[Picture of Map and Navigational Compass]
ANNUAL REPORT
AUGUST 31, 1999
TEMPLETON WORLD FUND
[FRANKLIN TEMPLETON LOGO]
PAGE
[CELEBRATING OVER FIFTY YEARS SEAL]
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 Jeffrey A. Everett, CFA]
JEFFREY A. EVERETT, CFA
Portfolio Manager
Templeton World Fund
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SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: Templeton World Fund seeks long-term capital growth. Under
normal market conditions, the Fund invests primarily in the equity securities of
companies located anywhere in the world, including emerging markets.
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to bring you this annual report of Templeton World Fund, which
covers the 12 months ended August 31, 1999. During this time, the investment
principles we have followed for the last several years proved successful. The
Fund's top 10 equity holdings performed extremely well during the reporting
period, with 5 of the 10 each gaining more than 38% in 1999 alone, and Templeton
World Fund - Class A posted a one-year cumulative total return of 31.42%, a
significant improvement over last year, as shown in the Performance Summary on
page 8. The Fund's benchmark, the Morgan Stanley Capital International(R) (MSCI)
World Index, provided a total return of 33.51% for the same period.(1)
(1) Source: Standard & Poor's Micropal, Inc. The unmanaged MSCI World Index
tracks the performance of approximately 1,450 securities in 22 countries and is
designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
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 15 of
this report.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ......... 1
Performance Summary ........ 8
Financial Highlights &
Statement of Investments ... 12
Financial Statements ....... 25
Notes to Financial
Statements ................. 28
Independent Auditors' Report 33
Tax Designation ............ 34
Change in Independent
Auditor .................... 36
</TABLE>
FUND CATEGORY
[PYRAMID GRAPH]
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/99
<TABLE>
<S> <C>
European Stocks 27.5%
North American Stocks 24.8%
Asian Stocks 15.4%
Latin American Stocks 6.1%
Australian & New Zealand Stocks 3.4%
Middle Eastern & African Stocks 1.0%
Fixed Income Securities 2.1%
Short-Term Investments & Other Net Assets 19.7%
</TABLE>
Our strong performance during the past year was due in large part to our belief
in two time-tested Templeton axioms. First, the only way to get a real bargain
in the stock market is to buy stocks that others are despondently selling and,
second, share prices fluctuate more widely than values. We followed these
principles, and many of the undervalued stocks we bought in early 1998 became
some of the Fund's leading performers in 1999.
During the year under review, many of our Asian investments increased more
quickly than even we expected, contributing significantly to the Fund's
performance. This rebound in Asian markets was due largely to two events. In
August 1998, the Hong Kong Monetary Authority (HKMA) intervened in the Hong Kong
stock market and purchased 15% of the entire market's stocks. The second event
occurred several weeks later when the U.S. and Japanese governments pushed the
value of the U.S. dollar down 7% against the yen. Following these two
interventions, Asian equity markets generally moved higher, particularly
benefiting investors who had patiently and painstakingly identified values
created by market turbulence during the summers of 1997 and 1998. We believe
that without either of these intervention efforts, Asian markets would not have
rebounded as quickly as they have.
One of our many Asian investments that has contributed significantly to the
Fund's performance and which, in our opinion, has the potential to continue to
do so in the future is Development Bank of Singapore Co. Ltd., fgn. In July, it
reported that, during the first half of 1999, it had earned 94% of its entire
estimated
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1999 earnings. Performance like Development Bank of Singapore's - whose
outstanding results were attributed to higher net interest margins, lower than
expected bad debt provisions, and strong growth in fee income businesses -
demonstrates that the rebound in Asia, which has occurred swiftly, may be far
from over.
Our interest in long-term opportunities in Asia also extended to Japan, which
for many years has been an underweighted country in the Fund's portfolio, due to
our inability to justify valuations based on our analysis of the future earnings
potential of Japanese companies. One of the great ironies of the 1990s is that
this nation, to which more money is owed than to any other country, actually has
one of the weakest banking systems of any developed market in the world. In our
opinion, the problem with most Japanese companies is not too much debt but
inefficient use of capital. Nomura Securities Co. Ltd. is a good example of
this. In 1996, Merrill Lynch & Co. earned eight times the amount of net income
as Nomura, although Nomura had twice the capital Merrill Lynch had at the time.
However, during the reporting period, Merrill Lynch earned only 6 times as much
as Nomura from a similar-sized capital base. In our opinion, the secret to
Nomura's improved earnings success is that it is beginning to manage itself more
like its global counterparts. Selected companies in Japan appear to be
recognizing that capital is an asset to be used to generate income for
investors, not to be hoarded, and we believe it is these companies that stand
the best chance for success as we head into a new year and century.
TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
Equity Investments
(78.2% of Total Net Assets)
8/31/99
% OF TOTAL
COUNTRY NET ASSETS
------- ----------
United States 21.1%
United Kingdom 8.2%
Hong Kong** 7.4%
France 5.0%
Netherlands 4.9%
Australia 3.4%
Brazil 2.8%
Japan 2.5%
Finland 2.4%
Germany 2.3%
* Does not include fixed-income securities and short-term investments and other
net assets.
** Hong Kong reverted to the sovereignty of China on July 1, 1997.
3
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TOP 10 INDUSTRIES*
8/31/99
% OF TOTAL
INDUSTRY NET ASSETS
-------- ----------
Banking 7.6%
Insurance 7.0%
Multi-Industry 6.4%
Financial Services 5.4%
Telecommunications 5.1%
Real Estate 4.6%
Utilities Electrical & Gas 4.4%
Energy Sources 4.1%
Metals & Mining 3.9%
Merchandising 3.7%
* Does not include fixed-income securities and short-term investments and other
net assets.
In Europe, many companies benefited from buy-outs and acquisitions, while others
enjoyed productivity gains as they restructured themselves. Slowly improving
economies should help foster growth in many of these companies' businesses.
Among the Fund's largest European holdings were Koninklijke Philips Electronics
NV in the Netherlands and ABB Ltd. in Sweden, both of which recorded significant
gains during the reporting period. While not at bargain levels at the close of
the reporting period, we believe they have excellent prospects and, in our
opinion, share prices that do not fully reflect the value of future business
opportunities which their respective management teams have outlined.
Also contributing to the Fund's returns was the outperformance of commodity- and
cyclical-related stocks, compared to telecommunications stocks. We held
significant positions in chemical companies we believed were undervalued, and
maintained relatively low exposure to telecommunications stocks that had
performed well during the past several years, but which we found expensive.
Despite the overwhelming positive news, there have been some disappointments in
1999. Specifically, our investments in the financial sector have underperformed
and, as of August 31, 1999, were compellingly cheap. Many investors have been
merciless in their selling of these stocks because of 1) fears of the Internet
permanently damaging existing franchises (i.e., Morgan Stanley Dean Witter & Co.
and Merrill Lynch),
4
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2) concerns about rising interest rates, and 3) worries over specific company
and industry fundamentals (for example, UNUMProvident and most real estate
stocks). Our research indicates, however, that while some of the aforementioned
concerns may be legitimate, the magnitude of potential problems has been
distorted, and we believe that these stocks remain excellent values.
To pick just one example, investment brokerage stocks could suffer during the
fourth quarter of 1999 if stock market volume shrinks and merger activity eases.
but, as of August 31, prices of these stocks had fallen significantly because
many investors had already taken these possibilities into consideration. Even
more importantly, corporate merger activity could begin to surge again, with
over $1 trillion in merger activity expected in europe for several years
beginning in 2000, compared with only $200 billion in merger work in 1994.
While we purchased most of our financial stocks several years ago on valuations
we considered compelling, and increased some positions last summer during the
August and September sell-off which made valuations even more compelling, these
stocks (particularly insurance-related stocks) continued to suffer as of the
close of the reporting period. Nonetheless, our confidence in these investments
remains firm, not because of improved pricing, but because of indications that
several company reorganizations are being considered. The results of such
consolidations and reorganizations could act as a catalyst to improve the
industry-wide pricing condition.
TOP 10 EQUITY HOLDINGS
8/31/99
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------- ----------
Cheung Kong
Holdings Ltd.,
Multi-Industry, Hong Kong* 2.8%
Development Bank of
Singapore Ltd., fgn.,
Banking, Singapore 2.3%
Morgan Stanley Dean
Witter & Co.,
Financial Services, U.S. 1.9%
Raytheon Co., A,
Aerospace & Military
Technology, U.S. 1.8%
National Westminster
Bank PLC,
Banking, United Kingdom 1.7%
Broken Hill Proprietary
Co. Ltd.,
Multi-Industry, Australia 1.6%
Korea Electric Power Corp.,
Utilities Electrical & Gas,
South Korea 1.6%
Nomura Securities Co. Ltd.,
Financial Services, Japan 1.4%
Hutchison Whampoa Ltd.,
Multi-Industry, Hong Kong* 1.3%
Entergy Corp.,
Utilities Electrical & Gas, U.S. 1.3%
* Hong Kong reverted to the sovereignty of China on July 1, 1997.
