ANNUAL REPORT
TEMPLETON WORLD FUND
AUGUST 31, 2000
[PHOTO OF NAVIGATION TOOL]
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<PAGE>
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.
[Jeffrey A. Everett PHOTO]
JEFFREY A. EVERETT, CFA
Portfolio Manager
Templeton World Fund
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<PAGE>
SHAREHOLDER LETTER
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YOUR FUND'S GOAL: TEMPLETON WORLD FUND SEEKS LONG-TERM CAPITAL GROWTH. UNDER
NORMAL MARKET CONDITIONS, THE FUND INVESTS PRIMARILY IN THE EQUITY SECURITIES OF
COMPANIES LOCATED ANYWHERE IN THE WORLD, INCLUDING EMERGING MARKETS.
--------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to bring you this annual report of Templeton World Fund, which
covers the 12 months ended August 31, 2000. During this time, interest rates
ratcheted up in many countries, inflation generally remained subdued, and most
global economies produced strong gains. In the United States, economic expansion
continued at a blistering pace as consumer confidence reached historic highs and
unemployment hit a 30-year low. Despite a massive U.S. trade deficit -- which
would lead most seasoned economists to call for the collapse of the dollar's
value relative to other currencies -- the dollar set record highs. It was
particularly strong against the sliding euro, Europe's new common currency. Even
with the European Central
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 16.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter .............. 1
Performance Summary ............. 8
Financial Highlights &
Statement of Investments ........ 13
Financial Statements ............ 24
Notes to Financial Statements ... 27
Report of Independent
Accountants ..................... 32
Tax Designation ................. 33
</TABLE>
FUND CATEGORY
[PYRAMID GRAPHIC]
<PAGE>
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/00
[BAR GRAPH]
<TABLE>
<S> <C>
North American Stocks 32.6%
European Stocks 25.3%
Asian Stocks 17.7%
Latin American Stocks 6.6%
Australian & New Zealand Stocks 4.2%
Middle Eastern & African Stocks 1.3%
Fixed Income Securities 4.5%
Short-Term Investments &
Other Net Assets 7.8%
</TABLE>
Bank's six interest rate hikes during the year under review, the euro witnessed
a protracted depreciation of more than 25% versus the dollar through August
since its introduction in January 1999. Currency woes aside, many European
equity markets benefited from rising exports, dramatic employment gains,
increased industrial activity and a significant pickup in merger and acquisition
deals.
Record productivity and rising trade levels propelled most Asian economies
forward, with Hong Kong posting double-digit gross domestic product (GDP)
figures in the first half of 2000.(1) But the big news in Asia was the granting
of Permanent Normal Trade Relations (PNTR) status to China by the U.S. Congress,
which helped one of the world's most potent, untapped economies begin to open up
to foreign investment, capitalism, development and the benefits of increased
global competition. Elsewhere in the Far East, South Korea's and Thailand's
economies continued to recover, and the International Monetary Fund resumed loan
disbursements to Indonesia.
Latin American economies performed well for the most part, fostered by falling
unemployment, enactment of government reforms, slowed inflation, currency
stability and an increase in investor confidence. Mexico, in particular, enjoyed
strong GDP gains due in part to the unrelenting expansion of the U.S. economy
(its primary export partner) and soaring oil prices.
During the first half of the reporting period, global stock markets generally
provided strong results. The U.S. was at the forefront, posting record highs
across the major indexes. However, by April 2000 many of the technology, media
and telecommunication stocks that had been driving the U.S. market
1. Source: Census & Statistics Dept. of Hong Kong
2
<PAGE>
suffered severe declines. The Nasdaq Composite Index, a symbol of the "new
economy," became quite volatile in the spring, but rebounded by early summer
after experiencing four substantial declines of 8% or more.(2)
Many investors appeared to question the viability of "new economy" stocks and
sought opportunities in traditional, previously overlooked "old economy" stocks.
In our opinion, one of the great myths of the past 12 months was that most stock
markets were overpriced. We believe only the minority of large-capitalization
stocks throughout the world were overpriced, and that the majority were fairly
priced or underpriced.
Within this environment, many of the Fund's equity holdings performed well
during the reporting period, and Templeton World Fund - Class A posted a one-
year cumulative total return of 13.59%, as shown in the Performance Summary
beginning on page 8. The Fund's benchmark, the Morgan Stanley Capital
International (MSCI) World Index, posted a 13.46% cumulative total return during
the same time.(3)
Our performance during the past year, especially in the last six months, was
aided by a return by investors to old economy stocks with lower valuations when
growth-oriented issues related to the new economy, especially technology-,
media-, and telecommunications-related issues, corrected sharply in the spring.
Our financial services, banking and insurance stocks, comprising 23% of the
Fund's total net assets at the end of the reporting period, rallied as interest
rate fears began to subside, ending an extraordinary period of volatility for
financial issues.
TOP 10 COUNTRIES(*)
Based on Equity Investments
(87.7% of Total Net Assets)
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
COUNTRY NET ASSETS
----------------------------
<S> <C>
United States 28.8%
Hong Kong 7.2%
United Kingdom 6.9%
Netherlands 6.0%
Brazil 4.4%
Australia 4.0%
South Korea 3.7%
Germany 3.0%
Japan 2.5%
Switzerland 2.2%
</TABLE>
* Does not include investments in fixed income securities, short-term
investments or other net assets.
2. Source: Standard & Poor's Micropal.
3. Source: Standard & Poor's Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1,450 securities in 22 countries and is
designed to measure world stock performance. It includes reinvested dividends.
One cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
3
<PAGE>
TOP 10 SECTORS*
Based on Equity Investments
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
---------------------------------------
<S> <C>
Diversified Financials 8.4%
Banks 8.0%
Real Estate 6.9%
Insurance 6.7%
Oil & Gas 6.1%
Metals & Mining 5.8%
Electric Utilities 5.5%
Computers & Peripherals 4.8%
Diversified
Telecommunication Services 4.5%
Pharmaceuticals 3.4%
</TABLE>
*Does not include investments in fixed income securities, short-term investments
or other net assets.
Most of these stocks seemed to be drastically overlooked one year ago during
investors' haste to load up on the technology, media and telecom darlings.
Meanwhile, our positions in Merrill Lynch and Morgan Stanley rose in value, and
Japan's Nomura Securities climbed just over 60% during the reporting period.
Although we are aware that such issues typically decline in value during periods
of rising interest rates, we continue to find compelling value and strong
fundamentals among selected companies within the category.
Commodity-related stocks also performed well for the Fund. We purchased shares
of Hong Kong/China's PetroChina, one of the more controversial and out-of-favor
IPOs (initial public offerings) of the year. Although the stock was first
offered during the difficult days of April amid a major restructuring and strong
opposition from U.S. labor unions, PetroChina still rose more than 53% on the
back of sharply higher oil prices. Metal prices also took an upward track during
the period, allowing our stake in South Africa's Anglo American Platinum to
return approximately 80% during the 12 months under review.
Asian stocks, which represented 15.4% of the Fund's total net assets at the
beginning of the period and rose to 17.7% by August 2000, provided some solid
results as well. Most notably, returns were aided by Hong Kong's Li & Fung
(merchandising) and Japan's Sony Corporation. Two multi-industry Hong Kong
stocks, Hutchison Whampoa and Cheung Kong Holdings, posted solid gains during
the period, and by August they were among the Fund's largest holdings.
Elsewhere, emerging market stocks generally aided returns, especially those of
South American telecommunications companies.
4
<PAGE>
As might be expected, there were some disappointments within the portfolio. As
always, we reviewed underachieving stocks to determine whether their decline
stemmed from deteriorated long-term prospects, or simply a short-term event or
market "noise." Lately, retailers of all sorts have been impacted by a plethora
of new options for consumers, and of course, new shopping methods (such as
"e-tailing," or buying through the Internet). Our holdings in Marks & Spencer
(U.K.), Coles Myer (Australia) and Sears (U.S.) were negatively affected by
these trends, and retail stocks in general proved to be the worst-performing
group in the portfolio during the reporting period. From a country perspective,
the United Kingdom (6.9% of total net assets) also continued to disappoint, as
many companies there have not done well during the past year.
Looking forward, we are optimistic about the outlook for global equities, and
shall continue to search the globe for stocks we believe are being improperly
valued by other investors. Of course, we remain ardent believers in individual
stock selection, as opposed to primarily sector or country allocation
considerations. Over time, we've found this bottom-up discipline to be the best
approach in our efforts to generate attractive returns. The Fund, which has
benefited from myriad market changes over the past 20 years, continues to seek
new ways to capitalize on change. As competition increases globally, we expect
numerous turns and reforms, upsets and reconstructions, and look forward to the
opportunities to come.
