SEMI ANNUAL REPORT
[PICTURE OF MAP]
September 30, 1997
FRANKLIN TEMPLETON
JAPAN FUND
[LOGO] FRANKLIN TEMPLETON
<PAGE>
[FRANKLIN TEMPLETON CELEBRATING 50 YEARS LOGO]
CELEBRATING 50 YEARS
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
In addition, we want to stress that all securities markets move both up and
down. Mixed in with the good years can be some bad years. Accordingly, mutual
fund share prices also move up and down. Every investor should expect such
fluctuations, which can be wide. When markets are going down, as well as up, we
encourage investors to maintain a long-term perspective. We thank you for your
past support and look forward to serving your investment needs in the years
ahead.
<PAGE>
SHAREHOLDER LETTER
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.
Dear Shareholder:
This semi-annual report of the Franklin Templeton Japan Fund covers the six
months ended September 30, 1997. During this period, the Japanese economy
experienced serious difficulties, as bankruptcy claims and unemployment rose,
consumer spending weakened, and the country's banking system remained in crisis.
Increased deregulation and cuts in government spending, although usually
beneficial in the long term, also adversely affected the economy. Corporate
profits remained sluggish, and the Nikkei 225 Index fell 0.34%. (1) Although the
Fund's Class I share price fluctuated during the period, it returned to its
March 31, 1997 level at the period's close, as discussed in the Performance
Summary on page 4.
On September 30, 1997, 46.0% of the Fund's total net assets were invested in
equities. However, given the unusual market conditions prevailing in Japan, the
remaining net assets of the Fund were invested in U.S. Treasury obligations
(52.7%) and other net assets (1.3%), in accordance with the defensive posture
taken by the Portfolio Manager. Given the high price/earnings ratio of the
Japanese equity market, we were
(1.) Market return is measured in local currency terms, and includes reinvested
dividends.
CONTENTS
Shareholder Letter ............ 1
Performance Summary ........... 4
Financial Highlights and
Statement of Investments ...... 8
Financial Statements .......... 12
Notes to the Financial
Statements .................... 15
[PYRAMID GRAPH]
<PAGE>
[PIE CHART]
INDUSTRY BREAKDOWN
Based on Total Net Assets
9/30/97
Capital Equipment 18.2%
Services 10.5%
Consumer Goods 9.5%
Materials 6.0%
Insurance 1.8%
Short-Term Obligations & Other Net Assets 54.0%
unable to find many stocks selling below our estimate of their true value.
Although we made no significant changes to the Fund's portfolio during the
reporting period, we did purchase shares of Matsuzakaya Co. Ltd., (2) a
department store operator, because we believed that its stock was undervalued
and that the company had strong growth potential. During the period, the share
price of our top holding, Sony Corp., increased 35.4% in U.S. dollar terms. The
Fund's performance also benefited from the fact that we held no shares in large
banks and initiated no new positions in companies dependent on government
spending.
This discussion reflects the strategies we employed for the Fund during the six
months under review, and includes our opinions as of the close of the period.
Because economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings may
change as new circumstances arise. All figures shown are as of September 30,
1997, and the Fund's holdings can be expected to change with market developments
and management of the portfolio. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing the securities we purchase or sell for the Fund. Please
remember that there are specific risks involved with investing in a single
foreign country, including increased susceptibility to currency fluctuations,
market volatility, and economic, social, and political conditions. These risks
and other considerations are discussed in the Fund's prospectus.
(2.) A complete listing of all stocks in the Portfolio as of September 30, 1997
begins on page 10.
2
<PAGE>
We thank you for your participation in the Franklin Templeton Japan Fund and the
opportunity to serve your investment needs.
Sincerely,
/s/ William T. Howard, Jr.
- --------------------------
William T. Howard, Jr., CFA
Portfolio Manager
Franklin Templeton Japan Fund
<TABLE>
<CAPTION>
Top 10 Holdings
9/30/97
Company, % of Total
Industry Net Assets
- ----------------------------------------
<S> <C>
Sony Corp.
