<PAGE>
Templeton
Foreign Fund
- ------------------
[PHOTO OF
MARK HOLOWESKO
APPEARS HERE]
- ------------------
Mark Holowesko
Director of Global
Equity Research.
- ------------------
Mark G. Holowesko is the president and portfolio manager of Templeton Foreign
Fund, as well as several other Templeton funds. He joined the Templeton
organization in 1985 in Nassau, Bahamas, and serves as director of equity
research worldwide, as well as an officer and director of Templeton Worldwide,
Inc. Mr. Holowesko received a B.A. in Economics from Holy Cross College and an
M.B.A. from Babson College. He is a Chartered Financial Analyst, Chartered
Investment Counselor, and a founding member and director of the International
Society of Financial Analysts.
- --------------------------------------------------------------------------------
Your Fund's Objective:
The Templeton Foreign Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
outside the United States.
- --------------------------------------------------------------------------------
October 16, 1995
Dear Shareholder:
We are pleased to bring you the 13th annual report of the Templeton Foreign
Fund, which covers the period ended August 31, 1995.
The past fiscal year was marked by extreme volatility in emerging markets and
unexpected advances in developed markets. Stock markets of most developed
countries posted double-digit returns despite the high degree of uncertainty
prevalent in many overseas markets at the beginning of 1995. Much of this
uncertainty
1
<PAGE>
was precipitated by the devaluation of the Mexican peso in December 1994, which
led to a decline of more than 70% (in U.S. dollar terms) in the Mexican equity
market. The ensuing negative impact on financial markets, which was coyly coined
"the Tequila Effect," was not limited to Latin America. Investors in Asian
securities soon discovered that their stocks were declining in value due to
professional money managers' generally poor opinions of most emerging markets.
However, most major developed markets, particularly those in the United States,
the United Kingdom, and Germany, showed surprising strength. One exception was
Japan, which suffered from a deteriorating real estate market and the resulting
impact on its banks.
Cyclical stocks performed very well throughout the reporting period because of
economic growth worldwide. This was especially true of the paper, chemicals and
metals sectors. Other strong performers included financial services and
technology stocks. Although we lacked exposure to the technology sector, our
holdings in these other strong areas helped the performance of the Fund.
- --------------------------------------------------------------------------------
Templeton Foreign Fund
Geographic Distribution on 8/31/95
Based on Total Net Assets
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
European Stocks 42.5%
Australian &
New Zealand Stocks 7.3%
Latin American Stocks 7.7%
Asian Stocks 12.1%
Other Stocks 3.1%
Fixed-Income Securities 8.9%
Short-Term Obligations &
Other Net Assets 18.4%
</TABLE>
Responding to various economic and financial conditions worldwide, we reduced
our holdings in certain developed markets, particularly the United Kingdom and
the Netherlands, and bought securities in emerging markets, which we felt were
better bargains. The extraordinary potential of emerging markets is often
overshadowed by the sheer size of financial markets in developed countries.
Although developed countries constitute only a small portion of the world's
population, they consume a majority of goods and services
2
<PAGE>
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
Top 10 Holdings on 8/31/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Name, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
HSBC Holdings PLC; Banking, Hong Kong 1.6%
- --------------------------------------------------------------------------------
Telefonos de Mexico SA;
Telecommunications, Mexico 1.6%
- --------------------------------------------------------------------------------
Telebras-Telecommunicacoes Brasileiras SA;
Telecommunications, Brazil 1.6%
- --------------------------------------------------------------------------------
U.S Treasury Note, 6.375%, 1/15/00;
Government Bond, United States 1.5%
- --------------------------------------------------------------------------------
U.S Treasury Note, 6.375%, 7/15/99;
Government Bond, United States 1.5%
- --------------------------------------------------------------------------------
U.S Treasury Note, 6.0%, 10/15/99;
Government Bond, United States 1.5%
- --------------------------------------------------------------------------------
Volvo AB, B; Automobiles, Sweden 1.4%
- --------------------------------------------------------------------------------
Societe Elf Acquitaine SA; Energy Sources,
France 1.3%
- --------------------------------------------------------------------------------
Iberdrola SA; Utilities - Electrical & Gas,
Spain 1.1%
- --------------------------------------------------------------------------------
Asea AB, A; Electrical & Electronics, Sweden 1.1%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 14 of this report.
worldwide. Consider also, that Asia's total Gross National Product (GNP) is
amazingly close to the GNP of the U.S. alone, yet Asia has 3.1 billion people,
compared with only 260 million in the U.S. As the world's developing markets
evolve, these countries' per-capita wealth should increase, which will affect
consumption patterns and raise standards of living. We already see this
happening in Asia, where GNP has been increasing significantly faster than in
the U.S.
Looking forward, the world's financial markets should, hopefully, continue to be
volatile. I say "hopefully," because the more volatile the market, the more
share prices tend to fluctuate. The more share prices fluctuate, the less likely
the market will reflect the "true" value of a company, and the easier it becomes
for us to find potential bargain-priced stocks for your Fund. Many investors are
frightened by volatility, but we welcome the opportunity it provides us. While
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. For example, the Hong Kong market has
increased 763% in the last 15 years, but has suffered six declines of more than
20% during that time.* There are, of course, special risks involved with foreign
investing related to market, currency, economic, political, and other factors.
Developing markets involve similar but heightened risks, in addition to risks
*Source: Bloomberg. Based on quarterly percentage change over 15 years ended
June 30, 1995.
3
<PAGE>
associated with the relatively small size and lesser liquidity of these markets.
These risks are discussed in the Fund's prospectus.
In closing, we would like to mention that although Sir John Templeton has not
been involved in investment management of the Templeton Funds since October
1992, we were saddened by his recent decision to step down as Chairman and
Director of the U.S.-registered Templeton funds. The Fund's Board of Directors
have elected John Wm. Galbraith, former vice chairman of Templeton, Galbraith &
Hansberger, Ltd. to succeed him. The investment manager will continue to use the
investment philosophies and principles established by Sir John.
