................................... 205,000 2,792,100
---------------
15,448,950
---------------
UTILITIES 2.0%
Central Vermont Public Service Corp. ............................................... 70,000 1,477,700
Green Mountain Power Corp. ......................................................... 201,700 6,020,745
Maine & Maritimes Corp. ............................................................ 27,100 684,004
(a)SEMCO Energy Inc. .................................................................. 90,000 471,600
---------------
8,654,049
---------------
TOTAL COMMON STOCKS (COST $190,507,160)............................................. 314,068,875
---------------
CONVERTIBLE PREFERRED STOCKS 1.2%
CONSUMER NON-DURABLES 1.2%
(a),(b)Seneca Foods Corp., cvt. participating pfd. ........................................ 200,000 3,475,000
(a),(b)Seneca Foods Corp., cvt. participating pfd., Series 2003 ........................... 100,000 1,760,000
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,929,008)................................ 5,235,000
---------------
------------
PRINCIPAL
AMOUNT
------------
CONVERTIBLE BOND (COST $7,000,000) 1.9%
PROCESS INDUSTRIES 1.9%
Mercer International Inc., cvt., senior sub. note, 144A, 8.50%, 10/15/10 (Germany) . $ 7,000,000 8,029,700
---------------
TOTAL LONG TERM INVESTMENTS (COST $202,436,168)..................................... 327,333,575
---------------
58 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 24.1%
MONEY FUND (COST $100,456,119) 23.6%
(d)Franklin Institutional Fiduciary Trust Money Market Portfolio ...................... 100,456,119 $ 100,456,119
---------------
------------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENT (COST $2,075,000) 0.5%
(e),(f)Citigroup Global Markets Inc., 2.97%, 5/02/05, (Maturity Value $2,075,514)
Collateralized by (g)U.S. Government Agency Discount Notes, 5/27/05 - 8/01/05 ..... $ 2,075,000 2,075,000
---------------
TOTAL INVESTMENTS (COST $304,967,287) 100.8% ....................................... 429,864,694
OTHER ASSETS, LESS LIABILITIES (0.8)% .............................................. (3,432,172)
---------------
NET ASSETS 100.0% .................................................................. $ 426,432,522
===============
(a) Non-income producing.
(b) See Note 8 regarding holdings of 5% voting securities.
(c) A portion or all of the security is on loan as of 4/30/05. See Note 1(e).
(d) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
(e) See Note 1(c) regarding repurchase agreement.
(f) Investments from cash collateral received for loaned securities. See Note
1(e).
(g) A portion or all of the security is traded on a discount basis with no
stated coupon rate.
Semiannual Report | See notes to financial statements. | 59
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
--------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30,
2005 YEAR ENDED OCTOBER 31,
CLASS A (UNAUDITED) 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 34.37 $ 28.19 $ 22.15 $ 22.49 $ 20.86 $ 17.30
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. 0.12 0.30 (0.02) 0.02 0.09 0.03
Net realized and unrealized gains (losses) ... 1.74 5.88 6.06 (0.33) 1.59 3.53
--------------------------------------------------------------------------------
Total from investment operations .............. 1.86 6.18 6.04 (0.31) 1.68 3.56
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.26) -- -- -- (0.05) --
Tax return of capital ........................ -- -- -- (0.03) -- --
--------------------------------------------------------------------------------
Total distributions ........................... (0.26) -- -- (0.03) (0.05) --
--------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 35.97 $ 34.37 $ 28.19 $ 22.15 $ 22.49 $ 20.86
================================================================================
Total return(b) ............................... 5.39% 21.92% 27.27% (1.41)% 8.06% 20.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 377,547 $ 296,000 $ 200,181 $ 140,202 $ 95,029 $ 64,513
Ratios to average net assets:
Expenses ..................................... 1.26%(d) 1.35% 1.44% 1.37% 1.36% 1.58%
Net investment income (loss) ................. 0.65%(d) 0.95% (0.07)% 0.09% 0.37% 0.16%
Portfolio turnover rate ....................... 6.53% 17.38% 14.14% 12.74% 43.33% 44.99%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
60 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30,
2005 YEAR ENDED OCTOBER 31,
CLASS B (UNAUDITED) 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 33.20 $ 27.41 $ 21.67 $ 22.13 $ 20.61 $ 17.21
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. --(c) 0.09 (0.17) (0.14) (0.07) (0.09)
Net realized and unrealized gains (losses) ... 1.68 5.70 5.91 (0.32) 1.59 3.49
--------------------------------------------------------------------------------
Total from investment operations .............. 1.68 5.79 5.74 (0.46) 1.52 3.40
--------------------------------------------------------------------------------
Less distributions from net investment income . (0.08) -- -- -- --(f) --
--------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 34.80 $ 33.20 $ 27.41 $ 21.67 $ 22.13 $ 20.61
================================================================================
Total return(b) ............................... 5.05% 21.12% 26.49% (2.08)% 7.38% 19.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 72,710 $ 65,551 $ 47,551 $ 29,535 $ 11,220 $ 2,747
Ratios to average net assets:
Expenses ..................................... 1.91%(d) 2.00% 2.09% 2.02% 2.02% 2.22%
Net investment income (loss) ................. 0.00%(d),(e) 0.30% (0.72)% (0.56)% (0.32)% (0.47)%
Portfolio turnover rate ....................... 6.53% 17.38% 14.14% 12.74% 43.33% 44.99%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) Rounds to less than 0.05% of average net assets.
(f) The Fund made a dividend distribution of $0.002.
Semiannual Report | See notes to financial statements. | 61
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------------------------------
SIX MONTHS
ENDED
APRIL 30,
2005 YEAR ENDED OCTOBER 31,
CLASS C (UNAUDITED) 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 32.86 $ 27.13 $ 21.46 $ 21.90 $ 20.40 $ 17.03
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. --(c) 0.08 (0.17) (0.13) (0.07) (0.09)
Net realized and unrealized gains (losses) ... 1.66 5.65 5.84 (0.31) 1.57 3.46
--------------------------------------------------------------------------------
Total from investment operations .............. 1.66 5.73 5.67 (0.44) 1.50 3.37
--------------------------------------------------------------------------------
Less distributions from net investment income . (0.06) -- -- -- -- --
--------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
--------------------------------------------------------------------------------
Net asset value, end of period ................ $ 34.46 $ 32.86 $ 27.13 $ 21.46 $ 21.90 $ 20.40
================================================================================
Total return(b) ............................... 5.06% 21.12% 26.42% (2.01)% 7.35% 19.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 159,329 $ 136,805 $ 109,353 $ 81,186 $ 51,313 $ 28,555
Ratios to average net assets:
Expenses ..................................... 1.91%(d) 2.00% 2.10% 1.99% 2.01% 2.24%
Net investment income (loss) ................. 0.00%(d),(e) 0.30% (0.73)% (0.53)% (0.29)% (0.51)%
Portfolio turnover rate ....................... 6.53% 17.38% 14.14% 12.74% 43.33% 44.99%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) Rounds to less than 0.05% of average net assets.
62 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
--------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
CLASS R (UNAUDITED) 2004 2003 2002(e)
--------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 34.24 $ 28.13 $ 22.14 $ 23.34
--------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) .............. 0.09 0.31 (0.07) (0.04)
Net realized and unrealized gains (losses) ... 1.74 5.80 6.06 (1.16)
--------------------------------------------------------
Total from investment operations .............. 1.83 6.11 5.99 (1.20)
--------------------------------------------------------
Less distributions from net investment income . (0.25) -- -- --
--------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- --
--------------------------------------------------------
Net asset value, end of period ................ $ 35.82 $ 34.24 $ 28.13 $ 22.14
========================================================
Total return(b) ............................... 5.27% 21.72% 27.06% (5.14)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 31,481 $ 24,951 $ 6,914 $ 1,097
Ratios to average net assets:
Expenses ..................................... 1.41%(d) 1.50% 1.59% 1.52%(d)
Net investment income (loss) ................. 0.50%(d) 0.80% (0.22)% (0.06)%(d)
Portfolio turnover rate ....................... 6.53% 17.38% 14.14% 12.74%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
(e) For the period August 1, 2002 (effective date) to October 31, 2002.
