UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05878
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FRANKLIN VALUE INVESTORS TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 10/31
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Date of reporting period: 10/31/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
OCTOBER 31, 2009
ANNUAL REPORT
AND SHAREHOLDER LETTER
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
SIGN UP FOR ELECTRONIC DELIVERY on franklintempleton.com
(GRAPHIC)
VALUE
FRANKLIN
VALUE INVESTORS TRUST
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
FRANKLIN - Templeton - Investments
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
SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Economic and Market Overview ............................................. 3
Franklin All Cap Value Fund .............................................. 5
Franklin Balance Sheet Investment Fund ................................... 15
Franklin Large Cap Value Fund ............................................ 25
Franklin MicroCap Value Fund ............................................. 35
Franklin MidCap Value Fund ............................................... 43
Franklin Small Cap Value Fund ............................................ 53
Financial Highlights and Statements of Investments ....................... 63
Financial Statements ..................................................... 108
Notes to Financial Statements ............................................ 117
Report of Independent Registered Public Accounting Firm .................. 138
Tax Designation .......................................................... 139
Board Members and Officers ............................................... 140
Shareholder Information .................................................. 144
Shareholder Letter
Dear Shareholder:
During the 12-month period ended October 31, 2009, economic activity weakened
before showing signs of stabilization. The slowdown began in 2008 with the U.S.
subprime mortgage and credit crises and eventually spread worldwide. Despite
coordinated efforts by many governments to address spreading liquidity and
credit problems, deteriorating economic conditions and mounting uncertainty
contributed to market woes through the period's first half. Later in the period,
some indicators offered a better economic outlook, and markets rallied beginning
in March 2009, erasing much of the earlier losses. At period-end, although some
observers thought the worst of the economic crises was behind us, others
believed significant challenges remained.
We think it is important to put short-term market developments in perspective.
Keep in mind we have navigated through past periods of high market volatility by
remaining committed to our long-term perspective and disciplined investment
philosophy. During such times, we search for bargains we believe may be well
positioned to become eventual winners. Although conditions remain challenging,
our experience gives us reason to be optimistic about future market
stabilization and economic recovery.
Franklin Value Investors Trust is organized into six portfolios, each managed in
the same value spirit but with a different focus. While the Funds generally have
distinct investment approaches, our fundamental operating principles remain the
same: prudent investment selection and constant professional management. You can
be confident that the Funds' managers will remain committed to their commonsense
value investment philosophy in any economic or financial market environment. We
believe our value Funds provide shareholders with attractively valued portfolios
of well-managed, financially sound companies that possess the potential for
solid earnings growth and, with patience, capital appreciation over the long
term.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the annual report | 1
Franklin Value Investors Trust's annual report goes into greater detail about
prevailing conditions during the period under review. In addition, you will find
performance data, financial information and discussions from the portfolio
managers. Please remember that all securities markets fluctuate, as do mutual
fund share prices. As always, we encourage you to discuss your goals with your
financial advisor who can address concerns about volatility and diversification,
periodically review your overall portfolio and help you stay focused on the long
term.
If you would like more frequent updates, franklintempleton.com provides daily
prices, monthly performance figures, portfolio holdings and other information.
You can also access your account, buy and sell shares, and find helpful
financial planning tools. We hope you will take advantage of these online
services.
We thank you for investing with Franklin Templeton, welcome your questions and
comments, and look forward to serving your investment needs in the years ahead.
Sincerely,
/s/ William J. Lippman
William J. Lippman
President
Franklin Value Investors Trust
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31, 2009. 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 | Not part of the annual report
Annual Report
Economic and Market Overview
The 12-month period under review can be divided into two halves: the first
marked by the bursting of the credit and commodities' bubbles, the onset of
global recession and the precipitous decline of equity markets, and the second
by a sharp market rebound amid renewed optimism. In the first half, restrictive
credit and wealth deterioration stalled economic activity, marking arguably the
worst global recession since World War II. Equity market volatility reached
record levels in the face of plummeting consumer spending, manufacturing output
and home prices in the U.S. The government responded by launching a massive
stimulus package and a series of subsidy programs, and the Federal Reserve Board
(Fed) lowered the federal funds target rate to a range of 0% to 0.25% in
December 2008.
Signs emerged of improving economic conditions in the second half. The real
estate market stabilized at low levels across the country, with the government's
tax credit for first-time homebuyers partly supporting home sales and prices.
Industrial production picked up as exports and orders rose for big-ticket items.
Consumer spending overall improved mainly due to the temporary boost from the
month-long cash-for-clunkers program. In this environment, hopes ran high for a
sustainable and broadening recovery, but the job market remained troubled as the
unemployment rate climbed to 10.2% by period-end.(1) The Fed maintained its
target rate range through period-end, but began to move away from crisis mode by
allowing some of its government support measures to expire or shrink.
Economic activity, as measured by U.S. gross domestic product (GDP), fell at
annualized rates of 5.4% in 2008's fourth quarter and 6.1% in 2009's first
quarter. The decline in GDP eased in 2009's second quarter at an annualized rate
of -0.7%, and GDP grew at an annualized 2.8% rate in the third quarter. After a
yearlong contraction, GDP returned to stronger-than-expected growth on improved
consumer spending and homebuilding, yet much of the expansion was tied to
federal government spending. Commodity prices fell through early 2009 before
rebounding somewhat through period-end, which contributed to a significant
decline in inflation. October's inflation rate was an annualized -1.3%, while
core inflation, which excludes food and energy costs, was an annualized 1.7%.(1)
(1.) Source: Bureau of Labor Statistics.
Annual Report | 3
U.S. equity markets declined until March 2009 before beginning a rally fueled by
renewed optimism and aggregate corporate earnings that beat consensus
expectations. Skepticism about the sustainability of positive trends led to
market volatility near period-end. For the 12 months under review, the Dow Jones
Industrial Average, Standard & Poor's 500 Index (S&P 500) and NASDAQ Composite
Index had total returns of +7.71%, +9.80% and +20.07%, respectively.(2)
Financials was the only sector to post negative results during the year under
review, while the information technology, consumer discretionary and materials
sectors had the strongest returns.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF OCTOBER 31,
2009. 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) 2009 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 common type stocks
listed on The NASDAQ Stock Market. The index is market value weighted and
includes more than 3,000 companies.
4 | Annual Report
Franklin All Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin All Cap Value Fund seeks
long-term total return by 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.
We are pleased to bring you Franklin All Cap Value Fund's annual report for the
fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin All Cap Value Fund - Class A posted a +10.27% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
3000(R) Value Index, which rose 4.56% for the same period.(1) You can find more
of the Fund's performance data in the Performance Summary beginning on page 8.
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 may invest in companies with valuable
intangibles we believe are 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) 2009 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, and an index is not 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 67.
Annual Report | 5
PORTFOLIO BREAKDOWN
Franklin All Cap Value Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Capital Goods 20.4%
Energy 15.9%
Materials 10.5%
Insurance 7.4%
Utilities 7.1%
Health Care Equipment & Services 7.0%
Technology Hardware & Equipment 5.4%
Retailing 5.1%
Consumer Durables & Apparel 4.8%
Food & Staples Retailing 3.1%
Food, Beverage & Tobacco 2.2%
Other 7.7%
Short-Term Investments & Other Net Assets 3.4%
MANAGER'S DISCUSSION
During the fiscal year under review, contributors to performance included lumber
and building products company Universal Forest Products, which rose in value as
investors seemed to anticipate a rebound in the housing market. Information
technology services and software provider International Business Machines (IBM),
a new holding, also contributed to results. IBM posted strong results thus far
in 2009 and continued to have a positive outlook for its future prospects. Oil
and gas exploration and production company Occidental Petroleum helped Fund
performance as the company benefited from rising oil prices and good performance
in its exploration program, which contributed to improving quarterly results.
Detractors from performance included footwear retailer Brown Shoe, temporary
staffing services company Kelly Services, and label, sign and electrical
components manufacturer Brady. Brown Shoe experienced disappointing sales and
lowered its full-year sales projection. Kelly Services suffered amid a soft U.S.
staffing market, while Brady lowered its 2009 profit projections due to
declining sales and unfavorable currency exchange rates. We sold our holdings in
these companies by period-end largely due to deteriorating fundamentals.
During the fiscal year, we initiated positions in six common stocks, in addition
to IBM, and one convertible preferred stock, Bristow Group, which was exchanged
for common stock late in the period. The common stock purchases were Atlantic
Tele-Network, Becton Dickinson, Boots & Coots, Ceradyne, Kraft Foods and
Pharmaceutical Product Development. We also added to existing positions Aflac,
Apache, Kennametal, Laboratory Corp. of America Holdings and Occidental
Petroleum, among others. We liquidated 31 positions, largely because we believed
the companies' fundamentals had deteriorated or prices fully reflected future
expected performance. In addition to sales mentioned earlier, other significant
liquidations included Carbo Ceramics, Carlisle Companies, Dover, DTE Energy and
General Electric. We also reduced our holdings in D.R. Horton, MDC Holdings, NV
Energy, Peabody Energy and Universal Forest Products.
6 | Annual Report
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
President and 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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin All Cap Value Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Becton Dickinson and Co. 3.6%
HEALTH CARE EQUIPMENT & SERVICES
International Business Machines Corp. 3.5%
TECHNOLOGY HARDWARE & EQUIPMENT
Laboratory Corp. of America Holdings 3.4%
HEALTH CARE EQUIPMENT & SERVICES
Eaton Corp. 3.1%
CAPITAL GOODS
Adidas AG, ADR (Germany) 3.1%
CONSUMER DURABLES & APPAREL
Wal-Mart Stores Inc. 3.1%
FOOD & STAPLES RETAILING
Occidental Petroleum Corp. 2.7%
ENERGY
Bristow Group Inc. 2.5%
ENERGY
IDACORP Inc. 2.5%
UTILITIES
United Technologies Corp. 2.5%
CAPITAL GOODS
Annual Report | 7
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.58 $6.83 $6.25
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0511
CLASS C (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------- ------ -------- --------
Net Asset Value (NAV) +$0.57 $6.77 $6.20
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0156
CLASS R (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------- ------ -------- --------
Net Asset Value (NAV) +$0.57 $6.82 $6.25
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0394
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------------- ------ -------- --------
Net Asset Value (NAV) +$0.58 $6.86 $6.28
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0674
8 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR INCEPTION (6/1/07)
- ------- -------- ------------------
Cumulative Total Return(2) +10.27% -30.66%
Average Annual Total Return(3) +3.95% -16.14%
Value of $10,000 Investment(4) $10,395 $ 6,535
Avg. Ann. Total Return (9/30/09)(5) -13.96% -15.18%
Total Annual Operating Expenses(6)
Without Waiver 2.44%
With Waiver 1.23%
CLASS C 1-YEAR INCEPTION (6/1/07)
- ------- -------- ------------------
Cumulative Total Return(2) +9.50% -31.80%
Average Annual Total Return(3) +8.50% -14.65%
Value of $10,000 Investment(4) $10,850 $ 6,820
Avg. Ann. Total Return (9/30/09)(5) -10.13% -13.55%
Total Annual Operating Expenses(6)
Without Waiver 3.12%
With Waiver 1.91%
CLASS R 1-YEAR INCEPTION (6/1/07)
- ------- -------- ------------------
Cumulative Total Return(2) +9.88% -30.96%
Average Annual Total Return(3) +9.88% -14.21%
Value of $10,000 Investment(4) $10,988 $ 6,904
Avg. Ann. Total Return (9/30/09)(5) -8.90% -13.10%
Total Annual Operating Expenses(6)
Without Waiver 2.64%
With Waiver 1.43%
ADVISOR CLASS 1-YEAR INCEPTION (6/1/07)
- ------------- -------- ------------------
Cumulative Total Return(2) +10.54% -30.09%
Average Annual Total Return(3) +10.54% -13.77%
Value of $10,000 Investment(4) $11,054 $ 6,991
Avg. Ann. Total Return (9/30/09)(5) -8.41% -12.69%
Total Annual Operating Expenses(6)
Without Waiver 2.14%
With Waiver 0.93%
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 COMMON EXPENSES (I.E., A COMBINATION OF
INVESTMENT MANAGEMENT FEES, FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT
EXCLUDING RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH CLASS OF
THE FUND DO NOT EXCEED 0.90% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR COSTS,
INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS AND
LIQUIDATIONS) UNTIL 2/28/10.
Annual Report | 9
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 applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged index includes reinvestment of
any income or distributions. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +3.95%
Since Inception (6/1/07) -16.14%
CLASS A (6/1/07-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN ALL CAP
VALUE FUND - RUSSELL 3000
DATE CLASS A 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
11/30/2008 $5,462 $ 5,713 $10,215
12/31/2008 $5,741 $ 5,814 $10,110
1/31/2009 $5,129 $ 5,132 $10,154
2/28/2009 $4,526 $ 4,444 $10,204
3/31/2009 $4,947 $ 4,825 $10,229
4/30/2009 $5,530 $ 5,362 $10,254
5/31/2009 $5,760 $ 5,676 $10,284
6/30/2009 $5,846 $ 5,636 $10,372
7/31/2009 $6,363 $ 6,112 $10,356
8/31/2009 $6,612 $ 6,430 $10,379
9/30/2009 $6,813 $ 6,684 $10,386
10/31/2009 $6,535 $ 6,460 $10,396
Total Returns -34.65% -35.40% 3.96%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/09
- ------- --------
1-Year +8.50%
Since Inception (6/1/07) -14.65%
CLASS C (6/1/07-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN ALL CAP
VALUE FUND - RUSSELL 3000
DATE CLASS C 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
11/30/2008 $5,746 $5,713 $10,215
12/31/2008 $6,024 $5,814 $10,110
1/31/2009 $5,380 $5,132 $10,154
2/28/2009 $4,755 $4,444 $10,204
3/31/2009 $5,188 $4,825 $10,229
4/30/2009 $5,803 $5,362 $10,254
5/31/2009 $6,034 $5,676 $10,284
6/30/2009 $6,115 $5,636 $10,372
7/31/2009 $6,649 $6,112 $10,356
8/31/2009 $6,911 $6,430 $10,379
9/30/2009 $7,122 $6,684 $10,386
10/31/2009 $6,820 $6,460 $10,396
Total Returns -31.80% -35.40% 3.96%
10 | Annual Report
Performance Summary (CONTINUED)
CLASS R (6/1/07-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN ALL CAP
VALUE FUND - RUSSELL 3000
DATE CLASS R 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
11/30/2008 $ 5,791 $ 5,713 $10,215
12/31/2008 $ 6,084 $ 5,814 $10,110
1/31/2009 $ 5,436 $ 5,132 $10,154
2/28/2009 $ 4,798 $ 4,444 $10,204
3/31/2009 $ 5,234 $ 4,825 $10,229
4/30/2009 $ 5,861 $ 5,362 $10,254
5/31/2009 $ 6,094 $ 5,676 $10,284
6/30/2009 $ 6,185 $ 5,636 $10,372
7/31/2009 $ 6,732 $ 6,112 $10,356
8/31/2009 $ 6,995 $ 6,430 $10,379
9/30/2009 $ 7,208 $ 6,684 $10,386
10/31/2009 $ 6,904 $ 6,460 $10,396
Total Returns -30.16% -35.40% 3.96%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/09
- ------- --------
1-Year +9.88%
Since Inception (6/1/07) -14.21%
ADVISOR CLASS (6/1/07-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN ALL CAP
VALUE FUND - RUSSELL 3000
DATE ADVISOR CLASS 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
11/30/2008 $ 5,831 $ 5,713 $10,215
12/31/2008 $ 6,125 $ 5,814 $10,110
1/31/2009 $ 5,483 $ 5,132 $10,154
2/28/2009 $ 4,841 $ 4,444 $10,204
3/31/2009 $ 5,279 $ 4,825 $10,229
4/30/2009 $ 5,911 $ 5,362 $10,254
5/31/2009 $ 6,156 $ 5,676 $10,284
6/30/2009 $ 6,247 $ 5,636 $10,372
7/31/2009 $ 6,798 $ 6,112 $10,356
8/31/2009 $ 7,063 $ 6,430 $10,379
9/30/2009 $ 7,287 $ 6,684 $10,386
10/31/2009 $ 6,991 $ 6,460 $10,396
Total Returns -30.09% -35.40% 3.96%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/09
- ------------- --------
1-Year +10.54%
Since Inception (6/1/07) -13.77%
Annual Report | 11
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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(7.) Source: (C) 2009 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.
12 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps.
OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,181.70 $ 6.60
Hypothetical (5% return before expenses) $1,000 $1,019.16 $ 6.11
CLASS C
Actual $1,000 $1,175.30 $10.31
Hypothetical (5% return before expenses) $1,000 $1,015.73 $ 9.55
CLASS R
Actual $1,000 $1,177.90 $ 7.69
Hypothetical (5% return before expenses) $1,000 $1,018.15 $ 7.12
ADVISOR CLASS
Actual $1,000 $1,182.80 $ 4.95
Hypothetical (5% return before expenses) $1,000 $1,020.67 $ 4.58
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.20%; C: 1.88%; R:
1.40%; and Advisor: 0.90%), multiplied by the average account value over
the period, multiplied by 184/365 to reflect the one-half year period.
14 | Annual Report
Franklin Balance Sheet Investment Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Balance Sheet Investment Fund
seeks high total return, of which capital appreciation and income are
components, by investing most of its assets in equity securities of companies 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.
We are pleased to bring you Franklin Balance Sheet Investment Fund's annual
report for the fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin Balance Sheet Investment Fund - Class A posted a +9.38% cumulative
total return for the 12 months under review. The Fund outperformed its
benchmark, the Russell 3000 Value Index, which rose 4.56% for the same
period.(1) Please note the Fund employs a bottom-up stock selection process and
we invest in securities without regard to benchmark comparisons. Although this
report covers a 12-month period, our investment strategy aims for long-term
results. You can find the Fund's long-term performance data in the Performance
Summary beginning on page 18.
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
(1.) Source: (C) 2009 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, and an index is not 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 74.
Annual Report | 15
PORTFOLIO BREAKDOWN
Franklin Balance Sheet Investment Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Insurance 24.4%
Utilities 12.7%
Capital Goods 12.4%
Materials 10.2%
Transportation 6.1%
Energy 5.6%
Consumer Durables & Apparel 5.6%
Retailing 5.3%
Food, Beverage & Tobacco 5.2%
Pharmaceuticals, Biotechnology & Life Sciences 2.5%
Other 5.4%
Short-Term Investments & Other Net Assets 4.6%
gains, nor do we consider the composition of any index. Rather, we try to
identify individual companies that meet our investment criteria, and we assume
at purchase that we will hold the positions for several years.
MANAGER'S DISCUSSION
On October 31, 2009, the Fund's total net assets were $2.3 billion, with
short-term investments and other net assets making up 4.6%, compared with total
net assets of $2.4 billion and short-term investments and other net assets of
14.7% on October 31, 2008. The Fund reopened to new investors on May 1, 2008.
Net shareholder redemptions were $266 million during the 12-month period.
During the fiscal year under review, we identified nine new investment
opportunities: specialty chemicals company Cabot, sporting goods manufacturer
Callaway Golf, ceramics manufacturer Ceradyne, regional financial services
company CVB Financial, electric utility company Great Plains Energy, aluminum
products manufacturer Kaiser Aluminum, department store operator J.C. Penney,
contract drilling services company Rowan Companies and reinsurance company
Transatlantic Holdings. We received shares in another new position, Validus
Holdings, a reinsurer, through its acquisition of IPC Holdings for cash and
stock. We also added to existing positions Armstrong World Industries,
Cincinnati Financial, CMS Energy, Commercial Metals, RTI International Metals,
Westar Energy and Zenith National Insurance, 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 $120.9 million.
Portfolio sales totaled $120.7 million. Some sales were in response to
deteriorating fundamentals and generated realized losses, offset in part by
gains taken in response to price appreciation in other positions. During the
period, we liquidated common stock positions in Aspen Insurance Holdings, Bob
Evans Farms, CIT Group, Corus Bankshares, First Niagara Financial Group,
Oshkosh, Peabody and Principal Financial Group. We reduced several positions
with the most significant sales including Big Lots, Lennox International, and
Standard Pacific. We also exited several closed-end mutual funds: Emerging
Markets Telecommunications Fund, H&Q Healthcare Investors, John Hancock Bank &
Thrift Opportunity Fund, Latin America Equity Fund, The Mexico Fund, New Ireland
Fund, and Petroleum & Resources. And, as noted previously, IPC Holdings was
acquired by Validus Holdings for cash and stock.
16 | Annual Report
During the reporting period, positions that contributed most positively to Fund
performance included Charming Shoppes (specialty retail), Prudential Financial
(insurance and financial services), Watson Pharmaceuticals (generic
pharmaceuticals), NV Energy (utilities) and American National Insurance
(insurance). MeadWestvaco (packaging), J.C. Penney (department stores) and
Westlake Chemical (specialty chemicals) also helped performance, as did Reliance
Steel & Aluminum (metals processing) and D.R. Horton (home-building).
Detractors from Fund performance this fiscal year included some transportation
and insurance holdings, such as railroad operators Norfolk Southern and Kansas
City Southern, airline Alaska Air Group, and insurance companies Selective
Insurance Group and National Western Life Insurance. Other detractors included
specialty retailer Zale, merchant energy company KGen Power, industrial services
company Furmanite, compressor manufacturer Tecumseh Products and temporary
staffing services company Kelly Services.
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
/s/ William J. Lippman
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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin Balance Sheet Investment Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
NV Energy Inc. 2.8%
UTILITIES
American National Insurance Co. 2.5%
INSURANCE
Watson Pharmaceuticals Inc. 2.5%
PHARMACEUTICALS, BIOTECHNOLOGY &
LIFE SCIENCES
Norfolk Southern Corp. 2.4%
TRANSPORTATION
Corn Products International Inc. 2.4%
FOOD, BEVERAGE & TOBACCO
Prudential Financial Inc. 2.3%
INSURANCE
Old Republic International Corp. 2.3%
INSURANCE
E-L Financial Corporation Ltd. (Canada) 2.0%
INSURANCE
Entergy Corp. 2.0%
UTILITIES
StanCorp Financial Group Inc. 2.0%
INSURANCE
Annual Report | 17
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.43 $39.28 $37.85
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.7010
Long-Term Capital Gain $1.0477
TOTAL $1.7487
CLASS B (SYMBOL: FBSBX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.69 $38.88 $37.19
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.2599
Long-Term Capital Gain $1.0477
TOTAL $1.3076
CLASS C (SYMBOL: FCBSX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.43 $38.70 $37.27
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.3701
Long-Term Capital Gain $1.0477
TOTAL $1.4178
CLASS R (SYMBOL: FBSRX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.65 $39.19 $37.54
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.5240
Long-Term Capital Gain $1.0477
TOTAL $1.5717
ADVISOR CLASS (SYMBOL: FBSAX) CHANGE 10/31/09 10/31/08
- ----------------------------- ------ -------- --------
Net Asset Value (NAV) +$1.96 $39.89 $37.93
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.8302
Long-Term Capital Gain $1.0477
TOTAL $1.8779
18 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- ---------
Cumulative Total Return(1) +9.38% -1.59% +98.61%
Average Annual Total Return(2) +3.08% -1.49% +6.47%
Value of $10,000 Investment(3) $10,308 $9,276 $18,718
Avg. Ann. Total Return (9/30/09)(4) -14.43% -0.06% +6.90%
Total Annual Operating Expenses(5) 1.00%
INCEPTION
CLASS B 1-YEAR 5-YEAR (3/1/01)
- ------- ------- ------- ---------
Cumulative Total Return(1) +8.78% -5.06% +44.48%
Average Annual Total Return(2) +4.78% -1.34% +4.34%
Value of $10,000 Investment(3) $10,478 $9,348 $14,448
Avg. Ann. Total Return (9/30/09)(4) -13.15% +0.09% +5.00%
Total Annual Operating Expenses(5) 1.76%
INCEPTION
CLASS C 1-YEAR 5-YEAR (3/1/01)
- ------- ------- ------- ---------
Cumulative Total Return(1) +8.42% -5.33% +43.41%
Average Annual Total Return(2) +7.42% -1.09% +4.25%
Value of $10,000 Investment(3) $10,742 $9,467 $14,341
Avg. Ann. Total Return (9/30/09)(4) -10.82% +0.35% +4.92%
Total Annual Operating Expenses(5) 1.76%
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------- ------- ---------
Cumulative Total Return(1) +9.46% -2.53% +33.88%
Average Annual Total Return(2) +9.46% -0.51% +3.80%
Value of $10,000 Investment(3) $10,946 $9,747 $13,388
Avg. Ann. Total Return (9/30/09)(4) -9.10% +0.93% +4.53%
Total Annual Operating Expenses(5) 1.26%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- ---------
Cumulative Total Return(1) +11.18% +1.01% +105.58%
Average Annual Total Return(2) +11.18% +0.20% +7.47%
Value of $10,000 Investment(3) $11,118 $10,101 $ 20,558
Avg. Ann. Total Return (9/30/09)(4) -7.66% +1.66% +7.90%
Total Annual Operating Expenses(5) 0.76%
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 | 19
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. If differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +3.08%
5-Year -1.49%
10-Year +6.47%
CLASS A (11/1/99-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET
INVESTMENT FUND - RUSSELL 3000
DATE CLASS A VALUE INDEX
- ------------- ---------------------- ------------
11/1/1999 $ 9,424 $10,000
11/30/1999 $ 9,607 $ 9,931
12/31/1999 $ 9,706 $ 9,995
1/31/2000 $ 9,407 $ 9,674
2/29/2000 $ 9,636 $ 9,043
3/31/2000 $ 9,786 $10,066
4/30/2000 $ 9,898 $ 9,961
5/31/2000 $ 9,774 $10,048
6/30/2000 $10,061 $ 9,640
7/31/2000 $10,324 $ 9,774
8/31/2000 $10,781 $10,310
9/30/2000 $10,947 $10,395
10/31/2000 $11,165 $10,631
11/30/2000 $11,031 $10,248
12/31/2000 $11,693 $10,799
1/31/2001 $12,155 $10,857
2/28/2001 $12,221 $10,575
3/31/2001 $11,922 $10,215
4/30/2001 $12,513 $10,714
5/31/2001 $13,209 $10,957
6/30/2001 $13,426 $10,762
7/31/2001 $13,367 $10,724
8/31/2001 $13,488 $10,321
9/30/2001 $12,036 $ 9,566
10/31/2001 $12,389 $ 9,506
11/30/2001 $13,009 $10,067
12/31/2001 $13,763 $10,331
1/31/2002 $13,770 $10,267
2/28/2002 $14,079 $10,287
3/31/2002 $14,637 $10,795
4/30/2002 $14,840 $10,482
5/31/2002 $14,551 $10,502
6/30/2002 $14,468 $ 9,928
7/31/2002 $13,390 $ 8,964
8/31/2002 $13,318 $ 9,024
9/30/2002 $12,523 $ 8,046
10/31/2002 $12,743 $ 8,608
11/30/2002 $13,298 $ 9,160
12/31/2002 $12,942 $ 8,762
1/31/2003 $12,646 $ 8,548
2/28/2003 $12,195 $ 8,316
3/31/2003 $12,311 $ 8,335
4/30/2003 $13,047 $ 9,072
5/31/2003 $13,769 $ 9,682
6/30/2003 $13,985 $ 9,806
7/31/2003 $14,519 $ 9,977
8/31/2003 $15,032 $10,149
9/30/2003 $14,833 $10,048
10/31/2003 $15,866 $10,679
11/30/2003 $16,156 $10,844
12/31/2003 $16,770 $11,491
1/31/2004 $16,992 $11,708
2/29/2004 $17,475 $11,957
3/31/2004 $17,669 $11,873
4/30/2004 $17,084 $11,557
5/31/2004 $17,359 $11,677
6/30/2004 $18,275 $11,977
7/31/2004 $17,969 $11,776
8/31/2004 $17,933 $11,939
9/30/2004 $18,617 $12,148
10/31/2004 $19,019 $12,349
11/30/2004 $20,518 $13,013
12/31/2004 $21,014 $13,437
1/31/2005 $20,628 $13,175
2/28/2005 $21,317 $13,596
3/31/2005 $21,021 $13,402
4/30/2005 $20,130 $13,124
5/31/2005 $21,021 $13,479
6/30/2005 $21,638 $13,665
7/31/2005 $22,817 $14,094
8/31/2005 $22,532 $14,009
9/30/2005 $22,630 $14,186
10/31/2005 $22,240 $13,826
11/30/2005 $23,272 $14,288
12/31/2005 $23,305 $14,358
1/31/2006 $24,596 $14,971
2/28/2006 $24,574 $15,054
3/31/2006 $25,529 $15,305
4/30/2006 $25,846 $15,661
5/31/2006 $25,219 $15,243
6/30/2006 $25,340 $15,348
7/31/2006 $24,687 $15,667
8/31/2006 $24,978 $15,947
9/30/2006 $25,261 $16,251
10/31/2006 $26,140 $16,809
11/30/2006 $26,956 $17,202
12/31/2006 $27,116 $17,566
1/31/2007 $27,986 $17,794
2/28/2007 $28,128 $17,522
3/31/2007 $28,506 $17,788
4/30/2007 $29,404 $18,402
5/31/2007 $30,526 $19,067
6/30/2007 $29,648 $18,622
7/31/2007 $27,746 $17,699
8/31/2007 $27,315 $17,910
9/30/2007 $28,091 $18,482
10/31/2007 $28,193 $18,500
11/30/2007 $26,258 $17,557
12/31/2007 $26,206 $17,389
1/31/2008 $25,319 $16,691
2/29/2008 $24,442 $15,994
3/31/2008 $24,524 $15,902
4/30/2008 $25,975 $16,656
5/31/2008 $26,635 $16,676
6/30/2008 $24,062 $15,080
7/31/2008 $23,949 $15,089
8/31/2008 $24,062 $15,383
9/30/2008 $21,684 $14,286
10/31/2008 $17,113 $11,780
11/30/2008 $15,775 $10,893
12/31/2008 $16,769 $11,085
1/31/2009 $14,572 $ 9,785
2/28/2009 $12,742 $ 8,474
3/31/2009 $13,833 $ 9,200
4/30/2009 $15,658 $10,225
5/31/2009 $16,302 $10,823
6/30/2009 $16,454 $10,747
7/31/2009 $17,979 $11,654
8/31/2009 $19,032 $12,259
9/30/2009 $19,690 $12,744
10/31/2009 $18,718 $12,317
Total Returns 87.18% 23.17%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/09
- ------- --------
1-Year +4.78%
5-Year -1.34%
Since Inception (3/1/01) +4.34%
CLASS B (3/1/01-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET
INVESTMENT FUND - RUSSELL 3000
DATE 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
11/30/2008 $12,192 $10,301 $12,083
12/31/2008 $12,956 $10,482 $11,958
1/31/2009 $11,252 $ 9,253 $12,010
2/28/2009 $ 9,835 $ 8,013 $12,070
3/31/2009 $10,677 $ 8,700 $12,099
4/30/2009 $12,085 $ 9,669 $12,130
5/31/2009 $12,582 $10,234 $12,165
6/30/2009 $12,700 $10,163 $12,269
7/31/2009 $13,877 $11,021 $12,250
8/31/2009 $14,691 $11,593 $12,277
9/30/2009 $15,199 $12,051 $12,285
10/31/2009 $14,448 $11,648 $12,297
Total Returns 44.48% 16.48% 22.97%
20 | Annual Report
Performance Summary (CONTINUED)
CLASS C (3/1/01-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET
INVESTMENT FUND RUSSELL 3000
DATE - 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
11/30/2008 $12,167 $10,301 $12,083
12/31/2008 $12,929 $10,482 $11,958
1/31/2009 $11,229 $ 9,253 $12,010
2/28/2009 $ 9,813 $ 8,013 $12,070
3/31/2009 $10,647 $ 8,700 $12,099
4/30/2009 $12,044 $ 9,669 $12,130
5/31/2009 $12,529 $10,234 $12,165
6/30/2009 $12,640 $10,163 $12,269
7/31/2009 $13,804 $11,021 $12,250
8/31/2009 $14,601 $11,593 $12,277
9/30/2009 $15,097 $12,051 $12,285
10/31/2009 $14,341 $11,648 $12,297
Total Returns 43.41% 16.48% 22.97%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/09
- ------- --------
1-Year +7.42%
5-Year -1.09%
Since Inception (3/1/01) +4.25%
CLASS R (1/1/02-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET
INVESTMENT FUND RUSSELL 3000
DATE - 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
11/30/2008 $11,307 $10,544 $12,022
12/31/2008 $12,019 $10,730 $11,897
1/31/2009 $10,444 $ 9,472 $11,949
2/28/2009 $ 9,132 $ 8,202 $12,009
3/31/2009 $ 9,911 $ 8,906 $12,038
4/30/2009 $11,216 $ 9,897 $12,068
5/31/2009 $11,674 $10,476 $12,103
6/30/2009 $11,780 $10,403 $12,207
7/31/2009 $12,870 $11,281 $12,187
8/31/2009 $13,618 $11,867 $12,215
9/30/2009 $14,089 $12,336 $12,222
10/31/2009 $13,388 $11,923 $12,234
Total Returns 33.88% 19.23% 22.34%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/09
- ------- --------
1-Year +9.46%
5-Year -0.51%
Since Inception (1/1/02) +3.80%
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 10/31/09
- ---------------- --------
1-Year +11.18%
5-Year +0.20%
10-Year +7.47%
ADVISOR CLASS (11/1/99-10/31/09)(6)
(PERFORMANCE GRAPH)
FRANKLIN BALANCE SHEET
INVESTMENT FUND RUSSELL 3000
DATE - ADVISOR CLASS VALUE INDEX CPI
- ------------- ---------------------- ------------ -------
11/1/1999 $10,000 $10,000 $10,000
11/30/1999 $10,194 $ 9,931 $10,006
12/31/1999 $10,299 $ 9,995 $10,006
1/31/2000 $ 9,981 $ 9,674 $10,036
2/29/2000 $10,225 $ 9,043 $10,095
3/31/2000 $10,384 $10,066 $10,178
4/30/2000 $10,503 $ 9,961 $10,184
5/31/2000 $10,371 $10,048 $10,196
6/30/2000 $10,676 $ 9,640 $10,250
7/31/2000 $10,954 $ 9,774 $10,273
8/31/2000 $11,440 $10,310 $10,273
9/30/2000 $11,616 $10,395 $10,327
10/31/2000 $11,847 $10,631 $10,345
11/30/2000 $11,705 $10,248 $10,351
12/31/2000 $12,407 $10,799 $10,345
1/31/2001 $12,898 $10,857 $10,410
2/28/2001 $12,967 $10,575 $10,452
3/31/2001 $12,654 $10,215 $10,476
4/30/2001 $13,281 $10,714 $10,517
5/31/2001 $14,023 $10,957 $10,565
6/30/2001 $14,254 $10,762 $10,583
7/31/2001 $14,194 $10,724 $10,553
8/31/2001 $14,327 $10,321 $10,553
9/30/2001 $12,787 $ 9,566 $10,600
10/31/2001 $13,162 $ 9,506 $10,565
11/30/2001 $13,824 $10,067 $10,547
12/31/2001 $14,625 $10,331 $10,505
1/31/2002 $14,632 $10,267 $10,529
2/28/2002 $14,969 $10,287 $10,571
3/31/2002 $15,567 $10,795 $10,630
4/30/2002 $15,787 $10,482 $10,690
5/31/2002 $15,479 $10,502 $10,690
6/30/2002 $15,395 $ 9,928 $10,696
7/31/2002 $14,249 $ 8,964 $10,707
8/31/2002 $14,179 $ 9,024 $10,743
9/30/2002 $13,337 $ 8,046 $10,761
10/31/2002 $13,571 $ 8,608 $10,779
11/30/2002 $14,164 $ 9,160 $10,779
12/31/2002 $13,786 $ 8,762 $10,755
1/31/2003 $13,474 $ 8,548 $10,803
2/28/2003 $12,998 $ 8,316 $10,886
3/31/2003 $13,121 $ 8,335 $10,951
4/30/2003 $13,909 $ 9,072 $10,927
5/31/2003 $14,683 $ 9,682 $10,910
6/30/2003 $14,917 $ 9,806 $10,922
7/31/2003 $15,490 $ 9,977 $10,933
8/31/2003 $16,040 $10,149 $10,975
9/30/2003 $15,832 $10,048 $11,011
10/31/2003 $16,936 $10,679 $10,999
11/30/2003 $17,249 $10,844 $10,969
12/31/2003 $17,912 $11,491 $10,957
1/31/2004 $18,145 $11,708 $11,011
2/29/2004 $18,669 $11,957 $11,070
3/31/2004 $18,880 $11,873 $11,141
4/30/2004 $18,254 $11,557 $11,177
5/31/2004 $18,556 $11,677 $11,243
6/30/2004 $19,538 $11,977 $11,278
7/31/2004 $19,211 $11,776 $11,260
8/31/2004 $19,177 $11,939 $11,266
9/30/2004 $19,915 $12,148 $11,290
10/31/2004 $20,352 $12,349 $11,350
11/30/2004 $21,956 $13,013 $11,356
12/31/2004 $22,493 $13,437 $11,314
1/31/2005 $22,080 $13,175 $11,338
2/28/2005 $22,825 $13,596 $11,403
3/31/2005 $22,513 $13,402 $11,492
4/30/2005 $21,563 $13,124 $11,570
5/31/2005 $22,524 $13,479 $11,558
6/30/2005 $23,188 $13,665 $11,564
7/31/2005 $24,458 $14,094 $11,617
8/31/2005 $24,157 $14,009 $11,677
9/30/2005 $24,269 $14,186 $11,819
10/31/2005 $23,852 $13,826 $11,843
11/30/2005 $24,963 $14,288 $11,748
12/31/2005 $25,005 $14,358 $11,700
1/31/2006 $26,398 $14,971 $11,790
2/28/2006 $26,378 $15,054 $11,813
3/31/2006 $27,410 $15,305 $11,879
4/30/2006 $27,755 $15,661 $11,980
5/31/2006 $27,086 $15,243 $12,039
6/30/2006 $27,220 $15,348 $12,063
7/31/2006 $26,528 $15,667 $12,099
8/31/2006 $26,844 $15,947 $12,122
9/30/2006 $27,151 $16,251 $12,063
10/31/2006 $28,103 $16,809 $11,998
11/30/2006 $28,986 $17,202 $11,980
12/31/2006 $29,163 $17,566 $11,998
1/31/2007 $30,112 $17,794 $12,034
2/28/2007 $30,265 $17,522 $12,099
3/31/2007 $30,675 $17,788 $12,209
4/30/2007 $31,650 $18,402 $12,288
5/31/2007 $32,864 $19,067 $12,363
6/30/2007 $31,929 $18,622 $12,387
7/31/2007 $29,889 $17,699 $12,384
8/31/2007 $29,430 $17,910 $12,361
9/30/2007 $30,269 $18,482 $12,395
10/31/2007 $30,382 $18,500 $12,422
11/30/2007 $28,307 $17,557 $12,496
12/31/2007 $28,255 $17,389 $12,487
1/31/2008 $27,304 $16,691 $12,549
2/29/2008 $26,363 $15,994 $12,586
3/31/2008 $26,456 $15,902 $12,695
4/30/2008 $28,026 $16,656 $12,772
5/31/2008 $28,742 $16,676 $12,879
6/30/2008 $25,973 $15,080 $13,009
7/31/2008 $25,856 $15,089 $13,078
8/31/2008 $25,983 $15,383 $13,025
9/30/2008 $23,419 $14,286 $13,007
10/31/2008 $18,490 $11,780 $12,876
11/30/2008 $17,282 $10,893 $12,629
12/31/2008 $18,378 $11,085 $12,499
1/31/2009 $15,976 $ 9,785 $12,553
2/28/2009 $13,977 $ 8,474 $12,616
3/31/2009 $15,172 $ 9,200 $12,646
4/30/2009 $17,177 $10,225 $12,678
5/31/2009 $17,888 $10,823 $12,714
6/30/2009 $18,058 $10,747 $12,824
7/31/2009 $19,738 $11,654 $12,803
8/31/2009 $20,898 $12,259 $12,832
9/30/2009 $21,624 $12,744 $12,840
10/31/2009 $20,558 $12,317 $12,852
Total Returns 105.58% 23.17% 28.52%
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 MAY 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 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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(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 +58.62% and +5.47%.