We thank you for your participation in the Templeton Foreign Fund and welcome
any comments or suggestions you may have.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko, CFA
President
Templeton Foreign Fund
4
<PAGE>
Q & A
THE FOLLOWING IS AN INTERVIEW
WITH MARK HOLOWESKO, PORTFOLIO
MANAGER OF TEMPLETON
FOREIGN FUND:
Did the Fund's portfolio change dramatically over the course of the year? If so,
what are some of the stocks you bought and sold?
Our portfolios generally do not change dramatically from one year to the next,
which reflects our "value" style of investing. We concentrate on a company's
prospects over a full business cycle, traditionally a three to five year period,
and we tend to hold its shares for about that long. This gives us a relatively
low portfolio turnover rate, typically about 20% per year.
This year, we concentrated on capturing some of the value we discovered in
emerging markets, particularly Latin America, after a series of major price
declines. For example, we purchased shares of Telefonos de Mexico SA (Telmex),
Telecomunicacoes Brasileiras SA (Telebras), and YPF Sociedad Anonima. We also
added to several economically sensitive European stocks, such as Volvo AB and
Asea AB.
5
<PAGE>
What were your best performing stocks and sectors?
The commodity sectors, most notably aluminum and paper, performed well and
provided significant gains for the Fund. Increasing economic activity and
growing demand for commodities in emerging markets led to rising prices for
aluminum and paper, which gave a big boost to the stock prices of companies
operating in those industries. The Fund's positions in stocks such as Alcan
Aluminum Ltd. and Comalco Ltd. benefited from this trend. Other strong
performers included BMW and Singapore Airlines Ltd.
Were there any disappointments?
In other words, were there any stocks that did not
perform up to your expectations?
Yes, there were. Every year, about one-third of our stock picks do not live up
to our expectations. This is normally due to some unanticipated event at the
company, a major change in the industry that adversely impacts the company, or
less-than-perfect stock selection on our part. If we can continue to keep our
mistakes to roughly one-third of our selections, we should be able to achieve
the type of returns investors have come to expect. Examples of stocks that did
not perform as well as we had hoped include Celsius Industrier AB, Electrolux
AB, Oriental Press Group Ltd., and Peregrine Investments Holdings Ltd. Although
these stocks declined in price, we did not sell them because we continued to
believe they represented excellent potential long-term value.
How should investors deal with market declines?
First, investors should be aware that just as bull markets, or prolonged share
price increases, are a normal part of stock market activity, so are bear
markets, or prolonged stock price declines. Second, investors should not only
expect market declines and use them to their advantage, but they should
concentrate on those stocks that have already declined in price even if the
overall market has not. Our investments in several utility and real estate
stocks, which had already experienced 25% price declines from their recent
Q & A
6
<PAGE>
peaks, reflect this strategy. To a certain extent, by purchasing shares of
companies whose prices have already declined, but whose business practices are
solid, you may be able to protect yourself during market declines.
Emerging markets appear to be recovering after a poor showing in 1994. What is
your outlook for these markets in the near future?
As I mentioned earlier, it is difficult for us to predict how specific markets
will perform. I believe, however, that the risk of investing in these markets
may have declined because so many of them have already experienced major price
corrections. We are also excited about the rising standards of living in many of
these countries and the impact this should have on consumption. Today, about 15%
of the world's population live in countries belonging to the Organisation of
Economic Cooperation and Development, but they consume 75% of most goods and
services worldwide. As the remaining 85% of the world's population grows
economically, consumption patterns of certain goods and services will be
significantly affected. We are already beginning to see this happen, and we have
invested assets of the Fund in seeking to benefit from this trend.
Many investors are concerned about China's assuming control of Hong Kong in
1997. What are your thoughts on this matter?
Investors in the Hong Kong market should take some comfort from several
observations. First, the entire world seems to know about China's gaining
control of Hong Kong in 1997, and one has to believe that the uncertainty of the
event has already been discounted in Hong Kong share prices. Second, there is an
agreement in place that details how Hong Kong will be run after China assumes
control, and most of the provisions of that agreement appear sensible. Finally,
Hong Kong's importance to China as a source of capital and "know-how" should not
be underestimated. Hong Kong contributes the majority of China's
Q & A
7
<PAGE>
foreign investment capital, and the Chinese government is one of the largest
investors in Hong Kong's real estate and stock markets.
Does the overall market look expensive now, or are you finding a number of
bargain stocks?
On August 31, our bargain list contained roughly 140 names. During the 10 years
I have been with Templeton, this list has fluctuated between 80 and 200 names.
Today, we are finding a "normal" number of good ideas, which is in contrast to
the Fund's above-normal cash level. This cash position is a result of our
selling shares of relatively large companies and buying lower-priced shares of
companies that are a bit smaller in size.
Q & A
8
<PAGE>
PERFORMANCE SUMMARY
Templeton Foreign Fund Class I shares provided a total return of 3.14% for the
one-year period ended August 31, 1995. Total return measures the change in value
of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the current maximum 5.75% initial sales
charge.
We have always maintained a long-term perspective when managing the Fund, and we
encourage shareholders to view their investments in a similar manner. As you can
see from the chart on page 10, the Fund's Class I shares delivered a cumulative
total return of more than 385% for the 10-year period ended August 31, 1995.
As measured by net asset value, the price of the Fund's Class I shares decreased
from $10.01 on August 31, 1994 to $9.62 on August 31, 1995, while the price of
the Fund's Class II shares increased from $9.16 on May 1, 1995 (the inception
date for these shares) to $9.59 on August 31, 1995. Please note that Class I
share prices reflect performance for an entire year, whereas Class II prices
reflect performance for the four-month period these shares have been in
existence.
During the reporting period, Class I shareholders received distributions
totalling 15.5 cents ($0.155) per share in dividend income and 51.5 cents per
share in capital gains, of which 34 cents ($0.34) represented long-term gains
and 17.5 cents ($0.175) represented short-term gains. Class II shareholders did
not receive distributions because these shares were not in existence when
distributions were paid. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the Fund, as
well as any profits realized from the sale of securities in the portfolio.
The graph on the following page shows how a $10,000 investment in the Fund, over
the past ten years, has outperformed the unmanaged Morgan Stanley Capital
International Europe, Australia, Far East (EAFE) Index. It also shows how an
investment in the Fund over the same period has kept your purchasing power well-
ahead of inflation, as measured by the Consumer Price Index (CPI). Class II
shares are not represented as they have not been available for a sufficient
period of time. Please remember that the Fund's performance differs from that of
the index because the index does not contain cash (the Fund generally carries a
certain percentage of cash at any given time) and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index.