Appliances &
Household Durables 3.4%
East Japan Railway Co.
Transportation 2.5%
Nippon Telegraph &
Telephone Corp.
Telecommunications 2.5%
Nintendo Co. Ltd.
Recreation & Other
Consumer Goods 2.3%
Fuji Heavy Industries Ltd.
Industrial Components 2.3%
Wacoal Corp.
Textiles & Apparel 2.3%
Matsushita Electric
Industrial Co. Ltd.
Electrical & Electronics 2.2%
Mitsubishi Corp.
Wholesale & International Trade 2.2%
Hokuetsu Paper Mills Ltd.
Forest Products & Paper 2.1%
Daito Trust Construction Co. Ltd.
Construction & Housing 1.9%
</TABLE>
For a complete list of portfolio holdings, please see page 10 of this report.
3
<PAGE>
PERFORMANCE SUMMARY
CLASS I
Franklin Templeton Japan Fund - Class I produced a cumulative total return of
zero (0.00%) for the six-month period ended September 30, 1997. Cumulative total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains, if any, and does not include the initial sales
charge.
Although the price of the Fund's shares fluctuated during the reporting period,
the price on September 30, 1997 was $7.44, unchanged from March 31, 1997.
Shareholders received no distributions during this time.
Past performance is not predictive of future results.
4
<PAGE>
CLASS I
Periods ended 9/30/97
<TABLE>
<CAPTION>
SINCE
INCEPTION
1-YEAR 3-YEAR (7/28/94)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -21.68% -23.67% -23.76%
Average Annual Total Return(2) -26.19% -10.40% -9.89%
Value of $10,000 Investment(3) $7,381 $7,194 $7,186
</TABLE>
(1.) Cumulative total return represents the change in value of an investment
over the indicated periods and does not include the sales charge.
(2.) Average annual total return represents the average annual change in value
of an investment over the indicated periods and includes the maximum 5.75%
initial sales charge.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the indicated periods and include the maximum 5.75% sales charge.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the social, economic and political climates
of countries where investments are made. You may have a gain or loss when you
sell your shares.
The Fund's Investment Manager and Fund Administrator have agreed in advance to
waive a portion of their respective fees and, in the case of the Fund
Administrator, to make certain payments to reduce expenses, which increases
total return to shareholders. If they had not taken this action, total returns
would have been lower. After August 1, 1998, the fee waiver and expense
reimbursements may be discontinued at any time upon notice to the Fund's Board
of Trustees.
Past performance is not predictive of future results.
5
<PAGE>
ADVISOR CLASS
Franklin Templeton Japan Fund - Advisor Class produced a cumulative total return
of 0.27% for the six-month period ended September 30, 1997. The price of the
Fund's Advisor Class shares increased $0.02, from $7.44 to $7.46 over the same
period. Shareholders received no distributions during this time.
Past performance is not predictive of future results.
6
<PAGE>
ADVISOR CLASS
Periods ended 9/30/97
<TABLE>
<CAPTION>
Since
Inception
of the Fund
1-Year 3-Year (7/28/94)
- ----------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -21.47% -23.47% -23.55%
Average Annual Total Return(1) -21.47% -8.53% -8.11%
Value of $10,000 Investment(2) $7,853 $7,653 $7,645
</TABLE>
Effective January 2, 1997, the Fund began offering Advisor Class shares to
certain eligible investors as described in its prospectus. This share class does
not have sales charges or Rule 12b-1 plans. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the Fund's Class I performance, excluding the effect of the Class I maximum
initial sales charge, but including the effect of Class I expenses including
Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures reflect
actual Advisor Class performance including the deduction of all charges and fees
applicable only to that class. Since January 2, 1997 (commencement of sales),
the cumulative total return of Advisor Class shares was -8.35%. See Note below.
(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 indicated periods.
(2.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
All calculations assume reinvestment of dividends and capital gains at net asset
value. Investment return and principal value will fluctuate with market
conditions, currency volatility and the social, economic and political climates
of countries where investments are made. You may have a gain or loss when you
sell your shares.
