ANNUAL
REPORT
October 31, 1998
FRANKLIN TEMPLETON
INTERNATIONAL TRUST
TEMPLETON FOREIGN SMALLER COMPANIES FUND
TEMPLETON PACIFIC GROWTH FUND
[FRANKLIN TEMPLETON LOGO]
<PAGE>
[CELEBRATING OVER 50 YEARS LOGO]
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
[PHOTO OF RUPERT H. JOHNSON JR.]
Rupert H. Johnson, Jr.
President
Franklin Templeton
International Trust
<PAGE>
SHAREHOLDER LETTER
Dear Shareholder:
This annual report for Franklin Templeton International Trust, which consists of
Templeton Foreign Smaller Companies Fund and Templeton Pacific Growth Fund,
covers the fiscal year ended October 31, 1998. During the reporting period,
Asia's economic woes continued to spread to other regions, Russia suffered a
political and financial meltdown and many global equity markets fell. The Morgan
Stanley Capital International(R) Europe, Australasia, Far East Index (MSCI
EAFE), which tracks the equity markets of 20 nations, posted a one-year total
return of 7.91%, while the MSCI Pacific Index, representative of five countries
in that region, posted -15.00% for the year under review.
While such returns can be unsettling, it is important to remember that
securities markets always have fluctuated. However, over the long term, stocks
have provided impressive results, and we urge you to focus on achieving your
long-term investment goals rather than concentrating on short-term market
cycles.
CONTENTS
Shareholder Letter ..... 1
Fund Reports
Templeton Foreign
Smaller Companies Fund . 3
Templeton Pacific
Growth Fund ............ 18
Financial Highlights &
Statement of Investments 30
Financial Statements ... 45
Notes to
Financial Statements ... 49
Independent
Auditors' Report ....... 54
Tax Designation ........ 55
FUND CATEGORY
[PYRAMID GRAPHIC]
<PAGE>
On the following pages, you will find detailed discussions about Templeton
Foreign Smaller Companies Fund and Templeton Pacific Growth Fund. Although the
Funds have different investment strategies, their managers share a dedication to
the principles of careful stock selection, diversification, and constant
professional supervision. For specific information about the Funds, including
how market conditions and management strategies have affected their performance,
please refer to the reports following this letter.
We thank you for your continued support, welcome your questions, and look
forward to serving your investment needs in the years to come.
Sincerely,
/s/ Rupert H. Johnson, Jr.
- ----------------------------
Rupert H. Johnson, Jr.
President
Franklin Templeton International Trust
2
<PAGE>
TEMPLETON FOREIGN
SMALLER COMPANIES FUND
Your Fund's Goal: Templeton Foreign Smaller Companies Fund tries to achieve
long-term capital growth by investing, under normal market conditions, at least
65% of its total net assets in equity securities of smaller companies outside
the United States. Smaller companies generally are those with market
capitalizations of less than $1 billion.
During the fiscal year under review, global equity markets generally experienced
severe volatility. While several markets in Europe began the period strongly,
many fell significantly in August and September before rebounding in October.
Asia's financial crisis continued, and except for a slight rebound in some
indices in the middle of the reporting period, most equity markets there fell
precipitously. Many stock markets in Latin America also dropped during the
period, as Asia's economic woes impacted economies there. Within this
environment, Templeton Foreign Smaller Companies Fund - Class I posted a -12.64%
one-year cumulative total return, as discussed in the Performance Summary on
page 7. The Morgan Stanley Capital International(R) Europe, Australasia, Far
East Index returned 7.91% during the same period, while the Salomon Brothers
Global ex-U.S. less than $1 billion Index returned -1.26%.(1)
(1). MSCI EAFE Index includes approximately 1,100 companies representing the
stock markets of 20 countries including Germany, France, Australia, New Zealand
and Japan. The Salomon Brothers Global ex-U.S. less than $1 billion Index is a
total-capitalization weighted index that includes all developed and emerging
countries, except the United States, and includes companies with a total market
capitalization below U.S. $1 billion.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 40 of
this report.
GEOGRAPHIC DISTRIBUTION
Templeton Foreign
Smaller Companies Fund
Based on Total Net Assets
10/31/98
[PIE CHART]
Europe 54.2%
Asia 13.2%
North America 8.3%
Australia & New Zealand 5.95%
Latin America 4.6%
Middle East & Africa 2.3%
Short-Term Investments & Other Net Assets 11.5%
3
<PAGE>
TOP 10 INDUSTRIES
Templeton Foreign Smaller
Companies Fund
10/31/98
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Merchandising 12.4%
Food & Household Products 7.5%
Building Materials & Components 5.6%
Insurance 4.7%
Banking 4.6%
Industrial Components 4.1%
Metals & Mining 4.0%
Electrical & Electronics 3.8%
Transportation 3.4%
Business & Public Services 3.2%
</TABLE>
Attempting to take advantage of market declines, we invested in a number of
companies that we believed had positive earnings potential and attractive share
prices. On October 31, 1998, the Fund had net assets of approximately $127
million invested in 35 countries. We increased our exposure to the energy
sources and financial services sectors during the period, and decreased our
holdings in the multi-industry and transportation sectors. At the end of the
period, our largest positions were in Europe (54.2% of total net assets), Asia
(13.2%), and North America (8.3%). By country, our largest exposure was to the
United Kingdom (14.8%), followed by the Netherlands (9.6%), Hong Kong (6.4%),
Canada (6.0%) and France (5.1%).
During the period, Russia suffered an economic and political meltdown, which
affected many European banks, as well as companies with any trading connections
to Russia. Businesses expecting to sell goods to Russia had to reassess their
plans and reduce earnings expectations. While Scandinavian companies generally
had the closest ties to Russia and were among the hardest hit, share prices of
many French, German, Spanish, and Swiss companies were also down. We invested in
several European companies during the period, such as the United Kingdom's
Eurodis Electron Plc. In addition, we purchased additional shares of France's
Sylea, SA, one of Europe's largest manufacturers of automobile wiring systems,
and Bilia Plc., a Swedish-based Volvo and Renault dealer, which we believe may
benefit from a recovery in Swedish auto demand and new car models.
In Asia, the Hong Kong Monetary Authority attempted to defend the Hong Kong
dollar's peg to the U.S. dollar by purchasing equities. This contributed to
relatively flat performance for
4
<PAGE>
Hong Kong stocks, but we had limited the Fund's holdings there to shares of
companies that our analysis indicated had good management track records, strong
balance sheets, minimal real estate exposure, and attractive earnings prospects.
Elsewhere, Japan's continued economic recession and lack of banking reform drove
its stock market down 13.6% in U.S. dollar terms during the year.(2) During the
reporting period, we initiated positions in Varitronix International Ltd. of
Hong Kong and Best Denki Co. Ltd. of Japan. We also purchased shares of Housing
Development Finance Corp. Ltd., one of India's premier housing financial
institutions. In our opinion, this company has strong management, appealing
growth prospects and a dominant market position.
In Latin America, Brazilian equities declined sharply, investment capital left
the country, and Brazil's central bank defended its currency by using high
short-term interest rates. This exacerbated the country's already large fiscal
deficit, raising speculation about a currency devaluation there. Other Latin
American markets suffered declines as well, with Argentina and Peru's equity
markets down significantly during the period under review.
Spurred by an unexpected cut in U.S. interest rates, many global equity markets
rose in October, but we are not convinced this rally is sustainable. In our
opinion, additional economic problems may surface in the near term, which could
hurt earnings prospects for many companies. However, such situations often give
rise to opportunities for us to purchase shares of quality companies at what we
believe are bargain prices. By focusing on companies we believe have solid
balance sheets, reliable cash
(2). Source: Bloomberg. Market return includes reinvested dividends.
TOP 10 HOLDINGS
Templeton Foreign
Smaller Companies Fund
10/31/98
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Sa des Galeries Lafayette,
Merchandising, France 2.5%
Oshawa Group Ltd.,
Food & Household Products, Canada 1.8%
Hazlewood Foods Plc.,
Food & Household Products, United Kingdom 1.7%
Sovereign Ltd.,
Insurance, New Zealand 1.4%
Fokus Bank AS,
Banking, Norway 1.3%
Moebel Walther AG,
Merchandising, Germany 1.3%
Somerfield Plc.,
Merchandising, United Kingdom 1.3%
Perkins Foods Plc.,
Food & Household Products, United Kingdom 1.3%
GTC Transcontinental Group Ltd., B,
Broadcasting & Publishing, Canada 1.3%
Vtech Holdings Ltd.,
Electronic Components & Instruments, Hong Kong 1.3%
</TABLE>
5
<PAGE>
flow, realistic management and strong franchises, we hope to achieve attractive
long-term performance for the Fund's investors.
Of course, there are risks involved in investing in a fund seeking long-term
capital growth from small or relatively new or unseasoned companies, such as
relatively small revenues, limited production lines and small market share. In
addition, investing in international markets involves special risks related to
market and currency volatility, and adverse economic, social, and political
developments. Emerging markets are subject to heightened risks, as well as those
associated with their relatively small size and lesser liquidity. Investing in
any emerging market means accepting a certain amount of volatility and, in some
cases, severe market corrections. For example, the Hong Kong equity market has
increased 939% in the last 15 years, but has suffered five declines of more than
20% during that time.(3) While short-term volatility can be disconcerting,
declines in excess of 50% are not unusual in emerging markets.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of October 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
We thank you for your support and look forward to serving your investment needs
in the future.
(3). Source: Bloomberg. Based on quarterly percentage price change over 15 years
ended September 30, 1998. Market returns are measured in Hong Kong dollars.
6
<PAGE>
PERFORMANCE SUMMARY
Class I
Templeton Foreign Smaller Companies Fund - Class I posted a -12.64% cumulative
total return for the one-year period ended October 31, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
all distributions at net asset value, and does not include the initial sales
charge. While we expect market volatility in the short term, we have always
maintained a long-term perspective when managing the Fund, and we encourage
shareholders to view their investments in a similar manner. As you can see from
the table on page 11, the Fund's Class I shares delivered a +79.26% cumulative
total return since inception on September 20, 1991.
Effective October 1, 1996, Franklin Templeton International Trust's Board of
Trustees approved a change in the name and focus of the Fund. The Fund's name
was changed from Franklin International Equity Fund to Templeton Foreign Smaller
Companies Fund. The Fund, which until that date invested predominantly in large
capitalization foreign equity securities, shifted its emphasis to smaller
capitalization foreign equity securities with a market capitalization of $1
billion or less. For the period since inception until these changes were
implemented on October 1, 1996, the average annual total return for the Fund's
Class I shares
Past performance is not predictive of future results. 7
<PAGE>
was +10.48%. For the period from October 1, 1996, to October 31, 1998, the
Fund's Class I shares have posted a +1.52% average annual total return.
The Fund's Class I share price, as measured by net asset value, decreased $2.73,
from $15.06 on October 31, 1997, to $12.33 on October 31, 1998. During the
reporting period, shareholders received per-share distributions of 24.0 cents
($0.2400) in income dividends, 33.0 cents ($0.3300) in short-term capital gains,
and 33.5 cents ($0.3350) in long-term capital 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 page 10 compares the performance of the Fund's Class I shares and
the Morgan Stanley Capital International(R) Europe, Australasia, Far East (MSCI
EAFE) Index since the Fund's inception on September 20, 1991. The MSCI EAFE
Index includes approximately 1,100 companies representing the stock markets of
20 countries including Germany, France, Australia, New Zealand and Japan. The
graph also compares the performance of the Fund's Class I shares and a
proprietary index
8 Past performance is not predictive of future results.
<PAGE>
developed by the Templeton organization that represents the combined performance
of the MSCI EAFE from the Fund's inception on September 20, 1991 through October
1, 1996, and the Salomon Brothers Global ex-U.S. Index from October 1, 1996
through October 31, 1998. The Salomon Brothers Global ex-U.S. less than $1
billion Index is a total-capitalization weighted index that includes all
developed and emerging countries, except the United States, and includes
companies with a total market capitalization below US $1 billion.
Management has added the MSCI EAFE/Salomon Brothers Global ex-U.S. Index this
year because we believe the composition of this proprietary index also provides
for a relevant comparison to the Fund's portfolio, given the Fund's change in
emphasis from investment in large capitalization securities to smaller
capitalization securities on October 1, 1996. The proprietary index has been
constructed to correspond to that change in investment policy.
Please remember, 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 or operating 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. 9
<PAGE>
TOTAL RETURN INDEX COMPARISON
Templeton Foreign Smaller Companies Fund - Class I
$10,000 Investment (9/20/91 - 10/31/98)
[Index Charts]
GRAPHIC MATERIAL (4)
The following line graph compares the performance of Templeton Foreign Smaller
Companies Fund's Class I shares to that of the Morgan Stanley Capital
International Europe, Australasia, Far East (MSCI EAFE) Index and the combined
MSCI EAFE/Salomon Brothers Global ex-US less than $1 billion Index, based on a
$10,000 investment from 9/20/91 to 10/31/98.