5
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Looking forward, we expect good economic news from much of Asia. At the end of
the reporting period, earnings estimates throughout the region were rising for
the first time since 1993, and we believe long-term economic growth in the area
will continue to improve. However, in our opinion, speculation in global equity
markets may, at times, be excessive, and we shall continue to adhere to our
time-tested value investing discipline by purchasing shares of companies whose
long-term economic potential, we believe, is not being appropriately recognized
by other investors.
There are, of course, special risks associated with global investing related to
market, currency, economic, social, political, and other factors. Emerging
markets involve similar but heightened risks, in addition to 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, the
consequences of severe market corrections. For example, Mexico's equity market
has increased 3,760% in the last 15 years, but has suffered eight quarterly
declines of more than 15% during that time.(2) While short-term volatility can
be disconcerting, declines in excess of 50% are not unusual in emerging markets.
These risks and other considerations are discussed in the Fund's prospectus.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of August 31, 1999, the end of the reporting period. However, market
and economic conditions
(2) Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 1999. Market returns are measured in U.S. dollars and do
not include reinvested dividends.
6
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are changing constantly, which can be expected to affect our investment
strategies and the Fund's portfolio composition. Although historical performance
is no guarantee of future results, these insights may help you understand our
investment and management philosophy.
We thank you for your continued investment in Templeton World Fund and welcome
your comments or suggestions.
Sincerely,
/s/ Jeffrey A. Everett
-----------------------
Jeffrey A. Everett, CFA
Portfolio Manager
Templeton World Fund
7
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CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. 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.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
PERFORMANCE SUMMARY AS OF 8/31/99
Distributions will vary based on earnings of the Fund's portfolio and any
profits realized from the sale of the portfolio's securities, as well as the
level of each class's operating expenses. Past distributions are not indicative
of future trends. All total returns include reinvested distributions at net
asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 8/31/99 8/31/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$2.69 $18.14 $15.45
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
--------------------------------
<S> <C>
Dividend Income $0.3600
Long-Term Capital Gain $1.3850
TOTAL $1.7450
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 8/31/99 1/1/99
- ------- ------ ------- ------
<S> <C> <C> <C>
Net Asset Value +$2.12 $18.05 $15.93
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 8/31/99 8/31/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value +$2.55 $17.71 $15.16
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS (9/1/98 - 8/31/99)
--------------------------------
<S> <C>
Dividend Income $0.2842
Long-Term Capital Gain $1.3850
TOTAL $1.6692
</TABLE>
Templeton World Fund paid distributions derived from long-term capital gains of
$1.3850 per share in October, 1998. The Fund hereby designates such
distributions as capital gain dividends per Internal Revenue Code Section 852
(b)(3).
Past performance is not predictive of future results.
8
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PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/17/78)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 31.42% 97.39% 223.83% 2,431.96%
Average Annual Total Return(2) 23.89% 13.22% 11.80% 15.81%
Value of $10,000 Investment(3) $ 12,389 $ 18,604 $ 30,514 $ 238,639
</TABLE>
<TABLE>
<CAPTION>
8/31/95 8/31/96 8/31/97 8/31/98 8/31/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year
Total Return(4) 9.87% 11.73% 32.70% -7.80% 31.42%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- ------- --------
<S> <C>
Cumulative Total Return(1) 13.31%
Aggregate Total Return(2) 9.31%
Value of $10,000 Investment(3) $10,931
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ------- ------ ------ --------
<S> <C> <C> <C>
Cumulative Total Return(1) 30.39% 57.00% 89.39%
Average Annual Total Return(2) 28.12% 15.84% 15.59%
Value of $10,000 Investment(3) $12,812 $15,545 $18,750
</TABLE>
<TABLE>
<CAPTION>
8/31/96 8/31/97 8/31/98 8/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 10.88% 31.61% -8.51% 30.39%
</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 current, applicable,
maximum sales charge(s) for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception; therefore, average annual total returns are not provided.
(3) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
(4) One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic 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.
9
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AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS A
- -------
1-Year 23.89%
5-Year 13.22%
10-Year 11.80%
Since Inception (1/17/78) 15.81%
AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS C
- -------
1-Year 28.12%
3-Year 15.84%
Since Inception (5/1/95) 15.59%
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged indexes differ from the Fund in composition, do not pay management
fees or expenses and include reinvested dividends. One cannot invest directly in
an index. Total return represents the change in value of an investment over the
periods shown. It includes the current, applicable, maximum sales charges, Fund
expenses, account fees, and reinvested distributions.
CLASS A
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
TEMPLETON MSCI WORLD CPI
WORLD FUND - INDEX
CLASS A
09/01/1989 $9,423 $10,000 $10,000
09/30/1989 $9,477 $10,284 $10,032
10/31/1989 $9,130 $9,943 $10,081
11/30/1989 $9,245 $10,341 $10,104
12/31/1989 $9,456 $10,675 $10,119
01/31/1990 $8,811 $10,179 $10,224
02/28/1990 $8,852 $9,744 $10,272
03/31/1990 $8,881 $9,157 $10,328
04/30/1990 $8,532 $9,027 $10,345
05/31/1990 $9,287 $9,979 $10,369
06/30/1990 $9,363 $9,909 $10,425
07/31/1990 $9,514 $10,001 $10,464
08/31/1990 $8,538 $9,067 $10,560
09/30/1990 $7,696 $8,113 $10,649
10/31/1990 $7,533 $8,872 $10,713
11/30/1990 $7,806 $8,728 $10,737
12/31/1990 $7,952 $8,912 $10,737
01/31/1991 $8,465 $9,240 $10,801
02/28/1991 $9,112 $10,097 $10,817
03/31/1991 $9,118 $9,801 $10,833
04/30/1991 $9,266 $9,879 $10,849
05/31/1991 $9,605 $10,104 $10,880
06/30/1991 $9,157 $9,482 $10,914
07/31/1991 $9,605 $9,932 $10,929
08/31/1991 $9,650 $9,902 $10,961
09/30/1991 $9,746 $10,163 $11,010
10/31/1991 $9,871 $10,330 $11,026
11/30/1991 $9,586 $9,881 $11,057
12/31/1991 $10,319 $10,603 $11,066
01/31/1992 $10,377 $10,408 $11,082
02/29/1992 $10,515 $10,230 $11,122
03/31/1992 $10,276 $9,750 $11,178
04/30/1992 $10,551 $9,887 $11,194
05/31/1992 $10,978 $10,282 $11,210
06/30/1992 $10,768 $9,940 $11,250
07/31/1992 $10,790 $9,967 $11,275
08/31/1992 $10,428 $10,211 $11,306
09/30/1992 $10,428 $10,119 $11,338
10/31/1992 $10,241 $9,848 $11,378
11/30/1992 $10,420 $10,025 $11,394
12/31/1992 $10,655 $10,109 $11,387
