TEMPLETON FUNDS INC, N-30D, 1997-11-10

TEMPLETON FUNDS INC
N-30D, 1997-11-10

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Annual Report

[Photo of Sextant]

Templeton World Fund

August 31, 1997

[FRANKLIN TEMPLETON LOGO]

<PAGE>
[LOGO]

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.

[PHOTO]JEFFREY A. EVERETT

JEFFREY A. EVERETT
Portfolio Manager
Templeton World Fund

<PAGE>
SHAREHOLDER LETTER

Your Fund's Objective: The Templeton World Fund seeks long-term capital growth
through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation.

Dear Shareholder:

We are pleased to bring you the annual report of the Templeton World Fund, which
covers the 12 months ended August 31, 1997. Alan Greenspan uttered the words
"virtually unbelievable" to characterize certain aspects of this period. Most
investors would agree.

Following a seven-year U.S. economic expansion, consumer confidence reached a
27-year high, unemployment hit a 23-year low, inflation an 11-year low, and
President Clinton and Congress reached an agreement on balancing the budget. In
Europe, numerous companies restructured, reduced costs, and experienced
significant merger and acquisition activity. In Latin America, many governments
cut spending and rejuvenated their economies by implementing market-oriented
reforms and privatizing state-owned companies. Meanwhile, in Asia, a recovery in
the retail and property sectors helped support Hong Kong's economy.

Within this environment, the Fund's Class I shares provided a 12-month
cumulative total return of 32.70%, as discussed in

CONTENTS

Shareholder Letter ..... 1

Performance Summaries
Class I ............. 6
Class II ............ 10

Financial Highlights and
Statement of Investments 15

Financial Statements ... 25

Notes to the Financial
Statements ............. 28

Independent Auditor's
Report ................. 31

Tax Designation ........ 32

[PYRAMID GRAPHIC]

FUND CATEGORY

GLOBAL

GROWTH

GROWTH AND INCOME

INCOME

TAX-FREE INCOME

TOTAL RETURN INDEX COMPARISON
12-Month Performance
(8/31/96-8/31/97)

<S> <C>
Templeton World Fund Class I(1) 32.70%
MSCI World Index(2) 22.85%
</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. The
historical data shown above pertain only to Class I shares of the Fund. The
Fund offers other classes of shares, subject to different fees and expenses,
which affect their performance. Please see the prospectus for more details.
Past performance is not predictive of future results.

(2) Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

the Performance Summary on page 6, significantly outperforming its benchmark,
the unmanaged Morgan Stanley Capital International(R) (MSCI) World Index, which
delivered a total return of 22.85% for the same period.

During the reporting period, the U.S. remained our largest single-country
exposure. Although a 0.25% increase in the federal funds rate by the Federal
Reserve Board sent stock prices skidding in March 1997, the market recovered,
and on August 31, 1997, the Dow Jones(R) Industrial Average was 38.6% higher
than it had been at the beginning of the fiscal year.(1) The financial services
and automobile sectors strengthened considerably, which boosted the value of the
Fund's holdings in Morgan Stanley Dean Witter Discover & Co.,* Merrill Lynch &
Co. Inc., Ford Motor Co., and General Motors Corp. During the fiscal year, we
sold our shares of Citicorp at a profit, and established a position in 3COM
Corp., a leading international provider of networking services.

Outside the U.S., the equity markets of the United Kingdom, the Netherlands, and
Sweden delivered impressive gains during the 12 months under review, which
helped the Fund's performance because, compared with the MSCI World Index, we
were overweighted in all three countries. Many European stocks, including our
shares of National Westminster Bank Plc., Volvo AB, B, and Philips Electronics
NV, rose in value. These three companies also highlight how shareholders can
benefit from current restructuring occurring throughout Europe. All performed
impressively during the fiscal year, and, in our opinion, should continue to do
so.

(1) Price appreciation includes reinvested dividends. The unmanaged Dow Jones
Industrial Average's total return is calculated by Wilshire Associates, Inc.

*A complete listing of all stocks in the portfolio as of August 31, 1997, begins
on page 15.

<PAGE>

Latin American equity markets also delivered strong returns. The
telecommunications industry performed particularly well, increasing the value of
our holdings of Telecomunicacoes Brasileiras SA, Telecom Argentina Stet France
SA, and Telefonos de Mexico SA. We believe that demand for telecommunications
services should continue to increase, and further privatization of Brazil's
telephone industry could provide Telecomunicacoes Brasileiras with very strong
growth potential.

During the reporting period, Asian stock markets posted mixed results. Buoyed by
investor optimism concerning its handover to China, Hong Kong's market advanced
30.1%.(2) However, the Thai, Indonesian, Malaysian, and Japanese markets
provided disappointing returns. Based on standard measures such as price/
earnings ratios, Japanese stocks remained among the world's most expensive, and
we were unable to find many stocks there that we considered bargains. Our
relatively low exposure in Japan was rewarded, as the Nikkei 225 Index fell 18%
during the Fund's fiscal year.(3)

Looking forward, we are optimistic about the long-term potential of global
equity markets. Many countries appear to be committed to market-oriented
policies, which, in our opinion, should enhance economic growth and corporate
earnings. The fact that millions of individuals are becoming shareholders in
mutual funds, pension fund programs, and newly-privatized companies around the
world also bodes well for international stock markets, and we believe that the
Fund's cash position should provide us with the opportunity to take advantage of
investment opportunities as they arise.

(2) Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.

(3) Price depreciation is measured in U.S. dollars, and includes reinvested
dividends.

GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/97

Asian Stocks 8.3%
Australian & New Zealand Stocks 2.8%
European Stocks 29.3%
North American Stocks 27.1%
Latin American Stocks 12.0%
Fixed Income Securities 5.0%
Middle Eastern & African Stocks 0.2%
and Short-Term Obligations
& Other Net Assets 15.3%

TOP 10 INDUSTRIES
8/31/97
% OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------
Telecommunications 10.2%

Utilities - Electrical & Gas 6.3%

Insurance 6.1%

Banking 5.6%

Automobiles 5.1%

Energy Sources 4.9%

Forest Products & Paper 4.9%

Metals & Mining 4.8%

Data Processing &
Reproduction 4.3%

Financial Services 4.2%

<PAGE>
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
Equity Investments
8/31/97

% OF TOTAL
COUNTRY NET ASSETS
- ----------------------------
United States 25.1%

United Kingdom 8.1%

Brazil 6.3%

Hong Kong 4.3%

France 3.8%

Sweden 3.6%

Argentina 3.2%

Spain 3.1%

Italy 3.0%

Mexico 2.5%

*Does not include fixed-income securities or short-term obligations and other
net assets. See portfolio holdings beginning on page 17.

This discussion reflects the strategies we employed for the Fund during the 12
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. All figures shown are as of August 31, 1997,
and the Fund's holdings can be expected to change with the market developments
and management of the portfolio. 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. Emerging
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 1,089% in the last 15 years, but has suffered five quarterly declines
of more than 20% during that time.(4) These risks and other considerations are
discussed in the Fund's prospectus.

(4) Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1997.

