ANNUAL REPORT
August 31, 2000
[PICTURE OF NAVIGATION TOOL]
TEMPLETON FOREIGN FUND
[FRANKLIN TEMPLETON INVESTMENTS LOGO]
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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.
[PICTURE OF MARK G. HOLOWESKO]
MARK G. HOLOWESKO, CFA
Portfolio Manager
Templeton Foreign Fund
Mark G. Holowesko is president of Templeton Global Advisors Ltd. He joined the
Templeton organization in 1985 in Nassau, Bahamas, and serves 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 emerging
markets.
--------------------------------------------------------------------------------
Dear Shareholder:
This annual report for Templeton Foreign Fund covers the 12 months ended August
31, 2000, a year of fierce volatility in foreign equity markets. During this
time, merger and acquisition activity reached record levels in Europe, and tax
reform and deregulation measures continued to be adopted across the globe. In
Germany, income and capital gains tax reform, which seemed to be foundering in
the spring, was put back on track. France and Italy also announced significant
tax reduction initiatives. And China moved to encourage savings and investment
through financial market deregulation and the introduction of mutual funds and
private pension programs. Within this environment, Templeton Foreign Fund -
Class A posted a 4.79% one-year cumulative total return, as shown in the
Performance Summary beginning on page 8. During the same period, the Fund's
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 17.
CONTENTS
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
[PYRAMID GRAPHIC]
<PAGE>
GEOGRAPHIC DISTRIBUTION
BASED ON TOTAL NET ASSETS
8/31/00
<TABLE>
<S> <C>
European Stocks 44.2%
Asian Stocks 26.2%
Latin American Stocks 6.9%
Australian & New Zealand Stocks 4.1%
North American Stocks 3.3%
Mid-East/African Stocks 0.3%
Fixed Income Securities 6.0%
Short-Term Investments & Other Net
Assets 9.0%
</TABLE>
benchmark, the Morgan Stanley Capital International(R) Europe, Australasia, Far
East (MSCI EAFE) Index, returned 9.81%.(1)
EUROPE
Our European holdings were not a prototypical reflection of the composition of
that region's markets. Although about one-third of the entire market value of
European equities is made up of telecommunications, media and technology
companies, these sectors comprise less than 3% of Templeton Foreign Fund's
European holdings. During the year under review, we added to our position in
E.ON. Despite sounding like an Internet company, E.ON is actually one of
Europe's largest electricity and energy conglomerates. Formed by the merger of
two German companies, its share price when we purchased it was less than the
value of the individual assets owned by these companies. We believe it likely
this company will consider selling off a number of non-core assets, which could
give it more working capital with which to conduct operations. Along with the
Fund's other German holdings, E.ON should benefit from a reduction in corporate
profit taxes and the elimination of the prohibitive 50% tax on corporate asset
sales recently approved by the German government.
During the 12 months under review, we did not have great success with our U.K.
investments. In some cases, we underestimated the degree to which the pressure
of a strong currency would undermine prices of some of these stocks. When we
lost confidence in a company's ability to generate long-term returns, we sold
shares, sometimes at a loss. But, believing that the U.K. has some of the
world's most undervalued companies, we purchased shares of BAE, the world's
third largest defense
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.
2
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industry company. BAE is a leader in military aircraft production and defense
electronics, two of the fastest-growing aspects of the defense industry. We
expect BAE to benefit if global defense spending increases. In the U.S., for
example, where BAE earns about a quarter of its profits, defense spending is
projected to increase significantly over the next five years.
A number of positive factors may benefit the Fund's European stocks. During the
latest economic cycle, cash flow has begun to represent a significantly higher
percentage of sales of many European companies. In several cases, this increased
cash flow is being used to purchase other companies, which we believe may unlock
value for some of our holdings. In addition, many European companies have
reduced their workforces by about 15% while improving productivity. The benefits
of this improved efficiency have raised corporate profits, and return on equity
has climbed from below 5% in the mid-1990s to over 12% at the end of August
2000.(2) Although this figure is lower than the 18% return on equity experienced
in the U.S., we believe it may improve for many European corporations.
ASIA
As in Europe, many Asian markets experienced a great divide between the prices
of "new economy" stocks and "old economy" stocks. In Hong Kong, for example, on
August 31, 2000, new economy companies sold for about 41 times projected 2000
income compared with old economy stocks at just 13 times that figure.(3)
However, the distinction between what is old economy and what is new economy has
become increasingly blurred.
2. Source: Morgan Stanley.
3. Sources: Morgan Stanley Capital International, Factset, Morgan Stanley Dean
Witter Research.
3
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TOP 10 COUNTRIES*
8/31/00
<TABLE>
<CAPTION>
% OF TOTAL
NET ASSETS
-------------------------------
<S> <C>
UNITED KINGDOM 16.1%
HONG KONG 12.4%
JAPAN 7.5%
GERMANY 5.9%
FRANCE 5.1%
NETHERLANDS 4.0%
SWEDEN 3.9%
SPAIN 3.8%
SOUTH KOREA 3.7%
AUSTRALIA 3.6%
</TABLE>
* Based on equity securities.
Consider, for example, Hutchison Whampoa, a company with its roots in ports and
property. Hutchison's astute management capitalized on its success in
telecommunications in Hong Kong and the U.K. to become one of the leaders in the
emerging field of wireless data. Templeton Foreign Fund's exposure to the
company is through holdings in Hutchison's parent, Cheung Kong Holdings. At the
end of the reporting period, Cheung Kong was valued at less than the value of
its holding in Hutchison, despite the fact that Cheung Kong has substantial
additional real estate holdings. In effect, the market appeared to be attaching
a negative value to the other real estate Cheung Kong owns. This is a situation
we believe may be remedied in the future.
Elsewhere in Asia, we found opportunities in South Korea. During the year under
review, many investors became concerned about the country's prospects in light
of rising U.S. interest rates and the potential for reduced American demand for
overseas goods. Many South Korean stocks were negatively impacted by this
sentiment and sold for less than 10 times earnings, near levels last seen during
the Asian financial crises of several years ago. However, significant
differences exist between the time of the crises and the period ended August 31,
2000. For example, many Korean companies have used dollar revenues earned from
strong export sales to reduce the U.S. dollar debt exposure that exacerbated
past problems. Additionally, decreasing exports to the U.S., in our opinion, may
be offset by growing domestic and inter-regional sales as economies in countries
like China show signs of strength.
4
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The Fund continued to maintain a relatively small exposure to Japan. Hopes of a
sustained economic turnaround in that country, which pushed up stock prices in
1999, began to fade during 2000. However, even though we do not know how Japan's
economy will perform in the near term, we did find a few companies, such as
Fujitsu, one of Japan's largest information technology companies, which we
believe may prosper over the long term. Spending on technology in Japan, as a
percentage of gross domestic product, was roughly half that of the U.S., and an
increase in such spending, combined with restructuring of its overseas
divisions, could help Fujitsu improve its returns.
LATIN AMERICA
During the 12 months under review, the Fund's exposure to Latin American equity
securities was reduced. The main reason for this decline is that three of the
nine companies whose shares we owned were acquired, all at substantial premiums
to the shares' market prices. While these acquisitions benefited the Fund, they
also reduced the availability of liquid stocks in which to invest, particularly
in Argentina. Mexico and Brazil also appeared to have fewer bargains than we
were able to find in previous years.
LOOKING FORWARD
Although we are concerned about the potential instability of global markets and
currencies, we are optimistic about the long-term potential of Templeton Foreign
Fund. We realize that stock prices at the end of the reporting period were
stretched beyond reasonable levels, propped up by unsustainable margin debt
growth and American consumers thought by some economists
TOP 10 EQUITY HOLDINGS
8/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
SECTOR, COUNTRY NET ASSETS
----------------------------------------------
<S> <C>
HSBC HOLDINGS PLC
BANKS, HONG KONG 2.4%
CHEUNG KONG HOLDINGS LTD.
REAL ESTATE, HONG KONG 2.1%
NATIONAL AUSTRALIA BANK LTD.
BANKS, AUSTRALIA 1.9%
SINGAPORE AIRLINES LTD.
AIRLINES, SINGAPORE 1.7%
SWIRE PACIFIC LTD., A
DIVERSIFIED FINANCIALS,
HONG KONG 1.6%
TELEFONOS DE MEXICO SA DE CV
(TELMEX), ADR
DIVERSIFIED TELECOMMUNICATION
SERVICES, MEXICO 1.5%
SHELL TRANSPORT &
TRADING CO. PLC
OIL & GAS, UNITED KINGDOM 1.5%
NIPPON TELEGRAPH &
TELEPHONE CORP.