Note: The Fund's Investment Manager and Fund Administrator have agreed in
advance to waive a portion of their respective fees and, in the case of the Fund
Administrator, to make certain payments to reduce expenses, which increases
total return to shareholders. If they had not taken this action, total returns
would have been lower. After August 1, 1998, the fee waiver and expense
reimbursements may be discontinued at any time upon notice to the Fund's Board
of Trustees.
Past performance is not predictive of future results.
7
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED MARCH 31,
SEPTEMBER 30, 1997 --------------------------------------
(UNAUDITED) 1997 1996 1995+
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period............. $7.44 $10.35 $9.93 $10.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income........................... .03 (.05) (.02) .10
Net realized and unrealized gains (losses)...... (.03) (2.69) .47 (.12)
---------------------------------------------------------------------
Total from investment operations................. -- (2.74) .45 (.02)
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income............ -- -- (.03) (.05)
Distributions from net realized gains........... -- (.17) -- --
---------------------------------------------------------------------
Total distributions.............................. -- (.17) (.03) (.05)
---------------------------------------------------------------------
Net asset value, end of period................... $7.44 $7.44 $10.35 $9.93
=====================================================================
Total return*.................................... -- (26.93)% 4.55% (.19)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)................ $11,214 $7,128 $6,232 $1,444
Ratios to average net assets:
Expenses........................................ 2.69%** 3.05% 4.90% 12.05%**
Expenses, including waiver...................... 2.00%** 2.00% 1.99% 1.25%**
Net investment income........................... 1.00%** (.77)% (.05)% 1.92%**
Portfolio turnover rate.......................... -- 23.43% 54.97% --
Average commission rate paid***.................. $.0295 $.0603 $.0552 --
</TABLE>
*Total return does not reflect sales commissions and is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
+For the period July 28, 1994 (commencement of operations) to March 31, 1995.
See notes to financial statements.
8
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------
SIX MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED) 1997+
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period........................................ $7.44 $8.14
--------------------------------------
Income from investment operations:
Net investment income...................................................... .14 .02
Net realized and unrealized losses......................................... (.12) (.72)
--------------------------------------
Total from investment operations............................................ .02 (.70)
--------------------------------------
Net asset value, end of period.............................................. $7.46 $7.44
======================================
Total return*............................................................... .27% (8.60)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)........................................... $37 $55
Ratios to average net assets:
Expenses................................................................... 2.34%** 3.48%**
Expenses, including waiver................................................. 1.65%** 1.65%**
Net investment income...................................................... 1.18%** .94%**
Portfolio turnover rate..................................................... -- 23.43%
Average commission rate paid***............................................. $.0295 $.0603
</TABLE>
*Total return is not annualized.
**Annualized.
***Relates to purchases and sales of equity securities.
+For the period January 2, 1997 (effective date) to March 31, 1997.
See notes to financial statements.