<PAGE>
We thank you for your continued investment in the Templeton World 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/Jeffrey A. Everett
- ---------------------
Jeffrey A. Everett, CFA
Portfolio Manager
Templeton World Fund

TOP 10 EQUITY HOLDINGS
8/31/97

COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------------------
Telecomunicacoes
Brasileiras SA
Telecommunications, Brazil 1.6%

Morgan Stanley Dean
Witter Discover & Co.
Financial Services, U.S. 1.6%

Ford Motor Co.
Automobiles, U.S. 1.5%

International Business
Machines Corp.
Data Processing &
Reproduction, U.S. 1.4%

General Motors Corp.
Automobiles, U.S. 1.3%

Entergy Corp.
Utilities -Electrical & Gas, U.S. 1.2%

YPF Sociedad Anonima
Energy Sources, Argentina 1.2%

BTR Plc
Industrial Components,
United Kingdom 1.2%

Georgia-Pacific Corp.
Forest Products & Paper, U.S. 1.1%

3COM Corp.
Data Processing &
Reproduction, U.S. 1.0%

For a complete list of portfolio holdings, please see page 17 of this report.

<PAGE>
PERFORMANCE SUMMARY

Class I

Templeton World Fund - Class I produced a cumulative total return of 32.70% for
the 12-month period ended August 31, 1997. Cumulative total return measures the
change in value of an investment, assuming reinvestment of dividends and capital
gains, 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 on
page 9, the Fund delivered a cumulative total return of more than 212% for the
10-year period ended August 31, 1997.

The price of the Fund's shares increased $3.45, from $16.21 on August 31, 1996,
to $19.66 on August 31, 1997. During this time, shareholders received
distributions of 43 cents ($0.43) per share in dividend income and $1.04 per
share in capital gains, of which $1.005 represented long-term gains and 3.5
cents ($0.035) represented short-term gains. Distributions will vary depending
on income earned by the Fund and any profits realized from the sale of
securities in the portfolio, as well as the level of the Fund's operating
expenses.

The graph on page 8 compares the performance of the Fund's Class I shares over
the past 10 years with that of the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index,

Past performance is not predictive of future results.

<PAGE>

which includes approximately 1,500 companies representing the stock markets of
22 countries including the U.S., Canada, the United Kingdom, and Japan. It also
shows the Fund's performance versus the Consumer Price Index (CPI), a commonly
used measure of inflation. Please remember that the Fund's performance differs
from that of an index because an index is not managed according to any
investment strategy, does not contain cash (the Fund generally carries a certain
percentage of cash at any given time), and includes no sales charges or
management expenses. Of course, one cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.

Past performance is not predictive of future results.

<PAGE>
CLASS I
Total Return Index Comparison
$10,000 Investment (8/31/87-8/31/97)

Templeton MSCI Consumer
World Fund* World Index** Price Index***
- ----- ---------- ----------- -----------
<S> <C> <C> <C>
2/88 $8,192 $9,010 $10,139
3/88 $8,252 $9,284 $10,183
4/88 $8,258 $9,403 $10,235
5/88 $8,312 $9,217 $10,271
6/88 $8,651 $9,205 $10,315
7/88 $8,645 $9,380 $10,357
8/88 $8,598 $8,867 $10,401
9/88 $8,919 $9,244 $10,472
10/88 $9,120 $9,861 $10,506
11/88 $8,969 $10,206 $10,516
12/88 $9,028 $10,300 $10,533
1/89 $9,647 $10,675 $10,586
2/89 $9,436 $10,609 $10,628
3/89 $9,640 $10,543 $10,689
4/89 $9,940 $10,788 $10,760
5/89 $10,112 $10,525 $10,821
6/89 $10,068 $10,408 $10,848
7/89 $10,884 $11,586 $10,874
8/89 $11,030 $11,308 $10,892
9/89 $11,094 $11,629 $10,926
10/89 $10,688 $11,243 $10,979
11/89 $10,822 $11,694 $11,004
12/89 $11,069 $12,071 $11,022
1/90 $10,314 $11,510 $11,126
2/90 $10,362 $11,018 $11,170
3/90 $10,396 $10,355 $11,213
4/90 $9,988 $10,207 $11,248
5/90 $10,872 $11,284 $11,266
6/90 $10,960 $11,205 $11,335
7/90 $11,137 $11,309 $11,388
8/90 $9,995 $10,253 $11,484
9/90 $9,009 $9,173 $11,562
10/90 $8,818 $10,032 $11,641
11/90 $9,138 $9,869 $11,667
12/90 $9,309 $10,078 $11,710
1/91 $9,909 $10,448 $11,781
2/91 $10,666 $11,417 $11,798
3/91 $10,674 $11,082 $11,816
4/91 $10,846 $11,171 $11,833
5/91 $11,244 $11,426 $11,867
6/91 $10,719 $10,722 $11,904
7/91 $11,244 $11,230 $11,921
8/91 $11,297 $11,197 $11,956
9/91 $11,409 $11,492 $12,009
10/91 $11,555 $11,681 $12,026
11/91 $11,222 $11,174 $12,061
12/91 $12,080 $11,989 $12,070
1/92 $12,148 $11,769 $12,087
2/92 $12,309 $11,568 $12,131
3/92 $12,029 $11,025 $12,192
4/92 $12,351 $11,180 $12,210
5/92 $12,851 $11,627 $12,227
6/92 $12,605 $11,239 $12,271
7/92 $12,631 $11,270 $12,298
8/92 $12,207 $11,547 $12,332
9/92 $12,207 $11,443 $12,367
10/92 $11,989 $11,135 $12,411
11/92 $12,198 $11,337 $12,428
12/92 $12,473 $11,431 $12,420
1/93 $12,635 $11,471 $12,482
2/93 $12,922 $11,744 $12,525
3/93 $13,447 $12,428 $12,570
4/93 $13,724 $13,006 $12,604
5/93 $14,135 $13,308 $12,622
6/93 $14,020 $13,198 $12,639
7/93 $14,421 $13,472 $12,639
8/93 $15,224 $14,092 $12,674
9/93 $15,147 $13,834 $12,700
10/93 $15,880 $14,217 $12,753
11/93 $15,541 $13,415 $12,762
12/93 $16,665 $14,074 $12,761
1/94 $17,672 $15,005 $12,797
2/94 $17,216 $14,813 $12,841
3/94 $16,559 $14,177 $12,885
4/94 $16,898 $14,617 $12,903
5/94 $17,057 $14,658 $12,911
6/94 $16,675 $14,619 $12,955
7/94 $17,460 $14,900 $12,989
8/94 $18,097 $15,351 $13,042
9/94 $17,619 $14,951 $13,077
10/94 $17,785 $15,378 $13,086
11/94 $16,951 $14,715 $13,104
12/94 $16,810 $14,860 $13,104
1/95 $16,668 $14,639 $13,155
2/95 $17,190 $14,856 $13,208
3/95 $17,522 $15,575 $13,252
4/95 $18,222 $16,120 $13,296
5/95 $18,804 $16,261 $13,322
6/95 $19,100 $16,259 $13,348
7/95 $20,037 $17,076 $13,348
8/95 $19,883 $16,699 $13,384
9/95 $20,358 $17,189 $13,409
10/95 $19,637 $16,921 $13,454
11/95 $20,148 $17,512 $13,453
12/95 $20,433 $18,028 $13,444
1/96 $21,242 $18,356 $13,523
2/96 $21,297 $18,471 $13,567
3/96 $21,584 $18,782 $13,637
4/96 $22,146 $19,227 $13,689
5/96 $22,379 $19,247 $13,715
6/96 $22,366 $19,348 $13,724
7/96 $21,571 $18,668 $13,750
8/96 $22,515 $18,887 $13,777
9/96 $22,708 $19,629 $13,821
10/96 $23,093 $19,770 $13,864
11/96 $24,359 $20,881 $13,891
12/96 $24,816 $20,551 $13,891
1/97 $25,581 $20,801 $13,935
2/97 $25,896 $21,044 $13,976
3/97 $25,761 $20,632 $14,018
4/97 $26,346 $21,309 $14,032
5/97 $27,740 $22,629 $14,018
6/97 $29,165 $23,760 $14,032
7/97 $30,635 $24,859 $14,046
8/97 $29,480 $23,200 $14,074
</TABLE>

