<PAGE>
Templeton Foreign Fund
[PHOTO APPEARS HERE]
Mark Holowesko
Director of Global
Equity Research
- --------------------------------------------------------------------------------
Mark G. Holowesko is the president and primary 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
principally outside the United States.
- --------------------------------------------------------------------------------
April 17, 1995
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Templeton Foreign Fund
for the period ended February 28, 1995.
International economic and securities market conditions remained volatile during
the six months under review. Most of the economic volatility was centered around
the currency crisis in Mexico, with emerging markets in general experiencing the
majority of the stock price fluctuations.
1
<PAGE>
As we search the world in pursuit of value, we are cognizant that conditions
have deteriorated in certain countries or industries. For example, land prices
in Hong Kong are down sharply, and Mexico has seen its financial condition
hindered by a massive devaluation of its currency, excessive interest rate
levels and added political instability. Even in the U.S., the once stable
utility industry has been challenged by greater competition. Yet, in most cases,
we believe the magnitude of the decline in stock prices has more than
compensated for these concerns.
Our style of investing has always attempted to capitalize on these volatile and
uncertain periods by adding to or initiating positions in securities which we
feel are cheap or undervalued. That means we are buying securities where we
believe the problems are temporary or the reaction of the market is too dramatic
relative to the present environment. As a result, our cash levels today are
declining. Just as we had allowed our cash balances to rise in 1993 and 1994
taking advantage of the optimism in the markets to sell overvalued securities,
today we are buying. This is particularly true in Hong Kong, China, and Latin
America.
Three significant events have led to the decline of stock prices in Hong Kong
and China. The first is the natural follow-through after a period of excessive
optimism. Any market or class of security tends to experience a period of
"cooling off" after excessive speculation. A second event, of even greater
influence on stock prices, was the increase in U.S. interest rates. Since the
Hong Kong dollar is linked to the U.S. dollar, the low level of interest rates
and rapid economic growth in Hong Kong led to speculation in most asset classes,
particularly in real estate. When interest rates began to rise, the cost of
borrowing money to finance real estate purchases became more expensive, causing
property demand to fall. Weaker demand put pressure on land prices. Since a
large part of Hong Kong equity market earnings is derived from or associated
with real estate, the impact had a substantial effect on stock prices.
A third significant event is the anticipated death of Deng Xiaoping. Many
investors feel that the political and social transition at Deng's death will
have a greater impact on Hong Kong's future than the Chinese takeover of Hong
Kong in 1997. The attitude that China takes when it assumes control of Hong Kong
in 1997 may well depend on who assumes control in China after Deng's death.
2
<PAGE>
These concerns, as well as others, we feel are reflected in current stock
prices, so we are buying both Hong Kong and Chinese securities for your Fund.
Examples where price declines resulted in purchases for your Fund are Cathay
Pacific Airways, a major airline operator in Hong Kong; Shun Tak Holdings Ltd.,
a Hong Kong-based conglomerate involved in shipping and real estate; and
Maanshan Iron & Steel Co. Ltd., a Chinese manufacturer of steel and steel-
related products.
- --------------------------------------------------------------------------------
Templeton Foreign Fund
Geographic Distribution on 2/28/95
Based on Total Net Assets
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------ --------------
<S> <C>
European Stocks 41.4%
Australian &
New Zealand Stocks 8.3%
Latin American Stocks 4.8%
Asian Stocks 11.6%
Fixed Income Securities 8.4%
Other Stocks 3.0%
Short-Term Obligations
& Other Net Assets 22.5%
</TABLE>
In Latin America, the deterioration of Mexico's financial condition and the
massive devaluation of its currency have put pressure on prices throughout the
region. There are certainly many negative implications from a currency
devaluation. Few investors realize, however, that there are benefits for
companies that incur costs in local currency but which produce goods that can be
sold overseas generating revenue in foreign currencies. A currency devaluation
for these companies has the effect of lowering the local cost of production
relative to foreign revenue. We feel that several stocks in Mexico and South
America are now selling at attractive prices, and we are buying these securities
for your Fund. We are concentrating our efforts on those companies that are not
overly burdened by the high level of interest rates, and which also benefit from
currency devaluation.
An example of such an attractive security is YPF Sociedad Anonima, a major
integrated oil company in Argentina. Although YPF is financially sound, its
price declined with the Latin American market in part due to its regional
proximity to Mexico and the general uncertainty that has been endemic as of
late. Besides its emerging market
3
<PAGE>
locale, YPF also affords us the ability to gain some commodity exposure. YPF
controls half the oil sector in Argentina, producing oil and natural gas
while earning revenues in U.S. dollars.
