UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-05878
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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 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 10/31
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Date of reporting period: 10/31/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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OCTOBER 31, 2007
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Franklin Balance Sheet
Investment Fund
Franklin Large Cap
Value Fund
Franklin MicroCap
Value Fund
Franklin MidCap
Value Fund
Franklin Small Cap
Value Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER VALUE
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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(R)
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, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
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 annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Economic and Market Overview .............................................. 3
Franklin Balance Sheet Investment Fund .................................... 5
Franklin Large Cap Value Fund ............................................. 15
Franklin MicroCap Value Fund .............................................. 25
Franklin MidCap Value Fund ................................................ 33
Franklin Small Cap Value Fund ............................................. 43
Financial Highlights and Statements of Investments ........................ 53
Financial Statements ...................................................... 95
Notes to Financial Statements ............................................. 104
Report of Independent Registered Public Accounting Firm ................... 121
Tax Designation ........................................................... 122
Board Members and Officers ................................................ 123
Shareholder Information ................................................... 127
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Annual Report
Economic and Market Overview
During the 12 months ended October 31, 2007, the U.S. economy advanced at a
moderate but uneven pace. Gross domestic product (GDP), as measured on a
calendar quarter basis, grew an annualized 2.1% in the fourth quarter of 2006,
but slowed to an annualized 0.6% rate in the first quarter of 2007 due in part
to higher imports and lower spending for nondurable goods. In the second
quarter, however, GDP growth advanced at an annualized 3.8% rate, supported by
federal defense spending, accelerating exports and declining imports, greater
business inventory investment and increased spending for nonresidential
structures. GDP grew an estimated annualized 4.9% in the third quarter of 2007
despite a struggling housing market that became more fragile with the abrupt
unraveling of the subprime mortgage market.
The unemployment rate increased from 4.4% at the beginning of the period to 4.7%
in October 2007. 1 Although consumer confidence in July neared a six-year high,
it declined through period-end and the pace of consumer spending slowed as
worries about the housing slump and high gasoline prices made individuals more
cautious. After a welcome drop in energy costs during the latter half of 2006,
oil prices established a new record high in October, crossing $94 per barrel in
response to perceived tight supply and high demand for oil, refinery maintenance
issues, and ongoing geopolitical tensions in the Middle East and Africa. For the
12 months ended October 31, 2007, the core Consumer Price Index (CPI), which
excludes food and energy costs, rose 2.2%, which was also its 10-year average
rate. 1
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 75 basis
points to 4.50% from 5.25% during the period. The 10-year Treasury note yield
fell from 4.61% at the beginning of the period to 4.48% on October 31, 2007.
1. Source: Bureau of Labor Statistics.
Annual Report | 3
After stock market sell-offs in late February and mid-March, markets rebounded
in the second quarter of 2007 amid generally strong first quarter corporate
earnings reports. However, volatility picked up in the second half of July and
August due to investor concerns about the housing market, lending environment
and mixed second quarter earnings reports. Major stock indices recovered from
early September losses in the wake of Fed actions mid-month. For the 12-month
period ended October 31, 2007, the blue chip stocks of the Dow Jones Industrial
Average generated a total return of +17.94%, the broader Standard & Poor's 500
Index (S&P 500) increased +14.56%, and the technology-heavy NASDAQ Composite
Index gained +21.72%. 2 During the same period, growth stocks outperformed their
value counterparts, as measured by the Russell 3000 (R) Growth Index and Russell
3000 Value Index, which rose +19.00% and +10.06%, respectively. 3
2. 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 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 NASDAQ domestic and international based common type stocks
listed on The NASDAQ Stock Market. The index is market value weighted and
includes more than 3,000 companies.
3. Source: Standard & Poor's Micropal. The Russell 3000 Growth Index is market
capitalization weighted and measures performance of those Russell 3000 Index
companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 3000 Value Index is market capitalization weighted and measures
performance of those Russell 3000 Index companies with lower price-to-book
ratios and lower forecasted growth values.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31,
2007. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE.
4 | Annual 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 equity securities of companies
that we believe are undervalued in the marketplace at the time of purchase but
that have the potential for capital appreciation.
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PERFORMANCE DATA 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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This annual report for Franklin Balance Sheet Investment Fund covers the fiscal
year ended October 31, 2007.
PERFORMANCE OVERVIEW
Franklin Balance Sheet Investment Fund - Class A posted a +7.85% cumulative
total return for the 12 months under review. The Fund outperformed its
benchmark, the Russell 2000 (R) Value Index, which posted a +2.05% total return
for the same period. 1 We are changing the Fund's benchmark to the Russell 3000
(R) Value Index, which is more consistent with our investment strategy, in that
it does not target a particular market capitalization. Franklin Balance Sheet
Investment Fund has never used market capitalization as an investment criterion.
The Fund underperformed the Russell 3000 Value Index's +10.06% total return for
the period. 2 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 12-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 8.
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 short-term
trading
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.
2. Source: Standard & Poor's Micropal. The Russell 3000 Value Index is market
capitalization weighted and measures performance of those Russell 3000 Index
companies with lower price-to-book ratios and lower forecasted growth value.
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 58.
Annual Report | 5
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Insurance 17.8%
Materials 13.2%
Capital Goods 10.9%
Utilities 8.0%
Energy 7.3%
Food, Beverage & Tobacco 5.8%
Transportation 5.3%
Consumer Durables & Apparel 4.5%
Retailing 4.2%
Banks 3.9%
Other 8.6%
Short-Term Investments & Other Net Assets 10.5%
gains, nor do we consider the composition of any index. Rather, we try to
identify individual companies that meet our investment criteria, and we assume
at purchase that we will hold the positions for several years.
MANAGER'S DISCUSSION
On October 31, 2007, the Fund's total net assets were $4.9 billion, with
short-term investments and other net assets (cash) making up 10.5%, as compared
with total net assets of $5.1 billion with 15.5% in cash at the beginning of the
period. The Fund closed to new investors on May 1, 2002. The close does not
restrict existing shareholders from continuing to invest through exchanges and
additional purchases, including purchases made through reinvestment of dividends
and capital gains distributions, except that if an account is reduced to zero it
may not be reopened unless the Fund reopens. Net shareholder redemptions were
$512 million during the 12-month period.
We identified nine new investment opportunities during the year under review:
Armstrong World Industries, a manufacturer of floors, ceilings and cabinets;
Avista, an electric and gas utility based in Spokane, Washington; Corus
Bankshares, a commercial bank that lends primarily to condominium developers;
Employers Holdings, a workers compensation provider; IDACORP, an electric
utility based in Boise, Idaho; KGen Power, a merchant power company with
gas-powered generating assets in the southeastern U.S.; Smithfield Foods, which
raises hogs, processes pork and sells fresh and pre-cooked meat; Standard
Pacific, a California-based homebuilder; and Werner Enterprises, a trucking
company based in Omaha, Nebraska.
We also added to existing positions, including Bowater (now AbitibiBowater),
Furniture Brands International, Kelly Services, MGIC Investment, Old Republic
International, Radian Group, Spansion and Zale, among others. New cash deployed
into new or existing positions totaled $293 million during the Fund's fiscal
year.
Portfolio sales generated cash of $510 million, of which the completed takeovers
of AmerUs, Aztar, Champps Entertainment, Chaparral Steel, Crowley Maritime,
Intergraph and Premium Standard Farm accounted for $190 million. Crowley
Maritime's management bought out the minority shareholders to settle a lawsuit
we filed in 2004. One of our portfolio companies, Smithfield Foods, acquired
another of our holdings, Premium Standard, for stock and cash. Two other
existing portfolio positions, Hanover Compressor and Universal Compression
Holdings, merged in a stock transaction to become Exterran Holdings. Finally,
Midland Company has agreed to be acquired by Munich Re, pending approvals. All
of these transactions represent outcomes consistent with our investment goals.
6 | Annual Report
Apart from takeovers, we eliminated one position, FSI International, at a loss.
Other sales were in response to price appreciation, including some from
positions that contributed most to performance in the period.
Positions that contributed most to Fund performance during the year included
steel companies Chaparral Steel, Reliance Steel & Aluminum and United States
Steel. Two agribusiness holdings, Monsanto and Bunge, were also among the top
contributors, as was CNH Global (construction and farm equipment). Other
contributors included Vail Resorts (ski resorts and hotels), Entergy (electric
utilities and merchant generation) and, in a difficult period for financials,
Prudential Financial. Holding periods tend to be long in our Fund, as reflected
by our portfolio turnover rate, and we do not expect performance to be driven by
recently established positions.
Housing and housing-related issues dominated the list of detractors from Fund
performance: Lennar, D.R. Horton, Pulte Homes, MGIC Investment, The PMI Group,
Radian Group, Old Republic International, Genworth Financial, Freddie Mac and
CIT Group. Other detractors included Furniture Brands International (residential
furniture), Charming Shoppes and Kellwood (apparel), Spansion (flash memory
devices), Alaska Air Group (passenger airline) and Kelly Services (staffing).
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
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin Balance Sheet Investment Fund
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
10/31/07
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COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
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Prudential Financial Inc. 2.6%
INSURANCE
Nucor Corp. 2.2%
MATERIALS
Corn Products International Inc. 2.2%
FOOD, BEVERAGE & TOBACCO
Exterran Holding Inc. 2.2%
ENERGY
Reliance Steel & Aluminum Co. 2.2%
MATERIALS
United States Steel Corp. 2.0%
MATERIALS
Bunge Ltd. 1.8%
FOOD, BEVERAGE & TOBACCO
Freddie Mac 1.7%
BANKS
Sierra Pacific Resources 1.7%
UTILITIES
American National Insurance Co. 1.7%
INSURANCE
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THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 7
Performance Summary as of 10/31/07
FRANKLIN BALANCE SHEET INVESTMENT FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay 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 10/31/07 10/31/06
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Net Asset Value (NAV) +$0.12 $69.36 $69.24
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DISTRIBUTIONS (11/1/06-10/31/07)
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Dividend Income $0.8828
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Short-Term Capital Gain $0.0043
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Long-Term Capital Gain $4.2751
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TOTAL $5.1622
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CLASS B (SYMBOL: FBSBX) CHANGE 10/31/07 10/31/06
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Net Asset Value (NAV) +$0.05 $68.12 $68.07
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DISTRIBUTIONS (11/1/06-10/31/07)
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Dividend Income $0.3548
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Short-Term Capital Gain $0.0043
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Long-Term Capital Gain $4.2751
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TOTAL $4.6342
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CLASS C (SYMBOL: FCBSX) CHANGE 10/31/07 10/31/06
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Net Asset Value (NAV) +$0.05 $68.22 $68.17
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DISTRIBUTIONS (11/1/06-10/31/07)
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Dividend Income $0.3543
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Short-Term Capital Gain $0.0043
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Long-Term Capital Gain $4.2751
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TOTAL $4.6337
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CLASS R (SYMBOL: FBSRX) CHANGE 10/31/07 10/31/06
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Net Asset Value (NAV) +$0.05 $68.83 $68.78
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DISTRIBUTIONS (11/1/06-10/31/07)
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Dividend Income $0.7444
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Short-Term Capital Gain $0.0043
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Long-Term Capital Gain $4.2751
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TOTAL $5.0238
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ADVISOR CLASS (SYMBOL: FBSAX) CHANGE 10/31/07 10/31/06
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Net Asset Value (NAV) +$0.13 $69.53 $69.40
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DISTRIBUTIONS (11/1/06-10/31/07)
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Dividend Income $1.0492
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Short-Term Capital Gain $0.0043
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Long-Term Capital Gain $4.2751
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TOTAL $5.3286
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8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +7.85% +121.24% +186.75%
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Average Annual Total Return 2 +1.66% +15.83% +10.45%
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Value of $10,000 Investment 3 $10,166 $20,851 $27,025
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Avg. Ann. Total Return (9/30/07) 4 +4.81% +16.15% +10.10%
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Total Annual Operating Expenses 5 0.94%
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CLASS B 1-YEAR 5-YEAR INCEPTION (3/1/01)
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Cumulative Total Return 1 +7.04% +112.96% +119.37%
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Average Annual Total Return 2 +3.04% +16.10% +12.50%
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Value of $10,000 Investment 3 $10,304 $21,096 $21,937
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Avg. Ann. Total Return (9/30/07) 4 +6.37% +16.43% +12.63%
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Total Annual Operating Expenses 5 1.70%
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CLASS C 1-YEAR 5-YEAR INCEPTION (3/1/01)
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Cumulative Total Return 1 +7.04% +112.96% +119.48%
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Average Annual Total Return 2 +6.04% +16.32% +12.51%
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Value of $10,000 Investment 3 $10,604 $21,296 $21,948
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Avg. Ann. Total Return (9/30/07) 4 +9.37% +16.65% +12.63%
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Total Annual Operating Expenses 5 1.69%
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CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
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Cumulative Total Return 1 +7.58% +118.46% +102.01%
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Average Annual Total Return 2 +7.58% +16.92% +12.82%
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Value of $10,000 Investment 3 $10,758 $21,846 $20,201
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Avg. Ann. Total Return (9/30/07) 4 +10.91% +17.24% +12.96%
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Total Annual Operating Expenses 5 1.20%
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ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +8.11% +123.88% +191.23%
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Average Annual Total Return 2 +8.11% +17.49% +11.28%
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Value of $10,000 Investment 3 $10,811 $22,388 $29,123
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Avg. Ann. Total Return (9/30/07) 4 +11.48% +17.81% +10.92%
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Total Annual Operating Expenses 5 0.70%
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PERFORMANCE DATA 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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indices include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 10/31/07
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1-Year +1.66%
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5-Year +15.83%
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10-Year +10.45%
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CLASS A (11/1/97-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Balance Russell 2000 Russell 3000
Date Sheet Investment Fund Value Index 7 Value Index CPI 7
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11/1/1997 $ 9,425 $10,000 $10,000 $10,000
11/30/1997 $ 9,374 $10,110 $10,409 $ 9,994
12/31/1997 $ 9,507 $10,452 $10,717 $ 9,981
1/31/1998 $ 9,490 $10,263 $10,562 $10,000
2/28/1998 $10,054 $10,884 $11,266 $10,019
3/31/1998 $10,436 $11,325 $11,932 $10,037
4/30/1998 $10,575 $11,381 $12,010 $10,056
5/31/1998 $10,439 $10,978 $11,808 $10,074
6/30/1998 $10,359 $10,916 $11,939 $10,087
7/31/1998 $ 9,803 $10,061 $11,664 $10,099
8/31/1998 $ 8,751 $ 8,485 $ 9,920 $10,111
9/30/1998 $ 8,954 $ 8,965 $10,489 $10,124
10/31/1998 $ 9,129 $ 9,231 $11,259 $10,149
11/30/1998 $ 9,263 $ 9,481 $11,766 $10,149
12/31/1998 $ 9,449 $ 9,778 $12,164 $10,142
1/31/1999 $ 9,341 $ 9,556 $12,232 $10,167
2/28/1999 $ 8,821 $ 8,904 $12,009 $10,179
3/31/1999 $ 8,518 $ 8,830 $12,232 $10,210
4/30/1999 $ 9,076 $ 9,636 $13,373 $10,285
5/31/1999 $ 9,426 $ 9,932 $13,265 $10,285
6/30/1999 $10,017 $10,292 $13,657 $10,285
7/31/1999 $ 9,884 $10,048 $13,262 $10,316
8/31/1999 $ 9,419 $ 9,680 $12,771 $10,340
9/30/1999 $ 9,130 $ 9,487 $12,339 $10,390
10/31/1999 $ 9,034 $ 9,297 $12,979 $10,408
11/30/1999 $ 9,209 $ 9,345 $12,889 $10,415
12/31/1999 $ 9,304 $ 9,632 $12,973 $10,415
1/31/2000 $ 9,017 $ 9,381 $12,556 $10,446
2/29/2000 $ 9,237 $ 9,954 $11,738 $10,507
3/31/2000 $ 9,381 $10,001 $13,065 $10,594
4/30/2000 $ 9,488 $10,060 $12,929 $10,600
5/31/2000 $ 9,369 $ 9,906 $13,042 $10,613
6/30/2000 $ 9,645 $10,196 $12,512 $10,668
7/31/2000 $ 9,896 $10,535 $12,686 $10,693
8/31/2000 $10,334 $11,006 $13,382 $10,693
9/30/2000 $10,494 $10,944 $13,492 $10,749
10/31/2000 $10,703 $10,905 $13,799 $10,767
11/30/2000 $10,574 $10,683 $13,301 $10,774
12/31/2000 $11,208 $11,831 $14,016 $10,767
1/31/2001 $11,651 $12,158 $14,092 $10,835
2/28/2001 $11,714 $12,141 $13,726 $10,879
3/31/2001 $11,428 $11,946 $13,259 $10,903
4/30/2001 $11,994 $12,499 $13,906 $10,947
5/31/2001 $12,662 $12,820 $14,222 $10,996
6/30/2001 $12,869 $13,336 $13,968 $11,015
7/31/2001 $12,813 $13,037 $13,919 $10,984
8/31/2001 $12,929 $12,992 $13,396 $10,984
9/30/2001 $11,538 $11,558 $12,416 $11,033
10/31/2001 $11,876 $11,860 $12,338 $10,996
11/30/2001 $12,470 $12,712 $13,067 $10,978
12/31/2001 $13,193 $13,490 $13,409 $10,934
1/31/2002 $13,199 $13,669 $13,326 $10,959
2/28/2002 $13,496 $13,753 $13,352 $11,002
3/31/2002 $14,030 $14,782 $14,011 $11,064
4/30/2002 $14,225 $15,303 $13,605 $11,126
5/31/2002 $13,948 $14,797 $13,631 $11,126
6/30/2002 $13,869 $14,469 $12,886 $11,132
7/31/2002 $12,836 $12,319 $11,635 $11,145
8/31/2002 $12,766 $12,265 $11,713 $11,182
9/30/2002 $12,004 $11,389 $10,443 $11,200
10/31/2002 $12,215 $11,560 $11,172 $11,219
11/30/2002 $12,747 $12,482 $11,889 $11,219
12/31/2002 $12,406 $11,949 $11,373 $11,194
1/31/2003 $12,122 $11,613 $11,095 $11,244
2/28/2003 $11,690 $11,222 $10,794 $11,330
3/31/2003 $11,800 $11,342 $10,818 $11,399
4/30/2003 $12,506 $12,419 $11,776 $11,374
5/31/2003 $13,199 $13,687 $12,566 $11,355
6/30/2003 $13,406 $13,919 $12,728 $11,368
7/31/2003 $13,918 $14,613 $12,949 $11,380
8/31/2003 $14,409 $15,169 $13,173 $11,423
9/30/2003 $14,219 $14,995 $13,042 $11,460
10/31/2003 $15,209 $16,217 $13,860 $11,448
11/30/2003 $15,486 $16,840 $14,075 $11,417
12/31/2003 $16,075 $17,449 $14,914 $11,405
1/31/2004 $16,288 $18,052 $15,196 $11,460
2/29/2004 $16,751 $18,402 $15,519 $11,522
3/31/2004 $16,937 $18,656 $15,411 $11,597
4/30/2004 $16,376 $17,691 $15,001 $11,634
5/31/2004 $16,640 $17,905 $15,156 $11,702
6/30/2004 $17,518 $18,814 $15,546 $11,739
7/31/2004 $17,224 $17,949 $15,285 $11,720
8/31/2004 $17,190 $18,125 $15,497 $11,726
9/30/2004 $17,846 $18,842 $15,767 $11,751
10/31/2004 $18,231 $19,135 $16,028 $11,813
11/30/2004 $19,667 $20,833 $16,890 $11,819
12/31/2004 $20,143 $21,330 $17,441 $11,776
1/31/2005 $19,773 $20,505 $17,100 $11,801
2/28/2005 $20,433 $20,912 $17,647 $11,869
3/31/2005 $20,150 $20,482 $17,395 $11,962
4/30/2005 $19,296 $19,425 $17,034 $12,042
5/31/2005 $20,150 $20,610 $17,496 $12,030
6/30/2005 $20,741 $21,521 $17,736 $12,036
7/31/2005 $21,872 $22,746 $18,293 $12,092
8/31/2005 $21,599 $22,224 $18,183 $12,153
9/30/2005 $21,692 $22,187 $18,413 $12,302
10/31/2005 $21,319 $21,630 $17,946 $12,327
11/30/2005 $22,307 $22,507 $18,545 $12,228
12/31/2005 $22,339 $22,334 $18,636 $12,178
1/31/2006 $23,577 $24,181 $19,431 $12,271
2/28/2006 $23,555 $24,180 $19,539 $12,296
3/31/2006 $24,471 $25,351 $19,865 $12,364
4/30/2006 $24,775 $25,419 $20,328 $12,469
5/31/2006 $24,174 $24,366 $19,785 $12,531
6/30/2006 $24,290 $24,665 $19,922 $12,556
7/31/2006 $23,664 $24,323 $20,335 $12,593
8/31/2006 $23,943 $25,050 $20,699 $12,618
9/30/2006 $24,214 $25,295 $21,093 $12,556
10/31/2006 $25,057 $26,582 $21,818 $12,488
11/30/2006 $25,839 $27,340 $22,327 $12,469
12/31/2006 $25,992 $27,579 $22,800 $12,488
1/31/2007 $26,826 $27,992 $23,096 $12,526
2/28/2007 $26,963 $27,648 $22,743 $12,593
3/31/2007 $27,325 $27,982 $23,088 $12,707
4/30/2007 $28,186 $28,272 $23,885 $12,790
5/31/2007 $29,261 $29,309 $24,748 $12,868
6/30/2007 $28,420 $28,625 $24,170 $12,893
7/31/2007 $26,596 $26,189 $22,973 $12,890
8/31/2007 $26,183 $26,714 $23,247 $12,866
9/30/2007 $26,927 $26,834 $23,989 $12,902
10/31/2007 $27,025 $27,127 $24,012 $12,929
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 10/31/07
- --------------------------------------------------------------------------------
1-Year +3.04%
- --------------------------------------------------------------------------------
5-Year +16.10%
- --------------------------------------------------------------------------------
Since Inception (3/1/01) +12.50%
- --------------------------------------------------------------------------------
CLASS B (3/1/01-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Balance Russell 2000 Russell 3000
Date Sheet Investment Fund Value Index 7 Value Index CPI 7
- --------------------------------------------------------------------------------
3/1/2001 $10,000 $10,000 $10,000 $10,000
3/31/2001 $ 9,755 $ 9,840 $ 9,660 $10,023
4/30/2001 $10,231 $10,295 $10,132 $10,063
5/31/2001 $10,793 $10,560 $10,362 $10,108
6/30/2001 $10,964 $10,985 $10,177 $10,125
7/31/2001 $10,905 $10,738 $10,141 $10,097
8/31/2001 $10,999 $10,701 $ 9,760 $10,097
9/30/2001 $ 9,810 $ 9,520 $ 9,046 $10,142
10/31/2001 $10,091 $ 9,768 $ 8,989 $10,108
11/30/2001 $10,587 $10,470 $ 9,520 $10,091
12/31/2001 $11,193 $11,111 $ 9,769 $10,051
1/31/2002 $11,193 $11,259 $ 9,709 $10,074
2/28/2002 $11,437 $11,327 $ 9,728 $10,114
3/31/2002 $11,884 $12,176 $10,208 $10,171
4/30/2002 $12,041 $12,604 $ 9,912 $10,228
5/31/2002 $11,800 $12,188 $ 9,931 $10,228
6/30/2002 $11,724 $11,918 $ 9,388 $10,233
7/31/2002 $10,844 $10,147 $ 8,477 $10,245
8/31/2002 $10,779 $10,102 $ 8,534 $10,279
9/30/2002 $10,130 $ 9,380 $ 7,608 $10,296
10/31/2002 $10,301 $ 9,521 $ 8,140 $10,313
11/30/2002 $10,743 $10,281 $ 8,662 $10,313
12/31/2002 $10,449 $ 9,842 $ 8,286 $10,290
1/31/2003 $10,202 $ 9,565 $ 8,083 $10,336
2/28/2003 $ 9,834 $ 9,243 $ 7,864 $10,415
3/31/2003 $ 9,919 $ 9,342 $ 7,882 $10,478
4/30/2003 $10,508 $10,229 $ 8,579 $10,455
5/31/2003 $11,080 $11,274 $ 9,155 $10,438
6/30/2003 $11,250 $11,465 $ 9,273 $10,449
7/31/2003 $11,669 $12,037 $ 9,434 $10,461
8/31/2003 $12,077 $12,494 $ 9,597 $10,501
9/30/2003 $11,910 $12,351 $ 9,502 $10,535
10/31/2003 $12,730 $13,358 $10,098 $10,523
11/30/2003 $12,951 $13,870 $10,255 $10,495
12/31/2003 $13,437 $14,372 $10,866 $10,484
1/31/2004 $13,603 $14,869 $11,071 $10,535
2/29/2004 $13,985 $15,157 $11,307 $10,592
3/31/2004 $14,130 $15,366 $11,228 $10,660
4/30/2004 $13,651 $14,572 $10,929 $10,694
5/31/2004 $13,862 $14,748 $11,042 $10,757
6/30/2004 $14,586 $15,497 $11,326 $10,791
7/31/2004 $14,330 $14,784 $11,136 $10,774
8/31/2004 $14,292 $14,929 $11,290 $10,779
9/30/2004 $14,831 $15,520 $11,488 $10,802
10/31/2004 $15,142 $15,761 $11,678 $10,859
11/30/2004 $16,322 $17,159 $12,305 $10,865
12/31/2004 $16,707 $17,569 $12,707 $10,825
1/31/2005 $16,388 $16,889 $12,459 $10,848
2/28/2005 $16,927 $17,225 $12,857 $10,910
3/31/2005 $16,683 $16,870 $12,674 $10,995
4/30/2005 $15,965 $16,000 $12,411 $11,069
5/31/2005 $16,663 $16,976 $12,747 $11,058
6/30/2005 $17,138 $17,726 $12,922 $11,064
7/31/2005 $18,062 $18,735 $13,328 $11,115
8/31/2005 $17,824 $18,305 $13,247 $11,172
9/30/2005 $17,891 $18,275 $13,415 $11,308
10/31/2005 $17,570 $17,816 $13,075 $11,331
11/30/2005 $18,375 $18,538 $13,511 $11,240
12/31/2005 $18,390 $18,396 $13,578 $11,195
1/31/2006 $19,396 $19,917 $14,157 $11,280
2/28/2006 $19,366 $19,916 $14,236 $11,303
3/31/2006 $20,106 $20,881 $14,473 $11,365
4/30/2006 $20,344 $20,936 $14,810 $11,462
5/31/2006 $19,835 $20,070 $14,414 $11,519
6/30/2006 $19,920 $20,316 $14,514 $11,542
7/31/2006 $19,393 $20,034 $14,815 $11,576
8/31/2006 $19,609 $20,633 $15,081 $11,598
9/30/2006 $19,820 $20,835 $15,367 $11,542
10/31/2006 $20,495 $21,895 $15,896 $11,479
11/30/2006 $21,124 $22,519 $16,267 $11,462
12/31/2006 $21,232 $22,715 $16,611 $11,479
1/31/2007 $21,902 $23,056 $16,827 $11,514
2/28/2007 $22,002 $22,773 $16,570 $11,576
3/31/2007 $22,279 $23,047 $16,821 $11,681
4/30/2007 $22,968 $23,287 $17,402 $11,757
5/31/2007 $23,831 $24,140 $18,031 $11,829
6/30/2007 $23,132 $23,578 $17,610 $11,852
7/31/2007 $21,634 $21,571 $16,737 $11,849
8/31/2007 $21,283 $22,003 $16,937 $11,827
9/30/2007 $21,876 $22,102 $17,477 $11,859
10/31/2007 $21,937 $22,343 $17,494 $11,885
10 | Annual Report
Performance Summary (CONTINUED)
CLASS C (3/1/01-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Balance Russell 2000 Russell 3000
Date Sheet Investment Fund Value Index 7 Value Index CPI 7
- --------------------------------------------------------------------------------
3/1/2001 $10,000 $10,000 $10,000 $10,000
3/31/2001 $ 9,758 $ 9,840 $ 9,660 $10,023
4/30/2001 $10,231 $10,295 $10,132 $10,063
5/31/2001 $10,790 $10,560 $10,362 $10,108
6/30/2001 $10,966 $10,985 $10,177 $10,125
7/31/2001 $10,912 $10,738 $10,141 $10,097
8/31/2001 $11,004 $10,701 $ 9,760 $10,097
9/30/2001 $ 9,816 $ 9,520 $ 9,046 $10,142
10/31/2001 $10,094 $ 9,768 $ 8,989 $10,108
11/30/2001 $10,593 $10,470 $ 9,520 $10,091
12/31/2001 $11,197 $11,111 $ 9,769 $10,051
1/31/2002 $11,197 $11,259 $ 9,709 $10,074
2/28/2002 $11,442 $11,327 $ 9,728 $10,114
3/31/2002 $11,889 $12,176 $10,208 $10,171
4/30/2002 $12,049 $12,604 $ 9,912 $10,228
5/31/2002 $11,804 $12,188 $ 9,931 $10,228
6/30/2002 $11,731 $11,918 $ 9,388 $10,233
7/31/2002 $10,849 $10,147 $ 8,477 $10,245
8/31/2002 $10,784 $10,102 $ 8,534 $10,279
9/30/2002 $10,135 $ 9,380 $ 7,608 $10,296
10/31/2002 $10,306 $ 9,521 $ 8,140 $10,313
11/30/2002 $10,748 $10,281 $ 8,662 $10,313
12/31/2002 $10,455 $ 9,842 $ 8,286 $10,290
1/31/2003 $10,206 $ 9,565 $ 8,083 $10,336
2/28/2003 $ 9,853 $ 9,243 $ 7,864 $10,415
3/31/2003 $ 9,926 $ 9,342 $ 7,882 $10,478
4/30/2003 $10,515 $10,229 $ 8,579 $10,455
5/31/2003 $11,086 $11,274 $ 9,155 $10,438
6/30/2003 $11,256 $11,465 $ 9,273 $10,449
7/31/2003 $11,678 $12,037 $ 9,434 $10,461
8/31/2003 $12,082 $12,494 $ 9,597 $10,501
9/30/2003 $11,915 $12,351 $ 9,502 $10,535
10/31/2003 $12,736 $13,358 $10,098 $10,523
11/30/2003 $12,959 $13,870 $10,255 $10,495
12/31/2003 $13,445 $14,372 $10,866 $10,484
1/31/2004 $13,611 $14,869 $11,071 $10,535
2/29/2004 $13,989 $15,157 $11,307 $10,592
3/31/2004 $14,135 $15,366 $11,228 $10,660
4/30/2004 $13,656 $14,572 $10,929 $10,694
5/31/2004 $13,870 $14,748 $11,042 $10,757
6/30/2004 $14,593 $15,497 $11,326 $10,791
7/31/2004 $14,337 $14,784 $11,136 $10,774
8/31/2004 $14,300 $14,929 $11,290 $10,779
9/30/2004 $14,838 $15,520 $11,488 $10,802
10/31/2004 $15,149 $15,761 $11,678 $10,859
11/30/2004 $16,331 $17,159 $12,305 $10,865
12/31/2004 $16,717 $17,569 $12,707 $10,825
1/31/2005 $16,396 $16,889 $12,459 $10,848
2/28/2005 $16,934 $17,225 $12,857 $10,910
3/31/2005 $16,691 $16,870 $12,674 $10,995
4/30/2005 $15,973 $16,000 $12,411 $11,069
5/31/2005 $16,671 $16,976 $12,747 $11,058
6/30/2005 $17,148 $17,726 $12,922 $11,064
7/31/2005 $18,071 $18,735 $13,328 $11,115
8/31/2005 $17,834 $18,305 $13,247 $11,172
9/30/2005 $17,900 $18,275 $13,415 $11,308
10/31/2005 $17,579 $17,816 $13,075 $11,331
11/30/2005 $18,384 $18,538 $13,511 $11,240
12/31/2005 $18,398 $18,396 $13,578 $11,195
1/31/2006 $19,406 $19,917 $14,157 $11,280
2/28/2006 $19,376 $19,916 $14,236 $11,303
3/31/2006 $20,116 $20,881 $14,473 $11,365
4/30/2006 $20,354 $20,936 $14,810 $11,462
5/31/2006 $19,845 $20,070 $14,414 $11,519
6/30/2006 $19,930 $20,316 $14,514 $11,542
7/31/2006 $19,403 $20,034 $14,815 $11,576
8/31/2006 $19,620 $20,633 $15,081 $11,598
9/30/2006 $19,830 $20,835 $15,367 $11,542
10/31/2006 $20,504 $21,895 $15,896 $11,479
11/30/2006 $21,133 $22,519 $16,267 $11,462
12/31/2006 $21,244 $22,715 $16,611 $11,479
1/31/2007 $21,913 $23,056 $16,827 $11,514
2/28/2007 $22,013 $22,773 $16,570 $11,576
3/31/2007 $22,293 $23,047 $16,821 $11,681
4/30/2007 $22,981 $23,287 $17,402 $11,757
5/31/2007 $23,843 $24,140 $18,031 $11,829
6/30/2007 $23,142 $23,578 $17,610 $11,852
7/31/2007 $21,646 $21,571 $16,737 $11,849
8/31/2007 $21,295 $22,003 $16,937 $11,827
9/30/2007 $21,887 $22,102 $17,477 $11,859
10/31/2007 $21,948 $22,343 $17,494 $11,885
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 10/31/07
- --------------------------------------------------------------------------------
1-Year +6.04%
- --------------------------------------------------------------------------------
5-Year +16.32%
- --------------------------------------------------------------------------------
Since Inception (3/1/01) +12.51%
- --------------------------------------------------------------------------------
CLASS R (1/1/02-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Balance Russell 2000 Russell 3000
Date Sheet Investment Fund Value Index 7 Value Index 7 CPI 7
- --------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000
1/31/2002 $10,013 $10,133 $ 9,938 $10,023
2/28/2002 $10,238 $10,194 $ 9,957 $10,062
3/31/2002 $10,643 $10,958 $10,449 $10,119
4/30/2002 $10,789 $11,344 $10,146 $10,175
5/31/2002 $10,576 $10,968 $10,165 $10,175
6/30/2002 $10,511 $10,726 $ 9,610 $10,181
7/31/2002 $ 9,724 $ 9,132 $ 8,677 $10,192
8/31/2002 $ 9,669 $ 9,091 $ 8,735 $10,226
9/30/2002 $ 9,090 $ 8,442 $ 7,788 $10,243
10/31/2002 $ 9,248 $ 8,569 $ 8,332 $10,260
11/30/2002 $ 9,649 $ 9,253 $ 8,866 $10,260
12/31/2002 $ 9,388 $ 8,857 $ 8,482 $10,238
1/31/2003 $ 9,170 $ 8,608 $ 8,274 $10,283
2/28/2003 $ 8,843 $ 8,319 $ 8,050 $10,362
3/31/2003 $ 8,929 $ 8,408 $ 8,068 $10,424
4/30/2003 $ 9,461 $ 9,206 $ 8,782 $10,402
5/31/2003 $ 9,982 $10,146 $ 9,372 $10,385
6/30/2003 $10,139 $10,318 $ 9,492 $10,396
7/31/2003 $10,520 $10,833 $ 9,657 $10,407
8/31/2003 $10,893 $11,244 $ 9,824 $10,447
9/30/2003 $10,746 $11,115 $ 9,727 $10,481
10/31/2003 $11,492 $12,021 $10,337 $10,470
11/30/2003 $11,697 $12,483 $10,497 $10,441
12/31/2003 $12,140 $12,934 $11,123 $10,430
1/31/2004 $12,297 $13,382 $11,333 $10,481
2/29/2004 $12,645 $13,641 $11,574 $10,538
3/31/2004 $12,780 $13,829 $11,493 $10,606
4/30/2004 $12,354 $13,114 $11,187 $10,640
5/31/2004 $12,550 $13,272 $11,303 $10,702
6/30/2004 $13,211 $13,947 $11,594 $10,736
7/31/2004 $12,985 $13,305 $11,399 $10,719
8/31/2004 $12,957 $13,436 $11,557 $10,724
9/30/2004 $13,451 $13,967 $11,759 $10,747
10/31/2004 $13,737 $14,184 $11,953 $10,804
11/30/2004 $14,814 $15,443 $12,596 $10,809
12/31/2004 $15,172 $15,812 $13,007 $10,770
1/31/2005 $14,887 $15,200 $12,753 $10,792
2/28/2005 $15,384 $15,502 $13,161 $10,855
3/31/2005 $15,167 $15,183 $12,973 $10,939
4/30/2005 $14,519 $14,400 $12,704 $11,013
5/31/2005 $15,159 $15,278 $13,048 $11,002
6/30/2005 $15,600 $15,953 $13,227 $11,007
7/31/2005 $16,447 $16,861 $13,642 $11,058
8/31/2005 $16,238 $16,474 $13,560 $11,115
9/30/2005 $16,306 $16,447 $13,732 $11,251
10/31/2005 $16,022 $16,034 $13,383 $11,273
11/30/2005 $16,757 $16,684 $13,830 $11,183
12/31/2005 $16,781 $16,556 $13,898 $11,138
1/31/2006 $17,706 $17,925 $14,491 $11,222
2/28/2006 $17,684 $17,924 $14,572 $11,245
3/31/2006 $18,370 $18,792 $14,815 $11,307
4/30/2006 $18,594 $18,842 $15,160 $11,404
5/31/2006 $18,138 $18,062 $14,755 $11,460
6/30/2006 $18,220 $18,284 $14,857 $11,483
7/31/2006 $17,747 $18,030 $15,165 $11,517
8/31/2006 $17,955 $18,569 $15,437 $11,539
9/30/2006 $18,154 $18,750 $15,730 $11,483
10/31/2006 $18,780 $19,705 $16,271 $11,420
11/30/2006 $19,364 $20,267 $16,651 $11,404
12/31/2006 $19,472 $20,443 $17,004 $11,420
1/31/2007 $20,097 $20,750 $17,225 $11,455
2/28/2007 $20,191 $20,495 $16,961 $11,517
3/31/2007 $20,458 $20,742 $17,218 $11,622
4/30/2007 $21,098 $20,957 $17,813 $11,697
5/31/2007 $21,899 $21,726 $18,456 $11,768
6/30/2007 $21,265 $21,219 $18,025 $11,791
7/31/2007 $19,898 $19,413 $17,132 $11,788
8/31/2007 $19,584 $19,802 $17,337 $11,767
9/30/2007 $20,135 $19,892 $17,890 $11,799
10/31/2007 $20,201 $20,108 $17,907 $11,824
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 10/31/07
- --------------------------------------------------------------------------------
1-Year +7.58%
- --------------------------------------------------------------------------------
5-Year +16.92%
- --------------------------------------------------------------------------------
Since Inception (1/1/02) +12.82%
- --------------------------------------------------------------------------------
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 6 10/31/07
- --------------------------------------------------------------------------------
1-Year +8.11%
- --------------------------------------------------------------------------------
5-Year +17.49%
- --------------------------------------------------------------------------------
10-Year +11.28%
- --------------------------------------------------------------------------------
ADVISOR CLASS (11/1/97-10/31/07) 6
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Balance Russell 2000 Russell 3000
Date Sheet Investment Fund Value Index 7 Value Index CPI 7
- --------------------------------------------------------------------------------
11/1/1997 $10,000 $10,000 $10,000 $10,000
11/30/1997 $ 9,946 $10,110 $10,409 $ 9,994
12/31/1997 $10,087 $10,452 $10,717 $ 9,981
1/31/1998 $10,069 $10,263 $10,562 $10,000
2/28/1998 $10,668 $10,884 $11,266 $10,019
3/31/1998 $11,073 $11,325 $11,932 $10,037
4/30/1998 $11,221 $11,381 $12,010 $10,056
5/31/1998 $11,076 $10,978 $11,808 $10,074
6/30/1998 $10,991 $10,916 $11,939 $10,087
7/31/1998 $10,401 $10,061 $11,664 $10,099
8/31/1998 $ 9,285 $ 8,485 $ 9,920 $10,111
9/30/1998 $ 9,500 $ 8,965 $10,489 $10,124
10/31/1998 $ 9,686 $ 9,231 $11,259 $10,149
11/30/1998 $ 9,829 $ 9,481 $11,766 $10,149
12/31/1998 $10,026 $ 9,778 $12,164 $10,142
1/31/1999 $ 9,912 $ 9,556 $12,232 $10,167
2/28/1999 $ 9,360 $ 8,904 $12,009 $10,179
3/31/1999 $ 9,038 $ 8,830 $12,232 $10,210
4/30/1999 $ 9,630 $ 9,636 $13,373 $10,285
5/31/1999 $10,002 $ 9,932 $13,265 $10,285
6/30/1999 $10,628 $10,292 $13,657 $10,285
7/31/1999 $10,488 $10,048 $13,262 $10,316
8/31/1999 $ 9,994 $ 9,680 $12,771 $10,340
9/30/1999 $ 9,688 $ 9,487 $12,339 $10,390
10/31/1999 $ 9,585 $ 9,297 $12,979 $10,408
11/30/1999 $ 9,771 $ 9,345 $12,889 $10,415
12/31/1999 $ 9,872 $ 9,632 $12,973 $10,415
1/31/2000 $ 9,567 $ 9,381 $12,556 $10,446
2/29/2000 $ 9,801 $ 9,954 $11,738 $10,507
3/31/2000 $ 9,954 $10,001 $13,065 $10,594
4/30/2000 $10,067 $10,060 $12,929 $10,600
5/31/2000 $ 9,941 $ 9,906 $13,042 $10,613
6/30/2000 $10,233 $10,196 $12,512 $10,668
7/31/2000 $10,500 $10,535 $12,686 $10,693
8/31/2000 $10,965 $11,006 $13,382 $10,693
9/30/2000 $11,134 $10,944 $13,492 $10,749
10/31/2000 $11,356 $10,905 $13,799 $10,767
11/30/2000 $11,219 $10,683 $13,301 $10,774
12/31/2000 $11,893 $11,831 $14,016 $10,767
1/31/2001 $12,363 $12,158 $14,092 $10,835
2/28/2001 $12,429 $12,141 $13,726 $10,879
3/31/2001 $12,129 $11,946 $13,259 $10,903
4/30/2001 $12,730 $12,499 $13,906 $10,947
5/31/2001 $13,441 $12,820 $14,222 $10,996
6/30/2001 $13,663 $13,336 $13,968 $11,015
7/31/2001 $13,606 $13,037 $13,919 $10,984
8/31/2001 $13,733 $12,992 $13,396 $10,984
9/30/2001 $12,257 $11,558 $12,416 $11,033
10/31/2001 $12,616 $11,860 $12,338 $10,996
11/30/2001 $13,250 $12,712 $13,067 $10,978
12/31/2001 $14,018 $13,490 $13,409 $10,934
1/31/2002 $14,025 $13,669 $13,326 $10,959
2/28/2002 $14,348 $13,753 $13,352 $11,002
3/31/2002 $14,921 $14,782 $14,011 $11,064
4/30/2002 $15,132 $15,303 $13,605 $11,126
5/31/2002 $14,837 $14,797 $13,631 $11,126
6/30/2002 $14,756 $14,469 $12,886 $11,132
7/31/2002 $13,658 $12,319 $11,635 $11,145
8/31/2002 $13,591 $12,265 $11,713 $11,182
9/30/2002 $12,784 $11,389 $10,443 $11,200
10/31/2002 $13,008 $11,560 $11,172 $11,219
11/30/2002 $13,577 $12,482 $11,889 $11,219
12/31/2002 $13,215 $11,949 $11,373 $11,194
1/31/2003 $12,915 $11,613 $11,095 $11,244
2/28/2003 $12,459 $11,222 $10,794 $11,330
3/31/2003 $12,577 $11,342 $10,818 $11,399
4/30/2003 $13,332 $12,419 $11,776 $11,374
5/31/2003 $14,074 $13,687 $12,566 $11,355
6/30/2003 $14,298 $13,919 $12,728 $11,368
7/31/2003 $14,847 $14,613 $12,949 $11,380
8/31/2003 $15,375 $15,169 $13,173 $11,423
9/30/2003 $15,175 $14,995 $13,042 $11,460
10/31/2003 $16,234 $16,217 $13,860 $11,448
11/30/2003 $16,534 $16,840 $14,075 $11,417
12/31/2003 $17,169 $17,449 $14,914 $11,405
1/31/2004 $17,393 $18,052 $15,196 $11,460
2/29/2004 $17,895 $18,402 $15,519 $11,522
3/31/2004 $18,097 $18,656 $15,411 $11,597
4/30/2004 $17,498 $17,691 $15,001 $11,634
5/31/2004 $17,786 $17,905 $15,156 $11,702
6/30/2004 $18,728 $18,814 $15,546 $11,739
7/31/2004 $18,414 $17,949 $15,285 $11,720
8/31/2004 $18,382 $18,125 $15,497 $11,726
9/30/2004 $19,089 $18,842 $15,767 $11,751
10/31/2004 $19,508 $19,135 $16,028 $11,813
11/30/2004 $21,045 $20,833 $16,890 $11,819
12/31/2004 $21,560 $21,330 $17,441 $11,776
1/31/2005 $21,165 $20,505 $17,100 $11,801
2/28/2005 $21,879 $20,912 $17,647 $11,869
3/31/2005 $21,579 $20,482 $17,395 $11,962
4/30/2005 $20,669 $19,425 $17,034 $12,042
5/31/2005 $21,590 $20,610 $17,496 $12,030
6/30/2005 $22,226 $21,521 $17,736 $12,036
7/31/2005 $23,444 $22,746 $18,293 $12,092
8/31/2005 $23,155 $22,224 $18,183 $12,153
9/30/2005 $23,262 $22,187 $18,413 $12,302
10/31/2005 $22,863 $21,630 $17,946 $12,327
11/30/2005 $23,928 $22,507 $18,545 $12,228
12/31/2005 $23,968 $22,334 $18,636 $12,178
1/31/2006 $25,303 $24,181 $19,431 $12,271
2/28/2006 $25,284 $24,180 $19,539 $12,296
3/31/2006 $26,274 $25,351 $19,865 $12,364
4/30/2006 $26,604 $25,419 $20,328 $12,469
5/31/2006 $25,963 $24,366 $19,785 $12,531
6/30/2006 $26,091 $24,665 $19,922 $12,556
7/31/2006 $25,428 $24,323 $20,335 $12,593
8/31/2006 $25,730 $25,050 $20,699 $12,618
9/30/2006 $26,025 $25,295 $21,093 $12,556
10/31/2006 $26,938 $26,582 $21,818 $12,488
11/30/2006 $27,784 $27,340 $22,327 $12,469
12/31/2006 $27,954 $27,579 $22,800 $12,488
1/31/2007 $28,863 $27,992 $23,096 $12,526
2/28/2007 $29,009 $27,648 $22,743 $12,593
3/31/2007 $29,403 $27,982 $23,088 $12,707
4/30/2007 $30,337 $28,272 $23,885 $12,790
5/31/2007 $31,502 $29,309 $24,748 $12,868
6/30/2007 $30,605 $28,625 $24,170 $12,893
7/31/2007 $28,649 $26,189 $22,973 $12,890
8/31/2007 $28,209 $26,714 $23,247 $12,866
9/30/2007 $29,014 $26,834 $23,989 $12,902
10/31/2007 $29,123 $27,127 $24,012 $12,929
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.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. 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 +134.43% and +13.63%.