<TABLE>
<CAPTION>
Templeton Foreign MSCI EAFE Eafe/Salomon
Smaller Companies Index Global xUS
Fund - Class I $1 Billion
<S> <C> <C> <C>
9/20/91 $9,426 $10,000 $10,000
9/91 $9,444 $10,182 $10,182
Oct-91 $9,482 $10,329 $10,329
Nov-91 $9,397 $9,849 $9,849
Dec-91 $9,773 $10,361 $10,362
Jan-92 $9,887 $10,143 $10,143
Feb-92 $9,982 $9,783 $9,783
Mar-92 $9,593 $9,140 $9,140
Apr-92 $9,811 $9,185 $9,186
May-92 $10,333 $9,803 $9,804
Jun-92 $10,139 $9,341 $9,342
Jul-92 $9,908 $9,105 $9,106
Aug-92 $9,966 $9,679 $9,681
Sep-92 $9,803 $9,491 $9,493
Oct-92 $9,620 $8,996 $8,998
Nov-92 $9,774 $9,084 $9,085
Dec-92 $9,860 $9,133 $9,135
Jan-93 $9,715 $9,135 $9,137
Feb-93 $9,889 $9,414 $9,416
Mar-93 $10,121 $10,237 $10,239
Apr-93 $10,497 $11,211 $11,214
May-93 $10,825 $11,451 $11,454
Jun-93 $10,480 $11,275 $11,277
Jul-93 $10,659 $11,672 $11,674
Aug-93 $11,338 $12,305 $12,307
Sep-93 $11,298 $12,030 $12,032
Oct-93 $12,256 $12,404 $12,407
Nov-93 $11,907 $11,323 $11,325
Dec-93 $13,116 $12,142 $12,145
Jan-94 $14,099 $13,172 $13,175
Feb-94 $13,868 $13,138 $13,140
Mar-94 $13,377 $12,575 $12,577
Apr-94 $13,477 $13,111 $13,114
May-94 $13,527 $13,038 $13,042
Jun-94 $13,147 $13,226 $13,229
Jul-94 $13,695 $13,356 $13,360
Aug-94 $14,111 $13,675 $13,680
Sep-94 $13,787 $13,247 $13,251
Oct-94 $14,040 $13,692 $13,697
Nov-94 $13,340 $13,037 $13,042
Dec-94 $13,101 $13,121 $13,127
Jan-95 $12,780 $12,621 $12,627
Feb-95 $12,983 $12,588 $12,594
Mar-95 $12,941 $13,376 $13,382
Apr-95 $13,539 $13,883 $13,889
May-95 $13,806 $13,721 $13,727
Jun-95 $14,156 $13,484 $13,489
Jul-95 $14,826 $14,327 $14,334
Aug-95 $14,394 $13,784 $13,791
Sep-95 $14,750 $14,057 $14,064
Oct-95 $14,286 $13,682 $13,690
Nov-95 $14,351 $14,067 $14,074
Dec-95 $14,504 $14,637 $14,646
Jan-96 $15,024 $14,701 $14,710
Feb-96 $15,438 $14,754 $14,763
Mar-96 $15,674 $15,071 $15,080
Apr-96 $16,147 $15,513 $15,522
May-96 $16,384 $15,231 $15,240
Jun-96 $16,438 $15,320 $15,330
Jul-96 $15,912 $14,876 $14,885
Aug-96 $16,306 $14,913 $14,922
Sep-96 $16,509 $15,312 $15,322
Oct-96 $16,927 $15,160 $15,338
Nov-96 $17,393 $15,767 $15,632
Dec-96 $18,011 $15,568 $15,365
Jan-97 $18,164 $15,027 $15,475
Feb-97 $18,432 $15,276 $15,841
Mar-97 $18,535 $15,335 $15,495
Apr-97 $18,343 $15,421 $15,192
May-97 $18,930 $16,427 $16,007
Jun-97 $19,635 $17,337 $16,345
Jul-97 $19,827 $17,621 $16,103
Aug-97 $19,943 $16,309 $15,256
Sep-97 $20,880 $17,226 $15,288
Oct-97 $19,339 $15,906 $14,371
Nov-97 $18,787 $15,747 $13,319
Dec-97 $18,534 $15,889 $12,914
Jan-98 $18,057 $16,619 $13,190
Feb-98 $19,531 $17,689 $14,300
Mar-98 $20,404 $18,238 $14,802
Apr-98 $20,663 $18,386 $14,852
May-98 $20,336 $18,301 $14,551
Jun-98 $19,443 $18,443 $13,813
Jul-98 $19,182 $18,635 $13,517
Aug-98 $16,634 $16,330 $11,526
Sep-98 $16,209 $15,834 $11,523
OCT-98 $16,895 $17,489 $12,322
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS I SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown, and have been restated to include the current, maximum 5.75%
initial sales charge, assuming reinvestment of distributions at net asset value.
Prior to January 2, 1997, Fund shares were offered at a lower initial sales
charge. Thus, actual returns would have been higher. On July 1, 1993, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance. Past
performance is not predictive of future results.
**Source: CDA/Wiesenberger. Indices are unmanaged and include reinvested
dividends. One cannot invest directly in an index.
10 Past performance is not predictive of future results.
<PAGE>
PERFORMANCE
Templeton Foreign Smaller Companies Fund - Class I
Periods ended 10/31/98
<TABLE>
<CAPTION>
SINCE
CHANGE IN
SINCE INVESTMENT
INCEPTION POLICIES
1-YEAR 3-YEAR 5-YEAR (9/20/91) (10/1/96)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) -12.64% +18.26% +37.85% +79.26% +9.50%
Average Annual
Total Return(2) -17.67% +3.68% +5.37% +7.65% +1.52%
Value of $10,000
Investment(3) $8,233 $11,146 $12,992 $16,895 $10,320
</TABLE>
<TABLE>
<CAPTION>
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +14.56% +1.75% +18.49% +14.25% -12.64%
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and has been restated to include the
current, maximum 5.75% initial sales charge. Prior to January 2, 1997, Fund
shares were offered at a lower initial sales charge; thus, actual returns would
have been higher.
(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and have been restated to include the
current, maximum 5.75% initial sales charge. Prior to January 2, 1997, Fund
shares were offered at a lower initial sales charge; thus, actual returns would
have been higher.
(4). One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include the sales charge.
On July 1, 1993, the Fund implemented a Rule 12b-1 plan, which affects
subsequent performance. All calculations assume reinvestment of distributions at
net asset value. Past expense waivers by the Fund's Manager increased the total
return of Class I shares. If the Fund's Manager had not taken this action, total
returns for Class I shares would have been lower. Since markets can go down as
well as up, investment return and principal value will fluctuate with market
conditions, currency volatility, and the economic, social and political climates
of countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results. 11
<PAGE>
CLASS II
Templeton Foreign Smaller Companies Fund - Class II posted a -13.42% cumulative
total return since inception on July 1, 1998. Cumulative total return measures
the change in value of an investment, assuming reinvestment of all distributions
at net asset value, and does not include sales charges.
The Fund's Class II share price, as measured by net asset value, decreased
$1.91, from $14.23 at inception on July 1, 1998, to $12.32 on October 31, 1998.
During the reporting period, shareholders did not receive distributions.
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.
12 Past performance is not predictive of future results.
<PAGE>
PERFORMANCE
Templeton Foreign Smaller Companies Fund - Class II
Period ended 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
(7/1/98)
- ----------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) -13.42%
Aggregate Total Return(2) -15.12%
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2). Aggregate total return represents the change in value of an investment over
the period indicated and includes the 1.0% initial sales charge and the 1.0%
contingent deferred sales charge applicable to shares redeemed within 18 months
of investment. Since this share class has existed for less than one year,
average annual total returns are not provided.
All calculations assume reinvestment of distributions, if any, at net asset
value. Since markets can go down as well as up, investment return and principal
value will fluctuate with market conditions, currency volatility, and the
economic, social and political climates of countries where the Fund invests.
Emerging markets involve heightened risks related to the same factors, in
addition to those associated with their relatively small size and lesser
liquidity. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results. 13
<PAGE>
ADVISOR CLASS
Templeton Foreign Smaller Companies Fund - Advisor Class posted a -12.55%
cumulative total return for the one-year period ended October 31, 1998.
Cumulative total return measures the change in value of an investment, assuming
reinvestment of all distributions at net asset value. While we expect market
volatility in the short term, we have always maintained a long-term perspective
when managing the Fund, and we encourage shareholders to view their investments
in a similar manner. As you can see from the table on page 17, the Fund's
Advisor Class shares delivered a +79.91% cumulative total return since inception
on September 20, 1991.
Effective October 1, 1996, the Franklin Templeton International Trust's Board of
Trustees approved a change in the name and focus of the Fund. The Fund's name
was changed from Franklin International Equity Fund to Templeton Foreign Smaller
Companies Fund. The Fund, which until that date invested predominantly in large
capitalization foreign equity securities, shifted its emphasis to smaller
capitalization foreign equity securities with a market capitalization of $1
billion or less. For the period since inception until these changes were
implemented on October 1, 1996, the average annual total return for the Fund's
Advisor Class shares was +11.78%. For the period from October 1, 1996, to
October 31, 1998, the Fund's Advisor Class shares have posted a +4.63% average
annual total return.
The Fund's Advisor Class share price, as measured by net asset value, decreased
$2.75, from $15.09 on October 31, 1997, to $12.34 on October 31, 1998. During
the reporting period, shareholders received per-share distributions of 27.21
cents ($0.2721) in income dividends, 33.0 cents ($0.3300) in short-term capital
gains, and 33.5 cents ($0.3350) in long-term capital gains. Distributions will
vary depending on income earned by the
14 Past performance is not predictive of future results.
<PAGE>
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 page 16 compares the performance of the Fund's Advisor Class shares
with the performance of the Morgan Stanley Capital International(R) Europe,
Australasia, Far East (MSCI EAFE) Index since the Fund's inception on September
20, 1991. The MSCI EAFE Index includes approximately 1,100 companies
representing the stock markets of 20 countries including Germany, France,
Australia, New Zealand and Japan. The graph also compares the performance of the
Fund's Advisor Class shares and a proprietary index developed by the Templeton
organization that represents the combined performance of the MSCI EAFE from the
Fund's inception on September 20, 1991 through October 1, 1996, and the Salomon
Brothers Global ex-U.S. Index from October 1, 1996 through October 31, 1998. The
Salomon Brothers Global ex-U.S. less than $1 billion Index is a total-
capitalization weighted index that includes all developed and emerging
countries, except the United States, and includes companies with a total market
capitalization below US $1 billion.
Management has added the MSCI EAFE/Salomon Brothers Global ex-U.S. Index this
year because we believe the composition of this proprietary index also provides
for a relevant comparison to the Fund's portfolio, given the Fund's change in
emphasis from investment in large capitalization securities to smaller
capitalization securities on October 1, 1996. The proprietary index has been
constructed to correspond to that change in investment policy.
Please remember, 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 or operating 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. 15
<PAGE>
TOTAL RETURN INDEX COMPARISON
Templeton Foreign Smaller Companies Fund - Advisor Class
$10,000 Investment (9/20/91 - 10/31/98)
[Index Chart]
GRAPHIC MATERIAL (5)
The following line graph compares the performance of Templeton Foreign Smaller
Companies Fund's Advisor Class shares to that of the Morgan Stanley Capital
International Europe, Australasia, Far East (MSCI EAFE) Index and the combined
MSCI EAFE/Salomon Brothers Global ex-US less than $1 billion Index, based on a
$10,000 investment from 9/20/91 to 10/31/98.
