ANNUAL REPORT
TEMPLETON FOREIGN FUND
[FRANKLIN TEMPLETON LOGO]
August 31, 1998
PAGE
[50 YEARS LOGO}
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
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 the
Templeton funds which are managed by many of the investment professionals he
selected and trained.
[PHOTO OF MARK G. HOLOWESKO]
MARK G. HOLOWESKO
Portfolio Manager
Templeton Foreign Fund
Mark G. Holowesko is 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 and a former
director of the International Society of Financial Analysts.
PAGE
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton Foreign Fund seeks long-term capital growth through
a flexible policy of investing in the equity and debt securities of companies
and governments outside the United States.
- --------------------------------------------------------------------------------
Dear Shareholder:
This annual report of Templeton Foreign Fund covers the fiscal year ended August
31, 1998, a difficult time for the Fund. Early in the period, we boosted our
exposure to Asia and decreased our European position. Unfortunately, these moves
resulted in poor short-term performance for the Fund, as many Asian shares
continued to fall in value and European stock prices rose. Within this
environment, the Fund's Class I shares provided a 12-month cumulative total
return of -17.89%, as discussed in the Performance Summary on page 8.
This was not the first time we have experienced poor performance while
repositioning the Fund to take advantage of long-term opportunities. In the
mid-to-late 1980s, we sold our
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 24 of
this report.
CONTENTS
Shareholder Letter ........ 1
Performance Summaries
Class I ................ 8
Class II ............... 12
Advisor Class .......... 16
Financial Highlights &
Statement of Investments .. 21
Financial Statements ...... 33
Notes to the Financial
Statements ................ 36
Independent Auditor's Report 41
Tax Designation ........... 42
[FUND CATEGORY PYRAMID CHART]
PAGE
Templeton Foreign Fund
vs. The MSCI EAFE Index
Based on Total Net Assets
12/31/89
[TEMPLETON FOREIGN FUND PIE CHART]
<TABLE>
<S> <C>
Europe 51%
Japan 0%
Pacific Ex-Japan 16%
North America 10%
Latin America 4%
Short-Term Investments & Other Net Assets 19%
</TABLE>
[MSCI EAFE INDEX PIE CHART]
6/30/98 TOTAL $24.0 TRILLION
<TABLE>
<S> <C>
Japan 60%
Europe 36%
Pacific Ex-Japan 4%
</TABLE>
Japanese holdings and bought European shares. As a result, at the end of 1989,
the Fund had no Japanese exposure and a large European position. Consequently,
as investor enthusiasm for Japanese stocks reached a peak during that period,
the Fund lagged market indices like the MSCI EAFE Index(1), which had a large
weighting in Japan. But in 1989, Japan's market began a 10-year correction. So
our actions proved correct over time, illustrating that, although value
investing tends to lag in the later stages of market advances when many
investors pick stocks based on momentum, fads and momentum typically fade and
the market usually returns to its roots in value.
There are some striking similarities between the current investment environment
and that of the late 1980s. A decade ago, valuations were ignored by many
investors, as evidenced by the number of Japanese shares selling at more than 80
times earnings. In 1998, investors also seemed to show a lack of respect for
valuations. Many price-to-earnings (p/e) ratios of Internet stocks exceeded even
those of Japanese shares during the 1980s, and some of the most overvalued
equities in January were the top performers during the first half of 1998. For
example, the 20% most expensive stocks in the Morgan
1. The unmanaged Morgan Stanley Capital International(R) Europe, Australasia,
Far East (MSCI EAFE) Index includes approximately 1,100 companies representing
the stock markets of 21 countries including Germany, France, Australia, New
Zealand, and Japan. An index is an unmanaged group of securities that is used to
measure market performance. One cannot invest directly in an index.
2
PAGE
Stanley Capital International(R) All Country World Free Index(2) rose 20%.
Conversely, the cheapest 20% advanced only 5%.(3)
In the late 1980s, we were too quick to sell Japanese securities and buy
European stocks; we now believe that in 1998, we were too quick to sell some of
our European holdings and increase our positions in Asia and Latin America. As
the charts to the right show, the MSCI EAFE Index which outperformed the Fund
significantly during the reporting period, had a European weighting of 75% on
August 31, 1998, while the Fund's weighting in the region was only 46%.
Asia
During the reporting period, Asia experienced dramatic stock price declines, and
its share of world stock market capitalization shrank appreciably. At their
height in the 1980s, Asian stocks accounted for more than half the value of
equities worldwide. However, as the chart on the following page shows, between
1993 and 1998, Asia's global share of stock value dropped from 38% to 14%.
During the same period, the value of North American stocks increased from 37% to
51% of equities worldwide.(4)
As many Asian shares declined in value, we slowly built positions in companies
that we considered to have above average long-term potential. Our largest Asian
exposure was Hong Kong SAR, which represented 12.4% of the Fund's total net
assets on August 31, 1998.
Templeton Foreign Fund
vs. The MSCI EAFE Index
Based on Total Net Assets
8/31/98
[TEMPLETON FOREIGN FUND PIE CHART]
TEMPLETON FOREIGN FUND
<TABLE>
<S> <C>
Europe 46%
Pacific Ex-Japan 22%
Latin America 10%
Japan 4%
North America 3%
Middle East/Africa 2%
Short-Term Investments & Other Net Assets 13%
</TABLE>
[MSCI EAFE INDEX PIE CHART]
MSCI EAFE INDEX
<TABLE>
<S> <C>
Europe 75%
Japan 20%
Pacific Ex-Japan 5%
</TABLE>
2. The unmanaged Morgan Stanley Capital International(R) (MSCI) All Country
World Free Index represents the stock markets of 48 developed and emerging
countries, including the U.S., Germany, Mexico, Indonesia, Thailand, and Japan.
3. Stock rankings measured by 1997 year-end p/e ratios, which avaraged 57 for
the 20% most expensive stocks and 8 for the cheapest 20% of the stocks.
Performance is measured in U.S. dollars and includes reinvested dividends.
4. Source: IFC 1998 Emerging Market Factbook.
3
PAGE
How the Asian Share of World
Stock Market Capitalization
Has Shrunk
[12/31/93 BAR GRAPH]
12/31/93 TOTAL 12.7 TRILLION
<TABLE>
<S> <C>
Asia (including Japan) $4.9 Trillion 38%
North America $4.7 Trillion 37%
Euro area $2.8 Trillion 22%
Other Countries $356 Billion 3%
</TABLE>
[6/30/98 BAR GRAPH]
6/30/98 TOTAL $24.0 TRILLION
<TABLE>
<S> <C>
North America $12.2 Trillion 51%
Euro area $7.5 Trillion 31%
Asia (including Japan) $3.4 Trillion 14%
Other Countries $910 Billion 4%
</TABLE>
The stocks of Hong Kong companies we bought generally have what we consider to
be solid balance sheets, dividend yields three times the level of the U.S.
market, p/e ratios a quarter of those of Europe, and discounts as high as 50% of
the replacement cost of their plant and equipment. Hong Kong real estate prices,
which fell substantially during the reporting period, remain its primary
economic problem. The possible devaluation of the Hong Kong dollar is also a
major concern, but, in our opinion, is not likely. So far Hong Kong has fought
off currency speculators, and has over $90 billion in foreign currency reserves
to support its currency.(5) It also has one of the freest market economies in
the world, lacks the elements of crony capitalism found in many other parts of
Asia, and its companies generally have little corporate debt. In our opinion,
the selling in Hong Kong's financial markets during the Fund's fiscal year was
excessive in relation to economic conditions, and we are optimistic about Hong
Kong's future.
Europe
As numerous Asian stocks sank to historic lows, many European share prices
reached all-time highs. This was particularly true of southern European equity
markets, which were boosted by interest
5. Source: Bloomberg.
4
PAGE
rates declining in anticipation of the new common currency (the euro) being
introduced in early 1999. We took profits in several of our southern European
holdings, but maintained investments in the Nordic region and the United
Kingdom. Although European stock valuations are close to record highs, they are
still cheaper on average than those of other developed markets.
Looking forward, we are confident about our ability to deal with future
volatility in global stock markets. Turbulent markets are not new to us, and
where many people see only risk, we see potential returns. Our investment
approach is based on a philosophy comprising four basic principles: the patience
to look beyond the emotions of the moment to the longer-term value of a
security, the discipline to subject an idea to rigorous and detailed analysis,
the courage to think independently, and the common sense to know that share
prices become cheap under the pressure of selling, or expensive during periods
of "irrational exuberance." We will consistently use this approach in the future
in our efforts to protect the Fund's assets and produce profits for our
shareholders.
This discussion reflects our views, opinions and portfolio holdings as of August
31, 1998, the end of the reporting period. However, market
TOP 10 EQUITY HOLDINGS
8/31/98
<TABLE>
<CAPTION>
NAME, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------
<S> <C>
HSBC Holdings Plc.
Banking, Hong Kong** 2.4%
Philips Electronics NV
Electrical & Electronics,
Netherlands 2.4%
Deutsche Bank AG
Banking, Germany 2.2%
National Australia Bank Ltd.
Banking, Australia 1.9%
ABB AB,A
Electrical & Electronics, Sweden 1.7%
General Electric Co. Plc.
