TEMPLETON GROWTH FUND INC, N-30D, 1997-11-10

TEMPLETON GROWTH FUND INC
N-30D, 1997-11-10

Previous: BOSTON ACOUSTICS INC, 10-Q, 1997-11-10

Next: NEW ENGLAND PENSION PROPERTIES V, 8-K, 1997-11-10

<PAGE>
ANNUAL REPORT

TEMPLETON GROWTH FUND, INC.

AUGUST 31, 1997

[LOGO] FRANKLIN TEMPLETON

<PAGE>
[TEMPLETON 50TH YEAR LOGO]

CELEBRATING 50 YEARS

This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.

In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.

[PHOTO MARK HOLOWESKO]

Mark Holowesko
Portfolio Manager
Templeton Growth Fund, Inc.

Mark Holowesko is the president and portfolio manager of Templeton Growth Fund,
as well as 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 Wordwide,
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.

<PAGE>
SHAREHOLDER LETTER

Your Fund's Objective: The Templeton Growth Fund seeks long-term capital growth
through a flexible policy of investing in stocks and debt obligations of
companies and governments of any nation.

Dear Shareholder:

This annual report of the Templeton Growth Fund covers the fiscal year ended
August 31, 1997. We are pleased to announce that the Fund's Class I shares
provided a 12-month cumulative total return of 28.28%, as discussed in the
Performance Summary on page 8, outperforming the unmanaged Morgan Stanley
Capital International(R) (MSCI) World Index, which delivered a total return of
22.85% for the same period.

We have always maintained that value investing relies on a certain amount of
faulty, and frequently irrational, stock market reactions, which drive share
prices in the short term away from the true worth or value of a corporation.
Emotions generally play an important role in most investment mistakes. However,
these emotions also create opportunities for investors who accurately determine
when stock prices might overly discount negative or positive news and who are
willing and patient enough to adopt a long-term perspective. With so many
negative reports about Asian equities during the year under review, and a
seemingly abundant supply of positive press concerning North America, it is
important to rationally analyze the potential impact of this news and recognize
the opportunities and risks that exist in today's stock markets.

CONTENTS

Shareholder Letter 1

Interview with
Portfolio Manager 6

Performance Summaries
Class I 8
Class II 11
Advisor Class 13

Financial Highlights
and Statement of Investments 17

Financial Statements 26

Notes to the Financial Statements 29

Independent
Auditor's Report 32

Tax Designation 33

[PYRAMID-GLOBAL GRAPHIC]

<PAGE>
TOTAL RETURN INDEX COMPARISON
12-Month Performance
(8/31/96 - 8/31/97)

[BAR GRAPH]

Templeton Growth Fund Class I(1) - 28.28%

MSCI World Index(2) - 22.85%

1. Fund performance does not include the initial sales charge and represents the
change in value of an investment during the period shown. Total return assumes
reinvestment of dividends and capital gains at net asset value. The historical
data shown above pertain only to Class I shares of the Fund. The Fund offers
other classes of shares, subject to different fees and expenses, which affect
their performance. Please see the prospectus for more details. Past performance
is not predictive of future results.

2. Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

MARKET OVERVIEW

First, let us look back on equity market activity during the reporting period.
Many financial assets rose in value, with returns in many developed and emerging
markets surpassing historical levels. The one exception was Asia, where weak
currencies, large problem loans in the banking sector, and above-average
overseas borrowing by companies there unsettled the region's equity markets. The
mighty "roar" of the Asian "Tigers" was reduced to a "meow," as the Malaysian,
Philippine, and Indonesian markets fell more than 25% and the Thai market
plummeted 65%.(1) On August 31, 1997, many Asian emerging markets were 30% below
their peak levels during the fiscal year, with the Malaysian market 46.4% off
its high and Thailand's down 66.2%.(2) China, Hong Kong, and Taiwan were among
the few Asian markets that strengthened during the period. Japan, the area's
largest economy and equity market, continued its struggle to absorb the
financial shock of severe price declines in its real estate sector and stock
market during the past four to five years.

Many other emerging-market equity returns were strong during the reporting
period. Although the Czech and Polish markets declined, most other Eastern
European markets appreciated at least 30% to 40%.(3) Latin American markets, in
general, also strengthened considerably, as improving economies and reduced
concerns about financial and currency stability encouraged foreign investment.

In Western Europe, corporate debt levels decreased, management cut work forces,
and unions appeared more concerned with negotiating for job security than for
higher wages. Many European companies were able to compete on a global basis,
and stock markets there generally performed very well.

Meanwhile, the world's largest equity market, the United States, continued its
upward climb. Despite high valuation levels and "irrational exuberance" comments
by Federal Reserve Board Chairman Alan Greenspan, strong investor enthusiam and
better-than-expected corporate profits fueled share price gains, especially in
large, well-known companies.

FUND ACTIVITY

We avoided most of the pitfalls in Asia during the fiscal year. With the
exception of Hong Kong, whose stock market rose 30.1%,(4) the Fund was
substantially

1. Price depreciation is measured in U.S. dollars, and includes reinvested
dividends.

2. Price depreciation is measured in U.S. dollars.

3. Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.

4. Price appreciation is measured in U.S. dollars, and includes reinvested
dividends.

<PAGE>
underweighted in this region compared with the MSCI World Index. At the
beginning of the period, Asian stocks comprised 9.1% of the Fund's total net
assets, with Hong Kong representing over half of the Fund's Asian exposure.
Given the magnitude of price declines toward the end of the period, and
believing that the region provided opportunity, we initiated new positions and
added to our existing holdings there. In our opinion, many of the area's
problems have already been discounted in stock prices, and Asia offers the
possibility of strong economic growth, rising standards of living, increased
consumption and investment, and rapidly developing capital markets. As these
economies have grown and expanded, they have become more efficient and
competitive, capturing greater industry market share worldwide. In most cases,
the economic growth rates of these countries are almost double that of developed
nations and could continue, yet equity valuations are in some instances half
that of U.S. levels.

Although we benefited from our lack of significant exposure to the poorer
performing Asian markets, our low exposure to the U.S. market hindered the
Fund's performance. On August 31, 1997, these U.S. holdings represented 23.8% of
total net assets, compared with the MSCI World Index's U.S. weighting of 47.1%.
Because we endeavor to buy shares that appear undervalued, and sell them when we
consider them to be fairly valued, we often buy and sell securities early. This
was the case in Japan during the mid-1980s. At that time, we reduced our
Japanese position substantially, missing out on the surge in equity prices there
in the late 1980s. However, we avoided the dramatic fall in prices in the 1990s.
(By August 31, 1997, the Nikkei 225 Index had declined 44.3% from its high in
December 1989.)(5) We did lose out on some of the advances in U.S. share prices
during the reporting period, but we believe that there are significant risks
associated with owning huge quantities of U.S. equities, and feel that our
disciplined approach to investing should help us to avoid undue risk.

The potential risk in U.S. securities could be viewed by evaluating how far
stock prices would have to fall to reach average valuations of the last twenty
years. Our analysis of the 20-year average price-to-book value, price-to-sales,
price-to-dividends and price-to-cash flow of the Dow Jones(R) Industrial Average
or the Standard & Poor's 500(R) Stock Index indicates that share prices would
have to drop 40% to return to their 20-year average valuation. We are not
implying that such a decline will occur, but it does show how high U.S.
securities prices are.

5. Price depreciation is measured in U.S. dollars.

ASSET ALLOCATION
Based on Total Net Assets
8/31/97

Equities 75.7%
Fixed-Income Securities 9.8%
Short-Term Obligations & Other Net Assets 14.5%

GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets
8/31/97

European Stocks 32.1%
North American Stocks 24.4%
Asian Stocks 8.9%
Latin America Stocks 6.6%
Australian & New Zealand Stocks 3.1%
Middle Eastern & African Stocks 0.6%
Fixed-Income Securities 9.8%
Short-Term Obligations & Other Net Assets 14.5%

<PAGE>
TOP 10 EQUITY HOLDINGS
8/31/97

COMPANY
INDUSTRY, % OF TOTAL
COUNTRY NET ASSETS
- --------- ----------

Philips Electronics NV
Electrical & Electronics,
Netherlands 1.9%

Ford Motor Co.
Automobiles,
U.S. 1.8%

General Motors Corp.
Automobiles,
U.S. 1.7%

Bell Atlantic Corp.
Telecommunications,
U.S. 1.4%

HSBC Holdings Plc.
Banking,
Hong Kong 1.3%

Telefonos de Mexico SA, L
Telecommunications,
Mexico 1.3%

AT&T Corp.
Telecommunications,
U.S. 1.3%

Telefonica de Espana SA
Telecommunications,
Spain 1.2%

Motorola Inc.
Electrical & Electronics,
U.S. 1.1%

Sun Co. Inc.
Energy Equipment & Services,
U.S. 1.1%

For a complete list of portfolio holdings, please see page 20 of this report.

Combining these valuations with high levels of consumer debt emphasizes the
drawbacks of owning sizable quantities of U.S. equities. This risk is also
heightened by the fact that U.S. companies may experience difficulty delivering
higher earnings in the future. Although lower taxes, relatively stable interest
rates, and companies repurchasing their stock boosted earnings during the
reporting period, experience suggests that none of these factors is sustainable
indefinitely.

PORTFOLIO TURNOVER

Large exposure to strong emerging markets during the fiscal year helped offset
our low exposure to the U.S. The markets of Mexico, Argentina and Brazil, in
particular, delivered stellar returns. Most of the Fund's holdings in these
countries were established after the December 1994 peso crisis had driven equity
prices down to what we considered to be attractive levels.

Consistent with our history of low portfolio turnover, we made no significant
changes to the Fund's weightings during the 12 months under review. On a
regional basis, most of the Fund's adjustments were subtle. For example, our
exposure to the U.S. decreased from 25.3% to 23.8% of total net assets and to
Asia from 9.1% to 8.9%, while our exposure in Europe rose from 31.3% to 32.1%.
One major increase was in the United Kingdom (4.1% to 10.6%), where relatively
high dividend yields and low price-to-earnings ratios encouraged us to initiate
new positions in several companies.