Today, it is our belief that many companies not traditionally thought of as "new
economy" companies are, in fact, major players in the new economy as more and
more managements
TOP 10 EQUITY HOLDINGS
8/31/00
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
SECTOR, COUNTRY NET ASSETS
-----------------------------------------------
<S> <C>
Cheung Kong Holdings Ltd., 3.9%
Real Estate, Hong Kong
Morgan Stanley Dean 2.7%
Witter & Co.,
Diversified Financials,
United States
HCA - The Healthcare Co., 2.2%
Healthcare Providers &
Services, United States
Merrill Lynch & Co., 2.2%
Diversified Financials,
United States
PetroChina Co. Ltd. H, 1.8%
Oil & Gas, China
Korea Electric Power Corp., 1.7%
Electric Utilities, South Korea
Broken Hill Proprietary Co. Ltd., 1.7%
Metals & Mining, Australia
Hewlett-Packard Co., 1.6%
Computers & Peripherals,
United States
Ace Ltd., 1.6%
Insurance, Bermuda
Gucci Group NV, 1.5%
Textiles & Apparel,
Netherlands
</TABLE>
5
<PAGE>
tune into the competitive advantages of technology and the cyber world. In our
opinion, nowhere does this idea loom more powerfully than in China. Its domestic
stock markets are due to open to foreigners by mid-2001 and could offer access
to a combined market capitalization of US$500 billion -- about three times
larger than that of Hong Kong. Although we are bottom-up investors and do not
make investment decisions based on top-down considerations, we believe that many
opportunities may present themselves there in the near future. Consequently, we
expect China and Taiwan to become more important to the Fund as wider trading
access is granted, just as we've seen across Europe in recent years.
Of course, investing in foreign securities involves special risks, such as
adverse economic, social and political developments in the countries where the
Fund invests, as well as market and currency volatility. Emerging market
securities involve heightened risks related to the same factors, in addition to
those associated with the relatively small size and lesser liquidity of these
markets. Investing in any emerging market means accepting a certain amount of
volatility and, in some cases, the consequences of severe market corrections.
For example, Mexico's equity market has appreciated 974% in the last 12 years,
but has also suffered five quarterly declines of more than 15% each during that
time.(4) While short-term volatility can be disconcerting, declines in excess of
50% are not unusual in emerging markets.
4. Source: Morgan Stanley Capital International/MSCI Mexico Free Index. Based on
quarterly percentage price change over 12 years ended 6/30/00. Market return is
measured in U.S. dollars and does not include reinvested dividends. The MSCI
Mexico Free Index reflects actual buyable opportunities for global investors by
taking into account local market restrictions on share ownership by foreigners.
The MSCI Mexico Free Index is a capitalization weighted index, including 34
companies as of 6/30/00.
6
<PAGE>
We thank you for your continued investment in Templeton World Fund and welcome
your comments or suggestions.
Sincerely,
/s/ Jeffery A. Everett
Jeffrey A. Everett, CFA
Portfolio Manager
Templeton World Fund
--------------------------------------------------------------------------------
This discussion reflects our views, opinions and portfolio holdings as of august
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
--------------------------------------------------------------------------------
7
<PAGE>
CLASS A:
Subject to the current, maximum 5.75% initial sales charge. Prior to 7/1/92,
Fund shares were offered at a higher initial sales charge; thus actual total
returns may be slightly lower. Effective 1/1/93, 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:
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.
ONE-YEAR PERFORMANCE AS OF 8/31/00
One-year cumulative total return represents the change in value of an investment
for the period indicated and does not include sales charges. 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 operating expenses
for each class. Past distributions are not indicative of future trends. All
total returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Cumulative Total Return 13.59%
Net Asset Value (NAV) $18.87 (8/31/00) $18.14 (8/31/99)
Change in NAV +$0.73
Distributions (9/1/99 - 8/31/00) Dividend Income $0.3810
Long-Term Capital Gain $1.0871
==================================
TOTAL $1.4681
</TABLE>
<TABLE>
<CAPTION>
CLASS B
<S> <C> <C>
One-Year Cumulative Total Return 12.76%
Net Asset Value (NAV) $18.66 (8/31/00) $18.05 (8/31/99)
Change in NAV +$0.61
Distributions (9/1/99 - 8/31/00) Dividend Income $0.3502
Long-Term Capital Gain $1.0871
==================================
TOTAL $1.4373
</TABLE>
<TABLE>
<CAPTION>
CLASS C
<S> <C> <C>
One-Year Cumulative Total Return 12.77%
Net Asset Value (NAV) $18.43 (8/31/00) $17.71 (8/31/99)
Change in NAV +$0.72
Distributions (9/1/99 - 8/31/00) Dividend Income $0.2215
Long-Term Capital Gain $1.0871
==================================
TOTAL $1.3086
</TABLE>
Templeton World Fund paid distributions derived from long-term capital gains of
$1.0871 per share in October, 1999. The Fund hereby designates such
distributions as capital gain dividends per Internal Revenue Code Section 852
(b)(3).
Please see Standardized SEC Performance as of 8/31/00 and index comparison on
pages 10-11.
Past performance does not guarantee future results.
8
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/17/78)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 12.10% 92.03% 333.93% 2,670.98%
Average Annual Total Return(2) 5.65% 12.59% 15.12% 15.46%
Value of $10,000 Investment(3) $10,565 $18,095 $40,893 $261,167
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
-------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 11.18% 22.97%
Average Annual Total Return(2) 7.18% 10.45%
Value of $10,000 Investment(3) $10,718 $11,897
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 11.25% 84.66% 105.58%
Average Annual Total Return(2) 9.18% 12.83% 14.00%
Value of $10,000 Investment(3) $10,918 $18,284 $20,346
</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.
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.
--------------------------------------------------------------------------------
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 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.
--------------------------------------------------------------------------------
For updated performance figures, see "Prices and Performance" on the Internet at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
9
<PAGE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS A
------------------------------------
<S> <C>
1-Year 7.04%
5-Year 13.98%
10-Year 14.36%
Since Inception (1/17/78) 15.71%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS B
------------------------------------
<S> <C>
1-Year 8.76%
Since Inception (1/1/99) 13.65%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Average annual total return represents the change in value of an investment over
the periods shown. It includes each class's current, applicable, maximum sales
charges, expenses, account fees and reinvested distributions. 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.
CLASS A (9/1/90 - 8/31/00)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Templeton MSCI World CPI**
World Fund - Index*
Class A
-------------------------------------------------------------------------------
<S> <C> <C> <C>
09/01/90 $9,423 $10,000 $10,000
09/30/90 $8,494 $8,947 $10,084
10/31/90 $8,314 $9,785 $10,145
11/30/90 $8,615 $9,626 $10,167
12/31/90 $8,776 $9,829 $10,167