01/31/1993 $10,794 $10,144 $11,443
02/28/1993 $11,038 $10,386 $11,483
03/31/1993 $11,487 $10,991 $11,524
04/30/1993 $11,724 $11,501 $11,555
05/31/1993 $12,075 $11,769 $11,571
06/30/1993 $11,977 $11,671 $11,587
07/31/1993 $12,319 $11,914 $11,587
08/31/1993 $13,005 $12,462 $11,619
09/30/1993 $12,939 $12,234 $11,643
10/31/1993 $13,566 $12,573 $11,692
11/30/1993 $13,276 $11,864 $11,700
12/31/1993 $14,236 $12,446 $11,699
01/31/1994 $15,096 $13,270 $11,732
02/28/1994 $14,707 $13,100 $11,773
03/31/1994 $14,145 $12,537 $11,813
04/30/1994 $14,435 $12,927 $11,829
05/31/1994 $14,571 $12,962 $11,836
06/30/1994 $14,245 $12,929 $11,876
07/31/1994 $14,915 $13,177 $11,908
08/31/1994 $15,459 $13,576 $11,957
09/30/1994 $15,051 $13,222 $11,988
10/31/1994 $15,192 $13,600 $11,997
11/30/1994 $14,480 $13,013 $12,013
12/31/1994 $14,360 $13,141 $12,013
01/31/1995 $14,239 $12,946 $12,060
02/28/1995 $14,684 $13,138 $12,108
03/31/1995 $14,968 $13,773 $12,149
04/30/1995 $15,566 $14,256 $12,189
05/31/1995 $16,063 $14,381 $12,213
06/30/1995 $16,316 $14,379 $12,237
07/31/1995 $17,117 $15,102 $12,237
08/31/1995 $16,985 $14,768 $12,270
09/30/1995 $17,390 $15,201 $12,293
10/31/1995 $16,775 $14,964 $12,333
11/30/1995 $17,211 $15,487 $12,324
12/31/1995 $17,455 $15,943 $12,316
01/31/1996 $18,146 $16,233 $12,389
02/29/1996 $18,192 $16,335 $12,429
03/31/1996 $18,438 $16,610 $12,493
04/30/1996 $18,918 $17,003 $12,541
05/31/1996 $19,117 $17,021 $12,565
06/30/1996 $19,106 $17,111 $12,573
07/31/1996 $18,427 $16,509 $12,597
08/31/1996 $18,977 $16,702 $12,621
09/30/1996 $19,398 $17,359 $12,661
10/31/1996 $19,727 $17,483 $12,701
11/30/1996 $20,809 $18,466 $12,725
12/31/1996 $21,199 $18,174 $12,725
01/31/1997 $21,853 $18,395 $12,765
02/28/1997 $22,122 $18,610 $12,803
03/31/1997 $22,006 $18,246 $12,835
04/30/1997 $22,506 $18,845 $12,851
05/31/1997 $23,697 $20,012 $12,843
06/30/1997 $24,914 $21,013 $12,858
07/31/1997 $26,169 $21,984 $12,874
08/31/1997 $25,183 $20,517 $12,898
09/30/1997 $26,899 $21,634 $12,931
10/31/1997 $24,705 $20,499 $12,963
11/30/1997 $24,734 $20,865 $12,955
12/31/1997 $25,276 $21,122 $12,940
01/31/1998 $25,231 $21,715 $12,963
02/28/1998 $26,899 $23,187 $12,989
03/31/1998 $28,357 $24,170 $13,015
04/30/1998 $28,387 $24,409 $13,038
05/31/1998 $27,410 $24,107 $13,062
06/30/1998 $27,050 $24,683 $13,077
07/31/1998 $27,110 $24,646 $13,093
08/31/1998 $23,218 $21,363 $13,109
09/30/1998 $23,248 $21,745 $13,124
10/31/1998 $25,333 $23,715 $13,156
11/30/1998 $26,729 $25,129 $13,156
12/31/1998 $26,796 $26,360 $13,148
01/31/1999 $26,527 $26,941 $13,180
02/28/1999 $25,972 $26,228 $13,193
03/31/1999 $27,772 $27,324 $13,233
04/30/1999 $30,598 $28,405 $13,330
05/31/1999 $29,555 $27,371 $13,330
06/30/1999 $30,968 $28,651 $13,330
07/31/1999 $30,564 $28,569 $13,370
08/31/1999 $30,514 $28,523 $13,402
CLASS C
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/99)
[GRAPH]
Templeton MSCI World CPI
World Index
Fund -
Class C
05/01/1995 $9,897 $10,000 $10,000
05/31/1995 $10,200 $10,088 $10,020
06/30/1995 $10,354 $10,086 $10,040
07/31/1995 $10,857 $10,593 $10,040
08/31/1995 $10,767 $10,359 $10,067
09/30/1995 $11,018 $10,663 $10,086
10/31/1995 $10,617 $10,497 $10,119
11/30/1995 $10,887 $10,863 $10,112
12/31/1995 $11,038 $11,183 $10,105
01/31/1996 $11,469 $11,387 $10,164
02/29/1996 $11,492 $11,458 $10,197
03/31/1996 $11,633 $11,651 $10,250
04/30/1996 $11,923 $11,927 $10,289
05/31/1996 $12,050 $11,940 $10,309
06/30/1996 $12,035 $12,002 $10,316
07/31/1996 $11,596 $11,581 $10,335
08/31/1996 $11,938 $11,716 $10,355
09/30/1996 $12,191 $12,177 $10,388
10/31/1996 $12,395 $12,264 $10,421
11/30/1996 $13,065 $12,953 $10,441
12/31/1996 $13,297 $12,748 $10,441
01/31/1997 $13,703 $12,904 $10,473
02/28/1997 $13,865 $13,054 $10,505
03/31/1997 $13,776 $12,799 $10,531
04/30/1997 $14,083 $13,219 $10,544
05/31/1997 $14,813 $14,038 $10,537
06/30/1997 $15,566 $14,739 $10,550
07/31/1997 $16,336 $15,421 $10,563
08/31/1997 $15,712 $14,392 $10,583
09/30/1997 $16,774 $15,175 $10,609
10/31/1997 $15,390 $14,379 $10,636
11/30/1997 $15,399 $14,636 $10,629
12/31/1997 $15,721 $14,816 $10,617
01/31/1998 $15,683 $15,232 $10,636
02/28/1998 $16,717 $16,265 $10,657
03/31/1998 $17,608 $16,954 $10,678
04/30/1998 $17,618 $17,122 $10,697
05/31/1998 $16,992 $16,910 $10,717
06/30/1998 $16,764 $17,314 $10,730
07/31/1998 $16,793 $17,288 $10,742
08/31/1998 $14,375 $14,985 $10,755
09/30/1998 $14,384 $15,253 $10,768
10/31/1998 $15,664 $16,635 $10,794
11/30/1998 $16,521 $17,627 $10,794
12/31/1998 $16,542 $18,491 $10,788
01/31/1999 $16,373 $18,898 $10,814
02/28/1999 $16,023 $18,398 $10,825
03/31/1999 $17,124 $19,167 $10,858
04/30/1999 $18,839 $19,925 $10,937
05/31/1999 $18,193 $19,199 $10,937
06/30/1999 $19,050 $20,098 $10,937
07/31/1999 $18,786 $20,040 $10,969
08/31/1999 $18,743 $20,007 $10,996
- -
*Source: Morgan Stanley Capital International(R). The unmanaged Morgan Stanley
Capital International (MSCI) World Index tracks the performance of approximately
1,450 securities representing the stock markets of 22 countries, and is designed
to measure stock market performance. It includes reinvested dividends.
**Source: Consumer Price Index, U.S. Bureau of Labor Statistics (8/31/99). The
Consumer Price Index is a commonly used measure of inflation.
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.
10
PAGE
TEMPLETON WORLD FUND
CLASS A
If you had invested $10,000 in Templeton World Fund - Class A at inception, it
would have been worth more than $238,000 on August 31, 1999. The chart below
illustrates the cumulative total return of a hypothetical $10,000 investment in
the Fund on January 17, 1978 (inception), with income dividends and capital
gains reinvested as shown through August 31, 1999.*
[3-D GRAPH]
Templeton World
<TABLE>
<CAPTION>
Principal + Principal + Total Value Principal Income Cap Gains
Dividends Cap Gains
<S> <C> <C> <C> <C> <C> <C>
1/17/78 $9,425 $9,425 $9,425 $9,425 $0 $0
12/29/1978 $11,395 $11,405 $11,452 $11,348 $47 $57
12/31/1979 $14,406 $14,388 $14,675 $14,119 $287 $269
12/31/1980 $17,349 $16,973 $17,734 $16,588 $761 $385
12/31/1981 $17,785 $17,405 $18,837 $16,353 $1,432 $1,052
12/31/1982 $21,080 $20,021 $22,487 $18,614 $2,466 $1,407
12/30/1983 $27,121 $26,233 $30,130 $23,224 $3,897 $3,009
12/31/1984 $26,241 $27,017 $31,561 $21,697 $4,544 $5,320
12/31/1985 $33,383 $34,640 $41,519 $26,504 $6,879 $8,136
12/31/1986 $36,327 $40,184 $48,726 $27,785 $8,542 $12,399
12/31/1987 $33,237 $41,022 $50,394 $23,865 $9,372 $17,157
12/30/1988 $38,712 $48,297 $60,317 $26,692 $12,020 $21,605
12/29/1989 $46,883 $57,755 $73,950 $30,688 $16,195 $27,067
12/31/1990 $38,148 $47,435 $62,190 $23,393 $14,755 $24,042
12/31/1991 $46,167 $61,438 $80,706 $26,899 $19,268 $34,539
12/31/1992 $44,660 $63,289 $83,330 $24,619 $20,041 $38,670
12/31/1993 $55,556 $85,391 $111,333 $29,614 $25,942 $55,777
12/30/1994 $52,040 $86,977 $112,307 $26,710 $25,330 $60,267
12/29/1995 $57,767 $106,848 $136,510 $28,105 $29,662 $78,743
12/31/1996 $68,294 $128,697 $165,794 $31,197 $37,097 $97,500
12/31/1997 $73,648 $155,737 $197,679 $31,706 $41,942 $124,031
12/31/1998 $74,362 $165,233 $209,566 $30,029 $44,333 $135,204
08/31/1999 $84,678 $188,155 $238,639 $34,194 $50,484 $153,961
</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 A shares implemented a plan of distribution under Rule 12b-1, which will
affect subsequent performance.
Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can go 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 A 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.
