<PAGE>
Franklin Templeton
Japan Fund
Your Fund's Objective:
The Franklin Templeton Japan Fund seeks long-term capital growth by investing
primarily in securities of companies domiciled in Japan and traded in Japanese
securities markets.
May 16, 1996
Dear Shareholder:
We are pleased to bring you the second annual report of the Franklin Templeton
Japan Fund, which covers the year ended March 31, 1996. During the past twelve
months, investors in the Japanese equity market experienced both rampant
depression and outright optimism. The Nikkei 225 Index (Nikkei), which stood at
16,140 on March 31, 1995, dropped as low as 14,296 by July 3, 1995, but then
rallied and ended the period at 21,406. Within this environment, the Fund
provided a total return for the year of 4.55%, as shown in the Performance
Summary on page 5.
The decline of the Nikkei at the beginning of the period was caused primarily by
an avalanche of bad loans in the banking system and the yen's rise to
cripplingly high levels. By April 1995, the yen had reached a record-high
exchange rate of about 80 yen to one U.S. dollar. At this level, goods made in
Japan were too expensive to compete in world markets, leading to lower Japanese
1
<PAGE>
production and rising unemployment. In response, the Bank of Japan began a
policy of active intervention in the currency markets, which successfully
weakened the currency to a level of approximately 106 yen to one U.S. dollar by
March 31, 1996, and positively affected the equity market.
Market sentiment also improved when the Japanese ruling party introduced
legislation in late 1995 to allow use of government money to help the banks
write off some of the bad loans that were making it difficult for financial
institutions to lend to commercial enterprises. Although this program had not
been approved by the Japanese Diet as of March 31, 1996, many analysts were
hopeful that it would eventually be enacted. Other measures the government used
to boost the economy and halt deflation included lowering the discount rate to
an all-time low 0.5%, purchasing government bonds to inject liquidity into the
banking system, and initiating a series of public spending measures.
All of these efforts encouraged foreign investors to pour money into the
Japanese equity market, and in July, the Nikkei began climbing from its lowest
level of the report-
- --------------------------------------------------------------------------------
Franklin Templeton Japan Fund
Portfolio Breakdown on 3/31/96
Based on Total Net Assets
[PIE CHART APPEARS HERE]
Capital Equipment 33.2%
Materials 13.6%
Consumer Goods 13.2%
Services 12.5%
Finance 7.9%
Multi-Industry 5.4%
Short-Term Obligations &
Other Net Assets 14.2%
ing period. Although local investors remained skeptical, and the large Japanese
life insurance companies continued to sell some of their sizable holdings, at
the end of the Fund's fiscal year the Nikkei closed near its highest level of
the period. However, the yen's decline in value during this time offset much of
the market's total return, as measured in U.S. dollars, thus hurting the
performance of the Fund. Since our main purpose is to pick stocks, not predict
the economic environment, we usually do not hedge changes in the yen/U.S. dollar
relationship.
2
<PAGE>
The Fund's performance was helped by our strategy of holding stock in companies
we expect to be direct beneficiaries of Japan's new monetary policies and
anticipated economic rebound, and by our avoidance of companies in the troubled
banking sector. For example, we expect Amway Japan Ltd. and Sony Corp., our two
largest holdings on March 31, 1996, to benefit from an anticipated increase in
consumer spending. In our opinion, Sony, an international entertainment
conglomerate, may also benefit from the weaker yen. Tokio Marine & Fire
Insurance Co., another large holding, may be a direct beneficiary of the Bank of
Japan's low interest rate policy.
Looking forward, we believe the Japanese government should continue its aid to
the banks, enabling them to reduce the enormous amount of bad debt on their
books and freeing their capital to promote economic growth. In our opinion, the
worst may be over and although Japan has much work to do in reshaping its
economy, such action should eventually lead to potential investment
opportunities for shareholders of the Fund. It should be remembered that there
are special risks involved with investing in a single foreign country, including
increased
- -------------------------------------------------------------------------------
Franklin Templeton Japan Fund
Top 10 Holdings on 3/31/96 % of Total
Based on Total Net Assets Net Assets
Company, Industry
- -------------------------------------------------------------------------------
Amway Japan Ltd.
Multi-Industry 4.1%
- -------------------------------------------------------------------------------
Sony Corp.
