ANNUAL REPORT
Templeton Foreign Fund
August 31, 1999
[FRANKLIN TEMPLETON LOGO]
PAGE
[FRANKLIN TEMPLETON 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 MARK G. HOLOWESKO APPEARS HERE]
MARK G. HOLOWESKO, CFA
Portfolio Manager
Templeton Foreign Fund
Mark G. Holowesko is president and portfolio manager of Templeton Foreign Fund
and several other Templeton funds. He joined the Templeton organization in 1985
in Nassau, Bahamas, and serves as chief investment officer of equity research
worldwide, as well as an officer and director of Templeton Worldwide, Inc. Mr.
Holowesko received a B.A. in economics from Holy Cross College and an M.B.A.
from Babson College. He is a Chartered Financial Analyst and a former director
of the International Society of Financial Analysts.
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SHAREHOLDER LETTER
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YOUR FUND'S GOAL: TEMPLETON FOREIGN FUND SEEKS LONG-TERM CAPITAL GROWTH. UNDER
NORMAL MARKET CONDITIONS, THE FUND WILL INVEST PRIMARILY IN THE EQUITY
SECURITIES OF COMPANIES LOCATED OUTSIDE THE UNITED STATES, INCLUDING IN EMERGING
MARKETS.
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to bring you this annual report of Templeton Foreign 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, as
many of the investments that hurt our performance last year helped performance
during the period under review. Templeton Foreign Fund - Class A posted a
one-year cumulative total return of 40.36%, significantly outperforming the
Fund's benchmark, the Morgan Stanley Capital International(R) (MSCI EAFE)
Europe, Australasia, Far East Index, which provided a cumulative total return of
26.03% for the same period.(1)
CONTENTS
Shareholder Letter ......... 1
Interview with
Mark Holowesko ............. 9
Performance Summary ........ 12
Financial Highlights &
Statement of Investments ... 17
Financial Statements ....... 28
Notes to Financial
Statements ................. 31
Independent Auditors' Report 36
Tax Designation ............ 37
Change in Independent
Auditor .................... 39
[PYRAMID GRAPHIC]
1. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI EAFE Index tracks
the performance of approximately 1,000 securities in 20 countries. 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 21 of
this report.
PAGE
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/99
[PIE CHART]
European Stocks 44.9%
Asian Stocks 24.5%
Latin American Stocks 9.2%
Australian and New Zealand Stocks 4.1%
North American Stocks 3.1%
Mid-East/African Stocks 1.5%
Short-Term Investment & Other Net Assets 12.7%
In early 1998, our search for value and our process of buying during times of
pessimism led us to invest in unpopular areas of Asia, cyclical stocks,
industrial companies and commodity-related firms. On August 31, 1999, Europe
represented 44.9% of the Fund's total net assets, Asia 24.5%, and Latin America
9.2%.
EUROPE
In Europe, we continued to find ideas in the U.K. market. During the reporting
period, U.K. stocks underperformed continental European stocks as investor
enthusiasm regarding the introduction of the euro helped push continental
European stock prices higher. On August 31, 1999, U.K. holdings represented
approximately 40% of our total European exposure. In our opinion, many of our
European holdings may be well positioned to benefit from two major trends. The
first is the possibility of lower taxes. The impact of lower taxes in the U.S.
over the last ten years has been very visible with almost one-half of the
earnings growth the result of lower taxes and reduced interest costs.(2)
Although Europe has introduced a common currency, and interest rates declined
and converged, the region
2. Source: Templeton Du Pont Analysis.
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does not enjoy a common level of taxation. We anticipate this will change in the
future. A recent report released by Bloomberg in June of 1999, indicated that
the German government was discussing a plan to cut corporate tax rates to a
unified rate of 25 percent in 2001 from as high as 40 percent. We believe these
discussions may spread across Europe. Lower taxes would not only free up cash
flow for corporations, but also boost consumer disposable income and provide a
more competitive environment for European companies.
We also believe that the current boom in European buyouts and acquisitions may
continue to help boost share prices. We estimate in 1994, less than $20 billion
was utilized for corporate buyouts in Europe. This figure is expected to exceed
$150 billion in 1999. Corporate activity of this nature helps to increase the
attractiveness of value investing. We are encouraged by the level of corporate
activity we have seen in many of the holdings in our funds. Among the Fund's
largest European holdings were General Electric Co. PLC in the United Kingdom,
Koninklijke Philips Electronics NV in the Netherlands, ABB Ltd. in Sweden,
Alcatel SA in France and UPM-Kymmene Corp. in Finland.
TOP 10 EQUITY HOLDINGS
8/31/99
NAME, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------------------------------------------------------
Sony Corp.
Appliances & Household
Durables, Japan 2.2%
Telefonos de Mexico SA
(Telmex), L, ADR
Telecommunications, Mexico 2.0%
Singapore Airlines Ltd., fgn.
Transportation, Singapore 1.8%
ABB Ltd.
Electrical &
Electronics, Sweden 1.8%
DSM NV, Br.
Chemicals, Netherland 1.7%
National Australia Bank Ltd.
Banking, Australia 1.6%
Swire Pacific Ltd., A
Multi-Industry, Hong Kong* 1.6%
HSBC Holdings PLC
Banking, Hong Kong* 1.6%
Stora Enso OYJ
Forest Products & Paper,
Finland 1.5%
British Steel PLC
Metals & Mining, U.K. 1.5%
*Hong Kong reverted to the soverignty of China on July 1, 1997.
3
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ASIA
Our Asian holdings continued to bolster Fund performance during the reporting
period. As the economic situation in the region stabilized early in 1999,
investor attention was drawn to the attractive valuations of many Asian
companies. An important issue for investors in the region is the future
direction of the Japanese economy. Recent reports from Japan are encouraging.
Many investors are anticipating an economic turn-around in the region, which has
boosted the Japanese stock market, and added to the stability of non-Japan Asia.
During the reporting period, our Japanese and Hong Kong holdings benefited from
this perception, with many of the Hong Kong holdings in our portfolio
appreciating significantly in value.
In our opinion, a remaining concern for investors in the region is the potential
for the devaluation of China's currency. The probability of this occurring has
increased. However, we believe a properly executed devaluation could improve
China's competitive position and benefit Hong Kong, which is a major exporter of
Chinese goods, and has its own productive capacity in mainland China. We believe
China has the financial strength to maintain an orderly devaluation. As of
August 31, 1999, our largest Asian positions were Sony Corp., Singapore Airlines
Ltd., fgn., and Swire Pacific Ltd., A.
4
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LATIN AMERICA
During the fiscal year, the performance of our Latin American holdings was
important to the overall return of the Fund. As in Europe, an encouraging
development in Latin America has been the increase in corporate activity. One of
the Fund's largest Latin American holdings over the course of the last twelve
months, YPF Sociedad Anonima, an Argentinean oil company, was taken over by
Repsol SA, a Spanish oil company. The elimination of this holding and the
profits taken in some of our other holdings has reduced our overall Latin
American exposure.
LOOKING FORWARD
We remain optimistic about the potential for global equity markets and Templeton
Foreign Fund, and believe that the Fund's holdings could benefit from what
appears to be a return to value-based investing. Although during most of the
'80s and '90s, value investing provided above-average returns for investors,
there have been a few years during this period when value investing
underperformed, as it did in 1998. Since March 1999, however, investor attention
appears to be turning once again toward stocks that appear cheap on the basis of
5
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price-to-book, price-to-sales, price-to-cash-flow or price-to-earning models. We
believe the Fund is well positioned in these types of securities.
The Fund may also benefit from a renewed interest in non-North American stocks.
High returns from North American securities, combined with poor economic results
in many areas of Asia and Latin America, have dissuaded investors from investing
overseas. But with North American stocks selling at all-time high valuations,
and economic fundamentals improving around the world, many investors are
beginning to search globally for value.
Our lack of currency hedging should also help the Fund's performance. Last year,
the fear that the Asian economic crisis would spill over to Eastern Europe and
other parts of the world caused a flight towards the U.S. dollar, strengthening
it and hurting the value of our foreign holdings. However, we are enthusiastic
about the current level of foreign currency valuations. Many appear undervalued
relative to the dollar and could boost our performance going forward.
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Finally, our optimism continues to be bolstered by the level of value we have in
our various holdings. Despite the fact that the equity markets and many of the
more popular indices appear to be trading at extended valuation levels, we
believe we own a collection of attractively priced securities which, over the
long run, have the potential to provide above-average returns.
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 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
better understand our investment and management philosophy.
Please remember that there are special risks associated with global investing
related to market, currency, economic, social, political and other factors.
Emerging markets involve similar but heightened risks, in addition to those
associated with their relatively small size and lesser liquidity. Investing in
any emerging market security means accepting a certain amount of volatility
7
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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 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 special risks and other considerations are discussed in
the Fund's prospectus.
Thank you for investing in Templeton Foreign Fund. We welcome your comments and
look forward to serving you in the future.
Sincerely,
/s/MARK G. HOLOWESKO
Mark G. Holowesko, CFA
President
Templeton Foreign Fund
2. Source: Mexico Bolsa Index. Based on quarterly percentage price change over
15 years ended June 30, 1999. Market return is measured in U.S. dollar terms and
does not include reinvested dividends.