01/31/91 $9,342 $10,190 $10,228
02/28/91 $10,056 $11,136 $10,243
03/31/91 $10,063 $10,809 $10,258
04/30/91 $10,226 $10,896 $10,273
05/31/91 $10,601 $11,144 $10,303
06/30/91 $10,106 $10,458 $10,334
07/31/91 $10,601 $10,954 $10,349
08/31/91 $10,650 $10,921 $10,379
09/30/91 $10,756 $11,209 $10,426
10/31/91 $10,894 $11,393 $10,441
11/30/91 $10,580 $10,898 $10,471
12/31/91 $11,389 $11,694 $10,479
01/31/92 $11,453 $11,479 $10,494
02/29/92 $11,605 $11,283 $10,532
03/31/92 $11,341 $10,753 $10,585
04/30/92 $11,645 $10,905 $10,600
05/31/92 $12,116 $11,340 $10,615
06/30/92 $11,884 $10,962 $10,653
07/31/92 $11,908 $10,993 $10,676
08/31/92 $11,509 $11,262 $10,706
09/30/92 $11,509 $11,161 $10,736
10/31/92 $11,303 $10,861 $10,774
11/30/92 $11,500 $11,057 $10,789
12/31/92 $11,760 $11,149 $10,783
01/31/93 $11,913 $11,188 $10,836
02/28/93 $12,183 $11,455 $10,874
03/31/93 $12,678 $12,122 $10,912
04/30/93 $12,939 $12,685 $10,942
05/31/93 $13,326 $12,980 $10,957
06/30/93 $13,218 $12,872 $10,972
07/31/93 $13,596 $13,140 $10,972
08/31/93 $14,353 $13,745 $11,003
09/30/93 $14,281 $13,493 $11,025
10/31/93 $14,972 $13,867 $11,072
11/30/93 $14,652 $13,084 $11,079
12/31/93 $15,711 $13,727 $11,078
01/31/94 $16,661 $14,635 $11,109
02/28/94 $16,231 $14,448 $11,148
03/31/94 $15,611 $13,828 $11,186
04/30/94 $15,931 $14,257 $11,201
05/31/94 $16,081 $14,296 $11,208
06/30/94 $15,721 $14,259 $11,246
07/31/94 $16,461 $14,533 $11,276
08/31/94 $17,061 $14,973 $11,322
09/30/94 $16,611 $14,582 $11,352
10/31/94 $16,767 $14,999 $11,361
11/30/94 $15,982 $14,352 $11,376
12/31/94 $15,849 $14,493 $11,376
01/31/95 $15,715 $14,279 $11,420
02/28/95 $16,207 $14,490 $11,466
03/31/95 $16,520 $15,191 $11,504
04/30/95 $17,180 $15,723 $11,542
05/31/95 $17,728 $15,861 $11,565
06/30/95 $18,008 $15,859 $11,587
07/31/95 $18,891 $16,656 $11,587
08/31/95 $18,746 $16,287 $11,619
09/30/95 $19,193 $16,765 $11,640
10/31/95 $18,514 $16,504 $11,679
11/30/95 $18,995 $17,080 $11,670
12/31/95 $19,264 $17,583 $11,663
01/31/96 $20,027 $17,903 $11,731
02/29/96 $20,078 $18,016 $11,769
03/31/96 $20,350 $18,319 $11,830
04/30/96 $20,880 $18,753 $11,875
05/31/96 $21,099 $18,773 $11,898
06/30/96 $21,086 $18,871 $11,906
07/31/96 $20,337 $18,208 $11,928
08/31/96 $20,944 $18,421 $11,951
09/30/96 $21,409 $19,146 $11,989
10/31/96 $21,772 $19,282 $12,027
11/30/96 $22,966 $20,366 $12,050
12/31/96 $23,397 $20,044 $12,050
01/31/97 $24,118 $20,288 $12,088
02/28/97 $24,415 $20,525 $12,124
03/31/97 $24,288 $20,123 $12,154
04/30/97 $24,839 $20,784 $12,169
05/31/97 $26,154 $22,071 $12,162
06/30/97 $27,497 $23,175 $12,176
07/31/97 $28,882 $24,246 $12,191
08/31/97 $27,794 $22,628 $12,214
09/30/97 $29,688 $23,860 $12,244
10/31/97 $27,266 $22,608 $12,275
11/30/97 $27,299 $23,012 $12,268
12/31/97 $27,897 $23,296 $12,253
01/31/98 $27,847 $23,949 $12,275
02/28/98 $29,688 $25,573 $12,300
03/31/98 $31,297 $26,657 $12,324
04/30/98 $31,330 $26,921 $12,346
05/31/98 $30,252 $26,588 $12,369
06/30/98 $29,854 $27,222 $12,383
07/31/98 $29,920 $27,182 $12,398
08/31/98 $25,624 $23,561 $12,413
09/30/98 $25,658 $23,982 $12,428
10/31/98 $27,959 $26,155 $12,458
11/30/98 $29,500 $27,715 $12,458
12/31/98 $29,574 $29,073 $12,450
01/31/99 $29,277 $29,714 $12,481
02/28/99 $28,664 $28,926 $12,493
03/31/99 $30,651 $30,135 $12,531
04/30/99 $33,770 $31,328 $12,622
05/31/99 $32,619 $30,187 $12,622
06/30/99 $34,178 $31,599 $12,622
07/31/99 $33,733 $31,509 $12,655
08/31/99 $33,677 $31,458 $12,693
09/30/99 $32,879 $31,157 $12,749
10/31/99 $32,900 $32,781 $12,774
11/30/99 $34,559 $33,706 $12,780
12/31/99 $37,890 $36,440 $12,780
01/31/00 $35,660 $34,357 $12,815
02/29/00 $35,498 $34,454 $12,889
03/31/00 $37,383 $36,839 $12,992
04/30/00 $35,579 $35,286 $13,003
05/31/00 $35,092 $34,397 $13,013
06/30/00 $36,653 $35,560 $13,084
07/31/00 $36,856 $34,563 $13,112
08/31/00 $38,255 $35,692 $13,112
</TABLE>
CLASS B (1/1/99 - 8/31/00)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Templeton MSCI World CPI**
World Fund - Index*
Class B
-------------------------------------------------------------------------
<S> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $9,900 $10,191 $10,021
02/28/1999 $9,692 $9,921 $10,031
03/31/1999 $10,358 $10,336 $10,062
04/30/1999 $11,400 $10,745 $10,135
05/31/1999 $10,998 $10,354 $10,135
06/30/1999 $11,525 $10,838 $10,135
07/31/1999 $11,362 $10,807 $10,161
08/31/1999 $11,331 $10,790 $10,192
09/30/1999 $11,061 $10,686 $10,237
10/31/1999 $11,050 $11,243 $10,257
11/30/1999 $11,604 $11,561 $10,261
12/31/1999 $12,715 $12,498 $10,261
01/31/2000 $11,955 $11,784 $10,290
02/29/2000 $11,900 $11,817 $10,349
03/31/2000 $12,523 $12,635 $10,432
04/30/2000 $11,907 $12,103 $10,440
05/31/2000 $11,743 $11,798 $10,448
06/30/2000 $12,256 $12,197 $10,505
07/31/2000 $12,318 $11,855 $10,528
08/31/2000 $12,376 $12,242 $10,528
</TABLE>
Past performance does not guarantee future results.
10
<PAGE>
CLASS C (5/1/95-8/31/00)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Templeton MSCI World CPI**
World Fund - Index*
Class C
-------------------------------------------------------------------------------
<S> <C> <C> <C>
05/01/1995 $9,897 $10,000 $10,000
05/31/1995 $10,200 $10,088 $10,020
06/30/1995 $10,354 $10,086 $10,040
07/31/1995 $10,857 $10,593 $10,040
08/31/1995 $10,767 $10,359 $10,067
09/30/1995 $11,018 $10,663 $10,086
10/31/1995 $10,617 $10,497 $10,119
11/30/1995 $10,887 $10,863 $10,112
12/31/1995 $11,038 $11,183 $10,105
01/31/1996 $11,469 $11,387 $10,164
02/29/1996 $11,492 $11,458 $10,197
03/31/1996 $11,633 $11,651 $10,250
04/30/1996 $11,923 $11,927 $10,289
05/31/1996 $12,050 $11,940 $10,309
06/30/1996 $12,035 $12,002 $10,316
07/31/1996 $11,596 $11,581 $10,335
08/31/1996 $11,938 $11,716 $10,355
09/30/1996 $12,191 $12,177 $10,388
10/31/1996 $12,395 $12,264 $10,421
11/30/1996 $13,065 $12,953 $10,441
12/31/1996 $13,297 $12,748 $10,441
01/31/1997 $13,703 $12,904 $10,473
02/28/1997 $13,865 $13,054 $10,505
03/31/1997 $13,776 $12,799 $10,531
04/30/1997 $14,083 $13,219 $10,544
05/31/1997 $14,813 $14,038 $10,537
06/30/1997 $15,566 $14,739 $10,550
07/31/1997 $16,336 $15,421 $10,563
08/31/1997 $15,712 $14,392 $10,583
09/30/1997 $16,774 $15,175 $10,609
10/31/1997 $15,390 $14,379 $10,636
11/30/1997 $15,399 $14,636 $10,629
12/31/1997 $15,721 $14,816 $10,617
01/31/1998 $15,683 $15,232 $10,636
02/28/1998 $16,717 $16,265 $10,657
03/31/1998 $17,608 $16,954 $10,678
04/30/1998 $17,618 $17,122 $10,697
05/31/1998 $16,992 $16,910 $10,717
06/30/1998 $16,764 $17,314 $10,730
07/31/1998 $16,793 $17,288 $10,742
08/31/1998 $14,375 $14,985 $10,755
09/30/1998 $14,384 $15,253 $10,768
10/31/1998 $15,664 $16,635 $10,794
11/30/1998 $16,521 $17,627 $10,794
12/31/1998 $16,542 $18,491 $10,788
01/31/1999 $16,373 $18,898 $10,814
02/28/1999 $16,023 $18,398 $10,825
03/31/1999 $17,124 $19,167 $10,858
04/30/1999 $18,839 $19,925 $10,937
05/31/1999 $18,193 $19,199 $10,937
06/30/1999 $19,050 $20,098 $10,937
07/31/1999 $18,786 $20,040 $10,965
08/31/1999 $18,743 $20,007 $10,998
09/30/1999 $18,288 $19,816 $11,046
10/31/1999 $18,289 $20,849 $11,068
11/30/1999 $19,195 $21,438 $11,073
12/31/1999 $21,034 $23,176 $11,073
01/31/2000 $19,784 $21,851 $11,104
02/29/2000 $19,681 $21,913 $11,167
03/31/2000 $20,713 $23,430 $11,257
04/30/2000 $19,704 $22,442 $11,266
05/31/2000 $19,417 $21,877 $11,275
06/30/2000 $20,277 $22,617 $11,336
07/31/2000 $20,369 $21,982 $11,360
08/31/2000 $21,137 $22,701 $11,360
</TABLE>
* Source: Morgan Stanley Capital International(R). The unmanaged Morgan Stanley
Capital International (MSCI) World Index tracks the performance of approximately
1,450 securities representing the stock markets of 22 countries, including the
U.S., Europe, Canada, Australia, New Zealand, and the Far East. It includes
reinvested dividends.