Appliances & Household Durables 3.8%
- -------------------------------------------------------------------------------
Fuji Heavy Industries Ltd.
Industrial Components 3.4%
- -------------------------------------------------------------------------------
Tenma Corp.
Miscellaneous Materials & Commodities 3.3%
- -------------------------------------------------------------------------------
East Japan Railway
Transportation 3.3%
- -------------------------------------------------------------------------------
Wacoal Corp.
Textiles & Apparel 3.2%
- -------------------------------------------------------------------------------
Rengo Co. Ltd.
Forest Products & Paper 3.2%
- -------------------------------------------------------------------------------
Toyo Engineering Corp.
Industrial Components 3.1%
- -------------------------------------------------------------------------------
Hokuetsu Paper Mills Ltd.
Forest Products & Paper 3.0%
- -------------------------------------------------------------------------------
Mitsubishi Corp.
Wholesale & International Trade 2.9%
- -------------------------------------------------------------------------------
For a complete list of portfolio holdings, see page 7 of this report.
susceptibility to currency fluctuations, market volatility, and economic,
social, and political uncertainty, which are further discussed in the Fund's
prospectus.
This discussion reflects the strategies we employed for the Fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic
3
<PAGE>
and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.
Thank you for your continued support of the Franklin Templeton Japan Fund. We
welcome your comments and look forward to serving you in the future.
Sincerely,
/s/ William T. Howard, Jr.
William T. Howard, Jr., CFA
Portfolio Manager
Franklin Templeton Japan Fund
4
<PAGE>
Performance Summary
The Franklin Templeton Japan Fund produced a total return of 4.55% for the one-
year period ended March 31, 1996. Total return measures the change in value of
an investment, assuming reinvestment of dividend and capital gains
distributions, and does not include the initial sales charges.
The Fund's share price, as measured by net asset value, increased from $9.93 on
March 31, 1995 to $10.35 on March 31, 1996. During the reporting period,
shareholders received distributions totaling 3 cents ($0.03) per share in
dividend income. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the Fund, as
well as any profits realized from the sale of securities in the portfolio.
The graph to the right compares the Fund's performance since inception with the
performance of the unmanaged Nikkei 225 Index. Please remember that the Fund's
performance differs from that of the index because the index does not contain
cash (the Fund generally carries a certain percentage of cash at any given time)
and includes no sales charges or management expenses. Of course, one cannot
invest directly in an index.
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN FRANKLIN TEMPLETON JAPAN FUND AND
THE NIKKEI 225 INDEX]
7/94 3/31
Franklin Templeton Japan Fund $10,000 $ 9,835
Nikkei $10,000 $ 9,797
1. Includes all sales charges and represents the change in value of an
investment over the period shown. Total return assumes reinvestment of dividends
and capital gains. Past performance is not predictive of future results.
2. Index is unmanaged and includes reinvested dividends.
Franklin Templeton Japan Fund
Periods Ended March 31, 1996
Since
Inception
One-Year (07/28/94)
Average Annual
Total Return/1/ -1.46% -0.99%
Cumulative
Total Return/2/ 4.55% 4.35%
1. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 5.75% initial
sales charge.
2. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 5.75% initial sales
charge.
All total return calculations assume reinvestment of dividend and capital gains
distributions when paid. Investment return and principal value will fluctuate
with Japan's market conditions, its currency and economic and political climate,
so that your shares, when redeemed, may be worth more or less than their
original cost. Past performance is not predictive of future results.
All total return calculations reflect the deduction of a proportional share of
Fund expenses on an annual basis. The Fund's investment manager and business
manager have agreed in advance to reduce their respective fees and to make
certain payments to reduce expenses, which increases total return to
shareholders. If the managers had not taken this action, the Fund's total
return would have been lower. The fee waiver may be discontinued at any time
upon notice to the Fund's Board of Trustees.