<TABLE>
<CAPTION>
Templeton Foreign Smaller MSCI EAFE Eafe/Salomon
Companies Fund - Advisor Index Global xUS
Class $1 Billion
<S> <C> <C> <C>
9/20/91 $10,000 $10,000 $10,000
9/91 $10,020 $10,182 $10,182
Oct-91 $10,060 $10,329 $10,329
Nov-91 $9,970 $9,849 $9,849
Dec-91 $10,369 $10,361 $10,362
Jan-92 $10,490 $10,143 $10,143
Feb-92 $10,590 $9,783 $9,783
Mar-92 $10,177 $9,140 $9,140
Apr-92 $10,409 $9,185 $9,186
May-92 $10,963 $9,803 $9,804
Jun-92 $10,757 $9,341 $9,342
Jul-92 $10,512 $9,105 $9,106
Aug-92 $10,573 $9,679 $9,681
Sep-92 $10,400 $9,491 $9,493
Oct-92 $10,207 $8,996 $8,998
Nov-92 $10,370 $9,084 $9,085
Dec-92 $10,461 $9,133 $9,135
Jan-93 $10,307 $9,135 $9,137
Feb-93 $10,492 $9,414 $9,416
Mar-93 $10,737 $10,237 $10,239
Apr-93 $11,136 $11,211 $11,214
May-93 $11,484 $11,451 $11,454
Jun-93 $11,118 $11,275 $11,277
Jul-93 $11,309 $11,672 $11,674
Aug-93 $12,029 $12,305 $12,307
Sep-93 $11,987 $12,030 $12,032
Oct-93 $13,003 $12,404 $12,407
Nov-93 $12,633 $11,323 $11,325
Dec-93 $13,915 $12,142 $12,145
Jan-94 $14,958 $13,172 $13,175
Feb-94 $14,713 $13,138 $13,140
Mar-94 $14,192 $12,575 $12,577
Apr-94 $14,298 $13,111 $13,114
May-94 $14,351 $13,038 $13,042
Jun-94 $13,948 $13,226 $13,229
Jul-94 $14,530 $13,356 $13,360
Aug-94 $14,971 $13,675 $13,680
Sep-94 $14,627 $13,247 $13,251
Oct-94 $14,896 $13,692 $13,697
Nov-94 $14,153 $13,037 $13,042
Dec-94 $13,899 $13,121 $13,127
Jan-95 $13,559 $12,621 $12,627
Feb-95 $13,775 $12,588 $12,594
Mar-95 $13,729 $13,376 $13,382
Apr-95 $14,364 $13,883 $13,889
May-95 $14,648 $13,721 $13,727
Jun-95 $15,019 $13,484 $13,489
Jul-95 $15,729 $14,327 $14,334
Aug-95 $15,271 $13,784 $13,791
Sep-95 $15,649 $14,057 $14,064
Oct-95 $15,156 $13,682 $13,690
Nov-95 $15,225 $14,067 $14,074
Dec-95 $15,388 $14,637 $14,646
Jan-96 $15,940 $14,701 $14,710
Feb-96 $16,379 $14,754 $14,763
Mar-96 $16,629 $15,071 $15,080
Apr-96 $17,131 $15,513 $15,522
May-96 $17,382 $15,231 $15,240
Jun-96 $17,439 $15,320 $15,330
Jul-96 $16,882 $14,876 $14,885
Aug-96 $17,300 $14,913 $14,922
Sep-96 $17,515 $15,312 $15,322
Oct-96 $17,959 $15,160 $15,338
Nov-96 $18,453 $15,767 $15,632
Dec-96 $19,108 $15,568 $15,365
Jan-97 $19,271 $15,027 $15,475
Feb-97 $19,556 $15,276 $15,841
Mar-97 $19,678 $15,335 $15,495
Apr-97 $19,461 $15,421 $15,192
May-97 $20,098 $16,427 $16,007
Jun-97 $20,858 $17,337 $16,345
Jul-97 $21,076 $17,621 $16,103
Aug-97 $21,199 $16,309 $15,256
Sep-97 $22,222 $17,226 $15,288
Oct-97 $20,572 $15,906 $14,371
Nov-97 $19,986 $15,747 $13,319
Dec-97 $19,707 $15,889 $12,914
Jan-98 $19,199 $16,619 $13,190
Feb-98 $20,767 $17,689 $14,300
Mar-98 $21,710 $18,238 $14,802
Apr-98 $21,986 $18,386 $14,852
May-98 $21,652 $18,301 $14,551
Jun-98 $20,686 $18,443 $13,813
Jul-98 $20,424 $18,635 $13,517
Aug-98 $17,712 $16,330 $11,526
Sep-98 $17,275 $15,834 $11,523
OCT-98 $17,991 $17,489 $12,322
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S ADVISOR CLASS SHARES. THE
FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH
AFFECT THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown, assuming reinvestment of distributions at net asset value. On
January 2, 1997, the Fund began selling Advisor Class shares to certain eligible
investors as described in the prospectus. This share class does not have sales
charges or a Rule 12b-1 plan. Performance quotations have been calculated as
follows: (a) For periods prior to January 2, 1997, figures reflect the Fund's
Class I performance, excluding the effect of the Class I sales charge, but
including the effect of Rule 12b-1 fees and other Class I expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to Advisor
Class shares. Past performance is not predictive of future results.
**Source: CSA/Wiesenberger. Indices are unmanaged and include reinvested
dividends. One cannot invest directly in an index.
16 Past performance is not predictive of future results.
<PAGE>
PERFORMANCE
Templeton Foreign Smaller Companies Fund - Advisor Class
Periods ended 10/31/98
<TABLE>
<CAPTION>
SINCE
CHANGE IN
SINCE INVESTMENT
INCEPTION POLICIES
1-YEAR* 3-YEAR* 5-YEAR* (9/20/91)* (10/1/96)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) -12.55% +18.69% +38.35% +79.91% +9.90%
Average Annual
Total Return(1) -12.55% +5.87% +6.70% +8.60% +4.63%
Value of $10,000
Investment(2) $8,752 $11,869 $13,835 $17,991 $10,990
</TABLE>
<TABLE>
<CAPTION>
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(3),* 14.56% 1.75% 18.49% 14.55% -12.55%
</TABLE>
*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Rule 12b-1 fees and other Class I expenses;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
Advisor Class shares. Since January 2, 1997 (commencement of sales), the
cumulative total return of Advisor Class shares was -5.18%.
(1). Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the average
annual change in value of an investment over the periods indicated.
(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 periods ended on the dates indicated.
All calculations assume reinvestment of distributions at net asset value. Past
expense waivers by the Fund's Manager increased the total return of Advisor
Class shares. If the Fund's Manager had not taken this action, total returns for
Advisor Class shares would have been lower. Since markets can go down as well as
up, investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results. 17
<PAGE>
TEMPLETON PACIFIC GROWTH FUND
GEOGRAPHIC DISTRIBUTION
Templeton Pacific Growth Fund
Based on Total Net Assets
10/31/98
Hong Kong 27.3%
Japan 19.6%
Singapore 10.4%
United States 8.8%
Australia 8.5%
South Korea 3.4%
China 2.5%
Malaysia 2.2%
Finland 2.0%
Philippines 1.7%
New Zealand 1.3%
India 1.2%
Thailand 1.1%
Other Countries 1.9%
Short-Term Investments & Other Net Assets 8.1%
Your Fund's Goal: Templeton Pacific Growth Fund tries to achieve long-term
capital growth by investing at least 65% of its total assets in equity
securities that trade on Pacific Rim markets, as defined in the Fund's
prospectus, and are issued by companies that have their principal activities in
the Pacific Rim.
Dear Shareholder:
During the fiscal year ended October 31, 1998, several factors contributed to
the weakening of investor confidence in Asia. Japan's economy deteriorated
considerably because of problems in its banking sector and in an effort to
maintain the Hong Kong dollar's peg to the U.S. dollar, the Hong Kong government
supported prices in its stock market. Meanwhile, the Malaysian government
introduced strict capital and stock market controls requiring foreign investors
to hold Malaysian stock for at least one year. If such investors sell before one
year, they must maintain the proceeds in a Malaysian bank account for one year
from the date of sale. Within this environment, the Fund's Class I shares posted
a -26.37% one-year cumulative total return and the Morgan Stanley Capital
International(R) (MSCI) Pacific Index, the Fund's benchmark index, declined
13.71% during the same period as shown in the Performance Summary on page 21.(1)
(1). Source: Standard & Poor's(R) Micropal. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
You will find a complete listing of the Fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 33 of
this report.
18
<PAGE>
Because currency stability remained a key concern, we increased the
Fund's weighting in international companies with some Pacific Rim exposure. For
example, we initiated a position in UPM-Kymmene Corp. In our opinion,
internationally-diversified companies such as this may be better equipped than
companies with a greater emphasis in Asia to absorb the shock of any additional
currency devaluations. In keeping with this strategy, we also increased our
exposure to Australian companies, from 6.1% to 8.5% of total net assets.
Although capital controls requiring foreign investors to hold Malaysian ringgit
for a minimum of one year after selling out of stocks introduced some short-term
stability to the economy, we ceased purchasing Malaysian securities in late
1997. Unless debt-ridden balance sheets are cleaned up and market transparency
is increased, we believe Malaysian companies will be cut off from capital
markets. Although we believe property prices in Hong Kong must stabilize before
economic growth can resume there, our long-term outlook for Hong Kong in general
is favorable, as long as the Hong Kong Monetary Authority uses market
intervention as a short-term tool and not to influence investors' opinions about
company fundamentals. In our opinion, Japan's equity market may continue to drop
because many companies there have not yet recognized significant investment
losses in marketable securities on their balance sheets. Once we start to see
such companies acknowledging these losses, we may find reasons to increase the
Fund's Japanese investments.
TOP 10 INDUSTRIES
Templeton Pacific Growth Fund
10/31/98
<TABLE>
<CAPTION>
% OF TOTAL
INDUSTRY NET ASSETS
- ----------------------------------------------
<S> <C>
Electrical & Electronics 10.7%
Real Estate 8.9%
Transportation 8.4%
Multi-Industry 7.2%
Telecommunications 7.2%
Banking 7.0%
Forest Products & Paper 5.9%
Metals & Mining 5.5%
Industrial Components 5.4%
Merchandising 4.3%
</TABLE>
19
<PAGE>
TOP 10 HOLDINGS
Templeton Pacific Growth Fund
10/31/98
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY, COUNTRY NET ASSETS
- -------------------------------------------------------------------
<S> <C>
Johnson Electric Holdings Ltd.,
Electrical & Electronics, Hong Kong 3.8%
Hong Kong Telecommunications Ltd.,
Telecommunications, Hong Kong 3.0%
Fuji Heavy Industries Ltd.,
Industrial Components, Japan 3.0%
Development Bank of Singapore Ltd., fgn.,
Banking, Singapore 2.9%
New World Development Co., Ltd.,
Real Estate, Hong Kong 2.5%
Matsuzakaya Co. Ltd.,
Merchandising, Japan 2.4%
Cheung Kong Holdings Ltd.,
Multi-Industry, Hong Kong 2.3%
Sun Hung Kai Properties Ltd.,
Real Estate, Hong Kong 2.2%
City Developments Ltd.,
Real Estate, Singapore 2.1%
SK Telecom Co. Ltd., ADR,
Telecommunications, South Korea 2.1%
</TABLE>
Looking forward, we expect many Asian governments to implement fundamental
economic reforms in an effort to solve the region's monumental economic
problems. However, U.S. interest rate cuts could weaken the dollar which could
help countries and companies with large amounts of U.S. dollar-denominated debt
repay their loans more easily.
Of course, there are special risks involved with investing in a portfolio of
securities concentrated in a single geographic region that also contains
emerging markets. These risks include market and currency volatility, adverse
economic, social, and political developments, and the relatively small size and
lesser liquidity of these markets. Investing in any emerging market means
accepting a certain amount of volatility and, in some cases, severe market
corrections. For example, the Hong Kong equity market has increased +939% in the
last 15 years, but has suffered five declines of more than 20% during that
time.(2) While short-term volatility can be disconcerting, declines in excess of
50% are not unusual in emerging markets.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of October 31, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the Fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
better understand our investment and management philosophy.
(2). Source: Bloomberg. Based on quarterly percentage price change over the 15
years ended September 30, 1998. Market returns are measured in Hong Kong
dollars.
20
<PAGE>
PERFORMANCE SUMMARY
CLASS I
Templeton Pacific Growth Fund - Class I posted a -26.37% cumulative total return
for the one-year period ended October 31, 1998. Cumulative total return measures
the change in value of an investment, assuming reinvestment of all distributions
at net asset value, and does not include the initial sales charge. While we
expect market volatility in the short term, we have always maintained a
long-term perspective when managing the Fund, and we encourage shareholders to
view their investments in a similar manner.
The Fund's share price, as measured by net asset value, decreased $3.05, from
$10.88 on October 31, 1997, to $7.83 on October 31, 1998. During the reporting
period, shareholders received per-share distributions of 13.5 cents ($0.135) in
income dividends and 6.5 cents ($0.065) in long-term capital 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 page 22 compares the performance of the Fund's Class I shares and
the Morgan Stanley Capital International(R) (MSCI) Pacific Index since the
Fund's inception on September 20, 1991. The MSCI Pacific Index includes
approximately 525 companies in Australia, Hong Kong, Japan, New Zealand, and
Singapore. Please remember, the Fund's performance differs from that of an index
because an index is not managed according to any investment
Past performance is not predictive of future results. 21
<PAGE>
TOTAL RETURN INDEX COMPARISON
Templeton Pacific Growth Fund -- Class I
$10,000 Investment (9/20/91 - 10/31/98)
[Index Charts]
GRAPHIC MATERIAL (4)
The following line graph compares the performance of Templeton Pacific Growth
Fund's Class I shares to that of the Morgan Stanley Capital International
Pacific Index, based on a $10,000 investment from 9/20/91 to 10/31/98.