One particular area where we feel we can capitalize on price volatility and
inefficiencies is in hard assets, or com-
- --------------------------------------------------------------------------------
Templeton Foreign Fund
Top 10 Holdings on 2/28/95
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Company, Industry, Country Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Telefonica de Espana SA;
Telecommunications, Spain 1.2%
- --------------------------------------------------------------------------------
DSM NV; Chemicals, Netherlands 1.1%
- --------------------------------------------------------------------------------
Australia & New Zealand Banking Group Ltd.;
Banking, Australia 1.1%
- --------------------------------------------------------------------------------
Volvo AB; Automobiles, Sweden 1.1%
- --------------------------------------------------------------------------------
Asea AB; Electrical & Electronics, Sweden 1.0%
- --------------------------------------------------------------------------------
Bayerische Motorenwerke AG (BMW);
Automobiles, Germany 0.9%
- --------------------------------------------------------------------------------
HSBC Holdings PLC; Banking, Hong Kong 0.9%
- --------------------------------------------------------------------------------
Ciba-Geigy AG; Health & Personal Care,
Switzerland 0.9%
- --------------------------------------------------------------------------------
Philips Electronics NV; Electrical
& Electronics, Netherlands 0.9%
- --------------------------------------------------------------------------------
Hillsdown Holdings PLC; Food & Household
Products, United Kingdom 0.9%
- --------------------------------------------------------------------------------
</TABLE>
For a complete list of portfolio holdings, please see page 10 of this report.
modities as they are commonly known. Commodities now account for almost one-
quarter of the $3.6 trillion in total world trade and for just under one-half of
all exports from developing countries. There are huge differences in the values
placed on commodity-related companies in different regions of the world. For
example, U.S. cement companies have a value per unit of production of $144 per
ton, which is significantly larger than the $46 per ton in Eastern Europe and $1
per ton in Russia. Similarly, the value per unit of oil production ranges from
$7.06 per barrel in North America to $0.04 per barrel in Russia. While the lower
valuations in certain countries reflect the difficult economic environments,
political risks and relative company inefficiencies, a large degree of
fundamental growth and opportunity still remains. Beyond regional differences in
market valuations, general commodity prices have been under pressure for quite
some time and, despite recent uptrends, many prices are still at levels where
their production cost is higher than current market prices. Under such an
environment, we don't expect many of the producers of certain commodities to be
increasing supply significantly in the near future.
4
<PAGE>
The question then is why might the price levels of these commodities, or hard
assets, change in the future? In order to answer this question, we only have to
look as far as the developing markets of the world. These markets are huge
sources of potential demand with rapid population growth and increasing
standards of living acting as a catalyst for long-term demand. As per capita
income rises, the demand for raw materials increases. People have more money, so
they consume more. Even with strong economic growth, developing economies are
currently at per capita consumption levels far below developed market levels.
For example, China's demand for steel from 1987 to 1992 grew from 40 million
tons per year to 70 million tons per year, yet per capita consumption is still
only 129 pounds per capita versus 1,115 pounds in Korea. If demand for steel in
China continues to grow at 8% per year for 10 years, as it has been, it alone
will account for 25% of the current total gross demand for steel today. Using
energy as a further example, we see that China consumes 0.36 liters of oil per
capita per day. If this were to rise to 4.36 liters per day, equal to the
consumption level of Taiwan, approximately 4 billion extra liters of oil per day
would be required. This extra amount is roughly equal to 29 billion barrels per
day, or 2 million barrels above the 27 million barrels per day produced by OPEC
in 1993. Commodities are thus a key component in global economics and will
continue to play an integral role in the transition of a market from an emerging
economy to the industrialized, developed stage.
Many investors believe that the recent volatility in overseas markets indicates
that the risk of investing overseas has increased. Volatility is often equated
with risk. The greater the price fluctuation of an asset, the more risky that
asset class is often perceived. We believe that the risk of investing overseas
may, in some instances, have actually declined. The main reason for this
argument is that, in general, the price declines experienced in many equity
markets have been greater or more significant than the decline in valuations.
In many respects, the market declines and the volatility experienced overseas
are consistent with what we have seen historically, whereas the market
volatility in the U.S. has been abnormally low. Hong Kong, for example, has
5
<PAGE>
experienced eight corrections of more than 30% over the last 10 years, three of
which were more than 40%, yet one dollar invested in Hong Kong at the beginning
of the last 10-year period has grown to over $4.00. In the U.S., however, we
have not experienced a normal price correction for many years. A "normal" or
"average" correction means that stock prices decline 15 to 20% over a 13-month
period, and it takes 21 months from the beginning of price declines until you
return to the point at which you started. A "normal" price correction in an
emerging market may be much shorter, normally lasting only six months but
showing a more significant decline in pricing.
While the global markets continue a pattern of volatility, we actually welcome
this environment because volatility creates uncertainty, which rewards us with
opportunity. An investor's first instinct is to shun uncertainty for it is
equated with risk. We try to look beyond the uncertainty and speculation that
easily overshadow a market and instead focus on the core fundamentals that
influence value. Many of the key fundamentals haven't changed significantly, and
instead of finding ourselves in an uncertain and volatile period, we are
actually in a period of opportunity. There are, of course, special risks
involved with global investing related to market, currency, economic, political,
and other factors. These risks are discussed in the Fund's prospectus.
We thank you for your participation in the Templeton Foreign Fund and look
forward to serving your investment needs in the months and years to come.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko, CFA
President
Templeton Foreign Fund
6
<PAGE>
Performance Summary
The Templeton Foreign Fund reported a total return of -5.76% for the six-month
period and -2.74% for the one-year period ended February 28, 1995. While these
short-term returns are disappointing, they are reflective of the declines
experienced in global equity markets during this time. According to Lipper
Analytical Services, Inc., a nationally recognized mutual fund research
organization, the average international equity fund reported a total return of
- -8.96% for the year ended February 28, 1995. Total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the maximum initial sales charge.