** Source: Consumer Price Index, U.S. Bureau of Labor Statistics (8/31/00). The
Consumer Price Index is a commonly used measure of inflation.
One cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
Past performance does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS C
------------------------------------
<S> <C>
1-Year 10.65%
5-Year 14.21%
Since Inception (5/1/95) 15.05%
</TABLE>
11
<PAGE>
TEMPLETON WORLD FUND
CLASS A
If you had invested $10,000 in Templeton World Fund - Class A at inception, it
would be worth more than $271,000 today. The chart below illustrates the
cumulative total return of a hypothetical $10,000 investment in the Fund on
January 17, 1978 (inception), reflecting the current, maximum sales charges and
applicable fees and expenses, with income dividends and capital gains reinvested
as shown through August 31, 2000.*
[LINE GRAPH]
$271,079
Total value of
investment
8/31/00
<TABLE>
<CAPTION>
Principal + Principal + Total CPI Principal Income Cap CPI
Dividends Cap Gains Value Gains
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/17/78 $9,425 $9,425 $9,425 $10,000 $9,425 $0 $0
12/31/1978 $11,395 $11,405 $11,452 $10,863 $11,348 $47 $57 8.63%
12/31/1979 $14,406 $14,388 $14,675 $12,307 $14,119 $287 $269 13.29%
12/31/1980 $17,349 $16,973 $17,734 $13,848 $16,588 $761 $385 12.52%
12/31/1981 $17,785 $17,405 $18,837 $15,083 $16,353 $1,432 $1,052 8.92%
12/31/1982 $21,080 $20,021 $22,487 $15,661 $18,614 $2,466 $1,407 3.83%
12/30/1983 $27,121 $26,233 $30,130 $16,254 $23,224 $3,897 $3,009 3.79%
12/31/1984 $26,241 $27,017 $31,561 $16,897 $21,697 $4,544 $5,320 3.95%
12/31/1985 $33,383 $34,640 $41,519 $17,539 $26,504 $6,879 $8,136 3.80%
12/31/1986 $36,327 $40,184 $48,726 $17,732 $27,785 $8,542 $12,399 1.10%
12/31/1987 $33,237 $41,022 $50,394 $18,517 $23,865 $9,372 $17,157 4.43%
12/30/1988 $38,712 $48,297 $60,317 $19,336 $26,692 $12,020 $21,605 4.42%
12/29/1989 $46,883 $57,755 $73,950 $20,235 $30,688 $16,195 $27,067 4.65%
12/31/1990 $38,148 $47,435 $62,190 $21,471 $23,393 $14,755 $24,042 6.11%
12/31/1991 $46,167 $61,438 $80,706 $22,128 $26,899 $19,268 $34,539 3.06%
12/31/1992 $44,660 $63,289 $83,330 $22,770 $24,619 $20,041 $38,670 2.90%
12/31/1993 $55,556 $85,391 $111,333 $23,396 $29,614 $25,942 $55,777 2.75%
12/30/1994 $52,040 $86,977 $112,307 $24,020 $26,710 $25,330 $60,267 2.67%
12/29/1995 $57,767 $106,848 $136,510 $24,631 $28,105 $29,662 $78,743 2.54%
12/31/1996 $68,294 $128,697 $165,794 $25,448 $31,197 $37,097 $97,500 3.32%
12/31/1997 $73,648 $155,737 $197,679 $25,881 $31,706 $41,942 $124,031 1.70%
12/31/1998 $74,362 $165,233 $209,566 $26,298 $30,029 $44,333 $135,204 1.61%
12/31/1999 $93,106 $210,618 $268,493 $27,002 $35,231 $57,875 $175,387 2.68%
08/31/2000 $94,003 $212,647 $271,079 $27,707 $35,571 $58,432 $177,076 2.61%
</TABLE>
Total Value of Investment with Capital Gains and Dividends Reinvested --
$271,079
Value of Investment with Capital Gains Reinvested -- $212,647
Value of Investment with Dividends Reinvested -- $94,003
Consumer Price Index -- $27,707
* Cumulative total return represents the change in value of an investment over
the indicated period. All cumulative total return figures on this chart 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 does not guarantee future results.
12
<PAGE>
TEMPLETON WORLD FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year.................. $18.14 $15.45 $19.66 $16.21 $16.76
------------------------------------------------------------------
Income from investment operations:
Net investment income.............................. .27 .33 .42 .45 .41
Net realized and unrealized gains (losses)......... 1.93 4.10 (1.59) 4.47 1.29
------------------------------------------------------------------
Total from investment operations.................... 2.20 4.43 (1.17) 4.92 1.70
------------------------------------------------------------------
Less distributions from:
Net investment income.............................. (.38) (.36) (.44) (.43) (.37)
Net realized gains................................. (1.09) (1.38) (2.60) (1.04) (1.88)
------------------------------------------------------------------
Total distributions................................. (1.47) (1.74) (3.04) (1.47) (2.25)
------------------------------------------------------------------
Net asset value, end of year........................ $18.87 $18.14 $15.45 $19.66 $16.21
==================================================================
Total Return*....................................... 13.59% 31.42% (7.80)% 32.70% 11.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)..................... $9,515,467 $9,115,995 $7,852,041 $8,649,994 $6,483,146
Ratios to average net assets:
Expenses........................................... 1.07% 1.04% 1.04% 1.03% 1.03%
Net investment income.............................. 1.52% 1.99% 2.34% 2.58% 2.66%
Portfolio turnover rate............................. 46.92% 35.81% 43.36% 39.16% 22.05%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
13
<PAGE>
TEMPLETON WORLD FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999+
-----------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $18.05 $15.93
-----------------------------------
Income from investment operations:
Net investment income...................................... .15 .15
Net realized and unrealized gains.......................... 1.90 1.97
-----------------------------------
Total from investment operations............................ 2.05 2.12
-----------------------------------
Less distributions from:
Net investment income...................................... (.35) --
Net realized gains......................................... (1.09) --
-----------------------------------
Total distributions......................................... (1.44) --
-----------------------------------
Net asset value, end of year................................ $18.66 $18.05
===================================
Total Return*............................................... 12.76% 13.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $23,816 $9,261
Ratios to average net assets:
Expenses................................................... 1.82% 1.85%**
Net investment income...................................... .83% 1.27%**
Portfolio turnover rate..................................... 46.92% 35.81%
</TABLE>
*Total return does not reflect the contingent deferred sales charge and is not
annualized.
**Annualized.
+Effective date of Class B shares was January 1, 1999.
++Based on average weighted shares outstanding.
14
<PAGE>
TEMPLETON WORLD FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE+
(For a share outstanding throughout the year)
Net asset value, beginning of year................. $17.71 $15.16 $19.39 $16.04 $16.71
---------------------------------------------------------------
Income from investment operations:
Net investment income............................. .14 .20 .33 .34 .45
Net realized and unrealized gains (losses)........ 1.89 4.02 (1.61) 4.39 1.11
---------------------------------------------------------------
Total from investment operations................... 2.03 4.22 (1.28) 4.73 1.56
---------------------------------------------------------------
Less distributions from:
Net investment income............................. (.22) (.29) (.35) (.34) (.35)
Net realized gains................................ (1.09) (1.38) (2.60) (1.04) (1.88)
---------------------------------------------------------------
Total distributions................................ (1.31) (1.67) (2.95) (1.38) (2.23)
---------------------------------------------------------------
Net asset value, end of year....................... $18.43 $17.71 $15.16 $19.39 $16.04
===============================================================
Total Return*...................................... 12.77% 30.39% (8.51)% 31.61% 10.88%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's).................... $423,614 $417,439 $325,319 $207,679 $58,619
Ratios to average net assets:
Expenses.......................................... 1.82% 1.81% 1.80% 1.83% 1.84%
Net investment income............................. .78% 1.22% 1.66% 1.92% 2.14%
Portfolio turnover rate............................ 46.92% 35.81% 43.36% 39.16% 22.05%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
See Notes to Financial Statements.
