<PAGE> 1
Templeton Foreign Fund
[PHOTO OF MARK HOLOWESKO, CHIEF INVESTMENT OFFICER OF GLOBAL EQUITY RESEARCH]
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, 1997
Dear Shareholder:
We are pleased to bring you this semi-annual report of the Templeton Foreign
Fund, which covers the six months ended February 28, 1997. General economic
conditions were favorable for most stock markets worldwide, and this period
proved to be a rewarding one for the Fund. Its Class I shares provided a
six-month cumulative total return of 11.27%, as discussed in the
1
<PAGE> 2
Performance Summary on page 6, significantly outperforming the unmanaged Morgan
Stanley Capital International(R) Europe, Australia, Far East (MSCI EAFE) Index,
which posted a total return of 2.44% for the same period.(1)
Many factors were responsible for the Fund's success. During the six months
under review, moderate economic growth, subdued inflation, and increased
liquidity contributed to rising equity prices. And despite a limited ability to
raise product prices, many companies were able to lower operating costs and
reduce their debt burdens, which led to surprisingly strong corporate profits.
The Fund's performance was also impacted by its large weightings in Europe and
emerging markets, and low exposure to a weak Japanese market.
Most European companies performed well during the final months of 1996. Solid
restructuring efforts by corporate management generated stronger-than-expected
profits and contributed to rising levels of free cash flow for many
corporations. Although European companies continued to restructure in an attempt
to reduce costs to improve competitiveness, many of them led their global
competitors. Because we believed numerous securities in the region to be
undervalued, Europe was the Fund's largest exposure throughout the reporting
period. Some of the firms included in the Fund's portfolio on February 28, 1997,
were Nokia AB, a leading manufacturer in the cellular telecommunications
industry; Sandvik AB, a major supplier of specialty steel and drill bits;
Bayerische Motorenwerke (BMW), a
1. The MSCI EAFE Index includes approximately 1,000 companies representing the
stock markets of 20 countries including Germany, France, Australia, New Zealand,
and Japan. The index is not managed according to any investment strategy,
includes no sales charges or management expenses, and does not contain cash (the
Fund generally carries a certain percentage of cash at any given time). Of
course, one cannot invest directly in an index, and the index is not
representative of the Fund's portfolio. Total return includes reinvested
dividends.
Templeton Foreign Fund -- Class I
Total Return Index Comparison
Six-Month Performance (8/31/96-2/28/97)(1,2)
[BAR GRAPH]
<TABLE>
<S> <C>
Templeton Foreign Fund 11.27%
MSCI EAFE Index 2.44%
</TABLE>
1. Fund performance does not include the initial sales charge and represents the
change in value of an investment during the period shown. Total return assumes
reinvestment of dividends and capital gains at net asset value. Past performance
is not predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
2
<PAGE> 3
premier auto manufacturer; and British Telecommunications PLC, which announced a
joint venture during the period with the U.S. firm, MCI Communications Corp.
Not all of the Fund's European investments were successful. In general, our
French holdings performed poorly, particularly Peugeot SA and Regie Nationale
des Usines Renault SA. The share price of European Vinyls Corp. EVC
International NV (Netherlands) also declined. We continue to monitor these
companies' investment appeal, and believe that they have the potential to
provide the Fund with attractive returns in the future.
Although some emerging markets posted disappointing returns during the reporting
period, most of the markets to which the Fund was exposed performed well. Of
particular note were Brazil and Hong Kong. Hong Kong securities experienced
strong price gains, despite concerns about the colony's reversion to Chinese
control on June 30, 1997. The real estate sector is extremely important in Hong
Kong, providing a large part of total corporate profits, and many investors
believed that real estate prices and rental income would drop, hurting overall
corporate profits. However, prices were stronger than expected, boosting profits
and stock prices.
Our low exposure to the Japanese market helped the Fund's performance. Despite
Japan's attempt to absorb the massive speculative excess in its real estate
sector and equity market of more than five years ago, the Nikkei 225 Index fell
16.51%.(2) Although we actively investigate and analyze Japanese corporations,
we do not anticipate
2. Source: Bloomberg. Price depreciation is measured in U.S. dollars, and
includes reinvested dividends.
Templeton Foreign Fund
Geographic Distribution on 2/28/97
Based on Total Net Assets
[PIE CHART]
<TABLE>
<S> <C>
European Stocks 41.8%
Asian Stocks 11.1%
Latin American Stocks 7.4%
Australian & New Zealand Stocks 5.0%
Other Stocks 2.6%
Fixed-Income Securities 4.3%
Short-Term Obligations & Other Net Assets 27.8%
</TABLE>
3
<PAGE> 4
Templeton Foreign Fund
Top 10 Equity Holdings on 2/28/97
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Name, Industry, Country Net Assets
<S> <C>
British Telecommunications PLC
Telecommunications, United Kingdom 1.4%
Philips Electronics NV
Electrical & Electronics, Netherlands 1.3%
HSBC Holdings PLC
Banking, Hong Kong 1.3%
Telebras-Telecomunicacoes Brasileiras SA, pfd
Telecommunications, Brazil 1.3%
Telefonica de Espana SA
Telecommunications, Spain 1.3%
Telmex-Telefonos de Mexico SA, L
Telecommunications, Mexico 1.1%
National Australia Bank Ltd.
Banking, Australia 1.1%
Volkswagen AG
Automobiles, Germany 1.0%
Societe Elf Aquitaine SA
Energy Sources, France 1.0%
Volvo AB, B
Automobiles, Sweden 1.0%
</TABLE>
For a complete list of portfolio holdings, please see page 15 of this report.
increasing our position there unless stock valuations fall substantially.
This discussion reflects the strategies we employed for the Fund during the six
months under review, 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 associated with global investing related to
market, currency, economic, social, 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. Although
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. For example, the Hong Kong market has
increased 857% in the last 15 years, but has suffered five declines of more than
20% during that time.(3)
(3). Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended December 31, 1996.
4
<PAGE> 5
Templeton Foreign Fund
Top 10 Countries Represented in the Fund on 2/28/97
Based on Total Net Assets
<TABLE>
<CAPTION>
% of Total
Country Net Assets
<S> <C>
United Kingdom 8.8%
Hong Kong 6.1%
France 5.9%
Sweden 5.8%
Spain 4.9%
Australia 3.7%
Netherlands 3.7%
Finland 3.1%
Mexico 2.7%
Norway 2.3%
</TABLE>
These risks and other considerations 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
Celebrating 50 Years
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
5
<PAGE> 6
PERFORMANCE SUMMARY
CLASS I
The Templeton Foreign Fund - Class I provided a cumulative total return of
11.27% for the six-month period ended February 28, 1997. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains distributions, and does not include the initial
sales charge. We have always maintained a long-term perspective when managing
the Fund and encourage shareholders 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 273% for the 10-year period ended February
28, 1997.
The price of the Fund's shares, as measured by net asset value, increased 64
cents ($0.64), from $9.97 on August 31, 1996, to $10.61 on February 28, 1997.
During this time, shareholders received distributions of 27.5 cents ($0.275) per
share in dividend income and 17.5 cents ($0.175) per share in capital gains, of
which 3 cents ($0.03) represented short-term gains and 14.5 cents ($0.145)
represented long-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.