DIVERSIFIED TELECOMMUNICATION
SERVICES, JAPAN 1.5%
E.ON AG
ELECTRIC UTILITIES, GERMANY 1.4%
VOLKSWAGEN AG, ORD. & PFD.
AUTOMOBILES, GERMANY 1.4%
</TABLE>
5
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to be spending at an unsustainable rate. But our enthusiasm for investing is
bolstered by the narrow focus of many investors, which pushed technology and
telecommunications securities to historically extreme price levels while
ignoring other sectors. These two sectors accounted for more than 33% of world
equity market capitalization at the end of the period. In our opinion, this
disproportionate share of market capitalization neglects the value inherent in
many non-technology stocks. We believe the Fund's portfolio includes a
collection of these attractively priced securities. Employing our time-tested
strategy of diversification over a large number of countries and industries, we
shall continue to search the globe for what we believe to be bargain stocks with
the potential to provide our shareholders positive returns over the long term.
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 and,
in some cases, the consequences of severe market corrections. For example, the
MSCI Mexico Free Index has increased 974% in the last 12 years, but has suffered
five
6
<PAGE>
declines of more than 15% during that time.(4) 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.
Sincerely,
/s/ Mark G. Holowesko, CFA
------------------------------
Mark G. Holowesko, CFA
President
Templeton Foreign Fund
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. dollar terms 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 of 34
Companies as of 6/30/00.
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
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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.
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 would have been 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.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.
<TABLE>
<S> <C> <C>
CLASS A
One-Year Cumulative Total Return 4.79%
Net Asset Value (NAV) $10.56 (8/31/00) $10.49 (8/31/99)
Change in NAV +$0.07
Distributions (9/1/99 - 8/31/00) Dividend Income $0.3146
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
--------------------------------
TOTAL $0.4077
CLASS B
One-Year Cumulative Total Return 3.99%
Net Asset Value (NAV) $10.43 (8/31/00) $10.43 (8/31/99)
Change in NAV +$0.00
Distributions (9/1/99 - 8/31/00) Dividend Income $0.3002
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
--------------------------------
TOTAL $0.3933
CLASS C
One-Year Cumulative Total Return 3.94%
Net Asset Value (NAV) $10.39 (8/31/00) $10.31 (8/31/99)
Change in NAV +$0.08
Distributions (9/1/99 - 8/31/00) Dividend Income $0.2158
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
--------------------------------
TOTAL $0.3089
ADVISOR CLASS
One-Year Cumulative Total Return 5.03%
Net Asset Value (NAV) $10.56 (8/31/00) $10.50 (8/31/99)
Change in NAV +$0.06
Distributions (9/1/99 - 8/31/00) Dividend Income $0.3475
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
--------------------------------
TOTAL $0.4406
</TABLE>
Templeton Foreign Fund paid distributions derived from long-term capital gains
of 7.48 cents ($0.0748) per share in October and December 1999. The Fund hereby
designates such distributions as capital gain dividends in accordance with
Internal Revenue Code Section 852 (b)(3).
Please see standardized SEC performance as of 8/31/00 and index comparison on
page 10.
8 Past performance does not guarantee future results.
<PAGE>
ADDITIONAL PERFORMANCE
AS OF 9/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/5/82)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 3.89% 52.29% 176.47% 1,114.75%
Average Annual Total Return(2) -2.12% 7.49% 10.05% 14.51%
Value of $10,000 Investment(3) $9,788 $14,349 $26,057 $114,464
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) 3.18% 25.19%
Average Annual Total Return(2) -0.79% 11.62%
Value of $10,000 Investment(3) $9,921 $12,119
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) 3.14% 46.74% 56.20%
Average Annual Total Return(2) 1.13% 7.75% 8.38%
Value of $10,000 Investment(3) $10,113 $14,525 $15,468
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (10/5/82)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 4.13% 54.97% 181.33% 1,136.09%
Average Annual Total Return(2) 4.13% 9.16% 10.90% 15.00%
Value of $10,000 Investment(3) $10,413 $15,497 $28,133 $123,609
</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.
4. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges nor Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class. Since 1/2/97 (commencement of sales), the cumulative and average
annual total returns of Advisor Class shares were 31.01% and 7.47%.
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.
For updated performance figures, see "Prices and Performance" 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 -1.23%
5-Year 8.59%
10-Year 9.41%
Since Inception (10/5/82) 14.79%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------
<S> <C>
1-Year -0.01%
Since Inception (1/1/99) 14.49%
</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 the current, applicable, maximum sales charge(s),
Fund 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)
[CLASS A LINE GRAPH]
<TABLE>
<CAPTION>
TEMPLETON MSCI EAFE INDEX CPI
FOREIGN FUND
CLASS A*
------------------------------------------------------------
<S> <C> <C> <C>
09/01/1990 $9,425 $10,000 $10,000
09/30/1990 $8,611 $8,609 $10,084
10/31/1990 $8,753 $9,954 $10,145
11/30/1990 $8,688 $9,369 $10,167
12/31/1990 $8,676 $9,525 $10,167
01/31/1991 $8,941 $9,835 $10,228
02/28/1991 $9,553 $10,893 $10,243
03/31/1991 $9,354 $10,241 $10,258
04/30/1991 $9,512 $10,345 $10,273
05/31/1991 $9,665 $10,456 $10,303
06/30/1991 $9,239 $9,690 $10,334
07/31/1991 $9,801 $10,169 $10,349
08/31/1991 $9,805 $9,965 $10,379
09/30/1991 $10,008 $10,530 $10,426
10/31/1991 $9,981 $10,682 $10,441
11/30/1991 $9,831 $10,186 $10,471
12/31/1991 $10,260 $10,715 $10,479
01/31/1992 $10,385 $10,489 $10,494
02/29/1992 $10,556 $10,117 $10,532
03/31/1992 $10,376 $9,452 $10,585
04/30/1992 $10,762 $9,499 $10,600
05/31/1992 $11,367 $10,138 $10,615
06/30/1992 $11,161 $9,660 $10,653
07/31/1992 $10,869 $9,416 $10,676
08/31/1992 $10,654 $10,010 $10,706
09/30/1992 $10,434 $9,815 $10,736
10/31/1992 $10,071 $9,304 $10,774
11/30/1992 $10,114 $9,394 $10,789
12/31/1992 $10,269 $9,445 $10,783
01/31/1993 $10,448 $9,447 $10,836
02/28/1993 $10,689 $9,735 $10,874
03/31/1993 $11,113 $10,586 $10,912
04/30/1993 $11,475 $11,594 $10,942
05/31/1993 $11,745 $11,842 $10,957
06/30/1993 $11,600 $11,660 $10,972
07/31/1993 $11,870 $12,071 $10,972
08/31/1993 $12,637 $12,725 $11,003
09/30/1993 $12,535 $12,441 $11,025
10/31/1993 $13,219 $12,828 $11,072
11/30/1993 $12,997 $11,709 $11,079
12/31/1993 $14,050 $12,557 $11,078
01/31/1994 $14,700 $13,621 $11,109
