UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05878
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FRANKLIN VALUE INVESTORS TRUST
------------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-----------------------------------------------
(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
-------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area Code: (650) 312-2000
--------------
Date of fiscal year end: 10/31
-----
Date of reporting period: 10/31/08
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ITEM 1. REPORTS TO STOCKHOLDERS.
(GRAPHIC)
OCTOBER 31, 2008
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
ANNUAL REPORT AND SHAREHOLDER LETTER
VALUE
FRANKLIN VALUE INVESTORS TRUST
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(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - 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)
Not part of the annual report
Contents
CEO'S MESSAGE ............................................. 1
ANNUAL REPORT
Economic and Market Overview .............................. 4
Franklin All Cap Value Fund ............................... 6
Franklin Balance Sheet Investment Fund .................... 16
Franklin Large Cap Value Fund ............................. 26
Franklin MicroCap Value Fund .............................. 36
Franklin MidCap Value Fund ................................ 44
Franklin Small Cap Value Fund ............................. 54
Financial Highlights and Statements of Investments ........ 64
Financial Statements ...................................... 112
Notes to Financial Statements ............................. 121
Report of Independent Registered Public Accounting Firm ... 139
Tax Designation ........................................... 140
Board Members and Officers ................................ 141
Shareholder Information ................................... 145
A Message from Gregory E. Johnson,
President and Chief Executive Officer of Franklin Resources, Inc.
October 31, 2008
Dear Shareholder:
The enclosed annual report for Franklin Value Investors Trust covers the 12
months ended October 31, 2008, and I would like to add some comments on market
events during this time. Recent market volatility has been jarring to everyone,
including those of us who have worked in financial markets for many years. Bank
lending around the world seized up, and the fallout impacted venerable firms
alongside broader stock and bond indexes.
This environment is bound to provoke great concern, but it's equally important
to put the latest market developments in perspective. That's why I'd like to
offer a few thoughts on these events, our company's approach to investing and
the strong health of our organization.
A key point to recognize is that global financial turmoil is being addressed by
global action. Central banks around the world have coordinated their efforts to
cut interest rates and supply liquidity to frozen funding markets. A number of
governments have also intervened to rescue major financial institutions or find
an orderly way for them to be acquired. Here in the U.S., the Federal Reserve
and Treasury Department have moved rapidly to establish new programs for easing
money market pressures and handling troubled financial assets. The outcome of
all these efforts may take a while to be realized, but I believe the latest
actions here and abroad mark a significant turning point for global capital
markets.
Sign up for EDELIVERY of your Shareholder Report
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NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
It's also important to remember that as daunting as current market conditions
may be, we have navigated through other periods of market volatility. U.S. stock
markets recorded three bear markets during the 1960s as the nation grappled with
the Vietnam War and a turbulent economy.1 The quintupling of oil prices in 1973
led to a deep U.S. recession and a stock market plunge of 45.1% from January
1973 through December 1974.(1) And the "Black Monday" stock market crash of 1987
remains the largest single-day percentage decline in the history of the Dow
Jones Industrial Average.(2)
Advice applicable throughout these upheavals remains true today. The late Sir
John Templeton, writing 15 years ago, ended a list of his core investment
principles with these thoughts: "Do not be fearful or negative too often.... For
100 years optimists have carried the day in U.S. stocks. Even in the dark '70s,
many professional money managers -- and many individual investors too -- made
money in stocks.... In this century or the next it's still 'Buy low, sell
high.'"(3)
Sir John knew these simple concepts were difficult to execute in the face of
pessimism. Nonetheless, that is precisely how our Franklin, Templeton and Mutual
Series portfolio managers are contending with today's challenging environment.
They are using their expertise to sort through investment opportunities,
avoiding those firms that have become merely cheap and identifying those firms
best positioned to be eventual winners. This kind of rigorous, bottom-up,
security-by-security analysis is the fundamental investment discipline practiced
across our global platform.
These asset management strengths are also the core of our business. Unlike
financial firms that have dominated recent headlines, Franklin Templeton derives
its revenue primarily from investment management, not investment banking or
securities brokerage. Additionally, our assets under management are diversified
by investment objective, clientele and geographic region. Diversified
positioning helps our firm maintain healthy operating margins even when volatile
markets reduce assets under management. It is also important to note that
maintaining a strong balance sheet has been a pillar of our management strategy.
We have a substantial pool of cash and investments and low levels of debt, and
we are in the enviable position of not having to depend on credit to meet our
operating needs. In fact, our strong franchise, sound capitalization and minimal
leverage recently led Standard & Poor's to raise its credit ratings on Franklin
Resources, Inc. (BEN) to the highest level currently applied to a publicly
traded asset manager.(4)
(1.) Source: Ned Davis Research, Inc.
(2.) Source: NYSE Euronext. 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.
(3.) Source: "16 Rules for Investment Success" by Sir John Templeton.
(4.) Source: Standard & Poor's press release, 10/6/08.
2 | Not part of the annual report
Franklin Templeton's six-decade growth into a premier global asset manager has
given us the conviction that although conditions remain challenging, there are
ample reasons to be optimistic about eventual market stabilization and recovery.
Being able to take advantage of markets shaken by maximum pessimism has helped
our firm develop into an organization that stretches across 29 countries and
manages assets for more than 20 million shareholder accounts.
In the enclosed annual report for Franklin Value Investors Trust, the portfolio
managers discuss market conditions, investment decisions and Fund performance
during the 12 months ended October 31, 2008. The report contains additional
performance data and financial information. Our website, franklintempleton.com,
offers more timely discussions, daily prices, portfolio holdings and other
information. We encourage you to discuss your concerns with your financial
advisor, who can review your overall portfolio, reassess your goals and help you
stay focused on the long term. As times like these illustrate, all securities
markets fluctuate, as do fund share prices.
We are grateful for the trust you have placed in Franklin Templeton and remain
focused on serving your investment needs.
Sincerely,
/s/ Gregory E. Johnson
Gregory E. Johnson
President and Chief Executive Officer
Franklin Resources, Inc.
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31, 2008. 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.
Not part of the annual report | 3
Annual Report
Economic and Market Overview
For the year ended October 31, 2008, the decelerating U.S. economy contended
with a staggering financial markets crisis amid a wave of government
interventions and emergency funding. In addition, high oil prices, the worst
housing market contraction in decades, a severe credit crunch and rising
joblessness weighed on the economy. Economic growth, as measured by gross
domestic product (GDP), reported a -0.2% annualized rate for the fourth quarter
of 2007. GDP edged up to 0.9% annualized in the first quarter of 2008 and
improved at a 2.8% annualized pace in the second quarter, based largely on
strong exports and government spending. However, GDP fell an estimated
annualized 0.5% in 2008's third quarter as the subprime financial crisis
deepened and spread into all aspects of the economy. The U.S. dollar declined
for much of the 12 months compared with most foreign currencies, which
contributed to increased export demand and aided the manufacturing sector. The
greenback then rallied toward period-end, breaking a six-year downward trend as
commodity prices fell, inflationary concerns abated and global economic growth
began to subside. Supports to the economy included an inventory buildup,
expanding government spending and a boost to household finances from a fiscal
stimulus package. Although tax rebate checks lifted spending temporarily, retail
sales remained weak and new vehicle sales hit a 15-year low.
The U.S. labor market contracted and the unemployment rate rose from 4.8% at the
beginning of the period to 6.5% in October, the highest level since June
2003.(1) In September, mass layoff (50 or more for a single employer) initial
claims reached their highest level since September 2005 when high layoff
activity resulted from Hurricane Katrina.(1) Volatile oil prices soared to an
all-time trading high of $145 per barrel in July 2008, and dropped dramatically
by period-end, settling at $68. In October, amid concerns of reduced demand due
to a slowing global economy, oil prices plummeted 33%, bringing the drop since
the peak in mid-July to 53%. Many other commodity prices --including those for
coal, natural gas, precious metals, raw materials and agricultural commodities
- -- also neared or surpassed all-time highs due to increased worldwide demand and
investors seeking alternatives to shaky stocks and corporate bonds. These prices
fell through much of third quarter
(1.) Source: Bureau of Labor Statistics.
4 | Annual Report
2008 as global demand subsided. For the 12 months ended October 31, 2008,
inflation as measured by the core Consumer Price Index (CPI), which excludes
food and energy costs, rose 2.2%; this matched its 10-year average rate.(1)
Seeking to stimulate the sagging economy without stoking inflation, the Federal
Reserve Board made seven cuts to its key federal funds target rate during the
period, lowering it 350 basis points, from 4.50% to a four-year low of 1.00%. In
this uncertain environment, U.S. Treasury prices generally increased as many
investors sought alternatives to riskier stocks and corporate bonds, and the
10-year Treasury note yield fell from 4.48% at the beginning of the period to
4.01% on October 31, 2008.
U.S. stock markets endured high volatility and suffered losses during this
challenging period. For the 12 months under review, the Dow Jones Industrial
Average, Standard & Poor's 500 Index (S&P 500) and NASDAQ Composite Index
declined 31.24%, 36.10% and 39.34%, respectively.(2) All sectors lost value, and
the financials, information technology and materials sectors had the largest
declines.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31,
2008. 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.
(2.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. Past performance is no guarantee of future results. 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.
Annual Report | 5
Franklin All Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin All Cap Value Fund seeks
long-term total return by primarily investing 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin All Cap Value Fund covers the fiscal year ended
October 31, 2008.
PERFORMANCE OVERVIEW
Franklin All Cap Value Fund - Class A had a -33.95% cumulative total return for
the 12 months under review. The Fund performed better than its benchmark, the
Russell 3000(R) Value Index, which declined 36.32% for the same period.1 You can
find more of the Fund's performance data in the Performance Summary beginning on
page 9.
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, or that appear to be
inexpensive measured by factors such as price relative to earnings, book value
or cash flow. 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.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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
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.
6 | Annual Report
MANAGER'S DISCUSSION
During the year under review, detractors from performance included PHI, a
helicopter transportation company serving the oil and gas industry, and Global
Industries, an offshore oil and gas services company, as their share prices
suffered late in the period largely due to falling oil prices. In the consumer
discretionary sector, athletic footwear and apparel maker Adidas, a new holding,
declined in value largely due to a much more uncertain outlook for consumer
spending.(2)
Top contributors to performance included food and staples retailer Wal-Mart
Stores, which performed well as the company continued to gain market share and
increased its return on invested capital. In the materials sector, steel company
Nucor helped performance, as did discount retailer Fred's in the consumer
discretionary sector.
During the fiscal year, we initiated positions in several companies including
Adidas, Eaton and Laboratory Corp. of America. We also added to positions such
as General Electric, J.C. Penney and Sierra Pacific Resources. During the
period, we liquidated positions in Brunswick, Haverty Furniture, Southwest
Airlines and Zale, among others, because the shares reached our price targets or
we believed the companies' fundamentals had deteriorated. We also reduced our
positions in Apache, ENSCO International and Occidental
(2.) The consumer discretionary sector comprises automobiles and components,
consumer durables and apparel, consumer services, and retailing in the SOI.
PORTFOLIO BREAKDOWN
Franklin All Cap Value Fund
Based on Total Net Assets as of 10/31/08
(BAR CHART)
Capital Goods 21.3%
Retailing 11.0%
Materials 11.0%
Energy 9.0%
Utilities 8.1%
Insurance 7.2%
Consumer Durables & Apparel 5.1%
Food & Staples Retailing 3.1%
Commercial & Professional Services 2.5%
Other 9.4%
Short-Term Investments & Other Net Assets 12.3%
Annual Report | 7
TOP 10 EQUITY HOLDINGS
Franklin All Cap Value Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Wal-Mart Stores Inc. 3.1%
FOOD & STAPLES RETAILING
The Home Depot Inc. 2.4%
RETAILING
IDACORP Inc. 2.3%
UTILITIES
Sierra Pacific Resources 2.2%
UTILITIES
Nucor Corp. 2.2%
MATERIALS
General Electric Co. 2.1%
CAPITAL GOODS
Bemis Co. Inc. 2.0%
MATERIALS
Griffon Corp. 2.0%
CAPITAL GOODS
PHI Inc. 2.0%
ENERGY
Avista Corp. 1.9%
UTILITIES
Petroleum, as well as several other energy holdings during the mid-2008 spike in
oil prices.
Thank you for your participation in Franklin All Cap Value Fund. We look forward
to serving your future investment needs.
(PHOTO OF WILLIAM J. LIPPMAN)
/s/ William J. Lippman
William J. Lippman
Co-Portfolio Manager
(PHOTO OF STEVEN B. RAINERI)
/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, 2008, 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.
8 | Annual Report
Performance Summary as of 10/31/08
FRANKLIN ALL 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: FRAVX) CHANGE 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$3.27 $6.25 $9.52
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0531
CLASS C (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$3.30 $6.20 $9.50
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0403
CLASS R (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$3.27 $6.25 $9.52
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0464
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$3.26 $6.28 $9.54
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0624
Annual Report | 9
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.
CLASS A 1-YEAR INCEPTION (6/1/07)
- ------- ------- ------------------
Cumulative Total Return(2) -33.95% -37.12%
Average Annual Total Return(3) -37.74% -30.88%
Value of $10,000 Investment(4) $ 6,226 $ 5,926
Avg. Ann. Total Return (9/30/08)(5) -20.50% -19.73%
Total Annual Operating Expenses(6)
Without Waiver 3.97%
With Waiver 1.25%
CLASS C 1-YEAR INCEPTION (6/1/07)
- ------- ------- ------------------
Cumulative Total Return(2) -34.37% -37.71%
Average Annual Total Return(3) -35.02% -28.41%
Value of $10,000 Investment(4) $ 6,498 $ 6,229
Avg. Ann. Total Return (9/30/08)(5) -17.10% -16.65%
Total Annual Operating Expenses(6)
Without Waiver 4.62%
With Waiver 1.90%
CLASS R 1-YEAR INCEPTION (6/1/07)
- ------- ------- ------------------
Cumulative Total Return(2) -34.00% -37.17%
Average Annual Total Return(3) -34.00% -27.97%
Value of $10,000 Investment(4) $ 6,600 $ 6,283
Avg. Ann. Total Return (9/30/08)(5) -15.74% -16.13%
Total Annual Operating Expenses(6)
Without Waiver 4.12%
With Waiver 1.40%
ADVISOR CLASS 1-YEAR INCEPTION (6/1/07)
- ------------- ------- ------------------
Cumulative Total Return(2) -33.70% -36.75%
Average Annual Total Return(3) -33.70% -27.63%
Value of $10,000 Investment(4) $ 6,630 $ 6,325
Avg. Ann. Total Return (9/30/08)(5) -15.45% -15.78%
Total Annual Operating Expenses(6)
Without Waiver 3.62%
With Waiver 0.90%
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 (800) 342-5236.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
LIMIT THEIR RESPECTIVE FEES AND TO ASSUME AS THEIR OWN EXPENSE CERTAIN EXPENSES
OTHERWISE PAYABLE BY THE FUND SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES,
EXCLUDING ACQUIRED FUND FEES AND EXPENSES, DO NOT EXCEED THE AMOUNT SHOWN WITH
WAIVER FOR EACH SHARE CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS,
INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND
LIQUIDATIONS) UNTIL 2/28/09.
10 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
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.
CLASS A (6/1/07-10/31/08)
(PERFORMANCE GRAPH)
DATE FRANKLIN ALL CAP VALUE FUND - CLASS A RUSSELL 3000 VALUE INDEX CPI
- ---- ------------------------------------- ------------------------ -------
6/1/2007 $9,425 $10,000 $10,000
6/30/2007 $9,293 $ 9,766 $10,019
7/31/2007 $8,803 $ 9,283 $10,017
8/31/2007 $8,728 $ 9,393 $ 9,998
9/30/2007 $8,850 $ 9,693 $10,026
10/31/2007 $8,973 $ 9,702 $10,047
11/30/2007 $8,530 $ 9,208 $10,107
12/31/2007 $8,468 $ 9,120 $10,100
1/31/2008 $8,335 $ 8,754 $10,151
2/29/2008 $8,079 $ 8,389 $10,180
3/31/2008 $8,174 $ 8,340 $10,268
4/30/2008 $8,648 $ 8,735 $10,331
5/31/2008 $8,875 $ 8,746 $10,418
6/30/2008 $8,107 $ 7,909 $10,523
7/31/2008 $8,069 $ 7,914 $10,578
8/31/2008 $8,250 $ 8,068 $10,536
9/30/2008 $7,463 $ 7,493 $10,521
10/31/2008 $5,926 $ 6,178 $10,415
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -37.74%
Since Inception (6/1/07) -30.88%
CLASS C (6/1/07-10/31/08)
(PERFORMANCE GRAPH)
DATE FRANKLIN ALL CAP VALUE FUND - CLASS C RUSSELL 3000 VALUE INDEX CPI
- ---- ------------------------------------- ------------------------ -------
6/1/2007 $10,000 $10,000 $10,000
6/30/2007 $ 9,860 $ 9,766 $10,019
7/31/2007 $ 9,330 $ 9,283 $10,017
8/31/2007 $ 9,250 $ 9,393 $ 9,998
9/30/2007 $ 9,370 $ 9,693 $10,026
10/31/2007 $ 9,490 $ 9,702 $10,047
11/30/2007 $ 9,020 $ 9,208 $10,107
12/31/2007 $ 8,951 $ 9,120 $10,100
1/31/2008 $ 8,800 $ 8,754 $10,151
2/29/2008 $ 8,529 $ 8,389 $10,180
3/31/2008 $ 8,630 $ 8,340 $10,268
4/30/2008 $ 9,122 $ 8,735 $10,331
5/31/2008 $ 9,353 $ 8,746 $10,418
6/30/2008 $ 8,549 $ 7,909 $10,523
7/31/2008 $ 8,489 $ 7,914 $10,578
8/31/2008 $ 8,680 $ 8,068 $10,536
9/30/2008 $ 7,846 $ 7,493 $10,521
10/31/2008 $ 6,229 $ 6,178 $10,415
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/08
- ------- --------
1-Year -35.02%
Since Inception (6/1/07) -28.41%
Annual Report | 11
Performance Summary (CONTINUED)
CLASS R (6/1/07-10/31/08)
(PERFORMANCE GRAPH)
DATE FRANKLIN ALL CAP VALUE FUND - CLASS R RUSSELL 3000 VALUE INDEX CPI
- ---- ------------------------------------- ------------------------ -------
6/1/2007 $10,000 $10,000 $10,000
6/30/2007 $ 9,860 $ 9,766 $10,019
7/31/2007 $ 9,340 $ 9,283 $10,017
8/31/2007 $ 9,260 $ 9,393 $ 9,998
9/30/2007 $ 9,390 $ 9,693 $10,026
10/31/2007 $ 9,520 $ 9,702 $10,047
11/30/2007 $ 9,050 $ 9,208 $10,107
12/31/2007 $ 8,977 $ 9,120 $10,100
1/31/2008 $ 8,837 $ 8,754 $10,151
2/29/2008 $ 8,565 $ 8,389 $10,180
3/31/2008 $ 8,666 $ 8,340 $10,268
4/30/2008 $ 9,158 $ 8,735 $10,331
5/31/2008 $ 9,400 $ 8,746 $10,418
6/30/2008 $ 8,595 $ 7,909 $10,523
7/31/2008 $ 8,545 $ 7,914 $10,578
8/31/2008 $ 8,736 $ 8,068 $10,536
9/30/2008 $ 7,912 $ 7,493 $10,521
10/31/2008 $ 6,283 $ 6,178 $10,415
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/08
- ------- --------
1-Year -34.00%
Since Inception (6/1/07) -27.97%
ADVISOR CLASS (6/1/07-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN ALL CAP VALUE FUND - ADVISOR
DATE CLASS RUSSELL 3000 VALUE INDEX CPI
- ---- ------------------------------------- ------------------------ -------
6/1/2007 $10,000 $10,000 $10,000
6/30/2007 $ 9,870 $ 9,766 $10,019
7/31/2007 $ 9,350 $ 9,283 $10,017
8/31/2007 $ 9,280 $ 9,393 $ 9,998
9/30/2007 $ 9,410 $ 9,693 $10,026
10/31/2007 $ 9,540 $ 9,702 $10,047
11/30/2007 $ 9,080 $ 9,208 $10,107
12/31/2007 $ 9,014 $ 9,120 $10,100
1/31/2008 $ 8,863 $ 8,754 $10,151
2/29/2008 $ 8,601 $ 8,389 $10,180
3/31/2008 $ 8,702 $ 8,340 $10,268
4/30/2008 $ 9,205 $ 8,735 $10,331
5/31/2008 $ 9,447 $ 8,746 $10,418
6/30/2008 $ 8,641 $ 7,909 $10,523
7/31/2008 $ 8,601 $ 7,914 $10,578
8/31/2008 $ 8,792 $ 8,068 $10,536
9/30/2008 $ 7,956 $ 7,493 $10,521
10/31/2008 $ 6,325 $ 6,178 $10,415
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/08
- ------------- --------
1-Year -33.70%
Since Inception (6/1/07) -27.63%
12 | 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 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: (C) 2008 Morningstar. 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.
Annual Report | 13
Your Fund's Expenses
FRANKLIN ALL CAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
14 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 685.30 $5.30
Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.34
CLASS C
Actual $1,000 $ 682.80 $7.91
Hypothetical (5% return before expenses) $1,000 $1,015.74 $9.48
CLASS R
Actual $1,000 $ 686.10 $5.93
Hypothetical (5% return before expenses) $1,000 $1,018.10 $7.10
ADVISOR CLASS
Actual $1,000 $ 687.10 $3.82
Hypothetical (5% return before expenses) $1,000 $1,020.61 $4.57
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.25%; C: 1.87%; R:
1.40%; and Advisor: 0.90%), multiplied by the average account value over
the period, multiplied by 184/366 to reflect the one-half year period.
Annual Report | 15
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 of
any size that we believe are undervalued in the marketplace at the time of
purchase but that 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Balance Sheet Investment Fund covers the fiscal
year ended October 31, 2008.
PERFORMANCE OVERVIEW
Franklin Balance Sheet Investment Fund - Class A had a -39.30% cumulative total
return for the 12 months under review. The Fund underperformed its benchmark,
the Russell 3000 Value Index, which declined 36.32% for the same period.(1)
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 19.
INVESTMENT STRATEGY
Our strategy is to buy shares of financially sound, well-established companies
at a low price-to-book value when we have reasonable confidence that book value
will increase over several years. Book value per share is a given company's net
worth or shareholders' equity on an accounting or "book" basis, divided by
shares outstanding. We generally define "low price-to-book value" as the lower
two deciles (20%) of our investible universe, which we derive from a proprietary
database for screening purposes. 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: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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
index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's
portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 76.
16 | Annual Report
MANAGER'S DISCUSSION
During the fiscal year under review, we identified nine new investment
opportunities: Benchmark Electronics, an electronics manufacturing services
company; Chubb and Cincinnati Financial, two property and casualty insurers; CMS
Energy and Westar Energy, regional utility companies; Commercial Metals, a
metals manufacturer, recycler and distributor; RTI International Metals, a
titanium products manufacturer; Washington Mutual, a consumer and small business
banking company; and Zenith National Insurance, a workers compensation insurance
provider. We also added to existing positions Armstrong World Industries,
MetLife, Old Republic International, Sierra Pacific Resources, Westlake Chemical
and Zale, among others. These companies have little in common apart from
satisfying our investment criteria. In each case, we believed we were taking
advantage of negative perceptions in the market to establish or increase
positions that would produce positive results in future years. Cash deployed
into new or existing positions totaled $272 million.
Portfolio sales totaled $746 million. Sales were predominantly in response to
price appreciation in the first half of the year, while later sales were more
often in response to deteriorating fundamentals. By the end of the period, we
exited AbitibiBowater, Air Transport Services Group, Dollar Thrifty Automotive
Group, Freddie Mac, Handleman, Mesa Air Group, MGIC Investment, Monsanto, PMI
Group, Quanta Services, Radian Group, Spansion, UMB Financial, United States
Steel and Washington Mutual. There were also two completed takeovers: Kellwood
(apparel) and Midland (insurance). Historically, takeovers have been an
important part of the Fund's investment returns. Such activity was greatly
reduced compared with prior periods as a consequence of the credit market
disruptions that characterized the period under review. The various security
sales generated net realized gains of $78.8 million, all of it long term.
There were many more detractors from performance than contributors, especially
among financials, such as Prudential Financial, Freddie Mac, CIT Group and
Assurant. Other detractors included Exterran Holdings (gas compression), Dollar
Thrifty Automotive Group (car rental), Sherritt International (natural
resources), Trinity Industries (rail cars, barges and
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 10/31/08
(BAR CHART)
Insurance 21.1%
Utilities 11.3%
Capital Goods 11.2%
Transportation 7.0%
Materials 6.5%
Consumer Durables & Apparel 5.7%
Retailing 5.0%
Energy 4.6%
Food, Beverage & Tobacco 4.3%
Other 8.6%
Short-Term Investments & Other Net Assets 14.7%
Annual Report | 17
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Norfolk Southern Corp. 3.0%
TRANSPORTATION
KGen Power Corp., 144A 2.4%
UTILITIES
IPC Holdings Ltd. 2.0%
INSURANCE
Corn Products International Inc. 2.0%
FOOD, BEVERAGE & TOBACCO
American National Insurance Co. 2.0%
INSURANCE
Entergy Corp. 1.9%
UTILITIES
Old Republic International Corp. 1.9%
INSURANCE
Sierra Pacific Resources 1.9%
UTILITIES
Watson Pharmaceuticals Inc. 1.8%
PHARMACEUTICALS, BIOTECHNOLOGY
& LIFE SCIENCES
Vail Resorts Inc. 1.7%
CONSUMER SERVICES
wind towers) and Charming Shoppes (specialty retail). Freddie Mac and Dollar
Thrifty, as noted, were eliminated during the period under review.
Positions that contributed most positively to Fund performance included United
States Steel and Monsanto, both sold by period-end, Norfolk Southern (rail
transportation), Alaska Air Group (airline), Peabody Energy (coal) and Big Lots
(discount retail). The dramatic price declines in our portfolio, for the indices
and across asset classes that characterized the Fund's fiscal year produced
conditions we believe are better suited to value investors like us than have
existed since we closed the Fund to new investors in 2002. Largely as a
consequence of these market changes, our trustees elected to reopen Franklin
Balance Sheet Investment Fund to new investors beginning on May 1, 2008. On
October 31, 2008, the Fund's total net assets were $2.4 billion with short-term
investments and other net assets of 14.7%, compared with $4.9 billion and 10.5%
on October 31, 2007. Net shareholder redemptions were $765 million during the
12-month period, of which $123 million occurred subsequent to the Fund's
reopening.
Thank you for your continued participation in Franklin Balance Sheet Investment
Fund. We look forward to serving your future investment needs.
(PHOTO OF BRUCE C. BAUGHMAN)
/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
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2008, 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.
18 | Annual Report
Performance Summary as of 10/31/08
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
CLASS A (SYMBOL: FRBSX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$31.51 $37.85 $69.36
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.6729
Short-Term Capital Gain $0.0682
Long-Term Capital Gain $5.6390
TOTAL $6.3801
CLASS B (SYMBOL: FBSBX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$30.93 $37.19 $68.12
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1062
Short-Term Capital Gain $0.0682
Long-Term Capital Gain $5.6390
TOTAL $5.8134
CLASS C (SYMBOL: FCBSX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$30.95 $37.27 $68.22
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1000
Short-Term Capital Gain $0.0682
Long-Term Capital Gain $5.6390
TOTAL $5.8072
CLASS R (SYMBOL: FBSRX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$31.29 $37.54 $68.83
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.5130
Short-Term Capital Gain $0.0682
Long-Term Capital Gain $5.6390
TOTAL $6.2202
ADVISOR CLASS (SYMBOL: FBSAX) CHANGE 10/31/08 10/31/07
- ----------------------------- ------- -------- --------
Net Asset Value (NAV) -$31.60 $37.93 $69.53
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.8586
Short-Term Capital Gain $0.0682
Long-Term Capital Gain $5.6390
TOTAL $6.5658
Annual Report | 19
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.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ------------------
Cumulative Total Return(1) -39.30% +7.86% +79.70%
Average Annual Total Return(2) -42.79% +0.33% +5.41%
Value of $10,000 Investment(3) $ 5,721 $10,167 $16,939
Avg. Ann. Total Return (9/30/08)(4) -27.25% +6.62% +8.14%
Total Annual Operating Expenses(5) 0.92%
CLASS B 1-YEAR 5-YEAR INCEPTION (3/1/01)
- ------- ------- ------- ------------------
Cumulative Total Return(1) -39.76% +3.81% +32.16%
Average Annual Total Return(2) -41.94% +0.43% +3.70%
Value of $10,000 Investment(3) $ 5,806 $10,216 $13,216
Avg. Ann. Total Return (9/30/08)(4) -26.18% +6.76% +7.04%
Total Annual Operating Expenses(5) 1.68%
CLASS C 1-YEAR 5-YEAR INCEPTION (3/1/01)
- ------- ------- ------- ------------------
Cumulati ve Total Return(1) -39.73% +3.87% +32.28%
Average Annual Total Return(2) -40.28% +0.76% +3.72%
Value of $10,000 Investment(3) $ 5,972 $10,387 $13,228
Avg. Ann. Total Return (9/30/08)(4) -24.09% +7.07% +7.05%
Total Annual Operating Expenses(5) 1.68%
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------- ------- ------------------
Cumulative Total Return(1) -39.45% +6.45% +22.32%
Average Annual Total Return(2) -39.45% +1.26% +2.99%
Value of $10,000 Investment(3) $ 6,055 $10,645 $12,232
Avg. Ann. Total Return (9/30/08)(4) -23.02% +7.60% +6.72%
Total Annual Operating Expenses(5) 1.18%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ------------------
Cumulative Total Return(1) -39.14% +9.18% +82.99%
Average Annual Total Return(2) -39.14% +1.77% +6.23%
Value of $10,000 Investment(3) $ 6,086 $10,918 $18,299
Avg. Ann. Total Return (9/30/08)(4) -22.63% +8.14% +8.98%
Total Annual Operating Expenses(5) 0.68%
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 (800) 342-5236.
20 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A 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.