(7.) Source: (C) 2009 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.
22 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 23
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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.
EXPENSES PAID
DURING
BEGINNING ACCOUNT ENDING ACCOUNT PERIOD*
VALUE 5/1/09 VALUE 10/31/09 5/1/09-10/31/09
----------------- -------------- ---------------
CLASS A
Actual $1,000 $1,195.40 $5.37
Hypothetical (5% return before expenses) $1,000 $1,020.32 $4.94
CLASS B
Actual $1,000 $1,191.20 $9.50
Hypothetical (5% return before expenses) $1,000 $1,016.53 $8.74
CLASS C
Actual $1,000 $1,190.80 $9.44
Hypothetical (5% return before expenses) $1,000 $1,016.59 $8.69
CLASS R
Actual $1,000 $1,193.70 $6.80
Hypothetical (5% return before expenses) $1,000 $1,019.00 $6.26
ADVISOR CLASS
Actual $1,000 $1,196.80 $3.99
Hypothetical (5% return before expenses) $1,000 $1,021.58 $3.67
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.97%; B: 1.72%; C: 1.71%; R: 1.23%; and
Advisor: 0.72%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
24 | Annual Report
Franklin Large Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Large Cap Value Fund seeks
long-term capital appreciation by investing at least 80% of its net assets in
large capitalization companies that we believe are undervalued. We define large
capitalization companies as those with market capitalizations that are similar
in size at the time of purchase to those in the Russell 1000(R) Index.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
We are pleased to bring you Franklin Large Cap Value Fund's annual report for
the fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin Large Cap Value Fund - Class A posted a +10.37% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
1000 Value Index, which rose 4.78% 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 28.
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 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) 2009 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, and an index is not 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 83.
Annual Report | 25
PORTFOLIO BREAKDOWN
Franklin Large Cap Value Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Capital Goods 14.7%
Energy 10.1%
Materials 9.7%
Insurance 8.0%
Pharmaceuticals, Biotechnology & Life Sciences 6.8%
Retailing 6.3%
Consumer Durables & Apparel 6.1%
Diversified Financials 5.9%
Technology Hardware & Equipment 5.4%
Household & Personal Products 3.8%
Software & Services 3.4%
Utilities 2.4%
Food & Staples Retailing 2.0%
Other 6.0%
Short-Term Investments & Other Net Assets 9.4%
MANAGER'S DISCUSSION
During the fiscal year under review, several contributors to Fund performance
came from the consumer discretionary sector: homebuilder D.R. Horton and
retailers Nordstrom and J.C. Penney, whose share prices rose on improving
economic conditions and growth in retail sales.(3) Information technology
services and software provider International Business Machines, industrial gases
company Praxair, and a new position in pharmaceuticals manufacturer
Schering-Plough also boosted the Fund's return. Other holdings that benefited
results were diversified financials company Morgan Stanley, oil and gas
exploration and production company Occidental Petroleum, and steel company
Nucor.
Detractors from performance included financials sector holdings Citigroup, Bank
of America and SunTrust Banks (sold by period-end), which fell in value largely
due to liquidity concerns. Industrial conglomerate General Electric (GE)
hindered the Fund's results as the company's share price declined in the
period's first half due to investors' concerns about the value of certain
financial assets held by the company. By period-end, many of these assets had
rebounded in value, which contributed to a rise in GE's stock price in the
period's second half. Procter & Gamble also hurt performance, largely as a
result of declining consumer spending in the period's first half. In the past
several months, consumer spending improved, which helped the company's stock
price recoup most of the decline from earlier in the period.
The Fund initiated three positions during the reporting period, in addition to
Schering-Plough: specialty gases and services company Air Products & Chemicals,
investment manager Berkshire Hathaway, and medical technology company Stryker.
We also added to positions including aluminum company Alcoa, drug maker Pfizer
and electrical equipment manufacturer Eaton, among others.
SunTrust Banks was the only Fund liquidation; however, we reduced several
holdings. Significant reductions included oil and gas company Exxon Mobil,
restaurant operator McDonald's, industrial gases company Praxair and industrial
services company United Technologies.
(3.) The consumer discretionary sector comprises consumer durables and apparel,
and retailing in the SOI.
26 | Annual Report
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
President and 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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin Large Cap Value Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Nucor Corp.
MATERIALS 3.8%
Microsoft Corp.
SOFTWARE & SERVICES 3.4%
International Business Machines Corp.
TECHNOLOGY HARDWARE & EQUIPMENT 3.0%
General Electric Co.
CAPITAL GOODS 2.6%
Hewlett-Packard Co.
TECHNOLOGY HARDWARE & EQUIPMENT 2.5%
D.R. Horton Inc.
CONSUMER DURABLES & APPAREL 2.4%
State Street Corp.
DIVERSIFIED FINANCIALS 2.2%
Merck & Co. Inc.
PHARMACEUTICALS, BIOTECHNOLOGY &
LIFE SCIENCES 2.2%
The Home Depot Inc.
RETAILING 2.1%
MetLife Inc.
INSURANCE 2.1%
Annual Report | 27
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.79 $10.63 $9.84
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.1884
CLASS B (SYMBOL: FBLCX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.84 $10.54 $9.70
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0826
CLASS C (SYMBOL: FLCVX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.82 $10.52 $9.70
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0903
CLASS R (SYMBOL: FLCRX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.81 $10.55 $9.74
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.1486
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------------- ------ -------- --------
Net Asset Value (NAV) +$0.77 $10.60 $9.83
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.2279
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
INCEPTION
CLASS A 1-YEAR 5-YEAR (6/1/00)
- ------- ------- ------ ---------
Cumulative Total Return(2) +10.37% -6.88% +34.74%
Average Annual Total Return(3) +4.03% -2.57% +2.57%
Value of $10,000 Investment(4) $10,403 $8,780 $12,699
Avg. Ann. Total Return (9/30/09)(5) -11.61% -1.91% +2.97%
Total Annual Operating Expenses(6) 1.40%
INCEPTION
CLASS B 1-YEAR 5-YEAR (6/1/00)
- ------- ------- ------ ---------
Cumulative Total Return(2) +9.70% -9.94% +28.17%
Average Annual Total Return(3) +5.70% -2.41% +2.67%
Value of $10,000 Investment(4) $10,570 $8,853 $12,817
Avg. Ann. Total Return (9/30/09)(5) -10.57% -1.73% +2.87%
Total Annual Operating Expenses(6) 2.10%
INCEPTION
CLASS C 1-YEAR 5-YEAR (6/1/00)
- ------- ------- ------ ---------
Cumulative Total Return(2) +9.59% -10.01% +26.81%
Average Annual Total Return(3) +8.59% -2.09% +2.55%
Value of $10,000 Investment(4) $10,859 $8,999 $12,681
Avg. Ann. Total Return (9/30/09)(5) -7.81% -1.38% +2.87%
Total Annual Operating Expenses(6) 2.10%
INCEPTION
CLASS R 1-YEAR 5-YEAR (8/1/02)
- ------- ------- ------ ---------
Cumulative Total Return(2) +10.18% -7.74% +23.49%
Average Annual Total Return(3) +10.18% -1.60% +2.95%
Value of $10,000 Investment(4) $11,018 $9,226 $12,349
Avg. Ann. Total Return (9/30/09)(5) -6.41% -0.91% +3.35%
Total Annual Operating Expenses(6) 1.60%
INCEPTION
ADVISOR CLASS(7) 1-YEAR 5-YEAR (6/1/00)
- ---------------- ------- ------ ---------
Cumulative Total Return(2) +10.68% -5.66% +36.50%
Average Annual Total Return(3) +10.68% -1.16% +3.36%
Value of $10,000 Investment(4) $11,068 $9,434 $13,650
Avg. Ann. Total Return (9/30/09)(5) -6.01% -0.48% +3.67%
Total Annual Operating Expenses(6) 1.10%
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 | 29
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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +4.03%
5-Year -2.57%
Since Inception (6/1/00) +2.57%
CLASS A (6/1/00-10/31/09)
(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 $17,068 $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 $17,867 $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 $16,111 $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
11/30/2008 $10,628 $10,483 $12,386
12/31/2008 $10,871 $10,628 $12,258
1/31/2009 $ 9,604 $ 9,406 $12,312
2/28/2009 $ 8,446 $ 8,149 $12,373
3/31/2009 $ 9,365 $ 8,846 $12,403
4/30/2009 $10,488 $ 9,794 $12,434
5/31/2009 $11,074 $10,400 $12,470
6/30/2009 $11,062 $10,323 $12,577
7/31/2009 $12,029 $11,168 $12,557
8/31/2009 $12,543 $11,752 $12,585
9/30/2009 $13,021 $12,207 $12,593
10/31/2009 $12,699 $11,833 $12,605
Total Returns 26.99% 18.33% 26.05%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/09
- ------- --------
1-Year +5.70%
5-Year -2.41%
Since Inception (6/1/00) +2.67%
CLASS B (6/1/00-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN
LARGE CAP VALUE RUSSELL 1000
DATE 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 $17,068 $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 $17,867 $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 $16,111 $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
11/30/2008 $10,727 $10,483 $12,386
12/31/2008 $10,972 $10,628 $12,258
1/31/2009 $ 9,694 $ 9,406 $12,312
2/28/2009 $ 8,525 $ 8,149 $12,373
3/31/2009 $ 9,453 $ 8,846 $12,403
4/30/2009 $10,586 $ 9,794 $12,434
5/31/2009 $11,177 $10,400 $12,470
6/30/2009 $11,165 $10,323 $12,577
7/31/2009 $12,142 $11,168 $12,557
8/31/2009 $12,660 $11,752 $12,585
9/30/2009 $13,142 $12,207 $12,593
10/31/2009 $12,817 $11,833 $12,605
Total Returns 28.17% 18.33% 26.05%
30 | Annual Report
Performance Summary (CONTINUED)
CLASS C (6/1/00-10/31/09)
(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 $17,068 $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 $17,867 $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 $16,111 $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
11/30/2008 $10,689 $10,483 $12,386
12/31/2008 $10,921 $10,628 $12,258
1/31/2009 $ 9,643 $ 9,406 $12,312
2/28/2009 $ 8,474 $ 8,149 $12,373
3/31/2009 $ 9,390 $ 8,846 $12,403
4/30/2009 $10,511 $ 9,794 $12,434
5/31/2009 $11,090 $10,400 $12,470
6/30/2009 $11,078 $10,323 $12,577
7/31/2009 $12,042 $11,168 $12,557
8/31/2009 $12,548 $11,752 $12,585
9/30/2009 $13,018 $12,207 $12,593
10/31/2009 $12,681 $11,833 $12,605
Total Returns 26.81% 18.33% 26.05%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/09
- ------- --------
1-Year +8.59%
5-Year -2.09%
Since Inception (6/1/00) +2.55%
CLASS R (8/1/02-10/31/09)
(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 $10,351 $10,076 $10,033
9/30/2002 $ 9,081 $ 8,955 $10,050
10/31/2002 $ 9,934 $ 9,619 $10,067
11/30/2002 $10,512 $10,225 $10,067
12/31/2002 $ 9,982 $ 9,781 $10,044
1/31/2003 $ 9,762 $ 9,544 $10,089
2/28/2003 $ 9,590 $ 9,289 $10,167
3/31/2003 $ 9,638 $ 9,305 $10,228
4/30/2003 $10,307 $10,124 $10,205
5/31/2003 $10,957 $10,777 $10,189
6/30/2003 $11,053 $10,912 $10,200
7/31/2003 $11,167 $11,075 $10,211
8/31/2003 $11,273 $11,247 $10,250
9/30/2003 $11,282 $11,137 $10,283
10/31/2003 $11,798 $11,819 $10,272
11/30/2003 $11,932 $11,979 $10,244
12/31/2003 $12,549 $12,718 $10,233
1/31/2004 $12,779 $12,941 $10,283
2/29/2004 $13,125 $13,219 $10,339
3/31/2004 $13,039 $13,103 $10,405
4/30/2004 $12,895 $12,783 $10,439
5/31/2004 $12,981 $12,913 $10,500
6/30/2004 $13,183 $13,218 $10,533
7/31/2004 $13,000 $13,032 $10,516
8/31/2004 $13,212 $13,217 $10,522
9/30/2004 $13,260 $13,422 $10,544
10/31/2004 $13,385 $13,645 $10,600
11/30/2004 $13,779 $14,335 $10,605
12/31/2004 $14,205 $14,815 $10,566
1/31/2005 $13,953 $14,552 $10,589
2/28/2005 $14,089 $15,035 $10,650
3/31/2005 $13,963 $14,828 $10,733
4/30/2005 $13,683 $14,563 $10,805
5/31/2005 $13,944 $14,913 $10,794
6/30/2005 $13,837 $15,077 $10,800
7/31/2005 $14,263 $15,513 $10,850
8/31/2005 $14,108 $15,445 $10,905
9/30/2005 $14,195 $15,662 $11,038
10/31/2005 $14,079 $15,264 $11,061
11/30/2005 $14,678 $15,763 $10,972
12/31/2005 $14,698 $15,860 $10,927
1/31/2006 $14,988 $16,476 $11,011
2/28/2006 $15,038 $16,577 $11,033
3/31/2006 $15,108 $16,801 $11,094
4/30/2006 $15,547 $17,228 $11,188
5/31/2006 $15,108 $16,793 $11,244
6/30/2006 $15,048 $16,901 $11,266
7/31/2006 $15,148 $17,311 $11,299
8/31/2006 $15,587 $17,601 $11,321
9/30/2006 $16,026 $17,952 $11,266
10/31/2006 $16,396 $18,540 $11,205
11/30/2006 $16,675 $18,963 $11,188
12/31/2006 $17,014 $19,389 $11,205
1/31/2007 $17,173 $19,636 $11,239
2/28/2007 $16,833 $19,330 $11,299
3/31/2007 $16,886 $19,629 $11,402
4/30/2007 $17,460 $20,355 $11,476
5/31/2007 $17,917 $21,089 $11,546
6/30/2007 $17,630 $20,596 $11,569
7/31/2007 $16,886 $19,644 $11,566
8/31/2007 $17,109 $19,864 $11,545
9/30/2007 $17,715 $20,546 $11,576
10/31/2007 $17,641 $20,548 $11,601
11/30/2007 $16,844 $19,544 $11,670
12/31/2007 $16,801 $19,355 $11,662
1/31/2008 $16,248 $18,580 $11,720
2/29/2008 $15,822 $17,801 $11,754
3/31/2008 $15,742 $17,667 $11,856
4/30/2008 $16,524 $18,529 $11,928
5/31/2008 $16,478 $18,499 $12,028
6/30/2008 $15,063 $16,728 $12,150
7/31/2008 $14,614 $16,668 $12,213
8/31/2008 $14,844 $16,951 $12,165
9/30/2008 $13,532 $15,706 $12,148
10/31/2008 $11,208 $12,987 $12,025
11/30/2008 $10,356 $12,056 $11,795
12/31/2008 $10,593 $12,223 $11,673
1/31/2009 $ 9,353 $10,817 $11,724
2/28/2009 $ 8,217 $9,372 $11,782
3/31/2009 $ 9,118 $10,173 $11,811
4/30/2009 $10,207 $11,264 $11,840
5/31/2009 $10,769 $11,960 $11,874
6/30/2009 $10,769 $11,872 $11,976
7/31/2009 $11,705 $12,844 $11,957
8/31/2009 $12,197 $13,516 $11,984
9/30/2009 $12,665 $14,038 $11,992
10/31/2009 $12,349 $13,608 $12,003
Total 23.49% 36.08% 20.03%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/09
- ------- --------
1-Year +10.18%
5-Year -1.60%
Since Inception (8/1/02) +2.95%
Annual Report | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(7) 10/31/09
- ---------------- --------
1-Year +10.68%
5-Year -1.16%
Since Inception (6/1/00) +3.36%
ADVISOR CLASS (6/1/00-10/31/09)(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 $17,068 $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 $17,867 $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 $16,111 $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
11/30/2008 $11,404 $10,483 $12,386
12/31/2008 $11,666 $10,628 $12,258
1/31/2009 $10,302 $ 9,406 $12,312
2/28/2009 $ 9,065 $ 8,149 $12,373
3/31/2009 $10,057 $ 8,846 $12,403
4/30/2009 $11,267 $ 9,794 $12,434
5/31/2009 $11,898 $10,400 $12,470
6/30/2009 $11,885 $10,323 $12,577
7/31/2009 $12,928 $11,168 $12,557
8/31/2009 $13,482 $11,752 $12,585
9/30/2009 $13,997 $12,207 $12,593
10/31/2009 $13,650 $11,833 $12,605
Total Returns 36.50% 18.33% 26.05%
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 MAY INVEST UP TO 25% OF ITS TOTAL
ASSETS IN FOREIGN SECURITIES, WHICH MAY 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 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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(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 -10.33% and -2.69%.
(8.) Source: (C) 2009 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.
32 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 33
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.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,210.70 $ 8.25
Hypothetical (5% return before expenses) $1,000 $1,017.74 $ 7.53
CLASS B
Actual $1,000 $1,207.30 $12.18
Hypothetical (5% return before expenses) $1,000 $1,014.17 $11.12
CLASS C
Actual $1,000 $1,206.40 $12.18
Hypothetical (5% return before expenses) $1,000 $1,014.17 $11.12
CLASS R
Actual $1,000 $1,209.90 $ 9.41
Hypothetical (5% return before expenses) $1,000 $1,016.69 $ 8.59
ADVISOR CLASS
Actual $1,000 $1,211.40 $ 6.63
Hypothetical (5% return before expenses) $1,000 $1,019.21 $ 6.06
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.48%; B: 2.19%; C: 2.19%; R: 1.69%; and
Advisor: 1.19%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
34 | Annual Report
Franklin MicroCap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin MicroCap Value Fund seeks high
total return, of which capital appreciation and income are components, by
investing at least 80% of its net assets in securities of 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.
We are pleased to bring you Franklin MicroCap Value Fund's annual report for the
fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin MicroCap Value Fund - Class A posted a +15.07% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
2000(R) Value Index, which rose 1.96% 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 38.
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) 2009 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 a market-capitalization
weighted index that measures the 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, and an index is not 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 88.
Annual Report | 35
PORTFOLIO BREAKDOWN
Franklin MicroCap Value Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Food, Beverage & Tobacco 13.7%
Capital Goods 13.5%
Materials 10.1%
Commercial & Professional Services 8.4%
Retailing 7.3%
Insurance 6.6%
Transportation 6.6%
Consumer Durables & Apparel 4.9%
Food & Staples Retailing 3.4%
Telecommunication Services 3.2%
Energy 2.7%
Banks 2.4%
Other 4.1%
Short-Term Investments & Other Net Assets 13.1%
MANAGER'S DISCUSSION
On October 31, 2009, the Fund's total net assets were $316.3 million, with
short-term investments and other net assets making up 13.1%, compared with total
net assets of $299.5 million and short-term investments and other net assets of
19.3% on October 31, 2008. 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 $18.7 million
during the 12-month period.
We identified six new investment opportunities during the period under review:
Callaway Golf, a sporting goods manufacturer; Ducommun, an aerospace products
manufacturer; Hurco Companies, a machine tool manufacturer; Johnson Outdoors, a
sporting goods manufacturer; Miller Industries, a tow truck and rescue vehicle
manufacturer; and Zale, a jewelry retailer. We also added to several existing
positions, including Hardinge, Omega Protein, RTI International Metals, Seneca
Foods, Universal Stainless & Alloy and USA Truck. Cash deployed into new and
existing positions totaled $26.1 million during the period.
Portfolio sales totaled $33.4 million, including the sale of shares received
when A.O. Smith acquired Smith Investment Company. We eliminated six other
positions during the period: Beverly Hills Bancorp, Cavalier Homes, Handleman,
Nashua, Rockford and S&K Famous Brands. We also reduced our holdings in several
positions, including Atlantic Tele-Network, Schweitzer-Mauduit International and
Village Super Market.
During the fiscal year, significant contributors to Fund performance included
Atlantic Tele-Network (telecommunication services), Spherion (staffing), Village
Super Market (grocery retailing), International Shipholding (shipping),
Schweitzer-Mauduit International (paper products), Healthcare Services Group
(housekeeping, maintenance and food services to health care facilities), Seneca
Foods (canned vegetables), Delta Apparel (clothing), and Baldwin & Lyons
(insurance).
Detractors from performance included Bresler & Reiner (real estate management
and development), American Pacific (chemicals), Omega Protein (fish meal and oil
products), Hardinge (machine tools), United America Indemnity (insurance),
Gibraltar Industries (building products), Tecumseh Products (compressors),
Handleman (prerecorded music) and Continental Materials (heating/air
conditioning).
36 | Annual Report
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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin MicroCap Value Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Seneca Foods Corp. 6.2%
FOOD, BEVERAGE & TOBACCO
International Shipholding Corp. 3.9%
TRANSPORTATION
Healthcare Services Group Inc. 3.7%
COMMERCIAL & PROFESSIONAL SERVICES
Village Super Market Inc., A 3.4%
FOOD & STAPLES RETAILING
Atlantic Tele-Network Inc. 2.7%
TELECOMMUNICATION SERVICES
PHI Inc. 2.7%
ENERGY
ACMAT Corp., A 2.6%
INSURANCE
Spherion Corp. 2.5%
COMMERCIAL & PROFESSIONAL SERVICES
Delta Apparel Inc. 2.2%
CONSUMER DURABLES & APPAREL
Baldwin & Lyons Inc., B 2.1%
INSURANCE
Annual Report | 37
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$0.75 $25.84 $25.09
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.4089
Long-Term Capital Gain $1.8873
TOTAL $2.2962
ADVISOR CLASS (SYMBOL: FVRMX) CHANGE 10/31/09 10/31/08
- ----------------------------- ------ -------- --------
Net Asset Value (NAV) +$0.71 $25.85 $25.14
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.4908
Long-Term Capital Gain $1.8873
TOTAL $2.3781
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) +15.07% +18.92% +186.61%
Average Annual Total Return(2) +8.45% +2.31% +10.45%
Value of $10,000 Investment(3) $10,845 $11,210 $27,017
Avg. Ann. Total Return (9/30/09)(4) -5.20% +3.44% +10.83%
Total Annual Operating
Expenses(5) 1.23%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- -------
Cumulative Total Return(1) +15.33% +20.05% +189.33%
Average Annual Total Return(2) +15.33% +3.72% +11.21%
Value of $10,000 Investment(3) $11,533 $12,005 $28,933
Avg. Ann. Total Return (9/30/09)(4) +0.81% +4.87% +11.59%
Total Annual Operating
Expenses(5) 0.99%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT franklintempleton.com OR CALL (800) 342-5236.