As in all reporting periods, we held some positions that helped and some that
hurt the Fund's performance. The stock prices of Boeing Co. (U.S.)*, Philips
Electronics NV (Netherlands), and Telebras-Telecomunicacoes Brasileiras SA, pfd.
(Brazil) appreciated considerably during the fiscal year, while those of BICC, a
U.K. provider of construction and engineering services, and the W.H. Smith
Group, a book and newspaper retailer based in the U.K, did not meet our
expectations. New additions to the Fund included Titanium Metals, a U.S.
integrated producer of titanium; Bell Atlantic Corp., a provider of phone
services in the northeast and mid-Atlantic regions of the U.S.; and Deutsche
Bank AG, a leading German financial institution with more than 2,400 branches
worldwide.

This discussion reflects the strategies we employed for the Fund during the 12
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies,

*A complete listing of all stocks in the portfolio as of August 31, 1997, begins
on page 20.

<PAGE>

and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. All figures shown are as of August 31, 1997,
and the Fund's holdings can be expected to change with market developments and
management of the portfolio. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.

There are, of course, special risks associated with global investing related to
market, currency, economic, social, political, and other factors. Developing
markets involve similar but heightened risks, in addition to risks associated
with the relatively small size and lesser liquidity of these markets. Although
short-term volatility can be disconcerting, declines of as much as 40% to 50%
are not unusual in emerging markets. For example, the Hong Kong equity market
has increased 1,089% in the last 15 years, but has suffered five quarterly
declines of more than 20% during that time.(6) These risks and other
considerations are discussed in the Fund's prospectus.

LOOKING FORWARD

Our investment approach is based on a philosophy comprising four basic
principles: the patience to look beyond the emotions of the moment to the
longer-term value of a security, the discipline to subject an idea to rigorous
and detailed analysis, the courage to think independently, and the common sense
to know that share prices become cheap under the pressure of selling, or
expensive during periods of "irrational exuberance." We will consistently use
this approach in the future in our efforts to protect the Fund's assets and
increase profits for our shareholders.

Thank you for investing in the Templeton Growth Fund. We welcome any comments or
suggetions you may have.

Sincerely,

/S/Mark Holowesko
- -----------------
Mark Holowesko, CFA
President
Templeton Growth Fund, Inc.

6. Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended June 30, 1997.

TOP 10 COUNTRIES
REPRESENTED IN THE FUND*
Equity Investments
8/31/97

% OF TOTAL
COUNTRY NET ASSETS
- ------- ----------

United States 23.8%

United Kingdom 10.6%

Hong Kong 4.7%

Sweden 4.5%

France 4.4%

Spain 3.5%

Netherlands 2.8%

Mexico 2.3%

Brazil 2.2%

Australia 2.1%

*Does not include fixed-income securities or short-term obligations and other
net assets. See portfolio holdings beginning on page 20.

<PAGE>
Q&A

THE FOLLOWING IS AN INTERVIEW WITH MARK HOLOWESKO, PORTFOLIO MANAGER OF
TEMPLETON GROWTH FUND:

Q: How do you find an undervalued stock before other investors are aware of its
potential?

A: Frequently, investors are aware of a stock's potential, but are unwilling to
assume the short-term risks that we are willing to take. One of the main reasons
a stock becomes undervalued is the pressure of selling. Investors typically sell
a stock because of short-term concerns, believing that these concerns will
negatively impact the price of the stock. We try to determine if these
considerations are valid or are short term in nature. If we believe this
temporary selling creates a long-term opportunity, we will try to purchase the
security for long-term returns. This often means we buy too early and initially
suffer losses, since it is impossible to predict the bottom of stock prices
accurately. Some investors are much more short-term oriented and are reluctant
to experience initial losses, so they refrain from looking longer term.

Q: Were there any sectors that performed particularly well for the Fund during
the year under review? Any that proved disappointing?

A: Financial stocks generally performed very well. Relatively stable interest
rates and healthy business conditions provided a favorable environment for these
equities. We took advantage of this by selling some of our banking holdings at a
profit.

Believing that uncertainty about industry deregulation had created an attractive
opportunity to buy U.S. utility shares with good yields and the potential to
rise in value, we purchased a number of these stocks. However, we were wrong.
Compared to most other equities, U.S. utility stocks generally performed poorly
in the bull market.

<PAGE>
Q: At the end of the reporting period, nearly five percent of the Fund's total
net assets were invested in Hong Kong. How do you think its reversion to Chinese
control this past July will affect Hong Kong?

A: We believe there is a better-than-even chance that the transition will be
positive in the long term. In a purely selfish way, the Chinese need Hong Kong
to prosper. For example, during the 1990s, half of all foreign investment came
into China through Hong Kong. There is also a vast amount of trade to China
through Hong Kong. Because China "needs" Hong Kong, I believe they will try to
maintain its economic strength. However, that is not to say China will make no
mistakes there.

Q: Do you think the currency crises experienced by many Asian countries this
past summer will have a lasting effect on Asian economies or world financial
markets?

A: The currency fluctuations in Asia and their impact are a very interesting
topic. Initially, these turbulent currency markets eroded investor confidence in
the region, which resulted in billions of dollars in lost wealth and the
collapse of some stock markets. Most likely, the long-term impact will be felt
both inside and outside Asia. Within Asia, the cost of capital rises. Businesses
raise capital to build plants by borrowing money or by issuing stock. If a
country's currency loses value, foreign borrowing becomes more expensive because
devaluation increases the amount of money needed to repay foreign debt. And if
local interest rates are boosted to protect the currency, the cost of borrowing
locally rises.

If a business tries to raise capital by issuing stock, and the price of its
stock drops, the cost of selling the stock to the public increases. For example,
if you want to raise $100 million and your stock priced at $15 declines to $10,
you have to issue 50% more shares to obtain the $100 million. If the cost of
capital changes in Asia, those industries requiring large amounts of it will
experience more difficulty delivering the same level of profits.

On the other hand, devaluation of local currencies makes Asian exports more
competitive around the world. Because the U.S. dollar buys more in Asia than it
did before this crisis, these products have become cheaper in the U.S. As a
result of inexpensive Asian goods entering the U.S. market, domestic companies
competing with Asian firms could be subjected to pricing pressures. And U.S.
multinational companies could experience sales declines in Asian markets,
causing their stock prices to fall.

<PAGE>
PERFORMANCE SUMMARY

CLASS I

Templeton Growth Fund - Class I produced a cumulative total return of 28.28% for
the 12 months ended August 31, 1997. Cumulative total return measures the change
in value of an investment, assuming reinvestment of dividends and capital gains,
and does not include the initial sales charge. We have always maintained a
long-term perspective when managing the Fund, and encourage shareholders to view
their investments in a similar manner. As you can see from the table on page 10,
the Fund delivered a cumulative total return of more than 224% for the 10-year
period ended August 31, 1997.

The price of the Fund's shares increased $3.72, from $18.75 on August 31, 1996,
to $22.47 on August 31, 1997. During this time, shareholders received
distributions of 49 cents ($0.49) per share in dividend income and 81 cents
($0.81) per share in capital gains, of which 78.5 cents ($0.785) represented
long-term gains and 2.5 cents ($0.025) represented short-term gains.
Distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Fund's operating expenses.

The graph on the following page compares the performance of the Fund's Class I
shares over the past ten years with that of the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index, which includes approximately 1,500
companies representing the stock markets of 22 countries, including the U.S.,
Canada, the United Kingdom, and Japan. It also shows the Fund's performance
versus the Consumer Price Index (CPI), a commonly used measure of inflation.
Please remember that the Fund's performance differs from that of an index
because an index is not managed according to any investment strategy, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.

Past performance is not predictive of future results.

<PAGE>
CLASS I
Total Return Index Comparison
$10,000 Investment (8/31/87 - 8/31/97)

