SEMIANNUAL REPORT
Templeton Foreign Fund
[MAP GRAPHIC]
February 29, 2000
[FRANKLIN TEMPLETON LOGO]
[GRAPHIC -- FRANKLIN TEMPLETON: CELEBRATING OVER 50 YEARS]
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.
[PHOTO OF MARK HOLOWESKO APPEARS HERE]
MARK G. HOLOWESKO, CFA
Portfolio Manager
Templeton Foreign Fund
Mark G. Holowesko is president and portfolio manager of Templeton Foreign Fund
and several other Templeton funds. He joined the Templeton organization in 1985
in Nassau, Bahamas, and serves as chief investment officer of equity research
worldwide, as well as an officer and director of Templeton Worldwide, Inc. Mr.
Holowesko received a B.A. in economics from Holy Cross College and an M.B.A.
from Babson College. He is a Chartered Financial Analyst and a former director
of the International Society of Financial Analysts.
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SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
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 semiannual report of Templeton Foreign Fund covers the six months ended
February 29, 2000. During this time, relatively low interest rates, benign
inflation and increasing productivity contributed to the strong performance of
many global economies and equity markets. However, most investor attention
focused on the U.S. markets, particularly the tech-heavy Nasdaq Composite(R)
Index,(1) which started the reporting period at 2739 and closed at a record high
of 4697 on February 29, an increase of 71.61%. Within this environment,
Templeton Foreign Fund - Class A posted a six-month cumulative total return of
0.92% as shown in the Performance Summary on page 8. The Fund's
1. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based
common stocks listed on the Nasdaq Stock Market. The Index is market-value
weighted and includes over 5,000 companies (as of 2/29/00).
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the Fund's Statement of Investments (SOI), a complete listing of
the Fund's portfolio holdings, including dollar value and number of shares or
principal amount.
The SOI begins on page 15.
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ........................................................ 1
Performance Summary ....................................................... 8
Financial Highlights & Statement of Investments ........................... 11
Financial Statements ...................................................... 22
Notes to Financial Statements ............................................. 25
</TABLE>
[FUND CATEGORY PYRAMID GRAPHIC]
GEOGRAPHIC DISTRIBUTION BASED ON TOTAL NET ASSETS 2/29/00
European Stocks 42.3%
Asian Stocks 21.6%
Latin American Stocks 9.0%
Australian & New Zealand Stocks 4.5%
North American Stocks 3.0%
Mid-East/African Stocks 1.0%
Fixed-Income Securities 5.4%
Short-Term Investments & Other Net Assets 13.2%
benchmark, the Morgan Stanley Capital International(R) Europe, Australasia, Far
East Index (MSCI(R) EAFE(R)) rose 13.77% during the same period.(2)
The Fund's performance was hindered by the fact that throughout the period, we
adhered to our value style strategy, investing in unpopular sectors of Asian and
European markets: cyclical stocks, industrial companies and out-of-favor
financial issues. Performance benefited from the return of investors to Asia,
and sharp rallies in France, Finland and Germany. Though we had a number of
excellent gains in our Japanese positions, the Fund's relative underweighting in
that country compared to the MSCI EAFE caused us to lag that index during the
period.
EUROPE
Among the Fund's largest European holdings were Volvo (Sweden), Aventis
(France), Koninklijke Philips Electronics (Netherlands), and BMW (Germany). The
U.K. market has underperformed the continental European markets for two years.
Aerospace and retail stocks in particular have performed poorly. Among the
Fund's largest U.K. holdings are Rolls-Royce, a manufacturer of industrial gas
turbine engines for civil and military aircraft, and Marks & Spencer, a major
retail department store operator. Rolls-Royce sells at only 11x our expected
earnings estimate for 2000. Because of a difficult operating environment, Marks
& Spencer's share price has declined to a level that's close to the value of its
real estate holdings alone, implying its retail trading operations are virtually
worthless to
2. 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 the Index representative of the Fund's portfolio.
2
investors. However, investors have received a 5.43% dividend yield while
management restructures operations intended to improve profitability. We believe
the franchise of the company, which has traditionally maintained a reputation as
a top British retailer, remains intact.
In Germany, we added to several holdings we believe might benefit from the
possible reduction of tax rates, such as BMW, Veba and Adidas. Taxes are
generally much higher in Europe than in the United States, and although Europe
has completed a year with its common currency and interest rates converging, the
region does not enjoy a common level of taxation. Recognizing that uneven
taxation has hampered investment and European competitiveness, politicians are
debating legislation to lower corporate and personal tax levels. If they
succeed, the result could be higher corporate profits and the breaking up of
corporate cross holdings, as many German companies hold huge stakes in the
common shares of other German companies. Many of these German companies have
shown a desire to reduce these holdings, but this has so far been hindered by
high tax rates.(3)
ASIA
As of February 29, 2000, some of our larger Asian positions included Japan's
Sony Corp., Singapore Airlines, and South Korea's SK Telecom. During the
reporting period, the rising prices of many of our Pacific Rim holdings led us
to take some profits and reduce some positions. Despite this, we still
maintained an overweight position in Hong Kong at period's end compared to the
MSCI EAFE Index. Our largest Hong Kong
3. Source: Templeton Du Pont analysis.
TOP 10 COUNTRIES REPRESENTED IN THE FUND* 2/29/00
% OF TOTAL
COUNTRY NET ASSETS
- ----------------------------------------------------------------------------
United Kingdom 15.7%
Hong Kong 10.7%
Japan 6.7%
Germany 5.8%
France 4.9%
Netherlands 4.3%
Sweden 4.3%
Brazil 4.0%
Australia 3.6%
Mexico 3.0%
South Korea 2.5%
*Based on equity securities.
3
position, Cheung Kong Holdings, a real estate development and investment
company, was selling at a substantial discount to its investment in Hutchison
Whampoa. By the end of the reporting period, Cheung Kong's ownership of
Hutchison shares were valued in excess of Cheung Kong's total market value
despite its considerable land assets.
On the buy side, rising interest rates pushed down the prices of banking stocks
in Australia, and we used this weakness to build our position in National
Australia Bank during the middle of the reporting period. One of the largest and
most competitive banks in Australia, its share price had fallen by one-third,
and was selling at 10x our projected 2000 earnings when we bought it.
LATIN AMERICA
The Fund's exposure to Latin America, which decreased slightly from 9.2% of
total net assets at the beginning of the period to 9.0% by the end of February,
contributed greatly to its overall performance. As in Europe, an encouraging
development in Latin America has been a rise in corporate activity. In Mexico,
Brazil and Argentina, we focused the Fund's positions toward the
telecommunications sector. Bids from European companies such as Spain's
Telefonia for Latin telecom operators, coupled with the excitement of Internet
participation by the sector, have driven share prices up sharply. Although we
have trimmed some holdings, telecommunications remains our largest industry
investment in the region. Latin markets and economies have benefited from the
strong growth in the U.S. and an abnormal amount of North American liquidity.