Semiannual Report | See notes to financial statements. | 63
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND (CONTINUED)
---------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2005 YEAR ENDED OCTOBER 31,
ADVISOR CLASS (UNAUDITED) 2004 2003 2002 2001 2000
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 35.21 $ 28.78 $ 22.53 $ 22.82 $ 21.13 $ 17.46
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ..................... 0.19 0.44 0.07 0.10 0.17 0.09
Net realized and unrealized gains (losses) ... 1.78 5.99 6.18 (0.34) 1.62 3.58
---------------------------------------------------------------------------------
Total from investment operations .............. 1.97 6.43 6.25 (0.24) 1.79 3.67
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.36) -- -- -- (0.10) --
Tax return of capital ........................ -- -- -- (0.05) -- --
---------------------------------------------------------------------------------
Total distributions ........................... (0.36) -- -- (0.05) (0.10) --
---------------------------------------------------------------------------------
Redemption fees ............................... --(c) --(c) -- -- -- --
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 36.82 $ 35.21 $ 28.78 $ 22.53 $ 22.82 $ 21.13
=================================================================================
Total return(b) ............................... 5.55% 22.34% 27.74% (1.07)% 8.43% 21.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 30,851 $ 26,701 $ 13,089 $ 9,586 $ 4,622 $ 3,848
Ratios to average net assets:
Expenses ..................................... 0.91%(d) 1.00% 1.09% 1.02% 1.02% 1.24%
Net investment income ........................ 1.00%(d) 1.30% 0.28% 0.44% 0.70% 0.49%
Portfolio turnover rate ....................... 6.53% 17.38% 14.14% 12.74% 43.33% 44.99%
(a) Based on average daily shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) Annualized.
64 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 89.8%
COMMERCIAL SERVICES 0.3%
ABM Industries Inc. ................................................................ 90,000 $ 1,635,300
National Financial Partners Corp. .................................................. 2,100 80,304
---------------
1,715,604
---------------
CONSUMER DURABLES 7.7%
Bassett Furniture Industries Inc. .................................................. 114,000 2,238,960
Briggs & Stratton Corp. ............................................................ 277,400 8,979,438
D.R. Horton Inc. ................................................................... 75,000 2,287,500
Ethan Allen Interiors Inc. ......................................................... 141,000 4,248,330
Hooker Furniture Corp. ............................................................. 181,500 3,031,050
La-Z-Boy Inc. ...................................................................... 388,500 4,599,840
M/I Homes Inc. ..................................................................... 145,200 6,635,640
Monaco Coach Corp. ................................................................. 410,000 5,813,800
Russ Berrie & Co. Inc. ............................................................. 360,000 4,654,800
Thor Industries Inc. ............................................................... 340,000 9,163,000
---------------
51,652,358
---------------
CONSUMER NON-DURABLES 4.9%
Brown Shoe Co. Inc. ................................................................ 260,000 8,034,000
Lancaster Colony Corp. ............................................................. 60,000 2,493,600
(a)NBTY Inc. .......................................................................... 305,000 6,502,600
Oshkosh B'Gosh Inc., A ............................................................. 150,000 3,952,500
Russell Corp. ...................................................................... 190,000 3,326,900
Standard Commercial Corp. .......................................................... 129,000 2,251,050
(a)Timberland Co., A .................................................................. 90,500 6,249,025
---------------
32,809,675
---------------
CONSUMER SERVICES 2.6%
(a)Aztar Corp. ........................................................................ 283,300 7,736,923
Intrawest Corp. (Canada) ........................................................... 245,000 4,934,300
(a)La Quinta Corp. .................................................................... 537,700 4,677,990
---------------
17,349,213
---------------
ELECTRONIC TECHNOLOGY 3.2%
(a)Avocent Corp. ...................................................................... 201,800 5,073,252
Cohu Inc. .......................................................................... 275,000 4,908,750
Diebold Inc. ....................................................................... 95,000 4,595,150
(a),(b)OmniVision Technologies Inc. ....................................................... 502,500 7,035,000
---------------
21,612,152
---------------
ENERGY MINERALS 5.1%
Arch Coal Inc. ..................................................................... 200,000 8,868,000
Consol Energy Inc. ................................................................. 218,000 9,426,320
Holly Corp. ........................................................................ 37,600 1,288,552
Peabody Energy Corp. ............................................................... 258,600 11,318,922
Pioneer Natural Resources Co. ...................................................... 90,000 3,659,400
---------------
34,561,194
---------------
Semiannual Report | 65
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINANCE/RENTAL/LEASING 0.7%
(a)Dollar Thirfty Automotive Group Inc. ............................................... 140,000 $ 4,739,000
---------------
HEALTH SERVICES 1.5%
(a)Pharmaceutical Product Development Inc. ............................................ 215,000 9,756,700
---------------
HEALTH TECHNOLOGY 1.9%
(a)STERIS Corp. ....................................................................... 311,300 7,371,584
West Pharmaceutical Services Inc. .................................................. 218,000 5,742,120
---------------
13,113,704
---------------
INDUSTRIAL SERVICES 6.3%
(a)Atwood Oceanics Inc. ............................................................... 52,500 2,996,175
(a)EMCOR Group Inc. ................................................................... 93,000 4,155,240
ENSCO International Inc. ........................................................... 69,000 2,249,400
(a)Global Industries Ltd. ............................................................. 560,000 5,398,400
(a)Lone Star Technologies Inc. ........................................................ 215,000 8,372,100
(a)Offshore Logistics Inc. ............................................................ 144,400 4,183,268
(a)Oil States International Inc. ...................................................... 240,000 4,874,400
Rowan Cos. Inc. .................................................................... 267,800 7,104,734
(a)Shaw Group Inc. .................................................................... 169,000 3,053,830
---------------
42,387,547
---------------
INSURANCE BROKERS/SERVICES 0.9%
Arthur J. Gallagher & Co. .......................................................... 215,000 5,985,600
---------------
LIFE/HEALTH INSURANCE 2.1%
American National Insurance Co. .................................................... 56,800 5,827,680
Presidential Life Corp. ............................................................ 99,340 1,441,424
Protective Life Corp. .............................................................. 82,500 3,154,800
StanCorp Financial Group Inc. ...................................................... 45,000 3,443,400
---------------
13,867,304
---------------
NON-ENERGY MINERALS 3.0%
Reliance Steel & Aluminum Co. ...................................................... 230,600 8,700,538
Steel Dynamics Inc. ................................................................ 245,300 6,667,254
United States Steel Corp. .......................................................... 114,400 4,891,744
---------------
20,259,536
---------------
PROCESS INDUSTRIES 7.2%
AptarGroup Inc. .................................................................... 126,000 6,076,980
Bunge Ltd. ......................................................................... 203,000 11,530,400
Cabot Corp. ........................................................................ 278,800 8,517,340
Glatfelter ......................................................................... 173,800 2,073,434
(a)Mercer International Inc. (Germany) ................................................ 465,000 3,845,550
Mine Safety Appliances Co. ......................................................... 18,200 649,740
Myers Industries Inc. .............................................................. 6,100 58,621
RPM International Inc. ............................................................. 580,000 10,005,000
Westlake Chemical Corp. ............................................................ 222,500 5,840,625
---------------
48,597,690
---------------
66 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
PRODUCER MANUFACTURING 18.5%
A.O. Smith Corp. ................................................................... 115,500 $ 3,291,750
American Woodmark Corp. ............................................................ 12,800 407,552
Apogee Enterprises Inc. ............................................................ 375,000 4,830,000
Carlisle Cos. Inc. ................................................................. 42,500 3,052,350
CIRCOR International Inc. .......................................................... 250,000 5,952,500
CNH Global NV (Netherlands) ........................................................ 174,000 3,125,040
(a)Genlyte Group Inc. ................................................................. 60,000 4,760,400
Gibraltar Industries Inc. .......................................................... 245,000 5,147,450
Graco Inc. ......................................................................... 225,000 7,598,250
JLG Industries Inc. ................................................................ 237,400 4,838,212
Kennametal Inc. .................................................................... 209,900 9,508,470
(a)Mettler-Toledo International Inc. (Switzerland) .................................... 165,000 7,565,250
Mueller Industries Inc. ............................................................ 369,000 9,557,100
(a)Powell Industries Inc. ............................................................. 107,900 1,951,911
Roper Industries Inc. .............................................................. 150,000 10,150,500
Stewart & Stevenson Services Inc. .................................................. 60,000 1,440,000
Superior Industries International Inc. ............................................. 282,000 5,733,060
Teleflex Inc. ...................................................................... 125,000 6,683,750
Thomas Industries Inc. ............................................................. 80,000 3,157,600
Timken Co. ......................................................................... 69,600 1,728,864
Wabash National Corp. .............................................................. 225,000 5,737,500
Watts Water Technologies Inc., A ................................................... 149,800 4,681,250
York International Corp. ........................................................... 335,100 13,112,463
---------------
124,011,222
---------------
PROPERTY-CASUALTY INSURANCE 5.4%
Aspen Insurance Holdings Ltd. ...................................................... 319,800 8,730,540
Harleysville Group Inc. ............................................................ 25,000 519,750
IPC Holdings Ltd. .................................................................. 242,500 9,125,275
Montpelier Re Holdings Ltd. (Bermuda) .............................................. 340,200 11,291,238
RLI Corp. .......................................................................... 162,100 6,954,090
---------------
36,620,893
---------------
REAL ESTATE INVESTMENT TRUSTS 0.9%
Arbor Realty Trust Inc. ............................................................ 253,500 6,210,750
---------------
REGIONAL BANKS 1.0%
Chemical Financial Corp. ........................................................... 3,255 97,520
Hancock Holding Co. ................................................................ 43,400 1,294,188
Peoples Bancorp Inc. ............................................................... 194,700 5,052,465
---------------
6,444,173
---------------
RETAIL TRADE 9.1%
American Eagle Outfitters Inc. ..................................................... 60,000 1,573,200
Casey's General Stores Inc. ........................................................ 266,805 4,503,668
Christopher & Banks Corp. .......................................................... 365,000 5,701,300
Semiannual Report | 67
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
RETAIL TRADE (CONT.)