9
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 46.0%
APPLIANCES & HOUSEHOLD DURABLES 3.4%
Sony Corp......................................................... Japan 4,000 $ 377,890
-----------
CHEMICALS 1.1%
Daicel Chemical Industries Ltd.................................... Japan 50,000 128,035
-----------
CONSTRUCTION & HOUSING 5.6%
Daito Trust Construction Co. Ltd.................................. Japan 20,000 208,834
*Maeda Corp....................................................... Japan 25,000 89,707
National House Industrial Co. Ltd................................. Japan 17,000 176,100
*Toda Corp........................................................ Japan 36,000 160,802
-----------
635,443
-----------
ELECTRICAL & ELECTRONICS 4.1%
Hitachi Ltd....................................................... Japan 24,000 208,834
Matsushita Electric Industrial Co. Ltd............................ Japan 14,000 252,921
-----------
461,755
-----------
FOREST PRODUCTS & PAPER 3.7%
Hokuetsu Paper Mills Ltd.......................................... Japan 44,000 235,552
Rengo Co. Ltd..................................................... Japan 41,000 176,680
-----------
412,232
-----------
INDUSTRIAL COMPONENTS 8.5%
Fuji Heavy Industries Ltd......................................... Japan 62,000 254,330
Mitsubishi Heavy Industries Ltd................................... Japan 35,000 191,721
Sanyo Electric Co. Ltd............................................ Japan 53,000 162,509
Shinko Electric Industries Co. Ltd................................ Japan 4,400 194,348
Yamato Kogyo Co. Ltd.............................................. Japan 17,000 150,742
-----------
953,650
-----------
INSURANCE 1.8%
*Tokio Marine & Fire Insurance Co. Ltd............................ Japan 17,000 204,276
-----------
LEISURE & TOURISM 1.5%
Toei Co. Ltd...................................................... Japan 35,000 174,899
-----------
MERCHANDISING 0.9%
Matsuzakaya Co. Ltd............................................... Japan 19,000 99,196
-----------
METALS & MINING 1.2%
Nittetsu Mining Co. Ltd........................................... Japan 24,000 133,256
-----------
RECREATION & OTHER CONSUMER GOODS 2.3%
Nintendo Co. Ltd.................................................. Japan 2,700 257,313
-----------
TELECOMMUNICATIONS 2.5%
Nippon Telegraph & Telephone Corp................................. Japan 30 275,959
-----------
TEXTILES & APPAREL 3.8%
Nisshinbo Industries Inc.......................................... Japan 27,000 178,777
*Wacoal Corp...................................................... Japan 23,000 253,501
-----------
432,278
-----------
</TABLE>
10
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1997 (UNAUDITED) (continued)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TRANSPORTATION 3.4%
*Daiwa Logistics Co. Ltd.......................................... Japan 15,000 $ 98,077
East Japan Railway Co............................................. Japan 60 281,429
-----------
379,506
-----------
WHOLESALE & INTERNATIONAL TRADE 2.2%
Mitsubishi Corp................................................... Japan 26,000 252,093
-----------
TOTAL COMMON STOCKS (COST $6,456,200)............................. 5,177,781
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT**
----------
<S> <C> <C> <C>
SHORT TERM OBLIGATIONS 52.7% (COST $5,922,675)
U.S. Treasury Bills, 4.83% to 5.16% with maturities to
12/26/97..................................................... United States $5,953,000 5,924,799
-----------
TOTAL INVESTMENTS (COST $12,378,875) 98.7%....................... 11,102,580
OTHER ASSETS, LESS LIABILITIES 1.3%.............................. 148,445
-----------
TOTAL NET ASSETS 100.0%.......................................... $11,251,025
===========
</TABLE>
*Non-income producing.
**Securities traded in U.S. dollars.
See notes to financial statements.
11
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $12,378,875).............................. $11,102,580
Cash................................................................................ 589
Receivables:
Fund shares sold................................................................... 210,615
Dividends and interest............................................................. 17,181
Fee reimbursement.................................................................. 34,180
Unamortized organization costs...................................................... 42,390
------------
Total assets.................................................................... 11,407,535
------------
Liabilities:
Payables:
Investment securities purchased.................................................... 10,463
Fund shares redeemed............................................................... 69,937
Affiliates......................................................................... 54,375
Accrued expenses.................................................................... 21,735
------------
Total liabilities............................................................... 156,510
------------
Net assets, at value........................................................... $11,251,025
============
Net assets consist of:
Undistributed net investment income................................................. $ 50,633
Net unrealized depreciation......................................................... (1,276,295)
Accumulated net realized loss....................................................... (825,964)
Beneficial shares................................................................... 13,302,651
------------
Net assets, at value............................................................ $11,251,025
============
CLASS I:
Net asset value per share ($11,213,583 / 1,507,042 shares outstanding).............. $7.44
============
Maximum offering price per share ($7.44 / 94.25%)................................... $7.89
============
ADVISOR CLASS:
Net asset value and offering price per share ($37,442 / 5,017 shares outstanding)... $7.46
============
</TABLE>
See notes to financial statements.