02/28/1994 $14,447 $13,587 $11,148
03/31/1994 $14,045 $13,004 $11,186
04/30/1994 $14,283 $13,559 $11,201
05/31/1994 $14,283 $13,484 $11,208
06/30/1994 $14,000 $13,678 $11,246
07/31/1994 $14,522 $13,812 $11,276
08/31/1994 $14,909 $14,142 $11,322
09/30/1994 $14,671 $13,699 $11,352
10/31/1994 $14,874 $14,159 $11,361
11/30/1994 $14,336 $13,482 $11,376
12/31/1994 $14,099 $13,569 $11,376
01/31/1995 $13,859 $13,051 $11,420
02/28/1995 $14,051 $13,017 $11,466
03/31/1995 $14,163 $13,833 $11,504
04/30/1995 $14,642 $14,357 $11,542
05/31/1995 $14,978 $14,189 $11,565
06/30/1995 $15,042 $13,944 $11,587
07/31/1995 $15,729 $14,816 $11,587
08/31/1995 $15,378 $14,254 $11,619
09/30/1995 $15,633 $14,536 $11,640
10/31/1995 $15,237 $14,149 $11,679
11/30/1995 $15,405 $14,547 $11,670
12/31/1995 $15,671 $15,137 $11,663
01/31/1996 $16,183 $15,203 $11,731
02/29/1996 $16,320 $15,258 $11,769
03/31/1996 $16,405 $15,585 $11,830
04/30/1996 $16,832 $16,042 $11,875
05/31/1996 $17,003 $15,751 $11,898
06/30/1996 $17,088 $15,844 $11,906
07/31/1996 $16,627 $15,384 $11,928
08/31/1996 $17,020 $15,422 $11,951
09/30/1996 $17,208 $15,835 $11,989
10/31/1996 $17,416 $15,678 $12,027
11/30/1996 $18,071 $16,305 $12,050
12/31/1996 $18,492 $16,099 $12,050
01/31/1997 $18,742 $15,540 $12,088
02/28/1997 $18,938 $15,798 $12,124
03/31/1997 $19,134 $15,859 $12,154
04/30/1997 $19,241 $15,947 $12,169
05/31/1997 $19,884 $16,988 $12,162
06/30/1997 $20,562 $17,929 $12,176
07/31/1997 $21,133 $18,223 $12,191
08/31/1997 $20,348 $16,866 $12,214
09/30/1997 $21,490 $17,814 $12,244
10/31/1997 $19,897 $16,449 $12,275
11/30/1997 $19,685 $16,285 $12,268
12/31/1997 $19,721 $16,431 $12,253
01/31/1998 $19,801 $17,186 $12,275
02/28/1998 $20,871 $18,293 $12,300
03/31/1998 $21,842 $18,860 $12,324
04/30/1998 $21,961 $19,014 $12,346
05/31/1998 $21,049 $18,926 $12,369
06/30/1998 $20,237 $19,073 $12,383
07/31/1998 $19,999 $19,271 $12,398
08/31/1998 $16,709 $16,888 $12,413
09/30/1998 $16,748 $16,374 $12,428
10/31/1998 $18,511 $18,086 $12,458
11/30/1998 $19,137 $19,017 $12,458
12/31/1998 $18,757 $19,772 $12,450
01/31/1999 $18,444 $19,718 $12,481
02/28/1999 $18,288 $19,252 $12,493
03/31/1999 $19,920 $20,061 $12,531
04/30/1999 $22,603 $20,878 $12,622
05/31/1999 $21,574 $19,808 $12,622
06/30/1999 $23,028 $20,584 $12,622
07/31/1999 $23,273 $21,201 $12,655
08/31/1999 $23,452 $21,283 $12,693
09/30/1999 $22,916 $21,502 $12,749
10/31/1999 $22,909 $22,312 $12,774
11/30/1999 $24,039 $23,092 $12,780
12/31/1999 $26,112 $25,169 $12,780
01/31/2000 $24,181 $23,574 $12,815
02/29/2000 $23,669 $24,213 $12,889
03/31/2000 $24,646 $25,157 $12,992
04/30/2000 $23,831 $23,837 $13,003
05/31/2000 $23,901 $23,260 $13,013
06/30/2000 $24,786 $24,175 $13,084
07/31/2000 $24,506 $23,166 $13,112
08/31/2000 $24,576 $23,372 $13,112
</TABLE>
CLASS B (1/1/99-8/31/00)
[CLASS B LINE GRAPH]
<TABLE>
<CAPTION>
TEMPLETON MSCI EAFE INDEX CPI
FOREIGN FUND
CLASS B*
--------------------------------------------------------------------
<S> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $9,821 $9,976 $10,021
02/28/1999 $9,738 $9,741 $10,031
03/31/1999 $10,584 $10,150 $10,062
04/30/1999 $12,014 $10,563 $10,135
05/31/1999 $11,454 $10,022 $10,135
06/30/1999 $12,217 $10,415 $10,135
07/31/1999 $12,348 $10,727 $10,161
08/31/1999 $12,431 $10,768 $10,192
09/30/1999 $12,133 $10,879 $10,237
10/31/1999 $12,136 $11,289 $10,257
11/30/1999 $12,714 $11,683 $10,261
12/31/1999 $13,808 $12,734 $10,261
01/31/2000 $12,779 $11,927 $10,290
02/29/2000 $12,506 $12,251 $10,349
03/31/2000 $13,015 $12,728 $10,432
04/30/2000 $12,581 $12,060 $10,440
05/31/2000 $12,606 $11,768 $10,448
06/30/2000 $13,064 $12,231 $10,505
07/31/2000 $12,903 $11,721 $10,528
08/31/2000 $12,528 $11,825 $10,528
</TABLE>
10 Past performance does not guarantee future results.
<PAGE>
CLASS C (5/1/95 - 8/31/00)
[CLASS C LINE GRAPH]
<TABLE>
<CAPTION>
TEMPLETON MSCI EAFE INDEX CPI
FOREIGN FUND-C*
--------------------------------------------------------------
<S> <C> <C> <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 $10,965
08/31/1999 $15,371 $14,824 $10,998
09/30/1999 $14,998 $14,977 $11,046
10/31/1999 $15,002 $15,542 $11,068
11/30/1999 $15,719 $16,085 $11,073
12/31/1999 $17,067 $17,531 $11,073
01/31/2000 $15,806 $16,421 $11,104
02/29/2000 $15,453 $16,866 $11,167
03/31/2000 $16,083 $17,523 $11,257
04/30/2000 $15,545 $16,604 $11,266
05/31/2000 $15,576 $16,201 $11,275
06/30/2000 $16,145 $16,839 $11,336
07/31/2000 $15,945 $16,136 $11,360
08/31/2000 $15,976 $16,280 $11,360
</TABLE>
ADVISOR CLASS (9/1/90 -8/31/00)
[ADVISOR CLASS LINE GRAPH]
<TABLE>
<CAPTION>
TEMPLETON MSCI EAFE INDEX CPI
FOREIGN FUND
ADVISOR CLASS
----------------------------------------------------------------
<S> <C> <C> <C>
09/01/1990 $10,000 $10,000 $10,000
09/30/1990 $9,137 $8,609 $10,084
10/31/1990 $9,288 $9,954 $10,145
11/30/1990 $9,218 $9,369 $10,167
12/31/1990 $9,205 $9,525 $10,167
01/31/1991 $9,486 $9,835 $10,228
02/28/1991 $10,136 $10,893 $10,243
03/31/1991 $9,925 $10,241 $10,258
04/30/1991 $10,092 $10,345 $10,273
05/31/1991 $10,254 $10,456 $10,303
06/30/1991 $9,802 $9,690 $10,334
07/31/1991 $10,399 $10,169 $10,349
08/31/1991 $10,403 $9,965 $10,379
09/30/1991 $10,618 $10,530 $10,426
10/31/1991 $10,590 $10,682 $10,441
11/30/1991 $10,430 $10,186 $10,471
12/31/1991 $10,885 $10,715 $10,479
01/31/1992 $11,017 $10,489 $10,494
02/29/1992 $11,198 $10,117 $10,532
03/31/1992 $11,008 $9,452 $10,585
04/30/1992 $11,417 $9,499 $10,600
05/31/1992 $12,060 $10,138 $10,615
06/30/1992 $11,842 $9,660 $10,653
07/31/1992 $11,533 $9,416 $10,676
08/31/1992 $11,304 $10,010 $10,706
09/30/1992 $11,071 $9,815 $10,736
10/31/1992 $10,686 $9,304 $10,774
11/30/1992 $10,732 $9,394 $10,789
12/31/1992 $10,897 $9,445 $10,783
01/31/1993 $11,087 $9,447 $10,836
02/28/1993 $11,343 $9,735 $10,874
03/31/1993 $11,793 $10,586 $10,912
04/30/1993 $12,177 $11,594 $10,942
05/31/1993 $12,463 $11,842 $10,957
06/30/1993 $12,309 $11,660 $10,972
07/31/1993 $12,596 $12,071 $10,972
08/31/1993 $13,410 $12,725 $11,003
09/30/1993 $13,303 $12,441 $11,025
10/31/1993 $14,028 $12,828 $11,072
11/30/1993 $13,792 $11,709 $11,079
12/31/1993 $14,909 $12,557 $11,078
01/31/1994 $15,600 $13,621 $11,109
02/28/1994 $15,331 $13,587 $11,148
03/31/1994 $14,905 $13,004 $11,186
04/30/1994 $15,158 $13,559 $11,201
05/31/1994 $15,158 $13,484 $11,208
06/30/1994 $14,858 $13,678 $11,246
07/31/1994 $15,411 $13,812 $11,276
08/31/1994 $15,822 $14,142 $11,322
09/30/1994 $15,569 $13,699 $11,352
10/31/1994 $15,786 $14,159 $11,361
11/30/1994 $15,214 $13,482 $11,376
12/31/1994 $14,962 $13,569 $11,376
01/31/1995 $14,707 $13,051 $11,420
02/28/1995 $14,910 $13,017 $11,466
03/31/1995 $15,030 $13,833 $11,504
04/30/1995 $15,539 $14,357 $11,542
05/31/1995 $15,895 $14,189 $11,565
06/30/1995 $15,963 $13,944 $11,587
07/31/1995 $16,693 $14,816 $11,587
08/31/1995 $16,319 $14,254 $11,619
09/30/1995 $16,590 $14,536 $11,640
10/31/1995 $16,170 $14,149 $11,679
11/30/1995 $16,348 $14,547 $11,670
12/31/1995 $16,631 $15,137 $11,663