CLASS A (11/1/98-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET RUSSELL 3000
DATE INVESTMENT FUND - CLASS A VALUE INDEX CPI
- ---- ------------------------- ------------ -------
11/1/1998 $ 9,426 $10,000 $10,000
11/30/1998 $ 9,565 $10,450 $10,000
12/31/1998 $ 9,757 $10,804 $ 9,994
1/31/1999 $ 9,646 $10,864 $10,018
2/28/1999 $ 9,109 $10,666 $10,030
3/31/1999 $ 8,796 $10,864 $10,061
4/30/1999 $ 9,371 $11,877 $10,134
5/31/1999 $ 9,733 $11,781 $10,134
6/30/1999 $10,343 $12,129 $10,134
7/31/1999 $10,206 $11,779 $10,165
8/31/1999 $ 9,726 $11,343 $10,189
9/30/1999 $ 9,428 $10,959 $10,238
10/31/1999 $ 9,328 $11,528 $10,256
11/30/1999 $ 9,509 $11,447 $10,262
12/31/1999 $ 9,607 $11,522 $10,262
1/31/2000 $ 9,311 $11,151 $10,293
2/29/2000 $ 9,538 $10,425 $10,354
3/31/2000 $ 9,687 $11,604 $10,439
4/30/2000 $ 9,797 $11,483 $10,445
5/31/2000 $ 9,674 $11,583 $10,457
6/30/2000 $ 9,959 $11,112 $10,512
7/31/2000 $10,218 $11,267 $10,537
8/31/2000 $10,671 $11,885 $10,537
9/30/2000 $10,836 $11,983 $10,591
10/31/2000 $11,052 $12,255 $10,610
11/30/2000 $10,918 $11,813 $10,616
12/31/2000 $11,574 $12,448 $10,610
1/31/2001 $12,031 $12,516 $10,677
2/28/2001 $12,096 $12,190 $10,720
3/31/2001 $11,800 $11,776 $10,744
4/30/2001 $12,385 $12,351 $10,787
5/31/2001 $13,074 $12,631 $10,835
6/30/2001 $13,289 $12,406 $10,854
7/31/2001 $13,230 $12,362 $10,823
8/31/2001 $13,351 $11,898 $10,823
9/30/2001 $11,914 $11,027 $10,872
10/31/2001 $12,263 $10,958 $10,835
11/30/2001 $12,876 $11,605 $10,817
12/31/2001 $13,622 $11,909 $10,774
1/31/2002 $13,629 $11,835 $10,799
2/28/2002 $13,936 $11,858 $10,841
3/31/2002 $14,488 $12,444 $10,902
4/30/2002 $14,689 $12,083 $10,963
5/31/2002 $14,402 $12,106 $10,963
6/30/2002 $14,321 $11,445 $10,970
7/31/2002 $13,254 $10,334 $10,982
8/31/2002 $13,182 $10,403 $11,018
9/30/2002 $12,395 $ 9,275 $11,037
10/31/2002 $12,613 $ 9,923 $11,055
11/30/2002 $13,162 $10,559 $11,055
12/31/2002 $12,810 $10,101 $11,030
1/31/2003 $12,517 $ 9,853 $11,079
2/28/2003 $12,071 $ 9,586 $11,165
3/31/2003 $12,185 $ 9,608 $11,232
4/30/2003 $12,914 $10,458 $11,207
5/31/2003 $13,629 $11,161 $11,189
6/30/2003 $13,843 $11,304 $11,201
7/31/2003 $14,371 $11,501 $11,213
8/31/2003 $14,879 $11,699 $11,256
9/30/2003 $14,682 $11,583 $11,293
10/31/2003 $15,704 $12,310 $11,280
11/30/2003 $15,991 $12,500 $11,250
12/31/2003 $16,599 $13,246 $11,238
1/31/2004 $16,819 $13,496 $11,293
2/29/2004 $17,297 $13,783 $11,354
3/31/2004 $17,489 $13,687 $11,427
4/30/2004 $16,910 $13,323 $11,463
5/31/2004 $17,182 $13,460 $11,530
6/30/2004 $18,089 $13,807 $11,567
7/31/2004 $17,785 $13,575 $11,549
8/31/2004 $17,751 $13,763 $11,555
9/30/2004 $18,427 $14,003 $11,579
10/31/2004 $18,825 $14,235 $11,640
11/30/2004 $20,308 $15,000 $11,646
12/31/2004 $20,799 $15,490 $11,604
1/31/2005 $20,417 $15,187 $11,628
2/28/2005 $21,099 $15,673 $11,695
3/31/2005 $20,806 $15,449 $11,787
4/30/2005 $19,925 $15,129 $11,866
5/31/2005 $20,806 $15,538 $11,854
6/30/2005 $21,417 $15,752 $11,860
7/31/2005 $22,584 $16,247 $11,915
8/31/2005 $22,302 $16,149 $11,976
9/30/2005 $22,399 $16,353 $12,122
10/31/2005 $22,013 $15,938 $12,146
11/30/2005 $23,034 $16,470 $12,049
12/31/2005 $23,067 $16,551 $12,000
1/31/2006 $24,345 $17,258 $12,091
2/28/2006 $24,323 $17,353 $12,116
3/31/2006 $25,268 $17,643 $12,183
4/30/2006 $25,582 $18,054 $12,287
5/31/2006 $24,962 $17,571 $12,348
6/30/2006 $25,082 $17,693 $12,372
7/31/2006 $24,435 $18,060 $12,409
8/31/2006 $24,723 $18,384 $12,433
9/30/2006 $25,003 $18,733 $12,372
10/31/2006 $25,874 $19,377 $12,305
11/30/2006 $26,681 $19,829 $12,287
12/31/2006 $26,839 $20,249 $12,305
1/31/2007 $27,700 $20,512 $12,342
2/28/2007 $27,841 $20,199 $12,408
3/31/2007 $28,215 $20,505 $12,521
4/30/2007 $29,104 $21,213 $12,603
5/31/2007 $30,215 $21,979 $12,680
6/30/2007 $29,346 $21,466 $12,704
7/31/2007 $27,463 $20,403 $12,701
8/31/2007 $27,036 $20,646 $12,678
9/30/2007 $27,805 $21,305 $12,713
10/31/2007 $27,905 $21,326 $12,740
11/30/2007 $25,990 $20,239 $12,816
12/31/2007 $25,938 $20,045 $12,807
1/31/2008 $25,061 $19,240 $12,871
2/29/2008 $24,193 $18,438 $12,908
3/31/2008 $24,273 $18,331 $13,020
4/30/2008 $25,710 $19,200 $13,099
5/31/2008 $26,363 $19,223 $13,209
6/30/2008 $23,817 $17,384 $13,342
7/31/2008 $23,705 $17,394 $13,412
8/31/2008 $23,817 $17,732 $13,359
9/30/2008 $21,463 $16,469 $13,340
10/31/2008 $16,939 $13,580 $13,206
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -42.79%
5-Year +0.33%
10-Year +5.41%
CLASS B (3/1/01-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET RUSSELL 3000
DATE INVESTMENT FUND - CLASS B VALUE INDEX CPI
- ---- ------------------------- ------------ -------
3/1/2001 $10,000 $10,000 $10,000
3/31/2001 $ 9,755 $ 9,660 $10,023
4/30/2001 $10,231 $10,132 $10,063
5/31/2001 $10,793 $10,362 $10,108
6/30/2001 $10,964 $10,177 $10,125
7/31/2001 $10,905 $10,141 $10,097
8/31/2001 $10,999 $ 9,760 $10,097
9/30/2001 $ 9,810 $ 9,046 $10,142
10/31/2001 $10,091 $ 8,989 $10,108
11/30/2001 $10,587 $ 9,520 $10,091
12/31/2001 $11,193 $ 9,769 $10,051
1/31/2002 $11,193 $ 9,709 $10,074
2/28/2002 $11,437 $ 9,728 $10,114
3/31/2002 $11,884 $10,208 $10,171
4/30/2002 $12,041 $ 9,912 $10,228
5/31/2002 $11,800 $ 9,931 $10,228
6/30/2002 $11,724 $ 9,388 $10,233
7/31/2002 $10,844 $ 8,477 $10,245
8/31/2002 $10,779 $ 8,534 $10,279
9/30/2002 $10,130 $ 7,608 $10,296
10/31/2002 $10,301 $ 8,140 $10,313
11/30/2002 $10,743 $ 8,662 $10,313
12/31/2002 $10,449 $ 8,286 $10,290
1/31/2003 $10,202 $ 8,083 $10,336
2/28/2003 $ 9,834 $ 7,864 $10,415
3/31/2003 $ 9,919 $ 7,882 $10,478
4/30/2003 $10,508 $ 8,579 $10,455
5/31/2003 $11,080 $ 9,155 $10,438
6/30/2003 $11,250 $ 9,273 $10,449
7/31/2003 $11,669 $ 9,434 $10,461
8/31/2003 $12,077 $ 9,597 $10,501
9/30/2003 $11,910 $ 9,502 $10,535
10/31/2003 $12,730 $10,098 $10,523
11/30/2003 $12,951 $10,254 $10,495
12/31/2003 $13,437 $10,866 $10,484
1/31/2004 $13,603 $11,071 $10,535
2/29/2004 $13,985 $11,307 $10,592
3/31/2004 $14,130 $11,228 $10,660
4/30/2004 $13,651 $10,929 $10,694
5/31/2004 $13,862 $11,042 $10,757
6/30/2004 $14,586 $11,326 $10,791
7/31/2004 $14,330 $11,136 $10,774
8/31/2004 $14,292 $11,290 $10,779
9/30/2004 $14,831 $11,487 $10,802
10/31/2004 $15,142 $11,677 $10,859
11/30/2004 $16,322 $12,305 $10,865
12/31/2004 $16,707 $12,707 $10,825
1/31/2005 $16,388 $12,458 $10,848
2/28/2005 $16,927 $12,857 $10,910
3/31/2005 $16,683 $12,673 $10,995
4/30/2005 $15,965 $12,410 $11,069
5/31/2005 $16,663 $12,746 $11,058
6/30/2005 $17,138 $12,922 $11,064
7/31/2005 $18,062 $13,327 $11,115
8/31/2005 $17,824 $13,247 $11,172
9/30/2005 $17,891 $13,415 $11,308
10/31/2005 $17,570 $13,074 $11,331
11/30/2005 $18,375 $13,511 $11,240
12/31/2005 $18,390 $13,577 $11,195
1/31/2006 $19,396 $14,157 $11,280
2/28/2006 $19,366 $14,235 $11,303
3/31/2006 $20,106 $14,473 $11,365
4/30/2006 $20,344 $14,810 $11,462
5/31/2006 $19,835 $14,414 $11,519
6/30/2006 $19,920 $14,514 $11,542
7/31/2006 $19,393 $14,815 $11,576
8/31/2006 $19,609 $15,080 $11,598
9/30/2006 $19,820 $15,367 $11,542
10/31/2006 $20,495 $15,895 $11,479
11/30/2006 $21,124 $16,267 $11,462
12/31/2006 $21,232 $16,611 $11,479
1/31/2007 $21,902 $16,827 $11,514
2/28/2007 $22,002 $16,570 $11,576
3/31/2007 $22,279 $16,821 $11,681
4/30/2007 $22,968 $17,402 $11,757
5/31/2007 $23,831 $18,030 $11,829
6/30/2007 $23,132 $17,609 $11,852
7/31/2007 $21,634 $16,737 $11,849
8/31/2007 $21,283 $16,936 $11,827
9/30/2007 $21,876 $17,477 $11,859
10/31/2007 $21,937 $17,494 $11,885
11/30/2007 $20,420 $16,602 $11,955
12/31/2007 $20,366 $16,443 $11,947
1/31/2008 $19,666 $15,783 $12,007
2/29/2008 $18,973 $15,125 $12,042
3/31/2008 $19,023 $15,038 $12,146
4/30/2008 $20,135 $15,750 $12,220
5/31/2008 $20,632 $15,769 $12,323
6/30/2008 $18,628 $14,260 $12,447
7/31/2008 $18,529 $14,269 $12,512
8/31/2008 $18,603 $14,546 $12,462
9/30/2008 $16,755 $13,510 $12,445
10/31/2008 $13,216 $11,140 $12,319
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/08
- ------- --------
1-Year -41.94%
5-Year +0.43%
Since Inception (3/1/01) +3.70%
Annual Report | 21
Performance Summary (CONTINUED)
CLASS C (3/1/01-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET RUSSELL 3000
DATE INVESTMENT FUND - CLASS C VALUE INDEX CPI
- ---- ------------------------- ------------ -------
3/1/2001 $10,000 $10,000 $10,000
3/31/2001 $ 9,758 $ 9,660 $10,023
4/30/2001 $10,231 $10,132 $10,063
5/31/2001 $10,790 $10,362 $10,108
6/30/2001 $10,966 $10,177 $10,125
7/31/2001 $10,912 $10,141 $10,097
8/31/2001 $11,004 $ 9,760 $10,097
9/30/2001 $ 9,816 $ 9,046 $10,142
10/31/2001 $10,094 $ 8,989 $10,108
11/30/2001 $10,593 $ 9,520 $10,091
12/31/2001 $11,197 $ 9,769 $10,051
1/31/2002 $11,197 $ 9,709 $10,074
2/28/2002 $11,442 $ 9,728 $10,114
3/31/2002 $11,889 $10,208 $10,171
4/30/2002 $12,049 $ 9,912 $10,228
5/31/2002 $11,804 $ 9,931 $10,228
6/30/2002 $11,731 $ 9,388 $10,233
7/31/2002 $10,849 $ 8,477 $10,245
8/31/2002 $10,784 $ 8,534 $10,279
9/30/2002 $10,135 $ 7,608 $10,296
10/31/2002 $10,306 $ 8,140 $10,313
11/30/2002 $10,748 $ 8,662 $10,313
12/31/2002 $10,455 $ 8,286 $10,290
1/31/2003 $10,206 $ 8,083 $10,336
2/28/2003 $ 9,853 $ 7,864 $10,415
3/31/2003 $ 9,926 $ 7,882 $10,478
4/30/2003 $10,515 $ 8,579 $10,455
5/31/2003 $11,086 $ 9,155 $10,438
6/30/2003 $11,256 $ 9,273 $10,449
7/31/2003 $11,678 $ 9,434 $10,461
8/31/2003 $12,082 $ 9,597 $10,501
9/30/2003 $11,915 $ 9,502 $10,535
10/31/2003 $12,736 $10,098 $10,523
11/30/2003 $12,959 $10,254 $10,495
12/31/2003 $13,445 $10,866 $10,484
1/31/2004 $13,611 $11,071 $10,535
2/29/2004 $13,989 $11,307 $10,592
3/31/2004 $14,135 $11,228 $10,660
4/30/2004 $13,656 $10,929 $10,694
5/31/2004 $13,870 $11,042 $10,757
6/30/2004 $14,593 $11,326 $10,791
7/31/2004 $14,337 $11,136 $10,774
8/31/2004 $14,300 $11,290 $10,779
9/30/2004 $14,838 $11,487 $10,802
10/31/2004 $15,149 $11,677 $10,859
11/30/2004 $16,331 $12,305 $10,865
12/31/2004 $16,717 $12,707 $10,825
1/31/2005 $16,396 $12,458 $10,848
2/28/2005 $16,934 $12,857 $10,910
3/31/2005 $16,691 $12,673 $10,995
4/30/2005 $15,973 $12,410 $11,069
5/31/2005 $16,671 $12,746 $11,058
6/30/2005 $17,148 $12,922 $11,064
7/31/2005 $18,071 $13,327 $11,115
8/31/2005 $17,834 $13,247 $11,172
9/30/2005 $17,900 $13,415 $11,308
10/31/2005 $17,579 $13,074 $11,331
11/30/2005 $18,384 $13,511 $11,240
12/31/2005 $18,398 $13,577 $11,195
1/31/2006 $19,406 $14,157 $11,280
2/28/2006 $19,376 $14,235 $11,303
3/31/2006 $20,116 $14,473 $11,365
4/30/2006 $20,354 $14,810 $11,462
5/31/2006 $19,845 $14,414 $11,519
6/30/2006 $19,930 $14,514 $11,542
7/31/2006 $19,403 $14,815 $11,576
8/31/2006 $19,620 $15,080 $11,598
9/30/2006 $19,830 $15,367 $11,542
10/31/2006 $20,504 $15,895 $11,479
11/30/2006 $21,133 $16,267 $11,462
12/31/2006 $21,244 $16,611 $11,479
1/31/2007 $21,913 $16,827 $11,514
2/28/2007 $22,013 $16,570 $11,576
3/31/2007 $22,293 $16,821 $11,681
4/30/2007 $22,981 $17,402 $11,757
5/31/2007 $23,843 $18,030 $11,829
6/30/2007 $23,142 $17,609 $11,852
7/31/2007 $21,646 $16,737 $11,849
8/31/2007 $21,295 $16,936 $11,827
9/30/2007 $21,887 $17,477 $11,859
10/31/2007 $21,948 $17,494 $11,885
11/30/2007 $20,433 $16,602 $11,955
12/31/2007 $20,376 $16,443 $11,947
1/31/2008 $19,681 $15,783 $12,007
2/29/2008 $18,989 $15,125 $12,042
3/31/2008 $19,038 $15,038 $12,146
4/30/2008 $20,153 $15,750 $12,220
5/31/2008 $20,650 $15,769 $12,323
6/30/2008 $18,644 $14,260 $12,447
7/31/2008 $18,541 $14,269 $12,512
8/31/2008 $18,619 $14,546 $12,462
9/30/2008 $16,767 $13,510 $12,445
10/31/2008 $13,228 $11,140 $12,319
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/08
- ------- --------
1-Year -40.28%
5-Year +0.76%
Since Inception (3/1/01) +3.72%
CLASS R (1/1/02-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET RUSSELL 3000
DATE INVESTMENT FUND - CLASS R VALUE INDEX CPI
- ---- ------------------------- ------------ -------
1/1/2002 $10,000 $10,000 $10,000
1/31/2002 $10,013 $ 9,938 $10,023
2/28/2002 $10,238 $ 9,957 $10,062
3/31/2002 $10,643 $10,449 $10,119
4/30/2002 $10,789 $10,146 $10,175
5/31/2002 $10,576 $10,165 $10,175
6/30/2002 $10,511 $ 9,610 $10,181
7/31/2002 $ 9,724 $ 8,677 $10,192
8/31/2002 $ 9,669 $ 8,735 $10,226
9/30/2002 $ 9,090 $ 7,788 $10,243
10/31/2002 $ 9,248 $ 8,332 $10,260
11/30/2002 $ 9,649 $ 8,866 $10,260
12/31/2002 $ 9,388 $ 8,482 $10,238
1/31/2003 $ 9,170 $ 8,274 $10,283
2/28/2003 $ 8,843 $ 8,049 $10,362
3/31/2003 $ 8,929 $ 8,068 $10,424
4/30/2003 $ 9,461 $ 8,782 $10,402
5/31/2003 $ 9,982 $ 9,372 $10,385
6/30/2003 $10,139 $ 9,492 $10,396
7/31/2003 $10,520 $ 9,657 $10,407
8/31/2003 $10,893 $ 9,824 $10,447
9/30/2003 $10,746 $ 9,726 $10,481
10/31/2003 $11,492 $10,337 $10,470
11/30/2003 $11,697 $10,497 $10,441
12/31/2003 $12,140 $11,123 $10,430
1/31/2004 $12,297 $11,333 $10,481
2/29/2004 $12,645 $11,574 $10,538
3/31/2004 $12,780 $11,493 $10,606
4/30/2004 $12,354 $11,187 $10,640
5/31/2004 $12,550 $11,303 $10,702
6/30/2004 $13,211 $11,594 $10,736
7/31/2004 $12,985 $11,399 $10,719
8/31/2004 $12,957 $11,557 $10,724
9/30/2004 $13,451 $11,759 $10,747
10/31/2004 $13,737 $11,953 $10,804
11/30/2004 $14,814 $12,596 $10,809
12/31/2004 $15,172 $13,007 $10,770
1/31/2005 $14,887 $12,753 $10,792
2/28/2005 $15,384 $13,161 $10,855
3/31/2005 $15,167 $12,973 $10,939
4/30/2005 $14,519 $12,704 $11,013
5/31/2005 $15,159 $13,048 $11,002
6/30/2005 $15,600 $13,227 $11,007
7/31/2005 $16,447 $13,642 $11,058
8/31/2005 $16,238 $13,560 $11,115
9/30/2005 $16,306 $13,732 $11,251
10/31/2005 $16,022 $13,383 $11,273
11/30/2005 $16,757 $13,830 $11,183
12/31/2005 $16,781 $13,898 $11,138
1/31/2006 $17,706 $14,491 $11,222
2/28/2006 $17,684 $14,572 $11,245
3/31/2006 $18,370 $14,815 $11,307
4/30/2006 $18,594 $15,160 $11,404
5/31/2006 $18,138 $14,755 $11,460
6/30/2006 $18,220 $14,857 $11,483
7/31/2006 $17,747 $15,165 $11,517
8/31/2006 $17,955 $15,437 $11,539
9/30/2006 $18,154 $15,730 $11,483
10/31/2006 $18,780 $16,271 $11,420
11/30/2006 $19,364 $16,651 $11,404
12/31/2006 $19,472 $17,003 $11,420
1/31/2007 $20,097 $17,224 $11,455
2/28/2007 $20,191 $16,961 $11,517
3/31/2007 $20,458 $17,218 $11,622
4/30/2007 $21,098 $17,813 $11,697
5/31/2007 $21,899 $18,456 $11,768
6/30/2007 $21,265 $18,025 $11,791
7/31/2007 $19,898 $17,132 $11,788
8/31/2007 $19,584 $17,336 $11,767
9/30/2007 $20,135 $17,890 $11,799
10/31/2007 $20,203 $17,907 $11,824
11/30/2007 $18,815 $16,995 $11,895
12/31/2007 $18,770 $16,832 $11,887
1/31/2008 $18,131 $16,156 $11,946
2/29/2008 $17,501 $15,482 $11,980
3/31/2008 $17,557 $15,393 $12,084
4/30/2008 $18,586 $16,122 $12,157
5/31/2008 $19,056 $16,141 $12,260
6/30/2008 $17,212 $14,597 $12,383
7/31/2008 $17,127 $14,606 $12,448
8/31/2008 $17,205 $14,890 $12,399
9/30/2008 $15,501 $13,829 $12,382
10/31/2008 $12,232 $11,403 $12,257
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/08
- ------- --------
1-Year -39.45%
5-Year +1.26%
Since Inception (1/1/02) +2.99%
22 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (11/1/98-10/31/08)(6)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET INVESTMENT RUSSELL 3000
DATE FUND - ADVISOR CLASS VALUE INDEX CPI
- ---- --------------------------------- ------------ -------
11/1/1998 $10,000 $10,000 $10,000
11/30/1998 $10,148 $10,450 $10,000
12/31/1998 $10,351 $10,804 $ 9,994
1/31/1999 $10,233 $10,864 $10,018
2/28/1999 $ 9,663 $10,666 $10,030
3/31/1999 $ 9,332 $10,864 $10,061
4/30/1999 $ 9,942 $11,877 $10,134
5/31/1999 $10,326 $11,781 $10,134
6/30/1999 $10,973 $12,129 $10,134
7/31/1999 $10,828 $11,779 $10,165
8/31/1999 $10,318 $11,343 $10,189
9/30/1999 $10,002 $10,959 $10,238
10/31/1999 $ 9,896 $11,528 $10,256
11/30/1999 $10,088 $11,447 $10,262
12/31/1999 $10,192 $11,522 $10,262
1/31/2000 $ 9,878 $11,151 $10,293
2/29/2000 $10,119 $10,425 $10,354
3/31/2000 $10,276 $11,604 $10,439
4/30/2000 $10,394 $11,483 $10,445
5/31/2000 $10,263 $11,583 $10,457
6/30/2000 $10,565 $11,112 $10,512
7/31/2000 $10,841 $11,267 $10,537
8/31/2000 $11,321 $11,885 $10,537
9/30/2000 $11,496 $11,983 $10,591
10/31/2000 $11,725 $12,255 $10,610
11/30/2000 $11,583 $11,813 $10,616
12/31/2000 $12,278 $12,448 $10,610
1/31/2001 $12,764 $12,516 $10,677
2/28/2001 $12,833 $12,190 $10,720
3/31/2001 $12,522 $11,776 $10,744
4/30/2001 $13,143 $12,351 $10,787
5/31/2001 $13,877 $12,631 $10,835
6/30/2001 $14,106 $12,406 $10,854
7/31/2001 $14,047 $12,362 $10,823
8/31/2001 $14,178 $11,898 $10,823
9/30/2001 $12,654 $11,027 $10,872
10/31/2001 $13,025 $10,958 $10,835
11/30/2001 $13,680 $11,605 $10,817
12/31/2001 $14,473 $11,909 $10,774
1/31/2002 $14,480 $11,835 $10,799
2/28/2002 $14,813 $11,858 $10,841
3/31/2002 $15,405 $12,444 $10,902
4/30/2002 $15,623 $12,083 $10,963
5/31/2002 $15,318 $12,106 $10,963
6/30/2002 $15,235 $11,445 $10,970
7/31/2002 $14,101 $10,334 $10,982
8/31/2002 $14,032 $10,403 $11,018
9/30/2002 $13,198 $ 9,275 $11,037
10/31/2002 $13,430 $ 9,923 $11,055
11/30/2002 $14,017 $10,559 $11,055
12/31/2002 $13,643 $10,101 $11,030
1/31/2003 $13,334 $ 9,853 $11,079
2/28/2003 $12,863 $ 9,586 $11,165
3/31/2003 $12,985 $ 9,608 $11,232
4/30/2003 $13,765 $10,458 $11,207
5/31/2003 $14,530 $11,161 $11,189
6/30/2003 $14,762 $11,304 $11,201
7/31/2003 $15,329 $11,501 $11,213
8/31/2003 $15,874 $11,699 $11,256
9/30/2003 $15,668 $11,583 $11,293
10/31/2003 $16,761 $12,310 $11,280
11/30/2003 $17,070 $12,500 $11,250
12/31/2003 $17,726 $13,246 $11,238
1/31/2004 $17,957 $13,496 $11,293
2/29/2004 $18,475 $13,783 $11,354
3/31/2004 $18,684 $13,687 $11,427
4/30/2004 $18,065 $13,323 $11,463
5/31/2004 $18,363 $13,460 $11,530
6/30/2004 $19,336 $13,807 $11,567
7/31/2004 $19,012 $13,575 $11,549
8/31/2004 $18,978 $13,763 $11,555
9/30/2004 $19,708 $14,003 $11,579
10/31/2004 $20,141 $14,235 $11,640
11/30/2004 $21,728 $15,000 $11,646
12/31/2004 $22,260 $15,490 $11,604
1/31/2005 $21,851 $15,187 $11,628
2/28/2005 $22,588 $15,673 $11,695
3/31/2005 $22,279 $15,449 $11,787
4/30/2005 $21,339 $15,129 $11,866
5/31/2005 $22,290 $15,538 $11,854
6/30/2005 $22,947 $15,752 $11,860
7/31/2005 $24,204 $16,247 $11,915
8/31/2005 $23,906 $16,149 $11,976
9/30/2005 $24,017 $16,353 $12,122
10/31/2005 $23,604 $15,938 $12,146
11/30/2005 $24,704 $16,470 $12,049
12/31/2005 $24,746 $16,551 $12,000
1/31/2006 $26,124 $17,258 $12,091
2/28/2006 $26,104 $17,353 $12,116
3/31/2006 $27,126 $17,643 $12,183
4/30/2006 $27,467 $18,054 $12,287
5/31/2006 $26,805 $17,571 $12,348
6/30/2006 $26,938 $17,693 $12,372
7/31/2006 $26,252 $18,060 $12,409
8/31/2006 $26,565 $18,384 $12,433
9/30/2006 $26,869 $18,733 $12,372
10/31/2006 $27,811 $19,377 $12,305
11/30/2006 $28,685 $19,829 $12,287
12/31/2006 $28,861 $20,249 $12,305
1/31/2007 $29,799 $20,512 $12,342
2/28/2007 $29,950 $20,199 $12,408
3/31/2007 $30,357 $20,505 $12,521
4/30/2007 $31,321 $21,213 $12,603
5/31/2007 $32,523 $21,979 $12,680
6/30/2007 $31,598 $21,466 $12,704
7/31/2007 $29,578 $20,403 $12,701
8/31/2007 $29,124 $20,646 $12,678
9/30/2007 $29,955 $21,305 $12,713
10/31/2007 $30,067 $21,326 $12,740
11/30/2007 $28,013 $20,239 $12,816
12/31/2007 $27,962 $20,045 $12,807
1/31/2008 $27,021 $19,240 $12,871
2/29/2008 $26,090 $18,438 $12,908
3/31/2008 $26,181 $18,331 $13,020
4/30/2008 $27,735 $19,200 $13,099
5/31/2008 $28,444 $19,223 $13,209
6/30/2008 $25,704 $17,384 $13,342
7/31/2008 $25,588 $17,394 $13,412
8/31/2008 $25,714 $17,732 $13,359
9/30/2008 $23,176 $16,469 $13,340
10/31/2008 $18,299 $13,580 $13,206
Total Returns 82.99% 35.80% 32.06%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 10/31/08
- ---------------- --------
1-Year -39.14%
5-Year +1.77%
10-Year +6.23%
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 +42.67% and +4.74%.
7. Source: (C) 2008 Morningstar. 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.
Annual Report | 23
Your Fund's Expenses
FRANKLIN BALANCE SHEET INVESTMENT FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
24 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 658.80 $3.88
Hypothetical (5% return before expenses) $1,000 $1,020.46 $4.72
CLASS B
Actual $1,000 $ 656.40 $7.04
Hypothetical (5% return before expenses) $1,000 $1,016.64 $8.57
CLASS C
Actual $1,000 $ 656.40 $7.04
Hypothetical (5% return before expenses) $1,000 $1,016.64 $8.57
CLASS R
Actual $1,000 $ 658.10 $4.96
Hypothetical (5% return before expenses) $1,000 $1,019.15 $6.04
ADVISOR CLASS
Actual $1,000 $ 659.80 $2.84
Hypothetical (5% return before expenses) $1,000 $1,021.72 $3.46
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.93%; B: 1.69%; C: 1.69%; R: 1.19%; and
Advisor: 0.68%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
Annual Report | 25
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 (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, 2008.
PERFORMANCE OVERVIEW
Franklin Large Cap Value Fund - Class A had a -36.35% cumulative total return
for the 12 months under review. The Fund performed comparably to its benchmark,
the Russell 1000 Value Index, which declined 36.80% for the same period.(2)
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 29.
INVESTMENT STRATEGY
We seek to invest in securities of large-capitalization companies that we
believe are selling below their underlying worth and hold them until they reach
what we consider 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 we believe
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 Index, which
represent approximately 92% of total market capitalization in the Russell
3000 Index.
(2.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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 86.
26 | Annual Report
MANAGER'S DISCUSSION
During the year under review, the financials sector was a significant detractor
from performance, as were the consumer discretionary and industrials sectors.(3)
Financials sector holdings that hindered performance included insurers American
International Group (AIG), Allstate and MetLife. Thrifts and mortgage finance
companies Washington Mutual and Freddie Mac also hurt returns, as did
diversified financial services firm Citigroup and commercial bank Wachovia.
Consumer discretionary sector holdings, including specialty retailer Office
Depot and household durables company Fortune Brands, declined in value. In the
industrials sector, diversified manufacturer General Electric was a major
detractor.
The consumer staples sector contributed to Fund performance largely due to food
and staples discount retailer Wal-Mart Stores, which experienced sales results
that exceeded those of many other retailers.(4) Holdings from other sectors
including railroad Norfolk Southern and insurer Chubb helped returns.
During the fiscal year, the Fund initiated nine positions: insurer AFLAC,
electrical systems and components manufacturer Eaton, home improvement retailer
Home Depot, specialty retailer Nordstrom, industrial goods manufacturer Parker
Hannifin, coal company Peabody Energy, electric and natural gas company Sempra
Energy, and financial services firms State Street and SunTrust Banks. We also
added to several positions including Fortune Brands, General Electric,
pharmaceutical manufacturer Merck and steel company Nucor.
The Fund liquidated six positions during the period: AIG, integrated oil and gas
company BP, Freddie Mac, and financial services firms Lehman Brothers, Wachovia
and Washington Mutual. We reduced several holdings including health care
products manufacturer Abbott Laboratories, industrial products manufacturer
Illinois Tool Works, technology hardware and equipment manufacturer
International Business Machines, and household goods producer Procter & Gamble.
3. 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 industrials
sector comprises capital goods and transportation in the SOI.
4. The consumer staples sector comprises food and staples retailing, and
household and personal products in the SOI.
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets as of 10/31/08
(BAR CHART)
Capital Goods 15.3%
Energy 12.5%
Materials 10.7%
Diversified Financials 7.0%
Insurance 6.4%
Household & Personal Products 6.1%
Consumer Durables & Apparel 5.9%
Technology Hardware & Equipment 5.8%
Retailing 5.1%
Pharmaceuticals, Biotechnology & Life Sciences 4.7%
Food & Staples Retailing 3.2%
Transportation 3.0%
Banks 2.8%
Software & Services 2.7%
Consumer Services 2.6%
Utilities 2.5%
Health Care Equipment & Services 1.9%
Short-Term Investments & Other Net Assets 1.8%
Annual Report | 27
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Nucor Corp. 4.7%
MATERIALS
General Electric Co. 3.8%
CAPITAL GOODS
Exxon Mobil Corp. 3.4%
ENERGY
Wal-Mart Stores Inc. 3.2%
FOOD & STAPLES RETAILING
The Procter & Gamble Co. 3.1%
HOUSEHOLD & PERSONAL PRODUCTS
Norfolk Southern Corp. 3.0%
TRANSPORTATION
International Business Machines Corp. 3.0%
TECHNOLOGY HARDWARE & EQUIPMENT
Kimberly-Clark Corp. 3.0%
HOUSEHOLD & PERSONAL PRODUCTS
United Technologies Corp. 2.9%
CAPITAL GOODS
Merck & Co. Inc. 2.9%
PHARMACEUTICALS, BIOTECHNOLOGY
& LIFE SCIENCES
Thank you for your continued participation in Franklin Large Cap Value Fund. We
look forward to serving your future investment needs.
(PHOTO OF WILLIAM J. LIPPMAN )
/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
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2008, 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.
28 | Annual Report
Performance Summary as of 10/31/08
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 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$6.91 $9.84 $16.75
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.2335
Short-Term Capital Gain $0.2263
Long-Term Capital Gain $0.7475
TOTAL $1.2073
CLASS B (SYMBOL: FBLCX) CHANGE 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$6.82 $9.70 $16.52
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1162
Short-Term Capital Gain $0.2263
Long-Term Capital Gain $0.7475
TOTAL $1.0900
CLASS C (SYMBOL: FLCVX) CHANGE 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$6.81 $9.70 $16.51
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1120
Short-Term Capital Gain $0.2263
Long-Term Capital Gain $0.7475
TOTAL $1.0858
CLASS R (SYMBOL: FLCRX) CHANGE 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$6.87 $9.74 $16.61
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.2141
Short-Term Capital Gain $0.2263
Long-Term Capital Gain $0.7475
TOTAL $1.1879
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$6.93 $9.83 $16.76
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.2983
Short-Term Capital Gain $0.2263
Long-Term Capital Gain $0.7475
TOTAL $1.2721
Annual Report | 29
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.
CLASS A 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------- ------- ------ ------------------
Cumulative Total Return(2) -36.35% -4.28% +22.07%
Average Annual Total Return(3) -40.00% -2.04% +1.68%
Value of $10,000 Investment(4) $ 6,000 $9,019 $11,505
Avg. Ann. Total Return (9/30/08)(5) -27.85% +2.65% +4.02%
Total Annual Operating Expenses(6) 1.38%
CLASS B 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------- ------- ------ ------------------
Cumulative Total Return(2) -36.82% -7.43% +16.12%
Average Annual Total Return(3) -39.17% -1.87% +1.79%
Value of $10,000 Investment(4) $ 6,083 $9,099 $11,612
Avg. Ann. Total Return (9/30/08)(5) -26.81% +2.83% +4.14%
Total Annual Operating Expenses(6) 2.04%
CLASS C 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ------- ------- ------ ------------------
Cumulative Total Return(2) -36.80% -7.38% +15.72%
Average Annual Total Return(3) -37.39% -1.52% +1.75%
Value of $10,000 Investment(4) $ 6,261 $9,262 $11,572
Avg. Ann. Total Return (9/30/08)(5) -24.67% +3.20% +4.10%
Total Annual Operating Expenses(6) 2.03%
CLASS R 1-YEAR 5-YEAR INCEPTION (8/1/02)
- ------- ------- ------ ------------------
Cumulative Total Return(2) -36.46% -5.00% +12.08%
Average Annual Total Return(3) -36.46% -1.02% +1.84%
Value of $10,000 Investment(4) $ 6,354 $9,500 $11,208
Avg. Ann. Total Return (9/30/08)(5) -23.61% +3.70% +5.03%
Total Annual Operating Expenses(6) 1.54%
ADVISOR CLASS(7) 1-YEAR 5-YEAR INCEPTION (6/1/00)
- ---------------- ------- ------ ------------------
Cumulative Total Return(2) -36.13% -3.30% +23.33%
Average Annual Total Return(3) -36.13% -0.67% +2.52%
Value of $10,000 Investment(4) $ 6,387 $9,670 $12,333
Avg. Ann. Total Return (9/30/08)(5) -23.15% +4.09% +4.90%
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 (800) 342-5236.
30 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A 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.
