<PAGE>
TEMPLETON FOREIGN FUND
[PHOTO APPEARS HERE]
Mark Holowesko
Chief Investment Officer
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 chief investment officer
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 former 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.
April 15, 1996
Dear Shareholder:
We are pleased to bring you the semi-annual report of the Templeton Foreign Fund
for the six months ended February 29, 1996. Economic stability, low interest
rates and moderate inflation characterized most global economies throughout this
period. Seeking to capitalize on these favorable investment conditions,
individual and institutional investors rushed to purchase equity securities,
which ultimately led to higher stock prices across a variety of markets in both
developed and developing countries.
During the reporting period, Latin American equity markets continued to recover
from the "Tequila Effect," which depressed stock prices following Mexico's
December 1994 currency devaluation. We attempted to take advantage of lower
Mexican equity prices in 1995 by establishing new positions and adding to
existing ones.
1
<PAGE>
Templeton Foreign Fund
Geographic Distribution on 2/29/96
Based on Total Net Assets
[GRAPH APPEARS HERE]
European Stocks 41.4%
Asian Stocks 14.3%
Latin American Stocks 6.7%
Australian & New Zealand Stocks 6.5%
Other Stocks 3.0%
Fixed-Income Securities 7.5%
Short-Term Obligations & Other Net Assets 20.6%
We reaped the rewards of this strategy as Mexico's Bolsa index rose more than
37% in U.S. dollar terms from December 1995 through February 1996. During this
same time, the peso appreciated versus the dollar, which also benefited many of
the Fund's Mexican holdings. While Mexico has not recovered entirely from this
crisis, there is evidence that the government's austerity program has been
successful in restoring investor confidence after significant amounts of capital
fled the country only one year ago.
Our Latin American stock purchases, however, were not limited to Mexico. The
Fund's overall Latin American exposure increased by more than 35% since late
February 1995, which enabled us to participate in stock-price appreciation
across a variety of markets in this region. One example is Brazil, where strong
economic growth and government reform benefited our holdings of large utility
and telecommunications companies. These companies have huge asset bases and
serve a growing number of customers, but their stocks have been trading at a
substantial discount to book value largely because of the government's
involvement within these industries. As privatization becomes more prevalent,
such companies should become more efficient, enabling them to take better
advantage of the region's growing demand.
Although several European equity markets performed well during the period,
political unrest and labor discord kept many investors wary of this region. We
felt, however, that these concerns were already reflected in European stock
prices and that value opportunities still existed. Therefore, we increased our
exposure to Spain and France even though labor concerns in each country appeared
to be dominating the headlines. Unlike many other investors, we also purchased
European cyclical stocks, which were out of favor due to their poor performance
during last year's recession. Many companies that survived the recession have
been utilizing their free cash flow to reduce debt and lower operating and labor
costs. We believe that, with restructured balance sheets, these European
cyclical companies should be well-suited to successfully weather the highs and
lows of current and future business cycles.
2
<PAGE>
Due to the significant growth potential and value opportunities that we believe
exist in Asia, we increased our exposure there from 12.1% to 14.3% of total net
assets. We continued to discover potential bargains as military turmoil in the
straits of Taiwan, and Hong Kong's upcoming reversion to China, depressed equity
valuations to levels we felt were unjustifiably low. With more than 3.1 billion
people experiencing rising standards of living and consumption levels far below
those of many developed countries, we believe that Asia represents a region of
almost unfathomable demand potential.
This discussion reflects the strategies we employed for the Fund during the six-
month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies and our
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.
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 associated with the
relatively small size and lesser liquidity of these markets. 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 equity market has
increased 700% in the last 15 years, but has suffered six
TEMPLETON FOREIGN FUND
Top 10 Holdings on 2/29/96
Based on Total Net Assets
% of Total
Name, Industry, Country Net Assets
- -------------------------------------------------------------------------------
Sony Corp.; Appliances & Household
Durables, Japan 1.3%
- -------------------------------------------------------------------------------
Volvo AB, B; Automobiles, Sweden 1.3%
- -------------------------------------------------------------------------------
U.S. Treasury Note, 6.375%, 1/15/00;
Government Bond, United States 1.3%
- -------------------------------------------------------------------------------
U.S. Treasury Note, 6.375%, 7/15/99;
Government Bond, United States 1.3%
- -------------------------------------------------------------------------------
U.S. Treasury Note, 6.00%, 10/15/99;
Government Bond, United States 1.2%
- -------------------------------------------------------------------------------
Telefonos de Mexico SA, L;
Telecommunications, Mexico 1.2%
- -------------------------------------------------------------------------------
Telefonica de Espana SA;
Telecommunications, Spain 1.2%
- -------------------------------------------------------------------------------
Iberdrola SA; Utilities --
Electrical & Gas, Spain 1.2%
- -------------------------------------------------------------------------------
HSBC Holdings PLC; Banking, Hong Kong 1.1%
- -------------------------------------------------------------------------------
National Australia Bank Ltd.;
Banking, Australia 1.1%
- -------------------------------------------------------------------------------
For a complete list of portfolio holdings, please see page 13 of this report.
3
<PAGE>
declines of more than 20% during that time.* These risks are discussed in the
Fund's prospectus.
We thank you for your continued investment in the Fund and would like to
reaffirm our dedication and commitment to searching the world for the best
possible securities for the Fund's portfolio.
Sincerely,
/s/ Mark Holowesko
Mark Holowesko, CFA
President
Templeton Foreign Fund
* Source: Bloomberg. Based on quarterly percentage change over 15 years ended
March 31, 1996.
4
<PAGE>
THE FOLLOWING IS AN INTERVIEW
WITH MARK HOLOWESKO, PORTFOLIO
MANAGER OF TEMPLETON FOREIGN FUND
What is your criteria for choosing stocks?
We use what is commonly called a "bottom-up, value" style of investing. "Bottom-
up" investing means that we do not attempt to guess the future direction of
economies, currencies or stock markets, as many investors try to do. For
instance, investors may believe that U.S. stocks will appreciate, so they
purchase shares of companies they think will benefit from the direction of the
overall market. We, on the other hand, try to determine which companies should
perform well, regardless of the direction of the markets. "Value" investing
describes the process we use as we attempt to determine the true worth of a
company's stock, regardless of its market price. This involves rigorous analysis
of a company's balance sheet, income statement, and the prospects for the
company's goods or services in the marketplace.