Electrical & Electronics,
United Kingdom 1.6%
Volkswagen AG
Automobiles, Germany 1.6%
Telecomunicacoes
Brasileiras SA (Telebras)
Telecommunications, Brazil 1.6%
YPF Sociedad Anonima
Energy Sources, Argentina 1.5%
BASF AG
Chemicals, Germany 1.5%
</TABLE>
**Hong Kong reverted to the sovereignty of China on July 1, 1997.
5
PAGE
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
Equity Investments
(86.3% of Total Net Assets)
8/31/98
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
- -------------------------------------------------------
<S> <C>
United Kingdom 15.0%
Hong Kong** 12.4%
Sweden 6.7%
Netherlands 5.3%
Germany 5.3%
Australia 5.0%
Japan 4.0%
Brazil 3.9%
France 3.2%
Argentina 3.0%
</TABLE>
and economic conditions are changing constantly, which can be expected to affect
our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
Please remember that there are 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 those
associated with their relatively small size and lesser liquidity. Investing in
any emerging market means accepting a certain amount of volatility and, in some
cases, severe market corrections. While short-term volatility can be
disconcerting, declines of as much as 40% to 50% are not unusual in emerging
markets. For example, the Hong Kong equity market has increased 785% in the last
15 years, but has suffered six declines of more than 20% during that time.(6)
These risks and other considerations are discussed in the Fund's prospectus.
*Does not include investments in U.S. government securities and short-term
investments and other net assets.
**Hong Kong reverted to the sovereignty of China on July 1, 1997.
(6) Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1998. Market returns are measured in Hong Kong dollars.
6
PAGE
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 G. HOLOWESKO
Mark G. Holowesko, CFA
President
Templeton Foreign Fund
7
PAGE
PERFORMANCE SUMMARY
CLASS I
Templeton Foreign Fund - Class I produced a -17.89% cumulative total return for
the one-year period ended August 31, 1998. Cumulative total return measures the
change in value of an investment, assuming reinvestment of all distributions,
and does not include the initial sales charge. While we expect market volatility
in the short term, we have always maintained a long-term perspective when
managing the Fund, and we encourage shareholders to view their investments in a
similar manner. As you can see from the table on page 11, the Fund's Class I
shares delivered a cumulative total return of 170.20% for the 10-year period
ended August 31, 1998.
The Fund's share price, as measured by net asset value, decreased $2.97, from
$11.40 on August 31, 1997, to $8.43 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 32 cents ($0.32) in
income dividends, 8.5 cents ($0.085) in short-term capital gains, and 76 cents
($0.76) in long-term capital 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.
Past performance is not predictive of future results.
8
PAGE
The graph on page 10 compares the performance of the Fund's Class I shares over
the past ten years and the unmanaged Morgan Stanley Capital International(R)
Europe, Australasia, Far East (MSCI EAFE) Index, which includes approximately
1,100 companies representing the stock markets of 21 countries including
Germany, France, Australia, New Zealand, and Japan. It also shows the Fund's
performance versus the Consumer Price Index (CPI), a commonly used measure of
inflation. Please remember, 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 or operating 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.
9
PAGE
CLASS I
Total Return Index Comparison
$10,000 Investment (9/1/88 - 8/31/98)
[LINE GRAPH]
The following line graph hypothetically compares the performance of the
Templeton Foreign Fund Class I shares to that of the MSCI EAFE Index and CPI,
based on a $10,000 investment from 9/1/88 to 8/31/98.
<TABLE>
<CAPTION>
Total Return Index Comparison
Templeton Foreign MSCI EAFE Index CPI
Fund- Class I
<S> <C> <C> <C>
9/1/88 $9,423 $10,000 $10,000
9/88 $9,827 $10,439 $10,068
10/88 $10,269 $11,335 $10,101
11/88 $10,420 $12,012 $10,110
12/88 $10,442 $12,081 $10,127
1/89 $11,054 $12,296 $10,178
2/89 $10,913 $12,362 $10,218
3/89 $11,065 $12,122 $10,277
4/89 $11,368 $12,236 $10,345
5/89 $11,135 $11,573 $10,404
6/89 $11,265 $11,381 $10,429
7/89 $12,175 $12,812 $10,455
8/89 $12,343 $12,238 $10,472
9/89 $12,766 $12,798 $10,505
10/89 $12,385 $12,286 $10,556
11/89 $12,760 $12,906 $10,580
12/89 $13,631 $13,386 $10,597
1/90 $13,660 $12,890 $10,706
2/90 $13,689 $11,993 $10,756
3/90 $13,888 $10,746 $10,815
4/90 $13,578 $10,664 $10,833
5/90 $14,718 $11,884 $10,857
6/90 $14,852 $11,782 $10,916
7/90 $15,472 $11,951 $10,958
8/90 $14,361 $10,794 $11,058
9/90 $13,122 $9,293 $11,151
10/90 $13,338 $10,744 $11,218
11/90 $13,238 $10,113 $11,243
12/90 $13,220 $10,281 $11,243
1/91 $13,624 $10,616 $11,311
2/91 $14,557 $11,757 $11,327
3/91 $14,254 $11,054 $11,344
4/91 $14,494 $11,166 $11,360
5/91 $14,727 $11,286 $11,393
6/91 $14,078 $10,460 $11,428
7/91 $14,935 $10,976 $11,445
8/91 $14,941 $10,756 $11,478
9/91 $15,250 $11,366 $11,529
10/91 $15,209 $11,530 $11,546
11/91 $14,980 $10,994 $11,579
12/91 $15,633 $11,566 $11,588
1/92 $15,825 $11,322 $11,604
2/92 $16,084 $10,920 $11,647
3/92 $15,811 $10,202 $11,705
4/92 $16,399 $10,253 $11,722
5/92 $17,321 $10,942 $11,738
6/92 $17,007 $10,427 $11,781
7/92 $16,563 $10,163 $11,806
8/92 $16,235 $10,804 $11,839
9/92 $15,900 $10,595 $11,873
10/92 $15,346 $10,042 $11,915
11/92 $15,412 $10,140 $11,931
12/92 $15,648 $10,195 $11,924
1/93 $15,920 $10,197 $11,983
2/93 $16,287 $10,508 $12,024
3/93 $16,934 $11,427 $12,067
4/93 $17,485 $12,514 $12,100
5/93 $17,896 $12,782 $12,117
6/93 $17,676 $12,585 $12,134
7/93 $18,087 $13,029 $12,133
8/93 $19,256 $13,735 $12,167
9/93 $19,101 $13,429 $12,192
10/93 $20,143 $13,846 $12,243
11/93 $19,804 $12,639 $12,251
12/93 $21,409 $13,554 $12,251
1/94 $22,400 $14,703 $12,285
2/94 $22,015 $14,665 $12,328
3/94 $21,402 $14,036 $12,370
4/94 $21,765 $14,635 $12,386
5/94 $21,765 $14,554 $12,394
6/94 $21,334 $14,763 $12,436
7/94 $22,128 $14,909 $12,469
8/94 $22,718 $15,265 $12,521
9/94 $22,355 $14,787 $12,554
10/94 $22,666 $15,283 $12,563
11/94 $21,846 $14,552 $12,579
12/94 $21,484 $14,646 $12,579
1/95 $21,118 $14,088 $12,629
2/95 $21,411 $14,051 $12,679
3/95 $21,581 $14,931 $12,721
4/95 $22,312 $15,496 $12,763
5/95 $22,823 $15,316 $12,789
6/95 $22,921 $15,051 $12,814
7/95 $23,968 $15,993 $12,814
8/95 $23,432 $15,386 $12,848
9/95 $23,822 $15,691 $12,872
10/95 $23,218 $15,273 $12,915
11/95 $23,474 $15,702 $12,906
12/95 $23,880 $16,339 $12,897
1/96 $24,660 $16,410 $12,973
2/96 $24,868 $16,469 $13,015
3/96 $24,998 $16,823 $13,082
4/96 $25,649 $17,316 $13,132
5/96 $25,909 $17,002 $13,157
6/96 $26,039 $17,101 $13,166
7/96 $25,336 $16,606 $13,191
8/96 $25,935 $16,647 $13,216
9/96 $26,221 $17,092 $13,258
10/96 $26,538 $16,922 $13,300
11/96 $27,537 $17,600 $13,325
12/96 $28,178 $17,378 $13,325
1/97 $28,558 $16,774 $13,367
2/97 $28,858 $17,052 $13,407
3/97 $29,157 $17,118 $13,441
4/97 $29,320 $17,213 $13,457
5/97 $30,299 $18,337 $13,449
6/97 $31,333 $19,353 $13,465
7/97 $32,203 $19,669 $13,481
8/97 $31,006 $18,205 $13,506
9/97 $32,747 $19,229 $13,540
10/97 $30,319 $17,755 $13,574
11/97 $29,995 $17,578 $13,566
12/97 $30,051 $17,736 $13,550
1/98 $30,172 $18,551 $13,574
2/98 $31,803 $19,745 $13,601
3/98 $33,283 $20,358 $13,629
4/98 $33,464 $20,523 $13,653
5/98 $32,075 $20,429 $13,678
6/98 $30,837 $20,587 $13,694
7/98 $30,474 $20,801 $13,710
8/98 $25,461 $18,228 $13,727
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS I SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the current, maximum 5.75%
initial sales charge, assuming reinvestment of distributions at net asset value.
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.
Past performance is not predictive of future results.
**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.
***Source: U.S. Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
10
PAGE
CLASS I
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (10/5/82)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -17.89% 32.22% 170.20% 752.51%
Average Annual Total Return(2) -22.64% 4.50% 9.80% 13.99%
Value of $10,000 Investment(3) $7,736 $12,462 $25,461 $80,331
<CAPTION>
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) 17.94% 3.14% 10.68% 19.55% -17.89%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to include the
current, maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares
were offered at a higher sales charge; thus actual total returns would have been
lower.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and have been restated to include the current,
maximum 5.75% initial sales charge. Prior to July 1, 1992, Fund shares were
offered at a higher sales charge; thus actual total returns would have been
lower.