7. 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 3000 Value Index is market capitalization weighted and measures
performance of those Russell 3000 Index companies with lower price-to-book
ratios and lower forecasted growth values. The Consumer Price Index (CPI),
calculated by the U.S. Bureau of Labor Statistics, is a commonly used measure of
the inflation rate.
12 | Annual Report
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 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.
Annual Report | 13
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 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 958.80 $4.49
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.62 $4.63
- -----------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 955.10 $8.18
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 991.63 $8.33
- -----------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 955.10 $8.18
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 991.63 $8.33
- -----------------------------------------------------------------------------------------------------------
CLASS R
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 957.60 $5.72
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 994.15 $5.83
- -----------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 960.00 $3.26
- -----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.88 $3.36
- -----------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.91%; B: 1.66%; C: 1.66%; R: 1.16%; and Advisor:
0.66%), multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
14 | Annual Report
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 its net assets in
large capitalization companies that we believe are undervalued. We define large
capitalization companies as 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 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 annual report for Franklin Large Cap Value Fund covers the fiscal year
ended October 31, 2007.
PERFORMANCE OVERVIEW
Franklin Large Cap Value Fund - Class A posted a +7.82% cumulative total return
for the 12 months under review. The Fund underperformed its benchmark, the
Russell 1000 Value Index, which posted a +10.83% 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. Although this
report covers a 12-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 18.
INVESTMENT STRATEGY
We seek to invest in securities of large-capitalization companies that we
determine are selling below their underlying worth and hold them until they
reach what we believe is their fair market value. Our aim is to construct a
diversified portfolio of fundamentally sound companies purchased at attractive
prices, often when they are out of favor with other investors for reasons we
believe are temporary. Portfolio securities are selected without regard to
benchmark comparisons and are based on fundamental bottom-up research focusing
on several criteria, such as low price relative to earnings, cash flow or book
value. We also consider stocks with recent sharp price declines that still have
significant growth potential or that possess valuable intangibles not reflected
in the stock price.
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 68.
Annual Report | 15
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Capital Goods 17.1%
Energy 13.8%
Diversified Financials 8.4%
Insurance 8.0%
Materials 8.0%
Banks 6.2%
Household & Personal Products 5.4%
Technology Hardware & Equipment 5.3%
Pharmaceuticals, Biotechnology & Life Sciences 4.8%
Consumer Durables & Apparel 4.3%
Retailing 3.0%
Consumer Services 2.6%
Software & Services 2.3%
Food & Staples Retailing 2.2%
Utilities 1.9%
Health Care Equipment & Services 1.4%
Transportation 1.4%
Short-Term Investments & Other Net Assets 3.9%
MANAGER'S DISCUSSION
During the period under review, the energy sector contributed most to Fund
performance, followed by the industrials and materials sectors. 3 Energy sector
holdings that contributed to performance included Occidental Petroleum, Exxon
Mobil and new holding Apache as crude oil prices exceeded $90 per barrel at
period-end. Athletic footwear designer Nike also performed well, due largely to
strong earnings from international sales growth.
The financials sector was the weakest performer during the Fund's fiscal year,
followed by the consumer discretionary and consumer staples sectors, as the
effects of the subprime mortgage crisis negatively affected several industries.
4 Fund holdings that detracted from performance included specialty insurer Ambac
Financial Group, homebuilder D.R. Horton and retailer Office Depot, a new
holding. Freddie Mac and Washington Mutual also weighed on the Fund's return.
During the reporting period, the Fund initiated positions in 11 stocks we found
attractively valued: energy companies Apache, Chesapeake Energy and Devon
Energy; retailers J.C. Penney, Office Depot and Wal-Mart Stores; specialty
industrial products manufacturer Dover; consumer products company Fortune Brands
International; global pharmaceuticals company Merck; freight railway company
Norfolk Southern; and steel products manufacturer Nucor.
The Fund liquidated four positions during the fiscal year: Discover Financial
Services and H.J. Heinz because we believed they were fully valued; and Cintas
and Gannett due to deteriorating fundamentals.
3. The industrials sector comprises capital goods and transportation in the SOI.
4. The financials sector comprises banks, diversified financials and insurance
in the SOI. The consumer discretionary sector comprises consumer durables and
apparel, consumer services, and retailing in the SOI. The consumer staples
sector comprises food and staples retailing in the SOI.
16 | Annual 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/ William J. Lippman
William J. Lippman
Lead Portfolio Manager
Bruce C. Baughman, CPA
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin Large Cap Value Fund
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
10/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
General Electric Co. 4.3%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Illinois Tool Works Inc. 4.0%
CAPITAL GOODS
- --------------------------------------------------------------------------------
International Business Machines Corp. 3.8%
TECHNOLOGY HARDWARE & EQUIPMENT
- --------------------------------------------------------------------------------
The Proctor & Gamble Co. 3.3%
HOUSEHOLD & PERSONAL PRODUCTS
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 3.1%
ENERGY
- --------------------------------------------------------------------------------
3M Co. 2.9%
CAPITAL GOODS
- --------------------------------------------------------------------------------
United Technologies Corp. 2.8%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Praxair Inc. 2.7%
MATERIALS
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 2.6%
ENERGY
- --------------------------------------------------------------------------------
McDonald's Corp. 2.6%
CONSUMER SERVICES
- --------------------------------------------------------------------------------
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 17
Performance Summary as of 10/31/07
FRANKLIN LARGE CAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay 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 10/31/07 10/31/06
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $16.75 $16.55
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2137
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0645
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.7767
- ---------------------------------------------------------------------------------------------------
TOTAL $1.0549
- ---------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FBLCX) CHANGE 10/31/07 10/31/06
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.18 $16.52 $16.34
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1048
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0645
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.7767
- ---------------------------------------------------------------------------------------------------
TOTAL $0.9460
- ---------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FLCVX) CHANGE 10/31/07 10/31/06
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $16.51 $16.34
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1141
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0645
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.7767
- ---------------------------------------------------------------------------------------------------
TOTAL $0.9553
- ---------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FLCRX) CHANGE 10/31/07 10/31/06
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.19 $16.61 $16.42
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.1883
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0645
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.7767
- ---------------------------------------------------------------------------------------------------
TOTAL $1.0295
- ---------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/07 10/31/06
- ---------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.20 $16.76 $16.56
- ---------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- ---------------------------------------------------------------------------------------------------
Dividend Income $0.2688
- ---------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0645
- ---------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.7767
- ---------------------------------------------------------------------------------------------------
TOTAL $1.1100
- ---------------------------------------------------------------------------------------------------
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.82% +79.06% +91.78%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.62% +11.03% +8.31%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,162 $16,875 $18,076
- ------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +4.30% +13.09% +8.46%
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.39%
- ------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.08% +73.41% +83.09%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +3.08% +11.38% +8.50%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,308 $17,141 $18,309
- ------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +5.95% +13.49% +8.66%
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 2.04%
- ------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.07% +73.44% +83.09%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.07% +11.64% +8.50%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,607 $17,344 $18,309
- ------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +8.95% +13.73% +8.66%
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 2.03%
- ------------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (8/1/02)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.59% +77.58% +76.41%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.59% +12.17% +11.42%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,759 $17,758 $17,641
- ------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +10.54% +14.30% +9.18%
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.54%
- ------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 7 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------------------------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.12% +80.29% +93.10%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.12% +12.51% +9.28%
- ------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,812 $18,029 $19,310
- ------------------------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +11.06% +14.61% +9.44%
- ------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.04%
- ------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 10/31/07
- --------------------------------------------------------------------------------
1-Year +1.62%
- --------------------------------------------------------------------------------
5-Year +11.03%
- --------------------------------------------------------------------------------
Since Inception (6/1/00) +8.31%
- --------------------------------------------------------------------------------
CLASS A (6/1/00-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Large Russell 1000
Date Cap Value Fund Value Index 8 CPI 8
- --------------------------------------------------------------------------------
6/1/2000 $ 9,425 $10,000 $10,000
6/30/2000 $ 9,001 $ 9,543 $10,052
7/31/2000 $ 9,067 $ 9,662 $10,076
8/31/2000 $ 9,623 $10,200 $10,076
9/30/2000 $ 9,925 $10,294 $10,128
10/31/2000 $10,481 $10,546 $10,146
11/30/2000 $10,189 $10,155 $10,152
12/31/2000 $11,147 $10,664 $10,146
1/31/2001 $11,393 $10,705 $10,210
2/28/2001 $11,355 $10,407 $10,251
3/31/2001 $11,355 $10,039 $10,274
4/30/2001 $11,878 $10,532 $10,315
5/31/2001 $12,343 $10,768 $10,362
6/30/2001 $12,030 $10,529 $10,379
7/31/2001 $12,077 $10,507 $10,350
8/31/2001 $11,783 $10,086 $10,350
9/30/2001 $11,080 $ 9,376 $10,397
10/31/2001 $11,071 $ 9,296 $10,362
11/30/2001 $11,631 $ 9,836 $10,344
12/31/2001 $12,002 $10,068 $10,303
1/31/2002 $11,819 $ 9,990 $10,327
2/28/2002 $11,867 $10,006 $10,367
3/31/2002 $12,233 $10,479 $10,426
4/30/2002 $12,050 $10,120 $10,484
5/31/2002 $12,194 $10,171 $10,484
6/30/2002 $11,414 $ 9,587 $10,490
7/31/2002 $10,422 $ 8,696 $10,501
8/31/2002 $10,518 $ 8,761 $10,536
9/30/2002 $ 9,237 $ 7,787 $10,554
10/31/2002 $10,094 $ 8,364 $10,571
11/30/2002 $10,692 $ 8,891 $10,571
12/31/2002 $10,139 $ 8,505 $10,548
1/31/2003 $ 9,926 $ 8,299 $10,595
2/28/2003 $ 9,752 $ 8,078 $10,676
3/31/2003 $ 9,790 $ 8,091 $10,741
4/30/2003 $10,479 $ 8,803 $10,717
5/31/2003 $11,157 $ 9,372 $10,700
6/30/2003 $11,254 $ 9,489 $10,711
7/31/2003 $11,361 $ 9,630 $10,723
8/31/2003 $11,477 $ 9,780 $10,764
9/30/2003 $11,487 $ 9,685 $10,799
10/31/2003 $12,020 $10,277 $10,787
11/30/2003 $12,146 $10,417 $10,758
12/31/2003 $12,770 $11,059 $10,746
1/31/2004 $13,013 $11,253 $10,799
2/29/2004 $13,364 $11,494 $10,857
3/31/2004 $13,276 $11,394 $10,927
4/30/2004 $13,140 $11,115 $10,962
5/31/2004 $13,227 $11,229 $11,026
6/30/2004 $13,422 $11,494 $11,061
7/31/2004 $13,247 $11,332 $11,044
8/31/2004 $13,461 $11,493 $11,050
9/30/2004 $13,510 $11,671 $11,073
10/31/2004 $13,636 $11,866 $11,131
11/30/2004 $14,055 $12,465 $11,137
12/31/2004 $14,483 $12,883 $11,096
1/31/2005 $14,228 $12,654 $11,120
2/28/2005 $14,365 $13,074 $11,184
3/31/2005 $14,247 $12,894 $11,271
4/30/2005 $13,963 $12,663 $11,347
5/31/2005 $14,228 $12,968 $11,335
6/30/2005 $14,120 $13,110 $11,341
7/31/2005 $14,551 $13,489 $11,394
8/31/2005 $14,404 $13,431 $11,452
9/30/2005 $14,483 $13,619 $11,592
10/31/2005 $14,375 $13,273 $11,615
11/30/2005 $14,983 $13,707 $11,522
12/31/2005 $15,011 $13,792 $11,475
1/31/2006 $15,305 $14,327 $11,563
2/28/2006 $15,366 $14,415 $11,586
3/31/2006 $15,437 $14,610 $11,650
4/30/2006 $15,882 $14,981 $11,749
5/31/2006 $15,437 $14,603 $11,808
6/30/2006 $15,386 $14,696 $11,831
7/31/2006 $15,487 $15,053 $11,866
8/31/2006 $15,933 $15,305 $11,889
9/30/2006 $16,389 $15,610 $11,831
10/31/2006 $16,764 $16,121 $11,767
11/30/2006 $17,047 $16,489 $11,749
12/31/2006 $17,406 $16,860 $11,767
1/31/2007 $17,568 $17,075 $11,803
2/28/2007 $17,212 $16,809 $11,866
3/31/2007 $17,276 $17,069 $11,974
4/30/2007 $17,859 $17,700 $12,052
5/31/2007 $18,334 $18,338 $12,125
6/30/2007 $18,043 $17,910 $12,149
7/31/2007 $17,287 $17,081 $12,146
8/31/2007 $17,514 $17,273 $12,123
9/30/2007 $18,140 $17,866 $12,157
10/31/2007 $18,076 $17,868 $12,183
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 10/31/07
- --------------------------------------------------------------------------------
1-Year +3.08%
- --------------------------------------------------------------------------------
5-Year +11.38%
- --------------------------------------------------------------------------------
Since Inception (6/1/00) +8.50%
- --------------------------------------------------------------------------------
CLASS B (6/1/00-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Large Russell 1000
Date Cap Value Fund Value Index 8 CPI 8
- --------------------------------------------------------------------------------
6/1/2000 $10,000 $10,000 $10,000
6/30/2000 $ 9,550 $ 9,543 $10,052
7/31/2000 $ 9,610 $ 9,662 $10,076
8/31/2000 $10,200 $10,200 $10,076
9/30/2000 $10,520 $10,294 $10,128
10/31/2000 $11,110 $10,546 $10,146
11/30/2000 $10,790 $10,155 $10,152
12/31/2000 $11,803 $10,664 $10,146
1/31/2001 $12,064 $10,705 $10,210
2/28/2001 $12,004 $10,407 $10,251
3/31/2001 $11,994 $10,039 $10,274
4/30/2001 $12,547 $10,532 $10,315
5/31/2001 $13,020 $10,768 $10,362
6/30/2001 $12,688 $10,529 $10,379
7/31/2001 $12,738 $10,507 $10,350
8/31/2001 $12,416 $10,086 $10,350
9/30/2001 $11,662 $ 9,376 $10,397
10/31/2001 $11,652 $ 9,296 $10,362
11/30/2001 $12,235 $ 9,836 $10,344
12/31/2001 $12,611 $10,068 $10,303
1/31/2002 $12,418 $ 9,990 $10,327
2/28/2002 $12,459 $10,006 $10,367
3/31/2002 $12,835 $10,479 $10,426
4/30/2002 $12,631 $10,120 $10,484
5/31/2002 $12,784 $10,171 $10,484
6/30/2002 $11,961 $ 9,587 $10,490
7/31/2002 $10,914 $ 8,696 $10,501
8/31/2002 $11,016 $ 8,761 $10,536
9/30/2002 $ 9,664 $ 7,787 $10,554
10/31/2002 $10,558 $ 8,364 $10,571
11/30/2002 $11,178 $ 8,891 $10,571
12/31/2002 $10,604 $ 8,505 $10,548
1/31/2003 $10,371 $ 8,299 $10,595
2/28/2003 $10,177 $ 8,078 $10,676
3/31/2003 $10,218 $ 8,091 $10,741
4/30/2003 $10,930 $ 8,803 $10,717
5/31/2003 $11,631 $ 9,372 $10,700
6/30/2003 $11,723 $ 9,489 $10,711
7/31/2003 $11,825 $ 9,630 $10,723
8/31/2003 $11,947 $ 9,780 $10,764
9/30/2003 $11,947 $ 9,685 $10,799
10/31/2003 $12,496 $10,277 $10,787
11/30/2003 $12,618 $10,417 $10,758
12/31/2003 $13,266 $11,059 $10,746
1/31/2004 $13,510 $11,253 $10,799
2/29/2004 $13,866 $11,494 $10,857
3/31/2004 $13,764 $11,394 $10,927
4/30/2004 $13,612 $11,115 $10,962
5/31/2004 $13,693 $11,229 $11,026
6/30/2004 $13,896 $11,494 $11,061
7/31/2004 $13,703 $11,332 $11,044
8/31/2004 $13,917 $11,493 $11,050
9/30/2004 $13,957 $11,671 $11,073
10/31/2004 $14,090 $11,866 $11,131
11/30/2004 $14,507 $12,465 $11,137
12/31/2004 $14,936 $12,883 $11,096
1/31/2005 $14,671 $12,654 $11,120
2/28/2005 $14,804 $13,074 $11,184
3/31/2005 $14,671 $12,894 $11,271
4/30/2005 $14,376 $12,663 $11,347
5/31/2005 $14,641 $12,968 $11,335
6/30/2005 $14,518 $13,110 $11,341
7/31/2005 $14,957 $13,489 $11,394
8/31/2005 $14,794 $13,431 $11,452
9/30/2005 $14,875 $13,619 $11,592
10/31/2005 $14,753 $13,273 $11,615
11/30/2005 $15,375 $13,707 $11,522
12/31/2005 $15,393 $13,792 $11,475
1/31/2006 $15,686 $14,327 $11,563
2/28/2006 $15,739 $14,415 $11,586
3/31/2006 $15,801 $14,610 $11,650
4/30/2006 $16,241 $14,981 $11,749
5/31/2006 $15,781 $14,603 $11,808
6/30/2006 $15,718 $14,696 $11,831
7/31/2006 $15,812 $15,053 $11,866
8/31/2006 $16,262 $15,305 $11,889
9/30/2006 $16,722 $15,610 $11,831
10/31/2006 $17,099 $16,121 $11,767
11/30/2006 $17,382 $16,489 $11,749
12/31/2006 $17,722 $16,860 $11,767
1/31/2007 $17,877 $17,075 $11,803
2/28/2007 $17,522 $16,809 $11,866
3/31/2007 $17,566 $17,069 $11,974
4/30/2007 $18,154 $17,700 $12,052
5/31/2007 $18,630 $18,338 $12,125
6/30/2007 $18,320 $17,910 $12,149
7/31/2007 $17,544 $17,081 $12,146
8/31/2007 $17,766 $17,273 $12,123
9/30/2007 $18,386 $17,866 $12,157
10/31/2007 $18,309 $17,868 $12,183
20 | Annual Report
Performance Summary (CONTINUED)
CLASS C (6/1/00-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Large Russell 1000
Date Cap Value Fund Value Index 8 CPI 8
- --------------------------------------------------------------------------------
6/1/2000 $10,000 $10,000 $10,000
6/30/2000 $ 9,550 $ 9,543 $10,052
7/31/2000 $ 9,610 $ 9,662 $10,076
8/31/2000 $10,200 $10,200 $10,076
9/30/2000 $10,520 $10,294 $10,128
10/31/2000 $11,110 $10,546 $10,146
11/30/2000 $10,800 $10,155 $10,152
12/31/2000 $11,814 $10,664 $10,146
1/31/2001 $12,066 $10,705 $10,210
2/28/2001 $12,006 $10,407 $10,251
3/31/2001 $11,996 $10,039 $10,274
4/30/2001 $12,549 $10,532 $10,315
5/31/2001 $13,022 $10,768 $10,362
6/30/2001 $12,690 $10,529 $10,379
7/31/2001 $12,740 $10,507 $10,350
8/31/2001 $12,418 $10,086 $10,350
9/30/2001 $11,664 $ 9,376 $10,397
10/31/2001 $11,643 $ 9,296 $10,362
11/30/2001 $12,227 $ 9,836 $10,344
12/31/2001 $12,609 $10,068 $10,303
1/31/2002 $12,416 $ 9,990 $10,327
2/28/2002 $12,456 $10,006 $10,367
3/31/2002 $12,832 $10,479 $10,426
4/30/2002 $12,639 $10,120 $10,484
5/31/2002 $12,782 $10,171 $10,484
6/30/2002 $11,959 $ 9,587 $10,490
7/31/2002 $10,922 $ 8,696 $10,501
8/31/2002 $11,014 $ 8,761 $10,536
9/30/2002 $ 9,662 $ 7,787 $10,554
10/31/2002 $10,556 $ 8,364 $10,571
11/30/2002 $11,176 $ 8,891 $10,571
12/31/2002 $10,611 $ 8,505 $10,548
1/31/2003 $10,377 $ 8,299 $10,595
2/28/2003 $10,194 $ 8,078 $10,676
3/31/2003 $10,225 $ 8,091 $10,741
4/30/2003 $10,927 $ 8,803 $10,717
5/31/2003 $11,629 $ 9,372 $10,700
6/30/2003 $11,720 $ 9,489 $10,711
7/31/2003 $11,832 $ 9,630 $10,723
8/31/2003 $11,944 $ 9,780 $10,764
9/30/2003 $11,944 $ 9,685 $10,799
10/31/2003 $12,494 $10,277 $10,787
11/30/2003 $12,616 $10,417 $10,758
12/31/2003 $13,267 $11,059 $10,746
1/31/2004 $13,511 $11,253 $10,799
2/29/2004 $13,867 $11,494 $10,857
3/31/2004 $13,765 $11,394 $10,927
4/30/2004 $13,613 $11,115 $10,962
5/31/2004 $13,694 $11,229 $11,026
6/30/2004 $13,898 $11,494 $11,061
7/31/2004 $13,694 $11,332 $11,044
8/31/2004 $13,918 $11,493 $11,050
9/30/2004 $13,959 $11,671 $11,073
10/31/2004 $14,091 $11,866 $11,131
11/30/2004 $14,498 $12,465 $11,137
12/31/2004 $14,935 $12,883 $11,096
1/31/2005 $14,670 $12,654 $11,120
2/28/2005 $14,803 $13,074 $11,184
3/31/2005 $14,670 $12,894 $11,271
4/30/2005 $14,374 $12,663 $11,347
5/31/2005 $14,629 $12,968 $11,335
6/30/2005 $14,517 $13,110 $11,341
7/31/2005 $14,956 $13,489 $11,394
8/31/2005 $14,792 $13,431 $11,452
9/30/2005 $14,874 $13,619 $11,592
10/31/2005 $14,752 $13,273 $11,615
11/30/2005 $15,373 $13,707 $11,522
12/31/2005 $15,394 $13,792 $11,475
1/31/2006 $15,677 $14,327 $11,563
2/28/2006 $15,729 $14,415 $11,586
3/31/2006 $15,802 $14,610 $11,650
4/30/2006 $16,242 $14,981 $11,749
5/31/2006 $15,781 $14,603 $11,808
6/30/2006 $15,718 $14,696 $11,831
7/31/2006 $15,813 $15,053 $11,866
8/31/2006 $16,263 $15,305 $11,889
9/30/2006 $16,723 $15,610 $11,831
10/31/2006 $17,100 $16,121 $11,767
11/30/2006 $17,372 $16,489 $11,749
12/31/2006 $17,722 $16,860 $11,767
1/31/2007 $17,877 $17,075 $11,803
2/28/2007 $17,522 $16,809 $11,866
3/31/2007 $17,566 $17,069 $11,974
4/30/2007 $18,154 $17,700 $12,052
5/31/2007 $18,631 $18,338 $12,125
6/30/2007 $18,320 $17,910 $12,149
7/31/2007 $17,544 $17,081 $12,146
8/31/2007 $17,766 $17,273 $12,123
9/30/2007 $18,387 $17,866 $12,157
10/31/2007 $18,309 $17,868 $12,183
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 10/31/07
- --------------------------------------------------------------------------------
1-Year +6.07%
- --------------------------------------------------------------------------------
5-Year +11.64%
- --------------------------------------------------------------------------------
Since Inception (6/1/00) +8.50%
- --------------------------------------------------------------------------------
CLASS R (8/1/02-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Large Russell 1000
Date Cap Value Fund Value Index 8 CPI 8
- --------------------------------------------------------------------------------
8/1/2002 $10,000 $10,000 $10,000
8/31/2002 $10,351 $10,076 $10,033
9/30/2002 $ 9,081 $ 8,955 $10,050
10/31/2002 $ 9,934 $ 9,619 $10,067
11/30/2002 $10,512 $10,225 $10,067
12/31/2002 $ 9,982 $ 9,781 $10,044
1/31/2003 $ 9,762 $ 9,544 $10,089
2/28/2003 $ 9,591 $ 9,289 $10,167
3/31/2003 $ 9,639 $ 9,305 $10,228
4/30/2003 $10,307 $10,124 $10,205
5/31/2003 $10,958 $10,777 $10,189
6/30/2003 $11,053 $10,912 $10,200
7/31/2003 $11,168 $11,075 $10,211
8/31/2003 $11,273 $11,247 $10,250
9/30/2003 $11,282 $11,137 $10,283
10/31/2003 $11,799 $11,819 $10,272
11/30/2003 $11,932 $11,979 $10,244
12/31/2003 $12,549 $12,718 $10,233
1/31/2004 $12,780 $12,941 $10,283
2/29/2004 $13,126 $13,219 $10,339
3/31/2004 $13,040 $13,103 $10,405
4/30/2004 $12,895 $12,783 $10,439
5/31/2004 $12,981 $12,913 $10,500
6/30/2004 $13,183 $13,218 $10,533
7/31/2004 $13,001 $13,032 $10,516
8/31/2004 $13,213 $13,217 $10,522
9/30/2004 $13,260 $13,422 $10,544
10/31/2004 $13,385 $13,645 $10,600
11/30/2004 $13,778 $14,335 $10,605
12/31/2004 $14,204 $14,815 $10,566
1/31/2005 $13,953 $14,552 $10,589
2/28/2005 $14,088 $15,035 $10,650
3/31/2005 $13,963 $14,828 $10,733
4/30/2005 $13,682 $14,563 $10,805
5/31/2005 $13,943 $14,913 $10,794
6/30/2005 $13,837 $15,077 $10,800
7/31/2005 $14,262 $15,513 $10,850
8/31/2005 $14,108 $15,445 $10,905
9/30/2005 $14,195 $15,662 $11,038
10/31/2005 $14,079 $15,264 $11,061
11/30/2005 $14,679 $15,764 $10,972
12/31/2005 $14,698 $15,860 $10,927
1/31/2006 $14,987 $16,476 $11,011
2/28/2006 $15,037 $16,577 $11,033
3/31/2006 $15,106 $16,801 $11,094
4/30/2006 $15,546 $17,228 $11,188
5/31/2006 $15,106 $16,793 $11,244
6/30/2006 $15,045 $16,901 $11,266
7/31/2006 $15,145 $17,311 $11,299
8/31/2006 $15,584 $17,601 $11,321
9/30/2006 $16,023 $17,952 $11,266
10/31/2006 $16,393 $18,540 $11,205
11/30/2006 $16,674 $18,963 $11,188
12/31/2006 $17,012 $19,389 $11,205
1/31/2007 $17,172 $19,636 $11,239
2/28/2007 $16,832 $19,330 $11,299
3/31/2007 $16,886 $19,629 $11,402
4/30/2007 $17,460 $20,355 $11,476
5/31/2007 $17,918 $21,089 $11,546
6/30/2007 $17,631 $20,596 $11,569
7/31/2007 $16,887 $19,644 $11,566
8/31/2007 $17,110 $19,864 $11,545
9/30/2007 $17,715 $20,546 $11,576
10/31/2007 $17,641 $20,548 $11,601
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 10/31/07
- --------------------------------------------------------------------------------
1-Year +7.59%
- --------------------------------------------------------------------------------
5-Year +12.17%
- --------------------------------------------------------------------------------
Since Inception (8/1/02) +11.42%
- --------------------------------------------------------------------------------
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 7 10/31/07
- --------------------------------------------------------------------------------
1-Year +8.12%
- --------------------------------------------------------------------------------
5-Year +12.51%
- --------------------------------------------------------------------------------
Since Inception (6/1/00) +9.28%
- --------------------------------------------------------------------------------
ADVISOR CLASS (6/1/00-10/31/07) 7
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Large Russell 1000
Date Cap Value Fund Value Index 8 CPI 8
- --------------------------------------------------------------------------------
6/1/2000 $10,000 $10,000 $10,000
6/30/2000 $ 9,550 $ 9,543 $10,052
7/31/2000 $ 9,620 $ 9,662 $10,076
8/31/2000 $10,210 $10,200 $10,076
9/30/2000 $10,530 $10,294 $10,128
10/31/2000 $11,120 $10,546 $10,146
11/30/2000 $10,810 $10,155 $10,152
12/31/2000 $11,827 $10,664 $10,146
1/31/2001 $12,089 $10,705 $10,210
2/28/2001 $12,049 $10,407 $10,251
3/31/2001 $12,049 $10,039 $10,274
4/30/2001 $12,603 $10,532 $10,315
5/31/2001 $13,096 $10,768 $10,362
6/30/2001 $12,764 $10,529 $10,379
7/31/2001 $12,814 $10,507 $10,350
8/31/2001 $12,502 $10,086 $10,350
9/30/2001 $11,757 $ 9,376 $10,397
10/31/2001 $11,747 $ 9,296 $10,362
11/30/2001 $12,341 $ 9,836 $10,344
12/31/2001 $12,734 $10,068 $10,303
1/31/2002 $12,540 $9,990 $10,327
2/28/2002 $12,591 $10,006 $10,367
3/31/2002 $12,979 $10,479 $10,426
4/30/2002 $12,785 $10,120 $10,484
5/31/2002 $12,939 $10,171 $10,484
6/30/2002 $12,111 $ 9,587 $10,490
7/31/2002 $11,058 $ 8,696 $10,501
8/31/2002 $11,160 $ 8,761 $10,536
9/30/2002 $ 9,801 $ 7,787 $10,554
10/31/2002 $10,711 $ 8,364 $10,571
11/30/2002 $11,344 $ 8,891 $10,571
12/31/2002 $10,758 $ 8,505 $10,548
1/31/2003 $10,532 $ 8,299 $10,595
2/28/2003 $10,347 $ 8,078 $10,676
3/31/2003 $10,388 $ 8,091 $10,741
4/30/2003 $11,118 $ 8,803 $10,717
5/31/2003 $11,838 $ 9,372 $10,700
6/30/2003 $11,941 $ 9,489 $10,711
7/31/2003 $12,054 $ 9,630 $10,723
8/31/2003 $12,178 $ 9,780 $10,764
9/30/2003 $12,188 $ 9,685 $10,799
10/31/2003 $12,754 $10,277 $10,787
11/30/2003 $12,887 $10,417 $10,758
12/31/2003 $13,550 $11,059 $10,746
1/31/2004 $13,808 $11,253 $10,799
2/29/2004 $14,180 $11,494 $10,857
3/31/2004 $14,087 $11,394 $10,927
4/30/2004 $13,942 $11,115 $10,962
5/31/2004 $14,035 $11,229 $11,026
6/30/2004 $14,241 $11,494 $11,061
7/31/2004 $14,056 $11,332 $11,044
8/31/2004 $14,283 $11,493 $11,050
9/30/2004 $14,334 $11,671 $11,073
10/31/2004 $14,469 $11,866 $11,131
11/30/2004 $14,913 $12,465 $11,137
12/31/2004 $15,367 $12,883 $11,096
1/31/2005 $15,096 $12,654 $11,120
2/28/2005 $15,242 $13,074 $11,184
3/31/2005 $15,117 $12,894 $11,271
4/30/2005 $14,815 $12,663 $11,347
5/31/2005 $15,096 $12,968 $11,335
6/30/2005 $14,982 $13,110 $11,341
7/31/2005 $15,440 $13,489 $11,394
8/31/2005 $15,284 $13,431 $11,452
9/30/2005 $15,367 $13,619 $11,592
10/31/2005 $15,252 $13,273 $11,615
11/30/2005 $15,918 $13,707 $11,522
12/31/2005 $15,951 $13,792 $11,475
1/31/2006 $16,263 $14,327 $11,563
2/28/2006 $16,328 $14,415 $11,586
3/31/2006 $16,414 $14,610 $11,650
4/30/2006 $16,889 $14,981 $11,749
5/31/2006 $16,425 $14,603 $11,808
6/30/2006 $16,371 $14,696 $11,831
7/31/2006 $16,479 $15,053 $11,866
8/31/2006 $16,964 $15,305 $11,889
9/30/2006 $17,450 $15,610 $11,831
10/31/2006 $17,859 $16,121 $11,767
11/30/2006 $18,172 $16,489 $11,749
12/31/2006 $18,549 $16,860 $11,767
1/31/2007 $18,722 $17,075 $11,803
2/28/2007 $18,365 $16,809 $11,866
3/31/2007 $18,422 $17,069 $11,974
4/30/2007 $19,056 $17,700 $12,052
5/31/2007 $19,575 $18,338 $12,125
6/30/2007 $19,264 $17,910 $12,149
7/31/2007 $18,468 $17,081 $12,146
8/31/2007 $18,710 $17,273 $12,123
9/30/2007 $19,379 $17,866 $12,157
10/31/2007 $19,310 $17,868 $12,183
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.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
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.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report.
7. Effective 11/1/05, 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 11/1/05,
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 10/31/05, actual
Advisor Class performance is used reflecting all charges and fees applicable to
that class. Since 11/1/05 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were +26.86% and +12.65%.
8. 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 Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the inflation rate.
22 | Annual 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 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.
Annual Report | 23
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 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,012.10 $ 6.59
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.65 $ 6.61
- ----------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.50 $ 9.97
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,015.27 $10.01
- ----------------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,008.60 $ 9.97
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,015.27 $10.01
- ----------------------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,010.30 $ 7.45
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.80 $ 7.48
- ----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,013.30 $ 4.92
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.32 $ 4.94
- ----------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.30%; B: 1.97%; C: 1.97%; R: 1.47%; and Advisor:
0.97%), multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
24 | Annual Report
Franklin MicroCap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin MicroCap Value Fund seeks high
total return, of which capital appreciation and income are components, by
investing at least 80% of its net assets in securities of microcap companies
with market capitalizations under $400 million at the time of purchase, which we
believe are undervalued in the marketplace.
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 annual report for the
fiscal year ended October 31, 2007.
PERFORMANCE OVERVIEW
Franklin MicroCap Value Fund - Class A posted a +13.73% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
2000 Value Index, which posted a +2.05% 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 12-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 28.
INVESTMENT STRATEGY
Our strategy is to buy shares of financially sound, well-established companies
at a low price-to-book value, where we have reasonable confidence that book
value will increase over several years. We limit purchases to companies with
market capitalizations of less than $400 million, which we define as
"micro-cap." Book value per share is a company's net worth or shareholders'
equity on an accounting or "book" basis, divided by shares outstanding. This
strategy is not aimed at short-term 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 73.
Annual Report | 25
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Capital Goods 15.2%
Food, Beverage & Tobacco 11.5%
Materials 10.5%
Commercial Services & Supplies 7.7%
Consumer Durables & Apparel 6.2%
Insurance 4.6%
Retailing 4.5%
Transportation 3.7%
Telecommunication Services 3.6%
Banks 3.5%
Energy 2.9%
Real Estate 2.6%
Food & Staples Retailing 2.3%
Other 3.9%
Short-Term Investments & Other Net Assets 17.3%
MANAGER'S DISCUSSION
On October 31, 2007, the Fund's total net assets were $501 million, and
short-term investments and other net assets (cash) stood at 17.3%, compared with
total net assets of $480 million and 17.5% in cash at the beginning of the
period. The Fund closed to new investors (with certain exceptions) in January
2004. The close does not restrict existing shareholders from continuing to
invest through exchanges and additional purchases, including purchases made
through reinvestment of dividends and capital gains distributions, except that
if an account is reduced to zero it may not be reopened unless the Fund reopens.