Dillards Inc., A ................................................................... 227,000 $ 5,282,290
(a)Gymboree Corp. ..................................................................... 354,500 4,051,935
(a)Hot Topic Inc. ..................................................................... 299,300 5,983,007
(a)Linens `n Things Inc. .............................................................. 165,000 3,849,450
(a)The Men's Wearhouse Inc. ........................................................... 206,000 8,501,620
Pier 1 Imports Inc. ................................................................ 461,500 6,700,980
Regis Corp. ........................................................................ 140,000 5,002,200
(a)West Marine Inc. ................................................................... 530,000 8,665,500
(a)Zale Corp. ......................................................................... 46,200 1,248,786
---------------
61,063,936
---------------
SAVINGS BANKS 0.3%
First Indiana Corp. ................................................................ 95,000 2,356,000
---------------
SPECIALTY INSURANCE 0.3%
The PMI Group Inc. ................................................................. 60,000 2,109,600
---------------
TECHNOLOGY SERVICES 1.1%
Reynolds & Reynolds Co., A ......................................................... 279,600 7,373,052
---------------
TRANSPORTATION 4.9%
(a)Kansas City Southern ............................................................... 272,400 5,153,808
OMI Corp. .......................................................................... 227,100 4,130,949
Overseas Shipholding Group Inc. .................................................... 76,300 4,305,609
SkyWest Inc. ....................................................................... 465,000 8,407,200
Teekay Shipping Corp. (Bahamas) .................................................... 189,000 7,926,660
Tidewater Inc. ..................................................................... 90,000 3,102,300
---------------
33,026,526
---------------
UTILITIES 0.9%
(a)Sierra Pacific Resources Co. ....................................................... 540,700 5,850,374
---------------
TOTAL COMMON STOCKS (COST $471,884,447)............................................. 603,473,803
---------------
------------
PRINCIPAL
AMOUNT
------------
BOND (COST $1,299,953) 0.2%
PRODUCER MANUFACTURING 0.2%
Mueller Industries Inc., 6.00%, 11/01/14 ........................................... $ 1,319,000 1,286,025
---------------
TOTAL LONG TERM INVESTMENTS (COST $473,184,400)..................................... 604,759,828
---------------
------------
SHARES
------------
SHORT TERM INVESTMENTS 10.4%
MONEY FUND (COST $67,527,906) 10.1%
(c)Franklin Institutional Fiduciary Trust Money Market Portfolio ...................... 67,527,906 67,527,906
---------------
68 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
STATEMENT OF INVESTMENTS, APRIL 30, 2005 (UNAUDITED) (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
FRANKLIN SMALL CAP VALUE FUND AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS 0.3%
(d),(e)Barclays Capital Inc., 2.94%, 5/02/05 (Maturity Value $500,123)
Collateralized by U.S. Government Agency Securities, 1.30 - 7.625%,
5/13/05 - 7/15/32;
(f)U.S. Government Agency Discount Notes, 5/02/05 - 1/18/06..................... $ 500,000 $ 500,000
(d),(e)Goldman, Sachs & Co., 2.97%, 5/02/05 (Maturity Value $500,124)
Collateralized by U.S. Government Agency Securities, 3.236 - 8.00%,
3/01/09 - 5/01/35;
(f)U.S. Government Agency Discount Note, 11/15/06............................... 500,000 500,000
(d),(e)J. P. Morgan Securities Inc., 2.97%, 5/02/05 (Maturity Value $500,124)
Collateralized by U.S. Government Agency Securities, 3.732 - 5.642%,
1/01/32 - 5/01/35 .............................................................. 500,000 500,000
(d),(e)Merrill Lynch Government Securities Inc., 2.94%, 5/02/05 (Maturity Value $250,061)
Collateralized by U.S. Government Agency Securities, 1.45 - 7.415%,
5/17/05 - 4/28/25;
(f)U.S. Government Agency Discount Notes, 5/04/05 - 5/15/30..................... 250,000 250,000
(d),(e)Morgan Stanley & Co. Inc., 2.97%, 5/02/05 (Maturity Value $425,105)
Collateralized by U.S. Government Agency Securities, 4.00 - 6.50%,
5/01/14 - 5/01/35 ................................................................ 425,000 425,000
---------------
TOTAL REPURCHASE AGREEMENTS (COST $2,175,000)....................................... 2,175,000
---------------
TOTAL INVESTMENTS (COST $542,887,306) 100.4%........................................ 674,462,734
OTHER ASSETS, LESS LIABILITIES (0.4)%............................................... (2,545,607)
---------------
NET ASSETS 100.0%................................................................... $ 671,917,127
===============
(a) Non-income producing.
(b) A portion or all of the security is on loan as of 4/30/05. See Note 1(e).
(c) See Note 7 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
(d) Investments from cash collateral received for loaned securities. See Note
1(e).
(e) See Note 1(c) regarding repurchase agreements.
(f) A portion or all of the security is traded on a discount basis with no
stated coupon rate.
Semiannual Report | See notes to financial statements. | 69
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 2005 (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 ......................... $ 1,921,876,923 $ 196,225,443 $ 120,154,084 $ 473,184,400
Cost - Non-controlled affiliated issuers (Note 8) ... 171,198,708 -- 82,282,084 --
Cost - Sweep Money Fund (Note 7) .................... 164,801,923 34,030,551 100,456,119 67,527,906
Cost - Repurchase agreements ........................ 711,097,952 -- 2,075,000 2,175,000
------------------------------------------------------------
Total cost of investments ........................... $ 2,968,975,506 $ 230,255,994 $ 304,967,287 $ 542,887,306
============================================================
Value - Unaffiliated issuers(a) ..................... $ 3,242,970,427 $ 218,075,285 $ 210,384,695 $ 604,759,828
Value - Non-controlled affiliated issuers (Note 8) .. 237,247,926 -- 116,948,880 --
Value - Sweep Money Fund (Note 7) ................... 164,801,923 34,030,551 100,456,119 67,527,906
Value - Repurchase agreements ....................... 711,097,952 -- 2,075,000 2,175,000
------------------------------------------------------------
Total value of investments .......................... 4,356,118,228 252,105,836 429,864,694 674,462,734
Receivables:
Investment securities sold .......................... -- 1,323,069 33,649 --
Capital shares sold ................................. 3,638,109 703,435 154,237 7,056,483
Dividends and Interest .............................. 2,926,912 286,130 177,750 348,279
------------------------------------------------------------
Total assets .................................... 4,362,683,249 254,418,470 430,230,330 681,867,496
------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ..................... -- 2,048,526 397,620 5,556,231
Capital shares redeemed ............................. 8,771,521 770,904 893,101 1,442,415
Affiliates .......................................... 2,978,498 283,227 360,287 772,574
Payable upon return of securities loaned ............ -- -- 2,075,000 2,175,000
Unaffiliated transfer agent fees .................... 1,136,439 -- 47,251 --
Other liabilities .................................... 114,314 10,545 24,549 4,149
------------------------------------------------------------
Total liabilities ............................... 13,000,772 3,113,202 3,797,808 9,950,369
------------------------------------------------------------
Net assets, at value ........................... $ 4,349,682,477 $ 251,305,268 $ 426,432,522 $ 671,917,127
============================================================
Net assets consist of:
Undistributed net investment income (distributions in
excess of net investment income) .................... $ (2,999,272) $ 494,744 $ 844,346 $ 1,365,574
Net unrealized appreciation (depreciation) ........... 1,387,142,722 21,849,842 124,897,407 131,575,428
Accumulated net realized gain (loss) ................. 78,260,331 2,632,221 13,233,797 (1,598,030)
Paid-in capital ...................................... 2,887,278,696 226,328,461 287,456,972 540,574,155
------------------------------------------------------------
Net assets, at value ........................... $ 4,349,682,477 $ 251,305,268 $ 426,432,522 $ 671,917,127
============================================================
(a) The Franklin MicroCap Value Fund and the Franklin Small Cap Value Fund
include $2,017,677 and $1,215,200 of securities loaned, respectively.