CLASS A (6/1/00-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN LARGE
CAP VALUE RUSSELL 1000
DATE FUND - CLASS A VALUE INDEX CPI
- ---- -------------- ------------ -------
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 $ 9,295 $10,362
11/30/2001 $11,631 $ 9,836 $10,344
12/31/2001 $12,002 $10,067 $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 $ 8,695 $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 $ 8,077 $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 $ 9,371 $10,700
6/30/2003 $11,254 $ 9,488 $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 $ 9,684 $10,799
10/31/2003 $12,020 $10,277 $10,787
11/30/2003 $12,146 $10,416 $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 $11,228 $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 $11,865 $11,131
11/30/2004 $14,055 $12,465 $11,137
12/31/2004 $14,483 $12,882 $11,096
1/31/2005 $14,228 $12,654 $11,120
2/28/2005 $14,365 $13,073 $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 $13,430 $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 $13,791 $11,475
1/31/2006 $15,305 $14,327 $11,563
2/28/2006 $15,366 $14,414 $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 $14,602 $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 $16,859 $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 $17,699 $12,052
5/31/2007 $18,334 $18,338 $12,125
6/30/2007 $18,043 $17,909 $12,149
7/31/2007 $17,287 $17,081 $12,146
8/31/2007 $17,514 $17,272 $12,123
9/30/2007 $18,140 $17,866 $12,157
10/31/2007 $18,075 $17,868 $12,183
11/30/2007 $17,255 $16,994 $12,255
12/31/2007 $17,211 $16,830 $12,247
1/31/2008 $16,649 $16,156 $12,308
2/29/2008 $16,205 $15,479 $12,344
3/31/2008 $16,135 $15,363 $12,451
4/30/2008 $16,942 $16,112 $12,526
5/31/2008 $16,895 $16,086 $12,632
6/30/2008 $15,445 $14,546 $12,759
7/31/2008 $14,989 $14,494 $12,826
8/31/2008 $15,223 $14,740 $12,775
9/30/2008 $13,890 $13,657 $12,757
10/31/2008 $11,505 $11,293 $12,628
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -40.00%
5-Year -2.04%
Since Inception (6/1/00) +1.68%
CLASS B (6/1/00-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN LARGE CAP RUSSELL 1000
DATE VALUE FUND - CLASS B VALUE INDEX CPI
- ---- -------------------- ------------ -------
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 $ 9,295 $10,362
11/30/2001 $12,235 $ 9,836 $10,344
12/31/2001 $12,611 $10,067 $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 $ 8,695 $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 $ 8,077 $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 $ 9,371 $10,700
6/30/2003 $11,723 $ 9,488 $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 $ 9,684 $10,799
10/31/2003 $12,496 $10,277 $10,787
11/30/2003 $12,618 $10,416 $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 $11,228 $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 $11,865 $11,131
11/30/2004 $14,507 $12,465 $11,137
12/31/2004 $14,936 $12,882 $11,096
1/31/2005 $14,671 $12,654 $11,120
2/28/2005 $14,804 $13,073 $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 $13,430 $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 $13,791 $11,475
1/31/2006 $15,686 $14,327 $11,563
2/28/2006 $15,739 $14,414 $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 $14,602 $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 $16,859 $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 $17,699 $12,052
5/31/2007 $18,630 $18,338 $12,125
6/30/2007 $18,320 $17,909 $12,149
7/31/2007 $17,544 $17,081 $12,146
8/31/2007 $17,766 $17,272 $12,123
9/30/2007 $18,386 $17,866 $12,157
10/31/2007 $18,309 $17,868 $12,183
11/30/2007 $17,467 $16,994 $12,255
12/31/2007 $17,410 $16,830 $12,247
1/31/2008 $16,826 $16,156 $12,308
2/29/2008 $16,385 $15,479 $12,344
3/31/2008 $16,301 $15,363 $12,451
4/30/2008 $17,100 $16,112 $12,526
5/31/2008 $17,052 $16,086 $12,632
6/30/2008 $15,589 $14,546 $12,759
7/31/2008 $15,129 $14,494 $12,826
8/31/2008 $15,365 $14,740 $12,775
9/30/2008 $14,019 $13,657 $12,757
10/31/2008 $11,612 $11,293 $12,628
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/08
- ------- --------
1-Year -39.17%
5-Year -1.87%
Since Inception (6/1/00) +1.79%
Annual Report | 31
Performance Summary (CONTINUED)
CLASS C (6/1/00-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN LARGE CAP RUSSELL 1000
DATE VALUE FUND - CLASS C VALUE INDEX CPI
- ---- -------------------- ------------ -------
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 $ 9,295 $10,362
11/30/2001 $12,227 $ 9,836 $10,344
12/31/2001 $12,609 $10,067 $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 $ 8,695 $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 $ 8,077 $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 $ 9,371 $10,700
6/30/2003 $11,720 $ 9,488 $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 $ 9,684 $10,799
10/31/2003 $12,494 $10,277 $10,787
11/30/2003 $12,616 $10,416 $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 $11,228 $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 $11,865 $11,131
11/30/2004 $14,498 $12,465 $11,137
12/31/2004 $14,935 $12,882 $11,096
1/31/2005 $14,670 $12,654 $11,120
2/28/2005 $14,803 $13,073 $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 $13,430 $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 $13,791 $11,475
1/31/2006 $15,677 $14,327 $11,563
2/28/2006 $15,729 $14,414 $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 $14,602 $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 $16,859 $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 $17,699 $12,052
5/31/2007 $18,631 $18,338 $12,125
6/30/2007 $18,320 $17,909 $12,149
7/31/2007 $17,544 $17,081 $12,146
8/31/2007 $17,766 $17,272 $12,123
9/30/2007 $18,387 $17,866 $12,157
10/31/2007 $18,309 $17,868 $12,183
11/30/2007 $17,467 $16,994 $12,255
12/31/2007 $17,417 $16,830 $12,247
1/31/2008 $16,833 $16,156 $12,308
2/29/2008 $16,379 $15,479 $12,344
3/31/2008 $16,296 $15,363 $12,451
4/30/2008 $17,095 $16,112 $12,526
5/31/2008 $17,047 $16,086 $12,632
6/30/2008 $15,568 $14,546 $12,759
7/31/2008 $15,103 $14,494 $12,826
8/31/2008 $15,329 $14,740 $12,775
9/30/2008 $13,981 $13,657 $12,757
10/31/2008 $11,572 $11,293 $12,628
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/08
- ------- --------
1-Year -37.39%
5-Year -1.52%
Since Inception (6/1/00) +1.75%
CLASS R (8/1/02-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN LARGE CAP RUSSELL 1000
DATE VALUE FUND - CLASS R VALUE INDEX CPI
- ---- -------------------- ------------ -------
8/1/2002 $10,000 $10,000 $10,000
8/31/2002 $10,092 $10,076 $10,033
9/30/2002 $ 8,854 $ 8,955 $10,050
10/31/2002 $ 9,686 $ 9,619 $10,067
11/30/2002 $10,249 $10,225 $10,067
12/31/2002 $ 9,733 $ 9,781 $10,044
1/31/2003 $ 9,518 $ 9,544 $10,089
2/28/2003 $ 9,350 $ 9,289 $10,167
3/31/2003 $ 9,397 $ 9,305 $10,228
4/30/2003 $10,050 $10,124 $10,205
5/31/2003 $10,684 $10,777 $10,189
6/30/2003 $10,777 $10,912 $10,200
7/31/2003 $10,889 $11,075 $10,211
8/31/2003 $10,991 $11,247 $10,250
9/30/2003 $11,000 $11,137 $10,283
10/31/2003 $11,504 $11,819 $10,272
11/30/2003 $11,634 $11,979 $10,244
12/31/2003 $12,236 $12,718 $10,233
1/31/2004 $12,460 $12,941 $10,283
2/29/2004 $12,798 $13,219 $10,339
3/31/2004 $12,713 $13,103 $10,405
4/30/2004 $12,573 $12,783 $10,439
5/31/2004 $12,657 $12,913 $10,500
6/30/2004 $12,854 $13,218 $10,533
7/31/2004 $12,676 $13,032 $10,516
8/31/2004 $12,882 $13,217 $10,522
9/30/2004 $12,929 $13,422 $10,544
10/31/2004 $13,051 $13,645 $10,600
11/30/2004 $13,435 $14,335 $10,605
12/31/2004 $13,850 $14,815 $10,566
1/31/2005 $13,605 $14,552 $10,589
2/28/2005 $13,737 $15,035 $10,650
3/31/2005 $13,614 $14,828 $10,733
4/30/2005 $13,341 $14,563 $10,805
5/31/2005 $13,596 $14,913 $10,794
6/30/2005 $13,492 $15,077 $10,800
7/31/2005 $13,907 $15,513 $10,850
8/31/2005 $13,756 $15,445 $10,905
9/30/2005 $13,841 $15,662 $11,038
10/31/2005 $13,728 $15,264 $11,061
11/30/2005 $14,312 $15,763 $10,972
12/31/2005 $14,331 $15,860 $10,927
1/31/2006 $14,614 $16,476 $11,011
2/28/2006 $14,662 $16,577 $11,033
3/31/2006 $14,731 $16,801 $11,094
4/30/2006 $15,159 $17,228 $11,188
5/31/2006 $14,731 $16,793 $11,244
6/30/2006 $14,672 $16,901 $11,266
7/31/2006 $14,770 $17,312 $11,299
8/31/2006 $15,198 $17,601 $11,321
9/30/2006 $15,626 $17,952 $11,266
10/31/2006 $15,987 $18,540 $11,205
11/30/2006 $16,259 $18,963 $11,188
12/31/2006 $16,589 $19,389 $11,205
1/31/2007 $16,744 $19,637 $11,239
2/28/2007 $16,413 $19,331 $11,299
3/31/2007 $16,465 $19,629 $11,402
4/30/2007 $17,024 $20,355 $11,476
5/31/2007 $17,470 $21,089 $11,546
6/30/2007 $17,190 $20,596 $11,569
7/31/2007 $16,465 $19,644 $11,566
8/31/2007 $16,682 $19,864 $11,545
9/30/2007 $17,273 $20,546 $11,576
10/31/2007 $17,200 $20,548 $11,601
11/30/2007 $16,423 $19,544 $11,670
12/31/2007 $16,381 $19,355 $11,662
1/31/2008 $15,843 $18,580 $11,720
2/29/2008 $15,428 $17,801 $11,754
3/31/2008 $15,349 $17,668 $11,856
4/30/2008 $16,112 $18,529 $11,928
5/31/2008 $16,067 $18,499 $12,028
6/30/2008 $14,687 $16,729 $12,150
7/31/2008 $14,249 $16,668 $12,213
8/31/2008 $14,474 $16,951 $12,165
9/30/2008 $13,195 $15,706 $12,148
10/31/2008 $11,208 $12,987 $12,025
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/08
- ------- --------
1-Year -36.46%
5-Year -1.02%
Since Inception (8/1/02) +1.84%
32 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (6/1/00-10/31/08)(7)
(PERFORMANCE GRAPH)
FRANKLIN LARGE CAP
VALUE FUND - RUSSELL 1000
DATE ADVISOR CLASS VALUE INDEX CPI
- ---- ------------------ ------------ -------
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 $ 9,295 $10,362
11/30/2001 $12,341 $ 9,836 $10,344
12/31/2001 $12,734 $10,067 $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 $ 8,695 $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 $ 8,077 $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 $ 9,371 $10,700
6/30/2003 $11,941 $ 9,488 $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 $ 9,684 $10,799
10/31/2003 $12,754 $10,277 $10,787
11/30/2003 $12,887 $10,416 $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 $11,228 $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 $11,865 $11,131
11/30/2004 $14,913 $12,465 $11,137
12/31/2004 $15,367 $12,882 $11,096
1/31/2005 $15,096 $12,654 $11,120
2/28/2005 $15,242 $13,073 $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 $13,430 $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 $13,791 $11,475
1/31/2006 $16,263 $14,327 $11,563
2/28/2006 $16,328 $14,414 $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 $14,602 $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 $16,859 $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 $17,699 $12,052
5/31/2007 $19,575 $18,338 $12,125
6/30/2007 $19,264 $17,909 $12,149
7/31/2007 $18,468 $17,081 $12,146
8/31/2007 $18,710 $17,272 $12,123
9/30/2007 $19,379 $17,866 $12,157
10/31/2007 $19,310 $17,868 $12,183
11/30/2007 $18,445 $16,994 $12,255
12/31/2007 $18,405 $16,830 $12,247
1/31/2008 $17,803 $16,156 $12,308
2/29/2008 $17,339 $15,479 $12,344
3/31/2008 $17,263 $15,363 $12,451
4/30/2008 $18,129 $16,112 $12,526
5/31/2008 $18,091 $16,086 $12,632
6/30/2008 $16,536 $14,546 $12,759
7/31/2008 $16,059 $14,494 $12,826
8/31/2008 $16,310 $14,740 $12,775
9/30/2008 $14,892 $13,657 $12,757
10/31/2008 $12,333 $11,293 $12,628
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(7) 10/31/08
- ---------------- --------
1-Year -36.13%
5-Year -0.67%
Since Inception (6/1/00) +2.52%
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 -18.98% and -6.78%.
(8.) Source: (C) 2008 Morningstar. 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.
Annual Report | 33
Your Fund's Expenses
FRANKLIN LARGE CAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
34 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 679.10 $ 5.82
Hypothetical (5% return before expenses) $1,000 $1,018.20 $ 7.00
CLASS B
Actual $1,000 $ 676.40 $ 8.76
Hypothetical (5% return before expenses) $1,000 $1,014.68 $10.53
CLASS C
Actual $1,000 $ 676.90 $ 8.77
Hypothetical (5% return before expenses) $1,000 $1,014.68 $10.53
CLASS R
Actual $1,000 $ 678.30 $ 6.67
Hypothetical (5% return before expenses) $1,000 $1,017.19 $ 8.01
ADVISOR CLASS
Actual $1,000 $ 680.30 $ 4.56
Hypothetical (5% return before expenses) $1,000 $1,019.71 $ 5.48
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.38%; B: 2.08%; C: 2.08%; R: 1.58%; and
Advisor: 1.08%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
Annual Report | 35
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 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin MicroCap Value Fund covers the fiscal year ended
October 31, 2008.
PERFORMANCE OVERVIEW
Franklin MicroCap Value Fund - Class A had a -33.44% cumulative total return for
the 12 months under review. The Fund underperformed its benchmark, the Russell
2000(R) Value Index, which declined 30.54% for the same period.(1) 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 39.
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 "microcap."
Book value per share is a company's net worth or shareholders' equity on an
accounting or "book" basis, divided by shares outstanding. This strategy is not
aimed at 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: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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 91.
36 | Annual Report
MANAGER'S DISCUSSION
On October 31, 2008, the Fund's total net assets were $299.5 million, and
short-term investments and other net assets stood at 19.3%, compared with total
net assets of $501 million on October 31, 2007, and short-term investments and
other net assets of 17.3%. The Fund closed to new investors (with the exception
of certain retirement accounts) in January 2004. The close does not restrict
existing shareholders from adding to or reducing their investment in the Fund,
except that once an account is reduced to zero, it may not be reopened unless
the Fund reopens. Net Fund outflows to existing shareholders were $38.0 million
during the 12-month period.
We identified eight new investment opportunities during the fiscal year under
review: Fred's, a discount retailer; Griffon, a diversified manufacturer; Origen
Financial, a real estate financial services company in liquidation; Shoe
Carnival, a footwear retailer; Spherion, a staffing company; Universal Stainless
& Alloy, a steel products manufacturer; USA Truck, a medium-haul truckload
carrier; and WSB Holding, a savings bank based in Maryland. We also added to
several existing positions, including Alamo Group, Hardinge, Intertape Polymer,
Mercer Insurance Group and P.A.M. Transportation Services. Cash deployed into
new and existing positions totaled $39.8 million during the period.
Proceeds from portfolio sales and capital distributions totaled $49.8 million,
including $12.6 million from takeovers Printronix and SEMCO Energy, announced
prior to the period under review, and Gehl, announced during the reporting
period. By contrast, more than half of the $49.5 million in total portfolio
sales in the prior year's annual period was generated by takeovers.
Historically, takeovers have been an important part of the Fund's investment
returns. We believe the decline in takeovers reflects disruptions in the credit
markets that began with subprime mortgages early in 2007. At the end of the
period, there was a buyout offer pending for International Shipholding that the
company was considering. We eliminated five other positions: Chromcraft
Revington, Exponent, Maine & Maritimes, National RV Holdings, and Proliance
International.
There were many more detractors from performance than contributors. These
included Hardinge (machine tools), Smithfield Foods (meat products), RTI
International Metals (titanium), PHI (helicopter transportation for the oil and
gas industry), American Pacific (chemicals), Duckwall-ALCO Stores (retailing),
Tandy Brands Accessories (fashion accessories), Mercer International (pulp
products), Beverly Hills Bancorp (mortgage services), Delta Apparel (T-shirts,
team uniforms and other activewear), and Arbor Realty Trust (real estate
finance). Many of these
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets as of 10/31/08
(BAR CHART)
Capital Goods 12.4%
Food, Beverage & Tobacco 11.0%
Materials 9.8%
Commercial & Professional Services 7.6%
Retailing 6.3%
Insurance 6.1%
Transportation 5.6%
Consumer Durables & Apparel 4.2%
Telecommunication Services 3.7%
Food & Staples Retailing 3.5%
Energy 2.9%
Banks 2.7%
Real Estate 2.4%
Other 2.5%
Short-Term Investments & Other Net Assets 19.3%
Annual Report | 37
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Seneca Foods Corp. 3.7%
FOOD, BEVERAGE & TOBACCO
Village Super Market Inc., A 3.5%
FOOD & STAPLES RETAILING
International Shipholding Corp. 3.3%
TRANSPORTATION
Atlantic Tele-Network Inc. 3.2%
TELECOMMUNICATION SERVICES
Healthcare Services Group Inc. 3.2%
COMMERCIAL & PROFESSIONAL SERVICES
PHI Inc. 2.9%
ENERGY
American Pacific Corp. 2.6%
MATERIALS
ACMAT Corp., A 2.4%
INSURANCE
Omega Protein Corp. 2.1%
FOOD, BEVERAGE & TOBACCO
Hardinge Inc. 2.1%
CAPITAL GOODS
and other detractors among our holdings gave up some of the significant gains
achieved during our ownership. Unpleasant as that is, the market reflected
conditions we believe were better suited to value investors like us than have
existed since we closed the Fund to new investors in 2004.
Positions that contributed most positively to Fund performance during the 12
months included Gehl (construction equipment), International Shipholding
(shipping), Village Super Market (grocery retailing), Fred's, Haverty Furniture
(home furnishings retailing) and Shoe Carnival.
Thank you for your continued participation in Franklin MicroCap Value Fund. We
look forward to serving your future investment needs.
(PHOTO OF BRUCE C. BAUGHMAN)
/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
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2008, 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.
38 | Annual Report
Performance Summary as of 10/31/08
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 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$18.93 $25.09 $44.02
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.4116
Long-Term Capital Gain $5.2128
TOTAL $5.6244
ADVISOR CLASS (SYMBOL: FVRMX) CHANGE 10/31/08 10/31/07
- ----------------------------- ------- -------- --------
Net Asset Value (NAV) -$19.00 $25.14 $44.14
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.5273
Long-Term Capital Gain $5.2128
TOTAL $5.7401
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.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- --------
Cumulative Total Return(1) -33.44% +19.52% +145.12%
Average Annual Total Return(2) -37.27% +2.41% +8.73%
Value of $10,000 Investment(3) $ 6,273 $11,263 $ 23,099
Avg. Ann. Total Return (9/30/08)(4) -24.34% +7.62% +10.89%
Total Annual Operating Expenses(5) 1.20%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- -------
Cumulative Total Return(1) -33.29% +20.38% +146.89%
Average Annual Total Return(2) -33.29% +3.78% +9.46%
Value of $10,000 Investment(3) $ 6,671 $12,038 $24,689
Avg. Ann. Total Return (9/30/08)(4) -19.50% +9.05% +11.63%
Total Annual Operating Expenses(5) 0.96%
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 (800) 342-5236.
Annual Report | 39
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A 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 (11/1/98-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN MICROCAP RUSSELL 2000
DATE VALUE FUND - CLASS A VALUE INDEX CPI
- ---- -------------------- ------------ -------
11/1/1998 $ 9,424 $10,000 $10,000
11/30/1998 $ 9,689 $10,271 $10,000
12/31/1998 $ 9,727 $10,593 $ 9,994
1/31/1999 $ 9,813 $10,352 $10,018
2/28/1999 $ 9,329 $ 9,646 $10,030
3/31/1999 $ 9,002 $ 9,566 $10,061
4/30/1999 $ 9,531 $10,439 $10,134
5/31/1999 $10,009 $10,760 $10,134
6/30/1999 $10,231 $11,150 $10,134
7/31/1999 $10,362 $10,885 $10,165
8/31/1999 $10,120 $10,487 $10,189
9/30/1999 $ 9,420 $10,278 $10,238
10/31/1999 $ 9,274 $10,072 $10,256
11/30/1999 $ 9,368 $10,124 $10,262
12/31/1999 $ 9,340 $10,435 $10,262
1/31/2000 $ 9,691 $10,162 $10,293
2/29/2000 $ 9,839 $10,784 $10,354
3/31/2000 $ 9,916 $10,834 $10,439
4/30/2000 $ 9,554 $10,898 $10,445
5/31/2000 $ 9,603 $10,732 $10,457
6/30/2000 $ 9,959 $11,045 $10,512
7/31/2000 $10,080 $11,414 $10,537
8/31/2000 $10,693 $11,924 $10,537
9/30/2000 $10,666 $11,856 $10,591
10/31/2000 $10,343 $11,814 $10,610
11/30/2000 $10,162 $11,574 $10,616
12/31/2000 $10,467 $12,817 $10,610
1/31/2001 $11,419 $13,171 $10,677
2/28/2001 $11,704 $13,153 $10,720
3/31/2001 $12,188 $12,942 $10,744
4/30/2001 $12,792 $13,541 $10,787
5/31/2001 $13,960 $13,889 $10,835
6/30/2001 $14,074 $14,448 $10,854
7/31/2001 $14,405 $14,124 $10,823
8/31/2001 $14,445 $14,075 $10,823
9/30/2001 $13,579 $12,521 $10,872
10/31/2001 $14,046 $12,848 $10,835
11/30/2001 $14,080 $13,772 $10,817
12/31/2001 $14,788 $14,615 $10,774
1/31/2002 $15,201 $14,809 $10,799
2/28/2002 $15,291 $14,899 $10,841
3/31/2002 $16,130 $16,015 $10,902
4/30/2002 $16,837 $16,578 $10,963
5/31/2002 $17,047 $16,030 $10,963
6/30/2002 $16,909 $15,675 $10,970
7/31/2002 $15,303 $13,346 $10,982
8/31/2002 $15,214 $13,287 $11,018
9/30/2002 $14,423 $12,338 $11,037
10/31/2002 $14,435 $12,523 $11,055
11/30/2002 $15,166 $13,523 $11,055
12/31/2002 $15,381 $12,945 $11,030
1/31/2003 $15,292 $12,581 $11,079
2/28/2003 $14,662 $12,158 $11,165
3/31/2003 $14,592 $12,287 $11,232
4/30/2003 $14,904 $13,455 $11,207
5/31/2003 $15,724 $14,828 $11,189
6/30/2003 $16,347 $15,080 $11,201
7/31/2003 $17,205 $15,832 $11,213
8/31/2003 $17,904 $16,433 $11,256
9/30/2003 $18,145 $16,244 $11,293
10/31/2003 $19,327 $17,569 $11,280
11/30/2003 $20,084 $18,243 $11,250
12/31/2003 $20,983 $18,903 $11,238
1/31/2004 $21,274 $19,557 $11,293
2/29/2004 $21,372 $19,936 $11,354
3/31/2004 $22,059 $20,211 $11,427
4/30/2004 $21,832 $19,166 $11,463
5/31/2004 $21,838 $19,397 $11,530
6/30/2004 $22,500 $20,383 $11,567
7/31/2004 $22,072 $19,446 $11,549
8/31/2004 $21,806 $19,636 $11,555
9/30/2004 $22,247 $20,413 $11,579
10/31/2004 $22,350 $20,730 $11,640
11/30/2004 $23,796 $22,570 $11,646
12/31/2004 $24,342 $23,108 $11,604
1/31/2005 $24,301 $22,214 $11,628
2/28/2005 $25,038 $22,656 $11,695
3/31/2005 $24,458 $22,189 $11,787
4/30/2005 $23,885 $21,045 $11,866
5/31/2005 $24,362 $22,328 $11,854
6/30/2005 $24,983 $23,315 $11,860
7/31/2005 $26,566 $24,642 $11,915
8/31/2005 $26,348 $24,076 $11,976
9/30/2005 $26,511 $24,037 $12,122
10/31/2005 $26,027 $23,433 $12,146
11/30/2005 $26,723 $24,383 $12,049
12/31/2005 $27,318 $24,196 $12,000
1/31/2006 $28,699 $26,197 $12,091
2/28/2006 $28,766 $26,195 $12,116
3/31/2006 $30,501 $27,464 $12,183
4/30/2006 $30,331 $27,537 $12,287
5/31/2006 $29,969 $26,397 $12,348
6/30/2006 $29,888 $26,721 $12,372
7/31/2006 $29,113 $26,351 $12,409
8/31/2006 $29,526 $27,138 $12,433
9/30/2006 $29,799 $27,403 $12,372
10/31/2006 $30,516 $28,798 $12,305
11/30/2006 $31,993 $29,619 $12,287
12/31/2006 $32,765 $29,877 $12,305
1/31/2007 $33,309 $30,325 $12,342
2/28/2007 $34,097 $29,952 $12,408
3/31/2007 $34,570 $30,314 $12,521
4/30/2007 $35,217 $30,628 $12,603
5/31/2007 $36,005 $31,752 $12,680
6/30/2007 $35,832 $31,011 $12,704
7/31/2007 $35,012 $28,372 $12,701
8/31/2007 $34,720 $28,940 $12,678
9/30/2007 $34,610 $29,071 $12,713
10/31/2007 $34,704 $29,388 $12,740
11/30/2007 $31,724 $27,186 $12,816
12/31/2007 $31,385 $26,956 $12,807
1/31/2008 $30,925 $25,850 $12,871
2/29/2008 $29,885 $24,823 $12,908
3/31/2008 $29,848 $25,197 $13,020
4/30/2008 $29,664 $25,994 $13,099
5/31/2008 $30,603 $26,883 $13,209
6/30/2008 $28,577 $24,303 $13,342
7/31/2008 $29,130 $25,549 $13,412
8/31/2008 $29,783 $26,764 $13,359
9/30/2008 $27,785 $25,509 $13,340
10/31/2008 $23,099 $20,413 $13,206
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -37.27%
5-Year +2.41%
10-Year +8.73%
ADVISOR CLASS (11/1/98-10/31/08)(6)
(PERFORMANCE GRAPH)
FRANKLIN MICROCAP
VALUE FUND - ADVISOR RUSSELL 2000
DATE CLASS VALUE INDEX CPI
- ---- -------------------- ------------ -------
11/1/1998 $10,000 $10,000 $10,000
11/30/1998 $10,281 $10,271 $10,000
12/31/1998 $10,322 $10,593 $ 9,994
1/31/1999 $10,413 $10,352 $10,018
2/28/1999 $ 9,900 $ 9,646 $10,030
3/31/1999 $ 9,553 $ 9,566 $10,061
4/30/1999 $10,114 $10,439 $10,134
5/31/1999 $10,622 $10,760 $10,134
6/30/1999 $10,857 $11,150 $10,134
7/31/1999 $10,996 $10,885 $10,165
8/31/1999 $10,739 $10,487 $10,189
9/30/1999 $ 9,996 $10,278 $10,238
10/31/1999 $ 9,841 $10,072 $10,256
11/30/1999 $ 9,941 $10,124 $10,262
12/31/1999 $ 9,912 $10,435 $10,262
1/31/2000 $10,284 $10,162 $10,293
2/29/2000 $10,441 $10,784 $10,354
3/31/2000 $10,522 $10,834 $10,439
4/30/2000 $10,138 $10,898 $10,445
5/31/2000 $10,191 $10,732 $10,457
6/30/2000 $10,569 $11,045 $10,512
7/31/2000 $10,697 $11,414 $10,537
8/31/2000 $11,348 $11,924 $10,537
9/30/2000 $11,319 $11,856 $10,591
10/31/2000 $10,976 $11,814 $10,610
11/30/2000 $10,784 $11,574 $10,616
12/31/2000 $11,108 $12,817 $10,610
1/31/2001 $12,117 $13,171 $10,677
2/28/2001 $12,420 $13,153 $10,720
3/31/2001 $12,934 $12,942 $10,744
4/30/2001 $13,575 $13,541 $10,787
5/31/2001 $14,814 $13,889 $10,835
6/30/2001 $14,935 $14,448 $10,854
7/31/2001 $15,286 $14,124 $10,823
8/31/2001 $15,328 $14,075 $10,823
9/30/2001 $14,409 $12,521 $10,872
10/31/2001 $14,905 $12,848 $10,835
11/30/2001 $14,941 $13,772 $10,817
12/31/2001 $15,692 $14,615 $10,774
1/31/2002 $16,131 $14,809 $10,799
2/28/2002 $16,227 $14,899 $10,841
3/31/2002 $17,117 $16,015 $10,902
4/30/2002 $17,867 $16,578 $10,963
5/31/2002 $18,090 $16,030 $10,963
6/30/2002 $17,944 $15,675 $10,970
7/31/2002 $16,240 $13,346 $10,982
8/31/2002 $16,144 $13,287 $11,018
9/30/2002 $15,305 $12,338 $11,037
10/31/2002 $15,318 $12,523 $11,055
11/30/2002 $16,093 $13,523 $11,055
12/31/2002 $16,321 $12,945 $11,030
1/31/2003 $16,227 $12,581 $11,079
2/28/2003 $15,559 $12,158 $11,165
3/31/2003 $15,485 $12,287 $11,232
4/30/2003 $15,816 $13,455 $11,207
5/31/2003 $16,686 $14,828 $11,189
6/30/2003 $17,347 $15,080 $11,201
7/31/2003 $18,257 $15,832 $11,213
8/31/2003 $18,999 $16,433 $11,256
9/30/2003 $19,255 $16,244 $11,293
10/31/2003 $20,510 $17,569 $11,280
11/30/2003 $21,312 $18,243 $11,250
12/31/2003 $22,266 $18,903 $11,238
1/31/2004 $22,576 $19,557 $11,293
2/29/2004 $22,679 $19,936 $11,354
3/31/2004 $23,408 $20,211 $11,427
4/30/2004 $23,167 $19,166 $11,463
5/31/2004 $23,174 $19,397 $11,530
6/30/2004 $23,876 $20,383 $11,567
7/31/2004 $23,422 $19,446 $11,549
8/31/2004 $23,140 $19,636 $11,555
9/30/2004 $23,608 $20,413 $11,579
10/31/2004 $23,718 $20,730 $11,640
11/30/2004 $25,252 $22,570 $11,646
12/31/2004 $25,831 $23,108 $11,604
1/31/2005 $25,788 $22,214 $11,628
2/28/2005 $26,570 $22,656 $11,695
3/31/2005 $25,954 $22,189 $11,787
4/30/2005 $25,346 $21,045 $11,866
5/31/2005 $25,853 $22,328 $11,854
6/30/2005 $26,512 $23,315 $11,860
7/31/2005 $28,191 $24,642 $11,915
8/31/2005 $27,960 $24,076 $11,976
9/30/2005 $28,133 $24,037 $12,122
10/31/2005 $27,619 $23,433 $12,146
11/30/2005 $28,365 $24,383 $12,049
12/31/2005 $29,004 $24,196 $12,000
1/31/2006 $30,470 $26,197 $12,091
2/28/2006 $30,548 $26,195 $12,116
3/31/2006 $32,405 $27,464 $12,183
4/30/2006 $32,233 $27,537 $12,287
5/31/2006 $31,849 $26,397 $12,348
6/30/2006 $31,771 $26,721 $12,372
7/31/2006 $30,956 $26,351 $12,409
8/31/2006 $31,402 $27,138 $12,433
9/30/2006 $31,700 $27,403 $12,372
10/31/2006 $32,468 $28,798 $12,305
11/30/2006 $34,043 $29,619 $12,287
12/31/2006 $34,872 $29,877 $12,305
1/31/2007 $35,458 $30,325 $12,342
2/28/2007 $36,297 $29,952 $12,408
3/31/2007 $36,808 $30,314 $12,521
4/30/2007 $37,504 $30,628 $12,603
5/31/2007 $38,351 $31,752 $12,680
6/30/2007 $38,175 $31,011 $12,704
7/31/2007 $37,311 $28,372 $12,701
8/31/2007 $37,001 $28,940 $12,678
9/30/2007 $36,892 $29,071 $12,713
10/31/2007 $37,010 $29,388 $12,740
11/30/2007 $33,832 $27,186 $12,816
12/31/2007 $33,478 $26,956 $12,807
1/31/2008 $32,997 $25,850 $12,871
2/29/2008 $31,897 $24,823 $12,908
3/31/2008 $31,857 $25,197 $13,020
4/30/2008 $31,671 $25,994 $13,099
5/31/2008 $32,682 $26,883 $13,209
6/30/2008 $30,522 $24,303 $13,342
7/31/2008 $31,121 $25,549 $13,412
8/31/2008 $31,818 $26,764 $13,359
9/30/2008 $29,697 $25,509 $13,340
10/31/2008 $24,689 $20,413 $13,206
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 10/31/08
- ---------------- --------
1-Year -33.29%
5-Year +3.78%
10-Year +9.46%
40 | Annual Report
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.
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 -10.91% and -3.78%.
(7.) Source: (C) 2008 Morningstar. 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.
Annual Report | 41
Your Fund's Expenses
FRANKLIN MICROCAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
42 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 778.70 $5.01
Hypothetical (5% return before expenses) $1,000 $1,019.51 $5.69
ADVISOR CLASS
Actual $1,000 $ 779.50 $3.94
Hypothetical (5% return before expenses) $1,000 $1,020.71 $4.47
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.12% and Advisor: 0.88%), multiplied by the
average account value over the period, multiplied by 184/366 to reflect the
one-half year period.
Annual Report | 43
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin MidCap Value Fund covers the fiscal year ended
October 31, 2008.
PERFORMANCE OVERVIEW
Franklin MidCap Value Fund - Class A had a -37.14% cumulative total return for
the 12 months under review. The Fund performed comparably to its benchmark, the
Russell Midcap Value Index, which declined 38.83% for the same period.2 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 47.
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: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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 99.
44 | Annual Report
MANAGER'S DISCUSSION
For the 12 months under review, many stocks declined in value. Key detractors
from Fund performance included capital goods manufacturer Oshkosh, whose share
price fell largely due to fears that a weak economy could negatively impact
results. Financial companies KKR Private Equity Investors and CIT Group hindered
Fund performance as they suffered amid the financial and credit market crises.
On a positive note, during the Fund's fiscal year contributors to performance
included J.B. Hunt Transport Services, which experienced growth in its
intermodal business that helped offset weak demand and high fuel costs for
traditional trucking services. Discount retailer Family Dollar Stores also
helped Fund performance as consumers became increasingly cost-conscious amid the
difficult economic environment. Coal company Peabody Energy was also a key
contributor to performance.
During the reporting period, we added to several existing holdings, as well as
initiated positions in 10 stocks we believed were attractively valued. Our new
positions were in electrical systems and components manufacturer Eaton, mortgage
banking company Freddie Mac (sold by period-end), motorcycle manufacturer Harley
Davidson, independent clinical laboratory company Laboratory Corp. of America
Holdings, department store Nordstrom, staffing and consulting firm Robert Half
International, electric and natural gas company Sempra Energy, diversified
utility company Sierra Pacific Resources, capital equipment manufacturer Terex,
and offshore energy services company Tidewater.
We liquidated 14 positions during the fiscal year, either because we believed
the stocks were fully valued, the companies' fundamentals had deteriorated, or
they were insignificant positions. Sales included several finance-related
holdings including insurance companies American National Insurance, Mercury
General, Montpelier Re Holdings, MGIC Investment, Radian Group and The PMI
Group, as well as the aforementioned Freddie Mac. Other liquidations were
specialty chemicals company Cabot, home builder Lennar, contract research
organization Pharmaceutical Product Development, beauty supplies distributor
Sally Beauty Holdings, Southwest Airlines, The Hershey Co. and apparel maker
Timberland.