Net Fund outflows to existing shareholders were $41.5 million during the
12-month period.
We identified six new investment opportunities during the year: BFC Financial, a
bank holding company and real estate developer in Florida; Black River
BancVenture, a newly formed bank holding company based in Memphis, Tennessee;
Kohlberg Capital, a closed-end investment company; North State
Telecommunications, a telephone company in North Carolina; Omega Protein, a
producer of fish oil and meal; and P.A.M. Transportation, a trucking company
based in Tontitown, Arkansas. Cash deployed into new and existing holdings
totaled $42.3 million.
Cash proceeds from portfolio sales totaled $84.4 million, of which the completed
takeovers of Aleris International, Case Pomeroy, Crowley Maritime, Green
Mountain Power, Merchants Group, OMI and Premium Standard Farms accounted for
$38.1 million. Crowley Maritime's management bought out the minority
shareholders in response to a lawsuit we filed in 2004. Two additional takeovers
were pending at period-end: SEMCO Energy and Printronix.
Apart from takeovers, we eliminated two small positions: CoolBrands at a loss,
and Central Vermont Public Service at a gain. We also reduced several positions
in response to price appreciation, including some that were among the strongest
contributors to Fund performance in the period. All these investments were made
in accordance with our stated investment strategy and the results, apart from
CoolBrands, were consistent with our expectations.
Positions that contributed most positively to Fund performance for the fiscal
year included Hardinge (machine tools), Atlantic Tele-Network
(telecommunications), American Pacific (specialty chemicals), Layne Christensen
(water, mineral and coal seam gas drilling), Alliance One International (leaf
tobacco), Crowley Maritime and International Shipholding (maritime
transportation), RTI International Metals (titanium metal), Village Super Market
(grocery retailing), and CIRCOR International (fluid control). Holding periods
tend to be long in our Fund, as reflected by our portfolio turnover rate, and we
do not expect performance to be driven by recently established positions.
26 | Annual Report
This year's worst detractors from Fund performance included Handleman
(prerecorded music); Gehl (construction equipment); Arbor Realty Trust (real
estate finance); Delta Apparel; Dixie Group (carpet); Proliance International
(aftermarket auto parts); and Haverty Furniture. Handleman's business is
suffering from poor retail music sales. Gehl, Dixie Group and Haverty are
sensitive to housing, and Arbor Realty is also exposed to real estate prices.
Delta Apparel was struggling to integrate acquisitions and transfer production
offshore, and was also subject to rising material costs amid a difficult pricing
environment. Proliance has been unable to generate sustainable profits despite
several years of restructuring.
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
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin MicroCap Value Fund
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
10/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Hardinge Inc. 4.2%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Seneca Foods Corp. 3.7%
FOOD, BEVERAGE & TOBACCO
- --------------------------------------------------------------------------------
Atlantic Tele-Network Inc. 3.5%
TELECOMMUNICATION SERVICES
- --------------------------------------------------------------------------------
PHI Inc. 2.9%
ENERGY
- --------------------------------------------------------------------------------
Smithfield Foods Inc. 2.7%
FOOD, BEVERAGE & TOBACCO
- --------------------------------------------------------------------------------
RTI International Metals Inc. 2.6%
MATERIALS
- --------------------------------------------------------------------------------
Healthcare Services Group Inc. 2.6%
COMMERCIAL SERVICES & SUPPLIES
- --------------------------------------------------------------------------------
American Pacific Corp. 2.5%
MATERIALS
- --------------------------------------------------------------------------------
Village Super Market Inc., A 2.3%
FOOD & STAPLES RETAILING
- --------------------------------------------------------------------------------
CIRCOR International Inc. 2.3%
CAPITAL GOODS
- --------------------------------------------------------------------------------
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 27
Performance Summary as of 10/31/07
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 of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay 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 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.70 $44.02 $41.32
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.5676
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $2.2195
- --------------------------------------------------------------------------------------------------
TOTAL $2.7871
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FVRMX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$2.71 $44.14 $41.43
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.6684
- --------------------------------------------------------------------------------------------------
Long-Term Capital Gain $2.2195
- --------------------------------------------------------------------------------------------------
TOTAL $2.8879
- --------------------------------------------------------------------------------------------------
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.73% +140.42% +227.95%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.19% +17.77% +11.95%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $ 10,719 $ 22,660 $ 30,912
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +9.47% +17.73% +11.81%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.23%
- --------------------------------------------------------------------------------------------
ADVISOR CLASS 6 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.99% +141.61% +229.58%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +13.99% +19.30% +12.67%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $ 11,399 $ 24,161 $ 32,958
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +16.38% +19.24% +12.53%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 0.99%
- --------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
28 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current maximum sales charge, Fund expenses, account fees
and reinvested distributions. The unmanaged index includes reinvestment of any
income or distributions. It differs from the Fund in composition and does not
pay management fees or expenses. One cannot invest directly in an index.
CLASS A (11/1/97-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MicroCap Russell 2000 Value
Date Value Fund Index 7 CPI 7
- --------------------------------------------------------------------------------
11/1/1997 $ 9,426 $10,000 $10,000
11/30/1997 $ 9,352 $10,110 $ 9,994
12/31/1997 $ 9,292 $10,452 $ 9,981
1/31/1998 $ 9,205 $10,263 $10,000
2/28/1998 $ 9,620 $10,884 $10,019
3/31/1998 $10,129 $11,325 $10,037
4/30/1998 $10,605 $11,381 $10,056
5/31/1998 $10,448 $10,978 $10,074
6/30/1998 $10,166 $10,916 $10,087
7/31/1998 $ 9,781 $10,061 $10,099
8/31/1998 $ 8,311 $ 8,485 $10,111
9/30/1998 $ 8,294 $ 8,965 $10,124
10/31/1998 $ 8,394 $ 9,231 $10,149
11/30/1998 $ 8,630 $ 9,481 $10,149
12/31/1998 $ 8,664 $ 9,778 $10,142
1/31/1999 $ 8,741 $ 9,556 $10,167
2/28/1999 $ 8,310 $ 8,904 $10,179
3/31/1999 $ 8,018 $ 8,830 $10,210
4/30/1999 $ 8,489 $ 9,636 $10,285
5/31/1999 $ 8,916 $ 9,932 $10,285
6/30/1999 $ 9,113 $10,292 $10,285
7/31/1999 $ 9,230 $10,048 $10,316
8/31/1999 $ 9,014 $ 9,680 $10,340
9/30/1999 $ 8,391 $ 9,487 $10,390
10/31/1999 $ 8,261 $ 9,297 $10,408
11/30/1999 $ 8,344 $ 9,345 $10,415
12/31/1999 $ 8,320 $ 9,632 $10,415
1/31/2000 $ 8,632 $ 9,381 $10,446
2/29/2000 $ 8,764 $ 9,954 $10,507
3/31/2000 $ 8,832 $10,001 $10,594
4/30/2000 $ 8,510 $10,060 $10,600
5/31/2000 $ 8,554 $ 9,906 $10,613
6/30/2000 $ 8,871 $10,196 $10,668
7/31/2000 $ 8,978 $10,535 $10,693
8/31/2000 $ 9,525 $11,006 $10,693
9/30/2000 $ 9,501 $10,944 $10,749
10/31/2000 $ 9,213 $10,905 $10,767
11/30/2000 $ 9,052 $10,683 $10,774
12/31/2000 $ 9,324 $11,831 $10,767
1/31/2001 $10,171 $12,158 $10,835
2/28/2001 $10,425 $12,141 $10,879
3/31/2001 $10,856 $11,946 $10,903
4/30/2001 $11,394 $12,499 $10,947
5/31/2001 $12,435 $12,820 $10,996
6/30/2001 $12,536 $13,336 $11,015
7/31/2001 $12,831 $13,037 $10,984
8/31/2001 $12,866 $12,992 $10,984
9/30/2001 $12,095 $11,558 $11,033
10/31/2001 $12,511 $11,860 $10,996
11/30/2001 $12,541 $12,712 $10,978
12/31/2001 $13,172 $13,490 $10,934
1/31/2002 $13,540 $13,669 $10,959
2/28/2002 $13,620 $13,753 $11,002
3/31/2002 $14,368 $14,782 $11,064
4/30/2002 $14,997 $15,303 $11,126
5/31/2002 $15,184 $14,797 $11,126
6/30/2002 $15,061 $14,469 $11,132
7/31/2002 $13,631 $12,319 $11,145
8/31/2002 $13,551 $12,265 $11,182
9/30/2002 $12,847 $11,389 $11,200
10/31/2002 $12,857 $11,560 $11,219
11/30/2002 $13,508 $12,482 $11,219
12/31/2002 $13,700 $11,949 $11,194
1/31/2003 $13,621 $11,613 $11,244
2/28/2003 $13,060 $11,222 $11,330
3/31/2003 $12,998 $11,342 $11,399
4/30/2003 $13,275 $12,419 $11,374
5/31/2003 $14,006 $13,687 $11,355
6/30/2003 $14,560 $13,919 $11,368
7/31/2003 $15,325 $14,613 $11,380
8/31/2003 $15,947 $15,169 $11,423
9/30/2003 $16,162 $14,995 $11,460
10/31/2003 $17,215 $16,217 $11,448
11/30/2003 $17,889 $16,840 $11,417
12/31/2003 $18,690 $17,449 $11,405
1/31/2004 $18,950 $18,052 $11,460
2/29/2004 $19,036 $18,402 $11,522
3/31/2004 $19,648 $18,656 $11,597
4/30/2004 $19,446 $17,691 $11,634
5/31/2004 $19,452 $17,905 $11,702
6/30/2004 $20,041 $18,814 $11,739
7/31/2004 $19,660 $17,949 $11,720
8/31/2004 $19,423 $18,125 $11,726
9/30/2004 $19,816 $18,842 $11,751
10/31/2004 $19,908 $19,135 $11,813
11/30/2004 $21,196 $20,833 $11,819
12/31/2004 $21,682 $21,330 $11,776
1/31/2005 $21,646 $20,505 $11,801
2/28/2005 $22,302 $20,912 $11,869
3/31/2005 $21,785 $20,482 $11,962
4/30/2005 $21,275 $19,425 $12,042
5/31/2005 $21,700 $20,610 $12,030
6/30/2005 $22,253 $21,521 $12,036
7/31/2005 $23,663 $22,746 $12,092
8/31/2005 $23,469 $22,224 $12,153
9/30/2005 $23,614 $22,187 $12,302
10/31/2005 $23,183 $21,630 $12,327
11/30/2005 $23,803 $22,507 $12,228
12/31/2005 $24,333 $22,334 $12,178
1/31/2006 $25,563 $24,181 $12,271
2/28/2006 $25,622 $24,180 $12,296
3/31/2006 $27,168 $25,351 $12,364
4/30/2006 $27,017 $25,419 $12,469
5/31/2006 $26,694 $24,366 $12,531
6/30/2006 $26,622 $24,665 $12,556
7/31/2006 $25,931 $24,323 $12,593
8/31/2006 $26,300 $25,050 $12,618
9/30/2006 $26,543 $25,295 $12,556
10/31/2006 $27,181 $26,582 $12,488
11/30/2006 $28,497 $27,340 $12,469
12/31/2006 $29,185 $27,579 $12,488
1/31/2007 $29,669 $27,992 $12,526
2/28/2007 $30,371 $27,648 $12,593
3/31/2007 $30,793 $27,982 $12,707
4/30/2007 $31,368 $28,272 $12,790
5/31/2007 $32,071 $29,309 $12,868
6/30/2007 $31,916 $28,625 $12,893
7/31/2007 $31,186 $26,189 $12,890
8/31/2007 $30,926 $26,714 $12,866
9/30/2007 $30,828 $26,834 $12,902
10/31/2007 $30,912 $27,127 $12,929
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 10/31/07
- --------------------------------------------------------------------------------
1-Year +7.19%
- --------------------------------------------------------------------------------
5-Year +17.77%
- --------------------------------------------------------------------------------
10-Year +11.95%
- --------------------------------------------------------------------------------
ADVISOR CLASS (11/1/97-10/31/07) 6
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MicroCap Russell 2000 Value
Date Value Fund Index 7 CPI 7
- --------------------------------------------------------------------------------
11/1/1997 $10,000 $10,000 $10,000
11/30/1997 $ 9,922 $10,110 $ 9,994
12/31/1997 $ 9,859 $10,452 $ 9,981
1/31/1998 $ 9,766 $10,263 $10,000
2/28/1998 $10,206 $10,884 $10,019
3/31/1998 $10,746 $11,325 $10,037
4/30/1998 $11,251 $11,381 $10,056
5/31/1998 $11,084 $10,978 $10,074
6/30/1998 $10,786 $10,916 $10,087
7/31/1998 $10,377 $10,061 $10,099
8/31/1998 $ 8,817 $ 8,485 $10,111
9/30/1998 $ 8,800 $ 8,965 $10,124
10/31/1998 $ 8,905 $ 9,231 $10,149
11/30/1998 $ 9,156 $ 9,481 $10,149
12/31/1998 $ 9,192 $ 9,778 $10,142
1/31/1999 $ 9,273 $ 9,556 $10,167
2/28/1999 $ 8,816 $ 8,904 $10,179
3/31/1999 $ 8,507 $ 8,830 $10,210
4/30/1999 $ 9,007 $ 9,636 $10,285
5/31/1999 $ 9,459 $ 9,932 $10,285
6/30/1999 $ 9,668 $10,292 $10,285
7/31/1999 $ 9,792 $10,048 $10,316
8/31/1999 $ 9,564 $ 9,680 $10,340
9/30/1999 $ 8,902 $ 9,487 $10,390
10/31/1999 $ 8,764 $ 9,297 $10,408
11/30/1999 $ 8,853 $ 9,345 $10,415
12/31/1999 $ 8,827 $ 9,632 $10,415
1/31/2000 $ 9,158 $ 9,381 $10,446
2/29/2000 $ 9,298 $ 9,954 $10,507
3/31/2000 $ 9,370 $10,001 $10,594
4/30/2000 $ 9,029 $10,060 $10,600
5/31/2000 $ 9,075 $ 9,906 $10,613
6/30/2000 $ 9,412 $10,196 $10,668
7/31/2000 $ 9,526 $10,535 $10,693
8/31/2000 $10,105 $11,006 $10,693
9/30/2000 $10,079 $10,944 $10,749
10/31/2000 $ 9,774 $10,905 $10,767
11/30/2000 $ 9,603 $10,683 $10,774
12/31/2000 $ 9,892 $11,831 $10,767
1/31/2001 $10,791 $12,158 $10,835
2/28/2001 $11,060 $12,141 $10,879
3/31/2001 $11,518 $11,946 $10,903
4/30/2001 $12,089 $12,499 $10,947
5/31/2001 $13,192 $12,820 $10,996
6/30/2001 $13,300 $13,336 $11,015
7/31/2001 $13,612 $13,037 $10,984
8/31/2001 $13,650 $12,992 $10,984
9/30/2001 $12,832 $11,558 $11,033
10/31/2001 $13,273 $11,860 $10,996
11/30/2001 $13,306 $12,712 $10,978
12/31/2001 $13,974 $13,490 $10,934
1/31/2002 $14,365 $13,669 $10,959
2/28/2002 $14,450 $13,753 $11,002
3/31/2002 $15,243 $14,782 $11,064
4/30/2002 $15,911 $15,303 $11,126
5/31/2002 $16,109 $14,797 $11,126
6/30/2002 $15,979 $14,469 $11,132
7/31/2002 $14,462 $12,319 $11,145
8/31/2002 $14,377 $12,265 $11,182
9/30/2002 $13,629 $11,389 $11,200
10/31/2002 $13,641 $11,560 $11,219
11/30/2002 $14,331 $12,482 $11,219
12/31/2002 $14,535 $11,949 $11,194
1/31/2003 $14,451 $11,613 $11,244
2/28/2003 $13,856 $11,222 $11,330
3/31/2003 $13,790 $11,342 $11,399
4/30/2003 $14,084 $12,419 $11,374
5/31/2003 $14,859 $13,687 $11,355
6/30/2003 $15,448 $13,919 $11,368
7/31/2003 $16,258 $14,613 $11,380
8/31/2003 $16,919 $15,169 $11,423
9/30/2003 $17,147 $14,995 $11,460
10/31/2003 $18,264 $16,217 $11,448
11/30/2003 $18,979 $16,840 $11,417
12/31/2003 $19,829 $17,449 $11,405
1/31/2004 $20,104 $18,052 $11,460
2/29/2004 $20,196 $18,402 $11,522
3/31/2004 $20,845 $18,656 $11,597
4/30/2004 $20,631 $17,691 $11,634
5/31/2004 $20,637 $17,905 $11,702
6/30/2004 $21,262 $18,814 $11,739
7/31/2004 $20,858 $17,949 $11,720
8/31/2004 $20,607 $18,125 $11,726
9/30/2004 $21,023 $18,842 $11,751
10/31/2004 $21,121 $19,135 $11,813
11/30/2004 $22,487 $20,833 $11,819
12/31/2004 $23,003 $21,330 $11,776
1/31/2005 $22,964 $20,505 $11,801
2/28/2005 $23,661 $20,912 $11,869
3/31/2005 $23,113 $20,482 $11,962
4/30/2005 $22,571 $19,425 $12,042
5/31/2005 $23,022 $20,610 $12,030
6/30/2005 $23,609 $21,521 $12,036
7/31/2005 $25,105 $22,746 $12,092
8/31/2005 $24,899 $22,224 $12,153
9/30/2005 $25,053 $22,187 $12,302
10/31/2005 $24,596 $21,630 $12,327
11/30/2005 $25,260 $22,507 $12,228
12/31/2005 $25,829 $22,334 $12,178
1/31/2006 $27,134 $24,181 $12,271
2/28/2006 $27,204 $24,180 $12,296
3/31/2006 $28,858 $25,351 $12,364
4/30/2006 $28,704 $25,419 $12,469
5/31/2006 $28,362 $24,366 $12,531
6/30/2006 $28,292 $24,665 $12,556
7/31/2006 $27,567 $24,323 $12,593
8/31/2006 $27,964 $25,050 $12,618
9/30/2006 $28,230 $25,295 $12,556
10/31/2006 $28,914 $26,582 $12,488
11/30/2006 $30,316 $27,340 $12,469
12/31/2006 $31,054 $27,579 $12,488
1/31/2007 $31,577 $27,992 $12,526
2/28/2007 $32,323 $27,648 $12,593
3/31/2007 $32,779 $27,982 $12,707
4/30/2007 $33,398 $28,272 $12,790
5/31/2007 $34,153 $29,309 $12,868
6/30/2007 $33,996 $28,625 $12,893
7/31/2007 $33,227 $26,189 $12,890
8/31/2007 $32,950 $26,714 $12,866
9/30/2007 $32,853 $26,834 $12,902
10/31/2007 $32,958 $27,127 $12,929
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 6 10/31/07
- --------------------------------------------------------------------------------
1-Year +13.99%
- --------------------------------------------------------------------------------
5-Year +19.30%
- --------------------------------------------------------------------------------
10-Year +12.67%
- --------------------------------------------------------------------------------
Annual Report | 29
Performance Summary (CONTINUED)
ENDNOTES
THE FUND'S ABILITY TO INVEST IN SMALLER-COMPANY SECURITIES THAT MAY HAVE LIMITED
LIQUIDITY INVOLVES ADDITIONAL RISKS SUCH AS RELATIVELY SMALL REVENUES, LIMITED
PRODUCT LINES AND SMALL MARKET SHARE. HISTORICALLY, THESE STOCKS 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.
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.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. Effective 11/1/05, 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 11/1/05,
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 10/31/05, actual
Advisor Class performance is used reflecting all charges and fees applicable to
that class. Since 11/1/05 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were +33.54% and +15.88%.
7. 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 Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the inflation rate.
30 | Annual Report
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 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.
Annual Report | 31
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 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 985.40 $5.40
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.76 $5.50
- ----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 986.80 $4.16
- ----------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.02 $4.23
- ----------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.08% and Advisor: 0.83%) multiplied by the
average account value over the period, multiplied by 184/365 to reflect the
one-half year period.
32 | Annual Report
Franklin MidCap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin MidCap Value Fund seeks
long-term total return by investing at least 80% of net assets in securities of
mid-capitalization companies that we believe are undervalued. We define
mid-capitalization companies as those with market capitalizations that are
similar in size at the time of purchase to those in the Russell Midcap(TM)
Index. 1
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 annual report for Franklin MidCap Value Fund covers the fiscal year ended
October 31, 2007.
PERFORMANCE OVERVIEW
Franklin MidCap Value Fund - Class A posted a cumulative total return of +8.01%
for the 12 months under review. The Fund underperformed its benchmark, the
Russell Midcap Value Index, which posted a +9.73% 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. Although this
report covers a 12-month period, our investment strategy aims for long-term
results. You can find more of the Fund's performance data in the Performance
Summary beginning on page 36.
INVESTMENT STRATEGY
Our goal is to invest in mid-capitalization companies that we determine are
currently undervalued and have the potential for capital appreciation. 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. This strategy is not
aimed at short-term trading gains, nor do we consider the composition of any
index. Rather, we try to identify attractively priced, financially sound
companies that meet our investment criteria, and we assume at purchase that we
will hold the positions for several years.
1. The Russell Midcap Index is market capitalization weighted and measures
performance of the 800 smallest companies in the Russell 1000 Index, which
represent approximately 26% of total market capitalization of the Russell 1000
Index.
2. Source: Standard & Poor's Micropal. The Russell Midcap Value Index is market
capitalization weighted and measures performance of those Russell Midcap 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 81.
Annual Report | 33
PORTFOLIO BREAKDOWN
Franklin MidCap Value Fund
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Energy 14.1%
Capital Goods 13.8%
Materials 10.9%
Consumer Durables & Apparel 7.9%
Utilities 7.2%
Food, Beverage & Tobacco 7.1%
Insurance 5.3%
Transportation 4.9%
Diversified Financials 4.4%
Pharmaceuticals, Biotechnology & Life Sciences 4.0%
Health Care Equipment & Services 3.5%
Software & Services 2.8%
Automobiles & Components 2.7%
Banks 2.1%
Retailing 1.9%
Household & Personal Products 0.9%
Short-Term Investments & Other Net Assets 6.5%
MANAGER'S DISCUSSION
During the year under review, stocks that contributed to Fund performance came
from a variety of sectors. Global chemicals company Celanese, a new Fund
position during the period, benefited from strong pricing in acetyls, one of its
key products. The company's shares more than doubled in value and were the
largest contributor to Fund performance. In the energy sector, coal producer
Peabody Energy was another strong performer, as the company benefited from its
strategic location within the Powder River Basin (PRB). In addition to plentiful
supplies of lower cost coal, the PRB has fewer transportation bottlenecks, which
helped Peabody increase sales volume. Shares of Bunge, one of the world's
largest soybean processors, appreciated during the Fund's fiscal year, supported
by continued strength in global soybean prices.
Despite the Fund's positive return, holdings from somewhat related sectors
hindered performance. Shares of Radian, a mortgage insurer, fell during the
reporting period. The company suffered as rising mortgage delinquencies and
defaults in the subprime lending market, as well as risks of contagion to more
credit-worthy borrowers, contributed to fears that mortgage insurers such as
Radian would suffer outsized losses. In a related industry, shares of Pulte
Homes, a geographically diversified homebuilder, fell amid widespread home sales
declines and disappointing earnings. CIT Group, a commercial and consumer
finance company, announced it would take a significant charge, close its
subprime lending business and consider exiting its student lending business.
During the period, the company's shares fell in value and weighed on Fund
performance.
The Fund experienced substantial net inflows during its fiscal year. Consistent
with our investment strategy, we used incoming proceeds to add to existing
holdings, as well as initiate positions in five stocks we believed were
attractively valued. Our new positions were in the aforementioned Celanese, oil
and natural gas producer Chesapeake Energy, retailer J.C. Penney, contract
resource organization Pharmaceutical Product Development, and Southwest
Airlines.
We liquidated four positions during the period, one of which was due to Fund
holding KKR Private Equity Investor's involvement in the buyout of another Fund
holding, Dollar General. Dollar General was acquired at a premium, and our
shares in the company appreciated for the time we held them during the period.
Consistent with our strategy, we sold the other three positions because we
believed they were fully valued.
34 | Annual Report
Thank you for your continued participation in Franklin MidCap Value Fund. We
look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Sam Kerner
Sam Kerner, CFA
Lead Portfolio Manager
Bruce C. Baughman, CPA
William J. Lippman
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin MidCap Value Fund
TOP 10 EQUITY HOLDINGS
Franklin MidCap Value Fund
10/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Fortune Brands Inc. 3.6%
CONSUMER DURABLES & APPAREL
- --------------------------------------------------------------------------------
DTE Energy Co. 3.5%
UTILITIES
- --------------------------------------------------------------------------------
Celanese Corp., A 3.4%
MATERIALS
- --------------------------------------------------------------------------------
Peabody Energy Corp. 3.2%
ENERGY
- --------------------------------------------------------------------------------
Southwest Airlines Co. 3.1%
TRANSPORTATION
- --------------------------------------------------------------------------------
Atmos Energy Co. 3.0%
UTILITIES
- --------------------------------------------------------------------------------
SAIC Inc. 2.8%
SOFTWARE & SERVICES
- --------------------------------------------------------------------------------
Embraer-Empresa Brasileira de
Aeronautica SA, ADR (Brazil) 2.7%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Autoliv Inc. (Sweden) 2.7%
AUTOMOBILES & COMPONENTS
- --------------------------------------------------------------------------------
Oshkosh Truck Corp. 2.6%
CAPITAL GOODS
- --------------------------------------------------------------------------------
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
Annual Report | 35
Performance Summary as of 10/31/07
FRANKLIN MIDCAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay 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: FMVAX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.55 $11.92 $11.37
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.1977
- --------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.1532
- --------------------------------------------------------------------------------------------------
TOTAL $0.3509
- --------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FMVCX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.52 $11.81 $11.29
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.1411
- --------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.1532
- --------------------------------------------------------------------------------------------------
TOTAL $0.2943
- --------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.52 $11.87 $11.35
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.2073
- --------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.1532
- --------------------------------------------------------------------------------------------------
TOTAL $0.3605
- --------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.57 $11.99 $11.42
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------------------------
Dividend Income $0.2257
- --------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.1532
- --------------------------------------------------------------------------------------------------
TOTAL $0.3789
- --------------------------------------------------------------------------------------------------
36 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ----------------------------------------------------------------------------------------------
CLASS A 1-YEAR INCEPTION (7/1/05)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.01% +23.54%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return 3 +1.83% +6.74%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,183 $11,643
- ----------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +4.61% +6.92%
- ----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- ----------------------------------------------------------------------------------------------
Without Waiver 2.01%
- ----------------------------------------------------------------------------------------------
With Waiver 1.40%
- ----------------------------------------------------------------------------------------------
CLASS C 1-YEAR INCEPTION (7/1/05)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.27% +21.65%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return 3 +6.27% +8.76%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,627 $12,165
- ----------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +9.21% +9.06%
- ----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- ----------------------------------------------------------------------------------------------
Without Waiver 2.64%
- ----------------------------------------------------------------------------------------------
With Waiver 2.05%
- ----------------------------------------------------------------------------------------------
CLASS R 1-YEAR INCEPTION (7/1/05)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return 2 +7.85% +23.10%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return 3 +7.85% +9.31%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,785 $12,310
- ----------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +10.78% +9.64%
- ----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- ----------------------------------------------------------------------------------------------
Without Waiver 2.16%
- ----------------------------------------------------------------------------------------------
With Waiver 1.55%
- ----------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR INCEPTION (7/1/05)
- ----------------------------------------------------------------------------------------------
Cumulative Total Return 2 +8.42% +24.64%
- ----------------------------------------------------------------------------------------------
Average Annual Total Return 3 +8.42% +9.89%
- ----------------------------------------------------------------------------------------------
Value of $10,000 Investment 4 $10,842 $12,464
- ----------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 5 +11.46% +10.20%
- ----------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- ----------------------------------------------------------------------------------------------
Without Waiver 1.66%
- ----------------------------------------------------------------------------------------------
With Waiver 1.05%
- ----------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
THE MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES
SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH
WAIVER (OTHER THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL
2/28/09.
Annual Report | 37
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT 1
Total return represents the change in value of an investment over the periods
shown. It includes any applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged index includes reinvestment of
any income or distributions. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 10/31/07
- --------------------------------------------------------------------------------
1-Year +1.83%
- --------------------------------------------------------------------------------
Since Inception (7/1/05) +6.74%
- --------------------------------------------------------------------------------
CLASS A (7/1/05-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MidCap Value Russell Midcap
Date Fund Value Index 7 CPI 7
- --------------------------------------------------------------------------------
7/1/2005 $ 9,425 $10,000 $10,000
7/31/2005 $ 9,774 $10,476 $10,046
8/31/2005 $ 9,595 $10,394 $10,098
9/30/2005 $ 9,548 $10,535 $10,221
10/31/2005 $ 9,237 $10,213 $10,242
11/30/2005 $ 9,755 $10,573 $10,159
12/31/2005 $ 9,775 $10,676 $10,118
1/31/2006 $10,144 $11,139 $10,195
2/28/2006 $10,192 $11,244 $10,216
3/31/2006 $10,391 $11,489 $10,272
4/30/2006 $10,448 $11,600 $10,360
5/31/2006 $10,211 $11,357 $10,411
6/30/2006 $10,249 $11,425 $10,432
7/31/2006 $10,002 $11,361 $10,463
8/31/2006 $10,324 $11,679 $10,483
9/30/2006 $10,476 $11,829 $10,432
10/31/2006 $10,779 $12,308 $10,375
11/30/2006 $11,149 $12,705 $10,360
12/31/2006 $11,135 $12,834 $10,375
1/31/2007 $11,468 $13,230 $10,407
2/28/2007 $11,487 $13,309 $10,463
3/31/2007 $11,604 $13,458 $10,558
4/30/2007 $12,054 $13,880 $10,627
5/31/2007 $12,542 $14,358 $10,691
6/30/2007 $12,288 $13,949 $10,712
7/31/2007 $11,507 $13,172 $10,709
8/31/2007 $11,370 $13,131 $10,690
9/30/2007 $11,624 $13,454 $10,719
10/31/2007 $11,643 $13,505 $10,742
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 10/31/07
- --------------------------------------------------------------------------------
1-Year +6.27%
- --------------------------------------------------------------------------------
Since Inception (7/1/05) +8.76%
- --------------------------------------------------------------------------------
CLASS C (7/1/05-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MidCap Value Russell Midcap
Date Fund Value Index 7 CPI 7
- --------------------------------------------------------------------------------
7/1/2005 $10,000 $10,000 $10,000
7/31/2005 $10,360 $10,476 $10,046
8/31/2005 $10,170 $10,394 $10,098
9/30/2005 $10,120 $10,535 $10,221
10/31/2005 $ 9,780 $10,213 $10,242
11/30/2005 $10,320 $10,573 $10,159
12/31/2005 $10,335 $10,676 $10,118
1/31/2006 $10,727 $11,139 $10,195
2/28/2006 $10,767 $11,244 $10,216
3/31/2006 $10,968 $11,489 $10,272
4/30/2006 $11,029 $11,600 $10,360
5/31/2006 $10,767 $11,357 $10,411
6/30/2006 $10,798 $11,425 $10,432
7/31/2006 $10,536 $11,361 $10,463
8/31/2006 $10,868 $11,679 $10,483
9/30/2006 $11,029 $11,829 $10,432
10/31/2006 $11,340 $12,308 $10,375
11/30/2006 $11,732 $12,705 $10,360
12/31/2006 $11,701 $12,834 $10,375
1/31/2007 $12,041 $13,230 $10,407
2/28/2007 $12,062 $13,309 $10,463
3/31/2007 $12,175 $13,458 $10,558
4/30/2007 $12,639 $13,880 $10,627
5/31/2007 $13,143 $14,358 $10,691
6/30/2007 $12,875 $13,949 $10,712
7/31/2007 $12,051 $13,172 $10,709
8/31/2007 $11,897 $13,131 $10,690
9/30/2007 $12,154 $13,454 $10,719
10/31/2007 $12,165 $13,505 $10,742
38 | Annual Report
Performance Summary (CONTINUED)
CLASS R (7/1/05-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MidCap Value Russell Midcap
Date Fund Value Index 7 CPI 7
- --------------------------------------------------------------------------------
7/1/2005 $10,000 $10,000 $10,000
7/31/2005 $10,370 $10,476 $10,046
8/31/2005 $10,180 $10,394 $10,098
9/30/2005 $10,130 $10,535 $10,221
10/31/2005 $ 9,800 $10,213 $10,242
11/30/2005 $10,340 $10,573 $10,159
12/31/2005 $10,358 $10,676 $10,118
1/31/2006 $10,761 $11,139 $10,195
2/28/2006 $10,801 $11,244 $10,216
3/31/2006 $11,012 $11,489 $10,272
4/30/2006 $11,072 $11,600 $10,360
5/31/2006 $10,821 $11,357 $10,411
6/30/2006 $10,861 $11,425 $10,432
7/31/2006 $10,590 $11,361 $10,463
8/31/2006 $10,932 $11,679 $10,483
9/30/2006 $11,103 $11,829 $10,432
10/31/2006 $11,414 $12,308 $10,375
11/30/2006 $11,807 $12,705 $10,360
12/31/2006 $11,781 $12,834 $10,375
1/31/2007 $12,144 $13,230 $10,407
2/28/2007 $12,165 $13,309 $10,463
3/31/2007 $12,289 $13,458 $10,558
4/30/2007 $12,756 $13,880 $10,627
5/31/2007 $13,264 $14,358 $10,691
6/30/2007 $13,005 $13,949 $10,712
7/31/2007 $12,175 $13,172 $10,709
8/31/2007 $12,030 $13,131 $10,690
9/30/2007 $12,300 $13,454 $10,719
10/31/2007 $12,310 $13,505 $10,742
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 10/31/07
- --------------------------------------------------------------------------------
1-Year +7.85%
- --------------------------------------------------------------------------------
Since Inception (7/1/05) +9.31%
- --------------------------------------------------------------------------------
ADVISOR CLASS (7/1/05-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin MidCap Value Russell Midcap
Date Fund Value Index 7 CPI 7
- --------------------------------------------------------------------------------
7/1/2005 $10,000 $10,000 $10,000
7/31/2005 $10,370 $10,476 $10,046
8/31/2005 $10,190 $10,394 $10,098
9/30/2005 $10,140 $10,535 $10,221
10/31/2005 $ 9,810 $10,213 $10,242
11/30/2005 $10,360 $10,573 $10,159
12/31/2005 $10,389 $10,676 $10,118
1/31/2006 $10,781 $11,139 $10,195
2/28/2006 $10,842 $11,244 $10,216
3/31/2006 $11,053 $11,489 $10,272
4/30/2006 $11,123 $11,600 $10,360
5/31/2006 $10,872 $11,357 $10,411
6/30/2006 $10,912 $11,425 $10,432
7/31/2006 $10,650 $11,361 $10,463
8/31/2006 $10,993 $11,679 $10,483
9/30/2006 $11,164 $11,829 $10,432
10/31/2006 $11,496 $12,308 $10,375
11/30/2006 $11,898 $12,705 $10,360
12/31/2006 $11,881 $12,834 $10,375
1/31/2007 $12,245 $13,230 $10,407
2/28/2007 $12,266 $13,309 $10,463
3/31/2007 $12,391 $13,458 $10,558
4/30/2007 $12,879 $13,880 $10,627
5/31/2007 $13,399 $14,358 $10,691
6/30/2007 $13,139 $13,949 $10,712
7/31/2007 $12,308 $13,172 $10,709
8/31/2007 $12,162 $13,131 $10,690
9/30/2007 $12,443 $13,454 $10,719
10/30/2007 $12,464 $13,505 $10,742
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 10/31/07
- --------------------------------------------------------------------------------
1-Year +8.42%
- --------------------------------------------------------------------------------
Since Inception (7/1/05) +9.89%
- --------------------------------------------------------------------------------
Annual Report | 39
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 MARKET AS A WHOLE. HISTORICALLY, MIDSIZE COMPANY SECURITIES HAVE
BEEN MORE VOLATILE IN PRICE THAN LARGER COMPANY SECURITIES, ESPECIALLY OVER THE
SHORT TERM. MIDSIZE COMPANIES MAY BE MORE SUSCEPTIBLE TO PARTICULAR ECONOMIC
EVENTS OR COMPETITIVE FACTORS THAN ARE LARGER, MORE BROADLY DIVERSIFIED
COMPANIES. IN ADDITION, THE FUND MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN
FOREIGN SECURITIES, WHICH INVOLVE SPECIAL RISKS, INCLUDING CURRENCY FLUCTUATIONS
AND ECONOMIC AND POLITICAL UNCERTAINTY. THE FUND'S PROSPECTUS ALSO INCLUDES A
DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS C: 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. If the manager and administrator had not waived fees, 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.
3. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
4. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
5. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report.
7. Source: Standard & Poor's Micropal. The Russell Midcap Value Index is market
capitalization weighted and measures performance of those Russell Midcap Index
companies with lower price-to-book ratios and lower forecasted growth values.
The Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the inflation rate.
40 | Annual Report
Your Fund's Expenses
FRANKLIN MIDCAP 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 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.
Annual Report | 41
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 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 966.00 $ 6.94
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.15 $ 7.12
- ----------------------------------------------------------------------------------------------------------
CLASS C
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 962.50 $10.09
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,014.92 $10.36
- ----------------------------------------------------------------------------------------------------------
CLASS R
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 965.00 $ 7.68
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.39 $ 7.88
- ----------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------------
Actual $1,000 $ 967.70 $ 5.21
- ----------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.91 $ 5.35
- ----------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio, net of
expense waivers, annualized for each class (A: 1.40%; C: 2.04%; R: 1.55%; and
Advisor: 1.05%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
42 | Annual Report
Franklin Small Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Small Cap Value Fund seeks
longterm capital appreciation by investing at least 80% of net assets in the
securities of small-capitalization companies that we believe are undervalued. We
define small-capitalization companies as those with market capitalizations less
than $3.5 billion at the time of purchase.
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 annual report for
the fiscal year ended October 31, 2007.
PERFORMANCE OVERVIEW
Franklin Small Cap Value Fund - Class A posted a +9.15% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
2500(TM) Value Index, which posted a +4.63% 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 12-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 46.
INVESTMENT STRATEGY
We seek to invest in small-capitalization companies that we believe are selling
below their underlying worth and hold them until they reach what we believe is
their fair market value. We seek a diversified portfolio of fundamentally sound
companies purchased at attractive prices, often when they are out of favor with
other investors. Portfolio securities are selected without regard to benchmark
comparisons and are based on fundamental bottom-up research focusing on several
criteria, such as low price relative to earnings, book value or cash flow. We
also consider stocks with recent sharp price declines that still have
significant growth potential or that possess valuable intangibles not reflected
in the stock price.
1. Source: Standard & Poor's Micropal. 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 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 89.
Annual Report | 43
PORTFOLIO BREAKDOWN
Franklin Small Cap Value Fund
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Capital Goods 21.6%
Materials 14.3%
Energy 11.9%
Insurance 9.4%
Consumer Durables & Apparel 8.0%
Retailing 6.1%
Automobiles & Components 4.0%
Technology Hardware & Equipment 3.6%
Banks 3.2%
Transportation 2.8%
Commercial Services & Supplies 2.3%
Utilities 2.3%
Health Care Equipment & Services 2.1%
Other 6.1%
Short-Term Investments & Other Net Assets 2.3%
MANAGER'S DISCUSSION
During the period under review, the materials sector was the most significant
contributor to Fund performance, followed by the energy and industrials
sectors. 2 On an absolute total return basis, the portfolio's best performing
stocks for the time we held them were farm machinery manufacturer CNH Global,
intimate apparel manufacturer Warnaco Group and semiconductor imaging devices
producer OmniVision Technologies.
Despite the Fund's positive performance, several stocks negatively impacted the
Fund's return during the reporting period, due largely to the effects of the
subprime mortgage crisis. Among decliners were mortgage insurer The PMI Group,
homebuilder M/I Homes and home furnishings discount retailer Tuesday Morning.
The Fund experienced significant net inflows during the fiscal year, and we used
a portion of the proceeds to invest in 17 new positions: bearings and seals
distributor Applied Industrial Technologies; flexible packaging products
manufacturer Bemis Company; electronics manufacturer Benchmark Electronics;
consumer recreational products manufacturer Brunswick; bank holding company
Corus Bankshares; property/casualty insurer Erie Indemnity; electric motors and
controls designer and manufacturer Franklin Electric; discount general
merchandise store operator Fred's; seaborne crude oil transportation provider
General Maritime; mini-mill steel producer Gerdau Ameristeel; automobile
dealership operator Group 1 Automotive; health care equipment manufacturer
Hillenbrand Industries; insurance holding company Old Republic International;
semiconductor imaging devices provider OmniVision Technologies; financial
guaranty insurer Security Capital Assurance; transportation, construction and
industrial products manufacturer Trinity Industries; and regional bank TrustCo
Bank Corp. NY. We also added significantly to several existing positions such as
Christopher & Banks, Gibraltar Industries, and MDC Holdings.
The Fund liquidated five positions during the period. Four of the liquidations
resulted from previously announced takeovers, and we sold our position in NBTY
because we believed the shares were fully valued.