4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include the sales charge.
On January 1, 1993, the Fund's Class I shares implemented a Rule 12b-1 plan,
which affects subsequent performance. All calculations assume reinvestment of
distributions at net asset value. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results.
11
PAGE
CLASS II
Templeton Foreign Fund - Class II produced a -18.46% cumulative total return for
the one-year period ended August 31, 1998. Cumulative total return measures the
change in value of an investment, assuming reinvestment of all distributions,
and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased $2.95, from
$11.25 on August 31, 1997, to $8.30 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 25.57 cents ($0.2557)
in income dividends, 8.5 cents ($0.085) in short-term capital gains, and 76
cents ($0.76) in long-term capital 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.
Past performance is not predictive of future results.
12
PAGE
The graph on page 14 compares the performance of the Fund's Class II shares
since inception and the unmanaged Morgan Stanley Capital International(R)
Europe, Australasia, Far East (MSCI EAFE) Index, which includes approximately
1,100 companies representing the stock markets of 21 countries including
Germany, France, Australia, New Zealand, and Japan. It also shows the Fund's
performance versus the Consumer Price Index (CPI), a commonly used measure of
inflation. Please remember, 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 or operating 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.
13
PAGE
CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/98)
[LINE GRAPH]
The following line graph hypothetically compares the performance of the
Templeton Foreign Fund Class II shares to that of the MSCI EAFE Index and CPI,
based on a $10,000 investment from 5/1/95 to 8/31/98.
<TABLE>
<CAPTION>
Total Return Index Comparison
Templeton Foreign MSCI EAFE Index CPI
Fund - II
<S> <C> <C> <C>
5/1/95 $9,903 $10,000 $10,000
May-95 $10,119 $9,883 $10,020
Jun-95 $10,162 $9,713 $10,040
Jul-95 $10,617 $10,320 $10,040
Aug-95 $10,379 $9,929 $10,067
Sep-95 $10,541 $10,125 $10,086
Oct-95 $10,261 $9,856 $10,119
Nov-95 $10,386 $10,132 $10,112
Dec-95 $10,551 $10,544 $10,105
Jan-96 $10,897 $10,589 $10,164
Feb-96 $10,978 $10,628 $10,197
Mar-96 $11,024 $10,856 $10,250
Apr-96 $11,313 $11,174 $10,289
May-96 $11,416 $10,972 $10,309
Jun-96 $11,463 $11,036 $10,316
Jul-96 $11,139 $10,716 $10,335
Aug-96 $11,393 $10,742 $10,355
Sep-96 $11,520 $11,030 $10,388
Oct-96 $11,654 $10,920 $10,421
Nov-96 $12,084 $11,357 $10,441
Dec-96 $12,353 $11,214 $10,441
Jan-97 $12,509 $10,824 $10,473
Feb-97 $12,641 $11,004 $10,505
Mar-97 $12,761 $11,046 $10,531
Apr-97 $12,833 $11,108 $10,544
May-97 $13,242 $11,833 $10,537
Jun-97 $13,686 $12,489 $10,550
Jul-97 $14,059 $12,693 $10,563
Aug-97 $13,518 $11,748 $10,583
Sep-97 $14,287 $12,408 $10,609
Oct-97 $13,219 $11,457 $10,636
Nov-97 $13,063 $11,343 $10,629
Dec-97 $13,081 $11,445 $10,617
Jan-98 $13,121 $11,971 $10,636
Feb-98 $13,824 $12,742 $10,657
Mar-98 $14,462 $13,137 $10,678
Apr-98 $14,542 $13,244 $10,697
May-98 $13,917 $13,183 $10,717
Jun-98 $13,373 $13,285 $10,730
Jul-98 $13,214 $13,423 $10,742
Aug-98 $11,022 $11,763 $10,755
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS II SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
* Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of distributions at net asset value. Past
performance is not predictive of future results.
** Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.
*** Source: U.S. Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
14
PAGE
CLASS II
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -18.46% 6.20% 11.31%
Average Annual Total Return(2) 20.06% 1.67% 2.96%
Value of $10,000 Investment(3) $7,994 $10,509 $11,022
</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 and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include all sales charges.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility and the economic, social
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.
Past performance is not predictive of future results.
15
PAGE
ADVISOR CLASS
Templeton Foreign Fund - Advisor Class produced a -17.75% cumulative total
return for the one-year period ended August 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions.
The Fund's share price, as measured by net asset value, decreased $2.98, from
$11.42 on August 31, 1997, to $8.44 on August 31, 1998. During the reporting
period, shareholders received per-share distributions of 34.58 cents ($0.3458)
in income dividends, 8.5 cents ($0.085) in short-term capital gains, and 76
cents ($0.76) in long-term capital 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.
Past performance is not predictive of future results.
16
PAGE
The graph on page 18 compares the performance of the Fund's Advisor Class shares
over a ten-year period and the unmanaged Morgan Stanley Capital International(R)
Europe, Australasia, Far East (MSCI EAFE) Index. The MSCI EAFE Index includes
approximately 1,100 companies representing the stock markets of 21 countries,
including Germany, France, Australia, New Zealand, and Japan. The graph also
shows the Fund's performance versus the Consumer Price Index (CPI), a commonly
used measure of inflation. Please remember, 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 management or operating 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.
17
PAGE
ADVISOR CLASS
Total Return Index Comparison
$10,000 Investment (9/1/88 - 8/31/98)
[LINE GRAPH]
The following line graph hypothetically compares the performance of the
Templeton Foreign Fund Advisor shares to that of the MSCI EAFE Index and CPI,
based on a $10,000 investment from 9/1/88 to 8/31/98.
<TABLE>
<CAPTION>
Total Return Index Comparison
Templeton Foreign Fund - MSCI EAFE Index CPI
Advisor Class
<S> <C> <C> <C>
9/1/88 $10,000 $10,000 $10,000
Sep-88 $10,429 $10,439 $10,068
Oct-88 $10,898 $11,335 $10,101
Nov-88 $11,058 $12,012 $10,110
Dec-88 $11,082 $12,081 $10,127
Jan-89 $11,731 $12,296 $10,178
Feb-89 $11,582 $12,362 $10,218
Mar-89 $11,743 $12,122 $10,277
Apr-89 $12,065 $12,236 $10,345
May-89 $11,817 $11,573 $10,404
Jun-89 $11,955 $11,381 $10,429
Jul-89 $12,921 $12,812 $10,455
Aug-89 $13,099 $12,238 $10,472
Sep-89 $13,548 $12,798 $10,505
Oct-89 $13,144 $12,286 $10,556
Nov-89 $13,542 $12,906 $10,580
Dec-89 $14,465 $13,386 $10,597
Jan-90 $14,497 $12,890 $10,706
Feb-90 $14,528 $11,993 $10,756
Mar-90 $14,738 $10,746 $10,815
Apr-90 $14,410 $10,664 $10,833
May-90 $15,619 $11,884 $10,857
Jun-90 $15,762 $11,782 $10,916
Jul-90 $16,419 $11,951 $10,958
Aug-90 $15,241 $10,794 $11,058
Sep-90 $13,926 $9,293 $11,151
Oct-90 $14,155 $10,744 $11,218
Nov-90 $14,049 $10,113 $11,243
Dec-90 $14,030 $10,281 $11,243
Jan-91 $14,458 $10,616 $11,311
Feb-91 $15,449 $11,757 $11,327
Mar-91 $15,127 $11,054 $11,344
Apr-91 $15,382 $11,166 $11,360
May-91 $15,629 $11,286 $11,393
Jun-91 $14,940 $10,460 $11,428
Jul-91 $15,850 $10,976 $11,445
Aug-91 $15,857 $10,756 $11,478
Sep-91 $16,185 $11,366 $11,529
Oct-91 $16,141 $11,530 $11,546
Nov-91 $15,898 $10,994 $11,579
Dec-91 $16,591 $11,566 $11,588
Jan-92 $16,794 $11,322 $11,604
Feb-92 $17,070 $10,920 $11,647
Mar-92 $16,780 $10,202 $11,705
Apr-92 $17,403 $10,253 $11,722
May-92 $18,382 $10,942 $11,738
Jun-92 $18,049 $10,427 $11,781
Jul-92 $17,577 $10,163 $11,806
Aug-92 $17,229 $10,804 $11,839
Sep-92 $16,874 $10,595 $11,873
Oct-92 $16,286 $10,042 $11,915
Nov-92 $16,356 $10,140 $11,931
Dec-92 $16,607 $10,195 $11,924
Jan-93 $16,895 $10,197 $11,983
Feb-93 $17,285 $10,508 $12,024
Mar-93 $17,971 $11,427 $12,067
Apr-93 $18,556 $12,514 $12,100
May-93 $18,993 $12,782 $12,117
Jun-93 $18,759 $12,585 $12,134
Jul-93 $19,195 $13,029 $12,133
Aug-93 $20,435 $13,735 $12,167
Sep-93 $20,271 $13,429 $12,192
Oct-93 $21,377 $13,846 $12,243
Nov-93 $21,017 $12,639 $12,251
Dec-93 $22,721 $13,554 $12,251
Jan-94 $23,773 $14,703 $12,285
Feb-94 $23,363 $14,665 $12,328
Mar-94 $22,713 $14,036 $12,370
Apr-94 $23,098 $14,635 $12,386
May-94 $23,098 $14,554 $12,394
Jun-94 $22,641 $14,763 $12,436
Jul-94 $23,484 $14,909 $12,469
Aug-94 $24,110 $15,265 $12,521
Sep-94 $23,724 $14,787 $12,554
Oct-94 $24,054 $15,283 $12,563
Nov-94 $23,184 $14,552 $12,579
Dec-94 $22,800 $14,646 $12,579
Jan-95 $22,412 $14,088 $12,629
Feb-95 $22,722 $14,051 $12,679
Mar-95 $22,903 $14,931 $12,721
Apr-95 $23,679 $15,496 $12,763
May-95 $24,221 $15,316 $12,789
Jun-95 $24,325 $15,051 $12,814
Jul-95 $25,436 $15,993 $12,814
Aug-95 $24,868 $15,386 $12,848
Sep-95 $25,281 $15,691 $12,872
Oct-95 $24,640 $15,273 $12,915
Nov-95 $24,911 $15,702 $12,906
Dec-95 $25,343 $16,339 $12,897
Jan-96 $26,171 $16,410 $12,973
Feb-96 $26,392 $16,469 $13,015
Mar-96 $26,530 $16,823 $13,082
Apr-96 $27,220 $17,316 $13,132
May-96 $27,496 $17,002 $13,157
Jun-96 $27,634 $17,101 $13,166
Jul-96 $26,889 $16,606 $13,191
Aug-96 $27,523 $16,647 $13,216
Sep-96 $27,827 $17,092 $13,258
Oct-96 $28,164 $16,922 $13,300
Nov-96 $29,224 $17,600 $13,325
Dec-96 $29,904 $17,378 $13,325
Jan-97 $30,308 $16,774 $13,367
Feb-97 $30,654 $17,052 $13,407
Mar-97 $30,972 $17,118 $13,441
Apr-97 $31,174 $17,213 $13,457
May-97 $32,213 $18,337 $13,449
Jun-97 $33,310 $19,353 $13,465
Jul-97 $34,262 $19,669 $13,481
Aug-97 $32,963 $18,205 $13,506
Sep-97 $34,839 $19,229 $13,540
Oct-97 $32,251 $17,755 $13,574
Nov-97 $31,938 $17,578 $13,566
Dec-97 $31,995 $17,736 $13,550
Jan-98 $32,123 $18,551 $13,574
Feb-98 $33,858 $19,745 $13,601
Mar-98 $35,464 $20,358 $13,629