01/31/1996 $17,175 $15,203 $11,731
02/29/1996 $17,319 $15,258 $11,769
03/31/1996 $17,409 $15,585 $11,830
04/30/1996 $17,862 $16,042 $11,875
05/31/1996 $18,042 $15,751 $11,898
06/30/1996 $18,132 $15,844 $11,906
07/31/1996 $17,643 $15,384 $11,928
08/31/1996 $18,059 $15,422 $11,951
09/30/1996 $18,258 $15,835 $11,989
10/31/1996 $18,478 $15,678 $12,027
11/30/1996 $19,173 $16,305 $12,050
12/31/1996 $19,620 $16,099 $12,050
01/31/1997 $20,079 $15,540 $12,088
02/28/1997 $20,308 $15,798 $12,124
03/31/1997 $20,519 $15,859 $12,154
04/30/1997 $20,653 $15,947 $12,169
05/31/1997 $21,340 $16,988 $12,162
06/30/1997 $22,066 $17,929 $12,176
07/31/1997 $22,697 $18,223 $12,191
08/31/1997 $21,837 $16,866 $12,214
09/30/1997 $23,079 $17,814 $12,244
10/31/1997 $21,365 $16,449 $12,275
11/30/1997 $21,157 $16,285 $12,268
12/31/1997 $21,195 $16,431 $12,253
01/31/1998 $21,280 $17,186 $12,275
02/28/1998 $22,429 $18,293 $12,300
03/31/1998 $23,492 $18,860 $12,324
04/30/1998 $23,619 $19,014 $12,346
05/31/1998 $22,641 $18,926 $12,369
06/30/1998 $21,747 $19,073 $12,383
07/31/1998 $21,493 $19,271 $12,398
08/31/1998 $17,959 $16,888 $12,413
09/30/1998 $18,002 $16,374 $12,428
10/31/1998 $19,894 $18,086 $12,458
11/30/1998 $20,593 $19,017 $12,458
12/31/1998 $20,183 $19,772 $12,450
01/31/1999 $19,846 $19,718 $12,481
02/28/1999 $19,701 $19,252 $12,493
03/31/1999 $21,433 $20,061 $12,531
04/30/1999 $24,343 $20,878 $12,622
05/31/1999 $23,236 $19,808 $12,622
06/30/1999 $24,799 $20,584 $12,622
07/31/1999 $25,065 $21,201 $12,655
08/31/1999 $25,258 $21,283 $12,693
09/30/1999 $24,679 $21,502 $12,749
10/31/1999 $24,684 $22,312 $12,774
11/30/1999 $25,901 $23,092 $12,780
12/31/1999 $28,160 $25,169 $12,780
01/31/2000 $26,076 $23,574 $12,815
02/29/2000 $25,523 $24,213 $12,889
03/31/2000 $26,603 $25,157 $12,992
04/30/2000 $25,722 $23,837 $13,003
05/31/2000 $25,797 $23,260 $13,013
06/30/2000 $26,751 $24,175 $13,084
07/31/2000 $26,449 $23,166 $13,112
08/31/2000 $26,535 $23,372 $13,112
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
CLASS C
----------------------------------------
<S> <C>
1-Year 1.95%
5-Year 8.78%
Since Inception (5/1/95) 9.17%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
8/31/00
<TABLE>
<CAPTION>
ADVISOR CLASS***
----------------------------------------
<S> <C>
1-Year 5.03%
5-Year 10.21%
10-Year 10.25%
Since Inception (10/5/82) 15.28%
</TABLE>
* Source: Standard and Poor's Micropal. The unmanaged MSCI Europe, Australasia,
Far East (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 (8/31/00). The
Consumer Price Index is a commonly used measure of inflation.
*** Effective 1/2/97, the Fund began offering Advisor Class shares, which do not
have sales charges nor Rule 12b-1 plans. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 1/2/97, a
restated figure is used based upon the Fund's Class A performance, excluding the
effect of Class A's maximum initial sales charge and including the effect of the
Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an actual Advisor
Class figure is used reflecting a deduction of all charges and fees applicable
to that class.
Past performance does not guarantee future results. 11
<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 $118,156 on August 31, 2000. The chart below illustrates
the cumulative total return of a hypothetical $10,000 investment in the Fund on
October 5, 1982 (inception), reflecting the current, maximum sales charge and
applicable fees and expenses, with income dividends and capital gains reinvested
as shown through August 31, 2000.*
[CLASS A LINE GRAPH]
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL TOTAL VALUE CPI PRINCIPAL INCOME CAP GAINS
+ + CAP
DIVIDENDS GAINS
<S> <C> <C> <C> <C> <C> <C> <C>
10/05/1982 $9,423 $9,423 $9,423 $10,000 $9,423 $0 $0
12/31/1982 $9,823 $9,823 $9,823 $9,965 $9,823 $0 $0
12/31/1983 $13,362 $13,217 $13,410 $10,343 $13,169 $193 $48
12/31/1984 $13,094 $12,759 $13,250 $10,751 $12,603 $491 $156
12/31/1985 $16,566 $15,735 $16,812 $11,160 $15,489 $1,077 $246
12/31/1986 $19,903 $19,896 $21,648 $11,282 $18,151 $1,752 $1,745
12/31/1987 $23,252 $24,190 $27,006 $11,782 $20,436 $2,816 $3,754
12/31/1988 $26,865 $28,790 $32,946 $12,303 $22,709 $4,156 $6,081
12/31/1989 $33,854 $36,619 $43,006 $12,875 $27,467 $6,387 $9,152
12/31/1990 $31,870 $34,542 $41,712 $13,662 $24,700 $7,170 $9,842
12/31/1991 $36,198 $40,076 $49,325 $14,080 $26,949 $9,249 $13,127
12/31/1992 $34,964 $39,496 $49,372 $14,488 $25,088 $9,876 $14,408
12/31/1993 $47,393 $53,489 $67,549 $14,886 $33,333 $14,060 $20,156
12/31/1994 $45,397 $53,552 $67,783 $15,284 $31,166 $14,231 $22,386
12/31/1995 $49,210 $58,571 $75,343 $15,672 $32,438 $16,772 $26,133
12/31/1996 $57,909 $67,602 $88,903 $16,192 $36,608 $21,301 $30,994
12/31/1997 $58,220 $71,753 $94,815 $16,468 $35,158 $23,062 $36,595
12/31/1998 $51,688 $68,140 $90,181 $16,733 $29,647 $22,041 $38,493
12/31/1999 $72,959 $92,229 $125,541 $17,181 $39,647 $33,312 $52,582
08/31/2000 $68,667 $86,803 $118,156 $17,630 $37,314 $31,353 $49,489
</TABLE>
* 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 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 three 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 FOREIGN 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.............. $10.49 $8.43 $11.40 $9.97 $9.62
----------------------------------------------------------------------
Income from investment operations:
Net investment income.......................... .23 .27 .30 .32 .27
Net realized and unrealized gains (losses)..... .25 2.82 (2.11) 1.56 .69
----------------------------------------------------------------------
Total from investment operations................ .48 3.09 (1.81) 1.88 .96
----------------------------------------------------------------------
Less distributions from:
Net investment income.......................... (.32) (.26) (.32) (.28) (.25)
Net realized gains............................. (.09) (.77) (.84) (.17) (.36)
----------------------------------------------------------------------
Total distributions............................. (.41) (1.03) (1.16) (.45) (.61)
----------------------------------------------------------------------
Net asset value, end of year.................... $10.56 $10.49 $8.43 $11.40 $9.97
======================================================================
Total Return*................................... 4.79% 40.36% (17.89)% 19.55% 10.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)................. $11,489,339 $11,940,654 $10,745,504 $14,367,787 $9,602,209
Ratios to average net assets:
Expenses....................................... 1.15% 1.13% 1.12% 1.08% 1.12%
Net investment income.......................... 2.14% 2.92% 2.79% 3.28% 3.09%
Portfolio turnover rate......................... 44.77% 26.11% 38.27% 37.28% 15.91%
</TABLE>
*Total return does not reflect sales commissions.
+Based on average weighted shares outstanding effective year ended August 31,
1999.