5
<PAGE>
Franklin Templeton Japan Fund
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
JULY 28, 1994
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 9.93 $ 10.00
------- -------
Income from investment operations:
Net investment income (loss) (.02) .10
Net realized and unrealized gain (loss) .47 (.12)
------- -------
Total from investment operations .45 (.02)
Distributions to shareholders from net in-
vestment income (.03) (.05)
------- -------
Change in net asset value .42 (.07)
------- -------
Net asset value, end of period $ 10.35 $ 9.93
======= =======
TOTAL RETURN* 4.55% (.19)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000) $ 6,232 $ 1,444
Ratio of expenses to average net assets 4.90% 12.05%**
Ratio of expenses, net of reimbursement, to
average net assets 1.99% 1.25%**
Ratio of net investment income (loss) to av-
erage net assets (.05)% 1.92%**
Portfolio turnover rate 54.97% --
Average commission rate paid (per share) $ .0552
</TABLE>
*TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS. NOT ANNUALIZED FOR PERIODS
OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Franklin Templeton Japan Fund
Investment Portfolio, March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 85.8%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 6.4%
Chofu Seisaku Co. Ltd. Jpn. 5,000 $ 122,955
Hualing Holdings Ltd. H.K. 282,000 38,285
Sony Corp. Jpn. 4,000 238,990
----------
400,230
- -------------------------------------------------------------------------------
Banking: 2.5%
Hachijuni Bank Ltd. Jpn. 14,000 153,156
- -------------------------------------------------------------------------------
Chemicals: 2.3%
Daicel Chemical Industries
Ltd. Jpn. 24,000 145,189
- -------------------------------------------------------------------------------
Construction & Housing: 12.2%
Daito Trust Construction Co.
Ltd. Jpn. 15,000 180,926
Kyudenko Corp. Jpn. 13,000 170,173
Maeda Corp. Jpn. 10,000 99,112
National House Industrial Co.
Ltd. Jpn. 8,000 136,138
Toda Corp. Jpn. 19,000 173,212
----------
759,561
- -------------------------------------------------------------------------------
Electrical & Electronics: 5.1%
Hitachi Ltd. Jpn. 16,000 155,587
Matsushita Electric Industrial
Co. Ltd. Jpn. 10,000 162,693
----------
318,280
- -------------------------------------------------------------------------------
Financial Services: 2.5%
Yamaichi Securities Co. Ltd. Jpn. 20,000 154,278
- -------------------------------------------------------------------------------
Forest Products & Paper: 6.1%
Hokuetsu Paper Mills Ltd. Jpn. 19,000 184,759
Rengo Co. Ltd. Jpn. 27,000 196,410
----------
381,169
- -------------------------------------------------------------------------------
Industrial Components: 14.4%
Chudenko Corp. Jpn. 3,000 101,543
*Fuji Heavy Industries Ltd. Jpn. 47,000 210,061
Mitsubishi Heavy Industries
Ltd. Jpn. 19,000 164,151
Sanyo Electric Co. Ltd. Jpn. 27,000 161,571
Shinko Electric Industries Jpn. 2,000 65,077
Toyo Engineering Corp. Jpn. 30,000 193,829
----------
896,232
- -------------------------------------------------------------------------------
Insurance: 2.9%
Tokio Marine & Fire Insurance
Co. Ltd. Jpn. 14,000 181,954
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Franklin Templeton Japan Fund
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------
Machinery & Engineering: 1.5%
Hitachi Koki Co. Ltd. Jpn. 10,000 $ 91,258
- -----------------------------------------------------------------------------
Merchandising: 2.3%
Daiei Inc. Jpn. 12,000 143,619
- -----------------------------------------------------------------------------
Metals & Mining: 1.9%
Nittetsu Mining Co. Ltd. Jpn. 12,000 117,812
- -----------------------------------------------------------------------------
Miscellaneous Materials & Commodities: 3.3%
Tenma Corp. Jpn. 9,000 206,171
- -----------------------------------------------------------------------------
Multi-Industry: 5.4%
Amway Japan Ltd. Jpn. 5,000 252,454
Mitsubishi Oil Co. Ltd. Jpn. 10,000 84,245
----------
336,699
- -----------------------------------------------------------------------------
Telecommunications: 1.4%
Nippon Telegraph & Telephone
Corp. Jpn. 12 87,742
- -----------------------------------------------------------------------------
Textiles & Apparel: 6.8%
Nisshinbo Industries Inc. Jpn. 10,000 94,437
Tokyo Style Co. Ltd. Jpn. 8,000 132,398
Wacoal Corp. Jpn. 16,000 197,475
----------
424,310
- -----------------------------------------------------------------------------
Transportation: 5.9%
Daiwa Logistics Co. Ltd. Jpn. 6,000 161,571
East Japan Railway Jpn. 40 205,704
----------
367,275
- -----------------------------------------------------------------------------
Wholesale & International Trade: 2.9%
Mitsubishi Corp. Jpn. 14,000 183,263
----------
TOTAL COMMON STOCKS (cost $5,311,405) 5,348,198