12
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
Investment income:
(net of $3,050 foreign taxes withheld)
Dividends.................................................................. $ 26,140
Interest................................................................... 125,094
-------
Total investment income................................................ $ 151,234
Expenses:
Management fees (Note 3)................................................... 37,883
Administrative fees (Note 3)............................................... 7,577
Distribution fees (Note 3)
Class I................................................................... 17,435
Transfer agent fees (Note 3)............................................... 14,300
Custodian fees............................................................. 1,350
Reports to shareholders.................................................... 9,250
Registration and filing fees............................................... 28,518
Professional fees (Note 3)................................................. 7,100
Trustees' fees and expenses................................................ 900
Amortization of organization costs......................................... 11,377
-------
Total expenses......................................................... 135,690
Less expenses waived (Note 3).............................................. 35,089
-------
Total expenses less expenses waived.................................... 100,601
---------
Net investment income................................................. 50,633
---------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments............................................................... 460
Foreign currency transactions............................................. (4,315)
-------
Net realized loss.......................................................... (3,855)
Net unrealized depreciation on investments................................. (277,352)
---------
Net realized and unrealized loss............................................ (281,207)
---------
Net decrease in net assets resulting from operations........................ $(230,574)
=========
</TABLE>
See notes to financial statements.
13
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) MARCH 31, 1997
-------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss)................................... $ 50,633 $ (51,074)
Net realized loss from investments and foreign currency
transactions................................................. (3,855) (831,259)
Net unrealized depreciation on investments..................... (277,352) (1,035,823)
-------------------------------------------
Net decrease in net assets resulting from operations....... (230,574) (1,918,156)
Distributions to shareholders from:
Net realized gain
Class I....................................................... -- (117,178)
Return of capital
Class I....................................................... -- (2,679)
Fund share transactions (Note 2)
Class I....................................................... 4,311,456 2,932,654
Advisor Class................................................. (12,768) 56,499
-------------------------------------------
Net increase in net assets................................. 4,068,114 951,140
Net assets:
Beginning of period............................................. 7,182,911 6,231,771
-------------------------------------------
End of period................................................... $ 11,251,025 $ 7,182,911
===========================================
Undistributed net investment income (accumulated net investment
loss) included in net assets:
Beginning of period............................................. $ -- $ (2,015)
===========================================
End of period................................................... $ 50,633 $ --
===========================================
</TABLE>
See notes to financial statements.
14
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton Japan Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks long-term capital growth 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. 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 Fund purchases or sells foreign securities it will customarily enter into a
foreign exchange contract to minimize foreign exchange risk from the trade date
to the settlement date of such transactions.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign currency denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
c. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute all of its taxable income.
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Certain income from foreign securities is recorded as soon as information is
available to the Fund. Interest income and estimated expenses are accrued daily.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date.
15
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Notes to Financial Statements (unaudited) (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONT.)
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
e. ORGANIZATION COSTS:
Organization costs are amortized on a straight line basis over five years.
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 Fund offers two classes of shares: Class I and Advisor Class shares. The
shares differ by their initial sales load, distribution fees, voting rights on
matters affecting a single class of shares and the exchange privilege of each
class.
At September 30, 1997, there were an unlimited number of shares authorized
($0.01 par value) for each class. Transactions in the Fund's shares were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997
--------------------------------------------------------
CLASS I SHARES: SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................. 974,666 $ 7,618,788 1,104,095 $ 9,745,209
Shares issued on reinvestment of distributions............... -- -- 10,075 104,173
Shares redeemed.............................................. (426,204) (3,307,332) (757,577) (6,916,728)
--------------------------------------------------------
Net increase................................................. 548,462 $ 4,311,456 356,593 $ 2,932,654
========================================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 MARCH 31, 1997*
--------------------------------------------------------
ADVISOR CLASS SHARES: SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold.................................................. 69,818 $ 537,118 24,789 $ 187,939
Shares redeemed.............................................. (72,182) (549,886) (17,408) (131,440)
--------------------------------------------------------
Net increase (decrease)...................................... (2,364) $ (12,768) 7,381 $ 56,499
========================================================
</TABLE>
*Effective date of Advisor Class shares was January 2, 1997.