9
<PAGE>
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND - CLASS I
Total Return Index Comparison
$10,000 Investment (8/31/85 - 8/31/95)
[Graph appears here showing comparison between Templeton Foreign Fund, MSCI EAFE
Index and the CPI]
<TABLE>
<CAPTION>
8/85 9/95
<S> <C> <C>
Templeton Foreign Fund/1/ $10,000 $45,750
MSCI Eafe Index/2/ $10,000 $42,840
CPI/3/ $10,000 $14,184
</TABLE>
/1/ Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment
of dividends and capital gains. Past performance is not predictive
of future results.
/2/ Index is unmanaged and includes reinvested dividends.
/3/ Source: U.S. Bureau of Labor Statistics.
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
Periods ended August 31, 1995
<TABLE>
<CAPTION>
Since Since
Inception Inception
One-Year Five-Year Ten-Year (10/05/82) (05/01/95)
<S> <C> <C> <C> <C> <C>
Average Annual
Total Return/1/
Class I Shares -2.79% 8.99% 16.42% 16.77% --
Aggregate
Total Return/2/
Class II Shares -- -- -- -- 2.80%
Cumulative
Total Return/3/
Class I Shares 3.14% 63.16% 385.40% 684.60% --
Class II Shares -- -- -- -- 4.81%
</TABLE>
1. Average annual total return represents the average annual change in value of
an investment over the specified periods. The figures have been restated to
reflect the current maximum 5.75% initial sales charge for Class I Shares.
See note below.
2. Aggregate total return represents the change in value of an investment over
the period indicated and reflects the deduction of the maximum 1.00% initial
sales charge and 1.00% contingent deferred sales charge (CDSC) for Class II
Shares, applicable to shares redeemed within the first 18 months of investment.
Since Class II shares have existed for less than one year, average annual total
returns are not provided. See note below.
3. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 5.75% initial sales
charge for Class I Shares, or the maximum 1.00% initial sales charge and 1.00%
CDSC for Class II Shares, applicable to shares redeemed within the first 18
months of investment. See note below.
Note: Prior to July 1, 1992, Class I shares were offered at a higher initial
sales charge. Thus, actual total returns to purchasers of shares during that
period would have been different than noted above. Class II shares, which the
Fund began offering on May 1, 1995, are subject to different fees and expenses,
which will affect their performance. Please see the prospectus for more details
regarding Class I and Class II shares.
All total return calculations reflect the deduction of a proportional share of
Fund expenses on an annual basis and assume that all dividends and capital gains
distributions were reinvested when paid. Investment return and principal value
will fluctuate with market conditions, currencies and the economic and political
climates of countries where investments are made, so that your shares, when
redeemed, may be worth more or less than their initial cost. Past performance is
not predictive of future results.
- --------------------------------------------------------------------------------
10
<PAGE>
Templeton Foreign Fund--
Class I
If you had invested $10,000 in the Templeton Foreign Fund at its inception, it
would be worth over $73,000 today. The chart below illustrates the cumulative
total return of an assumed $10,000 investment in the Fund on October 5, 1982,
with income dividends and capital gains distributions reinvested through
August 31, 1995.*
[Mountain Chart appears here showing an initial Investment of $10,000 made on
10/05/82 (Initial Net Asset Value of $9,425) would be valued at $73,931 on
08/31/95]
*The amount of capital gains distributions accepted in shares was $24,416. The
total amount of dividends reinvested was $15,522. The performance information
shown represents past performance and is not an indication of future results.
For standardized performance figures, please refer to the Performance Summary on
page 10. Class II shares, which the Fund began offering on May 1, 1995, are
subject to different fees and expenses, which will affect their performance.
Please see the prospectus for more details regarding Class I and Class II
shares.
11
<PAGE>
TEMPLETON FOREIGN FUND
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE+ (For a share outstanding throughout the year)
<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------------
YEAR ENDED AUGUST 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19
---------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income .23 .14 .14 .20 .25
Net realized and
unrealized gain .05 1.39 1.21 .43 .03
---------- ---------- ---------- ---------- ----------
Total from investment
operations .28 1.53 1.35 .63 .28
---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from net in-
vestment income (.16) (.13) (.19) (.23) (.26)
Distributions from net
realized gains (.51) (.13) (.34) (.39) (.30)
---------- ---------- ---------- ---------- ----------
Total distributions (.67) (.26) (.53) (.62) (.56)
---------- ---------- ---------- ---------- ----------
Change in net asset
value (.39) 1.27 .82 .01 (.28)
---------- ---------- ---------- ---------- ----------
Net asset value, end of
year $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91
========== ========== ========== ========== ==========
TOTAL RETURN* 3.14% 17.94% 18.65% 8.52% 4.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000) $6,941,238 $5,014,438 $2,667,771 $1,672,161 $1,211,525
Ratio of expenses to av-
erage net assets 1.15% 1.14% 1.12% .94% .80%
Ratio of net investment
income to average net
assets 2.81% 1.84% 2.11% 2.92% 3.59%
Portfolio turnover rate 21.78% 36.75% 21.29% 22.00% 19.24%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
+PER SHARE AMOUNTS FOR YEARS ENDED PRIOR TO AUGUST 31, 1994 HAVE BEEN RESTATED
TO REFLECT A 3-FOR-1 STOCK SPLIT EFFECTIVE FEBRUARY 25, 1994.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
TEMPLETON FOREIGN FUND
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS II
---------------
FOR THE PERIOD