___ Templeton World ..... MSCI World ----- Consumer
Fund* Index** Price Index***

THE HISTORICAL PERFORMANCE DATA SHOWN PERTAINS ONLY TO THE FUND'S CLASS I
SHARES. THE FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND
EXPENSES, WHICH AFFECT THEIR PERFORMANCE. PLEASE SEE THE PROSPECTUS FOR MORE
DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value.
Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge, and on January 1, 1993, the Fund implemented a Rule 12b-1 plan. Such
expenses will affect subsequent performance. This was a period of generally
rising security prices.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

***Source: U.S. Bureau of Labor Statistics (9/30/97).

Past performance is not predictive of future results.

<PAGE>
CLASS I
Periods ended 8/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (1/17/78)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 32.70% 141.49% 212.75% 1,989.63%
Average Annual Total Return(2) 25.07% 17.88% 11.42% 16.41%
Value of $10,000 Investment(3) $ 12,507 $ 22,760 $ 29,480 $ 196,950
</TABLE>

<TABLE>
<CAPTION>
8/31/93 8/31/94 8/31/95 8/31/96 8/31/97
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 24.71% 18.87% 9.87% 11.73% 32.70%
</TABLE>

(1) Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the sales charge. See Note below.

(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. See Note below.

(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. See Note below.

(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.

Note: Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge. Thus, actual total returns would have been lower. On January 1, 1993,
the Fund implemented a Rule 12b-1 plan, which affects subsequent performance.

All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the social, 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.

<PAGE>
CLASS II

Templeton World Fund - Class II provided a cumulative total return of 31.61% for
the 12-month period ended August 31, 1997. Cumulative total return measures the
change in value of an investment, assuming reinvestment of dividends and capital
gains, and does not include sales charges.

The price of the Fund's shares increased $3.35, from $16.04 on August 31, 1996,
to $19.39 on August 31, 1997. During this time, shareholders received
distributions of 33.51 cents ($0.3351) per share in dividend income and $1.04
per share in capital gains, of which $1.005 represented long-term gains and 3.5
cents ($0.035) represented short-term gains. Distributions will vary depending
on income earned by the Fund and any profits realized from the sale of
securities in the portfolio, as well as the level of the Fund's operating
expenses.

The graph on page 12 compares the performance of the Fund's Class II shares
since inception with that of the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index, which includes approximately 1,500
companies representing the stock markets of 22 countries including the U.S.,
Canada, the United Kingdom, and Japan. It also shows the Fund's performance
versus the Consumer Price Index (CPI), a commonly used measure of inflation.
Please remember that the Fund's

Past performance is not predictive of future results.

<PAGE>
performance differs from that of an index because an index is not managed
according to any investment strategy, does not contain cash (the Fund generally
carries a certain percentage of cash at any given time), and includes no sales
charges or management expenses. Of course, one cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.

Past performance is not predictive of future results.

<PAGE>
CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95-8/31/97)

[LINE GRAPH]

[PLOT POINTS TO COME]

THE HISTORICAL PERFORMANCE DATA SHOWN PERTAINS ONLY TO THE FUND'S CLASS II
SHARES. THE FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND
EXPENSES, WHICH AFFECT THEIR PERFORMANCE. PLEASE SEE THE PROSPECTUS FOR MORE
DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown and include all sales charges, assuming reinvestment of dividends
and capital gains at net asset value. This was a period of generally rising
security prices.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

***Source: U.S. Bureau of Labor Statistics (9/30/97).

Past performance is not predictive of future results.

<PAGE>
CLASS II
Periods ended 8/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (5/1/95)
- ----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 31.61% 58.76%
Average Annual Total Return(2) 29.31% 21.35%
Value of $10,000 Investment(3) $ 12,931 $ 15,712
</TABLE>

(1) Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.

(2) Average annual total return represents the average annual change in value of
an investment over the periods indicated. 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.

Past performance is not predictive of future results.

<PAGE>
TEMPLETON WORLD FUND

CLASS I

If you had invested $10,000 in Templeton World Fund - Class I at inception, it
would be worth more than $196,000 today. The chart below illustrates the
cumulative total return of a hypothetical $10,000 investment in the Fund on
January 17, 1978 (inception), with income dividends and capital gains reinvested
through August 31, 1997.*

$196,950 Total value of investment 8/31/97

$10,000 Cost of investment 1/17/78

Initial net asset value $9,425

<TABLE>
<CAPTION>
Principal Cap Principal
Date Principal Income + Inco Gains + Cap
- -------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
1/17/78 $9,425 $0 $65,742 $0 $32,871
12/29/78 $11,348 $47 $11,395 $57 $11,405
12/31/79 $14,119 $287 $14,406 $269 $14,388
12/31/80 $16,588 $761 $17,349 $385 $16,973
12/31/81 $16,352 $1,432 $17,785 $1,052 $17,405
12/31/82 $18,615 $2,466 $21,080 $1,407 $20,021
12/30/83 $23,223 $3,897 $27,121 $3,009 $26,233
12/31/84 $21,697 $4,544 $26,241 $5,320 $27,017
12/31/85 $26,503 $6,879 $33,383 $8,136 $34,640
12/31/86 $27,785 $8,542 $36,327 $12,399 $40,184
12/31/87 $23,864 $9,372 $33,237 $17,157 $41,021
12/30/88 $26,692 $12,020 $38,712 $21,605 $48,297
12/29/89 $30,688 $16,195 $46,883 $27,067 $57,755
12/31/90 $23,393 $14,755 $38,148 $24,042 $47,435
12/31/91 $26,899 $19,268 $46,167 $34,539 $61,438
12/31/92 $24,618 $20,041 $44,660 $38,670 $63,289
12/31/93 $29,614 $25,942 $55,556 $55,777 $85,391
12/30/94 $26,711 $25,330 $52,040 $60,267 $86,978
12/29/95 $28,106 $29,662 $57,767 $78,743 $106,848
12/31/96 $31,197 $37,097 $68,294 $97,500 $128,697
8/31/97 $37,059 $44,068 $81,127 $115,822 $152,882
</TABLE>

Total Value of Investment with Capital Gains and Dividends Reinvested

Value of Investment with Capital Gains Reinvested

Value of Investment with Dividends Reinvested

*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the maximum
5.75% initial sales charge; thus actual total return for purchasers of shares
during the periods shown may differ. Prior to July 1, 1992, these shares were
offered at a higher initial sales charge. On January 1, 1993, the Fund's Class I
shares implemented a plan of distribution under Rule 12b-1, which will affect
subsequent performance.

All figures assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. This was
a period of generally rising securities prices.

The historical data shown above pertain only to Class I shares of the Fund. The
Fund offers other share classes, subject to different fees and expenses, which
will affect their performance. Please see the prospectus for more details.