Although we expect some short-term volatility, 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 to the
right, the Fund delivered a cumulative total return 56.41% for the 5-year period
ended February 28, 1995. This 5-year total return earned the Fund a #7 ranking
out of 51 international equity funds, as measured by Lipper Analytical Services,
Inc./1/
The Fund's share price, as measured by net asset value, decreased from $10.01 on
August 31, 1994 to $8.79 on February 28, 1995. During the reporting period,
shareholders received distributions totaling 15.5 cents ($0.155) per share in
dividend income and 51.5 cents ($0.515) 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. 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 sales of securities in the portfolio.
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
Periods Ended 2/28/95
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year Ten-Year (10/5/82)
<S> <C> <C> <C> <C>
Average Annual
Total Return/2/ -8.32% 8.07% 16.68% 16.66%
Cumulative
Total Return/3/ -2.74% 56.41% 395.93% 616.90%
</TABLE>
1. The Fund ranked #16 out of 162 funds for the one-year period ended February
28, 1995, and #4 out of 19 for the 10-year period ended December 31, 1994.
Lipper rankings do not include sales charges, and may have been different if
these charges had been considered.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods, assuming reinvestment of dividends and
capital gains, and includes the maximum 5.75% initial sales charge.
3. Cumulative total return represents the change in value of an investment over
the specified periods, assuming reinvestment of dividends and capital gains. It
does not include the maximum 5.75% initial sales charge.
Prior to July 1, 1992, Fund shares were offered at a higher sales charge.
Thus, actual total return to purchasers of shares during that period would
have been somewhat lower than noted above. Investment return and principal
value will fluctuate with market conditions, currencies and the economic and
political climates of the 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.
7
<PAGE>
Templeton Foreign Fund
If you had invested $10,000 in the Templeton Foreign Fund at its inception, it
would be worth over $67,000 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
February 28, 1995*
[MOUNTAIN CHART APPEARS HERE SHOWING AN INITIAL INVESTMENT OF $10,000 MADE ON
10/5/82 (INITIAL NET ASSET VALUE OF $9,425) WOULD BE VALUED AT $67,553 ON
2/28/95]
*The amount of capital gains distributions accepted in shares was $17,650. The
total amount of dividends reinvested was $10,601. 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 7.
8
<PAGE>
Templeton Foreign Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE+ (For a share outstanding throughout the
period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 28, 1995 --------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60
---------- ---------- ---------- ---------- ---------- --------
Income from investment
operations:
Net investment income .07 .14 .14 .20 .25 .25
Net realized and
unrealized
gain (loss) (.62) 1.39 1.21 .43 .03 .92
---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations (.55) 1.53 1.35 .63 .28 1.17
---------- ---------- ---------- ---------- ---------- --------
Distributions:
Dividends from net
investment income (.15) (.13) (.19) (.23) (.26) (.25)
Distributions from net
realized gains (.52) (.13) (.34) (.39) (.30) (.33)
---------- ---------- ---------- ---------- ---------- --------
Total distributions (.67) (.26) (.53) (.62) (.56) (.58)
---------- ---------- ---------- ---------- ---------- --------
Change in net asset
value (1.22) 1.27 .82 .01 (.28) .59
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of
period $ 8.79 $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19
========== ========== ========== ========== ========== ========
TOTAL RETURN * (5.76)% 17.94% 18.65% 8.52% 4.17% 16.35%
RATIO/SUPPLEMENTAL DATA
Net assets, end of
period (000) $5,565,028 $5,014,438 $2,667,771 $1,672,161 $1,211,525 $932,995
Ratio of expenses to
average
net assets 1.12%** 1.14% 1.12% 0.94% 0.80% 0.77%
Ratio of net investment
income to average net
assets 1.70%** 1.84% 2.11% 2.92% 3.59% 3.95%
Portfolio turnover rate 9.17% 36.75% 21.29% 22.00% 19.24% 11.49%
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED IN PERIODS OF
LESS THAN ONE YEAR.
**ANNUALIZED.
+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.