There were three takeovers announced during the Fund's fiscal year. In March,
Lone Star Technologies, an oil-field equipment manufacturer, announced that it
received a cash bid of $67.50 per share from United States Steel, a 39% premium
over Lone Star's prior day's closing price. In April, OMI announced that it
received a cash bid from a joint venture formed by Teekay Shipping and A/S
Dampskibsselskabet Torm to buy the company at a 5% premium over the prior day's
closing price. In July, First Indiana announced that Marshall & Isley bid $32
per share in cash, a 42% premium over the prior day's closing price.
2. The industrials sector comprises capital goods, commercial services and
supplies, and transportation in the SOI.
44 | Annual Report
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
Co-Portfolio Manager
[PHOTO OMITTED] /s/ Y. Dogan Sahin
Y. Dogan Sahin, CFA
Co-Portfolio Manager
Bruce C. Baughman, CPA
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin Small Cap Value Fund
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
10/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Steel Dynamics Inc. 3.0%
MATERIALS
- --------------------------------------------------------------------------------
Reliance Steel & Aluminum Co. 1.7%
MATERIALS
- --------------------------------------------------------------------------------
The Warnaco Group Inc. 1.6%
CONSUMER DURABLES & APPAREL
- --------------------------------------------------------------------------------
Aspen Insurance Holdings Ltd. 1.6%
INSURANCE
- --------------------------------------------------------------------------------
Roper Industries Inc. 1.6%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Regis Corp. 1.5%
CONSUMER SERVICES
- --------------------------------------------------------------------------------
Thor Industries Inc. 1.5%
AUTOMOBILES & COMPONENTS
- --------------------------------------------------------------------------------
Mueller Industries Inc. 1.5%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Kennametal Inc. 1.4%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Mine Safety Appliances Co. 1.4%
COMMERCIAL SERVICES & SUPPLIES
- --------------------------------------------------------------------------------
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER 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.
Y. DOGAN SAHIN is a research analyst and portfolio manager with Franklin
Advisory Services, LLC. He is part of a team that manages several equity funds,
and is co-manager of Franklin Small Cap Value Fund.
Mr. Sahin joined Franklin Templeton in 2001. Prior to his current position, Mr.
Sahin provided industry-specific equity research of retail companies, with
particular focus on auto dealerships and auto parts retailers.
Mr. Sahin earned a B.A. in chemistry and biology from Carleton College and an
M.A. in molecular and cell biology from U.C. Berkeley. He is a Chartered
Financial Analyst (CFA) Charterholder.
Annual Report | 45
Performance Summary as of 10/31/07
FRANKLIN SMALL CAP VALUE FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay 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 10/31/07 10/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.67 $45.94 $45.27
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.2811
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.2075
- --------------------------------------------------------------------------------
Long-Term Capital Gain $2.8471
- --------------------------------------------------------------------------------
TOTAL $3.3357
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: FBVAX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.47 $43.90 $43.43
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.2075
- --------------------------------------------------------------------------------
Long-Term Capital Gain $2.8471
- --------------------------------------------------------------------------------
TOTAL $3.0546
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: FRVFX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.38 $43.37 $42.99
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.0474
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.2075
- --------------------------------------------------------------------------------
Long-Term Capital Gain $2.8471
- --------------------------------------------------------------------------------
TOTAL $3.1020
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: FVFRX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.59 $45.66 $45.07
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.2365
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.2075
- --------------------------------------------------------------------------------
Long-Term Capital Gain $2.8471
- --------------------------------------------------------------------------------
TOTAL $3.2911
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FVADX) CHANGE 10/31/07 10/31/06
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.80 $47.26 $46.46
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/06-10/31/07)
- --------------------------------------------------------------------------------
Dividend Income $0.3797
- --------------------------------------------------------------------------------
Short-Term Capital Gain $0.2075
- --------------------------------------------------------------------------------
Long-Term Capital Gain $2.8471
- --------------------------------------------------------------------------------
TOTAL $3.4343
- --------------------------------------------------------------------------------
46 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. 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/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.15% +130.21% +110.34%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +2.87% +16.76% +7.08%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,287 $21,699 $19,822
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +5.92% +17.59% +6.47%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.30%
- --------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.36% +122.71% +164.83%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.36% +17.16% +11.66%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,436 $22,071 $26,483
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +7.60% +18.00% +11.60%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.98%
- --------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.35% +122.55% +96.90%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +7.35% +17.35% +7.01%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,735 $22,255 $19,690
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +10.59% +18.20% +6.40%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.98%
- --------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (8/1/02)
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +8.89% +128.17% +116.44%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +8.89% +17.94% +15.85%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,889 $22,817 $21,644
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +12.14% +18.79% +15.83%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.48%
- --------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------
Cumulative Total Return 1 +9.43% +134.04% +117.88%
- --------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.43% +18.54% +8.10%
- --------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,943 $23,404 $21,788
- --------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/07) 4 +12.71% +19.39% +7.48%
- --------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 0.98%
- --------------------------------------------------------------------------------------------
PERFORMANCE DATA 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.
Annual Report | 47
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS A 10/31/07
- --------------------------------------------------------------------------------
1-Year +2.87%
- --------------------------------------------------------------------------------
5-Year +16.76%
- --------------------------------------------------------------------------------
10-Year +7.08%
- --------------------------------------------------------------------------------
CLASS A (11/1/97-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Small Cap Russell 2500
Date Value Fund Value Index 6 CPI 6
- --------------------------------------------------------------------------------
11/1/1997 $ 9,423 $10,000 $10,000
11/30/1997 $ 9,324 $10,214 $ 9,994
12/31/1997 $ 9,314 $10,596 $ 9,981
1/31/1998 $ 9,160 $10,415 $10,000
2/28/1998 $ 9,580 $11,061 $10,019
3/31/1998 $ 9,911 $11,608 $10,037
4/30/1998 $ 9,876 $11,600 $10,056
5/31/1998 $ 9,248 $11,235 $10,074
6/30/1998 $ 8,813 $11,192 $10,087
7/31/1998 $ 7,873 $10,477 $10,099
8/31/1998 $ 6,451 $ 8,832 $10,111
9/30/1998 $ 6,582 $ 9,349 $10,124
10/31/1998 $ 6,929 $ 9,765 $10,149
11/30/1998 $ 6,990 $10,080 $10,149
12/31/1998 $ 7,101 $10,393 $10,142
1/31/1999 $ 7,020 $10,093 $10,167
2/28/1999 $ 6,342 $ 9,576 $10,179
3/31/1999 $ 6,400 $ 9,561 $10,210
4/30/1999 $ 7,039 $10,505 $10,285
5/31/1999 $ 7,272 $10,719 $10,285
6/30/1999 $ 7,686 $11,093 $10,285
7/31/1999 $ 7,485 $10,881 $10,316
8/31/1999 $ 7,206 $10,463 $10,340
9/30/1999 $ 6,737 $10,134 $10,390
10/31/1999 $ 6,695 $10,144 $10,408
11/30/1999 $ 6,757 $10,200 $10,415
12/31/1999 $ 7,043 $10,548 $10,415
1/31/2000 $ 6,466 $10,108 $10,446
2/29/2000 $ 6,617 $10,283 $10,507
3/31/2000 $ 7,202 $11,040 $10,594
4/30/2000 $ 7,357 $11,036 $10,600
5/31/2000 $ 7,543 $11,016 $10,613
6/30/2000 $ 7,342 $10,974 $10,668
7/31/2000 $ 7,423 $11,213 $10,693
8/31/2000 $ 7,969 $11,800 $10,693
9/30/2000 $ 7,942 $11,730 $10,749
10/31/2000 $ 8,082 $11,723 $10,767
11/30/2000 $ 7,845 $11,574 $10,774
12/31/2000 $ 8,608 $12,740 $10,767
1/31/2001 $ 9,081 $12,918 $10,835
2/28/2001 $ 9,263 $12,810 $10,879
3/31/2001 $ 9,189 $12,489 $10,903
4/30/2001 $ 9,798 $13,200 $10,947
5/31/2001 $10,112 $13,605 $10,996
6/30/2001 $ 9,828 $13,736 $11,015
7/31/2001 $ 9,676 $13,644 $10,984
8/31/2001 $ 9,541 $13,527 $10,984
9/30/2001 $ 8,092 $12,025 $11,033
10/31/2001 $ 8,733 $12,283 $10,996
11/30/2001 $ 9,234 $13,228 $10,978
12/31/2001 $ 9,910 $13,981 $10,934
1/31/2002 $ 9,828 $14,110 $10,959
2/28/2002 $10,186 $14,285 $11,002
3/31/2002 $11,028 $15,171 $11,064
4/30/2002 $11,312 $15,430 $11,126
5/31/2002 $11,032 $15,177 $11,126
6/30/2002 $10,604 $14,641 $11,132
7/31/2002 $ 9,123 $12,947 $11,145
8/31/2002 $ 9,092 $13,016 $11,182
9/30/2002 $ 8,194 $11,951 $11,200
10/31/2002 $ 8,610 $12,122 $11,219
11/30/2002 $ 9,104 $13,006 $11,219
12/31/2002 $ 8,956 $12,601 $11,194
1/31/2003 $ 8,462 $12,220 $11,244
2/28/2003 $ 8,190 $11,920 $11,330
3/31/2003 $ 8,194 $12,000 $11,399
4/30/2003 $ 8,898 $13,087 $11,374
5/31/2003 $ 9,609 $14,297 $11,355
6/30/2003 $ 9,823 $14,554 $11,368
7/31/2003 $ 9,893 $15,186 $11,380
8/31/2003 $10,344 $15,797 $11,423
9/30/2003 $10,052 $15,685 $11,460
10/31/2003 $10,958 $16,883 $11,448
11/30/2003 $11,226 $17,572 $11,417
12/31/2003 $11,852 $18,262 $11,405
1/31/2004 $11,910 $18,853 $11,460
2/29/2004 $12,303 $19,236 $11,522
3/31/2004 $12,439 $19,390 $11,597
4/30/2004 $12,070 $18,375 $11,634
5/31/2004 $12,237 $18,745 $11,702
6/30/2004 $12,979 $19,489 $11,739
7/31/2004 $12,633 $18,705 $11,720
8/31/2004 $12,427 $18,939 $11,726
9/30/2004 $13,146 $19,537 $11,751
10/31/2004 $13,360 $19,891 $11,813
11/30/2004 $14,553 $21,517 $11,819
12/31/2004 $14,792 $22,202 $11,776
1/31/2005 $14,534 $21,488 $11,801
2/28/2005 $15,270 $22,025 $11,869
3/31/2005 $14,835 $21,731 $11,962
4/30/2005 $14,080 $20,918 $12,042
5/31/2005 $14,773 $22,079 $12,030
6/30/2005 $15,113 $22,888 $12,036
7/31/2005 $16,100 $24,114 $12,092
8/31/2005 $16,037 $23,676 $12,153
9/30/2005 $15,927 $23,701 $12,302
10/31/2005 $15,426 $23,002 $12,327
11/30/2005 $16,260 $23,945 $12,228
12/31/2005 $16,143 $23,921 $12,178
1/31/2006 $17,471 $25,495 $12,271
2/28/2006 $17,418 $25,529 $12,296
3/31/2006 $18,225 $26,424 $12,364
4/30/2006 $18,337 $26,528 $12,469
5/31/2006 $17,675 $25,610 $12,531
6/30/2006 $17,832 $25,755 $12,556
7/31/2006 $17,250 $25,398 $12,593
8/31/2006 $17,310 $26,074 $12,618
9/30/2006 $17,398 $26,340 $12,556
10/31/2006 $18,160 $27,574 $12,488
11/30/2006 $18,987 $28,436 $12,469
12/31/2006 $18,855 $28,748 $12,488
1/31/2007 $19,476 $29,389 $12,526
2/28/2007 $19,356 $29,321 $12,593
3/31/2007 $19,563 $29,634 $12,707
4/30/2007 $20,063 $30,254 $12,790
5/31/2007 $21,055 $31,330 $12,868
6/30/2007 $20,762 $30,497 $12,893
7/31/2007 $19,563 $28,214 $12,890
8/31/2007 $19,489 $28,358 $12,866
9/30/2007 $19,554 $28,654 $12,902
10/31/2007 $19,822 $28,852 $12,929
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS B 10/31/07
- --------------------------------------------------------------------------------
1-Year +4.36%
- --------------------------------------------------------------------------------
5-Year +17.16%
- --------------------------------------------------------------------------------
Since Inception (1/1/99) +11.66%
- --------------------------------------------------------------------------------
CLASS B (1/1/99-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Small Cap Russell 2500
Date Value Fund Value Index 6 CPI 6
- --------------------------------------------------------------------------------
1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $ 9,880 $ 9,712 $10,024
2/28/1999 $ 8,925 $ 9,214 $10,037
3/31/1999 $ 9,007 $ 9,200 $10,067
4/30/1999 $ 9,891 $10,108 $10,140
5/31/1999 $10,213 $10,314 $10,140
6/30/1999 $10,786 $10,674 $10,140
7/31/1999 $10,502 $10,470 $10,171
8/31/1999 $10,098 $10,068 $10,195
9/30/1999 $ 9,438 $ 9,751 $10,244
10/31/1999 $ 9,373 $ 9,761 $10,262
11/30/1999 $ 9,454 $ 9,814 $10,268
12/31/1999 $ 9,853 $10,149 $10,268
1/31/2000 $ 9,040 $ 9,727 $10,299
2/29/2000 $ 9,247 $ 9,895 $10,360
3/31/2000 $10,060 $10,623 $10,445
4/30/2000 $10,262 $10,619 $10,451
5/31/2000 $10,524 $10,600 $10,464
6/30/2000 $10,235 $10,560 $10,519
7/31/2000 $10,344 $10,789 $10,543
8/31/2000 $11,097 $11,354 $10,543
9/30/2000 $11,053 $11,287 $10,598
10/31/2000 $11,244 $11,280 $10,616
11/30/2000 $10,911 $11,136 $10,622
12/31/2000 $11,969 $12,259 $10,616
1/31/2001 $12,619 $12,430 $10,683
2/28/2001 $12,859 $12,326 $10,726
3/31/2001 $12,751 $12,017 $10,750
4/30/2001 $13,591 $12,701 $10,793
5/31/2001 $14,017 $13,091 $10,842
6/30/2001 $13,613 $13,217 $10,860
7/31/2001 $13,400 $13,129 $10,830
8/31/2001 $13,204 $13,016 $10,830
9/30/2001 $11,196 $11,571 $10,879
10/31/2001 $12,074 $11,819 $10,842
11/30/2001 $12,762 $12,729 $10,824
12/31/2001 $13,684 $13,453 $10,781
1/31/2002 $13,564 $13,577 $10,805
2/28/2002 $14,049 $13,746 $10,848
3/31/2002 $15,206 $14,598 $10,909
4/30/2002 $15,588 $14,847 $10,970
5/31/2002 $15,195 $14,603 $10,970
6/30/2002 $14,600 $14,088 $10,976
7/31/2002 $12,549 $12,457 $10,988
8/31/2002 $12,500 $12,524 $11,025
9/30/2002 $11,261 $11,499 $11,043
10/31/2002 $11,823 $11,664 $11,062
11/30/2002 $12,500 $12,515 $11,062
12/31/2002 $12,287 $12,125 $11,037
1/31/2003 $11,600 $11,759 $11,086
2/28/2003 $11,223 $11,470 $11,171
3/31/2003 $11,223 $11,547 $11,239
4/30/2003 $12,183 $12,593 $11,214
5/31/2003 $13,149 $13,757 $11,196
6/30/2003 $13,433 $14,004 $11,208
7/31/2003 $13,520 $14,612 $11,220
8/31/2003 $14,131 $15,200 $11,263
9/30/2003 $13,722 $15,093 $11,300
10/31/2003 $14,955 $16,245 $11,287
11/30/2003 $15,315 $16,908 $11,257
12/31/2003 $16,155 $17,572 $11,245
1/31/2004 $16,226 $18,141 $11,300
2/29/2004 $16,755 $18,510 $11,361
3/31/2004 $16,925 $18,658 $11,434
4/30/2004 $16,417 $17,681 $11,470
5/31/2004 $16,635 $18,036 $11,538
6/30/2004 $17,634 $18,753 $11,574
7/31/2004 $17,154 $17,998 $11,556
8/31/2004 $16,865 $18,224 $11,562
9/30/2004 $17,830 $18,799 $11,586
10/31/2004 $18,114 $19,139 $11,647
11/30/2004 $19,718 $20,705 $11,653
12/31/2004 $20,035 $21,364 $11,611
1/31/2005 $19,669 $20,676 $11,635
2/28/2005 $20,653 $21,193 $11,702
3/31/2005 $20,057 $20,910 $11,794
4/30/2005 $19,029 $20,128 $11,873
5/31/2005 $19,953 $21,245 $11,861
6/30/2005 $20,401 $22,024 $11,867
7/31/2005 $21,719 $23,203 $11,922
8/31/2005 $21,621 $22,781 $11,983
9/30/2005 $21,468 $22,806 $12,129
10/31/2005 $20,773 $22,133 $12,154
11/30/2005 $21,889 $23,041 $12,056
12/31/2005 $21,721 $23,017 $12,007
1/31/2006 $23,495 $24,532 $12,099
2/28/2006 $23,411 $24,564 $12,123
3/31/2006 $24,480 $25,426 $12,190
4/30/2006 $24,620 $25,526 $12,294
5/31/2006 $23,719 $24,642 $12,355
6/30/2006 $23,915 $24,782 $12,379
7/31/2006 $23,114 $24,438 $12,416
8/31/2006 $23,187 $25,089 $12,441
9/30/2006 $23,288 $25,345 $12,379
10/31/2006 $24,301 $26,532 $12,312
11/30/2006 $25,386 $27,361 $12,294
12/31/2006 $25,192 $27,662 $12,312
1/31/2007 $26,021 $28,279 $12,350
2/28/2007 $25,859 $28,213 $12,416
3/31/2007 $26,136 $28,514 $12,529
4/30/2007 $26,805 $29,111 $12,610
5/31/2007 $28,132 $30,147 $12,688
6/30/2007 $27,741 $29,345 $12,712
7/31/2007 $26,138 $27,148 $12,709
8/31/2007 $26,041 $27,287 $12,686
9/30/2007 $26,127 $27,571 $12,721
10/31/2007 $26,483 $27,762 $12,748
48 | Annual Report
Performance Summary (CONTINUED)
CLASS C (11/1/97-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Small Cap Russell 2500
Date Value Fund Value Index 6 CPI 6
- --------------------------------------------------------------------------------
11/1/1997 $10,000 $10,000 $10,000
11/30/1997 $ 9,886 $10,214 $ 9,994
12/31/1997 $ 9,870 $10,596 $ 9,981
1/31/1998 $ 9,706 $10,415 $10,000
2/28/1998 $10,145 $11,061 $10,019
3/31/1998 $10,489 $11,608 $10,037
4/30/1998 $10,448 $11,600 $10,056
5/31/1998 $ 9,776 $11,235 $10,074
6/30/1998 $ 9,313 $11,192 $10,087
7/31/1998 $ 8,316 $10,477 $10,099
8/31/1998 $ 6,807 $ 8,832 $10,111
9/30/1998 $ 6,946 $ 9,349 $10,124
10/31/1998 $ 7,307 $ 9,765 $10,149
11/30/1998 $ 7,369 $10,080 $10,149
12/31/1998 $ 7,483 $10,393 $10,142
1/31/1999 $ 7,392 $10,093 $10,167
2/28/1999 $ 6,675 $ 9,576 $10,179
3/31/1999 $ 6,733 $ 9,561 $10,210
4/30/1999 $ 7,401 $10,505 $10,285
5/31/1999 $ 7,640 $10,719 $10,285
6/30/1999 $ 8,073 $11,093 $10,285
7/31/1999 $ 7,858 $10,881 $10,316
8/31/1999 $ 7,557 $10,463 $10,340
9/30/1999 $ 7,063 $10,134 $10,390
10/31/1999 $ 7,013 $10,144 $10,408
11/30/1999 $ 7,075 $10,200 $10,415
12/31/1999 $ 7,368 $10,548 $10,415
1/31/2000 $ 6,762 $10,108 $10,446
2/29/2000 $ 6,914 $10,283 $10,507
3/31/2000 $ 7,524 $11,040 $10,594
4/30/2000 $ 7,681 $11,036 $10,600
5/31/2000 $ 7,875 $11,016 $10,613
6/30/2000 $ 7,656 $10,974 $10,668
7/31/2000 $ 7,739 $11,213 $10,693
8/31/2000 $ 8,304 $11,800 $10,693
9/30/2000 $ 8,271 $11,730 $10,749
10/31/2000 $ 8,411 $11,723 $10,767
11/30/2000 $ 8,163 $11,574 $10,774
12/31/2000 $ 8,955 $12,740 $10,767
1/31/2001 $ 9,441 $12,918 $10,835
2/28/2001 $ 9,623 $12,810 $10,879
3/31/2001 $ 9,540 $12,489 $10,903
4/30/2001 $10,167 $13,200 $10,947
5/31/2001 $10,485 $13,605 $10,996
6/30/2001 $10,188 $13,736 $11,015
7/31/2001 $10,027 $13,644 $10,984
8/31/2001 $ 9,878 $13,527 $10,984
9/30/2001 $ 8,374 $12,025 $11,033
10/31/2001 $ 9,029 $12,283 $10,996
11/30/2001 $ 9,544 $13,228 $10,978
12/31/2001 $10,233 $13,981 $10,934
1/31/2002 $10,146 $14,110 $10,959
2/28/2002 $10,509 $14,285 $11,002
3/31/2002 $11,375 $15,171 $11,064
4/30/2002 $11,660 $15,430 $11,126
5/31/2002 $11,363 $15,177 $11,126
6/30/2002 $10,922 $14,641 $11,132
7/31/2002 $ 9,388 $12,947 $11,145
8/31/2002 $ 9,355 $13,016 $11,182
9/30/2002 $ 8,423 $11,951 $11,200
10/31/2002 $ 8,848 $12,122 $11,219
11/30/2002 $ 9,351 $13,006 $11,219
12/31/2002 $ 9,194 $12,601 $11,194
1/31/2003 $ 8,683 $12,220 $11,244
2/28/2003 $ 8,402 $11,920 $11,330
3/31/2003 $ 8,394 $12,000 $11,399
4/30/2003 $ 9,112 $13,087 $11,374
5/31/2003 $ 9,833 $14,297 $11,355
6/30/2003 $10,047 $14,554 $11,368
7/31/2003 $10,113 $15,186 $11,380
8/31/2003 $10,571 $15,797 $11,423
9/30/2003 $10,266 $15,685 $11,460
10/31/2003 $11,185 $16,883 $11,448
11/30/2003 $11,453 $17,572 $11,417
12/31/2003 $12,084 $18,262 $11,405
1/31/2004 $12,134 $18,853 $11,460
2/29/2004 $12,534 $19,236 $11,522
3/31/2004 $12,661 $19,390 $11,597
4/30/2004 $12,278 $18,375 $11,634
5/31/2004 $12,443 $18,745 $11,702
6/30/2004 $13,189 $19,489 $11,739
7/31/2004 $12,830 $18,705 $11,720
8/31/2004 $12,616 $18,939 $11,726
9/30/2004 $13,338 $19,537 $11,751
10/31/2004 $13,548 $19,891 $11,813
11/30/2004 $14,748 $21,517 $11,819
12/31/2004 $14,985 $22,202 $11,776
1/31/2005 $14,712 $21,488 $11,801
2/28/2005 $15,447 $22,025 $11,869
3/31/2005 $15,001 $21,731 $11,962
4/30/2005 $14,233 $20,918 $12,042
5/31/2005 $14,923 $22,079 $12,030
6/30/2005 $15,257 $22,888 $12,036
7/31/2005 $16,244 $24,114 $12,092
8/31/2005 $16,170 $23,676 $12,153
9/30/2005 $16,054 $23,701 $12,302
10/31/2005 $15,538 $23,002 $12,327
11/30/2005 $16,368 $23,945 $12,228
12/31/2005 $16,246 $23,921 $12,178
1/31/2006 $17,573 $25,495 $12,271
2/28/2006 $17,506 $25,529 $12,296
3/31/2006 $18,309 $26,424 $12,364
4/30/2006 $18,414 $26,528 $12,469
5/31/2006 $17,738 $25,610 $12,531
6/30/2006 $17,886 $25,755 $12,556
7/31/2006 $17,290 $25,398 $12,593
8/31/2006 $17,341 $26,074 $12,618
9/30/2006 $17,417 $26,340 $12,556
10/31/2006 $18,173 $27,574 $12,488
11/30/2006 $18,985 $28,436 $12,469
12/31/2006 $18,842 $28,748 $12,488
1/31/2007 $19,454 $29,389 $12,526
2/28/2007 $19,323 $29,321 $12,593
3/31/2007 $19,518 $29,634 $12,707
4/30/2007 $20,004 $30,254 $12,790
5/31/2007 $20,975 $31,330 $12,868
6/30/2007 $20,675 $30,497 $12,893
7/31/2007 $19,468 $28,214 $12,890
8/31/2007 $19,382 $28,358 $12,866
9/30/2007 $19,436 $28,654 $12,902
10/31/2007 $19,690 $28,852 $12,929
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS C 10/31/07
- --------------------------------------------------------------------------------
1-Year +7.35%
- --------------------------------------------------------------------------------
5-Year +17.35%
- --------------------------------------------------------------------------------
10-Year +7.01%
- --------------------------------------------------------------------------------
CLASS R (8/1/02-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Small Cap Russell 2500
Date Value Fund Value Index 6 CPI 6
- --------------------------------------------------------------------------------
8/1/2002 $10,000 $10,000 $10,000
8/31/2002 $10,021 $10,054 $10,033
9/30/2002 $ 9,027 $ 9,231 $10,050
10/31/2002 $ 9,485 $ 9,363 $10,067
11/30/2002 $10,029 $10,046 $10,067
12/31/2002 $ 9,862 $ 9,733 $10,044
1/31/2003 $ 9,318 $ 9,439 $10,089
2/28/2003 $ 9,018 $ 9,207 $10,167
3/31/2003 $ 9,018 $ 9,269 $10,228
4/30/2003 $ 9,794 $10,108 $10,205
5/31/2003 $10,574 $11,043 $10,189
6/30/2003 $10,805 $11,242 $10,200
7/31/2003 $10,882 $11,730 $10,211
8/31/2003 $11,379 $12,202 $10,250
9/30/2003 $11,058 $12,115 $10,283
10/31/2003 $12,051 $13,041 $10,272
11/30/2003 $12,347 $13,573 $10,244
12/31/2003 $13,033 $14,106 $10,233
1/31/2004 $13,093 $14,563 $10,283
2/29/2004 $13,525 $14,858 $10,339
3/31/2004 $13,671 $14,977 $10,405
4/30/2004 $13,260 $14,193 $10,439
5/31/2004 $13,444 $14,478 $10,500
6/30/2004 $14,258 $15,054 $10,533
7/31/2004 $13,877 $14,448 $10,516
8/31/2004 $13,650 $14,629 $10,522
9/30/2004 $14,438 $15,091 $10,544
10/31/2004 $14,674 $15,364 $10,600
11/30/2004 $15,981 $16,620 $10,605
12/31/2004 $16,236 $17,149 $10,566
1/31/2005 $15,952 $16,598 $10,589
2/28/2005 $16,758 $17,012 $10,650
3/31/2005 $16,279 $16,785 $10,733
4/30/2005 $15,448 $16,157 $10,805
5/31/2005 $16,206 $17,054 $10,794
6/30/2005 $16,577 $17,679 $10,800
7/31/2005 $17,655 $18,626 $10,850
8/31/2005 $17,587 $18,287 $10,905
9/30/2005 $17,466 $18,307 $11,038
10/31/2005 $16,910 $17,767 $11,061
11/30/2005 $17,824 $18,495 $10,972
12/31/2005 $17,697 $18,476 $10,927
1/31/2006 $19,148 $19,692 $11,011
2/28/2006 $19,086 $19,719 $11,033
3/31/2006 $19,964 $20,410 $11,094
4/30/2006 $20,087 $20,491 $11,188
5/31/2006 $19,359 $19,781 $11,244
6/30/2006 $19,527 $19,893 $11,266
7/31/2006 $18,888 $19,617 $11,299
8/31/2006 $18,949 $20,140 $11,321
9/30/2006 $19,042 $20,345 $11,266
10/31/2006 $19,875 $21,298 $11,205
11/30/2006 $20,771 $21,964 $11,188
12/31/2006 $20,624 $22,205 $11,205
1/31/2007 $21,302 $22,700 $11,239
2/28/2007 $21,164 $22,648 $11,299
3/31/2007 $21,387 $22,889 $11,402
4/30/2007 $21,932 $23,368 $11,476
5/31/2007 $23,008 $24,200 $11,546
6/30/2007 $22,686 $23,556 $11,569
7/31/2007 $21,373 $21,792 $11,566
8/31/2007 $21,288 $21,904 $11,545
9/30/2007 $21,354 $22,133 $11,576
10/31/2007 $21,644 $22,285 $11,601
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
CLASS R 10/31/07
- --------------------------------------------------------------------------------
1-Year +8.89%
- --------------------------------------------------------------------------------
5-Year +17.94%
- --------------------------------------------------------------------------------
Since Inception (8/1/02) +15.85%
- --------------------------------------------------------------------------------
Annual Report | 49
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
ADVISOR CLASS 10/31/07
- --------------------------------------------------------------------------------
1-Year +9.43%
- --------------------------------------------------------------------------------
5-Year +18.54%
- --------------------------------------------------------------------------------
10-Year +8.10%
- --------------------------------------------------------------------------------
ADVISOR CLASS (11/1/97-10/31/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Small Cap Russell 2500
Date Value Fund Value Index 6 CPI 6
- --------------------------------------------------------------------------------
11/1/1997 $10,000 $10,000 $10,000
11/30/1997 $ 9,899 $10,214 $ 9,994
12/31/1997 $ 9,890 $10,596 $ 9,981
1/31/1998 $ 9,735 $10,415 $10,000
2/28/1998 $10,180 $11,061 $10,019
3/31/1998 $10,536 $11,608 $10,037
4/30/1998 $10,503 $11,600 $10,056
5/31/1998 $ 9,837 $11,235 $10,074
6/30/1998 $ 9,376 $11,192 $10,087
7/31/1998 $ 8,379 $10,477 $10,099
8/31/1998 $ 6,871 $ 8,832 $10,111
9/30/1998 $ 7,014 $ 9,349 $10,124
10/31/1998 $ 7,382 $ 9,765 $10,149
11/30/1998 $ 7,452 $10,080 $10,149
12/31/1998 $ 7,574 $10,393 $10,142
1/31/1999 $ 7,487 $10,093 $10,167
2/28/1999 $ 6,769 $ 9,576 $10,179
3/31/1999 $ 6,834 $ 9,561 $10,210
4/30/1999 $ 7,520 $10,505 $10,285
5/31/1999 $ 7,767 $10,719 $10,285
6/30/1999 $ 8,214 $11,093 $10,285
7/31/1999 $ 8,001 $10,881 $10,316
8/31/1999 $ 7,701 $10,463 $10,340
9/30/1999 $ 7,204 $10,134 $10,390
10/31/1999 $ 7,163 $10,144 $10,408
11/30/1999 $ 7,233 $10,200 $10,415
12/31/1999 $ 7,541 $10,548 $10,415
1/31/2000 $ 6,925 $10,108 $10,446
2/29/2000 $ 7,089 $10,283 $10,507
3/31/2000 $ 7,717 $11,040 $10,594
4/30/2000 $ 7,886 $11,036 $10,600
5/31/2000 $ 8,091 $11,016 $10,613
6/30/2000 $ 7,873 $10,974 $10,668
7/31/2000 $ 7,964 $11,213 $10,693
8/31/2000 $ 8,551 $11,800 $10,693
9/30/2000 $ 8,526 $11,730 $10,749
10/31/2000 $ 8,678 $11,723 $10,767
11/30/2000 $ 8,428 $11,574 $10,774
12/31/2000 $ 9,254 $12,740 $10,767
1/31/2001 $ 9,764 $12,918 $10,835
2/28/2001 $ 9,957 $12,810 $10,879
3/31/2001 $ 9,882 $12,489 $10,903
4/30/2001 $10,541 $13,200 $10,947
5/31/2001 $10,883 $13,605 $10,996
6/30/2001 $10,577 $13,736 $11,015
7/31/2001 $10,420 $13,644 $10,984
8/31/2001 $10,276 $13,527 $10,984
9/30/2001 $ 8,721 $12,025 $11,033
10/31/2001 $ 9,410 $12,283 $10,996
11/30/2001 $ 9,954 $13,228 $10,978
12/31/2001 $10,682 $13,981 $10,934
1/31/2002 $10,600 $14,110 $10,959
2/28/2002 $10,988 $14,285 $11,002
3/31/2002 $11,900 $15,171 $11,064
4/30/2002 $12,210 $15,430 $11,126
5/31/2002 $11,913 $15,177 $11,126
6/30/2002 $11,454 $14,641 $11,132
7/31/2002 $ 9,855 $12,947 $11,145
8/31/2002 $ 9,826 $13,016 $11,182
9/30/2002 $ 8,859 $11,951 $11,200
10/31/2002 $ 9,310 $12,122 $11,219
11/30/2002 $ 9,847 $13,006 $11,219
12/31/2002 $ 9,690 $12,601 $11,194
1/31/2003 $ 9,157 $12,220 $11,244
2/28/2003 $ 8,867 $11,920 $11,330
3/31/2003 $ 8,876 $12,000 $11,399
4/30/2003 $ 9,640 $13,087 $11,374
5/31/2003 $10,413 $14,297 $11,355
6/30/2003 $10,644 $14,554 $11,368
7/31/2003 $10,727 $15,186 $11,380
8/31/2003 $11,219 $15,797 $11,423
9/30/2003 $10,905 $15,685 $11,460
10/31/2003 $11,892 $16,883 $11,448
11/30/2003 $12,186 $17,572 $11,417
12/31/2003 $12,867 $18,262 $11,405
1/31/2004 $12,933 $18,853 $11,460
2/29/2004 $13,367 $19,236 $11,522
3/31/2004 $13,516 $19,390 $11,597
4/30/2004 $13,119 $18,375 $11,634
5/31/2004 $13,305 $18,745 $11,702
6/30/2004 $14,115 $19,489 $11,739
7/31/2004 $13,743 $18,705 $11,720
8/31/2004 $13,524 $18,939 $11,726
9/30/2004 $14,309 $19,537 $11,751
10/31/2004 $14,549 $19,891 $11,813
11/30/2004 $15,851 $21,517 $11,819
12/31/2004 $16,116 $22,202 $11,776
1/31/2005 $15,836 $21,488 $11,801
2/28/2005 $16,645 $22,025 $11,869
3/31/2005 $16,178 $21,731 $11,962
4/30/2005 $15,357 $20,918 $12,042
5/31/2005 $16,120 $22,079 $12,030
6/30/2005 $16,491 $22,888 $12,036
7/31/2005 $17,571 $24,114 $12,092
8/31/2005 $17,509 $23,676 $12,153
9/30/2005 $17,400 $23,701 $12,302
10/31/2005 $16,854 $23,002 $12,327
11/30/2005 $17,771 $23,945 $12,228
12/31/2005 $17,647 $23,921 $12,178
1/31/2006 $19,109 $25,495 $12,271
2/28/2006 $19,053 $25,529 $12,296
3/31/2006 $19,936 $26,424 $12,364
4/30/2006 $20,069 $26,528 $12,469
5/31/2006 $19,349 $25,610 $12,531
6/30/2006 $19,524 $25,755 $12,556
7/31/2006 $18,895 $25,398 $12,593
8/31/2006 $18,967 $26,074 $12,618
9/30/2006 $19,066 $26,340 $12,556
10/31/2006 $19,910 $27,574 $12,488
11/30/2006 $20,814 $28,436 $12,469
12/31/2006 $20,677 $28,748 $12,488
1/31/2007 $21,369 $29,389 $12,526
2/28/2007 $21,239 $29,321 $12,593
3/31/2007 $21,470 $29,634 $12,707
4/30/2007 $22,023 $30,254 $12,790
5/31/2007 $23,115 $31,330 $12,868
6/30/2007 $22,802 $30,497 $12,893
7/31/2007 $21,488 $28,214 $12,890
8/31/2007 $21,410 $28,358 $12,866
9/30/2007 $21,488 $28,654 $12,902
10/31/2007 $21,788 $28,852 $12,929
ENDNOTES
THE FUND'S INVESTMENTS IN SMALLER-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.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. Source: Standard & Poor's Micropal. 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 Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the inflation rate.
50 | Annual Report
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 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.
Annual Report | 51
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 5/1/07 VALUE 10/31/07 PERIOD* 5/1/07-10/31/07
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 988.00 $5.91
- ------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 1,019.26 $6.01
- ------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 984.50 $9.45
- ------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 1,015.68 $9.60
- ------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 984.30 $9.45
- ------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 1,015.68 $9.60
- ------------------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 986.80 $6.96
- ------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 1,018.20 $7.07
- ------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 989.30 $4.51
- ------------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $ 1,020.67 $4.58
- ------------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.18%; B: 1.89%; C: 1.89%; R: 1.39%; and Advisor:
0.90%), multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
52 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2007 2006 2005 2004 2003
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 69.24 $ 61.66 $ 53.95 $ 45.47 $ 37.01
-------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................... 0.73 0.77 0.34 0.33 0.13
Net realized and unrealized gains (losses) ... 4.55 9.71 8.71 8.63 8.83
-------------------------------------------------------------------------------
Total from investment operations ................ 5.28 10.48 9.05 8.96 8.96
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.88) (0.46) (0.43) (0.17) (0.25)
Net realized gains ........................... (4.28) (2.44) (0.91) (0.31) (0.25)
-------------------------------------------------------------------------------
Total distributions ............................. (5.16) (2.90) (1.34) (0.48) (0.50)
-------------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
-------------------------------------------------------------------------------
Net asset value, end of year .................... $ 69.36 $ 69.24 $ 61.66 $ 53.95 $ 45.47
===============================================================================
Total return c .................................. 7.85% 17.54% 16.93% 19.87% 24.51%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.90% e 0.90% e 0.91% e 0.91% e 1.00%
Net investment income ........................... 1.04% 1.17% 0.57% 0.67% 0.35%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 4,228,683 $4,435,704 $4,164,516 $ 3,716,567 $ 3,031,714
Portfolio turnover rate ......................... 6.40% 7.44% 3.91% 7.03% 13.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 53
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 68.07 $ 60.67 $ 53.13 $ 44.97 $ 36.64
--------------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............... 0.20 0.26 (0.11) (0.06) (0.15)
Net realized and unrealized gains (losses) ... 4.48 9.58 8.58 8.53 8.74
--------------------------------------------------------------------------------
Total from investment operations ................ 4.68 9.84 8.47 8.47 8.59
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.35) -- f (0.02) -- (0.01)
Net realized gains ........................... (4.28) (2.44) (0.91) (0.31) (0.25)
--------------------------------------------------------------------------------
Total distributions ............................. (4.63) (2.44) (0.93) (0.31) (0.26)
--------------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
--------------------------------------------------------------------------------
Net asset value, end of year .................... $ 68.12 $ 68.07 $ 60.67 $ 53.13 $ 44.97
================================================================================
Total return c .................................. 7.04% 16.65% 16.03% 18.94% 23.58%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.66% e 1.66% e 1.67% e 1.69% e 1.75%
Net investment income (loss) .................... 0.28% 0.41% (0.19)% (0.11)% (0.40)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 114,410 $ 127,037 $ 122,795 $ 114,891 $ 103,877
Portfolio turnover rate ......................... 6.40% 7.44% 3.91% 7.03% 13.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Actual dividend distribution was $0.0021.