70 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
April 30, 2005 (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 ................................. $ 4,052,099,466 $159,930,248 $426,432,522 $ 377,547,069
===========================================================
Shares outstanding ................................... 72,605,020 11,230,652 12,179,645 10,495,052
===========================================================
Net asset value per share(b) ......................... $ 55.81 $ 14.24 $ 35.01 $ 35.97
===========================================================
Maximum offering price per share (net asset value
per share / 94.25%) ................................. $ 59.21 $ 15.11 $ 37.15 $ 38.16
===========================================================
CLASS B:
===========================================================
Net assets, at value ................................. $ 116,961,819 $ 23,519,940 -- $ 72,709,535
===========================================================
Shares outstanding ................................... 2,121,632 1,668,070 -- 2,089,412
===========================================================
Net asset value and maximum offering price per
share(b) ............................................ $ 55.13 $ 14.10 -- $ 34.80
===========================================================
CLASS C:
Net assets, at value ................................. $ 129,430,336 $ 62,715,196 -- $ 159,329,340
===========================================================
Shares outstanding ................................... 2,344,884 4,448,185 -- 4,624,005
===========================================================
Net asset value and maximum offering price per
share(b) ............................................ $ 55.20 $ 14.10 -- $ 34.46
===========================================================
CLASS R:
Net assets, at value ................................. $ 22,462,598 $ 5,139,884 -- $ 31,480,525
===========================================================
Shares outstanding ................................... 404,122 363,058 -- 878,745
===========================================================
Net asset value and maximum offering price per
share(b) ............................................ $ 55.58 $ 14.16 -- $ 35.82
===========================================================
ADVISOR CLASS:
Net assets, at value ................................. $ 28,728,258 -- -- $ 30,850,658
===========================================================
Shares outstanding ................................... 514,214 -- -- 837,786
===========================================================
Net asset value and maximum offering price per
share(b) ............................................ $ 55.87 -- -- $ 36.82
===========================================================
(b) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Semiannual Report | See notes to financial statements. | 71
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended April 30, 2005 (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 ................................ $ 19,097,553 $ 2,086,981 $ 1,653,341 $ 5,290,546
Non-controlled affiliated issuers (Note 8) .......... 2,611,126 -- 272,518 --
Sweep Money Fund (Note 7) ........................... 1,788,022 562,796 972,106 766,463
Interest ............................................. 8,030,714 -- 298,684 40,295
Income from securities loaned - net .................. 6,532 -- 48,562 5,107
Other income (Note 9) ................................ 137,383 226 2,361 22,772
-----------------------------------------------------------
Total investment income ......................... 31,671,330 2,650,003 3,247,572 6,125,183
-----------------------------------------------------------
Expenses:
Management fees (Note 3) ............................. 9,736,495 593,154 1,457,767 2,186,967
Administrative fees (Note 3) ......................... -- 239,227 -- --
Distribution fees: (Note 3)
Class A ............................................. 4,871,999 261,583 491,277 614,441
Class B ............................................. 606,219 117,477 -- 369,162
Class C ............................................. 679,002 312,701 -- 779,850
Class R ............................................. 56,142 10,906 -- 73,519
Transfer agent fees (Note 3) ......................... 4,295,085 187,803 355,997 600,746
Custodian fees (Note 4) .............................. 36,639 1,805 3,475 5,278
Reports to shareholders .............................. 79,800 12,169 25,781 36,731
Registration and filing fees ......................... 106,585 36,923 26,317 49,752
Professional fees .................................... 57,861 12,312 21,259 17,218
Trustees' fees and expenses .......................... 102,321 3,827 10,340 12,309
Other ................................................ 81,080 4,163 9,840 12,653
-----------------------------------------------------------
Total expenses .................................. 20,709,228 1,794,050 2,402,053 4,758,626
Expense reductions (Note 4) ..................... (2,215) (6) (794) (73)
-----------------------------------------------------------
Net expenses ................................... 20,707,013 1,794,044 2,401,259 4,758,553
-----------------------------------------------------------
Net investment income ......................... 10,964,317 855,959 846,313 1,366,630
-----------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated Issuers .............................. 67,152,281 2,632,756 12,499,279 16,171,936
Non-controlled affiliated issuers (Note 8) ........ 1,907,097 -- 846,388 --
Closed-end funds distributions .................... 1,121,702 -- -- --
Foreign currency transactions ..................... (1,450) -- -- (47)
------------------------------------------------------------
Net realized gain (loss) ....................... 70,179,630 2,632,756 13,345,667 16,171,889
-----------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments ..................................... 153,464,846 487,939 14,709,167 7,632,776
-----------------------------------------------------------
Net realized and unrealized gain (loss) ............... 223,644,476 3,120,695 28,054,834 23,804,665
-----------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ...................................... $ 234,608,793 $ 3,976,654 $ 28,901,147 $ 25,171,295
-----------------------------------------------------------
72 | See notes to financial statements. | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended April 30, 2005 (unaudited)
and the year ended October 31, 2004
------------------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004
------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 10,964,317 $ 22,594,816 $ 855,959 $ 545,598
Net realized gain (loss) from investments
and foreign currency transactions ................. 70,179,630 77,983,751 2,632,756 3,291,722
Net change in unrealized appreciation
(depreciation) on investments ...................... 153,464,846 557,660,760 487,939 13,829,912
------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ..................... 234,608,793 658,239,327 3,976,654 17,667,232
------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................ (30,398,697) (11,216,618) (758,667) (277,348)
Class B ............................................ (35,389) -- (3,820) (7,125)
Class R ............................................ (114,469) (27,350) (16,265) (11,953)
Advisor Class ...................................... (259,441) (129,682) -- --
Net realized gains:
Class A ............................................ (64,294,761) (20,640,023) (283,788) --
Class B ............................................ (1,960,902) (706,655) (48,305) --
Class C ............................................ (2,195,578) (856,169) (128,883) --
Class R ............................................ (345,811) (93,365) (7,630) --
Advisor Class ...................................... (437,910) (149,902) -- --
------------------------------------------------------------------------
Total distributions to shareholders .................. (100,042,958) (33,819,764) (1,247,358) (296,426)
------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ............................................. 211,993,025 107,201,300 31,300,909 57,502,173
Class B ............................................. (2,306,610) (7,298,747) 1,364,909 9,156,057
Class C ............................................. (5,017,842) (19,964,837) 3,769,667 20,240,863
Class R ............................................. 729,008 4,827,099 1,700,026 2,285,591
Advisor Class ....................................... 1,137,302 352,508 -- --
------------------------------------------------------------------------
Total capital share transactions ..................... 206,534,883 85,117,323 38,135,511 89,184,684
------------------------------------------------------------------------
Redemption fees ....................................... 3,297 290 554 1,191
------------------------------------------------------------------------
Net increase (decrease) in
net assets ....................................... 341,104,015 709,537,176 40,865,361 106,556,681
Net assets:
Beginning of period .................................. 4,008,578,462 3,299,041,286 210,439,907 103,883,226
------------------------------------------------------------------------
End of period ........................................ $ 4,349,682,477 $4,008,578,462 $251,305,268 $ 210,439,907
========================================================================
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period ...................................... $ (2,999,272) $ 16,844,407 $ 494,744 $ 417,537
========================================================================
Semiannual Report | See notes to financial statements. | 73
FRANKLIN VALUE INVESTORS TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
for the six months ended April 30, 2005 (unaudited)
and the year ended October 31, 2004
------------------------------------------------------------------------
FRANKLIN FRANKLIN
MICROCAP VALUE FUND SMALL CAP VALUE FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004 APRIL 30, 2005 OCTOBER 31, 2004
------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .............................. $ 846,313 $ 553,126 $ 1,366,630 $ 3,255,123
Net realized gain (loss) from investments
and foreign currency transactions ................. 13,345,667 21,456,026 16,171,889 12,991,831
Net change in unrealized appreciation
(depreciation) on investments ...................... 14,709,167 32,272,169 7,632,776 72,409,583
------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ..................... 28,901,147 54,281,321 25,171,295 88,656,537
------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (555,228) -- (2,351,319) --
Class B ............................................. -- -- (163,622) --
Class C ............................................. -- -- (274,374) --
Class R ............................................. -- -- (186,571) --
Advisor Class ....................................... -- -- (280,803) --
Net realized gains:
Class A ............................................. (21,457,599) (7,051,025) -- --
------------------------------------------------------------------------
Total distributions to shareholders .................. (22,012,827) (7,051,025) (3,256,689) --
------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ............................................ 1,079,798 60,238,672 70,708,741 48,360,444
Class B ............................................ -- -- 4,120,904 7,324,786
Class C ............................................ -- -- 16,525,839 3,797,776
Class R ............................................ -- -- 5,612,628 14,979,225
Advisor Class ...................................... -- -- 3,019,568 9,797,497
------------------------------------------------------------------------
Total capital share transactions ..................... 1,079,798 60,238,672 99,987,680 84,259,728
------------------------------------------------------------------------
Redemption fees ...................................... 699 3 8,152 1,374
------------------------------------------------------------------------
Net increase (decrease) in
net assets .................................. 7,968,817 107,468,971 121,910,438 172,917,639
Net assets:
Beginning of period .................................. 418,463,705 310,994,734 550,006,689 377,089,050
------------------------------------------------------------------------
End of period ........................................ $ 426,432,522 $ 418,463,705 $ 671,917,127 $ 550,006,689
========================================================================
Undistributed net investment income included
in net assets:
End of period ....................................... $ 844,346 $ 553,261 $ 1,365,574 $ 3,255,633
========================================================================
74 | See notes to financial statements. | Semiannual Report
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 Franklin Large Cap Value Fund.