Q&A
5
<PAGE>
How do you think the recent rally in the U.S. stock market will affect foreign
markets?
In the short term, volatility in the U.S. market will probably affect many
markets, particularly those closely tied to the dollar. High returns in the U.S.
market have temporarily directed investor attention away from international
markets, which has led to lower returns in those markets. However, over the long
term, the fundamental value of individual companies is what drives stock
performance, and we believe that these selloffs generally present opportunities
to find good value at low prices.
What effect do you think Hong Kong's upcoming reversion to China will have on
the Hong Kong market?
Although the outcome of this change is uncertain, knowledge of the situation is
widespread, and we believe that any uncertainty surrounding it has already been
reflected in stock prices. Considering the large amounts of money and investment
capital that flow from Hong Kong to China, the sharing of technical expertise
between the two countries, and the magnitude of Chinese investments in Hong
Kong, it is difficult to believe that China would intentionally destroy such a
prized possession.
What is your feeling about Japanese stocks? Are you shying away from them, or is
it possible to find bargain-priced stocks there?
Currently, we are not buying many Japanese stocks. We believe they are
overvalued, and although price/earnings ratios have decreased since 1994, they
continue to be high. Furthermore, returns on Japanese equities in 1995 were 40%
lower than their average return for the prior 15 years.
This market becomes even less attractive when one focuses on the effects of last
year's banking crisis, which forced two of Japan's largest thrifts into
bankruptcy and resulted in more than $700 billion in unrecoverable loans.
Japanese depositors have been withdrawing significant amounts from local banks,
and many citizens are moving their savings from banks to post offices. The
Japanese post office can invest only in Japan's government
Q&A
6
<PAGE>
bonds, or other related securities, which diminishes the liquidity of the "real"
economy.
Nevertheless, we do own shares of some Japanese companies that we believe are
strong and that remain in the forefront of technological innovation. Among these
is Sony, a company that, despite Japan's troubles, continues to exhibit strength
in new product development and constant evaluation of its operations. Based on
the strengths we see in some companies, as well as our belief in the likelihood
of an eventual bailout of the Japanese banking system, we feel comfortable with
our current Japanese holdings.
Q&A
7
<PAGE>
PERFORMANCE SUMMARY
CLASS I SHARES
The Templeton Foreign Fund Class I Shares reported a total return of 6.13% for
the six-month period ended February 29, 1996. 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. While we
expect market volatility in the short term, we have always maintained a long-
term perspective when managing the Fund, and we encourage share-holders to view
their investments in a similar manner. As you can see from the table to the
right, the Fund delivered a cumulative total return of more than 339% for the
10-year period ended February 29, 1996.
As measured by net asset value, the price of the Fund's Class I Shares decreased
from $9.62 on August 31, 1995 to $9.56 on February 29, 1996. During this time,
shareholders received distributions of 25 cents ($0.25) per share in dividend
income and 36 cents ($0.36) per share in capital gains, of which 28.5 cents
($0.285) represented long-term gains and 7.5 cents ($0.075) 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 sale of securities in the portfolio.
<TABLE>
<CAPTION>
Templeton Foreign Fund
Class I Shares
Periods Ended 2/29/96
Since
Inception
One-Year Five-Year Ten-Year (10/5/82)
<S> <C> <C> <C> <C>
Cumulative
Total Return/1/ 16.15% 70.84% 339.96% 732.77%
Average Annual
Total Return/2/ 9.47% 9.99% 15.28% 16.62%
</TABLE>
/1/ Cumulative total return represents the change in value of an investment
over the indicated periods, and does not include the maximum 5.75% initial sales
charge.
/2/ Average annual total return represents the average annual change in value
of an investment over the indicated periods, and includes the maximum 5.75%
initial sales charge.
All total return figures assume reinvestment of dividends and capital gains when
paid. Prior to July 1, 1992, Fund shares were offered at a higher initial
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 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.
8
<PAGE>
PERFORMANCE SUMMARY
CLASS II SHARES
The Templeton Foreign Fund Class II Shares reported a total return of 5.77% for
the six-month period ended February 29, 1996. Total return measures the change
in value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include sales charges.
As measured by net asset value, the price of the Fund's Class II Shares
decreased from $9.59 on August 31, 1995 to $9.51 on February 29, 1996. During
this time, shareholders received distributions of 23.61 cents ($0.2361) per
share in dividend income and 36 cents ($0.36) per share in capital gains, of
which 28.5 cents ($0.285) represented long-term gains and 7.5 cents ($0.075)
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 sale of securities in the
portfolio.
<TABLE>
<CAPTION>
TEMPLETON FOREIGN FUND
CLASS II SHARES
Periods ended 2/29/96
Since
Inception
Six-Month (5/1/95)
<S> <C> <C>
Cumulative
Total Return/1/ 5.77% 10.74%
Aggregate
Total Return/2/ 3.66% 8.53%
</TABLE>
/1/ Cumulative total return represents the change in value of an investment
over the indicated periods. It does not include the 1.0% initial sales charge or
the 1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares redeemed
within the first 18 months of investment.
/2/ Aggregate total return represents the change in value of an investment over
the indicated periods. It includes the 1.0% initial sales charge and 1.0%
CDSC, applicable to shares redeemed within the first 18 months of investment.
Since Class II Shares have been in existence for less than one year, average
annual total returns are not provided.
All total return figures assume reinvestment of dividends and capital gains when
paid. Investment return and principal value will fluctuate with market
conditions, currencies and the economic and political climates 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.
9
<PAGE>
TEMPLETON FOREIGN FUND
CLASS I SHARES
If you had invested $10,000 in the Templeton Foreign Fund at inception, it would
be worth over $78,000 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 29,
1996.*
[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 $78,462 ON
2/29/96]
*The amount of capital gains distributions accepted in shares was $27,215. The
total amount of dividends reinvested was $17,467. 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 8. 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.