15
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 83.0%
AEROSPACE & DEFENSE 1.2%
BAE Systems PLC............................................. United Kingdom 6,940,372 $ 41,906,191
Lockheed Martin Corp. ...................................... United States 1,000,000 28,375,000
Raytheon Co., A............................................. United States 992,015 26,350,398
Rolls-Royce PLC............................................. United Kingdom 10,059,816 27,809,359
--------------
124,440,948
--------------
AIR FREIGHT & COURIERS .1%
United Parcel Service Inc., B............................... United States 258,500 14,330,594
--------------
AIRLINES
British Airways PLC......................................... United Kingdom 83,697 409,163
Singapore Airlines Ltd. .................................... Singapore 55,800 538,128
--------------
947,291
--------------
AUTO COMPONENTS
Autoliv Inc., SDR........................................... Sweden 17,000 387,326
Sylea SA.................................................... France 4,000 182,432
Visteon Corp. .............................................. United States 205,486 3,223,562
--------------
3,793,320
--------------
AUTOMOBILES 1.1%
Ford Motor Co. ............................................. United States 2,743,585 66,360,462
General Motors Corp. ....................................... United States 187,300 13,520,719
Volkswagen AG............................................... Germany 771,365 33,260,315
--------------
113,141,496
--------------
BANKS 7.0%
Banca Nazionale del Lavoro SpA.............................. Italy 26,315,850 97,795,389
Banco Popular Espanol SA.................................... Spain 844,432 25,112,243
Bank of America Corp. ...................................... United States 348,300 18,655,819
Credit Suisse Group......................................... Switzerland 537,730 112,326,028
DBS Group Holdings Ltd. .................................... Singapore 7,780,657 94,020,604
Golden West Financial Corp. ................................ United States 1,433,800 68,284,725
H&CB........................................................ South Korea 2,000,000 42,750,846
HSBC Holdings PLC........................................... Hong Kong 4,559,713 64,894,047
Kookmin Bank................................................ South Korea 2,000,000 24,351,747
Kookmin Bank, GDR, 144A..................................... South Korea 6,939 84,656
Nordic Baltic Holding AB.................................... Sweden 125,562 871,543
Royal Bank of Scotland Group PLC............................ United Kingdom 3,961,661 71,646,631
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 2,143,400 72,875,600
--------------
693,669,878
--------------
BIOTECHNOLOGY
*CellTech Group PLC......................................... United Kingdom 26,860 569,785
--------------
</TABLE>
16
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
BUILDING PRODUCTS .3%
Anglian Group PLC........................................... United Kingdom 148,240 $ 319,209
Caradon PLC................................................. United Kingdom 11,492,611 30,014,457
--------------
30,333,666
--------------
CHEMICALS 3.1%
Akzo Nobel NV............................................... Netherlands 1,999,444 88,542,235
BASF AG..................................................... Germany 1,647,210 62,531,887
Celanese AG................................................. Germany 61,795 1,038,341
DSM NV, Br. ................................................ Netherlands 1,540,582 47,115,950
Imperial Chemical Industries PLC............................ United Kingdom 7,723,200 52,419,910
Kemira OY................................................... Finland 5,423,800 28,883,857
Laporte PLC................................................. United Kingdom 3,500,000 23,246,424
*Laporte PLC, B............................................. United Kingdom 31,500,000 366,647
--------------
304,145,251
--------------
COMMERCIAL SERVICES & SUPPLIES .2%
*Amadeus Global Travel Distribution SA, 144A................ Spain 1,179,000 12,054,143
Arcadis NV.................................................. Netherlands 81,391 629,536
*Expedia Inc., A............................................ United States 45,950 738,072
Koninklijke Ahrend NV....................................... Netherlands 10,000 127,134
Waste Management Inc. ...................................... United States 517,900 9,807,731
--------------
23,356,616
--------------
COMMUNICATIONS EQUIPMENT .9%
*3Com Corp. ................................................ United States 1,003,900 16,689,838
*Alcatel Networks Corp. .................................... Canada 231,984 19,271,041
Marconi PLC................................................. United Kingdom 1,020,700 17,998,987
Nortel Networks Corp. ...................................... Canada 442,068 36,056,171
--------------
90,016,037
--------------
COMPUTERS & PERIPHERALS 4.8%
Compaq Computer Corp. ...................................... United States 2,795,300 95,214,906
Creative Technology Ltd. ................................... Singapore 1,183,650 26,040,300
Fujitsu Ltd. ............................................... Japan 1,050,000 30,424,794
Hewlett-Packard Co. ........................................ United States 1,341,000 161,925,750
International Business Machines Corp. ...................... United States 710,300 93,759,600
*Palm Inc. ................................................. United States 1,541,784 67,838,496
--------------
475,203,846
--------------
CONSTRUCTION & ENGINEERING
SNC-Lavalin Group Inc., A................................... Canada 31,800 285,729
--------------
CONSTRUCTION MATERIALS 1.4%
Cemex SA, ADR............................................... Mexico 3,045,160 71,370,938
CSR Ltd. ................................................... Australia 14,260,546 36,254,927
Gujarat Ambuja Cements Ltd. ................................ India 3,911,172 16,731,647
Gujarat Ambuja Cements Ltd., GDR, 144A...................... India 1,294,000 5,984,750
Gujarat Ambuja Cements Ltd., GDR, Reg S..................... India 1,152,000 5,328,000
</TABLE>
17
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CONSTRUCTION MATERIALS (CONT.)
Hanson PLC.................................................. United Kingdom 32,201 $ 191,151
Nichiha Corp. .............................................. Japan 30,100 207,177
--------------
136,068,590
--------------
DIVERSIFIED FINANCIALS 8.4%
Ayala Corp. ................................................ Philippines 39,462,000 6,296,430
First Pacific Co. Ltd. ..................................... Hong Kong 31,928,190 10,950,715
Housing Development Finance Corp. Ltd. ..................... India 768,000 8,841,984
Hutchison Whampoa Ltd. ..................................... Hong Kong 10,587,060 149,318,093
ING Groep NV................................................ Netherlands 1,520,407 101,919,175
Merrill Lynch & Co. Inc. ................................... United States 1,517,700 220,066,500
Morgan Stanley Dean Witter & Co. ........................... United States 2,480,744 266,835,027
Nomura Securities Co. Ltd. ................................. Japan 3,170,000 74,166,823
--------------
838,394,747
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES 3.2%
AT&T Corp. ................................................. United States 100 3,150
Embratel Participacoes SA................................... Brazil 20,000,000 379,225
Nippon Telegraph & Telephone Corp. ......................... Japan 4,000 47,636,909
Philippine Long Distance Telephone Co., GDR................. Philippines 6,440 228,620
SBC Communications Inc. .................................... United States 1,364,865 56,983,114
Telecom Argentina Stet-France Telecom SA, B, ADR............ Argentina 1,010,900 23,756,150
Telecom Corp. of New Zealand Ltd. .......................... New Zealand 7,062,470 19,684,916
Telecom Italia SpA, di Risp................................. Italy 10,883,800 64,540,315
Telecomunicacoes Brasileiras SA............................. Brazil 147,744,000 13,235,654
*Telefonica SA.............................................. Spain 2,400,052 46,089,192
*Telefonica SA, ADR......................................... Spain 2,503 143,453
*Telefonica SA, BDR......................................... Spain 208,230 3,899,091
Telefonos de Mexico SA de CV (Telmex), ADR.................. Mexico 751,671 40,919,090
--------------
317,498,879
--------------
ELECTRIC UTILITIES 5.5%
E.ON AG..................................................... Germany 2,728,900 134,164,447
Entergy Corp. .............................................. United States 4,247,300 129,277,194
Guangdong Electric Power Development Co Ltd., B............. China 36,606,843 29,757,463
Iberdrola SA, Br. .......................................... Spain 7,587,317 87,353,979
Korea Electric Power Corp. ................................. South Korea 5,780,150 169,950,746
National Power PLC.......................................... United Kingdom 54,200 371,422
--------------
550,875,251
--------------
ELECTRICAL EQUIPMENT 1.0%
ABB Ltd. ................................................... Switzerland 918,924 102,248,736
Makita Corp. ............................................... Japan 148,000 1,193,548
Twentsche Kabel Holdings NV................................. Netherlands 13,500 472,884
--------------
103,915,168
--------------
</TABLE>
18
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.0%
*Agilent Technologies Inc. ................................. United States 604,157 $ 36,438,219
*Solectron Corp. ........................................... United States 1,422,400 64,452,500
--------------
100,890,719
--------------
FOOD & DRUG RETAILING 2.0%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 3,163,077 1,455,015
J.Sainsbury PLC............................................. United Kingdom 12,464,427 66,238,407
*Kroger Co. ................................................ United States 4,936,100 111,987,769
Safeway PLC................................................. United Kingdom 4,516,097 17,297,326
--------------
196,978,517
--------------
HEALTH CARE PROVIDERS & SERVICES 3.0%
Aetna Inc. ................................................. United States 1,264,900 70,755,344
HCA-The Healthcare Co. ..................................... United States 6,490,200 223,911,900
--------------
294,667,244
--------------
HOUSEHOLD DURABLES 2.1%
Koninklijke Philips Electronics NV.......................... Netherlands 1,271,565 61,950,369
LG Electronics Inc. ........................................ South Korea 3,121,000 79,379,662
Mckechnie Group PLC......................................... United Kingdom 394,000 2,244,271
Newell Rubbermaid Inc. ..................................... United States 815,300 21,146,844
Sony Corp. ................................................. Japan 393,700 43,933,140
--------------
208,654,286
--------------
HOUSEHOLD PRODUCTS .2%
Clorox Co. ................................................. United States 500,000 18,093,750
--------------
INDUSTRIAL CONGLOMERATES .5%
Alfa SA de CV, A............................................ Mexico 83,200 229,115