38 | 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 (11/1/99-10/31/09)
FRANKLIN MICROCAP RUSSELL 2000
DATE VALUE FUND - CLASS A VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $ 9,427 $10,000 $10,000
11/30/1999 $ 9,522 $10,052 $10,006
12/31/1999 $ 9,494 $10,361 $10,006
1/31/2000 $ 9,850 $10,090 $10,036
2/29/2000 $10,001 $10,706 $10,095
3/31/2000 $10,079 $10,757 $10,178
4/30/2000 $ 9,711 $10,820 $10,184
5/31/2000 $ 9,761 $10,655 $10,196
6/30/2000 $10,123 $10,966 $10,250
7/31/2000 $10,246 $11,332 $10,273
8/31/2000 $10,869 $11,839 $10,273
9/30/2000 $10,842 $11,771 $10,327
10/31/2000 $10,513 $11,730 $10,345
11/30/2000 $10,329 $11,491 $10,351
12/31/2000 $10,640 $12,725 $10,345
1/31/2001 $11,607 $13,077 $10,410
2/28/2001 $11,896 $13,059 $10,452
3/31/2001 $12,389 $12,849 $10,476
4/30/2001 $13,003 $13,444 $10,517
5/31/2001 $14,190 $13,790 $10,565
6/30/2001 $14,306 $14,344 $10,583
7/31/2001 $14,642 $14,023 $10,553
8/31/2001 $14,682 $13,974 $10,553
9/30/2001 $13,802 $12,432 $10,600
10/31/2001 $14,277 $12,756 $10,565
11/30/2001 $14,312 $13,673 $10,547
12/31/2001 $15,031 $14,510 $10,505
1/31/2002 $15,451 $14,703 $10,529
2/28/2002 $15,543 $14,792 $10,571
3/31/2002 $16,396 $15,900 $10,630
4/30/2002 $17,114 $16,460 $10,690
5/31/2002 $17,327 $15,915 $10,690
6/30/2002 $17,187 $15,563 $10,696
7/31/2002 $15,555 $13,251 $10,707
8/31/2002 $15,464 $13,192 $10,743
9/30/2002 $14,660 $12,250 $10,761
10/31/2002 $14,672 $12,434 $10,779
11/30/2002 $15,415 $13,426 $10,779
12/31/2002 $15,634 $12,852 $10,755
1/31/2003 $15,543 $12,490 $10,803
2/28/2003 $14,904 $12,071 $10,886
3/31/2003 $14,832 $12,200 $10,951
4/30/2003 $15,149 $13,358 $10,927
5/31/2003 $15,982 $14,722 $10,910
6/30/2003 $16,615 $14,972 $10,922
7/31/2003 $17,488 $15,718 $10,933
8/31/2003 $18,198 $16,315 $10,975
9/30/2003 $18,444 $16,128 $11,011
10/31/2003 $19,645 $17,443 $10,999
11/30/2003 $20,414 $18,113 $10,969
12/31/2003 $21,328 $18,768 $10,957
1/31/2004 $21,624 $19,417 $11,011
2/29/2004 $21,723 $19,793 $11,070
3/31/2004 $22,422 $20,067 $11,141
4/30/2004 $22,191 $19,029 $11,177
5/31/2004 $22,198 $19,259 $11,243
6/30/2004 $22,870 $20,237 $11,278
7/31/2004 $22,435 $19,306 $11,260
8/31/2004 $22,165 $19,496 $11,266
9/30/2004 $22,613 $20,267 $11,290
10/31/2004 $22,718 $20,582 $11,350
11/30/2004 $24,187 $22,408 $11,356
12/31/2004 $24,742 $22,943 $11,314
1/31/2005 $24,701 $22,055 $11,338
2/28/2005 $25,450 $22,493 $11,403
3/31/2005 $24,860 $22,030 $11,492
4/30/2005 $24,278 $20,894 $11,570
5/31/2005 $24,763 $22,168 $11,558
6/30/2005 $25,394 $23,149 $11,564
7/31/2005 $27,003 $24,466 $11,617
8/31/2005 $26,781 $23,904 $11,677
9/30/2005 $26,948 $23,865 $11,819
10/31/2005 $26,455 $23,265 $11,843
11/30/2005 $27,163 $24,209 $11,748
12/31/2005 $27,767 $24,023 $11,700
1/31/2006 $29,171 $26,010 $11,790
2/28/2006 $29,239 $26,008 $11,813
3/31/2006 $31,003 $27,267 $11,879
4/30/2006 $30,830 $27,340 $11,980
5/31/2006 $30,462 $26,208 $12,039
6/30/2006 $30,380 $26,530 $12,063
7/31/2006 $29,592 $26,162 $12,099
8/31/2006 $30,012 $26,944 $12,122
9/30/2006 $30,290 $27,207 $12,063
10/31/2006 $31,018 $28,592 $11,998
11/30/2006 $32,519 $29,407 $11,980
12/31/2006 $33,304 $29,664 $11,998
1/31/2007 $33,857 $30,108 $12,034
2/28/2007 $34,658 $29,738 $12,099
3/31/2007 $35,139 $30,097 $12,209
4/30/2007 $35,796 $30,409 $12,288
5/31/2007 $36,597 $31,524 $12,363
6/30/2007 $36,421 $30,790 $12,387
7/31/2007 $35,588 $28,169 $12,384
8/31/2007 $35,291 $28,733 $12,361
9/30/2007 $35,179 $28,863 $12,395
10/31/2007 $35,275 $29,177 $12,422
11/30/2007 $32,246 $26,991 $12,496
12/31/2007 $31,902 $26,763 $12,487
1/31/2008 $31,434 $25,665 $12,549
2/29/2008 $30,376 $24,645 $12,586
3/31/2008 $30,339 $25,016 $12,695
4/30/2008 $30,152 $25,808 $12,772
5/31/2008 $31,106 $26,690 $12,879
6/30/2008 $29,047 $24,129 $13,009
7/31/2008 $29,609 $25,366 $13,078
8/31/2008 $30,273 $26,572 $13,025
9/30/2008 $28,243 $25,327 $13,007
10/31/2008 $23,479 $20,267 $12,876
11/30/2008 $21,084 $17,920 $12,629
12/31/2008 $22,249 $19,022 $12,499
1/31/2009 $20,493 $16,305 $12,553
2/28/2009 $18,412 $14,040 $12,616
3/31/2009 $19,029 $15,287 $12,646
4/30/2009 $21,559 $17,712 $12,678
5/31/2009 $22,751 $18,095 $12,714
6/30/2009 $24,163 $18,038 $12,824
7/31/2009 $25,428 $20,124 $12,803
8/31/2009 $26,881 $21,077 $12,832
9/30/2009 $28,408 $22,134 $12,840
10/31/2009 $27,017 $20,664 $12,852
Total Returns 170.17% 106.64% 28.52%
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +8.45%
5-Year +2.31%
10-Year +10.45%
ADVISOR CLASS (11/1/99-10/31/09)(6)
FRANKLIN
MICROCAP VALUE RUSSELL 2000
DATE FUND - ADVISOR CLASS VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $10,000 $10,000 $10,000
11/30/1999 $10,101 $10,052 $10,006
12/31/1999 $10,072 $10,361 $10,006
1/31/2000 $10,450 $10,090 $10,036
2/29/2000 $10,609 $10,706 $10,095
3/31/2000 $10,692 $10,757 $10,178
4/30/2000 $10,302 $10,820 $10,184
5/31/2000 $10,355 $10,655 $10,196
6/30/2000 $10,739 $10,966 $10,250
7/31/2000 $10,869 $11,332 $10,273
8/31/2000 $11,531 $11,839 $10,273
9/30/2000 $11,501 $11,771 $10,327
10/31/2000 $11,153 $11,730 $10,345
11/30/2000 $10,958 $11,491 $10,351
12/31/2000 $11,287 $12,725 $10,345
1/31/2001 $12,313 $13,077 $10,410
2/28/2001 $12,620 $13,059 $10,452
3/31/2001 $13,142 $12,849 $10,476
4/30/2001 $13,794 $13,444 $10,517
5/31/2001 $15,053 $13,790 $10,565
6/30/2001 $15,176 $14,344 $10,583
7/31/2001 $15,532 $14,023 $10,553
8/31/2001 $15,575 $13,974 $10,553
9/30/2001 $14,642 $12,432 $10,600
10/31/2001 $15,145 $12,756 $10,565
11/30/2001 $15,182 $13,673 $10,547
12/31/2001 $15,945 $14,510 $10,505
1/31/2002 $16,391 $14,703 $10,529
2/28/2002 $16,488 $14,792 $10,571
3/31/2002 $17,393 $15,900 $10,630
4/30/2002 $18,155 $16,460 $10,690
5/31/2002 $18,382 $15,915 $10,690
6/30/2002 $18,233 $15,563 $10,696
7/31/2002 $16,501 $13,251 $10,707
8/31/2002 $16,405 $13,192 $10,743
9/30/2002 $15,552 $12,250 $10,761
10/31/2002 $15,565 $12,434 $10,779
11/30/2002 $16,353 $13,426 $10,779
12/31/2002 $16,585 $12,852 $10,755
1/31/2003 $16,489 $12,490 $10,803
2/28/2003 $15,810 $12,071 $10,886
3/31/2003 $15,735 $12,200 $10,951
4/30/2003 $16,071 $13,358 $10,927
5/31/2003 $16,955 $14,722 $10,910
6/30/2003 $17,626 $14,972 $10,922
7/31/2003 $18,551 $15,718 $10,933
8/31/2003 $19,305 $16,315 $10,975
9/30/2003 $19,566 $16,128 $11,011
10/31/2003 $20,840 $17,443 $10,999
11/30/2003 $21,656 $18,113 $10,969
12/31/2003 $22,625 $18,768 $10,957
1/31/2004 $22,940 $19,417 $11,011
2/29/2004 $23,045 $19,793 $11,070
3/31/2004 $23,786 $20,067 $11,141
4/30/2004 $23,541 $19,029 $11,177
5/31/2004 $23,548 $19,259 $11,243
6/30/2004 $24,261 $20,237 $11,278
7/31/2004 $23,800 $19,306 $11,260
8/31/2004 $23,513 $19,496 $11,266
9/30/2004 $23,988 $20,267 $11,290
10/31/2004 $24,100 $20,582 $11,350
11/30/2004 $25,659 $22,408 $11,356
12/31/2004 $26,248 $22,943 $11,314
1/31/2005 $26,203 $22,055 $11,338
2/28/2005 $26,998 $22,493 $11,403
3/31/2005 $26,373 $22,030 $11,492
4/30/2005 $25,755 $20,894 $11,570
5/31/2005 $26,270 $22,168 $11,558
6/30/2005 $26,939 $23,149 $11,564
7/31/2005 $28,646 $24,466 $11,617
8/31/2005 $28,410 $23,904 $11,677
9/30/2005 $28,587 $23,865 $11,819
10/31/2005 $28,065 $23,265 $11,843
11/30/2005 $28,822 $24,209 $11,748
12/31/2005 $29,472 $24,023 $11,700
1/31/2006 $30,961 $26,010 $11,790
2/28/2006 $31,041 $26,008 $11,813
3/31/2006 $32,928 $27,267 $11,879
4/30/2006 $32,753 $27,340 $11,980
5/31/2006 $32,363 $26,208 $12,039
6/30/2006 $32,283 $26,530 $12,063
7/31/2006 $31,455 $26,162 $12,099
8/31/2006 $31,909 $26,944 $12,122
9/30/2006 $32,211 $27,207 $12,063
10/31/2006 $32,992 $28,592 $11,998
11/30/2006 $34,592 $29,407 $11,980
12/31/2006 $35,434 $29,664 $11,998
1/31/2007 $36,030 $30,108 $12,034
2/28/2007 $36,882 $29,738 $12,099
3/31/2007 $37,402 $30,097 $12,209
4/30/2007 $38,109 $30,409 $12,288
5/31/2007 $38,970 $31,524 $12,363
6/30/2007 $38,791 $30,790 $12,387
7/31/2007 $37,913 $28,169 $12,384
8/31/2007 $37,598 $28,733 $12,361
9/30/2007 $37,487 $28,863 $12,395
10/31/2007 $37,606 $29,177 $12,422
11/30/2007 $34,377 $26,991 $12,496
12/31/2007 $34,018 $26,763 $12,487
1/31/2008 $33,529 $25,665 $12,549
2/29/2008 $32,411 $24,645 $12,586
3/31/2008 $32,371 $25,016 $12,695
4/30/2008 $32,182 $25,808 $12,772
5/31/2008 $33,209 $26,690 $12,879
6/30/2008 $31,014 $24,129 $13,009
7/31/2008 $31,623 $25,366 $13,078
8/31/2008 $32,331 $26,572 $13,025
9/30/2008 $30,176 $25,327 $13,007
10/31/2008 $25,087 $20,267 $12,876
11/30/2008 $22,532 $17,920 $12,629
12/31/2008 $23,784 $19,022 $12,499
1/31/2009 $21,904 $16,305 $12,553
2/28/2009 $19,699 $14,040 $12,616
3/31/2009 $20,348 $15,287 $12,646
4/30/2009 $23,068 $17,712 $12,678
5/31/2009 $24,344 $18,095 $12,714
6/30/2009 $25,866 $18,038 $12,824
7/31/2009 $27,220 $20,124 $12,803
8/31/2009 $28,776 $21,077 $12,832
9/30/2009 $30,422 $22,134 $12,840
10/31/2009 $28,933 $20,664 $12,852
Total Returns 189.33% 106.64% 28.52%
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 10/31/09
- ---------------- --------
1-Year +15.33%
5-Year +3.72%
10-Year +11.21%
Annual Report | 39
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. 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.
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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(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 +2.74% and +0.68%.
(7.) Source: (C) 2009 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.
40 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 41
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,253.20 $6.64
Hypothetical (5% return before expenses) $1,000 $1,019.31 $5.96
ADVISOR CLASS
Actual $1,000 $1,254.20 $5.28
Hypothetical (5% return before expenses) $1,000 $1,020.52 $4.74
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.17% and Advisor: 0.93%)
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half year period.
42 | Annual Report
Franklin MidCap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin MidCap Value Fund seeks
long-term total return by investing at least 80% of net assets in securities of
mid-capitalization companies that we believe are undervalued. We define
mid-capitalization companies as those with market capitalizations that are
similar in size at the time of purchase to those in the Russell Midcap(TM)
Index.(1)
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
We are pleased to bring you Franklin MidCap Value Fund's annual report for the
fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin MidCap Value Fund - Class A posted a +15.03% cumulative total return
for the 12 months under review. The Fund's Class A shares outperformed the
benchmark, the Russell Midcap Value Index, which rose 14.52% 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 46.
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 may invest in companies
with valuable intangibles we believe are 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 the total market capitalization of the
Russell 1000 Index.
(2.) Source: (C) 2009 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, and an index is not 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 96.
Annual Report | 43
PORTFOLIO BREAKDOWN
Franklin MidCap Value Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Materials 12.6%
Utilities 11.7%
Capital Goods 9.5%
Energy 9.3%
Food, Beverage & Tobacco 7.4%
Pharmaceuticals, Biotechnology & Life Sciences 5.0%
Retailing 5.0%
Health Care Equipment & Services 5.0%
Consumer Durables & Apparel 4.6%
Insurance 4.5%
Banks 3.7%
Household & Personal Products 3.2%
Automobiles & Components 3.2%
Software & Services 2.7%
Media 2.3%
Consumer Services 2.1%
Other 4.2%
Short-Term Investments & Other Net Assets 4.0%
MANAGER'S DISCUSSION
During the fiscal year under review, contributors to Fund performance included
industrial chemicals company Celanese, which reported better-than-expected
results as lower costs offset a decline in sales. Specialty vehicle manufacturer
Oshkosh, sold by period-end, benefited Fund performance as the company also
reported better-than-expected returns. Department store operator Nordstrom's
shares appreciated in value as the company experienced improved sales.
Detractors from performance included Helix Energy Solutions Group, an offshore
energy company, which declined early in the period largely due to lower oil
prices. Shares of medical technology company Hill-Rom Holdings fell in part due
to reduced capital spending by hospitals in a challenging economic environment.
Commercial and consumer finance company CIT Group struggled to avoid bankruptcy
during the period amid deteriorating fundamentals. The company ultimately filed
for Chapter 11 bankruptcy protection on November 1, 2009. We sold our positions
in Helix Energy Solutions Group and CIT Group during the period.
During the reporting period, we initiated positions in food producer Corn
Products International, regional bank Hudson City Bancorp, contract research
firm Pharmaceutical Product Development and cable services provider Time Warner
Cable. We also added to nine existing holdings: personal products manufacturer
Alberto-Culver, industrial chemicals company Celanese, dairy products
manufacturer Dean Foods, offshore contract drilling company ENSCO International,
games and toys manufacturer Hasbro, funeral service products manufacturer
Hillenbrand, clinical laboratory company Laboratory Corp. of America Holdings,
coal company Peabody Energy, diversified financial services company PNC
Financial Services Group, and aerospace and defense services company SAIC.
We also liquidated several other positions during the period either due to their
small size in the Fund and low probability of adding to the positions or because
we believed the companies' fundamentals had deteriorated. Sales included oil and
gas exploration and production company Pioneer Natural Resources, consumer goods
manufacturer Leggett & Platt, insurance company Protective Life, homebuilder
Pulte Homes, steel company United States Steel, and Brazilian aerospace and
defense company Embraer-Empresa Brasileira de Aeronautica. We also reduced our
positions in Carlisle Companies, Dover Corp., MDC Holdings and MeadWestvaco,
among others.
44 | Annual Report
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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin MidCap Value Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Celanese Corp., A 3.4%
MATERIALS
Alberto-Culver Co. 3.2%
HOUSEHOLD & PERSONAL PRODUCTS
NV Energy Inc. 3.1%
UTILITIES
Atmos Energy Corp. 3.0%
UTILITIES
McCormick & Co. Inc. 3.0%
FOOD, BEVERAGE & TOBACCO
Dean Foods Co. 2.9%
FOOD, BEVERAGE & TOBACCO
SAIC Inc. 2.7%
SOFTWARE & SERVICES
Airgas Inc. 2.6%
MATERIALS
Laboratory Corp. of America Holdings 2.5%
HEALTH CARE EQUIPMENT & SERVICES
Sigma-Aldrich Corp. 2.5%
MATERIALS
Annual Report | 45
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.04 $8.35 $7.31
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0458
CLASS C (SYMBOL: FMVCX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$1.03 $8.27 $7.24
CLASS R (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------- ------ -------- --------
Net Asset Value (NAV) +$1.03 $8.33 $7.30
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0377
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/09 10/31/08
- --------------------------- ------ -------- --------
Net Asset Value (NAV) +$1.03 $8.38 $7.35
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0814
46 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE(1)
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS C: 1% CONTINGENT DEFERRED SALES CHARGE IN
FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- ------- ------- ------------------
Cumulative Total Return(2) +15.03% -21.91% -10.68%
Average Annual Total Return(3) +8.36% -9.70% -3.89%
Value of $10,000 Investment(4) $10,836 $7,363 $8,418
Avg. Ann. Total Return (9/30/09)(5) -12.91% -8.26% -3.54%
Total Annual Operating Expenses(6)
Without Waiver 1.77%
With Waiver 1.37%
CLASS C 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- ------- ------- ------------------
Cumulative Total Return(2) +14.23% -23.47% -13.22%
Average Annual Total Return(3) +13.23% -8.53% -3.22%
Value of $10,000 Investment(4) $11,323 $7,653 $8,678
Avg. Ann. Total Return (9/30/09)(5) -9.29% -7.09% -2.84%
Total Annual Operating Expenses(6)
Without Waiver 2.47%
With Waiver 2.07%
CLASS R 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------- ------- ------- ------------------
Cumulative Total Return(2) +14.77% -22.31% -11.32%
Average Annual Total Return(3) +14.77% -8.07% -2.73%
Value of $10,000 Investment(4) $11,477 $7,769 $8,868
Avg. Ann. Total Return (9/30/09)(5) -7.79% -6.63% -2.35%
Total Annual Operating Expenses(6)
Without Waiver 1.97%
With Waiver 1.57%
ADVISOR CLASS 1-YEAR 3-YEAR INCEPTION (7/1/05)
- ------------- ------- ------- ------------------
Cumulative Total Return(2) +15.43% -21.12% -9.32%
Average Annual Total Return(3) +15.43% -7.60% -2.23%
Value of $10,000 Investment(4) $11,543 $7,888 $9,068
Avg. Ann. Total Return (9/30/09)(5) -7.44% -6.14% -1.87%
Total Annual Operating Expenses(6)
Without Waiver 1.47%
With Waiver 1.07%
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 COMMON EXPENSES (I.E., A COMBINATION OF
INVESTMENT MANAGEMENT FEES, FUND ADMINISTRATION FEES, AND OTHER EXPENSES, BUT
EXCLUDING THE RULE 12B-1 FEES AND ACQUIRED FUND FEES AND EXPENSES) FOR EACH
CLASS OF THE FUND DO NOT EXCEED 1.05% (OTHER THAN CERTAIN NONROUTINE EXPENSES OR
COSTS, INCLUDING THOSE RELATING TO LITIGATION, INDEMNIFICATION, REORGANIZATIONS
AND LIQUIDATIONS) UNTIL 2/28/10.
Annual Report | 47
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 applicable maximum sales charge, Fund expenses, account
fees and reinvested distributions. The unmanaged index includes reinvestment of
any income or distributions. It differs from the Fund in composition and does
not pay management fees or expenses. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +8.36%
3-Year -9.70%
Since Inception (7/1/05) -3.89%
CLASS A (7/1/05-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN MIDCAP RUSSELL MIDCAP
DATE VALUE FUND - CLASS A VALUE INDEX CPI
- ------------- -------------------- -------------- -----
7/1/2005 9425 10000 10000
7/31/2005 9774 10476 10046
8/31/2005 9595 10394 10098
9/30/2005 9548 10535 10221
10/31/2005 9237 10213 10242
11/30/2005 9755 10573 10159
12/31/2005 9775 10676 10118
1/31/2006 10144 11139 10195
2/28/2006 10192 11244 10216
3/31/2006 10391 11489 10272
4/30/2006 10448 11600 10360
5/31/2006 10211 11357 10411
6/30/2006 10249 11425 10432
7/31/2006 10002 11361 10463
8/31/2006 10324 11679 10483
9/30/2006 10476 11829 10432
10/31/2006 10779 12308 10375
11/30/2006 11149 12705 10360
12/31/2006 11135 12834 10375
1/31/2007 11468 13230 10407
2/28/2007 11487 13309 10463
3/31/2007 11604 13458 10558
4/30/2007 12054 13880 10627
5/31/2007 12542 14358 10691
6/30/2007 12288 13949 10712
7/31/2007 11507 13172 10709
8/31/2007 11370 13131 10690
9/30/2007 11624 13454 10719
10/31/2007 11643 13505 10742
11/30/2007 11174 12793 10806
12/31/2007 11163 12652 10799
1/31/2008 10732 12075 10852
2/29/2008 10452 11677 10884
3/31/2008 10292 11558 10978
4/30/2008 10903 12263 11045
5/31/2008 11253 12698 11138
6/30/2008 10372 11566 11250
7/31/2008 10172 11433 11309
8/31/2008 10362 11760 11264
9/30/2008 9281 10696 11248
10/31/2008 7318 8262 11135
11/30/2008 6748 7426 10922
12/31/2008 7047 7788 10809
1/31/2009 6513 6984 10856
2/28/2009 5837 6112 10910
3/31/2009 6271 6645 10936
4/30/2009 7208 7755 10963
5/31/2009 7329 8020 10995
6/30/2009 7551 8037 11090
7/31/2009 8055 8825 11072
8/31/2009 8227 9408 11097
9/30/2009 8580 9935 11104
10/31/2009 8418 9461 11114
Total Returns 0 0 0
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/09
- ------- --------
1-Year +13.23%
3-Year -8.53%
Since Inception (7/1/05) -3.22%
CLASS C (7/1/05-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN MIDCAP
VALUE FUND - RUSSELL MIDCAP
DATE CLASS C VALUE INDEX CPI
- ------------- --------------- -------------- ------
7/1/2005 10000 10000 10000
7/31/2005 10360 10476 10046
8/31/2005 10170 10394 10098
9/30/2005 10120 10535 10221
10/31/2005 9780 10213 10242
11/30/2005 10320 10573 10159
12/31/2005 10335 10676 10118
1/31/2006 10727 11139 10195
2/28/2006 10767 11244 10216
3/31/2006 10968 11489 10272
4/30/2006 11029 11600 10360
5/31/2006 10767 11357 10411
6/30/2006 10798 11425 10432
7/31/2006 10536 11361 10463
8/31/2006 10868 11679 10483
9/30/2006 11029 11829 10432
10/31/2006 11340 12308 10375
11/30/2006 11732 12705 10360
12/31/2006 11701 12834 10375
1/31/2007 12041 13230 10407
2/28/2007 12062 13309 10463
3/31/2007 12175 13458 10558
4/30/2007 12639 13880 10627
5/31/2007 13143 14358 10691
6/30/2007 12875 13949 10712
7/31/2007 12051 13172 10709
8/31/2007 11897 13131 10690
9/30/2007 12154 13454 10719
10/31/2007 12165 13505 10742
11/30/2007 11670 12793 10806
12/31/2007 11659 12652 10799
1/31/2008 11197 12075 10852
2/29/2008 10903 11677 10884
3/31/2008 10735 11558 10978
4/30/2008 11365 12263 11045
5/31/2008 11722 12698 11138
6/30/2008 10798 11566 11250
7/31/2008 10578 11433 11309
8/31/2008 10777 11760 11264
9/30/2008 9654 10696 11248
10/31/2008 7598 8262 11135
11/30/2008 7010 7426 10922
12/31/2008 7304 7788 10809
1/31/2009 6758 6984 10856
2/28/2009 6044 6112 10910
3/31/2009 6485 6645 10936
4/30/2009 7461 7755 10963
5/31/2009 7587 8020 10995
6/30/2009 7797 8037 11090
7/31/2009 8322 8825 11072
8/31/2009 8489 9408 11097
9/30/2009 8846 9935 11104
10/31/2009 8678 9461 11114
Total Returns 0 0 0
48 | Annual Report
Performance Summary (CONTINUED)
CLASS R (7/1/05-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN MIDCAP
VALUE FUND - RUSSELL MIDCAP
DATE CLASS R VALUE INDEX CPI
- ------------- --------------- -------------- ------
7/1/2005 10000 10000 10000
7/31/2005 10370 10476 10046
8/31/2005 10180 10394 10098
9/30/2005 10130 10535 10221
10/31/2005 9800 10213 10242
11/30/2005 10340 10573 10159
12/31/2005 10358 10676 10118
1/31/2006 10761 11139 10195
2/28/2006 10801 11244 10216
3/31/2006 11012 11489 10272
4/30/2006 11072 11600 10360
5/31/2006 10821 11357 10411
6/30/2006 10861 11425 10432
7/31/2006 10590 11361 10463
8/31/2006 10932 11679 10483
9/30/2006 11103 11829 10432
10/31/2006 11414 12308 10375
11/30/2006 11807 12705 10360
12/31/2006 11781 12834 10375
1/31/2007 12144 13230 10407
2/28/2007 12165 13309 10463
3/31/2007 12289 13458 10558
4/30/2007 12756 13880 10627
5/31/2007 13264 14358 10691
6/30/2007 13005 13949 10712
7/31/2007 12175 13172 10709
8/31/2007 12030 13131 10690
9/30/2007 12300 13454 10719
10/31/2007 12310 13505 10742
11/30/2007 11812 12793 10806
12/31/2007 11802 12652 10799
1/31/2008 11337 12075 10852
2/29/2008 11051 11677 10884
3/31/2008 10881 11558 10978
4/30/2008 11516 12263 11045
5/31/2008 11887 12698 11138
6/30/2008 10966 11566 11250
7/31/2008 10744 11433 11309
8/31/2008 10945 11760 11264
9/30/2008 9802 10696 11248
10/31/2008 7727 8262 11135
11/30/2008 7124 7426 10922
12/31/2008 7431 7788 10809
1/31/2009 6877 6984 10856
2/28/2009 6153 6112 10910
3/31/2009 6611 6645 10936
4/30/2009 7601 7755 10963
5/31/2009 7740 8020 10995
6/30/2009 7963 8037 11090
7/31/2009 8496 8825 11072
8/31/2009 8666 9408 11097
9/30/2009 9038 9935 11104
10/31/2009 8868 9461 11114
Total Returns 0 0 0
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/09
- ------- --------
1-Year +14.77%
3-Year -8.07%
Since Inception (7/1/05) -2.73%
ADVISOR CLASS (7/1/05-10/31/09)
(PERFORMANCE GRAPH)
FRANKLIN MIDCAP
VALUE FUND - RUSSELL MIDCAP
DATE ADVISOR CLASS VALUE INDEX CPI
- ------------- --------------- -------------- ------
7/1/2005 10000 10000 10000
7/31/2005 10370 10476 10046
8/31/2005 10190 10394 10098
9/30/2005 10140 10535 10221
10/31/2005 9810 10213 10242
11/30/2005 10360 10573 10159
12/31/2005 10389 10676 10118
1/31/2006 10781 11139 10195
2/28/2006 10842 11244 10216
3/31/2006 11053 11489 10272
4/30/2006 11123 11600 10360
5/31/2006 10872 11357 10411
6/30/2006 10912 11425 10432
7/31/2006 10650 11361 10463
8/31/2006 10993 11679 10483
9/30/2006 11164 11829 10432
10/31/2006 11496 12308 10375
11/30/2006 11898 12705 10360
12/31/2006 11881 12834 10375
1/31/2007 12245 13230 10407
2/28/2007 12266 13309 10463
3/31/2007 12391 13458 10558
4/30/2007 12879 13880 10627
5/31/2007 13399 14358 10691
6/30/2007 13139 13949 10712
7/31/2007 12308 13172 10709
8/31/2007 12162 13131 10690
9/30/2007 12443 13454 10719
10/31/2007 12464 13505 10742
11/30/2007 11954 12793 10806
12/31/2007 11949 12652 10799
1/31/2008 11490 12075 10852
2/29/2008 11201 11677 10884
3/31/2008 11030 11558 10978
4/30/2008 11693 12263 11045
5/31/2008 12067 12698 11138
6/30/2008 11126 11566 11250
7/31/2008 10913 11433 11309
8/31/2008 11116 11760 11264
9/30/2008 9972 10696 11248
10/31/2008 7856 8262 11135
11/30/2008 7247 7426 10922
12/31/2008 7564 7788 10809
1/31/2009 7001 6984 10856
2/28/2009 6265 6112 10910
3/31/2009 6741 6645 10936
4/30/2009 7748 7755 10963
5/31/2009 7888 8020 10995
6/30/2009 8116 8037 11090
7/31/2009 8668 8825 11072
8/31/2009 8852 9408 11097
9/30/2009 9230 9935 11104
10/31/2009 9068 9461 11114
Total Returns 0 0 0
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/09
- ------------- --------
1-Year +15.43%
3-Year -7.60%
Since Inception (7/1/05) -2.23%
Annual Report | 49
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.
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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(7.) Source: (C) 2009 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.
50 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 51
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,167.80 $ 7.38
Hypothetical (5% return before expenses) $1,000 $1,018.40 $ 6.87
CLASS C
Actual $1,000 $1,163.20 $11.18
Hypothetical (5% return before expenses) $1,000 $1,014.87 $10.41
CLASS R
Actual $1,000 $1,166.70 $ 8.46
Hypothetical (5% return before expenses) $1,000 $1,017.39 $ 7.88
ADVISOR CLASS
Actual $1,000 $1,170.40 $ 5.74
Hypothetical (5% return before expenses) $1,000 $1,019.91 $ 5.35
* Expenses are calculated using the most recent six-month expense ratio, net
of expense waivers, annualized for each class (A: 1.35%; C: 2.05%; R:
1.55%; and Advisor: 1.05%), multiplied by the average account value over
the period, multiplied by 184/365 to reflect the one-half year period.
52 | Annual Report
Franklin Small Cap Value Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Small Cap Value Fund seeks
long-term total return by investing at least 80% of net assets in 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.
We are pleased to bring you Franklin Small Cap Value Fund's annual report for
the fiscal year ended October 31, 2009.
PERFORMANCE OVERVIEW
Franklin Small Cap Value Fund - Class A posted a +16.86% cumulative total return
for the 12 months under review. The Fund outperformed its benchmark, the Russell
2500(TM) Value Index, which rose 8.56% 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 56.
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) 2009 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, and an index is not 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 104.
Annual Report | 53
PORTFOLIO BREAKDOWN
Franklin Small Cap Value Fund
Based on Total Net Assets as of 10/31/09
(BAR CHART)
Capital Goods 20.8%
Insurance 10.6%
Materials 10.1%
Energy 9.6%
Retailing 8.5%
Consumer Durables & Apparel 5.7%
Automobiles & Components 4.6%
Utilities 2.8%
Technology Hardware & Equipment 2.4%
Health Care Equipment & Services 2.3%
Pharmaceuticals, Biotechnology & Life Sciences 2.3%
Transportation 2.1%
Banks 2.1%
Commercial & Professional Services 2.1%
Other 2.7%
Short-Term Investments & Other Net Assets 11.3%
MANAGER'S DISCUSSION
During the fiscal year under review, contributors to Fund performance included
department store operator J.C. Penney, a new holding, which reported an
improving earnings trend and raised its profit outlook. Lumber and building
products company Universal Forest Products also performed well. The company
reported better-than-expected results as lower costs helped offset a weak lumber
market. Insurance company Protective Life reported improved third-quarter 2009
sales over the prior year, and the company's book value per share increased
significantly from its year-end 2008 low.
Detractors from Fund performance included several companies affected by the
challenging economic environment. Notable among the Fund's weak performers were
regional bank TrustCo Bank NY, jewelry retailer Zale and building products
manufacturer Gibraltar Industries.
During the reporting period, we invested in four new positions in addition to
J.C. Penney: ceramics manufacturer Ceradyne, building and recreational vehicle
products manufacturer Drew Industries, industrial goods provider Gardner Denver
and contract research firm Pharmaceutical Product Development. We also added
significantly to several existing positions including Autoliv, Energen,
Protective Life, Rofin-Sinar Technologies, Rowan Companies and Trinity
Industries.
We liquidated six positions during the period, many of which we believed had
deteriorating fundamentals: Avocent, Corus Bankshares, General Maritime, Kid
Brands (formerly, Russ Berrie & Co.), Mercer International and Monaco Coach. We
also reduced our positions in MDC Holdings, Omnivision Technologies and
Universal Forest Products.