4
LOOKING FORWARD
Our analysis of equity markets during the reporting period reveals the potential
for dramatic divergence of performance between industry sectors. Many stock
prices were based on unrealistic prospects while others were selling at
historically low valuations. The most-overvalued companies were providing the
best performance, with prices often defying logic. Understandably, many
professional investors have become nervous about the extent of these valuations,
the size and importance of the market relative to the economy, and the amount of
speculation. We believe these concerns are best illustrated by the 50%-plus
increase in U.S. margin debt during the reporting period, which rose from $176
billion to over $265 billion, and the willingness of investors to pay huge sums
for stocks of companies with no earnings and little revenue.(4) Even those who
invest only outside the U.S. worry that a significant decline in U.S. securities
will jeopardize global growth, since the U.S. economy has been such a catalyst
in maintaining economic activity the world over.
4. Source: Bloomberg(R); Margin Debt Index. On average, margin debt in the
United States increased 50.35% for the six-month period ending 2/29/00, rising
from $176.4 billion to $265.2 billion. Figures are calculated from NYSE member
organizations that are required to report monthly their aggregate debits in
margin accounts (how much stock was purchased on margin).
TOP 10 EQUITY HOLDINGS
2/29/00
COMPANY % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- ----------------- ----------
Cheung Kong Holdings Ltd.,
Multi-Industry, Hong Kong* 1.9%
SK Telecom Co Ltd., ADR,
Telecommunications,
South Korea 1.7%
Telefonos de Mexico
SA (TelMex), ADR,
Telecommunications, Mexico 1.6%
Singapore Airlines Ltd.,
Transportation, Singapore 1.6%
National Australia Bank Ltd.,
Banking, Australia 1.5%
HSBC Holdings PLC,
Banking, Hong Kong 1.5%
Nomura Securities,
Financial Services, Japan 1.5%
Koninklijke Philips
Electronics NV,
Electrical & Electronics,
Netherlands 1.4%
Fuji Photo Film Co. Ltd.,
Electrical & Electronics, Japan 1.3%
Nippon Telegraph &
Telephone Corp.,
Telecommunications, Japan 1.3%
* Hong Kong reverted to the sovereignty of China on July 1, 1997.
5
AVERAGE STOCK VALUATION
Price to Earnings Ratio
Templeton Foreign, MSCI EAFE
& Nasdaq Composite
8/31/99 - 2/29/00
- -------------------------------------------------------
Templeton Foreign Fund 16.7x
MSCI EAFE Index 38.8x
Nasdaq Composite Index 222.4x
There is, however, a difference between our holdings and the general market.
This difference is illustrated by the valuation table to the left and the chart
below, which show the average valuation of our holdings in the Fund compared to
the valuations of the stocks in the Nasdaq Composite and MSCI EAFE Indexes. In
most cases, we are holding or buying securities that are well over 50% cheaper
than the overall market. In our assessment, this provides significant long-term
possibilities not available to those who base investment decisions on trends
alone.
[LINE GRAPH]
AVERAGE STOCK VALUATION*
PRICE TO EARNINGS RATIO
Templeton Foreign vs. MSCI EAFE & Nasdaq Composite
(8/31/99 - 2/29/00)
TEMPLETON FOREIGN MSCI EAFE INDEX NASDAQ COMPOSITE
Aug-99 16.60 35.30 116.92
Sept-99 16.00 35.40 145.71
Oct-99 15.80 39.20 114.14
Nov-99 17.60 38.80 208.31
Dec-99 18.70 42.80 281.08
Jan-00 17.10 40.20 326.00
Feb-00 15.20 40.20 364.35
*Source: Bloomberg.
In months to come, we shall continue to search the globe for bargain stocks,
employing our time-tested strategy of diversification which allows us to spread
risk over a large number of countries and industries, and helps to expand the
areas for discovering undervalued assets. Of course, there are special risks
involved with global investing related to market, currency,
6
economic, social, political and other factors. Emerging market securities
involve similar but heightened risks, in addition to those associated with the
relatively small size and lesser liquidity of those markets. Investing in any
emerging market means accepting a certain amount of volatility and, in some
cases, severe market corrections. For example, Hong Kong's equity market has
increased 1,322% in the past 15 years, but has suffered 6 declines of more than
15% during the same time.5 While short-term volatility can be disconcerting,
declines in excess of 50% are not unusual in emerging markets. These risks and
considerations are discussed in the Fund's prospectus.
Thank you for investing in Templeton Foreign Fund. We welcome your comments and
look forward to serving you in the future.
Sincerely,
/s/ Mark G. Holowesko
Mark G. Holowesko, CFA
President
Templeton Foreign Fund
5. Source: Bloomberg, Hang Seng Index. Based on quarterly percentage price
change over 15 years ended December 31, 1999. Market return is measured in U.S.
dollar terms and does not include reinvested dividends. The Hang Seng Index is a
capitalization-weighted index of 33 companies that represent approximately 70%
of the total market capitalization of the Stock Exchange of Hong Kong. The
components of the index are divided into four subindexes: Commerce and Industry,
Finance, Utilities, and Properties.
This discussion reflects our views, opinions and portfolio holdings as of
February 29, 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. Market and economic conditions are changing constantly, which can be
expected to affect our strategies and the Fund's portfolio composition. Although
past performance is not predictive of future results, these insights may help
you better understand our investment and management philosophy.
7
CLASS A
Subject to the current, maximum 5.75% initial sales charge. Prior to
July 1, 1992, Fund shares were offered at a higher initial sales charge. Thus,
actual total returns would have been lower. On January 1, 1993, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS B
Subject to no initial sales charge, but subject to a contingent deferred
sales charge (CDSC) declining from 4% to 0% over six years. These shares have
higher annual fees and expenses than Class A shares.
CLASS C
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.