54 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2007 2006 2005 2004 2003
--------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 68.17 $ 60.75 $ 53.18 $ 45.01 $ 36.67
--------------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............... 0.20 0.27 (0.11) (0.06) (0.15)
Net realized and unrealized gains (losses) ... 4.48 9.59 8.59 8.54 8.74
--------------------------------------------------------------------------------
Total from investment operations ................ 4.68 9.86 8.48 8.48 8.59
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.35) -- -- -- --
Net realized gains ........................... (4.28) (2.44) (0.91) (0.31) (0.25)
--------------------------------------------------------------------------------
Total distributions ............................. (4.63) (2.44) (0.91) (0.31) (0.25)
--------------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
--------------------------------------------------------------------------------
Net asset value, end of year .................... $ 68.22 $ 68.17 $ 60.75 $ 53.18 $ 45.01
================================================================================
Total return c .................................. 7.04% 16.64% 16.04% 18.95% 23.57%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.66% e 1.65% e 1.67% e 1.69% e 1.75%
Net investment income (loss) .................... 0.28% 0.42% (0.19)% (0.11)% (0.40)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 130,471 $ 139,885 $ 135,939 $ 129,399 $ 127,925
Portfolio turnover rate ......................... 6.40% 7.44% 3.91% 7.03% 13.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 55
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS R 2007 2006 2005 2004 2003
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 68.78 $ 61.33 $ 53.69 $ 45.30 $ 36.92
-------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................... 0.52 0.60 0.18 0.20 0.03
Net realized and unrealized gains (losses) ... 4.55 9.65 8.67 8.59 8.82
-------------------------------------------------------------------------------
Total from investment operations ................ 5.07 10.25 8.85 8.79 8.85
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (0.74) (0.36) (0.30) (0.09) (0.22)
Net realized gains ........................... (4.28) (2.44) (0.91) (0.31) (0.25)
-------------------------------------------------------------------------------
Total distributions ............................. (5.02) (2.80) (1.21) (0.40) (0.47)
-------------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
-------------------------------------------------------------------------------
Net asset value, end of year .................... $ 68.83 $ 68.78 $ 61.33 $ 53.69 $ 45.30
===============================================================================
Total return c .................................. 7.58% 17.22% 16.62% 19.55% 24.26%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.16% e 1.16% e 1.17% e 1.19% e 1.25%
Net investment income ........................... 0.78% 0.91% 0.31% 0.39% 0.10%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 63,802 $ 51,157 $ 30,810 $ 21,020 $ 13,336
Portfolio turnover rate ......................... 6.40% 7.44% 3.91% 7.03% 13.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
56 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
-------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
ADVISOR CLASS 2007 2006 2005 2004 2003
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 69.40 $ 61.81 $ 54.05 $ 45.54 $ 37.06
-------------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................... 0.88 0.93 0.46 0.44 0.23
Net realized and unrealized gains (losses) ... 4.58 9.72 8.75 8.65 8.83
-------------------------------------------------------------------------------
Total from investment operations ................ 5.46 10.65 9.21 9.09 9.06
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (1.05) (0.62) (0.54) (0.27) (0.33)
Net realized gains ........................... (4.28) (2.44) (0.91) (0.31) (0.25)
-------------------------------------------------------------------------------
Total distributions ............................. (5.33) (3.06) (1.45) (0.58) (0.58)
-------------------------------------------------------------------------------
Redemption fees ................................. -- c -- c -- c -- c --
-------------------------------------------------------------------------------
Net asset value, end of year .................... $ 69.53 $ 69.40 $ 61.81 $ 54.05 $ 45.54
===============================================================================
Total return .................................... 8.11% 17.82% 17.20% 20.17% 24.80%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.66% d 0.66% d 0.67% d 0.69% d 0.75%
Net investment income ........................... 1.28% 1.41% 0.81% 0.89% 0.60%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 390,314 $ 333,372 $ 260,209 $ 26,701 $ 22,189
Portfolio turnover rate ......................... 6.40% 7.44% 3.91% 7.03% 13.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 57
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 89.5%
CLOSED END MUTUAL FUNDS 1.6%
DIVERSIFIED FINANCIALS 1.6%
Apollo Investment Corp. ..................................................... 200,000 $ 4,160,000
Emerging Markets Telecommunications Fund .................................... 250,000 7,022,500
H&Q Healthcare Investors .................................................... 150,000 2,640,000
John Hancock Bank and Thrift Opportunity Fund ............................... 1,650,000 12,771,000
Latin America Equity Fund Inc. .............................................. 222,015 13,345,322
The Mexico Fund Inc. (Mexico) ............................................... 620,800 28,060,160
New Ireland Fund Inc. (Ireland) ............................................. 135,000 3,909,600
Petroleum & Resources Corp. ................................................. 150,000 6,213,000
----------------
TOTAL CLOSED END MUTUAL FUNDS (COST $38,030,843) ............................ 78,121,582
----------------
COMMON STOCKS 87.8%
AUTOMOBILES & COMPONENTS 0.7%
American Axle & Manufacturing Holdings Inc. ................................. 1,225,000 33,638,500
----------------
BANKS 3.9%
a Corus Bankshares Inc. ....................................................... 1,632,400 17,989,048
Farmers & Merchants Bank of Long Beach ...................................... 2,200 14,091,000
First Niagara Financial Group Inc. .......................................... 100,000 1,320,000
Freddie Mac ................................................................. 1,650,000 86,179,500
Hudson City Bancorp Inc. .................................................... 900,000 14,094,000
MGIC Investment Corp. ....................................................... 735,000 14,229,600
The PMI Group Inc. .......................................................... 1,325,000 21,239,750
Radian Group Inc. ........................................................... 1,300,000 16,367,000
UMB Financial Corp. ......................................................... 186,800 7,845,600
----------------
193,355,498
----------------
CAPITAL GOODS 10.9%
A.O. Smith Corp. ............................................................ 893,600 33,411,704
Applied Industrial Technologies Inc. ........................................ 1,406,250 49,851,563
b Armstrong World Industries Inc. ............................................. 209,738 8,601,355
a CNH Global NV (Netherlands) ................................................. 1,265,000 82,958,700
a,b ESCO Technologies Inc. ...................................................... 1,236,800 51,191,152
b,c Furmanite Corp. ............................................................. 2,783,000 34,537,030
Lennox International Inc. ................................................... 871,000 31,094,700
Mueller Industries Inc. ..................................................... 600,000 21,576,000
Oshkosh Truck Corp. ......................................................... 960,000 52,032,000
b Quanta Services Inc. ........................................................ 1,000,000 33,000,000
b,c Tecumseh Products Co., A .................................................... 1,085,000 19,605,950
b,c Tecumseh Products Co., B .................................................... 310,000 5,025,100
Timken Co. .................................................................. 1,115,000 37,084,900
Trinity Industries Inc. ..................................................... 2,200,000 79,508,000
----------------
539,478,154
----------------
COMMERCIAL SERVICES & SUPPLIES 1.0%
Kelly Services Inc., A ...................................................... 2,300,000 48,369,000
----------------
CONSUMER DURABLES & APPAREL 4.5%
D.R. Horton Inc. ............................................................ 2,400,000 30,456,000
a,c Furniture Brands International Inc. ......................................... 3,250,000 39,162,500
Hasbro Inc. ................................................................. 1,600,000 47,760,000
58 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
CONSUMER DURABLES & APPAREL (CONTINUED)
Kellwood Co. ................................................................ 786,000 $ 13,024,020
Lennar Corp., A ............................................................. 480,000 10,968,000
Lennar Corp., B ............................................................. 48,000 1,022,400
M.D.C. Holdings Inc. ........................................................ 660,000 26,736,600
Pulte Homes Inc. ............................................................ 2,600,000 38,584,000
a Standard Pacific Corp. ...................................................... 2,500,000 12,000,000
----------------
219,713,520
----------------
CONSUMER SERVICES 1.8%
Bob Evans Farms Inc. ........................................................ 323,300 9,110,594
b Vail Resorts Inc. ........................................................... 1,295,000 78,593,550
----------------
87,704,144
----------------
DIVERSIFIED FINANCIALS 1.6%
CIT Group Inc. .............................................................. 2,195,000 77,351,800
----------------
ENERGY 7.3%
b Bristow Group Inc. .......................................................... 900,000 44,901,000
b Exterran Holding Inc. ....................................................... 1,272,500 107,144,500
Overseas Shipholding Group Inc. ............................................. 756,000 56,246,400
Peabody Energy Corp. ........................................................ 1,336,000 69,732,520
b PHI Inc. .................................................................... 77,500 2,622,600
b PHI Inc., non-voting ........................................................ 352,000 12,179,200
Teekay Corp. (Bahamas) ...................................................... 1,240,000 69,378,000
----------------
362,204,220
----------------
FOOD, BEVERAGE & TOBACCO 5.8%
b Alliance One International Inc. ............................................. 2,504,200 16,352,426
Bunge Ltd. .................................................................. 759,600 87,498,324
Corn Products International Inc. ............................................ 2,527,000 107,498,580
b Smithfield Foods Inc. ....................................................... 1,369,670 39,268,439
Universal Corp. ............................................................. 740,700 36,101,718
----------------
286,719,487
----------------
INSURANCE 17.8%
American National Insurance Co. ............................................. 647,500 83,721,750
Aspen Insurance Holdings Ltd. ............................................... 154,300 4,221,648
Assurant Inc. ............................................................... 825,700 48,253,908
E-L Financial Corp. Ltd. (Canada) ........................................... 104,666 70,065,578
Employers Holdings Inc. ..................................................... 571,900 10,957,604
FBL Financial Group Inc., A ................................................. 525,000 21,252,000
Genworth Financial Inc., A .................................................. 1,600,000 43,680,000
IPC Holdings Ltd. ........................................................... 1,823,800 54,549,858
Kansas City Life Insurance Co. .............................................. 299,989 13,988,487
a Manulife Financial Corp. (Canada) ........................................... 1,000,000 46,390,000
MBIA Inc. ................................................................... 495,000 21,304,800
MetLife Inc. ................................................................ 401,000 27,608,850
Midland Co. ................................................................. 385,000 24,493,700
National Western Life Insurance Co., A ...................................... 150,000 32,592,000
Old Republic International Corp. ............................................ 4,238,300 64,973,139
Annual Report | 59
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
Presidential Life Corp. ..................................................... 380,000 $ 6,691,800
Principal Financial Group Inc. .............................................. 225,000 15,225,750
Prudential Financial Inc. ................................................... 1,347,000 130,281,840
RLI Corp. ................................................................... 489,400 28,468,398
Selective Insurance Group Inc. .............................................. 1,300,000 31,603,000
StanCorp Financial Group Inc. ............................................... 1,200,000 66,156,000
The Travelers Cos. Inc. ..................................................... 575,000 30,020,750
----------------
876,500,860
----------------
MATERIALS 13.2%
a AbitibiBowater Inc. ......................................................... 924,040 31,657,610
Ashland Inc. ................................................................ 245,894 14,438,896
MeadWestvaco Corp. .......................................................... 1,570,000 52,814,800
Monsanto Co. ................................................................ 841,900 82,194,697
Nucor Corp. ................................................................. 1,750,000 108,535,000
b PolyOne Corp. ............................................................... 1,375,000 10,986,250
Reliance Steel & Aluminum Co. ............................................... 1,830,599 106,815,452
Sherritt International Corp. (Canada) ....................................... 3,253,500 60,652,049
Texas Industries Inc. ....................................................... 750,000 54,795,000
United States Steel Corp. ................................................... 930,000 100,347,000
Westlake Chemical Corp. ..................................................... 1,046,900 25,690,926
----------------
648,927,680
----------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 1.0%
b Watson Pharmaceuticals Inc. ................................................. 1,700,000 51,952,000
----------------
RETAILING 4.2%
b Big Lots Inc. ............................................................... 1,550,000 37,169,000
The Cato Corp., A ........................................................... 450,000 9,036,000
b Charming Shoppes Inc. ....................................................... 4,425,000 32,833,500
a Dillard's Inc., A ........................................................... 750,000 17,272,500
Fred's Inc. ................................................................. 400,000 4,240,000
a Handleman Co. ............................................................... 1,000,000 2,350,000
Haverty Furniture Cos. Inc. ................................................. 920,000 7,820,000
Saks Inc. ................................................................... 1,750,000 37,030,000
c Syms Corp. .................................................................. 1,430,000 20,334,600
b Zale Corp. .................................................................. 1,767,600 37,261,008
----------------
205,346,608
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.8%
a,b Spansion Inc., A ............................................................ 3,300,000 23,265,000
b Standard Microsystems Corp. ................................................. 376,700 14,691,300
----------------
37,956,300
----------------
TRANSPORTATION 5.3%
b ABX Air Inc. ................................................................ 1,825,000 11,534,000
b Alaska Air Group Inc. ....................................................... 1,350,600 34,305,240
Burlington Northern Santa Fe Corp. .......................................... 570,000 49,675,500
b,c Dollar Thrifty Automotive Group Inc. ........................................ 1,763,067 60,825,811
b Kansas City Southern ........................................................ 722,500 27,953,525
60 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
TRANSPORTATION (CONTINUED)
b Mesa Air Group Inc. ......................................................... 450,000 $ 2,092,500
Norfolk Southern Corp. ...................................................... 1,358,600 70,171,690
Werner Enterprises Inc. ..................................................... 300,000 5,706,000
----------------
262,264,266
----------------
UTILITIES 8.0%
Atmos Energy Corp. .......................................................... 884,300 24,804,615
Avista Corp. ................................................................ 400,000 8,820,000
Entergy Corp. ............................................................... 618,000 74,079,660
IDACORP Inc. ................................................................ 450,000 15,700,500
b,c,d KGen Power Corp., 144A ...................................................... 4,400,000 72,600,000
Northeast Utilities ......................................................... 1,550,000 47,786,500
PNM Resources Inc. .......................................................... 1,863,300 46,601,133
Sierra Pacific Resources .................................................... 5,010,000 84,518,700
Xcel Energy Inc. ............................................................ 878,000 19,798,900
----------------
394,710,008
----------------
TOTAL COMMON STOCKS (COST $2,281,091,778) ................................... 4,326,192,045
----------------
---------------
PRINCIPAL
AMOUNT
---------------
CORPORATE BONDS (COST $5,539,982) 0.1%
CAPITAL GOODS 0.1%
Mueller Industries Inc., 6.00%, 11/01/14 .................................... $ 5,604,000 4,952,535
----------------
TOTAL LONG TERM INVESTMENTS (COST $2,324,662,603) ........................... 4,409,266,162
----------------
---------------
SHARES
---------------
SHORT TERM INVESTMENTS 13.8%
MONEY MARKET FUND (COST $216,992,623) 4.4%
e Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% ........ 216,992,623 216,992,623
----------------
Annual Report | 61
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
f REPURCHASE AGREEMENT (COST $304,094,279) 6.2%
Joint Repurchase Agreement, 4.702%, 11/01/07 (Maturity Value $304,133,999) .. $ 304,094,279 $ 304,094,279
---------------
ABN AMRO Bank, NV, New York Branch (Maturity Value $25,674,992)
Banc of America Securities LLC (Maturity Value $28,847,110)
Barclays Capital Inc. (Maturity Value $28,847,110)
BNP Paribas Securities Corp. (Maturity Value $25,674,992)
Credit Suisse Securities (USA) LLC (Maturity Value $25,674,992)
Deutsche Bank Securities Inc. (Maturity Value $25,674,992)
Goldman, Sachs & Co. (Maturity Value $28,847,110)
Greenwich Capital Markets Inc. (Maturity Value $28,847,110)
Lehman Brothers Inc. (Maturity Value $5,848,497)
Merrill Lynch Government Securities Inc. (Maturity Value $25,674,992)
Morgan Stanley & Co. Inc. (Maturity Value $25,674,992)
UBS Securities LLC (Maturity Value $28,847,110)
Collateralized by U.S. Government Agency Securities, 2.95% - 7.25%,
11/02/07 - 10/24/12;
g U.S. Government Agency Discount Notes, 11/16/07 - 3/31/08; g U.S.
Treasury Bill, 4/17/08 and U.S. Treasury notes, 2.00% - 4.876%,
9/15/08 - 8/31/12
---------------
SHARES
---------------
h INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 3.2%
MONEY MARKET FUND (COST $159,855,611) 3.2%
i Bank of New York Institutional Cash Reserve Fund, 5.14% ..................... 159,855,611 159,855,611
----------------
TOTAL SHORT TERM INVESTMENTS (COST $680,942,513) ............................ 680,942,513
----------------
TOTAL INVESTMENTS (COST $3,005,605,116) 103.3% .............................. 5,090,208,675
OTHER ASSETS, LESS LIABILITIES (3.3)% ....................................... (162,527,873)
----------------
NET ASSETS 100.0% ........................................................... $ 4,927,680,802
================
See Selected Portfolio Abbreviation on page 95.
a A portion or all of the security is on loan as of October 31, 2007. See Note
1(e).
b Non-income producing for the twelve months ended October 31, 2007.
c See Note 9 regarding holdings of 5% voting securities.
d Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Trust's Board of Trustees. At October 31, 2007, the value of this security
was $72,600,000, representing 1.47% of net assets.
e See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
f See Note 1(c) regarding repurchase agreements.
g The security is traded on a discount basis with no stated coupon rate.
h See Note 1(e) regarding securities on loan.
i The rate shown is the annualized seven-day yield at period end.
62 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
-------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2007 2006 2005 2004 2003
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $ 16.55 $ 14.66 $ 14.01 $ 12.40 $ 10.48
-------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................................... 0.21 0.20 0.13 0.08 0.07
Net realized and unrealized gains (losses) ...................... 1.04 2.18 0.63 1.58 1.92
-------------------------------------------------------------
Total from investment operations ................................... 1.25 2.38 0.76 1.66 1.99
-------------------------------------------------------------
Less distributions from:
Net investment income ........................................... (0.21) (0.15) (0.08) (0.05) (0.07)
Net realized gains .............................................. (0.84) (0.34) (0.03) -- --
-------------------------------------------------------------
Total distributions ................................................ (1.05) (0.49) (0.11) (0.05) (0.07)
-------------------------------------------------------------
Redemption fees .................................................... -- d -- d -- d -- d --
-------------------------------------------------------------
Net asset value, end of year ....................................... $ 16.75 $ 16.55 $ 14.66 $ 14.01 $ 12.40
=============================================================
Total return c ..................................................... 7.82% 16.62% 5.42% 13.45% 19.08%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................................... 1.34% e 1.33% e 1.29% e 1.31% 1.38%
Net investment income .............................................. 1.25% 1.29% 0.91% 0.59% 0.60%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................... $ 151,156 $184,225 $156,841 $ 127,267 $ 59,600
Portfolio turnover rate ............................................ 22.74% 34.36% 25.33% 21.69% 27.47%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 63
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2007 2006 2005 2004 2003
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $ 16.34 $ 14.47 $ 13.85 $ 12.29 $ 10.39
----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............................... 0.10 0.10 0.04 (0.01) (0.01)
Net realized and unrealized gains (losses) ................... 1.02 2.16 0.61 1.58 1.92
----------------------------------------------------------------
Total from investment operations ................................ 1.12 2.26 0.65 1.57 1.91
----------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (0.10) (0.05) -- f (0.01) (0.01)
Net realized gains ........................................... (0.84) (0.34) (0.03) -- --
----------------------------------------------------------------
Total distributions ............................................. (0.94) (0.39) (0.03) (0.01) (0.01)
----------------------------------------------------------------
Redemption fees ................................................. -- d -- d -- d -- d --
----------------------------------------------------------------
Net asset value, end of year .................................... $ 16.52 $ 16.34 $ 14.47 $ 13.85 $ 12.29
================================================================
Total return c .................................................. 7.08% 15.90% 4.71% 12.76% 18.35%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................................ 2.00% e 1.98% e 1.94% e 1.96% 2.04%
Net investment income (loss) .................................... 0.59% 0.64% 0.26% (0.06)% (0.06)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $ 18,598 $ 22,120 $22,072 $ 21,794 $ 10,865
Portfolio turnover rate ......................................... 22.74% 34.36% 25.33% 21.69% 27.47%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Includes a dividend distribution in the amount of $0.0024.
64 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2007 2006 2005 2004 2003
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $ 16.34 $ 14.47 $ 13.85 $ 12.28 $ 10.39
----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............................... 0.10 0.10 0.04 (0.01) (0.01)
Net realized and unrealized gains (losses) ................... 1.02 2.16 0.61 1.58 1.91
----------------------------------------------------------------
Total from investment operations ................................ 1.12 2.26 0.65 1.57 1.90
----------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (0.11) (0.05) -- -- (0.01)
Net realized gains ........................................... (0.84) (0.34) (0.03) -- --
----------------------------------------------------------------
Total distributions ............................................. (0.95) (0.39) (0.03) -- (0.01)
----------------------------------------------------------------
Redemption fees ................................................. -- d -- d -- d -- d --
----------------------------------------------------------------
Net asset value, end of year .................................... $ 16.51 $ 16.34 $ 14.47 $ 13.85 $ 12.28
================================================================
Total return c .................................................. 7.07% 15.92% 4.69% 12.78% 18.35%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................................ 1.99% e 1.97% e 1.94% e 1.96% 2.06%
Net investment income (loss) .................................... 0.60% 0.65% 0.26% (0.06)% (0.08)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $ 52,711 $ 63,983 $ 59,929 $ 57,966 $ 32,592
Portfolio turnover rate ......................................... 22.74% 34.36% 25.33% 21.69% 27.47%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent
deferred sales charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 65
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS R 2007 2006 2005 2004 2003
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................. $ 16.42 $ 14.56 $ 13.93 $ 12.34 $ 10.48
----------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................................... 0.17 0.17 0.11 0.06 0.05
Net realized and unrealized gains (losses) ................... 1.05 2.17 0.61 1.59 1.90
----------------------------------------------------------------
Total from investment operations ................................ 1.22 2.34 0.72 1.65 1.95
----------------------------------------------------------------
Less distributions from:
Net investment income ........................................ (0.19) (0.14) (0.06) (0.06) (0.09)
Net realized gains ........................................... (0.84) (0.34) (0.03) -- --
----------------------------------------------------------------
Total distributions ............................................. (1.03) (0.48) (0.09) (0.06) (0.09)
----------------------------------------------------------------
Redemption fees ................................................. -- d -- d -- d -- d --
----------------------------------------------------------------
Net asset value, end of year .................................... $ 16.61 $ 16.42 $ 14.56 $ 13.93 $ 12.34
================================================================
Total return c .................................................. 7.59% 16.46% 5.19% 13.44% 18.77%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................................ 1.50% e 1.48% e 1.44% e 1.46% 1.54%
Net investment income ........................................... 1.09% 1.14% 0.76% 0.44% 0.44%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................. $ 7,812 $ 7,717 $ 6,896 $ 3,414 $ 826
Portfolio turnover rate ......................................... 22.74% 34.36% 25.33% 21.69% 27.47%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
66 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
---------------------
YEAR ENDED
OCTOBER 31,
ADVISOR CLASS 2007 2006 g
----------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........................................................................ $ 16.56 $ 14.63
----------------------
Income from investment operations a:
Net investment income b ................................................................................ 0.25 0.24
Net realized and unrealized gains (losses) ............................................................. 1.06 2.23
----------------------
Total from investment operations .......................................................................... 1.31 2.47
----------------------
Less distributions from:
Net investment income .................................................................................. (0.27) (0.20)
Net realized gains ..................................................................................... (0.84) (0.34)
----------------------
Total distributions ....................................................................................... (1.11) (0.54)
----------------------
Redemption fees ........................................................................................... -- e -- e
----------------------
Net asset value, end of year .............................................................................. $ 16.76 $ 16.56
======================
Total return c ............................................................................................ 8.12% 17.09%
RATIOS TO AVERAGE NET ASSETS d
Expenses .................................................................................................. 1.00% f 0.98% f
Net investment income ..................................................................................... 1.59% 1.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................................................................... $ 3,381 $ 1,989
Portfolio turnover rate ................................................................................... 22.74% 34.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Ratios are annualized for periods less than one year.
e Amount rounds to less than $0.01 per share.
f Benefit of expense reduction rounds to less than 0.01%.
g For the period November 1, 2005 (effective date) to October 31, 2006.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 67
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 96.1%
BANKS 6.2%
Freddie Mac ....................................................................................... 84,600 $ 4,418,658
U.S. Bancorp ...................................................................................... 150,000 4,974,000
Wachovia Corp. .................................................................................... 63,000 2,880,990
Washington Mutual Inc. ............................................................................ 79,000 2,202,520
-------------
14,476,168
-------------
CAPITAL GOODS 17.1%
3M Co. ............................................................................................ 78,000 6,736,080
Dover Corp. ....................................................................................... 102,300 4,705,800
General Electric Co. .............................................................................. 244,000 10,043,040
Illinois Tool Works Inc. .......................................................................... 162,000 9,276,120
a Masco Corp. ....................................................................................... 108,000 2,600,640
United Technologies Corp. ......................................................................... 85,000 6,510,150
-------------
39,871,830
-------------
CONSUMER DURABLES & APPAREL 4.3%
D.R. Horton Inc. .................................................................................. 335,000 4,251,150
Fortune Brands Inc. ............................................................................... 43,724 3,662,760
NIKE Inc., B ...................................................................................... 34,000 2,252,840
-------------
10,166,750
-------------
CONSUMER SERVICES 2.6%
McDonald's Corp. .................................................................................. 100,000 5,970,000
-------------
DIVERSIFIED FINANCIALS 8.4%
Bank of America Corp. ............................................................................. 86,000 4,152,080
The Bank of New York Mellon Corp. ................................................................. 95,000 4,640,750
Citigroup Inc. .................................................................................... 103,500 4,336,650
Lehman Brothers Holdings Inc. ..................................................................... 55,000 3,483,700
Morgan Stanley .................................................................................... 45,000 3,026,700
-------------
19,639,880
-------------
ENERGY 13.8%
Apache Corp. ...................................................................................... 55,000 5,709,550
BP PLC, ADR (United Kingdom) ...................................................................... 41,000 3,197,590
Chesapeake Energy Corp. ........................................................................... 55,000 2,171,400
ConocoPhillips .................................................................................... 52,000 4,417,920
Devon Energy Corp. ................................................................................ 35,000 3,269,000
Exxon Mobil Corp. ................................................................................. 80,000 7,359,200
Occidental Petroleum Corp. ........................................................................ 89,000 6,145,450
-------------
32,270,110
-------------
FOOD & STAPLES RETAILING 2.2%
Wal-Mart Stores Inc. .............................................................................. 114,000 5,153,940
-------------
HEALTH CARE EQUIPMENT & SERVICES 1.4%
Becton Dickinson and Co. .......................................................................... 40,000 3,338,400
-------------
68 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD & PERSONAL PRODUCTS 5.4%
Kimberly-Clark Corp. .............................................................................. 70,000 $ 4,962,300
The Procter & Gamble Co. .......................................................................... 111,000 7,716,720
-------------
12,679,020
-------------
INSURANCE 8.0%
The Allstate Corp. ................................................................................ 85,000 4,454,000
Ambac Financial Group Inc. ........................................................................ 67,000 2,467,610
American International Group Inc. ................................................................. 56,400 3,559,968
Chubb Corp. ....................................................................................... 90,000 4,801,500
MetLife Inc. ...................................................................................... 50,000 3,442,500
-------------
18,725,578
-------------
MATERIALS 8.0%
Alcoa Inc. ........................................................................................ 92,000 3,642,280
The Dow Chemical Co. .............................................................................. 105,000 4,729,200
Nucor Corp. ....................................................................................... 66,000 4,093,320
Praxair Inc. ...................................................................................... 72,500 6,197,300
-------------
18,662,100
-------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 4.8%
Abbott Laboratories ............................................................................... 78,000 4,260,360
Merck & Co. Inc. .................................................................................. 42,000 2,446,920
Pfizer Inc. ....................................................................................... 187,700 4,619,297
-------------
11,326,577
-------------
RETAILING 3.0%
J.C. Penney Co. Inc. .............................................................................. 42,000 2,362,080
b Office Depot Inc. ................................................................................. 245,000 4,596,200
-------------
6,958,280
-------------
SOFTWARE & SERVICES 2.3%
Microsoft Corp. ................................................................................... 148,000 5,447,880
-------------
TECHNOLOGY HARDWARE & EQUIPMENT 5.3%
Hewlett-Packard Co. ............................................................................... 69,000 3,565,920
International Business Machines Corp. ............................................................. 76,000 8,825,120
-------------
12,391,040
-------------
TRANSPORTATION 1.4%
Norfolk Southern Corp. ............................................................................ 63,000 3,253,950
-------------
UTILITIES 1.9%
Entergy Corp. ..................................................................................... 36,100 4,327,307
-------------
TOTAL COMMON STOCKS (COST $173,658,784) ........................................................... 224,658,810
-------------
Annual Report | 69
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 5.0%
MONEY MARKET FUND (COST $8,942,397) 3.8%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% ........................... 8,942,397 $ 8,942,397
-------------
d INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 1.2%
MONEY MARKET FUND (COST $2,676,132) 1.2%
e Bank of New York Institutional Cash Reserve Fund,5.14% ......................................... 2,676,132 2,676,132
-------------
TOTAL SHORT TERM INVESTMENTS (COST $11,618,529) ................................................ 11,618,529
-------------
TOTAL INVESTMENTS (COST $185,277,313) 101.1%.................................................... 236,277,339
OTHER ASSETS, LESS LIABILITIES (1.1)% .......................................................... (2,619,883)
-------------
NET ASSETS 100.0% .............................................................................. $233,657,456
=============
See Selected Portfolio Abbreviation on page 94.
a A portion or all of the security is on loan as of October 31, 2007. See Note
1(e).
b Non-income producing for the twelve months ended October 31, 2007.
c See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
d See Note 1(e) regarding securities on loan.
e The rate shown is the annualized seven-day yield at period end.
70 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
-----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2007 2006 2005 2004 2003
-----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 41.32 $ 38.15 $ 34.48 $ 30.41 $ 24.09
-----------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ........... 0.39 0.48 0.18 0.05 (0.04)
Net realized and unrealized
gains (losses) ........................ 5.10 5.73 5.32 4.65 7.80
-----------------------------------------------------------------------------
Total from investment operations ............ 5.49 6.21 5.50 4.70 7.76
-----------------------------------------------------------------------------
Less distributions from:
Net investment income .................... (0.57) (0.19) (0.05) -- --
Net realized gains ....................... (2.22) (2.85) (1.78) (0.63) (1.44)
-----------------------------------------------------------------------------
Total distributions ......................... (2.79) (3.04) (1.83) (0.63) (1.44)
-----------------------------------------------------------------------------
Redemption fees ............................. -- d -- d -- d -- d --
-----------------------------------------------------------------------------
Net asset value, end of year ................ $ 44.02 $ 41.32 $ 38.15 $ 34.48 $ 30.41
=============================================================================
Total return c .............................. 13.73% 17.25% 16.45% 15.64% 33.90%
RATIOS TO AVERAGE NET ASSETS
Expenses .................................... 1.08% e 1.11% e 1.10% e 1.12% e 1.23%
Net investment income (loss) ................ 0.89% 1.22% 0.48% 0.13% (0.16)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 467,995 $ 473,837 $ 443,037 $ 418,464 $ 310,995
Portfolio turnover rate ..................... 9.95% 6.47% 13.86% 11.38% 13.35%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 71
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
---------------------------
YEAR ENDED
OCTOBER 31,
ADVISOR CLASS 2007 2006 f
---------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 41.43 $ 38.28
---------------------------
Income from investment operations a:
Net investment income b ........................ 0.49 0.61
Net realized and unrealized gains (losses) ..... 5.11 5.58
---------------------------
Total from investment operations .................. 5.60 6.19
---------------------------
Less distributions from:
Net investment income .......................... (0.67) (0.19)
Net realized gains ............................. (2.22) (2.85)
---------------------------
Total distributions ............................... (2.89) (3.04)
---------------------------
Redemption fees ................................... -- c -- c
---------------------------
Net asset value, end of year ...................... $ 44.14 $ 41.43
===========================
Total return ...................................... 13.99% 17.56%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 0.84%d 0.87% d,e
Net investment income ............................. 1.13% 1.46% e
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 32,796 $ 6,298
Portfolio turnover rate ........................... 9.95% 6.47%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
e Annualized.
f For the period November 1, 2005 (effective date) to October 31, 2006.
72 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 82.7%
COMMON STOCKS 79.3%
AUTOMOBILES & COMPONENTS 0.4%
a National R.V. Holdings Inc. ................................................................... 295,000 $ 129,800
a,b Proliance International Inc. .................................................................. 823,800 2,067,738
--------------
2,197,538
--------------
BANKS 3.5%
Beverly Hills Bancorp Inc. .................................................................... 866,488 5,432,880
a BFC Financial Corp., A ........................................................................ 1,000,000 2,120,000
a,b,c,d Black River BancVenture Inc. .................................................................. 495,000 4,455,000
First Defiance Financial Corp. ................................................................ 235,000 5,550,700
--------------
17,558,580
--------------
CAPITAL GOODS 15.2%
Alamo Group Inc. .............................................................................. 105,000 2,276,400
Burnham Holdings Inc., A ...................................................................... 150,700 2,298,175
e CIRCOR International Inc. ..................................................................... 230,000 11,552,900
b Espey Manufacturing & Electronics Corp. ....................................................... 156,000 3,541,200
a,e Gehl Co. ...................................................................................... 300,000 5,739,000
Gibraltar Industries Inc. ..................................................................... 356,099 6,416,904
b Hardinge Inc. ................................................................................. 652,500 21,095,325
e Insteel Industries Inc. ....................................................................... 124,560 1,444,896
a,e Ladish Co. Inc. ............................................................................... 30,000 1,376,700
a Northwest Pipe Co. ............................................................................ 310,000 11,445,200
Smith Investment Co. .......................................................................... 44,600 3,066,250
a Sparton Corp. ................................................................................. 275,000 1,391,500
a Tecumseh Products Co., A ...................................................................... 230,000 4,156,100
a Tecumseh Products Co., B ...................................................................... 12,799 207,472
--------------
76,008,022
--------------
COMMERCIAL SERVICES & SUPPLIES 7.7%
Courier Corp .................................................................................. 200,000 7,558,000
Ecology and Environment Inc., A ............................................................... 212,100 2,587,620
a Exponent Inc. ................................................................................. 123,000 3,715,830
e Healthcare Services Group Inc. ................................................................ 585,900 12,866,364
a,e Layne Christensen Co. ......................................................................... 132,000 7,516,080
a,b Nashua Corp. .................................................................................. 357,930 4,363,167
--------------
38,607,061
--------------
CONSUMER DURABLES & APPAREL 6.2%
Bassett Furniture Industries Inc. ............................................................. 133,100 1,412,191
a Cavalier Homes Inc. ........................................................................... 432,000 907,200
a Chromcraft Revington Inc. ..................................................................... 200,000 1,030,000
b Cobra Electronics Corp. ....................................................................... 376,300 2,318,008
b Delta Apparel Inc. ............................................................................ 680,000 11,084,000
a The Dixie Group Inc. .......................................................................... 405,000 3,969,000
Flexsteel Industries Inc. ..................................................................... 225,000 3,172,500
a P & F Industries Inc., A ...................................................................... 15,000 175,050
a,b Rockford Corp. ................................................................................ 575,000 1,207,500
b Tandy Brands Accessories Inc. ................................................................. 540,000 5,756,400
--------------
31,031,849
--------------
Annual Report | 73
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
DIVERSIFIED FINANCIALS 1.3%
Kohlberg Capital Corp. ........................................................................ 500,000 $ 6,440,000
--------------
ENERGY 2.9%
a PHI Inc. ...................................................................................... 17,600 595,584
a,e PHI Inc., non-voting .......................................................................... 394,499 13,649,665
--------------
14,245,249
--------------
FOOD & STAPLES RETAILING 2.3%
Village Super Market Inc., A .................................................................. 214,000 11,682,260
--------------
FOOD, BEVERAGE & TOBACCO 9.9%
a Alliance One International Inc. ............................................................... 1,167,000 7,620,510
a Griffin Land & Nurseries Inc. ................................................................. 173,000 6,505,665
a John B. Sanfilippo & Son Inc. ................................................................. 195,000 1,667,250
a,b Omega Protein Corp. ........................................................................... 1,000,000 10,000,000
a Seneca Foods Corp., A ......................................................................... 256,600 6,953,860
a Seneca Foods Corp., B ......................................................................... 121,500 3,258,630
a Smithfield Foods Inc. ......................................................................... 474,600 13,606,782
--------------
49,612,697
--------------
INSURANCE 4.6%
a,b ACMAT Corp., A ................................................................................ 392,800 9,957,480
Baldwin & Lyons Inc., B ....................................................................... 228,264 6,019,322
Mercer Insurance Group Inc. ................................................................... 25,000 457,250
Safety Insurance Group Inc. ................................................................... 51,000 1,833,960
a United America Indemnity Ltd. ................................................................. 217,168 4,788,554
--------------
23,056,566
--------------
MATERIALS 8.7%
a,b American Pacific Corp. ........................................................................ 676,300 12,694,151
Central Steel and Wire Co. .................................................................... 6,905 4,346,048
a,b Continental Materials Corp. ................................................................... 109,000 3,171,900
a Intertape Polymer Group Inc. (Canada) ......................................................... 250,000 860,000
a Mercer International Inc. (Germany) ........................................................... 761,400 7,157,160
The Monarch Cement Co. ........................................................................ 42,444 1,220,265
a RTI International Metals Inc. ................................................................. 166,000 12,977,880
Schweitzer-Mauduit International Inc. ......................................................... 34,724 972,967
--------------
43,400,371
--------------
REAL ESTATE 2.6%
Arbor Realty Trust Inc. ....................................................................... 270,000 5,097,600
Bresler & Reiner Inc. ......................................................................... 205,000 7,585,000
a,c,d LandCo Real Estate LLC, Liquidating Trust ..................................................... 94,800 240,792
--------------
12,923,392
--------------
74 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
RETAILING 4.5%
Brown Shoe Co. Inc. ........................................................................... 282,481 $ 5,762,612
The Coast Distribution System Inc. ............................................................ 66,800 395,456
a,b Duckwall-ALCO Stores Inc. ..................................................................... 227,500 8,310,575
e Handleman Co. ................................................................................. 820,000 1,927,000
Haverty Furniture Cos. Inc. ................................................................... 387,000 3,289,500
a,b S&K Famous Brands Inc. ........................................................................ 255,500 2,938,250
--------------
22,623,393
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.8%
a,c,d,f Allen Organ Co., Contingent Distribution ...................................................... 94,800 1,496,892
a,b GTSI Corp. .................................................................................... 488,140 5,428,117
Printronix Inc. ............................................................................... 130,000 2,050,100
--------------
8,975,109
--------------
TELECOMMUNICATION SERVICES 3.6%
Atlantic Tele-Network Inc. .................................................................... 490,000 17,595,900
North State Telecommunications Corp., B ....................................................... 7,400 577,200
--------------
18,173,100
--------------
TRANSPORTATION 3.7%
a,b International Shipholding Corp. ............................................................... 474,800 10,303,160
a P.A.M. Transportation Services Inc. ........................................................... 260,000 4,331,600
Providence and Worcester Railroad Co. ......................................................... 205,000 3,905,250
--------------
18,540,010
--------------
UTILITIES 0.4%
a Maine & Maritimes Corp. ....................................................................... 28,300 860,603
a SEMCO Energy Inc. ............................................................................. 130,000 1,055,600
--------------
1,916,203
--------------
TOTAL COMMON STOCKS (COST $215,606,641) ....................................................... 396,991,400
--------------
CONVERTIBLE PREFERRED STOCKS 1.6%
FOOD, BEVERAGE & TOBACCO 1.6%
a Seneca Foods Corp., cvt., participating pfd. .................................................. 200,000 5,420,000
a Seneca Foods Corp., cvt., participating pfd., Series 2003 ..................................... 100,000 2,710,000
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,905,000) .......................................... 8,130,000
--------------
------------------
PRINCIPAL AMOUNT
------------------
CONVERTIBLE BONDS (COST $7,000,000) 1.8%
MATERIALS 1.8%
g Mercer International Inc., cvt., senior sub. note, 144A, 8.50%, 10/15/10 (Germany) ..... $ 7,000,000 9,205,000
--------------
TOTAL LONG TERM INVESTMENTS (COST $227,511,641) ........................................ 414,326,400
--------------
Annual Report | 75
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 19.5%
MONEY MARKET FUND (COST $87,291,738) 17.5%
h Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% .......................... 87,291,738 $ 87,291,738
--------------
i INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 2.0%
MONEY MARKET FUND (COST $10,132,285) 2.0%
j Bank of New York Institutional Cash Reserve Fund, 5.14% ....................................... 10,132,285 10,132,285
--------------
TOTAL INVESTMENTS (COST $324,935,664) 102.2% .................................................. 511,750,423
OTHER ASSETS, LESS LIABILITIES (2.2)% ......................................................... (10,959,567)
--------------
NET ASSETS 100.0% ............................................................................. $ 500,790,856
==============
a Non-income producing for the twelve months ended October 31, 2007.
b See Note 9 regarding holdings of 5% voting securities.
c Security has been deemed illiquid because it may not be able to be sold within
seven days. At October 31, 2007, the aggregate value of these securities was
$6,192,684, representing 1.24% of net assets.
d See Note 8 regarding restricted securities.
e A portion or all of the security is on loan as of October 31, 2007. See Note
1(e).
f Contingent distributions represent the right to receive additional
distributions, if any, during the reorganization of the underlying company.
g Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Trust's Board of Trustees. At October 31, 2007, the value of this security
was $9,205,000, representing 1.84% of net assets.
h See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
i See Note 1(e) regarding securities on loan.
j The rate shown is the annualized seven-day yield at period end.