Past performance is not predictive of future results.

<PAGE>
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585

SHAREHOLDER SERVICES AGENT
1-800/632-2301

FUND INFORMATION
1-800/342-5236

This report must be preceded or accompanied by the current prospectus for the
Templeton World Fund, which contains more complete information including risk
factors, charges and expenses. Like any investment in securities, 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 Fund
investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept the risk of such losses 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] PRINTED ON RECYCLED PAPER

102 A97 10/97
TL102 A97

<PAGE>

TEMPLETON WORLD FUND
Financial Highlights

<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year............ $16.21 $16.76 $17.06 $15.94 $14.42
--------------------------------------------------------------------------
Income from investment operations:
Net investment income........................ .45 .41 .33 .26 .30
Net realized and unrealized gains............ 4.47 1.29 1.11 2.50 2.81
--------------------------------------------------------------------------
Total from investment operations.............. 4.92 1.70 1.44 2.76 3.11
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment income......... (.43) (.37) (.28) (.26) (.38)
Distributions from net realized gains........ (1.04) (1.88) (1.46) (1.38) (1.21)
--------------------------------------------------------------------------
Total distributions........................... (1.47) (2.25) (1.74) (1.64) (1.59)
--------------------------------------------------------------------------
Net asset value, end of year.................. $19.66 $16.21 $16.76 $17.06 $15.94
==========================================================================
Total return*................................. 32.70% 11.73% 9.87% 18.87% 24.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $8,649,994 $6,483,146 $5,868,967 $5,421,691 $4,621,124
Ratios to average net assets:
Expenses..................................... 1.03% 1.03% 1.05% 1.04% 1.02%
Net investment income........................ 2.58% 2.66% 2.18% 1.67% 2.13%
Portfolio turnover rate....................... 39.16% 22.05% 34.05% 30.77% 23.86%
Average commission rate paid**................ $.0010 $.0130 -- -- --
</TABLE>

*Total return does not reflect sales commissions.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.

<PAGE>

TEMPLETON WORLD FUND
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS II
---------------------------------
YEAR ENDED AUGUST 31,
----------------------------
1997 1996 1995+
---------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year............................................. $16.04 $16.71 $15.36
---------------------------------
Income from investment operations:
Net investment income......................................................... .34 .45 .03
Net realized and unrealized gains............................................. 4.39 1.11 1.32
---------------------------------
Total from investment operations............................................... 4.73 1.56 1.35
---------------------------------
Less distributions:
Dividends from net investment income.......................................... (.34) (.35) --
Distributions from net realized gains......................................... (1.04) (1.88) --
---------------------------------
Total distributions............................................................ (1.38) (2.23) --
---------------------------------
Net asset value, end of year................................................... $19.39 $16.04 $16.71
=================================
Total return*.................................................................. 31.61% 10.88% 8.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................................................. $207,679 $58,619 $7,623
Ratios to average net ssets:
Expenses...................................................................... 1.83% 1.84% 1.82%***
Net investment income......................................................... 1.92% 2.14% 1.37%***
Portfolio turnover rate........................................................ 39.16% 22.05% 34.05%
Average commission rate paid**................................................. $.0010 $.0130 --
</TABLE>

*Total return does not reflect sales commissions or the deferred contingent
sales charge and is not annualized.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
***Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.

See notes to financial statements.