8
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THE FOLLOWING IS AN INTERVIEW WITH MARK HOLOWESKO, PORTFOLIO MANAGER OF
TEMPLETON FOREIGN FUND:
WITH THE U.S. EQUITY MARKET CONTINUING TO SET NEW RECORD HIGHS, HOW DO YOU
DETERMINE AN APPROPRIATE "SELL" TARGET FOR FUND HOLDINGS IN THIS COUNTRY?
Our U.S. holdings are much cheaper than the market as a whole, and our decision
process for purchasing U.S. securities was, and is, independent of the market
level. We try to purchase securities that are cheap on an absolute basis, not
cheap relative to the market. Therefore, our decision to sell is independent of
the current overall market or its future direction. We sell securities if the
stock performance does not live up to our expectations, if a security reaches
what we view as "fair value", or if we need to raise cash to purchase other,
more attractive securities.
Q&A
9
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THE YEAR 2000 (Y2K) COMPUTER BUG HAS RECEIVED A LOT OF MEDIA ATTENTION. DO YOU
BELIEVE THE FUND'S HOLDINGS IN EMERGING MARKET COUNTRIES ARE AT GREATER RISK OF
Y2K-RELATED DECLINES THAN THOSE OF COMPANIES IN DEVELOPED COUNTRIES? IF SO, HAS
THIS AFFECTED YOUR INVESTMENT STRATEGY IN THESE REGIONS?
Developing countries have, in general, done less to prepare for Y2K than
developed countries. However, it should be remembered that the level of computer
usage in developing countries is much less than in developed countries. We have
carefully analyzed all of our holdings worldwide for Y2K impact and believe we
have done as good a job as anyone in the industry to minimize this risk. This
includes our investments in the developing markets.
VALUE INVESTING APPEARS TO HAVE MADE A COMEBACK IN RECENT MONTHS. DO YOU THINK
THIS IS TEMPORARY OR THE BEGINNING OF A LONG-TERM TREND?
The value investing style has made a rebound lately. The underperformance of the
value style last year and its surge in popularity this year, are not abnormal.
Value investing has worked in the majority of the past 20 years. However, there
have been a few years (and there will be future years) when it has provided
below-average results. This underperformance has traditionally been followed by
very strong returns in subsequent years.
10
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We feel the value style will continue to provide strong returns for several
reasons. In periods of volatility, investors look for downside price support.
You do not find this support with stocks that have increased in price due to
momentum or popularity. Earnings, assets or dividends provide this support,
which is typically found in stocks popular with value investing. Also, the
recent surge in corporate activity outside of the U.S. provides strong support
for the value style. Industry executives generally do not make acquisitions
based on momentum decisions. They typically engage in corporate activity for
sound business reasons that help reduce valuation anomalies.
11
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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.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
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' 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 +$2.06 $10.49 $8.43
<CAPTION>
Distributions (9/1/98 - 8/31/99)
---------------------------------
<S> <C>
Dividend Income $0.2600
Long-Term Capital Gain $0.6600
Short-Term Capital Gain $0.1050
TOTAL $1.0250
<CAPTION>
Class B Change 8/31/99 1/1/99
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$2.04 $10.43 $8.39
<CAPTION>
Class C Change 8/31/99 8/31/98
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$2.01 $10.31 $8.30
<CAPTION>
Distributions (9/1/98 - 8/31/99)
- -----------------------------------------------------------------
<S> <C>
Dividend Income $0.2062
Long-Term Capital Gain $0.6600
Short-Term Capital Gain $0.1050
TOTAL $0.9712
<CAPTION>
Advisor Class Change 8/31/99 8/31/98
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$2.06 $10.50 $8.44
<CAPTION>
Distributions (9/1/98 - 8/31/99)
- -----------------------------------------------------------------
<S> <C>
Dividend Income $0.2792
Long-Term Capital Gain $0.6600
Short-Term Capital Gain $0.1050
TOTAL $1.0442
</TABLE>
Templeton Foreign Fund paid distributions derived from long-term capital gains
of 66 cents ($0.66) 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.
12
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PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/5/82)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 40.36% 57.30% 189.53% 1,096.59%
Average Annual Total Return(2) 32.35% 8.20% 10.56% 15.41%
Value of $10,000 Investment(3) $13,235 $14,824 $27,284 $112,779
<CAPTION>
8/31/95 8/31/96 8/31/97 8/31/98 8/31/99
- ---------------------------------------------------------------------------------
One-Year
<S> <C> <C> <C> <C> <C>
Total Return(4) 3.14% 10.68% 19.55% -17.89% 40.36%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) 24.31%
Aggregate Total Return(2) 20.31%
Value of $10,000 Investment(3) $12,031
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 39.45% 34.91% 55.22%
Average Annual Total Return(2) 37.13% 10.13% 10.42%
Value of $10,000 Investment(3) $13,713 $13,357 $15,368
<CAPTION>
8/31/96 8/31/97 8/31/98 8/31/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year
Total Return(4) 9.78% 18.65% -18.46% 39.45%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 1-YEAR 5-YEAR 10-YEAR (10/5/82)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 40.65% 58.16% 191.09% 1,103.13%
Average Annual Total Return(2) 40.65% 9.60% 11.27% 15.84%
Value of $10,000 Investment(3) $14,065 $15,816 $29,109 $120,313
<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) 3.14% 10.68% 19.76% -17.75% 40.65%
</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.
5. On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class. Since
January 2, 1997 (commencement of sales), the cumulative and average annual total
returns of Advisor Class shares were 28.77% and 9.97%, respectively.
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.
13
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TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged index differs from the Fund in composition, does not pay
management fees or expenses and includes 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.
AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS A
- --------------------------------
1-Year 32.35%
5-Year 8.20%
10-Year 10.56%
Since Inception (10/5/82) 15.41%
CLASS A
The following line graph compares the performance of Templeton Foreign Fund's
Class A shares to that of the Morgan Stanley Capital International EAFE Index
and the Consumer Price Index, based on a $10,000 investment from 9/1/89 to
8/31/99.
Templeton MSCI EAFE CPI
Foreign Fund - Index
Class A*
- --------------------------------------------------------