- -----------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Franklin Templeton Japan Fund
Investment Portfolio, March 31, 1996 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 9.7% (cost
$601,434)
- --------------------------------------------------------------------------
U.S. Treasury Bills,
5.03% to 5.08% with
maturities to
6/06/96 U.S. 607,000 $ 601,521
- --------------------------------------------------------------------------
TOTAL INVESTMENTS: 95.5% (cost
$5,912,839) 5,949,719
OTHER ASSETS, LESS LIABILITIES: 4.5% 282,052
----------
TOTAL NET ASSETS: 100.0% $6,231,771
==========
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Franklin Templeton Japan Fund
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<S> <C>
Assets:
Investments in securities, at value
(identified cost $5,912,839) $5,949,719
Cash 832
Receivables:
Fund shares sold 317,273
Dividends 22,820
Unamortized organization costs 76,458
----------
Total assets 6,367,102
----------
Liabilities:
Payables for investment securities purchased 93,093
Accrued expenses 42,238
----------
Total liabilities 135,331
----------
Net assets, at value $6,231,771
==========
Net assets consist of:
Accumulated net investment loss $ (2,015)
Net unrealized appreciation 36,880
Accumulated net realized gain 119,193
Net capital paid in on shares of beneficial interest 6,077,713
----------
Net assets, at value $6,231,771
==========
Shares outstanding 601,987
==========
Net asset value per share
($6,231,771 / 601,987) $ 10.35
==========
Maximum offering price
($10.35 / 94.25%) $ 10.98
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
STATEMENT OF OPERATIONS
for the year ended March 31, 1996
<TABLE>
<S> <C> <C>
Investment income:
(net of $5,448
foreign taxes withheld)
Dividends $ 30,897
Interest 44,480
---------
Total income $ 75,377
Expenses:
Management fees (Note 3) 29,228
Administrative fees (Note 3) 5,840
Distribution fees (Note 3) 13,667
Transfer agent fees (Note 3) 8,250
Reports to shareholders 43,245
Audit fees 13,600
Legal fees (Note 3) 22,700
Registration and filing fees 29,250
Trustees' fees and expenses 1,150
Amortization of organization costs 22,754
Other 1,304
---------
Total expenses 190,988
Less expenses reimbursed (Note 3) (113,596)
---------
Total expenses less reimbursement 77,392
--------
Net investment loss (2,015)
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 121,404
Foreign currency transactions (1,784)
---------
119,620
Net unrealized appreciation on investments 35,226
---------
Net realized and unrealized gain 154,846
--------
Net increase in net assets resulting from operations $152,831
========
</TABLE>
10
<PAGE>
Franklin Templeton Japan Fund
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
JULY 28, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) $ (2,015) $ 12,167
Net realized gain (loss) on investment and
foreign currency transactions 119,620 (3,200)
Net unrealized appreciation 35,226 1,654
---------- ----------
Net increase in net assets resulting from
operations 152,831 10,621
Distributions to shareholders from net in-
vestment income (4,653) (4,741)
Fund share transactions (Note 2) 4,640,078 937,635
---------- ----------
Net increase in net assets 4,788,256 943,515
Net assets:
Beginning of period 1,443,515 500,000
---------- ----------
End of period $6,231,771 $1,443,515
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Franklin Templeton Japan Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Franklin Templeton Japan Fund (the Fund) is an open-end, diversified management
investment company registered under the Investment Company Act of 1940. The
Fund seeks long-term capital growth by investing primarily in securities of
companies domiciled in Japan and traded in Japanese securities markets. The
following summarizes the Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign exchange or
NASDAQ are valued at the last reported sales prices on the principal exchange
on which the securities are traded. Over-the-counter securities for which no
sale is reported are valued at the mean between the last current bid and asked
prices. Securities for which market quotations are not readily available are
valued at fair value as determined by management and approved in good faith by
the Board of Trustees.
b. Foreign Currency Transactions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into a foreign exchange contract to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of for-
eign currencies, currency gains or losses realized between the trade and set-
tlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at the end
of the fiscal period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over five
years.
e. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders,
which are determined in accordance with income tax regulations, are recorded on
the ex-dividend date.