11
PAGE
TEMPLETON WORLD FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
1999++ 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $15.45 $19.66 $16.21 $16.76 $17.06
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .33 .42 .45 .41 .33
Net realized and unrealized gains (losses)......... 4.10 (1.59) 4.47 1.29 1.11
------------------------------------------------------------------
Total from investment operations.................... 4.43 (1.17) 4.92 1.70 1.44
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.36) (.44) (.43) (.37) (.28)
Net realized gains................................. (1.38) (2.60) (1.04) (1.88) (1.46)
------------------------------------------------------------------
Total distributions................................. (1.74) (3.04) (1.47) (2.25) (1.74)
------------------------------------------------------------------
Net asset value, end of year........................ $18.14 $15.45 $19.66 $16.21 $16.76
==================================================================
Total Return*....................................... 31.42% (7.80)% 32.70% 11.73% 9.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $9,115,995 $7,852,041 $8,649,994 $6,483,146 $5,868,967
Ratios to average net assets:
Expenses........................................... 1.04% 1.04% 1.03% 1.03% 1.05%
Net investment income.............................. 1.99% 2.34% 2.58% 2.66% 2.18%
Portfolio turnover rate............................. 35.81% 43.36% 39.16% 22.05% 34.05%
</TABLE>
*Total return does not reflect sales commissions.
++Based on average weighted shares outstanding.
12
PAGE
TEMPLETON WORLD FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
----------------
PERIOD ENDED
AUGUST 31, 1999+
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $15.93
------
Income from investment operations:
Net investment income...................................... .15
Net realized and unrealized gains.......................... 1.97
----------------
Total from investment operations............................ 2.12
----------------
Net asset value, end of period.............................. $18.05
================
Total Return*............................................... 13.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $9,261
Ratios to average net assets:
Expenses................................................... 1.85%**
Net investment income...................................... 1.27%**
Portfolio turnover rate..................................... 35.81%
</TABLE>
*Total return does not reflect the contingent deferred sales charge and is not
annualized.
**Annualized.
+Effective date of Class B shares was January 1, 1999. Based on average weighted
shares outstanding.
13
PAGE
TEMPLETON WORLD FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1999++ 1998 1997 1996 1995+
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $15.16 $19.39 $16.04 $16.71 $15.36
-------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .20 .33 .34 .45 .03
Net realized and unrealized gains (losses)......... 4.02 (1.61) 4.39 1.11 1.32
-------------------------------------------------------------
Total from investment operations.................... 4.22 (1.28) 4.73 1.56 1.35
-------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.29) (.35) (.34) (.35) --
Net realized gains................................. (1.38) (2.60) (1.04) (1.88) --
-------------------------------------------------------------
Total distributions................................. (1.67) (2.95) (1.38) (2.23) --
-------------------------------------------------------------
Net asset value, end of year........................ $17.71 $15.16 $19.39 $16.04 $16.71
=============================================================
Total Return*....................................... 30.39% (8.51)% 31.61% 10.88% 8.79%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $417,439 $325,319 $207,679 $58,619 $7,623
Ratios to average net assets:
Expenses........................................... 1.81% 1.80% 1.83% 1.84% 1.82%**
Net investment income.............................. 1.22% 1.66% 1.92% 2.14% 1.37%**
Portfolio turnover rate............................. 35.81% 43.36% 39.16% 22.05% 34.05%
</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.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
14
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 75.2%
AEROSPACE & MILITARY TECHNOLOGY 2.2%
Boeing Co. ................................................. United States 607,000 $ 27,504,687
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 125,000 220,537
Raytheon Co., A............................................. United States 2,530,015 169,827,257
Rolls-Royce PLC............................................. United Kingdom 4,058,398 16,134,793
--------------
213,687,274
--------------
APPLIANCES & HOUSEHOLD DURABLES .8%
Guangdong Kelon Electrical Holdings. Ltd., H................ China 618,700 633,428
Laox Co. Ltd. .............................................. Japan 60,000 475,535
Sony Corp. ................................................. Japan 561,500 72,616,809
--------------
73,725,772
--------------
AUTOMOBILES 2.6%
Autoliv Inc., SDR........................................... Sweden 17,000 592,808
Delphi Automotive Systems Corp. ............................ United States 505,200 9,472,500
Fiat SpA, di Risp........................................... Italy 10,571 169,862
Ford Motor Co. ............................................. United States 1,569,400 81,804,975
General Motors Corp. ....................................... United States 722,820 47,796,472
Volkswagen AG............................................... Germany 771,365 46,481,514
Volvo AB, B................................................. Sweden 2,333,326 65,261,933
Weifu Fuel Injection Co. Ltd., B............................ China 206,100 99,797
--------------
251,679,861
--------------
BANKING 7.3%
*Banca Nazionale Del Lavoro SpA............................. Italy 8,468,850 27,560,102
Banco Popular Espanol SA.................................... Spain 422,216 30,927,573
*Bangkok Bank Public Co. Ltd., fgn. ........................ Thailand 17,828,000 45,319,515
Bank Handlowy W Warszawie SA, GDR, 144A..................... Poland 16,400 241,900
Banque Nationale de Paris BNP............................... France 774,243 59,208,020
*Banque Nationale De Paris, wts., 7/01/02................... France 133,341 1,170,387
Credit Suisse Group, Reg D.................................. Switzerland 111,530 21,053,119
Development Bank of Singapore Ltd., fgn. ................... Singapore 18,769,657 215,077,112
Foreningssparbanken AB, A................................... Sweden 12,000 180,167
*Hambrecht & Quist Group.................................... United States 3,000 114,562
HSBC Holdings PLC........................................... Hong Kong 8,466,732 104,946,196
Kookmin Bank, GDR, 144A..................................... South Korea 6,939 92,809
Merita AS................................................... Finland 123,100 650,119
National Australia Bank Ltd. ............................... Australia 1,896,282 28,622,623
National Westminster Bank PLC............................... United Kingdom 8,005,242 163,732,177
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 7,500 131,250
Unidanmark AS, A............................................ Denmark 4,883 320,488
--------------
699,348,119
--------------
</TABLE>
15
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BROADCASTING & PUBLISHING .5%
*Scholastic Corp. .......................................... United States 337,900 $ 13,389,288
South China Morning Post Ltd. .............................. Hong Kong 19,438,700 12,328,879
Television Broadcasts Ltd. ................................. Hong Kong 153,000 681,738
*Wolters Kluwer NV.......................................... Netherlands 615,650 22,889,760
--------------
49,289,665
--------------
BUILDING MATERIALS & COMPONENTS 1.7%
Anglian Group PLC........................................... United Kingdom 148,240 754,417
Caradon PLC................................................. United Kingdom 10,418,187 29,064,582
Cementos Diamante SA, ADR, 144A............................. Colombia 28,500 30,281
Cemex SA.................................................... Mexico 14,548,095 64,216,988
CSR Ltd. ................................................... Australia 8,399,444 21,406,811
Det Danske Traelastkompagni AS.............................. Denmark 4,300 359,194
Gujarat Ambuja Cements Ltd. ................................ India 1,955,586 23,889,484
Gujarat Ambuja Cements Ltd., GDR, Reg S..................... India 576,000 7,372,800
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 647,000 8,281,600
Hepworth PLC................................................ United Kingdom 129,400 474,397
Heywood Williams Group PLC.................................. United Kingdom 105,000 445,724
Nichiha Corp. .............................................. Japan 30,100 373,350
Pioneer International Ltd. ................................. Australia 322,014 820,684
Svedala Industri, A......................................... Sweden 28,500 596,985
Williams PLC................................................ United Kingdom 37,000 210,907
--------------
158,298,204
--------------
BUSINESS & PUBLIC SERVICES 1.3%
Columbia HCA Healthcare Corp. .............................. United States 4,912,900 120,980,162
Koninklijke Ahrend NV....................................... Netherlands 10,000 144,706
--------------
121,124,868
--------------
CHEMICALS 3.0%
Akzo Nobel NV............................................... Netherlands 1,070,644 49,814,490
BASF AG..................................................... Germany 369,860 16,525,036
Cookson Group PLC........................................... United Kingdom 13,006,742 48,311,772
DSM NV, Br. ................................................ Netherlands 500,361 58,848,901
Hoechst AG.................................................. Germany 617,950 26,108,265
Imperial Chemical Industries PLC............................ United Kingdom 5,119,600 58,241,820
Kemira OY................................................... Finland 5,423,800 30,935,854
--------------
288,786,138
--------------
CONSTRUCTION & HOUSING
Fletcher Challenge Building Ltd., ADR....................... New Zealand 15,600 208,650