9
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS: 67.8%
- ------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
1.1%
British Aerospace PLC U.K. 5,805,000 $ 43,302,371
Celsius Industrier AB, B Swe. 642,500 14,247,481
Rolls-Royce PLC U.K. 1,832,227 4,323,685
--------------
61,873,537
- ------------------------------------------------------------------------------
Appliances & Household Durables: 1.3%
Electrolux AB, B Swe. 500,000 25,211,345
Email Ltd. Aus. 3,205,000 8,448,098
Luks Industrial Co. Ltd. H.K. 14,400,000 1,899,761
*Luks Industrial Co. Ltd.,
wts. H.K. 1,480,000 26,608
Sony Corp. Jpn. 800,000 34,791,613
Tomei International Holdings
Ltd. H.K. 14,799,000 1,148,471
--------------
71,525,896
- ------------------------------------------------------------------------------
Automobiles: 3.2%
Bayerische Motorenwerke AG
(BMW) Ger. 93,375 48,994,638
Ciadea SA Arg. 2,500,000 13,749,313
Consorcio G Grupo Dina SA de
CV Mex. 4,521,700 3,889,797
Consorcio G Grupo Dina SA de
CV, ADR Mex. 839,300 2,727,725
Oriental Holdings Bhd., fgn. Mal. 166,000 877,963
*Peugeot SA Fr. 208,100 28,404,017
Regie Nationale des Usines
Renault SA Fr. 119,400 3,971,851
*Tofas Turk Otomobil
Fabrikasi AS, GDR Tur. 4,100,000 16,400,000
Volvo AB, B Swe. 3,041,000 61,002,177
--------------
180,017,481
- ------------------------------------------------------------------------------
Banking: 11.7%
ABN AMRO Holding NV Neth. 1,215,676 44,286,244
Argentaria Corporacion
Bancaria de Espana SA Sp. 750,000 24,261,686
Australia & New Zealand
Banking Group Ltd. Aus. 17,483,755 61,447,517
Banco Bilbao Vizcaya Sp. 1,700,000 45,351,066
Banco Central Hispano Sp. 900,000 20,946,607
Banco Popular Espanol Sp. 270,125 34,340,162
Banco Portugues de
Investimento SA Port. 799,630 13,371,209
Banco Santander SA Sp. 400,000 14,332,095
Bank of Ireland Irl. 1,724,000 8,409,623
Bankinter SA Sp. 220,000 18,037,160
Barclays PLC U.K. 3,761,000 36,096,451
C.S. Holding, br. Swtz. 90,550 37,643,557
Canadian Imperial Bank of
Commerce Can. 700,000 17,079,909
Daegu Bank Co. Ltd. Kor. 61,870 782,728
Ergo Bank SA Gr. 148,740 5,761,394
</TABLE>
10
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Banking (cont.)
Grupo Financiero Banamex
Accival SA, C Mex. 3,000,000 $ 2,560,669
Grupo Financiero Serfin
SA, B Mex. 2,793,900 2,478,271
HSBC Holdings PLC H.K. 4,926,712 51,774,604
Industrial Finance Corp.
of Thailand, fgn. Thai. 4,993,100 10,510,736
National Australia Bank
Ltd. Aus. 5,343,988 43,087,449
National Bank of Canada Can. 2,784,000 19,479,709
National Bank of Greece
SA Gr. 89,190 4,214,789
National Westminster Bank
PLC U.K. 4,338,888 33,053,090
Philippine National Bank Phil. 471,334 5,226,856
Royal Bank of Scotland
Group PLC U.K. 428,500 2,680,627
Shinhan Bank Co. Ltd. Kor. 4,940 96,341
*Shinhan Bank Co. Ltd.,
new Kor. 907 17,114
Standard Chartered PLC U.K. 10,600,000 42,305,317
Svenska Handelsbanken, A Swe. 1,250,000 15,863,702
Westpac Banking Corp. Aus. 9,470,950 35,034,340
--------------
650,531,022
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.6%
News Corp. Ltd. Aus. 4,802,200 21,416,074
News International PLC Aus. 3,640,000 14,123,945
NV Holdingsmij de
Telegraaf Neth. 120,000 13,503,949
Oriental Press Group
Limited H.K. 14,653,000 7,249,269
Sing Tao Holdings Ltd. H.K. 15,702,500 10,154,886
South China Morning Post
Holdings Ltd. H.K. 38,010,000 21,016,976
--------------
87,465,099
- -------------------------------------------------------------------------------
Building Materials & Components: 0.4%
Anglian Group PLC U.K. 1,104,800 2,572,110
Pioneer International
Ltd. Aus. 7,738,428 18,626,576
--------------
21,198,686
- -------------------------------------------------------------------------------
Business & Public Services: 0.1%
Laidlaw Inc., B Can. 171,000 1,395,906
- -------------------------------------------------------------------------------
Chemicals: 3.1%
Akzo Nobel NV Neth. 373,413 43,781,663
Bayer AG Ger. 145,200 35,826,630
DSM NV Neth. 770,000 62,701,280
Kemira OY Fin. 1,042,000 8,553,774
Rhone-Poulenc SA, A Fr. 1,018,400 24,325,631
--------------
175,188,978
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Construction & Housing: 0.4%
Hollandsche Beton Groep NV Neth. 75,300 $ 11,756,260
Raine PLC U.K. 4,900,000 3,724,996
Sirti SPA Itl. 991,500 6,700,208
--------------
22,181,464
- -------------------------------------------------------------------------------
Electrical & Electronics: 2.4%
Asea AB, A Swe. 738,161 55,603,451