SIX-MONTH PERFORMANCE SUMMARY AS OF 2/29/00
Six-month total return 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
<TABLE>
<CAPTION>
<S> <C> <C>
Six-Month Total Return 0.92%
Net Asset Value (NAV) $10.17 (2/29/00) $10.49 (8/31/99)
Change in NAV - $0.32
</TABLE>
Distributions (9/1/99-2/29/00)
<TABLE>
<CAPTION>
<S> <C>
Dividend Income $0.3146
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
TOTAL $0.4077
</TABLE>
CLASS B
<TABLE>
<CAPTION>
<S> <C> <C>
Six-Month Total Return 0.60%
Net Asset Value (NAV) $10.09 (2/29/00) $10.43 (8/31/99)
Change in NAV - $0.34
</TABLE>
Distributions (9/1/99-2/29/00)
<TABLE>
<CAPTION>
<S> <C>
Dividend Income $0.3002
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
TOTAL $0.3933
</TABLE>
CLASS C
<TABLE>
<CAPTION>
<S> <C> <C>
Six-Month Total Return 0.54%
Net Asset Value (NAV) $10.05 (2/29/00) $10.31 (8/31/99)
Change in NAV - $0.26
</TABLE>
Distributions (9/1/99-2/29/00)
<TABLE>
<CAPTION>
<S> <C>
Dividend Income $0.2158
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
TOTAL $0.3089
</TABLE>
ADVISOR CLASS
<TABLE>
<CAPTION>
<S> <C> <C>
Six-Month Total Return 1.05%
Net Asset Value (NAV) $10.16 (2/29/00) $10.50 (8/31/99)
Change in NAV - $0.34
</TABLE>
Distributions (9/1/99-2/29/00)
<TABLE>
<CAPTION>
<S> <C>
Dividend Income $0.3475
Short-Term Capital Gain $0.0183
Long-Term Capital Gain $0.0748
TOTAL $0.4406
</TABLE>
8 Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/5/82)
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 23.73% 74.02% 170.42% 1157.49%
Average Annual Total Return(2) 16.66% 10.40% 9.81% 15.19%
Value of $10,000 Investment(3) $11,666 $16,402 $25,487 $118,492
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
<S> <C> <C>
Cumulative Total Return(1) 22.96% 30.15%
Average Annual Total Return(2) 18.96% 20.48%
Value of $10,000 Investment(3) $11,896 $12,615
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
<S> <C> <C> <C>
Cumulative Total Return(1) 22.87% 26.03% 62.41%
Average Annual Total Return(2) 20.63% 7.65% 10.14%
Value of $10,000 Investment(3) $12,063 $12,474 $16,083
</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) 24.13% 77.08% 175.17% 1179.58%
Average Annual Total Return(2) 24.13% 12.11% 10.65% 15.70%
Value of $10,000 Investment(3) $12,413 $17,708 $27,517 $127,958
</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. On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were 35.62% and 9.84% respectively.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility and the social,
economic and political climates of countries where the Fund invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results. 9
TEMPLETON FOREIGN FUND
CLASS A
If you had invested $10,000 in Templeton Foreign Fund - Class A at
inception, it would have been worth $113,792 on February 29, 2000. The chart
below illustrates the cumulative total return of a hypothetical $10,000
investment in the Fund on October 5, 1982 (inception), with income dividends and
capital gains reinvested as shown through February 29, 2000.*
[CLASS A LINE GRAPH]
This 3-dimensional mountain chart shows the value of a hypothetical $10,000
investment in Templeton Foreign Fund for the period 10/5/82 (inception) to
2/29/00.
<TABLE>
<CAPTION>
PERIOD END TOTAL VALUE PRINCIPAL + PRINCIPAL INFLATION PRINCIPAL INCOME CAP GAINS CPI
CAP GAINS DIVIDENDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/05/1982 9,423 9,423 9,423 10,000 9,423
12/31/1982 9,823 9,823 9,823 9,965 9,823 -0.35%
12/31/1983 13,410 13,217 13,362 10,343 13,169 193 48 3.79%
12/31/1984 13,250 12,759 13,094 10,751 12,603 491 156 3.95%
12/31/1985 16,812 15,735 16,566 11,160 15,489 1,077 246 3.80%
12/31/1986 21,648 19,896 19,903 11,283 18,151 1,752 1,745 1.10%
12/31/1987 27,006 24,190 23,252 11,782 20,436 2,816 3,754 4.43%
12/31/1988 32,946 28,790 26,865 12,303 22,709 4,156 6,081 4.42%
12/31/1989 43,006 36,619 33,854 12,875 27,467 6,387 9,152 4.65%
12/31/1990 41,712 34,542 31,870 13,662 24,700 7,170 9,842 6.11%
12/31/1991 49,325 40,076 36,198 14,080 26,949 9,249 13,127 3.06%
12/31/1992 49,372 39,496 34,964 14,488 25,088 9,876 14,408 2.90%
12/31/1993 67,549 53,489 47,393 14,887 33,333 14,060 20,156 2.75%
12/31/1994 67,783 53,552 45,397 15,284 31,166 14,231 22,386 2.67%
12/31/1995 75,343 58,571 49,210 15,672 32,438 16,772 26,133 2.54%
12/31/1996 88,903 67,602 57,909 16,193 36,608 21,301 30,994 3.32%
12/31/1997 94,815 71,753 58,220 16,468 35,158 23,062 36,595 1.70%
12/31/1998 90,181 68,140 51,688 16,733 29,647 22,041 38,493 1.61%
12/31/1999 125,541 92,229 72,959 17,182 39,647 33,312 52,582 2.68%
02/29/200 113,792 83,597 66,131 17,324 35,936 30,195 47,661 0.83%
</TABLE>
* Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the current
maximum 5.75% initial sales charge; thus, actual total return for purchasers of
shares during the periods shown may differ. Prior to July 1, 1992, these shares
were offered at a higher initial sales charge. On January 1, 1993, the Fund's
Class A shares implemented a plan of distribution under Rule 12b-1, which will
affect subsequent performance.
Except as noted, all figures assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well 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.
10
TEMPLETON FOREIGN FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 -----------------------------------------------------------------
(UNAUDITED)+ 1999+ 1998 1997 1996 1995
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout
the period)
Net asset value, beginning of
period.............................. $10.49 $8.43 $11.40 $9.97 $9.62 $10.01
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income................ .06 .27 .30 .32 .27 .23
Net realized and unrealized gains
(losses)........................... .03 2.82 (2.11) 1.56 .69 .05
-------------------------------------------------------------------------------------
Total from investment operations...... .09 3.09 (1.81) 1.88 .96 .28
-------------------------------------------------------------------------------------
Less distributions from:
Net investment income................ (.32) (.26) (.32) (.28) (.25) (.16)
Net realized gains................... (.09) (.77) (.84) (.17) (.36) (.51)
-------------------------------------------------------------------------------------
Total distributions................... (.41) (1.03) (1.16) (.45) (.61) (.67)
-------------------------------------------------------------------------------------
Net asset value, end of period........ $10.17 $10.49 $8.43 $11.40 $9.97 $9.62
=====================================================================================
Total Return*......................... .92% 40.36% (17.89)% 19.55% 10.68% 3.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..... $12,073,224 $11,940,654 $10,745,504 $14,367,787 $9,602,209 $6,941,238
Ratios to average net assets:
Expenses............................. 1.19%** 1.13% 1.12% 1.08% 1.12% 1.15%
Net investment income................ 1.12%** 2.92% 2.79% 3.28% 3.09% 2.81%
Portfolio turnover rate............... 25.68% 26.11% 38.27% 37.28% 15.91% 21.78%
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
+Based on average weighted shares outstanding.