10
<PAGE>
Templeton Foreign Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE+--CLASS I (For a share outstanding throughout
the period)
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31
----------------------------------------------------------
SIX MONTHS
ENDED
FEBRUARY 29, 1996
(UNAUDITED) 1995 1994 1993 1992 1991
----------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19
---------- ---------- ---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income .09 .23 .14 .14 .20 .25
Net realized and
unrealized gain .46 .05 1.39 1.21 .43 .03
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations .55 .28 1.53 1.35 .63 .28
---------- ---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from net
investment income (.25) (.16) (.13) (.19) (.23) (.26)
Distributions from net
realized gains (.36) (.51) (.13) (.34) (.39) (.30)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (.61) (.67) (.26) (.53) (.62) (.56)
---------- ---------- ---------- ---------- ---------- ----------
Change in net asset
value (.06) (.39) 1.27 .82 .01 (.28)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of
period $ 9.56 $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91
========== ========== ========== ========== ========== ==========
TOTAL RETURN* 6.13% 3.14% 17.94% 18.65% 8.52% 4.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $8,108,707 $6,941,238 $5,014,438 $2,667,771 $1,672,161 $1,211,525
Ratio of expenses to
average net assets 1.11%** 1.15% 1.14% 1.12% .94% .80%
Ratio of net investment
income to average net
assets 1.95%** 2.81% 1.84% 2.11% 2.92% 3.59%
Portfolio turnover rate 10.13% 21.78% 36.75% 21.29% 22.00% 19.24%
Average commission rate
paid (per share) $ .0144
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR 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.
11
<PAGE>
Templeton Foreign Fund
Financial Highlights (cont.)
- -------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--CLASS II (For a share outstanding throughout
the period)
<TABLE>
<CAPTION>
SIX MONTHS FOR THE PERIOD
ENDED MAY 1, 1995+
FEBRUARY 29, 1996 THROUGH
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Net asset value, beginning of period $ 9.59 $ 9.16
-------- -------
Income from investment operations:
Net investment income .15 .03
Net realized and unrealized gain .37 .40
-------- -------
Total from investment operations .52 .43
-------- -------
Distributions:
Dividends from net investment income (.24) --
Distributions from net realized gains (.36) --
-------- -------
Total distributions (.60) --
-------- -------
Change in net asset value (.08) .43
-------- -------
Net asset value, end of period $ 9.51 $ 9.59
======== =======
TOTAL RETURN* 5.77% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $288,095 $63,428
Ratio of expenses to average net assets 1.87%** 1.90%**
Ratio of net investment income to average
net assets 1.08%** 1.86%**
Portfolio turnover rate 10.13% 21.78%
Average commission rate paid (per share) $ .0144
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+COMMENCEMENT OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS: 70.2%
- ------------------------------------------------------------------------------
Aerospace & Military Technical Sys-
tems: 0.3%
Celsius AB, B Swe. 1,042,500 $ 28,649,444
- ------------------------------------------------------------------------------
Appliances & Household Durables: 2.3%
Chofu Seisaku Co. Ltd. Jpn. 411,000 10,324,864
Electrolux AB, B Swe. 900,000 44,200,000
Email Ltd. Aus. 6,091,100 16,110,942
Fisher & Paykel Ltd. N.Z. 3,859,300 11,690,519
Luks Industrial Co. Ltd. H.K. 24,400,000 2,966,796
*Luks Industrial Co. Ltd.,
wts. H.K. 1,480,000 10,529
Sony Corp. Jpn. 1,900,000 111,371,206
--------------
196,674,856
- ------------------------------------------------------------------------------
Automobiles: 4.1%
Bayerische Motorenwerke AG
(BMW) Ger. 93,375 52,351,500
*Ciadea SA Arg. 3,555,518 16,007,033
*Consorcio G Grupo Dina SA
de CV Mex. 4,139,100 1,522,247
*Consorcio G Grupo Dina SA
de CV, ADR Mex. 556,500 904,313
Peugeot SA Fr. 391,100 58,497,615
Regie Nationale des Usines
Renault SA Fr. 919,400 26,974,392
Tofas Turk Otomobil
Fabrikasi AS, GDR Tur. 19,400,000 10,282,000
Volkswagen AG Ger. 180,000 68,585,426
Volvo AB, B Swe. 5,141,000 110,055,481
--------------
345,180,007
- ------------------------------------------------------------------------------
Banking: 10.3%
ABN AMRO NV Neth. 1,335,676 62,065,975
Argentaria Corporacion
Bancaria de Espana SA Sp. 1,400,000 63,109,424
Australia & New Zealand
Banking Group Ltd. Aus. 17,483,755 85,939,887
Banco Bilbao Vizcaya Sp. 2,100,000 81,770,812
Banco Central Hispano Sp. 1,200,000 26,853,011
Banco Popular Espanol Sp. 270,125 49,208,860
Banco Santander SA Sp. 400,000 19,711,597
Bank of Ireland Irl. 1,219,000 8,461,516
+Bank Slaski SA W
Katowicach Pol. 467,881 35,287,625
Bankinter SA Sp. 220,000 23,637,759
Canadian Imperial Bank of
Commerce Can. 700,000 20,793,090
Daegu Bank Co. Ltd. Kor. 161,870 2,624,505
Den Norske Bank Nor. 8,314,100 27,009,852
*Grupo Financiero Banamex
Accival SA, L Mex. 150,000 261,964
*Grupo Financiero Serfin
SA, B Mex. 2,793,900 1,685,058
HSBC Holdings PLC H.K. 5,764,712 92,463,269
National Australia Bank
Ltd. Aus. 9,343,988 89,644,798
National Bank of Canada Can. 2,784,000 22,576,812
National Westminster Bank
PLC U.K. 5,338,888 56,529,499
</TABLE>
13
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Banking (cont.)