MAY 1, 1995+
THROUGH
AUGUST 31, 1995
---------------
<S> <C>
Net asset value, beginning of period $ 9.16
-------
Income from investment operations:
Net investment income .03
Net realized and unrealized gain .40
-------
Total from investment operations .43
-------
Net asset value, end of period $ 9.59
=======
TOTAL RETURN* 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $63,428
Ratio of expenses to average net assets 1.90%**
Ratio of net investment income to average net assets 1.86%**
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 70.4%
- -------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
1.1%
British Aerospace PLC U.K. 5,805,000 $ 59,447,927
Celsius Industrier AB, B Swe. 1,042,500 14,919,780
--------------
74,367,707
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.7%
Chofu Seisaku Co. Ltd. Jpn. 133,000 3,264,638
Electrolux AB, B Swe. 900,000 39,257,443
Email Ltd. Aus. 6,091,100 16,253,189
Fisher & Paykel Ltd. N.Z. 3,673,800 11,235,520
Luks Industrial Co. Ltd. H.K. 24,400,000 3,246,609
*Luks Industrial Co. Ltd.,
wts. H.K. 1,480,000 22,178
Sony Corp. Jpn. 800,000 43,692,150
--------------
116,971,727
- -------------------------------------------------------------------------------
Automobiles: 4.3%
Bayerische Motorenwerke AG
(BMW) Ger. 93,375 51,839,663
Ciadea SA Arg. 3,555,518 14,585,645
Consorcio G Grupo Dina SA de
CV Mex. 4,521,700 3,466,036
Consorcio G Grupo Dina SA de
CV, ADR Mex. 839,300 2,832,638
Peugeot SA Fr. 358,100 47,312,086
Regie Nationale des Usines
Renault SA Fr. 719,400 20,348,883
Tofas Turk Otomobil Fabrikasi
AS, GDR Tur. 19,400,000 15,520,000
Volkswagen AG Ger. 160,000 48,937,330
Volvo AB, B Swe. 5,005,300 99,395,834
--------------
304,238,115
- -------------------------------------------------------------------------------
Banking: 11.5%
ABN AMRO Holding NV Neth. 1,335,676 51,381,520
*ABN AMRO Holding NV, trading
cpn. Neth. 1,335,676 1,339,329
Argentaria Corporacion
Bancaria de Espana SA Sp. 1,188,800 45,402,264
Australia & New Zealand
Banking Group Ltd. Aus. 17,483,755 70,964,798
Banco Bilbao Vizcaya Sp. 1,700,000 51,439,164
Banco Central Hispano Sp. 929,000 19,369,598
Banco Popular Espanol Sp. 270,125 41,567,633
Banco Portugues de
Investimento SA Port. 789,630 11,654,100
Banco Santander SA Sp. 400,000 16,361,027
Bank of Ireland Irl. 2,176,000 12,560,079
Bank Slaski SA W Katowicach Pol. 230,460 13,054,582
Bankinter SA Sp. 220,000 19,119,758
Barclays PLC U.K. 3,761,000 42,017,130
C.S. Holding, br. Swtz. 452,750 37,104,496
Canadian Imperial Bank of
Commerce Can. 700,000 17,203,500
Daegu Bank Co. Ltd. Kor. 161,870 2,593,856
</TABLE>
14
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Banking (cont.)
Ergo Bank SA Gr. 129,440 $ 5,950,445
Grupo Financiero Banamex
Accival SA, L Mex. 150,000 299,283
*Grupo Financiero Serfin SA,
B Mex. 2,793,900 2,386,503
HSBC Holdings PLC H.K. 8,426,712 113,212,511
National Australia Bank Ltd. Aus. 8,343,988 71,623,291
National Bank of Canada Can. 2,784,000 23,066,096
National Westminster Bank PLC U.K. 5,338,888 48,751,483
Philippine National Bank Phil. 30,204 320,451
Shinhan Bank Co. Ltd. Kor. 116,860 2,693,281
*Shinhan Bank Co. Ltd., new Kor. 907 20,317
Standard Chartered PLC U.K. 4,775,300 32,009,211
Svenska Handelsbanken, A Swe. 1,250,000 19,515,736
Westpac Banking Corp. Aus. 9,470,950 35,594,103
--------------
808,575,545
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.5%
Marieberg Tidnings AB, A Swe. 101,300 2,080,994
News Corp. Ltd. Aus. 3,072,100 15,840,685
News International PLC Aus. 3,640,000 18,468,843
NV Holdingsmij de Telegraaf Neth. 120,000 15,387,420
Oriental Press Group Limited H.K. 30,397,000 12,271,105
Sing Tao Holdings Ltd. H.K. 16,702,500 9,925,268
South China Morning Post
Holdings Ltd. H.K. 48,159,000 26,596,011
--------------
100,570,326
- -------------------------------------------------------------------------------
Building Materials & Components: 0.6%
Anglian Group PLC U.K. 4,000,000 9,589,126
*Corcemar Corp. Arg. 838,732 4,195,968
Keumkang Co. Ltd. Kor. 100,000 7,659,079
Pioneer International Ltd. Aus. 7,351,928 19,120,174
--------------
40,564,347
- -------------------------------------------------------------------------------
Business & Public Services: 0.1%
Kardex AG, br. Swtz. 150 43,881
- -------------------------------------------------------------------------------
Chemicals: 3.1%
Akzo Nobel NV Neth. 423,413 49,919,248
Bayer AG Ger. 137,700 35,578,753
DSM NV Neth. 770,000 63,687,025
European Vinyls Corp. EVC
International NV Neth. 553,517 23,513,120
Kemira OY, 144a Fin. 3,000,000 23,686,639
Rhone-Poulenc SA, A Fr. 1,018,400 20,878,567
--------------
217,263,352
- -------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Construction & Housing: 0.2%
Hollandsche Beton Groep NV Neth. 75,300 $ 12,767,366
Raine PLC U.K. 5,300,000 2,384,868
--------------
15,152,234
- ------------------------------------------------------------------------------
Electrical & Electronics: 3.2%
Alcatel Alsthom SA Fr. 700,000 70,160,148
Asea AB, A Swe. 838,161 74,612,376
BBC Brown Boveri Ltd. Swtz. 7,350 1,512,760
BBC Brown Boveri Ltd., br. Swtz. 9,181 9,684,262
G.P. Batteries International
Ltd. Sing. 2,464,698 6,654,685
Gold Peak Industries Holdings
Ltd. H.K. 20,756,000 9,585,674
Great Wall Electronic
International Ltd. H.K. 34,540,800 2,811,097
Hitachi Ltd. Jpn. 365,000 3,994,375
Philips Electronics NV Neth. 1,001,000 44,894,439
--------------
223,909,816
- ------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
BICC U.K. 1,000,000 5,011,792
- ------------------------------------------------------------------------------
Energy Equipment & Services: 0.3%
Koninklijke Pakhoed NV Neth. 802,048 24,078,500
- ------------------------------------------------------------------------------
Energy Sources: 4.8%
Norsk Hydro AS Nor. 602,000 25,415,485
Repsol SA Sp. 1,611,000 50,544,451
Saga Petroleum AS, A Nor. 1,577,640 19,907,905
Saga Petroleum AS, B Nor. 826,380 10,041,695
Shell Transport & Trading Co.