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 72.8%
AEROSPACE & MILITARY TECHNICAL SYSTEMS 0.4%
General Motors Corp., H........................................ United States 616,400 $ 39,179,925
Hong Kong Aircraft Engineering Co. Ltd. ....................... Hong Kong 196,000 644,945
------------
39,824,870
------------
APPLIANCES & HOUSEHOLD DURABLES 1.1%
Electrolux AB, B............................................... Sweden 569,600 40,492,548
Sony Corp. .................................................... Japan 603,100 52,400,083
------------
92,892,631
------------
AUTOMOBILES 4.7%
Ciadea SA...................................................... Argentina 159,929 411,337
Ford Motor Co. ................................................ United States 3,063,400 131,726,200
General Motors Corp. .......................................... United States 1,800,000 112,950,000
Volkswagen AG.................................................. Germany 117,000 83,918,582
Volvo AB, B.................................................... Sweden 3,241,000 83,108,894
------------
412,115,013
------------
BANKING 4.6%
ABN AMRO NV.................................................... Netherlands 1,617,774 31,758,515
Argentaria Corporacion Bancaria de Espana SA................... Spain 800,000 39,732,319
Banco Popular Espanol SA....................................... Spain 131,844 29,470,706
Bank of Ireland................................................ Irish Republic 19,671 224,096
Banque Nationale de Paris...................................... France 1,241,680 52,944,440
Credit Suisse Group, reg. ..................................... Switzerland 11,530 1,384,840
HSBC Holdings Plc. ............................................ Hong Kong 2,250,906 68,548,141
National Australia Cap Sec Plc. ............................... Australia 710,553 20,295,170
National Bank of Canada........................................ Canada 2,982,000 38,446,933
National Westminster Bank Plc. ................................ United Kingdom 5,695,776 72,686,700
PT Bank Bali, fgn. ............................................ Indonesia 2,146,000 3,256,998
PT Lippo Bank, fgn. ........................................... Indonesia 8,349,500 3,238,423
Shinhan Bank Co. Ltd. ......................................... South Korea 769,207 7,886,183
Svenska Handelsbanken, A....................................... Sweden 1,250,000 38,400,995
------------
408,274,459
------------
BROADCASTING & PUBLISHING 0.8%
News Corp. Ltd. ............................................... Australia 14,553,171 55,534,202
South China Morning Post (Holdings) Ltd. ...................... Hong Kong 19,038,700 15,354,781
------------
70,888,983
------------
BUILDING MATERIALS & COMPONENTS 0.3%
Gujarat Ambuja Cements Ltd. ................................... India 855,300 7,142,184
Pilkington Plc. ............................................... United Kingdom 4,108,000 9,686,010
Pioneer International Ltd. .................................... Australia 3,020,756 10,172,242
------------
27,000,436
------------
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUSINESS & PUBLIC SERVICES 0.7%
Columbia Healthcare Corp. ..................................... United States 1,391,900 $ 43,931,867
*Humana Inc. .................................................. United States 739,600 17,426,825
Wheelabrator Technologies Inc. ................................ United States 209,500 3,286,531
------------
64,645,223
------------
CHEMICALS 1.4%
*Beijing Yanhua Petrochemical Company Ltd., ADR................ China 390,960 8,210,160
DSM NV......................................................... Netherlands 454,500 42,822,509
European Vinyls Corp. EVC International NV..................... Netherlands 283,063 6,475,980
Imperial Chemical Industries Plc. ............................. United Kingdom 1,442,000 23,332,691
Kemira OY, 144A................................................ Finland 11,000 97,027
Shanghai Petrochemical Co. Ltd., H............................. China 103,092,000 42,569,766
------------
123,508,133
------------
CONSTRUCTION & HOUSING 0.4%
Dragados y Construcciones SA................................... Spain 460,863 8,632,488
Fletcher Challenge Building Ltd. .............................. New Zealand 4,594,788 12,856,988
Kaufman & Broad Home Corp. .................................... United States 575,800 11,516,000
------------
33,005,476
------------
DATA PROCESSING & REPRODUCTION 4.3%
*3com Corp. ................................................... United States 1,832,400 91,505,475
*Bay Networks Inc. ............................................ United States 1,847,863 65,368,154
International Business Machines Corp. ......................... United States 1,200,000 121,050,000
*Intuit Inc. .................................................. United States 1,324,000 34,589,500
*Quantum Corp. ................................................ United States 2,000,000 70,125,000
------------
382,638,129
------------
ELECTRICAL & ELECTRONICS 2.1%
ABB AB, A...................................................... Sweden 2,048,000 29,768,198
Alcatel Alsthom Cie Generale D'Electricite SA.................. France 131,971 16,164,503
*Ametek Inc. .................................................. United States 271,700 6,249,100
Hitachi Ltd. .................................................. Japan 2,672,000 24,542,160
Motorola Inc. ................................................. United States 420,560 30,858,590
Philips Electronics NV......................................... Netherlands 1,125,460 80,125,000
------------
187,707,551
------------
ENERGY EQUIPMENT & SERVICES 0.7%
Sun Co. Inc. .................................................. United States 1,650,000 64,143,750
------------
ENERGY SOURCES 3.9%
Gazprom, ADR, Reg S............................................ Russia 689,251 13,388,701
Norsk Hydro AS................................................. Norway 345,333 18,703,594
Repsol SA...................................................... Spain 900,000 35,546,516
Societe Elf Aquitane SA........................................ France 809,000 89,900,728
Transportadora de Gas del Sur SA, ADR B........................ Argentina 1,400,000 16,450,000
Valero Energy Corp., new....................................... United States 1,899,550 63,278,759
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ENERGY SOURCES (CONT.)
YPF Sociedad Anonima........................................... Argentina 1,400,000 $ 45,675,627
YPF Sociedad Anonima, ADR...................................... Argentina 1,822,100 59,332,131
------------
342,276,056
------------
FINANCIAL SERVICES 3.8%
A.G. Edwards Inc. ............................................. United States 125,700 4,996,575
Axa-UAP SA..................................................... France 920,663 58,657,367
Federal National Mortgage Assn. ............................... United States 729,600 32,102,400
Merrill Lynch & Co. Inc. ...................................... United States 1,363,700 83,867,550
Morgan Stanley Dean Witter Discover & Co. ..................... United States 2,950,972 142,015,528
Peregrine Investments Holdings Ltd. ........................... Hong Kong 8,967,750 16,663,733
------------
338,303,153
------------
FOOD & HOUSEHOLD PRODUCTS 2.0%
Archer Daniels Midland Co. .................................... United States 2,103,407 45,486,182
*Boston Chicken Inc. .......................................... United States 1,947,400 23,977,363
C.P. Pokphand Co. Ltd. ........................................ Hong Kong 253,000 82,434
Grupo Embotellador de Mexico SA de CV, GDR..................... Mexico 1,684,000 25,891,500
Hillsdown Holdings Plc. ....................................... United Kingdom 15,923,076 41,672,637
IBP Inc. ...................................................... United States 500,000 11,468,750
McBride Plc. .................................................. United Kingdom 2,561,600 6,143,622
Panamerican Beverages Inc., A.................................. Mexico 640,400 19,252,025
Pepsi-Gemex SA de CV........................................... Mexico 562,500 1,460,100
------------
175,434,613
------------
FOREST PRODUCTS & PAPER 4.9%
Aracruz Celulose SA, ADR....................................... Brazil 1,640,000 33,415,000
Assidomaen AB.................................................. Sweden 800,000 24,271,968
Carter Holt Harvey Ltd. ....................................... New Zealand 2,686,400 5,560,519
Enso OY, R..................................................... Finland 2,607,500 22,712,246
Fletcher Challenge Ltd. Forestry Division, Aus. ............... New Zealand 313,470 364,157
Fletcher Challenge Ltd. Forestry Division, N.Z. ............... New Zealand 12,481,021 14,671,266
Fletcher Challenge Paper Ltd. ................................. New Zealand 9,189,576 18,551,635
Georgia-Pacific Corp. ......................................... United States 1,050,000 95,812,500
Metsa Serla OY, B.............................................. Finland 2,552,500 21,107,446
Mo Och Domsjoe AB, B........................................... Sweden 600,000 19,803,488
Norske Skogindustrier AS, A.................................... Norway 430,170 15,934,992
*PT Tjiwi Kimia TBK, wts....................................... Indonesia 5,520,265 1,117,086
+PT Pabrik Kertas Tjiwi Kimia, fgn............................. Indonesia 39,745,913 21,448,047
*Repap Enterprises Inc......................................... Canada 33,980,952 5,874,188
St. Joe Paper Corp............................................. United States 375,400 32,143,625
Stora Kopparbergs Bergslags AB, A.............................. Sweden 248,000 3,935,309
Stora Kopparbergs Bergslags AB, B.............................. Sweden 1,652,000 25,794,805
Svenska Cellulosa AB, B........................................ Sweden 719,600 15,940,564
UPM-Kymmene Corp............................................... Finland 2,242,290 52,659,903
------------
431,118,744
------------
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HEALTH & PERSONAL CARE 0.4%
Novartis AG.................................................... Switzerland 27,832 $ 39,422,043
------------
INDUSTRIAL COMPONENTS 2.2%
BTR Plc........................................................ United Kingdom 29,134,600 102,924,092
Goodyear Tire & Rubber Co...................................... United States 868,800 53,539,800
*Graenges AB................................................... Sweden 284,800 4,266,179
Sandvik AB, A.................................................. Sweden 121,000 3,632,734
Sandvik AB, B.................................................. Sweden 879,000 26,724,617
Yamato Kogyo Co. Ltd........................................... Japan 188,000 1,633,430
------------
192,720,852
------------
INSURANCE 5.1%
Ace Ltd........................................................ Bermuda 320,800 26,666,500
American Bankers Insurance Group Inc........................... United States 530,000 34,980,000
American International Group Inc............................... United States 562,500 53,085,938
INA-Istituto Nazionale Delle Assicurazioni SpA................. Italy 28,873,500 41,999,008
Ing Groep NV................................................... Netherlands 1,040,769 45,317,617
National Mutual Asia Ltd....................................... Hong Kong 8,818,000 7,168,643
Partnerre Ltd.................................................. Bermuda 875,800 34,813,050
Scor........................................................... France 1,218,067 50,032,550
Travelers Inc.................................................. United States 932,768 59,230,768
UNUM Corp...................................................... United States 9,800 404,250
W.R. Berkley Corp.............................................. United States 719,000 39,769,688
Zuerich Versicherung, new...................................... Switzerland 159,680 57,938,653
------------
451,406,665
------------
MACHINERY & ENGINEERING 0.0%
New Holland NV................................................. Netherlands 21,500 577,813
------------
MERCHANDISING 2.0%
Cifra SA, A.................................................... Mexico 2,014,404 3,701,616
Cifra SA, B.................................................... Mexico 16,470,000 31,450,039
Coles Myer Ltd., A............................................. Australia 6,969,068 32,481,120
Dairy Farm International Holdings Ltd.......................... Hong Kong 32,382,096 27,200,961
David Jones Ltd................................................ Australia 13,322,194 19,394,406
Kwik Save Group Plc............................................ United Kingdom 1,751,906 9,155,710
Robinson Depart. Store Public Co. Ltd., fgn.................... Thailand 655,500 153,378
Safeway Plc.................................................... United Kingdom 4,360,133 26,496,133
W.H. Smith Group............................................... United Kingdom 4,207,600 25,773,757
------------
175,807,120
------------
METALS & MINING 4.4%
Alcan Aluminum Ltd............................................. Canada 1,105,628 38,623,516
Arbed SA....................................................... Belgium 131,200 17,428,782
British Steel Plc.............................................. United Kingdom 25,213,500 70,685,565
Companhia Siderurgica Nacional ADR............................. Brazil 691,280 23,433,220
Elkem AS....................................................... Norway 281,400 5,005,042
Pechiney SA, A................................................. France 587,123 25,363,188
Pohang Iron & Steel Co. Ltd.................................... South Korea 404,795 35,383,680
Reynolds Metals Co............................................. United States 740,752 52,361,907
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING (CONT.)
RGC Ltd........................................................ Australia 1,227,361 $ 3,474,310
Rustenburg Platinum Holdings Ltd............................... South Africa 15,312 260,286
*Titanium Metals............................................... United States 611,600 21,864,700
*Union Miniere NPV............................................. Belgium 350,000 28,976,853
Usinas Siderugicas de Minas Gerais, Sponsored ADR.............. Brazil 2,653,100 28,839,197
Vale do Rio Doce, ADR.......................................... Brazil 1,566,800 36,460,577
------------
388,160,823
------------
MISCELLANEOUS MATERIALS & COMMODITIES 0.2%
De Beers Consolidated Mines Ltd................................ South Africa 578,800 18,444,122
------------
MULTI-INDUSTRY 2.6%
Alfa SA de CV, A............................................... Mexico 600,200 4,681,591
Alfa SA de CV, A 144A.......................................... Mexico 871,000 6,793,845
Cheung Kong Holdings Ltd....................................... Hong Kong 5,298,000 56,059,875
Harrisons & Crosfield Plc...................................... United Kingdom 16,063,478 28,764,270
Inversiones y Representacion................................... Argentina 3,981,475 17,532,165
Jardine Matheson Holdings Ltd.................................. Hong Kong 2,154,834 15,083,838
Jardine Strategic Holdings Ltd................................. Hong Kong 11,461,094 42,406,048
Metro Pacific Corp. MDI........................................ Philippines 1,172,000 158,640
Pacific Dunlop Ltd............................................. Australia 13,507,442 34,759,755
Swire Pacific Ltd., A.......................................... Hong Kong 1,358,100 10,383,563
Swire Pacific Ltd., B.......................................... Hong Kong 9,401,000 13,526,182
------------
230,149,772
------------
REAL ESTATE 3.9%
American Health Properties Inc................................. United States 443,400 10,918,725
Beacon Properties Corp......................................... United States 750,000 27,000,000
Carramerica Realty Corp........................................ United States 201,900 6,019,144
*Crescent Operating Inc........................................ United States 192,880 3,110,190
Crescent Real Estate Equities Company.......................... United States 1,928,800 60,998,300
Federal Realty Investment Trust................................ United States 300,000 7,556,250
General Growth Properties...................................... United States 900,000 30,825,000
Highwood Properties Inc., REIT................................. United States 548,700 17,832,750
Hong Kong Land................................................. Hong Kong 7,172,000 20,727,080
Inversiones y Representacion, GDR.............................. Argentina 372,092 16,534,838
IRT Property Co................................................ United States 537,600 6,518,400
Meditrust Inc.................................................. United States 113,200 4,520,925
Naeckebro AB, A................................................ Sweden 125,000 1,594,752
National Health Investors Inc.................................. United States 1,080,000 42,120,000
Nationwide Health Properties Inc............................... United States 400,000 9,050,000
Post Properties Inc............................................ United States 6,600 246,263
Rouse Co....................................................... United States 1,120,000 32,900,000
Summit Properties Inc., REIT................................... United States 867,900 17,303,756
Union du Credit Bail Immobilier Unibail........................ France 300,436 28,786,301
------------
344,562,674
------------
RECREATION & OTHER CONSUMER GOODS 0.6%
Nintendo Co. Ltd............................................... Japan 693,400 56,803,144
------------
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TELECOMMUNICATIONS 7.0%
AT&T Corp...................................................... United States 550,000 $ 21,450,000
Bell Atlantic Corp............................................. United States 230,100 16,653,488
British Telecommunications Plc................................. United Kingdom 11,312,610 73,237,092
*Digital Telecommunications Philippines Inc.................... Philippines 25,360,000 1,908,907
Hong Kong Telecommunications Ltd............................... Hong Kong 6,137,362 12,909,091
Nokia AB, (OY), A.............................................. Finland 1,133,900 87,618,977
Telecom Argentina Stet France SA, ADR.......................... Argentina 2,238,800 61,846,850
Telecom Italia Mobile, di Risp................................. Italy 1,761,480 2,962,324
Telecom Italia SpA............................................. Italy 7,278,650 42,535,236
Telecom Italia SpA di Risp..................................... Italy 22,091,250 77,443,568
Telecomunicacoes Brasileiras SA................................ Brazil 147,744,000 15,836,966
Telefonica de Espana SA........................................ Spain 3,021,500 78,302,880
Telefonos de Mexico SA, L, ADR................................. Mexico 1,258,551 57,736,027
U.S. West Communications Group................................. United States 2,000,000 71,625,000
*Videsh Sanchar Nigam Ltd., GDR, 144A.......................... India 17,100 252,225
------------
622,318,631
------------
TEXTILES & APPAREL 0.4%
Dawson International Plc....................................... United Kingdom 620,777 754,481
*Fruit of the Loom Inc., A..................................... United States 842,600 22,539,550
Inner Mongolia Erdos Cashmere Products, B...................... China 3,130,500 2,404,224
Yizheng Chemical Fibre Co. Ltd., H............................. China 16,536,000 12,056,055
------------
37,754,310
------------
TRANSPORTATION 1.8%
A.S.A. Holdings Inc............................................ United States 489,900 14,574,525
Air New Zealand Ltd., B........................................ New Zealand 3,980,000 10,755,314
APL Ltd........................................................ United States 911,400 29,164,800
Cathay Pacific Airways Ltd..................................... Hong Kong 24,875,000 40,605,039
IMC Holdings Ltd............................................... Hong Kong 7,277,400 3,474,596
*Korean Air.................................................... South Korea 139,512 2,102,341
Peninsular & Oriental Steam Navigation Co...................... United Kingdom 1,800,000 18,959,957
Qantas Airways Ltd., ADR, 144A................................. Australia 484,200 10,565,244
Shun Tak Holdings.............................................. Hong Kong 16,706,000 9,431,415
Stolt Nielsen SA............................................... Norway 521,500 12,255,250
Stolt Nielsen SA, ADR.......................................... Norway 260,750 6,290,594
------------
158,179,075
------------
UTILITIES ELECTRICAL & GAS 6.1%
BG Plc......................................................... United Kingdom 12,352,000 54,044,629
British Energy Ltd............................................. United Kingdom 6,105,300 16,967,686
British Energy Ltd., 144A...................................... United Kingdom 12,451,700 34,605,431
*Centrica Plc.................................................. United Kingdom 12,352,000 17,764,670
Cia Energetica de Minas Gerais, ADR............................ Brazil 7,000 338,625
Compania Sevillana de Electricidad............................. Spain 1,531,584 13,615,643
Entergy Corp................................................... United States 4,247,300 105,386,131
Iberdrola SA................................................... Spain 4,961,317 55,661,016
Korea Electric Power Corp...................................... South Korea 2,446,200 63,967,114
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