TEMPLETON FOREIGN FUND
CLASS I
Periods Ended 2/28/97
<TABLE>
<CAPTION>
Since
Inception
One-Year Five-Year Ten-Year (10/5/82)
<S> <C> <C> <C> <C>
Cumulative
Total Return(1) 16.04% 79.41% 273.34% 866.26%
Average Annual
Total Return(2) 9.40% 11.08% 13.40% 16.58%
Value of $10,000
Investment(3) $10,940 $16,911 $35,167 $91,049
</TABLE>
<TABLE>
<CAPTION>
2/28/93 2/28/94 2/28/95 2/29/96 2/28/97
<S> <C> <C> <C> <C> <C>
One-Year Total
Return(1) 1.26% 35.16% -2.74% 16.15% 16.04%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the indicated periods, and does not include the 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 current maximum 5.75%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and include the maximum 5.75% initial sales
charge.
4. One year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the sales
charge. All calculations assume reinvestment of dividends and capital gains
distributions at net asset value. 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. On January 1, 1993, the Fund implemented a Rule 12b-1 plan, which
affects subsequent performance. Investment return and principal value will
fluctuate with market conditions, currencies and the political and economic
climates of countries where investments are made. Emerging markets involve
heightened risks related to the same factors, in addition to those associated
with the relatively small size and lesser liquidity of these markets. You may
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
6
<PAGE> 7
PERFORMANCE SUMMARY
CLASS II
The Templeton Foreign Fund - Class II provided a cumulative total return of
10.95% for the six-month period ended February 28, 1997. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains distributions, and does not include sales charges.
The price of the Fund's shares, as measured by net asset value, increased 65
cents ($0.65), from $9.87 on August 31, 1996, to $10.52 on February 28, 1997.
During this time, shareholders received distributions of 22.61 cents ($0.2261)
per share in income dividends and 17.5 cents ($0.175) per share in capital
gains, of which 3 cents ($0.03) represented short-term gains and 14.5 cents
($0.145) represented long-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.
TEMPLETON FOREIGN FUND
CLASS II
Periods Ended 2/28/97
<TABLE>
<CAPTION>
Since
Inception
One-Year (5/1/95)
<S> <C> <C>
Cumulative
Total Return(1) 15.15% 27.65%
Aggregate
Total Return(2) 12.96% 13.65%
Value of
$10,000 Investment(3) $11,296 $12,641
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the indicated periods, and does not include sales charges.
2. Average annual total return measures the average annual change in value of an
investment over the indicated periods. It includes the 1.0% initial sales charge
and the 1.0% contingent deferred sales charge, applicable to shares redeemed
within the first 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and include all sales charges.
All calculations assume reinvestment of dividends and capital gains
distributions at net asset value. Investment return and principal value will
fluctuate with market conditions, currencies and the political and economic
climates of countries where investments are made. Emerging markets involve
heightened risks related to the same factors, in addition to those associated
with the relatively small size and lesser liquidity of these markets. You many
have a gain or loss when you sell your shares. Past performance is not
predictive of future results.
7
<PAGE> 8
PERFORMANCE SUMMARY
ADVISOR CLASS
The Templeton Foreign Fund - Advisor Class produced an aggregate total return of
3.51% for the two-month period from inception on January 1, 1997 through
February 28, 1997. The price of the Fund's shares, as measured by net asset
value, increased 36 cents ($0.36), from $10.26 on January 2, 1997 (first day of
commencement of sales), to $10.62 on February 28, 1997. Of course, past
performance is not predictive of future results.
- --------------------------------------------------------------------------------
TEMPLETON FOREIGN FUND
ADVISOR CLASS
Periods Ended 2/28/97
<TABLE>
<CAPTION>
Since
Inception
(1/1/97)
<S> <C>
Aggregate Total Return* 3.51%
</TABLE>
*Aggregate total return represents the change in value of an investment over the
period indicated. Since Advisor Class shares have been in existence for less
than one year, average annual total returns are not provided.
Investment return and principal value will fluctuate with market conditions,
currencies and the economic and political climates of countries where
investments are made. Emerging markets involve heightened risks related to the
same factors, in addition to those associated with the relatively small size and
lesser liquidity of these markets. You may have a gain or loss when you sell
your shares. Past performance is not predictive of future results.
8
<PAGE> 9
TEMPLETON FOREIGN FUND
CLASS I
If you had invested $10,000 in the Templeton Foreign Fund - Class I at
inception, it would be worth more than $91,000 today. The chart below
illustrates the cumulative total return of a hypothetical $10,000 investment in
the Fund on October 5, 1982 (inception), with income dividends and capital gains
distributions reinvested through February 28, 1997.*
Templeton Foreign Fund - Class I*
Growth of $10,000 Investment from Inception (10/5/82 - 2/28/97)
<TABLE>
<CAPTION>
Date Initial Investment Income Initial + Dividends Cap Gains Initial + Cap Gains Total Value
<S> <C> <C> <C> <C> <C> <C>
10/5/82 $9,423 0 $9,423 0 $9,423 $9,423
12/31/82 $9,823 0 $9,823 0 $9,823 $9,823
12/30/83 $13,168 $193 $13,361 $48 $13,217 $13,410
12/31/84 $12,603 $491 $13,094 $156 $12,759 $13,250
12/31/85 $15,489 $1,077 $16,566 $246 $15,735 $16,812
12/31/86 $18,151 $1,752 $19,903 $1,745 $19,896 $21,648
12/31/87 $20,436 $2,816 $23,252 $3,754 $24,190 $27,006
12/30/88 $22,709 $4,156 $26,865 $6,081 $28,790 $32,946
12/29/89 $27,468 $6,387 $33,854 $9,152 $36,619 $43,006
12/31/90 $24,700 $7,170 $31,870 $9,842 $34,541 $41,712
12/31/91 $26,949 $9,249 $36,198 $13,127 $40,077 $49,325
12/31/92 $25,088 $9,876 $34,964 $14,408 $39,496 $49,372
12/31/93 $33,333 $14,060 $47,393 $20,156 $53,489 $67,549
12/30/94 $31,166 $14,231 $45,397 $22,386 $53,552 $67,783
12/29/95 $32,438 $16,772 $49,211 $26,133 $58,571 $75,343
12/31/96 $36,608 $21,301 $57,909 $30,994 $67,602 $88,903
2/28/97 $37,491 $21,815 $59,306 $31,742 $69,233 $91,049
</TABLE>
*The amount of capital gains distributions accepted in shares was $31,742. The
total amount of dividends reinvested was $21,815. The performance information
shown represents past performance and is not predictive of future results. For
standardized performance figures, please refer to the Performance Summary on
page 6. The Fund offers other classes of shares, subject to different fees and
expenses, which affect their performance. Please see the prospectus for more
details regarding share classes.
9
<PAGE> 10
Many investors have asked us about the activities of Sir John Templeton, since
his retirement from the funds. We asked Professor Robert Herrmann to update us
on Sir John's current activities and his comments follow.
THE NEW CAREER OF
SIR JOHN TEMPLETON
[PHOTO OF SIR JOHN TEMPLETON]
By Professor Robert Herrmann
In 1992, Sir John Templeton retired after a 50-year career of helping investors
manage their money. Currently, he devotes all of his time and efforts to the
John Templeton Foundation. A major portion of his assets remain invested in
Templeton funds, managed by many of the investment professionals he selected and
trained. For sentimental reasons, he allows his name to be associated with the
funds, although he knows no more about their management and holdings than any
other investor.