BBC Brown Boveri Ltd. Swtz. 10,000 1,726,094
BBC Brown Boveri Ltd., br. Swtz. 17,001 14,837,988
G.P. Batteries International
Ltd. Sing. 1,079,698 3,120,327
Gold Peak Industries Holdings
Ltd. H.K. 19,756,000 7,218,612
Great Wall Electronic
International Ltd. H.K. 34,540,800 2,680,525
Philips Electronics NV Neth. 1,451,000 48,150,493
--------------
133,337,490
- -------------------------------------------------------------------------------
Electronic Components & Instruments: 0.1%
BICC U.K. 956,000 4,693,622
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.7%
Koninklijke Pakhoed NV Neth. 802,048 22,834,282
Transocean Drilling AS Nor. 1,585,000 16,703,474
--------------
39,537,756
- -------------------------------------------------------------------------------
Energy Sources: 4.4%
Norsk Hydro AS Nor. 378,250 14,361,958
Repsol SA Sp. 1,161,000 32,970,311
Royal Dutch Petroleum Co. Neth. 400,000 45,160,105
Royal Dutch Petroleum Co.,
N.Y. shs. Neth. 250 28,031
Saga Petroleum AS, A Nor. 915,000 11,840,668
Saga Petroleum AS, B Nor. 605,500 7,507,110
*Saga Petroleum AS, new
converted A Nor. 62,643 791,220
*Saga Petroleum AS, new
converted B Nor. 20,881 252,414
Societe Elf Aquitane SA Fr. 600,000 43,088,622
Total SA, B Fr. 824,760 45,624,337
YPF Sociedad Anonima Arg. 1,475,000 27,507,375
YPF Sociedad Anonima, ADR Arg. 828,900 15,749,100
--------------
244,881,251
- -------------------------------------------------------------------------------
Financial Services: 0.4%
Axa SA Fr. 242,200 10,460,622
Govett & Co. Ltd. U.K. 212,300 1,005,332
Peregrine Investments
Holdings Ltd. H.K. 10,000,000 12,222,725
--------------
23,688,679
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Food & Household Products: 3.0%
Albert Fisher Group PLC U.K. 28,700,255 $ 19,090,776
C.P. Pokphand Co. Ltd. H.K. 17,458,000 4,312,847
Cafe de Coral Holdings Ltd. H.K. 17,228,000 4,300,594
Dairy Farm International
Holdings Ltd. H.K. 27,552,000 33,141,512
Embotelladora Andina SA, ADR Chil. 845,000 20,280,000
Goodman Fielder Ltd. Aus. 15,301,069 14,008,968
Grupo Embotellador de Mexico
SA, B Mex. 189,900 626,114
*Grupo Embotellador de Mexico
SA de CV, GDR Mex. 833,750 5,627,813
Hillsdown Holdings PLC U.K. 17,046,153 48,054,596
Lam Soon Foods Inc. H.K. 8,000,000 1,386,536
Vitro SA Mex. 5,221,000 16,584,867
Vitro SA, ADR Mex. 170,600 1,514,075
--------------
168,928,698
- -------------------------------------------------------------------------------
Forest Products & Paper: 2.4%
Assidomaen AB Swe. 500,000 11,292,226
Cartiere Burgo SPA Itl. 1,771,750 12,179,054
*Enso-Gutzeit (OY) Fin. 85,000 650,618
Enso Gutzeit (OY), R Fin. 2,915,000 22,635,754
Fletcher Challenge Ltd., Aus. Aus. 1,298,476 3,250,097
Fletcher Challenge Ltd., N.Z. N.Z. 14,289,001 35,588,705
Fletcher Forestry, Aus. Aus. 324,619 397,873
Fletcher Forestry, N.Z. N.Z. 8,796,050 11,148,988
Hansol Paper Co. Ltd. Kor. 19,154 848,968
Hansol Paper Co. Ltd., GDR Kor. 3,037 72,888
PT Barito Pacific Timber,
fgn. Indo. 7,872,000 11,187,367
Stora Kopparbergs Bergslags
AB, B Swe. 300,000 19,363,951
Unipapel SA Sp. 167,900 4,268,922
--------------
132,885,411
- -------------------------------------------------------------------------------
Health & Personal Care: 2.9%
Ciba-Geigy AG Swtz. 80,000 50,761,750
Hafslund Nycomed SA, B Nor. 1,346,700 27,132,064
Medeva PLC U.K. 2,731,400 7,700,055
*Pharmacia AB, A Swe. 1,577,500 29,061,278
*Pharmacia AB, B Swe. 247,500 4,542,648
*Pharmacia AB, ADR Swe. 175,000 3,193,750
Swank International
Manufacturing Co. Ltd. H.K. 3,802,000 491,755
Wellcome PLC U.K. 2,450,000 39,325,874
--------------
162,209,174
- -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Insurance: 3.4%
Ace Ltd. Bmu. 1,282,000 $ 31,729,500
Aegon NV Neth. 293,679 20,282,245
Baloise-Holding Swtz. 22,611 42,143,679
C.E. Heath International
Holdings Aus. 1,720,000 1,765,249
International Nederlanden
Group Neth. 653,500 32,048,828
London Insurance Group Inc. Can. 300,000 5,274,678
National Mutual Asia Ltd. H.K. 7,316,000 4,731,294
Swiss Reinsurance Co. Swtz. 20,550 12,339,992
Vital Forsikring AS, A Nor. 600,000 6,044,122
Zuerich Versicherung, br. Swtz. 6,800 6,513,452
*+Zurich Reinsurance Centre
Holdings, Inc. U.S. 808,900 24,469,225
--------------
187,342,264
- ------------------------------------------------------------------------------
Leisure & Tourism: 0.1%
Grand Hotel Holdings Ltd. H.K. 4,478,000 1,505,891
*Queens Moat Houses PLC U.K. 7,641,700 0
Reisebuero Kuoni AG Swtz. 51 1,570,502
Reisebuero Kuoni AG, partn.