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.
12
<PAGE>
Franklin Templeton Japan Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At March 31, 1996, there were an unlimited number of shares of beneficial in-
terest authorized ($0.01 par value). Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
JULY 28, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold 1,375,298 $13,696,032 132,082 $1,297,159
Shares issued on
reinvestment of
distributions 236 2,326 296 2,875
Shares redeemed (918,913) (9,058,280) (37,012) (362,399)
--------- ----------- ------- ----------
Net increase 456,621 $ 4,640,078 95,366 $ 937,635
========= =========== ======= ==========
</TABLE>
Templeton Global Investors, Inc., the Fund's administrative manager, is the
record owner of 50,410 shares as of March 31, 1996.
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Fund's investment manager, administrative manager, princi-
pal underwriter, and transfer agent, respectively.
The Fund pays monthly an investment management fee to TICI equal, on an annual
basis, to 0.75% of the average daily net assets of the Fund. The Fund pays TGII
monthly an administrative fee of 0.15% per annum of the first $200 million of
the Fund's average daily net assets, 0.135% of the next $500 million, 0.10% of
the next $500 million, and 0.075% per annum of such average assets in excess of
$1.2 billion. TICI and TGII have voluntarily agreed to reduce their respective
fees to the extent necessary to limit total expenses to an annual rate of 2.00%
of the Fund's average daily net assets through December 31, 1996. Prior to
April 15, 1995, this limitation was 1.25% of the Fund's average daily net as-
sets. The amount of reimbursement for the year ended March 31, 1996 is set
forth in the Statement of Operations. For the year ended March 31, 1996, FTD
received net commissions of $25,733 from the sale of Fund's shares and FTIS re-
ceived fees of $8,250.
Pursuant to a distribution plan, the Fund reimburses FTD monthly (subject to a
limit of 0.35% per annum of the Fund's average daily net assets) for FTD's cost
and expenses in connection with any activity that is primarily intended to re-
sult in sales of Fund shares. Such distribution fees are set forth in the
Statement of Operations. Under the distribution plan, costs and expenses ex-
ceeding the maximum may be reimbursed in subsequent periods. At March 31, 1996,
unreimbursed expenses amounted to $9,117.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $22,700 for the year ended March 31,
1996.
13
<PAGE>
Franklin Templeton Japan Fund
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended March 31, 1996 aggregated $5,996,258 and $1,635,834, respectively.
The cost of securities for federal income tax purposes is the same as that
shown in the Investment Portfolio. Realized gains and losses are reported on an
identified cost basis.
At March 31, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation $ 162,497
Unrealized depreciation (125,617)
---------
Net unrealized appreciation $ 36,880
=========
</TABLE>
14
<PAGE>
Franklin Templeton Japan Fund
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
Franklin Templeton Japan Fund
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Franklin Templeton Japan Fund as of March 31,
1996, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for the peri-
ods indicated in the accompanying financial statements. These financial state-
ments and financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Franklin Templeton Japan Fund as of March 31, 1996, the results of its opera-
tions, the changes in its net assets and the financial highlights for the peri-
ods indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
April 26, 1996
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FRANKLIN TEMPLETON JAPAN
FUND
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
PRINCIPAL UNDERWRITER:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be
preceded or accompanied
by the current
prospectus of the
Franklin Templeton
Japan Fund, which
contains more complete
information including
charges and expenses.
Like any investment in
securities, the value
of the Fund's portfolio
will be subject to the
risk of loss from
market, currency,
economic, political,
and other factors, as
well as investment
decisions by the
investment manager
which will not always
be profitable or wise.
The Fund and its
investors are not
protected from such
losses by the
investment manager.
Therefore, investors
who cannot accept this
risk should not invest
in shares of the Fund.
To ensure the highest
quality of service,
telephone calls to or
from our service
departments may be
monitored, recorded,
and accessed. These
calls can be determined
by the presence of
a regular beeping tone.
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[LOGO OF RECYCLED PAPER APPEARS HERE] TL417 A96 05/96
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FRANKLIN
TEMPLETON
JAPAN
FUND
Annual Report
March 31, 1996
[LOGO OF FRANKLIN TEMPLETON APPEARS HERE]
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