Sir John Templeton established the Templeton Foundation in 1987, to foster the
acquisition of spiritual information through scientific research. Working with
scientists, theologians and others, he strives toward a new science that uses
empirical and statistical scientific methods to discover and test spiritual
knowledge. A crucial ingredient in his research is what Sir John calls "humility
theology," an attitude of humility toward the Creator, combined with
receptiveness to the theological significance of current scientific discoveries.
Universal spiritual laws, or "laws of life," are among the areas of
investigation. In his recent book, Worldwide Laws of Life, Sir John compiles 200
laws and proverbs from nearly all religions, and deeply embedded in human
history. For example, the Golden Rule taught by Jesus in the Sermon on the
Mount, states "Do unto others as you would have others do unto you," and is
affirmed by all major religions as an acceptable, universal law of life. Other
books which Sir John has authored or co-authored during the past few years
include: The Humble Approach, Is God the Only Reality, Evidence of Purpose,
Who's Who in Theology and Science and The God Who Would Be Known.
With an annual budget of more than $30 million, the Templeton Foundation
sponsors 60 programs focusing on spiritual progress and the benefits of freedom.
Sir John's first sizable investment in the programs was the Templeton Prize for
Progress in Religion. A panel of nine judges gives the annual award which now
exceeds $1.2 million to individuals who have shown extraordinary originality in
furthering the world's understanding of God or spirituality.
Recipients of the prize include Professor Paul Davies, author of The Mind of
God; the Right Honorable Lord Jacobovits, former Chief Rabbi of Great Britain
and The Commonwealth; the Reverend Dr. Billy Graham, world-renowned preacher and
presidential inauguration speaker; Mr. Nikkyo Nimano, founder of the World
Conference on Religion and Peace; and Sir Sarepalli Radhakrishnan, former
President of India, and Oxford professor of Eastern Religions and Ethics.
To encourage young people's and their parents' appreciation of spiritual laws of
life, Sir John established an essay contest for teenagers in his home county of
Franklin, Tennessee. Students submit essays about the spiritual life principles
they plan to follow, and prizes are offered semiannually. In 1996, more than 800
youth participated. Twenty-six similar programs
10
<PAGE> 11
have been launched in various locations, with the support of generous local
donors.
The Foundation also sponsors a worldwide program that awards college-level
faculty who teach courses integrating science and religion. During the program's
first two years, more than 200 courses were created. The Foundation maintains an
extensive program of research and education on the health benefits of
spirituality, including prizes for medical schools providing courses on
spirituality in medicine. Lastly, the Foundation publishes a newsletter with
over 2,000 subscribers. Free subscriptions are available to Templeton
shareholders by writing to the Foundation.
To contact Sir John Templeton or receive the free newsletter subscription,
please write to:
The John Templeton Foundation
2 Radnor Corporate Center #320
100 Matsonford Road
Radnor, PA 19087
11
<PAGE> 12
TEMPLETON FOREIGN FUND
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--CLASS I+
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31
FEBRUARY 28, 1997 --------------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
----------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 $ 9.62 $ 10.01 $ 8.74 $ 7.92 $ 7.91
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income .08 .27 .23 .14 .14 .20
Net realized and unrealized gain 1.01 .69 .05 1.39 1.21 .43
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 1.09 0.96 .28 1.53 1.35 .63
---------- ---------- ---------- ---------- ---------- ----------
Distributions:
Dividends from net investment income (.28) (.25) (.16) (.13) (.19) (.23)
Distributions from net realized gains (.17) (.36) (.51) (.13) (.34) (.39)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions (.45) (.61) (.67) (.26) (.53) (.62)
---------- ---------- ---------- ---------- ---------- ----------
Change in net asset value .64 .35 (.39) 1.27 .82 .01
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.61 $ 9.97 $ 9.62 $ 10.01 $ 8.74 $ 7.92
========== ========== ========== ========== ========== ==========
TOTAL RETURN* 11.27% 10.68% 3.14% 17.94% 18.65% 8.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $12,045,408 $9,602,209 $6,941,238 $5,014,438 $2,667,771 $1,672,161
Ratio of expenses to average net assets 1.09%** 1.12% 1.15% 1.14% 1.12% .94%
Ratio of net investment income to average
net assets 1.81%** 3.09% 2.81% 1.84% 2.11% 2.92%
Portfolio turnover rate 23.80% 15.91% 21.78% 36.75% 21.29% 22.00%
Average commission rate paid (per share) $ .0058 $ .0075
</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.
12
<PAGE> 13
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 28, 1997 YEAR ENDED THROUGH
(UNAUDITED) AUGUST 31, 1996 AUGUST 31, 1995
----------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.87 $ 9.59 $ 9.16
-------- -------- -------
Income from investment operations:
Net investment income .07 .30 .03
Net realized and unrealized gain .98 .58 .40
-------- -------- -------
Total from investment operations 1.05 .88 .43
-------- -------- -------
Distributions:
Dividends from net investment income (.23) (.24) --
Distributions from net realized gains (.17) (.36) --
-------- -------- -------
Total distributions (.40) (.60) --
-------- -------- -------
Change in net asset value .65 .28 .43
-------- -------- -------
Net asset value, end of period $ 10.52 $ 9.87 $ 9.59
======== ======== =======
TOTAL RETURN* 10.95% 9.78% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $871,955 $527,443 $63,428
Ratio of expenses to average net assets 1.85%** 1.87% 1.90%**
Ratio of net investment income to average net assets 1.03%** 2.63% 1.86%**
Portfolio turnover rate 23.80% 15.91% 21.78%
Average commission rate paid (per share) $ .0058 $ .0075
</TABLE>
* TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE DEFERRED CONTINGENT
SALES CHARGE. NOT ANNUALIZED FOR PERIODS OF LESS THAN A YEAR.
** ANNUALIZED
+ COMMENCEMENT OF OFFERING OF SALES.
13
<PAGE> 14
TEMPLETON FOREIGN FUND
Financial Highlights (cont.)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE--ADVISOR CLASS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 2, 1997+
THROUGH
FEBRUARY 28, 1997
(UNAUDITED)
-----------------
<S> <C>
Net asset value, beginning of period $ 10.26
-------
Income from investment operations:
Net investment income .01
Net realized and unrealized gain .35
-------
Total from investment operations .36
-------
Change in net asset value .36
-------
Net asset value, end of period $ 10.62
=======
TOTAL RETURN* 3.51%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 9,663
Ratio of expenses to average net assets .84%**
Ratio of net investment income to average net assets 1.43%**
Portfolio turnover rate 23.80%
Average commission rate paid (per share) $ .0058
</TABLE>
* TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR PERIODS
OF LESS THAN A YEAR.