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific
Growth Fund - I Index
<S> <C> <C>
9/20/91 $9,426 $10,000
9/91 $9,444 $10,250
Oct-91 $9,482 $10,688
Nov-91 $9,426 $10,002
Dec-91 $9,768 $10,311
Jan-92 $9,816 $9,913
Feb-92 $10,015 $9,220
Mar-92 $9,816 $8,345
Apr-92 $9,968 $7,964
May-92 $10,452 $8,587
Jun-92 $10,819 $7,914
Jul-92 $10,160 $7,806
Aug-92 $9,893 $8,877
Sep-92 $9,931 $8,675
Oct-92 $10,409 $8,371
Nov-92 $10,313 $8,530
Dec-92 $10,125 $8,434
Jan-93 $10,293 $8,420
Feb-93 $10,718 $8,831
Mar-93 $10,718 $9,899
Apr-93 $11,458 $11,478
May-93 $12,012 $11,814
Jun-93 $11,757 $11,622
Jul-93 $12,007 $12,311
Aug-93 $12,725 $12,677
Sep-93 $12,865 $12,205
Oct-93 $14,412 $12,478
Nov-93 $14,342 $10,719
Dec-93 $16,294 $11,468
Jan-94 $16,465 $12,797
Feb-94 $15,941 $13,129
Mar-94 $14,693 $12,406
Apr-94 $14,904 $12,945
May-94 $15,599 $13,255
Jun-94 $15,114 $13,690
Jul-94 $15,520 $13,398
Aug-94 $16,210 $13,633
Sep-94 $15,530 $13,294
Oct-94 $15,631 $13,632
Nov-94 $14,464 $12,874
Dec-94 $14,553 $12,962
Jan-95 $13,295 $12,146
Feb-95 $13,898 $11,847
Mar-95 $14,293 $12,759
Apr-95 $14,470 $13,304
May-95 $15,021 $12,774
Jun-95 $14,744 $12,235
Jul-95 $15,340 $13,119
Aug-95 $15,152 $12,627
Sep-95 $15,382 $12,746
Oct-95 $14,775 $12,128
Nov-95 $14,786 $12,727
Dec-95 $15,404 $13,350
Jan-96 $16,589 $13,375
Feb-96 $16,523 $13,226
Mar-96 $16,434 $13,634
Apr-96 $17,132 $14,330
May-96 $17,154 $13,710
Jun-96 $16,917 $13,715
Jul-96 $16,033 $13,087
Aug-96 $16,350 $12,745
Sep-96 $16,735 $13,163
Oct-96 $16,429 $12,554
Nov-96 $17,381 $12,896
Dec-96 $17,229 $12,228
Jan-97 $16,921 $11,201
Feb-97 $16,990 $11,436
Mar-97 $16,192 $11,019
Apr-97 $16,261 $11,250
May-97 $17,399 $12,353
Jun-97 $17,565 $13,120
Jul-97 $18,033 $12,808
Aug-97 $15,534 $11,539
Sep-97 $15,853 $11,497
Oct-97 $12,418 $10,102
Nov-97 $11,368 $9,548
Dec-97 $10,720 $9,130
Jan-98 $10,010 $9,626
Feb-98 $11,254 $9,973
Mar-98 $11,126 $9,425
Apr-98 $10,429 $9,240
May-98 $9,231 $8,614
Jun-98 $8,478 $8,599
Jul-98 $8,431 $8,450
Aug-98 $7,041 $7,453
Sep-98 $7,520 $7,430
OCT-98 $9,143 $8,718
</TABLE>
The historical data shown pertain only to the Fund's Class I shares. The Fund
offers other share classes subject to different fees and expenses, which affect
their performance. See the prospectus for details.
*Performance figures represent the change in value of an investment over the
period shown, and have been restated to include the current, maximum 5.75%
initial sales charge, assuming reinvestment of distributions at net asset value.
Prior to January 2, 1997, Fund shares were offered at a lower initial sales
charge. Thus, actual returns would have been higher. On July 1, 1993, the Fund
implemented a Rule 12b-1 plan, which affects subsequent performance. Past
performance is not predictive of future results.
**Source: CDA/Wiesenberger. Index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index.
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 or
operating expenses. Of course, one cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
22 Past performance is not predictive of future results.
<PAGE>
PERFORMANCE
Templeton Pacific Growth Fund - Class I
Periods ended 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR 5-YEAR (9/20/91)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -26.37% -38.12% -36.56% -2.99%
Average Annual Total Return(2) -30.58% -16.45% -9.77% -1.25%
Value of $10,000 Investment(3) $6,942 $5,833 $5,980 $9,143
</TABLE>
<TABLE>
<CAPTION>
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +8.46% -5.54% +11.27% -24.42% -26.37%
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and has been restated to include the
current, maximum 5.75% initial sales charge. Prior to January 2, 1997, Fund
shares were offered at a lower initial sales charge; thus, actual returns would
have been higher.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated and have been restated to include the current,
maximum 5.75% initial sales charge. Prior to January 2, 1997, Fund shares were
offered at a lower initial sales charge; thus, actual returns would have been
higher.
4. One-year total return represents the change in value of an investment over
the periods ended on the dates indicated and does not include the sales charge.
On July 1, 1993, the Fund implemented a Rule 12b-1 plan, which affects
subsequent performance. All calculations assume reinvestment of distributions at
net asset value. Past expense waivers by the Fund's manager increased the Fund's
total returns. Without these waivers, the Fund's total returns for Class I
shares would have been lower. Since markets can go down as well as up,
investment return and principal value will fluctuate with market conditions,
currency volatility, and the economic, social and political climates of
countries where the Fund invests. Emerging markets involve heightened risks
related to the same factors, in addition to those associated with their
relatively small size and lesser liquidity. You may have a gain or loss when you
sell your shares.
Past performance is not predictive of future results. 23
<PAGE>
CLASS II
Templeton Pacific Growth Fund - Class II posted a -26.47% cumulative total
return for the one-year period ended October 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions at net asset value, and does not include sales charges.
The Fund's share price, as measured by net asset value, decreased $3.01, from
$10.81 on October 31, 1997, to $7.80 on October 31, 1998. During the reporting
period, shareholders received per-share distributions of 10.35 cents ($0.1035)
in income dividends and 6.5 cents ($0.065) in long-term capital 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 page 25 compares the performance of the Fund's Class II shares
since inception on January 2, 1997 and the Morgan Stanley Capital
International(R) (MSCI) Pacific Index. The MSCI Pacific Index includes
approximately 525 companies in Australia, Hong Kong, Japan, New Zealand, and
Singapore. Please remember, 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 or operating expenses.
Of course, one cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
24 Past performance is not predictive of future results.
<PAGE>
TOTAL RETURN INDEX COMPARISON
Templeton Pacific Growth Fund -- Class II
$10,000 Investment (1/2/97 - 10/31/98)
[Index Chart]
GRAPHIC MATERIAL (5)
The following line graph compares the performance of Templeton Pacific Growth
Fund's Class II shares to that of the Morgan Stanley Capital International
Pacific Index, based on a $10,000 investment from 1/2/97 to 10/31/98.
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific
Growth Fund - II Index
<S> <C> <C>
1/2/97 $9,902 $10,000
1/97 $9,731 $9,210
Feb-97 $9,764 $9,403
Mar-97 $9,298 $9,060
Apr-97 $9,331 $9,250
May-97 $9,987 $10,157
Jun-97 $10,071 $10,787
Jul-97 $10,327 $10,531
Aug-97 $8,882 $9,488
Sep-97 $9,059 $9,453
Oct-97 $7,102 $8,306
Nov-97 $6,504 $7,851
Dec-97 $6,128 $7,507
Jan-98 $5,734 $7,915
Feb-98 $6,442 $8,201
Mar-98 $6,375 $7,750
Apr-98 $5,967 $7,598
May-98 $5,272 $7,083
Jun-98 $4,847 $7,070
Jul-98 $4,820 $6,948
Aug-98 $4,017 $6,128
Sep-98 $4,291 $6,109
OCT-98 $5,222 $7,168
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S CLASS II SHARES. THE FUND
OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH AFFECT
THEIR PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown, and include all sales charges, assuming reinvestment of
distributions at net asset value. Past performance is not predictive of future
results.
**Source: CDA/Wiesenberger. Index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index.
PERFORMANCE
Templeton Pacific Growth Fund - Class II
Periods ended 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR (1/2/97)
- -----------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) -26.47% -47.26%
Average Annual Total Return(2) -27.94% -29.92%
Value of $10,000 Investment(3) $7,206 $5,222
</TABLE>
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include sales charges.
2. Average annual
total return represents the average annual change in value of an investment over
the periods indicated and includes the 1.0% initial sales charge and the 1.0%
contingent deferred sales charge, applicable to shares redeemed within 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 sales charges.
All
calculations assume reinvestment of distributions at net asset value. Since
markets can go down as well as up, investment return and principal value will
fluctuate with market conditions, currency volatility, and the economic, social
and political climates of countries where the Fund invests. Emerging markets
involve heightened risks related to the same factors, in addition to those
associated with their relatively small size and lesser liquidity. You may have a
gain or loss when you sell your shares.
Past performance is not predictive of future results. 25
<PAGE>
ADVISOR CLASS
Templeton Pacific Growth Fund - Advisor Class posted a -25.68% cumulative total
return for the one-year period ended October 31, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions at net asset value. While we expect market volatility in the short
term, we have always maintained a long-term perspective when managing the Fund,
and we encourage shareholders to view their investments in a similar manner.
The Fund's Advisor Class share price, as measured by net asset value, decreased
$3.00, from $10.88 on October 31, 1997, to $7.88 on October 31, 1998. During the
reporting period, shareholders received per-share distributions of 15.86 cents
($0.1586) in income dividends and 6.5 cents ($0.065) in long-term capital 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.
26 Past performance is not predictive of future results.
<PAGE>
The graph on page 28 compares the performance of the Fund's Advisor Class shares
and the performance of the Morgan Stanley Capital International(R) (MSCI)
Pacific Index since the Fund's inception on September 20, 1991. The MSCI Pacific
Index includes approximately 525 companies representing Australia, Hong Kong,
Japan, New Zealand, and Singapore. Please remember, 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 or operating
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. 27
<PAGE>
TOTAL RETURN INDEX COMPARISON
Templeton Pacific Growth Fund -- Advisor Class
$10,000 Investment (9/20/91 - 10/31/98)
[Index Chart]
GRAPHIC MATERIAL (6)
The following line graph compares the performance of Templeton Pacific Growth
Fund's Advisor Class shares to that of the Morgan Stanley Capital International
Pacific Index, based on a $10,000 investment from 9/20/91 to 10/31/98.
<TABLE>
<CAPTION>
Templeton Pacific MSCI Pacific
Growth Fund - Index
Advisor Class
<S> <C> <C>
9/20/91 $10,000 $10,000
9/91 $10,020 $10,250
Oct-91 $10,060 $10,688
Nov-91 $10,000 $10,002
Dec-91 $10,364 $10,311
Jan-92 $10,414 $9,913
Feb-92 $10,626 $9,220
Mar-92 $10,414 $8,345
Apr-92 $10,575 $7,964
May-92 $11,089 $8,587
Jun-92 $11,479 $7,914
Jul-92 $10,780 $7,806
Aug-92 $10,496 $8,877
Sep-92 $10,537 $8,675
Oct-92 $11,043 $8,371
Nov-92 $10,942 $8,530
Dec-92 $10,742 $8,434
Jan-93 $10,920 $8,420
Feb-93 $11,371 $8,831
Mar-93 $11,371 $9,899
Apr-93 $12,157 $11,478
May-93 $12,744 $11,814
Jun-93 $12,474 $11,622
Jul-93 $12,738 $12,311
Aug-93 $13,501 $12,677
Sep-93 $13,649 $12,205
Oct-93 $15,290 $12,478
Nov-93 $15,216 $10,719
Dec-93 $17,287 $11,468
Jan-94 $17,468 $12,797
Feb-94 $16,913 $13,129
Mar-94 $15,588 $12,406
Apr-94 $15,812 $12,945
May-94 $16,550 $13,255
Jun-94 $16,035 $13,690
Jul-94 $16,466 $13,398
Aug-94 $17,198 $13,633
Sep-94 $16,476 $13,294
Oct-94 $16,584 $13,632
Nov-94 $15,346 $12,874
Dec-94 $15,440 $12,962
Jan-95 $14,105 $12,146
Feb-95 $14,745 $11,847
Mar-95 $15,164 $12,759
Apr-95 $15,352 $13,304
May-95 $15,936 $12,774
Jun-95 $15,643 $12,235
Jul-95 $16,275 $13,119
Aug-95 $16,075 $12,627
Sep-95 $16,320 $12,746
Oct-95 $15,676 $12,128
Nov-95 $15,687 $12,727
Dec-95 $16,343 $13,350
Jan-96 $17,600 $13,375
Feb-96 $17,529 $13,226
Mar-96 $17,435 $13,634
Apr-96 $18,176 $14,330
May-96 $18,199 $13,710
Jun-96 $17,948 $13,715
Jul-96 $17,010 $13,087
Aug-96 $17,347 $12,745
Sep-96 $17,755 $13,163
Oct-96 $17,431 $12,554
Nov-96 $18,440 $12,896
Dec-96 $18,279 $12,228
Jan-97 $17,952 $11,201
Feb-97 $18,025 $11,436
Mar-97 $17,191 $11,019
Apr-97 $17,264 $11,250
May-97 $18,484 $12,353
Jun-97 $18,645 $13,120
Jul-97 $19,130 $12,808
Aug-97 $16,476 $11,539
Sep-97 $16,828 $11,497
Oct-97 $13,181 $10,102
Nov-97 $12,067 $9,548
Dec-97 $11,395 $9,130
Jan-98 $10,654 $9,626
Feb-98 $12,001 $9,973
Mar-98 $11,877 $9,425
Apr-98 $11,136 $9,240
May-98 $9,850 $8,614
Jun-98 $9,062 $8,599
Jul-98 $9,025 $8,450
Aug-98 $7,533 $7,453
Sep-98 $8,043 $7,430
OCT-98 $9,796 $8,718
</TABLE>
THE HISTORICAL DATA SHOWN PERTAIN ONLY TO THE FUND'S ADVISOR CLASS SHARES. THE
FUND OFFERS OTHER SHARE CLASSES SUBJECT TO DIFFERENT FEES AND EXPENSES, WHICH
AFFECT SUBSEQUENT PERFORMANCE. SEE THE PROSPECTUS FOR DETAILS.
*Performance figures represent the change in value of an investment over the
period shown, assuming reinvestment of distributions at net asset value. On
January 2, 1997, the Fund began selling Advisor Class shares to certain eligible
investors as described in the prospectus. This share class does not have sales
charges or a Rule 12b-1 plan. Performance quotations have been calculated as
follows: (a) For periods prior to January 2, 1997, figures reflect the Fund's
Class I performance, excluding the effect of the Class I sales charge, but
including the effect of Rule 12b-1 fees and other Class I expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to Advisor Class
shares. Past performance is not predictive of future results.