09/01/1989 $9,425 $10,000 $10,000
09/30/1989 $9,748 $10,457 $10,032
10/31/1989 $9,457 $10,039 $10,081
11/30/1989 $9,744 $10,546 $10,104
12/31/1989 $10,408 $10,938 $10,119
01/31/1990 $10,431 $10,533 $10,224
02/28/1990 $10,453 $9,800 $10,272
03/31/1990 $10,605 $8,781 $10,328
04/30/1990 $10,368 $8,714 $10,345
05/31/1990 $11,238 $9,711 $10,369
06/30/1990 $11,341 $9,627 $10,425
07/31/1990 $11,814 $9,766 $10,464
08/31/1990 $10,966 $8,820 $10,560
09/30/1990 $10,020 $7,593 $10,649
10/31/1990 $10,185 $8,779 $10,713
11/30/1990 $10,109 $8,263 $10,737
12/31/1990 $10,095 $8,401 $10,737
01/31/1991 $10,403 $8,675 $10,801
02/28/1991 $11,116 $9,607 $10,817
03/31/1991 $10,884 $9,033 $10,833
04/30/1991 $11,067 $9,124 $10,849
05/31/1991 $11,246 $9,222 $10,880
06/30/1991 $10,750 $8,547 $10,914
07/31/1991 $11,404 $8,969 $10,929
08/31/1991 $11,409 $8,789 $10,961
09/30/1991 $11,645 $9,287 $11,010
10/31/1991 $11,613 $9,421 $11,026
11/30/1991 $11,439 $8,984 $11,057
12/31/1991 $11,938 $9,450 $11,066
01/31/1992 $12,084 $9,251 $11,082
02/29/1992 $12,282 $8,923 $11,122
03/31/1992 $12,073 $8,336 $11,178
04/30/1992 $12,522 $8,378 $11,194
05/31/1992 $13,226 $8,941 $11,210
06/30/1992 $12,986 $8,520 $11,250
07/31/1992 $12,647 $8,305 $11,275
08/31/1992 $12,397 $8,828 $11,306
09/30/1992 $12,141 $8,657 $11,338
10/31/1992 $11,718 $8,206 $11,378
11/30/1992 $11,768 $8,285 $11,394
12/31/1992 $11,949 $8,330 $11,387
01/31/1993 $12,157 $8,332 $11,443
02/28/1993 $12,437 $8,586 $11,483
03/31/1993 $12,931 $9,337 $11,524
04/30/1993 $13,351 $10,226 $11,555
05/31/1993 $13,666 $10,444 $11,571
06/30/1993 $13,497 $10,284 $11,587
07/31/1993 $13,811 $10,646 $11,587
08/31/1993 $14,703 $11,223 $11,619
09/30/1993 $14,586 $10,973 $11,643
10/31/1993 $15,381 $11,314 $11,692
11/30/1993 $15,122 $10,327 $11,700
12/31/1993 $16,348 $11,075 $11,699
01/31/1994 $17,105 $12,014 $11,732
02/28/1994 $16,810 $11,983 $11,773
03/31/1994 $16,342 $11,469 $11,813
04/30/1994 $16,620 $11,958 $11,829
05/31/1994 $16,620 $11,892 $11,836
06/30/1994 $16,290 $12,063 $11,876
07/31/1994 $16,897 $12,182 $11,908
08/31/1994 $17,347 $12,473 $11,957
09/30/1994 $17,070 $12,083 $11,988
10/31/1994 $17,307 $12,488 $11,997
11/30/1994 $16,681 $11,891 $12,013
12/31/1994 $16,405 $11,968 $12,013
01/31/1995 $16,126 $11,511 $12,060
02/28/1995 $16,349 $11,481 $12,108
03/31/1995 $16,479 $12,200 $12,149
04/30/1995 $17,037 $12,662 $12,189
05/31/1995 $17,428 $12,515 $12,213
06/30/1995 $17,502 $12,298 $12,237
07/31/1995 $18,302 $13,068 $12,237
08/31/1995 $17,893 $12,572 $12,270
09/30/1995 $18,190 $12,821 $12,293
10/31/1995 $17,729 $12,479 $12,333
11/30/1995 $17,924 $12,830 $12,324
12/31/1995 $18,235 $13,350 $12,316
01/31/1996 $18,830 $13,409 $12,389
02/29/1996 $18,989 $13,457 $12,429
03/31/1996 $19,089 $13,746 $12,493
04/30/1996 $19,585 $14,149 $12,541
05/31/1996 $19,784 $13,892 $12,565
06/30/1996 $19,883 $13,974 $12,573
07/31/1996 $19,347 $13,569 $12,597
08/31/1996 $19,804 $13,602 $12,621
09/30/1996 $20,022 $13,966 $12,661
10/31/1996 $20,264 $13,827 $12,701
11/30/1996 $21,027 $14,381 $12,725
12/31/1996 $21,516 $14,199 $12,725
01/31/1997 $21,807 $13,706 $12,765
02/28/1997 $22,036 $13,933 $12,803
03/31/1997 $22,264 $13,987 $12,835
04/30/1997 $22,389 $14,065 $12,851
05/31/1997 $23,136 $14,983 $12,843
06/30/1997 $23,925 $15,813 $12,858
07/31/1997 $24,590 $16,072 $12,874
08/31/1997 $23,676 $14,875 $12,898
09/30/1997 $25,005 $15,712 $12,931
10/31/1997 $23,152 $14,508 $12,963
11/30/1997 $22,904 $14,363 $12,955
12/31/1997 $22,947 $14,492 $12,940
01/31/1998 $23,039 $15,158 $12,963
02/28/1998 $24,285 $16,134 $12,989
03/31/1998 $25,415 $16,634 $13,015
04/30/1998 $25,553 $16,770 $13,038
05/31/1998 $24,492 $16,692 $13,062
06/30/1998 $23,547 $16,822 $13,077
07/31/1998 $23,270 $16,997 $13,093
08/31/1998 $19,442 $14,895 $13,109
09/30/1998 $19,488 $14,442 $13,124
10/31/1998 $21,539 $15,952 $13,156
11/30/1998 $22,268 $16,773 $13,156
12/31/1998 $21,825 $17,438 $13,148
01/31/1999 $21,461 $17,391 $13,180
02/28/1999 $21,279 $16,980 $13,193
03/31/1999 $23,178 $17,693 $13,233
04/30/1999 $26,300 $18,414 $13,330
05/31/1999 $25,103 $17,470 $13,330
06/30/1999 $26,794 $18,155 $13,330
07/31/1999 $27,080 $18,699 $13,370
08/31/1999 $27,288 $18,771 $13,402
AVERAGE ANNUAL TOTAL RETURN
8/31/99
CLASS C
- --------------------------------
1-Year 37.13%
3-Year 10.13%
Since Inception (5/1/95) 10.42%
CLASS C
The following line graph compares the performance of Templeton Foreign Fund's
Class C shares to that of the Morgan Stanley Capital International EAFE Index,
based on a $10,000 investment from 5/1/95 to 8/31/99.
Templeton MSCI EAFE CPI
Foreign Fund - Index
C*
- ---------------------------------------------------------
05/01/1995 $9,903 $10,000 $10,000
05/31/1995 $10,119 $9,883 $10,020
06/30/1995 $10,162 $9,713 $10,040
07/31/1995 $10,617 $10,320 $10,040
08/31/1995 $10,379 $9,929 $10,067
09/30/1995 $10,541 $10,125 $10,086
10/31/1995 $10,261 $9,856 $10,119
11/30/1995 $10,386 $10,132 $10,112
12/31/1995 $10,551 $10,544 $10,105
01/31/1996 $10,897 $10,589 $10,164
02/29/1996 $10,978 $10,628 $10,197
03/31/1996 $11,024 $10,856 $10,250
04/30/1996 $11,313 $11,174 $10,289
05/31/1996 $11,416 $10,972 $10,309
06/30/1996 $11,463 $11,036 $10,316
07/31/1996 $11,139 $10,716 $10,335
08/31/1996 $11,393 $10,742 $10,355
09/30/1996 $11,520 $11,030 $10,388
10/31/1996 $11,654 $10,920 $10,421
11/30/1996 $12,084 $11,357 $10,441
12/31/1996 $12,353 $11,214 $10,441
01/31/1997 $12,509 $10,824 $10,473
02/28/1997 $12,641 $11,004 $10,505
03/31/1997 $12,761 $11,046 $10,531
04/30/1997 $12,833 $11,108 $10,544
05/31/1997 $13,242 $11,833 $10,537
06/30/1997 $13,686 $12,489 $10,550
07/31/1997 $14,059 $12,693 $10,563
08/31/1997 $13,518 $11,748 $10,583
09/30/1997 $14,287 $12,408 $10,609
10/31/1997 $13,219 $11,457 $10,636
11/30/1997 $13,063 $11,343 $10,629
12/31/1997 $13,081 $11,445 $10,617
01/31/1998 $13,121 $11,971 $10,636
02/28/1998 $13,824 $12,742 $10,657
03/31/1998 $14,462 $13,137 $10,678
04/30/1998 $14,542 $13,244 $10,697
05/31/1998 $13,917 $13,183 $10,717
06/30/1998 $13,373 $13,285 $10,730
07/31/1998 $13,214 $13,423 $10,742
08/31/1998 $11,022 $11,763 $10,755
09/30/1998 $11,049 $11,406 $10,768
10/31/1998 $12,195 $12,598 $10,794
11/30/1998 $12,613 $13,246 $10,794
12/31/1998 $12,359 $13,772 $10,788
01/31/1999 $12,135 $13,734 $10,814
02/28/1999 $12,031 $13,410 $10,825
03/31/1999 $13,090 $13,973 $10,858
04/30/1999 $14,849 $14,543 $10,937
05/31/1999 $14,163 $13,797 $10,937
06/30/1999 $15,102 $14,338 $10,937
07/31/1999 $15,266 $14,768 $10,969
08/31/1999 $15,371 $14,824 $10,996
Past performance is not predictive of future results.
14
PAGE
ADVISOR CLASS***
Total Return Index Comparison
$10,000 Investment (9/1/89 - 8/31/99)
The following line graph compares the performance of Templeton Foreign Fund's
Advisor Class shares to that of the Morgan Stanley Capital International EAFE
Index, based on a $10,000 investment from 9/1/89 to 8/31/99.