** ANNUALIZED
+ COMMENCEMENT OF OFFERING OF SALES.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS: 65.7%
- -------------------------------------------------------------------------------------------------------------------------
AEROSPACE & MILITARY TECHNOLOGY: 0.0%
Hong Kong Aircraft Engineering Co. Ltd. H.K. 310,600 $ 984,701
- -------------------------------------------------------------------------------------------------------------------------
APPLIANCES & HOUSEHOLD DURABLES: 1.4%
Chofu Seisaku Co. Ltd. Jpn. 452,100 7,907,908
Electrolux AB, B Swe. 900,000 56,314,164
Email Ltd. Aus. 8,035,676 25,403,677
Fisher & Paykel Ltd. N.Z. 4,476,971 17,181,902
*Luks Industrial Co. Ltd. H.K. 25,880,000 3,208,389
Sony Corp. Jpn. 1,003,800 72,478,637
---------------
182,494,677
- -------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES: 3.1%
Bayerische Motorenwerke (BMW) Ger. 93,377 62,842,443
Fiat SPA, di Risp Itl. 4,639,400 7,915,408
Peugeot SA Fr. 508,100 56,207,726
Regie Nationale des Usines Renault SA Fr. 1,846,651 47,633,544
*Tofas Turk Otomobil Fabrikasi AS, GDR Tur. 33,950,000 10,694,250
Volkswagen AG Ger. 177,000 86,167,393
Volvo AB, B Swe. 5,141,000 128,945,961
---------------
400,406,725
- -------------------------------------------------------------------------------------------------------------------------
BANKING: 6.9%
Argentaria Corporacion Bancaria de Espana SA Sp. 1,790,914 71,714,021
Australia & New Zealand Banking Group Ltd. Aus. 8,008,054 50,010,683
Banco Popular Espanol SA Sp. 280,154 50,912,217
Banco Santander SA Sp. 400,000 27,067,564
Bank Slaski SA W Katowicach Pol. 462,881 53,268,202
Banque Nationale de Paris Fr. 858,082 38,948,937
Cho Hung Bank Kor. 666,528 3,769,490
Daegu Bank Co. Ltd. Kor. 169,963 1,729,217
Den Norske Bank Nor. 12,702,700 56,679,805
*Grupo Financiero Banamex Accival SA, B Mex. 3,267,500 7,622,804
HSBC Holdings PLC H.K. 6,850,712 167,204,898
Kookmin Bank Kor. 15,771 267,112
National Australia Bank Ltd. Aus. 10,843,988 136,621,682
National Bank of Canada Can. 2,784,000 32,179,085
National Westminster Bank PLC U.K. 9,257,470 114,367,005
Shinhan Bank Co. Ltd. Kor. 767,527 11,554,546
Svenska Handelsbanken, A Swe. 1,250,000 35,021,246
Thai Farmers Bank Public Co. Ltd., fgn. Thb. 325,000 1,920,255
</TABLE>
15
<PAGE> 16
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
BANKING (cont.)
Union Bank of Norway, Primary Capital Cert. Nor. 939,250 $ 29,057,322
Westpac Banking Corp. Aus. 1,239,475 7,028,140
---------------
896,944,231
- -------------------------------------------------------------------------------------------------------------------------
BEVERAGES & TOBACCO: 0.0%
*Buenos Aires Embotelladora SA, ADR Arg. 1,200,000 3,450,000
- -------------------------------------------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING: 1.0%
Marieberg Tidnings AB, A Swe. 506,000 14,041,585
News Corp. Ltd. Aus. 18,142,478 82,016,142
*Sing Tao Holdings Ltd. H.K. 16,702,500 7,279,587
South China Morning Post (Holdings) Ltd. H.K. 33,797,000 30,551,158
Wace Group PLC U.K. 1,035,500 1,458,878
---------------
135,347,350
- -------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS: 0.6%
Cristaleria Espanola SA Sp. 199,194 16,550,285
*Hepworth PLC U.K. 2,072,000 8,757,496
Keumkang Co. Ltd. Kor. 226,530 10,225,313
Pioneer International Ltd. Aus. 8,187,028 24,355,935
Siam City Cement, fgn. Thai. 795,600 4,362,819
Uralita SA Sp. 1,000,000 7,848,198
---------------
72,100,046
- -------------------------------------------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES: 0.5%
Kardex AG, br. Swtz. 15,000 4,217,828
Lex Service PLC U.K. 5,200,000 29,516,100
*Waste Management International PLC U.K. 6,500,000 25,037,868
---------------
58,771,796
- -------------------------------------------------------------------------------------------------------------------------
CHEMICALS: 2.8%
Akzo Nobel NV Neth. 734,413 105,833,793
Courtaulds PLC U.K. 8,500,000 50,601,007
DSM NV Neth. 895,000 89,599,031
European Vinyls Corp. EVC International NV Neth. 553,517 15,603,119
Fauji Fertilizer Co. Ltd. Pkr. 4,309,000 8,493,310
Kemira OY, 144A Fin. 2,559,000 29,007,547
Rhone-Poulenc SA, A Fr. 1,518,400 53,323,968
Shanghai Pechemical Co. Ltd., H Chn. 55,247,000 15,695,779
---------------
368,157,554
- -------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & HOUSING: 0.6%
Dragados y Construcciones SA Sp. 1,117,000 16,909,484
Fletcher Challenge Building Ltd. N.Z. 5,754,650 17,301,583
Hollandsche Beton Groep NV Neth. 146,415 32,231,512
</TABLE>
16
<PAGE> 17
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & HOUSING (cont.)
Kyudenko Corp. Jpn. 700,000 $ 5,338,639
*Raine PLC U.K. 5,222,700 1,509,893
---------------
73,291,111
- -------------------------------------------------------------------------------------------------------------------------
ELECTRICAL & ELECTRONICS: 3.7%
Alcatel Alsthom SA Fr. 1,007,086 103,449,572
Asea AB, A Swe. 838,161 94,490,130
G.P. Batteries International Ltd. Sing. 2,532,698 7,547,440
Gold Peak Industries (Holdings) Ltd. H.K. 14,873,000 9,699,323
Great Wall Electronic International Ltd. H.K. 34,540,800 4,237,478
Hitachi Ltd. Jpn. 10,565,600 91,090,309
Philips Electronics NV Neth. 3,710,890 167,565,874
---------------
478,080,126
- -------------------------------------------------------------------------------------------------------------------------
ELECTRONIC COMPONENTS & INSTRUMENTS: 0.2%
BICC U.K. 6,719,204 30,369,222
- -------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES: 0.3%
Koninklijke Pakhoed NV Neth. 1,302,048 40,819,778
- -------------------------------------------------------------------------------------------------------------------------
ENERGY SOURCES: 5.0%
Fletcher Challenge Energy Ltd. N.Z. 5,444,150 13,992,045
MOL Magyar Olay -- Es Gazipari RT, GDS 144A Hun. 1,325,000 23,419,375
Norsk Hydro AS Nor. 1,491,842 74,887,211
*Rao Gazprom, ADR, 144A Russ. 249,000 4,320,150
Repsol SA Sp. 3,111,000 118,280,721
Saga Petroleum AS, A Nor. 1,828,740 30,871,581
Saga Petroleum AS, B Nor. 826,380 12,721,291
Societe Elf Aquitane SA Fr. 1,386,000 132,637,401
Total SA, B Fr. 1,124,760 89,763,550
Transportadora de Gas del Sur SA, ADR B Arg. 1,948,100 24,594,763
YPF Sociedad Anonima Arg. 1,475,000 39,473,618
YPF Sociedad Anonima, ADR Arg. 3,129,300 83,708,775
---------------
648,670,481
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES: 0.8%
Axa-UAP SA Fr. 852,114 56,752,738
Julius Baer Holdings AG Swtz. 20,380 22,314,171
London Pacific Group Ltd. U.K. 212,300 791,842
Peregrine Investments Holdings Ltd. H.K. 13,250,000 24,211,617
---------------
104,070,368
- -------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS: 2.8%
Albert Fisher Group PLC U.K. 28,700,255 20,100,509
Burns Philp & Co. Ltd. Aus. 8,473,843 13,164,069
</TABLE>
17
<PAGE> 18
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS (cont.)