ctf. Swtz. 2,319 3,664,546
--------------
6,740,939
- ------------------------------------------------------------------------------
Machinery & Engineering: 0.5%
*Saurer AG Swtz. 20,000 6,410,049
*Tampella AB (OY) Fin. 1,140,599 2,758,340
VA Technologie AG, br. Aust. 176,600 18,982,978
--------------
28,151,367
- ------------------------------------------------------------------------------
Merchandising: 1.6%
Argyll Group PLC U.K. 6,603,978 28,187,265
Koninklijke Bijenkorf Beheer
NV (KBB) Neth. 150,000 9,624,686
Kwik Save Group PLC U.K. 3,453,345 28,877,689
Sears Canada Inc. Can. 1,045,000 5,718,271
Tesco PLC U.K. 4,367,600 17,327,629
Yaohan Hongkong Corp. Ltd. H.K. 10,000,000 1,228,740
--------------
90,964,280
- ------------------------------------------------------------------------------
Metals & Mining: 4.7%
Alcan Aluminum Ltd. Can. 1,909,410 46,418,073
Alcan Australia Ltd. Aus. 1,660,150 3,125,721
*ARBED SA Lux. 217,473 34,039,567
British Steel PLC U.K. 10,000,000 25,260,924
Comalco Ltd. Aus. 4,930,700 17,110,753
*Elkem AS, A Nor. 274,000 3,439,570
</TABLE>
14
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- --------------------------------------------------------------------------------
Metals & Mining (cont.)
Maanshan Iron & Steel
Co. Ltd., H Chn. 52,016,000 $ 10,428,093
*Metall Mining Corp. Can. 2,500,000 19,735,190
*Outokumpu (OY), A Fin. 1,652,134 26,831,485
*Outokumpu (OY), wts. Fin. 822,300 538,196
Pechiney International
SA Fr. 700,000 17,129,765
+Pechiney SA, invt. ctf. Fr. 400,200 26,921,907
Renison Goldfields
Consolidated Ltd. Aus. 1,044,000 3,206,687
SIG Schweizerische
Industrie Gesellschaft
Holdings AG Swtz. 1,939 3,865,429
*Union Miniere NPV Bel. 360,000 23,558,405
*Von Roll AG, br. Swtz. 49,650 1,005,875
--------------
262,615,640
- --------------------------------------------------------------------------------
Multi-Industry: 4.2%
Amer Group Ltd., A Fin. 800,500 14,741,028
BTR Nylex Ltd. Aus. 15,080,900 27,392,082
Cheung Kong Holdings
Ltd. H.K. 9,000,000 39,229,128
CNT Group Ltd. H.K. 17,100,000 884,692
+DESC Sociedad de
Fomento Industrial SA,
B Mex. 4,419,600 8,624,692
DESC Sociedad de Fomento
Industrial SA, C Mex. 54,054 98,609
Fotex First Hungarian-
American Photo-Service
Co. Hun. 291,000 466,233
Jardine Matheson
Holdings Ltd. H.K. 4,470,954 41,132,777
Jardine Strategic
Holdings Ltd. H.K. 8,452,849 31,444,598
Pacific Dunlop Ltd. Aus. 16,464,075 36,347,220
Swire Pacific Ltd., A H.K. 3,396,000 23,828,882
Swire Pacific Ltd., B H.K. 7,334,000 7,968,130
--------------
232,158,071
- --------------------------------------------------------------------------------
Real Estate: 1.5%
Bail-Investissement Fr. 98,000 15,631,081
Hang Lung Development
Co. Ltd. H.K. 18,067,000 26,756,406
*Hang Lung Development
Co. Ltd., wts. H.K. 856,700 150,697
New World Development
Co. Ltd. H.K. 9,000,000 24,561,857
Ryoden Development Ltd. H.K. 20,000,000 3,569,812
Tai Cheung Holdings Ltd. H.K. 10,852,613 10,317,106
*Tasman Properties Ltd. N.Z. 20,000,000 316,875
--------------
81,303,834
- --------------------------------------------------------------------------------
Recreation, Other Consumer Goods: 0.3%
Nintendo Co. Ltd. Jpn. 241,000 12,527,259
Shenzhen China Bicycles
Co. (Holdings) Ltd., B Chn. 10,146,500 4,350,469
Yue Yuen Industrial
(Holdings) Ltd. H.K. 368,000 83,296
--------------
16,961,024
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Telecommunications: 4.6%
Alcatel Alsthom SA Fr. 575,000 $ 46,304,962
Compania de Telefonos de
Chile SA, ADR Chil. 308,800 18,836,800
STET (Sta Finanziaria
Telefonica Torino) SPA Itl. 4,989,500 13,870,032
STET (Sta Finanziaria
Telefonica Torino) SPA,
di Risp Itl. 2,686,500 6,149,780
Telecom Argentina Stet France
SA, ADR Arg. 300,000 10,725,000
Telecom Italia Spa Itl. 5,501,333 13,286,363
Telecom Italia Spa, di Risp Itl. 7,806,100 15,134,562
Telefonica de Argentina SA,
B, ADR Arg. 1,000,000 18,625,000
Telefonica de Espana SA Sp. 5,161,700 64,407,678
Telmex-Telefonos de Mexico
SA, L Mex. 13,623,481 18,970,270
Telmex-Telefonos de Mexico
SA, L, ADR Mex. 1,000,200 27,630,525
--------------
253,940,972
- -------------------------------------------------------------------------------
Textiles & Apparel: 0.2%
Daehan Synthetic Fiber Co.