Templeton MSCI EAFE CPI
Foreign Fund - Index
Advisor Class
- ---------------------------------------------------------
09/01/1989 $10,000 $10,000 $10,000
09/30/1989 $10,342 $10,457 $10,032
10/31/1989 $10,034 $10,039 $10,081
11/30/1989 $10,338 $10,546 $10,104
12/31/1989 $11,043 $10,938 $10,119
01/31/1990 $11,067 $10,533 $10,224
02/28/1990 $11,090 $9,800 $10,272
03/31/1990 $11,251 $8,781 $10,328
04/30/1990 $11,000 $8,714 $10,345
05/31/1990 $11,924 $9,711 $10,369
06/30/1990 $12,033 $9,627 $10,425
07/31/1990 $12,535 $9,766 $10,464
08/31/1990 $11,635 $8,820 $10,560
09/30/1990 $10,631 $7,593 $10,649
10/31/1990 $10,806 $8,779 $10,713
11/30/1990 $10,725 $8,263 $10,737
12/31/1990 $10,711 $8,401 $10,737
01/31/1991 $11,038 $8,675 $10,801
02/28/1991 $11,794 $9,607 $10,817
03/31/1991 $11,548 $9,033 $10,833
04/30/1991 $11,742 $9,124 $10,849
05/31/1991 $11,931 $9,222 $10,880
06/30/1991 $11,405 $8,547 $10,914
07/31/1991 $12,100 $8,969 $10,929
08/31/1991 $12,105 $8,789 $10,961
09/30/1991 $12,355 $9,287 $11,010
10/31/1991 $12,322 $9,421 $11,026
11/30/1991 $12,136 $8,984 $11,057
12/31/1991 $12,666 $9,450 $11,066
01/31/1992 $12,821 $9,251 $11,082
02/29/1992 $13,031 $8,923 $11,122
03/31/1992 $12,810 $8,336 $11,178
04/30/1992 $13,286 $8,378 $11,194
05/31/1992 $14,033 $8,941 $11,210
06/30/1992 $13,778 $8,520 $11,250
07/31/1992 $13,419 $8,305 $11,275
08/31/1992 $13,153 $8,828 $11,306
09/30/1992 $12,882 $8,657 $11,338
10/31/1992 $12,433 $8,206 $11,378
11/30/1992 $12,486 $8,285 $11,394
12/31/1992 $12,678 $8,330 $11,387
01/31/1993 $12,898 $8,332 $11,443
02/28/1993 $13,196 $8,586 $11,483
03/31/1993 $13,719 $9,337 $11,524
04/30/1993 $14,166 $10,226 $11,555
05/31/1993 $14,499 $10,444 $11,571
06/30/1993 $14,321 $10,284 $11,587
07/31/1993 $14,654 $10,646 $11,587
08/31/1993 $15,600 $11,223 $11,619
09/30/1993 $15,475 $10,973 $11,643
10/31/1993 $16,319 $11,314 $11,692
11/30/1993 $16,045 $10,327 $11,700
12/31/1993 $17,345 $11,075 $11,699
01/31/1994 $18,148 $12,014 $11,732
02/28/1994 $17,836 $11,983 $11,773
03/31/1994 $17,339 $11,469 $11,813
04/30/1994 $17,633 $11,958 $11,829
05/31/1994 $17,633 $11,892 $11,836
06/30/1994 $17,284 $12,063 $11,876
07/31/1994 $17,927 $12,182 $11,908
08/31/1994 $18,406 $12,473 $11,957
09/30/1994 $18,111 $12,083 $11,988
10/31/1994 $18,363 $12,488 $11,997
11/30/1994 $17,699 $11,891 $12,013
12/31/1994 $17,405 $11,968 $12,013
01/31/1995 $17,109 $11,511 $12,060
02/28/1995 $17,346 $11,481 $12,108
03/31/1995 $17,484 $12,200 $12,149
04/30/1995 $18,076 $12,662 $12,189
05/31/1995 $18,491 $12,515 $12,213
06/30/1995 $18,570 $12,298 $12,237
07/31/1995 $19,418 $13,068 $12,237
08/31/1995 $18,984 $12,572 $12,270
09/30/1995 $19,300 $12,821 $12,293
10/31/1995 $18,811 $12,479 $12,333
11/30/1995 $19,018 $12,830 $12,324
12/31/1995 $19,347 $13,350 $12,316
01/31/1996 $19,979 $13,409 $12,389
02/29/1996 $20,147 $13,457 $12,429
03/31/1996 $20,253 $13,746 $12,493
04/30/1996 $20,780 $14,149 $12,541
05/31/1996 $20,990 $13,892 $12,565
06/30/1996 $21,096 $13,974 $12,573
07/31/1996 $20,527 $13,569 $12,597
08/31/1996 $21,012 $13,602 $12,621
09/30/1996 $21,243 $13,966 $12,661
10/31/1996 $21,500 $13,827 $12,701
11/30/1996 $22,310 $14,381 $12,725
12/31/1996 $22,829 $14,199 $12,725
01/31/1997 $23,137 $13,706 $12,765
02/28/1997 $23,402 $13,933 $12,803
03/31/1997 $23,644 $13,987 $12,835
04/30/1997 $23,798 $14,065 $12,851
05/31/1997 $24,591 $14,983 $12,843
06/30/1997 $25,429 $15,813 $12,858
07/31/1997 $26,156 $16,072 $12,874
08/31/1997 $25,164 $14,875 $12,898
09/30/1997 $26,597 $15,712 $12,931
10/31/1997 $24,621 $14,508 $12,963
11/30/1997 $24,382 $14,363 $12,955
12/31/1997 $24,425 $14,492 $12,940
01/31/1998 $24,523 $15,158 $12,963
02/28/1998 $25,847 $16,134 $12,989
03/31/1998 $27,073 $16,634 $13,015
04/30/1998 $27,220 $16,770 $13,038
05/31/1998 $26,092 $16,692 $13,062
06/30/1998 $25,062 $16,822 $13,077
07/31/1998 $24,768 $16,997 $13,093
08/31/1998 $20,697 $14,895 $13,109
09/30/1998 $20,746 $14,442 $13,124
10/31/1998 $22,928 $15,952 $13,156
11/30/1998 $23,732 $16,773 $13,156
12/31/1998 $23,260 $17,438 $13,148
01/31/1999 $22,872 $17,391 $13,180
02/28/1999 $22,706 $16,980 $13,193
03/31/1999 $24,702 $17,693 $13,233
04/30/1999 $28,056 $18,414 $13,330
05/31/1999 $26,781 $17,470 $13,330
06/30/1999 $28,583 $18,155 $13,330
07/31/1999 $28,888 $18,699 $13,370
08/31/1999 $29,394 $18,771 $13,402
AVERAGE ANNUAL TOTAL RETURN
8/31/99
ADVISOR CLASS***
- ---------------------------------
1-Year 40.65%
5-Year 9.60%
10-Year 11.27%
Since Inception (10/5/82) 15.84%
* Source: Standard and Poor's(R) Micropal. The unmanaged MSCI Europe,
Australasia, FarEast (EAFE) Index tracks the performance of approximately 1,000
securities in 20 countries. 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.
***On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to Advisor Class
shares.
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.
15
PAGE
TEMPLETON FOREIGN FUND
CLASS A
If you had invested $10,000 in Templeton Foreign Fund - Class A at inception, it
would have been worth more than $112,000 on August 31, 1999. The chart below
illustrates the cumulative total return of a hypothetical $10,000 investment in
the Fund on October 5, 1982 (inception), with income dividends and capital gains
reinvested as shown through August 31, 1999.*
[TEMPLETON FOREIGN FUND CLASS A MOUNTAIN CHART]
This chart shows in a logarithmic format the growth of a $10,000 investment in
Templeton Foreign Fund's Class A shares from 10/5/82 to 8/31/99.
Templeton Foreign Fund
<TABLE>
<CAPTION>
Principal + Principal Total Value Principal Income Cap Gains
Dividends + Cap
Gains
<S> <C> <C> <C> <C> <C> <C>
10/05/1982 $9,423 $9,423 $9,423 $9,423 $0 $0
12/01/1982 $9,823 $9,823 $9,823 $9,823 $0 $0
12/30/1983 $13,362 $13,217 $13,410 $13,169 $193 $48
12/31/1984 $13,094 $12,759 $13,250 $12,603 $491 $156
12/31/1985 $16,566 $15,735 $16,812 $15,489 $1,077 $246
12/31/1986 $19,903 $19,896 $21,648 $18,151 $1,752 $1,745
12/31/1987 $23,252 $24,190 $27,006 $20,436 $2,816 $3,754
12/30/1988 $26,865 $28,790 $32,946 $22,709 $4,156 $6,081
12/29/1989 $33,854 $36,619 $43,006 $27,467 $6,387 $9,152
12/31/1990 $31,870 $34,542 $41,712 $24,700 $7,170 $9,842
12/31/1991 $36,198 $40,076 $49,325 $26,949 $9,249 $13,127
12/31/1992 $34,964 $39,496 $49,372 $25,088 $9,876 $14,408
12/31/1993 $47,393 $53,489 $67,549 $33,333 $14,060 $20,156
12/30/1994 $45,397 $53,552 $67,783 $31,166 $14,231 $22,386
12/29/1995 $49,210 $58,571 $75,343 $32,438 $16,772 $26,133
12/31/1996 $57,909 $67,602 $88,903 $36,608 $21,301 $30,994
12/31/1997 $58,220 $71,753 $94,815 $35,158 $23,062 $36,595
12/31/1998 $51,688 $68,140 $90,181 $29,647 $22,041 $38,493
08/31/1999 $64,626 $85,195 $112,753 $37,068 $27,558 $48,127
</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.
16
PAGE
TEMPLETON FOREIGN 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............... $8.43 $11.40 $9.97 $9.62 $10.01
---------------------------------------------------------------------
Income from investment operations:
Net investment income........................... .27 .30 .32 .27 .23
Net realized and unrealized gains (losses)...... 2.82 (2.11) 1.56 .69 .05
---------------------------------------------------------------------
Total from investment operations................. 3.09 (1.81) 1.88 .96 .28
---------------------------------------------------------------------
Less distributions from:
Net investment income........................... (.26) (.32) (.28) (.25) (.16)
Net realized gains.............................. (.77) (.84) (.17) (.36) (.51)
---------------------------------------------------------------------
Total distributions.............................. (1.03) (1.16) (.45) (.61) (.67)
---------------------------------------------------------------------
Net asset value, end of year..................... $10.49 $8.43 $11.40 $9.97 $9.62
=====================================================================
Total Return*.................................... 40.36% (17.89)% 19.55% 10.68% 3.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's).................. $11,940,654 $10,745,504 $14,367,787 $9,602,209 $6,941,238
Ratios to average net assets:
Expenses........................................ 1.13% 1.12% 1.08% 1.12% 1.15%
Net investment income........................... 2.92% 2.79% 3.28% 3.09% 2.81%
Portfolio turnover rate.......................... 26.11% 38.27% 37.28% 15.91% 21.78%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding.