Apr-98 $35,657 $20,523 $13,653
May-98 $34,179 $20,429 $13,678
Jun-98 $32,830 $20,587 $13,694
Jul-98 $32,444 $20,801 $13,710
Aug-98 $27,112 $18,228 $13,727
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S ADVISOR CLASS SHARES. THE
FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH
AFFECT THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of distributions at net asset value. On
January 2, 1997, the Fund began selling Advisor Class shares to certain eligible
investors as described in the prospectus. This share class does not have sales
charges or a Rule 12b-1 plan. Performance quotations have been calculated as
follows: (a) For periods prior to January 2, 1997, figures reflect the Fund's
Class I performance, excluding the effect of the Class I sales charge, but
including the effect of Class I expenses, containing Rule 12b-1 fees; and (b)
for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Past performance is not predictive of future results.
**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index. Source: Morgan Stanley Capital International.
***Source: U.S. Bureau of Labor Statistics (8/31/98).
Past performance is not predictive of future results.
18
PAGE
ADVISOR CLASS
Periods ended 8/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR* 5-YEAR* 10-YEAR* (10/5/82)*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -17.75% 32.67% 171.12% 755.41%
Average Annual Total Return(1) -17.75% 5.82% 10.49% 14.44%
Value of $10,000 Investment(2) $8,225 $13,267 $27,112 $85,541
<CAPTION>
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(3),* 17.94% 3.14% 10.68% 19.76% -17.75%
</TABLE>
*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Class I expenses, containing Rule 12b-1
fees; and (b) for periods after January 1, 1997, figures reflect actual Advisor
Class performance, including the deduction of all fees and expenses applicable
only to that class. Since January 2, 1997 (commencement of sales), the
cumulative total return of Advisor Class shares was -8.45%.
1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
3. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated.
All calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility and the economic, social
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.
Past performance is not predictive of future results.
19
PAGE
TEMPLETON FOREIGN FUND
CLASS I
If you had invested $10,000 in Templeton Foreign Fund - Class I at inception, it
would be worth more than $80,000 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 reinvested
as shown through August 31, 1998.*
$80,331
Total value of
investment
8/31/98
[3D GRAPH]
The following mountain chart illustrates the cumulative total return of a
$10,000 investment in the Fund on October 5, 1982 (inception).
<TABLE>
<CAPTION>
Principal + Principal + Total Value Principal Income Cap Gains
Dividends Cap Gains
<S> <C> <C> <C> <C> <C> <C>
10/5/82 $9,423 $9,423 $9,423 $9,423 $0 $0
12/82 $9,823 $9,823 $9,823 $9,823 $0 $0
12/83 $13,361 $13,217 $13,410 $13,168 $193 $48
12/84 $13,094 $12,759 $13,250 $12,603 $491 $156
12/85 $16,566 $15,735 $16,812 $15,489 $1,077 $246
12/86 $19,903 $19,896 $21,648 $18,151 $1,752 $1,745
12/87 $23,252 $24,190 $27,006 $20,436 $2,816 $3,754
12/88 $26,865 $28,790 $32,946 $22,709 $4,156 $6,081
12/89 $33,854 $36,619 $43,006 $27,468 $6,387 $9,152
12/90 $31,870 $34,541 $41,712 $24,700 $7,170 $9,842
12/91 $36,198 $40,077 $49,325 $26,949 $9,249 $13,127
12/92 $34,964 $39,496 $49,372 $25,088 $9,876 $14,408
12/93 $47,393 $53,489 $67,549 $33,333 $14,060 $20,156
12/94 $45,397 $53,552 $67,783 $31,166 $14,231 $22,386
12/95 $49,211 $58,571 $75,343 $32,438 $16,772 $26,133
12/96 $57,909 $67,602 $88,903 $36,608 $21,301 $30,994
12/97 $58,221 $71,754 $94,815 $35,159 $23,062 $36,595
8/31/98 $49,327 $60,792 $80,331 $29,788 $19,539 $31,004
</TABLE>
*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current,
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 Rule 12b-1 plan, which will affect subsequent
performance.
Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can down as well as up, investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
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.
20
PAGE
TEMPLETON FOREIGN FUND
Financial Highlights
<TABLE>
<CAPTION>
Class I
--------------------------------------------------------------------
Year Ended August 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
(For a share outstanding throughout the year)
Net asset value, beginning of year................ $11.40 $9.97 $9.62 $10.01 $8.74
--------------------------------------------------------------------
Income from investment operations:
Net investment income............................ .30 .32 .27 .23 .14
Net realized and unrealized gains (losses)....... (2.11) 1.56 .69 .05 1.39
--------------------------------------------------------------------
Total from investment operations.................. (1.81) 1.88 .96 .28 1.53
--------------------------------------------------------------------
Less distributions from:
Net investment income............................ (.32) (.28) (.25) (.16) (.13)
Net realized gains............................... (.84) (.17) (.36) (.51) (.13)
--------------------------------------------------------------------
Total distributions............................... (1.16) (.45) (.61) (.67) (.26)
--------------------------------------------------------------------
Net asset value, end of year...................... $8.43 $11.40 $9.97 $9.62 $10.01
--------------------------------------------------------------------
--------------------------------------------------------------------
Total Return*..................................... (17.89)% 19.55% 10.68% 3.14% 17.94%
Ratios/Supplemental Data
Net assets, end of year (000's)................... $10,745,504 $14,367,787 $9,602,209 $6,941,238 $5,014,438
Ratios to average net assets:
Expenses......................................... 1.12% 1.08% 1.12% 1.15% 1.14%
Net investment income............................ 2.79% 3.28% 3.09% 2.81% 1.84%
Portfolio turnover rate........................... 38.27% 37.28% 15.91% 21.78% 36.75%
</TABLE>
*Total return does not reflect sales commissions.
21
PAGE
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class II
-----------------------------------------------
Year Ended August 31,
-----------------------------------------------
1998 1997 1996 1995+
-----------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $11.25 $9.87 $9.59 $9.16
-----------------------------------------------
Income from investment operations:
Net investment income...................................... .22 .26 .30 .03
Net realized and unrealized gains (losses)................. (2.07) 1.52 .58 .40
-----------------------------------------------
Total from investment operations............................ (1.85) 1.78 .88 .43
-----------------------------------------------
Less distributions from:
Net investment income...................................... (.26) (.23) (.24) --
Net realized gains......................................... (.84) (.17) (.36) --
-----------------------------------------------
Total distributions......................................... (1.10) (.40) (.60) --
-----------------------------------------------
Net asset value, end of year................................ $8.30 $11.25 $9.87 $9.59
-----------------------------------------------
-----------------------------------------------
Total Return*............................................... (18.46)% 18.65% 9.78% 4.81%
Ratios/Supplemental Data
Net assets, end of year (000's)............................. $1,159,810 $1,303,639 $527,443 $63,428
Ratios to average net assets:
Expenses................................................... 1.87% 1.83% 1.87% 1.90%**
Net investment income...................................... 2.07% 2.62% 2.63% 1.86%**
Portfolio turnover rate..................................... 38.27% 37.28% 15.91% 21.78%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
22
PAGE
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
Advisor Class
--------------------
Year Ended August
31,
--------------------
1998++ 1997+
--------------------
<S> <C> <C>
Per Share Operating Performance
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $11.42 $10.26
--------------------
Income from investment operations:
Net investment income...................................... .33 .07
Net realized and unrealized gains (losses)................. (2.12) 1.09
--------------------
Total from investment operations............................ (1.79) 1.16
--------------------
Less distributions from:
Net investment income...................................... (.35) --
Net realized gains......................................... (.84) --
--------------------
Total distributions......................................... (1.19) --
--------------------
Net asset value, end of year................................ $8.44 $11.42
--------------------
--------------------
Total Return*............................................... (17.75)% 11.31%
Ratios/Supplemental Data
Net assets, end of year (000's)............................. $50,022 $139,100
Ratios to average net assets:
Expenses................................................... .87% .83%**
Net investment income...................................... 3.08% 3.37%**
Portfolio turnover rate..................................... 38.27% 37.28%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on weighted average shares outstanding.