Shinhan Bank Co. Ltd. Kor. 667,157 $ 16,327,891
Svenska Handelsbanken, A Swe. 1,250,000 24,074,074
Westpac Banking Corp. Aus. 11,470,950 54,192,222
--------------
864,229,500
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.7%
Marieberg Tidnings AB, A Swe. 500,000 13,333,333
News Corp. Ltd. Aus. 6,501,990 32,804,946
News International PLC Aus. 3,640,000 17,011,692
NV Holdingsmij de
Telegraaf Neth. 120,000 18,951,588
Oriental Press Group
Limited H.K. 30,429,000 13,480,879
Sing Tao Holdings Ltd. H.K. 16,702,500 8,695,956
South China Morning Post
Holdings Ltd. H.K. 50,137,000 35,344,740
--------------
139,623,134
- -------------------------------------------------------------------------------
Building Materials & Components: 0.5%
Anglian Group PLC U.K. 4,100,000 8,858,277
*Corcemar Corp. Arg. 1,000,000 4,101,846
*Cristaleria Espanola SA Sp. 10,771 690,889
Keumkang Co. Ltd. Kor. 180,000 12,679,701
Pioneer International
Ltd. Aus. 4,187,028 12,419,002
--------------
38,749,715
- -------------------------------------------------------------------------------
Business & Public Services: 0.4%
Kardex AG, br. Swtz. 10,950 3,242,077
Lex Service PLC U.K. 3,000,000 15,031,949
*Waste Management
International PLC U.K. 3,500,000 17,912,689
--------------
36,186,715
- -------------------------------------------------------------------------------
Chemicals: 2.7%
Akzo Nobel NV Neth. 423,413 47,091,612
DSM NV Neth. 895,000 83,666,707
European Vinyls Corp. EVC
International NV Neth. 553,517 17,920,462
Fauji Fertilizer Co. Ltd. Pkr. 434,000 931,382
Kemira OY, 144A Fin. 4,135,500 37,303,478
Rhone-Poulenc SA, A Fr. 1,518,400 37,861,731
--------------
224,775,372
- -------------------------------------------------------------------------------
Construction & Housing: 0.4%
Hollandsche Beton Groep
NV Neth. 145,300 22,770,698
Kyudenko Corp. Jpn. 700,000 8,992,292
Raine PLC U.K. 5,300,000 1,136,973
--------------
32,899,963
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Electrical & Electronics: 3.5%
Alcatel Alsthom SA Fr. 900,000 $ 79,822,656
Asea AB, A Swe. 838,161 84,188,616
G.P. Batteries
International Ltd. Sing. 2,464,698 6,087,804
+Gold Peak Industries
Holdings Ltd. H.K. 20,756,000 10,672,121
*Great Wall Electronic
International Ltd. H.K. 34,540,800 2,814,770
Hitachi Ltd. Jpn. 6,000,000 60,519,555
Philips Electronics NV Neth. 1,215,000 50,554,273
--------------
294,659,795
- -------------------------------------------------------------------------------
Electronic Components & Instruments:
0.1%
BICC U.K. 1,000,000 4,443,695
- -------------------------------------------------------------------------------
Energy Equipment & Services: 0.3%
Koninklijke Pakhoed NV Neth. 978,048 25,189,355
- -------------------------------------------------------------------------------
Energy Sources: 5.4%
*MOL Magyar Olay--Es
Gazipari RT, GDS 144A Hun. 1,325,000 15,966,250
Norsk Hydro AS Nor. 1,107,950 47,241,800
Repsol SA Sp. 2,011,000 73,431,514
Saga Petroleum AS, A Nor. 1,577,640 19,219,680
Saga Petroleum AS, B Nor. 826,380 9,228,465
Shell Transport & Trading
Co. PLC, U.S. U.K. 83,700 6,570,450
Shell Transport & Trading
Co. PLC, U.K. U.K. 2,503,000 32,370,512
Societe Elf Aquitane SA Fr. 1,286,000 88,725,722
Total SA, B Fr. 1,124,760 74,232,085
Transportadora de Gas del
Sur SA, B, ADR Arg. 1,657,200 20,507,850
YPF Sociedad Anonima Arg. 1,475,000 28,775,449
YPF Sociedad Anonima, ADR Arg. 2,028,900 39,309,938
--------------
455,579,715
- -------------------------------------------------------------------------------
Financial Services: 0.7%
Axa SA Fr. 352,114 22,749,929
Baer Holding AG Swtz. 15,000 15,200,167
London Pacific Group Ltd. U.K. 212,300 757,970
Peregrine Investments
Holdings Ltd. H.K. 12,000,000 20,489,206
--------------
59,197,272
- -------------------------------------------------------------------------------
Food & Household Products: 2.8%
Albert Fisher Group PLC U.K. 28,700,255 19,570,055
Burns Philp & Co. Ltd. Aus. 8,234,300 18,380,555
C.P. Pokphand Co. Ltd. H.K. 16,299,000 8,591,293
Cafe de Coral Holdings Ltd. H.K. 25,377,100 7,549,875
Embotelladora Andina SA,
ADR Chil. 1,008,350 36,300,600
Goodman Fielder Ltd. Aus. 13,590,101 14,440,645
</TABLE>
15
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Food & Household Products (cont.)
*Grupo Embotellador de
Mexico SA, B Mex. 569,700 $ 841,068
*Grupo Embotellador de
Mexico SA de CV, GDR Mex. 1,683,500 14,520,188
Grupo Industrial Maseca
SA de CV, B Mex. 9,648,000 7,210,384
*Grupo Industrial Maseca
SA de CV, B, ADR Mex. 15,000 166,875
Hillsdown Holdings PLC U.K. 21,675,453 56,961,128
Lam Soon Foods Inc. H.K. 8,000,000 962,372
National Foods Ltd. Aus. 8,626,000 9,891,219
Panamerican Beverages
Inc., A Pan. 317,700 12,866,850
Vitasoy International
Holdings Ltd. H.K. 7,071,000 2,926,852
Vitro SA Mex. 8,183,320 14,484,702
Vitro SA, ADR Mex. 1,463,840 7,685,160
--------------
233,349,821
- -------------------------------------------------------------------------------
Forest Products & Paper: 4.9%
Aracruz Celulose SA, ADR Braz. 2,021,000 14,652,250
*Asia Pulp & Paper Co.