C.P. Pokphand Co. Ltd. H.K. 45,993,300 $ 16,630,453
Cafe de Coral Holdings Ltd. H.K. 25,377,100 6,881,970
Chareon Pokphand Feedmill Public Co. Ltd., fgn. Thai. 636,000 1,719,251
Embotelladora Andina SA, ADR Chil. 1,265,950 46,207,175
Goodman Fielder Ltd. Aus. 9,573,100 11,599,972
*Grupo Embotellador de Mexico SA de CV, GDR Mex. 1,683,500 16,835,000
Grupo Embotellador de Mexico SA, B Mex. 569,700 963,921
Hillsdown Holdings PLC U.K. 24,046,153 74,609,381
*Lam Soon Foods Inc. H.K. 8,000,000 743,830
McBride PLC U.K. 5,216,200 11,936,676
National Foods Ltd. Aus. 8,626,000 10,050,333
Northern Foods PLC U.K. 3,363,000 11,776,553
Panamerican Beverages Inc., A Mex. 1,467,700 82,741,588
Vitasoy International Holdings Ltd. H.K. 15,311,000 5,684,508
Vitro SA Mex. 8,183,320 22,700,059
Vitro SA, ADR Mex. 1,463,840 12,076,680
---------------
366,421,928
- -------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER: 6.1%
Aracruz Celulose SA, ADR Braz. 4,711,000 43,576,750
*Asia Pulp & Paper Co. Ltd., ADR Indo. 2,682,300 30,846,450
Assidomaen AB Swe. 1,700,000 44,113,429
Carter Holt Harvey Ltd. N.Z. 17,888,800 40,523,426
Cartiere Burgo SPA Itl. 5,771,750 26,396,062
*Empaques Ponderosa SA de CV, B Mex. 5,169,600 3,205,450
*Enso OY, A Fin. 535,000 4,574,968
*Enso OY, R Fin. 4,702,800 40,682,874
Fletcher Challenge Ltd. Forestry Division Aus. 324,619 451,343
Fletcher Challenge Ltd. Forestry Division N.Z. 16,107,235 22,986,106
Fletcher Challenge Paper Ltd. N.Z. 17,951,500 35,442,373
*Mayr-Melnhof Karton AG Aust. 400,000 20,482,587
Metsa Serla OY, B Fin. 2,759,000 23,044,477
Mo Och Domsjoe AB, B Swe. 2,600,800 82,582,153
Munksjo AB Swe. 1,100,000 9,906,010
Norske Skogindustrier AS, A Nor. 1,119,000 34,451,765
Portucel Industrial Empresa Product de Celulose SA Port. 1,600,000 9,577,166
PT Barito Pacific Timber, fgn. Indo. 18,872,000 17,120,584
PT Indah Kiat Pulp & Paper Corp., fgn. Indo. 43,592,688 32,274,044
*PT Indah Kiat Pulp & Paper Corp., wts. Indo. 4,187,726 1,537,101
PT Inti Indorayon Utama, fgn. Indo. 20,000,000 13,972,888
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 19,660,766 22,141,426
Sappi Ltd. S.AF. 3,000,000 24,439,237
Stora Kopparbergs Bergslags AB, A Swe. 2,381,700 32,569,659
</TABLE>
18
<PAGE> 19
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER (cont.)
Stora Kopparbergs Bergslags AB, B Swe. 2,348,100 $ 31,796,910
Svenska Cellulosa AB, B Swe. 1,250,000 27,766,845
Unipapel SA Sp. 167,900 3,279,640
*UPM-Kymmene Corp. Fin. 5,308,845 110,538,252
---------------
790,279,975
- -------------------------------------------------------------------------------------------------------------------------
HEALTH & PERSONAL CARE: 0.1%
*Nycomed ASA, B Nor. 398,100 5,921,111
Pacific Chemical Co. Ltd. Kor. 255,000 6,286,458
---------------
12,207,569
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS: 1.0%
Sandvik AB, A Swe. 363,000 8,838,362
Sandvik AB, B Swe. 2,395,000 58,633,238
SKF AB, B Swe. 2,366,300 56,509,976
Yamato Kogyo Co. Ltd. Jpn. 18,000 162,646
---------------
124,144,222
- -------------------------------------------------------------------------------------------------------------------------
Ace Ltd. Bmu. 1,329,000 86,385,000
Baloise-Holding Swtz. 30,208 59,428,261
HiH Winterthur International Holdings Ltd. Aus. 6,248,600 14,997,572
London Insurance Group Inc. Can. 600,000 8,668,934
National Mutual Asia Ltd. H.K. 1,091,000 1,190,510
*Ste Centrale Du Groupe Des Asurances Nationales Fr. 880,009 23,039,393
---------------
193,709,670
- -------------------------------------------------------------------------------------------------------------------------
LEISURE & TOURISM: 0.4%
Grand Hotel Holdings Ltd. H.K. 19,686,000 8,834,130
Harbour Centre Development Ltd. H.K. 2,864,000 4,234,772
Kuoni Reisen Holding AG, B Swtz. 12,849 33,820,039
---------------
46,888,941
- -------------------------------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING: 0.1%
Hitachi Koki Co. Ltd. Jpn. 588,000 3,875,155
Sasib SPA, di Risp Itl. 1,549,428 3,041,058
*Van Der Horst Ltd. Sing. 293,000 1,212,697
---------------
8,128,910
- -------------------------------------------------------------------------------------------------------------------------
MERCHANDISING: 2.1%
Coles Myer Ltd., A Aus. 4,855,771 21,385,579
Dairy Farm International Holdings Ltd. H.K. 53,568,491 41,515,581
+Hudsons Bay Co. Can. 3,376,600 67,559,172
Kwik Save Group PLC U.K. 6,050,119 30,202,803
</TABLE>
19
<PAGE> 20
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
MERCHANDISING (cont.)