11
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
---------------------------------------
SIX MONTHS ENDED
FEBRUARY 29, 2000 PERIOD ENDED
(UNAUDITED) AUGUST 31, 1999+
------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE++
(For a share outstanding throughout the period)
Net asset value, beginning of period........................ $10.43 $8.39
---------------------------------------
Income from investment operations:
Net investment income...................................... .01 .14
Net realized and unrealized gains.......................... .04 1.90
---------------------------------------
Total from investment operations............................ .05 2.04
---------------------------------------
Less distributions from:
Net investment income...................................... (.30) --
Net realized gains......................................... (.09) --
---------------------------------------
Total distributions......................................... (.39) --
---------------------------------------
Net asset value, end of period.............................. $10.09 $10.43
=======================================
Total Return*............................................... .60% 24.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)........................... $38,543 $16,765
Ratios to average net assets:
Expenses................................................... 1.94%** 1.91%**
Net investment income...................................... .22%** 2.14%**
Portfolio turnover rate..................................... 25.68% 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.
12
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ----------------------------------------------------------
(UNAUDITED)++ 1999++ 1998 1997 1996 1995+
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the
period)
Net asset value, beginning of period...... $10.31 $8.30 $11.25 $9.87 $9.59 $9.16
------------------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .02 .19 .22 .26 .30 .03
Net realized and unrealized gains
(losses)............................... .03 2.79 (2.07) 1.52 .58 .40
------------------------------------------------------------------------------
Total from investment operations.......... .05 2.98 (1.85) 1.78 .88 .43
------------------------------------------------------------------------------
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 period............ $10.05 $10.31 $8.30 $11.25 $9.87 $9.59
==============================================================================
Total Return*............................. .54% 39.45% (18.46)% 18.65% 9.78% 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)......... $1,199,640 $1,196,084 $1,159,810 $1,303,639 $527,443 $63,428
Ratios to average net assets:
Expenses................................. 1.94%** 1.88% 1.87% 1.83% 1.87% 1.90%**
Net investment income.................... .37%** 2.15% 2.07% 2.62% 2.63% 1.86%**
Portfolio turnover rate................... 25.68% 26.11% 38.27% 37.28% 15.91% 21.78%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.
++Based on average weighted shares outstanding.
13
TEMPLETON FOREIGN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED AUGUST 31,
FEBRUARY 29, 2000 ------------------------------------
(UNAUDITED)++ 1999++ 1998++ 1997+
-----------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
Net asset value, beginning of period.................... $10.50 $8.44 $11.42 $10.26
-----------------------------------------------------------
Income from investment operations:
Net investment income.................................. .07 .29 .33 .07
Net realized and unrealized gains (losses)............. .03 2.81 (2.12) 1.09
-----------------------------------------------------------
Total from investment operations........................ .10 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 period.......................... $10.16 $10.50 $8.44 $11.42
===========================================================
Total Return*........................................... 1.05% 40.65% (17.75)% 11.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)....................... $95,089 $77,203 $50,022 $139,100
Ratios to average net assets:
Expenses............................................... .94%** .88% .87% .83%**
Net investment income.................................. 1.36%** 3.18% 3.08% 3.37%**
Portfolio turnover rate................................. 25.68% 26.11% 38.27% 37.28%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.
++Based on average weighted shares outstanding.
See Notes to Financial Statements.
14
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 77.0%
AEROSPACE & MILITARY TECHNOLOGY 1.7%
BAE Systems PLC............................................. United Kingdom 17,719,364 $ 87,484,901
Rolls-Royce PLC............................................. United Kingdom 43,705,493 142,131,685
---------------
229,616,586
---------------
APPLIANCES & HOUSEHOLD DURABLES 1.0%
Sony Corp. ................................................. Japan 453,803 134,255,132
---------------
AUTOMOBILES 2.6%
Autoliv Inc., SDR........................................... Sweden 221,354 5,908,160
Bayerische Motorenwerke AG BMW.............................. Germany 5,882,300 151,773,522
Regie Nationale des Usines Renault SA....................... France 1,600,000 63,772,637
Volvo AB, B................................................. Sweden 5,541,000 130,514,030
---------------
351,968,349
---------------
BANKING 7.7%
*Alliance & Leicester PLC................................... United Kingdom 9,000,000 80,700,923
Australia & New Zealand Banking Group Ltd. ................. Australia 18,859,796 115,943,030
Banco Popular Espanol SA.................................... Spain 2,598,534 72,300,333
Bank Austria AG............................................. Austria 1,848,462 80,438,324
Deutsche Bank AG............................................ Germany 1,500,000 125,927,851
Foreningssparbanken AB, A................................... Sweden 4,000,000 50,644,462
Guoco Group Ltd. ........................................... Hong Kong 16,478,500 32,712,240
HSBC Holdings PLC........................................... Hong Kong 17,514,436 200,848,462
National Australia Bank Ltd. ............................... Australia 15,368,416 201,983,762
Nordic Baltic Holding AB.................................... Sweden 7,100,000 37,253,336
Unibanco Uniao de Bancos Brasileiros SA, GDR................ Brazil 953,290 27,764,571
---------------
1,026,517,294
---------------
BROADCASTING & PUBLISHING .5%
South China Morning Post Holdings Ltd. ..................... Hong Kong 40,092,400 39,923,434
South China Morning Post Holdings, Ltd., 144A............... Hong Kong 31,530,000 31,397,119
---------------
71,320,553
---------------
BUILDING MATERIALS & COMPONENTS .8%
Caradon PLC................................................. United Kingdom 6,546,802 13,694,076
*Cemex SA, ADR.............................................. Mexico 1,916,869 40,973,075
+Hepworth PLC............................................... United Kingdom 21,012,458 49,757,182
---------------
104,424,333
---------------
CHEMICALS 3.4%
Akzo Nobel NV............................................... Netherlands 2,950,000 113,633,038
BASF AG..................................................... Germany 2,620,000 116,409,131
Cookson Group PLC........................................... United Kingdom 24,015,799 81,322,739
DSM NV, Br. ................................................ Netherlands 3,243,885 106,402,451
</TABLE>
15
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
CHEMICALS (CONT.)