PREFERRED STOCKS 6.9%
American Health Properties Inc., dep. shs., pfd................ United States 42,340 682,733
Banco Bradesco SA, pfd......................................... Brazil 8,606,940,000 85,162,576
Cemig-Cia Energetica de Minas Gerais, pfd...................... Brazil 411,765,636 18,485,126
Cia de Inversiones en Telecomunicaciones SA, 7.00%, conv.,
pfd., 144A................................................... Argentina 8,200 541,200
Cia de Inversiones en Telecomunicaciones SA, 7.00%, conv.,
pfd.......................................................... Argentina 1,010,619 66,700,854
Cia Vale do Rio Doce, pfd...................................... Brazil 1,552,700 36,132,460
Coteminas Cia Tecidos Norte de Minas, pfd...................... Brazil 67,560,200 24,139,696
Fiat SpA, pfd.................................................. Italy 17,750,700 27,569,413
Jardine Strategic Holdings Ltd., 7.50%, conv., pfd............. Hong Kong 15,263,000 18,544,545
*Lojas Americanas SA, pfd...................................... Brazil 1,178,372,351 15,546,094
Nacional Financiera SA, 11.25%, conv., pfd., 5/15/98........... Mexico 1,300,000 59,800,000
Petrobras Distribuidora SA, pfd................................ Brazil 1,772,395,300 45,483,090
Petrobras-Petroleo Brasileiro SA, pfd.......................... Brazil 179,486,000 43,905,416
Telecomunicacoes Brasileiras SA, pfd........................... Brazil 545,400,000 64,208,795
Telecomunicacoes Brasileiras SA, pfd., ADR..................... Brazil 544,050 64,197,900
Telesp-Telecomunicacoes de Sao Paulo SA, pfd................... Brazil 83,486,221 24,858,472
Volkswagen AG, pfd............................................. Germany 22,000 11,734,146
------------
TOTAL PREFERRED STOCKS (COST $439,341,995)..................... 607,692,516
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
--------------
<S> <C> <C> <C>