Hollandsche Beton Groep NV.................................. Netherlands 27,693 327,607
--------------
536,257
--------------
</TABLE>
16
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
DATA PROCESSING & REPRODUCTION 1.4%
*3Com Corp. ................................................ United States 3,900 $ 96,769
Compaq Computer Corp. ...................................... United States 13,000 301,437
*Computer Horizons Corp. ................................... United States 10,000 130,000
International Business Machines Corp. ...................... United States 600,000 74,737,500
*Intuit Inc. ............................................... United States 146,100 13,085,081
*Newbridge Networks Corp. .................................. Canada 1,623,400 44,542,038
*Smart Modular Technologies Inc. ........................... United States 20,000 416,250
--------------
133,309,075
--------------
ELECTRICAL & ELECTRONICS 2.8%
*ABB Ltd. .................................................. Switzerland 550,000 56,085,407
*ABB Ltd., fgn. ............................................ Sweden 331,024 33,908,016
Alcatel SA.................................................. France 671,255 102,806,417
General Electric Co. PLC.................................... United Kingdom 1,020,700 10,224,889
Koninklijke Philips Electronics NV.......................... Netherlands 577,723 59,526,695
Motorola Inc. .............................................. United States 5,031 464,110
--------------
263,015,534
--------------
ELECTRONIC COMPONENTS & INSTRUMENTS 1.2%
BICC PLC.................................................... United Kingdom 95,041 172,688
Harman International Industries Inc. ....................... United States 282,600 12,010,500
Hewlett Packard Co. ........................................ United States 961,000 101,265,375
Twentsche Kabel Holdings NV................................. Netherlands 13,500 440,613
--------------
113,889,176
--------------
ENERGY EQUIPMENT & SERVICES
Sunoco Inc. ................................................ United States 10,800 351,675
--------------
ENERGY SOURCES 4.1%
MOL Magyar Olay-Es Gazipari RT, GDS 144A.................... Hungary 22,456 570,382
Norsk Hydro ASA............................................. Norway 353,433 14,727,313
Occidental Petroleum Corp. ................................. United States 2,927,800 63,496,663
Perez Companc SA, Reg B..................................... Argentina 10,041,700 58,448,539
Royal Dutch Petroleum Co., Br. ............................. Netherlands 1,518,000 93,316,715
Shell Transport & Trading Co. PLC........................... United Kingdom 42,200 336,224
Societe Elf Aquitaine SA, Br. .............................. France 692,500 121,420,650
Valero Energy Corp. ........................................ United States 1,899,550 40,365,438
--------------
392,681,924
--------------
FINANCIAL SERVICES 5.4%
AXA SA...................................................... France 406,063 50,524,660
Golden West Financial Corp. ................................ United States 253,800 23,048,212
Ing Groep NV................................................ Netherlands 1,480,356 81,151,810
Lend Lease Corp. Ltd. ...................................... Australia 3,780,563 46,108,951
Merrill Lynch & Co. Inc. ................................... United States 5,200 388,050
</TABLE>
17
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FINANCIAL SERVICES (CONT.)
Morgan Stanley Dean Witter & Co. ........................... United States 2,125,172 $ 182,366,322
Nomura Securities Co. Ltd. ................................. Japan 9,170,000 134,231,839
--------------
517,819,844
--------------
FOOD & HOUSEHOLD PRODUCTS .2%
Archer Daniels Midland Co. ................................. United States 199,021 2,587,278
Devro PLC................................................... United Kingdom 151,200 312,412
IBP Inc. ................................................... United States 20,000 458,750
Illovo Sugar Ltd. .......................................... South Africa 258,900 234,125
McBride PLC................................................. United Kingdom 2,561,600 3,912,978
Northern Foods PLC.......................................... United Kingdom 172,870 365,526
Panamerican Beverages Inc., A............................... Mexico 753,400 14,173,337
Showa Sangyo Co. ........................................... Japan 255,000 534,908
Tate & Lyle PLC............................................. United Kingdom 70,500 450,608
--------------
23,029,922
--------------
FOREST PRODUCTS & PAPER 2.8%
Assidoman AB................................................ Sweden 665,230 12,847,098
Assidoman AB, 144A.......................................... Sweden 199,569 3,854,129
Bowater Inc. ............................................... United States 529,700 28,405,162
Georgia Pacific Corp. ...................................... United States 9,600 397,200
Georgia Pacific Timber Group................................ United States 4,800 115,500
Metsa Serla OY, B........................................... Finland 2,552,500 24,156,747
*Shorewood Packaging Corp. ................................. United States 20,100 296,475
St. Joe Co. ................................................ United States 1,126,200 26,324,925
*Stora Enso OYJ, A, fgn. ................................... Finland 126,055 1,464,595
*Stora Enso OYJ, R.......................................... Finland 2,638,100 35,109,649
*Stora Enso OYJ, R, fgn. ................................... Finland 2,631,641 37,525,380
UPM-Kymmene Corp. .......................................... Finland 2,802,290 96,936,887
--------------
267,433,747
--------------
HEALTH & PERSONAL CARE 1.5%
China Pharmaceutical Enterprise & Invt. Corp. Ltd. ......... China 578,000 110,164
Internatio-Muller NV........................................ Netherlands 39,114 877,922
Medeva PLC.................................................. United Kingdom 79,000 153,069
Ono Pharmaceutical Co Ltd. ................................. Japan 265,500 8,668,795
Pharmacia & Upjohn Inc. .................................... United States 2,152,830 112,485,368
Zurich Allied PLC........................................... United Kingdom 2,015,000 24,510,741
--------------
146,806,059
--------------
INDUSTRIAL COMPONENTS .2%
Goodyear Tire & Rubber Co. ................................. United States 301,400 16,916,075
Sylea SA.................................................... France 4,000 244,626
Weir Group PLC.............................................. United Kingdom 102,800 504,157
--------------
17,664,858
--------------
</TABLE>
18
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INSURANCE 6.2%
Ace Ltd. ................................................... Bermuda 4,507,500 $ 96,629,531
Allstate Corp. ............................................. United States 2,799,300 91,852,031
American General Corp. ..................................... United States 4,034 286,414
American International Group Inc. .......................... United States 837,588 77,633,891
Muenchener Rueckversicherungs-Gesellschaft, Reg D........... Germany 27,041 5,169,708
*Muenchener Rueckversicherungs-Gesellschaft, wts.,
6/03/02................................................... Germany 1,040 34,712
Partnerre Ltd. ............................................. Bermuda 524,600 19,279,050
Reliastar Financial Corp. .................................. United States 10,386 468,019
+SCOR SA.................................................... France 1,942,833 96,900,527
Torchmark Corp. ............................................ United States 4,418 125,913
Unumprovident Corp. ........................................ United States 2,239,600 80,765,575
+W. R. Berkley Corp. ....................................... United States 1,863,100 42,385,525
XL Capital Ltd., A.......................................... Bermuda 722,875 36,369,648
Zurich Allied AG............................................ Switzerland 74,300 43,596,264
--------------
591,496,808
--------------
MACHINERY & ENGINEERING .5%
Arcadis NV.................................................. Netherlands 78,000 646,739
First Tractor Company Ltd., H............................... China 3,308,000 681,609
IHC Caland NV............................................... Netherlands 5,000 235,279
Invensys PLC................................................ United Kingdom 7,388,994 37,841,401
KCI Konecranes International PLC............................ Finland 14,600 553,620
Laird Group PLC............................................. United Kingdom 128,500 631,229
Makita Corp. ............................................... Japan 148,000 1,754,754
Mckechnie Group PLC......................................... United Kingdom 394,000 3,170,829
METSO OYJ................................................... Finland 26,500 335,886
SNC-Lavalin Group Inc., A................................... Canada 31,800 256,795
VA Technologie AG, Br. ..................................... Austria 1,600 141,114
--------------
46,249,255
--------------
MERCHANDISING 3.7%
Best Denki Co. Ltd. ........................................ Japan 26,000 248,985
Coles Myer Ltd. ............................................ Australia 6,969,277 38,814,169
Dairy Farm International Holdings Ltd. ..................... Hong Kong 29,643,409 29,495,192
David Jones Ltd. ........................................... Australia 13,322,194 10,440,524
Grupo Imsa SA de CV, ADR.................................... Mexico 22,200 355,200
Gucci Group NV.............................................. Netherlands 1,210,800 101,404,500
J. Sainsbury PLC............................................ United Kingdom 4,851,300 33,289,258
Li & Fung Ltd. ............................................. Hong Kong 5,688,000 18,239,339
Marks & Spencer PLC......................................... United Kingdom 10,580,071 70,430,599
Matsuzakaya Co. Ltd. ....................................... Japan 14,000 61,799
Safeway PLC................................................. United Kingdom 4,426,689 18,399,754
Sears, Roebuck & Co. ....................................... United States 431,700 16,188,750
</TABLE>
19
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MERCHANDISING (CONT.)