<TABLE>
<CAPTION>
TEMPLETON GROWTH FUND* MSCI WORLD INDEX** CONSUMER PRICE INDEX***
--------------------- ---------------- --------------------
<S> <C> <C> <C>
8/87 $9,422 $10,000 $10,000
9/97 $9,384 $9,827 $10,049
10/87 $7,250 $8,160 $10,075
11/87 $6,931 $7,964 $10,089
12/87 $7,299 $8,310 $10,088
1/88 $7,560 $8,514 $10,113
2/88 $7,859 $9,010 $10,139
3/88 $8,015 $9,284 $10,183
4/88 $8,083 $9,403 $10,235
5/88 $8,301 $9,217 $10,271
6/88 $8,506 $9,205 $10,315
7/88 $8,537 $9,380 $10,357
8/88 $8,494 $8,867 $10,401
9/88 $8,786 $9,244 $10,472
10/88 $9,025 $9,861 $10,506
11/88 $8,999 $10,206 $10,516
12/88 $9,021 $10,300 $10,533
1/89 $9,658 $10,675 $10,586
2/89 $9,395 $10,609 $10,628
3/89 $9,566 $10,543 $10,689
4/89 $9,887 $10,788 $10,760
5/89 $9,960 $10,525 $10,821
6/89 $9,901 $10,408 $10,848
7/89 $10,773 $11,586 $10,874
8/89 $10,904 $11,308 $10,892
9/89 $10,918 $11,629 $10,926
10/89 $10,472 $11,243 $10,979
11/89 $10,665 $11,694 $11,004
12/89 $11,057 $12,071 $11,022
1/90 $10,566 $11,510 $11,126
2/90 $10,566 $11,018 $11,170
3/90 $10,797 $10,355 $11,213
4/90 $10,460 $10,207 $11,248
5/90 $11,421 $11,284 $11,266
6/90 $11,485 $11,205 $11,335
7/90 $11,793 $11,309 $11,388
8/90 $10,685 $10,253 $11,484
9/90 $9,703 $9,173 $11,562
10/90 $9,566 $10,032 $11,641
11/90 $9,874 $9,869 $11,667
12/90 $10,055 $10,078 $11,710
1/91 $10,623 $10,448 $11,781
2/91 $11,414 $11,417 $11,798
3/91 $11,545 $11,082 $11,816
4/91 $11,729 $11,171 $11,833
5/91 $12,228 $11,426 $11,867
6/91 $11,614 $10,722 $11,904
7/91 $12,320 $11,230 $11,921
8/91 $12,381 $11,197 $11,956
9/91 $12,504 $11,492 $12,009
10/91 $12,691 $11,681 $12,026
11/91 $12,372 $11,174 $12,061
12/91 $13,206 $11,989 $12,070
1/92 $13,326 $11,769 $12,087
2/92 $13,582 $11,568 $12,131
3/92 $13,351 $11,025 $12,192
4/92 $13,728 $11,180 $12,210
5/92 $14,241 $11,627 $12,227
6/92 $13,967 $11,239 $12,271
7/92 $13,933 $11,270 $12,298
8/92 $13,531 $11,547 $12,332
9/92 $13,497 $11,443 $12,367
10/92 $13,311 $11,135 $12,411
11/92 $13,472 $11,337 $12,428
12/92 $13,762 $11,431 $12,420
1/93 $13,944 $11,471 $12,482
2/93 $14,250 $11,744 $12,525
3/93 $14,748 $12,428 $12,570
4/93 $15,045 $13,006 $12,604
5/93 $15,485 $13,308 $12,622
6/93 $15,418 $13,198 $12,639
7/93 $15,820 $13,472 $12,639
8/93 $16,710 $14,092 $12,674
9/93 $16,643 $13,834 $12,700
10/93 $17,410 $14,217 $12,753
11/93 $17,083 $13,415 $12,762
12/93 $18,262 $14,074 $12,761
1/94 $19,278 $15,005 $12,797
2/94 $18,791 $14,813 $12,841
3/94 $18,076 $14,177 $12,885
4/94 $18,387 $14,617 $12,903
5/94 $18,563 $14,658 $12,911
6/94 $18,148 $14,619 $12,955
7/94 $18,988 $14,900 $12,989
8/94 $19,641 $15,351 $13,042
9/94 $19,195 $14,951 $13,077
10/94 $19,372 $15,378 $13,086
11/94 $18,574 $14,715 $13,104
12/94 $18,412 $14,860 $13,104
1/95 $18,264 $14,639 $13,155
2/95 $18,809 $14,856 $13,208
3/95 $19,160 $15,575 $13,252
4/95 $19,830 $16,120 $13,296
5/95 $20,419 $16,261 $13,322
6/95 $20,714 $16,259 $13,348
7/95 $21,645 $17,076 $13,348
8/95 $21,508 $16,699 $13,384
9/95 $21,996 $17,189 $13,409
10/95 $21,293 $16,921 $13,454
11/95 $21,779 $17,512 $13,453
12/95 $22,063 $18,028 $13,444
1/96 $22,851 $18,356 $13,523
2/96 $22,928 $18,471 $13,567
3/96 $23,195 $18,782 $13,637
4/96 $23,716 $19,227 $13,689
5/96 $23,996 $19,247 $13,715
6/96 $24,021 $19,348 $13,724
7/96 $23,246 $18,668 $13,750
8/96 $23,843 $18,887 $13,777
9/96 $24,326 $19,629 $13,821
10/96 $24,724 $19,770 $13,864
11/96 $26,068 $20,881 $13,891
12/96 $26,597 $20,551 $13,891
1/97 $27,237 $20,801 $13,935
2/97 $27,455 $21,044 $13,976
3/97 $27,332 $20,632 $14,018
4/97 $27,945 $21,309 $14,032
5/97 $29,333 $22,629 $14,018
6/97 $30,504 $23,760 $14,032
7/97 $31,661 $24,859 $14,046
8/97 $30,585 $23,200 $14,074
</TABLE>
___ Templeton Growth Fund* ..... MSCI World Index** ----- Consumer Price
Index***

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 5-YEAR 10-YEAR (11/29/54)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN**** 20.93% 16.33% 11.83% 14.80%
</TABLE>

THE HISTORICAL PERFORMANCE DATA SHOWN PERTAINS ONLY TO THE FUND'S CLASS I
SHARES. THE FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND
EXPENSES, WHICH AFFECT THEIR PERFORMANCE. PLEASE SEE THE PROSPECTUS FOR MORE
DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown, and have been restated to include the maximum 5.75% initial sales
charge, assuming reinvestment of dividends and capital gains at net asset value.
Prior to July 1, 1992, Fund shares were offered at a higher initial sales
charge, and on January 1, 1993, the Fund implemented a Rule 12b-1 plan. Such
expenses will affect subsequent performance. This was a period of generally
rising security prices.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

***Source: U.S. Bureau of Labor Statistics (9/30/97).

****Please see table on page 10.

Past performance is not predictive of future results.

<PAGE>
CLASS I
Periods ended 8/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-Year 5-Year 10-Year (11/29/54)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 28.28% 126.04% 224.61% 38,673.04%

Average Annual Total Return(2) 20.93% 16.33% 11.83% 14.80%

Value of $10,000 Investment(3) $12,093 $21,304 $30,594 $3,654,390
</TABLE>

<TABLE>
<CAPTION>
8/31/93 8/31/94 8/31/95 8/31/96 8/31/97
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year Total Return(4) 23.57% 17.47% 9.51% 10.85% 28.28%
</TABLE>

1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 5.75% initial
sales charge. See Note below.

3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and include the maximum 5.75% initial sales
charge. See Note below.

4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include the sales
charge.

Note: 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.

All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the social, economic and political climates
of countries where investments are made. Emerging markets involve heightened
risks related to the same factors, in addition to those associated with the
relatively small size and lesser liquidity of these markets. You may have a gain
or loss when you sell your shares.

Past performance is not predictive of future results.

<PAGE>
CLASS II

Templeton Growth Fund - Class II provided a cumulative total return of 27.30%
for the 12-month period ended August 31, 1997. Cumulative total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains, and does not include sales charges.

The price of the Fund's shares increased $3.61, from $18.57 on August 31, 1996,
to $22.18 on August 31, 1997. During this time, shareholders received
distributions of 39 cents ($0.39) per share in dividend income and 81 cents
($0.81) per share in capital gains, of which 78.5 cents ($0.785) represented
long-term gains and 2.5 cents ($0.025) represented short-term gains.
Distributions will vary depending on income earned by the Fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the Fund's operating expenses.

The graph on the following page compares the performance of the Fund's Class II
shares since inception with that of the unmanaged Morgan Stanley Capital
International(R) (MSCI) World Index, which includes approximately 1,500
companies representing the stock markets of 22 countries including the U.S.,
Canada, the United Kingdom, and Japan. It also shows the Fund's performance
versus the Consumer Price Index (CPI), a commonly used measure of inflation.
Please remember that the Fund's performance differs from that of an index
because an index is not managed according to any investment strategy, does not
contain cash (the Fund generally carries a certain percentage of cash at any
given time), and includes no sales charges or management expenses. Of course,
one cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.

Past performance is not predictive of future results.

<PAGE>
CLASS II
Total Return Index Comparison
$10,000 Investment (5/1/95 - 8/31/97)

[LINE GRAPH]

<TABLE>
<CAPTION>
TEMPLETON MSCI CPI
GROWTH FUND - WORLD
CLASS II INDEX
<S> <C> <C> <C>
5/1/95 $9,898 $10,000 $10,000
5/95 $10,187 $10,088 $10,020
6/95 $10,329 $10,086 $10,040
7/95 $10,788 $10,593 $10,039
8/95 $10,708 $10,359 $10,067
9/95 $10,941 $10,663 $10,086
10/95 $10,588 $10,497 $10,119
11/95 $10,818 $10,863 $10,118
12/95 $10,960 $11,183 $10,111
1/96 $11,340 $11,387 $10,171
2/96 $11,372 $11,458 $10,204
3/96 $11,493 $11,651 $10,256
4/96 $11,746 $11,927 $10,296
5/96 $11,873 $11,940 $10,316
6/96 $11,880 $12,002 $10,322
7/96 $11,493 $11,581 $10,342
8/96 $11,778 $11,716 $10,362
9/96 $12,006 $12,177 $10,395
10/96 $12,191 $12,264 $10,428
11/96 $12,847 $12,953 $10,448
12/96 $13,107 $12,748 $10,448
1/97 $13,412 $12,904 $10,480
2/97 $13,506 $13,054 $10,512
3/97 $13,439 $12,799 $10,544
4/97 $13,729 $13,219 $10,554
5/97 $14,405 $14,038 $10,543
6/97 $14,973 $14,739 $10,554
7/97 $15,527 $15,421 $10,565
8/97 $14,993 $14,392 $10,586

TOTAL RETURN: 49.93%
</TABLE>

NOTE - Includes sales charge
NOTE - All currencies are in US Dollars

THE HISTORICAL PERFORMANCE DATA SHOWN PERTAINS ONLY TO THE FUND'S CLASS II
SHARES. THE FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND
EXPENSES, WHICH AFFECT THEIR PERFORMANCE. PLEASE SEE THE PROSPECTUS FOR MORE
DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown and include all sales charges, assuming reinvestment of dividends
and capital gains at net asset value. This was a period of generally rising
security prices.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

***Source: U.S. Bureau of Labor Statistics (9/30/97).

CLASS II
Periods ended 8/31/97

<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (5/1/95)

<S> <C> <C>
Cumulative Total Return(1) 27.30% 51.39%

Average Annual Total Return(2) 25.02% 18.90%

Value of $10,000 Investment(3) $12,502 $14,987
</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 indicated periods. It includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within the first 18 months of investment.