Ltd., ADR Indo. 1,806,000 17,382,750
Assidomaen AB Swe. 1,285,370 28,849,416
Carter Holt Harvey Ltd. N.Z. 3,974,900 8,508,756
Cartiere Burgo SPA Itl. 4,771,750 25,736,983
Enso-Gutzeit OY Fin. 285,000 2,006,468
Enso Gutzeit OY, R Fin. 4,587,800 32,602,015
Fletcher Challenge Ltd. N.Z. 16,289,001 37,390,524
Fletcher Forestry, Aus. N.Z. 324,619 449,161
Fletcher Forestry, N.Z. N.Z. 11,107,235 15,477,080
Kymmene Corp. Fin. 285,800 7,985,524
Mayr-Melnhof Karton AG Aust. 263,900 13,194,362
Metsa Serla OY, B Fin. 509,400 15,802,125
*Mo Och Domsjoe AB, B Swe. 371,483 18,326,495
Munksjo AB Swe. 915,556 6,103,707
Norske Skogindustrier AS,
A Nor. 54,100 1,630,791
*Portucel Industrial
Empresa Product de
Celulose SA Port. 1,600,000 8,868,506
Primex Forest Products
Ltd. Can. 300,000 1,694,792
PT Barito Pacific Timber,
fgn. Indo. 18,872,000 16,497,216
PT Indah Kiat Pulp &
Paper Corp., fgn. Indo. 26,882,500 21,468,865
PT Inti Indorayon Utama,
fgn. Indo. 20,000,000 24,606,087
PT Pabrik Kertas Tjiwi
Kimia, fgn. Indo. 16,248,568 16,483,546
Repola OY Fin. 1,895,000 37,897,499
Stora Kopparbergs
Bergslags AB, B Swe. 2,100,000 27,066,667
Svenska Cellulosa AB, B Swe. 563,000 9,508,444
Unipapel SA Sp. 167,900 3,119,683
--------------
413,309,712
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Health & Personal Care: 1.2%
Ciba-Geigy AG Swtz. 90,000 $ 80,391,993
Hafslund Nycomed SA, B Nor. 398,100 10,570,237
*Pacific Chemical Co. Ltd. Kor. 239,260 4,402,714
Swank International
Manufacturing Co. Ltd. H.K. 8,802,000 1,548,425
--------------
96,913,369
- -------------------------------------------------------------------------------
Insurance: 2.5%
Ace Ltd. Bmu. 1,682,000 78,633,500
Baloise-Holding Swtz. 27,929 54,041,101
HIH Winterthur Insurance Aus. 4,915,079 8,190,984
Ing Groep NV Neth. 653,500 43,386,716
London Insurance Group Inc. Can. 300,000 6,123,118
National Mutual Asia Ltd. H.K. 19,332,000 18,754,608
Zurich Reinsurance Centre
Holdings, Inc. U.S. 76,300 2,422,525
--------------
211,552,552
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.4%
Grand Hotel Holdings Ltd. H.K. 15,108,000 5,911,563
Harbour Centre Development
Ltd. H.K. 728,000 913,425
Kuoni Reisen Holding AG, B Swtz. 12,849 23,576,147
--------------
30,401,135
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.2%
Hitachi Koki Co. Ltd. Jpn. 476,000 4,456,980
Pacific BBA Ltd. Aus. 2,500,000 5,293,816
*Saurer AG Swtz. 20,000 8,423,686
*Tampella AB OY Fin. 1,140,599 1,907,146
--------------
20,081,628
- -------------------------------------------------------------------------------
Merchandising: 2.1%
Argyll Group PLC U.K. 6,603,978 29,852,033
*Cifra SA, B Mex. 17,204,000 20,301,036
Dairy Farm International
Holdings Ltd. H.K. 51,031,497 49,755,710
Hudsons Bay Co. Can. 2,000,000 25,695,229
Koninklijke Bijenkorf
Beheer NV (KBB) Neth. 150,000 9,658,021
Kwik Save Group PLC U.K. 372,000 2,650,588
Sears Canada Inc. Can. 2,000,000 8,565,076
W.H. Smith Group U.K. 4,787,300 30,736,254
*Yaohan Hongkong Corp. Ltd. H.K. 10,000,000 491,534
--------------
177,705,481
- -------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Metals & Mining: 5.0%
Alcan Aluminum Ltd. Can. 2,209,410 $ 67,441,079
*ARBED SA Lux. 237,473 26,473,173
*Asturiana del Zinc SA Sp. 1,488,880 14,373,402
*Bohler Uddeholm AG, 144A Aust. 97,000 7,466,950
De Beers Consolidated
Mines Ltd. S.AF. 578,800 18,384,093
Elkem AS Nor. 1,524,000 18,328,179
+Maanshan Iron & Steel
Co. Ltd., H Chn. 106,776,000 19,059,990
Outokumpu OY, A Fin. 3,870,194 62,157,429
*Outokumpu OY, wts. Fin. 822,300 38,896
*Pechiney SA, A Fr. 1,736,105 70,428,477
Pohang Iron & Steel Co.
Ltd. Kor. 394,660 30,289,796
RGC Ltd. Aus. 3,482,000 17,780,924
SIG (Schweizerische
Industrie Gesellschaft)
Holdings AG Swtz. 1,929 4,343,870
Trelleborg AB, B Swe. 2,350,000 28,374,074
*Union Miniere NPV Bel. 500,000 36,801,191
--------------
421,741,523
- -------------------------------------------------------------------------------
Multi-Industry: 3.0%
Amer Group Ltd., A Fin. 800,500 13,560,931
Cheung Kong Holdings Ltd. H.K. 9,500,000 66,049,878
CNT Group Ltd. H.K. 17,100,000 1,028,535
*DESC Sociedad de
Formento Industrial SA, B Mex. 3,305,000 12,826,537
Egis RT Hun. 52,435 1,782,624
*Fotex First Hungarian-
American Photo-Service
Co. Hun. 1,322,415 1,125,405
Jardine Matheson Holdings
Ltd. H.K. 4,470,954 35,767,632
Jardine Strategic
Holdings Ltd. H.K. 11,430,649 38,864,207
Pacific Dunlop Ltd. Aus. 25,464,075 60,344,639
Swire Pacific Ltd., A H.K. 780,400 6,813,825
Swire Pacific Ltd., B H.K. 6,330,500 9,130,253
--------------
247,294,466
- -------------------------------------------------------------------------------
Real Estate: 1.5%
Bail Investissement Fr. 115,670 20,077,414
Credit Foncier de France
SA Fr. 7,000 101,784
Hang Lung Development Co.