PLC U.K. 2,586,700 34,371,678
Societe Elf Aquitane SA Fr. 1,286,000 94,123,345
Total SA, B Fr. 924,760 54,293,667
Transportadora de Gas del Sur
SA, B, ADR Arg. 391,100 4,057,663
YPF Sociedad Anonima Arg. 1,475,000 26,269,448
YPF Sociedad Anonima, ADR Arg. 1,028,900 18,134,363
--------------
337,159,700
- ------------------------------------------------------------------------------
Financial Services: 0.7%
Axa SA Fr. 308,100 17,057,503
Baer Holding AG Swtz. 15,000 15,685,298
Govett & Co. Ltd. U.K. 212,300 958,591
Peregrine Investments Holdings
Ltd. H.K. 12,000,000 17,129,570
--------------
50,830,962
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Food & Household Products: 2.8%
Albert Fisher Group PLC U.K. 28,700,255 $ 24,047,508
Burns Philp & Co. Ltd. Aus. 237,900 506,052
C.P. Pokphand Co. Ltd. H.K. 10,757,000 4,238,322
Cafe de Coral Holdings Ltd. H.K. 25,377,100 6,032,020
Embotelladora Andina SA, ADR Chil. 805,550 27,892,169
Goodman Fielder Ltd. Aus. 15,301,069 13,916,231
Grupo Embotellador de Mexico
SA, B Mex. 189,900 1,195,386
*Grupo Embotellador de Mexico
SA de CV, GDR Mex. 1,683,500 20,622,875
Hillsdown Holdings PLC U.K. 17,046,153 50,518,483
Lam Soon Foods Inc. H.K. 8,000,000 1,291,823
National Foods Ltd. Aus. 8,509,100 8,314,602
Vitro SA Mex. 8,183,320 24,647,769
Vitro SA, ADR Mex. 1,463,840 13,540,520
--------------
196,763,760
- -------------------------------------------------------------------------------
Forest Products & Paper: 3.0%
Assidomaen AB Swe. 500,000 10,476,869
Carter Holt Harvey Ltd. N.Z. 3,470,600 7,904,100
Cartiere Burgo SPA Itl. 2,031,750 13,793,205
Enso-Gutzeit OY Fin. 285,000 2,441,809
Enso Gutzeit OY, R Fin. 3,618,200 31,329,619
Fletcher Challenge Ltd., N.Z. N.Z. 16,289,001 44,304,777
Fletcher Forestry, Aus. N.Z. 324,619 402,599
Fletcher Forestry, N.Z. N.Z. 8,796,050 10,874,796
Metsa Serla OY, B Fin. 402,300 15,858,974
Primex Forest Products Ltd. Can. 300,000 1,787,377
PT Barito Pacific Timber, fgn. Indo. 18,872,000 20,399,912
PT Pabrik Kertas Tjiwi Kimia,
fgn. Indo. 2,214,500 4,885,286
Repola OY Fin. 1,243,000 23,763,589
Stora Kopparbergs Bergslags AB,
B Swe. 1,500,000 18,694,021
Unipapel SA Sp. 167,900 4,411,023
--------------
211,327,956
- -------------------------------------------------------------------------------
Health & Personal Care: 1.4%
Ciba-Geigy AG Swtz. 90,000 63,712,187
Hafslund Nycomed SA, B Nor. 1,346,700 31,889,453
Pacific Chemical Co. Ltd. Kor. 42,290 1,039,201
Swank International
Manufacturing Co. Ltd. H.K. 8,802,000 909,650
--------------
97,550,491
- -------------------------------------------------------------------------------
Insurance: 3.1%
Ace Ltd. Bmu. 1,682,000 51,721,500
Aegon NV Neth. 734,197 24,674,016
</TABLE>
17
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Insurance (cont.)
Baloise-Holding Swtz. 26,611 $ 53,224,208
C.E. Heath International
Holdings Aus. 4,000,000 5,261,536
International Nederlanden Group Neth. 653,500 36,298,936
*International Nederlanden
Group, trading cpn. Neth. 653,500 762,516
London Insurance Group Inc. Can. 300,000 5,892,757
National Mutual Asia Ltd. H.K. 17,154,000 12,298,760
Vital Forsikring AS, A Nor. 600,000 9,908,085
*Zurich Reinsurance Centre
Holdings, Inc. U.S. 643,000 18,968,500
--------------
219,010,814
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.3%
Grand Hotel Holdings Ltd. H.K. 9,111,000 3,118,996
Kuoni Reisen Holding AG, B Swtz. 11,974 18,185,335
--------------
21,304,331
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.1%
*Saurer AG Swtz. 20,000 6,473,298
*Tampella AB OY Fin. 1,140,599 3,430,725
--------------
9,904,023
- -------------------------------------------------------------------------------
Merchandising: 1.5%
Argyll Group PLC U.K. 6,603,978 36,069,393
Cifra SA, B Mex. 15,000,000 19,123,506
Koninklijke Bijenkorf Beheer NV
(KBB) Neth. 150,000 10,072,926
Kwik Save Group PLC U.K. 1,559,100 17,490,524
Sears Canada Inc. Can. 2,000,000 11,729,659
Tesco PLC U.K. 2,407,700 12,197,648
Yaohan Hongkong Corp. Ltd. H.K. 10,000,000 697,584
--------------
107,381,240
- -------------------------------------------------------------------------------
Metals & Mining: 5.2%
Alcan Aluminum Ltd. Can. 2,209,410 72,193,531
Alcan Australia Ltd. Aus. 2,558,050 6,441,223
*ARBED SA Lux. 237,473 32,130,273
*Asturiana del Zinc SA Sp. 875,000 9,278,823
Bohler Uddeholm AG, 144a Aust. 97,000 6,999,370
Comalco Ltd. Aus. 359,800 1,833,603
De Beers Consolidated Mines
Ltd. S.AF. 578,800 14,841,026
Elkem AS Nor. 1,524,000 18,518,772
Goldfields Ltd. Aus. 204,398 510,069
*Inmet Mining Corp. Can. 852,000 6,741,761
Maanshan Iron & Steel Co. Ltd.,
H Chn. 66,776,000 11,127,896
Outokumpu OY, A Fin. 3,002,134 55,958,018
</TABLE>
18
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Metals & Mining (cont.)