Lojas Americanas SA, ADR Braz. 197,000 $ 2,830,217
*Sa des Galeries Lafayette Fr. 18,097 6,673,169
Safeway PLC U.K. 6,603,978 39,044,970
Somerfield PLC U.K. 4,477,524 12,616,441
W.H. Smith Group U.K. 6,407,300 47,639,664
*Yaohan Hongkong Corp. Ltd. H.K. 10,000,000 335,757
---------------
269,803,353
- -------------------------------------------------------------------------------------------------------------------------
METALS & MINING: 4.0%
Alcan Aluminum Ltd. Can. 2,209,410 79,199,012
Arbed SA Bel. 237,473 25,923,510
*Asturiana del Zinc SA Sp. 1,601,940 20,786,274
Boehler Uddeholm AG Aust. 5,500 380,069
Boehler Uddeholm AG, 144A Aust. 97,000 6,703,036
Companhia Siderurgica Nacional ADR Braz. 877,975 32,327,323
Elkem AS Nor. 1,524,000 24,480,471
Eramet SA Fr. 144,432 7,225,404
*Grupo Mexico SA de CV, B Mex. 3,340,700 10,986,110
Maanshan Iron & Steel Co. Ltd., H Chn. 109,010,000 25,620,595
Outokumpu OY, A Fin. 3,892,294 68,890,844
Pechiney SA, A Fr. 1,736,105 73,437,699
Pohang Iron & Steel Co. Ltd. Kor. 511,760 33,715,300
RGC Ltd. Aus. 1,780,248 7,079,950
South African Iron & Steel Industrial Corp. Ltd. S.AF. 13,574,300 10,300,774
Trelleborg AB, B Swe. 3,350,000 52,515,193
*Union Miniere NPV Bel. 500,000 36,986,498
---------------
516,558,062
- -------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS MATERIALS & COMMODITIES: 0.2%
De Beers Consolidated Mines Ltd. S.AF. 929,800 32,269,590
- -------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY: 3.6%
Alfa SA de CV, A Mex. 3,586,500 20,347,659
*Alfa SA de CV, A 144A Mex. 3,323,000 18,852,717
BTR PLC U.K. 25,047,000 97,296,440
Cheung Kong Holdings Ltd. H.K. 9,500,000 90,783,476
Harrisons & Crosfield PLC U.K. 12,001,820 25,607,740
Jardine Matheson Holdings Ltd. (Singapore) H.K. 9,842,696 59,548,311
Jardine Strategic Holdings Ltd. (Singapore) H.K. 11,430,649 37,492,529
Marine Wendel Fr. 329,293 34,403,746
Pacific Dunlop Ltd. Aus. 25,464,075 61,315,369
Saha Union Public Co. Ltd., fgn. Thai. 689,000 601,994
</TABLE>
20
<PAGE> 21
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
MULTI-INDUSTRY (cont.)
Swire Pacific Ltd., A H.K. 780,400 $ 6,701,783
Swire Pacific Ltd., B H.K. 13,397,700 18,252,997
---------------
471,204,761
- -------------------------------------------------------------------------------------------------------------------------
REAL ESTATE: 0.9%
+Bail Investissement Fr. 164,380 24,418,873
Hang Lung Development Co. Ltd. H.K. 23,875,000 48,097,163
*Hang Lung Development Co. Ltd., wts. H.K. 856,700 153,778
Ryoden Development Ltd. H.K. 20,000,000 5,746,607
Union du Credit Bail Immobilier Unibail Fr. 150,000 14,407,375
Wereldhave NV Neth. 146,860 9,486,820
*Winsor Properties Holdings Ltd. H.K. 6,061,000 11,231,756
---------------
113,542,372
- -------------------------------------------------------------------------------------------------------------------------
RECREATION & OTHER CONSUMER GOODS: 0.4%
Nintendo Co. Ltd. Jpn. 605,900 42,693,774
Yue Yuen Industrial (Holdings) Ltd. H.K. 26,012,000 10,665,199
---------------
53,358,973
- -------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: 7.7%
British Telecommunications PLC U.K. 26,500,000 183,653,110
Cpt-Telefonica del Peru SA, ADR B Per. 494,700 10,883,400
Cpt-Telefonica del Peru SA, B Per. 10,829,856 24,070,895
Nokia AB, A Fin. 1,997,900 119,990,415
*Seat SPA Itl. 1,315,500 475,090
*Seat SPA, di Risp Itl. 15,686,500 3,614,790
*SPT Telecom AS Csk. 25,800 3,349,153
STET (Sta Finanziaria Telefonica Torino) SPA, di
Risp Itl. 15,686,500 55,316,114
Telecom Argentina Stet France SA, ADR Arg. 1,332,400 64,121,750
Telecom Italia Spa, di Risp Itl. 40,125,100 80,769,688
Teledanmark AS, B Den. 1,454,100 75,723,779
Telefonica de Argentina SA, B, ADR Arg. 1,800,000 56,925,000
Telefonica de Espana SA Sp. 7,031,700 161,879,452
Telmex-Telefonos de Mexico SA, L Mex. 13,623,481 26,436,427
Telmex-Telefonos de Mexico SA, L, ADR Mex. 3,122,200 121,375,525
---------------
988,584,588
- -------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL: 0.3%
Ceramico Corp. Ltd. N.Z. 2,000,000 1,676,458
Daehan Synthetic Fiber Co. Ltd. Kor. 21,740 1,736,181
Fountain Set Holdings Ltd. H.K. 5,657,000 1,351,479
PT Indorama Synthetics, fgn. Indo. 21,600,000 18,919,708
Tae Kwang Industrial Co. Ltd. Kor. 15,760 5,709,352
</TABLE>
21
<PAGE> 22
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
TEXTILES & APPAREL (cont.)
Winsor Industrial Corp. Ltd. H.K. 12,122,000 $ 2,958,609
Yizheng Chemical Fibre Co. Ltd., H Chn. 13,446,000 3,142,846
---------------
35,494,633
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION: 2.2%
Anangel-American Shipholdings Ltd., ADR Gr. 21,300 165,075
Cathay Pacific Airways Ltd. H.K. 40,060,000 62,337,513
Great Eastern Shipping Co. Ltd. Ind. 4,000,000 4,905,240
Great Eastern Shipping Co. Ltd., GDR Ind. 543,000 4,147,162
Great Eastern Shipping Co. Ltd., GDR 144A Ind. 652,500 4,983,469
IMC Holdings Ltd. H.K. 11,982,000 5,570,360
*Korean Air Kor. 96,900 1,761,584
Kvaerner Industrier AS, A Nor. 600,000 29,538,626
Malaysian International Shipping Corp. Bhd., fgn. Mal. 3,936,000 10,216,205
Orient Overseas International Ltd. H.K. 13,936,000 7,738,523
Qantas Airways Ltd., ADR, 144A Aus. 481,700 8,821,131
Shanghai Hai Xing Shipping Co., H Chn. 73,850,000 7,820,163
Shun Tak Holdings H.K. 45,666,000 32,139,636
Singapore Airlines Ltd., fgn. Sing. 5,595,000 49,454,227
Stena Line AB, B free Swe. 2,000,000 9,499,096
*Swissair Schweizerische Luftverkehr AG Swtz. 38,507 32,835,831
Transport Development Group PLC U.K. 1,000,000 3,338,925
Transportacion Maritima Mexicana SA de CV, ADR, A Mex. 831,300 4,052,588
Transportacion Maritima Mexicana SA de CV, L, ADR Mex. 789,400 4,835,075
---------------
284,160,429
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL & GAS: 5.3%
BG PLC U.K. 43,774,000 121,560,777
British Energy Ltd. U.K. 4,749,615 10,984,988
British Energy Ltd., 144A U.K. 11,050,385 25,557,514
*Centrica PLC U.K. 43,774,000 46,877,543
*CEZ Csk. 210,352 8,704,769
Compania Sevillana de Electricidad Sp. 2,489,152 22,574,192
Electrabel SA Bel. 220,000 50,749,785
Electricidad de Caracas Venz. 1,547,701 1,700,576
Guangdong Electric Power Development Co Ltd, B,
144A Chn. 10,341,200 9,348,038
Hong Kong Electric Holdings Ltd. H.K. 9,999,900 34,608,433
Iberdrola SA Sp. 10,331,215 112,793,271
Korea Electric Power Corp. Kor. 678,540 19,476,611
Mosenergo Russ. 14,445,000 20,121,885
Shandong Huaneng Power Chn. 3,000,000 31,125,000
</TABLE>
22
<PAGE> 23
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES ELECTRICAL & GAS (cont.)