54 | Annual Report
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
President and 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, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin Small Cap Value Fund
10/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Protective Life Corp. 1.9%
INSURANCE
Westlake Chemical Corp. 1.8%
MATERIALS
Thor Industries Inc. 1.7%
AUTOMOBILES & COMPONENTS
Old Republic International Corp. 1.6%
INSURANCE
Rowan Cos. Inc. 1.6%
ENERGY
J.C. Penney Co. Inc. 1.6%
RETAILING
Benchmark Electronics Inc. 1.6%
TECHNOLOGY HARDWARE & EQUIPMENT
Universal Forest Products Inc. 1.5%
CAPITAL GOODS
Reliance Steel & Aluminum Co. 1.5%
MATERIALS
NV Energy Inc. 1.4%
UTILITIES
Annual Report | 55
Performance Summary as of 10/31/09
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 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$4.43 $33.01 $28.58
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.2919
CLASS B (SYMBOL: FBVAX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$4.36 $31.66 $27.30
CLASS C (SYMBOL: FRVFX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$4.26 $31.20 $26.94
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.0343
CLASS R (SYMBOL: FVFRX) CHANGE 10/31/09 10/31/08
- ----------------------- ------ -------- --------
Net Asset Value (NAV) +$4.38 $32.75 $28.37
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.2483
ADVISOR CLASS (SYMBOL: FVADX) CHANGE 10/31/09 10/31/08
- ----------------------------- ------ -------- --------
Net Asset Value (NAV) +$4.52 $33.96 $29.44
DISTRIBUTIONS (11/1/08-10/31/09)
Dividend Income $0.3930
56 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- -------
Cumulative Total Return(1) +16.86% +13.26% +126.02%
Average Annual Total Return(2) +10.15% +1.31% +7.86%
Value of $10,000 Investment(3) $11,015 $10,674 $21,308
Avg. Ann. Total Return (9/30/09)(4) -10.89% +2.75% +8.37%
Total Annual Operating Expenses(5) 1.30%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- -------
Cumulative Total Return(1) +15.97% +9.31% +114.47%
Average Annual Total Return(2) +11.97% +1.44% +7.93%
Value of $10,000 Investment(3) $11,197 $10,740 $21,447
Avg. Ann. Total Return (9/30/09)(4) -9.93% +2.89% +8.44%
Total Annual Operating Expenses(5) 2.02%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- -------- -------
Cumulative Total Return(1) +15.98% +9.34% +111.21%
Average Annual Total Return(2) +14.98% +1.80% +7.76%
Value of $10,000 Investment(3) $11,498 $10,934 $21,121
Avg. Ann. Total Return (9/30/09)(4) -7.08% +3.25% +8.28%
Total Annual Operating Expenses(5) 2.01%
INCEPTION
CLASS R 1-YEAR 5-YEAR (8/1/02)
- ------- ------- ------- --------
Cumulative Total Return(1) +16.60% +12.07% +64.45%
Average Annual Total Return(2) +16.60% +2.30% +7.10%
Value of $10,000 Investment(3) $11,660 $11,207 $16,445
Avg. Ann. Total Return (9/30/09)(4) -5.70% +3.75% +8.00%
Total Annual Operating Expenses(5) 1.52%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- -------- -------
Cumulative Total Return(1) +17.13% +14.94% +133.46%
Average Annual Total Return(2) +17.13% +2.82% +8.85%
Value of $10,000 Investment(3) $11,713 $11,494 $23,346
Avg. Ann. Total Return (9/30/09)(4) -5.20% +4.28% +9.37%
Total Annual Operating Expenses(5) 1.02%
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 | 57
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.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 10/31/09
- ------- --------
1-Year +10.15%
5-Year +1.31%
10-Year +7.86%
CLASS A (11/1/99-10/31/09)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS A VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $ 9,427 $10,000 $10,000
11/30/1999 $ 9,514 $10,055 $10,006
12/31/1999 $ 9,918 $10,398 $10,006
1/31/2000 $ 9,105 $ 9,965 $10,036
2/29/2000 $ 9,318 $10,138 $10,095
3/31/2000 $10,142 $10,883 $10,178
4/30/2000 $10,360 $10,879 $10,184
5/31/2000 $10,622 $10,859 $10,196
6/30/2000 $10,338 $10,818 $10,250
7/31/2000 $10,453 $11,054 $10,273
8/31/2000 $11,222 $11,633 $10,273
9/30/2000 $11,184 $11,563 $10,327
10/31/2000 $11,380 $11,556 $10,345
11/30/2000 $11,047 $11,410 $10,351
12/31/2000 $12,122 $12,560 $10,345
1/31/2001 $12,788 $12,735 $10,410
2/28/2001 $13,044 $12,628 $10,452
3/31/2001 $12,940 $12,312 $10,476
4/30/2001 $13,797 $13,012 $10,517
5/31/2001 $14,240 $13,412 $10,565
6/30/2001 $13,839 $13,541 $10,583
7/31/2001 $13,626 $13,451 $10,553
8/31/2001 $13,435 $13,335 $10,553
9/30/2001 $11,395 $11,855 $10,600
10/31/2001 $12,297 $12,108 $10,565
11/30/2001 $13,003 $13,041 $10,547
12/31/2001 $13,955 $13,783 $10,505
1/31/2002 $13,840 $13,910 $10,529
2/28/2002 $14,344 $14,083 $10,571
3/31/2002 $15,529 $14,956 $10,630
4/30/2002 $15,929 $15,211 $10,690
5/31/2002 $15,535 $14,961 $10,690
6/30/2002 $14,932 $14,433 $10,696
7/31/2002 $12,847 $12,763 $10,707
8/31/2002 $12,803 $12,831 $10,743
9/30/2002 $11,539 $11,781 $10,761
10/31/2002 $12,124 $11,950 $10,779
11/30/2002 $12,820 $12,822 $10,779
12/31/2002 $12,612 $12,422 $10,755
1/31/2003 $11,916 $12,047 $10,803
2/28/2003 $11,533 $11,751 $10,886
3/31/2003 $11,539 $11,830 $10,951
4/30/2003 $12,529 $12,901 $10,927
5/31/2003 $13,531 $14,094 $10,910
6/30/2003 $13,832 $14,347 $10,922
7/31/2003 $13,931 $14,970 $10,933
8/31/2003 $14,566 $15,573 $10,975
9/30/2003 $14,155 $15,463 $11,011
10/31/2003 $15,431 $16,643 $10,999
11/30/2003 $15,808 $17,322 $10,969
12/31/2003 $16,690 $18,003 $10,957
1/31/2004 $16,772 $18,586 $11,011
2/29/2004 $17,324 $18,963 $11,070
3/31/2004 $17,516 $19,115 $11,141
4/30/2004 $16,996 $18,114 $11,177
5/31/2004 $17,231 $18,478 $11,243
6/30/2004 $18,277 $19,212 $11,278
7/31/2004 $17,790 $18,439 $11,260
8/31/2004 $17,500 $18,670 $11,266
9/30/2004 $18,512 $19,260 $11,290
10/31/2004 $18,813 $19,608 $11,350
11/30/2004 $20,494 $21,212 $11,356
12/31/2004 $20,830 $21,887 $11,314
1/31/2005 $20,466 $21,183 $11,338
2/28/2005 $21,502 $21,712 $11,403
3/31/2005 $20,890 $21,422 $11,492
4/30/2005 $19,827 $20,621 $11,570
5/31/2005 $20,802 $21,766 $11,558
6/30/2005 $21,282 $22,563 $11,564
7/31/2005 $22,671 $23,772 $11,617
8/31/2005 $22,583 $23,339 $11,677
9/30/2005 $22,428 $23,365 $11,819
10/31/2005 $21,723 $22,676 $11,843
11/30/2005 $22,897 $23,605 $11,748
12/31/2005 $22,732 $23,581 $11,700
1/31/2006 $24,601 $25,133 $11,790
2/28/2006 $24,528 $25,166 $11,813
3/31/2006 $25,663 $26,049 $11,879
4/30/2006 $25,822 $26,152 $11,980
5/31/2006 $24,890 $25,246 $12,039
6/30/2006 $25,110 $25,389 $12,063
7/31/2006 $24,291 $25,037 $12,099
8/31/2006 $24,375 $25,703 $12,122
9/30/2006 $24,500 $25,966 $12,063
10/31/2006 $25,573 $27,182 $11,998
11/30/2006 $26,737 $28,032 $11,980
12/31/2006 $26,552 $28,339 $11,998
1/31/2007 $27,426 $28,971 $12,034
2/28/2007 $27,256 $28,904 $12,099
3/31/2007 $27,548 $29,213 $12,209
4/30/2007 $28,252 $29,824 $12,288
5/31/2007 $29,649 $30,886 $12,363
6/30/2007 $29,236 $30,064 $12,387
7/31/2007 $27,548 $27,813 $12,384
8/31/2007 $27,444 $27,955 $12,361
9/30/2007 $27,536 $28,247 $12,395
10/31/2007 $27,912 $28,442 $12,422
11/30/2007 $25,683 $26,620 $12,496
12/31/2007 $25,813 $26,279 $12,487
1/31/2008 $25,188 $25,343 $12,549
2/29/2008 $24,352 $24,425 $12,586
3/31/2008 $24,767 $24,381 $12,695
4/30/2008 $25,928 $25,507 $12,772
5/31/2008 $27,204 $26,560 $12,879
6/30/2008 $25,066 $24,079 $13,009
7/31/2008 $25,022 $24,504 $13,078
8/31/2008 $25,698 $25,494 $13,025
9/30/2008 $23,790 $23,786 $13,007
10/31/2008 $18,234 $18,874 $12,876
11/30/2008 $16,460 $16,900 $12,629
12/31/2008 $17,351 $17,873 $12,499
1/31/2009 $15,363 $15,787 $12,553
2/28/2009 $13,588 $13,755 $12,616
3/31/2009 $14,898 $14,956 $12,646
4/30/2009 $17,977 $17,341 $12,678
5/31/2009 $18,326 $17,774 $12,714
6/30/2009 $18,326 $17,761 $12,824
7/31/2009 $20,604 $19,573 $12,803
8/31/2009 $21,553 $20,737 $12,832
9/30/2009 $22,489 $21,805 $12,840
10/31/2009 $21,308 $20,488 $12,852
Total Returns 113.08% 104.88% 28.52%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 10/31/09
- ------- --------
1-Year +11.97%
5-Year +1.44%
10-Year +7.93%
CLASS B (11/1/99-10/31/09)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS B VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $10,000 $10,000 $10,000
11/30/1999 $10,087 $10,055 $10,006
12/31/1999 $10,512 $10,398 $10,006
1/31/2000 $ 9,645 $ 9,965 $10,036
2/29/2000 $ 9,866 $10,138 $10,095
3/31/2000 $10,733 $10,883 $10,178
4/30/2000 $10,949 $10,879 $10,184
5/31/2000 $11,228 $10,859 $10,196
6/30/2000 $10,920 $10,818 $10,250
7/31/2000 $11,036 $11,054 $10,273
8/31/2000 $11,839 $11,633 $10,273
9/30/2000 $11,793 $11,563 $10,327
10/31/2000 $11,997 $11,556 $10,345
11/30/2000 $11,641 $11,410 $10,351
12/31/2000 $12,771 $12,560 $10,345
1/31/2001 $13,463 $12,735 $10,410
2/28/2001 $13,719 $12,628 $10,452
3/31/2001 $13,604 $12,312 $10,476
4/30/2001 $14,501 $13,012 $10,517
5/31/2001 $14,955 $13,412 $10,565
6/30/2001 $14,524 $13,541 $10,583
7/31/2001 $14,297 $13,451 $10,553
8/31/2001 $14,087 $13,335 $10,553
9/30/2001 $11,945 $11,855 $10,600
10/31/2001 $12,882 $12,108 $10,565
11/30/2001 $13,616 $13,041 $10,547
12/31/2001 $14,600 $13,783 $10,505
1/31/2002 $14,472 $13,910 $10,529
2/28/2002 $14,990 $14,083 $10,571
3/31/2002 $16,224 $14,956 $10,630
4/30/2002 $16,631 $15,211 $10,690
5/31/2002 $16,212 $14,961 $10,690
6/30/2002 $15,578 $14,433 $10,696
7/31/2002 $13,389 $12,763 $10,707
8/31/2002 $13,336 $12,831 $10,743
9/30/2002 $12,015 $11,781 $10,761
10/31/2002 $12,615 $11,950 $10,779
11/30/2002 $13,336 $12,822 $10,779
12/31/2002 $13,109 $12,422 $10,755
1/31/2003 $12,376 $12,047 $10,803
2/28/2003 $11,974 $11,751 $10,886
3/31/2003 $11,974 $11,830 $10,951
4/30/2003 $12,999 $12,901 $10,927
5/31/2003 $14,029 $14,094 $10,910
6/30/2003 $14,332 $14,347 $10,922
7/31/2003 $14,425 $14,970 $10,933
8/31/2003 $15,077 $15,573 $10,975
9/30/2003 $14,640 $15,463 $11,011
10/31/2003 $15,956 $16,643 $10,999
11/30/2003 $16,340 $17,322 $10,969
12/31/2003 $17,237 $18,003 $10,957
1/31/2004 $17,312 $18,586 $11,011
2/29/2004 $17,877 $18,963 $11,070
3/31/2004 $18,058 $19,115 $11,141
4/30/2004 $17,516 $18,114 $11,177
5/31/2004 $17,749 $18,478 $11,243
6/30/2004 $18,814 $19,212 $11,278
7/31/2004 $18,302 $18,439 $11,260
8/31/2004 $17,993 $18,670 $11,266
9/30/2004 $19,024 $19,260 $11,290
10/31/2004 $19,327 $19,608 $11,350
11/30/2004 $21,038 $21,212 $11,356
12/31/2004 $21,376 $21,887 $11,314
1/31/2005 $20,985 $21,183 $11,338
2/28/2005 $22,035 $21,712 $11,403
3/31/2005 $21,399 $21,422 $11,492
4/30/2005 $20,303 $20,621 $11,570
5/31/2005 $21,288 $21,766 $11,558
6/30/2005 $21,767 $22,563 $11,564
7/31/2005 $23,173 $23,772 $11,617
8/31/2005 $23,068 $23,339 $11,677
9/30/2005 $22,905 $23,365 $11,819
10/31/2005 $22,164 $22,676 $11,843
11/30/2005 $23,354 $23,605 $11,748
12/31/2005 $23,175 $23,581 $11,700
1/31/2006 $25,068 $25,133 $11,790
2/28/2006 $24,978 $25,166 $11,813
3/31/2006 $26,118 $26,049 $11,879
4/30/2006 $26,268 $26,152 $11,980
5/31/2006 $25,306 $25,246 $12,039
6/30/2006 $25,515 $25,389 $12,063
7/31/2006 $24,662 $25,037 $12,099
8/31/2006 $24,739 $25,703 $12,122
9/30/2006 $24,847 $25,966 $12,063
10/31/2006 $25,927 $27,182 $11,998
11/30/2006 $27,085 $28,032 $11,980
12/31/2006 $26,879 $28,339 $11,998
1/31/2007 $27,755 $28,971 $12,034
2/28/2007 $27,563 $28,904 $12,099
3/31/2007 $27,838 $29,213 $12,209
4/30/2007 $28,536 $29,824 $12,288
5/31/2007 $29,924 $30,886 $12,363
6/30/2007 $29,495 $30,064 $12,387
7/31/2007 $27,774 $27,813 $12,384
8/31/2007 $27,653 $27,955 $12,361
9/30/2007 $27,730 $28,247 $12,395
10/31/2007 $28,094 $28,442 $12,422
11/30/2007 $25,849 $26,620 $12,496
12/31/2007 $25,981 $26,279 $12,487
1/31/2008 $25,352 $25,343 $12,549
2/29/2008 $24,511 $24,425 $12,586
3/31/2008 $24,927 $24,381 $12,695
4/30/2008 $26,096 $25,507 $12,772
5/31/2008 $27,380 $26,560 $12,879
6/30/2008 $25,228 $24,079 $13,009
7/31/2008 $25,183 $24,504 $13,078
8/31/2008 $25,863 $25,494 $13,025
9/30/2008 $23,944 $23,786 $13,007
10/31/2008 $18,351 $18,874 $12,876
11/30/2008 $16,565 $16,900 $12,629
12/31/2008 $17,461 $17,873 $12,499
1/31/2009 $15,460 $15,787 $12,553
2/28/2009 $13,674 $13,755 $12,616
3/31/2009 $14,993 $14,956 $12,646
4/30/2009 $18,092 $17,341 $12,678
5/31/2009 $18,443 $17,774 $12,714
6/30/2009 $18,443 $17,761 $12,824
7/31/2009 $20,735 $19,573 $12,803
8/31/2009 $21,691 $20,737 $12,832
9/30/2009 $22,632 $21,805 $12,840
10/31/2009 $21,447 $20,488 $12,852
Total Returns 114.47% 104.88% 28.52%
58 | Annual Report
Performance Summary (CONTINUED)
CLASS C (11/1/99-10/31/09)
FRANKLIN SMALL CAP RUSSELL 2500
DATE VALUE FUND - CLASS C VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $10,000 $10,000 $10,000
11/30/1999 $10,088 $10,055 $10,006
12/31/1999 $10,506 $10,398 $10,006
1/31/2000 $ 9,641 $ 9,965 $10,036
2/29/2000 $ 9,859 $10,138 $10,095
3/31/2000 $10,729 $10,883 $10,178
4/30/2000 $10,952 $10,879 $10,184
5/31/2000 $11,229 $10,859 $10,196
6/30/2000 $10,917 $10,818 $10,250
7/31/2000 $11,035 $11,054 $10,273
8/31/2000 $11,840 $11,633 $10,273
9/30/2000 $11,793 $11,563 $10,327
10/31/2000 $11,993 $11,556 $10,345
11/30/2000 $11,640 $11,410 $10,351
12/31/2000 $12,769 $12,560 $10,345
1/31/2001 $13,463 $12,735 $10,410
2/28/2001 $13,721 $12,628 $10,452
3/31/2001 $13,604 $12,312 $10,476
4/30/2001 $14,497 $13,012 $10,517
5/31/2001 $14,950 $13,412 $10,565
6/30/2001 $14,527 $13,541 $10,583
7/31/2001 $14,297 $13,451 $10,553
8/31/2001 $14,086 $13,335 $10,553
9/30/2001 $11,940 $11,855 $10,600
10/31/2001 $12,875 $12,108 $10,565
11/30/2001 $13,610 $13,041 $10,547
12/31/2001 $14,591 $13,783 $10,505
1/31/2002 $14,468 $13,910 $10,529
2/28/2002 $14,985 $14,083 $10,571
3/31/2002 $16,220 $14,956 $10,630
4/30/2002 $16,626 $15,211 $10,690
5/31/2002 $16,202 $14,961 $10,690
6/30/2002 $15,573 $14,433 $10,696
7/31/2002 $13,386 $12,763 $10,707
8/31/2002 $13,339 $12,831 $10,743
9/30/2002 $12,011 $11,781 $10,761
10/31/2002 $12,616 $11,950 $10,779
11/30/2002 $13,333 $12,822 $10,779
12/31/2002 $13,110 $12,422 $10,755
1/31/2003 $12,381 $12,047 $10,803
2/28/2003 $11,981 $11,751 $10,886
3/31/2003 $11,969 $11,830 $10,951
4/30/2003 $12,992 $12,901 $10,927
5/31/2003 $14,021 $14,094 $10,910
6/30/2003 $14,327 $14,347 $10,922
7/31/2003 $14,421 $14,970 $10,933
8/31/2003 $15,073 $15,573 $10,975
9/30/2003 $14,638 $15,463 $11,011
10/31/2003 $15,949 $16,643 $10,999
11/30/2003 $16,332 $17,322 $10,969
12/31/2003 $17,231 $18,003 $10,957
1/31/2004 $17,302 $18,586 $11,011
2/29/2004 $17,872 $18,963 $11,070
3/31/2004 $18,054 $19,115 $11,141
4/30/2004 $17,507 $18,114 $11,177
5/31/2004 $17,743 $18,478 $11,243
6/30/2004 $18,807 $19,212 $11,278
7/31/2004 $18,295 $18,439 $11,260
8/31/2004 $17,989 $18,670 $11,266
9/30/2004 $19,018 $19,260 $11,290
10/31/2004 $19,318 $19,608 $11,350
11/30/2004 $21,029 $21,212 $11,356
12/31/2004 $21,367 $21,887 $11,314
1/31/2005 $20,978 $21,183 $11,338
2/28/2005 $22,026 $21,712 $11,403
3/31/2005 $21,390 $21,422 $11,492
4/30/2005 $20,295 $20,621 $11,570
5/31/2005 $21,278 $21,766 $11,558
6/30/2005 $21,755 $22,563 $11,564
7/31/2005 $23,163 $23,772 $11,617
8/31/2005 $23,057 $23,339 $11,677
9/30/2005 $22,892 $23,365 $11,819
10/31/2005 $22,156 $22,676 $11,843
11/30/2005 $23,340 $23,605 $11,748
12/31/2005 $23,165 $23,581 $11,700
1/31/2006 $25,058 $25,133 $11,790
2/28/2006 $24,961 $25,166 $11,813
3/31/2006 $26,107 $26,049 $11,879
4/30/2006 $26,257 $26,152 $11,980
5/31/2006 $25,293 $25,246 $12,039
6/30/2006 $25,504 $25,389 $12,063
7/31/2006 $24,654 $25,037 $12,099
8/31/2006 $24,726 $25,703 $12,122
9/30/2006 $24,835 $25,966 $12,063
10/31/2006 $25,914 $27,182 $11,998
11/30/2006 $27,071 $28,032 $11,980
12/31/2006 $26,867 $28,339 $11,998
1/31/2007 $27,740 $28,971 $12,034
2/28/2007 $27,553 $28,904 $12,099
3/31/2007 $27,831 $29,213 $12,209
4/30/2007 $28,524 $29,824 $12,288
5/31/2007 $29,909 $30,886 $12,363
6/30/2007 $29,481 $30,064 $12,387
7/31/2007 $27,760 $27,813 $12,384
8/31/2007 $27,637 $27,955 $12,361
9/30/2007 $27,715 $28,247 $12,395
10/31/2007 $28,077 $28,442 $12,422
11/30/2007 $25,818 $26,620 $12,496
12/31/2007 $25,938 $26,279 $12,487
1/31/2008 $25,289 $25,343 $12,549
2/29/2008 $24,437 $24,425 $12,586
3/31/2008 $24,836 $24,381 $12,695
4/30/2008 $25,985 $25,507 $12,772
5/31/2008 $27,242 $26,560 $12,879
6/30/2008 $25,086 $24,079 $13,009
7/31/2008 $25,032 $24,504 $13,078
8/31/2008 $25,694 $25,494 $13,025
9/30/2008 $23,774 $23,786 $13,007
10/31/2008 $18,211 $18,874 $12,876
11/30/2008 $16,427 $16,900 $12,629
12/31/2008 $17,310 $17,873 $12,499
1/31/2009 $15,313 $15,787 $12,553
2/28/2009 $13,533 $13,755 $12,616
3/31/2009 $14,832 $14,956 $12,646
4/30/2009 $17,886 $17,341 $12,678
5/31/2009 $18,224 $17,774 $12,714
6/30/2009 $18,211 $17,761 $12,824
7/31/2009 $20,458 $19,573 $12,803
8/31/2009 $21,392 $20,737 $12,832
9/30/2009 $22,313 $21,805 $12,840
10/31/2009 $21,121 $20,488 $12,852
Total Returns 111.21% 104.88% 28.52%
AVERAGE ANNUAL TOTAL RETURN
CLASS C 10/31/09
- ------- --------
1-Year +14.98%
5-Year +1.80%
10-Year +7.76%
CLASS R (8/1/02-10/31/09)
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 $14,102 $14,788 $12,025
11/30/2008 $12,731 $13,242 $11,795
12/31/2008 $13,417 $14,004 $11,673
1/31/2009 $11,875 $12,369 $11,724
2/28/2009 $10,500 $10,777 $11,782
3/31/2009 $11,508 $11,718 $11,811
4/30/2009 $13,888 $13,587 $11,840
5/31/2009 $14,155 $13,927 $11,874
6/30/2009 $14,155 $13,917 $11,976
7/31/2009 $15,907 $15,336 $11,957
8/31/2009 $16,640 $16,248 $11,984
9/30/2009 $17,358 $17,085 $11,992
10/31/2009 $16,445 $16,053 $12,003
Total Returns 64.45% 60.53% 20.03%
AVERAGE ANNUAL TOTAL RETURN
CLASS R 10/31/09
- ------- --------
1-Year +16.60%
5-Year +2.30%
Since Inception (8/1/02) +7.10%
Annual Report | 59
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 10/31/09
- ------------- --------
1-Year +17.13%
5-Year +2.82%
10-Year +8.85%
ADVISOR CLASS (11/1/99-10/31/09)
FRANKLIN SMALL
CAP VALUE RUSSELL 2500
DATE FUND - ADVISOR CLASS VALUE INDEX CPI
- ------------- -------------------- ------------ -------
11/1/1999 $10,000 $10,000 $10,000
11/30/1999 $10,097 $10,055 $10,006
12/31/1999 $10,528 $10,398 $10,006
1/31/2000 $9,667 $ 9,965 $10,036
2/29/2000 $ 9,897 $10,138 $10,095
3/31/2000 $10,774 $10,883 $10,178
4/30/2000 $11,009 $10,879 $10,184
5/31/2000 $11,296 $10,859 $10,196
6/30/2000 $10,992 $10,818 $10,250
7/31/2000 $11,118 $11,054 $10,273
8/31/2000 $11,938 $11,633 $10,273
9/30/2000 $11,904 $11,563 $10,327
10/31/2000 $12,116 $11,556 $10,345
11/30/2000 $11,766 $11,410 $10,351
12/31/2000 $12,920 $12,560 $10,345
1/31/2001 $13,631 $12,735 $10,410
2/28/2001 $13,901 $12,628 $10,452
3/31/2001 $13,797 $12,312 $10,476
4/30/2001 $14,716 $13,012 $10,517
5/31/2001 $15,193 $13,412 $10,565
6/30/2001 $14,766 $13,541 $10,583
7/31/2001 $14,548 $13,451 $10,553
8/31/2001 $14,346 $13,335 $10,553
9/30/2001 $12,176 $11,855 $10,600
10/31/2001 $13,137 $12,108 $10,565
11/30/2001 $13,897 $13,041 $10,547
12/31/2001 $14,914 $13,783 $10,505
1/31/2002 $14,798 $13,910 $10,529
2/28/2002 $15,340 $14,083 $10,571
3/31/2002 $16,614 $14,956 $10,630
4/30/2002 $17,047 $15,211 $10,690
5/31/2002 $16,632 $14,961 $10,690
6/30/2002 $15,991 $14,433 $10,696
7/31/2002 $13,759 $12,763 $10,707
8/31/2002 $13,718 $12,831 $10,743
9/30/2002 $12,368 $11,781 $10,761
10/31/2002 $12,997 $11,950 $10,779
11/30/2002 $13,747 $12,822 $10,779
12/31/2002 $13,528 $12,422 $10,755
1/31/2003 $12,784 $12,047 $10,803
2/28/2003 $12,380 $11,751 $10,886
3/31/2003 $12,391 $11,830 $10,951
4/30/2003 $13,459 $12,901 $10,927
5/31/2003 $14,537 $14,094 $10,910
6/30/2003 $14,860 $14,347 $10,922
7/31/2003 $14,976 $14,970 $10,933
8/31/2003 $15,662 $15,573 $10,975
9/30/2003 $15,224 $15,463 $11,011
10/31/2003 $16,603 $16,643 $10,999
11/30/2003 $17,012 $17,322 $10,969
12/31/2003 $17,964 $18,003 $10,957
1/31/2004 $18,056 $18,586 $11,011
2/29/2004 $18,662 $18,963 $11,070
3/31/2004 $18,870 $19,115 $11,141
4/30/2004 $18,316 $18,114 $11,177
5/31/2004 $18,576 $18,478 $11,243
6/30/2004 $19,706 $19,212 $11,278
7/31/2004 $19,187 $18,439 $11,260
8/31/2004 $18,881 $18,670 $11,266
9/30/2004 $19,977 $19,260 $11,290
10/31/2004 $20,312 $19,608 $11,350
11/30/2004 $22,129 $21,212 $11,356
12/31/2004 $22,499 $21,887 $11,314
1/31/2005 $22,109 $21,183 $11,338
2/28/2005 $23,239 $21,712 $11,403
3/31/2005 $22,586 $21,422 $11,492
4/30/2005 $21,439 $20,621 $11,570
5/31/2005 $22,505 $21,766 $11,558
6/30/2005 $23,023 $22,563 $11,564
7/31/2005 $24,531 $23,772 $11,617
8/31/2005 $24,444 $23,339 $11,677
9/30/2005 $24,292 $23,365 $11,819
10/31/2005 $23,530 $22,676 $11,843
11/30/2005 $24,811 $23,605 $11,748
12/31/2005 $24,638 $23,581 $11,700
1/31/2006 $26,678 $25,133 $11,790
2/28/2006 $26,600 $25,166 $11,813
3/31/2006 $27,833 $26,049 $11,879
4/30/2006 $28,018 $26,152 $11,980
5/31/2006 $27,013 $25,246 $12,039
6/30/2006 $27,258 $25,389 $12,063
7/31/2006 $26,379 $25,037 $12,099
8/31/2006 $26,480 $25,703 $12,122
9/30/2006 $26,618 $25,966 $12,063
10/31/2006 $27,797 $27,182 $11,998
11/30/2006 $29,059 $28,032 $11,980
12/31/2006 $28,867 $28,339 $11,998
1/31/2007 $29,833 $28,971 $12,034
2/28/2007 $29,653 $28,904 $12,099
3/31/2007 $29,974 $29,213 $12,209
4/30/2007 $30,746 $29,824 $12,288
5/31/2007 $32,272 $30,886 $12,363
6/30/2007 $31,834 $30,064 $12,387
7/31/2007 $30,000 $27,813 $12,384
8/31/2007 $29,891 $27,955 $12,361
9/30/2007 $30,000 $28,247 $12,395
10/31/2007 $30,418 $28,442 $12,422
11/30/2007 $27,999 $26,620 $12,496
12/31/2007 $28,150 $26,279 $12,487
1/31/2008 $27,466 $25,343 $12,549
2/29/2008 $26,566 $24,425 $12,586
3/31/2008 $27,019 $24,381 $12,695
4/30/2008 $28,285 $25,507 $12,772
5/31/2008 $29,687 $26,560 $12,879
6/30/2008 $27,358 $24,079 $13,009
7/31/2008 $27,324 $24,504 $13,078
8/31/2008 $28,062 $25,494 $13,025
9/30/2008 $25,990 $23,786 $13,007
10/31/2008 $19,931 $18,874 $12,876
11/30/2008 $17,995 $16,900 $12,629
12/31/2008 $18,974 $17,873 $12,499
1/31/2009 $16,795 $15,787 $12,553
2/28/2009 $14,856 $13,755 $12,616
3/31/2009 $16,293 $14,956 $12,646
4/30/2009 $19,668 $17,341 $12,678
5/31/2009 $20,060 $17,774 $12,714
6/30/2009 $20,060 $17,761 $12,824
7/31/2009 $22,556 $19,573 $12,803
8/31/2009 $23,607 $20,737 $12,832
9/30/2009 $24,639 $21,805 $12,840
10/31/2009 $23,346 $20,488 $12,852
Total Returns 133.46% 104.88% 28.52%
ENDNOTES
THE FUND'S INVESTMENTS IN SMALLER COMPANY STOCKS CARRY SPECIAL RISKS AS SUCH
STOCKS HAVE HISTORICALLY EXHIBITED GREATER PRICE VOLATILITY THAN LARGER COMPANY
STOCKS, PARTICULARLY OVER THE SHORT TERM. ADDITIONALLY, SMALLER COMPANIES OFTEN
HAVE RELATIVELY SMALL REVENUES, LIMITED PRODUCT LINES AND SMALL MARKET SHARE. 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 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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
(6.) Source: (C) 2009 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.
60 | Annual Report
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
- - Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs,
sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 61
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.
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 5/1/09 VALUE 10/31/09 PERIOD* 5/1/09-10/31/09
----------------- -------------- -----------------------
CLASS A
Actual $1,000 $1,185.30 $ 7.60
Hypothetical (5% return before expenses) $1,000 $1,018.25 $ 7.02
CLASS B
Actual $1,000 $1,180.90 $11.54
Hypothetical (5% return before expenses) $1,000 $1,014.62 $10.66
CLASS C
Actual $1,000 $1,180.90 $11.54
Hypothetical (5% return before expenses) $1,000 $1,014.62 $10.66
CLASS R
Actual $1,000 $1,184.00 $ 8.81
Hypothetical (5% return before expenses) $1,000 $1,017.14 $ 8.13
ADVISOR CLASS
Actual $1,000 $1,187.00 $ 6.06
Hypothetical (5% return before expenses) $1,000 $1,019.66 $ 5.60
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.38%; B: 2.10%; C: 2.10%; R: 1.60%; and
Advisor: 1.10%), multiplied by the average account value over the period,
multiplied by 184/365 to reflect the one-half year period.
62 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------
CLASS A 2009 2008 2007(a)
- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 6.25 $ 9.52 $10.00
------- ------- ------
Income from investment operations(b):
Net investment income(c) ............................. 0.05 0.06 0.02
Net realized and unrealized gains (losses) ........... 0.58 (3.28) (0.50)
------- ------- ------
Total from investment operations ........................ 0.63 (3.22) (0.48)
------- ------- ------
Less distributions from net investment income ........... (0.05) (0.05) --
------- ------- ------
Redemption fees(d) ...................................... -- --(e) --(e)
------- ------- ------
Net asset value, end of year ............................ $ 6.83 $ 6.25 $ 9.52
======= ======= ======
Total return(f) ......................................... 10.27% (33.95)% (4.80)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ....... 2.05% 2.43% 3.91%
Expenses net of waiver and payments by affiliates(h) .... 1.21% 1.25% 1.25%
Net investment income ................................... 0.89% 0.67% 0.50%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $10,167 $ 9,508 $7,138
Portfolio turnover rate ................................. 38.74% 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(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 | 63
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN ALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------
CLASS C 2009 2008 2007(a)
- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ...................... $ 6.20 $ 9.50 $10.00
------ ------- ------
Income from investment operations(b):
Net investment income (loss)(c) ...................... 0.01 --(d) (0.01)
Net realized and unrealized gains (losses) ........... 0.58 (3.26) (0.49)
------ ------- ------
Total from investment operations ........................ 0.59 (3.26) (0.50)
------ ------- ------
Less distributions from net investment income ........... (0.02) (0.04) --
------ ------- ------
Redemption fees(e) ...................................... -- --(d) --(d)
------ ------- ------
Net asset value, end of year ............................ $ 6.77 $ 6.20 $ 9.50
====== ======= ======
Total return(f) ......................................... 9.50% (34.37)% (5.10)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ....... 2.72% 3.06% 4.56%
Expenses net of waiver and payments by affiliates(h) .... 1.88% 1.88% 1.90%
Net investment income (loss) ............................ 0.22% 0.04% (0.15)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $1,565 $ 1,471 $ 847
Portfolio turnover rate ................................. 38.74% 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,
----------------------------
2009 2008 2007(a)
------ ------- -------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 6.25 $ 9.52 $10.00
------ ------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.03 0.05 0.02
Net realized and unrealized gains (losses) ......... 0.58 (3.27) (0.50)
------ ------- ------
Total from investment operations ...................... 0.61 (3.22) (0.48)
------ ------- ------
Less distributions from net investment income ......... (0.04) (0.05) --
------ ------- ------
Redemption fees(d) .................................... -- --(e) --(e)
------ ------- ------
Net asset value, end of year .......................... $ 6.82 $ 6.25 $ 9.52
====== ======= ======
Total return(f) ....................................... 9.88% (34.00)% (4.80)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 2.24% 2.58% 4.06%
Expenses net of waiver and payments by affiliates(h) .. 1.40% 1.40% 1.40%
Net investment income ................................. 0.70% 0.52% 0.35%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 18 $ 6 $ 10
Portfolio turnover rate ............................... 38.74% 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(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,
----------------------------
2009 2008 2007(a)
------ ------- -------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 6.28 $ 9.54 $10.00
------ ------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.07 0.09 0.04
Net realized and unrealized gains (losses) ......... 0.58 (3.29) (0.50)
------ ------- ------
Total from investment operations ...................... 0.65 (3.20) (0.46)
------ ------- ------
Less distributions from net investment income ......... (0.07) (0.06) --
------ ------- ------
Redemption fees(d) .................................... -- --(e) --(e)
------ ------- ------
Net asset value, end of year .......................... $ 6.86 $ 6.28 $ 9.54
====== ======= ======
Total return(f) ....................................... 10.54% (33.70)% (4.60)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 1.74% 2.08% 3.56%
Expenses net of waiver and payments by affiliates(h) .. 0.90% 0.90% 0.90%
Net investment income ................................. 1.20% 1.02% 0.85%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 939 $ 640 $ 979
Portfolio turnover rate ............................... 38.74% 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(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.