Ltd. Kor. 18,140 2,871,525
Fountain Set Holdings Ltd. H.K. 1,843,000 250,294
PT Hadtex Indosyntec, fgn. Indo. 364,500 189,116
Tae Kwang Industrial Co. Ltd. Kor. 3,010 2,271,842
Winsor Industrial Corp. Ltd. H.K. 6,355,000 7,849,738
--------------
13,432,515
- -------------------------------------------------------------------------------
Transportation: 4.9%
Anangel-American Shipholdings
Ltd., ADR Gr. 47,800 705,050
*+Bremer Vulkan Verbund AG Ger. 600,000 36,156,486
British Airways PLC U.K. 6,924,000 42,767,140
Cathay Pacific Airways Ltd. H.K. 22,672,000 36,655,242
IMC Holdings Ltd. H.K. 8,982,000 7,202,794
Malaysian International
Shipping Corp. Bhd. Mal. 1,633,000 4,478,355
Malaysian International
Shipping Corp. Bhd., fgn. Mal. 3,936,000 10,783,934
Nedlloyd Groep Neth. 808,700 25,152,734
Peninsular & Oriental Steam
Navigation Co. U.K. 1,680,000 15,006,414
*+Shanghai Hai Xing Shipping
Co., H Chn. 69,840,000 13,007,773
Shun Tak Holdings H.K. 37,666,000 22,410,089
Singapore Airlines Ltd., fgn. Sing. 3,496,000 34,984,127
Swissair Schweizerische
Luftverkehr AG Swtz. 28,940 17,589,141
Transport Development Group
PLC U.K. 1,000,000 2,961,626
Transportacion Maritima
Mexicana SA de CV, L, ADR Mex. 501,400 2,130,950
--------------
271,991,855
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Utilities Electrical & Gas: 2.5%
British Gas PLC U.K. 4,500,000 $ 20,739,298
Compania Sevillana de
Electricidad Sp. 4,757,327 20,469,625
Cukurova Elektrik AS Tur. 2,912,000 624,802
Electrabel SA Bel. 150,000 29,472,983
Electricidad de Caracas Venz. 9,819,128 8,564,052
Iberdrola SA Sp. 5,805,747 36,335,596
Shandong Huaneng Power Chn. 1,099,600 10,033,850
VEBA AG Ger. 40,000 14,495,539
--------------
140,735,745
- ------------------------------------------------------------------------------
Wholesale & International Trade: 0.1%
Sime Darby Hongkong Ltd. H.K. 3,860,000 4,243,678
--------------
TOTAL COMMON STOCKS (cost
$3,501,332,205) 3,772,122,334
- ------------------------------------------------------------------------------
PREFERRED STOCKS: 1.3%
- ------------------------------------------------------------------------------
Ballast Nedam NV, ctf.,
conv., pfd. Neth. 13,200 588,355
Bayerische Motorenwerke
(BMW), pfd. Ger. 10,000 3,870,968
Jardine Strategic Holdings
Ltd., conv., pfd. H.K. 9,050,000 11,312,500
News Corp. Ltd., conv., pfd. Aus. 5,151,100 20,461,852
*Telebras-Telecomunicacoes
Brasileiras SA, pfd. Braz. 572,200,000 16,886,796
Telebras-Telecomunicacoes
Brasileiras SA,
pfd., ADR Braz. 750,000 21,890,625
--------------
TOTAL PREFERRED STOCKS (cost
$73,910,543) 75,011,096
- ------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 28, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 8.4%
- --------------------------------------------------------------------------------
ARBED SA, 2.50%, conv.,
7/15/03 Lux. 4,500,000 $ 3,026,767
British Airways, DEB,
9.75%, 6/15/05 U.K. 1,450,000 3,864,152
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 Swtz. 2,720,000 3,461,200
Government of Australia:
7.00%, 8/15/98 Aus. 40,600,000 27,856,162
6.25%, 3/15/99 Aus. 41,700,000 27,445,513
7.00%, 4/15/00 Aus. 41,700,000 27,545,578
Softe SA, 4.25%, conv.,
7/30/98 Itl. 2,280,000,000 1,405,339
U.S. Treasury Notes:
6.00%, 6/30/96 U.S. 45,500,000 45,137,365
7.25%, 8/31/96 U.S. 44,500,000 44,896,495
7.25%, 11/15/96 U.S. 45,000,000 45,379,800
6.375%, 6/30/97 U.S. 25,800,000 25,549,998
6.375%, 7/15/99 U.S. 72,500,000 70,732,450
6.00%, 10/15/99 U.S. 73,000,000 70,034,010
6.375%, 1/15/00 U.S. 73,000,000 70,946,510
--------------
TOTAL BONDS (cost $476,663,945) 467,281,339
- --------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 23.2% (cost
$1,290,566,531)
- --------------------------------------------------------------------------------
U.S. Treasury Bills,
5.18% to 5.65% with
maturities to 4/27/95 U.S. 1,296,964,000 1,290,820,214
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS: 100.7% (cost
$5,342,473,224) 5,605,234,983
OTHER ASSETS, LESS LIABILITIES:
(0.7%) (40,206,616)
--------------
TOTAL NET ASSETS: 100.0% $5,565,028,367
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Foreign Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value
(identified cost $5,342,473,224) $5,605,234,983
Cash 168,313
Receivables:
Investment securities sold 58,635,753
Capital shares sold 49,016,219
Dividends and interest 16,053,351
--------------
Total assets 5,729,108,619
--------------
Liabilities:
Payables:
Investment securities purchased 149,856,413
Fund shares redeemed 8,596,665
Accrued expenses 5,627,174
--------------
Total liabilities 164,080,252
--------------
Net assets, at value $5,565,028,367
==============
Net assets consists of:
Undistributed net investment income $ 18,952,184
Net unrealized appreciation 262,761,759
Accumulated net realized gain 14,072,218
Net capital paid in on shares of
capital stock 5,269,242,206
--------------
Net assets, at value $5,565,028,367
==============
Shares outstanding 633,441,543
==============
Net asset value and redemption price per share
($5,565,028,367 / 633,441,543) $ 8.79
==============
Maximum Offering price
($8.79 / 94.25%) $ 9.33
==============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended February 28, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $3,004,757
foreign taxes withheld)