*Outokumpu OY, wts. Fin. 822,300 $ 215,480
Pechiney SA Fr. 700,000 16,791,292
Pechiney SA, invt. ctf. Fr. 427,700 27,703,137
Pohang Iron & Steel Co. Ltd. Kor. 184,978 17,552,814
Renison Goldfields Consolidated
Ltd. Aus. 3,632,800 15,154,757
SIG (Schweizerische Industrie
Gesellschaft) Holdings AG Swtz. 1,939 4,200,000
Trelleborg AB, B Swe. 1,500,000 16,331,589
*Union Miniere NPV Bel. 500,000 32,707,340
--------------
367,230,774
- -------------------------------------------------------------------------------
Multi-Industry: 4.6%
Amer Group Ltd., A Fin. 800,500 13,644,005
BTR Nylex Ltd. Aus. 19,500,000 51,739,689
Cheung Kong Holdings Ltd. H.K. 9,500,000 47,125,694
CNT Group Ltd. H.K. 17,100,000 1,005,103
Dairy Farm International
Holdings Ltd. H.K. 50,087,000 46,580,910
DESC Sociedad de Formento
Industrial SA, B Mex. 3,305,000 13,483,347
Fotex First Hungarian-American
Photo-Service Co. Hun. 1,886,615 2,375,514
Jardine Matheson Holdings Ltd. H.K. 4,470,954 32,190,869
Jardine Strategic Holdings Ltd. H.K. 9,452,849 29,681,946
Pacific Dunlop Ltd. Aus. 24,464,075 57,739,490
Swire Pacific Ltd., A H.K. 2,437,500 18,263,144
Swire Pacific Ltd., B H.K. 7,334,000 8,716,290
--------------
322,546,001
- -------------------------------------------------------------------------------
Real Estate: 1.1%
Bail-Investissement Fr. 114,380 19,212,677
Hang Lung Development Co. Ltd. H.K. 23,441,000 36,337,941
*Hang Lung Development Co.
Ltd., wts. H.K. 856,700 132,805
Hon Kwok Land Investment Co.
Ltd. H.K. 19,000,000 5,215,734
Ryoden Development Ltd. H.K. 20,000,000 4,857,254
Tai Cheung Holdings Ltd. H.K. 14,199,613 12,290,067
*Tasman Properties Ltd. N.Z. 20,000,000 299,321
--------------
78,345,799
- -------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 0.2%
+Shenzhen China Bicycles Co.
(Holdings) Ltd., B Chn. 17,824,500 6,217,046
Yue Yuen Industrial (Holdings)
Ltd. H.K. 24,964,000 6,385,315
--------------
12,602,361
- -------------------------------------------------------------------------------
Telecommunications: 4.3%
Alcatel Cable SA Fr. 63,857 3,997,031
Compania de Telecomunicaciones
de Chile SA, ADR Chil. 168,200 12,278,600
</TABLE>
19
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Telecommunications (cont.)
STET (Sta Finanziaria
Telefonica Torino) SPA Itl. 4,989,500 $ 15,252,156
STET (Sta Finanziaria
Telefonica Torino) SPA, di Risp Itl. 2,686,500 6,580,365
Telecom Argentina Stet France
SA, ADR Arg. 582,400 25,334,400
Telecom Italia Mobile, di risp Itl. 7,806,100 7,835,525
Telecom Italia Spa, di Risp Itl. 7,806,100 10,016,597
Telefonica de Argentina SA, B,
ADR Arg. 1,600,000 39,600,000
Telefonica de Espana SA Sp. 5,161,700 69,964,041
Telefonos de Mexico SA, L Mex. 13,623,481 22,231,784
Telefonos de Mexico SA, L, ADR Mex. 2,700,200 88,431,550
--------------
301,522,049
- -------------------------------------------------------------------------------
Textiles & Apparel: 0.6%
Daehan Synthetic Fiber Co. Ltd. Kor. 18,140 2,322,633
Fountain Set Holdings Ltd. H.K. 5,657,000 979,251
PT Indorama Synthetics, fgn. Indo. 6,000,000 19,986,764
Tae Kwang Industrial Co. Ltd. Kor. 3,010 1,938,670
Winsor Industrial Corp. Ltd. H.K. 11,935,000 13,105,219
--------------
38,332,537
- -------------------------------------------------------------------------------
Transportation: 4.8%
Anangel-American Shipholdings
Ltd., ADR Gr. 21,300 322,163
*Bremer Vulkan Verbund AG Ger. 600,000 33,188,011
British Airways PLC U.K. 4,252,000 28,105,636
Cathay Pacific Airways Ltd. H.K. 40,060,000 60,289,239
Great Eastern Shipping Co.