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Some methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Trust's Board of Trustees.
Semiannual Report | 75
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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 on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. REPURCHASE AGREEMENT
Certain Funds may enter into a joint repurchase agreement whereby their
uninvested cash balance is deposited into a joint cash account with other funds
managed by the investment manager or an affiliate of the investment manager 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. Certain Funds may enter into repurchase agreements which are 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%. Repurchase agreements are
valued at cost. At April 30,2005, all repurchase agreements held by the Fund had
been entered into on April 29, 2005.
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. SECURITIES LENDING
The Franklin Balance Sheet Investment Fund, Franklin MicroCap Value Fund and
Franklin Small Cap Value Fund loan securities to certain brokers through a
securities lending agent for which it received cash collateral against the
loaned securities in an amount equal to at least 102% of the
76 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. SECURITIES LENDING (CONTINUED)
market value of the loaned securities. The collateral is invested in short-term
instruments as noted in the Statement of Investments. The funds receive interest
income from the investment of cash collateral, adjusted by lender fees and
broker rebates. The funds bear the risk of loss with respect to the investment
of the collateral and the securities loaned. The securities lending agent has
agreed to indemnify the funds in the case of default of any securities borrower.
At April 30, 2005, the Franklin Balance Sheet Investment Fund had no securities
on loan.
F. INCOME TAXES
No provision has been made for U.S. income taxes because each Fund's policy is
to qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
G. 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.
H. 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.
I. REDEMPTION FEES
Redemptions and exchanges of Fund shares held five trading days or less (30 days
or less prior to June 1, 2004 and 90 days or less prior to January 1, 2004) may
be subject to the Fund's redemption fee, which is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as additional paid-in
capital.
Semiannual Report | 77
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities 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.
Effective March 1, 2005, Class B shares are only offered to existing Class B
shareholders in the form of reinvested distributions and certain exchanges from
other Franklin Templeton Class B shares. 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, 2005, 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, 2005
Shares sold .......................................... 12,713,764 $ 730,853,019 3,066,706 $ 44,590,759
Shares issued in reinvestment
of distributions ................................... 1,484,887 86,004,635 61,540 904,019
Shares redeemed ...................................... (10,478,720) (604,864,629) (978,400) (14,193,869)
--------------------------------------------------------
Net increase (decrease) .............................. 3,719,931 $ 211,993,025 2,149,846 $ 31,300,909
========================================================
Year ended October 31, 2004
Shares sold .......................................... 22,398,748 $1,111,639,999 5,608,036 $ 75,526,212
Shares issued in reinvestment
of distributions ................................... 633,148 29,099,486 18,852 239,983
Shares redeemed ...................................... (20,821,627) (1,033,538,185) (1,352,582) (18,264,022)
--------------------------------------------------------
Net increase (decrease) .............................. 2,210,269 $ 107,201,300 4,274,306 $ 57,502,173
========================================================
78 | 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, 2005
Shares sold .......................................... 37,058 $ 2,104,042 213,590 $ 3,075,332
Shares issued in reinvestment
of distributions .................................... 32,329 1,854,735 3,163 46,124
Shares redeemed ...................................... (110,231) (6,265,387) (122,398) (1,756,547)
-------------------------------------------------------
Net increase (decrease) .............................. (40,844) $ (2,306,610) 94,355 $ 1,364,909
=======================================================
Year ended October 31, 2004
Shares sold .......................................... 95,392 $ 4,656,339 899,302 $ 11,973,411
Shares issued in reinvestment
of distributions .................................... 14,458 658,813 471 5,954
Shares redeemed ...................................... (257,470) (12,613,899) (210,293) (2,823,308)
-------------------------------------------------------
Net increase (decrease) .............................. (147,620) $ (7,298,747) 689,480 $ 9,156,057
=======================================================
CLASS C SHARES:
Six months ended April 30, 2005
Shares sold .......................................... 69,946 $ 3,962,762 748,116 $ 10,760,923
Shares issued in reinvestment
of distributions .................................... 34,963 2,008,638 7,907 115,285
Shares redeemed ...................................... (193,261) (10,989,242) (494,309) (7,106,541)
-------------------------------------------------------
Net increase (decrease) .............................. (88,352) $ (5,017,842) 261,714 $ 3,769,667
=======================================================
Year ended October 31, 2004
Shares sold .......................................... 136,094 $ 6,638,356 2,349,647 $ 31,189,672
Shares issued in reinvestment
of distributions .................................... 17,212 785,232 -- --
Shares redeemed ...................................... (562,212) (27,388,425) (817,613) (10,948,809)
-------------------------------------------------------
Net increase (decrease) .............................. (408,906) $(19,964,837) 1,532,034 $ 20,240,863
=======================================================
CLASS R SHARES:
Six months ended April 30, 2005
Shares sold .......................................... 88,505 $ 5,074,398 144,772 $ 2,086,573
Shares issued in reinvestment
of distributions .................................... 7,972 460,280 1,635 23,895
Shares redeemed ...................................... (83,852) (4,805,670) (28,434) (410,442)
-------------------------------------------------------
Net increase (decrease) .............................. 12,625 $ 729,008 117,973 $ 1,700,026
=======================================================
Year ended October 31, 2004
Shares sold .......................................... 176,873 $ 8,783,324 256,816 $ 3,332,363
Shares issued in reinvestment
of distributions .................................... 2,632 120,714 944 11,953
Shares redeemed ...................................... (82,421) (4,076,939) (79,611) (1,058,725)
-------------------------------------------------------
Net increase (decrease) .............................. 97,084 $ 4,827,099 178,149 $ 2,285,591
=======================================================
Semiannual Report | 79
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, 2005
Shares sold .......................................... 153,174 $ 8,743,507
Shares issued in reinvestment
of distributions .................................... 9,305 539,040
Shares redeemed ...................................... (142,323) (8,145,245)
-----------------------
Net increase (decrease) .............................. 20,156 $ 1,137,302
=======================
Year ended October 31, 2004
Shares sold .......................................... 116,528 $ 5,820,767
Shares issued in reinvestment
of distributions .................................... 4,065 186,793
Shares redeemed ...................................... (113,763) (5,655,052)
-----------------------
Net increase (decrease)............................... 6,830 $ 352,508
=======================
------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------
CLASS A SHARES:
Six months ended April 30, 2005
Shares sold .......................................... 688,337 $ 24,630,497 3,019,344 $ 112,660,427
Shares issued in reinvestment
of distributions ..................................... 567,487 19,754,233 57,572 2,157,238
Shares redeemed ...................................... (1,212,783) (43,304,932) (1,193,599) (44,108,924)
------------------------------------------------------
Net increase (decrease) .............................. 43,041 $ 1,079,798 1,883,317 $ 70,708,741
======================================================
Year ended October 31, 2004
Shares sold .......................................... 4,164,161 $135,904,164 3,210,287 $ 102,176,822
Shares issued in reinvestment
of distributions .................................... 200,780 6,332,588 -- --
Shares redeemed ...................................... (2,456,235) (81,998,080) (1,699,554) (53,816,378)
------------------------------------------------------
Net increase (decrease) .............................. 1,908,706 $ 60,238,672 1,510,733 $ 48,360,444
======================================================
CLASS B SHARES:
Six months ended April 30, 2005
Shares sold .......................................................................... 255,072 $ 9,161,800
Shares issued in reinvestment of distributions ....................................... 4,204 152,782
Shares redeemed ...................................................................... (144,447) (5,193,678)
-------------------------
Net increase (decrease)............................................................... 114,829 $ 4,120,904
=========================
Year ended October 31, 2004
Shares sold .......................................................................... 501,738 $ 15,306,848
Shares redeemed ...................................................................... (262,102) (7,982,062)
-------------------------
Net increase (decrease) .............................................................. 239,636 $ 7,324,786
=========================
80 | 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, 2005
Shares sold .......................................................................... 1,000,910 $ 35,803,930