17
PAGE
TEMPLETON FOREIGN 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........................ $8.39
-------
Income from investment operations:
Net investment income...................................... .14
Net realized and unrealized gains.......................... 1.90
-----------------
Total from investment operations............................ 2.04
-----------------
Net asset value, end of period.............................. $10.43
=================
Total Return*............................................... 24.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $16,765
Ratios to average net assets:
Expenses................................................... 1.91%**
Net investment income...................................... 2.14%**
Portfolio turnover rate..................................... 26.11%
</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.
18
PAGE
TEMPLETON FOREIGN 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................ $8.30 $11.25 $9.87 $9.59 $9.16
--------------------------------------------------------------------
Income from investment operations:
Net investment income............................ .19 .22 .26 .30 .03
Net realized and unrealized gains (losses)....... 2.79 (2.07) 1.52 .58 .40
--------------------------------------------------------------------
Total from investment operations.................. 2.98 (1.85) 1.78 .88 .43
--------------------------------------------------------------------
Less distributions from:
Net investment income............................ (.20) (.26) (.23) (.24) --
Net realized gains............................... (.77) (.84) (.17) (.36) --
--------------------------------------------------------------------
Total distributions............................... (.97) (1.10) (.40) (.60) --
--------------------------------------------------------------------
Net asset value, end of year...................... $10.31 $8.30 $11.25 $9.87 $9.59
====================================================================
Total Return*..................................... 39.45% (18.46)% 18.65% 9.78% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)................... $1,196,084 $1,159,810 $1,303,639 $527,443 $63,428
Ratios to average net assets:
Expenses......................................... 1.88% 1.87% 1.83% 1.87% 1.90%**
Net investment income............................ 2.15% 2.07% 2.62% 2.63% 1.86%**
Portfolio turnover rate........................... 26.11% 38.27% 37.28% 15.91% 21.78%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
++Based on average weighted shares outstanding.
19
PAGE
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------
1999++ 1998++ 1997+
------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $8.44 $11.42 $10.26
------------------------------------
Income from investment operations:
Net investment income...................................... .29 .33 .07
Net realized and unrealized gains (losses)................. 2.81 (2.12) 1.09
------------------------------------
Total from investment operations............................ 3.10 (1.79) 1.16
------------------------------------
Less distributions from:
Net investment income...................................... (.27) (.35) --
Net realized gains......................................... (.77) (.84) --
------------------------------------
Total distributions......................................... (1.04) (1.19) --
------------------------------------
Net asset value, end of year................................ $10.50 $8.44 $11.42
====================================
Total Return*............................................... 40.65% (17.75)% 11.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $77,203 $50,022 $139,100
Ratios to average net assets:
Expenses................................................... .88% .87% .83%**
Net investment income...................................... 3.18% 3.08% 3.37%**
Portfolio turnover rate..................................... 26.11% 38.27% 37.28%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
20
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 84.1%
AEROSPACE & MILITARY TECHNOLOGY .7%
Rolls-Royce PLC............................................. United Kingdom 22,528,127 $ 89,564,075
---------------
APPLIANCES & HOUSEHOLD DURABLES 2.2%
Sony Corp. ................................................. Japan 2,253,800 291,475,982
---------------
AUTOMOBILES 2.8%
Autoliv Inc., ADR........................................... Sweden 221,354 7,718,846
Bayerische Motorenwerke AG BMW.............................. Germany 4,420,000 136,556,641
Regie Nationale des Usines Renault SA....................... France 1,400,000 75,415,896
Volvo AB, B................................................. Sweden 5,541,000 154,978,932
---------------
374,670,315
---------------
BANKING 4.9%
Australia & New Zealand Banking Group Ltd. ................. Australia 13,859,796 89,985,487
Banco Popular Espanol SA.................................... Spain 384,017 28,129,473
Guoco Group Ltd. ........................................... Hong Kong 16,672,500 49,490,496
HSBC Holdings PLC........................................... Hong Kong 16,514,436 204,698,488
National Australia Bank Ltd. ............................... Australia 14,202,374 214,371,700
Nordbanken Holding AB....................................... Sweden 7,100,000 39,974,573
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 953,290 16,682,575
---------------
643,332,792
---------------
BEVERAGES & TOBACCO
*Buenos Aires Embotelladora SA (Baesa), B, ADR.............. Argentina 1,200,000 75,600
---------------
BROADCASTING & PUBLISHING .9%
*Apt Satellite Holdings Ltd., ADR........................... Hong Kong 241,800 1,163,662
South China Morning Post Holdings, Ltd. .................... Hong Kong 48,612,400 30,832,124
South China Morning Post Holdings, Ltd., 144A............... Hong Kong 31,530,000 19,997,714
Television Broadcasts Ltd. ................................. Hong Kong 14,000,000 62,381,280
---------------
114,374,780
---------------
BUILDING MATERIALS & COMPONENTS 1.2%
Caradon PLC................................................. United Kingdom 6,546,802 18,264,221
Cemex SA.................................................... Mexico 8,294,345 36,612,206
Cemex SA, B................................................. Mexico 4,696,000 20,828,830
+Hepworth PLC............................................... United Kingdom 21,012,458 77,034,304
---------------
152,739,561
---------------
CHEMICALS 4.0%
Akzo Nobel NV............................................... Netherlands 2,750,000 127,950,885
BASF AG..................................................... Germany 2,120,000 94,719,831
Cookson Group PLC........................................... United Kingdom 24,015,799 89,203,415
+DSM NV, Br. ............................................... Netherlands 1,852,903 217,925,270
</TABLE>
21
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS (CONT.)
Laporte PLC................................................. United Kingdom 100,000 $ 1,094,210
*Laporte PLC., B............................................ United Kingdom 900,000 14,472
---------------
530,908,083
---------------
CONSTRUCTION & HOUSING .2%
+Hollandsche Beton Groep NV................................. Netherlands 2,032,325 24,042,292
Kyudenko Corp. ............................................. Japan 1,293,000 6,521,310
---------------
30,563,602
---------------
ELECTRICAL & ELECTRONICS 6.4%
*ABB Ltd. .................................................. Sweden 2,260,943 231,596,777
Alcatel SA.................................................. France 900,000 137,839,979
Fuji Photo Film Co. Ltd. ................................... Japan 3,500,000 127,684,801
+G P Batteries International Ltd. .......................... Singapore 6,240,398 10,855,766
General Electric Co. PLC.................................... United Kingdom 15,520,000 155,472,014
Hitachi Ltd. ............................................... Japan 2,864,000 29,020,056
Koninklijke Philips Electronics NV.......................... Netherlands 1,517,543 156,362,609
---------------
848,832,002
---------------
ENERGY EQUIPMENT & SERVICES .2%
Koninklijke Pakhoed NV...................................... Netherlands 1,302,048 33,488,111
---------------
ENERGY SOURCES 3.7%
Fortum Corp. ............................................... Finland 1,220,468 6,226,417
Norsk Hydro AS.............................................. Norway 4,021,672 167,580,343
Perez Companc SA, Reg B..................................... Argentina 1,161,912 6,763,004
*Ranger Oil Ltd. ........................................... Canada 3,305,505 15,287,961
*Renaissance Energy Ltd. ................................... Canada 6,480,000 99,879,373
Shell Transport & Trading Co. PLC........................... United Kingdom 16,774,404 133,648,232
Societe Elf Aquitaine SA, Br................................ France 336,000 58,913,124
---------------
488,298,454
---------------
FINANCIAL SERVICES 1.3%
AXA SA...................................................... France 300,000 37,327,700
Lend Lease Corp. Ltd. ...................................... Australia 2,601,838 31,732,845
Nomura Securities Co. Ltd. ................................. Japan 7,000,000 102,467,053
---------------
171,527,598
---------------
FOOD & HOUSEHOLD PRODUCTS 1.9%
Industrias Bachoco SA, ADR.................................. Mexico 349,000 2,770,187
Northern Foods PLC.......................................... United Kingdom 15,268,667 32,284,892
Panamerican Beverages Inc., A............................... Mexico 4,202,900 79,067,056
*Pepsi-Gemex SA de CV, GDR.................................. Mexico 2,203,300 13,908,331
Tate & Lyle PLC............................................. United Kingdom 19,100,000 122,079,561
---------------
250,110,027
---------------
</TABLE>
22
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER 5.3%
Aracruz Celulose SA, ADR.................................... Brazil 2,239,700 $ 44,374,056
Assidoman AB................................................ Sweden 1,780,900 34,393,213
Carter Holt Harvey Ltd. .................................... New Zealand 44,690,846 52,910,723
Fletcher Challenge Paper Ltd. .............................. New Zealand 15,149,349 10,965,076
Metsa Serla OY, B........................................... Finland 2,859,000 27,057,449
Mo Och Domsjoe AB (Modo), B................................. Sweden 4,000,800 122,073,084
Norske Skogindustrier ASA, A................................ Norway 1,619,000 67,668,939
*Stora Enso OYJ, A.......................................... Finland 79,094 918,969
*Stora Enso OYJ, R.......................................... Finland 5,654,331 80,626,848
*Stora Enso OYJ, R, fgn. ................................... Finland 8,687,550 115,619,889
UPM-Kymmene Corp. .......................................... Finland 4,067,834 140,714,617
---------------
697,322,863
---------------
HEALTH & PERSONAL CARE .6%
Merck KGAA.................................................. Germany 397,355 13,682,359
Rhone-Poulenc SA, A......................................... France 1,280,000 62,083,549
---------------
75,765,908
---------------
INDUSTRIAL COMPONENTS 3.0%
Chudenko Corp. ............................................. Japan 1,530,000 26,233,754
Michelin SA, B.............................................. France 1,800,000 77,969,897
Sandvik AB, A............................................... Sweden 204,700 5,576,644
Sandvik AB, B............................................... Sweden 3,139,700 86,105,104
SKF AB, A................................................... Sweden 1,925,705 41,036,939
SKF AB, B................................................... Sweden 4,791,776 109,075,419
+Yamato Kogyo Co. Ltd. ..................................... Japan 7,702,000 49,030,927
---------------
395,028,684
---------------
INSURANCE .7%
Ace Ltd. ................................................... Bermuda 1,596,000 34,214,250
Partnerre Ltd. ............................................. Bermuda 644,200 23,674,350
XL Capital Ltd., A.......................................... Bermuda 846,000 42,564,375
---------------
100,452,975
---------------
LEISURE & TOURISM .9%
Grand Hotel Holdings Ltd., A................................ Hong Kong 29,837,000 4,764,606
Harbour Centre Development Ltd. ............................ Hong Kong 11,684,000 9,328,963
Mandarin Oriental International Ltd. ....................... Singapore 34,207,000 23,089,725
Rank Group PLC.............................................. United Kingdom 4,859,029 20,196,797
Shangri-La Asia Ltd. ....................................... Hong Kong 56,403,000 63,919,744
---------------
121,299,835
---------------
MACHINERY & ENGINEERING 3.3%
Invensys PLC................................................ United Kingdom 27,849,250 142,624,916
Makita Corp. ............................................... Japan 3,361,700 39,857,814
+Mckechnie Group PLC........................................ United Kingdom 10,052,495 80,900,351
</TABLE>
23
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING (CONT.)