**Source: CDA/Wiesenberger. Index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index.
28 Past performance is not predictive fo future results.
<PAGE>
PERFORMANCE
Templeton Pacific Growth Fund - Advisor Class
Periods ended 10/31/98
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR* 3-YEAR* 5-YEAR* (9/20/91)*
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -25.68% -37.47% -35.93% -2.04%
Average Annual Total Return(1) -25.68% -14.47% -8.52% -0.29%
Value of $10,000 Investment(2) $7,432 $6,253 $6,407 $9,796
</TABLE>
<TABLE>
<CAPTION>
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(3),* +8.46% -5.54% +11.27% -24.38% -25.68%
</TABLE>
*On January 2, 1997, the Fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Rule 12b-1 fees and other Class I expenses;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable to
Advisor Class shares. Since January 2, 1997 (commencement of sales), the
cumulative total return of Advisor Class shares was -46.30%.
(1). Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the average
annual change in value of an investment over the periods indicated.
(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.
All calculations assume reinvestment of distributions at net asset value. Past
expense waivers by the Fund's manager increased the Fund's total returns.
Without these waivers, the Fund's total returns for Advisor Class shares would
have been lower. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, currency volatility, and
the economic, social and political climates of countries where the Fund invests.
Emerging markets involve heightened risks related to the same factors, in
addition to those associated with their relatively small size and lesser
liquidity. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results. 29
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Highlights
TEMPLETON PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
Class I
----------------------------------------------------------------------
Year Ended October 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................... $ 10.88 $ 14.50 $ 14.11 $ 15.40 $ 14.44
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............................... .13 .14 .12 .15 .21
Net realized and unrealized gains (losses) .......... (2.98) (3.65) 1.41 (1.01) 1.01
---------- ---------- ---------- ---------- ----------
Total from investment operations ..................... (2.85) (3.51) 1.53 (.86) 1.22
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ............................... (.13) (.11) (.21) (.16) (.20)
Net realized gains .................................. (.07) -- (.93) (.27) (.06)
---------- ---------- ---------- ---------- ----------
Total distributions .................................. (.20) (.11) (1.14) (.43) (.26)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ......................... $ 7.83 $ 10.88 $ 14.50 $ 14.11 $ 15.40
========== ========== ========== ========== ==========
Total return * ....................................... (26.37%) (24.42%) 11.27% (5.54%) 8.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 42,200 $ 40,958 $ 59,740 $ 50,247 $ 58,241
Ratios to average net assets:
Expenses ............................................ 1.90% 1.63% 1.52% 1.72% 1.22%
Expenses, excluding waiver and payments by affiliates 1.90% 1.63% 1.52% 1.72% 1.72%
Net investment income ............................... 1.43% .97% 1.06% 1.04% 1.54%
Portfolio turnover rate .............................. 19.61% 24.79% 13.48% 36.21% 9.16%
</TABLE>
*Total return does not reflect sales commissions.
30
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Highlights (continued)
TEMPLETON PACIFIC GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
----------------------
YEAR ENDED OCTOBER 31,
----------------------
1998 1997+
----------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C> <C>
Net asset value, beginning of year $ 10.81 $ 15.10
-----------------------
Income from investment operations:
Net investment income ............ .08 .05
Net realized and unrealized losses (2.92) (4.31)
-----------------------
Total from investment operations .. (2.84) (4.26)
-----------------------
Less distributions from:
Net investment income ............ (.10) (.03)
Net realized gains ............... (.07) --
-----------------------
Total distributions ............... (.17) (.03)
-----------------------
Net asset value, end of year ...... $ 7.80 $ 10.81
=======================
Total return * .................... (26.47%) (28.28%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ... $ 6,183 $ 2,307
Ratios to average net assets:
Expenses ......................... 2.63% 2.48%**
Net investment income ............ .67% .93%**
Portfolio turnover rate ........... 19.61% 24.79%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to October 31, 1997.
31
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Highlights (continued)
TEMPLETON PACIFIC GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------
YEAR ENDED OCTOBER 31,
----------------------
1998 1997+
----------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C> <C>
Net asset value, beginning of year ............................................... $10.88 $15.10
---------------
Income from investment operations:
Net investment income ........................................................... .15 .12
Net realized and unrealized losses .............................................. (2.93) (4.30)
---------------
Total from investment operations ................................................. (2.78) (4.18)
---------------
Less distributions from:
Net investment income ........................................................... (.15) (.04)
Net realized gains .............................................................. (.07) --
---------------
Total distributions .............................................................. (.22) (.04)
---------------
Net asset value, end of year ..................................................... $ 7.88 $10.88
================
Total return * ................................................................... (25.68%) (27.74%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................................. $1,454 $1,357
Ratios to average net assets:
Expenses ........................................................................ 1.62% 1.48%**
Net investment income ........................................................... 1.78% 1.55%**
Portfolio turnover rate .......................................................... 19.61% 24.79%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to October 31, 1997.
32 See notes to financial statements.
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS & WARRANTS 91.6%
BANKING 7.0%
*Bangkok Bank Public Co. Ltd., fgn. .................................... Thailand 111,400 $ 169,775
Development Bank of Singapore Ltd., fgn. ............................... Singapore 228,250 1,429,848
HSBC Holdings Plc. ..................................................... Hong Kong 21,440 491,299
Overseas Union Bank Ltd., fgn. ......................................... Singapore 343,000 931,098
Philippine National Bank ............................................... Philippines 124,382 168,000
PT Bank Bali, fgn. ..................................................... Indonesia 657,020 31,689
PT Bank Pan Indonesia TBK, fgn. ........................................ Indonesia 1,138,500 32,947
*Thai Farmers Bank Public Co. Ltd. ..................................... Thailand 37,140 38,661
*Thai Farmers Bank Public Co. Ltd., fgn. ............................... Thailand 143,060 181,039
---------
3,474,356
---------
BROADCASTING & PUBLISHING .4%
South China Morning Post Ltd. .......................................... Hong Kong 368,000 197,160
---------
BUILDING MATERIALS & COMPONENTS 2.5%
Gujarat Ambuja Cements Ltd., GDR ....................................... India 71,900 326,246
Hi Cement Corp. ........................................................ Philippines 3,551,000 83,605
Okumura Corp. .......................................................... Japan 194,000 840,728
---------
1,250,579
---------
CHEMICALS .6%
Shanghai Petrochemical Co. Ltd., H ..................................... China 2,899,000 291,921
---------
CONSTRUCTION & HOUSING 3.3%
Daito Trust Construction Co. Ltd. ...................................... Japan 61,500 525,122
Road King Infrastructure Ltd. .......................................... Hong Kong 686,520 487,459
Toda Corp. ............................................................. Japan 148,000 649,000
---------
1,661,581
---------
ELECTRICAL & ELECTRONICS 10.7%
Alcatel SA ............................................................. France 3,500 389,869
AMP Inc. ............................................................... United States 12,000 492,750
*Applied Materials Inc. ................................................ United States 25,800 894,938
Dongfang Electrical Machinery Co. Ltd., H .............................. China 1,784,000 107,095
Hitachi Ltd. ........................................................... Japan 200 1,018
Johnson Electric Holdings Ltd. ......................................... Hong Kong 820,800 1,907,359
Matsushita Electric Industrial Co. Ltd. ................................ Japan 49,000 719,463
Motorola Inc. .......................................................... United States 15,500 806,000
---------
5,318,492
---------
ELECTRONIC COMPONENTS & INSTRUMENTS 1.4%
VTech Holdings Ltd. .................................................... Hong Kong 186,000 697,560
---------
ENERGY SOURCES 2.6%
*Petron Corporation .................................................... Philippines 4,911,000 559,866
Woodside Petroleum Ltd. ................................................ Australia 137,000 720,774
---------
1,280,640
---------
</TABLE>
33
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS (CONT.)
<S> <C> <C> <C>
FINANCIAL SERVICES .7%
Commerce Asset-Holding Bhd. ............................................ Malaysia 749,200 $ 283,296
*Commerce Asset-Holding Bhd., wts. ..................................... Malaysia 29,500 2,603
Public Finance Bhd., fgn. .............................................. Malaysia 255,000 61,604
---------
347,503
---------
FOOD & HOUSEHOLD PRODUCTS .3%
*Chareon Pokphand Feedmill Public Co. Ltd., fgn. ....................... Thailand 151,500 164,920
FOREST PRODUCTS & PAPER 5.9%
Amcor Ltd. ............................................................. Australia 126,000 523,736
Carter Holt Harvey Ltd. ................................................ New Zealand 416,248 339,357
Fletcher Challenge Paper Ltd. .......................................... New Zealand 43,100 27,381
Mitsubishi Paper Mills Ltd. ............................................ Japan 316,000 688,784
*PT Tjiwi Kimia TBK .................................................... Indonesia 408,709 60,452
*PT Tjiwi Kimia TBK, wts. .............................................. Indonesia 56,765 4,125
UPM-Kymmene Corp. ...................................................... Finland 28,400 676,392
Weyerhaeuser Co. ....................................................... United States 13,000 608,563
---------
2,928,790
---------
INDUSTRIAL COMPONENTS 5.4%
Fuji Heavy Industries Ltd. ............................................. Japan 296,000 1,473,269
Goodyear Tire & Rubber Co. ............................................. United States 10,100 544,138
Sanyo Electric Co. Ltd. ................................................ Japan 239,000 672,719
---------
2,690,126
---------
INSURANCE 3.2%
American International Group Inc. ...................................... United States 5,900 502,975
Citigroup Inc. ......................................................... United States 11,500 541,219
National Mutual Asia Ltd. .............................................. Hong Kong 800,000 547,379
---------
1,591,573
---------
LEISURE & TOURISM 1.1%
Toei Co. Ltd. .......................................................... Japan 166,500 524,376
---------
MACHINERY & ENGINEERING 1.0%
Rauma OY ............................................................... Finland 28,800 340,101
Tata Engineering & Locomotive Co., GDR ................................. India 53,400 135,369
---------
475,470
---------
MERCHANDISING 4.3%
Coles Myer Ltd. ........................................................ Australia 187,000 798,235
Matsuzakaya Co. Ltd. ................................................... Japan 220,000 1,178,066
Takashimaya Co. Ltd. ................................................... Japan 23,551 177,042
---------
2,153,343
---------
METALS & MINING 5.5%
Angang New Steel Company Ltd., H ....................................... China 2,435,000 169,752
Capral Aluminum Ltd. ................................................... Australia 306,000 428,419
</TABLE>
34
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS (CONT.)
<S> <C> <C> <C>
METALS & MINING (CONT.)
Nittetsu Mining Co. Ltd. ............................................... Japan 235,000 $ 590,878
Pohang Iron & Steel Co. Ltd. ........................................... South Korea 11,100 623,918
WMC Ltd. ............................................................... Australia 278,019 939,203
---------
2,752,170
---------
MISC MATERIALS & COMMODITIES .4%
Golden Hope Plantations Bhd. ........................................... Malaysia 451,000 220,751
---------
MULTI-INDUSTRY 7.2%
Broken Hill Proprietary Co. Ltd. ....................................... Australia 96,800 819,180
Cheung Kong Holdings Ltd. .............................................. Hong Kong 170,300 1,165,234
Hicom Holdings Bhd. .................................................... Malaysia 295,000 78,084
Hutchison Whampoa Ltd. ................................................. Hong Kong 83,000 594,694
Sime Darby Bhd. ........................................................ Malaysia 327,600 189,943
Swire Pacific Ltd., A .................................................. Hong Kong 62,500 331,623
Wheelock and Company Ltd. .............................................. Hong Kong 490,000 430,158
---------
3,608,916
---------
REAL ESTATE 8.9%
Asean Resources Holdings Ltd. .......................................... Hong Kong 1,900,381 193,816
City Developments Ltd. ................................................. Singapore 290,200 1,051,546
*Filinvest Land Inc. ................................................... Philippines 930,000 57,160
Hon Kwok Land Investment Co. Ltd. ...................................... Hong Kong 1,708,364 165,411
New World Development Co. Ltd. ......................................... Hong Kong 536,664 1,247,089
Parkway Holdings Ltd. .................................................. Singapore 340,000 615,999
Sun Hung Kai Properties Ltd. ........................................... Hong Kong 160,000 1,115,414
---------
4,446,435
---------
TELECOMMUNICATIONS 7.2%
Hong Kong Telecommunications Ltd. ...................................... Hong Kong 756,669 1,514,119
Pakistan Telecommunications Corp., A, PTC .............................. Pakistan 940,000 328,388
SK Telecom Co. Ltd., ADR ............................................... South Korea 101,190 1,043,522
Smartone Telecommunications Holdings Ltd. .............................. Hong Kong 252,000 715,724
---------
3,601,753
---------
TEXTILES & APPAREL 1.6%
Nisshinbo Industries Inc. .............................................. Japan 171,000 698,498
*PT Indorama Synthetics ................................................ Indonesia 733,862 94,387
*PT Panasia Indosyntec ................................................. Indonesia 315,000 6,077
---------
798,962
---------
TRANSPORTATION 8.1%
Cathay Pacific Airways Ltd. ............................................ Hong Kong 762,000 811,580
Great Eastern Shipping Co. Ltd., GDR ................................... India 26,300 64,435
Great Eastern Shipping Co. Ltd., GDR, 144A ............................. India 23,700 58,065
Guangshen Railway Co. Ltd., ADS ........................................ China 28,000 210,000
GZI Transport Ltd. ..................................................... China 550,000 118,577
GZI Transport Ltd., 144A ............................................... China 174,000 37,514
*GZI Transport Ltd., 144A, wts. ........................................ China 34,800 45
</TABLE>
35
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
SHARES/
TEMPLETON PACIFIC GROWTH FUND COUNTRY WARRANTS VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS & WARRANTS (CONT.)