*Laporte PLC................................................ United Kingdom 6,000,000 $ 44,849,633
Laporte PLC, B.............................................. United Kingdom 31,677,600 500,081
---------------
463,117,073
---------------
CONSTRUCTION & HOUSING .2%
+Hollandsche Beton Groep NV................................. Netherlands 2,032,325 28,175,375
---------------
ELECTRICAL & ELECTRONICS 5.4%
*ABB Ltd. .................................................. Switzerland 883,443 93,715,295
Fuji Photo Film Co. Ltd. ................................... Japan 4,000,000 175,868,190
+G P Batteries International Ltd. .......................... Singapore 6,240,398 5,756,357
Hitachi Ltd. ............................................... Japan 9,000,000 122,807,337
Koninklijke Philips Electronics NV.......................... Netherlands 1,017,542 188,335,740
Marconi PLC................................................. United Kingdom 10,694,500 133,206,417
---------------
719,689,336
---------------
ENERGY EQUIPMENT & SERVICES .6%
*Koninklijke Vopak NV....................................... Netherlands 1,302,048 30,649,254
TransCanada PipeLines Ltd. ................................. Canada 8,006,064 54,624,420
---------------
85,273,674
---------------
ENERGY SOURCES 3.6%
Fortum Corp. ............................................... Finland 3,515,758 15,671,624
Norsk Hydro AS.............................................. Norway 2,919,522 108,762,070
*Ranger Oil Ltd. ........................................... Canada 3,305,505 12,189,050
*Renaissance Energy Ltd. ................................... Canada 6,480,000 52,697,450
Shell Transport & Trading Co. PLC........................... United Kingdom 22,774,404 156,934,681
Societe Elf Aquitaine SA, Br. .............................. France 453,907 71,230,917
Total Fina SA, B............................................ France 519,599 68,783,624
---------------
486,269,416
---------------
FINANCIAL SERVICES 2.5%
AXA SA...................................................... France 800,000 100,511,221
Lend Lease Corp. Ltd. ...................................... Australia 2,601,838 34,195,393
Nomura Securities Co. Ltd. ................................. Japan 7,000,000 197,533,112
---------------
332,239,726
---------------
FOOD & HOUSEHOLD PRODUCTS 1.4%
Northern Foods PLC.......................................... United Kingdom 15,268,667 22,356,443
Panamerican Beverages Inc., A............................... Mexico 4,624,000 78,897,000
*Pepsi-Gemex SA de CV, GDR.................................. Mexico 2,512,300 12,561,500
Tate & Lyle PLC............................................. United Kingdom 19,100,000 76,813,087
---------------
190,628,030
---------------
</TABLE>
16
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
FOREST PRODUCTS & PAPER 3.3%
Aracruz Celulose SA, ADR.................................... Brazil 692,600 $ 14,501,312
Assidoman AB................................................ Sweden 1,780,900 26,204,642
Carter Holt Harvey Ltd. .................................... New Zealand 41,242,846 39,854,739
Fletcher Challenge Paper Ltd. .............................. New Zealand 9,228,349 6,453,046
Holmen Aktiebolag AB, B..................................... Sweden 3,666,800 103,726,064
Metsa Serla OY, B........................................... Finland 2,859,000 25,185,426
Norske Skogindustrier ASA, A................................ Norway 1,619,000 62,339,751
Stora Enso OYJ, R, (EURO/FIM Traded)........................ Finland 5,763,250 58,260,044
*Stora Enso OYJ, R, (EURO Traded)........................... Finland 5,654,331 60,969,594
UPM-Kymmene Corp. .......................................... Finland 1,567,834 43,471,699
---------------
440,966,317
---------------
HEALTH & PERSONAL CARE 1.3%
Aventis SA.................................................. France 2,680,000 136,749,174
Mayne Nickless Ltd., A...................................... Australia 8,000,000 15,525,681
Merck KGAA.................................................. Germany 1,093,137 28,415,311
---------------
180,690,166
---------------
INDUSTRIAL COMPONENTS 2.2%
Chudenko Corp. ............................................. Japan 1,530,000 18,119,612
Michelin SA, B.............................................. France 2,395,000 74,776,738
Sandvik AB, A............................................... Sweden 204,700 5,545,369
Sandvik AB, B............................................... Sweden 2,960,350 79,352,373
SKF AB, A................................................... Sweden 1,925,705 36,023,226
SKF AB, B................................................... Sweden 2,739,176 54,364,848
+Yamato Kogyo Co. Ltd. ..................................... Japan 7,702,000 28,464,904
---------------
296,647,070
---------------
INSURANCE 1.9%
Ace Ltd. ................................................... Bermuda 1,596,000 28,528,500
Partnerre Ltd. ............................................. Bermuda 1,509,300 46,788,300
Scor........................................................ France 700,555 28,057,542
XL Capital Ltd., A.......................................... Bermuda 1,446,000 58,472,625
Zurich Allied PLC........................................... United Kingdom 11,000,000 93,772,200
---------------
255,619,167
---------------
LEISURE & TOURISM .6%
Grand Hotel Holdings Ltd., A................................ Hong Kong 27,218,000 3,846,919
Mandarin Oriental International Ltd. ....................... Hong Kong 33,066,000 17,028,990
*Mandarin Oriental International Ltd, rts., 3/07/00......... Hong Kong 6,613,889 33,066
Rank Group PLC.............................................. United Kingdom 3,976,429 9,902,623
Shangri-La Asia Ltd. ....................................... Hong Kong 55,610,000 44,657,771
---------------
75,469,369
---------------
</TABLE>
17
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MACHINERY & ENGINEERING 2.5%
CNH Global NV............................................... Netherlands 2,900,900 $ 32,091,206
Invensys PLC................................................ United Kingdom 27,849,250 127,936,408
Kvaerner ASA, A............................................. Norway 2,271,444 39,263,203
Makita Corp. ............................................... Japan 3,965,700 32,669,960
+Mckechnie Group PLC........................................ United Kingdom 10,052,495 39,356,204
METSO OYJ................................................... Finland 4,742,672 62,097,776
---------------
333,414,757
---------------
MERCHANDISING 2.7%
Best Denki Co. Ltd. ........................................ Japan 2,023,140 14,199,089
Dairy Farm International Holdings Ltd. ..................... Hong Kong 48,031,383 27,137,731
Gucci Group NV, N.Y. shs. .................................. Netherlands 566,400 49,524,600
Marks & Spencer PLC......................................... United Kingdom 30,000,000 108,572,105
Matsuzakaya Co. Ltd. ....................................... Japan 2,294,600 5,221,883
Safeway PLC................................................. United Kingdom 38,807,088 94,038,804
Somerfield PLC.............................................. United Kingdom 11,000,000 9,464,046
Storehouse.................................................. United Kingdom 14,931,522 10,489,427
W.H. Smith PLC.............................................. United Kingdom 9,761,360 48,695,079
---------------
367,342,764
---------------
METALS & MINING 3.1%
Alcan Aluminum Ltd. ........................................ Canada 200,758 6,592,777
Anglo American Platinum Corp. Ltd. ......................... South Africa 1,957,000 55,520,355
Barrick Gold Corp. ......................................... Canada 5,202,000 84,787,939
Companhia Siderurgica Nacional CSN, ADR..................... Brazil 1,483,275 45,518,002
Corus Group PLC............................................. United Kingdom 73,220,192 122,524,909
Grupo Mexico SA de CV, B.................................... Mexico 5,466,000 27,131,618
Industrias Penoles SA....................................... Mexico 825,300 2,224,469
Pohang Iron & Steel Co. Ltd. ............................... South Korea 603,460 64,345,061
Union Miniere NPV........................................... Belgium 20,251 662,887
---------------
409,308,017
---------------
MISC MATERIALS & COMMODITIES 1.0%
+Agrium Inc. ............................................... Canada 7,018,695 60,974,913
De Beers/Centenary Linked Units, reg........................ South Africa 929,800 20,370,104
De Beers/Centenary Linked Units, ADR........................ South Africa 2,223,200 50,994,650
---------------
132,339,667
---------------
MULTI-INDUSTRY 5.8%
*Alfa SA de CV, A........................................... Mexico 5,538,100 19,508,678
Amoy Properties Ltd. ....................................... Hong Kong 29,631,900 16,657,188
Broken Hill Proprietary Co. Ltd. ........................... Australia 4,680,580 46,257,619
Cheung Kong Holdings Ltd. .................................. Hong Kong 17,985,400 239,179,845
Cheung Kong Infrastructure Holdings Ltd. ................... Hong Kong 8,000,000 10,947,217
*DESC SA de CV DESC, B...................................... Mexico 7,699,000 5,095,410
+Elementis PLC.............................................. United Kingdom 28,738,196 32,664,774
</TABLE>
18
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
MULTI-INDUSTRY (CONT.)