13
<PAGE>
TEMPLETON FOREIGN 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.......................... $10.43 $8.39
------------------------------------
Income from investment operations:
Net investment income...................................... .16 .14
Net realized and unrealized gains.......................... .23 1.90
------------------------------------
Total from investment operations............................ .39 2.04
------------------------------------
Less distributions from:
Net investment income...................................... (.30) --
Net realized gains......................................... (.09) --
------------------------------------
Total distributions......................................... (.39) --
------------------------------------
Net asset value, end of year................................ $10.43 $10.43
====================================
Total Return*............................................... 3.99% 24.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $53,313 $16,765
Ratios to average net assets:
Expenses................................................... 1.90% 1.91%**
Net investment income...................................... 1.54% 2.14%**
Portfolio turnover rate..................................... 44.77% 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.
14
<PAGE>
TEMPLETON FOREIGN 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.............. $10.31 $8.30 $11.25 $9.87 $9.59
-----------------------------------------------------------------------
Income from investment operations:
Net investment income.......................... .14 .19 .22 .26 .30
Net realized and unrealized gains (losses)..... .25 2.79 (2.07) 1.52 .58
-----------------------------------------------------------------------
Total from investment operations................ .39 2.98 (1.85) 1.78 .88
-----------------------------------------------------------------------
Less distributions from:
Net investment income.......................... (.22) (.20) (.26) (.23) (.24)
Net realized gains............................. (.09) (.77) (.84) (.17) (.36)
-----------------------------------------------------------------------
Total distributions............................. (.31) (.97) (1.10) (.40) (.60)
-----------------------------------------------------------------------
Net asset value, end of year.................... $10.39 $10.31 $8.30 $11.25 $9.87
=======================================================================
Total Return*................................... 3.94% 39.45% (18.46)% 18.65% 9.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)................. $1,127,869 $1,196,084 $1,159,810 $1,303,639 $527,443
Ratios to average net assets:
Expenses....................................... 1.90% 1.88% 1.87% 1.83% 1.87%
Net investment income.......................... 1.39% 2.15% 2.07% 2.62% 2.63%
Portfolio turnover rate......................... 44.77% 26.11% 38.27% 37.28% 15.91%
</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.
15
<PAGE>
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------------
YEAR ENDED AUGUST 31,
----------------------------------------------------
2000 1999 1998 1997+
----------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the year)
Net asset value, beginning of year.......................... $10.50 $8.44 $11.42 $10.26
----------------------------------------------------
Income from investment operations:
Net investment income...................................... .26 .29 .33 .07
Net realized and unrealized gains (losses)................. .24 2.81 (2.12) 1.09
----------------------------------------------------
Total from investment operations............................ .50 3.10 (1.79) 1.16
----------------------------------------------------
Less distributions from:
Net investment income...................................... (.35) (.27) (.35) --
Net realized gains......................................... (.09) (.77) (.84) --
----------------------------------------------------
Total distributions......................................... (.44) (1.04) (1.19) --
----------------------------------------------------
Net asset value, end of year................................ $10.56 $10.50 $8.44 $11.42
====================================================
Total Return*............................................... 5.03% 40.65% (17.75)% 11.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's)............................. $117,129 $77,203 $50,022 $139,100
Ratios to average net assets:
Expenses................................................... .90% .88% .87% .83%**
Net investment income...................................... 2.45% 3.18% 3.08% 3.37%**
Portfolio turnover rate..................................... 44.77% 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 effective year ended August 31,
1998.
See Notes to Financial Statements.
16
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 81.0%
AEROSPACE & DEFENSE 2.3%
BAE Systems PLC............................................. United Kingdom 24,154,864 $ 145,847,850
Rolls-Royce PLC............................................. United Kingdom 47,310,493 130,785,143
Saab AB, B.................................................. Sweden 2,306,750 18,578,180
---------------
295,211,173
---------------
AIRLINES 2.0%
British Airways PLC......................................... United Kingdom 3,144,672 15,373,118
Sas Sverige AB.............................................. Sweden 3,000,000 23,525,672
Singapore Airlines Ltd. .................................... Singapore 22,480,200 216,796,212
---------------
255,695,002
---------------
AUTO COMPONENTS .7%
Michelin SA, B.............................................. France 3,200,000 93,883,357
---------------
AUTOMOBILES 1.9%
Bayerische Motorenwerke AG BMW.............................. Germany 4,533,700 145,184,810
Regie Nationale des Usines Renault SA....................... France 2,000,000 87,055,477
Volkswagen AG............................................... Germany 168,350 7,259,046
---------------
239,499,333
---------------
BANKS 9.8%
Alliance & Leicester PLC.................................... United Kingdom 11,000,000 95,226,317
Australia & New Zealand Banking Group Ltd. ................. Australia 20,076,108 151,147,910
Banco Popular Espanol SA.................................... Spain 3,968,034 118,003,856
Bank Austria AG............................................. Austria 502,373 26,931,981
Deutsche Bank AG............................................ Germany 1,570,000 134,695,057
Foreningssparbanken AB, A................................... Sweden 5,000,000 74,444,974
Guoco Group Ltd. ........................................... Hong Kong 16,478,500 42,256,356
HSBC Holdings PLC........................................... Hong Kong 21,514,036 306,188,760
National Australia Bank Ltd. ............................... Australia 16,962,574 248,945,155
Nordic Baltic Holding AB.................................... Sweden 7,100,000 49,282,043
---------------
1,247,122,409
---------------
BEVERAGES .8%
PanAmerican Beverages Inc., A............................... Mexico 5,202,900 96,578,831
---------------
BUILDING PRODUCTS 1.0%
Caradon PLC................................................. United Kingdom 6,546,802 17,097,830
+Hepworth PLC............................................... United Kingdom 21,012,458 63,742,671
Pilkington PLC.............................................. United Kingdom 37,596,549 49,777,916
---------------
130,618,417
---------------
CHEMICALS 4.2%
+Agrium Inc. ............................................... Canada 7,018,695 68,432,276
Akzo Nobel NV............................................... Netherlands 3,350,000 148,349,484
BASF AG..................................................... Germany 2,920,000 110,849,929
</TABLE>
17
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS (CONT.)
DSM NV, Br. ................................................ Netherlands 4,338,885 $ 132,697,052
Elementis PLC............................................... United Kingdom 28,738,196 32,404,740
Laporte PLC................................................. United Kingdom 6,000,000 39,851,013
Laporte PLC, B.............................................. United Kingdom 31,677,600 368,714
*Laporte PLC, B, new........................................ United Kingdom 54,000,000 628,537
---------------
533,581,745
---------------
COMMERCIAL SERVICES & SUPPLIES .3%
Williams PLC................................................ United Kingdom 6,615,000 37,078,302
---------------
COMMUNICATIONS EQUIPMENT .6%
Alcatel SA.................................................. France 500,000 40,918,385
Marconi PLC................................................. United Kingdom 2,064,135 36,398,883
---------------
77,317,268
---------------
COMPUTERS & PERIPHERALS .9%
Fujitsu Ltd. ............................................... Japan 4,010,000 116,193,736
---------------
CONSTRUCTION MATERIALS .6%
Cemex SA, ADR............................................... Mexico 2,416,869 56,645,367
Cheung Kong Infrastructure Holdings Ltd. ................... Hong Kong 11,000,000 18,828,613
---------------
75,473,980
---------------
CONTAINERS & PACKAGING .2%
Assidoman AB................................................ Sweden 1,780,900 26,893,260
---------------
DIVERSIFIED FINANCIALS 3.5%
ING Groep NV................................................ Netherlands 900,000 60,330,725
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,694,764 41,880,077
Nomura Securities Co. Ltd. ................................. Japan 6,187,000 144,753,985
Swire Pacific Ltd., A....................................... Hong Kong 29,606,400 203,087,764
---------------
450,052,551
---------------
DIVERSIFIED TELECOMMUNICATION SERVICES 4.1%
Nippon Telegraph & Telephone Corp. ......................... Japan 15,603 185,819,674
Nortel Inversora SA, ADR, B................................. Argentina 700,000 11,200,000
Telecom Argentina Stet-France Telecom SA, B, ADR............ Argentina 3,228,900 75,879,150
Telecom Corp. of New Zealand Ltd. .......................... New Zealand 20,000,000 55,745,131
Telefonos de Mexico SA de CV (Telmex), ADR.................. Mexico 3,599,950 195,972,278
---------------
524,616,233
---------------
ELECTRIC UTILITIES 8.1%
CLP Holdings Ltd. .......................................... Hong Kong 29,375,600 131,825,420
E.ON AG..................................................... Germany 3,750,000 184,366,110
Electrabel SA............................................... Belgium 182,420 39,004,276
Endesa SA................................................... Spain 4,282,900 83,578,996
Gener SA, ADR............................................... Chile 1,249,650 15,933,038
</TABLE>
18
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRIC UTILITIES (CONT.)