See Notes to Financial Statements.
23
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks 80.7%
Appliances & Household Durables .7%
Chofu Seisaku Co. Ltd. ..................................... Japan 452,100 $ 4,130,668
Sindo Ricoh Co. NPV......................................... South Korea 449,660 10,288,407
Sony Corp. ................................................. Japan 1,003,800 73,299,652
---------------
87,718,727
---------------
Automobiles 1.8%
Autoliv Inc., ADR........................................... Sweden 1,291,354 39,754,602
Fiat SpA, di Risp........................................... Italy 10,103,340 18,364,966
Volkswagen AG............................................... Germany 479,900 35,376,807
Volvo AB, B................................................. Sweden 4,541,000 125,198,497
---------------
218,694,872
---------------
Banking 9.1%
Australia & New Zealand Banking Group Ltd. ................. Australia 15,060,131 76,115,501
Bangkok Bank Public Co. Ltd., fgn. ......................... Thailand 35,450,500 24,959,183
Bank Slaski SA W Katowicach................................. Poland 462,881 22,305,272
Deutsche Bank AG............................................ Germany 4,000,000 260,391,267
Development Bank of Singapore Ltd., fgn. ................... Singapore 3,378,600 11,699,544
Guoco Group Limited......................................... Hong Kong 19,272,500 11,626,870
HSBC Holdings Plc........................................... Hong Kong 13,520,812 287,019,766
*Kookmin Bank............................................... South Korea 3,049,112 8,398,887
National Australia Bank Ltd. ............................... Australia 18,252,374 225,850,267
National Australia Cap Sec Plc. ............................ Australia 2,439,153 66,162,025
Nordbanken Holding AB....................................... Sweden 9,100,000 54,228,948
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 953,290 14,299,350
Union Bank of Norway, Primary Capital Certificate........... Norway 972,000 23,486,408
---------------
1,086,543,288
---------------
Beverages & Tobacco
*Buenos Aires Embotelladora SA (Baesa), B, ADR.............. Argentina 1,200,000 12,000
---------------
Broadcasting & Publishing .6%
*Apt Sattellite Holdings Ltd., ADR.......................... Hong Kong 3,000,000 10,125,000
South China Morning Post Holdings, Ltd. .................... Hong Kong 48,612,400 15,996,699
South China Morning Post Holdings, Ltd., 144A............... Hong Kong 31,530,000 10,375,458
Television Broadcasts Ltd. ................................. Hong Kong 18,000,000 38,791,101
---------------
75,288,258
---------------
Building Materials & Components 1.2%
Caradon Plc. ............................................... United Kingdom 6,546,802 15,183,310
Cemex SA.................................................... Mexico 5,000,000 10,030,593
Cemex SA, B................................................. Mexico 4,715,770 11,588,983
Cemex SA, B, ADR............................................ Mexico 798,419 3,924,222
Gujarat Ambuja Cements Ltd. ................................ India 20,125 85,621
+Hepworth Plc. ............................................. United Kingdom 21,012,458 53,306,107
Okumura Corp. .............................................. Japan 11,000,000 35,370,777
</TABLE>
24
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Building Materials & Components (cont.)
*Siam Cement Public Co. Ltd., fgn. ......................... Thailand 1,114,860 $ 7,130,847
Suez Cement Co., GDR, 144A.................................. Egypt 64,000 870,400
---------------
137,490,860
---------------
Business & Public Services .4%
*Waste Management International Plc. ....................... United Kingdom 8,015,100 44,223,370
---------------
Chemicals 4.1%
BASF AG..................................................... Germany 4,420,000 177,952,935
Beijing Yanhua Petrochemical Company Limited, ADR........... China 1,300,000 3,412,500
Cookson Group Plc. ......................................... United Kingdom 11,015,799 28,775,844
+DSM NV..................................................... Netherlands 1,852,903 163,125,854
European Vinyls Corporation Evc International NV............ Netherlands 450,367 5,680,366
Imperial Chemical Industries Plc. .......................... United Kingdom 554,112 6,096,076
Rhone-Poulenc SA, A......................................... France 2,100,000 106,065,990
Shanghai Petrochemical Co. Ltd., H.......................... China 61,677,000 3,303,045
---------------
494,412,610
---------------
Construction & Housing .5%
Daito Trust Construction Co. Ltd. .......................... Japan 981,581 7,855,985
Fletcher Challenge Building Ltd. ........................... New Zealand 5,754,650 6,702,896
+Hollandsche Beton Groep NV................................. Netherlands 2,194,149 35,612,679
Kyudenko Corp. ............................................. Japan 2,295,000 13,848,998
---------------
64,020,558
---------------
Electrical & Electronics 6.2%
ABB AB, A................................................... Sweden 18,061,610 200,974,853
+G P Batteries International Ltd. .......................... Singapore 5,883,398 6,426,685
General Electric Co. Plc. .................................. United Kingdom 29,520,000 193,524,339
Gold Peak Industries (Holdings) Ltd. ....................... Hong Kong 14,766,000 2,286,584
Hitachi Ltd. ............................................... Japan 2,619,600 13,117,481
Matsushita Electric Industrial Co. Ltd. .................... Japan 3,000,000 43,133,366
Philips Electronics NV...................................... Netherlands 4,344,990 283,399,765
---------------
742,863,073
---------------
Electronic Components & Instruments .2%
BICC Plc. .................................................. United Kingdom 16,311,592 24,172,808
---------------
Energy Equipment & Services .3%
Koninklijke Pakhoed NV...................................... Netherlands 1,302,048 38,013,612
---------------
Energy Sources 7.3%
Anglo American Coal Corp. Ltd. (Amcoal)..................... South Africa 543,003 20,722,047
Norsk Hydro AS.............................................. Norway 3,607,174 130,044,638
Perez Companc SA, Reg B..................................... Argentina 10,347,700 40,985,088
*Ranger Oil Ltd. ........................................... Canada 3,305,505 17,560,495
*Renaissance Energy Ltd. ................................... Canada 6,500,000 71,060,960
</TABLE>
25
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Energy Sources (cont.)
Repsol SA................................................... Spain 3,811,000 $ 171,764,097
Saga Petroleum AS, A........................................ Norway 2,737,815 29,030,234
Saga Petroleum AS, B........................................ Norway 1,196,580 11,688,205
Societe Elf Aquitaine SA.................................... France 1,486,000 151,868,697
Transportadora de Gas del Sur SA, B, ADR.................... Argentina 3,590,600 34,110,700
Woodside Petroleum Ltd. .................................... Australia 988,553 4,469,021
YPF Sociedad Anonima, D..................................... Argentina 1,475,000 33,046,609
YPF Sociedad Anonima, D, ADR................................ Argentina 6,785,300 150,124,762
---------------
866,475,553
---------------
Financial Services .2%
Lend Lease Corp. Ltd. ...................................... Australia 1,116,600 21,118,078
---------------
Food & Household Products 2.3%
Albert Fisher Group Plc. ................................... United Kingdom 22,826,455 4,682,330
Hillsdown Holdings Plc. .................................... United Kingdom 26,046,153 61,714,541
Illovo Sugar Limited........................................ South Africa 4,800,000 3,361,737
Industrias Bachoco SA, ADR.................................. Mexico 500,000 3,968,750
Panamerican Beverages Inc., A............................... Mexico 1,202,900 19,171,219
Pepsi-Gemex SA de CV, GDR................................... Mexico 1,484,400 13,545,150
Showa Sangyo Co. ........................................... Japan 1,639,400 3,018,939
Tate & Lyle Plc. ........................................... United Kingdom 19,100,000 141,285,437
Vitro SA De CV, A........................................... Mexico 8,183,320 10,276,861
Vitro SA De CV, ADR......................................... Mexico 3,417,640 13,029,753
---------------
274,054,717
---------------
Forest Products & Paper 5.7%
Aracruz Celulose SA, ADR.................................... Brazil 3,239,700 20,450,606
*Asia Pulp & Paper Co. Ltd., ADR............................ Indonesia 3,804,500 19,735,844
Assidomaen AB............................................... Sweden 1,780,900 41,174,079
Carter Holt Harvey Ltd. .................................... New Zealand 50,427,724 35,492,240
Cartiere Burgo SpA.......................................... Italy 2,750,630 16,511,513
Enso OY, A.................................................. Finland 634,000 5,316,067
Enso OY, R.................................................. Finland 8,687,550 73,330,417
Fletcher Challenge Paper Ltd. .............................. New Zealand 29,863,383 18,502,257
Metsa Serla OY, B........................................... Finland 2,859,000 21,841,711
Mitsubishi Paper Mills Ltd. ................................ Japan 5,797,000 9,771,839
Mo Och Domsjoe AB (Modo), B................................. Sweden 4,000,800 78,647,825
Munksjo AB.................................................. Sweden 1,100,000 8,159,935
Norske Skogindustrier AS, A................................. Norway 1,619,000 44,738,127
*PT Indah Kiat Pulp & Paper Corporation TBK................. Indonesia 165,994,073 41,310,742
*PT Inti Indorayon Utama.................................... Indonesia 18,919,500 856,086
*PT Tjiwi Kimia TBK......................................... Indonesia 11,273,766 1,581,388
*Sappi Ltd. ................................................ South Africa 9,003,500 28,095,432
Stora Kopparbergs Bergslags AB, A........................... Sweden 2,381,700 28,857,312
Stora Kopparbergs Bergslags AB, B........................... Sweden 2,348,100 28,450,206
</TABLE>
26
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Forest Products & Paper (cont.)