Shares issued in reinvestment of distributions ....................................... 6,647 239,179
Shares redeemed ...................................................................... (546,976) (19,517,270)
-------------------------
Net increase (decrease) .............................................................. 460,581 $ 16,525,839
=========================
Year ended October 31, 2004
Shares sold .......................................................................... 1,133,265 $ 34,081,417
Shares redeemed ...................................................................... (1,000,339) (30,283,641)
-------------------------
Net increase (decrease) .............................................................. 132,926 $ 3,797,776
=========================
CLASS R SHARES:
Six months ended April 30, 2005
Shares sold .......................................................................... 302,521 $ 11,255,255
Shares issued in reinvestment of distributions ....................................... 4,936 184,297
Shares redeemed ...................................................................... (157,309) (5,826,924)
-------------------------
Net increase (decrease) .............................................................. 150,148 $ 5,612,628
=========================
Year ended October 31, 2004
Shares sold .......................................................................... 706,009 $ 22,144,414
Shares redeemed ...................................................................... (223,223) (7,165,189)
-------------------------
Net increase (decrease) .............................................................. 482,786 $ 14,979,225
=========================
ADVISOR CLASS SHARES:
Six months ended April 30, 2005
Shares sold .......................................................................... 152,465 $ 5,807,990
Shares issued in reinvestment of distributions ....................................... 3,920 150,168
Shares redeemed ...................................................................... (77,016) (2,938,590)
-------------------------
Net increase (decrease) .............................................................. 79,369 $ 3,019,568
=========================
Year ended October 31, 2004
Shares sold .......................................................................... 393,552 $ 12,700,231
Shares redeemed ...................................................................... (89,967) (2,902,734)
-------------------------
Net increase (decrease) .............................................................. 303,585 $ 9,797,497
=========================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Funds are also officers and/or directors of the following
subsidiaries:
- ---------------------------------------------------------------------------------------
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
Semiannual Report | 81
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
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
- -------------------------------------------------------------------------
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
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
- -------------------------------------------------------------------------
0.550% First $500 million
0.450% Over $500 million, up to and including $1 billion
0.400% 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 0.75% 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
- -------------------------------------------------------------------------
0.750% First $500 million
0.625% Over $500 million, up to and including $1 billion
0.500% Over $1 billion
B. ADMINISTRATIVE FEES
The Franklin Large Cap Value Fund pays an administrative fee to FT Services of
0.20% per year based on the Fund's average daily net assets.
Under an agreement with Advisers, 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 Advisers based on
average daily net assets, and is not an additional expense of the Funds.
82 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES
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..................................... 0.25% 0.35% 0.25% 0.35%
Class B..................................... 1.00% 1.00% -- 1.00%
Class C..................................... 1.00% 1.00% -- 1.00%
Class R..................................... 0.50% 0.50% -- 0.50%
Under the Class A distribution plan, costs exceeding the maximum for the current
plan year cannot be reimbursed in subsequent periods.
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the period:
-------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------------
Net sales charges received .................... $37,892 $88,730 $27,047 $296,994
Contingent deferred sales charges retained..... $87,336 $23,555 $ 756 $ 66,433
E. TRANSFER AGENT FEES
The Funds paid transfer agent fees as noted in the Statement of Operations of
which the following amounts were retained by Investor Services:
-------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------------
Transfer agent fees............................ $1,998,628 $156,310 $241,200 $476,280
4. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an arrangement with its 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, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 83
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES
At October 31, 2004, the Franklin Small Cap Value Fund had tax basis capital
losses which may be carried over to offset future capital gains. Such losses
expire as follows:
-------------
FRANKLIN
SMALL CAP
VALUE FUND
-------------
Capital loss carryovers expiring in:
2007.......................................... $ 5,348,582
2008.......................................... 1,120,571
2010.......................................... 2,477,451
2011.......................................... 8,539,454
-------------
$ 17,486,058
=============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and bond
discounts and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatment of wash sales, foreign currency
transactions and bond discounts and premiums.
At April 30, 2005, net unrealized appreciation (depreciation), based on the cost
of investments for income tax purposes were as follows:
---------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
---------------------------------------------------------------
Cost of investments ..................... $ 2,969,635,712 $ 230,420,560 $ 305,077,142 $ 543,083,898
===============================================================
Unrealized appreciation ................. $ 1,444,512,598 $ 26,699,868 $ 131,504,644 $ 153,749,137
Unrealized depreciation ................. (58,030,082) (5,014,592) (6,717,092) (22,370,301)
===============================================================
Net unrealized appreciation
(depreciation) ......................... $ 1,386,482,516 $ 21,685,276 $ 124,787,552 $ 131,378,836
===============================================================
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended April 30, 2005, were as follows:
---------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND
---------------------------------------------------------------
Purchases................................ $ 78,147,503 $ 54,313,718 $ 9,518,615 $ 108,182,432
Sales ................................... $ 148,755,792 $ 21,600,948 $ 20,293,229 $ 37,431,308
84 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Franklin Advisers Inc. (an affiliate of the investment manager). Management fees
paid by the Funds are reduced on assets invested in the Sweep Money Fund, in an
amount not to exceed the management fees paid by the Sweep Money Fund.
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, 2005 were as shown below.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT REALIZED
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 $ (a) $ -- $ --
Aztar Corp. .................................. 2,930,000 -- 90,000 2,840,000 77,560,400 -- 1,907,097
Champps Entertainment Inc. ................... 920,000 -- -- 920,000 8,096,000 -- --
Delta Woodside Industries Inc. ............... 555,000 -- -- 555,000 338,550 -- --
DIMON Inc. ................................... 2,504,200 -- -- 2,504,200 14,899,990 375,630 --
Dollar Thrifty Automotive Group Inc. ......... 1,800,000 -- -- 1,800,000 60,930,000 -- --
Haverty Furniture Cos. Inc. .................. 920,000 -- -- 920,000 13,202,000 115,000 --
Syms Corp. ................................... 1,430,000 -- -- 1,430,000 17,160,000 1,430,000 --
Tecumseh Products Co., A ..................... 778,900 -- -- 778,900 27,058,986 498,496 --
Tecumseh Products Co., B ..................... 300,000 -- -- 300,000 10,470,000 192,000 --
Xanser Corp. ................................. 2,800,000 -- -- 2,800,000 7,532,000 -- --
-----------------------------------
TOTAL AFFILIATED ISSUERS (5.45% OF NET ASSETS) .............................................. $237,247,926 $ 2,611,126 $1,907,097
===================================
FRANKLIN MICROCAP VALUE FUND
ACMAT Corp., A ............................... 392,800 -- -- 392,800 $ 5,106,400 $ -- $ --
American Pacific Corp. ....................... 659,000 -- -- 659,000 5,140,200 -- --
Art's-Way Manufacturing Co. Inc. ............. 134,500 -- 134,500 -- -- -- 846,388
Continental Materials Corp. .................. 99,500 -- -- 99,500 3,024,800 -- --
D & K Healthcare Research Inc. ............... 660,000 90,000 -- 750,000 5,812,500 21,150 --
Delta Apparel Inc. ........................... 340,000 -- -- 340,000 8,993,000 47,600 --
Duckwall-ALCO Stores Inc. .................... 330,000 -- -- 330,000 6,332,700 -- --
Ecology & Environment Inc., A ................ 215,000 -- -- 215,000 1,348,050 36,550 --
Espey Manufacturing & Electronics Corp........ 78,000 -- -- 78,000 1,950,000 23,400 --
Fresh Brands Inc. ............................ 900,000 -- -- 900,000 5,634,000 -- --
Gehl Co. ..................................... 420,000 -- -- 420,000 12,054,000 -- --
Haggar Corp. ................................. 420,000 -- -- 420,000 8,148,000 42,000 --
Hardinge Inc. ................................ 725,600 200,000 -- 925,600 13,745,160 35,024 --
International Shipholding Corp. .............. 480,000 -- -- 480,000 7,488,000 -- --
Merchants Group Inc. ......................... 190,000 -- -- 190,000 4,951,400 38,000 --
Semiannual Report | 85
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
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT REALIZED
NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND (CONT.)