66 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
--------------------------- ----------- --------------
COMMON STOCKS 96.6%
AUTOMOBILES & COMPONENTS 1.4%
Autoliv Inc. (Sweden) .............................. 5,200 $ 174,616
--------------
BANKS 1.2%
TrustCo Bank Corp. NY .............................. 9,213 54,817
U.S. Bancorp ....................................... 4,400 102,168
--------------
156,985
--------------
CAPITAL GOODS 20.4%
(a) Ceradyne Inc. ...................................... 8,500 137,020
Eaton Corp. ........................................ 6,600 398,970
(a) Griffon Corp. ...................................... 31,100 272,747
Hardinge Inc. ...................................... 22,400 117,600
Illinois Tool Works Inc. ........................... 6,100 280,112
Kennametal Inc. .................................... 13,400 315,704
Roper Industries Inc. .............................. 5,950 300,773
Trinity Industries Inc. ............................ 15,800 266,704
United Technologies Corp. .......................... 5,200 319,540
Universal Forest Products Inc. ..................... 5,100 181,968
--------------
2,591,138
--------------
CONSUMER DURABLES & APPAREL 4.8%
Adidas AG, ADR (Germany) ........................... 16,900 390,728
D.R. Horton Inc. ................................... 11,000 120,560
M.D.C. Holdings Inc. ............................... 3,000 97,860
--------------
609,148
--------------
DIVERSIFIED FINANCIALS 1.2%
State Street Corp. ................................. 3,750 157,425
--------------
ENERGY 15.9%
Apache Corp. ....................................... 3,300 310,596
(a) Boots & Coots Inc. ................................. 178,500 248,115
(a) Bristow Group Inc. ................................. 10,995 320,504
ENSCO International Inc. ........................... 4,200 192,318
Occidental Petroleum Corp. ......................... 4,500 341,460
Peabody Energy Corp. ............................... 3,600 142,524
(a) PHI Inc. ........................................... 14,000 240,520
(a) Unit Corp. ......................................... 5,600 218,848
--------------
2,014,885
--------------
FOOD & STAPLES RETAILING 3.1%
Wal-Mart Stores Inc. ............................... 7,800 387,504
--------------
FOOD, BEVERAGE & TOBACCO 2.2%
Kraft Foods Inc., A ................................ 10,200 280,704
--------------
HEALTH CARE EQUIPMENT & SERVICES 7.0%
Becton Dickinson and Co. ........................... 6,600 451,176
(a) Laboratory Corp. of America Holdings ............... 6,300 434,007
--------------
885,183
--------------
Annual Report | 67
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN ALL CAP VALUE FUND SHARES VALUE
--------------------------- ----------- --------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD & PERSONAL PRODUCTS 1.3%
The Procter & Gamble Co. ........................... 2,900 $ 168,200
--------------
INSURANCE 7.4%
Aflac Inc. ......................................... 7,650 317,399
Chubb Corp. ........................................ 6,300 305,676
Kansas City Life Insurance Co. ..................... 4,400 118,096
StanCorp Financial Group Inc. ...................... 3,100 113,801
Validus Holdings Ltd. (Bermuda) .................... 3,404 86,121
--------------
941,093
--------------
MATERIALS 10.5%
(a) American Pacific Corp. ............................. 36,800 260,544
Bemis Co. Inc. ..................................... 12,100 312,543
Nucor Corp. ........................................ 6,400 255,040
Praxair Inc. ....................................... 3,200 254,208
(a) RTI International Metals Inc. ...................... 12,300 254,733
--------------
1,337,068
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 1.8%
Pharmaceutical Product Development Inc. ............ 10,600 228,430
--------------
RETAILING 5.1%
Fred's Inc. ........................................ 13,700 162,208
The Home Depot Inc. ................................ 8,700 218,283
J.C. Penney Co. Inc. ............................... 8,000 265,040
--------------
645,531
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 5.4%
(a) Benchmark Electronics Inc. ......................... 14,400 241,920
International Business Machines Corp. .............. 3,700 446,257
--------------
688,177
--------------
TELECOMMUNICATION SERVICES 0.8%
Atlantic Tele-Network Inc. ......................... 2,181 99,977
--------------
UTILITIES 7.1%
Avista Corp. ....................................... 13,500 255,960
IDACORP Inc. ....................................... 11,400 320,226
NV Energy Inc. ..................................... 27,800 318,588
--------------
894,774
--------------
TOTAL COMMON STOCKS (COST $12,274,571) ............. 12,260,838
--------------
SHORT TERM INVESTMENTS (COST $266,515) 2.1%
MONEY MARKET FUNDS 2.1%
(b) Institutional Fiduciary Trust Money Market
Portfolio, 0.00% ................................ 266,515 266,515
--------------
TOTAL INVESTMENTS (COST $12,541,086) 98.7% ......... 12,527,353
OTHER ASSETS, LESS LIABILITIES 1.3% ................ 162,381
--------------
NET ASSETS 100.0% .................................. $ 12,689,734
==============
See Abbreviations on page 137.
(a) Non-income producing.
(b) See Note 7 regarding investments in the 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.
68 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 37.85 $ 69.36 $ 69.24 $ 61.66 $ 53.95
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) .................... 0.40 0.68 0.73 0.77 0.34
Net realized and unrealized gains (losses) .. 2.78 (25.81) 4.55 9.71 8.71
---------- ---------- ---------- ---------- ----------
Total from investment operations ............... 3.18 (25.13) 5.28 10.48 9.05
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ....................... (0.70) (0.67) (0.88) (0.46) (0.43)
Net realized gains .......................... (1.05) (5.71) (4.28) (2.44) (0.91)
---------- ---------- ---------- ---------- ----------
Total distributions ............................ (1.75) (6.38) (5.16) (2.90) (1.34)
---------- ---------- ---------- ---------- ----------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ................... $ 39.28 $ 37.85 $ 69.36 $ 69.24 $ 61.66
========== ========== ========== ========== ==========
Total return(e) ................................ 9.38% (39.30)% 7.85% 17.54% 16.93%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.00% 0.93% 0.90% 0.90% 0.91%
Net investment income .......................... 1.17% 1.25% 1.04% 1.17% 0.57%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $2,081,258 $2,169,284 $4,228,683 $4,435,704 $4,164,516
Portfolio turnover rate ........................ 6.07% 8.14%(g) 6.40% 7.44% 3.91%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 12.
The accompanying notes are an integral part of these financial statements.
Annual Report | 69
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 37.19 $ 68.12 $ 68.07 $ 60.67 $ 53.13
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.16 0.27 0.20 0.26 (0.11)
Net realized and unrealized gains (losses) .. 2.84 (25.39) 4.48 9.58 8.58
------- ------- -------- -------- --------
Total from investment operations ............... 3.00 (25.12) 4.68 9.84 8.47
------- ------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.26) (0.10) (0.35) --(c) (0.02)
Net realized gains .......................... (1.05) (5.71) (4.28) (2.44) (0.91)
------- ------- -------- -------- --------
Total distributions ............................ (1.31) (5.81) (4.63) (2.44) (0.93)
------- ------- -------- -------- --------
Redemption fees(d) ............................. -- --(c) --(c) --(c) --(c)
------- ------- -------- -------- --------
Net asset value, end of year ................... $ 38.88 $ 37.19 $ 68.12 $ 68.07 $ 60.67
======= ======= ======== ======== ========
Total return(e) ................................ 8.78% (39.76)% 7.04% 16.65% 16.03%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.75% 1.69% 1.66% 1.66% 1.67%
Net investment income (loss) ................... 0.42% 0.49% 0.28% 0.41% (0.19)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $34,726 $51,727 $114,410 $127,037 $122,795
Portfolio turnover rate ........................ 6.07% 8.14%(g) 6.40% 7.44% 3.91%
(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 12.
The accompanying notes are an integral part of these financial statements.
70 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 37.27 $ 68.22 $ 68.17 $ 60.75 $ 53.18
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............. 0.14 0.26 0.20 0.27 (0.11)
Net realized and unrealized gains (losses) .. 2.71 (25.40) 4.48 9.59 8.59
------- ------- -------- -------- --------
Total from investment operations ............... 2.85 (25.14) 4.68 9.86 8.48
------- ------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.37) (0.10) (0.35) -- --
Net realized gains .......................... (1.05) (5.71) (4.28) (2.44) (0.91)
------- ------- -------- -------- --------
Total distributions ............................ (1.42) (5.81) (4.63) (2.44) (0.91)
------- ------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
------- ------- -------- -------- --------
Net asset value, end of year ................... $ 38.70 $ 37.27 $ 68.22 $ 68.17 $ 60.75
======= ======= ======== ======== ========
Total return(e) ................................ 8.42% (39.73)% 7.04% 16.64% 16.04%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.75% 1.69% 1.66% 1.65% 1.67%
Net investment income (loss) ................... 0.42% 0.49% 0.28% 0.42% (0.19)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $72,184 $73,068 $130,471 $139,885 $135,939
Portfolio turnover rate ........................ 6.07% 8.14%(g) 6.40% 7.44% 3.91%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 12.
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 R 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 37.54 $ 68.83 $ 68.78 $ 61.33 $ 53.69
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) .................... 0.31 0.55 0.52 0.60 0.18
Net realized and unrealized gains (losses) .. 2.91 (25.62) 4.55 9.65 8.67
------- ------- ------- ------- -------
Total from investment operations ............... 3.22 (25.07) 5.07 10.25 8.85
------- ------- ------- ------- -------
Less distributions from:
Net investment income ....................... (0.52) (0.51) (0.74) (0.36) (0.30)
Net realized gains .......................... (1.05) (5.71) (4.28) (2.44) (0.91)
------- ------- ------- ------- -------
Total distributions ............................ (1.57) (6.22) (5.02) (2.80) (1.21)
------- ------- ------- ------- -------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ................... $ 39.19 $ 37.54 $ 68.83 $ 68.78 $ 61.33
======= ======= ======= ======= =======
Total return(e) ................................ 9.46% (39.45)% 7.58% 17.22% 16.62%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) .................................... 1.25% 1.19% 1.16% 1.16% 1.17%
Net investment income .......................... 0.92% 0.99% 0.78% 0.91% 0.31%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $28,264 $26,433 $63,802 $51,157 $30,810
Portfolio turnover rate ........................ 6.07% 8.14%(g) 6.40% 7.44% 3.91%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 12.
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,
-----------------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 37.93 $ 69.53 $ 69.40 $ 61.81 $ 54.05
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) .................... 0.48 0.88 0.88 0.93 0.46
Net realized and unrealized gains (losses) .. 3.36 (25.91) 4.58 9.72 8.75
-------- -------- -------- -------- --------
Total from investment operations ............... 3.84 (25.03) 5.46 10.65 9.21
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ....................... (0.83) (0.86) (1.05) (0.62) (0.54)
Net realized gains .......................... (1.05) (5.71) (4.28) (2.44) (0.91)
-------- -------- -------- -------- --------
Total distributions ............................ (1.88) (6.57) (5.33) (3.06) (1.45)
-------- -------- -------- -------- --------
Redemption fees(c) ............................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 39.89 $ 37.93 $ 69.53 $ 69.40 $ 61.81
======== ======== ======== ======== ========
Total return ................................... 11.18% (39.14)% 8.11% 17.82% 17.20%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) .................................... 0.75% 0.69% 0.66% 0.66% 0.67%
Net investment income .......................... 1.42% 1.49% 1.28% 1.41% 0.81%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $132,921 $100,505 $390,314 $333,372 $260,209
Portfolio turnover rate ........................ 6.07% 8.14%(f) 6.40% 7.44% 3.91%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 12.
The accompanying notes are an integral part of these financial statements.
Annual Report | 73
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- --------- --------------
CLOSED END MUTUAL FUNDS (COST $305,852) 0.0%(a)
DIVERSIFIED FINANCIALS 0.0%(a)
Apollo Investment Corp. ........................... 43,000 $ 387,000
--------------
COMMON STOCKS 95.2%
AUTOMOBILES & COMPONENTS 0.4%
American Axle & Manufacturing Holdings Inc. ....... 1,650,000 9,883,500
--------------
BANKS 0.5%
CVB Financial Corp. ............................... 175,000 1,401,750
Farmers & Merchants Bank of Long Beach ............ 1,475 5,804,125
Hudson City Bancorp Inc. .......................... 390,000 5,124,600
--------------
12,330,475
--------------
CAPITAL GOODS 12.2%
A.O. Smith Corp. .................................. 873,400 34,612,842
Applied Industrial Technologies Inc. .............. 1,358,000 27,472,340
(b) Armstrong World Industries Inc. ................... 800,000 29,800,000
(b) Ceradyne Inc. ..................................... 386,000 6,222,320
(b) CNH Global NV (Netherlands) ....................... 1,150,000 21,976,500
(b) ESCO Technologies Inc. ............................ 1,150,800 45,203,424
(b, c) Furmanite Corp. ................................... 2,384,200 8,535,436
Lennox International Inc. ......................... 249,900 8,414,133
Mueller Industries Inc. ........................... 775,000 18,336,500
(b, c) Tecumseh Products Co., A .......................... 1,000,000 10,450,000
(b, c) Tecumseh Products Co., B .......................... 310,000 3,214,700
Timken Co. ........................................ 1,330,000 29,299,900
Trinity Industries Inc. ........................... 2,475,000 41,778,000
--------------
285,316,095
--------------
COMMERCIAL & PROFESSIONAL SERVICES 1.1%
Kelly Services Inc., A ............................ 2,400,000 26,592,000
--------------
CONSUMER DURABLES & APPAREL 5.6%
Callaway Golf Co. ................................. 900,000 6,156,000
D.R. Horton Inc. .................................. 2,335,000 25,591,600
(b) Furniture Brands International Inc. ............... 2,370,709 10,075,513
Hasbro Inc. ....................................... 1,331,000 36,296,370
Lennar Corp., A ................................... 480,000 6,048,000
Lennar Corp., B ................................... 48,000 464,160
M.D.C. Holdings Inc. .............................. 673,000 21,953,260
Pulte Homes Inc. .................................. 2,600,000 23,426,000
(b) Standard Pacific Corp. ............................ 497,835 1,493,505
--------------
131,504,408
--------------
CONSUMER SERVICES 1.8%
(b) Vail Resorts Inc. ................................. 1,197,000 41,224,680
--------------
ENERGY 5.6%
(b) Bristow Group Inc. ................................ 900,000 26,235,000
(b) Exterran Holding Inc. ............................. 1,220,000 24,924,600
Overseas Shipholding Group Inc. ................... 765,000 30,026,250
(b) PHI Inc. .......................................... 77,500 1,402,750
74 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- --------- --------------
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
(b) PHI Inc., non-voting .............................. 409,000 $ 7,026,620
Rowan Cos. Inc. ................................... 775,000 18,018,750
Teekay Corp. (Bahamas) ............................ 1,189,000 24,671,750
--------------
132,305,720
--------------
FOOD, BEVERAGE & TOBACCO 5.2%
(b) Alliance One International Inc. ................... 2,348,300 10,356,003
Bunge Ltd. ........................................ 81,000 4,621,860
Corn Products International Inc. .................. 1,980,000 55,796,400
(b) Smithfield Foods Inc. ............................. 1,600,000 21,344,000
Universal Corp. ................................... 715,600 29,761,804
--------------
121,880,067
--------------
INSURANCE 24.4%
American National Insurance Co. ................... 702,500 58,651,725
Assurant Inc. ..................................... 800,700 23,964,951
Chubb Corp. ....................................... 330,000 16,011,600
Cincinnati Financial Corp. ........................ 445,000 11,285,200
E-L Financial Corp. Ltd. (Canada) ................. 104,666 45,963,436
Employers Holdings Inc. ........................... 586,742 8,695,516
FBL Financial Group Inc., A ....................... 606,994 12,230,929
(b) Genworth Financial Inc., A ........................ 1,800,000 19,116,000
Kansas City Life Insurance Co. .................... 299,989 8,051,705
Manulife Financial Corp. (Canada) ................. 970,000 18,032,300
(b) MBIA Inc. ......................................... 138,400 561,904
MetLife Inc. ...................................... 540,000 18,376,200
National Western Life Insurance Co., A ............ 173,000 30,475,680
Old Republic International Corp. .................. 5,000,000 53,400,000
Presidential Life Corp. ........................... 380,000 3,545,400
Prudential Financial Inc. ......................... 1,184,000 53,552,320
RLI Corp. ......................................... 489,400 24,470,000
Selective Insurance Group Inc. .................... 1,541,600 23,617,312
StanCorp Financial Group Inc. ..................... 1,250,000 45,887,500
Transatlantic Holdings Inc. ....................... 250,000 12,625,000
The Travelers Cos. Inc. ........................... 575,000 28,629,250
Validus Holdings Ltd. (Bermuda) ................... 1,720,511 43,528,928
Zenith National Insurance Corp. ................... 421,300 12,019,689
--------------
572,692,545
--------------
MATERIALS 10.2%
Ashland Inc. ...................................... 350,900 12,120,086
Cabot Corp. ....................................... 4,400 96,492
Commercial Metals Co. ............................. 1,055,000 15,656,200
Kaiser Aluminum Corp. ............................. 28,000 1,118,600
MeadWestvaco Corp. ................................ 1,525,000 34,815,750
Nucor Corp. ....................................... 470,000 18,729,500
(b) PolyOne Corp. ..................................... 1,325,000 7,393,500
Reliance Steel & Aluminum Co. ..................... 920,000 33,561,600
(b) RTI International Metals Inc. ..................... 1,345,000 27,854,950
Annual Report | 75
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN BALANCE SHEET INVESTMENT FUND SHARES VALUE
-------------------------------------- --------- --------------
COMMON STOCKS (CONTINUED)
MATERIALS (CONTINUED)
Sherritt International Corp. (Canada) ............. 3,503,500 $ 22,478,889
Texas Industries Inc. ............................. 679,000 22,603,910
Westlake Chemical Corp. ........................... 1,800,000 43,722,000
--------------
240,151,477
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 2.5%
(b) Watson Pharmaceuticals Inc. ....................... 1,700,000 58,514,000
--------------
RETAILING 5.3%
(b) Big Lots Inc. ..................................... 610,000 15,280,500
The Cato Corp., A ................................. 344,578 6,791,632
(b) Charming Shoppes Inc. ............................. 5,200,000 23,556,000
Dillard's Inc., A ................................. 700,000 9,534,000
Fred's Inc. ....................................... 400,000 4,736,000
(b) Haverty Furniture Cos. Inc. ....................... 899,000 10,886,890
J.C. Penney Co. Inc. .............................. 675,000 22,362,750
(b, d) Saks Inc. ......................................... 1,759,000 9,867,990
(b, c) Syms Corp. ........................................ 1,430,000 10,052,900
(b, c) Zale Corp. ........................................ 2,468,000 11,673,640
--------------
124,742,302
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.3%
(b) Standard Microsystems Corp. ....................... 319,500 6,153,570
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.3%
(b) Benchmark Electronics Inc. ........................ 1,800,000 30,240,000
--------------
TRANSPORTATION 6.1%
(b) Alaska Air Group Inc. ............................. 1,350,600 34,737,432
Burlington Northern Santa Fe Corp. ................ 352,000 26,512,640
(b) Kansas City Southern .............................. 670,000 16,234,100
Norfolk Southern Corp. ............................ 1,206,600 56,251,692
Werner Enterprises Inc. ........................... 500,000 9,375,000
--------------
143,110,864
--------------
UTILITIES 12.7%
Atmos Energy Corp. ................................ 933,600 26,000,760
Avista Corp. ...................................... 746,900 14,161,224
CMS Energy Corp. .................................. 950,000 12,635,000
Entergy Corp. ..................................... 599,000 45,955,280
Great Plains Energy Inc. .......................... 478,400 8,276,320
IDACORP Inc. ...................................... 590,000 16,573,100
(b, c, e) KGen Power Corp., 144A ............................ 4,400,000 29,700,000
Northeast Utilities ............................... 1,550,000 35,727,500
NV Energy Inc. .................................... 5,640,000 64,634,400
PNM Resources Inc. ................................ 1,990,000 21,332,800
Westar Energy Inc. ................................ 417,550 7,996,083
Xcel Energy Inc. .................................. 861,000 16,238,460
--------------
299,230,927
--------------
TOTAL COMMON STOCKS (COST $1,890,611,807) ......... 2,235,872,630
--------------
76 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
PRINCIPAL
FRANKLIN BALANCE SHEET INVESTMENT FUND AMOUNT VALUE
-------------------------------------- ----------- --------------
CORPORATE BONDS (COST $5,555,496) 0.2%
CAPITAL GOODS 0.2%
Mueller Industries Inc., 6.00%, 11/01/14 ........... $ 5,604,000 $ 5,239,740
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $1,896,473,155) ........................... 2,241,499,370
--------------
SHARES
-----------
SHORT TERM INVESTMENTS 5.0%
MONEY MARKET FUNDS (COST $113,949,153) 4.9%
(f) Institutional Fiduciary Trust Money Market
Portfolio, 0.00% ................................ 113,949,153 113,949,153
--------------
(g) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED
SECURITIES 0.1%
MONEY MARKET FUNDS (COST $3,035,653) 0.1%
(b) Bank of New York Institutional Cash Reserve Fund,
Series B ........................................ 3,035,653 2,428,522
--------------
TOTAL INVESTMENTS (COST $2,013,457,961) 100.4% ..... 2,357,877,045
OTHER ASSETS, LESS LIABILITIES (0.4)% .............. (8,523,054)
--------------
NET ASSETS 100.0% .................................. $2,349,353,991
==============
(a) Rounds to less than 0.1% of net assets.
(b) Non-income producing.
(c) See Note 9 regarding holdings of 5% voting securities.
(d) A portion or all of the security is on loan at October 31, 2009. See Note
1(d).
(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 Fund's Board of Trustees. At October 31, 2009,
the value of this security was $29,700,000, representing 1.26% of net
assets.
(f) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(g) See Note 1(d) regarding securities on loan.
The accompanying notes are an integral part of these financial statements.
Annual Report | 77
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 9.84 $ 16.75 $ 16.55 $ 14.66 $ 14.01
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ..................... 0.12 0.18 0.21 0.20 0.13
Net realized and unrealized gains (losses) ... 0.86 (5.88) 1.04 2.18 0.63
------- ------- -------- -------- --------
Total from investment operations ................ 0.98 (5.70) 1.25 2.38 0.76
------- ------- -------- -------- --------
Less distributions from:
Net investment income ........................ (0.19) (0.24) (0.21) (0.15) (0.08)
Net realized gains ........................... -- (0.97) (0.84) (0.34) (0.03)
------- ------- -------- -------- --------
Total distributions ............................. (0.19) (1.21) (1.05) (0.49) (0.11)
------- ------- -------- -------- --------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
------- ------- -------- -------- --------
Net asset value, end of year .................... $ 10.63 $ 9.84 $ 16.75 $ 16.55 $ 14.66
======= ======= ======== ======== ========
Total return(e) ................................. 10.37% (36.35)% 7.82% 16.62% 5.42%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.48% 1.38%(f) 1.34%(f) 1.33%(f) 1.29%(f)
Net investment income ........................... 1.36% 1.34% 1.25% 1.29% 0.91%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $98,252 $84,815 $151,156 $184,225 $156,841
Portfolio turnover rate ......................... 10.95% 15.88% 22.74% 34.36% 25.33%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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.
78 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 9.70 $ 16.52 $ 16.34 $ 14.47 $ 13.85
------ ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ..................... 0.07 0.09 0.10 0.10 0.04
Net realized and unrealized gains (losses) ... 0.85 (5.82) 1.02 2.16 0.61
------ ------- ------- ------- -------
Total from investment operations ................ 0.92 (5.73) 1.12 2.26 0.65
------ ------- ------- ------- -------
Less distributions from:
Net investment income ........................ (0.08) (0.12) (0.10) (0.05) --(c)
Net realized gains ........................... -- (0.97) (0.84) (0.34) (0.03)
------ ------- ------- ------- -------
Total distributions ............................. (0.08) (1.09) (0.94) (0.39) (0.03)
------ ------- ------- ------- -------
Redemption fees(d) .............................. -- --(c) --(c) --(c) --(c)
------ ------- ------- ------- -------
Net asset value, end of year .................... $10.54 $ 9.70 $ 16.52 $ 16.34 $ 14.47
====== ======= ======= ======= =======
Total return(e) ................................. 9.70% (36.82)% 7.08% 15.90% 4.71%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 2.20% 2.08%(f) 2.00%(f) 1.98%(f) 1.94%(f)
Net investment income ........................... 0.64% 0.64% 0.59% 0.64% 0.26%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $6,616 $ 8,449 $18,598 $22,120 $22,072
Portfolio turnover rate ......................... 10.95% 15.88% 22.74% 34.36% 25.33%
(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 | 79
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 9.70 $ 16.51 $ 16.34 $ 14.47 $ 13.85
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ..................... 0.06 0.09 0.10 0.10 0.04
Net realized and unrealized gains (losses) ... 0.85 (5.81) 1.02 2.16 0.61
------- ------- ------- ------- -------
Total from investment operations ................ 0.91 (5.72) 1.12 2.26 0.65
------- ------- ------- ------- -------
Less distributions from:
Net investment income ........................ (0.09) (0.12) (0.11) (0.05) --
Net realized gains ........................... -- (0.97) (0.84) (0.34) (0.03)
------- ------- ------- ------- -------
Total distributions ............................. (0.09) (1.09) (0.95) (0.39) (0.03)
------- ------- ------- ------- -------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year .................... $ 10.52 $ 9.70 $ 16.51 $ 16.34 $ 14.47
======= ======= ======= ======= =======
Total return(e) ................................. 9.59% (36.80)% 7.07% 15.92% 4.69%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 2.20% 2.08%(f) 1.99%(f) 1.97%(f) 1.94%(f)
Net investment income ........................... 0.64% 0.64% 0.60% 0.65% 0.26%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $23,845 $24,772 $52,711 $63,983 $59,929
Portfolio turnover rate ......................... 10.95% 15.88% 22.74% 34.36% 25.33%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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.
80 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 9.74 $ 16.61 $16.42 $14.56 $13.93
------ ------- ------ ------ ------
Income from investment operations(a):
Net investment income(b) ..................... 0.10 0.16 0.17 0.17 0.11
Net realized and unrealized gains (losses) ... 0.86 (5.84) 1.05 2.17 0.61
------ ------- ------ ------ ------
Total from investment operations ................ 0.96 (5.68) 1.22 2.34 0.72
------ ------- ------ ------ ------
Less distributions from:
Net investment income ........................ (0.15) (0.22) (0.19) (0.14) (0.06)
Net realized gains ........................... -- (0.97) (0.84) (0.34) (0.03)
------ ------- ------ ------ ------
Total distributions ............................. (0.15) (1.19) (1.03) (0.48) (0.09)
------ ------- ------ ------ ------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d)
------ ------- ------ ------ ------
Net asset value, end of year .................... $10.55 $ 9.74 $16.61 $16.42 $14.56
====== ======= ====== ====== ======
Total return(e) ................................. 10.18% (36.46)% 7.59% 16.46% 5.19%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.70% 1.58%(f) 1.50%(f) 1.48%(f) 1.44%(f)
Net investment income ........................... 1.14% 1.14% 1.09% 1.14% 0.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $3,707 $ 3,550 $7,812 $7,717 $6,896
Portfolio turnover rate ......................... 10.95% 15.88% 22.74% 34.36% 25.33%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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,
-------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006(a)
- ------------- ------- ------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 9.83 $ 16.76 $16.56 $14.63
------ ------- ------ ------
Income from investment operations(b):
Net investment income(c) ..................... 0.14 0.22 0.25 0.24
Net realized and unrealized gains (losses) ... 0.86 (5.88) 1.06 2.23
------ ------- ------ ------
Total from investment operations ................ 1.00 (5.66) 1.31 2.47
------ ------- ------ ------
Less distributions from:
Net investment income ........................ (0.23) (0.30) (0.27) (0.20)
Net realized gains ........................... -- (0.97) (0.84) (0.34)
------ ------- ------ ------
Total distributions ............................. (0.23) (1.27) (1.11) (0.54)
------ ------- ------ ------
Redemption fees(d) .............................. -- --(e) --(e) --(e)
------ ------- ------ ------
Net asset value, end of year .................... $10.60 $ 9.83 $16.76 $16.56
====== ======= ====== ======
Total return(f) ................................. 10.68% (36.13)% 8.12% 17.09%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses ........................................ 1.20% 1.08%(h) 1.00%(h) 0.98%(h)
Net investment income ........................... 1.64% 1.64% 1.59% 1.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $3,896 $ 2,622 $3,381 $1,989
Portfolio turnover rate ......................... 10.95% 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(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.
82 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- ----------- --------------
COMMON STOCKS 90.6%
BANKS 1.4%
U.S. Bancorp ....................................... 80,000 $ 1,857,600
--------------
CAPITAL GOODS 14.7%
3M Co. ............................................. 35,000 2,574,950
Dover Corp. ........................................ 71,000 2,675,280
Eaton Corp. ........................................ 45,000 2,720,250
General Electric Co. ............................... 245,000 3,493,700
Illinois Tool Works Inc. ........................... 60,000 2,755,200
Masco Corp. ........................................ 108,000 1,269,000
Parker Hannifin Corp. .............................. 33,000 1,747,680
United Technologies Corp. .......................... 45,000 2,765,250
--------------
20,001,310
--------------
CONSUMER DURABLES & APPAREL 6.1%
D.R. Horton Inc. ................................... 300,000 3,288,000
Fortune Brands Inc. ................................ 69,000 2,687,550
NIKE Inc., B ....................................... 38,000 2,362,840
--------------
8,338,390
--------------
CONSUMER SERVICES 1.5%
McDonald's Corp. ................................... 35,000 2,051,350
--------------
DIVERSIFIED FINANCIALS 5.9%
Bank of America Corp. .............................. 86,000 1,253,880
The Bank of New York Mellon Corp. .................. 75,000 1,999,500
Citigroup Inc. ..................................... 81,000 331,290
Morgan Stanley ..................................... 45,000 1,445,400
State Street Corp. ................................. 73,000 3,064,540
--------------
8,094,610
--------------
ENERGY 10.1%
Apache Corp. ....................................... 28,000 2,635,360
Chesapeake Energy Corp. ............................ 50,000 1,225,000
ConocoPhillips ..................................... 26,000 1,304,680
Devon Energy Corp. ................................. 30,000 1,941,300
Exxon Mobil Corp. .................................. 34,000 2,436,780
Occidental Petroleum Corp. ......................... 32,000 2,428,160
Peabody Energy Corp. ............................... 47,000 1,860,730
--------------
13,832,010
--------------
FOOD & STAPLES RETAILING 2.0%
Wal-Mart Stores Inc. ............................... 54,000 2,682,720
--------------
HEALTH CARE EQUIPMENT & SERVICES 1.5%
Becton Dickinson and Co. ........................... 26,500 1,811,540
Stryker Corp. ...................................... 6,000 276,000
--------------
2,087,540
--------------
HOUSEHOLD & PERSONAL PRODUCTS 3.8%
Kimberly-Clark Corp. ............................... 40,000 2,446,400
The Procter & Gamble Co. ........................... 47,500 2,755,000
--------------
5,201,400
--------------
Annual Report | 83
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- ----------- --------------
COMMON STOCKS (CONTINUED)
INSURANCE 8.0%
Aflac Inc. ......................................... 64,000 $ 2,655,360
The Allstate Corp. ................................. 75,000 2,217,750
Ambac Financial Group Inc. ......................... 67,000 77,050
(a) Berkshire Hathaway Inc., A ......................... 8 792,000
Chubb Corp. ........................................ 48,000 2,328,960
MetLife Inc. ....................................... 83,000 2,824,490
--------------
10,895,610
--------------
MATERIALS 9.7%
Air Products and Chemicals Inc. .................... 5,000 385,650
Alcoa Inc. ......................................... 210,000 2,608,200
The Dow Chemical Co. ............................... 105,000 2,465,400
Nucor Corp. ........................................ 130,000 5,180,500
Praxair Inc. ....................................... 33,000 2,621,520
--------------
13,261,270
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 6.8%
Abbott Laboratories ................................ 30,000 1,517,100
Merck & Co. Inc. ................................... 98,000 3,031,140
Pfizer Inc. ........................................ 150,000 2,554,500
Schering-Plough Corp. .............................. 75,000 2,115,000
--------------
9,217,740
--------------
RETAILING 6.3%
The Home Depot Inc. ................................ 116,000 2,910,440
J.C. Penney Co. Inc. ............................... 70,000 2,319,100
Nordstrom Inc. ..................................... 59,000 1,875,020
(a) Office Depot Inc. .................................. 245,000 1,482,250
--------------
8,586,810
--------------
SOFTWARE & SERVICES 3.4%
Microsoft Corp. .................................... 165,000 4,575,450
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 5.4%
Hewlett-Packard Co. ................................ 71,000 3,369,660
International Business Machines Corp. .............. 33,500 4,040,435
--------------
7,410,095
--------------
TRANSPORTATION 1.6%
Norfolk Southern Corp. ............................. 47,000 2,191,140
--------------
UTILITIES 2.4%
Entergy Corp. ...................................... 27,000 2,071,440
Sempra Energy ...................................... 23,000 1,183,350
--------------
3,254,790
--------------
TOTAL COMMON STOCKS (COST $133,910,122) ............ 123,539,835
--------------
84 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN LARGE CAP VALUE FUND SHARES VALUE
----------------------------- ----------- --------------
SHORT TERM INVESTMENTS (COST $13,227,025) 9.7%
MONEY MARKET FUNDS 9.7%
(b) Institutional Fiduciary Trust Money Market
Portfolio, 0.00% ................................ 13,227,025 $ 13,227,025
--------------
TOTAL INVESTMENTS (COST $147,137,147) 100.3% ....... 136,766,860
OTHER ASSETS, LESS LIABILITIES (0.3)% .............. (451,100)
--------------
NET ASSETS 100.0% .................................. $ 136,315,760
==============
(a) Non-income producing.