Thames Water Group PLC U.K. 9,500,000 $ 106,454,713
VEBA AG Ger. 1,000,000 57,695,158
---------------
680,333,253
- -------------------------------------------------------------------------------------------------------------------------
WHOLESALE & INTERNATIONAL TRADE: 0.1%
Inchcape Bhd., fgn. Sing. 1,694,100 5,918,357
Sime Darby Hongkong Ltd. H.K. 5,030,000 5,813,565
---------------
11,731,922
---------------
TOTAL COMMON STOCKS (cost $7,034,012,872) 8,492,781,317
- -------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 2.3%
- -------------------------------------------------------------------------------------------------------------------------
Ballast Nedam NV, ctf., conv., pfd. Neth. 205,798 10,604,902
Banco Bradesco SA, pfd. Braz. 520,500,000 4,357,928
Fiat Spa, pfd. Itl. 32,855,000 54,656,363
Jardine Strategic Holdings Ltd., 7.50%, conv., pfd. H.K. 9,900,000 10,939,500
Krones AG Herman Kronseder Maschinen Fabrik, pfd. Ger. 30,000 10,459,842
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR Braz. 1,100,000 106,700,000
Telebras-Telecomunicacoes Brasileiras SA, pfd. Braz. 572,200,000 55,856,258
Volkswagen AG, pfd. Ger. 123,000 47,224,940
---------------
TOTAL PREFERRED STOCKS (cost $178,493,244) 300,799,733
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
TEMPLETON FOREIGN FUND
Investment Portfolio, February 28, 1997 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS: 4.2%
- -------------------------------------------------------------------------------------------------------------------------
Arbed SA, 2.50%, conv., 7/15/03 Lux. 4,500,000 $ 2,348,128
U.S. Treasury Notes:
6.375%, 6/30/97 U.S. 25,800,000 25,896,750
6.125%, 3/31/98 U.S. 200,000,000 200,687,400
6.375%, 7/15/99 U.S. 102,500,000 103,044,480
6.00%, 10/15/99 U.S. 103,000,000 102,710,261
6.375%, 1/15/00 U.S. 103,000,000 103,611,511
---------------
TOTAL BONDS (cost $551,520,359) 538,298,530
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATION: 27.6% (cost $3,570,245,330)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.78% to 5.05%, with
maturities to 5/29/97 U.S. 3,592,709,000 3,570,618,959
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $11,334,271,805) 12,902,498,539
OTHER ASSETS, LESS LIABILITIES: 0.2% 24,527,739
---------------
TOTAL NET ASSETS: 100.0% $12,927,026,278
===============
</TABLE>
* NON-INCOME PRODUCING.
** CURRENCY OF COUNTRIES INDICATED.
+ SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE> 25
TEMPLETON FOREIGN FUND
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (unaudited)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $11,334,271,805) $12,902,498,539
Cash 3,824,755
Receivables:
Investment securities sold 15,010,412
Capital shares sold 77,119,956
Dividends and interest 20,893,818
---------------
Total assets 13,019,347,480
---------------
Liabilities:
Payables:
Investment securities purchased 66,079,651
Capital shares redeemed 12,805,247
Accrued expenses and other 13,436,304
---------------
Total liabilities 92,321,202
---------------
Net assets, at value $12,927,026,278
===============
Net assets consist of:
Undistributed net investment income $ 17,906,825
Net unrealized appreciation 1,568,226,734
Accumulated net realized gain 376,742,979
Net capital paid in on shares of
capital stock 10,964,149,740
---------------
Net assets, at value $12,927,026,278
===============
Class I:
Net asset value per share
($12,045,408,134 / 1,134,793,481
shares outstanding) $ 10.61
===============
Maximum offering price ($10.61 /
94.25%) $ 11.26
===============
Class II:
Net asset value per share
($871,954,731 / 82,915,236 shares
outstanding) $ 10.52
===============
Maximum offering price ($10.52 /
99.00%) $ 10.63
===============
Advisor Class:
Net asset value per share
($9,663,413 / 910,192 shares
outstanding) $ 10.62
===============
</TABLE>
STATEMENT OF OPERATIONS
for the six months ended
February 28, 1997 (unaudited)
<TABLE>
<S> <C> <C>
Investment income:
(net of $7,248,617
foreign taxes
withheld)
Dividends $72,289,127
Interest 90,984,946
-----------
Total income $ 163,274,073
Expenses:
Management fees (Note 3) 34,416,057
Administrative fees
(Note 3) 4,408,230
Distribution fees
(Note 3)
Class I 13,480,176
Class II 3,427,411
Transfer agent fees
(Note 3) 4,005,000
Custodian fees 2,503,000
Reports to shareholders 919,500
Audit fees 32,000
Legal fees 18,000
Registration and filing
fees 597,000
Directors' fees and
expenses 53,300
Other 15,365
-----------
Total expenses 63,875,039
--------------
Net investment
income 99,399,034
Realized and unrealized gain
(loss):
Net realized gain (loss)
on:
Investments 387,125,944
Foreign currency
transactions (2,038,375)
------------
385,087,569
Net unrealized
appreciation on
investments 725,454,717
------------
Net realized and
unrealized gain 1,110,542,286
--------------
Net increase in net assets
resulting from operations $1,209,941,320
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE> 26
TEMPLETON FOREIGN FUND
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 99,399,034 $ 259,023,848
Net realized gain on investment and foreign currency transactions 385,087,569 261,925,623
Net unrealized appreciation 725,454,717 309,726,009
--------------- ---------------
Net increase in net assets resulting from operations 1,209,941,320 830,675,480
Distributions to shareholders:
From net investment income
Class I (277,426,852) (185,409,586)
Class II (13,861,585) (2,866,694)
From net realized gain
Class I (174,274,272) (267,921,946)
Class II (10,429,068) (4,593,277)
Capital share transactions (Note 2)
Class I 1,754,197,851 2,308,641,984
Class II 299,594,767 446,460,741
Advisor Class 9,631,674 --
--------------- ---------------
Net increase in net assets 2,797,373,835 3,124,986,702
Net assets:
Beginning of period 10,129,652,443 7,004,665,741
--------------- ---------------
End of period $12,927,026,278 $10,129,652,443
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE> 27
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
registered under the Investment Company Act of 1940. The 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. The
following summarizes the Fund's significant accounting policies.
A. SECURITIES VALUATIONS:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange 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 in good faith by
management and approved 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 currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
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
foreign currencies, currency gains or losses realized between the trade and
settlement 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
securities 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.
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.