3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and include all sales charges.

Past performance is not predictive of future results.

<PAGE>
ADVISOR CLASS

Templeton Growth Fund - Advisor Class produced a cumulative total return of
16.11% for the period from January 2, 1997 (commencement of sales), through
August 31, 1997. The price of the Fund's shares increased $3.12, from $19.37 to
$22.49 over the same period.

The graph on the following page compares the performance of the Fund's Advisor
Class shares over a ten-year period with that of the unmanaged Morgan Stanley
Capital International(R) (MSCI) World Index. For periods prior to January 2,
1997, the Fund performance is that of the Fund's Class I shares, excluding the
initial sales charge, but including Class I expenses. The MSCI World Index
includes approximately 1,500 companies representing the stock markets of 22
countries, including the U.S., Canada, the United Kingdom, and Japan. The graph
also shows the Fund's performance versus the Consumer Price Index (CPI), a
commonly used measure of inflation. Please remember that the Fund's performance
differs from that of an index because an index is not managed according to any
investment strategy, does not contain cash (the Fund generally carries a certain
percentage of cash at any given time), and includes no management expenses. Of
course, one cannot invest directly in an index, nor is an index representative
of the Fund's portfolio.

Past performance is not predictive of future results.

<PAGE>
ADVISOR CLASS
Total Return Index Comparison
$10,000 Investment (8/31/87 - 8/31/97)

Templeton Growth
Incept Fund* MSCI World Index** Consumer Price Index***
- ------ ---------------- ---------------- --------------------
<S> <C> <C> <C>

$9,424 $10,000 $10,000
Sep-87 $9,385 $9,827 $10,049
Oct-87 $7,251 $8,160 $10,075
Nov-87 $6,931 $7,964 $10,089
Dec-87 $7,300 $8,310 $10,088
Jan-88 $7,561 $8,514 $10,113
Feb-88 $7,860 $9,010 $10,139
Mar-88 $8,016 $9,284 $10,183
Apr-88 $8,084 $9,403 $10,235
May-88 $8,302 $9,217 $10,271
Jun-88 $8,507 $9,205 $10,315
Jul-88 $8,538 $9,380 $10,357
Aug-88 $8,495 $8,867 $10,401
Sep-88 $8,787 $9,244 $10,472
Oct-88 $9,026 $9,861 $10,506
Nov-88 $9,000 $10,206 $10,516
Dec-88 $9,022 $10,300 $10,533
Jan-89 $9,659 $10,675 $10,586
Feb-89 $9,396 $10,609 $10,628
Mar-89 $9,567 $10,543 $10,689
Apr-89 $9,889 $10,788 $10,760
May-89 $9,961 $10,525 $10,821
Jun-89 $9,902 $10,408 $10,848
Jul-89 $10,774 $11,586 $10,874
Aug-89 $10,906 $11,308 $10,892
Sep-89 $10,919 $11,629 $10,926
Oct-89 $10,473 $11,243 $10,979
Nov-89 $10,666 $11,694 $11,004
Dec-89 $11,058 $12,071 $11,022
Jan-90 $10,567 $11,510 $11,126
Feb-90 $10,567 $11,018 $11,170
Mar-90 $10,798 $10,355 $11,213
Apr-90 $10,462 $10,207 $11,248
May-90 $11,423 $11,284 $11,266
Jun-90 $11,486 $11,205 $11,335
Jul-90 $11,795 $11,309 $11,388
Aug-90 $10,686 $10,253 $11,484
Sep-90 $9,704 $9,173 $11,562
Oct-90 $9,567 $10,032 $11,641
Nov-90 $9,876 $9,869 $11,667
Dec-90 $10,057 $10,078 $11,710
Jan-91 $10,625 $10,448 $11,781
Feb-91 $11,415 $11,417 $11,798
Mar-91 $11,546 $11,082 $11,816
Apr-91 $11,730 $11,171 $11,833
May-91 $12,229 $11,426 $11,867
Jun-91 $11,615 $10,722 $11,904
Jul-91 $12,321 $11,230 $11,921
Aug-91 $12,383 $11,197 $11,956
Sep-91 $12,506 $11,492 $12,009
Oct-91 $12,693 $11,681 $12,026
Nov-91 $12,374 $11,174 $12,061
Dec-91 $13,207 $11,989 $12,070
Jan-92 $13,327 $11,769 $12,087
Feb-92 $13,584 $11,568 $12,131
Mar-92 $13,353 $11,025 $12,192
Apr-92 $13,729 $11,180 $12,210
May-92 $14,243 $11,627 $12,227
Jun-92 $13,969 $11,239 $12,271
Jul-92 $13,935 $11,270 $12,298
Aug-92 $13,533 $11,547 $12,332
Sep-92 $13,498 $11,443 $12,367
Oct-92 $13,313 $11,135 $12,411
Nov-92 $13,474 $11,337 $12,428
Dec-92 $13,764 $11,431 $12,420
Jan-93 $13,946 $11,471 $12,482
Feb-93 $14,252 $11,744 $12,525
Mar-93 $14,750 $12,428 $12,570
Apr-93 $15,046 $13,006 $12,604
May-93 $15,487 $13,308 $12,622
Jun-93 $15,420 $13,198 $12,639
Jul-93 $15,822 $13,472 $12,639
Aug-93 $16,712 $14,092 $12,674
Sep-93 $16,645 $13,834 $12,700
Oct-93 $17,412 $14,217 $12,753
Nov-93 $17,085 $13,415 $12,762
Dec-93 $18,264 $14,074 $12,761
Jan-94 $19,280 $15,005 $12,797
Feb-94 $18,793 $14,813 $12,841
Mar-94 $18,078 $14,177 $12,885
Apr-94 $18,389 $14,617 $12,903
May-94 $18,565 $14,658 $12,911
Jun-94 $18,150 $14,619 $12,955
Jul-94 $18,990 $14,900 $12,989
Aug-94 $19,643 $15,351 $13,042
Sep-94 $19,197 $14,951 $13,077
Oct-94 $19,374 $15,378 $13,086
Nov-94 $18,577 $14,715 $13,104
Dec-94 $18,414 $14,860 $13,104
Jan-95 $18,266 $14,639 $13,155
Feb-95 $18,811 $14,856 $13,208
Mar-95 $19,162 $15,575 $13,252
Apr-95 $19,832 $16,120 $13,296
May-95 $20,422 $16,261 $13,322
Jun-95 $20,717 $16,259 $13,348
Jul-95 $21,647 $17,076 $13,348
Aug-95 $21,511 $16,699 $13,384
Sep-95 $21,999 $17,189 $13,409
Oct-95 $21,296 $16,921 $13,454
Nov-95 $21,781 $17,512 $13,453
Dec-95 $22,065 $18,028 $13,444
Jan-96 $22,854 $18,356 $13,523
Feb-96 $22,930 $18,471 $13,567
Mar-96 $23,197 $18,782 $13,637
Apr-96 $23,719 $19,227 $13,689
May-96 $23,999 $19,247 $13,715
Jun-96 $24,024 $19,348 $13,724
Jul-96 $23,248 $18,668 $13,750
Aug-96 $23,846 $18,887 $13,777
Sep-96 $24,329 $19,629 $13,821
Oct-96 $24,727 $19,770 $13,864
Nov-96 $26,071 $20,881 $13,891
Dec-96 $26,600 $20,551 $13,891
Jan-97 $27,478 $20,801 $13,935
Feb-97 $27,698 $21,044 $13,976
Mar-97 $27,573 $20,632 $14,018
Apr-97 $28,191 $21,309 $14,032
May-97 $29,592 $22,629 $14,018
Jun-97 $30,788 $23,760 $14,032
Jul-97 $31,954 $24,859 $14,046
Aug-97 $30,884 $23,200 $14,074
</TABLE>

___ Templeton Growth Fund* ..... MSCI World Index** ----- Consumer Price
Index***

THE HISTORICAL PERFORMANCE DATA SHOWN PERTAINS ONLY TO THE FUND'S ADVISOR CLASS
SHARES. THE FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND
EXPENSES, WHICH AFFECT THEIR PERFORMANCE. PLEASE SEE THE PROSPECTUS FOR MORE
DETAILS.

*Performance figures represent the change in value of an investment over the
periods shown, assuming reinvestment of dividends and capital gains at net asset
value. Effective January 2, 1997, the Fund began offering Advisor Class shares
to certain eligible investors as described in its prospectus. This share class
does not have sales charges or Rule 12b-1 plans. Performance quotations have
been calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the Fund's Class I performance, excluding the effect of the Class I
maximum initial sales charge, but including the effect of the Class I expenses,
including Rule 12b-1 fees; 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. This was a period of generally rising
security prices.

**Index is unmanaged and includes reinvested dividends. One cannot invest
directly in an index.

***Source: U.S. Bureau of Labor Statistics (9/30/97).

Past performance is not predictive of future results.

<PAGE>
Advisor Class
Periods ended 8/31/97

<TABLE>
<CAPTION>
Since
Inception
of the Fund
1-Year 5-Year 10-Year (11/29/54)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) 28.39% 126.24% 224.89% 38,707.55%

Average Annual Total Return(1) 28.39% 17.74% 12.51% 14.96%

Value of $10,000 Investment(2) $ 12,839 $ 22,624 $ 32,489 $ 3,880,755
</TABLE>

<TABLE>
<CAPTION>
8/31/93 8/31/94 8/31/95 8/31/96 8/31/97
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(3) 23.49% 17.54% 9.51% 10.85% 28.39%
</TABLE>

Effective January 2, 1997, the Fund began offering Advisor Class shares to
certain eligible investors as described in its prospectus. This share class does
not have sales charges or Rule 12b-1 plans. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I maximum
initial sales charge, but including the effect of Class I expenses, including
Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures reflect
actual Advisor Class performance including the deduction of all charges and fees
applicable only to that class. Since January 2, 1997 (commencement of sales),
the cumulative total return of Advisor Class shares was 16.11%.