<S> <C> <C> <C>
TRANSPORTATION (cont.)
Hitachi Zosen Corp. .................................................... Japan 385,000 $ 584,785
Hong Kong Ferry Holdings Co. Ltd. ...................................... Hong Kong 674,000 609,089
Malaysian International Shipping Corp., fgn. ........................... Malaysia 317,333 277,318
Singapore Airlines Ltd., fgn. .......................................... Singapore 165,500 1,016,429
Tranz Rail Holdings Ltd., ADR .......................................... New Zealand 49,800 264,562
-----------
4,052,399
-----------
UTILITIES ELECTRICAL & GAS 1.4%
CLP Holdings Ltd. ...................................................... Hong Kong 69,000 387,490
Shandong Huaneng Power Development Co. Ltd., ADR ....................... China 59,500 304,938
-----------
692,428
-----------
WHOLESALE & INTERNATIONAL TRADE .9%
Mitsubishi Corp. ....................................................... Japan 86,000 455,351
-----------
TOTAL COMMON STOCKS & WARRANTS (Cost $63,086,228) 45,677,555
-----------
PREFERRED STOCKS (Cost $119,553) .3%
Osprey Maritime Ltd., cvt., pfd. ....................................... Singapore 390,000 126,946
---------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (Cost $63,205,781) 45,804,501
---------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
--------
<S> <C> <C> <C>
(a)REPURCHASE AGREEMENTS 14.1%
Deutsche Bank AG, 5.40%,11/02/98 (Maturity Value $2,200,900)
Collateralized by U.S. Treasury Notes & Bonds ......................... United States $2,200,000 2,200,000
Morgan Stanley Group Inc., 5.38%,11/02/98 (Maturity Value $2,611,170)
Collateralized by U.S. Treasury Notes & Bonds ......................... United States 2,610,000 2,610,000
Warburg Dillon Read, 5.25%,11/02/98 (Maturity Value $2,200,963)
Collateralized by U.S. Treasury Notes & Bonds ......................... United States 2,200,000 2,200,000
-----------
TOTAL REPURCHASE AGREEMENTS (Cost $7,010,000) .......................... 7,010,000
-----------
TOTAL INVESTMENTS (Cost $70,215,781) 106.0% ........................... 52,814,501
OTHER ASSETS, LESS LIABILITIES (6.0%) .................................. (2,977,302)
-----------
TOTAL NET ASSETS 100.0% ................................................ $49,837,199
===========
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
(a)See note 1(c) regarding repurchase agreements.
See notes to financial statements.
36
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS
TEMPLETON FOREIGN SMALLER COMPANIES FUND
<TABLE>
<CAPTION>
CLASS I
------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $ 15.06 $ 14.18 $ 13.23 $ 13.83 $ 12.28
-------------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .26 .27 .35 .25 .23
Net realized and unrealized gains (losses) ......... (2.08) 1.64 1.88 (.08) 1.54
-------------------------------------------------------------------------
Total from investment operations .................... (1.82) 1.91 2.23 .17 1.77
-------------------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.24) (.32) (.25) (.19) (.22)
Net realized gains ................................. (.67) (.71) (1.03) (.58) --
-------------------------------------------------------------------------
Total distributions ................................. (.91) (1.03) (1.28) (.77) (.22)
-------------------------------------------------------------------------
Net asset value, end of year ........................ $ 12.33 $ 15.06 $ 14.18 $ 13.23 $ 13.83
=========================================================================
Total return * ...................................... (12.64)% 14.25% 18.49% 1.75% 14.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 113,964 $ 121,619 $ 67,967 $ 50,947 $ 57,854
Ratios to average net assets:
Expenses ........................................... 1.48% 1.48% 1.53% 1.63% 1.22%
Expenses, excluding waiver and payments by affiliate 1.50% 1.58% 1.53% 1.63% 1.76%
Net investment income .............................. 1.23% 2.01% 2.50% 1.86% 1.99%
Portfolio turnover rate ............................. 22.82% 33.62% 40.46% 9.12% 21.80%
</TABLE>
*Total return does not reflect sales commissions.
37
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS II
--------
YEAR ENDED
OCTOBER 31,
-----------
1998+
-----------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C>
Net asset value, beginning of year ............................................................... $ 14.23
-------
Income from investment operations:
Net investment income ........................................................................... .01
Net realized and unrealized losses .............................................................. (1.92)
-------
Total from investment operations ................................................................. (1.91)
-------
Net asset value, end of year ..................................................................... $ 12.32
=======
Total return* .................................................................................... (13.42)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................................................................. $ 450
Ratios to average net assets:
Expenses ........................................................................................ 2.54%**
Net investment income ........................................................................... 1.08%**
Portfolio turnover rate .......................................................................... 22.82%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge and is not annualized.
**Annualized.
+For the period July 1, 1998 (effective date) to October 31, 1998.
38
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
Templeton Foreign Smaller Companies Fund (cont.)
<TABLE>
<CAPTION>
ADVISOR CLASS
--------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------
1998 1997+
--------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<S> <C> <C>
Net asset value, beginning of year .............................................. $ 15.09 $ 14.00
-----------------------------------
Income from investment operations:
Net investment income .......................................................... .32 .20
Net realized and unrealized gains (losses) ..................................... (2.13) .98
-----------------------------------
Total from investment operations ................................................ (1.81) 1.18
-----------------------------------
Less distributions from:
Net investment income .......................................................... (.27) (.09)
Net realized gains ............................................................. (.67) --
-----------------------------------
Total distributions ............................................................. (.94) (.09)
Net asset value, end of year .................................................... $ 12.34 $ 15.09
===================================
Total return* ................................................................... (12.55)% 8.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................................. $ 12,402 $ 3,726
Ratios to average net assets:
Expenses ....................................................................... 1.31% 1.24%**
Expenses, excluding waiver and payments by affiliate ........................... 1.33% 1.36%**
Net investment income .......................................................... 1.43% 2.66%**
Portfolio turnover rate ......................................................... 22.82% 33.62%
</TABLE>
*Total return is not annualized.
**Annualized.
+For the period January 2, 1997 (effective date) to October 31, 1997.
See notes to financial statements. 39
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON FOREIGN SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK 84.9%
APPLIANCES & HOUSEHOLD DURABLES 1.3%
Email Ltd. Australia 341,625 $ 510,183
Fisher & Paykel Ltd. New Zealand 268,571 796,217
Guangdong Kelon Electrical Hldgs. Ltd., H, 144A China 440,000 374,903
-----------
1,681,303
-----------
AUTOMOBILES 1.6%
Bilia AB Sweden 115,500 886,518
Volvo AB, B Sweden 51,000 1,099,321
-----------
1,985,839
-----------
BANKING 4.6%
Banco de Andalucia SA Spain 10,000 474,773
Banco de Valencia SA Spain 11,066 294,058
*Bank Austria AG Austria 24,250 1,319,422
BPI Socieda de Gestora de Participacoes Socias SA Portugal 12,012 368,642
Commercial International Bank Ltd, GDR, 144A Egypt 63,830 502,661
Fokus Bank AS Norway 196,000 1,688,234
Unibanco Uniao de Bancos Brasileiros SA, GDR Brazil 27,500 481,250
Union Bank of Norway, Primary Capital Cert. Norway 38,700 734,923
-----------
5,863,963
-----------
BROADCASTING & PUBLISHING 2.5%
Cordiant Communications Group Plc. United Kingdom 234,600 422,338
GTC Transcontinental Group Ltd., B Canada 200,000 1,616,031
NV Holdingsmij de Telegraaf Netherlands 23,520 594,391
Satchi & Saatchi Plc. United Kingdom 234,600 461,625
-----------
3,094,385
-----------
BUILDING MATERIALS & COMPONENTS 5.6%
Caradon Plc. United Kingdom 471,000 978,062
Cementos Diamante SA, ADR, 144A Colombia 93,100 256,025
Det Danske Traelastkompagni AS Denmark 14,000 1,067,327
Gujarat Ambuja Cements Ltd., GDR India 143,750 652,266
Pioneer International Ltd. Australia 241,300 498,495
Plettac AG Germany 10,150 965,237
Sarna Kunststoff Holding AG Switzerland 330 460,584
Schuttersveld NV Netherlands 42,295 894,497
*Siam City Cement Public Co. Ltd., fgn. Thailand 170,708 362,368
Suez Cement Co., GDR, 144A Egypt 54,000 796,500
Uralita SA Spain 16,606 171,802
-----------
7,103,163
-----------
BUSINESS & PUBLIC SERVICES 2.9%
Adecco SA Switzerland 1,855 735,057
Esselte AB, B Sweden 13,100 191,043
Kardex AG, br. Switzerland 5,110 1,396,226
Lex Service Plc. United Kingdom 208,000 1,250,494
Scribona AB, B Sweden 19,500 67,352
*Sifo Group AB Sweden 19,500 74,836
-----------
3,715,008
-----------
</TABLE>
40
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON FOREIGN SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (cont.)
<S> <C> <C> <C>
CHEMICALS 2.0%
Cookson Group Plc. United Kingdom 500,000 $ 1,046,656
DSM NV Netherlands 2,900 274,675
Energia e Industrias Aragonesas Eia SA Spain 196,000 1,250,000
------------
2,571,331
------------
CONSTRUCTION & HOUSING 2.2%
Dragados y Construcciones SA Spain 25,600 760,998
*Fairview Holdings Plc. United Kingdom 84,725 116,345
Hollandsche Beton Groep NV Netherlands 38,000 512,716
Sirti SpA Italy 63,700 341,742
Sociedade Construcoes Soares da Costa SA Portugal 135,800 1,099,903
------------
2,831,704
------------
ELECTRICAL & ELECTRONICS 3.8%
Philips Electronics NV Netherlands 20,000 1,064,411
Tadiran Ltd., ADR Israel 34,000 1,000,875
Techtronic Industries Co. Ltd. Hong Kong 6,838,000 1,288,856
Varitronix International Ltd. Hong Kong 760,000 1,442,293
------------
4,796,435
------------
ELECTRONIC COMPONENTS & INSTRUMENTS 2.5%
Swisslog Holding AG Switzerland 5,500 501,606
Twentsche Kabel Holdings NV Netherlands 37,000 1,079,670
VTech Holdings Ltd. Hong Kong 429,000 1,608,888
------------
3,190,164
------------
ENERGY SOURCES 1.8%
*Northstar Energy Corp. Canada 107,250 797,269
*Ranger Oil Ltd. Canada 94,645 596,502
Societe Elf Aquitaine SA France 7,738 895,363
------------
2,289,134
------------
FINANCIAL SERVICES 1.5%
Dah Sing Financial Holdings Ltd. Hong Kong 549,600 964,957
Housing Development Finance Corp. Ltd. India 18,478 973,519
------------
1,938,476
------------
FOOD & HOUSEHOLD PRODUCTS 7.5%
Hazlewood Foods Plc. United Kingdom 832,000 2,166,594
Hillsdown Holdings Plc. United Kingdom 169,450 238,366
Illovo Sugar Limited South Africa 700,000 598,930
McBride Plc. United Kingdom 314,100 781,121
National Foods Ltd. Australia 841,683 1,550,263
* Terranova Foods Plc. United Kingdom 84,725 168,133
Oshawa Group Ltd. Canada 109,850 2,325,525
Perkins Foods Plc. United Kingdom 729,200 1,642,452
------------
9,471,384
------------
</TABLE>
41
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON FOREIGN SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (cont.)
<S> <C> <C> <C>
FOREST PRODUCTS & PAPER 1.8%
Cartiere Burgo SpA Italy 58,788 $ 358,272
Enso OY, R Finland 49,700 385,684
Fletcher Challenge Ltd. Forestry Division New Zealand 171,976 58,268
Primex Forest Products Ltd. Canada 225,000 1,025,372
Stora Kopparbergs Bergslags AB, B Sweden 44,500 483,875
-----------
2,311,471
-----------
HEALTH & PERSONAL CARE 3.2%
Internatio-Muller NV Netherlands 62,500 1,505,863
Nycomed Amersham Plc. United Kingdom 140,305 1,008,677
Ono Pharmaceutical Co. Ltd. Japan 53,000 1,582,768
-----------
4,097,308
-----------
INDUSTRIAL COMPONENTS 4.1%
Granges AB Sweden 47,656 621,831
Otra NV Netherlands 84,000 1,151,363
Sylea SA France 17,240 1,051,711
Weir Group Plc. United Kingdom 414,100 1,490,965
Yamato Kogyo Co. Ltd. Japan 192,000 873,252
-----------
5,189,122
-----------
INSURANCE 4.7%
Ace Ltd. Bermuda 26,400 894,301
Exel Ltd. Bermuda 13,600 1,039,550
GIO Australia Holdings Ltd. Australia 89,513 283,510
HIH Winterthur International Holdings Ltd. Australia 782,135 1,099,905
Partnerre Ltd. Bermuda 22,000 874,500
Sovereign Ltd. New Zealand 1,564,100 1,780,275
-----------
5,972,041
-----------
LEISURE & TOURISM .6%
Kuoni Reisen Holding AG, B Switzerland 200 714,840
-----------
MACHINERY & ENGINEERING 2.0%
Arcadis NV Netherlands 172,735 1,405,778
Bucher Holding AG, br. Switzerland 740 685,271
Laird Group Plc. United Kingdom 205,000 502,939
-----------
2,593,988
-----------
MERCHANDISING 12.0%
Best Denki Co. Ltd. Japan 137,000 940,530
Giordano International Ltd. Hong Kong 6,377,000 765,635
Koninklijke Bijenkorf Beheer KBB NV Netherlands 11,900 1,055,116
Li & Fung Ltd. Hong Kong 1,000,000 1,562,097
Makro Atacadista SA, ADR, 144A Brazil 199,000 1,376,268
Moebel Walther AG Germany 28,000 1,149,620
Northwest Company Fund Canada 148,750 1,307,692
Sa des Galeries Lafayette France 2,868 3,179,212
Safeway Plc. United Kingdom 223,498 1,112,549
Somerfield Plc. United Kingdom 260,400 1,681,083
</TABLE>
42
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON FOREIGN SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (cont.)