Cookson Group PLC........................................... United Kingdom 13,484,433 46,006,890
--------------
46,236,005
--------------
INSURANCE 6.7%
Ace Ltd. ................................................... Bermuda 4,507,500 158,325,938
Allied Zurich PLC........................................... United Kingdom 12,015,000 147,803,502
American International Group Inc. .......................... United States 1,031,380 91,921,743
AXA SA...................................................... France 406,063 57,869,754
*Muenchener Rueckversicherungs-Gesellschaft, wts.,
6/03/02................................................... Germany 1,040 70,733
*Pacific Century Regional Developments Ltd. ................ Singapore 3,900,000 52,791,495
Partnerre Ltd. ............................................. Bermuda 53,500 2,243,656
SCOR SA..................................................... France 1,242,833 54,804,869
Torchmark Corp. ............................................ United States 4,418 123,980
+W. R. Berkley Corp. ....................................... United States 1,863,100 49,372,150
XL Capital Ltd., A.......................................... Bermuda 722,875 49,833,195
--------------
665,161,015
--------------
IT CONSULTING & SERVICES .1%
*Complete Business Solutions Inc. .......................... United States 1,000,000 13,500,000
--------------
</TABLE>
19
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
LEISURE EQUIPMENT & PRODUCTS 1.6%
Eastman Kodak Co. .......................................... United States 1,806,400 $ 112,448,400
Mattel Inc. ................................................ United States 4,950,100 48,882,238
--------------
161,330,638
--------------
MACHINERY 1.0%
First Tractor Company Ltd., H............................... China 3,308,000 279,933
Invensys PLC................................................ United Kingdom 14,357,529 54,991,481
METSO OYJ................................................... Finland 26,500 320,413
Svedala Industri, A......................................... Sweden 28,500 522,492
Volvo AB, B................................................. Sweden 2,333,326 38,697,135
--------------
94,811,454
--------------
MARINE
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 92,086 822,639
--------------
MEDIA .6%
*24/7 Media Inc. ........................................... United States 245,100 3,538,631
Television Broadcasts Ltd. ................................. Hong Kong 1,997,600 11,295,137
Wolters Kluwer NV........................................... Netherlands 2,280,752 46,231,459
--------------
61,065,227
--------------
METALS & MINING 4.9%
Alcan Aluminum Ltd. ........................................ Canada 1,882,710 61,601,572
Anglo American Platinum Corp. Ltd. ......................... South Africa 3,234,172 126,444,645
Barrick Gold Corp. ......................................... Canada 3,452,500 54,784,864
Broken Hill Proprietary Co. Ltd. ........................... Australia 15,458,242 169,409,185
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 691,280 25,058,900
Pohang Iron & Steel Co. Ltd. ............................... South Korea 700,685 53,569,620
--------------
490,868,786
--------------
MULTILINE RETAIL .4%
Sears, Roebuck & Co. ....................................... United States 1,158,700 36,136,956
--------------
OIL & GAS 6.1%
Burlington Resources Inc. .................................. United States 1,603,900 63,053,319
Occidental Petroleum Corp. ................................. United States 3,893,800 84,203,425
Perez Companc SA, ADR, B.................................... Argentina 2,797,015 47,024,815
*PetroChina Co. Ltd., H..................................... China 747,060,000 178,161,066
Royal Dutch Petroleum Co., Br. ............................. Netherlands 1,518,000 92,445,768
Shell Transport & Trading Co. PLC........................... United Kingdom 10,041,795 85,835,425
Valero Energy Corp. ........................................ United States 1,899,550 57,223,944
--------------
607,947,762
--------------
PAPER & FOREST PRODUCTS 1.2%
Stora Enso OYJ, R (EUR/FIM Traded).......................... Finland 2,638,100 24,157,566
Stora Enso OYJ, R (EUR Traded).............................. Finland 2,757,696 24,517,212
UPM-Kymmene Corp. .......................................... Finland 2,802,290 70,879,401
--------------
119,554,179
--------------
</TABLE>
20
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
PHARMACEUTICALS 3.4%
Abbott Laboratories......................................... United States 1,250,000 $ 54,687,500
Aventis SA.................................................. France 463,578 34,908,478
China Pharmaceutical Enterprise & Inv. Corp. Ltd. .......... China 578,000 74,109
*China Pharmaceutical Enterprise & Inv. Corp. Ltd., wts.,
10/20/01.................................................. China 57,800 941
Mylan Laboratories Inc. .................................... United States 1,712,900 45,498,906
Ono Pharmaceutical Co Ltd. ................................. Japan 1,265,500 50,434,874
Pharmacia Corp. ............................................ United States 2,561,867 150,029,336
--------------
335,634,144
--------------
REAL ESTATE 6.9%
Cheung Kong Holdings Ltd. .................................. Hong Kong 29,674,600 386,184,895
Crescent Real Estate Equities Co. .......................... United States 2,715,846 60,088,093
Highwoods Properties Inc. .................................. United States 2,231,900 53,705,094
*Hon Kwok Land Investment Co Ltd, wts., 10/28/00............ Hong Kong 2,096,948 3,764
Inversiones y Representacion SA............................. Argentina 10,258,613 24,933,416
Inversiones y Representacion SA, GDR........................ Argentina 759,412 18,605,594
Lend Lease Corp. Ltd. ...................................... Australia 3,900,590 46,091,735
National Health Investors Inc. ............................. United States 342,100 2,522,988
Nationwide Health Properties Inc. .......................... United States 400,000 5,775,000
New World Development Co. Ltd. ............................. Hong Kong 25,201,102 41,197,806
Union du Credit Bail Immobilier............................. France 300,936 45,750,405
--------------
684,858,790
--------------
SOFTWARE .3%
*Intuit Inc. ............................................... United States 538,300 32,230,713
--------------
SPECIALTY RETAIL
Danske Traelast AS.......................................... Denmark 4,300 512,732
Laox Co. Ltd. .............................................. Japan 60,000 320,705
--------------
833,437
--------------
TEXTILES & APPAREL 2.8%
Adidas-Salomon AG........................................... Germany 1,324,460 70,297,175
Gucci Group NV.............................................. Netherlands 1,495,400 153,745,813
Li & Fung Ltd. ............................................. Hong Kong 12,376,000 53,951,508
--------------
277,994,496
--------------
TRANSPORTATION INFRASTRUCTURE
Hong Kong Aircraft Engineering Co. Ltd. .................... Hong Kong 125,000 228,386
--------------
WATER UTILITIES
Thames Water Group PLC...................................... United Kingdom 45,364 536,268
--------------
TOTAL COMMON STOCKS (COST $6,326,477,062)................... 8,270,022,503
--------------
PREFERRED STOCKS 4.7%
Banco Itau SA, pfd. ........................................ Brazil 972,494,000 93,000,251
Brasil Telecom Participacoes SA, ADR, pfd. ................. Brazil 124,730 8,785,669
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 1,583,500 42,818,467
</TABLE>
21
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,566,800 $ 42,597,375
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 5,008,350 109,557,656
National Australia Bank Ltd., cvt. pfd. .................... Australia 196,700 5,237,138
News Corp. Ltd., pfd. ...................................... Australia 13,108,747 142,395,819
Tele Celular Sul Participacoes SA, ADR, pfd. ............... Brazil 62,365 2,479,009
Tele Norte Leste Participacoes SA, pfd. .................... Brazil 17,299,832 438,319
Tele Norte Leste Participacoes SA, ADR, pfd. ............... Brazil 16,276 415,038
Telecomunicacoes Brasileiras SA, ADR, pfd. ................. Brazil 139,000 12,753,250
Telesp Celular Participacoes SA, ADR, pfd. ................. Brazil 249,460 9,167,655
--------------
TOTAL PREFERRED STOCKS (COST $308,867,389).................. 469,645,646
--------------
<CAPTION>
PRINCIPAL
AMOUNT**
--------------
<S> <C> <C> <C>
BONDS 4.5%
National Grid Group PLC:
cvt., Reg. S, 4.25%, 2/17/08............................... United Kingdom 15,000,000GBP 30,499,338
cvt., 144A, 4.25%, 2/17/08................................. United Kingdom 16,000,000GBP 32,532,627
Sony Corp., cvt., 1.40%, 3/31/05............................ Japan 4,628,000,000JPY 128,459,115
U.S. Treasury Bond, 6.25%, 5/15/30.......................... United States 80,000,000 86,575,040
U.S. Treasury Note:
5.875%, 11/15/04........................................... United States 30,000,000 29,831,250
6.75%, 5/15/05............................................. United States 50,000,000 51,562,500
6.50%, 2/15/10............................................. United States 80,000,000 83,525,040
--------------
TOTAL BONDS (COST $363,039,617)............................. 442,984,910
--------------
SHORT TERM INVESTMENTS 4.0%
Fannie Mae, 6.41% to 6.46%, with maturities to 9/25/00...... United States 75,000,000 74,837,725
Federal Home Loan Bank, 6.41% to 6.45%, with maturities to
1/31/01................................................... United States 85,100,000 84,296,775
Federal Home Loan Mortgage Corp., 6.42% to 6.45%, with
maturities to 9/26/00..................................... United States 177,000,000 176,391,788
Sallie Mae, 6.673% to 6.853%, with maturities to 2/15/01.... United States 66,607,000 66,600,581
--------------
TOTAL SHORT TERM INVESTMENTS (COST $402,076,157)............ 402,126,869
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST
$7,400,460,225)............................................ 9,584,779,928
--------------
</TABLE>
22
<PAGE>
TEMPLETON WORLD FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENTS 2.1%
Deutsche Bank AG, 6.63%, 9/01/00 (Maturity Value
$73,013,444) Collateralized by U.S. Treasury Notes and
Bonds...................................................... United States $ 73,000,000 $ 73,000,000
Paine Webber Group Inc., 6.60%, 9/01/00 (Maturity Value
$74,013,567) Collateralized by U.S. Treasury Notes and
Bonds...................................................... United States 74,000,000 74,000,000
Paribas Corp., 6.65%, 9/01/00 (Maturity Value $66,332,251)
Collateralized by U.S. Treasury Notes and Bonds............ United States 66,320,000 66,320,000
--------------
TOTAL REPURCHASE AGREEMENTS (COST $213,320,000)............. 213,320,000
--------------
TOTAL INVESTMENTS (COST $7,613,780,225) 98.3%............... 9,798,099,928
OTHER ASSETS, LESS LIABILITIES 1.7%......................... 164,797,354
--------------
TOTAL NET ASSETS 100.0%..................................... $9,962,897,282
==============
</TABLE>
CURRENCY ABBREVIATIONS:
EUR -- European Unit
FIM -- Finnish Markka
GBP -- British Pound
JPY -- Japanese Yen
*Non-income producing.