1. Cumulative total return represents the change in value of an investment over
the indicated periods. Average annual total return represents the average annual
change in value of an investment over the indicated periods.

2. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.

3. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated.

Past performance is not predictive of future results.

<PAGE>
TEMPLETON GROWTH FUND

CLASS I

If you had invested $10,000 in Templeton Growth Fund - Class I at inception, it
would be worth more than $3.6 million today. The chart below illustrates the
cumulative total return of a hypothetical $10,000 investment in the Fund on
November 29, 1954 (inception), with income dividends and capital gains
reinvested through August 31, 1997.*

[3D GRAPH]

$3,654,390 Total value of investment 8/31/97

$10,000 Cost of investment 11/29/54

Initial net asset value $9,425

<TABLE>
<CAPTION>
TOTAL VALUE OF INVESTMENT
WITH CAPITAL GAINS AND VALUE OF INVESTMENT WITH VALUE OF INVESTMENT WITH
DIVIDENDS REINVESTED CAPITAL GAINS REINVESTED DIVIDENDS REINVESTED
-------------------- ------------------------ --------------------
<S> <C> <C> <C>
11/29/54 9424.9763 9424.976 9424.9763
12/31/54 9575.9661 9575.966 9575.9661
12/30/55 10249.764 10249.76 10249.764
12/31/56 10725.636 10725.64 10725.636
12/31/57 8911.4986 8911.499 8911.4986
12/31/58 13261.074 13261.07 13261.074
12/31/59 15117.908 15117.91 15117.908
12/30/60 17210.273 17210.27 17210.273
12/29/61 20358.153 20358.15 20358.153
12/31/62 17606.126 17606.13 17606.126
12/31/63 18510.934 18510.93 18510.934
12/31/64 23802.135 23506.03 23802.135
12/31/65 29072.968 28312.82 29072.968
12/30/66 27532.231 26484.54 27532.231
12/29/67 31314.311 29632.42 31314.311
12/31/68 43139.564 40282.85 43139.564
12/31/69 51622.084 47445.81 51622.084
12/31/70 48298.328 43675.87 48298.328
12/31/71 58887.664 52567.77 57874.93
12/29/72 99262.409 87991.52 95625.179
12/31/73 89415.381 79614.76 78886.293
12/31/74 78622.916 69153.57 68187.629
12/31/75 108182.55 93527.46 93731.526
12/31/76 158746.74 135840 136290.37
12/30/77 191091.53 162989 155058.26
12/29/78 227798.7 192793.1 184487.32
12/31/79 288936.33 241865.7 231142.32
12/31/80 363734.14 302407.2 275935.79
12/31/81 362861.63 296032.3 276914.11
12/31/82 402076.94 322039.3 293515.51
12/30/83 534385.47 419717.4 392896.14
12/31/84 545973.94 423667.3 391769.39
12/31/85 697673.34 536261.2 482618.53
12/31/86 845831.15 637581.8 572151.38
12/31/87 872099.16 653004.2 550763.17
12/30/88 1077885.5 784305.1 682364.61
12/29/89 1321060.3 935100 831577.66
12/31/90 1201437.5 834403.4 737439.36
12/31/91 1577840 1101650 912476.25
12/31/92 1644333.6 1161912 889019.63
12/31/93 2181978.9 1558305 1121883.6
12/30/94 2199826.8 1589760 1068973.9
12/29/95 2636096.1 1922768 1203902.6
12/31/96 3177869.2 2296081 1434285.8
8/31/97 3654390 2640376 1649355.1
</TABLE>

____ Total Value of Investment with Capital Gains and Dividends Reinvested

- ---- Value of Investment with Capital Gains Reinvested

.... Value of Investment with Dividends Reinvested

*Cumulative total return represents the change in value of an investment over
the indicated period. All figures have been restated to reflect the 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 I
shares implemented a plan of distribution under Rule 12b-1, which will affect
subsequent performance.

All figures assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. This was
a period of generally rising securities prices. The historical data shown above
pertain only to Class I shares of the Fund. The Fund offers other share classes,
subject to different fees and expenses, which will affect their performance.
Please see the prospectus for more details.

Past performance is not predictive of future results.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Highlights

<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year................. $18.75 $18.96 $18.95 $17.47 $15.81
----------------------------------------------------------------------
Income from investment operations:
Net investment income............................. .54 .50 .39 .29 .32
Net realized and unrealized gains................. 4.48 1.34 1.20 2.58 2.97
----------------------------------------------------------------------
Total from investment operations................... 5.02 1.84 1.59 2.87 3.29
----------------------------------------------------------------------
Less distributions:
Dividends from net investment income.............. (.49) (.44) (.29) (.27) (.36)
Distributions from net realized gains............. (.81) (1.61) (1.29) (1.12) (1.27)
----------------------------------------------------------------------
Total distributions................................ (1.30) (2.05) (1.58) (1.39) (1.63)
----------------------------------------------------------------------
Net asset value, end of year....................... $22.47 $18.75 $18.96 $18.95 $17.47
======================================================================
TOTAL RETURN*...................................... 28.28% 10.85% 9.51% 17.47% 23.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's).................... $12,129,283 $8,450,737 $6,964,298 $5,611,560 $4,033,911
Ratios to average net assets:
Expenses.......................................... 1.08% 1.09% 1.12% 1.10% 1.03%
Net investment income............................. 2.81% 2.87% 2.40% 1.76% 2.10%
Portfolio turnover rate............................ 41.81% 19.63% 35.21% 27.35% 28.89%
Average commission rate paid**..................... $.0007 $.0146 -- -- --
</TABLE>

*Total return does not reflect sales commissions.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
CLASS II
---------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------
1997 1996 1995+
-------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year................................................. $18.57 $18.90 $17.48
-----------------------------------------
Income from investment operations:
Net investment income............................................................. .42 .49 .04
Net realized and unrealized gains................................................. 4.39 1.19 1.38
-----------------------------------------
Total from investment operations................................................... 4.81 1.68 1.42
-----------------------------------------
Less distributions:
Dividends from net investment income.............................................. (.39) (.40) --
Distributions from net realized gains............................................. (.81) (1.61) --
-----------------------------------------
Total distributions................................................................ (1.20) (2.01) --
-----------------------------------------
Net asset value, end of year....................................................... $22.18 $18.57 $18.90
=========================================
TOTAL RETURN*...................................................................... 27.30% 9.99% 8.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's).................................................... $755,184 $280,087 $42,548
Ratios to average net assets:
Expenses.......................................................................... 1.84% 1.87% 1.86%***
Net investment income............................................................. 2.14% 2.25% 1.61%***
Portfolio turnover rate............................................................ 41.81% 19.63% 35.21%
Average commission rate paid**..................................................... $.0007 $.0146 --
</TABLE>

*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
***Annualized.
+For the period May 1, 1995 (effective date) to August 31, 1995.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Highlights (continued)

<TABLE>
<CAPTION>
ADVISOR CLASS
----------------
1997+
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period................................................................... $19.37
------
Income from investment operations:
Net investment income................................................................................. .37
Net realized and unrealized gains..................................................................... 2.75
------
Total from investment operations....................................................................... 3.12
------
Net asset value, end of period......................................................................... $22.49
======
TOTAL RETURN*.......................................................................................... 16.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................................................................... $29,531
Ratios to average net assets:
Expenses.............................................................................................. .83%***
Net investment income................................................................................. 3.68%***
Portfolio turnover rate................................................................................ 41.81%
Average commission rate paid**......................................................................... $.0007
</TABLE>

*Total return is not annualized.
**Relates to purchases and sales of equity securities.
***Annualized.
+For the period January 2, 1997 (effective date) to August 31, 1997.

See notes to financial statements.