METSO OYJ................................................... Finland 4,742,672 $ 60,113,086
New Holland NV.............................................. Netherlands 2,900,900 44,963,950
+Vickers Group PLC.......................................... United Kingdom 22,672,701 64,528,116
---------------
432,988,233
---------------
MERCHANDISING 4.2%
Best Denki Co. Ltd. ........................................ Japan 2,023,140 19,374,317
Dairy Farm International Holdings Ltd. ..................... Hong Kong 56,773,759 56,489,890
Gucci Group NV, N.Y. shs. .................................. Netherlands 1,003,600 84,051,500
Marks & Spencer PLC......................................... United Kingdom 15,000,000 99,853,676
Matsuzakaya Co. Ltd. ....................................... Japan 3,243,600 14,318,048
Safeway PLC................................................. United Kingdom 31,507,088 130,960,786
Somerfield PLC.............................................. United Kingdom 8,853,500 33,027,480
Storehouse.................................................. United Kingdom 14,931,522 27,490,461
W.H. Smith Group PLC........................................ United Kingdom 9,761,360 90,486,148
---------------
556,052,306
---------------
METALS & MINING 5.7%
Alcan Aluminum Ltd. ........................................ Canada 3,821,658 125,749,503
Anglo American Platinum Corp. Ltd. ......................... South Africa 4,000,000 91,022,690
Billiton PLC................................................ United Kingdom 25,553,088 103,952,843
British Steel PLC........................................... United Kingdom 73,980,192 194,196,368
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,483,275 36,896,466
Elkem ASA, A................................................ Norway 1,910,700 34,087,034
Grupo Mexico SA de CV, B.................................... Mexico 13,482,800 58,292,733
Industrias Penoles SA....................................... Mexico 2,324,000 6,107,965
Pohang Iron & Steel Co. Ltd. ............................... South Korea 603,460 82,518,291
Union Miniere NPV........................................... Belgium 494,000 19,780,871
---------------
752,604,764
---------------
MISC MATERIALS & COMMODITIES 1.3%
+Agrium Inc. ............................................... Canada 7,018,695 71,064,287
De Beers/Centenary Linked Units, reg. ...................... South Africa 929,800 25,377,639
De Beers/Centenary Linked Units, ADR........................ South Africa 3,000,000 81,562,500
---------------
178,004,426
---------------
MULTI-INDUSTRY 7.0%
Alfa SA de CV, A............................................ Mexico 5,538,100 20,961,995
Amoy Properties Ltd. ....................................... Hong Kong 54,372,000 53,565,713
Broken Hill Proprietary Co. Ltd. ........................... Australia 4,815,580 51,699,930
Cheung Kong Holdings Ltd. .................................. Hong Kong 13,985,400 121,570,672
DESC SA de CV DESC, B....................................... Mexico 11,250,000 10,435,548
+Elementis PLC.............................................. United Kingdom 28,738,196 54,065,201
First Pacific Co. Ltd. ..................................... Hong Kong 36,857,800 28,479,398
Hutchison Whampoa Ltd. ..................................... Hong Kong 7,770,000 75,797,312
+Inchcape PLC............................................... United Kingdom 5,000,001 31,154,032
</TABLE>
24
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Jardine Matheson Holdings Ltd. ............................. Hong Kong 13,609,352 $ 65,052,703
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,694,764 33,797,957
Metra OY, B................................................. Finland 284,185 5,102,873
Pacific Dunlop Ltd. ........................................ Australia 18,164,791 26,966,698
Pilkington PLC.............................................. United Kingdom 50,000,000 86,829,284
Saab AB, B.................................................. Sweden 2,509,750 19,600,300
Swire Pacific Ltd., A....................................... Hong Kong 35,793,400 184,840,646
Swire Pacific Ltd., B....................................... Hong Kong 31,296,200 24,383,561
Wheelock and Company Ltd. .................................. Hong Kong 20,338,809 26,454,347
---------------
920,758,170
---------------
REAL ESTATE 1.0%
+Bail Investissement........................................ France 164,380 21,546,932
Hang Lung Development Co. Ltd. ............................. Hong Kong 28,727,000 33,110,326
New World Development Co. Ltd. ............................. Hong Kong 19,473,380 46,895,708
Wereldhave NV............................................... Netherlands 526,100 25,867,394
---------------
127,420,360
---------------
RECREATION & OTHER CONSUMER GOODS 2.0%
Nintendo Co. Ltd. .......................................... Japan 1,097,700 185,711,478
Yue Yuen Industrial Holdings Ltd. .......................... Hong Kong 27,581,400 79,563,609
---------------
265,275,087
---------------
TELECOMMUNICATIONS 6.9%
Asia Satellite Telecommunications Hldgs. Ltd. .............. Hong Kong 8,945,000 21,886,892
Asia Satellite Telecommunications Hldgs. Ltd., ADR.......... Hong Kong 425,000 10,306,250
Cable & Wireless HKT Ltd. .................................. Hong Kong 38,312,687 87,083,820
Nippon Telegraph & Telephone Corp. ......................... Japan 12,000 134,616,262
Nortel Inversora SA, ADR.................................... Argentina 700,000 10,762,500
SK Telecom Co. Ltd., ADR.................................... South Korea 8,742,746 98,902,314
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 22,296,000 74,366,419
Telecom Argentina Stet-France Telecom SA, ADR............... Argentina 3,228,900 91,216,425
*Telecomunicacoes de Minas Gerais Celular SA Telemig........ Brazil 176,397,107 835,179
*Telecomunicacoes de Minas Gerais SA Telemig................ Brazil 176,397,107 2,569,781
Telecomunicacoes de Sao Paulo SA (Telesp)................... Brazil 183,551,000 13,847,500
Telefonica de Argentina SA (TEAR), B, ADR................... Argentina 2,073,960 61,700,310
Telefonica del Peru SA, B, ADR.............................. Peru 1,829,200 25,037,175
Telefonica del Peru SA, B................................... Peru 10,829,856 14,670,435
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 3,600,200 267,764,875
---------------
915,566,137
---------------
TEXTILES & APPAREL .8%
Adidas-Salomon AG........................................... Germany 1,078,500 99,961,315
Courtaulds Textiles PLC..................................... United Kingdom 3,750,000 10,190,381
---------------
110,151,696
---------------
</TABLE>
25
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 4.5%
Air New Zealand Ltd., B..................................... New Zealand 16,817,000 $ 30,430,298
British Airways PLC......................................... United Kingdom 18,000,000 117,943,111
Kvaerner ASA, A............................................. Norway 2,271,444 50,363,970
Mayne Nickless Ltd., A...................................... Australia 8,000,000 25,944,734
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 4,587,663 73,914,848
SAS Danmark AS.............................................. Denmark 468,800 4,994,957
+SAS Norge ASA, B........................................... Norway 1,233,300 11,786,875
SAS Sverige AB.............................................. Sweden 1,254,200 11,693,110
Sea Containers Ltd., A...................................... United Kingdom 446,400 13,615,200
Singapore Airlines Ltd., fgn. .............................. Singapore 25,127,200 235,712,023
Vosper Thornycroft Holdings PLC............................. United Kingdom 1,200,000 18,523,581
---------------
594,922,707
---------------
UTILITIES ELECTRICAL & GAS 6.5%
CLP Holdings Ltd. .......................................... Hong Kong 21,376,000 101,303,491
Electrabel SA............................................... Belgium 204,017 68,160,103
Gener SA, ADR............................................... Chile 1,918,650 35,135,278
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 39,084,600 128,601,705
Iberdrola SA, Br. .......................................... Spain 8,000,000 114,919,461
Korea Electric Power Corp. ................................. South Korea 1,641,180 61,170,623
Mosenergo, ADR.............................................. Russia 1,850,000 5,596,250
National Grid Group PLC..................................... United Kingdom 3,579,093 23,768,156
National Power PLC.......................................... United Kingdom 8,000,000 56,953,578
Powergen PLC................................................ United Kingdom 6,300,000 63,211,719
Thames Water Group PLC...................................... United Kingdom 5,467,833 78,688,404
Transportadora de Gas del Sur SA, B, Reg S, ADR............. Argentina 3,590,600 27,378,325
Veba AG..................................................... Germany 1,500,000 94,507,526
---------------
859,394,619
---------------
TOTAL COMMON STOCKS (COST $9,984,807,164)................... 11,122,969,752
---------------
PREFERRED STOCKS 3.2%
Ballast Nedam NV, pfd. ..................................... Netherlands 57,752 1,512,806
Banco Bradesco SA, BBD, pfd. ............................... Brazil 5,137,655,485 20,315,369
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 949,420 21,043,336
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,550,500 34,365,921
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 334,000 3,569,625
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 440,000,000 58,834,547
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 730,000 39,921,875
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 3,650,000 58,400,000
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 410,000 9,609,375
Telecomunicacoes Brasileiras SA, pfd. ...................... Brazil 472,200,000 35,206,171
*Telecomunicacoes de Minas Gerais Celular Telemig, C,
pfd. ..................................................... Brazil 38,363,000 305,387
</TABLE>
26
PAGE
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Telecomunicacoes de Minas Gerais SA, B, pfd. ............... Brazil 38,363,000 $ 938,117
Telesp Participacoes SA, ADR, pfd. ......................... Brazil 2,050,000 33,440,625
Volkswagen AG, pfd. ........................................ Germany 3,051,340 106,680,068
---------------
TOTAL PREFERRED STOCKS (COST $566,438,003).................. 424,143,222