76 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MIDCAP VALUE FUND
---------------------------------------------
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
CLASS A 2007 2006 2005 h
---------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.37 $ 9.80 $ 10.00
---------------------------------------------
Income from investment operations a:
Net investment income b .............................. 0.27 e 0.04 0.01
Net realized and unrealized gains (losses) ........... 0.63 1.59 (0.21)
---------------------------------------------
Total from investment operations ........................ 0.90 1.63 (0.20)
---------------------------------------------
Less distributions from:
Net investment income ................................ (0.20) (0.06) --
Net realized gains ................................... (0.15) -- --
---------------------------------------------
Total distributions ..................................... (0.35) (0.06) --
---------------------------------------------
Redemption fees ......................................... -- f -- f -- f
---------------------------------------------
Net asset value, end of year ............................ $ 11.92 $ 11.37 $ 9.80
=============================================
Total return c .......................................... 8.01% 16.70% (2.00)%
RATIOS TO AVERAGE NET ASSETS d
Expenses before waiver and payments by affiliates ....... 1.65% 1.97% 2.57%
Expenses net of waiver and payments by affiliates ....... 1.40% g 1.40% g 1.40%
Net investment income ................................... 2.26% e 0.38% 0.37%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 72,497 $ 42,677 $ 11,804
Portfolio turnover rate ................................. 12.39% 10.96% --%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, if applicable, and is not annualized for periods less than one
year.
d Ratios are annualized for periods less than one year.
e Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a corporate
spin-off. Excluding this non-recurring amount, the ratio of net investment
income to average net assets would have been 1.18%.
f Amount rounds to less than $0.01 per share.
g Benefit of expense reduction rounds to less than 0.01%.
h For the period July 1, 2005 (commencement of operations) to October 31, 2005.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 77
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
--------------------------------------------
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
CLASS C 2007 2006 2005 h
--------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.29 $ 9.78 $ 10.00
--------------------------------------------
Income from investment operations a:
Net investment income (loss) b ....................... 0.20 e (0.03) (0.01)
Net realized and unrealized gains (losses) ........... 0.61 1.59 (0.21)
--------------------------------------------
Total from investment operations ........................ 0.81 1.56 (0.22)
--------------------------------------------
Less distributions from:
Net investment income ................................ (0.14) (0.05) --
Net realized gains ................................... (0.15) -- --
--------------------------------------------
Total distributions ..................................... (0.29) (0.05) --
--------------------------------------------
Redemption fees ......................................... -- f -- f -- f
--------------------------------------------
Net asset value, end of year ............................ $ 11.81 $ 11.29 $ 9.78
============================================
Total return c .......................................... 7.27% 15.95% (2.20)%
RATIOS TO AVERAGE NET ASSETS d
Expenses before waiver and payments by affiliates ....... 2.30% 2.60% 3.22%
Expenses net of waiver and payments by affiliates ....... 2.05% g 2.03% g 2.05%
Net investment income (loss) ............................ 1.61% e (0.25)% (0.28)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 15,103 $ 9,406 $ 3,275
Portfolio turnover rate ................................. 12.39% 10.96% --%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, if applicable, and is not annualized for periods less than one
year.
d Ratios are annualized for periods less than one year.
e Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a corporate
spin-off. Excluding this non-recurring amount, the ratio of net investment
income to average net assets would have been 0.53%.
f Amount rounds to less than $0.01 per share.
g Benefit of expense reduction rounds to less than 0.01%.
h For the period July 1, 2005 (commencement of operations) to October 31, 2005.
78 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
---------------------------------------------
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
CLASS R 2007 2006 2005 h
---------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.35 $ 9.80 $ 10.00
---------------------------------------------
Income from investment operations a:
Net investment income b .............................. 0.27 e 0.02 0.01
Net realized and unrealized gains (losses) ........... 0.61 1.59 (0.21)
---------------------------------------------
Total from investment operations ........................ 0.88 1.61 (0.20)
---------------------------------------------
Less distributions from:
Net investment income ................................ (0.21) (0.06) --
Net realized gains ................................... (0.15) -- --
---------------------------------------------
Total distributions ..................................... (0.36) (0.06) --
---------------------------------------------
Redemption fees ......................................... -- f -- f -- f
---------------------------------------------
Net asset value, end of year ............................ $ 11.87 $ 11.35 $ 9.80
=============================================
Total return c .......................................... 7.85% 16.47% (2.00)%
RATIOS TO AVERAGE NET ASSETS d
Expenses before waiver and payments by affiliates ....... 1.80% 2.12% 2.72%
Expenses net of waiver and payments by affiliates ....... 1.55% g 1.55% g 1.55%
Net investment income ................................... 2.11% e 0.23% 0.22%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 690 $ 133 $ 36
Portfolio turnover rate ................................. 12.39% 10.96% --%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or the contingent deferred
sales charge, if applicable, and is not annualized for periods less than one
year.
d Ratios are annualized for periods less than one year.
e Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a corporate
spin-off. Excluding this non-recurring amount, the ratio of net investment
income to average net assets would have been 1.03%.
f Amount rounds to less than $0.01 per share.
g Benefit of expense reduction rounds to less than 0.01%.
h For the period July 1, 2005 (commencement of operations) to October 31, 2005.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 79
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
---------------------------------------------
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
ADVISOR CLASS 2007 2006 2005 h
---------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 11.42 $ 9.81 $ 10.00
---------------------------------------------
Income from investment operations a:
Net investment income b .............................. 0.33 e 0.08 0.03
Net realized and unrealized gains (losses) ........... 0.62 1.60 (0.22)
---------------------------------------------
Total from investment operations ........................ 0.95 1.68 (0.19)
---------------------------------------------
Less distributions from:
Net investment income ................................ (0.23) (0.07) --
Net realized gains ................................... (0.15) -- --
---------------------------------------------
Total distributions ..................................... (0.38) (0.07) --
---------------------------------------------
Redemption fees ......................................... -- f -- f -- f
---------------------------------------------
Net asset value, end of year ............................ $ 11.99 $ 11.42 $ 9.81
=============================================
Total return c .......................................... 8.42% 17.18% (1.90)%
RATIOS TO AVERAGE NET ASSETS d
Expenses before waiver and payments by affiliates ....... 1.30% 1.62% 2.22%
Expenses net of waiver and payments by affiliates ....... 1.05% g 1.05% g 1.05%
Net investment income ................................... 2.61%e 0.73% 0.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $ 1,136 $ 777 $ 434
Portfolio turnover rate ................................. 12.39% 10.96% --%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return is not annualized for periods less than one year.
d Ratios are annualized for periods less than one year.
e Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a corporate
spin-off. Excluding this non-recurring amount, the ratio of net investment
income to average net assets would have been 1.53%.
f Amount rounds to less than $0.01 per share.
g Benefit of expense reduction rounds to less than 0.01%.
h For the period July 1, 2005 (commencement of operations) to October 31, 2005.
80 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- ----------------------------------------------------------------------------------------------------------------
FRANKLIN MIDCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS 93.5%
AUTOMOBILES & COMPONENTS 2.7%
Autoliv Inc. (Sweden) ..................................................... 38,400 $ 2,426,112
--------------
BANKS 2.1%
MGIC Investment Corp. ..................................................... 22,500 435,600
The PMI Group Inc. ........................................................ 23,200 371,896
PNC Financial Services Group Inc. ......................................... 9,727 701,900
Radian Group Inc. ......................................................... 30,700 386,513
--------------
1,895,909
--------------
CAPITAL GOODS 13.8%
Carlisle Cos. Inc. ........................................................ 48,700 1,921,215
Dover Corp. ............................................................... 37,200 1,711,200
Embraer-Empresa Brasileira de Aeronautica SA, ADR (Brazil) ................ 50,300 2,453,131
Graco Inc. ................................................................ 34,700 1,365,792
Oshkosh Truck Corp. ....................................................... 43,300 2,346,860
Roper Industries Inc. ..................................................... 28,500 2,018,085
W.W. Grainger Inc. ........................................................ 5,700 512,544
--------------
12,328,827
--------------
CONSUMER DURABLES & APPAREL 7.9%
Fortune Brands Inc. ....................................................... 38,800 3,250,276
Hasbro Inc. ............................................................... 32,800 979,080
Leggett & Platt Inc. ...................................................... 46,500 903,495
Lennar Corp., A ........................................................... 6,300 143,955
M.D.C. Holdings Inc. ...................................................... 27,800 1,126,178
Pulte Homes Inc. .......................................................... 26,700 396,228
a,b Timberland Co., A ......................................................... 13,500 263,385
--------------
7,062,597
--------------
DIVERSIFIED FINANCIALS 4.4%
CIT Group Inc. ............................................................ 52,100 1,836,004
KKR Private Equity Investors LP (Guernsey Islands) ........................ 109,200 2,140,320
--------------
3,976,324
--------------
ENERGY 14.1%
Chesapeake Energy Corp. ................................................... 56,900 2,246,412
ENSCO International Inc. .................................................. 35,200 1,953,248
a Helix Energy Solutions Group Inc. ......................................... 39,695 1,835,894
Overseas Shipholding Group Inc. ........................................... 30,300 2,254,320
Peabody Energy Corp. ...................................................... 54,900 2,865,505
Pioneer Natural Resources Co. ............................................. 7,100 362,242
Teekay Corp. (Bahamas) .................................................... 19,100 1,068,645
--------------
12,586,266
--------------
FOOD, BEVERAGE & TOBACCO 7.1%
Bunge Ltd. ................................................................ 5,794 667,411
Dean Foods Co. ............................................................ 70,100 1,946,677
The Hershey Co. ........................................................... 36,093 1,555,969
McCormick & Co. Inc. ...................................................... 62,800 2,199,884
--------------
6,369,941
--------------
Annual Report | 81
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
FRANKLIN MIDCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES 3.5%
Hillenbrand Industries Inc. ............................................... 42,300 $ 2,335,806
a LifePoint Hospitals Inc. .................................................. 26,100 796,572
--------------
3,132,378
--------------
HOUSEHOLD & PERSONAL PRODUCTS 0.9%
Alberto-Culver Co. ........................................................ 32,200 836,878
--------------
INSURANCE 5.3%
American National Insurance Co. ........................................... 2,100 271,530
Arthur J. Gallagher & Co. ................................................. 14,200 377,862
Cincinnati Financial Corp. ................................................ 21,800 867,204
Erie Indemnity Co., A ..................................................... 31,000 1,763,900
Mercury General Corp. ..................................................... 3,600 184,716
Montpelier Re Holdings Ltd. (Bermuda) ..................................... 8,000 143,200
Old Republic International Corp. .......................................... 41,575 637,345
Protective Life Corp. ..................................................... 11,000 471,570
--------------
4,717,327
--------------
MATERIALS 10.9%
Airgas Inc. ............................................................... 31,600 1,594,852
Bemis Co. Inc. ............................................................ 45,400 1,278,464
Cabot Corp. ............................................................... 11,800 413,118
Celanese Corp., A ......................................................... 73,300 3,075,668
MeadWestvaco Corp. ........................................................ 35,700 1,200,948
Nucor Corp. ............................................................... 5,600 347,312
Sigma-Aldrich Corp. ....................................................... 25,100 1,296,917
United States Steel Corp. ................................................. 5,400 582,660
--------------
9,789,939
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 4.0%
a Endo Pharmaceuticals Holdings Inc. ........................................ 41,600 1,218,880
Pharmaceutical Product Development Inc. ................................... 41,400 1,748,736
a Watson Pharmaceuticals Inc. .......................... .................... 19,400 592,864
--------------
3,560,480
--------------
RETAILING 1.9%
Family Dollar Stores Inc. ................................................. 20,600 522,210
J.C. Penney Co. Inc. ...................................................... 15,100 849,224
Sally Beauty Holdings Inc. ................................................ 32,200 297,850
--------------
1,669,284
--------------
SOFTWARE & SERVICES 2.8%
a SAIC Inc. ................................................................. 125,300 2,469,663
--------------
TRANSPORTATION 4.9%
J.B. Hunt Transport Services Inc. ......................................... 59,000 1,635,480
Southwest Airlines Co. .................................................... 192,000 2,728,320
--------------
4,363,800
--------------
82 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------
FRANKLIN MIDCAP VALUE FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
UTILITIES 7.2%
Atmos Energy Corp. ........................................................ 95,100 $ 2,667,555
DTE Energy Co. ............................................................ 62,800 3,114,880
Northeast Utilities ....................................................... 22,600 696,758
--------------
6,479,193
--------------
TOTAL COMMON STOCKS (COST $79,164,954) .................................... 83,664,918
--------------
SHORT TERM INVESTMENTS 6.3%
MONEY MARKET FUND (COST $5,421,669) 6.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% ...... 5,421,669 5,421,669
--------------
d INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 0.2%
MONEY MARKET FUND (COST $200,085) 0.2%
e Bank of New York Institutional Cash Reserve Fund, 5.14% ................... 200,085 200,085
--------------
TOTAL SHORT TERM INVESTMENTS (COST $5,621,754) ............................ 5,621,754
--------------
TOTAL INVESTMENTS (COST $84,786,708) 99.8% ................................ 89,286,672
OTHER ASSETS, LESS LIABILITIES 0.2% ....................................... 138,912
--------------
NET ASSETS 100.0% ......................................................... $ 89,425,584
==============
See Selected Portfolio Abbreviations on page 94.
a Non-income producing for the twelve months ended October 31, 2007.
b A portion or all of the security is on loan as of October 31, 2007. See Note
1(e).
c See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
d See Note 1(e) regarding securities on loan.
e The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 83
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2007 2006 2005 2004 2003
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 45.27 $ 39.41 $ 34.37 $ 28.19 $ 22.15
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ................. 0.29 0.17 0.15 0.30 (0.02)
Net realized and unrealized gains (losses) ..... 3.71 6.70 5.15 5.88 6.06
-------------------------------------------------------------------
Total from investment operations .................. 4.00 6.87 5.30 6.18 6.04
-------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.28) (0.10) (0.26) -- --
Net realized gains ............................. (3.05) (0.91) -- -- --
-------------------------------------------------------------------
Total distributions ............................... (3.33) (1.01) (0.26) -- --
-------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- d --
-------------------------------------------------------------------
Net asset value, end of year ...................... $ 45.94 $ 45.27 $ 39.41 $ 34.37 $ 28.19
===================================================================
Total return c .................................... 9.15% 17.73% 15.46% 21.92% 27.27%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.17% e 1.22% e 1.29% e 1.35% e 1.44%
Net investment income (loss) ...................... 0.62% 0.40% 0.39% 0.95% (0.07)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 849,226 $ 703,238 $ 486,563 $ 296,000 $ 200,181
Portfolio turnover rate ........................... 6.49% 17.39% 12.73% 17.38% 14.14%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
84 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2007 2006 2005 2004 2003
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 43.43 $ 38.00 $ 33.20 $ 27.41 $ 21.67
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ................. (0.05) (0.12) (0.09) 0.09 (0.17)
Net realized and unrealized gains (losses) ..... 3.57 6.46 4.97 5.70 5.91
-------------------------------------------------------------------
Total from investment operations .................. 3.52 6.34 4.88 5.79 5.74
-------------------------------------------------------------------
Less distributions from:
Net investment income .......................... -- -- (0.08) -- --
Net realized gains ............................. (3.05) (0.91) -- -- --
-------------------------------------------------------------------
Total distributions ............................... (3.05) (0.91) (0.08) -- --
-------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- d --
-------------------------------------------------------------------
Net asset value, end of year ...................... $ 43.90 $ 43.43 $ 38.00 $ 33.20 $ 27.41
===================================================================
Total return c .................................... 8.36% 16.98% 14.68% 21.12% 26.49%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.90% e 1.90% e 1.94% e 2.00% e 2.09%
Net investment income (loss) ...................... (0.11)% (0.28)% (0.26)% 0.30% (0.72)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 71,955 $ 79,482 $ 76,575 $ 65,551 $ 47,551
Portfolio turnover rate ........................... 6.49% 17.39% 12.73% 17.38% 14.14%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 85
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2007 2006 2005 2004 2003
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 42.99 $ 37.63 $ 32.86 $ 27.13 $ 21.46
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ................. (0.04) (0.11) (0.09) 0.08 (0.17)
Net realized and unrealized gains (losses) ..... 3.52 6.38 4.92 5.65 5.84
-------------------------------------------------------------------
Total from investment operations .................. 3.48 6.27 4.83 5.73 5.67
-------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.05) -- (0.06) -- --
Net realized gains ............................. (3.05) (0.91) -- -- --
-------------------------------------------------------------------
Total distributions ............................... (3.10) (0.91) (0.06) -- --
-------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- d --
-------------------------------------------------------------------
Net asset value, end of year ...................... $ 43.37 $ 42.99 $ 37.63 $ 32.86 $ 27.13
===================================================================
Total return c .................................... 8.35% 16.96% 14.69% 21.12% 26.42%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.90% e 1.90% e 1.94% e 2.00% e 2.10%
Net investment income (loss) ...................... (0.11)% (0.28)% (0.26)% 0.30% (0.73)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 262,339 $ 240,395 $ 186,490 $ 136,805 $ 109,353
Portfolio turnover rate ........................... 6.49% 17.39% 12.73% 17.38% 14.14%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
86 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS R 2007 2006 2005 2004 2003
-------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 45.07 $ 39.22 $ 34.24 $ 28.13 $ 22.14
-------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ................. 0.18 0.10 0.09 0.31 (0.07)
Net realized and unrealized gains (losses) ..... 3.70 6.66 5.14 5.80 6.06
-------------------------------------------------------------------
Total from investment operations .................. 3.88 6.76 5.23 6.11 5.99
-------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.24) -- f (0.25) -- --
Net realized gains ............................. (3.05) (0.91) -- -- --
-------------------------------------------------------------------
Total distributions ............................... (3.29) (0.91) (0.25) -- --
-------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- d --
-------------------------------------------------------------------
Net asset value, end of year ...................... $ 45.66 $ 45.07 $ 39.22 $ 34.24 $ 28.13
===================================================================
Total return c .................................... 8.89% 17.54% 15.24% 21.72% 27.06%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 1.40% e 1.40% e 1.44% e 1.50% e 1.59%
Net investment income (loss) ...................... 0.39% 0.22% 0.24% 0.80% (0.22)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 110,497 $ 56,811 $ 31,550 $ 24,951 $ 6,914
Portfolio turnover rate ........................... 6.49% 17.39% 12.73% 17.38% 14.14%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Includes a dividend distribution in the amount of $0.0025.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 87
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
ADVISOR CLASS 2007 2006 2005 2004 2003
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 46.46 $ 40.42 $ 35.21 $ 28.78 $ 22.53
------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ................. 0.43 0.32 0.29 0.44 0.07
Net realized and unrealized gains (losses) ..... 3.80 6.86 5.28 5.99 6.18
------------------------------------------------------------------
Total from investment operations .................. 4.23 7.18 5.57 6.43 6.25
------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (0.38) (0.23) (0.36) -- --
Net realized gains ............................. (3.05) (0.91) -- -- --
------------------------------------------------------------------
Total distributions ............................... (3.43) (1.14) (0.36) -- --
------------------------------------------------------------------
Redemption fees ................................... -- d -- d -- d -- d --
------------------------------------------------------------------
Net asset value, end of year ...................... $ 47.26 $ 46.46 $ 40.42 $ 35.21 $ 28.78
==================================================================
Total return c .................................... 9.43% 18.13% 15.84% 22.34% 27.74%
RATIOS TO AVERAGE NET ASSETS
Expenses .......................................... 0.90% e 0.90% e 0.94% e 1.00% e 1.09%
Net investment income ............................. 0.89% 0.72% 0.74% 1.30% 0.28%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 65,753 $ 56,912 $ 37,852 $ 26,701 $ 13,089
Portfolio turnover rate ........................... 6.49% 17.39% 12.73% 17.38% 14.14%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
88 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- -------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 97.7%
COMMON STOCKS 97.6%
AUTOMOBILES & COMPONENTS 4.0%
Gentex Corp. .......................................................... 188,700 $ 3,921,186
Monaco Coach Corp. .................................................... 787,500 9,135,000
a Superior Industries International Inc. ................................ 370,000 7,477,700
Thor Industries Inc. .................................................. 418,500 20,088,000
Winnebago Industries Inc. ............................................. 560,000 14,436,800
---------------
55,058,686
---------------
BANKS 3.2%
Chemical Financial Corp. .............................................. 469,355 11,733,875
a Corus Bankshares Inc. ................................................. 419,900 4,627,298
First Indiana Corp. ................................................... 118,750 3,776,250
Peoples Bancorp Inc. .................................................. 194,700 4,861,659
The PMI Group Inc. .................................................... 180,000 2,885,400
a TrustCo Bank Corp. NY ................................................. 1,520,000 16,020,800
---------------
43,905,282
---------------
CAPITAL GOODS 21.5%
A.O. Smith Corp. ...................................................... 115,500 4,318,545
a American Woodmark Corp. ............................................... 312,300 7,919,928
Apogee Enterprises Inc. ............................................... 783,000 18,423,990
Applied Industrial Technologies Inc. .................................. 60,300 2,137,635
b Astec Industries Inc. ................................................. 70,100 3,176,932
Baldor Electric Co. ................................................... 500 20,160
Brady Corp., A ........................................................ 500,000 18,450,000
Briggs & Stratton Corp. ............................................... 356,500 8,024,815
Carlisle Cos. Inc. .................................................... 219,600 8,663,220
CIRCOR International Inc. ............................................. 254,300 12,773,489
CNH Global NV (Netherlands) ........................................... 107,000 7,017,060
b EMCOR Group Inc. ...................................................... 181,200 6,238,716
a Franklin Electric Co. Inc. ............................................ 256,300 11,166,991
b Genlyte Group Inc. .................................................... 120,000 7,812,000
Gibraltar Industries Inc. ............................................. 1,041,500 18,767,830
Graco Inc. ............................................................ 395,300 15,559,008
Kennametal Inc. ....................................................... 215,000 19,610,150
Mueller Industries Inc. ............................................... 548,900 19,738,444
Nordson Corp. ......................................................... 135,700 7,259,950
b Powell Industries Inc. ................................................ 107,900 4,541,511
Roper Industries Inc. ................................................. 300,000 21,243,000
a Simpson Manufacturing Co. Inc. ........................................ 223,000 6,687,770
Teleflex Inc. ......................................................... 174,500 12,775,145
Timken Co. ............................................................ 69,600 2,314,896
Trinity Industries Inc. ............................................... 241,000 8,709,740
Universal Forest Products Inc. ........................................ 501,000 17,940,810
Wabash National Corp. ................................................. 1,158,500 11,758,775
a Watts Water Technologies Inc., A ...................................... 337,000 9,580,910
---------------
292,631,420
---------------
Annual Report | 89
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
COMMERCIAL SERVICES & SUPPLIES 2.3%
ABM Industries Inc. ................................................... 544,843 $ 12,814,707
a Mine Safety Appliances Co. ............................................ 417,200 19,103,588
---------------
31,918,295
---------------
CONSUMER DURABLES & APPAREL 8.0%
Bassett Furniture Industries Inc. ..................................... 284,000 3,013,240
Brunswick Corp. ....................................................... 590,500 13,174,055
D.R. Horton Inc. ...................................................... 75,000 951,750
Ethan Allen Interiors Inc. ............................................ 347,900 10,736,194
Hooker Furniture Corp. ................................................ 615,000 13,247,100
a La-Z-Boy Inc. ......................................................... 1,077,100 8,498,319
a M/I Homes Inc. ........................................................ 577,900 9,593,140
M.D.C. Holdings Inc. .................................................. 307,000 12,436,570
b Russ Berrie and Co. Inc. .............................................. 544,600 9,530,500
b Timberland Co., A ..................................................... 286,500 5,589,615
b The Warnaco Group Inc. ................................................ 539,000 21,931,910
---------------
108,702,393
---------------
CONSUMER SERVICES 1.7%
Bob Evans Farms Inc. .................................................. 63,400 1,786,612
Regis Corp. ........................................................... 618,000 20,764,800
---------------
22,551,412
---------------
ENERGY 11.9%
Arch Coal Inc. ........................................................ 263,600 10,807,600
b Atwood Oceanics Inc. .................................................. 105,000 8,845,200
b Bristow Group Inc. .................................................... 317,000 15,815,130
CONSOL Energy Inc. .................................................... 310,000 17,515,000
ENSCO International Inc. .............................................. 69,000 3,828,810
General Maritime Corp. ................................................ 50,700 1,428,726
b Global Industries Ltd. ................................................ 216,100 5,320,382
b Helix Energy Solutions Group Inc. ..................................... 400,000 18,500,000
b Oil States International Inc. ......................................... 312,000 13,475,280
Overseas Shipholding Group Inc. ....................................... 185,000 13,764,000
Peabody Energy Corp. .................................................. 277,200 14,468,454
Pioneer Natural Resources Co. ......................................... 90,000 4,591,800
Rowan Cos. Inc. ....................................................... 235,800 9,191,484
Teekay Corp. (Bahamas) ................................................ 225,600 12,622,320
Tidewater Inc. ........................................................ 90,000 4,920,300
b Unit Corp. ............................................................ 135,000 6,448,950
---------------
161,543,436
---------------
FOOD & STAPLES RETAILING 1.3%
Casey's General Stores Inc. ........................................... 628,500 17,912,250
---------------
FOOD, BEVERAGE & TOBACCO 0.9%
b Alliance One International Inc. ....................................... 221,700 1,447,701
Bunge Ltd. ............................................................ 75,500 8,696,845
Lancaster Colony Corp. ................................................ 60,000 2,410,200
---------------
12,554,746
---------------
90 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES 2.1%
Hillenbrand Industries Inc. ........................................... 126,800 $ 7,001,896
STERIS Corp. .......................................................... 401,600 11,662,464
West Pharmaceutical Services Inc. ..................................... 226,700 9,371,778
---------------
28,036,138
---------------
INSURANCE 9.4%
American National Insurance Co. ....................................... 56,800 7,344,240
a Arthur J. Gallagher & Co. ............................................. 310,000 8,249,100
Aspen Insurance Holdings Ltd. ......................................... 780,000 21,340,800
Erie Indemnity Co., A ................................................. 3,400 193,460
IPC Holdings Ltd. ..................................................... 582,000 17,407,620
Montpelier Re Holdings Ltd. (Bermuda) ................................. 935,000 16,736,500
Old Republic International Corp. ...................................... 422,100 6,470,793
Presidential Life Corp. ............................................... 65,000 1,144,650
Protective Life Corp. ................................................. 325,000 13,932,750
RLI Corp. ............................................................. 162,100 9,429,357
a Security Capital Assurance Ltd. ....................................... 965,000 12,660,800
StanCorp Financial Group Inc. ......................................... 225,000 12,404,250
---------------
127,314,320
---------------
MATERIALS 14.3%
a AbitibiBowater Inc. ................................................... 245,284 8,403,430
Airgas Inc. ........................................................... 295,600 14,918,932
AptarGroup Inc. ....................................................... 324,000 14,482,800
Bemis Co. Inc. ........................................................ 189,000 5,322,240
Cabot Corp. ........................................................... 283,200 9,914,832
a Gerdau Ameristeel Corp. (Canada) ...................................... 1,399,600 18,978,576
Glatfelter ............................................................ 772,000 12,406,040
b Mercer International Inc. (Germany) ................................... 465,000 4,371,000
Reliance Steel & Aluminum Co. ......................................... 399,400 23,304,990
RPM International Inc. ................................................ 692,400 14,838,132
Steel Dynamics Inc. ................................................... 774,400 41,213,568
United States Steel Corp. ............................................. 99,000 10,682,100
Westlake Chemical Corp. ............................................... 610,300 14,976,762
---------------
193,813,402
---------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.5%
b Adams Respiratory Therapeutics Inc. ................................... 12,600 553,644
Pharmaceutical Product Development Inc. ............................... 141,500 5,976,960
---------------
6,530,604
---------------
REAL ESTATE 0.4%
a Arbor Realty Trust Inc. ............................................... 253,500 4,786,080
---------------
RETAILING 6.1%
Brown Shoe Co. Inc. ................................................... 811,450 16,553,580
Christopher & Banks Corp. ............................................. 792,900 10,878,588
a Dillard's Inc., A ..................................................... 45,400 1,045,562
Fred's Inc. ........................................................... 627,600 6,652,560
Annual Report | 91
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
RETAILING (CONTINUED)
Group 1 Automotive Inc. ............................................... 86,500 $ 2,685,825
b Gymboree Corp. ........................................................ 149,500 5,087,485
b Hot Topic Inc. ........................................................ 574,300 4,399,138
The Men's Wearhouse Inc. .............................................. 168,000 7,099,680
a,b Pier 1 Imports Inc. ................................................... 1,223,039 6,225,269
a Tuesday Morning Corp. ................................................. 993,360 7,569,403
b West Marine Inc. ...................................................... 795,000 8,578,050
b Zale Corp. ............................................................ 293,600 6,189,088
---------------
82,964,228
---------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 1.3%
Cohu Inc. ............................................................. 620,000 10,168,000
a,b OmniVision Technologies Inc. .......................................... 359,800 7,969,570
---------------
18,137,570
---------------
TECHNOLOGY HARDWARE & EQUIPMENT 3.6%
b Avocent Corp. ......................................................... 590,000 15,947,700
b Benchmark Electronics Inc. ............................................ 568,500 11,659,935
Diebold Inc. .......................................................... 95,000 3,974,800
b Mettler-Toledo International Inc. (Switzerland) ....................... 165,000 17,547,750
---------------
49,130,185
---------------
TRANSPORTATION 2.8%
b Dollar Thrifty Automotive Group Inc. .................................. 140,000 4,830,000
b Genesee & Wyoming Inc. ................................................ 487,600 14,296,432
b Kansas City Southern .................................................. 150,500 5,822,845
SkyWest Inc. .......................................................... 496,000 13,535,840
---------------
38,485,117
---------------
UTILITIES 2.3%
Atmos Energy Corp. .................................................... 171,200 4,802,160
Energen Corp. ......................................................... 264,100 16,902,400
Sierra Pacific Resources .............................................. 540,700 9,121,609
---------------
30,826,169
---------------
TOTAL COMMON STOCKS (COST $1,035,517,086) ............................. 1,326,801,733
---------------
-------------
PRINCIPAL
AMOUNT
-------------
CORPORATE BONDS (COST $1,303,933) 0.1%
CAPITAL GOODS 0.1%
Mueller Industries Inc., 6.00%, 11/01/14 .............................. $ 1,319,000 1,165,666
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,036,821,019) ..................... 1,327,967,399
---------------
92 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 12.3%
MONEY MARKET FUND (COST $42,464,716) 3.1%
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% .. 42,464,716 $ 42,464,716
---------------
d INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 9.2%
MONEY MARKET FUND (COST $124,973,858) 9.2%
e Bank of New York Institutional Cash Reserve Fund, 5.14% ............... 124,973,858 124,973,858
---------------
TOTAL SHORT TERM INVESTMENTS (COST $167,438,574) ...................... 167,438,574
---------------
TOTAL INVESTMENTS (COST $1,204,259,593) 110.0% ........................ 1,495,405,973
OTHER ASSETS, LESS LIABILITIES (10.0)% ................................ (135,635,369)
---------------
NET ASSETS 100.0% ..................................................... $1,359,770,604
===============
a A portion or all of the security is on loan as of October 31, 2007. See Note
1(e).
b Non-income producing for the twelve months ended October 31, 2007.
c See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
d See Note 1(e) regarding securities on loan.
e The rate shown is the annualized seven-day yield at period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 93
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
SELECTED PORTFOLIO ABBREVIATION
ADR - American Depository Receipt
94 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2007
--------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
--------------------------------------------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................................. $ 2,072,255,493 $ 173,658,784 $ 165,358,099
Cost - Non-controlled affiliated issuers (Note 9) ........................ 252,407,110 -- 62,153,542
Cost - Sweep Money Fund (Note 7) ......................................... 216,992,623 8,942,397 87,291,738
Cost - Money Market Fund ................................................. 159,855,611 2,676,132 10,132,285
Cost - Repurchase agreements ............................................. 304,094,279 -- --
--------------------------------------------------
Total cost of investments ................................................ $ 3,005,605,116 $ 185,277,313 $ 324,935,664
==================================================
Value - Unaffiliated issuers ............................................. $ 4,157,175,171 $ 224,658,810 $ 295,634,429
Value - Non-controlled affiliated issuers (Note 9) ....................... 252,090,991 -- 118,691,971
Value - Sweep Money Fund (Note 7) ........................................ 216,992,623 8,942,397 87,291,738
Value - Money Market Fund ................................................ 159,855,611 2,676,132 10,132,285
Value - Repurchase agreements ............................................ 304,094,279 -- --
--------------------------------------------------
Total value of investments a ............................................. 5,090,208,675 236,277,339 511,750,423
Receivables:
Investment securities sold ............................................... 20,553,827 468,640 584,198
Capital shares sold ...................................................... 1,695,477 203,507 127,294
Dividends and interest ................................................... 2,856,566 271,947 91,492
--------------------------------------------------
Total assets ........................................................... 5,115,314,545 237,221,433 512,553,407
--------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .......................................... 5,441,222 -- 163,803
Capital shares redeemed .................................................. 16,270,774 419,794 820,725
Affiliates ............................................................... 3,304,363 358,291 572,725
Payable upon return of securities loaned ................................... 159,855,611 2,676,132 10,132,285
Accrued expenses and other liabilities ..................................... 2,761,773 109,760 73,013
--------------------------------------------------
Total liabilities ...................................................... 187,633,743 3,563,977 11,762,551
--------------------------------------------------
Net assets, at value ................................................. $ 4,927,680,802 $ 233,657,456 $ 500,790,856
==================================================
Net assets consist of:
Paid-in capital ............................................................ $ 2,417,781,060 $ 167,350,535 $ 252,088,231
Undistributed net investment income ........................................ 34,356,150 2,019,069 3,849,999
Net unrealized appreciation (depreciation) ................................. 2,084,603,559 51,000,026 186,814,759
Accumulated net realized gain (loss) ....................................... 390,940,033 13,287,826 58,037,867
--------------------------------------------------
Net assets, at value ................................................. $ 4,927,680,802 $ 233,657,456 $ 500,790,856
==================================================
a Includes securities loaned ................................................. $ 153,493,615 $ 2,576,560 $ 9,940,683
Annual Report |
The accompanying notes are an integral part of these financial statements. | 95
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2007
-------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
-------------------------------------------------
CLASS A:
Net assets, at value ........................................................ $ 4,228,683,152 $ 151,156,080 $ 467,994,837
=================================================
Shares outstanding .......................................................... 60,969,351 9,024,186 10,631,068
=================================================
Net asset value per share a ................................................. $ 69.36 $ 16.75 $ 44.02
=================================================
Maximum offering price per share (net asset value per share / 94.25%) ....... $ 73.59 $ 17.77 $ 46.71
=================================================
CLASS B:
Net assets, at value ........................................................ $ 114,410,023 $ 18,597,670 --
=================================================
Shares outstanding .......................................................... 1,679,463 1,125,807 --
=================================================
Net asset value and maximum offering price per share a ...................... $ 68.12 $ 16.52 --
=================================================
CLASS C:
Net assets, at value ........................................................ $ 130,471,456 $ 52,710,821 --
=================================================
Shares outstanding .......................................................... 1,912,438 3,192,898 --
=================================================
Net asset value and maximum offering price per share a ...................... $ 68.22 $ 16.51 --
=================================================
CLASS R:
Net assets, at value ........................................................ $ 63,802,048 $ 7,812,278 --
=================================================
Shares outstanding .......................................................... 926,911 470,429 --
=================================================
Net asset value and maximum offering price per share a ...................... $ 68.83 $ 16.61 --
=================================================
ADVISOR CLASS:
Net assets, at value ........................................................ $ 390,314,123 $ 3,380,607 $ 32,796,019
=================================================
Shares outstanding .......................................................... 5,613,246 201,749 743,093
=================================================
Net asset value and maximum offering price per share a ...................... $ 69.53 $ 16.76 $ 44.14
=================================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
96 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2007
----------------------------------
FRANKLIN FRANKLIN
MIDCAP SMALL CAP
VALUE FUND VALUE FUND
----------------------------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ................................... $ 79,164,954 $ 1,036,821,019
Cost - Sweep Money Fund (Note 7) .............................. 5,421,669 42,464,716
Cost - Money Market Fund ...................................... 200,085 124,973,858
----------------------------------
Total cost of investments ..................................... $ 84,786,708 $ 1,204,259,593
==================================
Value - Unaffiliated issuers .................................. $ 83,664,918 $ 1,327,967,399
Value - Sweep Money Fund (Note 7) ............................. 5,421,669 42,464,716
Value - Money Market Fund ..................................... 200,085 124,973,858
----------------------------------
Total value of investments a .................................. 89,286,672 1,495,405,973
Receivables:
Investment securities sold .................................... 374,393 2,298,481
Capital shares sold ........................................... 181,552 2,720,333
Dividends and interest ........................................ 19,428 632,253
----------------------------------
Total assets ................................................ 89,862,045 1,501,057,040
----------------------------------
Liabilities:
Payables:
Investment securities purchased ............................... 17,260 7,060,000
Capital shares redeemed ....................................... 65,820 6,745,384
Affiliates .................................................... 86,706 1,939,079
Unaffiliated transfer agent fees .............................. 33,727 140,000
Funds advanced by custodian ................................... -- 251,337
Payable upon return of securities loaned ........................ 200,085 124,973,858
Accrued expenses and other liabilities .......................... 32,863 176,778
----------------------------------
Total liabilities ........................................... 436,461 141,286,436
----------------------------------
Net assets, at value ...................................... $ 89,425,584 $ 1,359,770,604
==================================
Net assets consist of:
Paid-in capital ................................................. $ 83,155,367 $ 1,014,715,917
Undistributed net investment income ............................. 742,394 5,729,745
Net unrealized appreciation (depreciation) ...................... 4,499,964 291,146,380
Accumulated net realized gain (loss) ............................ 1,027,859 48,178,562
----------------------------------
Net assets, at value ...................................... $ 89,425,584 $ 1,359,770,604
==================================
a Includes securities loaned ...................................... $ 195,000 $ 122,487,796
Annual Report |
The accompanying notes are an integral part of these financial statements. | 97
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2007
-----------------------------
FRANKLIN FRANKLIN
MIDCAP SMALL CAP
VALUE FUND VALUE FUND
-----------------------------
CLASS A:
Net assets, at value ..................................................... $ 72,496,839 $ 849,226,023
=============================
Shares outstanding ....................................................... 6,082,281 18,484,578
=============================
Net asset value per share a .............................................. $ 11.92 $ 45.94
=============================
Maximum offering price per share (net asset value per share / 94.25%) .... $ 12.65 $ 48.74
=============================
CLASS B:
Net assets, at value ..................................................... -- $ 71,955,312
=============================
Shares outstanding ....................................................... -- 1,639,176
=============================
Net asset value and maximum offering price per share a ................... -- $ 43.90
=============================
CLASS C:
Net assets, at value ..................................................... $ 15,102,841 $ 262,338,804
=============================
Shares outstanding ....................................................... 1,278,316 6,048,602
=============================
Net asset value and maximum offering price per share a ................... $ 11.81 $ 43.37
=============================
CLASS R:
Net assets, at value ..................................................... $ 689,651 $ 110,497,054
=============================
Shares outstanding ....................................................... 58,083 2,419,810
=============================
Net asset value and maximum offering price per share a ................... $ 11.87 $ 45.66
=============================
ADVISOR CLASS:
Net assets, at value ..................................................... $ 1,136,253 $ 65,753,411
=============================
Shares outstanding ....................................................... 94,803 1,391,238
=============================
Net asset value and maximum offering price per share a ................... $ 11.99 $ 47.26
=============================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
98 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended October 31, 2007
-----------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
-----------------------------------------------
Investment income:
Dividends: (net of foreign taxes) a
Unaffiliated issuers ....................................................... $ 62,183,950 $ 6,244,858 $ 4,550,677
Non-controlled affiliated issuers (Note 9) ................................. 2,706,000 -- 623,485
Sweep Money Fund (Note 7) .................................................. 9,700,432 825,053 4,399,964
Interest ..................................................................... 28,120,045 -- 594,857
Income from securities loaned - net .......................................... 529,338 3,840 46,231
-----------------------------------------------
Total investment income ............................................... 103,239,765 7,073,751 10,215,214
-----------------------------------------------
Expenses:
Management fees (Note 3a) .................................................... 23,561,200 1,442,329 3,569,494
Administrative fees (Note 3b) ................................................ -- 545,547 --
Distribution fees: (Note 3c)
Class A .................................................................... 11,189,445 618,478 1,200,423
Class B .................................................................... 1,268,308 206,712 --
Class C .................................................................... 1,415,670 580,012 --
Class R .................................................................... 311,575 38,751 --
Transfer agent fees (Note 3e) ................................................ 10,424,742 550,159 591,586
Custodian fees (Note 4) ...................................................... 83,876 4,620 6,963
Reports to shareholders ...................................................... 237,769 42,288 73,648
Registration and filing fees ................................................. 222,957 100,338 35,790
Professional fees ............................................................ 150,187 25,724 39,225
Trustees' fees and expenses .................................................. 262,458 14,749 27,743
Other ........................................................................ 214,308 10,921 16,170
-----------------------------------------------
Total expenses ........................................................ 49,342,495 4,180,628 5,561,042
Expense reductions (Note 4) ........................................... (18,672) -- (4,061)
-----------------------------------------------
Net expenses ........................................................ 49,323,823 4,180,628 5,556,981
-----------------------------------------------
Net investment income ............................................. 53,915,942 2,893,123 4,658,233
-----------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated issuers ..................................................... 385,658,118 13,319,606 50,075,837
Non-controlled affiliated issuers (Note 9) ............................... 174,932 -- 8,071,956
Closed-end funds distributions ............................................. 6,283,839 -- --
Foreign currency transactions .............................................. 14,681 -- 2,879
-----------------------------------------------
Net realized gain (loss) ............................................. 392,131,570 13,319,606 58,150,672
-----------------------------------------------
Net change in unrealized appreciation (depreciation) on investments .......... (52,722,539) 3,667,722 2,157,157
-----------------------------------------------
Net realized and unrealized gain (loss) ......................................... 339,403,031 16,987,328 60,307,829
-----------------------------------------------
Net increase (decrease) in net assets resulting from operations ................. $ 393,324,973 $ 19,880,451 $ 64,966,062
===============================================
a Foreign taxes withheld on Dividends ........................................... $ 233,719 $ -- $ --
Annual Report |
The accompanying notes are an integral part of these financial statements. | 99
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended October 31, 2007
------------------------------
FRANKLIN FRANKLIN
MIDCAP SMALL CAP
VALUE FUND VALUE FUND
------------------------------
Investment income:
Dividends: (net of foreign taxes) a
Unaffiliated issuers ......................................................... $ 2,561,897 $ 15,993,673
Sweep Money Fund (Note 7) .................................................... 147,071 6,164,584
Interest ....................................................................... -- 80,805
Income from securities loaned - net ............................................ 1,120 1,352,015
Other income ................................................................... 17,869 --
------------------------------
Total investment income .................................................... 2,727,957 23,591,077
------------------------------
Expenses:
Management fees (Note 3a) ...................................................... 547,478 8,025,764
Administrative fees (Note 3b) .................................................. 148,737 --
Distribution fees: (Note 3c)
Class A ...................................................................... 210,274 2,214,783
Class B ...................................................................... -- 786,370
Class C ...................................................................... 128,399 2,644,225
Class R ...................................................................... 2,939 434,443
Transfer agent fees (Note 3e) .................................................. 167,507 3,160,145
Custodian fees (Note 4) ........................................................ 1,256 13,901
Reports to shareholders ........................................................ 16,274 302,478
Registration and filing fees ................................................... 56,836 203,217
Professional fees .............................................................. 21,890 43,535
Trustees' fees and expenses .................................................... 5,089 58,587
Other .......................................................................... 4,206 33,987
------------------------------
Total expenses ............................................................. 1,310,885 17,921,435
Expense reductions (Note 4) ................................................ (48) (4,560)
Expenses waived/paid by affiliates (Note 3f) ............................... (188,353) --
------------------------------
Net expenses ............................................................. 1,122,484 17,916,875
------------------------------
Net investment income .................................................. 1,605,473 5,674,202
------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................................................. 1,028,064 48,335,673
Foreign currency transactions ................................................ 244 --
------------------------------
Net realized gain (loss) ............................................... 1,028,308 48,335,673
------------------------------
Net change in unrealized appreciation (depreciation) on investments ............ 1,266,035 50,133,835
------------------------------
Net realized and unrealized gain (loss) ........................................... 2,294,343 98,469,508
------------------------------
Net increase (decrease) in net assets resulting from operations ................... $ 3,899,816 $ 104,143,710
==============================
a Foreign taxes withheld on Dividends ............................................. $ 5,880 $ 60,907
100 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
---------------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
2007 2006 2007 2006
---------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 53,915,942 $ 56,588,037 $ 2,893,123 $ 2,836,282
Net realized gain (loss) from investments and
foreign currency transactions ............................. 392,131,570 312,874,727 13,319,606 14,289,026
Net change in unrealized appreciation
(depreciation) on investments ............................. (52,722,539) 420,475,081 3,667,722 22,244,595
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............................. 393,324,973 789,937,845 19,880,451 39,369,903
---------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A .................................................. (56,124,269) (30,134,369) (2,342,258) (1,623,294)
Class B .................................................. (653,600) (4,205) (139,377) (74,198)
Class C .................................................. (719,909) -- (441,613) (209,593)
Class R .................................................. (559,473) (183,104) (88,308) (67,705)
Advisor Class ............................................ (5,121,199) (2,639,091) (49,519) (10,120)
Net realized gains:
Class A .................................................. (272,064,080) (158,162,988) (9,229,421) (3,686,581)
Class B .................................................. (7,883,359) (4,885,995) (1,118,742) (516,819)
Class C .................................................. (8,695,351) (5,405,726) (3,251,511) (1,402,885)
Class R .................................................. (3,216,294) (1,240,439) (394,504) (163,054)
Advisor Class ............................................ (20,887,969) (10,370,636) (154,969) (17,076)
---------------------------------------------------------------
Total distributions to shareholders ........................... (375,925,503) (213,026,553) (17,210,222) (7,771,325)
---------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .................................................. (221,364,108) (235,516,707) (34,902,280) 6,751,040
Class B .................................................. (13,171,468) (10,438,738) (3,747,506) (2,604,940)
Class C .................................................. (9,795,929) (12,361,198) (11,758,318) (3,219,669)
Class R .................................................. 12,922,088 15,618,374 (10,654) (51,703)
Advisor Class ............................................ 54,496,840 38,650,520 1,372,280 1,818,426
---------------------------------------------------------------
Total capital share transactions .............................. (176,912,577) (204,047,749) (49,046,478) 2,693,154
---------------------------------------------------------------
Redemption fees ............................................... 38,929 21,619 263 3,521
---------------------------------------------------------------
Net increase (decrease) in net assets ................... (159,474,178) 372,885,162 (46,375,986) 34,295,253
Net assets:
Beginning of year ............................................. 5,087,154,980 4,714,269,818 280,033,442 245,738,189
---------------------------------------------------------------
End of year ................................................... $4,927,680,802 $5,087,154,980 $233,657,456 $280,033,442
===============================================================
Undistributed net investment income included in
net assets:
End of year ................................................... $ 34,346,150 $ 43,095,449 $ 2,019,069 $ 2,187,021
===============================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 101
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
---------------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN MIDCAP
VALUE FUND VALUE FUND
---------------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
2007 2006 2007 2006
---------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ....................................... $ 4,658,233 $ 5,761,801 $ 1,605,473 $ 92,441
Net realized gain (loss) from investments and
foreign currency transactions ............................. 58,150,672 25,575,122 1,028,308 770,294
Net change in unrealized appreciation (depreciation)
on investments ............................................ 2,157,157 42,049,166 1,266,035 3,712,790
---------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ............................. 64,966,062 73,386,089 3,899,816 4,575,525
---------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A .................................................. (6,348,151) (2,139,633) (801,821) (92,384)
Class C .................................................. -- -- (122,118) (18,177)
Class R .................................................. -- -- (8,309) (232)
Advisor Class ............................................ (225,219) (17,879) (15,315) (3,626)
Net realized gains:
Class A .................................................. (24,824,164) (32,120,419) (621,341) --
Class C .................................................. -- -- (132,590) --
Class R .................................................. -- -- (6,141) --
Advisor Class ............................................ (747,866) (268,393) (10,395) --
---------------------------------------------------------------
Total distributions to shareholders ........................... (32,145,400) (34,546,324) (1,718,030) (114,419)
---------------------------------------------------------------
Capital share transactions: (Note 2)
Class A .................................................. (38,181,352) (7,634,691) 28,087,583 27,314,789
Class C .................................................. -- -- 5,312,924 5,323,696
Class R .................................................. -- -- 523,637 87,880
Advisor Class ............................................ 26,014,141 5,888,410 325,925 256,474
---------------------------------------------------------------
Total capital share transactions .............................. (12,167,211) (1,746,281) 34,250,069 32,982,839
---------------------------------------------------------------
Redemption fees ............................................... 2,023 5,344 240 789
---------------------------------------------------------------
Net increase (decrease) in net assets ................... 20,655,474 37,098,828 36,432,095 37,444,734
Net assets:
Beginning of year ............................................. 480,135,382 443,036,554 52,993,489 15,548,755
---------------------------------------------------------------
End of year ................................................... $ 500,790,856 $ 480,135,382 $ 89,425,584 $ 52,993,489
===============================================================
Undistributed net investment income included in net assets:
End of year ................................................... $ 3,849,999 $ 5,762,258 $ 742,394 $ 84,229
===============================================================
102 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
----------------------------------
FRANKLIN SMALL CAP
VALUE FUND
----------------------------------
YEAR ENDED OCTOBER 31,
2007 2006
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $ 5,674,202 $ 2,053,699
Net realized gain (loss) from investments .................................... 48,335,673 82,385,315
Net change in unrealized appreciation (depreciation) on investments .......... 50,133,835 66,605,357
----------------------------------
Net increase (decrease) in net assets resulting from operations ........... 104,143,710 151,044,371
----------------------------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................... (4,407,801) (1,249,291)
Class C ................................................................... (266,542) --
Class R ................................................................... (316,135) (2,137)
Advisor Class ............................................................. (505,499) (230,228)
Net realized gains:
Class A ................................................................... (47,916,137) (11,713,986)
Class B ................................................................... (5,483,021) (1,831,922)
Class C ................................................................... (17,152,546) (4,598,215)
Class R ................................................................... (4,083,147) (777,290)
Advisor Class ............................................................. (4,066,624) (909,171)
----------------------------------
Total distributions to shareholders ............................................ (84,197,452) (21,312,240)
----------------------------------
Capital share transactions: (Note 2)
Class A ................................................................... 134,189,399 137,426,230
Class B ................................................................... (8,627,417) (7,760,789)
Class C ................................................................... 19,329,728 26,073,793
Class R ................................................................... 52,776,349 19,764,560
Advisor Class ............................................................. 5,308,474 12,562,742
----------------------------------
Total capital share transactions ............................................... 202,976,533 188,066,536
----------------------------------
Redemption fees ................................................................ 11,128 8,660
----------------------------------
Net increase (decrease) in net assets ..................................... 222,933,919 317,807,327
Net assets:
Beginning of year .............................................................. 1,136,836,685 819,029,358
----------------------------------
End of year .................................................................... $1,359,770,604 $ 1,136,836,685
==================================
Undistributed net investment income included in net assets:
End of year .................................................................... $ 5,729,745 $ 1,872,231
==================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 103
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Investors Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of six separate funds. All funds included in this report (Funds) are
diversified. The financial statements of the remaining fund in the Trust is
presented separately. The classes of shares offered within each of the Funds are
indicated below. Each class of shares differs by its initial sales load,
contingent deferred sales charges, distribution fees, voting rights on matters
affecting a single class and its exchange privilege.