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 39,578,200 $ 125,342,215
Iberdrola SA, Br. .......................................... Spain 12,831,700 147,733,388
Korea Electric Power Corp. ................................. South Korea 4,405,980 129,546,740
National Grid Group PLC..................................... United Kingdom 2,870,293 23,448,946
National Power PLC.......................................... United Kingdom 12,000,000 82,233,635
Powergen PLC................................................ United Kingdom 9,300,000 78,615,181
---------------
1,041,627,945
---------------
ELECTRICAL EQUIPMENT 1.0%
ABB Ltd. ................................................... Switzerland 817,413 90,953,600
+GP Batteries International Ltd. ........................... Singapore 6,240,398 7,142,035
Makita Corp. ............................................... Japan 3,965,700 31,981,452
---------------
130,077,087
---------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.0%
Hitachi Ltd. ............................................... Japan 11,000,000 130,279,445
---------------
FOOD & DRUG RETAILING 1.9%
Dairy Farm International Holdings Ltd. ..................... Hong Kong 39,791,683 18,304,174
Jardine Matheson Holdings Ltd. ............................. Hong Kong 13,099,952 64,189,765
Safeway PLC................................................. United Kingdom 42,807,088 163,957,543
---------------
246,451,482
---------------
FOOD PRODUCTS 1.1%
Kikkoman Corp. ............................................. Japan 1,811,000 13,348,143
Northern Foods PLC.......................................... United Kingdom 15,268,667 23,825,705
Unilever PLC................................................ United Kingdom 17,200,000 108,233,548
---------------
145,407,396
---------------
GAS UTILITIES 1.1%
TransCanada PipeLines Ltd. ................................. Canada 9,715,064 94,209,077
Transportadora de Gas del Sur SA, B, ADR.................... Argentina 5,377,500 40,331,250
---------------
134,540,327
---------------
HOTELS RESTAURANTS & LEISURE .4%
*Asia Standard Hotel Group Ltd. ............................ Hong Kong 100,000 14,104
Grand Hotel Holdings Ltd. .................................. Hong Kong 26,358,000 3,109,171
Mandarin Oriental International Ltd. ....................... Hong Kong 12,407,000 7,692,340
Shangri-La Asia Ltd. ....................................... Hong Kong 44,210,000 44,780,814
---------------
55,596,429
---------------
HOUSEHOLD DURABLES 1.5%
Koninklijke Philips Electronics NV.......................... Netherlands 1,202,063 58,564,234
LG Electronics Inc. ........................................ South Korea 1,750,000 44,509,583
</TABLE>
19
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
HOUSEHOLD DURABLES (CONT.)
+Mckechnie Group PLC........................................ United Kingdom 10,052,495 $ 57,260,214
Sony Corp. ................................................. Japan 253,803 28,321,978
---------------
188,656,009
---------------
INDUSTRIAL CONGLOMERATES 1.6%
Cookson Group PLC........................................... United Kingdom 27,015,799 92,173,908
Norsk Hydro ASA............................................. Norway 2,596,650 111,598,949
---------------
203,772,857
---------------
INSURANCE 4.1%
Ace Ltd. ................................................... Bermuda 1,596,000 56,059,500
Allied Zurich PLC........................................... United Kingdom 13,000,000 159,920,560
AXA SA...................................................... France 1,000,000 142,514,225
Scor........................................................ France 1,402,080 61,827,141
XL Capital Ltd., A.......................................... Bermuda 1,446,000 99,683,626
---------------
520,005,052
---------------
LEISURE EQUIPMENT & PRODUCTS 1.3%
Fuji Photo Film Co. Ltd. ................................... Japan 4,800,000 171,942,986
---------------
MACHINERY 2.4%
CNH Global NV............................................... Netherlands 900 8,831
*Kvaerner ASA, 144A......................................... Norway 1,165,620 15,606,853
METSO OYJ................................................... Finland 5,571,422 67,364,277
Sandvik AB.................................................. Sweden 4,165,050 90,923,573
SKF AB, A................................................... Sweden 1,579,633 21,426,697
SKF AB, B................................................... Sweden 389,720 5,657,992
Volvo AB, B................................................. Sweden 6,285,000 104,233,826
---------------
305,222,049
---------------
MARINE .2%
Koninklijke Vopak NV........................................ Netherlands 1,302,048 27,550,447
---------------
MEDIA .8%
South China Morning Post Holdings Ltd. ..................... Hong Kong 39,054,400 29,293,429
South China Morning Post Holdings Ltd., 144A................ Hong Kong 31,530,000 23,649,622
Wolters Kluwer NV........................................... Netherlands 2,377,170 48,185,878
---------------
101,128,929
---------------
METALS & MINING 2.5%
Anglo American Platinum Corp. Ltd. ......................... South Africa 700 27,368
Barrick Gold Corp. ......................................... Canada 5,300,000 84,101,312
Broken Hill Proprietary Co. Ltd. ........................... Australia 3,975,580 43,568,975
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,483,275 53,768,719
De Beers Consolidated Mines AG, ADR......................... South Africa 1,500,000 41,625,000
Grupo Mexico SA de CV, B.................................... Mexico 477,000 2,129,672
</TABLE>
20
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
METALS & MINING (CONT.)
Pohang Iron & Steel Co. Ltd. ............................... South Korea 952,595 $ 72,828,949
+Yamato Kogyo Co. Ltd. ..................................... Japan 5,143,000 20,255,627
---------------
318,305,622
---------------
MULTILINE RETAIL .8%
Marks & Spencer PLC......................................... United Kingdom 32,282,000 98,751,517
Matsuzakaya Co. Ltd. ....................................... Japan 215,600 529,700
---------------
99,281,217
---------------
OIL & GAS 4.9%
Eni SpA..................................................... Italy 12,030,000 69,839,883
*Husky Energy Inc. ......................................... Canada 1,696,949 15,707,696
*PetroChina Co. Ltd., H..................................... China 501,016,000 119,483,769
Repsol YPF SA............................................... Spain 7,020,000 139,176,743
Shell Transport & Trading Co. PLC........................... United Kingdom 22,774,404 194,671,434
Societe Elf Aquitane SA, Br. ............................... France 453,907 89,909,703
---------------
628,789,228
---------------
PAPER & FOREST PRODUCTS 2.7%
Carter Holt Harvey Ltd. .................................... New Zealand 9,002,789 7,092,361
Holmen Aktiebolag AB, B..................................... Sweden 3,666,800 84,515,339
Metsa Serla OY, B........................................... Finland 2,859,000 20,715,549
Norske Skogindustrier ASA, A................................ Norway 1,099,400 38,648,131
Stora Enso OYJ, R (EUR Traded).............................. Finland 5,654,331 50,269,657
Stora Enso OYJ, R (EUR/FIM Traded).......................... Finland 5,763,250 52,775,138
UPM-Kymmene Corp. .......................................... Finland 3,767,834 95,301,278
---------------
349,317,453
---------------
PHARMACEUTICALS 1.5%
Aventis SA.................................................. France 1,816,790 136,485,380
Ono Pharmaceutical Co Ltd. ................................. Japan 1,500,000 59,780,570
---------------
196,265,950
---------------
REAL ESTATE 3.9%
Amoy Properties Ltd. ....................................... Hong Kong 33,791,900 31,628,591
Cheung Kong Holdings Ltd. .................................. Hong Kong 20,984,900 273,097,246
Hang Lung Development Co. Ltd. ............................. Hong Kong 65,084,000 60,500,173
Lend Lease Corp. Ltd. ...................................... Australia 1,730,027 20,443,047
New World Development Co. Ltd. ............................. Hong Kong 24,473,380 40,008,154
Slough Estates PLC.......................................... United Kingdom 7,000,000 39,821,914
Wereldhave NV............................................... Netherlands 839,694 38,744,771
---------------
504,243,896
---------------
</TABLE>
21
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ROAD & RAIL .6%
East Japan Railway Co. ..................................... Japan 6,000 $ 32,633,158
Seino Transportation Co. Ltd. .............................. Japan 1,385,000 7,363,982
Stagecoach Holdings PLC..................................... United Kingdom 32,000,000 34,336,762
---------------
74,333,902
---------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS .6%
*Hyundai Electronics Industries Co. ........................ South Korea 4,000,000 73,235,626
---------------
SPECIALTY RETAIL .6%
Best Denki Co. Ltd. ........................................ Japan 2,023,140 13,469,893
+W.H. Smith PLC............................................. United Kingdom 13,164,130 69,238,524
---------------
82,708,417
---------------
TEXTILES & APPAREL .6%
Adidas-Salomon AG........................................... Germany 145,820 7,739,557
Yue Yuen Industrial Holdings Ltd. .......................... Hong Kong 27,581,400 63,655,098
---------------
71,394,655
---------------
TRADING COMPANIES & DISTRIBUTORS .4%
Samsung Corp. .............................................. South Korea 6,000,000 54,385,569
---------------
TRANSPORTATION INFRASTRUCTURE .4%
BAA PLC..................................................... United Kingdom 6,479,211 51,800,882
---------------
WATER UTILITIES .9%
Thames Water Group PLC...................................... United Kingdom 9,675,582 114,379,398
---------------
WIRELESS TELECOMMUNICATION SERVICES 1.2%
SK Telecom Co. Ltd., ADR.................................... South Korea 3,873,796 99,266,023
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 26,773,800 51,664,340
---------------
150,930,363
---------------
TOTAL COMMON STOCKS (COST $9,696,033,331)................... 10,371,446,215
---------------
PREFERRED STOCKS 4.0%
Brasil Telecom Participacoes SA, ADR, pfd. ................. Brazil 930,000 65,506,875
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,550,500 42,154,219
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 949,420 25,672,693
Petroleo Brasileiro SA, pfd. ............................... Brazil 5,400,000 163,528,442
Tele Sudeste Celular Participacoes SA, ADR, pfd. ........... Brazil 74,440 1,823,780
*Telecomunicacoes Brasileiras SA (Telebras), pfd. .......... Brazil 372,200,000 34,468,645
Telecomunicacoes de Sao Paulo SA, ADR, pfd. ................ Brazil 372,200 6,629,813
*Telesp Celular Participacoes SA, pfd., rts., 10/09/00...... Brazil 37,220,000 225,017