Svenska Cellulosa AB (SCA), B............................... Sweden 1,762,656 $ 37,483,381
Unipapel SA................................................. Spain 159,244 4,465,828
UPM-Kymmene Corporation..................................... Finland 6,067,834 122,108,552
---------------
686,881,387
---------------
Health & Personal Care
Ono Pharmaceutical Co. Ltd. ................................ Japan 93,000 2,193,427
---------------
Industrial Components 3.0%
BTR Plc. ................................................... United Kingdom 50,250,000 110,228,738
Chudenko Corp. ............................................. Japan 1,000,000 17,564,984
Sandvik AB, B............................................... Sweden 2,395,000 48,709,556
Sanyo Electric Co. Ltd. .................................... Japan 12,000,000 31,446,986
SKF AB, A................................................... Sweden 1,925,705 29,760,657
SKF AB, B................................................... Sweden 4,791,776 73,461,695
+Yamato Kogyo Co. Ltd. ..................................... Japan 7,702,000 50,732,063
---------------
361,904,679
---------------
Insurance .6%
Ace Ltd. ................................................... Bermuda 2,000,000 58,000,000
HIH Winterthur International Holdings Ltd. ................. Australia 9,187,905 11,672,255
---------------
69,672,255
---------------
Leisure & Tourism .9%
+Grand Hotel Holdings Ltd., A............................... Hong Kong 34,685,000 5,371,135
Harbour Centre Development Ltd. ............................ Hong Kong 14,330,000 4,438,136
Mandarin Oriental Intl. Ltd. ............................... Singapore 34,207,000 16,077,290
Rank Group Plc. ............................................ United Kingdom 12,673,050 60,268,025
Shangri-La Asia Ltd. ....................................... Hong Kong 31,403,000 17,830,641
---------------
103,985,227
---------------
Machinery & Engineering 1.8%
Makita Corporation.......................................... Japan 1,342,200 15,609,409
+Mckechnie Group Plc. ...................................... United Kingdom 7,000,000 40,791,038
New Holland NV.............................................. Netherlands 2,900,900 32,091,206
Rauma OY.................................................... Finland 1,600,000 23,254,297
VA Technologie AG........................................... Austria 159,747 15,577,161
Valmet OY................................................... Finland 3,000,000 40,247,822
+Vickers Group Plc. ........................................ United Kingdom 19,749,701 53,244,392
---------------
220,815,325
---------------
Merchandising 2.8%
Best Denki Co. Ltd. ........................................ Japan 761,500 4,206,884
Dairy Farm International Holdings Ltd. ..................... Hong Kong 56,773,759 53,935,071
Gucci Group NV.............................................. Netherlands 1,000,000 34,687,500
Matsuzakaya Co. Ltd. ....................................... Japan 4,301,600 17,122,312
</TABLE>
27
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Merchandising (cont.)
Safeway Plc. ............................................... United Kingdom 11,603,978 $ 60,527,456
Storehouse Plc. ............................................ United Kingdom 12,863,153 46,740,639
Thorn Plc. ................................................. United Kingdom 1,925,000 7,881,286
+W.H. Smith Group Plc. ..................................... United Kingdom 13,671,360 105,764,804
---------------
330,865,952
---------------
Metals & Mining 6.4%
Alcan Aluminum Ltd. ........................................ Canada 5,611,870 106,019,730
Alcan Aluminum Ltd., ADR.................................... Canada 2,012,545 38,238,355
Anglo American Platinum Corp. Ltd. ......................... South Africa 4,000,000 49,803,510
Arbed SA.................................................... Belgium 260,357 21,832,422
Billiton Plc. .............................................. United Kingdom 25,553,088 43,858,596
British Steel Plc. ......................................... United Kingdom 83,980,192 150,820,938
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,483,275 23,732,400
+Elkem AS, A................................................ Norway 2,524,000 28,871,666
Grupo Mexico SA de CV, B.................................... Mexico 15,961,800 28,659,032
Industrias Penoles SA....................................... Mexico 2,324,000 5,571,353
Ingwe Coal Corporation Ltd. ................................ South Africa 3,663,100 13,768,159
Iscor Ltd. ................................................. South Africa 60,131,200 11,885,393
*Maanshan Iron & Steel Co. Ltd., H.......................... China 82,488,000 2,277,968
Minorco SA, ADR............................................. Luxembourg 3,743,941 31,355,506
Outokumpu OY, A............................................. Finland 1,101,400 11,492,691
Pechiney SA, A.............................................. France 3,186,105 103,238,428
Pohang Iron & Steel Co. Ltd. ............................... South Korea 945,460 36,878,103
RGC Ltd. ................................................... Australia 1,979,736 2,441,405
Union Miniere NPV........................................... Belgium 500,000 24,606,840
WMC Ltd. ................................................... Australia 10,468,500 25,699,641
---------------
761,052,136
---------------
Misc Materials & Commodities 1.0%
+Agrium Inc. ............................................... Canada 7,048,695 59,473,364
De Beers/Centenary Linked Units, ADR........................ South Africa 4,300,000 49,450,000
De Beers/Centenary Linked Units, reg. ...................... South Africa 929,800 11,243,992
---------------
120,167,356
---------------
Multi-Industry 7.6%
Alfa SA de CV, A............................................ Mexico 7,632,100 17,224,761
Amoy Properties Ltd. ....................................... Hong Kong 62,024,000 29,814,613
Broken Hill Proprietary Co. Ltd. ........................... Australia 17,280,777 119,260,294
Cheung Kong Holdings Ltd. .................................. Hong Kong 27,250,000 105,494,761
DESC SA de CV DESC, B....................................... Mexico 2,250,000 8,011,936
DESC SA de CV DESC, C, ADR.................................. Mexico 27,500 426,250
+Elementis Plc. ............................................ United Kingdom 28,200,000 46,748,941
First Pacific Co. .......................................... Hong Kong 84,831,800 26,273,205
Hicom Holdings Bhd. ........................................ Malaysia 15,675,000 2,284,631
Hutchison Whampoa Ltd. ..................................... Hong Kong 27,000,000 117,070,149
</TABLE>
28
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Multi-Industry (cont.)
+Inchcape Plc. ............................................. United Kingdom 30,000,000 $ 81,381,135
Jardine Matheson Holdings Ltd. ............................. Hong Kong 20,109,352 35,794,647
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,694,764 17,192,874
Metra OY, B................................................. Finland 284,185 7,582,856
Murray & Roberts Holdings Ltd. ............................. South Africa 15,000,000 11,439,244
Next Plc. .................................................. United Kingdom 5,000,000 37,592,726
Pacific Dunlop Ltd. ........................................ Australia 23,278,012 40,575,239
Pilkington Plc. ............................................ United Kingdom 50,000,000 65,305,849
*Saab AB, B................................................. Sweden 1,255,450 10,399,608
Swire Pacific Ltd., A....................................... Hong Kong 35,923,400 103,609,145
Swire Pacific Ltd., B....................................... Hong Kong 34,818,700 15,613,868
Wheelock and Company Ltd. .................................. Hong Kong 10,000,000 5,258,607
---------------
904,355,339
---------------
Real Estate 1.1%
+Bail Investissement........................................ France 164,380 22,557,052
Hang Lung Development Co. Ltd. ............................. Hong Kong 45,361,000 35,121,819
Hon Kwok Land Investment Co. Ltd. .......................... Hong Kong 48,971,000 2,590,991
Hong Kong Land Holdings Ltd. ............................... Hong Kong 14,871,000 12,194,220
New Asia Realty and Trust Co. Ltd., A....................... Hong Kong 5,074,000 3,142,931
New World Development Co. Ltd. ............................. Hong Kong 24,473,380 26,370,815
Wereldhave NV............................................... Netherlands 450,000 25,665,184
---------------
127,643,012
---------------
Recreation & Other Consumer Goods 1.2%
Nintendo Co. Ltd. .......................................... Japan 1,107,700 102,540,116
Yue Yuen Industrial (Holdings) Ltd. ........................ Hong Kong 22,931,400 41,428,741
---------------
143,968,857
---------------
Telecommunications 5.0%
Asia Satellite Telecommunications Holdings Ltd. ............ Hong Kong 8,945,000 9,407,649
Asia Satellite Telecommunications Holdings Ltd., ADR........ Hong Kong 425,000 4,542,188
Hong Kong Telecommunications Ltd. .......................... Hong Kong 56,177,087 99,316,845
Nortel Inversora SA, ADR.................................... Argentina 700,000 13,125,000
PT Indosat TBK, ADR......................................... Indonesia 932,700 5,596,200
Rostelekom.................................................. Russia 12,950,200 7,899,622
Rostelecom, ADR............................................. Russia 8,300 30,087
SK Telecom Co. Ltd., ADR.................................... South Korea 9,102,349 54,614,094
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 21,275,000 44,750,748
Telecom Argentina Stet-France SA (Teco), B, ADR............. Argentina 3,228,900 72,246,638
*Telecomunicacoes de Minas Gerais Celular SA Telemig........ Brazil 176,397,107 2,997,657
Telecomunicacoes de Minas Gerais SA Telemig................. Brazil 176,397,107 4,796,251
Telefonica de Argentina SA (Tear), B, ADR................... Argentina 678,600 15,183,675
Telefonica del Peru SA, B................................... Peru 10,829,856 14,372,735
Telefonica del Peru SA, B, ADR.............................. Peru 1,829,200 23,550,950
Telefonica SA............................................... Spain 1,931,700 72,229,960
</TABLE>
29
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Telecommunications (cont.)