Hutchison Whampoa Ltd. ..................................... Hong Kong 2,083,000 $ 32,652,259
+Inchcape PLC............................................... United Kingdom 5,000,000 19,141,211
Jardine Matheson Holdings Ltd. ............................. Hong Kong 13,099,952 45,849,832
Jardine Strategic Holdings Ltd. ............................ Hong Kong 14,694,764 23,217,727
Metra OY, B................................................. Finland 284,185 5,827,668
Pacific Dunlop Ltd. ........................................ Australia 18,164,791 17,960,973
Pilkington PLC.............................................. United Kingdom 50,000,000 52,884,995
Saab AB, B.................................................. Sweden 2,509,750 21,613,565
Swire Pacific Ltd., A....................................... Hong Kong 30,542,400 146,378,106
Swire Pacific Ltd., B....................................... Hong Kong 31,296,200 20,307,063
Wheelock and Company Ltd. .................................. Hong Kong 18,588,809 12,539,349
Williams PLC................................................ United Kingdom 600,000 2,495,856
---------------
771,179,335
---------------
REAL ESTATE .8%
+Bail Investissement........................................ France 164,380 19,528,918
Hang Lung Development Co. Ltd. ............................. Hong Kong 45,084,000 35,046,282
New World Development Co. Ltd. ............................. Hong Kong 19,473,380 28,023,572
Wereldhave NV............................................... Netherlands 526,100 21,349,118
---------------
103,947,890
---------------
RECREATION & OTHER CONSUMER GOODS .4%
Yue Yuen Industrial Holdings Ltd. .......................... Hong Kong 27,581,400 52,981,180
---------------
TELECOMMUNICATIONS 8.6%
Alcatel SA.................................................. France 400,000 93,656,433
Asia Satellite Telecommunications Hldgs. Ltd. .............. Hong Kong 7,281,000 26,335,014
Asia Satellite Telecommunications Hldgs. Ltd., ADR.......... Hong Kong 202,300 7,535,675
Cable & Wireless HKT Ltd. .................................. Hong Kong 20,312,687 67,728,096
Nippon Telegraph & Telephone Corp. ......................... Japan 12,083 167,185,472
Nortel Inversora SA, ADR, B................................. Argentina 700,000 16,056,250
SK Telecom Co. Ltd., ADR.................................... South Korea 5,071,446 227,898,105
Smartone Telecommunications Holdings Ltd. .................. Hong Kong 15,888,300 61,448,043
Telecom Argentina Stet-France Telecom SA, ADR............... Argentina 3,228,900 134,604,769
Telecom Corp. of New Zealand Ltd. .......................... New Zealand 11,685,100 48,231,374
*Telecomunicacoes de Minas Gerais SA Telemig................ Brazil 176,397,107 5,233,596
Telecomunicacoes de Sao Paulo SA (Telesp)................... Brazil 1,286,527,314 26,246,755
Telefonica de Argentina SA (TEAR), B, ADR................... Argentina 1,038,560 47,449,210
Telefonica del Peru SA, B, ADR.............................. Peru 2,000 39,250
Telefonos de Mexico SA (Telmex), ADR........................ Mexico 3,326,000 218,684,500
---------------
1,148,332,542
---------------
TEXTILES & APPAREL .7%
Adidas-Salomon AG........................................... Germany 1,628,500 86,309,606
Courtaulds Textiles PLC..................................... United Kingdom 3,750,000 7,429,552
---------------
93,739,158
---------------
</TABLE>
19
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 3.6%
Air New Zealand Ltd., B..................................... New Zealand 16,817,000 $ 17,149,288
British Airways PLC......................................... United Kingdom 21,000,000 99,704,002
Peninsular & Oriental Steam Navigation Co. ................. United Kingdom 5,185,828 58,247,954
SAS Danmark AS.............................................. Denmark 1,136,000 11,708,304
SAS Norge ASA, B............................................ Norway 1,880,000 16,696,668
SAS Sverige AB.............................................. Sweden 3,000,000 24,295,654
Sea Containers Ltd., A...................................... United Kingdom 800,000 19,600,000
Seino Transportation Co. Ltd. .............................. Japan 1,385,000 6,946,748
Singapore Airlines Ltd. .................................... Singapore 22,495,200 208,808,493
Stagecoach Holdings PLC..................................... United Kingdom 4,279,970 6,283,641
Vosper Thornycroft Holdings PLC............................. United Kingdom 726,286 11,924,184
---------------
481,364,936
---------------
UTILITIES ELECTRICAL & GAS 7.1%
CLP Holdings Ltd. .......................................... Hong Kong 21,376,000 94,481,986
Electrabel SA............................................... Belgium 182,420 49,297,956
Endesa SA................................................... Spain 2,000,000 42,303,286
Gener SA, ADR............................................... Chile 1,918,650 29,739,075
Hong Kong Electric Holdings Ltd. ........................... Hong Kong 39,378,200 120,166,553
Iberdrola SA, Br. .......................................... Spain 11,500,000 144,263,447
Korea Electric Power Corp. ................................. South Korea 1,716,840 42,954,962
National Grid Group PLC..................................... United Kingdom 2,870,293 22,316,194
National Power PLC.......................................... United Kingdom 11,000,000 65,032,757
Powergen PLC................................................ United Kingdom 9,300,000 64,268,293
Thames Water Group PLC...................................... United Kingdom 8,267,833 89,537,192
Transportadora de Gas del Sur SA, B, Reg S, ADR............. Argentina 3,590,600 33,213,050
Veba AG..................................................... Germany 3,500,000 155,339,899
---------------
952,914,650
---------------
TOTAL COMMON STOCKS (COST $10,362,119,950).................. 10,319,751,862
---------------
PREFERRED STOCKS 4.4%
Ballast Nedam NV, pfd....................................... Netherlands 66,819 1,379,880
*Banco Bradesco SA, BBD, pfd. .............................. Brazil 323,608,997 2,324,425
Cia Vale do Rio Doce, A, pfd. .............................. Brazil 949,420 25,217,711
Cia Vale do Rio Doce, A, ADR, pfd. ......................... Brazil 1,550,500 41,183,103
Embratel Participacoes SA, ADR, pfd. ....................... Brazil 891,000 21,384,000
News Corp. Ltd., ADR, pfd. ................................. Australia 1,105,600 55,625,500
Petroleo Brasileiro SA (Petrobras), pfd. ................... Brazil 540,000,000 140,378,638
Tele Centro Sul Participacoes SA, ADR, pfd. ................ Brazil 730,000 52,651,250
Telecomunicacoes Brasileiras SA (Telebras), pfd. ........... Brazil 472,200,000 69,248,885
Telecomunicacoes de Minas Gerais Celular Telemig, B,
pfd. ..................................................... Brazil 38,363,000 737,125
Telecomunicacoes de Sao Paulo SA, (Telesp), ADR, pfd. ...... Brazil 2,050,000 70,084,375
Telesp Celular Participacoes SA, pfd. ...................... Brazil 26,979 580
Volkswagen AG, pfd. ........................................ Germany 4,570,840 106,934,130
---------------
TOTAL PREFERRED STOCKS (COST $556,611,700).................. 587,149,602
---------------
</TABLE>
20
TEMPLETON FOREIGN FUND
STATEMENT OF INVESTMENTS, FEBRUARY 29, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT** VALUE
-------------------------------------------
<S> <C> <C> <C>
BONDS 5.4%
U.S. Treasury Bonds:
8.75%, 8/15/20............................................ United States $ 150,000,000 $ 188,718,750