Ltd. H.K. 23,875,000 44,625,302
*Hang Lung Development
Co. Ltd., wts. H.K. 856,700 232,712
Hon Kwok Land Investment
Co. Ltd. H.K. 20,900,000 7,299,280
Hong Kong Land H.K. 8,784,000 19,061,280
Ryoden Development Ltd. H.K. 20,000,000 5,497,419
Tai Cheung Holdings Ltd. H.K. 15,224,613 13,588,305
</TABLE>
18
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Real Estate (cont.)
*Trans Tasman Properties
Ltd. N.Z. 697,594 $ 361,581
*Union du Credit Bail
Immobilier Unibail Fr. 150,000 16,157,348
--------------
127,002,425
- -------------------------------------------------------------------------------
Recreation & Other Consumer Goods: 0.1%
+Shenzhen China Bicycles
Co. (Holdings) Ltd., B Chn. 21,389,400 3,596,764
Yue Yuen Industrial
(Holdings) Ltd. H.K. 24,964,000 6,361,365
--------------
9,958,129
- -------------------------------------------------------------------------------
Telecommunications: 4.4%
Alcatel Cable SA Fr. 395,086 32,078,376
STET (Sta Finanziaria
Telefonica Torino) SPA Itl. 4,989,500 15,242,872
STET (Sta Finanziaria
Telefonica Torino) SPA,
di Risp Itl. 5,513,536 12,433,591
Telecom Argentina Stet
France SA, ADR Arg. 582,400 25,188,800
Telecom Italia Spa, di Risp Itl. 17,688,638 24,399,767
Teledanmark AS, B Den. 248,000 14,578,607
Telefonica de Argentina SA,
B, ADR Arg. 1,600,000 41,800,000
Telefonica de Espana SA Sp. 6,161,700 101,297,084
Telefonica de Peru, B Per. 183,995 389,701
Telefonos de Mexico SA, L Mex. 13,623,481 20,755,848
Telefonos de Mexico SA, L,
ADR Mex. 2,700,200 82,356,100
--------------
370,520,746
- -------------------------------------------------------------------------------
Textiles & Apparel: 0.6%
Ceramico Corp. Ltd. N.Z. 2,000,000 2,827,236
Daehan Synthetic Fiber Co.
Ltd. Kor. 21,140 2,055,784
Fountain Set Holdings Ltd. H.K. 5,657,000 1,068,339
PT Indorama Synthetics,
fgn. Indo. 6,000,000 21,303,691
Tae Kwang Industrial Co.
Ltd. Kor. 14,170 9,252,917
Winsor Industrial Corp.
Ltd. H.K. 12,122,000 11,524,751
--------------
48,032,718
- -------------------------------------------------------------------------------
Transportation: 4.5%
Anangel-American
Shipholdings Ltd., ADR Gr. 21,300 244,950
*Bremer Vulkan Verbund AG Ger. 600,000 9,103,899
British Airways PLC U.K. 3,724,000 29,045,157
Cathay Pacific Airways Ltd. H.K. 40,060,000 73,322,511
Danzas Holding AS Swtz. 25,000 5,421,184
Great Eastern Shipping Co.
Ltd., GDR Ind. 543,000 4,175,670
*Great Eastern Shipping Co.
Ltd., GDR 144A Ind. 652,500 5,017,725
IMC Holdings Ltd. H.K. 11,982,000 6,199,537
Koninklijke Nedlloyd NV Neth. 1,012,300 22,074,695
</TABLE>
19
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Transportation (cont.)
Kvaerner Industrier AS, A Nor. 600,000 $ 19,210,946
Malaysian International
Shipping Corp. Bhd.,
fgn., Mal. Mal. 1,633,000 4,549,460
Malaysian International
Shipping Corp. Bhd.,
fgn., Sing. Mal. 3,936,000 11,176,434
Mayne Nickless Ltd., A Aus. 4,000,000 20,701,306
Orient Overseas
International Ltd. H.K. 144,000 107,103
Peninsular & Oriental
Steam Navigation Co. U.K. 1,730,000 13,864,176
Qantas Airways Ltd., ADR,
144A Aus. 481,700 8,760,919
+Shanghai Hai Xing
Shipping Co., H Chn. 73,850,000 6,495,751
Shun Tak Holdings H.K. 45,666,000 33,669,586
Singapore Airlines Ltd.,
fgn. Sing. 4,095,000 41,176,179
Stena Line AB, B Swe. 2,000,000 10,725,926
Swissair Schweizerische
Luftverkehr AG Swtz. 48,940 47,144,037
Transport Development
Group PLC U.K. 1,000,000 3,294,464
*Transportacion Maritima
Mexicana SA
de CV, L, ADR Mex. 341,100 2,771,438
--------------
378,253,053
- -------------------------------------------------------------------------------
Utilities-Electrical & Gas: 4.2%
British Gas PLC U.K. 7,274,000 26,416,052
*CEZ Csk. 38,732 1,391,238
Cia Energetica de Minas
Gerais, ADR Braz. 7,000 177,710
Compania Sevillana de
Electricidad Sp. 6,397,428 49,046,001
Electrabel SA Bel. 150,000 34,535,230
Electricidad de Caracas Venz. 13,723,655 8,639,475
Evn Energie-Versorgung
Niederoesterreich AG Aust. 180,000 23,865,384
*Guangdong Electric Power
Development Co. Ltd.,
B, 144A Chn. 2,235,300 1,243,295
Iberdrola SA Sp. 10,267,215 101,191,601
Shandong Huaneng Power Chn. 3,000,000 28,875,000
Thames Water Group PLC U.K. 4,000,000 32,607,530
VEBA AG Ger. 1,000,000 47,152,480
--------------
355,140,996
- -------------------------------------------------------------------------------
Wholesale & International Trade: 0.1%
Sime Darby Hongkong Ltd. H.K. 5,030,000 5,205,086
--------------
TOTAL COMMON STOCKS (cost
$5,247,332,411) 5,892,501,378
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Templeton Foreign Fund
Investment Portfolio, February 29, 1996 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 1.7%
- -------------------------------------------------------------------------------
Ballast Nedam NV, ctf.,
conv., pfd. Neth. 140,000 $ 6,326,915
Bayerische Motorenwerke
AG (BMW), pfd. Ger. 10,000 3,946,384
Cemig-Cia Energetica de
Minas Gerais, pfd. Braz. 411,765,636 10,453,558
+Krones AG Herman
Kronseder Maschinen
Fabrik, pfd. Ger. 30,000 13,655,848
Petrobras-Petroleo
Brasileiro SA, pfd. Braz. 102,880,000 11,439,817
Telebras-
Telecomunicacoes
Brasileiras SA, pfd. Braz. 572,200,000 29,866,545
Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
ADR Braz. 1,050,000 55,125,000
Telesp-Telecomunicacoes
de Sao Paulo SA, pfd. Braz. 80,000,000 13,241,940