Nashua Corp. ................................ 475,000 -- -- 475,000 $ 4,455,500 $ -- $ --
Northwest Pipe Company ...................... 333,000 -- -- 333,000 (a) -- --
Rockford Corp. .............................. 575,000 -- -- 575,000 1,667,500 -- --
S&K Famous Brands Inc. ...................... 260,000 -- -- 260,000 4,160,000 -- --
Seneca Foods Corp., A ....................... 256,600 -- -- 256,600 4,516,160 -- --
Seneca Foods Corp., B ....................... 121,500 -- -- 121,500 2,049,705 -- --
Seneca Foods Corp., cvt. participating pfd .. 200,000 -- -- 200,000 3,475,000 -- --
Seneca Foods Corp., cvt. participating pfd.,
Series 2003 ................................ -- 100,000 -- 100,000 1,760,000 -- --
Village Super Market Inc., A ................ 115,175 -- -- 115,175 5,136,805 28,794 --
-----------------------------------
TOTAL AFFILIATED ISSUERS (27.42% OF NET ASSETS) ............................................ $116,948,880 $272,518 $ 846,388
===================================
(a) As of April 30, 2005, no longer an affiliate.
9. REGULATORY MATTERS
INVESTIGATIONS AND SETTLEMENTS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"), as well as certain current or former executives and
employees of the Company, provided documents and information in response to
subpoenas and/or requests for documents, information and/or testimony. Beginning
in August 2004, the Company entered into settlements with certain of the
regulators and a governmental entity investigating the mutual fund industry
practices noted above. The Company believes that settlement of each of the
matters is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
Two of the settlement agreements, those with the SEC and the CAGO concerning
marketing support payments, provide that the distribution of settlement monies
are to be made to the relevant funds, not to individual shareholders. The CAGO
has approved the distribution plan pertaining to the distribution of the monies
owed under the CAGO settlement agreement and, in accordance with the terms and
conditions of that settlement, the monies were disbursed to the participating
funds and are recorded as other income in the current period. The SEC has not
yet approved the distribution plan pertaining to the SEC settlement. When
approved, disbursements of settlement monies under the SEC's settlement will be
made promptly in accordance with the terms and conditions of that order.
86 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
On April 12, 2005, the Attorney General of West Virginia filed a complaint in
the Circuit Court of Marshall County, West Virginia against a number of
companies engaged in the mutual fund industry, including Franklin Resources,
Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties
alleging violations of the West Virginia Consumer Credit and Protection Act and
seeking, among other things, civil penalties and attorneys' fees and costs. To
the extent applicable to the Company, the complaint arises from activity that
occurred in 2001 and duplicates, in whole or in part, the allegations asserted
in the February 4, 2004 Massachusetts Administrative Complaint concerning one
instance of market timing (the "Administrative Complaint") and the SEC's
findings regarding market timing in its August 2, 2004 Order (the "SEC Order"),
both of which matters were previously reported.
The Trust, in addition to the Company and other funds, and certain current and
former officers, employees, and directors have been named in multiple lawsuits
in different courts alleging violations of various federal securities laws and
seeking, among other relief, monetary damages, restitution, removal of fund
trustees, directors, advisers, administrators, and distributors, rescission of
management contracts and 12b-1 plans, and/or attorneys' fees 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
Templeton funds managed by Franklin Resources, Inc. subsidiaries, resulting in
alleged market timing activity. The majority of these lawsuits duplicate, in
whole or in part, the allegations asserted in the Administrative Complaint and
the SEC's findings regarding market timing in the SEC Order. The lawsuits are
styled as class actions, or derivative actions on behalf of either the named
funds or Franklin Resources, Inc.
The Trust, in addition to the Company and other funds, and 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 marketing support payments and/or payment of
allegedly excessive commissions and/or advisory or distribution fees, and
seeking, among other relief, monetary damages, restitution, rescission of
advisory contracts, including recovery of all fees paid pursuant to those
contracts, an accounting of all monies paid to the named advisers, declaratory
relief, injunctive relief, and/or attorneys' fees and costs. These lawsuits are
styled as class actions or derivative actions brought on behalf of the named
funds.
Semiannual Report | 87
FRANKLIN VALUE INVESTORS TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
The Company and fund management strongly believe that the claims made in each of
the lawsuits described above are without merit and intends to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. Public trust and confidence are critical to the Company's business and
any material loss of investor and/or client confidence could result in a
significant decline in assets under management by the Company, which would have
an adverse effect on future financial results. If it is determined that the
Company 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. The Company is committed to taking all
appropriate actions to protect the interests of its funds' shareholders.
88 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT
At a meeting held March 2, 2005, the Board of Trustees ("Board"), including a
majority of non-interested or independent Trustees, approved renewal of the
investment advisory contract for each of the four Funds within the Trust
("Fund(s)"). In reaching this decision, the Board took into account information
furnished throughout the year at regular Board meetings, as well as information
prepared specifically in connection with the annual renewal review process.
Information furnished and discussed throughout the year included investment
performance reports and related financial information for each Fund, as well as
periodic reports on shareholder services, legal compliance, pricing, brokerage
commissions and execution and other services provided by the Investment Manager
("Manager") and its affiliates. Information furnished specifically in connection
with the renewal process included a report for each Fund prepared by Lipper
Financial Services ("Lipper"), an independent organization, as well as a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to the Manager from
its overall U.S. fund operations, as well as on an individual fund-by-fund
basis. Included with such profitability analysis report was information on a
fund-by-fund basis listing portfolio managers and other accounts they manage, as
well as information on management fees charged by the Manager including
management's explanation of differences where relevant, and a three year expense
analysis with an explanation for any increase in expense ratios. Additional
information accompanying such report were a memorandum prepared by management
describing enhancements to the services provided to the Funds by the Franklin
Templeton Investments organization, as well as a memorandum relating to
economies of scale.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
advisory contracts for all the Funds were considered at the same Board meeting,
the Trustees dealt with each Fund separately. In approving continuance of the
investment advisory contract for each Fund, the Board, including a majority of
independent Trustees, determined that the existing management fee structure was
fair and reasonable and that continuance of the investment advisory contract was
in the best interests of each Fund and its shareholders. While attention was
given to all information furnished, the following discusses the primary factors
relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICE. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the
Semiannual Report | 89
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
adherence to fair value pricing procedures, established by the Board, and the
accuracy of net asset value calculations. The Board also noted the extent of
benefits provided Fund shareholders from being part of the Franklin Templeton
family of funds, including the right to exchange investments between the same
class of funds without a sales charge, the ability to reinvest Fund dividends
into other funds and the right to combine holdings in other funds to obtain a
reduced sales charge. Favorable consideration was given to management's efforts
and expenditures in establishing back-up systems and recovery procedures to
function in the event of a natural disaster, it being noted by the Board that
such systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Other factors taken into account by
the Board were the Manager's best execution trading policies, including a
favorable third party report on portfolio execution, as well as the compliance
procedures and qualifications of the Chief Compliance Officer established in
accordance with recently adopted SEC requirements. Consideration was also given
to the experience of each Fund's portfolio management team, the number of
accounts managed and general method of compensation. In this latter respect, the
Board noted that a primary factor in management's determination of the amount of
a portfolio manager's bonus compensation was the relative investment performance
of the funds he or she managed so as to be aligned with the interests of Fund
shareholders. The Board also took into account the transfer agent and
shareholder services provided Fund shareholders by an affiliate of the Manager,
noting continuing expenditures by management to increase and improve the scope
of such services, periodic favorable reports on such service conducted by third
parties such as Dalbar, and the firsthand experience of the individual Trustees
who deal with the shareholder services department in their capacities as
shareholders in one or more of the various Franklin Templeton funds.