BONDS 5.0%
Alfa SA, 8.00%, 9/15/00, conv., 144A....................... Mexico $ 6,000,000 10,162,500
Alactel Alsthom SA, 6.50%, 1/01/00, conv................... France 81,841,400 FRF 16,822,333
Bilboa Vizcaya Investment BV, 3.50%, 7/12/06, 144A......... Spain 8,765,000 14,812,850
Government of Italy, 5.00%, 6/28/01........................ Italy 72,845,000 74,347,428
Metro Pacific Capital, 2.50%, 4/11/03, 144A................ Philippines 7,425,000 6,868,125
Metro Pacific Capital, 2.50%, 4/11/03, conv................ Philippines 16,500,000 15,262,500
U.S. Treasury Notes:
6.125%, 5/15/98.......................................... United States 75,000,000 75,234,450
6.00%, 5/31/98........................................... United States 75,000,000 75,164,100
6.25%, 6/30/98........................................... United States 75,000,000 75,351,600
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
Sandoz Capital BVI Ltd., 2.00%, 10/6/02, conv., 144A....... Switzerland 7,930,000 $10,814,538
Sony Corp., 1.40%, 3/31/05, conv., Ser #4.................. Japan 6,000,000,000 JPY 67,521,721
--------------
TOTAL BONDS (COST $437,748,805)............................ 442,362,145
--------------

SHORT TERM OBLIGATIONS 15.2%
U.S. GOVERNMENT AND GOVERNMENT AGENCIES
Federal Farm Credit Banks, 5.40% to 5.50% with
maturities to 11/03/97............................... United States 235,961,000 235,844,678
Federal Home Loan Banks, 5.36% with maturities to
9/12/97.............................................. United States 86,185,000 86,122,768
Federal Home Loan Mortgage Corp., 5.41%, 9/15/97....... United States 74,920,000 74,772,857
Federal National Mortgage Assn., 5.40% to 5.45% with
maturities to 11/17/97............................... United States 683,840,000 678,924,950
(a)REPURCHASE AGREEMENTS
Bank of America, 5.45%, 9/02/97, (Maturity Value
$44,442,896)
Collateral: U.S. Treasury Notes, 5.75% - 6.25%,
10/31/97 - 3/31/99................................... United States 44,416,000 44,416,000
Dresdner Bank AG, 5.45%, 9/02/97, (Maturity Value
$116,450,475)
Collateral: U.S. Treasury Notes, 5.50%, 1/15/98, U.S.
Treasury Bills, 2/26/98.............................. United States 116,380,000 116,380,000
Lehman Securities Inc., 5.43%, (Maturity Value
$73,745,466)
Collateral: U.S. Treasury Notes, 6.25%, 1/31/02........ United States 73,701,000 73,701,000
Swiss Bank Corp., 5.45%, 9/02/97, (Maturity Value
$35,897,725)
Collateral: U.S. Treasury Notes, 6.375%, 7/15/99....... United States 35,876,000 35,876,000
--------------
TOTAL SHORT TERM OBLIGATIONS (COST $1,345,772,204)......... 1,346,038,253
--------------
TOTAL INVESTMENTS (COST $6,821,305,129) 99.9%.............. 8,847,111,702
OTHER ASSETS, LESS LIABILITIES 0.1%........................ 10,561,118
--------------
TOTAL NET ASSETS: 100.0%................................... $8,857,672,820
==============
</TABLE>

CURRENCY ABBREVIATIONS:
FRF -- France
JPY -- Japan

*Non-income producing.
**Securities traded in U.S. dollars unless otherwise indicated.
(a)At August 31, 1997, all repurchase agreements held by the Fund had been
entered into on that date.
+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 August 31,
1997, were $21,448,047.

See notes to financial statements.

<PAGE>

TEMPLETON WORLD FUND
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost $6,821,305,129)............... $8,847,111,702
Cash............................................................................... 11,975,221
Receivables:
Investment securities sold........................................................ 9,562,454
Capital shares sold............................................................... 16,421,142
Dividends and interest............................................................ 36,726,676
--------------
Total assets................................................................... 8,921,797,195
--------------
Liabilities:
Payables:
Investment securities purchased................................................... 41,592,119
Capital shares redeemed........................................................... 12,814,300
Accrued expenses................................................................... 9,717,956
--------------
Total liabilities.............................................................. 64,124,375
--------------
Net assets, at value......................................................... $8,857,672,820
==============
Net assets consist of:
Undistributed net investment income................................................ $ 160,584,621
Net unrealized appreciation........................................................ 2,025,806,573
Accumulated net realized gain...................................................... 976,351,162
Capital shares..................................................................... 5,694,930,464
--------------
Net assets, at value......................................................... $8,857,672,820
==============
CLASS I
Net asset value per share ($8,649,994,171 / 439,945,402 shares outstanding)........ $19.66
==============
Maximum offering price per share ($19.66 / 94.25%)................................. $20.86
==============
CLASS II
Net asset value per share ($207,678,649 / 10,710,670 shares outstanding)........... $19.39
==============
Maximum offering price per share ($19.39 / 99.00%)................................. $19.59
==============
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON WORLD FUND
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997