Volkswagen AG, pfd. ........................................ Germany 6,551,340 168,326,570
---------------
TOTAL PREFERRED STOCKS (COST $482,056,422).................. 508,336,054
---------------
</TABLE>
22
<PAGE>
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, AUGUST 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 6.0%
U.S. Treasury Bonds:
8.75%, 8/15/20............................................ United States $ 150,000,000 $ 198,421,950
7.50%, 11/15/24........................................... United States 150,000,000 180,328,200
6.75%, 8/15/26............................................ United States 175,000,000 194,851,650
6.625%, 2/15/27........................................... United States 175,000,000 192,226,650
---------------
TOTAL BONDS (COST $712,019,531)............................. 765,828,450
---------------
SHORT TERM INVESTMENTS (COST $1,031,001,243) 8.1%
U.S. Treasury Bills, 5.64% to 6.31%, with maturities to
11/24/00.................................................. United States 1,041,957,000 1,031,145,649
---------------
TOTAL INVESTMENTS (COST $11,921,110,527) 99.1%.............. 12,676,756,368
OTHER ASSETS, LESS LIABILITIES .9%.......................... 110,893,566
---------------
TOTAL NET ASSETS 100.0%..................................... $12,787,649,934
===============
</TABLE>
CURRENCY ABBREVIATIONS:
EUR -- European Unit
FIM -- Finnish Markka
*Non-income producing.
**Securities denominated in U.S. dollars.
+Affiliated Issuers (see note 6).
See Notes to Financial Statements.
23
<PAGE>
TEMPLETON FOREIGN FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$11,921,110,527).......................................... $12,676,756,368
Cash....................................................... 11,678,005
Receivables:
Investment securities sold................................ 13,666,946
Capital shares sold....................................... 265,481,014
Dividends and interest.................................... 34,838,625
---------------
Total assets.......................................... 13,002,420,958
---------------
Liabilities:
Payables:
Investment securities purchased........................... 117,937,221
Capital shares redeemed................................... 81,998,715
To affiliates............................................. 12,359,060
Accrued expenses........................................... 2,476,028
---------------
Total liabilities..................................... 214,771,024
---------------
Net assets, at value........................................ $12,787,649,934
===============
Net assets consist of:
Undistributed net investment income........................ $ 209,231,390
Net unrealized appreciation................................ 755,645,841
Accumulated net realized gain.............................. 536,296,262
Capital shares............................................. 11,286,476,441
---------------
Net assets, at value........................................ $12,787,649,934
===============
CLASS A:
Net asset value per share ($11,489,338,993 / 1,088,519,437
shares outstanding)...................................... $10.56
===============
Maximum offering price per share ($10.56 / 94.25%)......... $11.20
===============
CLASS B:
Net asset value and maximum offering price per share
($53,312,836 / 5,111,505 shares outstanding)*............ $10.43
===============
CLASS C:
Net asset value per share ($1,127,869,547 / 108,545,104
shares outstanding)*..................................... $10.39
===============
Maximum offering price per share ($10.39 / 99.00%)......... $10.49
===============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($117,128,558 / 11,092,867 shares outstanding)........... $10.56
===============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
24
<PAGE>
TEMPLETON FOREIGN 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 $32,586,640)
Dividends.................................................. $336,201,881
Interest................................................... 103,805,542
------------
Total investment income............................... $ 440,007,423
Expenses:
Management fees (Note 3)................................... 81,392,086
Administrative fees (Note 3)............................... 10,366,970
Distribution fees (Note 3)
Class A................................................... 30,145,062
Class B................................................... 377,363
Class C................................................... 11,939,812
Transfer agent fees (Note 3)............................... 23,129,000
Custodian fees............................................. 3,990,000
Reports to shareholders.................................... 792,000
Registration and filing fees............................... 449,000
Professional fees.......................................... 155,700
Directors' fees and expenses............................... 147,600
Other...................................................... 29,056
------------
Total expenses........................................ 162,913,649
-------------
Net investment income........................... 277,093,774
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 634,422,369
Foreign currency transactions............................. (11,701,731)
------------
Net realized gain..................................... 622,720,638
Net unrealized depreciation on investments............ (240,218,775)
-------------
Net realized and unrealized gain............................ 382,501,863
-------------
Net increase in net assets resulting from operations........ $ 659,595,637
=============
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
TEMPLETON FOREIGN 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 (decrease) in net assets:
Operations:
Net investment income..................................... $ 277,093,774 $ 351,425,070
Net realized gain from investments and foreign currency
transactions............................................. 622,720,638 27,606,261
Net unrealized appreciation (depreciation) on
investments.............................................. (240,218,775) 3,752,103,566
-------------------------------------
Net increase in net assets resulting from operations.... 659,595,637 4,131,134,897
Distributions to shareholders from:
Net investment income:
Class A.................................................. (360,625,808) (319,053,548)
Class B.................................................. (667,056) --
Class C.................................................. (25,163,999) (27,544,740)
Advisor Class............................................ (3,197,102) (1,552,072)
Net realized gains:
Class A.................................................. (107,748,785) (940,330,691)
Class B.................................................. (236,153) --
Class C.................................................. (10,944,178) (102,214,786)
Advisor Class............................................ (848,770) (4,253,117)
-------------------------------------
Total distributions to shareholders........................ (509,431,851) (1,394,948,954)
Capital share transactions (Note 2):
Class A.................................................. (588,190,701) (1,282,999,736)
Class B.................................................. 36,451,685 15,798,522
Class C.................................................. (80,162,275) (208,492,650)
Advisor Class............................................ 38,681,733 14,877,679
-------------------------------------
Total capital share transactions........................... (593,219,558) (1,460,816,185)
Net increase (decrease) in net assets................... (443,055,772) 1,275,369,758
Net assets:
Beginning of year.......................................... 13,230,705,706 11,955,335,948
-------------------------------------
End of year................................................ $12,787,649,934 $13,230,705,706
=====================================
Undistributed net investment income included in net assets:
End of year................................................ $ 209,231,390 $ 322,109,281
=====================================
</TABLE>
See Notes to Financial Statements.
26
<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 located 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. 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 FOREIGN 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.
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, 2000, 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,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold.................................. 1,605,048,001 $ 16,784,247,094 958,199,306 $ 8,964,615,268
Shares issued on reinvestment of
distributions.............................. 40,186,895 403,012,086 140,749,711 1,127,399,717
Shares redeemed.............................. (1,695,094,219) (17,775,449,881) (1,235,651,096) (11,375,014,721)
-----------------------------------------------------------------------------
Net decrease................................. (49,859,323) $ (588,190,701) (136,702,079) $ (1,282,999,736)
=============================================================================
</TABLE>
28
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<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.................................. 3,783,812 $ 39,379,639 1,618,210 $ 15,907,208
Shares issued on reinvestment of
distributions.............................. 79,936 795,360 -- --
Shares redeemed.............................. (359,626) (3,723,314) (10,827) (108,686)
-----------------------------------------------------------------------------
Net increase................................. 3,504,122 $ 36,451,685 1,607,383 $ 15,798,522
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold.................................. 70,313,549 $ 726,082,952 42,361,421 $ 377,236,433
Shares issued on reinvestment of
distributions.............................. 2,862,681 28,369,048 12,347,649 97,793,089
Shares redeemed.............................. (80,689,588) (834,614,275) (78,357,177) (683,522,172)
-----------------------------------------------------------------------------
Net decrease................................. (7,513,358) $ (80,162,275) (23,648,107) $ (208,492,650)
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold.................................. 9,544,625 $ 99,653,723 9,656,116 $ 92,836,872
Shares issued on reinvestment of
distributions.............................. 348,516 3,480,468 608,301 4,866,404
Shares redeemed.............................. (6,153,094) (64,452,458) (8,841,471) (82,825,597)
-----------------------------------------------------------------------------
Net increase................................. 3,740,047 $ 38,681,733 1,422,946 $ 14,877,679
=============================================================================
</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.