Ltd., GDR Ind. 77,700 630,147
IMC Holdings Ltd. H.K. 11,982,000 8,544,198
Koninklijke Nedlloyd NV Neth. 900,000 31,285,324
Malaysian International
Shipping Corp. Bhd., fgn. Mal. 5,569,000 15,980,851
Mayne Nickless Ltd., A Aus. 4,000,000 19,182,057
Peninsular & Oriental Steam
Navigation Co. U.K. 1,680,000 14,467,478
*Qantas Airways Ltd., ADR, 144a Aus. 481,700 7,887,838
+Shanghai Hai Xing Shipping
Co., H Chn. 73,850,000 8,109,094
Shun Tak Holdings H.K. 45,666,000 38,345,046
Singapore Airlines Ltd., fgn. Sing. 2,095,000 17,691,766
Stena Line AB, B free Swe. 2,000,000 9,997,535
Swissair Schweizerische
Luftverkehr AG Swtz. 48,940 30,868,003
Transport Development Group PLC U.K. 1,000,000 3,398,088
Transportacion Maritima
Mexicana SA de CV, L, ADR Mex. 608,800 5,250,900
--------------
333,543,374
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Utilities--Electrical & Gas: 4.1%
British Gas PLC U.K. 6,500,000 $ 27,937,252
Cia Energetica de Minas Gerais,
ADR Braz. 7,000 157,726
Compania Sevillana de
Electricidad Sp. 6,397,428 40,551,389
Electrabel SA Bel. 150,000 31,846,184
Electricidad de Caracas Venz. 12,254,270 9,444,080
Endesa-Empresa Nacional de
Electricidad SA Sp. 17,000 882,395
Evn Energie-Versorgung
Niederoesterreich AG Aus. 150,000 19,599,012
Iberdrola SA Sp. 10,267,215 78,833,743
Shandong Huaneng Power Chn. 3,000,000 25,125,000
Thames Water Group PLC U.K. 1,700,000 14,270,420
VEBA AG Ger. 1,000,000 38,215,259
--------------
286,862,460
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.1%
Sime Darby Hongkong Ltd. H.K. 3,860,000 4,687,250
--------------
TOTAL COMMON STOCKS (cost $4,427,311,303) 4,927,653,224
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 2.3%
- -------------------------------------------------------------------------------
Ballast Nedam NV, ctf., conv.,
pfd. Neth. 140,000 6,295,959
Bayerische Motorenwerke AG
(BMW), pfd. Ger. 10,000 3,923,706
Cemig-Cia Energetica de Minas
Gerais, pfd. Braz. 393,000,000 8,855,172
+Krones AG Herman Kronseder
Maschinen Fabrik, pfd. Ger. 30,000 13,038,147
Petrobras-Petroleo Brasileiro
SA, pfd. Braz. 67,858,000 6,444,634
Telebras-Telecomunicacoes
Brasileiras SA, pfd. Braz. 572,200,000 24,731,571
Telebras-Telecomunicacoes
Brasileiras SA, pfd., ADR Braz. 1,950,000 84,825,000
Telesp-Telecomunicacoes de Sao
Paulo SA, pfd. Braz. 71,477,000 11,744,075
--------------
TOTAL PREFERRED STOCKS (cost $135,166,912) 159,858,264
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
TEMPLETON FOREIGN FUND
Investment Portfolio, August 31, 1995 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
BONDS: 8.9%
- -------------------------------------------------------------------------------
ARBED SA, 2.50%, conv.,
7/15/03 Ger. 4,500,000 $ 2,666,894
British Airways, DEB,
9.75%, 6/15/05 U.K. 1,450,000 4,261,722
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 2,720,000 3,420,400
Government of Australia:
7.00%, 8/15/98 Aus. 60,600,000 44,419,320
6.25%, 3/15/99 Aus. 61,700,000 43,747,587
7.00%, 4/15/00 Aus. 61,700,000 43,947,934
Jardine Strategic Holdings
Ltd., 7.50%, conv. U.S. 9,050,000 9,728,750
Softe SA, 4.25%, conv.,
7/30/98, 144a Itl. 2,280,000,000 1,582,091
U.S. Treasury Notes:
6.00%, 6/30/96 U.S. 45,500,000 45,606,470
7.25%, 8/31/96 U.S. 44,500,000 45,125,670
7.25%, 11/15/96 U.S. 45,000,000 45,766,350
6.375%, 6/30/97 U.S. 25,800,000 26,058,000
6.375%, 7/15/99 U.S. 102,500,000 103,749,475
6.00%, 10/15/99 U.S. 103,000,000 102,854,770
6.375%, 1/15/00 U.S. 103,000,000 104,303,980
--------------
TOTAL BONDS (cost $619,434,847) 627,239,413
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 17.8% (cost
$1,248,748,598)
- -------------------------------------------------------------------------------
U.S. Treasury Bills, 5.25%
to 5.41% with
maturities to 11/02/95 U.S. 1,254,464,000 1,248,956,767
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.4% (cost
$6,430,661,660) 6,963,707,668
OTHER ASSETS, LESS LIABILITIES: 0.6% 40,958,073
--------------
TOTAL NET ASSETS: 100.0% $7,004,665,741
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
TEMPLETON FOREIGN FUND
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $6,430,661,660) $6,963,707,668
Cash 258,654
Receivables:
Investment securities sold 66,715,254
Capital shares sold 39,959,170
Dividends and interest 24,876,775
--------------
Total assets 7,095,517,521
--------------
Liabilities:
Payables:
Investment securities purchased 73,407,334
Capital shares redeemed 8,887,190
Accrued expenses and other 8,557,256
--------------
Total liabilities 90,851,780
--------------
Net assets, at value $7,004,665,741
==============
Net assets consist of:
Undistributed net investment income $ 139,048,660
Net unrealized appreciation 533,046,008
Accumulated net realized gain 186,948,350
Net capital paid in on shares of capital stock 6,145,622,723
--------------
Net assets, at value $7,004,665,741
==============
Class I:
Net asset value per share
($6,941,238,158 / 721,254,797 shares outstanding) $ 9.62
==============
Maximum offering price ($9.62 / 94.25%) $ 10.21
==============
Class II:
Net asset value per share
($63,427,583 / 6,612,262
shares outstanding) $ 9.59
==============
Maximum offering price ($9.59 / 99.00%) $ 9.69
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the year ended August 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $17,672,389
foreign taxes withheld)
Dividends $ 132,137,764
Interest 98,438,826
-------------
Total income $230,576,590
Expenses:
Management fees (Note 3) 36,110,792
Administrative fees
(Note 3) 4,672,920
Distribution fees (Note 3)
Class I 14,581,987
Class II 90,617
Transfer agent fees (Note 3) 5,675,000
Custodian fees 2,953,484
Reports to shareholders 1,748,324
Audit fees 52,000
Legal fees (Note 3) 16,400
Registration and filing fees 763,000
Directors' fees and expenses 73,500
Other 146,923
-------------
Total expenses 66,884,947
------------
Net investment income 163,691,643
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 228,410,217
Foreign currency transactions (9,184,434)
-------------
219,225,783
Net unrealized depreciation on investments (131,760,311)
-------------
Net realized and unrealized gain 87,465,472
------------
Net increase in net assets resulting from
operations $251,157,115
============
</TABLE>
23
<PAGE>
TEMPLETON FOREIGN FUND
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 163,691,643 $ 69,788,022
Net realized gain on investment and for-
eign currency transactions 219,225,783 253,139,732
Net unrealized appreciation (depreciation) (131,760,311) 277,918,869
-------------- --------------
Net increase in net assets resulting from
operations 251,157,115 600,846,623
Distributions to shareholders:
From net investment income
Class I (84,334,594) (42,656,339)
From net realized gain
Class I (275,006,347) (45,810,480)
Capital share transactions (Note 2)
Class I 2,035,091,105 1,834,286,777