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS 73.8%
AEROSPACE & MILITARY TECHNICAL SYSTEMS 0.5%
Boeing Co............................................................. United States 11,000 $ 598,812
General Motors Corp., H............................................... United States 1,031,300 65,552,006
Hong Kong Aircraft Engineering Co. Ltd................................ Hong Kong 1,239,200 4,077,631
---------------
70,228,449
---------------
APPLIANCES & HOUSEHOLD DURABLES 1.3%
Electrolux AB, B...................................................... Sweden 700,000 49,762,612
Email Ltd............................................................. Australia 8,015,942 24,694,722
Sony Corp............................................................. Japan 956,700 83,122,466
Toro Co............................................................... United States 165,500 6,144,188
---------------
163,723,988
---------------
AUTOMOBILES 5.1%
Fiat SpA, di Risp..................................................... Italy 3,589,960 5,949,884
Ford Motor Co......................................................... United States 5,516,600 237,213,800
General Motors Corp................................................... United States 3,600,000 225,900,000
Peugeot SA............................................................ France 401,650 45,030,399
Regie Nationale des Usines Renault SA................................. France 1,719,450 43,593,444
Volvo AB, B........................................................... Sweden 3,941,000 101,058,979
---------------
658,746,506
---------------
BANKING 6.4%
Argentaria Corporacion Bancaria de Espana SA.......................... Spain 1,350,462 67,071,233
Banco Popular Espanol SA.............................................. Spain 160,029 35,770,818
Bangkok Bank Public Co. Ltd., fgn..................................... Thailand 2,337,700 11,555,171
Banque Nationale de Paris............................................. France 851,722 36,316,881
Cho Hung Bank......................................................... South Korea 2,449,429 12,023,236
Citicorp.............................................................. United States 103,000 13,145,375
Credit Commercial de France........................................... France 809,909 40,094,109
Deutsche Bank AG...................................................... Germany 2,000,000 116,643,589
HSBC Holdings Plc..................................................... Hong Kong 5,559,541 169,307,914
Kookmin Bank.......................................................... South Korea 610,138 9,549,251
Krung Thai Bank....................................................... Thailand 6,227,500 3,961,630
National Australia Bank Ltd........................................... Australia 7,483,199 103,988,340
National Australia Cap Sec Plc........................................ Australia 710,553 20,295,170
National Bank of Canada............................................... Canada 2,485,600 32,046,847
National Westminster Bank Plc......................................... United Kingdom 8,186,472 104,471,728
Shinhan Bank Co. Ltd.................................................. South Korea 1,596,038 16,363,147
Thai Farmers Bank Public Co. Ltd., fgn................................ Thailand 8,059,600 23,101,515
Union Bank of Norway, Primary Capital Cert............................ Norway 385,000 11,635,931
---------------
827,341,885
---------------
BROADCASTING & PUBLISHING 0.6%
Marieberg Tidnings AB, A.............................................. Sweden 9,000 231,929
News Corp. Ltd........................................................ Australia 18,258,348 69,672,980
Sing Tao Holdings Ltd................................................. Hong Kong 3,561,800 1,895,919
---------------
71,800,828
---------------
BUILDING MATERIALS & COMPONENTS 1.1%
+Hepworth Plc......................................................... United Kingdom 14,607,710 48,882,531
Owens Corning......................................................... United States 1,865,000 75,649,062
Pilkington Plc........................................................ United Kingdom 6,504,000 15,335,397
Siam City Cement, fgn................................................. Thailand 1,457,300 4,859,087
---------------
144,726,077
---------------
BUSINESS & PUBLIC SERVICES 1.0%
Horizon Group Inc..................................................... United States 757,500 9,516,094
*Humana Inc........................................................... United States 3,759,400 88,580,862
Lex Service Plc....................................................... United Kingdom 1,600,000 11,486,169
Wheelabrator Technologies Inc......................................... United States 1,021,900 16,031,056
---------------
125,614,181
---------------
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
CHEMICALS 2.6%
Courtaulds Plc........................................................ United Kingdom 12,000,000 $ 61,158,016
DSM NV................................................................ Netherlands 750,000 70,664,207
Eastman Chemical Co................................................... United States 1,100,000 65,793,750
European Vinyls Corp. EVC International NV............................ Netherlands 388,971 8,898,968
Imperial Chemical Industries Plc...................................... United Kingdom 2,880,800 46,613,603
Lyondell Petrochemical Co............................................. United States 868,600 21,063,550
Rhone-Poulenc SA, A................................................... France 1,258,500 46,161,437
Shanghai Petrochemical Co. Ltd., H.................................... China 32,518,000 13,427,653
---------------
333,781,184
---------------
CONSTRUCTION & HOUSING 0.8%
Dragados y Construcciones SA.......................................... Spain 1,106,954 20,734,508
Fletcher Challenge Building Ltd....................................... New Zealand 5,267,917 14,740,516
Hollandsche Beton Groep NV............................................ Netherlands 10,000 221,402
Kaufman & Broad Home Corp............................................. United States 1,586,600 31,732,000
Redland Plc........................................................... United Kingdom 8,000,000 37,595,813
*U.S. Home Corp....................................................... United States 40,500 1,430,156
---------------
106,454,395
---------------
DATA PROCESSING & REPRODUCTION 0.3%
International Business Machines Corp.................................. United States 440,000 44,385,000
---------------
ELECTRICAL & ELECTRONICS 4.6%
ABB AB, A............................................................. Sweden 7,700,000 111,921,446
Gold Peak Industries (Holdings) Ltd................................... Hong Kong 4,307,000 2,584,367
*Gold Peak Industries (Holdings) Ltd., wts............................ Hong Kong 861,400 83,367
Hitachi Ltd........................................................... Japan 9,734,500 89,410,799
Motorola Inc.......................................................... United States 1,967,600 144,372,650
Philips Electronics NV................................................ Netherlands 3,375,100 240,283,872
---------------
588,656,501
---------------
ELECTRONIC COMPONENTS & INSTRUMENTS 0.2%
BICC.................................................................. United Kingdom 9,427,200 25,741,516
---------------
ENERGY EQUIPMENT & SERVICES 1.1%
Sun Co. Inc........................................................... United States 3,600,000 139,950,000
---------------
ENERGY SOURCES 4.9%
*Barrett Resources Corp............................................... United States 1,100,000 40,287,500
Fletcher Challenge Energy Ltd......................................... New Zealand 5,336,917 18,820,414
Norsk Hydro AS........................................................ Norway 1,451,577 78,618,918
Rao Gazprom, ADR, 144A................................................ Russia 122,000 2,369,850
Repsol SA............................................................. Spain 2,429,700 95,963,745
Saga Petroleum AS, A.................................................. Norway 142,800 3,017,291
Saga Petroleum AS, B.................................................. Norway 1,557,110 29,985,669
Societe Elf Aquitane SA............................................... France 1,205,000 133,906,523
Total SA, B........................................................... France 1,125,300 105,412,351
Transportadora de Gas del Sur SA, B, ADR.............................. Argentina 1,400,000 16,450,000
YPF Sociedad Anonima.................................................. Argentina 1,400,000 45,675,627
YPF Sociedad Anonima, ADR............................................. Argentina 1,932,800 62,936,800
---------------
633,444,688
---------------
FINANCIAL SERVICES 1.7%
A.G. Edwards Inc...................................................... United States 400,700 15,927,825
Axa SA................................................................ France 729,071 46,450,640
Federal National Mortgage Assn........................................ United States 1,155,600 50,846,400
Merrill Lynch & Co. Inc............................................... United States 1,441,600 88,658,400
Peregrine Investments Holdings Ltd.................................... Hong Kong 10,000,000 18,581,844
---------------
220,465,109
---------------
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
FOOD & HOUSEHOLD PRODUCTS 3.1%
Archer Daniels Midland Co............................................. United States 2,293,137 $ 49,589,088
Burns Philp & Co. Ltd................................................. Australia 8,478,577 14,898,976
Embotelladora Andina SA, A, ADR....................................... Chile 511,500 12,563,719
Embotelladora Andina SA, B, ADR....................................... Chile 511,500 11,828,437
Hillsdown Holdings Plc................................................ United Kingdom 20,423,076 53,449,688
IBP Inc............................................................... United States 3,550,000 81,428,125
Northern Foods Plc.................................................... United Kingdom 14,785,500 52,592,284
Panamerican Beverages Inc., A......................................... Mexico 1,235,000 37,127,187
Tate & Lyle Plc....................................................... United Kingdom 8,366,100 55,517,314
Vitro SA.............................................................. Mexico 6,090,720 26,532,435
Vitro SA, ADR......................................................... Mexico 492,840 6,345,315
---------------
401,872,568
---------------
FOREST PRODUCTS & PAPER 6.7%
Aracruz Celulose SA, ADR.............................................. Brazil 2,000,000 40,750,000
Assidomaen AB......................................................... Sweden 1,439,700 43,680,440
Boise Cascade Corp.................................................... United States 1,582,600 62,611,612
Bowater Inc........................................................... United States 1,280,600 65,550,712
Carter Holt Harvey Ltd................................................ New Zealand 12,627,600 26,137,586
Enso OY, A............................................................ Finland 98,700 861,526
Enso OY, R............................................................ Finland 3,996,875 34,814,193
Fletcher Challenge Ltd. Forestry Division............................. New Zealand 18,349,509 21,569,591
Fletcher Challenge Ltd. Forestry Division, AUD........................ New Zealand 228,421 265,356
Fletcher Challenge Paper Ltd.......................................... New Zealand 16,663,935 33,640,643
Georgia-Pacific Corp.................................................. United States 1,525,000 139,156,250
Metsa Serla OY, B..................................................... Finland 2,611,000 21,591,201
Mo Och Domsjoe AB, B.................................................. Sweden 1,800,000 59,410,465
Norske Skogindustrier AS, A........................................... Norway 994,000 36,821,215
PT Pabrik Kertas Tjiwi Kimia, fgn..................................... Indonesia 22,081,714 11,915,933
Sappi Ltd............................................................. South Africa 3,000,000 27,752,318
St. Joe Paper Corp.................................................... United States 562,600 48,172,625
Stora Kopparbergs Bergslags AB, A..................................... Sweden 1,414,200 22,440,780
Stora Kopparbergs Bergslags AB, B..................................... Sweden 2,085,800 32,568,284
Svenska Cellulosa AB, B............................................... Sweden 1,642,844 36,392,246
UPM-Kymmene Corp...................................................... Finland 4,301,840 101,028,180
---------------
867,131,156
---------------
HEALTH & PERSONAL CARE 0.5%
Pharmacia & Upjohn.................................................... United States 2,000,000 68,125,000
---------------
INDUSTRIAL COMPONENTS 2.3%
BTR Plc............................................................... United Kingdom 22,500,000 79,485,974
Goodyear Tire & Rubber Co............................................. United States 1,682,600 103,690,225
*Granges AB........................................................... Sweden 350,000 5,242,847
Sandvik AB, A......................................................... Sweden 265,000 7,955,988
Sandvik AB, B......................................................... Sweden 2,156,000 65,549,801
SKF AB, B............................................................. Sweden 1,500,000 40,559,068
---------------
302,483,903
---------------
INSURANCE 1.7%
American General Corp................................................. United States 1,100,000 53,006,250
American International Group Inc...................................... United States 691,875 65,295,703
*Baloise-Holding...................................................... Switzerland 23,338 60,687,425
W.R. Berkley Corp..................................................... United States 627,100 34,686,469
---------------
213,675,847
---------------
MACHINERY & ENGINEERING 0.7%
Agco Corp............................................................. United States 1,532,400 49,803,000
New Holland NV........................................................ Netherlands 1,384,500 37,208,438
---------------
87,011,438
---------------
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
MERCHANDISING 1.9%
Coles Myer Ltd., A.................................................... Australia 4,250,484 $ 19,810,466
Dairy Farm International Holdings Ltd................................. Hong Kong 36,629,531 30,768,806
Kwik Save Group Plc................................................... United Kingdom 1,974,267 10,317,800
Limited Inc........................................................... United States 3,650,000 83,037,500
Safeway Plc........................................................... United Kingdom 4,309,883 26,190,768
Somerfield Plc........................................................ United Kingdom 14,000,000 44,126,465
W.H. Smith Group...................................................... United Kingdom 5,820,500 35,653,616
---------------
249,905,421
---------------
METALS & MINING 4.2%
Alcan Aluminum Ltd.................................................... Canada 1,266,850 44,255,573
British Steel Plc..................................................... United Kingdom 37,000,000 103,728,792
Companhia Siderurgica Nacional, ADR................................... Brazil 906,905 30,742,542
Grupo Mexico SA de CV, B.............................................. Mexico 4,016,600 15,793,878
Maanshan Iron & Steel Co. Ltd., H..................................... China 19,463,000 6,153,216
Outokumpu OY, A....................................................... Finland 674,000 10,713,551
Pechiney SA, A........................................................ France 1,518,775 65,609,720
Pohang Iron & Steel Co. Ltd........................................... South Korea 504,503 44,099,292
Reynolds Metals Co.................................................... United States 1,284,908 90,826,934
Rustenburg Platinum Holdings Ltd...................................... South Africa 614,069 10,438,453
South African Iron & Steel Industrial Corp. Ltd....................... South Africa 30,000,000 18,480,230
*Titanium Metals...................................................... United States 925,300 33,079,475
*Union Miniere NPV.................................................... Belgium 400,000 33,116,404
Vale do Rio Doce, ADR................................................. Brazil 1,300,000 30,251,947
---------------
537,290,007
---------------
MISC MATERIALS & COMMODITIES 0.2%
De Beers Consolidated Mines Ltd....................................... South Africa 870,850 27,750,629
---------------
MULTI-INDUSTRY 2.9%
Alfa SA de CV, A...................................................... Mexico 3,607,200 28,136,345
Alfa SA de CV, A, 144A................................................ Mexico 2,534,000 19,765,330
Cheung Kong Holdings Ltd.............................................. Hong Kong 7,724,000 81,730,176
Harrisons & Crosfield Plc............................................. United Kingdom 23,000,000 41,185,240
Inchcape Plc.......................................................... United Kingdom 6,566,600 29,529,428
Jardine Matheson Holdings Ltd. (Singapore)............................ Hong Kong 6,565,978 45,961,846
Jardine Strategic Holdings Ltd. (Singapore)........................... Hong Kong 11,280,152 41,736,562
Pacific Dunlop Ltd.................................................... Australia 8,664,112 22,296,036
Swire Pacific Ltd., A................................................. Hong Kong 6,059,000 46,325,021
Swire Pacific Ltd., B................................................. Hong Kong 13,052,800 18,780,401
---------------
375,446,385
---------------
REAL ESTATE 0.4%
Rouse Co.............................................................. United States 1,200,000 35,250,000
Union du Credit Bail Immobilier Unibail............................... France 90,000 8,623,358
Wereldhave NV......................................................... Netherlands 124,179 7,575,988
---------------
51,449,346
---------------
RECREATION & OTHER CONSUMER GOODS 0.1%
Fila Holding SpA, ADR................................................. Italy 285,200 8,716,425
---------------
TELECOMMUNICATIONS 9.5%
AT&T Corp............................................................. United States 4,200,000 163,800,000
Bell Atlantic Corp.................................................... United States 2,550,000 184,556,250
British Telecommunications Plc........................................ United Kingdom 15,000,000 97,109,012
Cpt-Telefonica del Peru SA, B......................................... Peru 8,459,874 19,766,806
Cpt-Telefonica del Peru SA, B, ADR.................................... Peru 583,200 13,632,300
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS AND WARRANTS (CONT.)
TELECOMMUNICATIONS (CONT.)
Hong Kong Telecommunications Ltd...................................... Hong Kong 11,078,200 $ 23,301,459
Tele Danmark AS, B.................................................... Denmark 1,157,400 60,595,977
Telecom Argentina Stet France SA, ADR................................. Argentina 2,416,400 66,753,050
Telecom Italia SpA.................................................... Italy 33,496,564 117,426,285
Telefonica de Argentina SA, B, ADR.................................... Argentina 1,130,600 39,217,687
Telefonica de Espana SA............................................... Spain 5,989,200 155,211,521
Telefonos de Mexico SA, L............................................. Mexico 14,118,470 32,402,451
Telefonos de Mexico SA, L, ADR........................................ Mexico 2,900,000 133,037,500
U.S. West Communications Group........................................ United States 3,350,000 119,971,875
---------------
1,226,782,173
---------------
TEXTILES & APPAREL 0.4%
Daehan Synthetic Fiber Co. Ltd........................................ South Korea 18,550 1,582,659
*Fruit of the Loom Inc., A............................................ United States 1,900,600 50,841,050
---------------
52,423,709
---------------
TRANSPORTATION 1.1%
Air New Zealand Ltd., B............................................... New Zealand 3,709,000 10,022,979
Cathay Pacific Airways Ltd............................................ Hong Kong 30,603,000 49,955,216
IMC Holdings Ltd...................................................... Hong Kong 6,860,000 3,275,308
*Korean Air........................................................... South Korea 134,138 2,021,359
Malaysian International Shipping Corp., Bhd., fgn..................... Malaysia 4,000,000 8,208,636
Peninsular & Oriental Steam Navigation Co............................. United Kingdom 1,400,000 14,746,633
Shun Tak Holdings..................................................... Hong Kong 28,906,000 16,318,956
Singapore Airlines Ltd., fgn.......................................... Singapore 4,278,000 31,133,311
Stolt Nielsen SA...................................................... Norway 463,500 10,892,250
---------------
146,574,648
---------------
UTILITIES ELECTRICAL & GAS 5.8%
British Energy Ltd.................................................... United Kingdom 4,118,360 11,445,636
British Energy Ltd., 144A............................................. United Kingdom 9,681,640 26,906,955
British Gas Plc....................................................... United Kingdom 28,415,000 124,326,273
*Centrica Plc......................................................... United Kingdom 25,415,000 36,551,901
*CEZ.................................................................. Czech Republic 213,761 6,640,256
Electrabel SA......................................................... Belgium 100,000 19,617,578
Entergy Corp.......................................................... United States 2,350,000 58,309,375
Hong Kong Electric Holdings Ltd....................................... Hong Kong 11,920,100 41,684,587
Iberdrola SA.......................................................... Spain 6,830,448 76,630,797
Illinova CP Holdings Co............................................... United States 738,700 16,990,100
Korea Electric Power Corp............................................. South Korea 2,800,000 73,218,837
Mosenergo............................................................. Russia 10,000,000 15,400,000
National Grid Holdings Plc............................................ United Kingdom 14,000,000 60,347,761
New York State Electric & Gas Corp.................................... United States 500,000 12,187,500
Public Service Co. of New Mexico...................................... United States 423,200 7,723,400
Shandong Huaneng Power................................................ China 900,000 10,743,750
Thames Water Group Plc................................................ United Kingdom 9,550,000 122,646,210
Utilicorp United...................................................... United States 845,700 25,159,575
---------------
746,530,491
---------------
WHOLESALE & INTERNATIONAL TRADE 0.1%
Sime Darby Hongkong Ltd............................................... Hong Kong 6,660,000 7,219,046
---------------
TOTAL COMMON STOCKS AND WARRANTS (COST $7,553,447,729)................ 9,525,448,499
---------------