27
<PAGE> 28
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
Effective January 2, 1997, the Fund offers three classes of shares: Class I,
Class II and Advisor Class shares. Prior to this date, only Class I and Class II
shares were offered. Shares of each class are identical except for their initial
sales load, a contingent deferred sales charge on Class II shares, distribution
fees, and voting rights on matters affecting a single class. At February 28,
1997, there were 3.2 billion shares of capital stock authorized ($1.00 par
value) of which 2.0 billion shares have been classified as Fund shares as
follows: 1.5 billion Class I shares, 300 million Class II shares and 200 million
Advisor Class shares. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 221,442,479 $2,280,778,118 351,052,593 $ 3,372,527,051
Shares issued on reinvestment of
distributions 38,937,815 386,865,634 42,603,776 387,492,970
Shares redeemed (88,981,024) (913,445,901) (151,516,955) (1,451,378,037)
----------- -------------- ----------- ---------------
Net increase 171,399,270 $1,754,197,851 242,139,414 $ 2,308,641,984
=========== ============== =========== ===============
</TABLE>
<TABLE>
<CAPTION>
CLASS II
-----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Shares sold 29,879,244 $ 304,059,535 48,025,414 $ 458,405,634
Shares issued on reinvestment of
distributions 1,728,740 17,019,796 580,233 5,247,258
Shares redeemed (2,116,192) (21,484,564) (1,794,465) (17,192,151)
----------- -------------- ------------- ---------------
Net increase 29,491,792 $ 299,594,767 46,811,182 $ 446,460,741
=========== ============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------
FOR THE PERIOD
JANUARY 2, 1997 THROUGH
FEBRUARY 28, 1997
---------------------------
SHARES AMOUNT
----------- -------------
<S> <C> <C>
Shares sold 914,407 $ 9,676,518
Shares redeemed (4,215) (44,844)
----------- --------------
Net increase 910,192 $ 9,631,674
=========== ==============
</TABLE>
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), Franklin Templeton Services, Inc. (FTSI), 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.
28
<PAGE> 29
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
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 FTSI 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 28, 1997, FTD received net commissions of $654,262
from the sale of the Fund's shares and FTIS received fees of $4,005,000.
Under the distribution plans for Class I and Class II shares, the Fund
reimburses FTD quarterly for FTD's costs and expenses in connection with any
activity 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 28, 1997, unreimbursed expenses amount to $2,664,305. Class
II shares redeemed within 18 months are subject to a contingent deferred sales
charge. Contingent deferred sales charges of $145,610 were paid to FTD for the
six months ended February 28, 1997.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees for the six months ended February 28,
1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended February 28, 1997 aggregated $2,298,821,824 and $2,075,572,764,
respectively. The cost of securities for federal income tax purposes is
$11,335,519,260. Realized gains and losses are reported on an identified cost
basis.
At February 28, 1997, the aggregate gross unrealized appreciation and
depreciation of portfolio securities, based on cost for federal income tax
purposes, was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $1,854,354,463
Unrealized depreciation (287,375,184)
--------------
Net unrealized appreciation $1,566,979,279
==============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company 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 28, 1997
amounted to $91,978,045. For the six months ended February 28, 1997, dividend
income from affiliated companies was $888,990.
29
<PAGE> 30
NOTES
--------
<PAGE> 31
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST - Call 1-800/DIAL BEN (1-800/342-5236) 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.
<TABLE>
<CAPTION>
<S> <C>
GLOBAL GROWTH GROWTH
Franklin Global Health Care Fund Franklin Blue Chip Fund
Franklin Templeton Japan Fund Franklin California Growth Fund
Templeton Developing Markets Trust Franklin DynaTech Fund
Templeton Foreign Fund Franklin Equity Fund
Templeton Foreign Smaller Franklin Gold Fund
Companies Fund
Franklin Growth Fund
Templeton Global Infrastructure Fund
Franklin MidCap Growth Fund
Templeton Global
Opportunities Trust Franklin Small Cap Growth Fund
Templeton Global Real Estate Fund Mutual Discovery Fund
Templeton Global Smaller
Companies Fund
GROWTH AND INCOME
Templeton Greater European Fund
Franklin Asset Allocation Fund
Templeton Growth Fund
Franklin Balance Sheet
Templeton Latin America Fund Investment Fund
Templeton Pacific Growth Fund Franklin Convertible Securities Fund
Templeton World Fund Franklin Equity Income Fund
Franklin Income Fund
GLOBAL GROWTH AND INCOME
Franklin MicroCap Value Fund
Franklin Global Utilities Fund
Franklin Natural Resources Fund
Franklin Templeton German
Government Bond Fund Franklin Real Estate Securities Fund
Franklin Templeton Franklin Rising Dividends Fund
Global Currency Fund
Franklin Strategic Income Fund
Mutual European Fund
Franklin Utilities Fund
Templeton Global Bond Fund
Franklin Value Fund
Templeton Growth and Income Fund
Mutual Beacon Fund
Mutual Qualified Fund
GLOBAL INCOME Mutual Shares Fund
Franklin Global Government Templeton American Trust, Inc.
Income Fund
FUND ALLOCATOR SERIES:
Franklin Templeton Hard
Currency Fund Franklin Templeton
Conservative Target Fund
Franklin Templeton High
Income Currency Fund Franklin Templeton
Moderate Target Fund
Templeton Americas
Government Securities Fund Franklin Templeton
Growth Target Fund
INCOME FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
Franklin Adjustable Rate TAX-FREE INCOME
Securities Fund
Alabama
Franklin Adjustable U.S.
Government Securities Fund Arizona*
Franklin's AGE High Income Fund Arkansas**
Franklin Investment California*
Grade Income Fund
Colorado
Franklin Short-Intermediate U.S.
Government Securities Fund Connecticut
Franklin U.S. Government Florida*
Securities Fund
Georgia
Franklin Money Fund
Hawaii**
Franklin Federal Money Fund
Indiana
FOR NON-U.S. INVESTORS: Kentucky
Franklin Tax-Advantaged Louisiana
High Yield Securities Fund
Maryland
Franklin Tax-Advantaged
International Bond Fund Massachusetts***
Franklin Tax-Advantaged U.S. Michigan*
Government Securities Fund
Minnesota***
FOR CORPORATIONS: Missouri
Franklin Corporate Qualified New Jersey
Dividend Fund
New York*
North Carolina
FRANKLIN FUNDS SEEKING Ohio***
TAX-FREE INCOME
Oregon
Federal Intermediate-Term
Tax-Free Income Fund Pennsylvania
Federal Tax-Free Income Fund Tennessee**
High Yield Tax-Free Income Fund Texas
Insured Tax-Free Income Fund Virginia
Puerto Rico Tax-Free Income Fund Washington**
Tax-Exempt Money Fund VARIABLE ANNUITIES+
Franklin Valuemark*
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
</TABLE>
*TWO OR MORE FUND OPTIONS AVAILABLE: LONG-TERM PORTFOLIO, INTERMEDIATE-TERM
PORTFOLIO, A PORTFOLIO OF INSURED MUNICIPAL SECURITIES, AND/OR A HIGH YIELD
PORTFOLIO (CA) AND A MONEY MARKET PORTFOLIO (CA AND NY).
**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.
+FRANKLIN VALUEMARK AND FRANKLIN TEMPLETON VALUEMARK INCOME PLUS ARE ISSUED BY
ALLIANS LIFE INSURANCE COMPANY OF NORTH AMERICA OR BY ITS WHOLLY OWNED
SUBSIDIARY, PREFERRED LIFE INSURANCE COMPANY OF NEW YORK, AND DISTRIBUTED BY
NALAC FINANCIAL PLANS, LLC.
FGF 02/97
<PAGE> 32
Templeton Foreign Fund
Principal Underwriter:
Franklin Templeton
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
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. 1
[GRAPHIC]
TEMPLETON FOREIGN FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1997
[FRANKLIN TEMPLETON LOGO]