PORTFOLIO BREAKDOWN
Franklin MidCap Value Fund
Based on Total Net Assets as of 10/31/08
(BAR CHART)
Capital Goods 16.2%
Materials 11.7%
Utilities 11.4%
Energy 9.7%
Consumer Durables & Apparel 7.8%
Food, Beverage & Tobacco 7.7%
Insurance 5.9%
Health Care Equipment & Services 5.0%
Retailing 4.6%
Automobiles & Components 3.4%
Software & Services 3.0%
Pharmaceuticals, Biotechnology & Life Sciences 2.6%
Other 9.0%
Short-Term Investments & Other Net Assets 2.0%
Annual Report | 45
TOP 10 EQUITY HOLDINGS
Franklin MidCap Value Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Dean Foods Co. 3.7%
FOOD, BEVERAGE & TOBACCO
McCormick & Co. Inc. 3.2%
FOOD, BEVERAGE & TOBACCO
DTE Energy Co. 3.1%
UTILITIES
SAIC Inc. 3.0%
SOFTWARE & SERVICES
Atmos Energy Corp. 2.8%
UTILITIES
Roper Industries Inc. 2.7%
CAPITAL GOODS
Carlisle Cos. Inc. 2.6%
CAPITAL GOODS
Erie Indemnity Co., A 2.6%
INSURANCE
Dover Corp. 2.5%
CAPITAL GOODS
Fortune Brands Inc. 2.5%
CONSUMER DURABLES & APPAREL
Thank you for your continued participation in Franklin MidCap Value Fund. We
look forward to serving your future investment needs.
(PHOTO OF SAM KERNER)
/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
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2008, 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.
46 | Annual Report
Performance Summary as of 10/31/08
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 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$4.61 $7.31 $11.92
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1284
Short-Term Capital Gain $0.0278
Long-Term Capital Gain $0.1187
TOTAL $0.2749
CLASS C (SYMBOL: FMVCX) CHANGE 10/31/08 10/31/07
- ----------------------- ------ -------- --------
Net Asset Value (NAV) -$4.57 $7.24 $11.81
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0597
Short-Term Capital Gain $0.0278
Long-Term Capital Gain $0.1187
TOTAL $0.2062
CLASS R (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------- ------ -------- --------
Net Asset Value (NAV) -$4.57 $7.30 $11.87
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0813
Short-Term Capital Gain $0.0278
Long-Term Capital Gain $0.1187
TOTAL $0.2278
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/08 10/31/07
- --------------------------- ------ -------- --------
Net Asset Value (NAV) -$4.64 $7.35 $11.99
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.1652
Short-Term Capital Gain $0.0278
Long-Term Capital Gain $0.1187
TOTAL $0.3117
Annual Report | 47
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.
CLASS A 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- -------- -------- ------------------
Cumulati ve Total Return(2) -37.14% -20.77% -22.35%
Average Annual Total Return(3) -40.77% -9.28% -8.94%
Value of $10,000 Investment(4) $ 5,923 $ 7,466 $ 7,318
Avg. Ann. Total Return (9/30/08)(5) -24.77% -2.88% -2.27%
Total Annual Operating Expenses(6)
Without Waiver 1.67%
With Waiver 1.40%
CLASS C 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- -------- -------- ------------------
Cumulati ve Total Return(2) -37.54% -22.32% -24.03%
Average Annual Total Return(3) -38.16% -8.07% -7.91%
Value of $10,000 Investment(4) $ 6,184 $ 7,768 $ 7,597
Avg. Ann. Total Return (9/30/08)(5) -21.35% -1.56% -1.08%
Total Annual Operating Expenses(6)
Without Waiver 2.30%
With Waiver 2.03%
CLASS R 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- -------- -------- ------------------
Cumulati ve Total Return(2) -37.23% -21.15% -22.73%
Average Annual Total Return(3) -37.23% -7.62% -7.44%
Value of $10,000 Investment(4) $ 6,277 $ 7,885 $ 7,727
Avg. Ann. Total Return (9/30/08)(5) -20.31% -1.09% -0.61%
Total Annual Operating Expenses(6)
Without Waiver 1.82%
With Waiver 1.55%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------------- -------- -------- ------------------
Cumulati ve Total Return(2) -36.97% -19.92% -21.44%
Average Annual Total Return(3) -36.97% -7.14% -6.98%
Value of $10,000 Investment(4) $ 6,303 $ 8,008 $ 7,856
Avg. Ann. Total Return (9/30/08)(5) -19.86% -0.56% -0.09%
Total Annual Operating Expenses(6)
Without Waiver 1.32%
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 (800) 342-5236.
THE INVESTMENT MANAGER AND ADMINISTRATOR HAVE CONTRACTUALLY AGREED TO WAIVE OR
LIMIT THEIR RESPECTIVE FEES AND TO ASSUME AS THEIR OWN EXPENSE CERTAIN EXPENSES
OTHERWISE PAYABLE BY THE FUND SO THAT TOTAL ANNUAL FUND OPERATING EXPENSES,
EXCLUDING ACQUIRED FUND FEES AND EXPENSES, DO NOT EXCEED THE AMOUNT SHOWN WITH
WAIVER FOR EACH CLASS (OTHER THAN CERTAIN NON-ROUTINE EXPENSES OR COSTS,
INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND
LIQUIDATIONS) UNTIL 2/28/09.
48 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
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.
CLASS A (7/1/05-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN RUSSELL
MIDCAP VALUE MIDCAP
DATE FUND - CLASS A VALUE INDEX CPI
- ---- -------------- ----------- -------
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
11/30/2007 $11,174 $12,793 $10,806
12/31/2007 $11,163 $12,652 $10,799
1/31/2008 $10,732 $12,075 $10,852
2/29/2008 $10,452 $11,677 $10,884
3/31/2008 $10,292 $11,558 $10,978
4/30/2008 $10,903 $12,263 $11,045
5/31/2008 $11,253 $12,698 $11,138
6/30/2008 $10,372 $11,566 $11,250
7/31/2008 $10,172 $11,433 $11,309
8/31/2008 $10,362 $11,760 $11,264
9/30/2008 $ 9,281 $10,696 $11,248
10/31/2008 $ 7,318 $ 8,262 $11,135
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -40.77%
3-Year -9.28%
Since Inception (7/1/05) -8.94%
CLASS C (7/1/05-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN RUSSELL
MIDCAP VALUE MIDCAP
DATE FUND - CLASS C VALUE INDEX CPI
- ---- -------------- ----------- -------
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
11/30/2007 $11,670 $12,793 $10,806
12/31/2007 $11,659 $12,652 $10,799
1/31/2008 $11,197 $12,075 $10,852
2/29/2008 $10,903 $11,677 $10,884
3/31/2008 $10,735 $11,558 $10,978
4/30/2008 $11,365 $12,263 $11,045
5/31/2008 $11,722 $12,698 $11,138
6/30/2008 $10,798 $11,566 $11,250
7/31/2008 $10,578 $11,433 $11,309
8/31/2008 $10,777 $11,760 $11,264
9/30/2008 $ 9,654 $10,696 $11,248
10/31/2008 $ 7,597 $ 8,262 $11,135
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/08
- ------- --------
1-Year -38.16%
3-Year -8.07%
Since Inception (7/1/05) -7.91%
Annual Report | 49
Performance Summary (CONTINUED)
CLASS R (7/1/05-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN RUSSELL
MIDCAP VALUE MIDCAP
DATE FUND - CLASS R VALUE INDEX CPI
- ---- -------------- ----------- -------
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
11/30/2007 $11,812 $12,793 $10,806
12/31/2007 $11,802 $12,652 $10,799
1/31/2008 $11,337 $12,075 $10,852
2/29/2008 $11,051 $11,677 $10,884
3/31/2008 $10,881 $11,558 $10,978
4/30/2008 $11,516 $12,263 $11,045
5/31/2008 $11,887 $12,698 $11,138
6/30/2008 $10,966 $11,566 $11,250
7/31/2008 $10,744 $11,433 $11,309
8/31/2008 $10,945 $11,760 $11,264
9/30/2008 $ 9,802 $10,696 $11,248
10/31/2008 $ 7,727 $ 8,262 $11,135
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/08
- ------- --------
1-Year -37.23%
3-Year -7.62%
Since Inception (7/1/05) -7.44%
ADVISOR CLASS (7/1/05-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN MIDCAP RUSSELL
VALUE FUND - MIDCAP
DATE ADVISOR CLASS VALUE INDEX CPI
- ---- --------------- ----------- -------
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
10/31/2007 $12,464 $13,505 $10,742
11/30/2007 $11,954 $12,793 $10,806
12/31/2007 $11,949 $12,652 $10,799
1/31/2008 $11,490 $12,075 $10,852
2/29/2008 $11,201 $11,677 $10,884
3/31/2008 $11,030 $11,558 $10,978
4/30/2008 $11,693 $12,263 $11,045
5/31/2008 $12,067 $12,698 $11,138
6/30/2008 $11,126 $11,566 $11,250
7/31/2008 $10,913 $11,433 $11,309
8/31/2008 $11,116 $11,760 $11,264
9/30/2008 $ 9,972 $10,696 $11,248
10/31/2008 $ 7,856 $ 8,262 $11,135
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/08
- ------------- --------
1-Year -36.97%
3-Year -7.14%
Since Inception (7/1/05) -6.98%
50 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED OTHER ASSET CLASSES OVER THE LONG
TERM, THEY TEND TO FLUCTUATE MORE DRAMATICALLY OVER THE SHORT TERM. THESE PRICE
MOVEMENTS MAY RESULT FROM FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR
THE SECURITIES 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: (C) 2008 Morningstar. 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.
Annual Report | 51
Your Fund's Expenses
FRANKLIN MIDCAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
52 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 671.30 $ 5.88
Hypothetical (5% return before expenses) $1,000 $1,018.10 $ 7.10
CLASS C
Actual $1,000 $ 668.50 $ 8.51
Hypothetical (5% return before expenses) $1,000 $1,014.93 $10.28
CLASS R
Actual $1,000 $ 671.00 $ 6.51
Hypothetical (5% return before expenses) $1,000 $1,017.34 $ 7.86
ADVISOR CLASS
Actual $1,000 $ 671.80 $ 4.41
Hypothetical (5% return before expenses) $1,000 $1,019.86 $ 5.33
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.40%; C: 2.03%; R:
1.55%; and Advisor: 1.05%), multiplied by the average account value over
the period, multiplied by 184/366 to reflect the one-half year period.
Annual Report | 53
Franklin Small Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Small Cap Value Fund seeks
long-term capital appreciation by investing at least 80% of net assets in
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This annual report for Franklin Small Cap Value Fund covers the fiscal year
ended October 31, 2008.
PERFORMANCE OVERVIEW
Franklin Small Cap Value Fund - Class A had a -34.67% cumulative total return
for the 12 months under review. The Fund performed comparably to its benchmark,
the Russell 2500(TM) Value Index, which declined 33.64% for the same period.(1)
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 57.
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 consider 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 we believe still have
significant growth potential or that possess valuable intangibles not reflected
in the stock price.
(1.) Source: (C) 2008 Morningstar. All Rights Reserved. The information
contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or distributed; and (3) is not warranted
to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of
this information. 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 107.
54 | Annual Report
MANAGER'S DISCUSSION
During the year under review, many holdings declined in value. Detractors from
performance included stocks from industries hurt by the slowing economy and
reduced consumer spending. Notable among the Fund's poor performers during the
fiscal year were consumer recreational products manufacturer Brunswick, hair
salon operator Regis and recreational vehicle manufacturer Thor Industries.
In contrast, top contributors to performance included regional bank TrustCo Bank
Corp. NY, which gained value as it focused on maintaining a conservative balance
sheet and was not involved in subprime lending, the source for much of the
financial industry's problems. The company reported improved income and earnings
during the period. Railroad operator Genesee & Wyoming helped Fund performance
as the company posted better-than-expected results during the period, aided by
acquisitions and improved operations. Genlyte Group, a commercial and
residential lighting manufacturer, also helped results. The company was acquired
in early 2008 by Royal Philips Electronics for cash at a 52% premium to
Genlyte's share price prior to the deal's announcement in November 2007.
During the reporting period, we invested in six new positions: automotive safety
systems manufacturer Autoliv, oil and natural gas equipment maker CARBO
Ceramics, industrial goods manufacturer Lincoln Electric Holdings, industrial
lasers and supplies producer Rofin-Sinar Technologies, retailer Saks and workers
compensation insurance provider Zenith National Insurance. We also added
significantly to several existing positions including Benchmark Electronics, Old
Republic International and Sierra Pacific Resources.
The Fund liquidated 23 positions during the fiscal year. Aside from the
aforementioned Genlyte, which was acquired during the period, we sold the other
positions either because we believed the shares were fully valued or the
companies' fundamentals had deteriorated.
PORTFOLIO BREAKDOWN
Franklin Small Cap Value Fund
Based on Total Net Assets as of 10/31/08
Capital Goods 21.8%
Insurance 11.0%
Materials 10.1%
Energy 7.6%
Retailing 7.0%
Consumer Durables & Apparel 6.4%
Banks 4.2%
Technology Hardware & Equipment 3.5%
Transportation 3.0%
Automobiles & Components 3.0%
Health Care Equipment & Services 2.6%
Commercial & Professional Services 2.3%
Utilities 2.3%
Other 3.2%
Short-Term Investments & Other Net Assets 12.0%
Annual Report | 55
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
10/31/08
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
TrustCo Bank Corp. NY 2.3%
BANKS
IPC Holdings Ltd. 1.8%
INSURANCE
Westlake Chemical Corp. 1.7%
MATERIALS
Brady Corp., A 1.7%
CAPITAL GOODS
Old Republic International Corp. 1.7%
INSURANCE
Aspen Insurance Holdings Ltd. 1.6%
INSURANCE
Universal Forest Products Inc. 1.6%
CAPITAL GOODS
Casey's General Stores Inc. 1.5%
FOOD & STAPLES RETAILING
Gibraltar Industries Inc. 1.5%
CAPITAL GOODS
Benchmark Electronics Inc. 1.5%
TECHNOLOGY HARDWARE & EQUIPMENT
Thank you for your continued participation in Franklin Small Cap Value Fund. We
look forward to serving your future investment needs.
(PHOTO OF WILLIAM J. LIPPMAN)
/s/ William J. Lippman
William J. Lippman
Co-Portfolio Manager
(PHOTO OF Y. DOGAN SAHIN)
/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
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2008, 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.
56 | Annual Report
Performance Summary as of 10/31/08
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 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$17.36 $28.58 $45.94
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.3559
Short-Term Capital Gain $0.0763
Long-Term Capital Gain $1.5495
TOTAL $1.9817
CLASS B (SYMBOL: FBVAX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$16.60 $27.30 $43.90
DISTRIBUTIONS (11/1/07-10/31/08)
Short-Term Capital Gain $0.0763
Long-Term Capital Gain $1.5495
TOTAL $1.6258
CLASS C (SYMBOL: FRVFX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$16.43 $26.94 $43.37
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.0353
Short-Term Capital Gain $0.0763
Long-Term Capital Gain $1.5495
TOTAL $1.6611
CLASS R (SYMBOL: FVFRX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$17.29 $28.37 $45.66
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.2945
Short-Term Capital Gain $0.0763
Long-Term Capital Gain $1.5495
TOTAL $1.9203
ADVISOR CLASS (SYMBOL: FVADX) CHANGE 10/31/08 10/31/07
- ----------------------- ------- -------- --------
Net Asset Value (NAV) -$17.82 $29.44 $47.26
DISTRIBUTIONS (11/1/07-10/31/08)
Dividend Income $0.4829
Short-Term Capital Gain $0.0763
Long-Term Capital Gain $1.5495
TOTAL $2.1087
Annual Report | 57
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.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- -------- -------- ------------------
Cumulative Total Return(1) -34.67% +18.17% +86.89%
Average Annual Total Return(2) -38.43% +2.18% +5.82%
Value of $10,000 Investment(3) $ 6,157 $11,137 $17,611
Avg. Ann. Total Return (9/30/08)(4) -18.58% +9.63% +9.24%
Total Annual Operating Expenses(5) 1.23%
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ------- -------- -------- ------------------
Cumulative Total Return(1) -35.16% +14.16% +73.00%
Average Annual Total Return(2) -37.65% +2.32% +5.73%
Value of $10,000 Investment(3) $ 6,235 $11,217 $ 17,300
Avg. Ann. Total Return (9/30/08)(4) -17.53% +9.92% +8.71%
Total Annual Operating Expenses(5) 1.96%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- -------- -------- ------------------
Cumulative Total Return(1) -35.14% +14.18% +74.78%
Average Annual Total Return(2) -35.76% +2.69% +5.74%
Value of $10,000 Investment(3) $ 6,424 $11,418 $17,478
Avg. Ann. Total Return (9/30/08)(4) -15.04% +10.19% +9.15%
Total Annual Operating Expenses(5) 1.96%
CLASS R 1-YEAR 5-YEAR INCEPTION (8/1/02)
- ------- -------- -------- ------------------
Cumulative Total Return(1) -34.84% +17.02% +41.04%
Average Annual Total Return(2) -34.84% +3.19% +5.66%
Value of $10,000 Investment(3) $ 6,516 $11,702 $14,104
Avg. Ann. Total Return (9/30/08)(4) -13.80% +10.73% +10.41%
Total Annual Operating Expenses(5) 1.46%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- -------- -------- ------------------
Cumulative Total Return(1) -34.48% +20.05% +93.39%
Average Annual Total Return(2) -34.48% +3.72% +6.82%
Value of $10,000 Investment(3) $ 6,552 $12,005 $19,339
Avg. Ann. Total Return (9/30/08)(4) -13.37% +11.29% +10.25%
Total Annual Operating Expenses(5) 0.96%
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 (800) 342-5236.
58 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A 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.
CLASS A (11/1/98-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS A VALUE INDEX CPI
- ---------- -------------------- ------------ -------
11/1/1998 $ 9,423 $10,000 $10,000
11/30/1998 $ 9,507 $10,323 $10,000
12/31/1998 $ 9,659 $10,642 $ 9,994
1/31/1999 $ 9,548 $10,336 $10,018
2/28/1999 $ 8,626 $ 9,806 $10,030
3/31/1999 $ 8,705 $ 9,791 $10,061
4/30/1999 $ 9,574 $10,757 $10,134
5/31/1999 $ 9,890 $10,977 $10,134
6/30/1999 $10,454 $11,359 $10,134
7/31/1999 $10,180 $11,142 $10,165
8/31/1999 $ 9,801 $10,715 $10,189
9/30/1999 $ 9,163 $10,378 $10,238
10/31/1999 $ 9,105 $10,388 $10,256
11/30/1999 $ 9,190 $10,445 $10,262
12/31/1999 $ 9,580 $10,801 $10,262
1/31/2000 $ 8,794 $10,351 $10,293
2/29/2000 $ 9,000 $10,531 $10,354
3/31/2000 $ 9,796 $11,305 $10,439
4/30/2000 $10,006 $11,301 $10,445
5/31/2000 $10,259 $11,280 $10,457
6/30/2000 $ 9,985 $11,238 $10,512
7/31/2000 $10,096 $11,482 $10,537
8/31/2000 $10,839 $12,084 $10,537
9/30/2000 $10,802 $12,012 $10,591
10/31/2000 $10,992 $12,005 $10,610
11/30/2000 $10,670 $11,852 $10,616
12/31/2000 $11,708 $13,047 $10,610
1/31/2001 $12,351 $13,229 $10,677
2/28/2001 $12,599 $13,118 $10,720
3/31/2001 $12,498 $12,789 $10,744
4/30/2001 $13,326 $13,517 $10,787
5/31/2001 $13,754 $13,932 $10,835
6/30/2001 $13,367 $14,066 $10,854
7/31/2001 $13,161 $13,972 $10,823
8/31/2001 $12,976 $13,852 $10,823
9/30/2001 $11,006 $12,314 $10,872
10/31/2001 $11,878 $12,578 $10,835
11/30/2001 $12,559 $13,546 $10,817
12/31/2001 $13,479 $14,317 $10,774
1/31/2002 $13,368 $14,449 $10,799
2/28/2002 $13,854 $14,629 $10,841
3/31/2002 $14,999 $15,535 $10,902
4/30/2002 $15,385 $15,801 $10,963
5/31/2002 $15,004 $15,541 $10,963
6/30/2002 $14,423 $14,993 $10,970
7/31/2002 $12,408 $13,258 $10,982
8/31/2002 $12,366 $13,328 $11,018
9/30/2002 $11,145 $12,238 $11,037
10/31/2002 $11,710 $12,413 $11,055
11/30/2002 $12,382 $13,319 $11,055
12/31/2002 $12,181 $12,903 $11,030
1/31/2003 $11,510 $12,514 $11,079
2/28/2003 $11,139 $12,206 $11,165
3/31/2003 $11,145 $12,288 $11,232
4/30/2003 $12,102 $13,401 $11,207
5/31/2003 $13,069 $14,641 $11,189
6/30/2003 $13,360 $14,903 $11,201
7/31/2003 $13,455 $15,551 $11,213
8/31/2003 $14,068 $16,176 $11,256
9/30/2003 $13,672 $16,062 $11,293
10/31/2003 $14,904 $17,289 $11,280
11/30/2003 $15,269 $17,994 $11,250
12/31/2003 $16,120 $18,701 $11,238
1/31/2004 $16,199 $19,306 $11,293
2/29/2004 $16,733 $19,699 $11,354
3/31/2004 $16,918 $19,856 $11,427
4/30/2004 $16,416 $18,816 $11,463
5/31/2004 $16,643 $19,195 $11,530
6/30/2004 $17,653 $19,957 $11,567
7/31/2004 $17,182 $19,154 $11,549
8/31/2004 $16,902 $19,394 $11,555
9/30/2004 $17,880 $20,006 $11,579
10/31/2004 $18,171 $20,368 $11,640
11/30/2004 $19,794 $22,034 $11,646
12/31/2004 $20,119 $22,736 $11,604
1/31/2005 $19,767 $22,004 $11,628
2/28/2005 $20,768 $22,554 $11,695
3/31/2005 $20,177 $22,253 $11,787
4/30/2005 $19,150 $21,421 $11,866
5/31/2005 $20,092 $22,609 $11,854
6/30/2005 $20,555 $23,438 $11,860
7/31/2005 $21,897 $24,693 $11,915
8/31/2005 $21,812 $24,244 $11,976
9/30/2005 $21,663 $24,271 $12,122
10/31/2005 $20,981 $23,555 $12,146
11/30/2005 $22,115 $24,520 $12,049
12/31/2005 $21,956 $24,495 $12,000
1/31/2006 $23,762 $26,107 $12,091
2/28/2006 $23,691 $26,142 $12,116
3/31/2006 $24,787 $27,059 $12,183
4/30/2006 $24,940 $27,166 $12,287
5/31/2006 $24,040 $26,225 $12,348
6/30/2006 $24,253 $26,373 $12,372
7/31/2006 $23,461 $26,008 $12,409
8/31/2006 $23,543 $26,700 $12,433
9/30/2006 $23,663 $26,972 $12,372
10/31/2006 $24,700 $28,236 $12,305
11/30/2006 $25,824 $29,119 $12,287
12/31/2006 $25,645 $29,438 $12,305
1/31/2007 $26,490 $30,095 $12,342
2/28/2007 $26,326 $30,025 $12,408
3/31/2007 $26,607 $30,345 $12,521
4/30/2007 $27,288 $30,980 $12,603
5/31/2007 $28,637 $32,083 $12,680
6/30/2007 $28,238 $31,229 $12,704
7/31/2007 $26,607 $28,891 $12,701
8/31/2007 $26,507 $29,039 $12,678
9/30/2007 $26,595 $29,342 $12,713
10/31/2007 $26,959 $29,545 $12,740
11/30/2007 $24,806 $27,652 $12,816
12/31/2007 $24,932 $27,297 $12,807
1/31/2008 $24,328 $26,325 $12,871
2/29/2008 $23,520 $25,372 $12,908
3/31/2008 $23,921 $25,327 $13,020
4/30/2008 $25,042 $26,496 $13,099
5/31/2008 $26,275 $27,589 $13,209
6/30/2008 $24,211 $25,013 $13,342
7/31/2008 $24,167 $25,454 $13,412
8/31/2008 $24,821 $26,482 $13,359
9/30/2008 $22,978 $24,708 $13,340
10/31/2008 $17,611 $19,606 $13,206
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/08
- ------- --------
1-Year -38.43%
5-Year +2.18%
10-Year +5.82%
CLASS B (1/1/99-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS B VALUE INDEX CPI
- ---------- -------------------- ------------ -------
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 $11,137 $10,622
12/31/2000 $11,969 $12,259 $10,616
1/31/2001 $12,619 $12,431 $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 $21,363 $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 $22,023 $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 $23,040 $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 $25,344 $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 $27,661 $12,312
1/31/2007 $26,021 $28,278 $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 $27,286 $12,686
9/30/2007 $26,127 $27,571 $12,721
10/31/2007 $26,485 $27,762 $12,748
11/30/2007 $24,369 $25,983 $12,823
12/31/2007 $24,493 $25,650 $12,815
1/31/2008 $23,900 $24,736 $12,879
2/29/2008 $23,107 $23,841 $12,916
3/31/2008 $23,500 $23,798 $13,028
4/30/2008 $24,602 $24,897 $13,107
5/31/2008 $25,812 $25,924 $13,217
6/30/2008 $23,783 $23,503 $13,351
7/31/2008 $23,740 $23,918 $13,421
8/31/2008 $24,381 $24,884 $13,367
9/30/2008 $22,572 $23,217 $13,349
10/31/2008 $17,300 $18,422 $13,214
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/08
- ------- --------
1-Year -37.65%
5-Year +2.32%
Since Inception (1/1/99) +5.73%
Annual Report | 59
Performance Summary (CONTINUED)
CLASS C (11/1/98-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS C VALUE INDEX CPI
- ---------- -------------------- ------------ -------
11/1/1998 $10,000 $10,000 $10,000
11/30/1998 $10,084 $10,323 $10,000
12/31/1998 $10,240 $10,642 $ 9,994
1/31/1999 $10,116 $10,336 $10,018
2/28/1999 $ 9,135 $ 9,806 $10,030
3/31/1999 $ 9,214 $ 9,791 $10,061
4/30/1999 $10,128 $10,757 $10,134
5/31/1999 $10,455 $10,977 $10,134
6/30/1999 $11,047 $11,359 $10,134
7/31/1999 $10,754 $11,142 $10,165
8/31/1999 $10,342 $10,715 $10,189
9/30/1999 $ 9,665 $10,378 $10,238
10/31/1999 $ 9,597 $10,388 $10,256
11/30/1999 $ 9,682 $10,445 $10,262
12/31/1999 $10,083 $10,801 $10,262
1/31/2000 $ 9,253 $10,351 $10,293
2/29/2000 $ 9,462 $10,531 $10,354
3/31/2000 $10,297 $11,305 $10,439
4/30/2000 $10,511 $11,301 $10,445
5/31/2000 $10,776 $11,280 $10,457
6/30/2000 $10,477 $11,238 $10,512
7/31/2000 $10,590 $11,482 $10,537
8/31/2000 $11,363 $12,084 $10,537
9/30/2000 $11,318 $12,012 $10,591
10/31/2000 $11,510 $12,005 $10,610
11/30/2000 $11,171 $11,852 $10,616
12/31/2000 $12,255 $13,047 $10,610
1/31/2001 $12,921 $13,229 $10,677
2/28/2001 $13,169 $13,118 $10,720
3/31/2001 $13,056 $12,789 $10,744
4/30/2001 $13,914 $13,517 $10,787
5/31/2001 $14,348 $13,932 $10,835
6/30/2001 $13,942 $14,066 $10,854
7/31/2001 $13,722 $13,972 $10,823
8/31/2001 $13,519 $13,852 $10,823
9/30/2001 $11,459 $12,314 $10,872
10/31/2001 $12,356 $12,578 $10,835
11/30/2001 $13,062 $13,546 $10,817
12/31/2001 $14,004 $14,317 $10,774
1/31/2002 $13,885 $14,449 $10,799
2/28/2002 $14,382 $14,629 $10,841
3/31/2002 $15,567 $15,535 $10,902
4/30/2002 $15,956 $15,801 $10,963
5/31/2002 $15,550 $15,541 $10,963
6/30/2002 $14,946 $14,993 $10,970
7/31/2002 $12,847 $13,258 $10,982
8/31/2002 $12,802 $13,328 $11,018
9/30/2002 $11,527 $12,238 $11,037
10/31/2002 $12,108 $12,413 $11,055
11/30/2002 $12,796 $13,319 $11,055
12/31/2002 $12,582 $12,903 $11,030
1/31/2003 $11,882 $12,514 $11,079
2/28/2003 $11,499 $12,206 $11,165
3/31/2003 $11,487 $12,288 $11,232
4/30/2003 $12,469 $13,401 $11,207
5/31/2003 $13,457 $14,641 $11,189
6/30/2003 $13,750 $14,903 $11,201
7/31/2003 $13,840 $15,551 $11,213
8/31/2003 $14,466 $16,176 $11,256
9/30/2003 $14,049 $16,062 $11,293
10/31/2003 $15,307 $17,289 $11,280
11/30/2003 $15,674 $17,994 $11,250
12/31/2003 $16,537 $18,701 $11,238
1/31/2004 $16,605 $19,306 $11,293
2/29/2004 $17,152 $19,699 $11,354
3/31/2004 $17,327 $19,856 $11,427
4/30/2004 $16,802 $18,816 $11,463
5/31/2004 $17,028 $19,195 $11,530
6/30/2004 $18,049 $19,957 $11,567
7/31/2004 $17,558 $19,154 $11,549
8/31/2004 $17,265 $19,394 $11,555
9/30/2004 $18,252 $20,006 $11,579
10/31/2004 $18,540 $20,368 $11,640
11/30/2004 $20,182 $22,034 $11,646
12/31/2004 $20,506 $22,736 $11,604
1/31/2005 $20,133 $22,004 $11,628
2/28/2005 $21,139 $22,554 $11,695
3/31/2005 $20,529 $22,253 $11,787
4/30/2005 $19,478 $21,421 $11,866
5/31/2005 $20,421 $22,609 $11,854
6/30/2005 $20,879 $23,438 $11,860
7/31/2005 $22,230 $24,693 $11,915
8/31/2005 $22,128 $24,244 $11,976
9/30/2005 $21,970 $24,271 $12,122
10/31/2005 $21,264 $23,555 $12,146
11/30/2005 $22,400 $24,520 $12,049
12/31/2005 $22,232 $24,495 $12,000
1/31/2006 $24,049 $26,107 $12,091
2/28/2006 $23,956 $26,142 $12,116
3/31/2006 $25,055 $27,059 $12,183
4/30/2006 $25,200 $27,166 $12,287
5/31/2006 $24,274 $26,225 $12,348
6/30/2006 $24,477 $26,373 $12,372
7/31/2006 $23,661 $26,008 $12,409
8/31/2006 $23,731 $26,700 $12,433
9/30/2006 $23,835 $26,972 $12,372
10/31/2006 $24,870 $28,236 $12,305
11/30/2006 $25,981 $29,119 $12,287
12/31/2006 $25,785 $29,438 $12,305
1/31/2007 $26,623 $30,095 $12,342
2/28/2007 $26,443 $30,025 $12,408
3/31/2007 $26,710 $30,345 $12,521
4/30/2007 $27,375 $30,980 $12,603
5/31/2007 $28,704 $32,083 $12,680
6/30/2007 $28,294 $31,229 $12,704
7/31/2007 $26,642 $28,891 $12,701
8/31/2007 $26,524 $29,039 $12,678
9/30/2007 $26,598 $29,342 $12,713
10/31/2007 $26,946 $29,545 $12,740
11/30/2007 $24,778 $27,652 $12,816
12/31/2007 $24,893 $27,297 $12,807
1/31/2008 $24,270 $26,325 $12,871
2/29/2008 $23,453 $25,372 $12,908
3/31/2008 $23,836 $25,327 $13,020
4/30/2008 $24,939 $26,496 $13,099
5/31/2008 $26,145 $27,589 $13,209
6/30/2008 $24,076 $25,013 $13,342
7/31/2008 $24,024 $25,454 $13,412
8/31/2008 $24,660 $26,482 $13,359
9/30/2008 $22,817 $24,708 $13,340
10/31/2008 $17,478 $19,606 $13,206
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/08
- ------- --------
1-Year -35.76%
5-Year +2.69%
10-Year +5.74%
CLASS R (8/1/02-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS R VALUE INDEX CPI
- ---------- -------------------- ------------ -------
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 $16,597 $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 $20,139 $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 $21,643 $22,285 $11,601
11/30/2007 $19,913 $20,858 $11,670
12/31/2007 $20,009 $20,590 $11,662
1/31/2008 $19,521 $19,857 $11,720
2/29/2008 $18,870 $19,138 $11,754
3/31/2008 $19,183 $19,104 $11,856
4/30/2008 $20,078 $19,986 $11,928
5/31/2008 $21,063 $20,810 $12,028
6/30/2008 $19,401 $18,867 $12,150
7/31/2008 $19,367 $19,200 $12,213
8/31/2008 $19,884 $19,975 $12,165
9/30/2008 $18,408 $18,637 $12,148
10/31/2008 $14,104 $14,788 $12,025
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/08
- ------- --------
1-Year -34.84%
5-Year +3.19%
Since Inception (8/1/02) +5.66%
60 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (11/1/98-10/31/08)
(PERFORMANCE GRAPH)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - ADVISOR CLASS VALUE INDEX CPI
- ---------- -------------------------- ------------ -------
11/1/1998 $10,000 $10,000 $10,000
11/30/1998 $10,094 $10,323 $10,000
12/31/1998 $10,259 $10,642 $ 9,994
1/31/1999 $10,142 $10,336 $10,018
2/28/1999 $ 9,169 $ 9,806 $10,030
3/31/1999 $ 9,258 $ 9,791 $10,061
4/30/1999 $10,187 $10,757 $10,134
5/31/1999 $10,521 $10,977 $10,134
6/30/1999 $11,127 $11,359 $10,134
7/31/1999 $10,838 $11,142 $10,165
8/31/1999 $10,432 $10,715 $10,189
9/30/1999 $ 9,759 $10,378 $10,238
10/31/1999 $ 9,703 $10,388 $10,256
11/30/1999 $ 9,798 $10,445 $10,262
12/31/1999 $10,215 $10,801 $10,262
1/31/2000 $ 9,380 $10,351 $10,293
2/29/2000 $ 9,603 $10,531 $10,354
3/31/2000 $10,454 $11,305 $10,439
4/30/2000 $10,682 $11,301 $10,445
5/31/2000 $10,960 $11,280 $10,457
6/30/2000 $10,665 $11,238 $10,512
7/31/2000 $10,788 $11,482 $10,537
8/31/2000 $11,583 $12,084 $10,537
9/30/2000 $11,550 $12,012 $10,591
10/31/2000 $11,756 $12,005 $10,610
11/30/2000 $11,417 $11,852 $10,616
12/31/2000 $12,536 $13,047 $10,610
1/31/2001 $13,226 $13,229 $10,677
2/28/2001 $13,488 $13,118 $10,720
3/31/2001 $13,387 $12,789 $10,744
4/30/2001 $14,279 $13,517 $10,787
5/31/2001 $14,742 $13,932 $10,835
6/30/2001 $14,328 $14,066 $10,854
7/31/2001 $14,115 $13,972 $10,823
8/31/2001 $13,920 $13,852 $10,823
9/30/2001 $11,814 $12,314 $10,872
10/31/2001 $12,747 $12,578 $10,835
11/30/2001 $13,484 $13,546 $10,817
12/31/2001 $14,471 $14,317 $10,774
1/31/2002 $14,359 $14,449 $10,799
2/28/2002 $14,885 $14,629 $10,841
3/31/2002 $16,121 $15,535 $10,902
4/30/2002 $16,540 $15,801 $10,963
5/31/2002 $16,137 $15,541 $10,963
6/30/2002 $15,516 $14,993 $10,970
7/31/2002 $13,350 $13,258 $10,982
8/31/2002 $13,311 $13,328 $11,018
9/30/2002 $12,001 $12,238 $11,037
10/31/2002 $12,611 $12,413 $11,055
11/30/2002 $13,339 $13,319 $11,055
12/31/2002 $13,126 $12,903 $11,030
1/31/2003 $12,404 $12,514 $11,079
2/28/2003 $12,012 $12,206 $11,165
3/31/2003 $12,023 $12,288 $11,232
4/30/2003 $13,059 $13,401 $11,207
5/31/2003 $14,106 $14,641 $11,189
6/30/2003 $14,419 $14,903 $11,201
7/31/2003 $14,531 $15,551 $11,213
8/31/2003 $15,197 $16,176 $11,256
9/30/2003 $14,772 $16,062 $11,293
10/31/2003 $16,109 $17,289 $11,280
11/30/2003 $16,507 $17,994 $11,250
12/31/2003 $17,430 $18,701 $11,238
1/31/2004 $17,520 $19,306 $11,293
2/29/2004 $18,108 $19,699 $11,354
3/31/2004 $18,309 $19,856 $11,427
4/30/2004 $17,772 $18,816 $11,463
5/31/2004 $18,024 $19,195 $11,530
6/30/2004 $19,121 $19,957 $11,567
7/31/2004 $18,617 $19,154 $11,549
8/31/2004 $18,320 $19,394 $11,555
9/30/2004 $19,384 $20,006 $11,579
10/31/2004 $19,709 $20,368 $11,640
11/30/2004 $21,472 $22,034 $11,646
12/31/2004 $21,831 $22,736 $11,604
1/31/2005 $21,452 $22,004 $11,628
2/28/2005 $22,548 $22,554 $11,695
3/31/2005 $21,915 $22,253 $11,787
4/30/2005 $20,802 $21,421 $11,866
5/31/2005 $21,836 $22,609 $11,854
6/30/2005 $22,339 $23,438 $11,860
7/31/2005 $23,803 $24,693 $11,915
8/31/2005 $23,718 $24,244 $11,976
9/30/2005 $23,571 $24,271 $12,122
10/31/2005 $22,831 $23,555 $12,146
11/30/2005 $24,074 $24,520 $12,049
12/31/2005 $23,906 $24,495 $12,000
1/31/2006 $25,885 $26,107 $12,091
2/28/2006 $25,810 $26,142 $12,116
3/31/2006 $27,006 $27,059 $12,183
4/30/2006 $27,186 $27,166 $12,287
5/31/2006 $26,210 $26,225 $12,348
6/30/2006 $26,448 $26,373 $12,372
7/31/2006 $25,595 $26,008 $12,409
8/31/2006 $25,694 $26,700 $12,433
9/30/2006 $25,827 $26,972 $12,372
10/31/2006 $26,971 $28,236 $12,305
11/30/2006 $28,196 $29,119 $12,287
12/31/2006 $28,010 $29,438 $12,305
1/31/2007 $28,946 $30,095 $12,342
2/28/2007 $28,772 $30,025 $12,408
3/31/2007 $29,084 $30,345 $12,521
4/30/2007 $29,833 $30,980 $12,603
5/31/2007 $31,313 $32,083 $12,680
6/30/2007 $30,888 $31,229 $12,704
7/31/2007 $29,109 $28,891 $12,701
8/31/2007 $29,003 $29,039 $12,678
9/30/2007 $29,109 $29,342 $12,713
10/31/2007 $29,515 $29,545 $12,740
11/30/2007 $27,167 $27,652 $12,816
12/31/2007 $27,314 $27,297 $12,807
1/31/2008 $26,650 $26,325 $12,871
2/29/2008 $25,777 $25,372 $12,908
3/31/2008 $26,217 $25,327 $13,020
4/30/2008 $27,445 $26,496 $13,099
5/31/2008 $28,805 $27,589 $13,209
6/30/2008 $26,545 $25,013 $13,342
7/31/2008 $26,512 $25,454 $13,412
8/31/2008 $27,228 $26,482 $13,359
9/30/2008 $25,218 $24,708 $13,340
10/31/2008 $19,339 $19,606 $13,206
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/08
- ------------- --------
1-Year -34.48%
5-Year +3.72%
10-Year +6.82%
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 SHARE.