(b) See Note 7 regarding investments in the 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 | 85
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MICROCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 25.09 $ 44.02 $ 41.32 $ 38.15 $ 34.48
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ........................... 0.18 0.38 0.39 0.48 0.18
Net realized and unrealized gains (losses) ......... 2.87 (13.69) 5.10 5.73 5.32
-------- -------- -------- -------- --------
Total from investment operations ...................... 3.05 (13.31) 5.49 6.21 5.50
-------- -------- -------- -------- --------
Less distributions from:
Net investment income .............................. (0.41) (0.41) (0.57) (0.19) (0.05)
Net realized gains ................................. (1.89) (5.21) (2.22) (2.85) (1.78)
-------- -------- -------- -------- --------
Total distributions ................................... (2.30) (5.62) (2.79) (3.04) (1.83)
-------- -------- -------- -------- --------
Redemption fees(c) .................................... -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 25.84 $ 25.09 $ 44.02 $ 41.32 $ 38.15
======== ======== ======== ======== ========
Total return(e) ....................................... 15.07% (33.44)% 13.73% 17.25% 16.45%
RATIOS TO AVERAGE NET ASSETS
Expenses before waiver and payments by affiliates ..... 1.18% 1.11% 1.08% 1.11% 1.10%
Expenses net of waiver and payments by affiliates(f) .. 1.17% 1.11% 1.08% 1.11% 1.10%
Net investment income ................................. 0.79% 1.16% 0.89% 1.22% 0.48%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $232,075 $238,025 $467,995 $473,837 $443,037
Portfolio turnover rate ............................... 10.97% 11.84% 9.95% 6.47% 13.86%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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.
86 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MICROCAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------
ADVISOR CLASS 2009 2008 2007 2006(a)
- ------------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 25.14 $ 44.14 $ 41.43 $38.28
------- ------- ------- ------
Income from investment operations(b):
Net investment income(c) ........................... 0.22 0.42 0.49 0.61
Net realized and unrealized gains (losses) ......... 2.87 (13.68) 5.11 5.58
------- ------- ------- ------
Total from investment operations ...................... 3.09 (13.26) 5.60 6.19
------- ------- ------- ------
Less distributions from:
Net investment income .............................. (0.49) (0.53) (0.67) (0.19)
Net realized gains ................................. (1.89) (5.21) (2.22) (2.85)
------- ------- ------- ------
Total distributions ................................... (2.38) (5.74) (2.89) (3.04)
------- ------- ------- ------
Redemption fees(d) .................................... -- --(e) --(e) --(e)
------- ------- ------- ------
Net asset value, end of year .......................... $ 25.85 $ 25.14 $ 44.14 $41.43
======= ======= ======= ======
Total return(f) ....................................... 15.33% (33.29)% 13.99% 17.56%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses before waiver and payments by affiliates ..... 0.94% 0.87% 0.84% 0.87%
Expenses net of waiver and payments by affiliates(h) .. 0.93% 0.87% 0.84% 0.87%
Net investment income ................................. 1.03% 1.40% 1.13% 1.46%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $84,298 $61,489 $32,796 $6,298
Portfolio turnover rate ............................... 10.97% 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(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 | 87
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 85.0%
BANKS 2.4%
(a) BFC Financial Corp., A .................................................................. 1,110,000 $ 543,900
(a,b,c) Black River BancVenture Inc. ............................................................ 495,000 3,259,575
First Defiance Financial Corp. .......................................................... 235,000 3,388,700
WSB Holdings Inc. ....................................................................... 166,160 363,890
--------------
7,556,065
--------------
CAPITAL GOODS 13.5%
(d,e) A.O. Smith Corp., Contingent Distribution ............................................... 44,600 256,686
Alamo Group Inc. ........................................................................ 320,000 4,384,000
Burnham Holdings Inc., A ................................................................ 219,000 2,135,250
CIRCOR International Inc. ............................................................... 120,200 3,275,450
Ducommun Inc. ........................................................................... 117,000 1,991,340
(b) Espey Manufacturing and Electronics Corp. ............................................... 153,299 2,974,001
Gibraltar Industries Inc. ............................................................... 356,099 3,852,991
(a) Griffon Corp. ........................................................................... 120,000 1,052,400
(b) Hardinge Inc. ........................................................................... 1,200,000 6,300,000
(a) Hurco Cos. Inc. ......................................................................... 88,000 1,399,200
Insteel Industries Inc. ................................................................. 107,023 1,190,096
(a) Ladish Co. Inc. ......................................................................... 18,738 242,844
(a) Layne Christensen Co. ................................................................... 61,745 1,599,196
(a) Miller Industries Inc. .................................................................. 361,500 3,633,075
(a) Northwest Pipe Co. ...................................................................... 129,844 3,908,304
(a,c) Smith Investment Co. LLC ................................................................ 44,600 293,022
(a) Sparton Corp. ........................................................................... 488,571 2,027,570
(a) Tecumseh Products Co., A ................................................................ 200,000 2,090,000
(a) Tecumseh Products Co., B ................................................................ 12,799 132,726
--------------
42,738,151
--------------
COMMERCIAL & PROFESSIONAL SERVICES 8.4%
Courier Corp. ........................................................................... 280,440 4,158,925
Ecology and Environment Inc., A ......................................................... 199,811 2,897,260
Healthcare Services Group Inc. .......................................................... 585,900 11,571,525
(a) Spherion Corp. .......................................................................... 1,605,000 7,944,750
--------------
26,572,460
--------------
CONSUMER DURABLES & APPAREL 4.9%
Bassett Furniture Industries Inc. ....................................................... 122,100 471,306
Callaway Golf Co. ....................................................................... 100,000 684,000
(a,b) Cobra Electronics Corp. ................................................................. 540,000 685,800
(a,b) Delta Apparel Inc. ...................................................................... 800,000 7,072,000
(a) The Dixie Group Inc. .................................................................... 480,000 1,392,000
Flexsteel Industries Inc. ............................................................... 225,000 1,815,750
(a) Johnson Outdoors Inc., A ................................................................ 125,000 1,093,750
(a) P & F Industries Inc., A ................................................................ 89,700 264,615
(a,b) Tandy Brands Accessories Inc. ........................................................... 540,000 2,133,000
--------------
15,612,221
--------------
DIVERSIFIED FINANCIALS 1.0%
Kohlberg Capital Corp. .................................................................. 624,827 3,317,831
--------------
88 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ENERGY 2.7%
(a) PHI Inc. ................................................................................ 17,600 $ 318,560
(a) PHI Inc., non-voting .................................................................... 470,499 8,083,173
--------------
8,401,733
--------------
FOOD & STAPLES RETAILING 3.4%
Village Super Market Inc., A ............................................................ 356,392 10,691,760
--------------
FOOD, BEVERAGE & TOBACCO 13.7%
(a) Alliance One International Inc. ......................................................... 1,072,000 4,727,520
Griffin Land & Nurseries Inc. ........................................................... 168,000 4,987,920
(a) John B. Sanfilippo & Son Inc. ........................................................... 211,000 2,894,920
(a,b) Omega Protein Corp. ..................................................................... 1,325,000 5,512,000
(a) Seneca Foods Corp., A ................................................................... 578,500 16,018,665
(a) Seneca Foods Corp., B ................................................................... 121,500 3,444,525
(a) Smithfield Foods Inc. ................................................................... 438,600 5,850,924
--------------
43,436,474
--------------
INSURANCE 6.6%
(a,b) ACMAT Corp., A .......................................................................... 392,800 8,248,800
Baldwin & Lyons Inc., B ................................................................. 288,875 6,589,239
Mercer Insurance Group Inc. ............................................................. 156,046 2,899,334
Safety Insurance Group Inc. ............................................................. 51,000 1,706,970
(a) United America Indemnity Ltd. ........................................................... 217,168 1,522,348
--------------
20,966,691
--------------
MATERIALS 8.2%
(a,b) American Pacific Corp. .................................................................. 750,000 5,310,000
Central Steel and Wire Co. .............................................................. 6,905 4,571,110
(a,b) Continental Materials Corp. ............................................................. 120,600 1,326,600
(a) Intertape Polymer Group Inc. (Canada) ................................................... 900,000 1,566,000
(a) Mercer International Inc. (Germany) ..................................................... 430,300 920,842
The Monarch Cement Co. .................................................................. 53,444 1,897,262
(a) RTI International Metals Inc. ........................................................... 300,000 6,213,000
Schweitzer-Mauduit International Inc. ................................................... 12,500 645,625
(a) Universal Stainless & Alloy Products Inc. ............................................... 226,582 3,419,122
--------------
25,869,561
--------------
REAL ESTATE 1.6%
(f) Arbor Realty Trust Inc. ................................................................. 70,000 140,000
Arbor Realty Trust Inc. (legend shares) ................................................. 270,000 540,000
(a) Bresler & Reiner Inc. ................................................................... 205,000 588,350
(a,c) LandCo Real Estate LLC, Liquidating Trust ............................................... 94,800 259,667
(a,b) Origen Financial Inc. ................................................................... 2,540,000 3,581,400
--------------
5,109,417
--------------
RETAILING 7.3%
Brown Shoe Co. Inc. ..................................................................... 282,481 2,929,328
(a) The Coast Distribution System Inc. ...................................................... 66,800 203,740
(a,b) Duckwall-ALCO Stores Inc. ............................................................... 238,000 4,117,400
Fred's Inc. ............................................................................. 287,300 3,401,632
Annual Report | 89
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN MICROCAP VALUE FUND SHARES VALUE
---------------------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
RETAILING (CONTINUED)
(a) Haverty Furniture Cos. Inc. ............................................................. 466,000 $ 5,643,260
(a) Shoe Carnival Inc. ...................................................................... 355,000 5,328,550
(a) Zale Corp. .............................................................................. 290,000 1,371,700
--------------
22,995,610
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 1.5%
(a,c,e) Allen Organ Co., Contigent Distribution ................................................. 94,800 325,164
(a,b) GTSI Corp. .............................................................................. 600,000 4,470,000
--------------
4,795,164
--------------
TELECOMMUNICATION SERVICES 3.2%
Atlantic Tele-Network Inc. .............................................................. 185,230 8,490,943
North State Telecommunications Corp., B ................................................. 21,757 1,675,289
--------------
10,166,232
--------------
TRANSPORTATION 6.6%
(b) International Shipholding Corp. ......................................................... 370,800 12,292,020
(a) P.A.M. Transportation Services Inc. ..................................................... 460,000 3,569,600
Providence and Worcester Railroad Co. ................................................... 205,000 2,316,500
(a) USA Truck Inc. .......................................................................... 230,000 2,582,900
--------------
20,761,020
--------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS (COST $233,533,152) ...................... 268,990,390
--------------
PRINCIPAL
AMOUNT
------------
CONVERTIBLE BONDS (COST $7,000,000) 1.9%
MATERIALS 1.9%
Mercer International Inc., senior sub. note, cvt., 8.50%, 10/15/10 (Germany) ............ $ 7,000,000 5,845,000
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $240,533,152) ..................... 274,835,390
--------------
SHARES
------------
SHORT TERM INVESTMENTS 13.2%
MONEY MARKET FUNDS (COST $41,749,065) 13.2%
(g) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ............................. 41,749,065 41,749,065
--------------
(i) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 0.0%(h)
MONEY MARKET FUNDS (COST $10,470) 0.0%(h)
(a) Bank of New York Institutional Cash Reserve Fund, Series B .............................. 10,470 8,376
--------------
PRINCIPAL
AMOUNT
------------
(j) REPURCHASE AGREEMENTS (COST $147,000) 0.0%(h)
Banc of America Securities LLC, 0.07%, 11/02/09 (Maturity Value $38,000)
Collateralized by U.S. Government Agency Securities,
3.625% - 7.00%, 1/15/11 - 1/15/51 .................................................... $ 38,000 38,000
Barclays Capital Inc., 0.07%, 11/02/09 (Maturity Value $35,000)
Collateralized by U.S. Treasury Notes, 0.875% - 4.625%, 11/15/09 - 2/29/16; and
U.S. Treasury Bonds, 2.375% - 8.00%, 1/15/21 - 1/15/25 ............................... 35,000 35,000
BNP Paribas Securities Corp., 0.07%, 11/02/09 (Maturity Value $36,000)
Collateralized by U.S. Government Agency Securities, 1.375% - 6.21%,
6/11/10 - 8/06/38; and (k)U.S. Government Agency Discount Notes, 4/19/10 ............. 36,000 36,000
90 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
PRINCIPAL
FRANKLIN MICROCAP VALUE FUND AMOUNT VALUE
---------------------------- ------------ --------------
SHORT TERM INVESTMENTS (CONTINUED)
INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES (CONTINUED)
(j) REPURCHASE AGREEMENTS (CONTINUED)
Deutsche Bank Securities Inc., 0.07%, 11/02/09 (Maturity Value $38,000)
Collateralized by U.S. Government Agency Securities,
4.00% - 4.50%, 7/20/39 - 10/20/39 .................................................... $ 38,000 $ 38,000
--------------
147,000
--------------
TOTAL INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES
(COST $157,470) ...................................................................... 155,376
--------------
TOTAL INVESTMENTS (COST $282,439,687) 100.1% ............................................ 316,739,831
OTHER ASSETS, LESS LIABILITIES (0.1)% ................................................... (366,442)
--------------
NET ASSETS 100.0% ....................................................................... $ 316,373,389
==============
(a) Non-income producing.
(b) See Note 9 regarding holdings of 5% voting securities.
(c) See Note 8 regarding restricted securities.
(d) Security has been deemed illiquid because it may not be able to be sold
within seven days. At October 31, 2009, the value of this security was
$256,686, representing 0.08% of net assets.
(e) Contingent distributions represent the right to receive additional
distributions, if any, during the reorganization of the underlying company.
(f) A portion or all of the security is on loan at October 31, 2009. See Note
1(d).
(g) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(h) Rounds to less than 0.1% of net assets.
(i) See Note 1(d) regarding securities on loan.
(j) See Note 1(c) regarding repurchase agreements.
(k) Security is traded on a discount basis with no stated coupon rate.
The accompanying notes are an integral part of these financial statements.
Annual Report | 91
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005(a)
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 7.31 $ 11.92 $ 11.37 $ 9.80 $ 10.00
------- ------- ------- ------- -------
Income from investment operations(b):
Net investment income(c) ........................... 0.02(d) 0.02 0.27(e) 0.04 0.01
Net realized and unrealized gains (losses) ......... 1.07 (4.36) 0.63 1.59 (0.21)
------- ------- ------- ------- -------
Total from investment operations ...................... 1.09 (4.34) 0.90 1.63 (0.20)
------- ------- ------- ------- -------
Less distributions from:
Net investment income .............................. (0.05) (0.12) (0.20) (0.06) --
Net realized gains ................................. -- (0.15) (0.15) -- --
------- ------- ------- ------- -------
Total distributions ................................... (0.05) (0.27) (0.35) (0.06) --
------- ------- ------- ------- -------
Redemption fees(f) .................................... -- --(g) --(g) --(g) --(g)
------- ------- ------- ------- -------
Net asset value, end of year .......................... $ 8.35 $ 7.31 $ 11.92 $ 11.37 $ 9.80
======= ======= ======= ======= =======
Total return(h) ....................................... 15.03% (37.14)% 8.01% 16.70% (2.00)%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by affiliates ..... 1.88% 1.78% 1.65% 1.97% 2.57%
Expenses net of waiver and payments by affiliates ..... 1.36% 1.40%(j) 1.40%(j) 1.40%(j) 1.40%
Net investment income ................................. 0.33%(d) 0.15% 2.26%(e) 0.38% 0.37%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $41,642 $39,626 $72,497 $42,677 $11,804
Portfolio turnover rate ............................... 14.56% 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 $(0.06) per share of
a return of capital adjustment to a previously recorded special dividend
received by the Fund. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 1.16%.
(e) Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a
corporate spin-off. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 1.18%.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Amount rounds to less than $0.01 per share.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
92 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS C 2009 2008 2007 2006 2005(a)
- ------- ------ ------- ------- ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 7.24 $ 11.81 $ 11.29 $ 9.78 $10.00
------ ------- ------- ------ ------
Income from investment operations(b):
Net investment income (loss)(c) .................... (0.02)(d) (0.05) 0.20(e) (0.03) (0.01)
Net realized and unrealized gains (losses) ......... 1.05 (4.31) 0.61 1.59 (0.21)
------ ------- ------- ------ ------
Total from investment operations ...................... 1.03 (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(f) .................................... -- --(g) --(g) --(g) --(g)
------ ------- ------- ------ ------
Net asset value, end of year .......................... $ 8.27 $ 7.24 $ 11.81 $11.29 $ 9.78
====== ======= ======= ====== ======
Total return(h) ....................................... 14.23% (37.54)% 7.27% 15.95% (2.20)%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by affiliates ..... 2.56% 2.41% 2.30% 2.60% 3.22%
Expenses net of waiver and payments by affiliates ..... 2.04% 2.03%(j) 2.05%(j) 2.03%(j) 2.05%
Net investment income (loss) .......................... (0.35)%(d) (0.48)% 1.61%(e) (0.25)% (0.28)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $8,598 $ 7,974 $15,103 $9,406 $3,275
Portfolio turnover rate ............................... 14.56% 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 $(0.06) per share of
a return of capital adjustment to a previously recorded special dividend
received by the Fund. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 0.48%.
(e) Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a
corporate spin-off. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 0.53%.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Amount rounds to less than $0.01 per share.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 93
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------------------------------------
CLASS R 2009 2008 2007 2006 2005(a)
- ------- ------ ------- ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 7.30 $ 11.87 $11.35 $ 9.80 $10.00
------ ------- ------ ------ ------
Income from investment operations(b):
Net investment income(c) ........................... 0.01(d) --(e) 0.27(f) 0.02 0.01
Net realized and unrealized gains (losses) ......... 1.06 (4.34) 0.61 1.59 (0.21)
------ ------- ------ ------ ------
Total from investment operations ...................... 1.07 (4.34) 0.88 1.61 (0.20)
------ ------- ------ ------ ------
Less distributions from:
Net investment income .............................. (0.04) (0.08) (0.21) (0.06) --
Net realized gains ................................. -- (0.15) (0.15) -- --
------ ------- ------ ------ ------
Total distributions ................................... (0.04) (0.23) (0.36) (0.06) --
------ ------- ------ ------ ------
Redemption fees(g) .................................... -- --(e) --(e) --(e) --(e)
------ ------- ------ ------ ------
Net asset value, end of year .......................... $ 8.33 $ 7.30 $11.87 $11.35 $ 9.80
====== ======= ====== ====== ======
Total return(h) ....................................... 14.77% (37.23)% 7.85% 16.47% (2.00)%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by affiliates ..... 2.07% 1.93% 1.80% 2.12% 2.72%
Expenses net of waiver and payments by affiliates ..... 1.55% 1.55%(j) 1.55%(j) 1.55%(j) 1.55%
Net investment income ................................. 0.14%(d) --%(k) 2.11%(f) 0.23% 0.22%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $ 440 $ 339 $ 690 $ 133 $ 36
Portfolio turnover rate ............................... 14.56% 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 $(0.06) per share of
a return of capital adjustment to a previously recorded special dividend
received by the Fund. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 0.97%.
(e) Amount rounds to less than $0.01 per share.
(f) 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%.
(g) Effective September 1, 2008, the redemption fee was eliminated.
(h) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than
one year.
(i) Ratios are annualized for periods less than one year.
(j) Benefit of expense reduction rounds to less than 0.01%.
(k) Rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
94 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN MIDCAP VALUE FUND
YEAR ENDED OCTOBER 31,
----------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005(a)
- ------------- ------ ------- ------ ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 7.35 $ 11.99 $11.42 $ 9.81 $10.00
------ ------- ------ ------ ------
Income from investment operations(b):
Net investment income(c) ........................... 0.04(d) 0.05 0.33(e) 0.08 0.03
Net realized and unrealized gains (losses) ......... 1.07 (4.38) 0.62 1.60 (0.22)
------ ------- ------ ------ ------
Total from investment operations ...................... 1.11 (4.33) 0.95 1.68 (0.19)
------ ------- ------ ------ ------
Less distributions from:
Net investment income .............................. (0.08) (0.16) (0.23) (0.07) --
Net realized gains ................................. -- (0.15) (0.15) -- --
------ ------- ------ ------ ------
Total distributions ................................... (0.08) (0.31) (0.38) (0.07) --
------ ------- ------ ------ ------
Redemption fees(f) .................................... -- --(g) --(g) --(g) --(g)
------ ------- ------ ------ ------
Net asset value, end of year .......................... $ 8.38 $ 7.35 $11.99 $11.42 $ 9.81
====== ======= ====== ====== ======
Total return(h) ....................................... 15.43% (36.97)% 8.42% 17.18% (1.90)%
RATIOS TO AVERAGE NET ASSETS(i)
Expenses before waiver and payments by affiliates ..... 1.57% 1.43% 1.30% 1.62% 2.22%
Expenses net of waiver and payments by affiliates ..... 1.05% 1.05%(j) 1.05%(j) 1.05%(j) 1.05%
Net investment income ................................. 0.64%(d) 0.50% 2.61%(e) 0.73% 0.72%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $1,198 $ 767 $1,136 $ 777 $ 434
Portfolio turnover rate ............................... 14.56% 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 $(0.06) per share of
a return of capital adjustment to a previously recorded special dividend
received by the Fund. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 1.47%.
(e) Net investment income per share includes approximately $0.13 per share
received in the form of a special dividend paid in connection with a
corporate spin-off. Excluding this non-recurring amount, the ratio of net
investment income to average net assets would have been 1.53%.
(f) Effective September 1, 2008, the redemption fee was eliminated.
(g) Amount rounds to less than $0.01 per share.
(h) Total return is not annualized for periods less than one year.
(i) Ratios are annualized for periods less than one year.
(j) 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
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
SHARES/
FRANKLIN MIDCAP VALUE FUND UNITS VALUE
-------------------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS 96.0%
AUTOMOBILES & COMPONENTS 3.2%
Autoliv Inc. (Sweden) ................................................................... 24,700 $ 829,426
Harley-Davidson Inc. .................................................................... 32,900 819,868
--------------
1,649,294
--------------
BANKS 3.7%
Hudson City Bancorp Inc. ................................................................ 82,000 1,077,480
PNC Financial Services Group Inc. ....................................................... 16,927 828,407
--------------
1,905,887
--------------
CAPITAL GOODS 9.5%
Carlisle Cos. Inc. ...................................................................... 18,800 583,552
Dover Corp. ............................................................................. 17,400 655,632
Eaton Corp. ............................................................................. 9,100 550,095
Graco Inc. .............................................................................. 24,700 680,238
Roper Industries Inc. ................................................................... 20,100 1,016,055
(a) Terex Corp. ............................................................................. 26,200 529,764
W.W. Grainger Inc. ...................................................................... 9,700 909,181
--------------
4,924,517
--------------
COMMERCIAL & PROFESSIONAL SERVICES 0.6%
Robert Half International Inc. .......................................................... 12,900 299,280
--------------
CONSUMER DURABLES & APPAREL 4.6%
Fortune Brands Inc. ..................................................................... 24,300 946,485
Hasbro Inc. ............................................................................. 39,000 1,063,530
M.D.C. Holdings Inc. .................................................................... 12,100 394,702
--------------
2,404,717
--------------
CONSUMER SERVICES 2.1%
Hillenbrand Inc. ........................................................................ 53,500 1,068,930
--------------
DIVERSIFIED FINANCIALS 1.9%
(a) KKR & Co. Guernsey LP (Units) ........................................................... 109,200 971,880
--------------
ENERGY 9.3%
Chesapeake Energy Corp. ................................................................. 24,900 610,050
ENSCO International Inc. ................................................................ 24,196 1,107,935
Overseas Shipholding Group Inc. ......................................................... 21,200 832,100
Peabody Energy Corp. .................................................................... 23,000 910,570
Teekay Corp. (Bahamas) .................................................................. 19,100 396,325
Tidewater Inc. .......................................................................... 23,000 958,410
--------------
4,815,390
--------------
FOOD, BEVERAGE & TOBACCO 7.4%
Bunge Ltd. .............................................................................. 7,394 421,902
Corn Products International Inc. ........................................................ 13,000 366,340
(a) Dean Foods Co. .......................................................................... 83,900 1,529,497
McCormick & Co. Inc. .................................................................... 43,800 1,533,438
--------------
3,851,177
--------------
96 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
SHARES/
FRANKLIN MIDCAP VALUE FUND UNITS VALUE
-------------------------- ------------ --------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
HEALTH CARE EQUIPMENT & SERVICES 5.0%
Hill-Rom Holdings Inc. .................................................................. 42,300 $ 828,657
(a) Laboratory Corp. of America Holdings .................................................... 18,900 1,302,021
(a) LifePoint Hospitals Inc. ................................................................ 16,100 456,113
--------------
2,586,791
--------------
HOUSEHOLD & PERSONAL PRODUCTS 3.2%
Alberto-Culver Co. ...................................................................... 61,700 1,654,794
--------------
INSURANCE 4.5%
Arthur J. Gallagher & Co. ............................................................... 14,200 316,802
Cincinnati Financial Corp. .............................................................. 24,800 628,928
Erie Indemnity Co., A ................................................................... 33,500 1,180,875
Old Republic International Corp. ........................................................ 22,175 236,829
--------------
2,363,434
--------------
MATERIALS 12.6%
Airgas Inc. ............................................................................. 30,100 1,335,236
Bemis Co. Inc. .......................................................................... 34,600 893,718
Celanese Corp., A ....................................................................... 64,500 1,770,525
MeadWestvaco Corp. ...................................................................... 28,700 655,221
Nucor Corp. ............................................................................. 14,100 561,885
Sigma-Aldrich Corp. ..................................................................... 25,100 1,303,443
--------------
6,520,028
--------------
MEDIA 2.3%
Time Warner Cable Inc. .................................................................. 31,000 1,222,640
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 5.0%
(a) Endo Pharmaceuticals Holdings Inc. ...................................................... 41,600 931,840
Pharmaceutical Product Development Inc. ................................................. 47,100 1,015,005
(a) Watson Pharmaceuticals Inc. ............................................................. 19,400 667,748
--------------
2,614,593
--------------
RETAILING 5.0%
Family Dollar Stores Inc. ............................................................... 10,000 283,000
J.C. Penney Co. Inc. .................................................................... 34,100 1,129,733
Nordstrom Inc. .......................................................................... 37,500 1,191,750
--------------
2,604,483
--------------
SOFTWARE & SERVICES 2.7%
(a) SAIC Inc. ............................................................................... 79,300 1,404,403
--------------
TRANSPORTATION 1.7%
J.B. Hunt Transport Services Inc. ....................................................... 29,000 871,740
--------------
UTILITIES 11.7%
Atmos Energy Corp. ...................................................................... 56,100 1,562,385
DTE Energy Co. .......................................................................... 31,700 1,172,266
Northeast Utilities ..................................................................... 27,100 624,655
NV Energy Inc. .......................................................................... 141,000 1,615,860
Sempra Energy ........................................................................... 21,600 1,111,320
--------------
6,086,486
--------------
Annual Report | 97
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN MIDCAP VALUE FUND SHARES VALUE
-------------------------- ------------ --------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS (COST $55,876,580) ....................... $ 49,820,464
--------------
SHORT TERM INVESTMENTS (COST $1,299,642) 2.5%
MONEY MARKET FUNDS 2.5%
(b) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ............................. 1,299,642 1,299,642
--------------
TOTAL INVESTMENTS (COST $57,176,222) 98.5% .............................................. 51,120,106
OTHER ASSETS, LESS LIABILITIES 1.5% ..................................................... 757,918
--------------
NET ASSETS 100.0% ....................................................................... $ 51,878,024
==============
See Abbreviations on page 137.
(a) Non-income producing.
(b) See Note 7 regarding investments in the 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.
98 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
CLASS A 2009 2009 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 28.58 $ 45.94 $ 45.27 $ 39.41 $ 34.37
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ........................... 0.19 0.34 0.29 0.17 0.15
Net realized and unrealized gains (losses) ......... 4.53 (15.72) 3.71 6.70 5.15
-------- -------- -------- -------- --------
Total from investment operations ...................... 4.72 (15.38) 4.00 6.87 5.30
-------- -------- -------- -------- --------
Less distributions from:
Net investment income .............................. (0.29) (0.35) (0.28) (0.10) (0.26)
Net realized gains ................................. -- (1.63) (3.05) (0.91) --
-------- -------- -------- -------- --------
Total distributions ................................... (0.29) (1.98) (3.33) (1.01) (0.26)
-------- -------- -------- -------- --------
Redemption fees(c) .................................... -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 33.01 $ 28.58 $ 45.94 $ 45.27 $ 39.41
======== ======== ======== ======== ========
Total return(e) ....................................... 16.86% (34.67)% 9.15% 17.73% 15.46%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ........................................... 1.37% 1.26% 1.17% 1.22% 1.29%
Net investment income ................................. 0.68% 0.87% 0.62% 0.40% 0.39%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $644,675 $543,933 $849,226 $703,238 $486,563
Portfolio turnover rate ............................... 2.58% 18.90% 6.49% 17.39% 12.73%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 | 99
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
---------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 27.30 $ 43.90 $ 43.43 $ 38.00 $ 33.20
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .................... --(c) 0.06 (0.05) (0.12) (0.09)
Net realized and unrealized gains (losses) ......... 4.36 (15.03) 3.57 6.46 4.97
------- ------- ------- ------- -------
Total from investment operations ...................... 4.36 (14.97) 3.52 6.34 4.88
------- ------- ------- ------- -------
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(d) .................................... -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- -------
Net asset value, end of year .......................... $ 31.66 $ 27.30 $ 43.90 $ 43.43 $ 38.00
======= ======= ======= ======= =======
Total return(e) ....................................... 15.97% (35.16)% 8.36% 16.98% 14.68%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ........................................... 2.10% 1.98% 1.90% 1.90% 1.94%
Net investment income (loss) .......................... (0.05)% 0.15% (0.11)% (0.28)% (0.26)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $28,957 $35,080 $71,955 $79,482 $76,575
Portfolio turnover rate ............................... 2.58% 18.90% 6.49% 17.39% 12.73%
(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.