- -----------------------------------------------------------------------------------------------------
CLASS A, CLASS C, CLASS A, CLASS B, CLASS C,
CLASS A & ADVISOR CLASS CLASS R & ADVISOR CLASS CLASS R & ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------
Franklin MicroCap Value Fund Franklin MidCap Value Fund Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin Small 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. 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. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established
104 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
trigger thresholds for each specific market proxy to assist in determining if an
event has occurred. 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.
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
Statements 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. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. Repurchase agreements 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%. The
Funds may also enter into joint repurchase agreements 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 and is 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. All repurchase agreements held by the Funds at year end had been
entered into on October 31, 2007. Repurchase agreements are valued at cost.
Annual Report | 105
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statements 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, which may be in
excess of the amount reflected in the Statements of Assets and Liabilities.
E. SECURITIES LENDING
The Funds participate in a principal based security lending program and receive
a minimum guaranteed payment for their participation, and may receive additional
payments based on actual securities loaned. The funds receive cash collateral
against the loaned securities in an amount equal to at least 102% of the market
value of the loaned securities. Collateral is maintained over the life of the
loan in an amount not less than 100% of the market value of loaned securities,
as determined at the close of fund business each day; any additional collateral
required due to changes in security values is delivered to the fund on the next
business day. The collateral is held in a segregated account with the funds'
custodian on the funds' behalf. The funds bear the risk of loss with respect to
the securities loaned and of default of any securities borrower.
F. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
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 is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Funds are notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
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 of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
106 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
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
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Funds and accounted for as an addition to paid-in
capital.
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. Currently, the Trust expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At October 31, 2007, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
----------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended October 31, 2007
Shares sold ........................ 10,205,917 $ 715,192,846 2,011,683 $ 33,028,361
Shares issued in reinvestment
of distributions ................. 4,657,380 313,627,999 635,098 10,250,489
Shares redeemed .................... (17,958,437) (1,250,184,953) (4,750,957) (78,181,130)
----------------------------------------------------------------
Net increase (decrease) ............ (3,095,140) $ (221,364,108) (2,104,176) $ (34,902,280)
================================================================
Annual Report | 107
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES: (CONTINUED)
Year ended October 31, 2006
Shares sold ........................ 12,891,805 $ 845,679,287 2,814,004 $ 43,496,209
Shares issued in reinvestment
of distributions ................. 2,866,520 178,326,273 315,567 4,720,880
Shares redeemed .................... (19,232,574) (1,259,522,267) (2,697,428) (41,466,049)
----------------------------------------------------------------
Net increase (decrease) ............ (3,474,249) $ (235,516,707) 432,143 $ 6,751,040
================================================================
CLASS B SHARES:
Year ended October 31, 2007
Shares sold ........................ 18,712 $ 1,292,523 49,864 $ 813,952
Shares issued in reinvestment
of distributions ................. 116,332 7,745,341 70,473 1,128,274
Shares redeemed .................... (321,754) (22,209,332) (348,441) (5,689,732)
----------------------------------------------------------------
Net increase (decrease) ............ (186,710) $ (13,171,468) (228,104) $ (3,747,506)
================================================================
Year ended October 31, 2006
Shares sold ........................ 23,446 $ 1,520,327 147,257 $ 2,254,773
Shares issued in reinvestment
of distributions ................. 73,065 4,498,614 34,956 519,099
Shares redeemed .................... (254,183) (16,457,679) (353,458) (5,378,812)
----------------------------------------------------------------
Net increase (decrease) ............ (157,672) $ (10,438,738) (171,245) $ (2,604,940)
================================================================
CLASS C SHARES:
Year ended October 31, 2007
Shares sold ........................ 63,855 $ 4,412,080 420,592 $ 6,842,996
Shares issued in reinvestment
of distributions ................. 128,179 8,546,996 207,457 3,319,293
Shares redeemed .................... (331,729) (22,755,005) (1,351,589) (21,920,607)
----------------------------------------------------------------
Net increase (decrease) ............ (139,695) $ (9,795,929) (723,540) $ (11,758,318)
================================================================
Year ended October 31, 2006
Shares sold ........................ 84,896 $ 5,511,020 836,352 $ 12,933,004
Shares issued in reinvestment
of distributions ................. 80,627 4,970,581 98,108 1,456,901
Shares redeemed .................... (351,032) (22,842,799) (1,159,282) (17,609,574)
----------------------------------------------------------------
Net increase (decrease) ............ (185,509) $ (12,361,198) (224,822) $ (3,219,669)
================================================================
CLASS R SHARES:
Year ended October 31, 2007
Shares sold ........................ 323,636 $ 22,820,838 171,390 $ 2,782,632
Shares issued in reinvestment
of distributions ................. 56,372 3,775,767 30,117 482,472
Shares redeemed .................... (196,835) (13,674,517) (200,935) (3,275,758)
----------------------------------------------------------------
Net increase (decrease) ............ 183,173 $ 12,922,088 572 $ (10,654)
================================================================
Year ended October 31, 2006
Shares sold ........................ 368,266 $ 24,000,456 188,951 $ 2,898,064
Shares issued in reinvestment
of distributions ................. 22,961 1,422,195 15,529 230,759
Shares redeemed .................... (149,863) (9,804,277) (208,144) (3,180,526)
----------------------------------------------------------------
Net increase (decrease) ............ 241,364 $ 15,618,374 (3,664) $ (51,703)
================================================================
108 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
ADVISOR CLASS SHARES:
Year ended October 31, 2007
Shares sold ........................ 2,878,564 $ 198,925,673 122,383 $ 2,051,466
Shares issued in reinvestment
of distributions ................. 23,747 1,599,836 11,958 192,523
Shares redeemed .................... (2,092,642) (146,028,669) (52,708) (871,709)
----------------------------------------------------------------
Net increase (decrease) ............ 809,669 $ 54,496,840 81,633 $ 1,372,280
================================================================
Year ended October 31, 2006 a
Shares sold ........................ 2,723,265 $ 178,515,659 143,524 $ 2,203,695
Shares issued in reinvestment
of distributions ................. 10,335 643,072 1,774 26,469
Shares redeemed .................... (2,140,148) (140,508,211) (25,182) (411,738)
----------------------------------------------------------------
Net increase (decrease) ............ 593,452 $ 38,650,520 120,116 $ 1,818,426
================================================================
a For the period November 1, 2005 (effective date) to October 31, 2006 for the
Franklin Large Cap Value Fund and the Franklin MicroCap Value Fund.
---------------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN MIDCAP
VALUE FUND VALUE FUND
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS A SHARES:
Year ended October 31, 2007
Shares sold ........................ 968,140 $ 42,218,982 3,183,325 $ 38,241,463
Shares issued in reinvestment
of distributions ................. 687,607 28,391,274 110,345 1,277,790
Shares redeemed .................... (2,491,023) (108,791,608) (963,327) (11,431,670)
----------------------------------------------------------------
Net increase (decrease) ............ (835,276) $ (38,181,352) 2,330,343 $ 28,087,583
================================================================
Year ended October 31, 2006
Shares sold ........................ 1,265,501 $ 50,308,408 2,900,257 $ 31,140,083
Shares issued in reinvestment
of distributions ................. 845,219 31,146,329 7,469 77,315
Shares redeemed .................... (2,257,232) (89,089,428) (360,030) (3,902,609)
----------------------------------------------------------------
Net increase (decrease) ............ (146,512) $ (7,634,691) 2,547,696 $ 27,314,789
================================================================
CLASS C SHARES:
Year ended October 31, 2007
Shares sold ........................ 562,097 $ 6,708,329
Shares issued in reinvestment
of distributions ................. 20,476 236,293
Shares redeemed .................... (137,048) (1,631,698)
------------------------------
Net increase (decrease) ............ 445,525 $ 5,312,924
==============================
Year ended October 31, 2006
Shares sold ........................ 599,713 $ 6,423,322
Shares issued in reinvestment
of distributions ................. 1,602 16,568
Shares redeemed .................... (103,336) (1,116,194)
------------------------------
Net increase (decrease) ............ 497,979 $ 5,323,696
==============================
Annual Report | 109
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
----------------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN MIDCAP
VALUE FUND VALUE FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS R SHARES:
Year ended October 31, 2007
Shares sold ........................ 85,469 $ 986,194
Shares issued in reinvestment
of distributions ................. 1,220 14,089
Shares redeemed .................... (40,356) (476,646)
------------------------------
Net increase (decrease) ............ 46,333 $ 523,637
==============================
Year ended October 31, 2006
Shares sold ........................ 10,104 $ 110,266
Shares issued in reinvestment
of distributions ................. 17 174
Shares redeemed .................... (2,041) (22,560)
------------------------------
Net increase (decrease) ............ 8,080 $ 87,880
==============================
ADVISOR CLASS SHARES:
Year ended October 31, 2007
Shares sold ........................ 616,159 $ 27,139,357 33,091 $ 404,122
Shares issued in reinvestment
of distributions ................. 23,334 964,134 2,153 25,000
Shares redeemed .................... (48,420) (2,089,350) (8,446) (103,197)
----------------------------------------------------------------
Net increase (decrease) ............ 591,073 $ 26,014,141 26,798 $ 325,925
================================================================
Year ended October 31, 2006 a
Shares sold ........................ 192,966 $ 7,492,655 27,657 $ 298,445
Shares issued in reinvestment
of distributions ................. 7,745 285,477 336 3,482
Shares redeemed .................... (48,691) (1,889,722) (4,173) (45,453)
----------------------------------------------------------------
Net increase (decrease) ............ 152,020 $ 5,888,410 23,820 $ 256,474
================================================================
a For the period November 1, 2005 (effective date) to October 31, 2006 for the
Franklin Large Cap Value Fund and the Franklin MicroCap Value Fund.
------------------------------
FRANKLIN SMALL CAP
VALUE FUND
------------------------------
SHARES AMOUNT
------------------------------
CLASS A SHARES:
Year ended October 31, 2007
Shares sold ......................................................... 6,238,565 $ 286,883,330
Shares issued in reinvestment of distributions ...................... 1,069,850 47,383,669
Shares redeemed ..................................................... (4,357,085) (200,077,600)
------------------------------
Net increase (decrease) ............................................. 2,951,330 $ 134,189,399
==============================
Year ended October 31, 2006
Shares sold ......................................................... 6,027,552 $ 260,324,245
Shares issued in reinvestment of distributions ...................... 291,303 11,850,223
Shares redeemed ..................................................... (3,130,472) (134,748,238)
------------------------------
Net increase (decrease) ............................................. 3,188,383 $ 137,426,230
==============================
110 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------
FRANKLIN SMALL CAP
VALUE FUND
---------------------------
SHARES AMOUNT
---------------------------
CLASS B SHARES:
Year ended October 31, 2007
Shares sold ............................................................ 63,827 $ 2,813,658
Shares issued in reinvestment of distributions ......................... 119,243 5,077,359
Shares redeemed ........................................................ (374,095) (16,518,434)
---------------------------
Net increase (decrease) ................................................ (191,025) $ (8,627,417)
===========================
Year ended October 31, 2006
Shares sold ............................................................ 129,249 $ 5,415,513
Shares issued in reinvestment of distributions ......................... 43,570 1,710,113
Shares redeemed ........................................................ (357,625) (14,886,415)
---------------------------
Net increase (decrease) ................................................ (184,806) $ (7,760,789)
===========================
CLASS C SHARES:
Year ended October 31, 2007
Shares sold ............................................................ 1,491,241 $ 64,910,723
Shares issued in reinvestment of distributions ......................... 368,482 15,502,022
Shares redeemed ........................................................ (1,403,086) (61,083,017)
---------------------------
Net increase (decrease) ................................................ 456,637 $ 19,329,728
===========================
Year ended October 31, 2006
Shares sold ............................................................ 1,576,345 $ 64,957,367
Shares issued in reinvestment of distributions ......................... 105,445 4,097,599
Shares redeemed ........................................................ (1,045,944) (42,981,173)
---------------------------
Net increase (decrease) ................................................ 635,846 $ 26,073,793
===========================
CLASS R SHARES:
Year ended October 31, 2007
Shares sold ............................................................ 1,800,705 $ 82,141,499
Shares issued in reinvestment of distributions ......................... 88,779 3,915,153
Shares redeemed ........................................................ (730,045) (33,280,303)
---------------------------
Net increase (decrease) ................................................ 1,159,439 $ 52,776,349
===========================
Year ended October 31, 2006
Shares sold ............................................................ 845,521 $ 36,449,462
Shares issued in reinvestment of distributions ......................... 17,017 690,435
Shares redeemed ........................................................ (406,551) (17,375,337)
---------------------------
Net increase (decrease) ................................................ 455,987 $ 19,764,560
===========================
ADVISOR CLASS SHARES:
Year ended October 31, 2007
Shares sold ............................................................ 1,275,685 $ 60,553,398
Shares issued in reinvestment of distributions ......................... 91,979 4,180,443
Shares redeemed ........................................................ (1,201,364) (59,425,367)
---------------------------
Net increase (decrease) ................................................ 166,300 $ 5,308,474
===========================
Year ended October 31, 2006
Shares sold ............................................................ 705,180 $ 30,889,448
Shares issued in reinvestment of distributions ......................... 13,043 542,985
Shares redeemed ........................................................ (429,816) (18,869,691)
---------------------------
Net increase (decrease) ................................................ 288,407 $ 12,562,742
===========================
Annual Report | 111
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Trust are also officers and/or directors of the following
subsidiaries:
- -------------------------------------------------------------------------------------------------
SUBSIDIARY 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
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% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% In excess of $15 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% Up to and including $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
0.350% Over $1.5 billion, up to and including $6.5 billion
0.325% Over $6.5 billion, up to and including $11.5 billion
0.300% Over $11.5 billion, up to and including $16.5 billion
0.290% Over $16.5 billion, up to and including $19 billion
0.280% Over $19 billion, up to and including $21.5 billion
0.270% In excess of $21.5 billion
112 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
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 MidCap 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% Up to and including $500 million
0.650% Over $500 million, up to and including $1 billion
0.600% Over $1 billion, up to and including $1.5 billion
0.550% Over $1.5 billion, up to and including $6.5 billion
0.525% Over $6.5 billion, up to and including $11.5 billion
0.500% Over $11.5 billion, up to and including $16.5 billion
0.490% Over $16.5 billion, up to and including $19 billion
0.480% Over $19 billion, up to and including $21.5 billion
0.470% In excess of $21.5 billion
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% Up to and including $500 million
0.625% Over $500 million, up to and including $1 billion
0.500% In excess of $1 billion
B. ADMINISTRATIVE FEES
FT Services provides administrative services to the Funds. Franklin Large Cap
Value Fund and Franklin MidCap Value Fund each pay an administrative fee to FT
Services of 0.20% per year of their respective average daily net assets. Under
an agreement with Advisory Services, the administrative fee for Franklin Balance
Sheet Investment Fund, Franklin MicroCap Value Fund and Franklin Small Cap Value
Fund is paid by Advisory Services based on each fund's average daily net assets,
and is not an additional expense of the funds.
C. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Funds' Class A reimbursement distribution plans, the
Funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plan, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
Annual Report | 113
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
-------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------------
Reimbursement Plans:
Class A ....................... 0.25% -- 0.25% -- 0.35%
Compensation Plans:
Class A ....................... -- 0.35% -- 0.35% --
Class B ....................... 1.00% 1.00% -- -- 1.00%
Class C ....................... 1.00% 1.00% -- 1.00% 1.00%
Class R ....................... 0.50% 0.50% -- 0.50% 0.50%
For the Franklin Large Cap Value Fund, Distributors has agreed to limit the
current rate to 0.30% per year for Class A shares for the period of August 1,
2007 through January 31, 2008.
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 year:
-----------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
-----------------------------------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .......................... $ 49,130 $ 85,765 $ 26,207
Contingent deferred sales charges retained .............. $ 87,664 $ 33,002 $ 3,117
----------------------------
FRANKLIN FRANKLIN
MIDCAP SMALL CAP
VALUE FUND VALUE FUND
----------------------------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers .......................... $ 139,911 $ 606,256
Contingent deferred sales charges retained .............. $ 4,466 $ 111,836
114 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the year ended October 31, 2007, the Funds paid transfer agent fees as noted
in the Statements of Operations of which the following amounts were retained by
Investor Services:
-------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-------------------------------------------------------------------
Transfer agent fees ............ $ 3,716,820 $ 321,910 $ 359,424 $ 87,623 $ 1,606,154
F. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services and Advisory Services have agreed in advance to waive all or a
portion of their respective fees and to assume payment of other expenses through
February 28, 2009 for Franklin MidCap Value Fund. Total expenses waived or paid
are not subject to reimbursement by the Fund subsequent to the Fund's fiscal
year end. After February 28, 2009, FT Services and Advisory Services may
discontinue this waiver at any time upon notice to the Fund's Board of Trustees.
4. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an arrangement with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Funds' custodian expenses. During the year ended October 31, 2007, the
custodian fees were reduced as noted in the Statements of Operations.
5. INCOME TAXES
The tax character of distributions paid during the years ended October 31, 2007
and 2006, was as follows:
-----------------------------------------------------------
FRANKLIN BALANCE SHEET FRANKLIN LARGE CAP
INVESTMENT FUND VALUE FUND
-----------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------
Distributions paid from:
Ordinary income ......................... $ 63,492,700 $ 36,332,897 $ 4,145,978 $ 1,984,910
Long term capital gain .................. 312,432,803 176,693,656 13,064,244 5,786,415
-----------------------------------------------------------
$ 375,925,503 $ 213,026,553 $ 17,210,222 $ 7,771,325
===========================================================
---------------------------------------------------------
FRANKLIN MICROCAP FRANKLIN MIDCAP
VALUE FUND VALUE FUND
---------------------------------------------------------
2007 2006 2007 2006
---------------------------------------------------------
Distributions paid from:
Ordinary income ......................... $ 6,573,370 $ 4,377,503 $ 1,718,030 $ 114,419
Long term capital gain .................. 25,572,030 30,168,821 -- --
---------------------------------------------------------
$ 32,145,400 $ 34,546,324 $ 1,718,030 $ 114,419
=========================================================
Annual Report | 115
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
---------------------------
FRANKLIN SMALL CAP
VALUE FUND
---------------------------
2007 2006
---------------------------
Distributions paid from:
Ordinary income ........................ $ 10,841,175 $ 1,481,656
Long term capital gain ................. 73,356,915 19,830,584
---------------------------
........................................... $ 84,198,090 $ 21,312,240
===========================
At October 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
---------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP
INVESTMENT FUND VALUE FUND VALUE FUND
---------------------------------------------------
Cost of investments .................................. $ 3,006,243,814 $ 185,307,422 $ 324,935,664
===================================================
Unrealized appreciation .............................. $ 2,291,045,282 $ 60,296,264 $ 209,645,105
Unrealized depreciation .............................. (207,080,421) (9,326,347) (22,830,346)
---------------------------------------------------
Net unrealized appreciation (depreciation) ........... $ 2,083,964,861 $ 50,969,917 $ 186,814,759
===================================================
Undistributed ordinary income ........................ $ 39,009,875 $ 5,113,990 $ 3,849,999
Undistributed long term capital gains ................ 386,925,006 10,223,014 58,037,867
---------------------------------------------------
Distributable earnings ............................... $ 425,934,881 $ 15,337,004 $ 61,887,866
===================================================
-----------------------------------
FRANKLIN FRANKLIN
MIDCAP SMALL CAP
VALUE FUND VALUE FUND
-----------------------------------
Cost of investments .................................. $ 84,855,714 $ 1,204,411,984
===================================
Unrealized appreciation .............................. $ 10,892,327 $ 406,452,287
Unrealized depreciation .............................. (6,461,369) (115,458,298)
-----------------------------------
Net unrealized appreciation (depreciation) ........... $ 4,430,958 $ 290,993,989
===================================
Undistributed ordinary income ........................ $ 923,842 $ 8,165,418
Undistributed long term capital gains ................ 889,210 45,895,282
-----------------------------------
Distributable earnings ............................... $ 1,813,052 $ 54,060,700
===================================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, bond discounts and
premiums, and investments in partnerships.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and foreign currency
transactions.
116 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short term securities) for the year ended October
31, 2007, were as follows:
------------------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
------------------------------------------------------------------------------
Purchases ........ $ 293,095,556 $ 57,707,232 $ 42,279,132 $ 38,791,407 $ 284,649,022
Sales ............ $ 505,797,115 $ 102,527,963 $ 84,383,895 $ 8,761,382 $ 77,188,874
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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 and administrative fees paid by the Sweep Money
Fund.
8. RESTRICTED SECURITIES
The Funds may invest in securities that are restricted under the Securities Act
of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed
upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior registration
unless the sale is pursuant to an exemption under the 1933 Act. Disposal of
these securities may require greater effort and expense, and prompt sale at an
acceptable price may be difficult. The Funds may have registration rights for
restricted securities. The issuer generally incurs all registration costs.
At October 31, 2007, the Franklin MicroCap Value Fund held investments in
restricted securities, excluding 144A securities deemed to be liquid, valued in
accordance with procedures approved by the Fund's Board of Trustees as
reflecting fair value, as follows:
- -------------------------------------------------------------------------------------------------------
ACQUISITION
SHARES ISSUER DATE COST VALUE
- -------------------------------------------------------------------------------------------------------
FRANKLIN MICROCAP VALUE FUND
94,800 Allen Organ Co., Contingent Distribution .... 9/07/06 $1,544,292 $1,496,892
495,000 Black River BancVenture Inc. ................ 8/13/07 4,950,000 4,455,000
94,800 LandCo Real Estate LLC, Liquidating Trust ... 9/07/06 240,792 240,792
-----------
TOTAL RESTRICTED SECURITIES (1.24% of Net Assets) ...................... $6,192,684
===========
Annual Report | 117
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 1940 Act 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 for the year ended October 31, 2007,
were as shown below.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN BALANCE SHEET INVESTMENT FUND
NON-CONTROLLED AFFILIATES
Champps Entertainment Inc. a ............ 920,000 -- 920,000 -- $ -- $ -- $ 55,847
Dollar Thrifty Automotive Group Inc. .... 1,763,067 -- -- 1,763,067 60,825,811 -- --
Furmanite Corp. ......................... 2,800,000 -- 17,000 2,783,000 34,537,030 -- 119,085
Furniture Brands International Inc. ..... 2,675,000 575,000 -- 3,250,000 39,162,500 1,848,000 --
KGen Power Corp., 144A .................. -- 4,400,000 -- 4,400,000 72,600,000 -- --
Syms Corp. .............................. 1,430,000 -- -- 1,430,000 20,334,600 858,000 --
Tecumseh Products Co., A ................ 1,085,000 -- -- 1,085,000 19,605,950 -- --
Tecumseh Products Co., B ................ 310,000 -- -- 310,000 5,025,100 -- --
---------------------------------------
TOTAL NON-CONTROLLED AFFILIATES (5.12% of Net Assets) ..................................... $252,090,991 $2,706,000 $ 174,932
=======================================
FRANKLIN MICROCAP VALUE FUND
NON-CONTROLLED AFFILIATES
ACMAT Corp., A .......................... 392,800 -- -- 392,800 $ 9,957,480 $ -- $ --
American Pacific Corp. .................. 610,000 66,300 -- 676,300 12,694,151 -- --
Black River BancVenture Inc. ............ -- 495,000 -- 495,000 4,455,000 -- --
Cobra Electronics Corp. ................. 32,480 343,820 -- 376,300 2,318,008 32,768 --
Continental Materials Corp. ............. 99,500 9,500 -- 109,000 3,171,900 -- --
Delta Apparel Inc. ...................... 680,000 -- -- 680,000 11,084,000 136,000 --
Duckwall-ALCO Stores Inc. ............... 230,000 -- 2,500 227,500 8,310,575 -- 67,878
Espey Manufacturing & Electronics
Corp. ................................. 156,000 -- -- 156,000 3,541,200 94,380 --
GTSI Corp. .............................. 298,249 198,891 9,000 488,140 5,428,117 -- 25,620
Hardinge Inc. ........................... 900,991 -- 248,491 652,500 21,095,325 164,803 5,807,418
International Shipholding Corp. ......... 474,800 -- -- 474,800 10,303,160 -- --
Merchants Group Inc. .................... 160,800 -- 160,800 -- -- b 115,884 2,342,458
Nashua Corp. ............................ 477,930 -- 120,000 357,930 4,363,167 -- (171,418)
Omega Protein Corp. ..................... -- 1,000,000 -- 1,000,000 10,000,000 -- --
Proliance International Inc. ............ 823,800 -- -- 823,800 2,067,738 -- --
Rockford Corp. .......................... 575,000 -- -- 575,000 1,207,500 -- --
S&K Famous Brands Inc. .................. 255,500 -- -- 255,500 2,938,250 -- --
Tandy Brands Accessories Inc. ........... 540,000 -- -- 540,000 5,756,400 79,650 --
---------------------------------------
TOTAL NON-CONTROLLED AFFILIATES (23.70% of Net Assets) .................................... $118,691,971 $ 623,485 $ 8,071,956
=======================================
a Champps Entertainment Inc. was acquired by F & H Acquisition Corp.
b As of October 31, 2007, no longer an affiliate.
118 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend 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. 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.
11. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period beginning after
December 15, 2006. The Trust believes the adoption of FIN 48 will have no
material impact on its financial statements.
Annual Report | 119
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Trust believes the adoption of SFAS 157
will have no material impact on its financial statements.
120 | Annual Report
Franklin Value Investors Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN VALUE INVESTORS TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Balance Sheet Investment
Fund, Franklin Large Cap Value Fund, Franklin MicroCap Value Fund, Franklin
MidCap Value Fund and Franklin Small Cap Value Fund (separate portfolios of
Franklin Value Investors Trust hereafter referred to as the "Funds") at October
31, 2007, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for periods presented, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2007 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 18, 2007
Annual Report | 121
Franklin Value Investors Trust
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended October 31, 2007:
-----------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------------
$386,932,073 $10,223,775 $58,037,938 $ 889,210 $45,895,282
Under Section 871(k)(2)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as short term capital gain
dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended October 31, 2007:
-----------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------------
$4,679,289 $ 3,095,829 $ -- $ 207,860 $ 2,440,390
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended October 31, 2007.
-----------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------------
95.29% 100% 70.12% 100% 100%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended October 31, 2007.
-----------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------------
$63,406,033 $ 6,196,748 $ 4,609,405 $2,539,413 $15,184,479
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as interest related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended October 31, 2007.
-----------------------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
-----------------------------------------------------------------------
$20,401,067 $485,881 $ 2,007,009 $112,255 $ --
122 | Annual Report
Franklin Value Investors Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK T. CROHN (1924) Trustee Since 1989 7 FORMERLY, Director, Unity
One Franklin Parkway Mutual Life Insurance Company
San Mateo, CA 94403-1906 (until May 2006).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Eastport Lobster & Fish Company; and FORMERLY, Chief Executive Officer and Chairman, Financial Benefit Life Insurance
Company (insurance and annuities) (until 1996); Chief Executive Officer, National Benefit Life Insurance Co. (insurance)
(1963-1982); and Director, AmVestors Financial Corporation (until 1997).
- ------------------------------------------------------------------------------------------------------------------------------------
BURTON J. GREENWALD (1929) Trustee Since 2001 14 Franklin Templeton Emerging
One Franklin Parkway Markets
San Mateo, CA 94403-1906 Debt Opportunities Fund PLC and
Fiduciary International Ireland
Limited.
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and FORMERLY, Chairman,
Fiduciary Trust International Funds; Executive Vice President, L.F Rothschild Fund Management, Inc.; President and Director, Merit
Mutual Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment
Company Institute and Chairman, ICI Public Information Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES RUBENS II (1930) Trustee Since 1989 14 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. WADE (1946) Trustee Since 2004 33 El Oro and Exploration Co.,
One Franklin Parkway p.l.c. (investments) and
San Mateo, CA 94403-1906 ARC Wireless Solutions, Inc.
(wireless components and
network products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Practicing attorney.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 123
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**WILLIAM J. LIPPMAN (1925) Trustee, Trustee and 7 None
One Parker Plaza, 9th Floor President and President since
Fort Lee, NJ 07024 Chief 1989 and Chief
Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Advisory Services, LLC; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the case
may be, of four of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
124 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Secretary, Franklin Advisory Services, LLC, Franklin Mutual
Advisers, LLC and Franklin Templeton Distributors, Inc.; and officer of 41 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1989 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since October Not Applicable Not Applicable
500 East Broward Blvd. 2007
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 18 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 125
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** William J. Lippman is considered to be an interested person of the Trust
under the federal securities laws due to his position as an officer of some of
the subsidiaries of Franklin Resources, Inc., which is the parent company of the
Trust's investment manager and distributor.
Note 1: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK T. CROHN AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. CROHN, WHO CURRENTLY IS A DIRECTOR OF VARIOUS COMPANIES AND
CHAIRS THE FUND'S AUDIT COMMITTEE, QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS
BUSINESS BACKGROUND AND EXPERIENCE, WHICH INCLUDES SERVICE AS CHIEF EXECUTIVE
OFFICER OF NATIONAL BENEFIT LIFE INSURANCE COMPANY (1963-1982), CHIEF EXECUTIVE
OFFICER OF FINANCIAL BENEFIT LIFE INSURANCE COMPANY (1982-1996), AND SERVICE AS
A DIRECTOR OF AMVESTORS FINANCIAL CORPORATION UNTIL 1997. AS A RESULT OF SUCH
BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. CROHN HAS
ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. CROHN IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
126 | Annual Report
Franklin Value Investors Trust
SHAREHOLDER INFORMATION
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 1-954/527-7678 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.
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.
Annual Report | 127
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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 FUNDS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
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
Templeton Income 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 open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's 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. The fund invests primarily in 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.
05/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com.
See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN VALUE INVESTORS TRUST
INVESTMENT MANAGER
Franklin Advisory Services, LLC
One Parker Plaza
Ninth Floor
Fort Lee, NJ 07024
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
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 A2007 12/07
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
OCTOBER 31, 2007
- --------------------------------------------------------------------------------
A series of Franklin Value
Investors Trust
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER SECTOR
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN
ALL CAP VALUE FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
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, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
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.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the annual report
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 FUNDS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate 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(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
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
Templeton Income 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 open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
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. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's 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. The fund invests primarily in 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.
05/07 Not part of the annual report
Contents
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Franklin All Cap Value Fund ............................................... 3
Performance Summary ....................................................... 7
Your Fund's Expenses ...................................................... 10
Financial Highlights and Statement of Investments ......................... 12
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 23
Report of Independent Registered Public Accounting Firm ................... 31
Tax Designation ........................................................... 32
Board Members and Officers ................................................ 33
Shareholder Information ................................................... 37
- --------------------------------------------------------------------------------
Annual Report
Franklin All Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin All Cap Value Fund seeks
long-term total return by investing primarily in equity securities of companies
of any size that we believe are undervalued at the time of purchase and have the
potential for capital appreciation.
- --------------------------------------------------------------------------------
PERFORMANCE DATA 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 inaugural annual report for Franklin All Cap Value Fund covers the period
from inception on June 1, 2007, through October 31, 2007.
PERFORMANCE OVERVIEW
Franklin All Cap Value Fund - Class A posted a -4.80% cumulative total return
for the period since inception on June 1, 2007, through October 31, 2007. For
the same period, the Fund underperformed its benchmark, the Russell 3000(R)
Value Index, which fell 2.98%, and the Standard & Poor's 500 Index (S&P 500),
which rose +1.93%. 1 Please note the Fund employs a bottom-up stock selection
process and we invest in securities without regard to benchmark comparisons. You
can find the Fund's performance data in the Performance Summary beginning on
page 7.
ECONOMIC AND MARKET OVERVIEW
During the period from June 1, 2007, through October 31, 2007, the U.S. economy
grew moderately. Growth was supported by relatively low core inflation, consumer
spending, some improving economic data and corporate earnings reports.