<S> <C> <C> <C>
Merchandising (cont.)
Storehouse Plc. United Kingdom 357,612 $ 1,048,031
------------
15,177,833
------------
METALS & MINING 4.0%
Arbed SA Belgium 10,290 715,421
Boehler Uddeholm AG Austria 15,350 723,209
Boehler Uddeholm AG, 144A Austria 3,390 159,719
Elkem AS Norway 96,500 1,092,991
Pechiney SA, A France 40,441 1,389,272
Pohang Iron & Steel Co. Ltd. South Korea 11,230 631,225
PT Timah TBK Indonesia 709,000 380,717
------------
5,092,554
------------
MULTI-INDUSTRY 2.6%
*Amer Group Ltd., A Finland 18,000 203,632
La Cemento Nacional SA, GDR Ecuador 200 23,000
La Cemento Nacional SA, GDR, 144A Ecuador 2,150 247,250
Nagron Nationaal Grondbezit NV Netherlands 45,400 1,215,399
Saha Union Public Co. Ltd., fgn. Thailand 634,000 211,362
Wagon Plc. United Kingdom 175,000 654,997
Zehnder Holding AG, br. Switzerland 1,820 790,282
------------
3,345,922
------------
REAL ESTATE 1.0%
Inversiones y Representacion SA Argentina 463,333 1,205,027
------------
TELECOMMUNICATIONS .7%
*Digital Telecommunications Philippines Inc. Philippines 6,341,000 135,149
Telefonica del Peru SA, B Peru 114,000 148,631
Telefonica SA Spain 12,400 558,844
------------
842,624
------------
TEXTILES & APPAREL .8%
Gamma Holding NV Netherlands 16,800 656,637
Inner Mongolia Erdos Cashmere Products Co. Ltd., B China 1,535,000 242,530
*Yizheng Chemical Fibre Co. Ltd., H China 1,225,000 98,051
------------
997,218
------------
TRANSPORTATION 3.4%
Anangel-American Shipholdings Ltd., ADR Greece 118,000 604,750
Great Eastern Shipping Co. Ltd. India 614,000 293,520
Great Eastern Shipping Co. Ltd., GDR, 144A India 2,200 5,390
Helikopter Services Group ASA Norway 61,100 401,963
Orient Overseas International Ltd. Hong Kong 1,514,000 483,753
*Osprey Maritime Ltd. Singapore 1,375,000 527,791
Sea Containers Ltd., A United Kingdom 44,500 1,262,688
Stolt Nielsen SA, ADR Norway 64,800 785,700
------------
4,365,555
------------
</TABLE>
43
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 1998 (CONT.)
<TABLE>
<CAPTION>
TEMPLETON FOREIGN SMALLER COMPANIES FUND COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (cont.)
<S> <C> <C> <C>
UTILITIES ELECTRICAL & GAS 3.0%
Cia Sevillana de Electricidad SA Spain 20,391 $ 259,367
Electricas Reunidas de Zaragoza ERZ Spain 13,300 612,599
Evn AG Austria 8,350 1,189,536
Gas y Electricidad SA Spain 16,099 1,368,963
Guangdong Electric Power Development Co Ltd., B China 1,195,896 372,077
-----------
3,802,542
-----------
WHOLESALE & INTERNATIONAL TRADE 1.2%
Dahl International AB Sweden 58,820 744,928
Eurodis Electron Plc. United Kingdo 618,000 739,977
-----------
1,484,905
-----------
TOTAL COMMON STOCKS (Cost $114,645,457) 107,725,239
-----------
PREFERRED STOCKS 3.4%
Ballast Nedam NV, ctf., cvt., pfd. Netherlands 23,515 815,855
Cia Brasileira de Petroleo Ipiranga, pfd. Brazil 71,578,000 384,021
Fertilizantes Fosfatados SA, pfd. Brazil 254,684,000 619,150
Moebel Walther AG, pfd. Germany 16,000 521,676
News Corp. Ltd., pfd. Australia 152,204 911,101
*Tele Sudeste Celular Participacoes SA, pfd. Brazil 54,540,000 214,886
Weg SA, pfd. Brazil 1,755,900 853,736
-----------
TOTAL PREFERRED STOCKS (Cost $5,673,542) 4,320,425
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount**
--------
BONDS (Cost $246,250) .2%
<S> <C> <C> <C>
Amer Group Ltd., cvt., 6.25%, 6/15/03 Finland $ 250,000 230,950
------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (Cost $120,565,249) 112,276,614
------------
a REPURCHASE AGREEMENTS 10.7%
Deutsche Bank AG, 5.40%,11/02/98 (Maturity Value $4,499,024)
Collateralized by U.S. Treasury Notes and Bonds United States 4,497,000 4,497,000
Morgan Stanley Group Inc., 5.38%,11/02/98 (Maturity Value $4,502,018)
Collateralized by U.S. Treasury Notes and Bonds United States 4,500,000 4,500,000
Warburg Dillon Read, 5.37%,11/02/98 (Maturity Value $4,502,014)
Collateralized by U.S. Treasury Notes and Bonds United States 4,500,000 4,500,000
------------
Total Repurchase Agreements (Cost $13,497,000) 13,497,000
------------
Total Investments (Cost $134,062,249) 99.2% 125,773,614
Other Assets, less Liabilities .8% 1,043,010
------------
Total Net Assets 100.0% $126,816,624
============
</TABLE>
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
----------------------------------
<S> <C> <C>
Assets:
Investments in securities:
Cost .................................. $ 63,205,781 $ 120,565,249
--------------------------------
Value ................................. 45,804,501 112,276,614
Repurchase agreements, at value and cost 7,010,000 13,497,000
Cash ................................... -- 69,108
Receivables:
Investment securities sold ............ 14,210 61,889
Beneficial shares sold ................ 2,049,409 4,741,240
Dividends and interest ................ 157,279 377,236
--------------------------------
Total assets ....................... 55,035,399 131,023,087
--------------------------------
Liabilities:
Payables:
Investment securities purchased ....... -- 10,882
Beneficial shares redeemed ............ 2,303,832 3,774,598
To affiliates ......................... 81,343 268,318
To shareholders ....................... 33,762 91,447
Funds advanced by custodian ............ 2,742,704 --
Accrued expenses ....................... 36,559 61,218
--------------------------------
Total liabilities .................. 5,198,200 4,206,463
--------------------------------
Net assets, at value .................... $ 49,837,199 $ 126,816,624
================================
Net assets consist of:
Undistributed net investment income .... $ 309,494 $ 1,782,439
Net unrealized depreciation ............ (17,401,280) (8,288,635)
Accumulated net realized loss .......... (6,750,402) (8,206,678)
Beneficial shares ...................... 73,679,387 141,529,498
--------------------------------
Net assets, at value .................... $ 49,837,199 $ 126,816,624
================================
</TABLE>
See notes to financial statements.
45
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
October 31, 1998
<TABLE>
<CAPTION>
Templeton Templeton
Pacific Foreign Smaller
Growth Fund Companies Fund
-------------------------------
<S> <C> <C>
CLASS I:
Net assets, at value ................................................ $ 42,199,779 $113,964,438
===============================
Shares outstanding .................................................. 5,390,630 9,245,262
===============================
Net asset value per share ........................................... $ 7.83 $ 12.33
===============================
Maximum offering price per share (Net asset value per share / 94.25%) $ 8.31 $ 13.08
===============================
CLASS II:
Net assets, at value ................................................ $ 6,183,491 $ 450,020
===============================
Shares outstanding .................................................. 793,095 36,532
===============================
Net asset value per share * ......................................... $ 7.80 $ 12.32
===============================
Maximum offering price per share (Net asset value per share / 99.00%) $ 7.88 $ 12.44
===============================
ADVISOR CLASS:
Net assets, at value ................................................ $ 1,453,929 $ 12,402,166
===============================
Shares outstanding .................................................. 184,474 1,004,807
===============================
Net asset value and maximum offering price per share ................ $ 7.88 $ 12.34
===============================
</TABLE>
* Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
46
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Statements (continued)
STATEMENTS OF OPERATIONS
for the year ended October 31, 1998
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
--------------------------------
<S> <C> <C>
Investment Income:
Dividends* .......................................................... $ 1,289,161 $ 3,520,016
Interest ............................................................ 239,025 1,256,544
--------------------------------
Total investment income ......................................... $ 1,528,186 $ 4,776,560
--------------------------------
Expenses:
Management fees (Note 3) ............................................ 459,083 1,356,643
Distribution fees (Note 3)
Class I ............................................................ 110,366 259,193
Class II ........................................................... 49,105 856
Transfer agent fees (Note 3) ........................................ 155,950 203,333
Custodian fees ...................................................... 36,000 103,461
Reports to shareholders ............................................. 45,500 58,700
Registration and filing fees ........................................ 38,105 74,020
Professional fees ................................................... 4,900 21,800
Trustees fees and expenses .......................................... 500 1,000
Other ............................................................... 4,570 4,090
--------------------------------
Total expenses .................................................. 904,079 2,083,096
Expenses waived/paid by affiliate (Note 3) ...................... -- (40,009)
--------------------------------
Net expenses .................................................. 904,079 2,043,087
--------------------------------
Net investment income ....................................... $ 624,107 $ 2,733,473
--------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ (6,506,194) (7,659,387)
Foreign currency transactions ...................................... 22,390 (77,922)
--------------------------------
Net realized loss ................................................. (6,483,804) (7,737,309)
Net unrealized depreciation on investments ........................ (6,930,736) (15,102,189)
--------------------------------
Net realized and unrealized loss ..................................... (13,414,540) (22,839,498)
--------------------------------
Net decrease in net assets resulting from operations ................. $(12,790,433) $(20,106,025)
================================
</TABLE>
* Net of foreign taxes of $84,347 and $450,910 for the Pacific Growth Fund and
Foreign Smaller Companies Fund, respectively.
See notes to financial statements.
47
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended October 31, 1998 and 1997
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-----------------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 624,107 $ 560,017 $ 2,733,473 $ 1,954,247
Net realized gain (loss) from investments and
foreign currency transactions .......................... (6,483,804) 202,900 (7,737,309) 5,445,123
Net unrealized appreciation
(depreciation) on investments .......................... (6,930,736) (13,054,143) (15,102,189) 2,802,188
-----------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from operations ............... (12,790,433) (12,291,226) (20,106,025) 10,201,558
Distributions to shareholders from:
Net investment income:
Class I ................................................ (565,160) (436,548) (2,082,916) (1,719,949)
Class II ............................................... (39,362) (1,123) -- --
Advisor Class .......................................... (14,529) (3,363) (128,167) --
Net realized gains:
Class I ................................................ (255,869) -- (5,553,654) (3,465,592)
Class II ............................................... (21,696) -- -- --
Advisor Class .......................................... (5,784) -- (199,828) --
Beneficial share transactions (Note 2):
Class I ................................................ 13,620,354 (6,898,773) 18,121,845 48,596,181
Class II ............................................... 5,094,887 2,795,305 485,756 --
Advisor Class .......................................... 193,541 1,717,135 10,935,209 3,765,571
-----------------------------------------------------------------------
Net increase (decrease) in net assets ................ 5,215,949 (15,118,593) 1,472,220 57,377,769
Net assets:
Beginning of year ........................................ 44,621,250 59,739,843 125,344,404 67,966,635
-----------------------------------------------------------------------
End of year .............................................. $ 49,837,199 $ 44,621,250 $ 126,816,624 $ 125,344,404
=======================================================================
Undistributed net investment income included in net assets:
End of year ............................................. $ 309,494 $ 46,074 $ 1,782,439 $ 1,365,788
=======================================================================
</TABLE>
See notes to financial statements.
48
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton International Trust (the Trust) is registered under the
Investment Company Act of 1940 as an open-end, diversified investment company,
consisting of two Funds. The Funds and their investment policies are:
Templeton Pacific Growth Fund -- seeks to achieve long-term capital growth by
investing at least 65% of its total assets in equity securities that trade on
Pacific Rim markets as defined in the Funds prospectus, and are issued by
companies that have their principal activities in the Pacific Rim. Templeton
Foreign Smaller Companies Fund -- seeks to achieve long-term capital growth by
investing, under normal market conditions, at least 65% of its total assets in
equity securities of smaller capitalization companies outside the United States.