Class II 63,320,854 --
-------------- --------------
Net increase in net assets 1,990,228,133 2,346,666,581
Net assets:
Beginning of year 5,014,437,608 2,667,771,027
-------------- --------------
End of year $7,004,665,741 $5,014,437,608
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Foreign Fund (the Fund) is a series of Templeton Funds, Inc. (the
Company) which is an open-end, diversified management investment company regis-
tered under the Investment Company Act of 1940. The following summarizes the
Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities resulting
from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
25
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
Effective May 1, 1995, the Fund offered two classes of shares: Class I shares
and Class II shares. Shares of each class are identical except for their ini-
tial sales load, a contingent deferred sales charge on Class II shares, distri-
bution fees, and voting rights on matters affecting a single class. All Fund
shares outstanding before May 1, 1995 were designated as Class I shares. At Au-
gust 31, 1995, there were 2.7 billion shares of capital stock authorized ($1.00
par value) of which 1.5 billion shares have been classified as Fund shares. Ef-
fective February 25, 1994 the shares of the Fund were split on a three shares
for one share basis. All previously reported per share data for the Fund have
been restated to give effect to the split. Transactions in the Fund's shares
were as follows:
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 294,214,786 $2,724,124,163 181,116,016 $2,483,185,483
Shares issued on
reinvestment
of distributions 32,535,343 299,952,040 2,689,001 71,781,448
Shares issued on 3-for-1
split -- -- 266,109,385 --
Shares redeemed (106,358,799) (988,985,098) (50,785,053) (720,680,154)
------------ -------------- ----------- --------------
Net increase 220,391,330 $2,035,091,105 399,129,349 $1,834,286,777
============ ============== =========== ==============
<CAPTION>
CLASS II
----------------------------
FOR THE PERIOD
MAY 1, 1995
THROUGH
AUGUST 31, 1995
----------------------------
SHARES AMOUNT
------------ --------------
<S> <C> <C> <C> <C>
Shares sold 6,634,457 $ 63,535,244
Shares redeemed (22,195) (214,390)
------------ --------------
Net increase 6,612,262 $ 63,320,854
============ ==============
</TABLE>
26
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton,
Galbraith & Hansberger Ltd. (TGH), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter, and transfer agent, respectively. The Fund pays monthly
an investment management fee to TGH equal, on an annual basis, to 0.75% of the
average daily net assets of the Fund up to $200 million, reduced to 0.675% of
such average daily net assets in excess of $200 million, and further reduced to
0.60% of such net assets in excess of $1.3 billion. The Fund pays TGII monthly
its allocated share of an administrative fee of 0.15% per annum on the first
$200 million of the Company's aggregate average daily net assets, 0.135% of the
next $500 million, 0.10% of the next $500 million, and 0.075% per annum of such
average net assets in excess of $1.2 billion. For the year ended August 31,
1995, FTD received net commissions of $6,510,032 from the sale of the Fund's
shares and FTIS received fees of $5,675,000.
Under the distribution plans for Class I and Class II shares, the Fund reim-
burses FTD quarterly for FTD's costs and expenses in connection with any activ-
ity that is primarily intended to result in a sale of Fund shares, subject to a
maximum of 0.25% and 1.00% per annum of the average daily net assets of Class I
and Class II shares, respectively. Under the Class I distribution plan, costs
and expenses exceeding the maximum may be reimbursed in subsequent periods. At
August 31, 1995, unreimbursed expenses amounted to $1,260,716. Class II shares
redeemed within 18 months are subject to a contingent deferred sales charge.
Contingent deferred sales charges of $27,331 were paid to FTD for the year
ended August 31, 1995.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $16,400 for the year ended August 31,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended August 31, 1995 aggregated $3,037,829,609 and $983,398,285, respec-
tively. The cost of securities for federal income tax purposes is the same as
that shown in the investment portfolio. Realized gains and losses are reported
on an identified cost basis.
At August 31, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<CAPTION>
Unrealized appreciation $ 776,467,301
<S> <C>
Unrealized depreciation (243,421,293)
-------------
Net unrealized appreciation $ 533,046,008
=============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Act of 1940 defines "affiliated companies" as investments in
portfolio companies in which the Fund owns 5% or more of the outstanding voting
securities. Investments in "affiliated companies" at August 31, 1995 amounted
to $27,364,287. For the year ended August 31, 1995, dividend income from affil-
iated companies was $423,388.
27
<PAGE>
TEMPLETON FOREIGN FUND
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Foreign Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Foreign Fund series of Templeton Funds,
Inc. as of August 31, 1995, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated in the accompanying financial statements. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and fi-
nancial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of Au-
gust 31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Tem-
pleton Foreign Fund series of Templeton Funds, Inc. as of August 31, 1995, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted ac-
counting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
September 29, 1995
28
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
Notes
-----
<PAGE>
- --------------------------
TEMPLETON FOREIGN FUND
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Account Services
1-800-354-9191
Sales Information
1-800-292-9293
This report must be preceded or accompanied by a current prospectus of the
Templeton Foreign Fund, which contains more complete information including
charges and expenses. Like any investment in securities, the value of the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors, as well as investment decisions by the
investment manager which will not always be profitable or wise. The Fund and
its investors are not protected from such losses by the investment manager.
Therefore, investors who cannot accept this risk should not invest in shares of
the Fund.
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 determined by the presence of a regular beeping tone.
- --------------------------
[RECYCLING LOGO APPEARS HERE] TL104 A95 10/95
TEMPLETON
FOREIGN
FUND
Annual Report
August 31, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