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.) 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: (C) 2008 Morningstar. 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.
Annual Report | 61
Your Fund's Expenses
FRANKLIN SMALL CAP VALUE FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
- - 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.
62 | 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 ENDING ACCOUNT EXPENSES PAID DURING
VALUE 5/1/08 VALUE 10/31/08 PERIOD* 5/1/08-10/31/08
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $ 703.20 $ 5.39
Hypothetical (5% return before expenses) $1,000 $1,018.80 $ 6.39
CLASS B
Actual $1,000 $ 700.90 $ 8.51
Hypothetical (5% return before expenses) $1,000 $1,015.13 $10.08
CLASS C
Actual $1,000 $ 700.80 $ 8.46
Hypothetical (5% return before expenses) $1,000 $1,015.18 $10.03
CLASS R
Actual $1,000 $ 702.40 $ 6.38
Hypothetical (5% return before expenses) $1,000 $1,017.65 $ 7.56
ADVISOR CLASS
Actual $1,000 $ 704.60 $ 4.24
Hypothetical (5% return before expenses) $1,000 $1,020.16 $5.03
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.26%; B: 1.99%; C: 1.98%; R: 1.49%; and
Advisor: 0.99%), multiplied by the average account value over the period,
multiplied by 184/366 to reflect the one-half year period.
Annual Report | 63
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------
CLASS A 2008 2007(a)
- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 9.52 $10.00
------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.06 0.02
Net realized and unrealized gains (losses) ......... (3.28) (0.50)
------- ------
Total from investment operations ...................... (3.22) (0.48)
------- ------
Less distributions from net investment income ......... (0.05) --
------- ------
Redemption fees(d, e) ................................. -- --
------- ------
Net asset value, end of year .......................... $ 6.25 $ 9.52
======= ======
Total return(f) ....................................... (33.95)% (4.80)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 2.43% 3.91%
Expenses net of waiver and payments by affiliates(h) .. 1.25% 1.25%
Net investment income ................................. 0.67% 0.50%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 9,508 $7,138
Portfolio turnover rate ............................... 21.17% 5.38%
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
64 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------
CLASS C 2008 2007(a)
- ------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 9.50 $10.00
-------- ------
Income from investment operations(b):
Net investment income (loss)(c) .................... --(d) (0.01)
Net realized and unrealized gains (losses) ......... (3.26) (0.49)
-------- ------
Total from investment operations ...................... (3.26) (0.50)
-------- ------
Less distributions from net investment income ......... (0.04) --
-------- ------
Redemption fees(d, e) ................................. -- --
-------- ------
Net asset value, end of year .......................... $ 6.20 $ 9.50
======== ======
Total return(f) ....................................... (34.37)% (5.10)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 3.06% 4.56%
Expenses net of waiver and payments by affiliates(h) .. 1.88% 1.90%
Net investment income (loss) .......................... 0.04% (0.15)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 1,471 $ 847
Portfolio turnover rate ............................... 21.17% 5.38%
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 65
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------
CLASS R 2008 2007(a)
- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 9.52 $10.00
------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.05 0.02
Net realized and unrealized gains (losses) ......... (3.27) (0.50)
------- ------
Total from investment operations ...................... (3.22) (0.48)
------- ------
Less distributions from net investment income ......... (0.05) --
------- ------
Redemption fees(d, e) ................................. -- --
------- ------
Net asset value, end of year .......................... $ 6.25 $ 9.52
======= ======
Total return(f) ....................................... (34.00)% (4.80)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 2.58% 4.06%
Expenses net of waiver and payments by affiliates(h) .. 1.40% 1.40%
Net investment income ................................. 0.52% 0.35%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 6 $ 10
Portfolio turnover rate ............................... 21.17% 5.38%
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
66 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------
ADVISOR CLASS 2008 2007(a)
- ------------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 9.54 $10.00
------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.09 0.04
Net realized and unrealized gains (losses) ......... (3.29) (0.50)
------- ------
Total from investment operations ...................... (3.20) (0.46)
------- ------
Less distributions from net investment income ......... (0.06) --
------- ------
Redemption fees(d, e) ................................. -- --
------- ------
Net asset value, end of year .......................... $ 6.28 $ 9.54
======= ======
Total return(f) ....................................... (33.70)% (4.60)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 2.08% 3.56%
Expenses net of waiver and payments by affiliates(h) .. 0.90% 0.90%
Net investment income ................................. 1.02% 0.85%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 640 $ 979
Portfolio turnover rate ............................... 21.17% 5.38%
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 67
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
--------------------------- --------- -----------
COMMON STOCKS 87.7%
AUTOMOBILES & COMPONENTS 0.5%
Autoliv Inc. (Sweden) ................................................. 2,500 $ 53,400
-----------
BANKS 1.5%
TrustCo Bank Corp. NY ................................................. 8,450 102,837
U.S. Bancorp .......................................................... 2,400 71,544
-----------
174,381
-----------
CAPITAL GOODS 21.3%
Brady Corp., A ........................................................ 5,800 179,800
Carlisle Cos. Inc. .................................................... 8,100 188,325
Dover Corp. ........................................................... 5,300 168,381
Eaton Corp. ........................................................... 4,000 178,400
Embraer-Empresa Brasileira de Aeronautica SA, ADR (Brazil) ............ 3,700 77,404
Franklin Electric Co. Inc ............................................. 1,300 54,808
General Electric Co. .................................................. 12,800 249,728
(a) Griffon Corp. ......................................................... 27,100 228,724
Hardinge Inc. ......................................................... 13,100 91,307
Illinois Tool Works Inc. .............................................. 6,100 203,679
Kennametal Inc ........................................................ 5,400 114,588
Roper Industries Inc. ................................................. 2,750 124,712
Trinity Industries Inc. ............................................... 8,300 140,104
United Technologies Corp. ............................................. 3,900 214,344
Universal Forest Products Inc. ........................................ 9,100 215,215
Wabash National Corp. ................................................. 8,700 52,548
-----------
2,482,067
-----------
COMMERCIAL & PROFESSIONAL SERVICES 2.5%
ABM Industries Inc. ................................................... 4,400 71,852
Kelly Services Inc., A ................................................ 15,700 223,568
-----------
295,420
-----------
CONSUMER DURABLES & APPAREL 5.1%
Adidas AG, ADR (Germany) .............................................. 10,900 190,205
D.R. Horton Inc ....................................................... 13,300 98,154
Fortune Brands Inc. ................................................... 4,000 152,560
M.D.C. Holdings Inc. .................................................. 4,600 154,698
-----------
595,617
-----------
CONSUMER SERVICES 0.3%
Hillenbrand Inc. ...................................................... 1,800 34,200
-----------
DIVERSIFIED FINANCIALS 1.7%
State Street Corp ..................................................... 4,550 197,243
-----------
ENERGY 9.0%
Apache Corp. .......................................................... 1,100 90,563
(a) Bristow Group Inc. .................................................... 3,950 97,841
CARBO Ceramics Inc. ................................................... 2,100 90,867
Chesapeake Energy Corp. ............................................... 2,700 59,319
ENSCO International Inc. .............................................. 2,200 83,622
(a) Global Industries Ltd. ................................................ 18,500 47,175
(a) Helix Energy Solutions Group Inc. ..................................... 4,000 42,240
68 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
--------------------------- --------- -----------
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
Occidental Petroleum Corp. ............................................ 1,400 $ 77,756
Overseas Shipholding Group Inc. ....................................... 1,200 45,096
Peabody Energy Corp. .................................................. 1,600 55,216
(a) PHI Inc., non-voting .................................................. 10,900 228,682
Teekay Corp. (Bahamas) ................................................ 2,000 42,700
(a) Unit Corp. ............................................................ 2,300 86,342
-----------
1,047,419
-----------
FOOD & STAPLES RETAILING 3.1%
Wal-Mart Stores Inc. .................................................. 6,400 357,184
-----------
HEALTH CARE EQUIPMENT & SERVICES 1.7%
Hill-Rom Holdings Inc. ................................................ 1,800 40,968
(a) Laboratory Corp. of America Holdings .................................. 2,600 159,874
-----------
200,842
-----------
HOUSEHOLD & PERSONAL PRODUCTS 1.1%
The Procter & Gamble Co. .............................................. 1,900 122,626
-----------
INSURANCE 7.2%
AFLAC Inc. ............................................................ 4,148 183,673
Aspen Insurance Holdings Ltd. ......................................... 1,850 42,476
Chubb Corp ............................................................ 3,800 196,916
IPC Holdings Ltd. ..................................................... 3,500 96,635
Kansas City Life Insurance Co ......................................... 2,400 114,600
Old Republic International Corp. ...................................... 14,800 136,308
StanCorp Financial Group Inc. ......................................... 2,100 71,568
-----------
842,176
-----------
MATERIALS 11.0%
(a) American Pacific Corp. ................................................ 18,100 209,055
Bemis Co. Inc. ........................................................ 9,500 235,980
Glatfelter ............................................................ 4,000 41,240
Nucor Corp. ........................................................... 6,200 251,162
Praxair Inc. .......................................................... 2,300 149,845
(a) RTI International Metals Inc. ......................................... 14,300 225,797
Westlake Chemical Corp. ............................................... 9,000 164,070
-----------
1,277,149
-----------
RETAILING 11.0%
Brown Shoe Co. Inc. ................................................... 17,700 186,558
Christopher & Banks Corp. ............................................. 20,400 106,488
Fred's Inc. ........................................................... 13,700 167,825
Group 1 Automotive Inc. ............................................... 3,500 35,175
The Home Depot Inc. ................................................... 11,700 276,003
J.C. Penney Co. Inc. .................................................. 8,000 191,360
The Men's Wearhouse Inc ............................................... 6,000 91,740
Nordstrom Inc. ........................................................ 8,000 144,720
(a) Saks Inc. ............................................................. 13,400 80,400
-----------
1,280,269
-----------
Annual Report | 69
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
--------------------------- --------- -----------
COMMON STOCKS (CONTINUED)
TECHNOLOGY HARDWARE & EQUIPMENT 1.5%
(a) Benchmark Electronics Inc. ............................................ 14,400 $ 172,656
-----------
TRANSPORTATION 1.1%
(a) P.A.M. Transportation Services Inc. ................................... 14,400 124,992
-----------
UTILITIES 8.1%
Avista Corp. .......................................................... 11,400 226,404
DTE Energy Co. ........................................................ 5,400 190,620
IDACORP Inc. .......................................................... 9,900 263,934
Sierra Pacific Resources .............................................. 31,000 256,990
-----------
937,948
-----------
TOTAL COMMON STOCKS (COST $14,304,721) 10,195,589
-----------
SHORT TERM INVESTMENTS (COST $1,088,280) 9.4%
MONEY MARKET FUNDS 9.4%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio,
1.56% .............................................................. 1,088,280 1,088,280
-----------
TOTAL INVESTMENTS (COST $15,393,001) 97.1% ............................ 11,283,869
OTHER ASSETS, LESS LIABILITIES 2.9% ................................... 341,845
-----------
NET ASSETS 100.0% ..................................................... $11,625,714
===========
See Selected Portfolio Abbreviations on page 111.
(a) Non-income producing for the twelve months ended October 31, 2008.
(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.
The accompanying notes are an integral part of these financial statements.
70 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 69.36 $ 69.24 $ 61.66 $ 53.95 $ 45.47
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .................... 0.68 0.73 0.77 0.34 0.33
Net realized and unrealized gains (losses) .. (25.81) 4.55 9.71 8.71 8.63
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... (25.13) 5.28 10.48 9.05 8.96
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.67) (0.88) (0.46) (0.43) (0.17)
Net realized gains .......................... (5.71) (4.28) (2.44) (0.91) (0.31)
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (6.38) (5.16) (2.90) (1.34) (0.48)
---------- ---------- ---------- ---------- ----------
Redemption fees(c, d) .......................... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 37.85 $ 69.36 $ 69.24 $ 61.66 $ 53.95
========== ========== ========== ========== ==========
Total return(e) ................................ (39.30)% 7.85% 17.54% 16.93% 19.87%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 0.93% 0.90% 0.90% 0.91% 0.91%
Net investment income .......................... 1.25% 1.04% 1.17% 0.57% 0.67%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $2,169,284 $4,228,683 $4,435,704 $4,164,516 $3,716,567
Portfolio turnover rate ........................ 8.14%(g) 6.40% 7.44% 3.91% 7.03%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Excludes the value of portfolio securities delivered as a result of a
redemption in-kind. See Note 10.
The accompanying notes are an integral part of these financial statements.
Annual Report | 71
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------- ------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 68.12 $ 68.07 $ 60.67 $ 53.13 $ 44.97
------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.27 0.20 0.26 (0.11) (0.06)
Net realized and unrealized gains (losses) .. (25.39) 4.48 9.58 8.58 8.53
------- -------- -------- -------- --------
Total from investment operations ............... (25.12) 4.68 9.84 8.47 8.47
------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.10) (0.35) --(c) (0.02) --
Net realized gains .......................... (5.71) (4.28) (2.44) (0.91) (0.31)
------- -------- -------- -------- --------
Total distributions ............................ (5.81) (4.63) (2.44) (0.93) (0.31)
------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
------- -------- -------- -------- --------
Net asset value, end of year ................... $ 37.19 $ 68.12 $ 68.07 $ 60.67 $ 53.13
======= ======== ======== ======== ========
Total return(e) ................................ (39.76)% 7.04% 16.65% 16.03% 18.94%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.69% 1.66% 1.66% 1.67% 1.69%
Net investment income (loss) ................... 0.49% 0.28% 0.41% (0.19)% (0.11)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $51,727 $114,410 $127,037 $122,795 $114,891
Portfolio turnover rate ........................ 8.14%(g) 6.40% 7.44% 3.91% 7.03%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Excludes the value of portfolio securities delivered as a result of a
redemption in-kind. See Note 10.
The accompanying notes are an integral part of these financial statements.
72 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------- ------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 68.22 $ 68.17 $ 60.75 $ 53.18 $ 45.01
------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.26 0.20 0.27 (0.11) (0.06)
Net realized and unrealized gains (losses) .. (25.40) 4.48 9.59 8.59 8.54
------- -------- -------- -------- --------
Total from investment operations ............... (25.14) 4.68 9.86 8.48 8.48
------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.10) (0.35) -- -- --
Net realized gains .......................... (5.71) (4.28) (2.44) (0.91) (0.31)
------- -------- -------- -------- --------
Total distributions ............................ (5.81) (4.63) (2.44) (0.91) (0.31)
------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
------- -------- -------- -------- --------
Net asset value, end of year ................... $ 37.27 $ 68.22 $ 68.17 $ 60.75 $ 53.18
======= ======== ======== ======== ========
Total return(e) ................................ (39.73)% 7.04% 16.64% 16.04% 18.95%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.69% 1.66% 1.65% 1.67% 1.69%
Net investment income (loss) ................... 0.49% 0.28% 0.42% (0.19)% (0.11)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $73,068 $130,471 $139,885 $135,939 $129,399
Portfolio turnover rate ........................ 8.14%(g) 6.40% 7.44% 3.91% 7.03%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Excludes the value of portfolio securities delivered as a result of a
redemption in-kind. See Note 10.
The accompanying notes are an integral part of these financial statements.
Annual Report | 73
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------
CLASS R 2008 2007 2006 2005 2004
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 68.83 $ 68.78 $ 61.33 $ 53.69 $ 45.30
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.55 0.52 0.60 0.18 0.20
Net realized and unrealized gains (losses) .. (25.62) 4.55 9.65 8.67 8.59
------- ------- ------- ------- -------
Total from investment operations ............... (25.07) 5.07 10.25 8.85 8.79
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.51) (0.74) (0.36) (0.30) (0.09)
Net realized gains .......................... (5.71) (4.28) (2.44) (0.91) (0.31)
------- ------- ------- ------- -------
Total distributions ............................ (6.22) (5.02) (2.80) (1.21) (0.40)
------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 37.54 $ 68.83 $ 68.78 $ 61.33 $ 53.69
======= ======= ======= ======= =======
Total return(e) ................................ (39.45)% 7.58% 17.22% 16.62% 19.55%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.19% 1.16% 1.16% 1.17% 1.19%
Net investment income .......................... 0.99% 0.78% 0.91% 0.31% 0.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $26,433 $63,802 $51,157 $30,810 $21,020
Portfolio turnover rate ........................ 8.14%(g) 6.40% 7.44% 3.91% 7.03%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Excludes the value of portfolio securities delivered as a result of a
redemption in-kind. See Note 10.
The accompanying notes are an integral part of these financial statements.
74 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
ADVISOR CLASS 2008 2007 2006 2005 2004
- ------------- -------- -------- ------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 69.53 $ 69.40 $ 61.81 $ 54.05 $ 45.54
-------- -------- ------- -------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.88 0.88 0.93 0.46 0.44
Net realized and unrealized gains (losses) .. (25.91) 4.58 9.72 8.75 8.65
-------- -------- ------- -------- -------
Total from investment operations ............... (25.03) 5.46 10.65 9.21 9.09
-------- -------- ------- -------- -------
Less distributions from:
Net investment income ....................... (0.86) (1.05) (0.62) (0.54) (0.27)
Net realized gains .......................... (5.71) (4.28) (2.44) (0.91) (0.31)
-------- -------- ------- -------- -------
Total distributions ............................ (6.57) (5.33) (3.06) (1.45) (0.58)
-------- -------- ------- -------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- ------- -------- -------
Net asset value, end of year ................... $ 37.93 $ 69.53 $ 69.40 $ 61.81 $ 54.05
======== ======== ======= ======== =======
Total return ................................... (39.14)% 8.11% 17.82% 17.20% 20.17%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) .................................... 0.69% 0.66% 0.66% 0.67% 0.69%
Net investment income .......................... 1.49% 1.28% 1.41% 0.81% 0.89%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $100,505 $390,314 $33,372 $260,209 $26,701
Portfolio turnover rate ........................ 8.14%(f) 6.40% 7.44% 3.91% 7.03%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Benefit of expense reduction rounds to less than 0.01%.
(f) Excludes the value of portfolio securities delivered as a result of a
redemption in-kind. See Note 10.
The accompanying notes are an integral part of these financial statements.
Annual Report | 75
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- ------------ --------------
CLOSED END MUTUAL FUNDS 1.4%
DIVERSIFIED FINANCIALS 1.4%
Apollo Investment Corp. ............................................... 220,380 $ 2,904,608
Emerging Markets Telecommunications Fund .............................. 250,000 3,180,000
H&Q Healthcare Investors .............................................. 150,000 1,848,000
John Hancock Bank and Thrift Opportunity Fund ......................... 1,650,000 7,342,500
Latin America Equity Fund Inc. ........................................ 222,015 4,922,073
The Mexico Fund Inc. (Mexico) ......................................... 620,800 10,280,448
New Ireland Fund Inc. (Ireland) ....................................... 135,000 1,208,250
Petroleum & Resources Corp. ........................................... 150,000 3,612,000
--------------
TOTAL CLOSED END MUTUAL FUNDS (COST $38,353,360) ...................... 35,297,879
--------------
COMMON STOCKS 83.7%
AUTOMOBILES & COMPONENTS 0.2%
American Axle & Manufacturing Holdings Inc. ........................... 1,650,000 5,923,500
--------------
BANKS 0.8%
(a) Corus Bankshares Inc. ................................................. 1,310,900 2,883,980
Farmers & Merchants Bank of Long Beach ................................ 1,475 6,748,125
First Niagara Financial Group Inc. .................................... 100,000 1,577,000
Hudson City Bancorp Inc. .............................................. 390,000 7,335,900
--------------
18,545,005
--------------
CAPITAL GOODS 11.0%
A.O. Smith Corp. ...................................................... 893,600 28,193,080
Applied Industrial Technologies Inc. .................................. 1,378,250 27,826,867
Armstrong World Industries Inc. ....................................... 553,677 10,868,680
CNH Global NV (Netherlands) ........................................... 1,150,000 20,378,000
(b) ESCO Technologies Inc. ................................................ 1,150,800 39,702,600
(b, c) Furmanite Corp. ....................................................... 2,384,200 19,073,600
Lennox International Inc. ............................................. 625,000 18,637,500
Mueller Industries Inc. ............................................... 645,000 14,751,150
Oshkosh Corp. ......................................................... 960,000 7,353,600
(b, c) Tecumseh Products Co., A .............................................. 1,000,000 18,520,000
(b, c) Tecumseh Products Co., B .............................................. 310,000 5,146,000
Timken Co. ............................................................ 1,205,100 19,136,988
Trinity Industries Inc. ............................................... 2,170,000 36,629,600
--------------
266,217,665
--------------
COMMERCIAL & PROFESSIONAL SERVICES 1.4%
Kelly Services Inc., A ................................................ 2,350,000 33,464,000
--------------
CONSUMER DURABLES & APPAREL 5.7%
D.R. Horton Inc. ...................................................... 2,400,000 17,712,000
(a) Furniture Brands International Inc. ................................... 2,370,709 13,489,334
Hasbro Inc. ........................................................... 1,375,000 39,971,250
Lennar Corp., A ....................................................... 480,000 3,715,200
Lennar Corp., B ....................................................... 48,000 283,200
M.D.C. Holdings Inc. .................................................. 693,000 23,305,590
Pulte Homes Inc. ...................................................... 2,600,000 28,964,000
(b) Standard Pacific Corp. ................................................ 4,110,235 11,714,170
--------------
139,154,744
--------------
76 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES 1.7%
Bob Evans Farms Inc. .................................................. 23,600 $ 492,768
(a, b) Vail Resorts Inc. ..................................................... 1,245,000 41,408,700
--------------
41,901,468
--------------
DIVERSIFIED FINANCIALS 0.1%
CIT Group Inc. ........................................................ 800,000 3,312,000
--------------
ENERGY 4.6%
(b) Bristow Group Inc ..................................................... 900,000 22,293,000
(b) Exterran Holding Inc. ................................................. 1,040,000 23,306,400
Overseas Shipholding Group Inc ........................................ 765,000 28,748,700
Peabody Energy Corp. .................................................. 72,500 2,501,975
(b) PHI Inc. .............................................................. 77,500 1,805,750
(b) PHI Inc., non-voting .................................................. 352,000 7,384,960
Teekay Corp. (Bahamas) ................................................ 1,189,000 25,385,150
--------------
111,425,935
--------------
FOOD, BEVERAGE & TOBACCO 4.3%
(b) Alliance One International Inc. ....................................... 2,504,200 8,364,028
Bunge Ltd. ............................................................ 81,000 3,111,210
Corn Products International Inc. ...................................... 1,980,000 48,153,600
(b) Smithfield Foods Inc. ................................................. 1,460,000 15,359,200
Universal Corp. ....................................................... 715,600 28,330,604
--------------
103,318,642
--------------
INSURANCE 21.1%
American National Insurance Co. ....................................... 702,113 47,940,275
Aspen Insurance Holdings Ltd. ......................................... 154,300 3,542,728
Assurant Inc. ......................................................... 800,700 20,401,836
Chubb Corp. ........................................................... 280,000 14,509,600
Cincinnati Financial Corp. ............................................ 200,000 5,198,000
E-L Financial Corp. Ltd. (Canada) ..................................... 104,666 33,766,019
Employers Holdings Inc. ............................................... 637,000 8,128,120
FBL Financial Group Inc., A ........................................... 606,994 10,598,115
Genworth Financial Inc., A ............................................ 1,600,000 7,744,000
IPC Holdings Ltd. ..................................................... 1,768,800 48,836,568
Kansas City Life Insurance Co. ........................................ 299,989 14,324,475
Manulife Financial Corp. (Canada) ..................................... 970,000 19,487,300
MBIA Inc .............................................................. 353,000 3,469,990
MetLife Inc. .......................................................... 540,000 17,938,800
National Western Life Insurance Co., A ................................ 173,000 32,658,940
Old Republic International Corp. ...................................... 5,000,000 46,050,000
Presidential Life Corp. ............................................... 380,000 3,564,400
Principal Financial Group Inc. ........................................ 225,000 4,272,750
Prudential Financial Inc. ............................................. 1,184,000 35,520,000
RLI Corp. ............................................................. 489,400 28,086,666
Selective Insurance Group Inc. ........................................ 1,300,000 30,875,000
StanCorp Financial Group Inc. ......................................... 1,200,000 40,896,000
The Travelers Cos. Inc. ............................................... 575,000 24,466,250
Zenith National Insurance Corp. ....................................... 256,337 8,423,234
--------------
510,699,066
--------------
Annual Report | 77
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
MATERIALS 6.5%
Ashland Inc. .......................................................... 350,900 $ 7,926,831
Commercial Metals Co. ................................................. 410,400 4,555,440
MeadWestvaco Corp. .................................................... 1,525,000 21,395,750
Nucor Corp. ........................................................... 399,000 16,163,490
(b) PolyOne Corp. ......................................................... 1,500,000 7,125,000
Reliance Steel & Aluminum Co. ......................................... 920,000 23,036,800
(b) RTI International Metals Inc. ......................................... 900,000 14,211,000
Sherritt International Corp. (Canada) ................................. 3,503,500 10,722,930
Texas Industries Inc. ................................................. 679,000 21,476,770
(a) Westlake Chemical Corp. ............................................... 1,700,000 30,991,000
--------------
157,605,011
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 1.8%
(b) Watson Pharmaceuticals Inc. ........................................... 1,700,000 44,489,000
--------------
RETAILING 5.0%
(b) Big Lots Inc. ......................................................... 974,300 23,802,149
The Cato Corp., A ..................................................... 450,000 6,984,000
(b) Charming Shoppes Inc. ................................................. 5,200,000 5,720,000
Dillard's Inc., A ..................................................... 880,000 4,690,400
Fred's Inc. ........................................................... 400,000 4,900,000
Haverty Furniture Cos. Inc. ........................................... 920,000 9,052,800
(a, b) Saks Inc. ............................................................. 2,050,000 12,300,000
(b, c) Syms Corp. ............................................................ 1,430,000 15,015,000
(a, b, c) Zale Corp ............................................................. 2,232,700 38,089,862
--------------
120,554,211
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.3%
(b) Standard Microsystems Corp. ........................................... 369,700 6,658,297
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 0.9%
(b) Benchmark Electronics Inc. ............................................ 1,725,000 20,682,750
--------------
TRANSPORTATION 7.0%
(b) Alaska Air Group Inc. ................................................. 1,350,600 33,359,820
Burlington Northern Santa Fe Corp ..................................... 352,000 31,349,120
(b) Kansas City Southern .................................................. 699,400 21,590,478
Norfolk Southern Corp. ................................................ 1,206,600 72,323,604
Werner Enterprises Inc. ............................................... 500,000 9,810,000
--------------
168,433,022
--------------
UTILITIES 11.3%
Atmos Energy Corp. .................................................... 933,600 22,658,472
Avista Corp. .......................................................... 650,000 12,909,000
CMS Energy Corp. ...................................................... 220,000 2,255,000
Entergy Corp. ......................................................... 599,000 46,751,950
IDACORP Inc. .......................................................... 590,000 15,729,400
(b, c, d) KGen Power Corp., 144A ................................................ 4,400,000 57,200,000
78 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
UTILITIES (CONTINUED)
Northeast Utilities ................................................... 1,550,000 $ 34,968,000
PNM Resources Inc. .................................................... 1,990,000 19,402,500
Sierra Pacific Resources .............................................. 5,540,000 45,926,600
Westar Energy Inc. .................................................... 64,500 1,257,105
Xcel Energy Inc. ...................................................... 861,000 14,998,620
--------------
274,056,647
--------------
TOTAL COMMON STOCKS (COST $1,871,153,241) ............................. 2,026,440,963
--------------
PRINCIPAL
AMOUNT
------------
CORPORATE BONDS (COST $5,547,502) 0.2%
CAPITAL GOODS 0.2%
Mueller Industries Inc., 6.00%, 11/01/14 .............................. $ 5,604,000 4,651,320
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST
$1,915,054,103)..................................................... 2,066,390,162
--------------
SHARES
------------
SHORT TERM INVESTMENTS 15.5%
MONEY MARKET FUNDS (COST $246,716,542) 10.2%
(e) Franklin Institutional Fiduciary Trust Money Market Portfolio,
1.56%............................................................... 246,716,542 246,716,542
--------------
PRINCIPAL
AMOUNT
------------
REPURCHASE AGREEMENTS (COST $91,761,450) 3.8%
(f) Joint Repurchase Agreement, 0.159%, 11/03/08 (Maturity Value
$91,762,663) $ 91,761,450 91,761,450
--------------
ABN AMRO Bank NV, New York Branch (Maturity Value $11,446,475)
Banc of America Securities LLC (Maturity Value $12,777,033)
Barclays Capital Inc. (Maturity Value $11,446,475)
BNP Paribas Securities Corp. (Maturity Value $12,777,033)
Credit Suisse First Boston (Maturity Value $11,446,475)
Deutsche Bank Securities Inc. (Maturity Value $13,768,069)
Dresdner Kleinwort Securities LLC (Maturity Value $5,324,070)
UBS Securities LLC (Maturity Value $12,777,033)
Collateralized by U.S. Government Agency Securities, 2.22% - 5.00%,
11/21/08 - 5/01/13; g U.S. Government Agency Discount
Notes, 11/28/08 - 1/30/09;
(g) U.S. Treasury Bills, 10/22/09; and U.S. Treasury Notes, 3.50% -
4.75%, 2/28/09 - 11/15/09
Annual Report | 79
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- ------------ --------------
SHORT TERM INVESTMENTS (CONTINUED)
(h) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 1.5%
MONEY MARKET FUNDS (COST $37,023,673) 1.5%
(i) Bank of New York Institutional Cash Reserve Fund, 1.07% ............... 37,023,673 $ 36,653,436
--------------
TOTAL INVESTMENTS (COST $2,290,555,768) 100.8% ........................ 2,441,521,590
OTHER ASSETS, LESS LIABILITIES (0.8)% ................................. (20,504,010)
--------------
NET ASSETS 100.0% ..................................................... $2,421,017,580
==============
(a) A portion or all of the security is on loan at October 31, 2008. See Note
1(e).
(b) Non-income producing for the twelve months ended October 31, 2008.
(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. This security has been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At October 31, 2008,
the value of these securities was $57,200,000, representing 2.36% 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 joint 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.
The accompanying notes are an integral part of these financial statements.