The following summarizes the Funds' 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 Trustees.
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 Funds purchase or sell foreign securities they 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 Funds do 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. REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements, which are accounted for as a
loan by the Fund to the seller, collateralized by securities which are delivered
to the Funds' custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Funds, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At October 31, 1998, all
outstanding repurchase agreements held by the Funds had been entered into on
that date.
49
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
d. INCOME TAXES:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
e. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
Common expenses incurred by the Trust are allocated among the funds comprising
the trust based on the ratio of net assets of each fund to the combined net
assets. Other expenses are charged to each fund on a specific identification
basis.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. BENEFICIAL SHARES
The Pacific Growth Fund and the Foreign Smaller Companies Fund offer 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 and the exchange privilege of each class.
At October 31, 1998, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES:
Year ended October 31, 1998
Shares sold .................................. 15,211,240 $ 118,081,920 6,229,087 $ 87,294,308
Shares issued on reinvestment of distributions 80,593 692,138 475,150 6,445,132
Shares redeemed .............................. (13,666,884) (105,153,704) (5,534,510) (75,617,595)
-------------------------------------------------------------------
Net increase ................................. 1,624,949 $ 13,620,354 1,169,727 $ 18,121,845
===================================================================
</TABLE>
50
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES (cont.)
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I SHARES (CONT.):
Year ended October 31, 1997
Shares sold .................................. 5,435,941 $ 76,600,239 5,719,497 $ 85,126,909
Shares issued on reinvestment of distributions 24,706 372,583 327,209 4,482,693
Shares redeemed .............................. (5,815,156) (83,871,595) (2,764,102) (41,013,421)
-------------------------------------------------------------
Net increase (decrease) ...................... (354,509) $ (6,898,773) 3,282,604 $ 48,596,181
=============================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS II SHARES:
Year ended October 31, 1998
Shares sold .................................. 1,436,266 $ 11,856,010 36,532 $ 485,756
Shares issued on reinvestment of distributions 6,175 53,541 -- --
Shares redeemed .............................. (862,769) (6,814,664) -- --
-------------------------------------------------------------
Net increase ................................. 579,672 $ 5,094,887 36,532 $ 485,756
=============================================================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON
PACIFIC GROWTH FUND
--------------------------
SHARES AMOUNT
--------------------------
<S> <C> <C>
Year ended October 31, 1997++
Shares sold .................................. 505,147 $ 6,723,229
Shares issued on reinvestment of distributions 69 1,034
Shares redeemed .............................. (291,793) (3,928,958)
--------------------------
Net increase ................................. 213,423 $ 2,795,305
==========================
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES:
Year ended October 31, 1998
Shares sold .................................. 679,912 $ 5,002,253 972,516 $ 13,778,030
Shares issued on reinvestment of distributions 2,269 19,383 23,642 322,433
Shares redeemed .............................. (622,404) (4,828,095) (238,243) (3,165,254)
-------------------------------------------------------------
Net increase ................................. 59,777 $ 193,541 757,915 $ 10,935,209
=============================================================
</TABLE>
51
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Notes to Financial Statements (continued)
2. BENEFICIAL SHARES (cont.)
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC GROWTH FUND FOREIGN SMALLER COMPANIES FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVISOR CLASS SHARES (CONT.):
Year ended October 31, 1997++
Shares sold .................................. 126,880 $ 1,745,974 400,189 $ 6,248,096
Shares issued on reinvestment of distributions 218 3,308 458 6,889
Shares redeemed .............................. (2,401) (32,147) (153,755) (2,489,414)
------- ----------- -------- -----------
Net increase ................................. 124,697 $ 1,717,135 246,892 $ 3,765,571
======= =========== ======== ===========
</TABLE>
+ Effective date of Class II shares was July 1, 1998.
++ Effective date of Class II shares and Advisor Class shares was January 2,
1997.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Trust are also officers and/or directors of Franklin
Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc. (Distributors)
and Franklin/Templeton Investor Services, Inc. (Investor Services), the Funds'
investment manager, principal underwriter and transfer agent, respectively.
The Funds pay an investment management fee to Advisers based on the average
daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
----------------------------------------------------------------
<S> <C>
1.00% First $100 million
0.90% Over $100 million, up to and including $250 million
0.80% Over $250 million, up to and including $500 million
0.75% Over $500 million
</TABLE>
Under a subadvisory agreement, Templeton Investment Counsel, Inc., a
wholly-owned subsidiary of Franklin Resources, Inc., provides subadvisory
services to the Funds and receives from Advisers fees based on the average daily
net assets of each Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
----------------------------------------------------------------
<S> <C>
0.50% First $100 million
0.40% Over $100 million, up to and including $250 million
0.30% Over $250 million, up to and including $500 million
0.25% Over $500 million
</TABLE>
Advisers agreed in advance to waive management fees and assume payment of other
expenses through April 30, 1998, as noted in the Statement of Operations.
The Templeton Pacific Growth Fund and Templeton Foreign Smaller Companies Fund
each reimburse Distributors up to 0.25% and 1.00% per year of the average daily
net assets of Class I and Class II shares, respectively, for costs incurred in
marketing each Funds' Class I and Class II shares.
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
Distributors received net commissions on sales of Fund shares and paid
commissions to other dealers for the year ended October 31, 1998 as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
----------------------------
<S> <C> <C>
Total commissions received .... $582,215 $423,903
Paid to other dealers ......... $499,423 $360,072
</TABLE>
4. INCOME TAXES
At October 31, 1998, the Funds had tax basis capital losses which may be carried
over to offset future capital gains as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
-----------------------------
<S> <C> <C>
Capital loss carryovers expiring in:
2006 ............................... $ 6,750,400 $ 8,206,680
=========== ===========
</TABLE>
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At October 31, 1998, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
--------------------------------
<S> <C> <C>
Unrealized appreciation ...... $ 3,390,888 $ 15,938,069
Unrealized depreciation ...... (20,792,168) (24,226,704)
------------ ------------
Net unrealized depreciation .. $(17,401,280) $ (8,288,635)
============ ============
</TABLE>
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
TEMPLETON TEMPLETON
PACIFIC FOREIGN SMALLER
GROWTH FUND COMPANIES FUND
--------------------------------
<S> <C> <C>
Purchases ................... $29,165,382 $50,475,084
Sales ....................... $ 8,115,157 $26,656,478
</TABLE>
53
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
OF FRANKLIN TEMPLETON INTERNATIONAL TRUST
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds constituting the
Franklin Templeton International Trust (hereafter referred to as the "Funds") at
October 31, 1998, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodians and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Ft. Lauderdale, Florida
November 25, 1998
54
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Tax Designation
TEMPLETON PACIFIC GROWTH FUND
Under section 854(b)(2) of the Internal Revenue Code, the Templeton Pacific
Growth Fund hereby designates 1.96% of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
October 31, 1998.
At October 31, 1998, more than 50% of the Templeton Pacific Growth Fund's total
assets were invested in securities of foreign issuers. In most instances,
foreign taxes were withheld from dividends paid to the fund on these
investments. As in prior years, the Fund intends to make an election under
Section 853 of the Internal Revenue Code. This election will allow shareholders
to treat their proportionate share of foreign taxes paid by the Fund as having
been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to Class I, Class II, and Advisor Class shareholders in
December 1998.
<TABLE>
<CAPTION>
CLASS I CLASS II ADVISOR CLASS
----------------------------------------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australia $-0.0009 $0.0115 $-0.0009 $0.0084 $-0.0009 $0.0135
China 0.0000 0.0039 0.0000 0.0028 0.0000 0.0046
Hong Kong 0.0000 0.0423 0.0000 0.0310 0.0000 0.0495
India 0.0000 0.0061 0.0000 0.0044 0.0000 0.0071
Indonesia 0.0001 0.0003 0.0001 0.0002 0.0001 0.0004
Japan 0.0031 0.0097 0.0031 0.0071 0.0031 0.0114
South Korea 0.0002 0.0005 0.0002 0.0004 0.0002 0.0006
Malaysia 0.0013 0.0055 0.0013 0.0040 0.0013 0.0065
New Zealand 0.0022 0.0067 0.0022 0.0049 0.0022 0.0079
Pakistan 0.0029 0.0091 0.0029 0.0066 0.0029 0.0107
Philippines 0.0001 0.0002 0.0001 0.0002 0.0001 0.0003
Singapore 0.0040 0.0070 0.0040 0.0051 0.0040 0.0082
Thailand 0.0000 0.0000 0.0000 0.0000 0.0000 0.0001
-------- ------- -------- ------- -------- -------
Total $ 0.0130 $0.1028 $ 0.0130 $0.0751 $ 0.0130 $0.1208
-------- ------- -------- ------- -------- -------
</TABLE>
55
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Tax Designation (continued)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
At October 31, 1998, more than 50% of the Templeton Foreign Smaller Companies
Fund's total assets were invested in securities of foreign issuers. In most
instances, foreign taxes were withheld from dividends paid to the fund on these
investments. As in prior years, the Fund intends to make an election under
Section 853 of the Internal Revenue Code. This election will allow shareholders
to treat their proportionate share of foreign taxes paid by the Fund as having
been paid directly by them.
In January 1999, shareholders will receive Form 1099-DIV which will include
their share of taxes withheld and foreign source income distributed during the
calendar year 1998.
The following table provides a breakdown by country of foreign source income and
foreign taxes paid to Class I, Class II, and Advisor Class shareholders in
December 1998.
<TABLE>
<CAPTION>
CLASS I CLASS II ADVISOR CLASS
----------------------------------------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Argentina $ 0.0000 $0.0019 $ 0.0000 $0.0019 $ 0.0000 $0.0020
Australia 0.0007 0.0125 0.0007 0.0123 0.0007 0.0128
Austria 0.0008 0.0033 0.0008 0.0033 0.0008 0.0034
Belgium 0.0002 0.0010 0.0002 0.0010 0.0002 0.0011
Bermuda 0.0000 0.0012 0.0000 0.0012 0.0000 0.0013
Brazil 0.0030 0.0199 0.0030 0.0195 0.0030 0.0204
Canada 0.0024 0.0101 0.0024 0.0100 0.0024 0.0105
China 0.0000 0.0056 0.0000 0.0055 0.0000 0.0057
Columbia 0.0000 0.0010 0.0000 0.0010 0.0000 0.0011
Denmark 0.0004 0.0018 0.0004 0.0018 0.0004 0.0019
Ecuador 0.0000 0.0013 0.0000 0.0012 0.0000 0.0013
Egypt 0.0000 0.0066 0.0000 0.0065 0.0000 0.0068
Finland 0.0003 0.0022 0.0003 0.0022 0.0003 0.0023
France 0.0014 0.0086 0.0014 0.0085 0.0014 0.0089
Germany 0.0008 0.0052 0.0008 0.0051 0.0008 0.0054
</TABLE>
56
<PAGE>
FRANKLIN TEMPLETON INTERNATIONAL TRUST
Tax Designation (continued)
TEMPLETON FOREIGN SMALLER COMPANIES FUND (CONT.)
<TABLE>
<CAPTION>
CLASS I CLASS II ADVISOR CLASS
----------------------------------------------------------------------------------------------------------------
FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE FOREIGN TAXES FOREIGN SOURCE
COUNTRY WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE WITHHELD PER SHARE INCOME PER SHARE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Hong Kong $0.0000 $0.0187 $0.0000 $0.0183 $0.0000 $0.0192
India -0.0001 0.0027 -0.0001 0.0027 -0.0001 0.0028
Indonesia 0.0001 0.0006 0.0001 0.0006 0.0001 0.0006
Israel 0.0002 0.0005 0.0002 0.0005 0.0002 0.0005
Italy 0.0005 0.0020 0.0005 0.0020 0.0005 0.0021
Japan 0.0001 0.0006 0.0001 0.0005 0.0001 0.0006
South Korea 0.0003 0.0006 0.0003 0.0006 0.0003 0.0006
Netherlands 0.0043 0.0182 0.0043 0.0179 0.0043 0.0187
New Zealand 0.0012 0.0049 0.0012 0.0048 0.0012 0.0051
Norway 0.0020 0.0153 0.0020 0.0150 0.0020 0.0157
Peru 0.0000 0.0005 0.0000 0.0005 0.0000 0.0005
Portugal 0.0001 0.0004 0.0001 0.0004 0.0001 0.0004
Singapore 0.0012 0.0029 0.0012 0.0028 0.0012 0.0029
South Africa 0.0000 0.0029 0.0000 0.0029 0.0000 0.0030
Spain 0.0027 0.0125 0.0027 0.0123 0.0027 0.0129
Sweden 0.0028 0.0115 0.0028 0.0113 0.0028 0.0118
Switzerland 0.0017 0.0089 0.0017 0.0088 0.0017 0.0092
Thailand 0.0001 0.0003 0.0001 0.0003 0.0001 0.0003
United Kingdom 0.0164 0.0645 0.0164 0.0633 0.0164 0.0664
----------------------------------------------------------------------------------------------------------------
Total $0.0436 $0.2507 $0.0436 $0.2465 $0.0436 $0.2582
----------------------------------------------------------------------------------------------------------------
</TABLE>
57