**Securities denominated in U.S. dollars unless otherwise indicated.
+The Investment Company Act of 1940 defines "affiliated persons" to include any
persons, such as the Fund, that owns 5% or more of the outstanding voting
securities of another person. Investments in "affiliated persons" at August 31,
2000, were $49,372,150.
(a)At August 31, 2000, all repurchase agreements held by the Fund had been
entered into on that date.
See Notes to Financial Statements.
23
<PAGE>
TEMPLETON WORLD FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$7,400,460,225)........................................... $9,584,779,928
Repurchase agreement, at value and cost.................... 213,320,000
Cash....................................................... 989
Receivables:
Investment securities sold................................ 5,976,447
Capital shares sold....................................... 184,780,360
Dividends and interest.................................... 23,643,869
--------------
Total assets.......................................... 10,012,501,593
--------------
Liabilities:
Payables:
Investment securities purchased........................... 21,155,362
Capital shares redeemed................................... 17,408,755
To affiliates............................................. 8,687,352
Deferred tax liability (Note 1e)........................... 122,509
Accrued expenses........................................... 2,230,333
--------------
Total liabilities..................................... 49,604,311
--------------
Net assets, at value........................................ $9,962,897,282
==============
Net assets consist of:
Undistributed net investment income........................ $ 114,582,664
Net unrealized appreciation................................ 2,184,197,194
Accumulated net realized gain.............................. 771,674,591
Capital shares............................................. 6,892,442,833
--------------
Net assets, at value........................................ $9,962,897,282
==============
CLASS A:
Net asset value per share ($9,515,467,175 / 504,231,671
shares outstanding)...................................... $18.87
==============
Maximum offering price per share ($18.87 / 94.25%)......... $20.02
==============
CLASS B:
Net asset value and maximum offering price per share
($23,816,366 / 1,276,287 shares outstanding)*............. $18.66
==============
CLASS C:
Net asset value per share ($423,613,741 / 22,988,060 shares
outstanding)*............................................. $18.43
==============
Maximum offering price per share ($18.43 / 99.00%)......... $18.62
==============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
24
<PAGE>
TEMPLETON WORLD FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $11,317,101)
Dividends.................................................. $180,667,220
Interest................................................... 70,914,101
------------
Total investment income............................... $ 251,581,321
Expenses:
Management fees (Note 4)................................... 59,214,552
Administrative fees (Note 4)............................... 7,502,610
Distribution fees (Note 4)
Class A................................................... 23,115,202
Class B................................................... 175,030
Class C................................................... 4,247,039
Transfer agent fees (Note 4)............................... 7,542,600
Custodian fees............................................. 3,371,100
Reports to shareholders.................................... 1,347,000
Registration and filing fees............................... 264,500
Professional fees.......................................... 165,700
Directors' fees and expenses............................... 146,000
Other...................................................... 246,373
------------
Total expenses........................................ 107,337,706
--------------
Net investment income........................... 144,243,615
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 790,331,009
Foreign currency transactions............................. (14,083,888)
------------
Net realized gain..................................... 776,247,121
Net unrealized appreciation (depreciation) on:
Investments............................................... 353,814,936
Deferred taxes (Note 1e).................................. (122,509)
------------
Net unrealized appreciation........................... 353,692,427
--------------
Net realized and unrealized gain............................ 1,129,939,548
--------------
Net increase in net assets resulting from operations........ $1,274,183,163
==============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
TEMPLETON WORLD FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income..................................... $ 144,243,615 $ 178,721,339
Net realized gain from investments and foreign currency
transactions............................................. 776,247,121 562,718,597
Net unrealized appreciation on investments and deferred
taxes.................................................... 353,692,427 1,697,687,609
------------------------------------
Net increase in net assets resulting from operations.... 1,274,183,163 2,439,127,545
Distributions to shareholders from:
Net investment income:
Class A.................................................. (192,671,122) (180,149,378)
Class B.................................................. (231,669) --
Class C.................................................. (5,276,127) (6,049,599)
Net realized gains:
Class A.................................................. (545,583,137) (693,063,687)
Class B.................................................. (711,956) --
Class C.................................................. (25,885,603) (29,487,922)
------------------------------------
Total distributions to shareholders........................ (770,359,614) (908,750,586)
Capital share transactions (Note 3):
Class A.................................................. (82,815,626) (205,209,640)
Class B.................................................. 13,338,051 9,040,599
Class C.................................................. (14,143,382) 31,127,157
------------------------------------
Total capital share transactions........................... (83,620,957) (165,041,884)
Net increase in net assets............................ 420,202,592 1,365,335,075
Net assets:
Beginning of year.......................................... 9,542,694,690 8,177,359,615
------------------------------------
End of year................................................ $9,962,897,282 $ 9,542,694,690
====================================
Undistributed net investment income included in net assets:
End of year................................................ $ 114,582,664 $ 169,487,428
====================================
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
TEMPLETON WORLD FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton World Fund (the Fund) is a separate, diversified series of Templeton
Funds, Inc. (the Company), which is an open-end investment company registered
under the Investment Company Act of 1940. The Fund seeks long-term capital
growth. Under normal market conditions, the Fund invests primarily in the equity
securities of companies located anywhere in the world, including emerging
markets. The following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. 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.
27
<PAGE>
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: (CONT.)
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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.
d. 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.
e. DEFERRED TAXES:
Deferred taxes are recorded for estimated tax liabilities inherent in the Fund's
portfolio securities which may arise from subsequent sales of those securities
and asset repatriations from countries that impose such taxes.
2. MERGER WITH TEMPLETON GLOBAL INFRASTRUCTURE FUND AND TEMPLETON GROWTH AND
INCOME FUND
On July 22, 1999, the Fund acquired all of the net assets of the Templeton
Global Infrastructure Fund pursuant to a plan of reorganization approved by the
Global Infrastructure Fund's shareholders. The merger was accomplished by a
tax-free exchange of 926,808 Class A shares and 179,108 Class C shares (valued
at $18.29 per share and $17.87 per share, respectively) for the net assets of
the Global Infrastructure Fund which aggregated $20,151,975, including
$1,330,042 of unrealized appreciation. The combined net assets of the Fund
immediately after the merger were $9,638,473,098.
On July 29, 1999, the Fund acquired all of the net assets of the Templeton
Growth and Income Fund pursuant to a plan of reorganization approved by the
Growth and Income Fund's shareholders. The merger was accomplished by a tax-free
exchange of 1,755,844 Class A shares and 792,151 Class C shares (valued at
$18.16 per share and $17.74 per share, respectively) for the net assets of the
Growth and Income Fund which aggregated $45,938,881, including $2,680,383 of
unrealized appreciation. The combined net assets of the Fund immediately after
the merger were $9,653,130,530.