100 | Annual Report
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 26.94 $ 43.37 $ 42.99 $ 37.63 $ 32.86
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .................... (0.01) 0.06 (0.04) (0.11) (0.09)
Net realized and unrealized gains (losses) ......... 4.30 (14.83) 3.52 6.38 4.92
-------- -------- -------- -------- --------
Total from investment operations ...................... 4.29 (14.77) 3.48 6.27 4.83
-------- -------- -------- -------- --------
Less distributions from:
Net investment income .............................. (0.03) (0.03) (0.05) -- (0.06)
Net realized gains ................................. -- (1.63) (3.05) (0.91) --
-------- -------- -------- -------- --------
Total distributions ................................... (0.03) (1.66) (3.10) (0.91) (0.06)
-------- -------- -------- -------- --------
Redemption fees(c) .................................... -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 31.20 $ 26.94 $ 43.37 $ 42.99 $ 37.63
======== ======== ======== ======== ========
Total return(e) ....................................... 15.98% (35.14)% 8.35% 16.96% 14.69%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ........................................... 2.10% 1.97% 1.90% 1.90% 1.94%
Net investment income (loss) .......................... (0.05)% 0.16% (0.11)% (0.28)% (0.26)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $159,441 $146,824 $262,339 $240,395 $186,490
Portfolio turnover rate ............................... 2.58% 18.90% 6.49% 17.39% 12.73%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(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 | 101
Franklin Value Investors Trust
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- -------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 28.37 $ 45.66 $ 45.07 $ 39.22 $ 34.24
-------- -------- -------- ------- -------
Income from investment operations(a):
Net investment income(b) ........................... 0.12 0.25 0.18 0.10 0.09
Net realized and unrealized gains (losses) ......... 4.51 (15.62) 3.70 6.66 5.14
-------- -------- -------- ------- -------
Total from investment operations ...................... 4.63 (15.37) 3.88 6.76 5.23
-------- -------- -------- ------- -------
Less distributions from:
Net investment income .............................. (0.25) (0.29) (0.24) --(c) (0.25)
Net realized gains ................................. -- (1.63) (3.05) (0.91) --
-------- -------- -------- ------- -------
Total distributions ................................... (0.25) (1.92) (3.29) (0.91) (0.25)
-------- -------- -------- ------- -------
Redemption fees(d) .................................... -- --(c) --(c) --(c) --(c)
-------- -------- -------- ------- -------
Net asset value, end of year .......................... $ 32.75 $ 28.37 $ 45.66 $ 45.07 $ 39.22
======== ======== ======== ======= =======
Total return(e) ....................................... 16.60% (34.84)% 8.89% 17.54% 15.24%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ........................................... 1.60% 1.48% 1.40% 1.40% 1.44%
Net investment income ................................. 0.45% 0.65% 0.39% 0.22% 0.24%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $172,652 $107,475 $110,497 $56,811 $31,550
Portfolio turnover rate ............................... 2.58% 18.90% 6.49% 17.39% 12.73%
(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,
---------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................... $ 29.44 $ 47.26 $ 46.46 $ 40.42 $ 35.21
-------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ........................... 0.27 0.46 0.43 0.32 0.29
Net realized and unrealized gains (losses) ......... 4.64 (16.17) 3.80 6.86 5.28
-------- ------- ------- ------- -------
Total from investment operations ...................... 4.91 (15.71) 4.23 7.18 5.57
-------- ------- ------- ------- -------
Less distributions from:
Net investment income .............................. (0.39) (0.48) (0.38) (0.23) (0.36)
Net realized gains ................................. -- (1.63) (3.05) (0.91) --
-------- ------- ------- ------- -------
Total distributions ................................... (0.39) (2.11) (3.43) (1.14) (0.36)
-------- ------- ------- ------- -------
Redemption fees(c) .................................... -- --(d) --(d) --(d) --(d)
-------- ------- ------- ------- -------
Net asset value, end of year .......................... $ 33.96 $ 29.44 $ 47.26 $ 46.46 $40.42
======== ======= ======= ======= =======
Total return .......................................... 17.13% (34.48)% 9.43% 18.13% 15.84%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) ........................................... 1.10% 0.98% 0.90% 0.90% 0.94%
Net investment income ................................. 0.95% 1.15% 0.89% 0.72% 0.74%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $207,391 $76,269 $65,753 $56,912 $37,852
Portfolio turnover rate ............................... 2.58% 18.90% 6.49% 17.39% 12.73%
(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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) 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
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ --------------
COMMON STOCKS 88.6%
AUTOMOBILES & COMPONENTS 4.6%
Autoliv Inc. (Sweden) ................................................................... 430,000 $ 14,439,400
(a) Drew Industries Inc. .................................................................... 102,300 1,958,022
Gentex Corp. ............................................................................ 768,000 12,295,680
Thor Industries Inc. .................................................................... 787,000 20,635,140
(a) Winnebago Industries Inc. ............................................................... 560,000 6,440,000
--------------
55,768,242
--------------
BANKS 2.1%
Chemical Financial Corp. ................................................................ 469,355 10,302,342
Peoples Bancorp Inc. .................................................................... 183,500 1,970,790
TrustCo Bank Corp. NY ................................................................... 2,178,000 12,959,100
--------------
25,232,232
--------------
CAPITAL GOODS 20.7%
A.O. Smith Corp. ........................................................................ 108,000 4,280,040
American Woodmark Corp. ................................................................. 383,900 7,551,313
Apogee Enterprises Inc. ................................................................. 908,000 12,021,920
Applied Industrial Technologies Inc. .................................................... 250,600 5,069,638
(a) Astec Industries Inc. ................................................................... 144,700 3,328,100
Brady Corp., A .......................................................................... 492,300 13,331,484
Briggs & Stratton Corp. ................................................................. 436,000 8,153,200
Carlisle Cos. Inc. ...................................................................... 458,000 14,216,320
(a) Ceradyne Inc. ........................................................................... 192,200 3,098,264
CIRCOR International Inc. ............................................................... 150,000 4,087,500
(a) CNH Global NV (Netherlands) ............................................................. 85,000 1,624,350
(a) EMCOR Group Inc. ........................................................................ 283,000 6,684,460
Franklin Electric Co. Inc. .............................................................. 256,300 6,991,864
(a) Gardner Denver Inc. ..................................................................... 337,000 12,101,670
Gibraltar Industries Inc. ............................................................... 1,041,500 11,269,030
Graco Inc. .............................................................................. 500,000 13,770,000
Kennametal Inc. ......................................................................... 530,000 12,486,800
Lincoln Electric Holdings Inc. .......................................................... 231,000 10,958,640
Mueller Industries Inc. ................................................................. 580,000 13,722,800
Nordson Corp. ........................................................................... 274,000 14,458,980
(a) Powell Industries Inc. .................................................................. 81,000 2,979,180
Roper Industries Inc. ................................................................... 220,000 11,121,000
Simpson Manufacturing Co. Inc. .......................................................... 447,700 10,471,703
Timken Co. .............................................................................. 128,000 2,819,840
Trinity Industries Inc. ................................................................. 880,000 14,854,400
Universal Forest Products Inc. .......................................................... 507,800 18,118,304
(a) Wabash National Corp. ................................................................... 1,158,500 2,270,660
Watts Water Technologies Inc., A ........................................................ 327,600 9,254,700
--------------
251,096,160
--------------
COMMERCIAL & PROFESSIONAL SERVICES 2.1%
ABM Industries Inc. ..................................................................... 686,000 12,883,080
Mine Safety Appliances Co. .............................................................. 480,000 12,235,200
--------------
25,118,280
--------------
104 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
CONSUMER DURABLES & APPAREL 5.7%
Bassett Furniture Industries Inc. ....................................................... 250,500 $ 966,930
Brunswick Corp. ......................................................................... 490,000 4,645,200
D.R. Horton Inc. ........................................................................ 901,000 9,874,960
Ethan Allen Interiors Inc. .............................................................. 595,000 7,413,700
(b) Hooker Furniture Corp. .................................................................. 582,900 7,466,949
La-Z-Boy Inc. ........................................................................... 862,000 6,120,200
M.D.C. Holdings Inc. .................................................................... 276,300 9,012,906
(a) M/I Homes Inc. .......................................................................... 577,900 6,455,143
(a) Timberland Co., A ....................................................................... 181,000 2,928,580
(a) The Warnaco Group Inc. .................................................................. 346,000 14,023,380
--------------
68,907,948
--------------
CONSUMER SERVICES 0.6%
Regis Corp. ............................................................................. 453,000 7,356,720
--------------
ENERGY 9.6%
Arch Coal Inc. .......................................................................... 136,000 2,945,760
(a) Atwood Oceanics Inc. .................................................................... 269,000 9,546,810
(a) Bristow Group Inc. ...................................................................... 415,600 12,114,740
CARBO Ceramics Inc. ..................................................................... 23,000 1,342,970
CONSOL Energy Inc. ...................................................................... 91,000 3,895,710
(a) Global Industries Ltd. .................................................................. 1,239,200 9,033,768
(a) Helix Energy Solutions Group Inc. ....................................................... 811,000 11,135,030
(a) Oil States International Inc. ........................................................... 335,000 11,537,400
Overseas Shipholding Group Inc. ......................................................... 204,000 8,007,000
Peabody Energy Corp. .................................................................... 119,000 4,711,210
Rowan Cos. Inc. ......................................................................... 827,000 19,227,750
Teekay Corp. (Bahamas) .................................................................. 295,500 6,131,625
Tidewater Inc. .......................................................................... 120,000 5,000,400
(a) Unit Corp. .............................................................................. 308,000 12,036,640
--------------
116,666,813
--------------
FOOD & STAPLES RETAILING 1.2%
Casey's General Stores Inc. ............................................................. 458,200 14,447,046
--------------
HEALTH CARE EQUIPMENT & SERVICES 2.3%
STERIS Corp. ............................................................................ 284,000 8,309,840
Teleflex Inc. ........................................................................... 223,600 11,124,100
West Pharmaceutical Services Inc. ....................................................... 205,200 8,099,244
--------------
27,533,184
--------------
INSURANCE 10.6%
American National Insurance Co. ......................................................... 91,000 7,597,590
Arthur J. Gallagher & Co. ............................................................... 304,400 6,791,164
Aspen Insurance Holdings Ltd. ........................................................... 644,000 16,615,200
Erie Indemnity Co., A ................................................................... 205,000 7,226,250
Montpelier Re Holdings Ltd. (Bermuda) ................................................... 810,000 13,089,600
Old Republic International Corp. ........................................................ 1,820,000 19,437,600
Protective Life Corp. ................................................................... 1,170,000 22,522,500
RLI Corp. ............................................................................... 162,100 8,105,000
Annual Report | 105
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
StanCorp Financial Group Inc. ........................................................... 225,000 $ 8,259,750
(a,c) Syncora Holdings Ltd. ................................................................... 314,000 106,760
Validus Holdings Ltd. (Bermuda) ......................................................... 566,111 14,322,608
Zenith National Insurance Corp. ......................................................... 170,300 4,858,659
--------------
128,932,681
--------------
MATERIALS 10.1%
Airgas Inc. ............................................................................. 289,900 12,859,964
AptarGroup Inc. ......................................................................... 258,500 9,127,635
Cabot Corp. ............................................................................. 420,000 9,210,600
Gerdau Ameristeel Corp. (Canada) ........................................................ 1,409,000 9,581,200
Glatfelter .............................................................................. 746,400 7,889,448
Reliance Steel & Aluminum Co. ........................................................... 485,000 17,692,800
RPM International Inc. .................................................................. 926,000 16,316,120
Steel Dynamics Inc. ..................................................................... 1,178,600 15,781,454
United States Steel Corp. ............................................................... 51,000 1,758,990
Westlake Chemical Corp. ................................................................. 899,900 21,858,572
--------------
122,076,783
--------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 2.3%
(a) Mettler-Toledo International Inc. ....................................................... 150,500 14,673,750
Pharmaceutical Product Development Inc. ................................................. 585,100 12,608,905
--------------
27,282,655
--------------
RETAILING 8.5%
Brown Shoe Co. Inc. ..................................................................... 1,001,000 10,380,370
Christopher & Banks Corp. ............................................................... 1,490,000 9,074,100
Fred's Inc. ............................................................................. 782,000 9,258,880
Group 1 Automotive Inc. ................................................................. 530,000 13,472,600
(a) Gymboree Corp. .......................................................................... 141,800 6,036,426
J.C. Penney Co. Inc. .................................................................... 580,000 19,215,400
The Men's Wearhouse Inc. ................................................................ 697,000 16,149,490
(a) Pier 1 Imports Inc. ..................................................................... 810,000 2,851,200
(a,c) Saks Inc. ............................................................................... 803,000 4,504,830
(a) Tuesday Morning Corp. ................................................................... 614,000 1,983,220
(a) West Marine Inc. ........................................................................ 795,000 6,057,900
(a) Zale Corp. .............................................................................. 935,000 4,422,550
--------------
103,406,966
--------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.9%
Cohu Inc. ............................................................................... 832,100 9,469,298
(a) OmniVision Technologies Inc. ............................................................ 129,000 1,581,540
--------------
11,050,838
--------------
TECHNOLOGY HARDWARE & EQUIPMENT 2.4%
(a) Benchmark Electronics Inc. .............................................................. 1,135,000 19,068,000
Diebold Inc. ............................................................................ 87,600 2,649,024
(a) Rofin-Sinar Technologies Inc. ........................................................... 346,000 7,421,700
--------------
29,138,724
--------------
106 | Annual Report
Franklin Value Investors Trust
STATEMENT OF INVESTMENTS, OCTOBER 31, 2009 (CONTINUED)
FRANKLIN SMALL CAP VALUE FUND SHARES VALUE
----------------------------- ------------ --------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION 2.1%
(a) Genesee & Wyoming Inc. .................................................................. 386,000 $ 11,197,860
(a) Kansas City Southern .................................................................... 142,800 3,460,044
SkyWest Inc. ............................................................................ 808,400 11,293,348
--------------
25,951,252
--------------
UTILITIES 2.8%
Atmos Energy Corp. ...................................................................... 171,200 4,767,920
Energen Corp. ........................................................................... 284,000 12,461,920
NV Energy Inc. .......................................................................... 1,510,000 17,304,600
--------------
34,534,440
--------------
TOTAL COMMON STOCKS (COST $1,085,148,020) ............................................... 1,074,500,964
--------------
PRINCIPAL
AMOUNT
------------
CORPORATE BONDS (COST $1,307,584) 0.1%
CAPITAL GOODS 0.1%
Mueller Industries Inc., 6.00%, 11/01/14 ................................................ $ 1,319,000 1,233,265
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $1,086,455,604) ................... 1,075,734,229
--------------
SHARES
------------
SHORT TERM INVESTMENTS 13.2%
MONEY MARKET FUNDS (COST $159,125,591) 13.1%
(d) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ............................. 159,125,591 159,125,591
--------------
(e) INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 0.1%
MONEY MARKET FUNDS (COST $1,214,338) 0.1%
(a) Bank of New York Institutional Cash Reserve Fund, Series B .............................. 1,214,338 971,471
--------------
TOTAL INVESTMENTS (COST $1,246,795,533) 101.9% .......................................... 1,235,831,291
OTHER ASSETS, LESS LIABILITIES (1.9)% ................................................... (22,715,293)
--------------
NET ASSETS 100.0% ....................................................................... $1,213,115,998
==============
(a) Non-income producing.
(b) See Note 9 regarding holdings of 5% voting securities.
(c) A portion or all of the security is on loan at October 31, 2009. See Note
1(d).
(d) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(e) See Note 1(d) regarding securities on loan.
The accompanying notes are an integral part of these financial statements.
Annual Report | 107
Franklin Value Investors Trust
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
------------ --------------- -------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................................... $ 12,274,571 $ 1,719,757,036 $ 133,910,122
Cost - Non-controlled affiliated issuers (Note 9) ......................... -- 179,751,772 --
Cost - Sweep Money Fund (Note 7) .......................................... 266,515 113,949,153 13,227,025
------------ --------------- -------------
Total cost of investments ................................................. $ 12,541,086 $ 2,013,457,961 $ 147,137,147
============ =============== =============
Value - Unaffiliated issuers .............................................. $ 12,260,838 $ 2,170,301,216 $ 123,539,835
Value - Non-controlled affiliated issuers (Note 9) ........................ -- 73,626,676 --
Value - Sweep Money Fund (Note 7) ......................................... 266,515 113,949,153 13,227,025
------------ --------------- -------------
Total value of investments(a) ............................................. 12,527,353 2,357,877,045 136,766,860
Receivables:
Investment securities sold ................................................ 132,817 536,047 --
Capital shares sold ....................................................... 52,421 2,842,776 383,240
Dividends and interest .................................................... 6,244 1,560,707 133,825
Affiliates ................................................................ 8,833 -- --
Other assets ................................................................. 9 1,347 70
------------ --------------- -------------
Total assets ........................................................... 12,727,677 2,362,817,922 137,283,995
------------ --------------- -------------
Liabilities:
Payables:
Investment securities purchased ........................................ 7,343 2,467,260 --
Capital shares redeemed ................................................ 25,605 4,582,052 765,167
Affiliates ............................................................. -- 1,807,253 155,684
Reports to shareholders ................................................ 2,557 118,137 17,392
Unaffiliated transfer agent fees ....................................... 1,651 1,183,706 23,399
Funds advanced by custodian ............................................... -- 2,305,653 --
Payable upon return of securities loaned .................................. -- 730,000 --
Accrued expenses and other liabilities .................................... 787 269,870 6,593
------------ --------------- -------------
Total liabilities ...................................................... 37,943 13,463,931 968,235
------------ --------------- -------------
Net assets, at value ................................................ $ 12,689,734 $ 2,349,353,991 $ 136,315,760
============ =============== =============
Net assets consist of:
Paid-in capital ........................................................... $ 17,213,767 $ 2,006,520,682 $ 153,596,016
Undistributed net investment income ....................................... 59,019 16,238,530 752,134
Net unrealized appreciation (depreciation) ................................ (13,733) 344,419,084 (10,370,287)
Accumulated net realized gain (loss) ...................................... (4,569,319) (17,824,305) (7,662,103)
------------ --------------- -------------
Net assets, at value ................................................ $ 12,689,734 $ 2,349,353,991 $ 136,315,760
============ =============== =============
(a)Includes securities loaned ................................................... $ -- $ 655,248 $ --
============ =============== =============
The accompanying notes are an integral part of these financial statements.
108 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
----------- --------------- -----------
CLASS A:
Net assets, at value ......................................................... $10,167,441 $2,081,258,291 $98,251,807
=========== ============== ===========
Shares outstanding ........................................................... 1,489,291 52,986,193 9,241,411
=========== ============== ===========
Net asset value per share(a), ................................................ $ 6.83 $ 39.28 $ 10.63
=========== ============== ===========
Maximum offering price per share (net asset value per share / 94.25%) ........ $ 7.25 $ 41.68 $ 11.28
=========== ============== ===========
CLASS B:
Net assets, at value ......................................................... -- $ 34,726,462 $ 6,615,837
=========== ============== ===========
Shares outstanding ........................................................... -- 893,236 627,975
=========== ============== ===========
Net asset value and maximum offering price per share(a) ...................... -- $ 38.88 $ 10.54
=========== ============== ===========
CLASS C:
Net assets, at value ......................................................... $ 1,564,896 $ 72,183,685 $23,845,058
=========== ============== ===========
Shares outstanding ........................................................... 231,128 1,865,139 2,266,246
=========== ============== ===========
Net asset value and maximum offering price per share(a) ...................... $ 6.77 $ 38.70 $ 10.52
=========== ============== ===========
CLASS R:
Net assets, at value ......................................................... $ 18,310 $ 28,264,167 $ 3,707,468
=========== ============== ===========
Shares outstanding ........................................................... 2,683 721,232 351,581
=========== ============== ===========
Net asset value and maximum offering price per share ......................... $ 6.82 $ 39.19 $ 10.55
=========== ============== ===========
ADVISOR CLASS:
Net assets, at value ......................................................... $ 939,087 $ 132,921,386 $ 3,895,590
=========== ============== ===========
Shares outstanding ........................................................... 136,928 3,331,975 367,459
=========== ============== ===========
Net asset value and maximum offering price per share ......................... $ 6.86 $ 39.89 $ 10.60
=========== ============== ===========
(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 | 109
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------ ------------ --------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ............................................... $178,944,346 $ 55,876,580 $1,077,988,376
Cost - Non-controlled affiliated issuers (Note 9) ......................... 61,599,276 -- 9,681,566
Cost - Sweep Money Fund (Note 7) .......................................... 41,749,065 1,299,642 159,125,591
Cost - Repurchase agreements .............................................. 147,000 -- --
------------ ------------ --------------
Total cost of investments ................................................. $282,439,687 $ 57,176,222 $1,246,795,533
============ ============ ==============
Value - Unaffiliated issuers .............................................. $207,561,170 $ 49,820,464 $1,069,238,751
Value - Non-controlled affiliated issuers (Note 9) ........................ 67,282,596 -- 7,466,949
Value - Sweep Money Fund (Note 7) ......................................... 41,749,065 1,299,642 159,125,591
Value - Repurchase agreements ............................................. 147,000 -- --
------------ ------------ --------------
Total value of investments(a) ............................................. 316,739,831 51,120,106 1,235,831,291
Receivables:
Investment securities sold ................................................ -- 965,053 --
Capital shares sold ....................................................... 171,443 120,256 2,183,618
Dividends and interest .................................................... 298,272 26,828 689,260
Other assets ................................................................. 156 28 545
------------ ------------ --------------
Total assets ........................................................... 317,209,702 52,232,271 1,238,704,714
============ ============ ==============
Liabilities:
Payables:
Investment securities purchased ........................................... -- -- 17,031,125
Capital shares redeemed ................................................... 346,923 278,378 5,479,450
Affiliates ................................................................ 255,781 51,870 1,271,974
Allocator Funds (Note 10) ................................................. 4,293 -- --
Funds advanced by custodian .................................................. 10,470 -- 872,213
Payable upon return of securities loaned ..................................... 147,000 -- 342,125
Accrued expenses and other liabilities ....................................... 71,846 23,999 591,829
------------ ------------ --------------
Total liabilities ...................................................... 836,313 354,247 25,588,716
------------ ------------ --------------
Net assets, at value ................................................ $316,373,389 $ 51,878,024 $1,213,115,998
============ ============ ==============
Net assets consist of:
Paid-in capital .............................................................. $281,020,721 $ 72,632,124 $1,254,216,789
Undistributed net investment income .......................................... 1,422,813 226,746 3,425,482
Net unrealized appreciation (depreciation) ................................... 34,300,144 (6,056,116) (10,964,242)
Accumulated net realized gain (loss) ......................................... (370,289) (14,924,730) (33,562,031)
------------ ------------ --------------
Net assets, at value ................................................ $316,373,389 $ 51,878,024 $1,213,115,998
============ ============ ==============
(a)Includes securities loaned ................................................... $ 139,800 $ -- $ 275,587
============ ============ ==============
The accompanying notes are an integral part of these financial statements.
110 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
------------ ----------- ------------
CLASS A:
Net assets, at value ......................................................... $232,075,379 $41,642,022 $644,675,293
============ =========== ============
Shares outstanding ........................................................... 8,982,811 4,988,078 19,531,235
============ =========== ============
Net asset value per share(a) ................................................. $ 25.84 $ 8.35 $ 33.01
============ =========== ============
Maximum offering price per share (net asset value per share / 94.25%) ........ $ 27.42 $ 8.86 $ 35.02
============ =========== ============
CLASS B:
Net assets, at value ......................................................... -- -- $ 28,957,231
============ =========== ============
Shares outstanding ........................................................... -- -- 914,552
============ =========== ============
Net asset value and maximum offering price per share(a) ...................... -- -- $ 31.66
============ =========== ============
CLASS C:
Net assets, at value ......................................................... -- $ 8,598,069 $159,440,620
============ =========== ============
Shares outstanding ........................................................... -- 1,039,427 5,110,044
============ =========== ============
Net asset value and maximum offering price per share(a) ...................... -- $ 8.27 $ 31.20
============ =========== ============
CLASS R:
Net assets, at value ......................................................... -- $ 439,899 $172,651,590
============ =========== ============
Shares outstanding ........................................................... -- 52,801 5,272,441
============ =========== ============
Net asset value and maximum offering price per share ......................... -- $ 8.33 $ 32.75
============ =========== ============
ADVISOR CLASS:
Net assets, at value ......................................................... $ 84,298,010 $ 1,198,034 $207,391,264
============ =========== ============
Shares outstanding ........................................................... 3,261,078 143,027 6,107,046
============ =========== ============
Net asset value and maximum offering price per share ......................... $ 25.85 $ 8.38 $ 33.96
============ =========== ============
(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 | 111
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
ALL CAP BALANCE SHEET LARGE CAP
VALUE FUND INVESTMENT FUND VALUE FUND
----------- --------------- -----------
Investment income:
Dividends:
Unaffiliated issuers ...................................................... $ 252,354 $ 46,295,598 $ 3,173,664
Sweep Money Fund (Note 7) ................................................. 3,211 1,048,372 6,994
Interest ..................................................................... -- 370,043 --
Income from securities loaned ................................................ -- 180,308 78,569
----------- ------------ -----------
Total investment income ............................................. 255,565 47,894,321 3,259,227
----------- ------------ -----------
Expenses:
Management fees (Note 3a) .................................................... 64,213 9,500,638 622,724
Administrative fees (Note 3b) ................................................ 24,324 -- 229,984
Distribution fees: (Note 3c)
Class A ................................................................... 31,084 4,979,960 229,288
Class B ................................................................... -- 404,246 65,047
Class C ................................................................... 14,608 674,617 216,148
Class R ................................................................... 49 125,619 16,103
Transfer agent fees (Note 3e) ................................................ 29,550 6,090,878 354,838
Custodian fees (Note 4) ...................................................... 179 34,101 1,608
Reports to shareholders ...................................................... 6,868 298,900 46,499
Registration and filing fees ................................................. 48,817 244,431 69,251
Professional fees ............................................................ 27,104 76,201 24,700
Trustees' fees and expenses .................................................. 1,034 247,319 13,733
Other ........................................................................ 9,086 47,228 13,410
----------- ------------ -----------
Total expenses ......................................................... 256,916 22,724,138 1,903,333
Expense reductions (Note 4) ............................................ (9) (118) --
Expenses waived/paid by affiliates (Note 3f) ........................... (101,729) -- --
----------- ------------ -----------
Net expenses ........................................................ 155,178 22,724,020 1,903,333
----------- ------------ -----------
Net investment income ............................................ 100,387 25,170,301 1,355,894
----------- ------------ -----------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................... (3,437,900) (18,667,171) (567,967)
Capital gains distribution ................................................ -- 1,452,104 --
Foreign currency transactions ............................................. (218) 16,624 --
----------- ------------ -----------
Net realized gain (loss) ............................................ (3,438,118) (17,198,443) (567,967)
----------- ------------ -----------
Net change in unrealized appreciation (depreciation) on investments ............. 4,095,399 193,690,156 9,491,661
----------- ------------ -----------
Net realized and unrealized gain (loss) ......................................... 657,281 176,491,713 8,923,694
----------- ------------ -----------
Net increase (decrease) in net assets resulting from operations ................. $ 757,668 $201,662,014 $10,279,588
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
112 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended October 31, 2009
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
----------- ------------ ------------
Investment income:
Dividends:
Unaffiliated issuers ...................................................... $ 3,528,379 $ 777,047 $ 19,173,350
Non-controlled affiliated issuers (Note 9) ................................ 1,172,269 -- 233,160
Sweep Money Fund (Note 7) ................................................. 93,148 3,390 221,771
Interest ..................................................................... 610,168 -- 81,022
Income from securities loaned ................................................ 3,162 -- 144,053
----------- ------------ ------------
Total investment income ................................................ 5,407,126 780,437 19,853,356
----------- ------------ ------------
Expenses:
Management fees (Note 3a) .................................................... 1,955,180 340,277 6,289,565
Administrative fees (Note 3b) ................................................ -- 92,360 --
Distribution fees: (Note 3c)
Class A ................................................................... 496,224 114,627 1,476,393
Class B ................................................................... -- -- 289,892
Class C ................................................................... -- 75,446 1,381,718
Class R ................................................................... -- 1,670 641,098
Transfer agent fees (Note 3e) ................................................ 402,486 172,464 3,574,017
Special servicing agreement fees (Note 10) ................................... 49,056 -- --
Custodian fees (Note 4) ...................................................... 3,449 687 13,384
Reports to shareholders ...................................................... 50,328 17,823 444,456
Registration and filing fees ................................................. 39,901 55,098 102,920
Professional fees ............................................................ 33,597 28,201 52,581
Trustees' fees and expenses .................................................. 30,414 3,078 122,893
Other ........................................................................ 21,070 13,197 52,037
----------- ------------ ------------
Total expenses ......................................................... 3,081,705 914,928 14,440,954
Expense reductions (Note 4) ............................................ (214) -- (115)
Expenses waived/paid by affiliates (Note 3f) ........................... (18,958) (238,269) --
----------- ------------ ------------
Net expenses ........................................................ 3,062,533 676,659 14,440,839
----------- ------------ ------------
Net investment income ............................................ 2,344,593 103,778 5,412,517
----------- ------------ ------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers ................................................... 3,709,794 (12,233,313) (33,351,084)
Non-controlled affiliated issuers (Note 9) ............................. (3,964,795) -- --
----------- ------------ ------------
Net realized gain (loss) ......................................... (255,001) (12,233,313) (33,351,084)
----------- ------------ ------------
Net change in unrealized appreciation (depreciation) on investments .......... 35,300,629 18,378,282 188,867,593
----------- ------------ ------------
Net realized and unrealized gain (loss) ......................................... 35,045,628 6,144,969 155,516,509
----------- ------------ ------------
Net increase (decrease) in net assets resulting from operations ................. $37,390,221 $ 6,248,747 $160,929,026
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
Annual Report | 113
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,
------------------------- --------------------------------
2009 2008 2009 2008
----------- ----------- -------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 100,387 $ 67,145 $ 25,170,301 $ 45,290,644
Net realized gain (loss) from investments, capital
gain distributions, and foreign currency
transactions ........................................ (3,438,118) (1,060,096) (17,198,443) 193,442,300
Net change in unrealized appreciation
(depreciation) on investments ....................... 4,095,399 (3,955,915) 193,690,156 (1,933,874,631)
----------- ----------- -------------- ---------------
Net increase (decrease) in net assets
resulting from operations ..................... 757,668 (4,948,866) 201,662,014 (1,695,141,687)
----------- ----------- -------------- ---------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (100,860) (43,343) (40,097,962) (39,612,923)
Class B ............................................. -- -- (348,834) (173,445)
Class C ............................................. (4,222) (4,764) (748,614) (181,226)
Class R ............................................. (57) (46) (367,708) (468,985)
Advisor Class ....................................... (6,804) (6,079) (2,249,917) (4,626,751)
Net realized gains:
Class A ............................................. -- -- (59,929,409) (335,976,978)
Class B ............................................. -- -- (1,406,208) (9,320,941)
Class C ............................................. -- -- (2,119,219) (10,342,910)
Class R ............................................. -- -- (735,206) (5,217,525)
Advisor Class ....................................... -- -- (2,839,362) (30,754,478)
----------- ----------- -------------- ---------------
Total distributions to shareholders ....................... (111,943) (54,232) (110,842,439) (436,676,162)
----------- ----------- -------------- ---------------
Capital share transactions: (Note 2)
Class A ................................................ 129,542 6,421,722 (167,494,774) (191,444,773)
Class B ................................................ -- -- (17,406,911) (14,740,263)
Class C ................................................ 34,371 1,248,239 (2,678,471) 2,715,610
Class R ................................................ 10,837 -- 490,716 (11,233,052)
Advisor Class .......................................... 243,545 (14,021) 24,606,276 (160,196,330)
----------- ----------- -------------- ---------------
Total capital share transactions .......................... 418,295 7,655,940 (162,483,164) (374,898,808)
----------- ----------- -------------- ---------------
Redemption fees ........................................... -- 75 -- 53,435
----------- ----------- -------------- ---------------
Net increase (decrease) in net assets ............ 1,064,020 2,652,917 (71,663,589) (2,506,663,222)
Net assets:
Beginning of year ......................................... 11,625,714 8,972,797 2,421,017,580 4,927,680,802
----------- ----------- -------------- ---------------
End of year ............................................... $12,689,734 $11,625,714 $2,349,353,991 $ 2,421,017,580
=========== =========== ============== ===============
Undistributed net investment income included in net assets:
End of year ............................................... $ 59,019 $ 70,781 $ 16,238,530 $ 34,920,044
=========== =========== ============== ===============
The accompanying notes are an integral part of these financial statements.
114 | Annual Report
Franklin Value Investors Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN LARGE CAP FRANKLIN MICRO CAP
VALUE FUND VALUE FUND
---------------------------- ----------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
---------------------------- ----------------------------
2009 2008 2009 2008
------------ ------------- ------------ -------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 1,355,894 $ 2,099,617 $ 2,344,593 $ 4,745,545
Net realized gain (loss) from investments .............. (567,967) (7,064,026) (255,001) 25,208,503
Net change in unrealized appreciation
(depreciation) on investments ....................... 9,491,661 (70,861,974) 35,300,629 (187,815,244)
------------ ------------- ------------ -------------
Net increase (decrease) in net assets
resulting from operations ..................... 10,279,588 (75,826,383) 37,390,221 (157,861,196)
------------ ------------- ------------ -------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (1,603,109) (2,093,601) (3,722,865) (4,202,918)
Class B ............................................. (69,476) (126,996) -- --
Class C ............................................. (225,115) (331,946) -- --
Class R ............................................. (48,080) (97,376) -- --
Advisor Class ....................................... (65,893) (59,611) (1,247,034) (487,350)
Net realized gains:
Class A ............................................. -- (8,731,257) (17,183,084) (53,228,790)
Class B ............................................. -- (1,064,276) -- --
Class C ............................................. -- (2,886,149) -- --
Class R ............................................. -- (442,897) -- --
Advisor Class ....................................... -- (194,600) (4,795,287) (4,817,863)
------------ ------------- ------------ -------------
Total distributions to shareholders ....................... (2,011,673) (16,028,709) (26,948,270) (62,736,921)
------------ ------------- ------------ -------------
Capital share transactions: (Note 2)
Class A ............................................. 7,487,462 (4,937,150) (11,571,493) (36,300,801)
Class B ............................................. (2,015,104) (3,313,180) -- --
Class C ............................................. (2,396,380) (8,806,321) -- --
Class R ............................................. (207,639) (1,405,945) -- --
Advisor Class ....................................... 970,780 867,997 17,989,036 55,619,479
------------ ------------- ------------ -------------
Total capital share transactions .......................... 3,839,119 (17,594,599) 6,417,543 19,318,678
------------ ------------- ------------ -------------
Redemption fees ........................................... -- 961 -- 2,478
------------ ------------- ------------ -------------
Net increase (decrease) in net assets ............ 12,107,034 (109,448,730) 16,859,494 (201,276,961)
Net assets:
Beginning of year ......................................... 124,208,726 233,657,456 299,513,895 500,790,856
------------ ------------- ------------ -------------
End of year ............................................... $136,315,760 $ 124,208,726 $316,373,389 $ 299,513,895
============ ============= ============ =============
Undistributed net investment income included in net assets:
End of year ............................................... $ 752,134 $ 1,407,913 $ 1,422,813 $ 3,933,670
============ ============= ============ =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 115
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,
--------------------------- -------------------------------
2009 2008 2009 2008
------------ ------------ -------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................. $ 103,778 $ 37,314 $ 5,412,517 $ 8,410,074
Net realized gain (loss) from investments .............. (12,233,313) (2,361,038) (33,351,084) (18,928)
Net change in unrealized appreciation
(depreciation) on investments ....................... 18,378,282 (28,934,362) 188,867,593 (490,978,215)
------------ ------------ -------------- --------------
Net increase (decrease) in net assets
resulting from operations ..................... 6,248,747 (31,258,086) 160,929,026 (482,587,069)
------------ ------------ -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................. (251,489) (781,238) (5,453,936) (6,544,236)
Class C ............................................. -- (76,158) (183,683) (206,876)
Class R ............................................. (1,735) (3,052) (969,047) (731,468)
Advisor Class ....................................... (8,307) (15,822) (1,584,422) (633,597)
Net realized gains:
Class A ............................................. -- (891,244) -- (29,895,180)
Class B ............................................. -- -- -- (2,563,602)
Class C ............................................. -- (186,887) -- (9,528,016)
Class R ............................................. -- (5,498) -- (4,038,099)
Advisor Class ....................................... -- (13,871) -- (2,133,160)
------------ ------------ -------------- --------------
Total distributions to shareholders ....................... (261,531) (1,973,770) (8,191,088) (56,274,234)
------------ ------------ -------------- --------------
Capital share transactions: (Note 2)
Class A ............................................. (2,800,389) (6,043,995) 18,994,689 27,166,122
Class B ............................................. -- -- (9,639,309) (13,058,873)
Class C ............................................. (340,073) (1,394,212) (6,865,950) (21,002,910)
Class R ............................................. 51,636 (140,877) 40,975,397 52,297,147
Advisor Class ....................................... 273,293 91,635 107,331,915 43,260,103
------------ ------------ -------------- --------------
Total capital share transactions .......................... (2,815,533) (7,487,449) 150,796,742 88,661,589
------------ ------------ -------------- --------------
Redemption fees ........................................... -- 62 -- 10,428
------------ ------------ -------------- --------------
Net increase (decrease) in net assets ............ 3,171,683 (40,719,243) 303,534,680 (450,189,286)
Net assets:
Beginning of year ......................................... 48,706,341 89,425,584 909,581,318 1,359,770,604
------------ ------------ -------------- --------------
End of year ............................................... $ 51,878,024 $ 48,706,341 $1,213,115,998 $ 909,581,318
============ ============ ============== ==============
Undistributed net investment income included in net assets:
End of year ............................................... $ 226,746 $ 63,244 $ 3,425,482 $ 6,204,053
============ ============ ============== ==============
The accompanying notes are an integral part of these financial statements.