7.50%, 11/15/24........................................... United States 150,000,000 170,859,450
6.75%, 8/15/26............................................ United States 175,000,000 184,023,525
6.625%, 2/15/27........................................... United States 175,000,000 181,398,525
---------------
TOTAL BONDS (COST $712,019,531)............................. 725,000,250
---------------
SHORT TERM INVESTMENTS (COST $1,860,906,632) 13.9%
U.S. Treasury Bills, 4.850% to 5.695%, with maturities to
6/15/00................................................... United States 1,880,594,000 1,860,590,484
---------------
TOTAL INVESTMENTS (COST $13,491,657,813) 100.7%............. 13,492,492,198
OTHER ASSETS, LESS LIABILITIES (.7%)........................ (85,995,957)
---------------
TOTAL NET ASSETS 100.0%..................................... $13,406,496,241
===============
</TABLE>
*Non-income producing.
**Securities denominated in U.S. dollars.
+Affiliated issuers (see note 6).
See Notes to Financial Statements.
21
TEMPLETON FOREIGN FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost
$13,491,657,813).......................................... $13,492,492,198
Cash....................................................... 1,526,929
Receivables:
Investment securities sold................................ 91,276,861
Capital shares sold....................................... 110,776,807
Dividends and interest.................................... 21,817,243
---------------
Total assets.......................................... 13,717,890,038
---------------
Liabilities:
Payables:
Investment securities purchased........................... 236,368,267
Capital shares redeemed................................... 56,464,942
To affiliates............................................. 15,195,454
Accrued expenses........................................... 3,365,134
---------------
Total liabilities..................................... 311,393,797
---------------
Net assets, at value........................................ $13,406,496,241
===============
Net assets consist of:
Undistributed net investment income........................ $ 4,009,925
Net unrealized appreciation................................ 834,385
Accumulated net realized gain.............................. 988,842,618
Capital shares............................................. 12,412,809,313
---------------
Net assets, at value........................................ $13,406,496,241
===============
CLASS A:
Net asset value per share ($12,073,223,826 / 1,186,677,164
shares outstanding)...................................... $10.17
===============
Maximum offering price per share ($10.17 / 94.25%)......... $10.79
===============
CLASS B:
Net asset value and maximum offering price per share
($38,543,461 / 3,819,882 shares outstanding)*............ $10.09
===============
CLASS C:
Net asset value per share ($1,199,639,524 / 119,341,090
shares outstanding)*..................................... $10.05
===============
Maximum offering price per share ($10.05 / 99.00%)......... $10.15
===============
ADVISOR CLASS:
Net asset value and maximum offering price per share
($95,089,430 / 9,355,529 shares outstanding)............. $10.16
===============
</TABLE>
*Redemption price per share is equal to net asset value less any applicable
sales charge.
See Notes to Financial Statements.
22
TEMPLETON FOREIGN FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment Income:
(net of foreign taxes of $7,321,695)
Dividends.................................................. $ 100,737,905
Interest................................................... 56,075,531
--------------
Total investment income............................... $ 156,813,436
Expenses:
Management fees (Note 3)................................... 41,199,270
Administrative fees (Note 3)............................... 5,246,837
Distribution fees (Note 3)
Class A................................................... 15,303,445
Class B................................................... 138,795
Class C................................................... 6,097,732
Transfer agent fees (Note 3)............................... 13,993,000
Custodian fees............................................. 1,976,000
Reports to shareholders.................................... 792,000
Registration and filing fees............................... 285,000
Professional fees.......................................... 107,700
Directors' fees and expenses............................... 98,600
Other...................................................... 22,452
--------------
Total expenses........................................ 85,260,831
--------------
Net investment income........................... 71,552,605
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................... 1,078,668,486
Foreign currency transactions............................. (3,087,580)
--------------
Net realized gain..................................... 1,075,580,906
Net unrealized depreciation on investments............ (995,030,231)
--------------
Net realized and unrealized gain............................ 80,550,675
--------------
Net increase in net assets resulting from operations........ $ 152,103,280
==============
</TABLE>
See Notes to Financial Statements.
23
TEMPLETON FOREIGN FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 29, 2000 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
----------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 71,552,605 $ 351,425,070
Net realized gain from investments and foreign currency
transactions............................................ 1,075,580,906 27,606,261
Net unrealized appreciation (depreciation) on
investments............................................. (995,030,231) 3,752,103,566
----------------------------------------
Net increase in net assets resulting from operations.... 152,103,280 4,131,134,897
Distributions to shareholders from:
Net investment income:
Class A.................................................. (360,620,606) (319,053,548)
Class B.................................................. (667,417) --
Class C.................................................. (25,166,836) (27,544,740)
Advisor Class............................................ (3,197,102) (1,552,072)
Net realized gains:
Class A.................................................. (107,747,829) (940,330,691)
Class B.................................................. (236,263) --
Class C.................................................. (10,941,236) (102,214,786)
Advisor Class............................................ (848,770) (4,253,117)
Capital share transactions (Note 2):
Class A.................................................. 457,370,625 (1,282,999,736)
Class B.................................................. 23,081,365 15,798,522
Class C.................................................. 32,295,222 (208,492,650)
Advisor Class............................................ 20,366,102 14,877,679
----------------------------------------
Net increase in net assets.............................. 175,790,535 1,275,369,758
Net assets:
Beginning of period........................................ 13,230,705,706 11,955,335,948
----------------------------------------
End of period.............................................. $13,406,496,241 $13,230,705,706
========================================
Undistributed net investment income included in net assets:
End of period.............................................. $ 4,009,925 $ 322,109,281
========================================
</TABLE>
See Notes to Financial Statements.