80 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- ------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.75 $ 16.55 $ 14.66 $ 14.01 $ 12.40
------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.18 0.21 0.20 0.13 0.08
Net realized and unrealized gains (losses) .. (5.88) 1.04 2.18 0.63 1.58
------- -------- -------- -------- --------
Total from investment operations ............... (5.70) 1.25 2.38 0.76 1.66
------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.24) (0.21) (0.15) (0.08) (0.05)
Net realized gains .......................... (0.97) (0.84) (0.34) (0.03) --
------- -------- -------- -------- --------
Total distributions ............................ (1.21) (1.05) (0.49) (0.11) (0.05)
------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
------- -------- -------- -------- --------
Net asset value, end of year ................... $ 9.84 $ 16.75 $ 16.55 $ 14.66 $ 14.01
======= ======== ======== ======== ========
Total return(e) ................................ (36.35)% 7.82% 16.62% 5.42% 13.45%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.38%(f) 1.34%(f) 1.33%(f) 1.29%(f) 1.31%
Net investment income .......................... 1.34% 1.25% 1.29% 0.91% 0.59%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $84,815 $151,156 $184,225 $156,841 $127,267
Portfolio turnover rate ........................ 15.88% 22.74% 34.36% 25.33% 21.69%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 81
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.52 $ 16.34 $ 14.47 $ 13.85 $ 12.29
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.09 0.10 0.10 0.04 (0.01)
Net realized and unrealized gains (losses) .. (5.82) 1.02 2.16 0.61 1.58
------- ------- ------- ------- -------
Total from investment operations ............... (5.73) 1.12 2.26 0.65 1.57
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.12) (0.10) (0.05) --(c) (0.01)
Net realized gains .......................... (0.97) (0.84) (0.34) (0.03) --
------- ------- ------- ------- -------
Total distributions ............................ (1.09) (0.94) (0.39) (0.03) (0.01)
------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 9.70 $ 16.52 $ 16.34 $ 14.47 $ 13.85
======= ======= ======= ======= =======
Total return(e) ................................ (36.82)% 7.08% 15.90% 4.71% 12.76%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 2.08%(f) 2.00%(f) 1.98%(f) 1.94%(f) 1.96%
Net investment income (loss) ................... 0.64% 0.59% 0.64% 0.26% (0.06)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 8,449 $18,598 $22,120 $22,072 $21,794
Portfolio turnover rate ........................ 15.88% 22.74% 34.36% 25.33% 21.69%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
82 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.51 $ 16.34 $ 14.47 $ 13.85 $ 12.28
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.09 0.10 0.10 0.04 (0.01)
Net realized and unrealized gains (losses) .. (5.81) 1.02 2.16 0.61 1.58
------- ------- ------- ------- -------
Total from investment operations ............... (5.72) 1.12 2.26 0.65 1.57
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.12) (0.11) (0.05) -- --
Net realized gains .......................... (0.97) (0.84) (0.34) (0.03) --
------- ------- ------- ------- -------
Total distributions ............................ (1.09) (0.95) (0.39) (0.03) --
------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 9.70 $ 16.51 $ 16.34 $ 14.47 $ 13.85
======= ======= ======= ======= =======
Total return(e) ................................ (36.80)% 7.07% 15.92% 4.69% 12.78%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 2.08%(f) 1.99%(f) 1.97%(f) 1.94%(f) 1.96%
Net investment income (loss) ................... 0.64% 0.60% 0.65% 0.26% (0.06)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $24,772 $52,711 $63,983 $59,929 $57,966
Portfolio turnover rate ........................ 15.88% 22.74% 34.36% 25.33% 21.69%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 83
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS R 2008 2007 2006 2005 2004
- ------- ------- ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.61 $16.42 $14.56 $13.93 $12.34
------- ------ ------ ------ ------
Income from investment operations(a):
Net investment income(b) .................... 0.16 0.17 0.17 0.11 0.06
Net realized and unrealized gains (losses) .. (5.84) 1.05 2.17 0.61 1.59
------- ------ ------ ------ ------
Total from investment operations ............... (5.68) 1.22 2.34 0.72 1.65
------- ------ ------ ------ ------
Less distributions from:
Net investment income ....................... (0.22) (0.19) (0.14) (0.06) (0.06)
Net realized gains .......................... (0.97) (0.84) (0.34) (0.03) --
------- ------ ------ ------ ------
Total distributions ............................ (1.19) (1.03) (0.48) (0.09) (0.06)
------- ------ ------ ------ ------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------ ------ ------ ------
Net asset value, end of year ................... $ 9.74 $16.61 $16.42 $14.56 $13.93
======= ====== ====== ====== ======
Total return(e)................................. (36.46)% 7.59% 16.46% 5.19% 13.44%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................... 1.58%(f) 1.50%(f) 1.48%(f) 1.44%(f) 1.46%
Net investment income .......................... 1.14% 1.09% 1.14% 0.76% 0.44%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 3,550 $7,812 $7,717 $6,896 $3,414
Portfolio turnover rate ........................ 15.88% 22.74% 34.36% 25.33% 21.69%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
84 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------
ADVISOR CLASS 2008 2007 2006(a)
- ------------- ------- ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 16.76 $16.56 $14.63
------- ------ ------
Income from investment operations(b):
Net investment income(c) .................... 0.22 0.25 0.24
Net realized and unrealized gains (losses) .. (5.88) 1.06 2.23
------- ------ ------
Total from investment operations ............... (5.66) 1.31 2.47
------- ------ ------
Less distributions from:
Net investment income ....................... (0.30) (0.27) (0.20)
Net realized gains .......................... (0.97) (0.84) (0.34)
------- ------ ------
Total distributions ............................ (1.27) (1.11) (0.54)
------- ------ ------
Redemption fees(d, e) .......................... -- -- --
------- ------ ------
Net asset value, end of year ................... $ 9.83 $16.76 $16.56
======= ====== ======
Total return(f) ................................ (36.13)% 8.12% 17.09%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h) .................................... 1.08% 1.00% 0.98%
Net investment income .......................... 1.64% 1.59% 1.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 2,622 $3,381 $1,989
Portfolio turnover rate ........................ 15.88% 22.74% 34.36%
(a) For the period November 1, 2005 (effective date) to October 31, 2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f)Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 85
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- ------- -----------
COMMON STOCKS 98.2%
BANKS 2.8%
SunTrust Banks Inc. ..................................................... 26,000 $ 1,043,640
U.S. Bancorp ............................................................ 80,000 2,384,800
-----------
3,428,440
-----------
CAPITAL GOODS 15.3%
3M Co ................................................................... 43,000 2,764,900
Dover Corp. ............................................................. 71,000 2,255,670
Eaton Corp. ............................................................. 24,000 1,070,400
General Electric Co. .................................................... 245,000 4,779,950
Illinois Tool Works Inc.................................................. 85,000 2,838,150
Masco Corp. ............................................................. 108,000 1,096,200
Parker Hannifin Corp. ................................................... 15,500 600,935
United Technologies Corp. ............................................... 66,500 3,654,840
-----------
19,061,045
-----------
CONSUMER DURABLES & APPAREL 5.9%
D.R. Horton Inc. ........................................................ 335,000 2,472,300
Fortune Brands Inc. ..................................................... 69,000 2,631,660
NIKE Inc., B ............................................................ 38,500 2,218,755
-----------
7,322,715
-----------
CONSUMER SERVICES 2.6%
McDonald's Corp. ........................................................ 55,000 3,186,150
-----------
DIVERSIFIED FINANCIALS 7.0%
Bank of America Corp .................................................... 86,000 2,078,620
The Bank of New York Mellon Corp. ....................................... 85,000 2,771,000
Citigroup Inc. .......................................................... 81,000 1,105,650
Morgan Stanley .......................................................... 45,000 786,150
State Street Corp. ...................................................... 45,000 1,950,750
-----------
8,692,170
-----------
ENERGY 12.5%
Apache Corp. ............................................................ 35,000 2,881,550
Chesapeake Energy Corp. ................................................. 55,000 1,208,350
ConocoPhillips .......................................................... 26,000 1,352,520
Devon Energy Corp. ...................................................... 30,000 2,425,800
Exxon Mobil Corp. ....................................................... 57,000 4,224,840
Occidental Petroleum Corp. .............................................. 50,500 2,804,770
Peabody Energy Corp. .................................................... 20,000 690,200
-----------
15,588,030
-----------
FOOD & STAPLES RETAILING 3.2%
Wal-Mart Stores Inc. .................................................... 72,000 4,018,320
-----------
HEALTH CARE EQUIPMENT & SERVICES 1.9%
Becton Dickinson and Co. ................................................ 34,000 2,359,600
-----------
HOUSEHOLD & PERSONAL PRODUCTS 6.1%
Kimberly-Clark Corp. .................................................... 60,000 3,677,400
The Procter & Gamble Co. ................................................ 60,000 3,872,400
-----------
7,549,800
-----------
86 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- ------- -----------
COMMON STOCKS (CONTINUED)
INSURANCE 6.4%
AFLAC Inc................................................................ 16,800 $ 743,904
The Allstate Corp. ...................................................... 75,000 1,979,250
Ambac Financial Group Inc. .............................................. 67,000 179,560
Chubb Corp. ............................................................. 65,000 3,368,300
MetLife Inc. ............................................................ 50,000 1,661,000
------------
7,932,014
------------
MATERIALS 10.7%
Alcoa Inc ............................................................... 92,000 1,058,920
The Dow Chemical Co. .................................................... 105,000 2,800,350
Nucor Corp. ............................................................. 145,000 5,873,950
Praxair Inc ............................................................. 55,000 3,583,250
------------
13,316,470
------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 4.7%
Abbott Laboratories ..................................................... 14,500 799,675
Merck & Co. Inc. ........................................................ 118,000 3,652,100
Pfizer Inc. ............................................................. 77,800 1,377,837
------------
5,829,612
------------
RETAILING 5.1%
The Home Depot Inc. ..................................................... 116,000 2,736,440
J.C. Penney Co. Inc. .................................................... 70,000 1,674,400
Nordstrom Inc. .......................................................... 59,000 1,067,310
(a) Office Depot Inc. ....................................................... 245,000 882,000
------------
6,360,150
------------
SOFTWARE & SERVICES 2.7%
Microsoft Corp. ......................................................... 148,000 3,304,840
------------
TECHNOLOGY HARDWARE & EQUIPMENT 5.8%
Hewlett-Packard Co. ..................................................... 90,000 3,445,200
International Business Machines Corp. ................................... 40,000 3,718,800
------------
7,164,000
------------
TRANSPORTATION 3.0%
Norfolk Southern Corp. .................................................. 63,000 3,776,220
------------
UTILITIES 2.5%
Entergy Corp. ........................................................... 32,500 2,536,625
Sempra Energy ........................................................... 15,000 638,850
------------
3,175,475
------------
TOTAL COMMON STOCKS (COST $141,926,999) ................................. 122,065,051
------------
Annual Report | 87
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- --------- ------------
SHORT TERM INVESTMENTS (COST $2,191,688) 1.8%
MONEY MARKET FUNDS 1.8%
(b) Franklin Institutional Fiduciary Trust Money Market
Portfolio, 1.56% ................................................. 2,191,688 $ 2,191,688
------------
TOTAL INVESTMENTS (COST $144,118,687) 100.0% ......................... 124,256,739
OTHER ASSETS, LESS LIABILITIES 0.0%(c) ............................... (48,013)
------------
NET ASSETS 100.0% .................................................... $124,208,726
============
(a) Non-income producing for the twelve months ended October 31, 2008.
(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.
(c) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
88 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 44.02 $ 41.32 $ 38.15 $ 34.48 $ 30.41
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.38 0.39 0.48 0.18 0.05
Net realized and unrealized gains (losses) .. (13.69) 5.10 5.73 5.32 4.65
-------- -------- -------- -------- --------
Total from investment operations ............... (13.31) 5.49 6.21 5.50 4.70
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.41) (0.57) (0.19) (0.05) --
Net realized gains .......................... (5.21) (2.22) (2.85) (1.78) (0.63)
-------- -------- -------- -------- --------
Total distributions ............................ (5.62) (2.79) (3.04) (1.83) (0.63)
-------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 25.09 $ 44.02 $ 41.32 $ 38.15 $ 34.48
======== ======== ======== ======== ========
Total return(e) ................................ (33.44)% 13.73% 17.25% 16.45% 15.64%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.11% 1.08% 1.11% 1.10% 1.12%
Net investment income .......................... 1.16% 0.89% 1.22% 0.48% 0.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $238,025 $467,995 $473,837 $443,037 $418,464
Portfolio turnover rate ........................ 11.84% 9.95% 6.47% 13.86% 11.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 89
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICROCAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------------
ADVISOR CLASS 2008 2007 2006(a)
- ------------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 44.14 $ 41.43 $38.28
------- ------- ------
Income from investment operations(b):
Net investment income(c) .................... 0.42 0.49 0.61
Net realized and unrealized gains (losses) .. (13.68) 5.11 5.58
------- ------- ------
Total from investment operations ............... (13.26) 5.60 6.19
------- ------- ------
Less distributions from:
Net investment income ....................... (0.53) (0.67) (0.19)
Net realized gains .......................... (5.21) (2.22) (2.85)
------- ------- ------
Total distributions ............................ (5.74) (2.89) (3.04)
------- ------- ------
Redemption fees(d, e) .......................... -- -- --
------- ------- ------
Net asset value, end of year ................... $ 25.14 $ 44.14 $41.43
======= ======= ======
Total return(f) ................................ (33.29)% 13.99% 17.56%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h)..................................... 0.87% 0.84% 0.87%
Net investment income .......................... 1.40% 1.13% 1.46%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $61,489 $32,796 $6,298
Portfolio turnover rate ........................ 11.84% 9.95% 6.47%
(a) For the period November 1, 2005 (effective date) to October 31, 2006.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(e) Effective September 1, 2008, the redemption fee was eliminated.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
90 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ----------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 77.3%
BANKS 2.7%
Beverly Hills Bancorp Inc.............................................. 866,488 $ 632,536
(a) BFC Financial Corp., A ................................................ 1,110,000 477,300
(a, b, c) Black River BancVenture Inc. .......................................... 495,000 4,034,993
First Defiance Financial Corp. ........................................ 235,000 2,361,750
WSB Holdings Inc. ..................................................... 166,160 661,317
------------
8,167,896
------------
CAPITAL GOODS 12.4%
Alamo Group Inc. ...................................................... 320,000 4,025,600
Burnham Holdings Inc., A .............................................. 209,600 1,959,760
CIRCOR International Inc .............................................. 120,200 3,684,130
(b) Espey Manufacturing & Electronics Corp. ............................... 153,299 3,019,990
Gibraltar Industries Inc. ............................................. 356,099 4,718,312
(a) Griffon Corp. ......................................................... 9,400 79,336
(b) Hardinge Inc .......................................................... 895,137 6,239,105
Insteel Industries Inc. ............................................... 30,000 307,800
(a) Ladish Co. Inc. ....................................................... 7,306 124,421
(a) Layne Christensen Co. ................................................. 47,000 1,235,160
(a) Northwest Pipe Co. .................................................... 129,844 3,730,418
Smith Investment Co. .................................................. 44,600 3,345,000
(a) Sparton Corp. ......................................................... 414,640 841,719
(a) Tecumseh Products Co., A .............................................. 200,000 3,704,000
(a) Tecumseh Products Co., B .............................................. 12,799 212,464
------------
37,227,215
------------
COMMERCIAL & PROFESSIONAL SERVICES 7.6%
Courier Corp. ......................................................... 234,809 4,088,025
Ecology and Environment Inc., A ....................................... 212,100 2,121,000
Healthcare Services Group Inc. ........................................ 585,900 9,702,504
(a, b) Nashua Corp. .......................................................... 357,930 2,448,241
(a) Spherion Corp. ........................................................ 1,347,200 4,284,096
------------
22,643,866
------------
CONSUMER DURABLES & APPAREL 4.2%
Bassett Furniture Industries Inc. ..................................... 122,100 538,461
(a) Cavalier Homes Inc. ................................................... 541,128 860,393
(b) Cobra Electronics Corp. ............................................... 540,000 869,400
(a, b) Delta Apparel Inc. .................................................... 756,600 4,615,260
(a) The Dixie Group Inc. .................................................. 480,000 1,968,000
Flexsteel Industries Inc. ............................................. 225,000 1,829,250
(a) P & F Industries Inc., A .............................................. 89,700 123,786
(a ,b) Rockford Corp. ........................................................ 575,000 563,500
(b) Tandy Brands Accessories Inc .......................................... 540,000 1,301,400
------------
12,669,450
------------
DIVERSIFIED FINANCIALS 1.1%
Kohlberg Capital Corp. ................................................ 600,834 3,358,662
------------
Annual Report | 91
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ----------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ENERGY 2.9%
(a) PHI Inc. .............................................................. 17,600 $ 410,080
(a) PHI Inc., non-voting .................................................. 394,499 8,276,589
------------
8,686,669
------------
FOOD & STAPLES RETAILING 3.5%
Village Super Market Inc., A .......................................... 214,000 10,515,960
FOOD, BEVERAGE & TOBACCO 9.4%
(a) Alliance One International Inc. ....................................... 1,167,000 3,897,780
Griffin Land & Nurseries Inc........................................... 173,000 5,305,910
(a) John B. Sanfilippo & Son Inc. ......................................... 200,000 1,442,000
(a) Omega Protein Corp. ................................................... 870,000 6,420,600
(a) Seneca Foods Corp., A ................................................. 256,600 4,174,882
(a) Seneca Foods Corp., B ................................................. 121,500 2,169,382
(a) Smithfield Foods Inc. ................................................. 438,600 4,614,072
------------
28,024,626
------------
INSURANCE 6.1%
(a, b) ACMAT Corp., A ........................................................ 392,800 7,172,528
Baldwin & Lyons Inc., B ............................................... 256,075 4,658,004
Mercer Insurance Group Inc. ........................................... 140,000 1,836,100
Safety Insurance Group Inc. ........................................... 51,000 1,937,490
(a) United America Indemnity Ltd. ......................................... 217,168 2,601,673
------------
18,205,795
------------
MATERIALS 8.0%
(a, b) American Pacific Corp. ................................................ 676,300 7,811,265
Central Steel and Wire Co. ............................................ 6,905 4,212,050
(a, b) Continental Materials Corp. ........................................... 109,567 1,985,902
(a) Intertape Polymer Group Inc. (Canada) ................................. 900,000 1,845,000
(a) Mercer International Inc. (Germany) ................................... 761,400 2,131,920
The Monarch Cement Co. ................................................ 43,444 921,013
(a) RTI International Metals Inc. ......................................... 208,000 3,284,320
Schweitzer-Mauduit International Inc. ................................. 35,724 597,305
(a) Universal Stainless & Alloy Products Inc. ............................. 60,000 1,105,800
------------
23,894,575
------------
REAL ESTATE 2.4%
Arbor Realty Trust Inc. (legend shares) ............................... 270,000 972,000
Arbor Realty Trust Inc. ............................................... 70,000 252,000
Bresler & Reiner Inc. ................................................. 205,000 3,485,000
(a, c) LandCo Real Estate LLC, Liquidating Trust ............................. 94,800 168,744
(b) Origen Financial Inc. ................................................. 2,365,000 2,435,950
------------
7,313,694
------------
RETAILING 6.3%
Brown Shoe Co. Inc. ................................................... 282,481 2,977,350
The Coast Distribution System Inc. .................................... 66,800 146,960
(a, b) Duckwall-ALCO Stores Inc. ............................................. 238,000 2,994,516
Fred's Inc. ........................................................... 250,000 3,062,500
92 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ----------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
RETAILING (CONTINUED)
(a) Handleman Co. ......................................................... 1,020,000 $ 1,315,800
Haverty Furniture Cos. Inc. ........................................... 477,000 4,693,680
(a, b) S&K Famous Brands Inc. ................................................ 255,500 319,375
(a) Shoe Carnival Inc. .................................................... 250,500 3,509,505
------------
19,019,686
------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.4%
(a, c, d) Allen Organ Co., Contingent Distribution .............................. 94,800 1,016,256
(a, b) GTSI Corp. ............................................................ 530,000 3,079,300
------------
4,095,556
------------
TELECOMMUNICATION SERVICES 3.7%
Atlantic Tele-Network Inc. ............................................ 400,000 9,732,000
North State Telecommunications Corp., B ............................... 20,600 1,318,400
------------
11,050,400
------------
TRANSPORTATION 5.6%
(a, b) International Shipholding Corp. ....................................... 400,000 9,836,000
(a) P.A.M. Transportation Services Inc. ................................... 410,000 3,558,800
Providence and Worcester Railroad Co. ................................. 205,000 2,870,000
(a) USA Truck Inc. ........................................................ 25,000 369,250
------------
16,634,050
------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS (COST $230,835,349) 231,508,100
------------
CONVERTIBLE PREFERRED STOCKS 1.6%
FOOD, BEVERAGE & TOBACCO 1.6%
(a) Seneca Foods Corp., cvt. participating pfd. ........................... 200,000 3,254,000
(a) Seneca Foods Corp., cvt. participating pfd., Series 2003 .............. 100,000 1,627,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,905,000) .................. 4,881,000
------------
PRINCIPAL
AMOUNT
-----------
CONVERTIBLE BONDS (COST $7,000,000) 1.8%
MATERIALS 1.8%
(e) Mercer Internati onal Inc., cvt., senior sub. note, 144A, 8.50%,
10/15/10 (Germany) ................................................. $ 7,000,000 5,352,858
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $242,740,349) ... 241,741,958
------------
SHARES
-----------
SHORT TERM INVESTMENTS 19.8%
MONEY MARKET FUNDS (COST $59,204,509) 19.8%
(f) Franklin Institutional Fiduciary Trust Money Market Portfolio,
1.56% .............................................................. 59,204,509 59,204,509
------------
(g) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 0.0%(h)
MONEY MARKET FUNDS (COST $18,892) 0.0%(h)
(i) Bank of New York Institutional Cash Reserve Fund, 1.07% ............... 18,892 18,703
------------
TOTAL INVESTMENTS (COST $301,963,750) 100.5% .......................... $300,965,170
OTHER ASSETS, LESS LIABILITIES (0.5)% ................................. (1,451,275)
------------
NET ASSETS 100.0% ..................................................... $299,513,895
============
Annual Report | 93
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN MICROCAP VALUE FUND
(a) Non-income producing for the twelve months ended October 31, 2008.
(b) See Note 9 regarding holdings of 5% voting securities.
(c) See Note 8 regarding restricted and illiquid securities.
(d) Contingent distributions represent the right to receive additional
distributions, if any, during the reorganization of the underlying
company.
(e) 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. This security has been deemed liquid under
guidelines approved by the Trust's Board of Trustees. At October 31, 2008,
the value of these securities was $5,352,858, representing 1.79% of net
assets.
(f) 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.
(g) See Note 1(e) regarding securities on loan.
(h) Rounds to less than 0.1% of net assets.
(i) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
94 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------
CLASS A 2008 2007 2006 2005(a)
- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 11.92 $ 11.37 $ 9.80 $ 10.00
------- ------- ------- -------
Income from investment operations(b):
Net investment income(c)........................ 0.02 0.27(d) 0.04 0.01
Net realized and unrealized gains (losses) ..... (4.36) 0.63 1.59 (0.21)
------- ------- ------- -------
Total from investment operations .................. (4.34) 0.90 1.63 (0.20)
------- ------- ------- -------
Less distributions from:
Net investment income .......................... (0.12) (0.20) (0.06) --
Net realized gains ............................. (0.15) (0.15) -- --
------- ------- ------- -------
Total distributions ............................... (0.27) (0.35) (0.06) --
------- ------- ------- -------
Redemption fees(e, f) ............................. -- -- -- --
------- ------- ------- -------
Net asset value, end of year ...................... $ 7.31 $ 11.92 $ 11.37 $ 9.80
======= ======= ======= =======
Total return(g).................................... (37.14)% 8.01% 16.70% (2.00)%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates.. 1.78% 1.65% 1.97% 2.57%
Expenses net of waiver and payments by affiliates.. 1.40%(i) 1.40%(i) 1.40%(i) 1.40%
Net investment income ............................. 0.15% 2.26%(d) 0.38% 0.37%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $39,626 $72,497 $42,677 $11,804
Portfolio turnover rate ........................... 26.66% 12.39% 10.96% --%
(a) For the period July 1, 2005 (commencement of operations) to October 31,
2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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%.
(e) Amount rounds to less than $0.01 per share.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 95
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------
CLASS C 2008 2007 2006 2005(a)
- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 11.81 $ 11.29 $ 9.78 $ 10.00
------- ------- ------- -------
Income from investment operations(b):
Net investment income (loss)(c)................. (0.05) 0.20(d) (0.03) (0.01)
Net realized and unrealized gains (losses) ..... (4.31) 0.61 1.59 (0.21)
------- ------- ------- -------
Total from investment operations .................. (4.36) 0.81 1.56 (0.22)
------- ------- ------- -------
Less distributions from:
Net investment income .......................... (0.06) (0.14) (0.05) --
Net realized gains ............................. (0.15) (0.15) -- --
------- ------- ------- -------
Total distributions ............................... (0.21) (0.29) (0.05) --
------- ------- ------- -------
Redemption fees(e, f).............................. -- -- -- --
------- ------- ------- -------
Net asset value, end of year ...................... $ 7.24 $ 11.81 $ 11.29 $ 9.78
======= ======= ======= =======
Total return(g).................................... (37.54)% 7.27% 15.95% (2.20)%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates.. 2.41% 2.30% 2.60% 3.22%
Expenses net of waiver and payments by affiliates.. 2.03%(i) 2.05%(i) 2.03%(i) 2.05%
Net investment income (loss) ...................... (0.48)% 1.61%(d) (0.25)% (0.28)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................... $ 7,974 $15,103 $ 9,406 $ 3,275
Portfolio turnover rate ........................... 26.66% 12.39% 10.96% --%
(a) For the period July 1, 2005 (commencement of operations) to October 31,
2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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%.
(e) Amount rounds to less than $0.01 per share.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
96 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------
CLASS R 2008 2007 2006 2005(a)
- ------- ------- ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.87 $11.35 $ 9.80 $10.00
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c) ......................... --(d) 0.27(e) 0.02 0.01
Net realized and unrealized gains (losses) ....... (4.34) 0.61 1.59 (0.21)
------- ------ ------ ------
Total from investment operations .................... (4.34) 0.88 1.61 (0.20)
------- ------ ------ ------
Less distributions from:
Net investment income ............................ (0.08) (0.21) (0.06) --
Net realized gains ............................... (0.15) (0.15) -- --
------- ------ ------ ------
Total distributions ................................. (0.23) (0.36) (0.06) --
------- ------ ------ ------
Redemption fees(d, f) ............................... -- -- -- --
------- ------ ------ ------
Net asset value, end of year ........................ $ 7.30 $11.87 $11.35 $ 9.80
======= ====== ====== ======
Total return(g) ..................................... (37.23)% 7.85% 16.47% (2.00)%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates ... 1.93% 1.80% 2.12% 2.72%
Expenses net of waiver and payments by affiliates ... 1.55%(i) 1.55%(i) 1.55%(i) 1.55%
Net investment income ............................... --%(j) 2.11%(e) 0.23% 0.22%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 339 $ 690 $ 133 $ 36
Portfolio turnover rate ............................. 26.66% 12.39% 10.96% --%
(a) For the period July 1, 2005 (commencement of operations) to October 31,
2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) Amount rounds to less than $0.01 per share.
(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) Effective September 1, 2008, the redemption fee was eliminated.
(g) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(h) Ratios are annualized for periods less than one year.
(i) Benefit of expense reduction rounds to less than 0.01%.
(j) Rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 97
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------
ADVISOR CLASS 2008 2007 2006 2005(a)
- ------------- ------- ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 11.99 $11.42 $ 9.81 $10.00
------- ------ ------ ------
Income from investment operations(b):
Net investment income(c) ......................... 0.05 0.33(d) 0.08 0.03
Net realized and unrealized gains (losses) ....... (4.38) 0.62 1.60 (0.22)
------- ------ ------ ------
Total from investment operations .................... (4.33) 0.95 1.68 (0.19)
------- ------ ------ ------
Less distributions from:
Net investment income ............................ (0.16) (0.23) (0.07) --
Net realized gains ............................... (0.15) (0.15) -- --
------- ------ ------ ------
Total distributions ................................. (0.31) (0.38) (0.07) --
------- ------ ------ ------
Redemption fees(e, f) ............................... -- -- -- --
------- ------ ------ ------
Net asset value, end of year ........................ $ 7.35 $11.99 $11.42 $ 9.81
======= ====== ====== ======
Total return(g) ..................................... (36.97)% 8.42% 17.18% (1.90)%
RATIOS TO AVERAGE NET ASSETS(h)
Expenses before waiver and payments by affiliates ... 1.43% 1.30% 1.62% 2.22%
Expenses net of waiver and payments by affiliates ... 1.05%(i) 1.05%(i) 1.05%(i) 1.05%
Net investment income ............................... 0.50% 2.61%(d) 0.73% 0.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 767 $1,136 $ 777 $ 434
Portfolio turnover rate ............................. 26.66% 12.39% 10.96% --%
(a) For the period July 1, 2005 (commencement of operations) to October 31,
2005.
(b) 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.
(c) Based on average daily shares outstanding.
(d) 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%.
(e) Amount rounds to less than $0.01 per share.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Total return is not annualized for periods less than one year.
(h) Ratios are annualized for periods less than one year.
(i) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
98 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN MIDCAP VALUE FUND SHARES/UNITS VALUE
-------------------------- ------------ -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS 98.0%
AUTOMOBILES & COMPONENTS 3.4%
Autoliv Inc. (Sweden) ................................................. 40,400 $ 862,944
Harley-Davidson Inc.................................................... 32,900 805,392
-----------
1,668,336
-----------
BANKS 1.3%
PNC Financial Services Group Inc. ..................................... 9,727 648,499
-----------
CAPITAL GOODS 16.2%
Carlisle Cos. Inc. .................................................... 54,500 1,267,125
Dover Corp. ........................................................... 38,400 1,219,968
Eaton Corp. ........................................................... 13,400 597,640
Embraer-Empresa Brasileira de Aeronautica SA, ADR (Brazil) ............ 50,300 1,052,276
Graco Inc. ............................................................ 34,700 858,131
Oshkosh Corp. ......................................................... 49,200 376,872
Roper Industries Inc. ................................................. 28,500 1,292,475
(a) Terex Corp. ........................................................... 26,200 437,278
W.W. Grainger Inc. .................................................... 9,700 762,129
-----------
7,863,894
-----------
COMMERCIAL & PROFESSIONAL SERVICES 0.9%
Robert Half International Inc. ........................................ 24,400 460,428
-----------
CONSUMER DURABLES & APPAREL 7.8%
Fortune Brands Inc. ................................................... 31,800 1,212,852
Hasbro Inc. ........................................................... 32,800 953,496
Leggett & Platt Inc. .................................................. 22,500 390,600
M.D.C. Holdings Inc. .................................................. 27,800 934,914
Pulte Homes Inc. ...................................................... 26,700 297,438
-----------
3,789,300
-----------
CONSUMER SERVICES 1.7%
Hillenbrand Inc. ...................................................... 42,300 803,700
-----------
DIVERSIFIED FINANCIALS 1.7%
CIT Group Inc. ........................................................ 69,400 287,316
(a) KKR Private Equity Investors LP ....................................... 109,200 538,356
-----------
825,672
-----------
ENERGY 9.7%
Chesapeake Energy Corp. ............................................... 24,900 547,053
ENSCO International Inc. .............................................. 19,896 756,247
(a) Helix Energy Solutions Group Inc. ..................................... 39,695 419,179
Overseas Shipholding Group Inc. ....................................... 21,200 796,696
Peabody Energy Corp. .................................................. 17,800 614,278
Pioneer Natural Resources Co. ......................................... 7,100 197,593
Teekay Corp. (Bahamas) ................................................ 19,100 407,785
Tidewater Inc. ........................................................ 23,000 1,003,030
-----------
4,741,861
-----------
Annual Report | 99
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN MIDCAP VALUE FUND SHARES/UNITS VALUE
-------------------------- ------------ -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
FOOD, BEVERAGE & TOBACCO 7.7%
Bunge Ltd.............................................................. 11,094 $ 426,121
(a) Dean Foods Co. ........................................................ 81,500 1,781,590
McCormick & Co. Inc. .................................................. 45,800 1,541,628
-----------
3,749,339
-----------
HEALTH CARE EQUIPMENT & SERVICES 5.0%
Hill-Rom Holdings Inc. ................................................ 42,300 962,748
(a) Laboratory Corp. of America Holdings .................................. 17,900 1,100,671
(a) LifePoint Hospitals Inc. .............................................. 16,100 385,917
-----------
2,449,336
-----------
HOUSEHOLD & PERSONAL PRODUCTS 1.7%
Alberto-Culver Co. .................................................... 32,200 828,506
-----------
INSURANCE 5.9%
Arthur J. Gallagher & Co .............................................. 14,200 345,912
Cincinnati Financial Corp. ............................................ 24,800 644,552
Erie Indemnity Co., A ................................................. 33,500 1,245,865
Old Republic International Corp. ...................................... 57,775 532,108
Protective Life Corp. ................................................. 11,000 91,850
-----------
2,860,287
-----------
MATERIALS 11.7%
Airgas Inc. ........................................................... 30,100 1,154,636
Bemis Co. Inc. ........................................................ 47,600 1,182,384
Celanese Corp., A ..................................................... 64,000 887,040
MeadWestvaco Corp. ..................................................... 47,700 669,231
Nucor Corp. ........................................................... 14,100 571,191
Sigma-Aldrich Corp. ................................................... 25,100 1,100,886
United States Steel Corp. ............................................. 3,000 110,640
-----------
5,676,008
-----------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 2.6%
(a) Endo Pharmaceuticals Holdings Inc. .................................... 41,600 769,600
(a) Watson Pharmaceuticals Inc. ........................................... 19,400 507,698
-----------
1,277,298
-----------
RETAILING 4.6%
Family Dollar Stores Inc. ............................................. 20,600 554,346
J.C. Penney Co. Inc. .................................................. 34,100 815,672
Nordstrom Inc. ........................................................ 47,500 859,275
-----------
2,229,293
-----------
SOFTWARE & SERVICES 3.0%
(a) SAIC Inc. ............................................................. 78,300 1,446,201
-----------
TRANSPORTATION 1.7%
J.B. Hunt Transport Services Inc. ..................................... 29,000 824,470
-----------
100 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN MIDCAP VALUE FUND SHARES/UNITS VALUE
-------------------------- ------------ -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
UTILITIES 11.4%
Atmos Energy Corp. .................................................... 56,100 $ 1,361,547
DTE Energy Co. ........................................................ 42,800 1,510,840
Northeast Utilities ................................................... 27,100 611,376
Sempra Energy ......................................................... 21,600 919,944
Sierra Pacific Resources .............................................. 141,000 1,168,890
-----------
5,572,597
-----------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS (COST $72,149,423) ..... 47,715,025
-----------
SHORT TERM INVESTMENTS (COST $1,174,510) 2.4%
MONEY MARKET FUNDS 2.4%
(b) Franklin Institutional Fiduciary Trust Money Market Portfolio,
1.56% .............................................................. 1,174,510 1,174,510
-----------
TOTAL INVESTMENTS (COST $73,323,933) 100.4% ........................... 48,889,535
OTHER ASSETS, LESS LIABILITIES (0.4)% ................................. (183,194)
-----------
NET ASSETS 100.0% ..................................................... $48,706,341
===========
See Selected Portfolio Abbreviations on page 111.