Takashimaya Co. Ltd. ....................................... Japan 2,182,000 $ 19,502,577
Tesco PLC................................................... United Kingdom 90,358 266,609
--------------
357,137,255
--------------
METALS & MINING 3.2%
Alcan Aluminum Ltd. ........................................ Canada 1,123,391 36,964,548
Anglo American Platinum Corp. Ltd. ......................... South Africa 4,034,172 91,800,297
Barrick Gold Corp. ......................................... Canada 627,700 12,114,837
British Steel PLC........................................... United Kingdom 25,213,500 66,184,880
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 691,280 17,195,590
Goldfields Ltd. ............................................ Australia 572,995 397,941
Iscor Ltd. ................................................. South Africa 689,200 256,099
Pechiney SA, A.............................................. France 8,322 484,333
Pohang Iron & Steel Co. Ltd. ............................... South Korea 471,545 64,479,978
Union Miniere............................................... Belgium 350,000 14,014,787
WMC Ltd. ................................................... Australia 124,405 547,481
--------------
304,440,771
--------------
MULTI-INDUSTRY 6.4%
Alfa SA de CV, A............................................ Mexico 83,200 314,916
Broken Hill Proprietary Co. Ltd. ........................... Australia 14,189,071 152,333,463
Cheung Kong Holdings Ltd. .................................. Hong Kong 31,083,200 270,196,455
Elementis PLC............................................... United Kingdom 10,675,076 20,083,033
First Pacific Co. Ltd. ..................................... Hong Kong 30,535,244 23,594,066
Hutchison Whampoa Ltd. ..................................... Hong Kong 13,053,100 127,334,607
Metra OY, B................................................. Finland 20,600 369,897
Saab AB, B.................................................. Sweden 30,400 237,414
Swire Pacific Ltd., A....................................... Hong Kong 1,436,800 7,419,777
Swire Pacific Ltd., B....................................... Hong Kong 1,980,800 1,543,285
Wheelock and Company Ltd. .................................. Hong Kong 3,706,462 4,820,933
--------------
608,247,846
--------------
REAL ESTATE 4.6%
American Health Properties Inc. ............................ United States 443,400 8,757,150
*Corporacion Geo SA, Series B............................... Mexico 50,000 165,529
Crescent Real Estate Equities Co. .......................... United States 2,715,846 56,353,804
Duke-Weeks Realty Corp. .................................... United States 525,642 11,794,092
Federal Realty Investment Trust............................. United States 300,000 6,562,500
General Growth Properties................................... United States 907,800 30,184,350
Hang Lung Development Co. Ltd. ............................. Hong Kong 271,000 312,351
Highwoods Properties Inc. .................................. United States 1,231,900 30,566,519
Hon Kwok Land Investment Co. Ltd. .......................... Hong Kong 10,484,740 864,147
Inversiones y Representacion SA............................. Argentina 9,640,884 27,961,360
Inversiones y Representacion SA, GDR........................ Argentina 750,697 21,770,213
LTC Properties Inc. ........................................ United States 21,400 238,075
National Health Investors Inc. ............................. United States 1,091,800 19,379,450
</TABLE>
20
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
REAL ESTATE (CONT.)
Nationwide Health Properties Inc. .......................... United States 400,000 $ 6,225,000
New World Development Co. Ltd. ............................. Hong Kong 44,082,678 106,159,711
Post Properties Inc. ....................................... United States 6,600 269,775
Rouse Co. .................................................. United States 2,322,100 52,827,775
Summit Properties Inc. ..................................... United States 876,400 17,418,450
Union du Credit Bail Immobilier Unibail, Reg D.............. France 300,936 41,481,012
--------------
439,291,263
--------------
RECREATION & OTHER CONSUMER GOODS 1.7%
Eastman Kodak Co. .......................................... United States 1,306,400 95,938,750
Mattel Inc. ................................................ United States 3,125,100 66,603,694
--------------
162,542,444
--------------
TELECOMMUNICATIONS 3.3%
AT&T Corp. ................................................. United States 1,100 49,500
Cable & Wireless HKT Ltd. .................................. Hong Kong 413,642 940,198
*Cable & Wireless Optus Ltd., 144A.......................... Australia 62,640 136,496
Compania Anonima Nacional Telefonos de Venezuela, ADR....... Venezuela 6,200 123,612
Embratel Participacoes SA................................... Brazil 20,000,000 109,157
*General Motors Corp., H.................................... United States 3,761 193,691
*Latitude Communications Inc. .............................. United States 25,000 348,437
*Mastec Inc. ............................................... United States 23,000 642,562
*Millicom International Cellular SA......................... Luxembourg 9,100 230,912
Nortel Networks Corp. ...................................... Canada 2,505,034 102,862,959
*Rostelecom, ADR............................................ Russia 126,400 861,100
Tele Sudeste Celular Participacoes SA....................... Brazil 39,665,900 96,172
Telecom Argentina Stet-France SA, ADR....................... Argentina 1,810,900 51,157,925
Telecom Italia SpA, di Risp................................. Italy 10,883,800 62,135,663
Telecomunicacoes Brasileiras SA............................. Brazil 147,744,000 6,071,956
Telecomunicacoes Brasileiras SA, ADR........................ Brazil 139,000 10,312,063
*Telecomunicacoes Brasileiras SA (Telebras)................. Brazil 147,744,000 3,844
Telecomunicacoes de Sao Paulo Celular (Telesp) SA........... Brazil 36,205,000 999,311
Telecomunicacoes de Sao Paulo SA (Telesp)................... Brazil 36,205,000 2,731,387
Telefonica de Argentina SA, ADR............................. Argentina 28,896 859,656
Telefonica del Peru SA, ADR................................. Peru 20,230 276,898
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 926,671 68,921,156
Telesp Participacoes SA..................................... Brazil 17,665,900 188,332
--------------
310,252,987
--------------
TEXTILES & APPAREL 1.4%
Adidas-Salomon AG........................................... Germany 1,335,800 123,809,295
*Yizheng Chemical Fibre Co. Ltd., H......................... China 17,256,000 5,111,144
--------------
128,920,439
--------------
</TABLE>
21
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 1.1%
Air New Zealand Ltd., B..................................... New Zealand 6,019 $ 10,891
British Airways PLC......................................... United Kingdom 83,697 548,416
*Fritz Cos. Inc. ........................................... United States 33,200 377,650
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 6,592,086 106,209,422
Singapore Airlines Ltd., fgn. .............................. Singapore 55,800 523,446
--------------
107,669,825
--------------
UTILITIES ELECTRICAL & GAS 4.1%
Bses Ltd., GDR, 144A........................................ India 14,600 225,941
*Centrais Geradoras do Sul do Brasil SA, ADR................ Brazil 115,480 345,479
Centrica PLC................................................ United Kingdom 11,116,800 29,628,236
Entergy Corp. .............................................. United States 4,247,300 126,622,631
Gener SA, ADR............................................... Chile 9,800 179,462
Iberdrola SA, Br. .......................................... Spain 2,518,817 36,182,637
Korea Electric Power Corp. ................................. South Korea 4,030,150 150,213,130
National Grid Group PLC..................................... United Kingdom 5,095,296 33,837,006
National Power PLC.......................................... United Kingdom 54,200 385,860
Potomac Electric Power Co. ................................. United States 27,680 733,520
Public Service Co. of New Mexico............................ United States 17,000 319,813
Texas Utilities Co. ........................................ United States 15,650 632,847
Thames Water Group PLC...................................... United Kingdom 45,364 652,840
Transportadora de Gas del Sur SA, B, Reg S, ADR............. Argentina 966,500 7,369,563
Veba AG..................................................... Germany 600 37,803
--------------
387,366,768
--------------
TOTAL COMMON STOCKS (COST $5,358,416,700)................... 7,176,093,633
--------------
PREFERRED STOCKS 3.0%
Banco Itau SA, pfd. ........................................ Brazil 48,340,000 22,384,287
Centrais Eletricas Brasileiras SA (Electrobras), ADR,
pfd. ..................................................... Brazil 23,800 187,911
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 1,552,700 34,414,683
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,566,800 34,727,201
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 7,130,650 76,208,822
Fiat SpA, pfd. ............................................. Italy 1,775,070 27,945,517
Moebel Walther AG, pfd. .................................... Germany 16,400 226,924
News Corp. Ltd., pfd. ...................................... Australia 4,394,182 29,033,423
Philippine Long Distance Telephone Co., GDR, cvt., pfd. .... Philippines 6,440 290,605
Sociedad Quimica y Minera de Chile SA, ADR, pfd. ........... Chile 9,400 282,588
Tele Celular Sul Participacoes SA, ADR, pfd. ............... Brazil 62,365 1,184,935
Tele Centro Oeste Celular Participacoes SA, ADR, pfd. ...... Brazil 207,881 701,598
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 124,730 6,821,172
Tele Leste Celular Participacoes SA, ADR, pfd. ............. Brazil 12,473 321,180
Tele Nordeste Celular Participacoes SA, ADR, pfd. .......... Brazil 31,182 775,652
Tele Norte Celular Participacoes SA, ADR, pfd. ............. Brazil 12,473 267,390
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 124,730 2,923,359
</TABLE>
22
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
*Telecomunicacoes Brasileiras SA, ADR, pfd. ................ Brazil 762,650 $ 35,749
Telecomunicacoes de Sao Paulo SA (Telesp), pfd. ............ Brazil 116,464 10,209