24
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Templeton Foreign Fund (the Fund) is a separate, diversified series of Templeton
Funds, Inc. (the Company), which is an open-end investment company registered
under the Investment Company Act of 1940. The Fund seeks long-term capital
growth. Under normal market conditions, the Fund will invest primarily in the
equity securities of companies outside the United States, including emerging
markets. The following summarizes the Fund's significant accounting policies.
a. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the recorded amounts of
dividends, interest and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. 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.
25
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (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 February 29, 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>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold..................................... 736,390,750 $ 7,684,924,326 958,199,306 $ 8,964,615,268
Shares issued on reinvestment of
distributions................................. 40,185,843 403,001,993 140,749,711 1,127,399,717
Shares redeemed................................. (728,278,189) (7,630,555,694) (1,235,651,096) (11,375,014,721)
--------------------------------------------------------------------------
Net increase (decrease)......................... 48,298,404 $ 457,370,625 (136,702,079) $ (1,282,999,736)
==========================================================================
</TABLE>
26
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999*
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Shares sold..................................... 2,227,200 $ 23,262,563 1,618,210 $ 15,907,208
Shares issued on reinvestment of
distributions................................. 79,985 795,843 -- --
Shares redeemed................................. (94,686) (977,041) (10,827) (108,686)
--------------------------------------------------------------------------
Net increase.................................... 2,212,499 $ 23,081,365 1,607,383 $ 15,798,522
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
Shares sold..................................... 24,997,455 $ 257,946,148 42,361,421 $ 377,236,433
Shares issued on reinvestment of
distributions................................. 2,862,630 28,368,538 12,347,649 97,793,089
Shares redeemed................................. (24,577,457) (254,019,464) (78,357,177) (683,522,172)
--------------------------------------------------------------------------
Net increase (decrease)......................... 3,282,628 $ 32,295,222 (23,648,107) $ (208,492,650)
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
--------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Shares sold..................................... 6,553,107 $ 68,242,534 9,656,116 $ 92,836,872
Shares issued on reinvestment of
distributions................................. 348,516 3,480,467 608,301 4,866,404
Shares redeemed................................. (4,898,914) (51,356,899) (8,841,471) (82,825,597)
--------------------------------------------------------------------------
Net increase.................................... 2,002,709 $ 20,366,102 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.
27
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (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 February 29, 2000, unreimbursed costs were $11,669,642.
Distributors received net commissions from sales of the Fund's shares and
received contingent deferred sales charges for the year of $510,816 and
$145,651, 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 February 29, 2000, net unrealized depreciation based on the cost of
investments for income tax purposes of $13,500,863,960 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................... $ 1,928,143,015
Unrealized depreciation................................... (1,936,514,777)
---------------
Net unrealized depreciation............................... $ (8,371,762)
===============
</TABLE>
At August 31, 1999, the Fund had deferred currency losses occurring subsequent
to October 31, 1998 of $10,200,000. For tax purposes, such losses will be
reflected in the year ending August 31, 2000.
28
TEMPLETON FOREIGN FUND
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended February 29, 2000 aggregated $3,078,738,813 and $3,078,579,947,
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 February
29, 2000 were $283,819,838. For the period ended February 29, 2000, dividend
income from "affiliated persons" was $8,053,339 and net realized gains from
disposition of "affiliated persons" were $13,163,041.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES HELD GROSS GROSS SHARES HELD VALUE DIVIDEND INCOME
NAME OF ISSUER AUG. 31, 1999 ADDITIONS REDUCTIONS FEB. 29, 2000 FEB. 29, 2000 9/1/99-2/29/00
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ...................... 7,018,695 -- -- 7,018,695 $ 60,974,913 $ 386,028
Bail Investissement............... 164,380 -- -- 164,380 19,528,918
DSM NV, Br. ...................... 1,852,903 3,162,590 (1,771,608) 3,243,885 *
Elementis PLC..................... 28,738,196 -- -- 28,738,196 32,664,774 1,056,000
Elkem ASA, A...................... 1,910,700 -- (1,910,700) -- *
Grand Hotel Holdings Ltd., A...... 29,837,000 -- (2,619,000) 27,218,000 * 74,898
G P Batteries International
Ltd. ............................ 6,240,398 -- -- 6,240,398 5,756,357 320,036
Hepworth PLC...................... 21,012,458 -- -- 21,012,458 49,757,182
Hollandsche Beton Groep NV........ 2,032,325 -- -- 2,032,325 28,175,375
Inchcape PLC...................... 5,000,001 -- (1) 5,000,000 19,141,211
Mckechnie Group PLC............... 10,052,495 -- -- 10,052,495 39,356,204 2,659,566
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 -- -- 9,761,360 * 2,192,787
Yamato Kogyo Co. Ltd. ............ 7,702,000 -- -- 7,702,000 28,464,904 185,100
-------------------------------
TOTAL NON CONTROLLED AFFILIATES... $283,819,838 $8,053,339
===============================
<CAPTION>
REALIZED
CAPITAL
NAME OF ISSUER GAIN/(LOSSES)
- ----------------------------------
<S> <C>
NON CONTROLLED AFFILIATES
Agrium Inc. ......................
Bail Investissement...............
DSM NV, Br. ...................... $11,249,863
Elementis PLC.....................
Elkem ASA, A...................... 10,572,485
Grand Hotel Holdings Ltd., A...... (675,019)
G P Batteries International
Ltd. ............................
Hepworth PLC......................
Hollandsche Beton Groep NV........
Inchcape PLC......................
Mckechnie Group PLC...............
SAS Norge ASA, B..................
Vickers Group PLC................. (7,984,288)
W.H. Smith Group PLC..............
Yamato Kogyo Co. Ltd. ............
-------------
TOTAL NON CONTROLLED AFFILIATES... $13,163,041
=============
</TABLE>
*As of February 29, 2000, no longer an affiliate.
29
SEMIANNUAL REPORT
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
1-800/DIAL BEN(R)
www.franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
This report must be preceded or accompanied by the current Templeton Foreign
Fund prospectus, which contains more complete information including risk
factors, charges and expenses. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors. The Fund and its investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
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