Telefonos de Mexico SA (Telmex), L.......................... Mexico 13,623,481 $ 24,187,333
Telefonos de Mexico SA (Telmex), L, ADR..................... Mexico 3,600,200 128,482,138
---------------
597,329,770
---------------
Textiles & Apparel .1%
Courtaulds Textiles Plc. ................................... United Kingdom 3,750,000 12,590,214
Dawson International Plc. .................................. United Kingdom 8,625,900 2,455,505
---------------
15,045,719
---------------
Transportation 2.7%
Air New Zealand Ltd., B..................................... New Zealand 16,817,000 15,837,179
Cathay Pacific Airways Ltd. ................................ Hong Kong 54,512,000 39,745,109
Great Eastern Shipping Co. Ltd. ............................ India 4,230 2,174
Great Eastern Shipping Co. Ltd., GDR........................ India 418,000 956,175
Great Eastern Shipping Co. Ltd., GDR, 144A.................. India 600,700 1,374,101
Guangshen Railway Company Limited, H, ADR................... China 502,620 2,104,721
Hitachi Zosen Corp. ........................................ Japan 26,313,000 32,614,031
Koninklijke Nedlloyd Groep NV............................... Netherlands 99,250 1,571,003
Kvaerner ASA, A............................................. Norway 1,622,460 33,364,642
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 4,185,828 48,363,525
Singapore Airlines Ltd., fgn. .............................. Singapore 28,235,800 120,828,874
Transport Development Group Plc. ........................... United Kingdom 565,217 2,257,311
*Transportacion Maritima Mexicana SA de CV, A, ADR.......... Mexico 831,300 4,572,150
*Transportacion Maritima Mexicana SA de CV, L, ADR.......... Mexico 789,400 4,637,725
Vosper Thornycroft Holdings Plc. ........................... United Kingdom 1,200,000 15,773,874
---------------
324,002,594
---------------
Utilities Electrical & Gas 5.9%
*CEZ AS..................................................... Czech Republic 964,463 17,504,943
CLP Holdings Ltd. .......................................... Hong Kong 24,188,000 101,756,155
Electrabel SA............................................... Belgium 280,133 91,267,350
Gener SA, ADR............................................... Chile 1,704,350 22,476,116
Guangdong Electric Power Development Co Ltd., B............. China 6,757,467 1,892,286
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 50,499,600 149,885,253
Korea Electric Power Corp. ................................. South Korea 6,275,020 80,848,092
Mosenergo................................................... Russia 265,000,000 3,975,000
Mosenergo, ADR.............................................. Russia 1,350,000 1,573,020
Mosenergo, ADR, 144A........................................ Russia 1,350,000 1,603,125
National Grid Group Plc. ................................... United Kingdom 17,000,000 122,904,771
Thames Water Group Plc. .................................... United Kingdom 5,958,333 107,355,560
---------------
703,041,671
---------------
</TABLE>
30
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stocks (cont.)
Wholesale & International Trade
Inchcape Motores Ltd. ...................................... Singapore 99,100 $ 34,875
Sime Darby Hongkong Ltd. ................................... Hong Kong 10,435,400 2,558,620
---------------
2,593,495
---------------
Total Common Stocks (Cost $12,191,021,708).................. 9,650,620,585
---------------
Preferred Stocks 5.6%
Ballast Nedam NV, ctf., cvt., pfd. ......................... Netherlands 256,749 9,934,259
Banco Bradesco SA BBD, pfd. ................................ Brazil 6,996,200,000 39,234,361
Centrais Eletricas Brasileiras SA (Electrobras), B, pfd. ... Brazil 370,900,000 5,672,699
Centrais Eletricas Brasileiras SA (Electrobras), ADR,
pfd. ..................................................... Brazil 3,858,200 29,504,462
*Centrais Geradoras do Sul do Brasil SA (Gerasul), ADR,
pfd. ..................................................... Brazil 321,660 1,626,202
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 949,420 12,584,716
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,550,500 20,552,128
Embotelladora Andina SA, B, ADR, pfd. ...................... Chile 462,050 5,169,184
Ericsson Telecomunicacoes SA, pfd. ......................... Brazil 949,096,000 29,870,436
Fiat SpA, pfd. ............................................. Italy 59,004,500 108,099,589
Krones AG Herman Kronseder Maschinen Fabrik, pfd. .......... Germany 52,066 1,919,076
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 340,000,000 34,667,346
+++Receipts of Telebras Stock............................... Brazil 572,200,000 40,597,077
++Telecomunicacoes Brasileiras SA (Telebras), ADR, pfd. .... Brazil 2,050,000 144,909,375
*Telecomunicacoes de Minas Gerais Celular SA Telemig, C,
pfd. ..................................................... Brazil 38,363,000 945,303
Telecomunicacoes de Minas Gerais SA Telemig, B, pfd. ....... Brazil 38,363,000 1,533,021
Usinas Siderurgicas de Minas Gerais SA, pfd. ............... Brazil 7,945,430 33,080,642
Volkswagen AG, pfd. ........................................ Germany 3,051,340 153,129,339
---------------
Total Preferred Stocks (Cost $942,667,176).................. 673,029,215
---------------
PRINCIPAL
AMOUNT**
--------
Bonds 7.2%
U.S. Treasury Bonds:
14.00%, 11/15/11.......................................... United States $ 97,000,000 153,260,097
7.875%, 2/15/21........................................... United States 128,500,000 168,254,816
6.25%, 8/15/23............................................ United States 155,303,000 172,095,292
U.S. Treasury Notes:
6.375%, 7/15/99........................................... United States 102,500,000 103,589,165
6.00%, 10/15/99........................................... United States 133,000,000 134,247,008
6.375%, 1/15/00........................................... United States 123,000,000 125,114,124
---------------
Total Bonds (Cost $803,255,956)............................. 856,560,502
---------------
</TABLE>
31
PAGE
TEMPLETON FOREIGN FUND
Statement of Investments, August 31, 1998 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short Term Investments (Cost $877,059,914) 7.3%
U.S. Treasury Bills, 4.470% to 5.035% with maturities to
1/21/99................................................... United States $ 886,952,000 $ 877,555,502
---------------
Total Investments (Cost $14,814,004,754) 100.8%............. 12,057,765,804
Other Assets, less Liabilities (.8%)........................ (102,429,856)
---------------
Total Net Assets 100.0%..................................... $11,955,335,948
---------------
---------------
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
+Affiliated issuers (see note 6).
++Includes securities of twelve new holding companies deemed received in
conjunction with the "split-up" of Telecomunicacoes Brasileiras SA (Telebras).
+++Receipts of Telebras stock represent a basket of twelve new holding companies
to be received in conjunction with the "split-up" of Telecomunicacoes
Brasileiras SA (Telebras).
See Notes to Financial Statements.
32
PAGE
TEMPLETON FOREIGN FUND
Financial Statements
Statement of Assets and Liabilities
August 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost
$14,814,004,754).......................................... $12,057,765,804
Cash....................................................... 3,270,230
Receivables:
Investment securities sold................................ 92,578,404
Capital shares sold....................................... 12,882,648
Dividends and interest.................................... 48,256,881
---------------
Total assets........................................... 12,214,753,967
---------------
Liabilities:
Payables:
Investment securities purchased........................... 123,429,379
Capital shares redeemed................................... 117,545,460
To affiliates............................................. 15,541,997
Accrued liabilities........................................ 2,901,183
---------------
Total liabilities...................................... 259,418,019
---------------
Net assets, at value........................................ $11,955,335,948
---------------
---------------
Net assets consist of:
Undistributed net investment income........................ $ 320,363,323
Net unrealized depreciation................................ (2,756,238,950)
Accumulated net realized gain.............................. 1,050,699,391
Capital shares............................................. 13,340,512,184
---------------
Net assets, at value........................................ $11,955,335,948
---------------
---------------
Class I:
Net asset value per share ($10,745,504,111 / 1,275,080,839
shares outstanding)....................................... $8.43
---------------
---------------
Maximum offering price per share ($8.43 / 94.25%).......... $8.94
---------------
---------------
Class II:
Net asset value per share ($1,159,810,198 / 139,706,569
shares outstanding)*...................................... $8.30
---------------
---------------
Maximum offering price per share ($8.30 / 99.00%).......... $8.38
---------------
---------------
Advisor Class:
Net asset value and maximum offering price per share
($50,021,639 / 5,929,874 shares outstanding).............. $8.44
---------------
---------------
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
33
PAGE
TEMPLETON FOREIGN FUND
Financial Statements (continued)
Statement of Operations
for the year ended August 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $42,747,202)
Dividends.................................................. $ 413,030,175
Interest................................................... 209,048,038
--------------
Total investment income................................ $ 622,078,213
Expenses:
Management fees (Note 3)................................... 96,508,519
Administrative fees (Note 3)............................... 12,284,175
Distribution fees (Note 3)
Class I................................................... 35,747,873
Class II.................................................. 14,370,223
Transfer agent fees (Note 3)............................... 19,227,851
Custodian fees............................................. 4,858,091
Reports to shareholders.................................... 3,026,000
Registration and filing fees............................... 1,023,000
Professional fees.......................................... 102,201
Directors' fees and expenses............................... 109,000
Other...................................................... 395,747
--------------
Total expenses......................................... 187,652,680
---------------
Net investment income............................ 434,425,533
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,328,766,768
Foreign currency transactions............................. (10,201,347)
--------------
Net realized gain...................................... 1,318,565,421
Net unrealized depreciation on investments............. (4,427,460,673)
---------------
Net realized and unrealized loss............................ (3,108,895,252)
---------------
Net decrease in net assets resulting from operations........ $(2,674,469,719)
====================
</TABLE>
See Notes to Financial Statements.