PREFERRED STOCKS 1.9%
Ballast Nedam NV, ctf., conv., pfd.................................... Netherlands 104,359 5,185,859
Banco Bradesco SA, pfd................................................ Brazil 3,000,000,000 29,683,921
Fiat SpA, pfd......................................................... Italy 23,351,350 36,268,035
Jardine Strategic Holdings Ltd., 7.50%, conv., 5/07/49................ Hong Kong 9,050,000 10,995,750
Petrobras-Petroleo Brasileiro SA, pfd................................. Brazil 25,351,000 6,201,298
Telebras-Telecomunicacoes Brasileiras SA, pfd......................... Brazil 875,600,000 103,082,547
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
STATEMENT OF INVESTMENTS, AUGUST 31, 1997 (CONT.)

<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCKS (CONT.)
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR................... Brazil 150,000 $ 17,700,000
Usinas Siderurgicas De Minas Gerais SA, pfd........................... Brazil 2,000,000 20,338,983
Volkswagen AG, pfd.................................................... Germany 42,000 22,401,551
---------------
TOTAL PREFERRED STOCKS (COST $147,948,517)............................ 251,857,944
---------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
--------------
<S> <C> <C>

BONDS 9.8%
U.S. Treasury Bonds:
14.00%, 11/15/11.................................................................... $ 97,000,000 147,106,611
7.875%, 2/15/21..................................................................... 128,500,000 146,249,191
6.25%, 8/15/23...................................................................... 155,303,000 147,004,074
U.S. Treasury Notes:
7.875%, 1/15/98..................................................................... 10,000,000 10,087,510
7.25%, 2/15/98...................................................................... 75,000,000 75,539,100
6.125%, 3/31/98..................................................................... 200,000,000 200,687,600
7.875%, 4/15/98..................................................................... 75,000,000 76,031,325
6.125%, 5/15/98..................................................................... 75,000,000 75,234,450
9.00%, 5/15/98...................................................................... 75,000,000 76,687,575
6.00%, 5/31/98...................................................................... 75,000,000 75,164,100
6.375%, 7/15/99..................................................................... 78,000,000 78,633,828
6.00%, 10/15/99..................................................................... 78,000,000 78,146,328
6.375%, 1/15/00..................................................................... 78,000,000 78,682,578
---------------
TOTAL BONDS (COST $1,266,059,081)..................................................... 1,265,254,270
---------------