29
<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, 2000, unreimbursed costs were $15,389,251.
Distributors received net commissions from sales of the Fund's shares and
received contingent deferred sales charges for the year of $942,284 and
$471,344, respectively.
4. 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, net unrealized appreciation based on the cost of investments
for income tax purposes of $11,929,753,983 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation..................................... $1,613,643,127
Unrealized depreciation..................................... (866,640,742)
--------------
Net unrealized appreciation................................. $ 747,002,385
==============
</TABLE>
Net investment income and net realized gains differ for financial statement and
tax purposes primarily due to differing treatments of 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 $10,589,089. For tax purposes, such losses will be
reflected in the year ending August 31, 2001.
30
<PAGE>
TEMPLETON FOREIGN FUND
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 2000 aggregated $5,437,561,459 and $5,735,543,956,
respectively.
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,
2000 were $286,071,347. For the year ended August 31, 2000, dividend income from
"affiliated persons" was $17,498,894 and net realized losses from disposition of
"affiliated persons" were $51,768,342.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME
NAME OF ISSUER AUG. 31, 1999 ADDITIONS REDUCTIONS AUG. 31, 2000 AUG. 31, 2000 9/1/99-8/31/00
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ............... 7,018,695 -- -- 7,018,695 $ 68,432,276 $ 772,056
Bail Investissement........ 164,380 -- (164,380) -- * 1,621,255
DSM NV, Br. ............... 1,852,903 4,262,590 (1,776,608) 4,338,885 * --
Elementis PLC.............. 28,738,196 -- -- 28,738,196 * --
G P Batteries International
Ltd. ..................... 6,240,398 -- -- 6,240,398 7,142,035 320,036
Hepworth PLC............... 21,012,458 -- -- 21,012,458 63,742,671 3,507,076
Hollandsche Beton Groep
NV........................ 2,032,325 -- (2,032,325) -- * 1,352,130
Inchcape PLC............... 5,000,001 -- (5,000,001) -- * 1,154,538
Mckechnie Group PLC........ 10,052,495 -- -- 10,052,495 57,260,214 3,853,903
SAS Norge ASA, B........... 1,233,300 646,700 (1,880,000) -- * --
Vickers Group PLC.......... 22,672,701 -- (22,672,701) -- * 1,178,924
W.H. Smith Group PLC....... 9,761,360 3,402,770 -- 13,164,130 69,238,524 3,373,577
Yamato Kogyo Co. Ltd. ..... 7,702,000 -- (2,559,000) 5,143,000 20,255,627 365,399
-------------------------------
TOTAL NON CONTROLLED
AFFILIATES................ $286,071,347 $17,498,894
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSSES)
------------------------------------------
<S> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ............... --
Bail Investissement........ $ (2,427,546)
DSM NV, Br. ............... 3,224,374
Elementis PLC.............. --
G P Batteries International
Ltd. ..................... --
Hepworth PLC............... --
Hollandsche Beton Groep
NV........................ (10,631,137)
Inchcape PLC............... (22,181,496)
Mckechnie Group PLC........ --
SAS Norge ASA, B........... --
Vickers Group PLC.......... (7,984,288)
W.H. Smith Group PLC....... --
Yamato Kogyo Co. Ltd. ..... (11,768,249)
-------------
TOTAL NON CONTROLLED
AFFILIATES................ $(51,768,342)
=============
</TABLE>
*As of August 31, 2000, no longer an affiliate.
31
<PAGE>
TEMPLETON FOREIGN 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 Foreign 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 FOREIGN FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $449,703,230 as a capital gain dividend 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, Class C, and
Advisor Class shareholders of record on October 19, 2000.
<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 $0.0056 $0.0000 $0.0051
Australia.............................................. 0.0004 0.0147 0.0004 0.0132
Austria................................................ 0.0002 0.0012 0.0002 0.0010
Belgium................................................ 0.0003 0.0014 0.0003 0.0013
Bermuda................................................ 0.0000 0.0028 0.0000 0.0025
Brazil................................................. 0.0012 0.0094 0.0012 0.0084
Canada................................................. 0.0006 0.0029 0.0006 0.0026
Chile.................................................. 0.0000 0.0002 0.0000 0.0002
Denmark................................................ 0.0001 0.0003 0.0001 0.0003
Finland................................................ 0.0019 0.0100 0.0019 0.0089
France................................................. 0.0017 0.0106 0.0017 0.0095
Germany................................................ 0.0016 0.0110 0.0016 0.0099
Hong Kong.............................................. 0.0000 0.0364 0.0000 0.0327
Italy.................................................. 0.0003 0.0014 0.0003 0.0012
Japan.................................................. 0.0007 0.0035 0.0007 0.0032
Mexico................................................. 0.0005 0.0050 0.0005 0.0045
Netherlands............................................ 0.0021 0.0134 0.0021 0.0121
New Zealand............................................ 0.0007 0.0034 0.0007 0.0031
Norway................................................. 0.0007 0.0035 0.0007 0.0032
Peru................................................... 0.0000 0.0007 0.0000 0.0006
Singapore.............................................. 0.0013 0.0101 0.0013 0.0091
South Africa........................................... 0.0000 0.0039 0.0000 0.0035
South Korea............................................ 0.0003 0.0013 0.0003 0.0012
Spain.................................................. 0.0013 0.0067 0.0013 0.0060
Sweden................................................. 0.0030 0.0151 0.0030 0.0136
Switzerland............................................ 0.0002 0.0010 0.0002 0.0009
United Kingdom......................................... 0.0083 0.0648 0.0083 0.0581
------------------------------------------------------------------------
TOTAL.................................................. $0.0274 $0.2403 $0.0274 $0.2159
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
33
<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 $0.0045 $0.0000 $0.0060
Australia.............................................. 0.0004 0.0117 0.0004 0.0157
Austria................................................ 0.0002 0.0009 0.0002 0.0012
Belgium................................................ 0.0003 0.0011 0.0003 0.0015
Bermuda................................................ 0.0000 0.0023 0.0000 0.0030
Brazil................................................. 0.0012 0.0075 0.0012 0.0100
Canada................................................. 0.0006 0.0023 0.0006 0.0031
Chile.................................................. 0.0000 0.0001 0.0000 0.0002
Denmark................................................ 0.0001 0.0003 0.0001 0.0004
Finland................................................ 0.0019 0.0079 0.0019 0.0106
France................................................. 0.0017 0.0084 0.0017 0.0113
Germany................................................ 0.0016 0.0088 0.0016 0.0118
Hong Kong.............................................. 0.0000 0.0290 0.0000 0.0389
Italy.................................................. 0.0003 0.0011 0.0003 0.0015
Japan.................................................. 0.0007 0.0028 0.0007 0.0038
Mexico................................................. 0.0005 0.0040 0.0005 0.0053
Netherlands............................................ 0.0021 0.0107 0.0021 0.0144
New Zealand............................................ 0.0007 0.0027 0.0007 0.0036
Norway................................................. 0.0007 0.0028 0.0007 0.0038
Peru................................................... 0.0000 0.0005 0.0000 0.0007
Singapore.............................................. 0.0013 0.0081 0.0013 0.0108
South Africa........................................... 0.0000 0.0031 0.0000 0.0042
South Korea............................................ 0.0003 0.0010 0.0003 0.0014
Spain.................................................. 0.0013 0.0053 0.0013 0.0071
Sweden................................................. 0.0030 0.0120 0.0030 0.0162
Switzerland............................................ 0.0002 0.0008 0.0002 0.0011
United Kingdom......................................... 0.0083 0.0515 0.0083 0.0692
------------------------------------------------------------------------
TOTAL.................................................. $0.0274 $0.1912 $0.0274 $0.2568
========================================================================
</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.
34
<PAGE>
[FRANKLIN TEMPLETON LOGO]
Templeton Foreign 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 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. 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 A00 10/00 [RECYCLING LOGO] Printed on recycled paper