--------------
TOTAL PREFERRED STOCKS (cost
$108,775,934) 144,056,007
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 7.5%
- -------------------------------------------------------------------------------
ARBED SA, 2.50%, conv.,
7/15/03 Ger. 4,500,000 2,602,572
British Airways, DEB,
9.75%, 6/15/05 U.K. 1,450,000 4,895,619
Government of Australia:
7.00%, 8/15/98 Aus. 60,600,000 45,381,091
6.25%, 3/15/99 Aus. 61,700,000 44,990,301
7.00%, 4/15/00 Aus. 61,700,000 45,328,957
Jardine Strategic
Holdings Ltd., 7.50%,
conv., 5/07/49 U.S. 9,900,000 11,706,750
Softe SA, 4.25%, conv.,
7/30/98, 144A Itl. 2,280,000,000 1,823,742
U.S. Treasury Notes:
6.00%, 6/30/96 U.S. 45,500,000 45,637,410
7.25%, 8/31/96 U.S. 44,500,000 44,931,205
7.25%, 11/15/96 U.S. 45,000,000 45,604,800
6.375%, 6/30/97 U.S. 25,800,000 26,134,626
6.375%, 7/15/99 U.S. 102,500,000 104,886,200
6.00%, 10/15/99 U.S. 103,000,000 104,093,860
6.375%, 1/15/00 U.S. 103,000,000 105,414,320
--------------
TOTAL BONDS (cost $618,612,719) 633,431,453
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 18.9% (cost
$1,583,722,495)
- -------------------------------------------------------------------------------
U.S. Treasury Bills,
4.53% to 4.98% with
maturities to 5/02/96 U.S. 1,588,843,000 1,583,831,522
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.3% (cost
$7,558,443,559) 8,253,820,360
OTHER ASSETS, LESS LIABILITIES: 1.7% 142,981,754
--------------
TOTAL NET ASSETS: 100.0% $8,396,802,114
==============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Templeton Foreign Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$7,558,443,559) $8,253,820,360
Cash 1,000,437
Receivables:
Investment securities sold 151,801,351
Capital shares sold 44,531,000
Dividends and interest 23,310,051
--------------
Total assets 8,474,463,199
--------------
Liabilities:
Payables:
Investment securities purchased 62,699,022
Capital shares redeemed 6,539,152
Accrued expenses and other 8,422,911
--------------
Total liabilities 77,661,085
--------------
Net assets, at value $8,396,802,114
==============
Net assets consist of:
Undistributed net investment income $ 22,323,292
Net unrealized appreciation 695,376,801
Accumulated net realized gain 138,050,320
Net capital paid in on shares of capital stock 7,541,051,701
--------------
Net assets, at value $8,396,802,114
==============
Class I:
Net asset value per share ($8,108,706,997 / 847,805,414 shares
outstanding) $ 9.56
==============
Maximum offering price
($9.56 / 94.25%) $ 10.14
==============
Class II:
Net asset value per share ($288,095,117 / 30,293,991 shares
outstanding) $ 9.51
==============
Maximum offering price ($9.51 / 99.00%) $ 9.61
==============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended February 29, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $5,262,382 foreign
taxes withheld)
Dividends $53,875,070
Interest 59,540,507
-----------
Total income $113,415,577
Expenses:
Management fees (Note 3) 22,829,659
Administrative fees (Note 3) 2,942,191
Distribution fees (Note 3)
Class I 9,111,401
Class II 761,672
Transfer agent fee (Note 3) 2,946,000
Custodian fees 1,680,000
Reports to shareholders 1,005,000
Audit fees 27,000
Legal fees (Note 3) 10,000
Registration and filing fees 400,000
Directors' fees
and expenses 54,500
Other 97,243
-----------
Total expenses 41,864,666
------------
Net investment income 71,550,911
Realized and unrealized
gain (loss):
Net realized gain (loss) on:
Investments 225,188,731
Foreign currency transactions (1,572,606)
-----------
223,616,125
Net unrealized appreciation on investments 162,330,793
-----------
Net realized and unrealized gain 385,946,918
------------
Net increase in net assets resulting from
operations $457,497,829
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
Templeton Foreign Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, 1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 71,550,911 $ 163,691,643
Net realized gain on investment and for-
eign currency transactions 223,616,125 219,225,783
Net unrealized appreciation (deprecia-
tion) 162,330,793 (131,760,311)
-------------- --------------
Net increase in net assets resulting
from operations 457,497,829 251,157,115
Distributions to shareholders:
From net investment income
Class I (185,409,586) (84,334,594)
Class II (2,866,693) --
From net realized gain
Class I (267,921,947) (275,006,347)
Class II (4,592,208) --
Capital share transactions (Note 2)
Class I 1,174,157,226 2,035,091,105
Class II 221,271,752 63,320,854
-------------- --------------
Net increase in net assets 1,392,136,373 1,990,228,133
Net assets:
Beginning of period 7,004,665,741 5,014,437,608
-------------- --------------
End of period $8,396,802,114 $7,004,665,741
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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 Fund seeks long-term capi-
tal growth through a flexible policy of investing in stocks and debt obliga-
tions of companies and governments outside the United States. 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 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.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
24
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
The Fund offers two classes of shares: Class I shares and Class II shares.