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Certain officers of the Fund are also officers or directors of Templeton
Investment Councel, Inc. (TICI), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton
16
<PAGE>
FRANKLIN TEMPLETON JAPAN FUND
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONT.)
Investor Services, Inc. (Investor Services), the Fund's investment manager,
administrative manager, principal underwriter, and transfer agent, respectively.
The Fund pays an investment management fee to TICI of 0.75% per year of the
average daily net assets of the Fund.
The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
------------------------------------------------------------------
<S> <C>
0.15% First $200 million
0.135% Over $200 million, up to and including $700 million
0.10% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
</TABLE>
TICI and FT Services agreed in advance to reduce fees to the extent necessary to
limit total expenses to an annual rate of 2.00% and 1.65% of the Fund's average
daily net assets of Class I and Advisor Class shares, respectively, through
August 1, 1998.
The Fund reimburses Distributors up to 0.35% per year of the average daily net
assets of Class I, for costs incurred in marketing the Fund's shares. Under the
Class I distribution plan, costs exceeding the maximum may be reimbursed in
subsequent periods. At September 30, 1997, unreimbursed costs were $50,505.
Distributors received net commissions from sales of Fund shares of $20,821 for
the period.
During the six months ended September 30, 1997, legal fees of $226 were paid to
a law firm in which an officer of the Fund is a partner.
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1997 aggregated $2,328,519 and $0, respectively.
5. INCOME TAXES
At March 31, 1997, the Fund had tax basis capital losses of $814,140 which may
be carried over to offset future capital gains. Such losses expire in 2005.
The cost of securities for income tax purposes is the same as that shown in the
Statement of Investments. At September 30, 1997, the net unrealized depreciation
based on the cost of investments for income tax purposes was as follows:
<TABLE>
<S> <C>
Unrealized appreciation........... $ 235,676
Unrealized depreciation........... (1,511,971)
-----------
Net unrealized depreciation....... $(1,276,295)
===========
</TABLE>
17
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<PAGE>
LITERATURE REQUEST
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone calls
to or from our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing
Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global
Real Estate Fund
Templeton Global
Smaller Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton Global
Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and
Income Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High Income
Currency Fund
Templeton Americas Government
Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap Growth Fund
Franklin Small Cap
Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund*
Franklin Convertible
Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund*
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
Fund Allocator Series
Franklin Templeton Conservative
Target Fund
Franklin Templeton Moderate
Target Fund
Franklin Templeton Growth
Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment Grade
Income Fund
Franklin Short-Intermediate
U.S. Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
For Corporations
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC
FUNDS SEEKING
TAX-FREE INCOME
Alabama
Arizona**
Arkansas***
California**
Colorado
Connecticut
Florida**
Georgia
Hawaii***
Indiana
Kentucky
Louisiana
Maryland
Massachusetts+
Michigan**
Minnesota+
Missouri
New Jersey
New York**
North Carolina
Ohio+
Oregon
Pennsylvania
Tennessee***
Texas
Virginia
Washington***
VARIABLE ANNUITIES++
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*These funds are now closed to new accounts, with the exception of retirement
accounts.
**Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
***The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
+Portfolio of insured municipal securities.
++Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
10/97.1
<PAGE>
PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404-1585
SHAREHOLDER SERVICES
1-800-632-2301
FUND INFORMATION
1-800-342-5236
This report must be preceded or accompanied by the current prospectus of the
Franklin Templeton Japan Fund, which contains more complete information,
including risk factors, charges and expenses. Like any investment in securities,
the value of the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political and other factors, 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.
417 S97 11/97
TL417 S97 [RECYCLED LOGO] Printed on recycled paper