---------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS (COST $1,705,286,630) 12.9%
U.S. Treasury Bills, 4.365% to 4.91%, with maturities to
2/17/00................................................... United States $1,730,239,000 1,705,283,439
---------------
TOTAL INVESTMENTS (COST $12,256,531,797) 100.2%............. 13,252,396,413
OTHER ASSET, LESS LIABILITIES (.2%)......................... (21,690,707)
---------------
TOTAL NET ASSETS 100.0%..................................... $13,230,705,706
===============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
+Affiliated issuers (see note 6).
See Notes to Financial Statements.
27
PAGE
TEMPLETON FOREIGN FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$12,256,531,797).......................................... $13,252,396,413
Cash....................................................... 2,484,048
Receivables:
Investment securities sold................................ 2,665,890
Capital shares sold....................................... 33,247,766
Dividends and interest.................................... 23,728,328
Other assets............................................... 9,092
---------------
Total assets.......................................... 13,314,531,537
---------------
Liabilities:
Payables:
Investment securities purchased........................... 34,865,132
Capital shares redeemed................................... 33,692,153
To affiliates............................................. 12,707,498
Accrued expenses........................................... 2,561,048
---------------
Total liabilities..................................... 83,825,831
---------------
Net assets, at value........................................ $13,230,705,706
===============
Net assets consist of:
Undistributed net investment income........................ $ 322,109,281
Net unrealized appreciation................................ 995,864,616
Accumulated net realized gain.............................. 33,035,810
Capital shares............................................. 11,879,695,999
---------------
Net assets, at value........................................ $13,230,705,706
===============
CLASS A:
Net asset value per share ($11,940,654,141 / 1,138,378,760
shares outstanding)...................................... $10.49
===============
Maximum offering price per share ($10.49 / 94.25%)......... $11.13
===============
CLASS B:
Net asset value and maximum offering price per share
($16,764,501 / 1,607,383 shares outstanding)*............ $10.43
===============
CLASS C:
Net asset value per share ($1,196,083,751 / 116,058,462
shares outstanding)*..................................... $10.31
===============
Maximum offering price per share ($10.31 / 99.00%)......... $10.41
===============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($77,203,313 / 7,352,820 shares outstanding)............. $10.50
===============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
28
PAGE
TEMPLETON FOREIGN 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 $43,530,648)
Dividends.................................................. $448,028,839
Interest................................................... 51,457,017
------------
Total investment income............................... $ 499,485,856
Expenses:
Management fees (Note 3)................................... 75,133,698
Administrative fees (Note 3)............................... 9,581,878
Distribution fees (Note 3)
Class A................................................... 27,795,625
Class B................................................... 42,615
Class C................................................... 11,399,387
Transfer agent fees (Note 3)............................... 17,500,000
Custodian fees............................................. 4,240,000
Reports to shareholders.................................... 1,840,000
Registration and filing fees............................... 121,000
Professional fees.......................................... 117,200
Directors' fees and expenses............................... 190,500
Other...................................................... 98,883
------------
Total expenses........................................ 148,060,786
--------------
Net investment income........................... 351,425,070
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 41,396,607
Foreign currency transactions............................. (13,790,346)
------------
Net realized gain..................................... 27,606,261
Net unrealized appreciation on investments............ 3,752,103,566
--------------
Net realized and unrealized gain............................ 3,779,709,827
--------------
Net increase in net assets resulting from operations........ $4,131,134,897
==============
</TABLE>
See Notes to Financial Statements.
29
PAGE
TEMPLETON FOREIGN 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..................................... $ 351,425,070 $ 434,425,533
Net realized gain from investments and foreign currency
transactions............................................. 27,606,261 1,318,565,421
Net unrealized appreciation (depreciation) on
investments.............................................. 3,752,103,566 (4,427,460,673)
-------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................ 4,131,134,897 (2,674,469,719)
Distributions to shareholders from:
Net investment income:
Class A.................................................. (319,053,548) (418,126,512)
Class C.................................................. (27,544,740) (31,961,548)
Advisor Class............................................ (1,552,072) (4,907,491)
Net realized gains:
Class A.................................................. (940,330,691) (1,101,558,721)
Class C.................................................. (102,214,786) (105,695,936)
Advisor Class............................................ (4,253,117) (11,895,183)
Capital share transactions (Note 2):
Class A.................................................. (1,282,999,736) 285,456,853
Class B.................................................. 15,798,522 --
Class C.................................................. (208,492,650) 266,405,053
Advisor Class............................................ 14,877,679 (58,437,266)
-------------------------------------
Net increase (decrease) in net assets................... 1,275,369,758 (3,855,190,470)
Net assets:
Beginning of year.......................................... 11,955,335,948 15,810,526,418
-------------------------------------
End of year................................................ $13,230,705,706 $11,955,335,948
=====================================
Undistributed net investment income included in net assets:
End of year................................................ $ 322,109,281 $ 320,363,323
=====================================
</TABLE>
See Notes to Financial Statements.
30
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Foreign Fund (the Fund) is a separate, diversified series of Templeton
Funds, Inc. (the Company), which is an open-end investment company registered
under the Investment Company Act of 1940. The Fund seeks long-term capital
growth. Under normal market conditions, the Fund will invest primarily in the
equity securities of companies outside the United States, 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, 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.
31
PAGE
TEMPLETON FOREIGN 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. CAPITAL STOCK
The Fund offers four classes of shares: Class A, Class B, Class C and Advisor
Class shares. Effective January 1, 1999, Class I and Class II shares were
renamed Class A and Class C, respectively, and a fourth 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 2.5 billion shares have been classified as Fund
shares as follows: 2 billion Class A shares, 100 million Class B shares, 300
million Class C shares, and 100 million Advisor Class 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..................................... 958,199,306 $ 8,964,615,268 483,458,360 $ 5,097,767,696
Shares issued on reinvestment of
distributions................................. 140,749,711 1,127,399,717 123,818,793 1,329,020,247
Shares redeemed................................. (1,235,651,096) (11,375,014,721) (593,134,761) (6,141,331,090)
--------------------------------------------------------------------------
Net increase (decrease)......................... (136,702,079) $ (1,282,999,736) 14,142,392 $ 285,456,853
==========================================================================
</TABLE>
32
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1999*
---------------------------------
SHARES AMOUNT
---------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold..................................... 1,618,210 $ 15,907,208
Shares redeemed................................. (10,827) (108,686)
---------------------------------
Net increase.................................... 1,607,383 $ 15,798,522
=================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold..................................... 42,361,421 $ 377,236,433 55,528,728 $ 582,473,124
Shares issued on reinvestment of
distributions................................. 12,347,649 97,793,089 9,502,152 100,985,613
Shares redeemed................................. (78,357,177) (683,522,172) (41,180,696) (417,053,684)
--------------------------------------------------------------------------
Net increase (decrease)......................... (23,648,107) $ (208,492,650) 23,850,184 $ 266,405,053
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold..................................... 9,656,116 $ 92,836,872 17,334,441 $ 183,323,322
Shares issued on reinvestment of
distributions................................. 608,301 4,866,404 260,292 3,067,476
Shares redeemed................................. (8,841,471) (82,825,597) (23,847,551) (244,828,064)
--------------------------------------------------------------------------
Net increase (decrease)......................... 1,422,946 $ 14,877,679 (6,252,818) $ (58,437,266)
==========================================================================
</TABLE>
*Effective date of Class B shares was January 1, 1999.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Global
Advisors Ltd. (TGAL), Franklin Templeton Services, Inc. (FT Services),
Franklin/Templeton Distributors, Inc. (Distributors), and Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent, respectively.