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings throughout the year, particular attention in
assessing performance was given to the Lipper reports furnished for the contract
renewals. The Lipper report prepared for each individual Fund showed the
investment performance of its Class A shares in comparison to a performance
universe selected by Lipper. Comparative performance for each Fund was shown for
2004 and for previous ten years ending December 31, 2004, for those Funds that
had been in existence for such length of time and for lesser periods for other
Funds depending on when their operations commenced. The following summarizes the
performance results for each of the Funds and the Board's view of such
performance.
FRANKLIN BALANCE SHEET INVESTMENT FUND - The performance universe for this Fund
consisted of the Fund and all retail and institutional mid-cap value funds as
selected by Lipper. The Lipper report comparison showed the Fund's total return
during 2004 was in the first or highest quintile of such performance universe.
The report further showed that the Fund's total return during the previous
three-, five- and ten-year periods on an annualized basis were, in each case, in
either the first or second highest quintile of such performance universe. The
Board was satisfied with such performance.
90 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND - The performance universe for this Fund consisted
of the Fund and all retail and institutional large-cap value funds as selected
by Lipper. The Lipper report comparison showed the Fund's total return during
2004 was in the second highest quintile of such performance universe. The Fund's
operations encompass four full years and such report showed that the Fund's
annualized total return was in the first or highest quintile of such universe
for the four-year period and the second and third quintiles for the three- and
two-year periods, respectively. The Board was satisfied with such performance.
FRANKLIN MICROCAP VALUE FUND - The performance universe for this Fund consisted
of the Fund and all retail and institutional funds as selected by Lipper. The
Lipper report comparison showed the Fund's total return during 2004 was in the
fifth or lowest quintile of the performance universe, while the Fund's total
return was in the first or highest quintile for the previous five-year period,
and the second highest for the previous three-year period on an annualized
basis, respectively. (Lipper does not provide annualized returns for funds like
the Franklin MicroCap Value Fund which have been in existence for less than ten
years.) The Board was satisfied with such performance, noting that the Fund's
total return for 2004 as shown in the Lipper report exceeded 16%.
FRANKLIN SMALL CAP VALUE FUND - The performance universe for this Fund consisted
of the Fund and all retail and institutional funds as selected by Lipper. The
Lipper report comparison showed that the Fund's total return for 2004 placed it
in the first or highest quintile of such performance universe and that its total
return on an annualized basis for the previous three- and five-year periods was
in the third or middle quintile of such performance universe. (Lipper does not
provide annualized returns beyond five years for funds like the Franklin Small
Cap Value Fund which have been in existence for less than ten years.) The Board
was satisfied with such performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Prior to making such comparison, the Board relied upon a survey
showing that the scope of management advisory services covered under the Fund's
investment advisory contract were similar to those provided by fund managers to
other mutual fund groups which would be used as a basis of comparison in the
Lipper reports. In reviewing comparative costs, emphasis was given to each
Fund's management fee in comparison with the effective management fee that would
have been charged by other funds within its Lipper expense group assuming they
were the same size as the Fund, as well as the actual total expenses of the Fund
in comparison with those of its expense group. The Lipper effective management
fee comparison includes within such fee any separate administrative fees. The
Lipper actual total expenses, for comparative consistency, are shown by Lipper
for Fund Class A shares and compare actual total expenses including and
excluding 12b-1 fees. Such expense comparisons in the case of each of the
Franklin Balance Sheet Investment Fund, the Franklin MicroCap Value Fund, and
the Franklin Small Cap Value Fund showed its effective management fee as well as
it actual total expenses, whether computed including or excluding 12b-1 fees, to
be in the lowest quintile of its Lipper expense group. The Lipper report for the
Franklin Large Cap Value Fund showed its effective management
Semiannual Report | 91
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
fee was in the second lowest quintile of its expense group, its actual total
expenses including 12b-1 fees to be in the lower half of such expense group and
its actual total expenses excluding 12b-1 fees to be in the lowest quintile of
such expense group. While realizing that other factors such as the Manager's
profitability and economies of scale bear on the reasonableness of fees, the
Board was satisfied with the management fees and total expenses of each Fund in
comparison to its expense group as shown in the Lipper reports.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. The Board also considered the extent to which the
Manager and its affiliates might derive ancillary benefits from fund operations,
including its interest in a joint venture entity which finances up-front
commissions paid to brokers/dealers who sold Fund Class B shares, as well as
potential benefits resulting from allocation of fund brokerage and the use of
"soft" commission dollars to pay for research. Specific attention was given to
the methodology followed in allocating costs to each Fund, it being recognized
that allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that the cost allocation methodology was consistent
with that followed in profitability report presentations for the Funds made in
prior years and that it had engaged on a biennial basis the Fund's independent
accountants to perform certain procedures specified by the Board solely for its
purpose and use. It was also noted that legal costs and payments incurred by
Franklin Templeton in resolving various legal proceedings arising from its U.S.
fund operations had not been allocated to the Funds for purposes of determining
profitability. Included in the analysis for each Fund were the revenue and
related costs broken down separately from the management, underwriting and
shareholder services functions provided by the Manager and its affiliates to
each Fund, as well as the relative contribution of each Fund to the
profitability of the Manager's parent. In reviewing and discussing such
analysis, management discussed with the Board its belief that costs incurred in
establishing the infrastructure necessary to the type of mutual fund operations
conducted by the Manager and its corporate affiliates may not be fully reflected
in the expenses allocated to each Fund in determining its profitability, as well
as the fact that the level of profits, to a certain extent, reflected
operational cost savings and efficiencies initiated by management. The Board
also took into account management's expenditures in improving shareholder
services provided the Funds, as well as the need to meet additional regulatory
and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC
requirements. In addition, the Board considered a third party study comparing
the profitability of the Manager's parent on an overall basis as compared to
other publicly held managers broken down to show profitability from management
operations exclusive of distribution expenses, as well as profitability
including distribution expenses. Based upon their consideration of all these
factors, the Board determined that the level of profits realized by the Manager
under its investment advisory contract with each Fund was not excessive in view
of the nature, quality and extent of services provided.
92 | Semiannual Report
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT ADVISORY CONTRACT (CONTINUED)
ECONOMIES OF SCALE. The Trustees also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Trustees noted that based
upon the Fund profitability analysis, it appears that as some funds get larger,
at some point economies of scale do result in the Manager realizing a larger
profit margin on management services provided such a fund. The Trustees also
noted that economies of scale are shared with each Fund and its shareholders
through management fee breakpoints so that as a Fund grows in size, its
effective management fee rate declines. The fee structure under the investment
advisory contract for each of the Franklin Balance Sheet Investment Fund,
Franklin Large Cap Value Fund and Franklin Small Cap Value Fund contained
breakpoints which continued to asset levels which exceeded the present size of
these Funds. In view of such structure and the favorable fee and expense
comparisons of these Funds within their respective Lipper expense groups, the
Board believed that to the extent economies of scale may be realized by the
Manager of these Funds and its affiliates, that there was a sharing of benefits
with each of these Funds and their shareholders. The fee structure under the
management contract for the Franklin MicroCap Value Fund provides a flat fee of
0.75% at all asset levels. In discussing the absence of breakpoints with the
independent Trustees, management pointed out that this Fund invests only in
domestic and foreign securities with a market capitalization of less than $400
million which are believed to be undervalued. Management stated its belief that
such limited investment option did not permit the Fund to achieve the type of
economies of scale that might benefit other funds from increases in size and
also pointed out that the Fund whose asset size was approximately $450 million
at year-end had been closed to new investors, with the exception of certain
retirement accounts since January 14, 2004. Management also expressed its view
that this fee was low for this type of a fund and pointed out the favorable
comparison of fees and expenses with its Lipper expense group. The independent
Trustees acknowledged the arguments advanced by management as providing a
reasonable basis for believing the flat fee rate under the investment advisory
contract was fair and that in the current circumstances, management was not
benefiting from any meaningful economies of scale in its management of this
Fund.
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust'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. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
Semiannual Report | 93
FRANKLIN VALUE INVESTORS TRUST
SHAREHOLDER INFORMATION (CONTINUED)
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
94 | SEMIANNUAL REPORT
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LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. 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
Mutual Discovery 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
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 Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives 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(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4),(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return
Fund Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida(8)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust(9)
(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 and 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) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and
strategy remained the same.
(6) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(7) Portfolio of insured municipal securities.
(8) 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).
(9) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/05 Not part of the semiannual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
|_| WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
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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 S2005 06/05
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 12(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
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. 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 11. 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 12. 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 SECURITIES TRUST
By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date June 20, 2005
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
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date June 20, 2005
By /s/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date June 20, 2005