SHORT-TERM OBLIGATIONS 14.1% (COST $1,824,753,914)
U.S. Treasury Bills, 4.84% to 5.34% with maturities to 11/20/97....................... 1,836,798,000 1,825,395,870
---------------
TOTAL INVESTMENTS: 99.6% (COST $10,792,209,241)....................................... 12,867,956,583
OTHER ASSETS, LESS LIABILITIES: 0.4%.................................................. 46,041,703
---------------
TOTAL NET ASSETS: 100.0%.............................................................. $12,913,998,286
===============
</TABLE>

*Non-income producing.
**Securities traded in U.S. dollars.
+The Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in affiliated companies at August 31,
1997, were $48,882,531.
See notes to financial statements.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Statements

STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997

<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $10,792,209,241)................................... $12,867,956,583
Cash......................................................................................... 6,084,973
Receivables:
Investment securities sold.................................................................. 18,526,266
Capital shares sold......................................................................... 32,355,096
Dividends and interest...................................................................... 64,701,557
---------------
Total assets............................................................................. 12,989,624,475
---------------
Liabilities:
Payables:
Investment securities purchased............................................................. 39,455,807
Capital shares redeemed..................................................................... 21,276,523
Accrued expenses............................................................................. 14,893,859
---------------
Total liabilities........................................................................ 75,626,189
---------------
Net assets, at value.................................................................... $12,913,998,286
===============
Net assets consist of:
Undistributed net investment income.......................................................... $ 243,486,766
Net unrealized appreciation.................................................................. 2,075,747,342
Accumulated net realized gain................................................................ 1,388,600,548
Capital shares............................................................................... 9,206,163,630
---------------
Net assets, at value..................................................................... $12,913,998,286
===============
CLASS I:
Net asset value per share ($12,129,282,793 / 539,719,731 shares outstanding)................. $22.47
===============
Maximum offering price per share ($22.47 / 94.25%)........................................... $23.84
===============
CLASS II:
Net asset value per share ($755,184,016 / 34,049,448 shares outstanding)..................... $22.18
---------------
Maximum offering price per share ($22.18 / 99.00%)........................................... $22.40
===============
ADVISOR CLASS:
Net asset value and offering price per share ($29,531,477 / 1,313,073 shares outstanding).... $22.49
===============
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997

<TABLE>
<S> <C> <C>
Investment income:
(net of $22,475,245 foreign taxes withheld)
Dividends...................................................................... $ 302,249,154
Interest....................................................................... 117,003,354
------------
Total investment income.................................................... $ 419,252,508
Expenses:
Management fees (Note 3)....................................................... 65,767,491
Administrative fees (Note 3)................................................... 8,655,311
Distribution fees (Note 3)
Class I....................................................................... 23,905,348
Class II...................................................................... 4,866,909
Transfer agent fees (Note 3)................................................... 9,591,750
Custodian fees................................................................. 3,186,750
Reports to shareholders........................................................ 2,351,500
Registration and filing fees................................................... 810,000
Professional fees (Note 3)..................................................... 82,000
Directors' fees and expenses................................................... 137,500
Other.......................................................................... 252,884
------------
Total expenses............................................................. 119,607,443
------------
Net investment income..................................................... 299,645,065
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments................................................................... 1,456,804,578
Foreign currency transactions................................................. (1,957,888)
------------
Net realized gain.............................................................. 1,454,846,690
Net unrealized appreciation on investments..................................... 835,123,789
------------
Net realized and unrealized gain................................................ 2,289,970,479
------------
Net increase in net assets resulting from operations............................ $2,589,615,544
============
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Financial Statements (continued)

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1997 AND 1996

<TABLE>
<CAPTION>
1997 1996
------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income....................................................... $ 299,645,065 $ 224,841,513
Net realized gain from investments and foreign currency transactions........ 1,454,846,690 428,620,792
Net unrealized appreciation on investments.................................. 835,123,789 145,676,185
------------------------------------
Net increase in net assets resulting from operations.................... 2,589,615,544 799,138,490
Distributions to shareholders from:
Net investment income
Class I.................................................................... (224,233,853) (166,533,266)
Class II................................................................... (6,799,222) (1,511,634)
Net realized gains
Class I.................................................................... (372,774,314) (608,010,954)
Class II................................................................... (13,998,148) (5,832,380)
Capital share transactions (Note 2)
Class I.................................................................... 1,795,361,405 1,474,318,953
Class II................................................................... 388,966,140 232,408,151
Advisor Class.............................................................. 27,036,800 --
------------------------------------
Net increase in net assets.............................................. 4,183,174,352 1,723,977,360
Net assets:
Beginning of year............................................................ 8,730,823,934 7,006,846,574
------------------------------------
End of year.................................................................. $12,913,998,286 $8,730,823,934
====================================
Undistributed net investment income included in net assets:
Beginning of year............................................................ $ 174,874,776 $ 118,129,870
====================================
End of year.................................................................. $ 243,486,766 $ 174,874,776
====================================
</TABLE>

See notes to financial statements.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Templeton Growth Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks long term capital growth through a flexible policy of investing in stocks
and debt obligations of companies and governments of any nation. The following
summarizes the Fund's significant accounting policies.

a. SECURITY VALUATION:

Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.

b. FOREIGN CURRENCY TRANSLATION:

Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date. When
the Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.

The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.

c. INCOME TAXES:

No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its taxable income.

d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.

Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.

e. ACCOUNTING ESTIMATES:

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.

<PAGE>

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (cont.)

2. CAPITAL SHARES

The Fund offers three classes of shares: Class I, Class II and Advisor Class
shares. The shares differ by their initial sales load, distribution fees, voting
rights on matters affecting a single class of shares and the exchange privilege
of each class.

At August 31, 1997, there were 1.8 billion shares authorized ($0.01 par value)
of which 1.2 billion, 400 million, and 200 million were designated as Class I
shares, Class II shares and Advisor Class shares, respectively. Transactions in
the Fund's shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------
CLASS I SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 116,375,056 $ 2,413,664,953 87,361,685 $1,592,605,239
Shares issued on reinvestment of distributions.............. 28,725,892 533,837,608 40,241,914 692,244,640
Shares redeemed............................................. (55,979,411) (1,152,141,156) (44,402,254) (810,530,926)
--------------------------------------------------------------------
Net increase................................................ 89,121,537 $ 1,795,361,405 83,201,345 $1,474,318,953
====================================================================
</TABLE>

<TABLE>
<CAPTION>
CLASS II SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 19,727,633 $ 406,674,814 13,048,416 $ 236,745,973
Shares issued on reinvestment of distributions.............. 977,215 18,004,847 369,922 6,330,234
Shares redeemed............................................. (1,736,615) (35,713,521) (588,522) (10,668,056)
--------------------------------------------------------------------
Net increase................................................ 18,968,233 $ 388,966,140 12,829,816 $ 232,408,151
====================================================================
</TABLE>

<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997*
------------------------------
ADVISOR CLASS SHARES AMOUNT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold................................................. 1,386,033 $ 28,617,159
Shares redeemed............................................. (72,960) (1,580,359)
------------------------------
Net increase................................................ 1,313,073 $ 27,036,800
==============================
</TABLE>

*Effective date of Advisor Class shares was January 2, 1997.

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.

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
------------------------------------------------------------------
<C> <S>
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 an administrative fee to FT Services based on the Fund's average
daily net assets as follows:

<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
------------------------------------------------------------------
<C> <S>
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>

<PAGE>

TEMPLETON GROWTH FUND, INC.
Notes to Financial Statements (cont.)

3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
The Fund reimburses Distributors up to 0.25% and 1.00% per year of the average
daily net asset of Class I and Class II, respectively, for costs incurred in
marketing the Fund's shares. Under the Class I distribution plan, costs
exceeding the maximum may be reimbursed in subsequent periods. At August 31,
1997, there were no unreimbursed costs.

Distributors received net commissions from sales of Fund shares, and received
contingent deferred sales charges for the period of $6,509,259 and $178,223,
respectively.

During the year ended August 31, 1997, legal fees of $22,196 were paid to a law
firm in which an officer of the Fund is a partner.

4. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding short-term securities) for the year
ended August 31, 1997 aggregated $4,944,398,061 and $3,998,273,551 respectively.

5. INCOME TAXES

At August 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $10,793,678,843 was as follows:

<TABLE>
<S> <C>
Unrealized appreciation....................... $2,310,398,860
Unrealized depreciation....................... (236,121,120)
--------------
Net unrealized appreciation................... $2,074,277,740
==============
</TABLE>

<PAGE>

TEMPLETON GROWTH FUND, INC.
Independent Auditor's Report

THE BOARD OF DIRECTORS AND SHAREHOLDERS
TEMPLETON GROWTH FUND, INC.

We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Templeton Growth Fund, Inc. as of August 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods indicated in the
accompanying financial statements. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Templeton Growth Fund, Inc. as of August 31, 1997, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.

McGladrey & Pullen, LLP

New York, New York
September 26, 1997

<PAGE>

TEMPLETON GROWTH FUND
Tax Designation

Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $1,284,300,000 as a capital gain dividend for the fiscal year ended
August 31, 1997.

Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
28.87% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended August 31, 1997.

<PAGE>

This page intentionally left blank

<PAGE>

This page intentionally left blank

<PAGE>

This page intentionally left blank

<PAGE>
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. 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.

FRANKLIN TEMPLETON GROUP

GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater
European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund

GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund

GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund

GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
Mutual Discovery Fund

GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.

Fund Allocator Series
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund

INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund

For Corporations
Franklin Corporate Qualified
Dividend Fund

FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund

FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**

VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)

*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).

**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.

***Portfolio of insured municipal securities.

+Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.

<PAGE>
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585

SHAREHOLDER SERVICES
1-800/632-2301

FUND INFORMATION
1-800/342-5236

This report must be preceded or accompanied by the current prospectus for the
Templeton Growth Fund, Inc., which contains more complete information including
risk factors, charges and expenses. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors, as well as investment decisions by the
Investment Manager, which will not always be profitable or wise. The Fund and
Fund investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept the risk of such losses 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.