(a) Non-income producing for the twelve months ended October 31, 2008.
(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.
The accompanying notes are an integral part of these financial statements.
Annual Report | 101
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS A 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 45.94 $ 45.27 $ 39.41 $ 34.37 $ 28.19
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.34 0.29 0.17 0.15 0.30
Net realized and unrealized gains (losses) .. (15.72) 3.71 6.70 5.15 5.88
-------- -------- -------- -------- --------
Total from investment operations ............... (15.38) 4.00 6.87 5.30 6.18
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.35) (0.28) (0.10) (0.26) --
Net realized gains .......................... (1.63) (3.05) (0.91) -- --
-------- -------- -------- -------- --------
Total distributions ............................ (1.98) (3.33) (1.01) (0.26) --
-------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 28.58 $ 45.94 $ 45.27 $ 39.41 $ 34.37
======== ======== ======== ======== ========
Total return(e) ................................ (34.67)% 9.15% 17.73% 15.46% 21.92%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.26% 1.17% 1.22% 1.29% 1.35%
Net investment income .......................... 0.87% 0.62% 0.40% 0.39% 0.95%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $543,933 $849,226 $703,238 $486,563 $296,000
Portfolio turnover rate ........................ 18.90% 6.49% 17.39% 12.73% 17.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
102 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------
CLASS B 2008 2007 2006 2005 2004
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 43.90 $ 43.43 $ 38.00 $ 33.20 $ 27.41
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.06 (0.05) (0.12) (0.09) 0.09
Net realized and unrealized gains (losses) .. (15.03) 3.57 6.46 4.97 5.70
------- ------- ------- ------- -------
Total from investment operations ............... (14.97) 3.52 6.34 4.88 5.79
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... -- -- -- (0.08) --
Net realized gains .......................... (1.63) (3.05) (0.91) -- --
------- ------- ------- ------- -------
Total distributions ............................ (1.63) (3.05) (0.91) (0.08) --
------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 27.30 $ 43.90 $ 43.43 $ 38.00 $ 33.20
======= ======= ======= ======= =======
Total return(e) ................................ (35.16)% 8.36% 16.98% 14.68% 21.12%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.98% 1.90% 1.90% 1.94% 2.00%
Net investment income (loss) ................... 0.15% (0.11)% (0.28)% (0.26)% 0.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $35,080 $71,955 $79,482 $76,575 $65,551
Portfolio turnover rate ........................ 18.90% 6.49% 17.39% 12.73% 17.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 103
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS C 2008 2007 2006 2005 2004
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 43.37 $ 42.99 $ 37.63 $ 32.86 $ 27.13
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.06 (0.04) (0.11) (0.09) 0.08
Net realized and unrealized gains (losses) .. (14.83) 3.52 6.38 4.92 5.65
-------- -------- -------- -------- --------
Total from investment operations ............... (14.77) 3.48 6.27 4.83 5.73
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.03) (0.05) -- (0.06) --
Net realized gains .......................... (1.63) (3.05) (0.91) -- --
-------- -------- -------- -------- --------
Total distributions ............................ (1.66) (3.10) (0.91) (0.06) --
-------- -------- -------- -------- --------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 26.94 $ 43.37 $ 42.99 $ 37.63 $ 32.86
======== ======== ======== ======== ========
Total return(e) ................................ (35.14)% 8.35% 16.96% 14.69% 21.12%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.97% 1.90% 1.90% 1.94% 2.00%
Net investment income (loss) ................... 0.16% (0.11)% (0.28)% (0.26)% 0.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $146,824 $262,339 $240,395 $186,490 $136,805
Portfolio turnover rate ........................ 18.90% 6.49% 17.39% 12.73% 17.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
104 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS R 2008 2007 2006 2005 2004
- ------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 45.66 $ 45.07 $ 39.22 $ 34.24 $ 28.13
-------- -------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.25 0.18 0.10 0.09 0.31
Net realized and unrealized gains (losses) .. (15.62) 3.70 6.66 5.14 5.80
-------- -------- ------- ------- -------
Total from investment operations ............... (15.37) 3.88 6.76 5.23 6.11
-------- -------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.29) (0.24) --(c) (0.25) --
Net realized gains .......................... (1.63) (3.05) (0.91) -- --
-------- -------- ------- ------- -------
Total distributions ............................ (1.92) (3.29) (0.91) (0.25) --
-------- -------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
-------- -------- ------- ------- -------
Net asset value, end of year ................... $ 28.37 $ 45.66 $ 45.07 $ 39.22 $ 34.24
======== ======== ======= ======= =======
Total return(e) ................................ (34.84)% 8.89% 17.54% 15.24% 21.72%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.48% 1.40% 1.40% 1.44% 1.50%
Net investment income .......................... 0.65% 0.39% 0.22% 0.24% 0.80%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $107,475 $110,497 $56,811 $31,550 $24,951
Portfolio turnover rate ........................ 18.90% 6.49% 17.39% 12.73% 17.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 105
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
------------------------------------------------
ADVISOR CLASS 2008 2007 2006 2005 2004
- ------------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 47.26 $ 46.46 $ 40.42 $ 35.21 $ 28.78
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.46 0.43 0.32 0.29 0.44
Net realized and unrealized gains (losses) .. (16.17) 3.80 6.86 5.28 5.99
------- ------- ------- ------- -------
Total from investment operations ............... (15.71) 4.23 7.18 5.57 6.43
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.48) (0.38) (0.23) (0.36) --
Net realized gains .......................... (1.63) (3.05) (0.91) -- --
------- ------- ------- ------- -------
Total distributions ............................ (2.11) (3.43) (1.14) (0.36) --
------- ------- ------- ------- -------
Redemption fees(c, d) .......................... -- -- -- -- --
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 29.44 $ 47.26 $ 46.46 $ 40.42 $ 35.21
======= ======= ======= ======= =======
Total return ................................... (34.48)% 9.43% 18.13% 15.84% 22.34%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) .................................... 0.98% 0.90% 0.90% 0.94% 1.00%
Net investment income .......................... 1.15% 0.89% 0.72% 0.74% 1.30%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $76,269 $65,753 $56,912 $37,852 $26,701
Portfolio turnover rate ........................ 18.90% 6.49% 17.39% 12.73% 17.38%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
106 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ ------------
COMMON STOCKS 87.9%
AUTOMOBILES & COMPONENTS 3.0%
Autoliv Inc. (Sweden) ................................................. 223,000 $ 4,763,280
Gentex Corp. .......................................................... 504,000 4,833,360
Monaco Coach Corp. .................................................... 760,700 1,673,540
(a) Thor Industries Inc. .................................................. 689,000 12,333,100
(a) Winnebago Industries Inc. ............................................. 560,000 3,326,400
------------
26,929,680
------------
BANKS 4.2%
Chemical Financial Corp. .............................................. 469,355 12,329,956
(a) Corus Bankshares Inc. ................................................. 691,065 1,520,343
Peoples Bancorp Inc. .................................................. 183,500 3,514,025
(a) TrustCo Bank Corp. NY ................................................. 1,750,000 21,297,500
------------
38,661,824
------------
CAPITAL GOODS 21.7%
A.O. Smith Corp. ...................................................... 108,000 3,407,400
American Woodmark Corp. ............................................... 312,300 5,790,042
Apogee Enterprises Inc. ............................................... 908,000 8,952,880
Applied Industrial Technologies Inc. .................................. 137,700 2,780,163
(b) Astec Industries Inc. ................................................. 70,100 1,781,942
Brady Corp., A ........................................................ 492,300 15,261,300
Briggs & Stratton Corp. ............................................... 436,000 6,871,360
Carlisle Cos. Inc. .................................................... 458,000 10,648,500
CIRCOR International Inc. ............................................. 141,800 4,346,170
CNH Global NV (Netherlands) ........................................... 85,000 1,506,200
(b) EMCOR Group Inc. ...................................................... 171,300 3,044,001
(a) Franklin Electric Co. Inc. ............................................ 256,300 10,805,608
Gibraltar Industries Inc. ............................................. 1,041,500 13,799,875
Graco Inc. ............................................................ 430,000 10,633,900
Kennametal Inc. ....................................................... 430,000 9,124,600
Lincoln Electric Holdings Inc. ........................................ 209,100 9,022,665
Mueller Industries Inc ................................................ 580,000 13,264,600
Nordson Corp. ......................................................... 244,000 9,010,920
(b) Powell Industries Inc. ................................................ 81,000 1,499,310
Roper Industries Inc. ................................................. 195,800 8,879,530
Simpson Manufacturing Co. Inc. ........................................ 401,000 9,239,040
Timken Co. ............................................................ 75,600 1,200,528
Trinity Industries Inc. ............................................... 358,000 6,043,040
Universal Forest Products Inc. ........................................ 612,000 14,473,800
Wabash National Corp. ................................................. 1,158,500 6,997,340
(a) Watts Water Technologies Inc., A ...................................... 327,600 8,658,468
------------
197,043,182
------------
COMMERCIAL & PROFESSIONAL SERVICES 2.3%
ABM Industries Inc. ................................................... 611,700 9,989,061
Mine Safety Appliances Co. ............................................ 416,500 11,245,500
------------
21,234,561
------------
Annual Report | 107
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ ------------
COMMON STOCKS (CONTINUED)
CONSUMER DURABLES & APPAREL 6.4%
Bassett Furniture Industries Inc. ..................................... 250,500 $ 1,104,705
Brunswick Corp. ....................................................... 490,000 1,700,300
D.R. Horton Inc. ...................................................... 697,000 5,143,860
Ethan Allen Interiors Inc. ............................................ 440,500 7,880,545
(c) Hooker Furniture Corp. ................................................ 582,900 5,310,219
La-Z-Boy Inc. ......................................................... 862,000 4,982,360
M.D.C. Holdings Inc. .................................................. 307,000 10,324,410
M/I Homes Inc. ........................................................ 577,900 7,865,219
(b) Russ Berrie and Co. Inc. .............................................. 466,400 1,259,280
(b) Timberland Co., A ..................................................... 181,000 2,190,100
(b) The Warnaco Group Inc. ................................................ 346,000 10,314,260
------------
58,075,258
------------
CONSUMER SERVICES 0.4%
Regis Corp ............................................................ 309,000 3,822,330
------------
ENERGY 7.6%
Arch Coal Inc. ........................................................ 136,000 2,911,760
(b) Atwood Oceanics Inc. .................................................. 172,000 4,726,560
(a, b) Bristow Group Inc. .................................................... 319,000 7,901,630
CARBO Ceramics Inc. ................................................... 23,000 995,210
CONSOL Energy Inc. .................................................... 91,000 2,856,490
General Maritime Corp. ................................................ 289,300 4,382,895
(b) Global Industries Ltd. ................................................ 1,067,000 2,720,850
(b) Helix Energy Solutions Group Inc. ..................................... 265,600 2,804,736
(b) Oil States International Inc. ......................................... 327,600 7,577,388
Overseas Shipholding Group Inc. ....................................... 157,000 5,900,060
Peabody Energy Corp. .................................................. 119,000 4,106,690
Rowan Cos. Inc. ....................................................... 282,000 5,115,480
Teekay Corp. (Bahamas) ................................................ 240,000 5,124,000
Tidewater Inc. ........................................................ 101,100 4,408,971
(b) Unit Corp. ............................................................ 202,000 7,583,080
------------
69,115,800
------------
FOOD & STAPLES RETAILING 1.5%
Casey's General Stores Inc. ........................................... 465,000 14,043,000
------------
HEALTH CARE EQUIPMENT & SERVICES 2.6%
STERIS Corp. .......................................................... 224,000 7,624,960
Teleflex Inc. ......................................................... 140,000 7,418,600
West Pharmaceutical Services Inc. ..................................... 205,200 8,191,584
------------
23,235,144
------------
INSURANCE 11.0%
American National Insurance Co. ....................................... 90,800 6,199,824
Arthur J. Gallagher & Co. ............................................. 299,900 7,305,564
Aspen Insurance Holdings Ltd. ......................................... 644,000 14,786,240
Erie Indemnity Co., A ................................................. 169,590 6,307,052
IPC Holdings Ltd. ..................................................... 582,000 16,069,020
Montpelier Re Holdings Ltd. (Bermuda) ................................. 810,000 11,591,100
Old Republic International Corp. ...................................... 1,633,000 15,039,930
108 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ ------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
Protective Life Corp. ................................................. 325,000 $ 2,713,750
RLI Corp. ............................................................. 162,100 9,302,919
StanCorp Financial Group Inc. ......................................... 225,000 7,668,000
Syncora Holdings Ltd. ................................................. 314,000 339,936
Zenith National Insurance Corp. ....................................... 88,400 2,904,824
------------
100,228,159
------------
MATERIALS 10.1%
Airgas Inc. ........................................................... 289,900 11,120,564
AptarGroup Inc. ....................................................... 258,500 7,837,720
Cabot Corp. ........................................................... 283,200 7,490,640
Gerdau Ameristeel Corp. (Canada) ...................................... 1,176,000 6,515,040
Glatfelter ............................................................ 772,000 7,959,320
(b) Mercer International Inc. (Germany) ................................... 114,088 319,446
Reliance Steel & Aluminum Co. ......................................... 399,400 10,000,976
RPM International Inc. ................................................ 860,000 12,212,000
Steel Dynamics Inc. ................................................... 977,000 11,645,840
United States Steel Corp .............................................. 51,000 1,880,880
Westlake Chemical Corp. ............................................... 843,200 15,371,536
------------
92,353,962
------------
RETAILING 7.0%
Brown Shoe Co. Inc. ................................................... 1,001,000 10,550,540
Christopher & Banks Corp. ............................................. 1,490,000 7,777,800
Fred's Inc. ........................................................... 627,600 7,688,100
Group 1 Automotive Inc. ............................................... 352,000 3,537,600
(b) Gymboree Corp. ........................................................ 141,800 3,666,948
The Men's Wearhouse Inc. .............................................. 485,300 7,420,237
(b) Pier 1 Imports Inc. ................................................... 810,000 1,117,800
(a, b) Saks Inc. ............................................................. 803,000 4,818,000
(b) Tuesday Morning Corp. ................................................. 614,000 1,375,360
(b) West Marine Inc. ...................................................... 795,000 5,032,350
(a, b) Zale Corp. ............................................................ 636,100 10,851,866
------------
63,836,601
------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 1.3%
Cohu Inc. ............................................................. 601,200 8,500,968
(a,b)OmniVision Technologies Inc. ..................................... 359,800 2,910,782
------------
11,411,750
------------
TECHNOLOGY HARDWARE & EQUIPMENT 3.5%
(b) Avocent Corp. ......................................................... 134,100 2,014,182
(b) Benchmark Electronics Inc. ............................................ 1,135,000 13,608,650
Diebold Inc. .......................................................... 87,600 2,603,472
(b) Mettler-Toledo International Inc. ..................................... 150,500 11,519,270
(b) Rofin-Sinar Technologies Inc. ......................................... 96,000 2,139,840
------------
31,885,414
------------
Annual Report | 109
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ ------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION 3.0%
(b) Genesee & Wyoming Inc. ................................................ 386,000 $ 12,873,100
(b) Kansas City Southern .................................................. 142,800 4,408,236
SkyWest Inc. .......................................................... 663,000 10,216,830
------------
27,498,166
------------
UTILITIES 2.3%
Atmos Energy Corp. .................................................... 171,200 4,155,024
Energen Corp. ......................................................... 140,000 4,699,800
Sierra Pacific Resources .............................................. 1,430,000 11,854,700
------------
20,709,524
------------
TOTAL COMMON STOCKS (COST $999,462,391) 800,084,355
------------
PRINCIPAL
AMOUNT
------------
CORPORATE BONDS (COST $1,305,702) 0.1%
CAPITAL GOODS 0.1%
Mueller Industries Inc., 6.00%, 11/01/14 .............................. $ 1,319,000 1,094,770
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST
$1,000,768,093) .................................................... 801,179,125
------------
SHARES
------------
SHORT TERM INVESTMENTS 15.8%
MONEY MARKET FUNDS (COST $107,859,409) 11.9%
(d) Franklin Institutional Fiduciary Trust Money Market Portfolio, 1.56% .. 107,859,409 107,859,409
------------
(e) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 3.9%
MONEY MARKET FUNDS (COST $35,728,233) 3.9%
(f) Bank of New York Institutional Cash Reserve Fund, 1.07% ............... 35,728,233 35,370,951
------------
TOTAL INVESTMENTS (COST $1,144,355,735) 103.8% ........................ 944,409,485
OTHER ASSETS, LESS LIABILITIES (3.8)% ................................. (34,828,167)
------------
NET ASSETS 100.0% ..................................................... $909,581,318
============
(a) A portion or all of the security is on loan at October 31, 2008. See Note
1(e).
(b) Non-income producing for the twelve months ended October 31, 2008.
(c) See Note 9 regarding holdings of 5% voting securities.
(d) 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.
(e) See Note 1(e) regarding securities on loan.
(f) The rate shown is the annualized seven-day yield at period end.
The accompanying notes are an integral part of these financial statements.
110 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2008
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
The accompanying notes are an integral part of these financial statements.
Annual Report | 111
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
------------ --------------- -------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................... $14,304,721 $1,773,224,000 $141,926,999
Cost - Non-controlled affiliated issuers (Note 9) ... -- 178,853,776 --
Cost - Sweep Money Fund (Note 7) .................... 1,088,280 246,716,542 2,191,688
Cost - Repurchase agreements ........................ -- 91,761,450 --
----------- -------------- ------------
Total cost of investments ........................... $15,393,001 $2,290,555,768 $144,118,687
=========== ============== ============
Value - Unaffiliated issuers ........................ $10,195,589 $1,949,999,136 $122,065,051
Value - Non-controlled affiliated issuers (Note 9) .. -- 153,044,462 --
Value - Sweep Money Fund (Note 7) ................... 1,088,280 246,716,542 2,191,688
Value - Repurchase agreements ....................... -- 91,761,450 --
----------- -------------- ------------
Total value of investmentsa ............................... 11,283,869 2,441,521,590 124,256,739
Receivables:
Investment securities sold .......................... 34,417 1,872,069 --
Capital shares sold ................................. 368,515 20,529,973 236,797
Dividends and interest .............................. 6,663 1,993,726 182,390
----------- -------------- ------------
Total assets ..................................... 11,693,464 2,465,917,358 124,675,926
----------- -------------- ------------
Liabilities:
Payables:
Investment securities purchased ..................... 45,149 428,098 --
Capital shares redeemed ............................. 12,352 3,469,595 254,783
Affiliates .......................................... 5,655 1,749,800 148,596
Unaffiliated transfer agent fees .................... 1,914 1,692,653 33,411
Payable upon return of securities loaned ............... -- 37,023,673 --
Accrued expenses and other liabilities ................. 2,680 535,959 30,410
----------- -------------- ------------
Total liabilities ................................ 67,750 44,899,778 467,200
----------- -------------- ------------
Net assets, at value .......................... $11,625,714 $2,421,017,580 $124,208,726
=========== ============== ============
Net assets consist of:
Paid-in capital ........................................ $16,795,484 $2,169,003,852 $149,756,897
Undistributed net investment income .................... 70,781 34,920,044 1,407,913
Net unrealized appreciation (depreciation) ............. (4,109,132) 150,728,928 (19,861,948)
Accumulated net realized gain (loss) ................... (1,131,419) 66,364,756 (7,094,136)
----------- -------------- ------------
Net assets, at value .......................... $11,625,714 $2,421,017,580 $124,208,726
=========== ============== ============
(a) Includes securities loaned ............................ $ -- $ 36,264,754 $ --
The accompanying notes are an integral part of these financial statements.
112 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
------------ --------------- -------------
CLASS A:
Net assets, at value ...................................... $9,507,887 $2,169,284,333 $84,815,248
---------- -------------- -----------
Shares outstanding ........................................ 1,521,003 57,310,213 8,621,704
---------- -------------- -----------
Net asset value per share(a) .............................. $ 6.25 $ 37.85 $ 9.84
---------- -------------- -----------
Maximum offering price per share (net asset value
per share / 94.25%) .................................... $ 6.63 $ 40.16 $ 10.44
---------- -------------- -----------
CLASS B:
Net assets, at value ...................................... -- $ 51,727,112 $ 8,449,168
---------- -------------- -----------
Shares outstanding ........................................ -- 1,390,989 870,886
---------- -------------- -----------
Net asset value and maximum offering price per share(a) ... -- $ 37.19 $ 9.70
---------- -------------- -----------
CLASS C:
Net assets, at value ...................................... $1,471,447 $ 73,068,308 $24,771,606
---------- -------------- -----------
Shares outstanding ........................................ 237,243 1,960,718 2,554,526
---------- -------------- -----------
Net asset value and maximum offering price per share(a) ... $ 6.20 $ 37.27 $ 9.70
---------- -------------- -----------
CLASS R:
Net assets, at value ...................................... $ 6,247 $ 26,432,929 $ 3,550,406
---------- -------------- -----------
Shares outstanding ........................................ 1,000 704,220 364,547
---------- -------------- -----------
Net asset value and maximum offering price per share ...... $ 6.25 $ 37.54 $ 9.74
---------- -------------- -----------
ADVISOR CLASS:
Net assets, at value ...................................... $ 640,133 $ 100,504,898 $ 2,622,298
---------- -------------- -----------
Shares outstanding ........................................ 101,940 2,650,095 266,729
---------- -------------- -----------
Net asset value and maximum offering price per share ...... $ 6.28 $ 37.93 $ 9.83
---------- -------------- -----------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 113
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------ ------------ --------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ...................... $183,394,657 $ 72,149,423 $1,026,814,760
Cost - Non-controlled affiliated issuers
(Note 9) ...................................... 59,364,584 -- 9,681,566
Cost - Sweep Money Fund (Note 7) ................. 59,204,509 1,174,510 107,859,409
------------ ------------ --------------
Total cost of investments ........................ $301,963,750 $ 73,323,933 $1,144,355,735
============ ============ ==============
Value - Unaffiliated issuers ..................... $183,033,936 $ 47,715,025 $ 831,239,857
Value - Non-controlled affiliated issuers
(Note 9) ...................................... 58,726,725 -- 5,310,219
Value - Sweep Money Fund (Note 7) ................ 59,204,509 1,174,510 107,859,409
------------ ------------ --------------
Total value of investments(a) .................... 300,965,170 48,889,535 944,409,485
Receivables:
Investment securities sold ....................... -- -- 367,248
Capital shares sold .............................. 84,314 32,178 3,134,578
Dividends and interest ........................... 128,059 33,352 754,488
Other receivables ................................ -- 44,150 --
------------ ------------ --------------
Total assets .................................. 301,177,543 48,999,215 948,665,799
------------ ------------ --------------
Liabilities:
Payables:
Investment securities purchased .................. 751,906 -- 12,933
Capital shares redeemed .......................... 532,177 229,142 1,980,767
Affiliates ....................................... 254,386 32,670 996,489
Unaffiliated transfer agent fees ................. 66,624 11,067 318,356
Payable upon return of securities loaned ............ 18,892 -- 35,728,233
Accrued expenses and other liabilities .............. 39,663 19,995 47,703
------------ ------------ --------------
Total liabilities ............................. 1,663,648 292,874 39,084,481
------------ ------------ --------------
Net assets, at value ....................... $299,513,895 $ 48,706,341 $ 909,581,318
============ ============ ==============
Net assets consist of:
Paid-in capital ..................................... $274,603,178 $ 75,768,912 $1,103,420,047
Undistributed net investment income ................. 3,933,670 63,244 6,204,053
Net unrealized appreciation (depreciation) .......... (1,000,485) (24,434,398) (199,831,835)
Accumulated net realized gain (loss) ................ 21,977,532 (2,691,417) (210,947)
------------ ------------ --------------
Net assets, at value .......................... $299,513,895 $ 48,706,341 $ 909,581,318
============ ============ ==============
(a) Includes securities loaned ......................... $ -- $ -- $ 35,754,639
The accompanying notes are an integral part of these financial statements.
114 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------ ------------ --------------
CLASS A:
Net assets, at value ................................ $238,024,591 $39,625,762 $543,932,840
------------ ----------- -------------
Shares outstanding .................................. 9,487,748 5,422,774 19,029,975
------------ ----------- -------------
Net asset value per share(a) ........................ $ 25.09 $ 7.31 $ 28.58
------------ ----------- -------------
Maximum offering price per share (net asset
value per share / 94.25%) ........................ $ 26.62 $ 7.76 $ 30.32
------------ ----------- -------------
CLASS B:
Net assets, at value ................................ -- -- $ 35,079,950
------------ ----------- -------------
Shares outstanding .................................. -- -- 1,285,085
------------ ----------- -------------
Net asset value and maximum offering price per
share(a) ......................................... -- -- $ 27.30
------------ ----------- -------------
CLASS C:
Net assets, at value ................................ -- $ 7,974,245 $146,824,404
------------ ----------- -------------
Shares outstanding .................................. -- 1,101,297 5,450,677
------------ ----------- -------------
Net asset value and maximum offering price per
share(a) ......................................... -- $ 7.24 $ 26.94
------------ ----------- -------------
CLASS R:
Net assets, at value ................................ -- $ 339,163 $107,474,639
------------ ----------- -------------
Shares outstanding .................................. -- 46,473 3,787,942
------------ ----------- -------------
Net asset value and maximum offering price
per share ........................................ -- $ 7.30 $ 28.37
------------ ----------- -------------
ADVISOR CLASS:
Net assets, at value ................................ $ 61,489,304 $ 767,171 $ 76,269,485
------------ ----------- -------------
Shares outstanding .................................. 2,445,809 104,379 2,591,054
------------ ----------- -------------
Net asset value and maximum offering price
per share ........................................ $ 25.14 $ 7.35 $ 29.44
------------ ----------- -------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 115
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
------------ --------------- ------------
Investment income:
Dividends:
Unaffiliated issuers ............................. $ 181,729 $ 60,315,739 $ 4,886,520
Non-controlled affiliated issuers (Note 9) ....... -- 937,600 --
Sweep Money Fund (Note 7) ........................ 27,139 6,069,256 100,436
Interest ............................................ -- 4,631,231 --
Income from securities loaned ....................... -- 8,965,059 19,730
----------- --------------- ------------
Total investment income .................... 208,868 80,918,885 5,006,686
----------- --------------- ------------
Expenses:
Management fees (Note 3a) ........................... 56,406 16,204,689 1,003,342
Administrative fees (Note 3b) ....................... 21,803 -- 369,157
Distribution fees: (Note 3c)
Class A .......................................... 30,639 7,985,873 369,326
Class B .......................................... -- 860,294 138,552
Class C .......................................... 12,945 1,008,962 384,026
Class R .......................................... 43 242,778 29,341
Transfer agent fees (Note 3e) ....................... 19,416 8,256,407 442,708
Custodian fees (Note 4) ............................. 162 87,033 2,991
Reports to shareholders ............................. 8,123 219,314 46,322
Registration and filing fees ........................ 47,378 294,432 63,012
Professional fees ................................... 28,832 96,663 33,783
Trustees' fees and expenses ......................... 623 336,612 11,858
Amortization of offering costs ...................... 39,834 -- --
Other ............................................... 4,466 50,510 12,671
----------- --------------- ------------
Total expenses ............................. 270,670 35,643,567 2,907,089
Expense reductions (Note 4) ................ (61) (15,326) (20)
Expense waived/paid by affiliates
(Note 3f) ............................... (128,886) -- --
----------- --------------- ------------
Net expenses ............................ 141,723 35,628,241 2,907,069
----------- --------------- ------------
Net investment income ................ 67,145 45,290,644 2,099,617
----------- --------------- ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers(a) ....................... (1,060,096) 237,392,605 (7,064,026)
Non-controlled affiliated issuers (Note 9) .... -- (49,748,077) --
Capital gains distributions ...................... -- 5,817,593 --
Foreign currency transactions .................... -- (19,821) --
----------- --------------- ------------
Net realized gain (loss) ............. (1,060,096) 193,442,300 (7,064,026)
----------- --------------- ------------
Net change in unrealized appreciation
(depreciation) on investments .................... (3,955,915) (1,933,874,631) (70,861,974)
----------- --------------- ------------
Net realized and unrealized gain (loss) ................ (5,016,011) (1,740,432,331) (77,926,000)
----------- --------------- ------------
Net increase (decrease) in net assets resulting from
operations .......................................... $(4,948,866) $(1,695,141,687) $(75,826,383)
=========== =============== ============
(a) Amount includes gains from a redemption in-kind
(Note 10) ........................................... $ -- $ 108,873,568 $ --
The accompanying notes are an integral part of these financial statements.
116 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended October 31, 2008
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------- ------------ -------------
Investment income:
Dividends:
Unaffiliated issuers ............................. $ 5,551,001 $ 1,040,647 $ 18,983,398
Non-controlled affiliated issuers (Note 9) ....... 681,217 -- 236,370
Sweep Money Fund (Note 7) ........................ 1,996,456 134,827 1,328,594
Interest ............................................ 707,281 -- 80,915
Income from securities loaned ....................... 113,599 12,611 4,591,054
------------- ------------ -------------
Total investment income ....................... 9,049,554 1,188,085 25,220,331
------------- ------------ -------------
Expenses:
Management fees (Note 3a) ........................... 2,761,305 557,047 7,587,544
Administrative fees (Note 3b) ....................... -- 152,915 --
Distribution fees: (Note 3c)
Class A .......................................... 830,233 216,010 2,045,080
Class B .......................................... -- -- 548,903
Class C .......................................... -- 129,862 2,091,985
Class R .......................................... -- 2,296 569,771
Transfer agent fees (Note 3e) ....................... 541,551 195,335 3,351,263
Custodian fees (Note 4) ............................. 5,720 1,527 23,760
Reports to shareholders ............................. 47,210 37,292 329,845
Registration and filing fees ........................ 41,279 54,408 73,656
Professional fees ................................... 34,292 29,590 51,488
Trustees' fees and expenses ......................... 27,669 6,637 99,449
Federal income tax (Note 3g) ........................ -- 44,150 --
Other ............................................... 17,103 12,614 43,496
------------- ------------ -------------
Total expenses ................................ 4,306,362 1,439,683 16,816,240
Expense reductions (Note 4) ................... (2,353) (225) (5,983)
Expenses waived/paid by affiliates (Note 3f) .. -- (288,687) --
------------- ------------ -------------
Net expenses ............................... 4,304,009 1,150,771 16,810,257
------------- ------------ -------------
Net investment income ................... 4,745,545 37,314 8,410,074
------------- ------------ -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers .......................... 26,916,705 (2,361,038) 72,566
Non-controlled affiliated issuers
(Note 9) ................................... (1,708,202) -- (91,494)
------------- ------------ -------------
Net realized gain (loss) ................ 25,208,503 (2,361,038) (18,928)
------------- ------------ -------------
Net change in unrealized appreciation
(depreciation) on investments .................... (187,815,244) (28,934,362) (490,978,215)
------------- ------------ -------------
Net realized and unrealized gain (loss) ................ (162,606,741) (31,295,400) (490,997,143)
------------- ------------ -------------
Net increase (decrease) in net assets resulting
from operations ..................................... $(157,861,196) $(31,258,086) $(482,587,069)
============= ============ =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 117
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN ALL CAP FRANKLIN BALANCE SHEET
VALUE FUND INVESTMENT FUND
------------------------ --------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
------------------------ --------------------------------
2008 2007(a) 2008 2007
----------- ---------- --------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 67,145 $ 12,160 $ 45,290,644 $ 53,915,942
Net realized gain (loss) from investments,
capital gains distributions and foreign
currency transactions ......................... (1,060,096) (71,118) 193,442,300 392,131,570
Net change in unrealized appreciation
(depreciation) on investments ................. (3,955,915) (153,217) (1,933,874,631) (52,722,539)
----------- ---------- --------------- --------------
Net increase (decrease) in net assets
resulting from operations ............... (4,948,866) (212,175) (1,695,141,687) 393,324,973
----------- ---------- --------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ....................................... (43,343) -- (39,612,923) (56,124,269)
Class B ....................................... -- -- (173,445) (653,600)
Class C ....................................... (4,764) -- (181,226) (719,909)
Class R ....................................... (46) -- (468,985) (559,473)
Advisor Class ................................. (6,079) -- (4,626,751) (5,121,199)
Net realized gains:
Class A ....................................... -- -- (335,976,978) (272,064,080)
Class B ....................................... -- -- (9,320,941) (7,883,359)
Class C ....................................... -- -- (10,342,910) (8,695,351)
Class R ....................................... -- -- (5,217,525) (3,216,294)
Advisor Class ................................. -- -- (30,754,478) (20,887,969)
----------- ---------- --------------- --------------
Total distributions to shareholders ................. (54,232) -- (436,676,162) (375,925,503)
----------- ---------- --------------- --------------
Capital share transactions: (Note 2)
Class A ....................................... 6,421,722 7,312,010 (191,444,773) (221,364,108)
Class B ....................................... -- -- (14,740,263) (13,171,468)
Class C ....................................... 1,248,239 862,548 2,715,610 (9,795,929)
Class R ....................................... -- 10,000 (11,233,052) 12,922,088
Advisor Class ................................. (14,021) 1,000,367 (160,196,330) 54,496,840
----------- ---------- --------------- --------------
Total capital share transactions .................... 7,655,940 9,184,925 (374,898,808) (176,912,577)
----------- ---------- --------------- --------------
Redemption fees ..................................... 75 47 53,435 38,929
----------- ---------- --------------- --------------
Net increase (decrease) in net assets ...... 2,652,917 8,972,797 (2,506,663,222) (159,474,178)
Net assets:
Beginning of year ................................... 8,972,797 -- 4,927,680,802 5,087,154,980
----------- ---------- --------------- --------------
End of year ......................................... $11,625,714 $8,972,797 $ 2,421,017,580 $4,927,680,802
=========== ========== =============== ==============
Undistributed net investment income included in
net assets:
End of year ......................................... $ 70,781 $ 27,455 $ 34,920,044 $ 34,346,150
=========== ========== =============== ==============
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007.
The accompanying notes are an integral part of these financial statements.