34
PAGE
TEMPLETON FOREIGN FUND
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 434,425,533 $ 422,425,549
Net realized gain from investments and foreign currency
transactions............................................ 1,318,565,421 959,628,401
Net unrealized appreciation (depreciation) on
investments............................................. (4,427,460,673) 828,449,706
----------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (2,674,469,719) 2,210,503,656
Distributions to shareholders from:
Net investment income:
Class I.................................................. (418,126,512) (277,426,851)
Class II................................................. (31,961,548) (13,861,585)
Advisor Class............................................ (4,907,491) --
Net realized gains:
Class I.................................................. (1,101,558,721) (174,274,273)
Class II................................................. (105,695,936) (10,429,068)
Advisor Class............................................ (11,895,183) --
Capital share transactions (Note 2):
Class I.................................................. 285,456,853 3,139,139,968
Class II................................................. 266,405,053 665,437,465
Advisor Class............................................ (58,437,266) 141,784,663
----------------------------------
Net increase (decrease) in net assets................... (3,855,190,470) 5,680,873,975
Net assets:
Beginning of year.......................................... 15,810,526,418 10,129,652,443
----------------------------------
End of year................................................ $11,955,335,948 $15,810,526,418
===================================
Undistributed net investment income included in net assets:
End of year................................................ $ 320,363,323 $ 340,933,341
==================================
</TABLE>
See Notes to Financial Statements.
35
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Foreign 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 the equity and debt securities
of companies and governments outside the United States. 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 Translation:
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 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
36
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. Security Transactions, Investment Income, Expenses and Distributions (cont.)
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.
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.
Common expenses incurred by the Company are allocated among the funds comprising
the Company based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
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 STOCK
The Fund offers three classes of shares: Class I, Class II, and Advisor Class
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, 1998, there were 3.7 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>
Year Ended August 31,
--------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------
Shares Amount Shares Amount
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I Shares:
Shares sold......................................... 483,458,360 $ 5,097,767,696 492,650,269 $ 5,300,198,785
Shares issued on reinvestment of distributions...... 123,818,793 1,329,020,247 38,938,243 386,869,780
Shares redeemed..................................... (593,134,761) (6,141,331,090) (234,044,276) (2,547,928,597)
--------------------------------------------------------------------
Net increase........................................ 14,142,392 $ 285,456,853 297,544,236 $ 3,139,139,968
=====================================================================
</TABLE>
37
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
2. CAPITAL STOCK (cont.)
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------------------------
1998 1997
---------------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Class II Shares:
Shares sold............................................. 55,528,728 $ 582,473,124 67,411,120 $721,149,292
Shares issued on reinvestment of distributions.......... 9,502,152 100,985,613 1,728,829 17,020,675
Shares redeemed......................................... (41,180,696) (417,053,684) (6,707,008) (72,732,502)
---------------------------------------------------------------
Net increase............................................ 23,850,184 $ 266,405,053 62,432,941 $665,437,465
================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------------------------------
1998 1997*
---------------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisor Class Shares:
Shares sold............................................. 17,334,441 $ 183,323,322 12,681,374 $147,529,611
Shares issued on reinvestment of distributions.......... 260,292 3,067,476 -- --
Shares redeemed......................................... (23,847,551) (244,828,064) (498,682) (5,744,948)
---------------------------------------------------------------
Net increase (decrease)................................. (6,252,818) $ (58,437,266) 12,182,692 $141,784,663
===============================================================
</TABLE>
*Effective date of Advisor Class shares was January 2, 1997.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors 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.
The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:
Annualized
Fee Rate Average Daily Net Assets
- -----------------------------------------------------------------
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
38
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
The Fund pays its allocated share of an administrative fee to FT Services based
on the Company's aggregate average daily net assets as follows:
Annualized
Fee Rate Average Daily Net Assets
- -----------------------------------------------------------------
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
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 Class I and Class II shares. Under the Class I
distribution plan, costs and expenses exceeding the maximum may be reimbursed in
subsequent periods. At August 31, 1998, unreimbursed costs were $3,324,768.
Distributors received net commissions from sales of Fund shares and received
contingent deferred sales charges for the year of $63,246 and $784,591,
respectively.
Legal fees of $52,845 were paid to a law firm in which a partner is an officer
of the Fund.
4. INCOME TAXES
At August 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $14,816,573,239 was as follows:
Unrealized appreciation.................................... $ 678,196,058
Unrealized depreciation.................................... (3,437,003,493)
---------------
Net unrealized depreciation................................ $(2,758,807,435)
================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1998 aggregated $7,549,786,657 and $5,085,293,074,
respectively.
6. INVESTMENT IN AFFILIATES
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
39
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
6. INVESTMENT IN AFFILIATES (cont.)
August 31, 1998 were $753,406,915. For the year ended August 31, 1998, dividend
income from "affiliated companies" was $64,348,895 and net realized gains from
disposition of "affiliated companies" were $4,062,355.
<TABLE>
<CAPTION>
Number of Number of
Shares Held Gross Gross Shares Held Value Dividend Income
Name of Issuer Aug. 31, 1997 Additions Reductions Aug. 31, 1998 Aug. 31, 1998 9/1/97-8/31/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non Controlled Affiliates
Agrium Inc. ...................... -- 7,048,695 -- 7,048,695 $ 59,473,364 $ 385,643
Bail Investissement............... 164,380 -- -- 164,380 22,557,052 1,507,656
DSM NV............................ 1,095,000 757,903 -- 1,852,903 163,125,854 9,131,416
Elementis Plc. ................... -- 28,200,000 -- 28,200,000 46,748,941 --
Elkem AS, A....................... 1,524,000 1,000,000 -- 2,524,000 28,871,666 2,039,733
G P Batteries International
Ltd. ............................ 2,532,698 3,350,700 -- 5,883,398 6,426,685 208,984
Grand Hotel Holdings Ltd., A...... 20,286,000 14,399,000 -- 34,685,000 5,371,135 758,392
Hepworth Plc. .................... 18,317,180 2,695,278 -- 21,012,458 53,306,107 3,773,009
Hollandsche Beton Groep NV........ 1,564,150 629,999 -- 2,194,149 35,612,679 --
Inchcape Plc. .................... 10,202,123 19,797,877 -- 30,000,000 81,381,135 7,199,099
Mckechnie Group Plc. ............. -- 7,000,000 -- 7,000,000 40,791,038 426,345
Vickers Group Plc. ............... 7,796,000 11,953,701 -- 19,749,701 53,244,392 30,637,965
W.H. Smith Group Plc. ............ 14,822,300 368,100 1,519,040 13,671,360 105,764,804 7,972,211
Yamato Kogyo Co. Ltd. ............ 2,612,000 5,090,000 -- 7,702,000 50,732,063 308,442
----------------------------------
Total Non Controlled Affiliates... $753,406,915 $64,348,895
==================================
<CAPTION>
Realized
Name of Issuer Gain
- --------------------------------------------------
<S> <C>
Non Controlled Affiliates
Agrium Inc. ...................... --
Bail Investissement............... --
DSM NV............................ --
Elementis Plc. ................... --
Elkem AS, A....................... --
G P Batteries International
Ltd. ............................ --
Grand Hotel Holdings Ltd., A...... --
Hepworth Plc. .................... --
Hollandsche Beton Groep NV........ --
Inchcape Plc. .................... --
Mckechnie Group Plc. ............. --
Vickers Group Plc. ............... --
W.H. Smith Group Plc. ............ $4,062,335
Yamato Kogyo Co. Ltd. ............ --
-----------
Total Non Controlled Affiliates... $4,062,335
============
</TABLE>
40
PAGE
TEMPLETON FOREIGN FUND
Independent Auditor's Report
The Board of Directors and Shareholders
Templeton Foreign Fund
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Foreign Fund series of Templeton
Funds, Inc. as of August 31, 1998, 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, 1998, 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 Foreign Fund series of Templeton Funds, Inc. as of August 31, 1998,
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 29, 1998
41
PAGE
TEMPLETON FOREIGN FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates the following amounts as capital gain dividends for the fiscal year
ended August 31, 1998:
28% Rate Gain.............................................. $ 39,426,967
20% Rate Gain.............................................. 1,096,771,665
--------------
Total...................................................... $1,136,198,632
==============
42
PAGE
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PAGE
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PAGE
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Templeton Fund Information at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending 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
Mutual Discovery 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
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Global
Currency Fund
Franklin Templeton Hard
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
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
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 Bond Fund
Franklin Floating Rate Trust
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
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)
*These funds are now closed to new accounts, with the exception of retirement
plan accounts.
**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. The Franklin Valuemark Funds are managed by Franklin
Advisers, Inc. and its Templeton and Franklin affiliates.
09/98
PAGE
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
1-800/DIAL BEN(R)
www.franklin-templeton.com
SHAREHOLDER SERVICES AGENT
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 risk
factors, 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.
104 A98 10/98 [RECYCLING SYMBOL] Printed on recycled paper