Shares of each class are identical except for their initial sales load, a con-
tingent deferred sales charge on Class II shares, distribution fees, and voting
rights on matters affecting a single class. At February 29, 1996, there were
3.2 billion shares of capital stock of the Company authorized ($1.00 par value)
of which 2.0 billion shares have been classified as Fund shares. Transactions
in the Fund's shares were as follows:
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 166,269,256 $1,560,899,465 294,214,786 $2,724,124,163
Shares issued on
reinvestment
of
distributions 42,605,417 387,508,012 32,535,343 299,952,040
Shares redeemed (82,324,056) (774,250,251) (106,358,799) (988,985,098)
----------- -------------- ------------ --------------
Net increase 126,550,617 $1,174,157,226 220,391,330 $2,035,091,105
=========== ============== ============ ==============
<CAPTION>
CLASS II
---------------------------------------------------------
FOR THE PERIOD
MAY 1, 1995
SIX MONTHS ENDED THROUGH
FEBRUARY 29, 1996 AUGUST 31, 1995
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 23,666,912 $ 221,267,579 6,634,457 $ 63,535,244
Shares issued on
reinvestment
of
distributions 579,954 5,244,732 -- --
Shares redeemed (565,137) (5,240,559) (22,195) (214,390)
----------- -------------- ------------ --------------
Net increase 23,681,729 $ 221,271,752 6,612,262 $ 63,320,854
=========== ============== ============ ==============
</TABLE>
25
<PAGE>
Templeton Foreign Fund
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton Global
Advisors Ltd. (TGAL), Templeton Global Investors, Inc. (TGII), Franklin Temple-
ton Distributors, Inc. (FTD), and Franklin Templeton Investor Services, Inc.
(FTIS), the Fund's investment manager, administrative manager, principal under-
writer, and transfer agent, respectively.
The Fund pays monthly an investment management fee to TGAL 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 six months ended February 29, 1996, FTD received net commissions of
$2,112,474 from the sale of the Fund's shares and FTIS received fees of
$2,946,000.
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
February 29, 1996, unreimbursed expenses amount to $1,290,086. Class II shares
redeemed within 18 months are subject to a contingent deferred sales charge.
Contingent deferred sales charges of $30,603 were paid to FTD for the six
months ended February 29, 1996.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $10,000 for the six months ended Feb-
ruary 29, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 29, 1996 aggregated $1,176,481,409 and $613,950,903, 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 29, 1996, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $1,026,249,454
Unrealized depreciation (330,872,653)
-------------
Net unrealized appreciation $ 695,376,801
=============
</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 February 29, 1996 amounted
to $88,768,099.
26
<PAGE>
THE FRANKLIN TEMPLETON GROUP
Literature Request - Call today for a free descriptive brochure and prospectus
on any of the funds listed below. The prospectus contains more complete
information, including fees, charges and expenses, and should be read carefully
before investing or sending money.
Templeton Funds
Americas Government
Securities Fund
Developing Markets Trust
Foreign Fund
Global Infrastructure Fund
Global Opportunities Trust
Greater European Fund
Growth Fund
Growth and Income Fund
Income Fund
Latin America Fund
Real Estate
Securities Fund
Smaller Companies
Growth Fund
World Fund
Franklin Funds Seeking
Tax-Free Income
Federal Tax-Free
Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free
Income Fund***
Puerto Rico Tax-Free
Income Fund
Franklin State-Specific
Funds Seeking Tax-Free
Income
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan***
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee
Texas
Virginia
Washington**
Franklin Funds
Seeking Capital Growth
California Growth Fund
DynaTech Fund
Equity Fund
Global Health
Care Fund
Gold Fund
Growth Fund
International
Equity Fund
Japan Fund
Pacific Growth Fund
Small Cap Growth Fund
Franklin Funds Seeking
Growth and Income
Balance Sheet
Investment Fund
Convertible Securities Fund
Equity Income Fund
Global Utilities Fund
Income Fund
Natural Resources Fund
Premier Return Fund
Real Estate Securities Fund
Rising Dividends Fund
Strategic Income Fund
Utilities Fund
Franklin Funds Seeking
High Current Income
AGE High Income Fund
Global Government
Income Fund
Investment Grade
Income Fund
U.S. Government
Securities Fund
Franklin Funds Seeking
High Current Income and
Stability of Principal
Adjustable Rate
Securities Fund
Adjustable U.S. Government
Securities Fund
Short-Intermediate U.S.
Government
Securities Fund
Franklin Funds for
Non-U.S. Investors
Tax-Advantaged High Yield
Securities Fund
Tax-Advantaged International
Bond Fund
Tax-Advantaged U.S.
Government Securities Fund
Franklin Templeton Global
Currency Funds
German Government
Bond Fund
Global Currency Fund
High Income Currency Fund
Hard Currency Fund
Franklin Money
Market Funds
Money Fund
Federal Money Fund
Tax-Exempt Money
Fund
California Tax-Exempt
Money Fund
New York Tax-Exempt
Money Fund
IFT U.S. Treasury Money
Market Portfolio
Franklin Fund for
Corporations
Corporate Qualified
Dividend Fund
Franklin Tax-Deferred
Annuity
Franklin Valuemark
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
Fund Information: 1-800/342-5236
Shareholder Services: 1-800/632-2301
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.
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and a high yield
portfolio (CA).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
<PAGE>
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN TEMPLETON
FUND FOREIGN
FUND
PRINCIPAL UNDERWRITER:
Semi-Annual Report
Franklin Templeton February 29, 1996
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be preceded or accompanied
by the 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.
[LOGO OF FRANKLIN
TEMPLETON APPEARS HERE]
[RECYCLED PAPER
LOGO APPEARS HERE]
TL104 S96 04/96
- --------------------------------------------------------------------------------