118 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
---------------------------- ----------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
---------------------------- ----------------------------
2008 2007 2008 2007
------------- ------------ ------------- ------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 2,099,617 $ 2,893,123 $ 4,745,545 $ 4,658,233
Net realized gain (loss) from investments
and foreign currency transactions ............. (7,064,026) 13,319,606 25,208,503 58,150,672
Net change in unrealized appreciation
(depreciation) on investments ................. (70,861,974) 3,667,722 (187,815,244) 2,157,157
------------- ------------ ------------- ------------
Net increase (decrease) in net assets
resulting from operations ............... (75,826,383) 19,880,451 (157,861,196) 64,966,062
------------- ------------ ------------- ------------
Distributions to shareholders from:
Net investment income:
Class A ....................................... (2,093,601) (2,342,258) (4,202,918) (6,348,151)
Class B ....................................... (126,996) (139,377) -- --
Class C ....................................... (331,946) (441,613) -- --
Class R ....................................... (97,376) (88,308) -- --
Advisor Class ................................. (59,611) (49,519) (487,350) (225,219)
Net realized gains:
Class A ....................................... (8,731,257) (9,229,421) (53,228,790) (24,824,164)
Class B ....................................... (1,064,276) (1,118,742) -- --
Class C ....................................... (2,886,149) (3,251,511) -- --
Class R ....................................... (442,897) (394,504) -- --
Advisor Class ................................. (194,600) (154,969) (4,817,863) (747,866)
------------- ------------ ------------- ------------
Total distributions to shareholders ................. (16,028,709) (17,210,222) (62,736,921) (32,145,400)
------------- ------------ ------------- ------------
Capital share transactions: (Note 2)
Class A ....................................... (4,937,150) (34,902,280) (36,300,801) (38,181,352)
Class B ....................................... (3,313,180) (3,747,506) -- --
Class C ....................................... (8,806,321) (11,758,318) -- --
Class R ....................................... (1,405,945) (10,654) -- --
Advisor Class ................................. 867,997 1,372,280 55,619,479 26,014,141
------------- ------------ ------------- ------------
Total capital share transactions .................... (17,594,599) (49,046,478) 19,318,678 (12,167,211)
------------- ------------ ------------- ------------
Redemption fees ..................................... 961 263 2,478 2,023
------------- ------------ ------------- ------------
Net increase (decrease) in net assets ...... (109,448,730) (46,375,986) (201,276,961) 20,655,474
Net assets:
Beginning of year ................................... 233,657,456 280,033,442 500,790,856 480,135,382
------------- ------------ ------------- ------------
End of year ......................................... $ 124,208,726 $233,657,456 $ 299,513,895 $500,790,856
============= ============ ============= ============
Undistributed net investment income included in
net assets:
End of year ......................................... $ 1,407,913 $ 2,019,069 $ 3,933,670 $ 3,849,999
============= ============ ============= ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 119
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN MIDCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
--------------------------- -------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
--------------------------- -------------------------------
2008 2007 2008 2007
------------- ----------- -------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................... $ 37,314 $ 1,605,473 $ 8,410,074 $ 5,674,202
Net realized gain (loss) from investments and
foreign currency transactions .................... (2,361,038) 1,028,308 (18,928) 48,335,673
Net change in unrealized appreciation
(depreciation) on investments .................... (28,934,362) 1,266,035 (490,978,215) 50,133,835
------------- ----------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .................. (31,258,086) 3,899,816 (482,587,069) 104,143,710
------------- ----------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A .......................................... (781,238) (801,821) (6,544,236) (4,407,801)
Class C .......................................... (76,158) (122,118) (206,876) (266,542)
Class R .......................................... (3,052) (8,309) (731,468) (316,135)
Advisor Class .................................... (15,822) (15,315) (633,597) (505,499)
Net realized gains:
Class A .......................................... (891,244) (621,341) (29,895,180) (47,916,137)
Class B .......................................... -- -- (2,563,602) (5,483,021)
Class C .......................................... (186,887) (132,590) (9,528,016) (17,152,546)
Class R .......................................... (5,498) (6,141) (4,038,099) (4,083,147)
Advisor Class .................................... (13,871) (10,395) (2,133,160) (4,066,624)
------------- ----------- -------------- --------------
Total distributions to shareholders .................... (1,973,770) (1,718,030) (56,274,234) (84,197,452)
------------- ----------- -------------- --------------
Capital share transactions: (Note 2)
Class A .......................................... (6,043,995) 28,087,583 27,166,122 134,189,399
Class B .......................................... -- -- (13,058,873) (8,627,417)
Class C .......................................... (1,394,212) 5,312,924 (21,002,910) 19,329,728
Class R .......................................... (140,877) 523,637 52,297,147 52,776,349
Advisor Class .................................... 91,635 325,925 43,260,103 5,308,474
------------- ----------- -------------- --------------
Total capital share transactions ....................... (7,487,449) 34,250,069 88,661,589 202,976,533
------------- ----------- -------------- --------------
Redemption fees ........................................ 62 240 10,428 11,128
------------- ----------- -------------- --------------
Net increase (decrease) in net assets ......... (40,719,243) 36,432,095 (450,189,286) 222,933,919
Net assets:
Beginning of year ...................................... 89,425,584 52,993,489 1,359,770,604 1,136,836,685
------------- ----------- -------------- --------------
End of year ............................................ $ 48,706,341 $89,425,584 $ 909,581,318 $1,359,770,604
============= =========== ============== ==============
Undistributed net investment income included in net assets:
End of year ............................................ $ 63,244 $ 742,394 $ 6,204,053 $ 5,729,745
============= =========== ============== ==============
The accompanying notes are an integral part of these financial statements.
120 | Annual Report
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 a diversified, open-end
investment company, consisting of six funds (Funds). 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 All Cap Value Fund Franklin Balance Sheet Investment Fund
Franklin MidCap Value 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 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.
Annual Report | 121
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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
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. JOINT REPURCHASE AGREEMENTS
The Funds may 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. A repurchase agreement is accounted for as a loan by the fund to the
seller, collateralized by securities which are delivered to the fund's
custodian. The market value, including accrued interest, of the initial
collateralization is required to be at least 102% of the dollar amount invested
by the funds, with the value of the underlying securities marked to market daily
to maintain coverage of at least 100%. The joint repurchase agreements held by
the Funds at year end had been entered into on October 31, 2008. The joint
repurchase agreements are valued at cost.
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.
122 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. FOREIGN CURRENCY CONTRACTS (CONTINUED)
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
Certain funds participate in a principal based security lending program. The
fund receives 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 invested in
a non-registered money market fund and managed by the fund's custodian on the
fund's behalf. The fund receives income from investment of cash collateral, in
addition to any lending fees and rebates paid by the borrower. The funds bear
the market risk with respect to the collateral investment, securities loaned,
and the risk that the principal may default on its obligations to the funds.
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.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years (for the one open tax year for Franklin All
Cap Value Fund) and as of October 31, 2008, and have determined that no
provision for income tax is required in the Funds' financial statements.
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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. 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.
Annual Report | 123
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)
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.
H. OFFERING COSTS
Offering costs are amortized on a straight line basis over twelve months.
I. 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.
J. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the Funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
K. 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.
124 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At October 31, 2008, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Funds' shares were as follows:
FRANKLIN ALL CAP FRANKLIN BALANCE SHEET
VALUE FUND INVESTMENT FUND
---------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ----------- ---------------
CLASS A SHARES:
Year ended October 31, 2008
Shares sold ......................................... 975,195 $ 8,074,206 10,846,485 $ 572,037,155
Shares issued in reinvestment
of distributions ................................. 3,523 30,828 6,319,439 358,944,116
Shares redeemed ..................................... (207,407) (1,683,312) (20,825,062) (1,122,426,044)
-------- ----------- ----------- ---------------
Net increase (decrease) ............................. 771,311 $ 6,421,722 (3,659,138) $ (191,444,773)
======== =========== =========== ===============
Year ended October 31, 2007(a)
Shares sold ......................................... 803,935 $ 7,832,682 10,205,917 $ 715,192,846
Shares issued in reinvestment
of distributions ................................. -- -- 4,657,380 313,627,999
Shares redeemed ..................................... (54,243) (520,672) (17,958,437) (1,250,184,953)
-------- ----------- ----------- ---------------
Net increase (decrease) ............................. 749,692 $ 7,312,010 (3,095,140) $ (221,364,108)
======== =========== =========== ===============
CLASS B SHARES:
Year ended October 31, 2008
Shares sold ......................................... 41,664 $ 2,110,697
Shares issued in reinvestment
of distributions ................................. 151,839 8,530,325
Shares redeemed ..................................... (481,977) (25,381,285)
----------- ---------------
Net increase (decrease) ............................. (288,474) $ (14,740,263)
=========== ===============
Year ended October 31, 2007
Shares sold ......................................... 18,712 $ 1,292,523
Shares issued in reinvestment
of distributions ................................. 116,332 7,745,341
Shares redeemed ..................................... (321,754) (22,209,332)
----------- ---------------
Net increase (decrease) ............................. (186,710) $ (13,171,468)
=========== ===============
CLASS C SHARES:
Year ended October 31, 2008
Shares sold ......................................... 209,986 $ 1,741,099 503,525 $ 26,147,941
Shares issued in reinvestment
of distributions ................................. 496 4,332 169,875 9,560,562
Shares redeemed ..................................... (62,418) (497,192) (625,120) (32,992,893)
-------- ----------- ----------- ---------------
Net increase (decrease) ............................. 148,064 $ 1,248,239 48,280 $ 2,715,610
======== =========== =========== ===============
Year ended October 31, 2007(a)
Shares sold ......................................... 94,457 $ 912,684 63,855 $ 4,412,080
Shares issued in reinvestment
of distributions ................................. -- -- 128,179 8,546,996
Shares redeemed ..................................... (5,278) (50,136) (331,729) (22,755,005)
-------- ----------- ----------- ---------------
Net increase (decrease) ............................. 89,179 $ 862,548 (139,695) $ (9,795,929)
======== =========== =========== ===============
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007 for the Franklin All Cap Value Fund.
Annual Report | 125
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN ALL CAP FRANKLIN BALANCE SHEET
VALUE FUND INVESTMENT FUND
--------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- ---------- -------------
CLASS R SHARES:
Year ended October 31, 2008
Shares sold ......................................... -- $ -- 195,428 $ 10,465,009
Shares issued in reinvestment
of distributions ................................. -- -- 100,718 5,686,511
Shares redeemed ..................................... -- -- (518,837) (27,384,572)
------- ----------- ---------- -------------
Net increase (decrease) ............................. -- $ -- (222,691) $ (11,233,052)
======= =========== ========== =============
Year ended October 31, 2007(a)
Shares sold ......................................... 1,000 $ 10,000 323,636 $ 22,820,838
Shares issued in reinvestment
of distributions ................................. -- -- 56,372 3,775,767
Shares redeemed ..................................... -- -- (196,835) (13,674,517)
------- ----------- ---------- -------------
Net increase (decrease) ............................. 1,000 $ 10,000 183,173 $ 12,922,088
======= =========== ========== =============
ADVISOR CLASS SHARES:
Year ended October 31, 2008
Shares sold ......................................... 15,431 $ 128,191 1,499,973 $ 83,529,075
Shares issued in reinvestment
of distributions ................................. 680 5,955 138,628 7,872,659
Shares redeemed in-kind (Note 10) ................... -- -- (2,252,843) (122,194,190)
Shares redeemed ..................................... (16,766) (148,167) (2,348,909) (129,403,874)
------- ----------- ---------- -------------
Net increase (decrease) ................................ (655) $ (14,021) (2,963,151) $(160,196,330)
======= =========== ========== =============
Year ended October 31, 2007(a)
Shares sold ......................................... 107,349 $ 1,046,114 2,878,564 $ 198,925,673
Shares issued in reinvestment
of distributions ................................. -- -- 23,747 1,599,836
Shares redeemed ..................................... (4,754) (45,747) (2,092,642) (146,028,669)
------- ----------- ---------- -------------
Net increase (decrease) ............................. 102,595 $ 1,000,367 809,669 $ 54,496,840
======= =========== ========== =============
(a) For the period June 1, 2007 (commencement of operations) to October 31,
2007 for the Franklin All Cap Value Fund.
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
CLASS A SHARES:
Year ended October 31, 2008
Shares sold ......................................... 1,805,018 $ 23,881,164 847,228 $ 28,033,464
Shares issued in reinvestment
of distributions ................................. 675,677 9,770,294 1,552,999 52,056,610
Shares redeemed ..................................... (2,883,177) (38,588,608) (3,543,547) (116,390,875)
---------- ------------ ---------- -------------
Net increase (decrease) ............................. (402,482) $ (4,937,150) (1,143,320) $ (36,300,801)
========== ============ ========== =============
Year ended October 31, 2007
Shares sold ......................................... 2,011,683 $ 33,028,361 968,140 $ 42,218,982
Shares issued in reinvestment
of distributions ................................. 635,098 10,250,489 687,607 28,391,274
Shares redeemed ..................................... (4,750,957) (78,181,130) (2,491,023) (108,791,608)
---------- ------------ ---------- -------------
Net increase (decrease) ............................. (2,104,176) $(34,902,280) (835,276) $ (38,181,352)
========== ============ ========== =============
126 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN LARGE CAP
VALUE FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS B SHARES:
Year ended October 31, 2008
Shares sold ......................................... 47,189 $ 635,266
Shares issued in reinvestment
of distributions ................................. 73,708 1,057,707
Shares redeemed ..................................... (375,818) (5,006,153)
---------- ------------
Net increase (decrease) ............................. (254,921) $ (3,313,180)
---------- ------------
Year ended October 31, 2007
Shares sold ......................................... 49,864 $ 813,952
Shares issued in reinvestment
of distributions ................................. 70,473 1,128,274
Shares redeemed ..................................... (348,441) (5,689,732)
---------- ------------
Net increase (decrease) ............................. (228,104) $ (3,747,506)
========== ============
CLASS C SHARES:
Year ended October 31, 2008
Shares sold ......................................... 416,403 $ 5,254,975
Shares issued in reinvestment
of distributions ................................. 200,862 2,880,367
Shares redeemed ..................................... (1,255,637) (16,941,663)
---------- ------------
Net increase (decrease) ............................. (638,372) $ (8,806,321)
========== ============
Year ended October 31, 2007
Shares sold ......................................... 420,592 $ 6,842,996
Shares issued in reinvestment
of distributions ................................. 207,457 3,319,293
Shares redeemed ..................................... (1,351,589) (21,920,607)
---------- ------------
Net increase (decrease) ............................. (723,540) $(11,758,318)
========== ============
CLASS R SHARES:
Year ended October 31, 2008
Shares sold ......................................... 115,218 $ 1,531,503
Shares issued in reinvestment
of distributions ................................. 37,279 534,576
Shares redeemed ..................................... (258,379) (3,472,024)
---------- ------------
Net increase (decrease) ............................. (105,882) $ (1,405,945)
========== ============
Year ended October 31, 2007
Shares sold ......................................... 171,390 $ 2,782,632
Shares issued in reinvestment
of distributions ................................. 30,117 482,472
Shares redeemed ..................................... (200,935) (3,275,758)
---------- ------------
Net increase (decrease) ............................. 572 $ (10,654)
========== ============
Annual Report | 127
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
-------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- -----------
ADVISOR CLASS SHARES:
Year ended October 31, 2008
Shares sold ......................................... 94,836 $1,238,371 1,607,030 $52,303,800
Shares issued in reinvestment
of distributions ................................. 16,740 241,219 157,758 5,288,026
Shares redeemed ..................................... (46,596) (611,593) (62,072) (1,972,347)
------- ---------- --------- -----------
Net increase (decrease) ............................. 64,980 $ 867,997 1,702,716 $55,619,479
======= ========== ========= ===========
Year ended October 31, 2007
Shares sold ......................................... 122,383 $2,051,466 616,159 $27,139,357
Shares issued in reinvestment
of distributions ................................. 11,958 192,523 23,334 964,134
Shares redeemed ..................................... (52,708) (871,709) (48,420) (2,089,350)
------- ---------- --------- -----------
Net increase (decrease) ............................. 81,633 $1,372,280 591,073 $26,014,141
======= ========== ========= ===========
FRANKLIN MIDCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
CLASS A SHARES:
Year ended October 31, 2008
Shares sold ......................................... 1,591,659 $ 16,697,729 6,090,932 $ 237,495,937
Shares issued in reinvestment
of distributions ................................. 144,284 1,589,960 824,420 32,498,622
Shares redeemed ..................................... (2,395,450) (24,331,684) (6,369,955) (242,828,437)
---------- ------------ ---------- -------------
Net increase (decrease) ............................. (659,507) $ (6,043,995) 545,397 $ 27,166,122
========== ============ ========== =============
Year ended October 31, 2007
Shares sold ......................................... 3,183,325 $ 38,241,463 6,238,565 $ 286,883,330
Shares issued in reinvestment
of distributions ................................. 110,345 1,277,790 1,069,850 47,383,669
Shares redeemed ..................................... (963,327) (11,431,670) (4,357,085) (200,077,600)
---------- ------------ ---------- -------------
Net increase (decrease) ............................. 2,330,343 $ 28,087,583 2,951,330 $ 134,189,399
========== ============ ========== =============
CLASS B SHARES:
Year ended October 31, 2008
Shares sold ......................................... 75,715 $ 2,765,568
Shares issued in reinvestment
of distributions ................................. 63,127 2,392,512
Shares redeemed ..................................... (492,933) (18,216,953)
---------- -------------
Net increase (decrease) ............................. (354,091) $ (13,058,873)
========== =============
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)
========== =============
128 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN MIDCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
---------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- ------------
CLASS C SHARES:
Year ended October 31, 2008
Shares sold ......................................... 339,706 $ 3,447,863 1,137,706 $ 41,271,087
Shares issued in reinvestment
of distributions ................................. 22,426 246,235 228,018 8,525,589
Shares redeemed ..................................... (539,151) (5,088,310) (1,963,649) (70,799,586)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. (177,019) $(1,394,212) (597,925) $(21,002,910)
======== =========== ========== ============
Year ended October 31, 2007
Shares sold ......................................... 562,097 $ 6,708,329 1,491,241 $ 64,910,723
Shares issued in reinvestment
of distributions ................................. 20,476 236,293 368,482 15,502,022
Shares redeemed ..................................... (137,048) (1,631,698) (1,403,086) (61,083,017)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. 445,525 $ 5,312,924 456,637 $ 19,329,728
======== =========== ========== ============
CLASS R SHARES:
Year ended October 31, 2008
Shares sold ......................................... 21,036 $ 230,014 2,353,957 $ 89,619,723
Shares issued in reinvestment
of distributions ................................. 776 8,550 107,596 4,219,897
Shares redeemed ..................................... (33,422) (379,441) (1,093,421) (41,542,473)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. (11,610) $ (140,877) 1,368,132 $ 52,297,147
======== =========== ========== ============
Year ended October 31, 2007
Shares sold ......................................... 85,469 $ 986,194 1,800,705 $ 82,141,499
Shares issued in reinvestment
of distributions ................................. 1,220 14,089 88,779 3,915,153
Shares redeemed ..................................... (40,356) (476,646) (730,045) (33,280,303)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. 46,333 $ 523,637 1,159,439 $ 52,776,349
======== =========== ========== ============
ADVISOR CLASS SHARES:
Year ended October 31, 2008
Shares sold ......................................... 22,122 $ 218,292 1,939,763 $ 71,478,491
Shares issued in reinvestment
of distributions ................................. 2,612 28,910 53,178 2,153,708
Shares redeemed ..................................... (15,158) (155,567) (793,125) (30,372,096)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. 9,576 $ 91,635 1,199,816 $ 43,260,103
======== =========== ========== ============
Year ended October 31, 2007
Shares sold ......................................... 33,091 $ 404,122 1,275,685 $ 60,553,398
Shares issued in reinvestment
of distributions ................................. 2,153 25,000 91,979 4,180,443
Shares redeemed ..................................... (8,446) (103,197) (1,201,364) (59,425,367)
-------- ----------- ---------- ------------
Net increase (decrease) ............................. 26,798 $ 325,925 166,300 $ 5,308,474
======== =========== ========== ============
Annual Report | 129
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 All Cap Value Fund and Franklin Large Cap Value Fund each pay an
investment management fee to Advisory Services based on their respective average
daily net assets 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
Effective January 1, 2008, 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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% 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
Prior to January 1, 2008, the Franklin Balance Sheet Investment Fund paid 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
130 | 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 All Cap
Value Fund, 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 plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
Annual Report | 131
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 FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND 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% -- 0.35% --
Class B ............. -- 1.00% 1.00% -- -- 1.00%
Class C ............. 1.00% 1.00% 1.00% -- 1.00% 1.00%
Class R ............. 0.50% 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 through January 31, 2009.
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
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
---------- --------------- ----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ...................... $11,996 $479,884 $50,134
Contingent deferred sales charges retained ......... $ 1,112 $ 38,229 $21,251
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
---------- ---------- ----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ....................... $12,210 $43,241 $314,491
Contingent deferred sales charges retained ......... $ 501 $ 9,107 $ 88,329
132 | 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, 2008, 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 FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
---------- --------------- ---------- ---------- ---------- ----------
Transfer agent fees retained
by Investor Services ...... $14,914 $3,292,838 $275,073 $302,856 $109,181 $1,755,580
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 All Cap Value Fund and Franklin MidCap Value
Fund. Total expenses waived or paid are not subject to reimbursement by the
funds subsequent to the funds' fiscal year end. After February 28, 2009, FT
Services and Advisory Services may discontinue this waiver at any time upon
notice to the funds' Board of Trustees.
G. FEDERAL INCOME TAXES PAID
The Franklin MidCap Value Fund incurred federal income taxes, as noted in the
Statement of Operations, which FT Services voluntarily agreed to reimburse to
the Fund.
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, 2008, the
custodian fees were reduced as noted in the Statements of Operations.
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At October 31, 2008, the capital loss carryforwards were as
follows:
CAPITAL LOSS FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
CARRYFORWARDS ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
EXPIRING IN: VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ------------- ---------- --------------- ---------- ---------- ---------- ----------
2015 $ 71,121 $-- $ -- $-- $ -- $ --
2016 1,060,297 -- 7,064,026 -- 2,679,468 141,781
---------- --- ---------- --- ---------- --------
$1,131,418 $-- $7,064,026 $-- $2,679,468 $141,781
========== === ========== === ========== ========
Annual Report | 133
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax character of distributions paid during the years ended October 31, 2008
and 2007, was as follows:
FRANKLIN ALL CAP FRANKLIN BALANCE SHEET
VALUE FUND INVESTMENT FUND
---------------- ---------------------------
2008 2007 2008 2007
------- ----- ------------ ------------
Distributions paid from:
Ordinary income .......... $54,232 $-- $ 49,743,082 $ 63,492,700
Long term capital gain ... -- -- 386,933,080 312,432,803
------- --- ------------ ------------
$54,232 $-- $436,676,162 $375,925,503
======= === ============ ============
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
Ordinary income .......... $ 5,805,692 $ 4,145,978 $ 4,661,874 $ 6,573,370
Long term capital gain ... 10,223,017 13,064,244 58,075,047 25,572,030
----------- ----------- ----------- -----------
$16,028,709 $17,210,222 $62,736,921 $32,145,400
=========== =========== =========== ===========
FRANKLIN MIDCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
------------------------- -------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Distributions paid from:
Ordinary income .......... $1,084,532 $1,718,030 $10,376,156 $10,841,175
Long term capital gain ... 889,238 -- 45,898,078 73,356,915
---------- ---------- ----------- -----------
$1,973,770 $1,718,030 $56,274,234 $84,198,090
========== ========== =========== ===========
At October 31, 2008, 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
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
----------- --------------- ------------
Cost of investments .......................... $15,393,001 $2,291,186,946 $144,148,797
Unrealized appreciation ...................... $ 124,658 $ 551,666,462 $ 18,861,112
Unrealized depreciation ...................... (4,233,790) (401,331,818) (38,753,170)
----------- -------------- ------------
Net unrealized appreciation (depreciation) ... $(4,109,132) $ 150,334,644 $(19,892,058)
=========== ============== ============
Undistributed ordinary income ................ $ 70,783 $ 34,892,480 $ 1,407,911
Undistributed long term capital gains ........ -- 67,023,494 --
----------- -------------- ------------
Distributable earnings ....................... $ 70,783 $ 101,915,974 $ 1,407,911
=========== ============== ============
134 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------ ------------ --------------
Cost of investments .......................... $301,930,301 $ 73,335,883 $1,144,418,414
============ ============ ==============
Unrealized appreciation ...................... $ 69,764,438 $ 1,345,850 $ 91,062,193
Unrealized depreciation ...................... (70,729,569) (25,792,198) (291,071,122)
------------ ------------ --------------
Net unrealized appreciat ion (depreciation) .. $ (965,131) $(24,446,348) $ (200,008,929)
============ ============ ==============
Undistributed ordinary income ................ $ 3,900,220 $ 63,247 $ 6,197,566
Undistributed long term capital gains ........ 21,977,531 -- --
------------ ------------ --------------
Distributable earnings ....................... $ 25,877,751 $ 63,247 $ 6,197,566
============ ============ ==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, bond discounts and
premiums, offering costs, pass-through entity income, and short term capital
gains distributions from Underlying Funds.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, losses realized on in-kind shareholder redemptions, and short term
capital gains distributions from Underlying Funds.
The Franklin Balance Sheet Investment Fund and Franklin MicroCap Value Fund
utilized a tax accounting practice to treat a portion of the proceeds from
capital shares redeemed as a distribution from realized capital gains.
6. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short term securities) for the year ended October
31, 2008, were as follows:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND(a) VALUE FUND VALUE FUND VALUE FUND VALUE FUND
---------- ------------------ ----------- ----------- ----------- -----------
Purchases .. $9,191,662 $274,987,314 $29,024,903 $39,760,160 $19,199,502 $215,080,111
Sales ...... $2,109,464 $746,400,741 $53,692,625 $49,729,485 $23,819,190 $251,115,872
(a) Sales of investments excludes an in-kind redemption of $122,194,190.
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.
Annual Report | 135
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 2008, 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 $ 973,637 $1,016,256
495,000 Black River BancVenture Inc. ................ 8/13/07 4,950,000 4,034,993
94,800 LandCo Real Estate LLC, Liquidating Trust ... 9/07/06 240,792 168,744
----------
TOTAL RESTRICTED SECURITIES (1.74% of Net Assets).................... $5,219,993
==========
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, the Franklin MicroCap Value Fund and the Franklin Small Cap Value Fund for
the year ended October 31, 2008, 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
Dollar Thrifty Automotive Group Inc. ... 1,763,067 100,000 1,863,067 -- $ -- $ -- $(33,414,049)
Furmanite Corp. ....................... 2,783,000 -- 398,800 2,384,200 19,073,600 -- 2,222,674
Furniture Brands International Inc. .... 3,250,000 150,000 1,029,291 2,370,709 --(a) 937,600 (16,203,563)
KGen Power Corp., 144A ................. 4,400,000 -- -- 4,400,000 57,200,000 -- --
Syms Corp. ............................. 1,430,000 -- -- 1,430,000 15,015,000 -- --
Tecumseh Products Co., A ............... 1,085,000 -- 85,000 1,000,000 18,520,000 -- (2,426,123)
Tecumseh Products Co., B ............... 310,000 -- -- 310,000 5,146,000 -- --
Zale Corp. ............................. 1,767,600 476,200 11,100 2,232,700 38,089,862 -- 72,984
------------ -------- ------------
TOTAL AFFILIATED SECURITIES(6.32% of
Net Assets) ...................... $153,044,462 $937,600 $(49,748,077)
============ ======== ============
(a) As of October 31, 2008, no longer an affiliate.
136 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES (CONTINUED)
NUMBER OF NUMBER OF
SHARES HELD SHARES HELD VALUE REALIZED
AT BEGINNING GROSS GROSS AT END AT END INVESTMENT CAPITAL
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME GAIN (LOSS)
- -------------- ------------ --------- ---------- ----------- ------------- ----------- ------------
FRANKLIN MICROCAP VALUE FUND
NON-CONTROLLED AFFILIATES
ACMAT Corp., A ...................... 392,800 -- -- 392,800 $ 7,172,528 $ -- $ --
American Pacific Corp. .............. 676,300 -- -- 676,300 7,811,265 -- --
Black River BancVenture Inc. ........ 495,000 -- -- 495,000 4,034,993 -- --
Cobra Electronics Corp. ............. 376,300 163,700 -- 540,000 869,400 67,200 --
Continental Materials Corp. ......... 109,000 567 -- 109,567 1,985,902 -- --
Delta Apparel Inc. .................. 680,000 76,600 -- 756,600 4,615,260 -- --
Duckwall-ALCO Stores Inc. ........... 227,500 10,500 -- 238,000 2,994,516 -- --
Espey Manufacturing & Electronics
Corp. ............................. 156,000 -- 2,701 153,299 3,019,990 358,192 39,843
GTSI Corp. .......................... 488,140 41,860 -- 530,000 3,079,300 -- --
Hardinge Inc ........................ 652,500 242,637 -- 895,137 6,239,105 149,875 --
International Shipholding Corp. ..... 474,800 -- 74,800 400,000 9,836,000 -- 1,194,355
Nashua Corp. ........................ 357,930 -- -- 357,930 2,448,241 -- --
Omega Protein Corp. ................. 1,000,000 -- 130,000 870,000 --(a) -- 958,017
Origen Financial Inc. ............... -- 2,365,000 -- 2,365,000 2,435,950 19,550 --
Proliance International Inc. ........ 823,800 -- 823,800 -- -- -- (3,900,417)
Rockford Corp. ...................... 575,000 -- -- 575,000 563,500 -- --
S&K Famous Brands Inc. .............. 255,500 -- -- 255,500 319,375 -- --
Tandy Brands Accessories Inc. ....... 540,000 -- -- 540,000 1,301,400 86,400 --
----------- -------- -----------
TOTAL AFFILIATED SECURITIES
19.61% of Net Assets) ......... $58,726,725 $681,217 $(1,708,202)
=========== ======== ===========
(a) As of October 31, 2008, no longer
an affiliate.
FRANKLIN SMALL CAP VALUE FUND
NON-CONTROLLED AFFILIATES
Hooker Furniture Corp. .............. 615,000 -- 32,100 582,900 $ 5,310,219 $236,370 $ (91,494)
----------- -------- -----------
TOTAL NON-CONTROLLED AFFILIATED
SECURITIES (0.58% of Net
Assets) ....................... $ 5,310,219 $236,370 $ (91,494)
=========== ======== ===========
10. REDEMPTION IN-KIND
During the year ended October 31, 2008, the Franklin Balance Sheet Investment
Fund realized $108,873,568 of net gains resulting from a redemption in-kind in
which a shareholder redeemed fund shares for securities held by the fund rather
than for cash. Because such gains are not taxable to the fund, and are not
distributed to remaining shareholders, they have been reclassified from
accumulated net realized gains to paid-in capital.
11. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (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
Funds believe the adoption of SFAS 157 will not have a material impact on their
financial statements.
Annual Report | 137
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Funds are currently evaluating the impact, if any,
of applying the various provisions of SFAS 161.
138 | 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 All Cap
Value Fund, 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, 2008, the results of each
of their operations for the year then ended, and the changes in each of their
net assets 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, 2008 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 17, 2008
Annual Report | 139
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, 2008:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ---------- --------------- ----------- ----------- ---------- -----------
$-- $404,127,677 $10,223,014 $60,995,633 $971,379 $45,898,078
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, 2008:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ---------- --------------- ---------- ---------- ---------- ----------
$-- $4,673,767 $3,094,921 $273,206 $320,301 $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, 2008.
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ---------- --------------- ---------- ---------- ---------- ----------
100% 100% 82.48% 91.16% 90.51% 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, 2008.
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ---------- --------------- ---------- ---------- ---------- -----------
$181,743 $53,912,689 $4,882,163 $4,524,737 $1,080,990 $17,461,751
In January 2009, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2008.
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, 2008.
FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP MICROCAP MIDCAP SMALL CAP
VALUE FUND INVESTMENT FUND VALUE FUND VALUE FUND VALUE FUND VALUE FUND
- ---------- --------------- ---------- ---------- ---------- ----------
$-- $5,975,131 $-- $-- $-- $--
140 | 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 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman, Eastport Lobster & Fish Company; and FORMERLY, Director, Unity Mutual
Life Insurance Company (until 2006); 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) Lead Trustee since 14 Franklin Templeton Emerging
One Franklin Parkway Independent 2001 and Markets Debt Opportunities Fund
San Mateo, CA 94403-1906 Trustee Lead Independent PLC and Fiduciary International
Trustee since Ireland Limited.
January 2008
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 37 El Oro and Exploration Co.,
One Franklin Parkway p.l.c. (investments).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired, former practicing attorney.
GREGORY H. WILLIAMS (1943) Trustee Since July 2008 7 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, The City College of New York (since 2001); member of the boards of
directors of various non-profit organizations affiliated with The City
University of New York and The City College of New York; and FORMERLY, Dean of
The Ohio State University College of Law (1993-2001) and Associate Vice
President for Academic Affairs and Professor of Law, University of Iowa
(1977-1993).
Annual Report | 141
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 President
Vice President - AML Compliance
- AML since 2006
Compliance
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).
LAURA F. FERGERSON (1962) Chief Financial Since Not Applicable Not Applicable
One Franklin Parkway Officer and February 2008
San Mateo, CA 94403-1906 Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 46 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Director
and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
JIMMY D. GAMBILL (1947) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. February 2008
Suite 2100
Fort Lauderdale, FL 33394-3091
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/or
director, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton
Investments.
142 | 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 2007 Not Applicable Not Applicable
500 East Broward Blvd.
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.
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).
Annual Report | 143
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------- --------------- ------------------ ----------------------- -------------------------------
GALEN G. VETTER (1951) Senior Vice Since Not Applicable Not Applicable
500 East Broward Blvd. President and February 2008
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer -
Finance and
Administration
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 HAS 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 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 BOARD MEMBER 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 (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
144 | Annual Report
Franklin Value Investors Trust
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust's investment manager 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 (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 (800)
SEC-0330.
Annual Report | 145
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
(800) DIAL BEN/(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
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment 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(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Capital Growth Fund(1)
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund(3)
Franklin Small Cap Growth Fund(4)
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
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
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income 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
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(5)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(5)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-/INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(9)
(1.) The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
(2.) 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.
(3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to
Franklin Growth Opportunities Fund. The fund's investment goal and strategy
remained the same.
(4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to
Franklin Small Cap Growth Fund. The fund's investment goal and strategy
remained the same.
(5.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(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 four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities,
a high-yield portfolio (CA only) and money market portfolios.
(9.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
12/08
Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
- - WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.
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.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
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FVIT A2008 12/08
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 $121,386 for the fiscal year ended October 31, 2008 and $57,790 for the
fiscal year ended October 31, 2007.
(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 $4,000 for the fiscal year ended
October 31, 2008 and $46,000 for the fiscal year ended October 31, 2007. 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 $561 for the fiscal year ended October 31,
2008 and $0 for the fiscal year ended October 31, 2007. The services for which
these fees were paid include 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 not reported
in paragraphs (a)-(c) of Item 4 were $283,516 for the fiscal year ended October
31, 2008 and $0 for the fiscal year ended October 31, 2007. The services for
which these fees were paid include review of materials provided to the fund
Board in connection 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 $288,077 for the fiscal year ended October 31, 2008 and $46,000
for the fiscal year ended October 31, 2007.
(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 Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and
Laura F. Fergerson, Chief Financial Officer and Chief Accounting 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/Jennifer J. Bolt
------------------
Jennifer J. Bolt
Chief Executive Officer - Finance and Administration
Date December 26, 2008
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/Jennifer J. Bolt
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Jennifer J. Bolt
Chief Executive Officer - Finance and Administration
Date December 26, 2008
By /s/LAURA F. FERGERSON
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Laura F. Fergerson
Chief Financial Officer and Chief Accounting Officer
Date December 26, 2008