116 | 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 an 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
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds are valued at the closing net asset value.
Foreign equity 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 equity 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 security is determined.
The Funds have 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 based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, matrix pricing, discounts from market prices of similar securities,
or discounts applied due to the nature and duration of restrictions on the
disposition of the securities. Due to the inherent uncertainty of valuations of
such securities, the fair values may differ significantly from the values that
would have been used had a ready market for such investments existed.
Occasionally, events occur between the time at which trading in a security is
completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the fund. If such an event occurs, the securities may be valued using
fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Funds' Board of
Trustees.
Annual Report | 117
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 Funds' Board of Trustees.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statements of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. Repurchase agreements are
accounted for as a loan by the fund to the seller, collateralized by securities
which are delivered to the fund's custodian. The market value, including accrued
interest, of the initial collateralization is required to be at least 102% of
the dollar amount invested by the funds, with the value of the underlying
securities marked to market daily to maintain coverage of at least 100%. All
repurchase agreements held by the Funds at year end had been entered into on
October 30, 2009. Repurchase agreements are valued at cost.
D. 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
repurchase agreements or in a non-registered money fund (BNY Institutional Cash
Reserve Fund or ICRF) managed by the fund's custodian on the fund's behalf. The
fund receives income from the investment of cash collateral, in addition to
lending fees and rebates paid by the borrower. The fund bears the market risk
with respect to the collateral investment, securities loaned, and the risk that
the principal may default on its obligations to the fund.
118 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. SECURITIES LENDING (CONTINUED)
In September of 2008, the Bank of New York Mellon (BNYM) advised the Funds that
the ICRF had exposure to certain defaulted debt obligations of Lehman Brothers
Holdings, Inc. and that they had created a separate sleeve (Series B) of the
ICRF to hold these securities apart from the main investments. Each investor in
the ICRF was allocated its pro-rata portion of Series B. The Funds' positions in
Series B are disclosed on the Statements of Investments at fair value and any
unrealized losses attributable to the positions are included in net assets.
E. 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 two open tax years for the
Franklin All Cap Value Fund) and as of October 31, 2009, and have determined
that no provision for income tax is required in the Funds' financial statements.
F. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Funds are notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States of
America. These differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, not
including 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.
Distributions received by the fund from certain securities may be a return of
capital (ROC). Such distributions reduce the cost basis of the securities, and
any distributions in excess of the cost basis are recognized as capital gains.
Annual Report | 119
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
H. 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.
I. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. Currently, the Trust expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At October 31, 2009, 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, 2009
Shares sold ................. 1,175,470 $ 6,949,858 13,335,204 $ 448,825,492
Shares issued in reinvestment
of distributions ......... 13,926 78,541 2,945,295 95,486,417
Shares redeemed ............. (1,221,108) (6,898,857) (20,604,519) (711,806,683)
---------- ----------- ----------- ---------------
Net increase (decrease) ..... (31,712) $ 129,542 (4,324,020) $ (167,494,774)
========== =========== =========== ===============
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)
========== =========== =========== ===============
120 | Annual Report
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 B SHARES:
Year ended October 31, 2009
Shares sold ............................................. 34,551 $ 1,237,129
Shares issued in reinvestment of distributions .......... 49,511 1,598,719
Shares redeemed ......................................... (581,815) (20,242,759)
-------- ------------
Net increase (decrease) ................................. (497,753) $(17,406,911)
======== ============
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)
======== ============
CLASS C SHARES:
Year ended October 31, 2009
Shares sold ............................................. 162,171 $ 939,173 559,994 $ 18,915,511
Shares issued in reinvestment of distributions .......... 718 4,035 81,896 2,632,952
Shares redeemed ......................................... (169,004) (908,837) (737,469) (24,226,934)
-------- ---------- -------- ------------
Net increase (decrease) ................................. (6,115) $ 34,371 (95,579) $ (2,678,471)
======== ========== ======== ============
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
======== ========== ======== ============
CLASS R SHARES:
Year ended October 31, 2009
Shares sold ............................................. 1,680 $ 10,819 176,573 $ 5,930,877
Shares issued in reinvestment of distributions .......... 3 18 34,020 1,102,914
Shares redeemed ......................................... -- -- (193,581) (6,543,075)
-------- ---------- -------- ------------
Net increase (decrease) ................................. 1,683 $ 10,837 17,012 $ 490,716
======== ========== ======== ============
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)
======== ========== ======== ============
Annual Report | 121
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
-------- ---------- ---------- -------------
ADVISOR CLASS SHARES:
Year ended October 31, 2009
Shares sold ............................................. 85,275 $ 532,095 1,971,257 $ 68,806,496
Shares issued in reinvestment of distributions .......... 1,192 6,737 94,700 3,110,892
Shares redeemed ......................................... (51,479) (295,287) (1,384,077) (47,311,112)
------- ---------- ---------- -------------
Net increase (decrease) ................................. 34,988 $ 243,545 681,880 $ 24,606,276
======= ========== ========== =============
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 12) ....................... -- -- (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)
======= ========== ========== =============
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
CLASS A SHARES:
Year ended October 31, 2009
Shares sold ............................................. 3,483,538 $ 32,883,115 1,028,900 $ 23,167,306
Shares issued in reinvestment of distributions .......... 163,609 1,420,130 973,071 19,052,721
Shares redeemed ......................................... (3,027,440) (26,815,783) (2,506,908) (53,791,520)
---------- ------------ ---------- -------------
Net increase (decrease) ................................. 619,707 $ 7,487,462 (504,937) $ (11,571,493)
========== ============ ========== =============
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)
========== ============ ========== =============
CLASS B SHARES:
Year ended October 31, 2009
Shares sold ............................................. 113,714 $ 1,136,291
Shares issued in reinvestment of distributions .......... 7,036 60,928
Shares redeemed ......................................... (363,661) (3,212,323)
---------- ------------
Net increase (decrease) ................................. (242,911) $ (2,015,104)
========== ============
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)
========== ============
122 | Annual Report
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
---------- ------------ --------- -----------
CLASS C SHARES:
Year ended October 31, 2009
Shares sold ............................................. 537,781 $ 4,932,364
Shares issued in reinvestment of distributions .......... 22,455 194,235
Shares redeemed ......................................... (848,516) (7,522,979)
---------- ------------
Net increase (decrease) ................................. (288,280) $ (2,396,380)
========== ============
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)
========== ============
CLASS R SHARES:
Year ended October 31, 2009
Shares sold ............................................. 170,363 $ 1,455,853
Shares issued in reinvestment of distributions .......... 5,489 47,368
Shares redeemed ......................................... (188,818) (1,710,860)
---------- ------------
Net increase (decrease) ................................. (12,966) $ (207,639)
========== ============
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)
========== ============
ADVISOR CLASS SHARES:
Year ended October 31, 2009
Shares sold ............................................. 246,851 $ 2,267,694 750,901 $16,613,245
Shares issued in reinvestment of distributions .......... 7,347 63,478 308,798 6,037,007
Shares redeemed ......................................... (153,468) (1,360,392) (244,430) (4,661,216)
---------- ------------ --------- -----------
Net increase (decrease) ................................. 100,730 $ 970,780 815,269 $17,989,036
========== ============ ========= ===========
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
========== ============ ========= ===========
Annual Report | 123
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 A SHARES:
Year ended October 31, 2009
Shares sold ............................................. 1,566,804 $ 11,188,915 6,829,633 $ 191,390,189
Shares issued in reinvestment of distributions .......... 35,369 231,315 195,701 4,853,383
Shares redeemed ......................................... (2,036,869) (14,220,619) (6,524,074) (177,248,883)
---------- ------------ ---------- -------------
Net increase (decrease) ................................. (434,696) $ (2,800,389) 501,260 $ 18,994,689
========== ============ ========== =============
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
========== ============ ========== =============
CLASS B SHARES:
Year ended October 31, 2009
Shares sold ............................................. 69,223 $ 1,841,323
Shares redeemed ......................................... (439,756) (11,480,632)
---------- -------------
Net increase (decrease) ................................. (370,533) $ (9,639,309)
========== =============
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)
========== =============
CLASS C SHARES:
Year ended October 31, 2009
Shares sold ............................................. 268,927 $ 1,902,265 1,336,980 $ 35,276,437
Shares issued in reinvestment of distributions .......... -- -- 6,714 158,387
Shares redeemed ......................................... (330,797) (2,242,338) (1,684,327) (42,300,774)
---------- ------------ ---------- -------------
Net increase (decrease) ................................. (61,870) $ (340,073) (340,633) $ (6,865,950)
========== ============ ========== =============
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)
========== ============ ========== =============
124 | 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 R SHARES:
Year ended October 31, 2009
Shares sold ............................................. 25,401 $ 179,955 3,297,479 $ 90,901,798
Shares issued in reinvestment of distributions .......... 265 1,735 34,180 842,534
Shares redeemed ......................................... (19,338) (130,054) (1,847,160) (50,768,935)
------- --------- ---------- ------------
Net increase (decrease) ................................. 6,328 $ 51,636 1,484,499 $ 40,975,397
======= ========= ========== ============
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
======= ========= ========== ============
ADVISOR CLASS SHARES:
Year ended October 31, 2009
Shares sold ............................................. 69,632 $ 491,911 5,025,029 $149,659,533
Shares issued in reinvestment of distributions .......... 1,240 8,121 52,744 1,342,327
Shares redeemed ......................................... (32,224) (226,739) (1,561,781) (43,669,945)
------- --------- ---------- ------------
Net increase (decrease) ................................. 38,648 $ 273,293 3,515,992 $107,331,915
======= ========= ========== ============
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
======= ========= ========== ============
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
Annual Report | 125
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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
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
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
126 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
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. The Franklin All Cap
Value Fund, the Franklin Large Cap Value Fund and the 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 the Franklin Balance Sheet Investment Fund, the
Franklin MicroCap Value Fund and the 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.
On December 1, 2008, the Trust's Board of Trustees approved a modification to
the Class A distribution plan, for those funds that had a Class A compensation
plan, changing the form of the plan from a compensation to a reimbursement
distribution plan. Under the distribution plan, 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 for each class. This
change was effective February 1, 2009. Under the Class A reimbursement
distribution plans, costs exceeding the maximum for the current plan year cannot
be reimbursed in subsequent periods. Prior to February 1, 2009, under the
Franklin All Cap Value Fund, the Franklin Large Cap Value Fund and the Franklin
MidCap Value Fund Class A compensation distribution plan, the funds paid
Distributors for costs incurred in connection with the servicing, sale and
distribution of the fund's shares up to a certain percentage per year of its
average daily net assets.
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.
Annual Report | 127
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
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 ............ 0.35% 0.25% 0.35% 0.25% 0.35% 0.35%
Compensation Plans:
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%
Effective February 1, 2009, the Board of Trustees has set the current rate at
0.30% per year for Class A shares for the Franklin All Cap Value Fund, the
Franklin Large Cap Value Fund, the Franklin MidCap Value Fund, and the Franklin
Small Cap Value Fund until further notice and approval by the Board.
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 ..................... $9,152 $273,205 $43,099
Contingent deferred sales charges retained ......... $5,989 $ 20,426 $ 6,795
FRANKLIN FRANKLIN FRANKLIN
MICROCAP MIDCAP SMALL CAP
VALUE FUND VALUE FUND VALUE FUND
---------- ---------- ----------
Sales charges retained net of commissions paid to
unaffiliated broker/dealers ..................... $8,986 $27,989 $231,355
Contingent deferred sales charges retained ......... $ -- $ 853 $ 33,993
E. TRANSFER AGENT FEES
For the year ended October 31, 2009, 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 .. $21,069 $3,007,614 $250,069 $255,339 $105,988 $2,035,167
128 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
F. WAIVER AND EXPENSE REIMBURSEMENTS
Advisory Services and FT Services have contractually agreed in advance to waive
or limit their respective fees and to assume as their own expense certain
expenses otherwise payable by the Franklin All Cap Value Fund and the Franklin
MidCap Value Fund so that the common expenses (i.e. a combination of management
fees, administrative fees, and other expenses, but excluding distribution fees
and acquired fund fees and expenses) for each class of the funds do not exceed
0.90% and 1.05%, respectively (other than certain non-routine expenses or costs,
including those relating to litigation, indemnification, reorganizations, and
liquidations) until February 28, 2011.
For the Franklin MicroCap Value Fund, Advisory Services has voluntarily agreed
to limit the increase in the Fund's net annual operating expense ratio that
results from the implementation of the Special Servicing Agreement (SSA) at
0.02% through April 30, 2010. See Note 10 regarding the SSA.
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, 2009, 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, 2009, the capital loss carryforwards were 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
---------- --------------- ---------- ---------- ----------- -----------
Capital loss carryforwards expiring in:
2015 .. $ 71,121 $ -- $ -- $ -- $ -- $ --
2016 .. 1,060,297 -- 6,749,100 -- 2,576,725 162,591
2017 .. 3,435,814 17,183,415 -- 370,289 12,336,057 33,330,274
---------- ----------- ---------- -------- ----------- -----------
$4,567,232 $17,183,415 $6,749,100 $370,289 $14,912,782 $33,492,865
========== =========== ========== ======== =========== ===========
During the year ended October 31, 2009, the Franklin Large Cap Value Fund
utilized $314,926 of capital loss carryforward.
Annual Report | 129
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, 2009
and 2008, was as follows:
FRANKLIN ALL CAP FRANKLIN BALANCE SHEET
VALUE FUND INVESTMENT FUND
------------------ ---------------------------
2009 2008 2009 2008
-------- ------- ------------ ------------
Distributions paid from:
Ordinary income ......... $111,943 $54,232 $ 43,818,944 $ 49,743,082
Long term capital gain .. -- -- 67,023,495 386,933,080
-------- ------- ------------ ------------
$111,943 $54,232 $110,842,439 $436,676,162
======== ======= ============ ============
FRANKLIN LARGE CAP FRANKLIN MICROCAP
VALUE FUND VALUE FUND
------------------------ -------------------------
2009 2008 2009 2008
---------- ----------- ----------- -----------
Distributions paid from:
Ordinary income ......... $2,011,673 $ 5,805,692 $ 4,970,738 $ 4,661,874
Long term capital gain .. -- 10,223,017 21,977,532 58,075,047
---------- ----------- ----------- -----------
$2,011,673 $16,028,709 $26,948,270 $62,736,921
========== =========== =========== ===========
FRANKLIN MIDCAP FRANKLIN SMALL CAP
VALUE FUND VALUE FUND
--------------------- ------------------------
2009 2008 2009 2008
-------- ---------- ---------- -----------
Distributions paid from:
Ordinary income ......... $261,531 $1,084,532 $8,191,088 $10,376,156
Long term capital gain .. -- 889,238 -- 45,898,078
-------- ---------- ---------- -----------
$261,531 $1,973,770 $8,191,088 $56,274,234
======== ========== ========== ===========
At October 31, 2009, the cost of investments, net unrealized appreciation
(depreciation), and undistributed ordinary income 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 ......................... $12,543,173 $2,014,063,297 $148,050,152
=========== ============== ============
Unrealized appreciation ..................... $ 931,154 $ 653,561,897 $ 21,153,368
Unrealized depreciation ..................... (946,974) (309,748,149) (32,436,660)
----------- -------------- ------------
Net unrealized appreciation (depreciation) .. $ (15,820) $ 343,813,748 $(11,283,292)
=========== ============== ============
Distributable earnings -
undistributed ordinary income ............ $ 59,019 $ 16,202,976 $ 752,134
=========== ============== ============
130 | 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 ......................... $282,571,733 $57,188,172 $1,246,856,329
============ =========== ==============
Unrealized appreciation ..................... $ 87,452,987 $ 3,648,741 $ 185,328,958
Unrealized depreciation ..................... (53,284,889) (9,716,807) (196,353,996)
------------ ----------- --------------
Net unrealized appreciation (depreciation) .. $ 34,168,098 $(6,068,066) $ (11,025,038)
============ =========== ==============
Distributable earnings -
undistributed ordinary income ............ $ 1,554,859 $ 226,746 $ 3,417,115
============ =========== ==============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions and
pass-through entity income.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, and foreign currency
transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short term securities) for the year ended October
31, 2009, were 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
---------- ------------ ----------- ----------- ----------- ------------
Purchases .. $5,773,645 $120,944,370 $12,306,913 $26,571,007 $ 6,456,056 $141,552,480
Sales ...... $4,365,896 $120,866,138 $19,755,823 $27,546,459 $10,111,353 $ 22,515,767
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the 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 | 131
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, 2009, 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 DATES COST VALUE
- ------- ------ ----------------- --------- ----------
94,800 Allen Organ Co., Contigent Distribution ................ 9/07/06 - 9/08/09 283,195 $ 325,164
495,000 Black River BancVenture Inc. ........................... 8/13/07 4,950,000 3,259,575
94,800 LandCo Real Estate LLC, Liquidating Trust .............. 9/07/06 240,792 259,667
44,600 (a)Smith Investment Co. LLC 1/20/09 121,987 293,022
----------
TOTAL RESTRICTED SECURITIES (1.31% of Net Assets) .. $4,137,428
==========
(a) The Fund also invests in unrestricted securities of the issuer, valued at
$256,686 as of October 31, 2009.
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, 2009, 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
Furmanite Corp. ......................... 2,384,200 -- -- 2,384,200 $ 8,535,436 $-- $--
KGen Power Corp., 144A .................. 4,400,000 -- -- 4,400,000 29,700,000 -- --
Syms Corp. .............................. 1,430,000 -- -- 1,430,000 10,052,900 -- --
Tecumseh Products Co., A ................ 1,000,000 -- -- 1,000,000 10,450,000 -- --
Tecumseh Products Co., B ................ 310,000 -- -- 310,000 3,214,700 -- --
Zale Corp. .............................. 2,232,700 235,300 -- 2,468,000 11,673,640 -- --
----------- --- ---
TOTAL AFFILIATED SECURITIES
(3.13% of Net Assets) ............. $73,626,676 $-- $--
=========== === ===
FRANKLIN MICROCAP VALUE FUND
NON-CONTROLLED AFFILIATES
ACMAT Corp., A .......................... 392,800 -- -- 392,800 $ 8,248,800 $-- $--
American Pacific Corp. .................. 676,300 73,700 -- 750,000 5,310,000 -- --
Black River BancVenture Inc. ............ 495,000 -- -- 495,000 3,259,575 -- --
Cobra Electronics Corp. ................. 540,000 -- -- 540,000 685,800 -- --
132 | 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 FUND (CONTINUED)
NON-CONTROLLED AFFILIATES (CONTINUED)
Continental Materials Corp. .............. 109,567 11,033 -- 120,600 $ 1,326,600 $ -- $ --
Delta Apparel Inc. ....................... 756,600 43,400 -- 800,000 7,072,000 -- --
Duckwall-ALCO Stores Inc. ................ 238,000 -- -- 238,000 4,117,400 -- --
Espey Manufacturing & Electronics Corp. .. 153,299 -- -- 153,299 2,974,001 367,918 --
GTSI Corp. ............................... 530,000 70,000 -- 600,000 4,470,000 -- --
Hardinge Inc. ............................ 895,137 304,863 -- 1,200,000 6,300,000 33,900 --
International Shipholding Corp. .......... 400,000 -- 29,200 370,800 12,292,020 770,451 545,123
Nashua Corp. ............................. 357,930 -- 357,930 -- -- -- 392,788
Omega Protein Corp. ...................... 870,000 455,000 -- 1,325,000 5,512,000 -- --
Origen Financial Inc. .................... 2,365,000 175,000 -- 2,540,000 3,581,400 -- --
Rockford Corp. ........................... 575,000 -- 575,000 -- -- -- (2,632,032)
S&K Famous Brands Inc. ................... 255,500 -- 255,500 -- -- -- (2,270,674)
Tandy Brands Accessories Inc. ............ 540,000 -- -- 540,000 2,133,000 -- --
----------- ---------- -----------
TOTAL AFFILIATED SECURITIES (21.27% of Net Assets) ...................................... $67,282,596 $1,172,269 $(3,964,795)
=========== ========== ===========
FRANKLIN SMALL CAP VALUE FUND
NON-CONTROLLED AFFILIATES
Hooker Furniture Corp. ................... 582,900 -- -- 582,900 $ 7,466,949 $ 233,160 $ --
----------- ---------- -----------
TOTAL AFFILIATED SECURITIES (0.62% of Net Assets) ....................................... $ 7,466,949 $ 233,160 $ --
=========== ========== ===========
10. SPECIAL SERVICING AGREEMENT
On May 1, 2009, the Franklin MicroCap Value Fund, which is an eligible
underlying investment of one or more of the Franklin Templeton Fund Allocator
Series Funds (Allocator Funds), entered into a SSA with the Allocator Funds and
certain service providers of the fund and the Allocator Funds. Under the SSA,
the fund pays a portion of the Allocator Funds' expenses (other than any asset
allocation, administrative, and distribution fees) to the extent such payments
are less than the amount of the benefits realized or expected to be realized by
the fund from the investment in the Fund by the Allocator Funds. The Allocator
Funds are either managed by Franklin Advisers, Inc. or administered by FT
Services. For the year ended October 31, 2009, the fund was held by one or more
of the Allocator Funds and was allocated expenses as noted in the Statements of
Operations. At October 31, 2009, 21.32% of the fund's outstanding shares was
held by one or more of the Allocator Funds.
11. CREDIT FACILITY
Effective January 23, 2009, the Funds, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.
Annual Report | 133
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. CREDIT FACILITY (CONTINUED)
Under the terms of the Global Credit Facility, the Funds shall, in addition to
interest charged on any borrowings made by the Funds and other costs incurred by
the Funds, pay their share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon their
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the year ended October 31, 2009, the Funds did not utilize the
Global Credit Facility.
The commitment fees the Funds incurred for the period were as follows:
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
---------- --------------- ---------- ---------- ---------- ----------
Commitment fees .. $28 $4,634 $236 $540 $93 $1,767
12. 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.
13. FAIR VALUE MEASUREMENTS
The Funds follow a fair value hierarchy that distinguishes between market data
obtained from independent sources (observable inputs) and the Funds' own market
assumptions (unobservable inputs). These inputs are used in determining the
value of the Funds' investments and are summarized in the following fair value
hierarchy:
- Level 1 - quoted prices in active markets for identical securities
- Level 2 - other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment speed, credit risk,
etc.)
- Level 3 - significant unobservable inputs (including the fund's own
assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
134 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of October 31, 2009, in valuing
the Funds' assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------- ----------- ---------- --------------
FRANKLIN ALL CAP VALUE FUND
ASSETS:
Investments in Securities:
Equity Investments(a) ............... $ 12,260,838 $ -- $ -- $ 12,260,838
Short Term Investments .............. 266,515 -- -- 266,515
-------------- ----------- ---------- --------------
Total Investments in Securities .. $ 12,527,353 $ -- $ -- $ 12,527,353
============== =========== ========== ==============
FRANKLIN BALANCE SHEET INVESTMENT FUND
ASSETS:
Investments in Securities:
Equity Investments:(b)
Utilities ........................ $ 269,530,927 $29,700,000 $ -- $ 299,230,927
All Other Equity Investments(a) .. 1,937,028,703 -- -- 1,937,028,703
Corporate Bonds ..................... -- 5,239,740 -- 5,239,740
Short Term Investments .............. 113,949,153 2,428,522 -- 116,377,675
-------------- ----------- ---------- --------------
Total Investments in Securities .. $2,320,508,783 $37,368,262 $ -- $2,357,877,045
============== =========== ========== ==============
FRANKLIN LARGE CAP VALUE FUND
ASSETS:
Investments in Securities:
Equity Investments:(a) .............. $ 123,539,835 $ -- $ -- $ 123,539,835
Short Term Investments .............. 13,227,025 -- -- 13,227,025
-------------- ----------- ---------- --------------
Total Investments in Securities .. $ 136,766,860 $ -- $ -- $ 136,766,860
============== =========== ========== ==============
FRANKLIN MICROCAP VALUE FUND
ASSETS:
Investments in Securities:
Equity Investments:
Banks ............................ $ 4,296,490 $ -- $3,259,575 $ 7,556,065
Capital Goods .................... 42,188,443 -- 549,708 42,738,151
Real Estate ...................... 4,849,750 -- 259,667 5,109,417
Technology Hardware & Equipment .. 4,470,000 -- 325,164 4,795,164
All Other Equity Investments(a) .. 208,791,593 -- -- 208,791,593
Convertible Bonds ................... -- 5,845,000 -- 5,845,000
Short Term Investments .............. 41,749,065 155,376 -- 41,904,441
-------------- ----------- ---------- --------------
Total Investments in Securities .. $ 306,345,341 $ 6,000,376 $4,394,114 $ 316,739,831
============== =========== ========== ==============
Annual Report | 135
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. FAIR VALUE MEASUREMENTS (CONTINUED)
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------- ---------- ------- --------------
FRANKLIN MIDCAP VALUE FUND
ASSETS:
Investments in Securities:
Equity Investments:(a) ... $ 49,820,464 $ -- $-- $ 49,820,464
Short Term Investments ... 1,299,642 -- -- 1,299,642
-------------- ---------- --- --------------
Total Investments in
Securities ......... $ 51,120,106 $ -- $-- $ 51,120,106
============== ========== === ==============
FRANKLIN SMALL CAP VALUE FUND
ASSETS:
Investments in Securities:
Equity Investments:(a) ... $1,074,500,964 $ -- $-- $1,074,500,964
Corporate Bonds .......... -- 1,233,265 -- 1,233,265
Short Term Investments ... 159,125,591 971,471 -- 160,097,062
-------------- ---------- --- --------------
Total Investments in
Securities ......... $1,233,626,555 $2,204,736 $-- $1,235,831,291
============== ========== === ==============
(a) For detailed industry descriptions, see the accompanying Statement of
Investments.
(b) Includes closed-end mutual funds and common stock.
At October 31, 2009, the reconciliation of assets in which significant
unobservable inputs (Level 3) were used in determining the Franklin MicroCap
Value Funds' fair value, is as follows:
NET CHANGE
NET CHANGE IN UNREALIZED
IN APPRECIATION
BALANCE AT NET UNREALIZED NET TRANSFER BALANCE AT (DEPRECIATION)
BEGINNING REALIZED APPRECIATION PURCHASES IN (OUT) OF END OF ON ASSETS HELD
OF YEAR GAIN (LOSS) (DEPRECIATION) (SALES) LEVEL 3 YEAR AT YEAR END
---------- ----------- -------------- --------- ----------- ---------- --------------
ASSETS:
Investments in Securities:
Equity Investments:
Banks .................. $4,034,993 $-- $(775,418) $ -- $ -- $3,259,575 $(775,418)
Capital Goods .......... -- -- 60,892 -- 488,816 549,708 60,892
Real Estate ............ 168,744 -- 90,923 -- -- 259,667 90,923
Technology Hardware &
Equipment .............. 1,016,256 -- (650) (690,442) -- 325,164 (650)
---------- --- --------- --------- -------- ---------- ---------
Total ............... $5,219,993 $-- $(624,253) $(690,442) $488,816 $4,394,114 $(624,253)
========== === ========= ========= ======== ========== =========
14. SUBSEQUENT EVENTS
The Funds have evaluated subsequent events through December 16, 2009, the
issuance date of the financial statements and determined that no events have
occurred that require disclosure.
136 | Annual Report
Franklin Value Investors Trust
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ABBREVIATIONS
ADR - American Depository Receipt
SELECTED PORTFOLIO
Annual Report | 137
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, 2009, the results of each of their operations
for the year then ended, the changes in each of their net assets for each of the
two years in the period then ended and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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, 2009 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 16, 2009
138 | Annual Report
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, 2009:
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
- ---------- --------------- ---------- ----------- ---------- ----------
$-- $67,023,495 $-- $21,977,532 $-- $--
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, 2009:
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% 98.59% 100% 100% 100% 100%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended October 31, 2009:
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
- ---------- --------------- ---------- ---------- ---------- ----------
$247,620 $46,501,838 $3,172,995 $4,303,666 $753,951 $19,106,007
Distributions, including qualified dividend income, paid during calendar year
2009 will be reported to shareholders on Form 1099-DIV in January 2010.
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, 2009:
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
- ---------- --------------- ---------- ---------- ---------- ----------
$-- $407,408 $-- $-- $-- $--
Annual Report | 139
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 15 Franklin Templeton Emerging Markets
One Franklin Parkway Independent 2001 and Debt Opportunities Fund PLC and
San Mateo, CA 94403-1906 Trustee Lead Independent Fiduciary International Ireland
Limited. Trustee since
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 15 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor.
ROBERT E. WADE (1946) Trustee Since 2004 38 El Oro Ltd (investments).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney at law.
GREGORY H. WILLIAMS (1943) Trustee Since 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).
140 | Annual Report
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 two 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
45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
LAURA F. FERGERSON (1962) Chief Executive Since March 2008 Not Applicable Not Applicable
One Franklin Parkway Officer -
San Mateo, CA 94403-1906 Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 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).
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
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 45 of the investment companies in Franklin Templeton Investments.
Annual Report | 141
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 and Secretary since Not Applicable Not Applicable
One Franklin Parkway Vice President 2005 and Vice
San Mateo, CA 94403-1906 President since
August 2009
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and officer
of 45 of the investment companies in Franklin Templeton Investments.
MATTHEW T. HINKLE (1971) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Fund Accounting, Franklin Templeton Investments; and officer of four 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 43 of the investment companies in Franklin
Templeton Investments.
ROBERT C. ROSSELOT (1960) Vice President Since Not Applicable Not Applicable
500 East Broward Blvd. August 2009
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and
Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust International of the
South; and officer of 45 of the investment companies in Franklin Templeton Investments.
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 45 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
- ----------------------------- --------------- ------------------- ----------------------- --------------------------------------
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 45 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).
* 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.
Annual Report | 143
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.
144 | Annual Report
Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A 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.
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 Quest 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 Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Mutual Financial Services Fund
GLOBAL
Mutual Global 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
Mutual International 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(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government
Securities Fund(3)
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(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(4)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)
LIMITED-/INTERMEDIATE-TERM
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(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance
Products Trust(8)
(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.) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(4.) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are generally
taxable.
(5.) The fund invests primarily in insured municipal securities.
(6.) 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.
(7.) The Board of Trustees approved the elimination of the non-fundamental
policy requiring the fund to invest at least 80% of net assets in insured
municipal securities and the removal of the word "Insured" from the fund
name. The changes became effective 2/17/09.
(8.) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/09 Not part of the annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway San Mateo, CA 94403-1906
SIGN UP FOR ELECTRONIC DELIVERY
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ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN VALUE INVESTORS TRUST
INVESTMENT MANAGER
Franklin Advisory Services, LLC
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(800) 632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FVIT A2009 12/09
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 $168,935 for the fiscal year ended October 31, 2009 and $169,506 for the
fiscal year ended October 31, 2008.
(b) Audit-Related Fees
The aggregate 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 were $2,650 for
the fiscal year ended October 31, 2009 and $2,650 for the fiscal year ended
October 31, 2008. The services for which these fees were paid included
attestation services.
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 $2,762 for the fiscal year ended
October 31, 2009 and $4,000 for the fiscal year ended October 31, 2008. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended October 31, 2009
and $4,286 for the fiscal year ended October 31, 2008. 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 $0 for the fiscal year ended October 31,
2009 and $279,791 for the fiscal year ended October 31, 2008. 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 $5,412 for the fiscal year ended October 31, 2009 and $290,727
for the fiscal year ended October 31, 2008.
(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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Matthew T. Hinkle, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Matthew T. Hinkle, 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/LAURA F. FERGERSON
----------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date December 28, 2009
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/LAURA F. FERGERSON
----------------------
Laura F. Fergerson
Chief Executive Officer -
Finance and Administration
Date December 28, 2009
By /s/MATTHEW T. HINKLE
---------------------------
Matthew T. Hinkle
Chief Financial Officer and
Chief Accounting Officer
Date December 28, 2009