Telemig Celular Participacoes SA, ADR, pfd. ................ Brazil 31,182 935,460
Telesp Celular Participacoes SA, ADR, pfd. ................. Brazil 249,460 5,768,763
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 2,594,650 42,325,228
--------------
TOTAL PREFERRED STOCKS (COST $318,522,181).................. 287,772,656
--------------
PRINCIPAL
AMOUNT**
--------
BONDS 2.1%
Alfa SA de CV:
cvt., 144A, 8.00%, 9/15/00................................. Mexico $ 180,000 180,000
cvt., 8.00%, 9/15/00....................................... Mexico 60,000 60,000
Government of Italy, cvt., 5.00%, 6/28/01................... Italy 45,805,000 80,330,519
National Grid Group PLC, cvt., 144A, 4.25%, 2/17/08......... United Kingdom 16,000,000GBP 29,007,413
Sony Corp., cvt., 1.40%, 3/31/05............................ Japan 3,419,000,000JPY 55,691,860
Telefonica Europe BV, 144A, 2.00%, 7/15/02.................. Netherlands 23,471,000 38,011,519
--------------
TOTAL BONDS (COST $159,810,540)............................. 203,281,311
--------------
SHORT TERM INVESTMENTS 13.6%
Fannie Mae, 4.70% to 5.45%, with maturities to 2/24/00...... United States 147,804,000 145,525,774
Federal Farm Credit Bank, 5.60%, 3/01/00.................... United States 57,000,000 56,941,803
Federal Home Loan Bank, 5.40% to 5.691%, with maturities to
3/01/00................................................... United States 489,131,000 489,139,880
Federal Home Loan Mortgage Corp., 4.89% to 5.41%, with
maturities to 2/22/00...................................... United States 438,869,000 431,234,613
Sallie Mae, 5.421% to 5.445%, with maturities to 2/17/00.... United States 125,260,000 125,228,837
U.S. Treasury Bills, 4.32% to 4.72%, with maturities to
11/18/99.................................................. United States 46,243,000 45,984,445
--------------
TOTAL SHORT TERM INVESTMENTS (COST $1,293,948,764).......... 1,294,055,352
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST
$7,130,698,185)............................................ 8,961,202,952
--------------
</TABLE>
23
PAGE
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENTS 7.6%
CIBC Oppenheimer Corp., 5.42%, 9/01/99 (Maturity Value
$197,029,659)
Collateralized by U.S. Treasury Notes and Bonds............ United States $ 197,000,000 $ 197,000,000
Deutsche Bank, 5.43%, 9/01/99 (Maturity Value $189,028,508)
Collateralized by U.S. Treasury Notes and Bonds............ United States 189,000,000 189,000,000
Morgan Stanley Group, 5.40%, 9/01/99 (Maturity Value
$163,024,450)
Collateralized by U.S. Treasury Notes and Bonds............ United States 163,000,000 163,000,000
Paribas Corp., 5.43%, 9/01/99 (Maturity Value $175,026,396)
Collateralized by U.S. Treasury Notes and Bonds............ United States 175,000,000 175,000,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST $724,000,000)............. 724,000,000
--------------
TOTAL INVESTMENTS (COST $7,854,698,185) 101.5%.............. 9,685,202,952
OTHER ASSETS, LESS LIABILITIES (1.5%)....................... (142,508,262)
--------------
TOTAL NET ASSETS 100.0%..................................... $9,542,694,690
==============
</TABLE>
CURRENCY ABBREVIATIONS:
GBP -- British Pound
JPY -- Japanese Yen
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at August 31,
1999, were $139,286,052.
(a)At August 31, 1999, all repurchase agreements held by the Fund had been
entered into on that date.
See Notes to Financial Statements.
24
PAGE
TEMPLETON WORLD FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$7,130,698,185)........................................... $8,961,202,952
Repurchase agreements, at value and cost................... 724,000,000
Cash....................................................... 18,673,524
Receivables:
Investment securities sold................................ 21,335,883
Capital shares sold....................................... 15,702,887
Dividends and interest.................................... 22,988,937
--------------
Total assets.......................................... 9,763,904,183
--------------
Liabilities:
Payables:
Investment securities purchased........................... 203,148,273
Capital shares redeemed................................... 7,995,572
To affiliates............................................. 8,680,448
Accrued expenses........................................... 1,385,200
--------------
Total liabilities..................................... 221,209,493
--------------
Net assets, at value........................................ $9,542,694,690
==============
Net assets consist of:
Undistributed net investment income........................ $ 169,487,428
Net unrealized appreciation................................ 1,830,504,767
Accumulated net realized gain.............................. 566,638,705
Capital shares............................................. 6,976,063,790
--------------
Net assets, at value $9,542,694,690
==============
CLASS A:
Net asset value per share ($9,115,994,692 / 502,637,737
shares outstanding)...................................... $18.14
==============
Maximum offering price per share ($18.14 / 94.25%)......... $19.25
==============
CLASS B:
Net asset value and maximum offering price per share
($9,260,923 / 513,128 shares outstanding)*................ $18.05
==============
CLASS C:
Net asset value per share ($417,439,075 / 23,574,990 shares
outstanding)*............................................. $17.71
==============
Maximum offering price per share ($17.71 / 99.00%)......... $17.89
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
25
PAGE
TEMPLETON WORLD FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $14,316,833)
Dividends.................................................. $205,743,711
Interest................................................... 70,868,961
------------
Total investment income............................... $ 276,612,672
Expenses:
Management fees (Note 3)................................... 55,762,639
Administrative fees (Note 3)............................... 7,073,914
Distribution fees (Note 3)
Class A................................................... 19,638,809
Class B................................................... 24,340
Class C................................................... 3,749,222
Transfer agent fees (Note 3)............................... 8,059,000
Custodian fees............................................. 2,187,000
Reports to shareholders.................................... 955,400
Registration and filing fees............................... 138,200
Professional fees.......................................... 88,300
Directors' fees and expenses............................... 171,000
Other...................................................... 43,509
------------
Total expenses........................................ 97,891,333
--------------
Net investment income........................... 178,721,339
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 567,944,329
Foreign currency transactions............................. (5,225,732)
------------
Net realized gain..................................... 562,718,597
Net unrealized appreciation on investments............ 1,697,687,609
--------------
Net realized and unrealized gain............................ 2,260,406,206
--------------
Net increase in net assets resulting from operations........ $2,439,127,545
==============
</TABLE>
See Notes to Financial Statements.
26
PAGE
TEMPLETON WORLD FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 178,721,339 $ 218,917,865
Net realized gain from investments and foreign currency
transactions............................................. 562,718,597 965,989,691
Net unrealized appreciation (depreciation) on
investments.............................................. 1,697,687,609 (1,892,989,415)
------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 2,439,127,545 (708,081,859)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (180,149,378) (200,201,253)
Class C.................................................. (6,049,599) (4,448,539)
Net realized gains:
Class A.................................................. (693,063,687) (1,180,370,911)
Class C.................................................. (29,487,922) (33,385,853)
Capital share transactions (Note 2):
Class A.................................................. (205,209,640) 1,252,291,503
Class B.................................................. 9,040,599 --
Class C.................................................. 31,127,157 193,883,707
------------------------------------
Net increase (decrease) in net assets................... 1,365,335,075 (680,313,205)
Net assets:
Beginning of year.......................................... 8,177,359,615 8,857,672,820
------------------------------------
End of year................................................ $9,542,694,690 $ 8,177,359,615
====================================
Undistributed net investment income included in net assets:
End of year................................................ $ 169,487,428 $ 174,852,694
====================================
</TABLE>
See Notes to Financial Statements.
27
PAGE
TEMPLETON WORLD FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton World Fund (the Fund) is a separate, diversified series of Templeton
Funds, Inc. (the Company), which is an open-end investment company registered
under the Investment Company Act of 1940. The Fund seeks long-term capital
growth. Under normal market conditions, the Fund invests primarily in the equity
securities of companies located anywhere in the world, including emerging
markets. 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.
28
PAGE
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
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. MERGER WITH TEMPLETON GLOBAL INFRASTRUCTURE FUND AND TEMPLETON GROWTH AND
INCOME FUND
On July 22, 1999, the Fund acquired all of the net assets of the Templeton
Global Infrastructure Fund pursuant to a plan of reorganization approved by the
Global Infrastructure Fund's shareholders. The merger was accomplished by a
tax-free exchange of 926,808 Class A shares and 179,108 Class C shares (valued
at $18.29 per share and $17.87 per share, respectively) for the net assets of
the Global Infrastructure Fund which aggregated $20,151,975, including
$1,330,042 of unrealized appreciation. The combined net assets of the Fund
immediately after the merger were $9,638,473,098.