Counterbalancing these positive factors were mixed inflation signals, diminished
liquidity in the financial markets and concerns about a national housing market
decline and its potential spillover effects.
1. Source: Standard & Poor's Micropal. The Russell 3000 Value Index is market
capitalization weighted and measures performance of those Russell 3000 Index
companies with lower price-to-book ratios and lower forecasted growth values.
The S&P 500 consists of 500 stocks chosen for market size, liquidity and
industry group representation. Each stock's weight in the index is proportionate
to its market value. The S&P 500 is one of the most widely used benchmarks of
U.S. equity performance. 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 16.
Annual Report | 3
PORTFOLIO BREAKDOWN
Based on Total Net Assets as of 10/31/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Energy 18.0%
Capital Goods 15.4%
Insurance 8.9%
Retailing 7.7%
Materials 6.7%
Consumer Durables & Apparel 6.4%
Utilities 5.0%
Commercial Services & Supplies 4.0%
Diversified Financials 3.6%
Transportation 3.3%
Banks 2.9%
Food & Staples Retailing 2.5%
Technology Hardware & Equipment 2.2%
Food, Beverage & Tobacco 2.1%
Other 1.9%
Short-Term Investments & Other Net Assets 9.4%
The unemployment rate increased from 4.5% at the beginning of the period to 4.7%
in October 2007. 2 Although consumer confidence in July neared a six-year high,
it declined through period-end and the pace of consumer spending slowed as
worries about the housing slump and high gasoline prices made individuals more
cautious. After a welcome drop in energy costs during the latter half of 2006,
oil prices established a new record high in October, crossing $94 per barrel in
response to perceived tight supply and high demand for oil, refinery maintenance
issues, and ongoing geopolitical tensions in the Middle East and Africa. For the
12 months ended October 31, 2007, the core Consumer Price Index (CPI), which
excludes food and energy costs, rose 2.2%, which was also its 10-year average
rate. 2
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 75 basis
points to 4.50% from 5.25% during the period. The 10-year Treasury note yield
fell from 4.90% at the beginning of the period to 4.48% on October 31, 2007.
In mid-July, equity markets set new records amid generally strong first quarter
corporate earnings reports. However, volatility picked up in the second half of
July and August due to investor concerns about the housing market, lending
environment and mixed second quarter earnings reports. Major stock indices
recovered from early September losses in the wake of Fed actions mid-month. For
the period from June 1, 2007, through October 31, 2007, the blue chip stocks of
the Dow Jones Industrial Average posted a total return of +3.03%, the broader
S&P 500 gained +1.93%, and the technology-heavy NASDAQ Composite Index rose
+10.03%. 3 The information technology, energy and materials sectors performed
particularly well. Growth stocks outperformed their value counterparts, as
measured by the Russell 3000 Growth Index, which gained +5.95%, and Russell 3000
Value Index, which fell 2.98%. 4
2. Source: Bureau of Labor Statistics.
3. 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. See footnote 1 for a description of the S&P
500. The NASDAQ Composite Index measures all NASDAQ domestic and international
based common type stocks listed on The NASDAQ Stock Market. The index is market
value weighted and includes more than 3,000 companies.
4. Source: Standard & Poor's Micropal. The Russell 3000 Growth Index is market
capitalization weighted and measures performance of those Russell 3000 Index
companies with higher price-to-book ratios and higher forecasted growth values.
See footnote 1 for a description of the Russell 3000 Value Index.
4 | Annual Report
INVESTMENT STRATEGY
Our goal is to invest in equity securities of companies of any size that we
determine are currently undervalued and have the potential for capital
appreciation. 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. This strategy is not aimed at short-term trading gains, nor do we
consider the composition of any index. Rather, we try to identify attractively
priced, financially sound companies that meet our investment criteria, and we
assume at purchase that we will hold the positions for several years.
MANAGER'S DISCUSSION
During the period under review, the energy sector was the most significant
contributor to Fund performance as oil prices reached all-time highs. Since the
Fund's inception on June 1, 2007, through period-end, some of the portfolio's
best performing holdings were oil services company PHI, exploration and
production companies Apache and Occidental Petroleum, and specialty chemicals
producer American Pacific.
Several of the Fund's holdings were negatively affected by housing market
weakness and concerns about the economic condition of the U.S. consumer. Such
holdings included mortgage insurer The PMI Group, retailer Tuesday Morning and
boat manufacturer Brunswick.
The Fund was launched with $2 million and experienced steady net inflows, ending
the period with $8.97 million. We used a portion of the proceeds to invest in
securities that fit our value criteria. We liquidated five positions during the
period because we became less confident about their future business prospects.
As of October 31, 2007, the Fund held 85 equity positions.
We are excited about the potential for investors to profit from the Fund's
distinct focus on financially strong, out-of-favor, inexpensive securities
regardless of size.
TOP 10 EQUITY HOLDINGS
10/31/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
PHI Inc. 3.0%
ENERGY
- --------------------------------------------------------------------------------
Kelly Services Inc., A 2.5%
COMMERCIAL SERVICES & SUPPLIES
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. 2.5%
FOOD & STAPLES RETAILING
- --------------------------------------------------------------------------------
General Electric Co. 2.0%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Apache Corp. 2.0%
ENERGY
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 1.8%
ENERGY
- --------------------------------------------------------------------------------
Embraer-Empresa Brasileira de
Aeronautica SA, ADR (Brazil) 1.7%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Dover Corp. 1.7%
CAPITAL GOODS
- --------------------------------------------------------------------------------
Brady Corp., A 1.6%
CAPITAL GOODS
- --------------------------------------------------------------------------------
State Street Corp. 1.6%
DIVERSIFIED FINANCIALS
- --------------------------------------------------------------------------------
Annual Report | 5
Thank you for your participation in Franklin All Cap Value Fund. We look forward
to serving your future investment needs.
[PHOTO OMITTED] /s/ William J. Lippman
William J. Lippman
Co-Portfolio Manager
[PHOTO OMITTED] /s/ Steven B. Raineri
Steven B. Raineri
Co-Portfolio Manager
Bruce C. Baughman, CPA
Margaret McGee
Donald G. Taylor, CPA
Portfolio Management Team
Franklin All Cap Value Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2007, 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 INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Annual Report
Performance Summary as of 10/31/07
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 that a
shareholder would pay 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 INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: N/A) CHANGE 10/31/07 6/1/07
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.48 $9.52 $10.00
- --------------------------------------------------------------------------------
CLASS C (SYMBOL: N/A) CHANGE 10/31/07 6/1/07
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.50 $9.50 $10.00
- --------------------------------------------------------------------------------
CLASS R (SYMBOL: N/A) CHANGE 10/31/07 6/1/07
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.48 $9.52 $10.00
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/07 6/1/07
- --------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.46 $9.54 $10.00
- --------------------------------------------------------------------------------
Annual Report | 7
Performance Summary (CONTINUED)
PERFORMANCE 1
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A
2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------
CLASS A INCEPTION (6/1/07)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 -4.80%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 -10.27%
- --------------------------------------------------------------------------------
Aggregate Total Return (9/30/07) 4 -11.50%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 5 $8,973
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- --------------------------------------------------------------------------------
Without Waiver 1.63%
- --------------------------------------------------------------------------------
With Waiver 1.25%
- --------------------------------------------------------------------------------
CLASS C INCEPTION (6/1/07)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 -5.10%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 -6.05%
- --------------------------------------------------------------------------------
Aggregate Total Return (9/30/07) 4 -7.24%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 5 $9,395
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- --------------------------------------------------------------------------------
Without Waiver 2.28%
- --------------------------------------------------------------------------------
With Waiver 1.90%
- --------------------------------------------------------------------------------
CLASS R INCEPTION (6/1/07)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 -4.80%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 -4.80%
- --------------------------------------------------------------------------------
Aggregate Total Return (9/30/07) 4 -6.10%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 5 $9,520
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- --------------------------------------------------------------------------------
Without Waiver 1.78%
- --------------------------------------------------------------------------------
With Waiver 1.40%
- --------------------------------------------------------------------------------
ADVISOR CLASS INCEPTION (6/1/07)
- --------------------------------------------------------------------------------
Cumulative Total Return 2 -4.60%
- --------------------------------------------------------------------------------
Aggregate Total Return 3 -4.60%
- --------------------------------------------------------------------------------
Aggregate Total Return (9/30/07) 4 -5.90%
- --------------------------------------------------------------------------------
Value of $10,000 Investment 5 $9,540
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 6
- --------------------------------------------------------------------------------
Without Waiver 1.28%
- --------------------------------------------------------------------------------
With Waiver 0.90%
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENTS 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.
THE MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO LIMIT FUND EXPENSES
SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES DO NOT EXCEED THE AMOUNT SHOWN WITH
WAIVER (OTHER THAN CERTAIN NON-ROUTINE EXPENSES) FOR EACH SHARE CLASS UNTIL
10/31/08.
8 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
VALUE SECURITIES MAY NOT INCREASE IN PRICE AS ANTICIPATED OR MAY DECLINE FURTHER
IN VALUE. WHILE SMALLER AND MIDSIZE COMPANIES MAY OFFER SUBSTANTIAL
OPPORTUNITIES FOR CAPITAL GROWTH, THEY ALSO INVOLVE HEIGHTENED RISKS AND SHOULD
BE CONSIDERED SPECULATIVE. HISTORICALLY, SMALLER AND MIDSIZE COMPANY SECURITIES
HAVE BEEN MORE VOLATILE IN PRICE THAN LARGER COMPANY SECURITIES, ESPECIALLY OVER
THE SHORT TERM. THE FUND MAY INVEST UP TO 25% OF ITS INITIAL ASSETS IN FOREIGN
SECURITIES, WHICH INVOLVE SPECIAL RISKS, INCLUDING CURRENCY FLUCTUATIONS AND
ECONOMIC AND POLITICAL UNCERTAINTY. HOWEVER, THE MANAGERS CURRENTLY INTEND TO
LIMIT FOREIGN INVESTMENTS TO NO MORE THAN 15% OF THE FUND'S TOTAL ASSETS. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
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. If the manager and administrator had not waived fees, the Fund's total return
would have been lower.
2. Cumulative total return represents the change in value of an investment over
the period indicated.
3. Aggregate total return represents the change in value of an investment over
the period indicated. Since the Fund has existed for less than one year, average
annual total returns are not available.
4. In accordance with SEC rules, we provide standardized total return
information through the latest calendar quarter.
5. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the period indicated.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report.
Annual Report | 9
Your Fund's Expenses
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 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.
10 | Annual 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 EXPENSES PAID DURING PERIOD*
VALUE ACTUAL 6/1/07 ENDING ACCOUNT ACTUAL 6/1/07-10/31/07
CLASS A HYPOTHETICAL 5/1/07 VALUE 10/31/07 HYPOTHETICAL 5/1/07-10/31/07
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 952.00 $5.08
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,015.62 $5.25
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 950.00 $7.71
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,012.91 $7.96
- ------------------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 952.00 $5.69
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,014.99 $5.87
- ------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $ 954.00 $3.66
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.07 $3.78
- ------------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio, net of
expense waivers, annualized for each class (A: 1.25%; C: 1.90%; R: 1.40%; and
Advisor: 0.90%), multiplied by the average account value over the period,
multiplied by (Hypothetical) 184/365 to reflect the one-half year period. For
actual expenses, the multiplier is 152/365 to reflect the number of days since
inception.
Annual Report | 11
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ALL CAP VALUE FUND
--------------------
PERIOD ENDED
OCTOBER 31, 2007 d
--------------------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................................. $ 10.00
--------------------
Income from investment operations a:
Net investment income b ............................................................ 0.02
Net realized and unrealized gains (losses) ......................................... (0.50)
--------------------
Total from investment operations ...................................................... (0.48)
--------------------
Redemption fees ....................................................................... -- e
--------------------
Net asset value, end of period ........................................................ $ 9.52
====================
Total return c ........................................................................ (4.80)%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates ..................................... 3.91% f
Expenses net of waiver and payments by affiliates ..................................... 1.25% f,g
Net investment income (loss) .......................................................... 0.50% f
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................................................... $ 7,138
Portfolio turnover rate ............................................................... 5.38%
a The amount shown for a share outstanding throughout the period does not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d For the period June 1, 2007 (commencement of operations) to October 31, 2007.
e Amount rounds to less than $0.01 per share.
f Annualized.
g Benefit of expense reduction rounds to less than 0.01%.
12 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
--------------------
PERIOD ENDED
OCTOBER 31, 2007 d
--------------------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................................. $ 10.00
--------------------
Income from investment operations a:
Net investment income (loss) b ..................................................... (0.01)
Net realized and unrealized gains (losses) ......................................... (0.49)
--------------------
Total from investment operations ...................................................... (0.50)
--------------------
Redemption fees ....................................................................... -- e
--------------------
Net asset value, end of period ........................................................ $ 9.50
====================
Total return c ........................................................................ (5.10)%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates ..................................... 4.56% f
Expenses net of waiver and payments by affiliates ..................................... 1.90% f,g
Net investment income (loss) .......................................................... (0.15)% f
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................................................... $ 847
Portfolio turnover rate ............................................................... 5.38%
a The amount shown for a share outstanding throughout the period does not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d For the period June 1, 2007 (commencement of operations) to October 31, 2007.
e Amount rounds to less than $0.01 per share.
f Annualized.
g Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 13
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
--------------------
PERIOD ENDED
OCTOBER 31, 2007 d
--------------------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................................. $ 10.00
--------------------
Income from investment operations a:
Net investment income b ............................................................ 0.02
Net realized and unrealized gains (losses) ......................................... (0.50)
--------------------
Total from investment operations ...................................................... (0.48)
--------------------
Redemption fees ....................................................................... -- e
--------------------
Net asset value, end of period ........................................................ $ 9.52
====================
Total return c ........................................................................ (4.80)%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates ..................................... 4.06% f
Expenses net of waiver and payments by affiliates ..................................... 1.40% f,g
Net investment income ................................................................. 0.35% f
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................................................... $ 10
Portfolio turnover rate ............................................................... 5.38%
a The amount shown for a share outstanding throughout the period does not
correlate with the Statement of Operations for the period due tof the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d For the period June 1, 2007 (commencement of operations) to October 31, 2007.
e Amount rounds to less than $0.01 per share.
f Annualized.
g Benefit of expense reduction rounds to less than 0.01%.
14 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
--------------------
PERIOD ENDED
OCTOBER 31, 2007 d
--------------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .................................................. $ 10.00
--------------------
Income from investment operations a:
Net investment income b ............................................................ 0.04
Net realized and unrealized gains (losses) ......................................... (0.50)
--------------------
Total from investment operations ...................................................... (0.46)
--------------------
Redemption fees ....................................................................... -- e
--------------------
Net asset value, end of period ........................................................ $ 9.54
====================
Total return c ........................................................................ (4.60)%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates ..................................... 3.56% f
Expenses net of waiver and payments by affiliates ..................................... 0.90% f,g
Net investment income ................................................................. 0.85% f
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..................................................... $ 979
Portfolio turnover rate ............................................................... 5.38%
a The amount shown for a share outstanding throughout the period does not
correlate with the Statement of Operations for the period due tof the timing of
sales and repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
d For the period June 1, 2007 (commencement of operations) to October 31, 2007.
e Amount rounds to less than $0.01 per share.
f Annualized.
g Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 15
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 90.6%
COMMON STOCKS 90.6%
BANKS 2.9%
Beverly Hills Bancorp Inc. ...................................................................... 2,600 $ 16,302
Fannie Mae ...................................................................................... 800 45,632
The PMI Group Inc. .............................................................................. 2,100 33,663
TrustCo Bank Corp. NY ........................................................................... 8,450 89,063
U.S. Bancorp .................................................................................... 2,200 72,952
----------------
257,612
----------------
CAPITAL GOODS 15.4%
Brady Corp., A .................................................................................. 4,000 147,600
Carlisle Cos. Inc. .............................................................................. 2,450 96,652
Dover Corp. ..................................................................................... 3,300 151,800
Embraer-Empresa Brasileira de Aeronautica SA, ADR (Brazil) ...................................... 3,200 156,064
Franklin Electric Co. Inc. ...................................................................... 1,300 56,641
General Electric Co. ............................................................................ 4,300 176,988
Illinois Tool Works Inc. ........................................................................ 1,300 74,438
Kennametal Inc. ................................................................................. 700 63,847
Oshkosh Truck Corp. ............................................................................. 700 37,940
Roper Industries Inc. ........................................................................... 550 38,946
Trinity Industries Inc. ......................................................................... 1,500 54,210
United Technologies Corp. ....................................................................... 1,750 134,032
Universal Forest Products Inc. .................................................................. 2,800 100,268
Wabash National Corp. ........................................................................... 9,200 93,380
----------------
1,382,806
----------------
COMMERCIAL SERVICES & SUPPLIES 4.0%
ABM Industries Inc. ............................................................................. 3,921 92,222
Healthcare Services Group Inc. .................................................................. 1,725 37,881
Kelly Services Inc., A .......................................................................... 10,850 228,175
----------------
358,278
----------------
CONSUMER DURABLES & APPAREL 6.4%
Brunswick Corp. ................................................................................. 4,600 102,626
Fortune Brands Inc. ............................................................................. 1,300 108,901
Leggett & Platt Inc. ............................................................................ 3,900 75,777
M.D.C. Holdings Inc. ............................................................................ 2,800 113,428
a Russ Berrie and Co. Inc. ........................................................................ 4,500 78,750
Tandy Brands Accessories Inc. ................................................................... 9,200 98,072
----------------
577,554
----------------
DIVERSIFIED FINANCIALS 3.6%
Bank of America Corp. ........................................................................... 1,300 62,764
Citigroup Inc. .................................................................................. 1,000 41,900
Lehman Brothers Holdings Inc. ................................................................... 1,150 72,841
State Street Corp. .............................................................................. 1,800 143,586
---------------
321,091
----------------
ENERGY 18.0%
Apache Corp. .................................................................................... 1,700 176,477
a Bristow Group Inc. .............................................................................. 2,250 112,253
CARBO Ceramics Inc. ............................................................................. 2,100 94,332
16 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
Chesapeake Energy Corp. ......................................................................... 3,350 $ 132,258
ENSCO International Inc. ........................................................................ 2,450 135,950
a Helix Energy Solutions Group Inc. ............................................................... 2,750 127,187
Occidental Petroleum Corp. ...................................................................... 2,400 165,720
Overseas Shipholding Group Inc. ................................................................. 1,500 111,600
Peabody Energy Corp. ............................................................................ 1,400 73,073
a PHI Inc., non-voting ............................................................................ 7,700 266,420
Teekay Corp. (Bahamas) .......................................................................... 1,500 83,925
a Unit Corp. ...................................................................................... 2,900 138,533
----------------
1,617,728
----------------
FOOD & STAPLES RETAILING 2.5%
Wal-Mart Stores Inc. ............................................................................ 4,900 221,529
----------------
FOOD, BEVERAGE & TOBACCO 2.1%
The Hershey Co. ................................................................................. 950 40,955
a Omega Protein Corp. ............................................................................. 2,400 24,000
a Smithfield Foods Inc. ........................................................................... 4,200 120,414
----------------
185,369
----------------
HEALTH CARE EQUIPMENT & SERVICES 1.1%
Hillenbrand Industries Inc. ..................................................................... 1,800 99,396
----------------
HOUSEHOLD & PERSONAL PRODUCTS 0.5%
The Procter & Gamble Co. ........................................................................ 600 41,712
----------------
INSURANCE 8.9%
AFLAC Inc. ...................................................................................... 1,150 72,197
American International Group Inc. ............................................................... 1,000 63,120
Aspen Insurance Holdings Ltd. ................................................................... 1,850 50,616
Chubb Corp. ..................................................................................... 1,700 90,695
IPC Holdings Ltd. ............................................................................... 3,500 104,685
Kansas City Life Insurance Co. .................................................................. 2,400 111,912
Old Republic International Corp. ................................................................ 8,300 127,239
Security Capital Assurance Ltd. ................................................................. 4,500 59,040
StanCorp Financial Group Inc. ................................................................... 2,100 115,773
----------------
795,277
----------------
MATERIALS 6.7%
a American Pacific Corp. .......................................................................... 6,700 125,759
Bemis Co. Inc. .................................................................................. 3,300 92,928
Gerdau Ameristeel Corp. (Canada) ................................................................ 6,800 92,208
Glatfelter ...................................................................................... 4,000 64,280
Nucor Corp. ..................................................................................... 1,550 96,131
Praxair Inc. .................................................................................... 500 42,740
Steel Dynamics Inc. ............................................................................. 1,700 90,474
----------------
604,520
----------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 0.3%
Pharmaceutical Product Development Inc. ......................................................... 700 29,568
----------------
Annual Report | 17
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
RETAILING 7.7%
Brown Shoe Co. Inc. ............................................................................. 5,500 $ 112,200
Christopher & Banks Corp. ....................................................................... 7,400 101,528
Fred's Inc. ..................................................................................... 8,500 90,100
Group 1 Automotive Inc. ......................................................................... 600 18,630
Haverty Furniture Cos. Inc. ..................................................................... 10,000 85,000
J.C. Penney Co. Inc. ............................................................................ 1,600 89,984
a Pier 1 Imports Inc. ............................................................................. 6,795 34,587
Tuesday Morning Corp. ........................................................................... 10,000 76,200
a Zale Corp. ...................................................................................... 4,000 84,320
----------------
692,549
----------------
TECHNOLOGY HARDWARE & EQUIPMENT 2.2%
a Benchmark Electronics Inc. ...................................................................... 4,150 85,117
a GTSI Corp. ...................................................................................... 10,400 115,648
----------------
200,765
----------------
TRANSPORTATION 3.3%
J.B. Hunt Transport Services Inc. ............................................................... 700 19,404
a P.A.M. Transportation Services Inc. ............................................................. 8,200 136,612
Southwest Airlines Co. .......................................................................... 9,900 140,679
----------------
296,695
----------------
UTILITIES 5.0%
Avista Corp. .................................................................................... 6,500 143,325
DTE Energy Co. .................................................................................. 2,250 111,600
IDACORP Inc. .................................................................................... 2,600 90,714
Sierra Pacific Resources ........................................................................ 6,000 101,220
----------------
446,859
----------------
TOTAL COMMON STOCKS (COST $8,282,525) ........................................................... 8,129,308
----------------
SHORT TERM INVESTMENT (COST $851,272) 9.5%
MONEY MARKET FUND 9.5%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.69% ............................ 851,272 851,272
----------------
TOTAL INVESTMENTS (COST $9,133,797) 100.1% ...................................................... 8,980,580
OTHER ASSETS, LESS LIABILITIES (0.1)% ........................................................... (7,783)
----------------
NET ASSETS 100.0% ............................................................................... $ 8,972,797
================
SELECTED PORTFOLIO ABBREVIATION
ADR - American Depository Receipt
a Non-income producing for the twelve months ended October 31, 2007.
b See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
18 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2007
----------------
FRANKLIN
ALL CAP
VALUE FUND
----------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................................................................... $ 8,282,525
Cost - Sweep Money Fund (Note 7) .................................................................... 851,272
----------------
Total cost of investments ........................................................................... $ 9,133,797
================
Value - Unaffiliated issuers ........................................................................ $ 8,129,308
Value - Sweep Money Fund (Note 7) ................................................................... 851,272
----------------
Total value of investments .......................................................................... 8,980,580
Receivables:
Investment securities sold .......................................................................... 5,261
Capital shares sold ................................................................................. 96,579
Dividends ........................................................................................... 3,444
Due from investment manager ......................................................................... 47,682
Offering costs ........................................................................................ 45,228
----------------
Total assets ...................................................................................... 9,178,774
----------------
Liabilities:
Payables:
Investment securities purchased ..................................................................... 125,114
Capital shares redeemed ............................................................................. 35,343
Affiliates .......................................................................................... 5,999
Accrued expenses and other liabilities ................................................................ 39,521
----------------
Total liabilities ................................................................................. 205,977
----------------
Net assets, at value ............................................................................ $ 8,972,797
----------------
Net assets consist of:
Paid-in capital ....................................................................................... $ 9,169,680
Undistributed net investment income ................................................................... 27,455
Net unrealized appreciation (depreciation) ............................................................ (153,217)
Accumulated net realized gain (loss) .................................................................. (71,121)
----------------
Net assets, at value ............................................................................ $ 8,972,797
================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 19
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2007
----------------
FRANKLIN
ALL CAP
VALUE FUND
----------------
CLASS A:
Net assets, at value .................................................................................. $ 7,137,698
================
Shares outstanding .................................................................................... 749,692
================
Net asset value per share a ........................................................................... $ 9.52
================
Maximum offering price per share (net asset value / 94.25%) ........................................... $ 10.10
================
CLASS C:
Net assets, at value .................................................................................. $ 846,789
================
Shares outstanding .................................................................................... 89,179
================
Net asset value and maximum offering price per share a ................................................ $ 9.50
================
CLASS R:
Net assets, at value .................................................................................. $ 9,517
================
Shares outstanding .................................................................................... 1,000
================
Net asset value and maximum offering price per share a ................................................ $ 9.52
================
ADVISOR CLASS:
Net assets, at value .................................................................................. $ 978,793
================
Shares outstanding .................................................................................... 102,595
================
Net asset value and maximum offering price per share a ................................................ $ 9.54
================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
20 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
For the period June 1, 2007 (commencement of operations) to October 31, 2007
----------------
FRANKLIN
ALL CAP
VALUE FUND
----------------
Investment income:
Dividends (net of foreign taxes of $159)
Unaffiliated issuers ................................................................................ $ 31,426
Sweep Money Fund (Note 7) ........................................................................... 11,416
Interest .............................................................................................. 253
----------------
Total investment income ........................................................................... 43,095
----------------
Expenses:
Management fees (Note 3a) ............................................................................. 12,688
Administrative fees (Note 3b) ......................................................................... 4,907
Distribution fees: (Note 3c)
Class A ............................................................................................. 6,897
Class C ............................................................................................. 1,886
Class R ............................................................................................. 20
Transfer agent fees (Note 3e) ......................................................................... 6,514
Custodian fees (Note 4) ............................................................................... 40
Reports to shareholders ............................................................................... 6,812
Registration and filing fees .......................................................................... 1,179
Professional fees ..................................................................................... 21,975
Trustees' fees and expenses ........................................................................... 70
Amortization of offering costs ........................................................................ 32,276
Other ................................................................................................. 954
----------------
Total expenses .................................................................................... 96,218
Expense reductions (Note 4) ....................................................................... (6)
Expenses waived/paid by affiliates (Note 3f) ...................................................... (65,277)
----------------
Net expenses .................................................................................... 30,935
----------------
Net investment income ......................................................................... 12,160
----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ......................................................................................... (71,121)
Foreign currency transactions ....................................................................... 3
----------------
Net realized gain (loss) ...................................................................... (71,118)
----------------
Net change in unrealized appreciation (depreciation) on investments ................................. (153,217)
----------------
Net realized and unrealized gain (loss) .................................................................. (224,335)
----------------
Net increase (decrease) in net assets resulting from operations .......................................... $ (212,175)
================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 21
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------
FRANKLIN ALL CAP
VALUE FUND
-------------------
PERIOD ENDED
OCTOBER 31, 2007 a
-------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................................... $ 12,160
Net realized gain (loss) from investments and foreign currency transactions ......................... (71,118)
Net change in unrealized appreciation (depreciation) on investments ................................. (153,217)
-------------------
Net increase (decrease) in net assets resulting from operations ................................... (212,175)
-------------------
Capital share transactions (Note 2)
Class A ............................................................................................. 7,312,010
Class C ............................................................................................. 862,548
Class R ............................................................................................. 10,000
Advisor Class ....................................................................................... 1,000,367
-------------------
Total capital share transactions ...................................................................... 9,184,925
-------------------
Redemption fees ....................................................................................... 47
-------------------
Net increase (decrease) in net assets ............................................................. 8,972,797
Net assets:
Beginning of period ................................................................................... --
End of period ......................................................................................... $ 8,972,797
-------------------
Undistributed net investment income included in net assets:
End of period ......................................................................................... $ 27,455
==================
a For the period June 1, 2007 (commencement of operations) to October 31, 2007.
22 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS
FRANKLIN ALL CAP VALUE FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Value Investors Trust (Trust) is registered under the Investment
Company Act of 1940, as amended, (1940 Act) as an open-end investment company,
consisting of six separate funds. The Franklin All Cap Value Fund (the Fund)
included in this report is diversified. The financial statements of the
remaining five funds in the Trust are presented separately. The Fund offers four
classes of shares: Class A, Class C, Class R, and Advisor Class. 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.
The following summarizes the Fund's 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 Fund 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. 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. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. 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 Fund's Board of Trustees.
Annual Report | 23
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Fund's Board of Trustees.
The Fund does 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. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for U.S. income taxes because it is the Fund's policy
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date. Distributions to shareholders are recorded on
the ex-dividend date and are determined according to income tax regulations (tax
basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States of America. These differences may be permanent or temporary.
Permanent differences are reclassified among capital accounts to reflect their
tax character. These reclassifications have no impact on net assets or the
results of operations. Temporary differences are not reclassified, as they may
reverse in subsequent periods.
24 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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 of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
E. 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.
F. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the funds and accounted for as an addition to paid-in
capital.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and directors 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. Currently, the Trust expects the
risk of loss to be remote.
H. OFFERING COSTS
Offering costs are amortized on a straight line basis over twelve months.
Annual Report | 25
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
2. SHARES OF BENEFICIAL INTEREST
At October 31, 2007, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
------------------------
PERIOD ENDED
OCTOBER 31, 2007 a
------------------------
SHARES AMOUNT
------------------------
CLASS A SHARES:
Shares sold ................... 803,935 $ 7,832,682
Shares redeemed ............... (54,243) (520,672)
------------------------
Net increase (decrease) ....... 749,692 $ 7,312,010
========================
CLASS C SHARES:
Shares sold ................... 94,457 $ 912,684
Shares redeemed ............... (5,278) (50,136)
------------------------
Net increase (decrease) ....... 89,179 $ 862,548
========================
CLASS R SHARES:
Shares sold ................... 1,000 $ 10,000
Shares redeemed ............... -- --
------------------------
Net increase (decrease) ....... 1,000 $ 10,000
========================
ADVISOR CLASS SHARES:
Shares sold ................... 107,349 $ 1,046,114
Shares redeemed ............... (4,754) (45,747)
------------------------
Net increase (decrease) ....... 102,595 $ 1,000,367
========================
a For the period June 1, 2007 (commencement of Operations) to October 31, 2007.
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 Trust are also officers and/or directors of the following
subsidiaries:
- -------------------------------------------------------------------------------------------------
SUBSIDIARY 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
26 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The 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% Up to and including $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
0.350% Over $1.5 billion, up to and including $6.5 billion
0.325% Over $6.5 billion, up to and including $11.5 billion
0.300% Over $11.5 billion, up to and including $16.5 billion
0.290% Over $16.5 billion, up to and including $19 billion
0.280% Over $19 billion, up to and including $21.5 billion
0.270% In excess of $21.5 billion
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.20% per year of the
average daily net assets of the Fund.
C. DISTRIBUTION FEES
The Trust's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A, C and R compensation distribution plan,
the Fund pays Distributors for costs incurred in connection with the servicing,
sale and distribution of the Fund's shares up to the maximum annual plan rate.
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
Class A ................................................ 0.35%
Class C ................................................ 1.00%
Class R ................................................ 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ................................................... $13,784
Contingent deferred sales charges retained .......................... $ 2
Annual Report | 27
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the period ended October 31, 2007, the Fund paid transfer agent fees of
$6,514, of which $3,044 was retained by Investor Services.
F. WAIVER AND EXPENSE REIMBURSEMENTS
FT Services and Advisory Services have agreed in advance to waive all or a
portion of their respective fees and to assume payment of other expenses through
February 28, 2009. Total expenses waived or paid are not subject to
reimbursement by the Fund subsequent to the Fund's fiscal year end. After
February 28, 2009, FT Services and Advisory Services may discontinue this waiver
at any time upon notice to the Fund's Board of Trustees.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has 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 Fund's custodian expenses. During the period ended October 31, 2007, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At October 31, 2007, the cost of investments, net unrealized appreciation
(depreciation), for income tax purposes were as follows:
Cost of investments .......................................... $ 9,133,797
============
Unrealized appreciation ...................................... $ 388,536
Unrealized depreciation ...................................... (541,753)
------------
Net unrealized appreciation (depreciation) ................... $ (153,217)
============
Distributable earnings - Undistributed ordinary income ....... $ 27,455
============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of foreign currency transactions and offering costs.
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At October 31, 2007, the Fund had tax basis capital losses of
$71,121 expiring in 2015.
28 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
period ended October 31, 2007, aggregated $8,667,197 and $318,812, respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (Sweep Money Fund), an open-end investment company managed by Franklin
Advisers, Inc. (an affiliate of the investment manager). Management fees paid by
the Fund are reduced on assets invested in the Sweep Money Fund, in an amount
not to exceed the management and administrative fees paid by the Sweep Money
Fund.
8. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), 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 ("marketing support"), Franklin
Resources, Inc. and certain of its subsidiaries (collectively, the "Company"),
entered into settlements with certain of those regulators and governmental
entities. Specifically, the Company entered into settlements with the SEC, among
others, concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend 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. 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 their shareholders whole, as appropriate.
Annual Report | 29
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
9. NEW ACCOUNTING PRONOUNCEMENTS
The Fund adopted Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" (FIN 48), as required, on January 1,
2007. FIN 48 clarifies the accounting for uncertainty in tax positions taken or
expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Fund believes the adoption of SFAS 157
will have no material impact on its financial statements.
30 | Annual Report
Franklin Value Investors Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN ALL CAP VALUE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin All Cap Value Fund (the
"Fund") at October 31, 2007, the results of its operations, the changes in its
net assets and the financial highlights for the period June 1, 2007
(commencement of operations) through October 31, 2007, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2007 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 18, 2007
Annual Report | 31
Franklin Value Investors Trust
TAX DESIGNATION (UNAUDITED)
FRANKLIN ALL CAP VALUE FUND
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $31,585 as qualified dividends for purposes of the
maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
October 31, 2007.
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
32 | Annual Report
Franklin Value Investors Trust
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK T. CROHN (1924) Trustee Since 1989 7 FORMERLY, Director, Unity Mutual
One Franklin Parkway Life Insurance Company (until May
San Mateo, CA 94403-1906 2006).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Eastport Lobster & Fish Company; and FORMERLY, Chief Executive Officer and Chairman, Financial Benefit Life Insurance
Company (insurance and annuities) (until 1996); Chief Executive Officer, National Benefit Life Insurance Co. (insurance)
(1963-1982); and Director, AmVestors Financial Corporation (until 1997).
- ------------------------------------------------------------------------------------------------------------------------------------
BURTON J. GREENWALD (1929) Trustee Since 2001 14 Franklin Templeton Emerging
One Franklin Parkway Markets Debt Opportunities Fund
San Mateo, CA 94403-1906 PLC and Fiduciary International
Ireland Limited.
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Managing Director, B.J. Greenwald Associates (management consultants to the financial services industry); and FORMERLY, Chairman,
Fiduciary Trust International Funds; Executive Vice President, L.F Rothschild Fund Management, Inc.; President and Director, Merit
Mutual Funds; President, Underwriting Division and Director, National Securities & Research Corporation; Governor, Investment
Company Institute and Chairman, ICI Public Information Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES RUBENS II (1930) Trustee Since 1989 14 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT E. WADE (1946) Trustee Since 2004 33 El Oro and Exploration Co., p.l.c.
One Franklin Parkway (investments) and ARC Wireless
San Mateo, CA 94403-1906 Solutions, Inc. (wireless
components and network products).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Practicing attorney.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 33
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**WILLIAM J. LIPPMAN (1925) Trustee, Trustee and 7 None
One Parker Plaza, 9th Floor President and President since
Fort Lee, NJ 07024 Chief 1989 and Chief
Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Advisory Services, LLC; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the
case may be, of four of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
34 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Secretary, Franklin Advisory Services, LLC, Franklin Mutual
Advisers, LLC and Franklin Templeton Distributors, Inc.; and officer of 41 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) Vice President Since 1989 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
GREGORY R. SEWARD (1956) Treasurer Since October Not Applicable Not Applicable
500 East Broward Blvd. 2007
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 18 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Vice President, JPMorgan Chase (2000-2004) and American General Financial Group (1991-2000).
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 35
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman &
Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** William J. Lippman is considered to be an interested person of the Trust
under the federal securities laws due to his position as an officer of some of
the subsidiaries of Franklin Resources, Inc., which is the parent company of the
Trust's investment manager and distributor.
Note 1: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK T. CROHN AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. CROHN, WHO CURRENTLY IS A DIRECTOR OF VARIOUS COMPANIES AND
CHAIRS THE FUND'S AUDIT COMMITTEE, QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS
BUSINESS BACKGROUND AND EXPERIENCE, WHICH INCLUDES SERVICE AS CHIEF EXECUTIVE
OFFICER OF NATIONAL BENEFIT LIFE INSURANCE COMPANY (1963-1982), CHIEF EXECUTIVE
OFFICER OF FINANCIAL BENEFIT LIFE INSURANCE COMPANY (1982-1996), AND SERVICE AS
A DIRECTOR OF AMVESTORS FINANCIAL CORPORATION UNTIL 1997. AS A RESULT OF SUCH
BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. CROHN HAS
ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. CROHN IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
36 | Annual Report
Franklin Value Investors Trust
SHAREHOLDER INFORMATION
FRANKLIN ALL CAP VALUE 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 1-954/527-7678 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.
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.
Annual Report | 37
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[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN ALL CAP VALUE FUND
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.
448 A2007 12/07
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)(1), 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.
(a) Audit Fees
The aggregate fees paid to the principal accountant for
professional services rendered by the principal accountant
for the audit of the registrant's annual financial
statements or for services that are normally provided by the
principal accountant in connection with statutory and
regulatory filings or engagements were $206,080 for the
fiscal year ended October 31, 2007 and $174,845 for the
fiscal year ended October 31, 2006.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for
assurance and related services rendered by the principal
accountant to the registrant that are reasonably related to
the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item
4.
There were no fees paid to the principal accountant for
assurance and related services rendered by the principal
accountant to the registrant's investment adviser and any
entity controlling, controlled by or under common control
with the investment adviser that provides ongoing services
to the registrant that are reasonably related to the
performance of the audit of their financial statements.
(c) Tax Fees
There were no fees paid to the principal accountant for
professional services rendered by the principal accountant
to the registrant for tax compliance, tax advice and tax
planning.
The aggregate fees paid to the principal accountant for
professional services rendered by the principal accountant
to the registrant's investment adviser and any entity
controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the
registrant for tax compliance, tax advice and tax planning
were $46,000 for the fiscal year ended October 31, 2007 and
$0 for the fiscal year ended October 31, 2006. The services
for which these fees were paid included tax compliance and
advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for
products and services rendered by the principal accountant
to the registrant not reported in paragraphs (a)-(c) of Item
4 were $0 for the fiscal year ended October 31, 2007 and
$3,740 for the fiscal year ended October 31, 2006. The
services for which these fees were paid included review of
materials provided to the fund Board in connection with the
investment management contract renewal process.
The aggregate fees paid to the principal accountant for
products and services rendered by the principal accountant
to the registrant's investment adviser and any entity
controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the
registrant other than services reported in paragraphs
(a)-(c) of Item 4 were $0 for the fiscal year ended October
31, 2007 and $172,121 for the fiscal year ended October 31,
2006. The services for which these fees were paid included
review of materials provided to the fund Board in connect
with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly
responsible for approving the services to be provided by the
auditors, including:
(i) pre-approval of all audit and audit related
services;
(ii) pre-approval of all non-audit related services to
be provided to the Fund by the auditors;
(iii)pre-approval of all non-audit related services to
be provided to the registrant by the auditors to the
registrant's investment adviser or to any entity that
controls, is controlled by or is under common control with
the registrant's investment adviser and that provides
ongoing services to the registrant where the non-audit
services relate directly to the operations or financial
reporting of the registrant; and
(iv) establishment by the audit committee, if deemed
necessary or appropriate, as an alternative to committee
pre-approval of services to be provided by the auditors, as
required by paragraphs (ii) and (iii) above, of policies and
procedures to permit such services to be pre-approved by
other means, such as through establishment of guidelines or
by action of a designated member or members of the
committee; provided the policies and procedures are detailed
as to the particular service and the committee is informed
of each service and such policies and procedures do not
include delegation of audit committee responsibilities, as
contemplated under the Securities Exchange Act of 1934, to
management; subject, in the case of (ii) through (iv), to
any waivers, exceptions or exemptions that may be available
under applicable law or rules.
(e) (2) None of the services provided to the registrant
described in paragraphs (b)-(d) of Item 4 were approved by
the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal
accountant for services rendered by the principal accountant
to the registrant and the registrant's investment adviser
and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing
services to the registrant were $46,000 for the fiscal year
ended October 31, 2007 and $175,861 for the fiscal year
ended October 31, 2006.
(h) The registrant's audit committee of the board has
considered whether the provision of non-audit services that
were rendered to the registrant's investment adviser (not
including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that
provides ongoing services to the registrant that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01
of Regulation S-X is compatible with maintaining the
principal accountant's independence.
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) (1) Code of Ethics
(a) (2) 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) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN VALUE INVESTORS TRUST
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 27, 2007
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 December 27, 2007
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date December 27, 2007