Dividends $ 30,354,925
Interest 43,508,294
-------------
Total income $ 73,863,219
Expenses:
Management fees (Note 3) 16,185,863
Administrative fees
(Note 3) 2,097,632
Distribution fees (Note 3) 6,539,497
Transfer agent fees
(Note 3) 2,125,000
Custodian fees 1,523,484
Reports to shareholders 608,000
Audit fees 20,000
Legal fees 7,400
Registration and
filing fees 235,000
Directors' fees and expenses 16,000
Other 70,906
-------------
Total expenses 29,428,782
-------------
Net investment income 44,434,437
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 49,289,337
Foreign currency transactions (3,778,957)
-------------
45,510,380
Net unrealized depreciation on investments (402,044,560)
-------------
Net realized and unrealized loss (356,534,180)
-------------
Net decrease in net assets resulting from
operations $(312,099,743)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Templeton Foreign Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 44,434,437 $ 69,788,022
Net realized gain from security and
foreign currency transactions 45,510,380 253,139,732
Net unrealized appreciation
(depreciation) (402,044,560) 277,918,869
-------------- --------------
Net increase (decrease) in net assets
resulting from operations (312,099,743) 600,846,623
Distributions to shareholder:
From net investment income (84,334,593) (42,656,339)
From net realized gain (275,006,347) (45,810,480)
Fund share transactions (Note 2) 1,222,031,442 1,834,286,777
-------------- --------------
Net increase in net assets 550,590,759 2,346,666,581
Net assets:
Beginning of period 5,014,437,608 2,667,771,027
-------------- --------------
End of period $5,565,028,367 $5,014,437,608
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Foreign Fund (the Fund) is a separate series of Templeton Funds, Inc.
(the Company) which is an open-end, diversified management investment company
registered 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 foreign exchange contracts 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 realized 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 from foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income 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.
21
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
Effective 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. At February 28, 1995, there were
1.35 billion shares of capital stock authorized ($1.00 par value) of which 750
million shares have been classified as Fund shares. Transactions in the Fund's
shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1995 AUGUST 31, 1994
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 145,590,561 $1,342,884,855 181,116,016 $2,483,185,483
Shares issued on
reinvestment of
distributions 32,531,105 299,914,124 2,689,001 71,781,448
Shares issued on 3-for-1
split -- -- 266,109,385 --
Shares redeemed (45,543,590) (420,767,537) (50,785,053) (720,680,154)
----------- -------------- ----------- --------------
Net increase 132,578,076 $1,222,031,442 399,129,349 $1,834,286,777
=========== ============== =========== ==============
</TABLE>
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 fee is subject to re-
duction in any year to the extent that expenses (exclusive of certain expenses)
of the Fund exceed 2 1/2% of the first $30 million of net assets, 2% of the
next $70 million of net assets and 1 1/2% of the remainder. During the six
months ended February 28, 1995, no reduction in fee was required as a result of
this limitation. The Fund pays TGII monthly its allocated share of an adminis-
trative fee of 0.15% per annum on the first $200 million of the Company's ag-
gregate 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 six months ended February 28, 1995, FTD received net com-
missions of $4,135,703 from the sale of the Fund's shares and FTIS received
fees of $2,125,000.
Pursuant to a distribution plan, the Fund reimburses FTD monthly (subject to a
limit of 0.25% per annum of the Fund's average daily net assets) for FTD's
costs and expenses in connection with any activity which is primarily intended
to result in sales of Fund shares. Such distribution fees are set forth in the
Statement of Operations.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $7,400 for the six months ended Feb-
ruary 28, 1995.
22
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1995 aggregated $1,464,545,948 and $361,795,974, re-
spectively. The cost of securities for federal income tax purposes is the same
as that shown in the investment portfolio. Realized gains and losses are re-
ported on an identified cost basis.
At February 28, 1995, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 569,736,364
Unrealized depreciation (306,974,605)
-------------
Net unrealized appreciation $ 262,761,759
=============
</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 Company owns 5% or more of the outstanding
voting securities. Investments in "affiliated companies" at February 28, 1995
amounted to $109,180,083.
23
<PAGE>
TEMPLETON FOREIGN
FUND
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 the prospectus of
Templeton Foreign Fund.
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] TL04 S95 04/95
TEMPLETON
FOREIGN
FUND
Semi-Annual Report
February 28, 1995
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