33
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
- -----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Company's aggregate 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, unreimbursed costs were $7,221,417.
Distributors received net commissions from sales of the Fund's shares and
received contingent deferred sales charges for the year of $229,164 and
$791,580, respectively.
4. INCOME TAXES
At August 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $12,267,743,738 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................... $ 2,022,718,655
Unrealized depreciation.................................... (1,038,065,980)
---------------
Net unrealized appreciation................................ $ 984,652,675
===============
</TABLE>
At August 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1998 of $10,200,000. For tax purposes, such losses will be
reflected in the year ending August 31, 2000.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1999 aggregated $2,991,018,985 and $5,559,201,623,
respectively.
34
PAGE
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
6. INVESTMENT IN AFFILIATES
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 $713,934,353. For the year ended August 31, 1999, dividend income from
"affiliated persons" was $104,743,282 and net realized gains from disposition of
"affiliated persons" were $3,646,798.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME
NAME OF ISSUER AUG. 31, 1998 ADDITIONS REDUCTIONS AUG. 31, 1999 AUG. 31, 1999 9/1/98-8/31/99
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ............... 7,048,695 -- 30,000 7,018,695 $ 71,064,287 $ 773,706
Bail Investissement........ 164,380 -- -- 164,380 21,546,932 1,585,087
DSM NV, Br. ............... 1,852,903 -- -- 1,852,903 217,925,270 9,012,891
Elementis PLC.............. 28,200,000 538,196 -- 28,738,196 54,065,201 2,773,839
Elkem ASA, A............... 2,524,000 -- 613,300 1,910,700 * 1,497,053
Grand Hotel Holdings Ltd.,
A......................... 34,585,000 4,848,000 29,837,000 * 2,763,806
G P Batteries International
Ltd. ..................... 5,883,398 357,000 -- 6,240,398 10,855,766 456,207
Hepworth PLC............... 21,012,458 -- -- 21,012,458 77,034,304 4,871,377
Hollandsche Beton Groep
NV........................ 2,194,149 -- 161,824 2,032,325 24,042,292 1,516,582
Inchcape PLC............... 30,000,000 -- 24,999,999 5,000,001 31,154,032 57,285,143
Mckechnie Group PLC........ 7,000,000 3,052,495 10,052,495 80,900,351 3,358,844
SAS Norge ASA, B........... -- 1,233,300 1,233,300 11,786,875 --
Vickers Group PLC.......... 19,749,701 2,923,000 22,672,701 64,528,116 3,040,188
W.H. Smith Group PLC....... 13,671,380 90,000 4,000,000 9,761,360 * 15,503,735
Yamato Kogyo Co. Ltd. ..... 7,702,000 -- -- 7,702,000 49,030,927 304,824
-------------------------------
TOTAL NON CONTROLLED
AFFILIATES................ $713,934,353 $104,743,282
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSSES)
- ---------------------------
<S> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ............... $ (83,355)
Bail Investissement........ --
DSM NV, Br. ............... --
Elementis PLC.............. --
Elkem ASA, A............... (1,726,795)
Grand Hotel Holdings Ltd.,
A......................... (1,072,396)
G P Batteries International
Ltd. ..................... --
Hepworth PLC............... --
Hollandsche Beton Groep
NV........................ 457,073
Inchcape PLC............... --
Mckechnie Group PLC........ --
SAS Norge ASA, B........... --
Vickers Group PLC.......... --
W.H. Smith Group PLC....... 6,072,271
Yamato Kogyo Co. Ltd. ..... --
-----------
TOTAL NON CONTROLLED
AFFILIATES................ $ 3,646,798
===========
</TABLE>
*As of August 31, 1999, no longer an affiliate.
35
PAGE
TEMPLETON FOREIGN 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 Foreign 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
36
PAGE
TEMPLETON FOREIGN FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $49,315,974 as a capital gain dividend 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, Class C, and
Advisor Class 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 $0.0093 $0.0000 $0.0093
Australia.............................................. 0.0003 0.0149 0.0003 0.0150
Belgium................................................ 0.0004 0.0019 0.0004 0.0019
Bermuda................................................ 0.0000 0.0011 0.0000 0.0011
Brazil................................................. 0.0033 0.0167 0.0033 0.0169
Canada................................................. 0.0005 0.0025 0.0005 0.0025
Chile.................................................. 0.0004 0.0008 0.0004 0.0008
China.................................................. 0.0000 0.0002 0.0000 0.0002
Finland................................................ 0.0018 0.0090 0.0018 0.0091
France................................................. 0.0014 0.0056 0.0014 0.0056
Germany................................................ 0.0008 0.0062 0.0008 0.0063
Hong Kong.............................................. 0.0000 0.0390 0.0000 0.0394
Japan.................................................. 0.0005 0.0026 0.0005 0.0027
Luxembourg............................................. 0.0000 0.0006 0.0000 0.0006
Mexico................................................. 0.0004 0.0076 0.0004 0.0077
Netherlands............................................ 0.0025 0.0189 0.0025 0.0191
New Zealand............................................ 0.0005 0.0023 0.0005 0.0023
Norway................................................. 0.0008 0.0039 0.0008 0.0039
Peru................................................... 0.0000 0.0002 0.0000 0.0002
Russia................................................. 0.0000 0.0002 0.0000 0.0002
Singapore.............................................. 0.0003 0.0011 0.0003 0.0011
South Africa........................................... 0.0000 0.0050 0.0000 0.0051
South Korea............................................ 0.0006 0.0025 0.0006 0.0025
Spain.................................................. 0.0008 0.0041 0.0008 0.0041
Sweden................................................. 0.0043 0.0213 0.0043 0.0215
United Kingdom......................................... 0.0139 0.1058 0.0139 0.1070
------------------------------------------------------------------------
TOTAL.................................................. $0.0335 $0.2833 $0.0335 $0.2861
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
37
PAGE
TEMPLETON FOREIGN FUND
Tax Designation (continued)
<TABLE>
<CAPTION>
CLASS C ADVISOR CLASS
------------------------------------------------------------------------
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 $0.0071 $0.0000 $0.0100
Australia.............................................. 0.0003 0.0114 0.0003 0.0160
Belgium................................................ 0.0004 0.0014 0.0004 0.0020
Bermuda................................................ 0.0000 0.0009 0.0000 0.0012
Brazil................................................. 0.0033 0.0128 0.0033 0.0180
Canada................................................. 0.0005 0.0019 0.0005 0.0027
Chile.................................................. 0.0004 0.0006 0.0004 0.0009
China.................................................. 0.0000 0.0002 0.0000 0.0002
Finland................................................ 0.0018 0.0069 0.0018 0.0097
France................................................. 0.0014 0.0043 0.0014 0.0060
Germany................................................ 0.0008 0.0047 0.0008 0.0067
Hong Kong.............................................. 0.0000 0.0298 0.0000 0.0420
Japan.................................................. 0.0005 0.0020 0.0005 0.0028
Luxembourg............................................. 0.0000 0.0005 0.0000 0.0006
Mexico................................................. 0.0004 0.0058 0.0004 0.0082
Netherlands............................................ 0.0025 0.0145 0.0025 0.0204
New Zealand............................................ 0.0005 0.0017 0.0005 0.0024
Norway................................................. 0.0008 0.0030 0.0008 0.0042
Peru................................................... 0.0000 0.0002 0.0000 0.0002
Russia................................................. 0.0000 0.0002 0.0000 0.0002
Singapore.............................................. 0.0003 0.0008 0.0003 0.0012
South Africa........................................... 0.0000 0.0038 0.0000 0.0054
South Korea............................................ 0.0006 0.0019 0.0006 0.0027
Spain.................................................. 0.0008 0.0031 0.0008 0.0044
Sweden................................................. 0.0043 0.0163 0.0043 0.0230
United Kingdom......................................... 0.0139 0.0810 0.0139 0.1140
------------------------------------------------------------------------
TOTAL.................................................. $0.0335 $0.2168 $0.0335 $0.3051
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
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.
38
PAGE
TEMPLETON FOREIGN 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.
39
PAGE
This page intentionally left blank.
PAGE
ANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Templeton Foreign
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.
104 A99 10/99 [RECYCLE LOGO] Printed on recycled paper