On July 29, 1999, the Fund acquired all of the net assets of the Templeton
Growth and Income Fund pursuant to a plan of reorganization approved by the
Growth and Income Fund's shareholders. The merger was accomplished by a tax-free
exchange of 1,755,844 Class A shares and 792,151 Class C shares (valued at
$18.16 per share and $17.74 per share, respectively) for the net assets of the
Growth and Income Fund which aggregated $45,938,881, including $2,680,383 of
unrealized appreciation. The combined net assets of the Fund immediately after
the merger were $9,653,130,530.
29
PAGE
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
3. CAPITAL STOCK
The Fund offers three classes of shares: Class A, Class B, and Class C shares.
Effective January 1, 1999, Class I and Class II shares were renamed Class A and
Class C, respectively, and a third class of shares, Class B, was established.
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, 1999, there were 3.7 billion shares of capital stock authorized
($1.00 par value) of which 1.2 billion shares have been classified as Fund
shares as follows: 800 million Class A shares, 200 million Class B shares, and
200 million Class C shares. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold....................................... 239,655,133 $ 4,032,873,847 120,413,437 $ 2,177,193,072
Shares issued on reinvestment of distributions.... 53,401,120 780,738,937 69,173,107 1,243,610,702
Shares issued on mergers.......................... 2,682,652 48,837,445 -- --
Shares redeemed................................... (301,379,988) (5,067,659,869) (121,253,126) (2,168,512,271)
-----------------------------------------------------------------------
Net increase (decrease)........................... (5,641,083) $ (205,209,640) 68,333,418 $ 1,252,291,503
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1999*
-------------------------------
SHARES AMOUNT
-----------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold....................................... 523,243 $ 9,223,801
Shares redeemed................................... (10,115) (183,202)
-------------------------------
Net increase...................................... 513,128 $ 9,040,599
===============================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold....................................... 13,729,928 $ 220,404,100 13,583,157 $ 242,883,205
Shares issued on reinvestment of distributions.... 2,101,303 30,196,067 1,794,638 31,767,645
Shares issued on mergers.......................... 971,259 17,253,411 -- --
Shares redeemed................................... (14,693,533) (236,726,421) (4,622,432) (80,767,143)
-----------------------------------------------------------------------
Net increase...................................... 2,108,957 $ 31,127,157 10,755,363 $ 193,883,707
=======================================================================
</TABLE>
*Effective date of Class B shares was January 1, 1999.
30
PAGE
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
4. 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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Company's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.25%, 1.00%, and 1.00% per year of the average daily net assets of
Class A, Class B, and Class C shares, respectively. Under the Class A
distribution plan, costs and expenses exceeding the maximum may be reimbursed in
subsequent periods. At August 31, 1999, there were no unreimbursed costs.
Distributors received net commissions from sales of the Fund's shares and
received contingent deferred sales charges for the year of $845,976 and
$318,554, respectively.
5. INCOME TAXES
At August 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $7,860,195,367 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $2,076,560,205
Unrealized depreciation..................................... (251,552,620)
--------------
Net unrealized appreciation................................. $1,825,007,585
==============
</TABLE>
At August 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1998 of $4,500,000. For tax purposes, such losses will be
reflected in the year ending August 31, 2000.
31
PAGE
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1999 aggregated $3,015,747,356 and $5,386,878,611,
respectively.
32
PAGE
TEMPLETON WORLD FUND
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton World Fund series of
Templeton Funds, Inc. (the "Fund") at August 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at August
31, 1999 by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above. The financial statements for the year
ended August 31, 1998, including financial highlights for each of the four years
in the period then ended, were audited by other independent accountants whose
report dated September 29, 1998 expressed an unqualified opinion on those
financial statements.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
September 30, 1999
33
PAGE
TEMPLETON WORLD FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $572,964,483 as a capital gain dividend for the fiscal year ended
August 31, 1999.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
19.11% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1999.
At August 31, 1999, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the fund on these investments. The Fund intends to make
an election under Section 853 of the Internal Revenue Code. This election will
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund to Class A, Class B, and Class C
shareholders in October 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------
FOREIGN TAX FOREIGN SOURCE FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE PAID PER SHARE INCOME PER SHARE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina............. $0.0000 $0.0111 $0.0000 $0.0110
Australia............. 0.0008 0.0167 0.0008 0.0166
Belgium............... 0.0001 0.0005 0.0001 0.0005
Bermuda............... 0.0000 0.0036 0.0000 0.0035
Brazil................ 0.0043 0.0200 0.0043 0.0199
Canada................ 0.0005 0.0023 0.0005 0.0023
China................. 0.0000 0.0011 0.0000 0.0011
Finland............... 0.0011 0.0050 0.0011 0.0050
France................ 0.0036 0.0199 0.0036 0.0199
Germany............... 0.0004 0.0029 0.0004 0.0029
Hong Kong............. 0.0000 0.0248 0.0000 0.0247
India................. 0.0000 0.0005 0.0000 0.0005
Italy................. 0.0006 0.0094 0.0006 0.0094
Japan................. 0.0004 0.0017 0.0004 0.0017
Mexico................ 0.0002 0.0066 0.0002 0.0065
Netherlands........... 0.0025 0.0149 0.0025 0.0149
New Zealand........... 0.0001 0.0003 0.0001 0.0003
Norway................ 0.0001 0.0004 0.0001 0.0004
Philippines........... 0.0001 0.0003 0.0001 0.0003
Russia................ 0.0000 -0.0003 0.0000 -0.0003
Singapore............. 0.0008 0.0025 0.0008 0.0025
South Africa.......... 0.0000 0.0057 0.0000 0.0057
South Korea........... 0.0008 0.0033 0.0008 0.0033
Spain................. 0.0006 0.0037 0.0006 0.0037
Sweden................ 0.0003 0.0026 0.0003 0.0026
Switzerland........... 0.0003 0.0013 0.0003 0.0013
United Kingdom........ 0.0087 0.0550 0.0087 0.0548
------------------------------------------------------------------------
TOTAL................. $0.0263 $0.2158 $0.0263 $0.2150
========================================================================
<CAPTION>
CLASS C
----------------------------------
FOREIGN TAX FOREIGN SOURCE
COUNTRY PAID PER SHARE INCOME PER SHARE
- ---------------------- ----------------------------------
<S> <C> <C>
Argentina............. $0.0000 $0.0074
Australia............. 0.0008 0.0111
Belgium............... 0.0001 0.0003
Bermuda............... 0.0000 0.0024
Brazil................ 0.0043 0.0133
Canada................ 0.0005 0.0016
China................. 0.0000 0.0007
Finland............... 0.0011 0.0033
France................ 0.0036 0.0133
Germany............... 0.0004 0.0020
Hong Kong............. 0.0000 0.0165
India................. 0.0000 0.0003
Italy................. 0.0006 0.0063
Japan................. 0.0004 0.0011
Mexico................ 0.0002 0.0044
Netherlands........... 0.0025 0.0100
New Zealand........... 0.0001 0.0002
Norway................ 0.0001 0.0003
Philippines........... 0.0001 0.0002
Russia................ 0.0000 -0.0002
Singapore............. 0.0008 0.0017
South Africa.......... 0.0000 0.0038
South Korea........... 0.0008 0.0022
Spain................. 0.0006 0.0025
Sweden................ 0.0003 0.0018
Switzerland........... 0.0003 0.0008
United Kingdom........ 0.0087 0.0367
-----------------------------
TOTAL................. $0.0263 $0.1440
=============================
</TABLE>
34
PAGE
TEMPLETON WORLD FUND
Tax Designation (continued)
In January 2000, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1999. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
35
PAGE
TEMPLETON WORLD FUND
CHANGE IN INDEPENDENT AUDITOR
On August 13, 1999, McGladrey & Pullen, LLP (McGladrey) resigned as independent
auditors of the Fund. McGladrey resigned pursuant to their agreement to sell
their investment company practice to PricewaterhouseCoopers LLP (PwC). The
McGladrey partners and professionals previously serving the Fund, have joined
PwC and performed the August 31, 1999 audit.
None of the reports of McGladrey on the financial statements of the Fund,
including those of the past two fiscal years have ever contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles.
During the period McGladrey served the Fund, including the two most recent
fiscal years and subsequent interim period, there were no disagreements with
McGladrey on any matter of accounting principle or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McGladrey would have caused it to make
reference to the subject matter of disagreement in connection with its report.
On August 31, 1999, the Fund, with the approval of its Board of Directors and
its Audit Committee, engaged PwC as its independent auditors.
36
PAGE
ANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES AGENT
1-800/632-2301
This report must be preceded or accompanied by the current Templeton World Fund
prospectus, 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.
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