28
<PAGE>
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
3. CAPITAL STOCK
The Fund offers three classes of shares: Class A, Class B, and Class C shares.
Effective January 1, 1999, Class I and Class II shares were renamed Class A and
Class C, respectively, and a third class of shares, Class B, was established.
The shares differ by their initial sales load, distribution fees, voting rights
on matters affecting a single class, and the exchange privilege of each class.
At August 31, 2000, there were 3.7 billion shares of capital stock authorized
($1.00 par value) of which 1.2 billion shares have been classified as Fund
shares as follows: 800 million Class A shares, 200 million Class B shares, and
200 million Class C shares. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold...................................... 557,869,741 $ 9,960,885,599 239,655,133 $ 4,032,873,847
Shares issued on reinvestment of distributions... 40,893,477 654,322,691 53,401,120 780,738,937
Shares issued on mergers......................... -- -- 2,682,652 48,837,445
Shares redeemed.................................. (597,169,284) (10,698,023,916) (301,379,988) (5,067,659,869)
------------------------------------------------------------------------
Net increase (decrease).......................... 1,593,934 $ (82,815,626) (5,641,083) $ (205,209,640)
========================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 2000 AUGUST 31, 1999*
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold...................................... 833,440 $ 14,707,955 523,243 $ 9,223,801
Shares issued on reinvestment of distributions... 54,473 863,804 -- --
Shares redeemed.................................. (124,754) (2,233,708) (10,115) (183,202)
------------------------------------------------------------------------
Net increase..................................... 763,159 $ 13,338,051 513,128 $ 9,040,599
========================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold...................................... 12,644,415 $ 219,172,175 13,729,928 $ 220,404,100
Shares issued on reinvestment of distributions... 1,719,441 26,899,814 2,101,303 30,196,067
Shares issued on mergers......................... -- -- 971,259 17,253,411
Shares redeemed.................................. (14,950,786) (260,215,371) (14,693,533) (236,726,421)
------------------------------------------------------------------------
Net increase (decrease).......................... (586,930) $ (14,143,382) 2,108,957 $ 31,127,157
========================================================================
</TABLE>
*Effective date of Class B shares was January 1, 1999.
29
<PAGE>
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton Global
Advisors Ltd. (TGAL), Franklin Templeton Services, Inc. (FT Services),
Franklin/Templeton Distributors, Inc. (Distributors), and Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent, respectively.
The Fund pays an investment management fee to TGAL based on the average daily
net assets of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
<S> <C>
0.75% First $200 million
0.675% Over $200 million, up to and including $1.3 billion
0.60% Over $1.3 billion
</TABLE>
The Fund pays its allocated share of an administrative fee to FT Services based
on the Company's aggregate average daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
The Fund reimburses Distributors for costs incurred in marketing the Fund's
shares up to 0.25%, 1.00%, and 1.00% per year of the average daily net assets of
Class A, Class B, and Class C shares, respectively. Under the Class A
distribution plan, costs and expenses exceeding the maximum may be reimbursed in
subsequent periods. At August 31, 2000, there were unreimbursed costs of
$925,855. Distributors received net commissions from sales of the Fund's shares
and received contingent deferred sales charges for the year of $1,022,447 and
$317,796, respectively.
5. 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.
At August 31, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $7,627,130,866 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $2,557,110,628
Unrealized depreciation..................................... (386,141,566)
--------------
Net unrealized appreciation................................. $2,170,969,062
==============
</TABLE>
30
<PAGE>
TEMPLETON WORLD FUND
Notes to Financial Statements (continued)
5. INCOME TAXES (CONT.)
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of passive foreign investment
companies, wash sales, and losses realized subsequent to October 31, on the sale
of foreign currencies.
At August 31, 2000, the Fund had deferred currency losses occurring subsequent
to October 31, 1999 of $13,114,427. For tax purposes, such losses will be
reflected in the year ending August 31, 2001.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $4,426,276,169 and $4,001,506,529,
respectively.
31
<PAGE>
TEMPLETON WORLD FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton World Fund series of
Templeton Funds, Inc. (the "Fund") at August 31, 2000, the results of each of
their operations for the year then ended, the changes in each of their net
assets and the financial highlights for each of the two years in the period then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Funds' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States,
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 audits, which included
confirmation of securities August 31, 2000 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above. The
financial highlights for each of the three years ending August 31, 1998 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 29, 2000
32
<PAGE>
TEMPLETON WORLD FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $740,278,374 as a capital gain dividend for the fiscal year ended
August 31, 2000.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
18.61% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 2000.
At August 31, 2000, more than 50% of the Fund's total assets were invested in
securities of foreign issuers. In most instances, foreign taxes were withheld
from dividends paid to the fund on these investments. The Fund intends to make
an election under Section 853 of the Internal Revenue Code. This election will
allow shareholders to treat their proportionate share of foreign taxes paid by
the Fund as having been paid directly by them.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid, as designated by the Fund, to Class A, Class B, and Class C
shareholders of record on October 19, 2000.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------
FOREIGN TAX FOREIGN SOURCE FOREIGN TAX FOREIGN SOURCE FOREIGN TAX
COUNTRY PAID PER SHARE INCOME PER SHARE PAID PER SHARE INCOME PER SHARE PAID PER SHARE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina............. $0.0000 $0.0049 $0.0000 $0.0038 $0.0000
Australia............. 0.0005 0.0147 0.0005 0.0115 0.0005
Bermuda............... 0.0000 0.0025 0.0000 0.0020 0.0000
Brazil................ 0.0031 0.0167 0.0031 0.0131 0.0031
Canada................ 0.0005 0.0018 0.0005 0.0014 0.0005
China................. 0.0000 0.0005 0.0000 0.0004 0.0000
Finland............... 0.0007 0.0030 0.0007 0.0023 0.0007
France................ 0.0017 0.0070 0.0017 0.0055 0.0017
Germany............... 0.0010 0.0068 0.0010 0.0054 0.0010
Hong Kong............. 0.0000 0.0143 0.0000 0.0112 0.0000
India................. 0.0000 0.0008 0.0000 0.0006 0.0000
Italy................. 0.0009 0.0065 0.0009 0.0051 0.0009
Japan................. 0.0006 0.0026 0.0006 0.0021 0.0006
Mexico................ 0.0002 0.0021 0.0002 0.0017 0.0002
Netherlands........... 0.0032 0.0161 0.0032 0.0127 0.0032
New Zealand........... 0.0001 0.0006 0.0001 0.0004 0.0001
Philippines........... 0.0000 0.0001 0.0000 0.0001 0.0000
Singapore............. 0.0007 0.0060 0.0007 0.0047 0.0007
South Africa.......... 0.0000 0.0054 0.0000 0.0042 0.0000
South Korea........... 0.0012 0.0049 0.0012 0.0038 0.0012
Spain................. 0.0010 0.0045 0.0010 0.0035 0.0010
Switzerland........... 0.0011 0.0050 0.0011 0.0039 0.0011
United Kingdom........ 0.0050 0.0381 0.0050 0.0299 0.0050
------------------------------------------------------------------------------------------
TOTAL................. $0.0215 $0.1649 $0.0215 $0.1293 $0.0215
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
----------------
FOREIGN SOURCE
COUNTRY INCOME PER SHARE
----------------------
<S> <C>
Argentina............. $0.0031
Australia............. 0.0093
Bermuda............... 0.0016
Brazil................ 0.0106
Canada................ 0.0011
China................. 0.0003
Finland............... 0.0019
France................ 0.0044
Germany............... 0.0043
Hong Kong............. 0.0091
India................. 0.0005
Italy................. 0.0041
Japan................. 0.0017
Mexico................ 0.0013
Netherlands........... 0.0103
New Zealand........... 0.0004
Philippines........... 0.0001
Singapore............. 0.0038
South Africa.......... 0.0034
South Korea........... 0.0031
Spain................. 0.0029
Switzerland........... 0.0032
United Kingdom........ 0.0242
----------------
TOTAL................. $0.1047
----------------
----------------
</TABLE>
In January 2001, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 2000. Shareholders are advised to check with their tax advisors
for information on the treatment of these amounts on their individual income tax
returns.
33
<PAGE>
[FRANKLIN TEMPLETON LOGO]
Templeton World Fund
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
ANNUAL REPORT
AUDITORS
PricewaterhouseCoopers L.L.P.
333 Market Street
San Francisco, CA 94105
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Templeton World Fund
prospectus, which contains more complete information, including risk factors,
charges and expenses. Like any investment in securities, the value of the Fund's
portfolio will be subject to the risk of loss from market, currency, economic,
political and other factors. 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.
102 A00 10/00 [RECYCLING LOGO] Printed on recycled paper