<TABLE>
<S> <C> <C>
Investment income:
(net of $15,764,243 foreign taxes withheld)
Dividends.......................................................... $ 215,379,175
Interest........................................................... 61,754,055
------------
Total investment income........................................ $ 277,133,230
Expenses:
Management fees (Note 3)........................................... 47,200,213
Administrative fees (Note 3)....................................... 5,972,383
Distribution Fees (Note 3)
Class I........................................................... 15,368,639
Class II.......................................................... 1,130,687
Transfer agent fees (Note 3)....................................... 5,228,500
Custodian fees..................................................... 2,718,208
Reports to shareholders............................................ 1,426,300
Registration and filing fees....................................... 328,500
Professional fees (Note 3)......................................... 58,400
Directors' fees and expenses....................................... 61,000
Other.............................................................. 157,980
------------
Total expenses................................................. 79,650,810
------------
Net investment income......................................... 197,482,420
------------
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments....................................................... 1,072,870,475
Foreign currency transactions..................................... (2,055,724)
------------
Net realized gain.................................................. 1,070,814,751
Net unrealized appreciation on investments......................... 862,081,294
------------
Net realized and unrealized gain.................................... 1,932,896,045
------------
Net increase in net assets resulting from operations................ $2,130,378,465
============
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON WORLD FUND
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income............................................. $ 197,482,420 $ 165,563,495
Net realized gain from investments and foreign currency
transactions.................................................... 1,070,814,751 418,044,093
Net unrealized appreciation on investments........................ 862,081,294 103,441,815
-----------------------------------
Net increase in net assets resulting from operations.......... 2,130,378,465 687,049,403
Distributions to shareholders from:
Net investment income
Class I.......................................................... (173,704,228) (130,871,491)
Class II......................................................... (1,366,380) (283,110)
Net realized gain
Class I.......................................................... (420,453,674) (667,509,078)
Class II......................................................... (4,340,189) (1,422,754)
Capital share transactions (Note 2)
Class I.......................................................... 658,499,802 728,142,909
Class II......................................................... 126,894,283 50,068,384
-----------------------------------
Net increase in net assets.................................... 2,315,908,079 665,174,263
Net assets:
Beginning of year.................................................. 6,541,764,741 5,876,590,478
-----------------------------------
End of year........................................................ $8,857,672,820 $6,541,764,741
===================================
Undistributed net investment income included in net assets:
Beginning of year.................................................. $ 138,172,809 $ 103,788,712
===================================
End of year........................................................ $ 160,584,621 $ 138,172,809
===================================
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON WORLD FUND
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton World Fund (the Fund) is a separate, diversified series of Templeton
Funds, Inc. (the Company) which is an open-end 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 of any nation. The following summarizes the Fund's
significant accounting policies.

a. SECURITY VALUATION:

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.

b. FOREIGN CURRENCY TRANSLATIONS:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.

<PAGE>

TEMPLETON WORLD FUND
Notes to Financial Statements (cont.)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

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.

2. CAPITAL SHARES

The Fund offers two classes of shares: Class I shares and Class II shares. The
shares differ by their initial sales load, distribution fees, voting rights on
matters affecting a single class and the exchange privilege of each class.

At August 31, 1997, there were 3.2 billion shares authorized ($1.00 par value)
of which 1.2 billion shares have been classified as Fund shares. Transactions in
the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
1997 1996
-----------------------------------------------------------------
CLASS I SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................................ 50,518,371 $ 908,100,346 34,417,668 $ 540,260,882
Shares issued on reinvestment of distributions......... 33,921,940 537,536,364 49,118,786 722,606,074
Shares redeemed........................................ (44,339,505) (787,136,908) (33,886,588) (534,724,047)
-----------------------------------------------------------------
Net increase........................................... 40,100,806 $ 658,499,802 49,649,866 $ 728,142,909
=================================================================
</TABLE>

<TABLE>
<CAPTION>
CLASS II SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold............................................ 7,233,238 $ 130,727,138 3,291,659 $ 51,600,312
Shares issued on reinvestment of distributions......... 301,031 4,729,632 96,166 1,407,255
Shares redeemed........................................ (479,002) (8,562,487) (188,649) (2,939,183)
-----------------------------------------------------------------
Net increase........................................... 7,055,267 $ 126,894,283 3,199,176 $ 50,068,384
=================================================================
</TABLE>

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

Certain officers of the Fund are also directors or officers of Templeton Global
Advisors Ltd. (TGAL), Franklin Templeton Services, Inc. (FT Services), Franklin
Templeton Distributors, Inc. (Distributors), and Franklin Templeton Investor
Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent, respectively.

<PAGE>

TEMPLETON WORLD FUND
Notes to Financial Statements (cont.)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
------------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>

The Fund pays its allocated share of an administrative fee to FT Services based
on the Company's aggregate daily average net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
------------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>

The Fund reimburses Distributors up to 0.25% and 1.00% per year of the average
daily net assets of Class I and Class II shares, respectively, for costs
incurred in marketing the Fund's shares. Under the Class I distribution plan,
costs exceeding the maximum may be reimbursed in subsequent periods. At August
31, 1997, there were no unreimbursed costs.

Distributors received net commissions from the sale of the Fund shares, and
received contingent deferred sales charges for the year of $2,081,327 and
$40,118, respectively.

During the year ended August 31, 1997, legal fees of $3,375 were paid to a law
firm in which an officer of the Fund is a partner.

4. INVESTMENT TRANSACTIONS

Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1997 aggregated $2,736,806,064 and $3,570,308,731,
respectively.

5. INCOME TAXES

At August 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $6,822,182,723 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation.......... $2,143,654,928
Unrealized depreciation.......... (118,725,949)
--------------
Net unrealized appreciation...... $2,024,928,979
==============
</TABLE>

<PAGE>

TEMPLETON WORLD FUND
Independent Auditor's Report

THE BOARD OF DIRECTORS AND SHAREHOLDERS
TEMPLETON WORLD FUND

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton World Fund series of Templeton Funds,
Inc. as of August 31, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for the periods indicated in
the accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton World Fund series of Templeton Funds, Inc. as of August 31, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles.

McGLADREY & PULLEN, LLP

New York, New York
September 26, 1997

<PAGE>

TEMPLETON WORLD FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $1,033,000,000 as a capital gain dividend for the fiscal year ended
August 31, 1997.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
22.12% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1997.

<PAGE>

LITERATURE REQUEST

For a free brochure and prospectus, which contain more complete
information, including charges and expenses, call Franklin Fund
Information, toll free, at 1-800/DIAL BEN (1-800/342-5236). Please read
the prospectus carefully before you invest or send money. 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.

FRANKLIN TEMPLETON GROUP

GLOBAL GROWTH

Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund

GLOBAL GROWTH AND INCOME

Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund

GLOBAL INCOME

Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund

GROWTH

Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
Mutual Discovery Fund

GROWTH AND INCOME

Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.

Fund Allocator Series

Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund

INCOME

Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund

For Corporations

Franklin Corporate Qualified
Dividend Fund

FRANKLIN FUNDS SEEKING
TAX-FREE INCOME

Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money 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**

VARIABLE ANNUITIES+

Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)

*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 Allianz 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.

09/97.1
<PAGE>
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585

SHAREHOLDER SERVICES
1-800/632-2301

FUND INFORMATION
1-800/342-5236

102 A97 10/97
TL102 A97 [LOGO] Printed on recycled paper