UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-06336
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Franklin Templeton International Trust
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(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 10/31
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Date of reporting period: 10/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
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OCTOBER 31, 2005
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A Series of Franklin Templeton
International Trust
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ANNUAL REPORT AND SHAREHOLDER LETTER INTERNATIONAL
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
TEMPLETON FOREIGN
SMALLER COMPANIES FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the annual report
CONTENTS
SHAREHOLDER LETTER ..................................................... 1
ANNUAL REPORT
Templeton Foreign Smaller Companies Fund ............................... 3
Performance Summary .................................................... 8
Your Fund's Expenses ................................................... 13
Financial Highlights and Statement of Investments ...................... 15
Financial Statements ................................................... 23
Notes to Financial Statements .......................................... 27
Report of Independent Registered Public Accounting Firm ................ 36
Tax Designation ........................................................ 37
Board Members and Officers ............................................ 41
Shareholder Information ................................................ 46
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ANNUAL REPORT
TEMPLETON FOREIGN SMALLER COMPANIES FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Foreign Smaller Companies Fund
seeks to provide long-term capital growth. Under normal market conditions, the
Fund invests at least 80% of its net assets in investments of smaller companies
located outside the United States, including emerging markets.
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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GEOGRAPHIC BREAKDOWN*
Based on Total Net Assets as of 10/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Asia .......................... 51.6%
Europe ........................ 31.6%
North America ................. 11.7%
Australia & New Zealand ....... 3.4%
Latin America ................. 2.2%
* Short-term investments and other net assets = -0.5% due to liabilities in
excess of assets.
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This annual report for Templeton Foreign Smaller Companies Fund covers the
fiscal year ended October 31, 2005.
PERFORMANCE OVERVIEW
Templeton Foreign Smaller Companies Fund - Class A posted a +15.00% cumulative
total return for the 12 months under review. The Fund underperformed its
benchmark, the Morgan Stanley Capital International (MSCI) Europe Australasia
Far East (EAFE) Index, which posted an +18.59% total return for the same
period.(1) The Fund also underperformed the S&P/Citigroup
(1). Source: Standard & Poor's Micropal. The MSCI EAFE Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets excluding the U.S.
and Canada. The index is unmanaged and includes reinvested dividends. One
cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 19.
Annual Report | 3
Global Equity ex-U.S. less than $2 Billion Index, a more relevant index that had
a +26.82% cumulative total return over the reporting period.(2) Please note that
index performance information is provided for reference and that we do not
attempt to track an index, but rather undertake investments on the basis of
fundamental research. You can find the Fund's long-term performance data in the
Performance Summary beginning on page 8.
ECONOMIC AND MARKET OVERVIEW
The global economic recovery continued in the 12-month period ended October 31,
2005. U.S. gross domestic product (GDP) expanded throughout 2005 despite
sustained high oil prices and recent hurricane damage in the U.S. Gulf States.
Apart from western Europe, foreign growth appeared to be beating the
expectations of a slowdown. China's industrial production and GDP expanded, and
Japan's economic outlook appeared brighter. The reelection of Prime Minister
Junichiro Koizumi gave investors confidence about pending structural reforms,
such as the privatization of Japan's postal system, which also serves as a
savings bank and insurance company. However, many observers were skeptical about
the possibility for sustained economic growth, given the country's recent
history of periodically alternating good and bad results.
Oil prices remained a major concern for the global economy as they climbed
higher, amid concerns about long-term supply limitations in the face of strong
growth in global demand, especially from China and India. In continental Europe,
consumer and business sentiment was weak for a number of reasons. This region
continued to face political and economic integration issues. Unemployment in
Germany and France remained at or above 10%.(3) Largely in consideration of
these factors, the European Central Bank lowered its 2005 GDP growth estimate
for the 12-nation euro zone. In the political arena, France and the Netherlands
defeated a referendum to adopt a European constitution, raising some uncertainty
about the European Union's political future. Germany's parliamentary election
was highly contested, with both incumbent Chancellor Gerhard Schroder and
challenger Angela Merkel from the Christian Democratic Party failing to produce
a clear majority in what was Germany's closest election since World War II.
Ultimately, Angela Merkel became Germany's chancellor.
(2) Source: Standard & Poor's Micropal. The S&P/Citigroup Global Equity
ex-U.S. less than $2 Billion Index is a free float-adjusted, market
capitalization-weighted index designed to measure the performance of
global developed market equity securities excluding the U.S., with market
capitalizations less than $2 billion. The index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index, nor is an
index representative of the Fund's portfolio.
(3) Sources: Deutsche Bundesbank (Germany); INSEE National Statistics Office
(France). Unemployment data for France as of 9/30/05.
4 | Annual Report
Despite the predominantly weak outlook for the European economy, many European
equity markets performed well. For the 12-month period, European equity markets
returned +23.24%, as measured by the MSCI Europe Index, using the local
currencies of this index's constituents.(4) The MSCI Pacific Index, which
includes Japan, returned +30.83% in local currencies over the same period.(5)
U.S. markets, as measured by the MSCI USA Index, returned +9.44%.(6) A strong
recovery in corporate profitability was a major catalyst for global equity
markets' robust performance.
INVESTMENT STRATEGY
We take a long-term, value-oriented approach to investing. We focus our analysis
primarily at the company level; we seek to identify when a company's value on
the stock exchange is substantially below our estimate of the company's
underlying worth -- also known as its "intrinsic value." Our analysts determine
the intrinsic value of a company first by understanding the company and the
industry in which it operates, and then by forecasting future earnings and cash
flow growth potential. We look to invest in those companies selling at the
lowest level relative to our expectations for future earnings and cash flow. We
are patient investors; our typical holding period is four to five years.
MANAGER'S DISCUSSION
During the fiscal year under review, several holdings benefited the Fund's
performance. For example, Denmark's Vestas Wind Systems, the world's leading
wind turbine manufacturer, appreciated in value 74% for the 12 months under
review. The company had a 34% market share as of August 2005 and a reputation
for providing reliable and efficient products. Its competitive advantage is its
technological ability to develop durable, reliable and cost effective wind
turbines, an objective that other companies have failed to accomplish. We
believe the company may benefit from increased demand for environmentally
friendly power sources in coming years as wind power is a cheap, renewable
energy source without the environmental degradation associated with traditional
power sources.
The Fund's performance was also helped by Iluka Resources's stock price
appreciation. Australia-based Iluka is involved in the mining, concentration and
(4) Source: Standard & Poor's Micropal. The MSCI Europe Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in Europe.
(5) Source: Standard & Poor's Micropal. The MSCI Pacific Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in the Pacific region.
(6) Source: Standard & Poor's Micropal. The MSCI USA Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in the U.S.
Annual Report | 5
TOP 10 SECTORS/INDUSTRIES
10/31/05
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% OF TOTAL
NET ASSETS
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Commercial Services & Supplies 8.1%
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Commercial Banks 7.5%
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Machinery 6.8%
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Electronic Equipment & Instruments 5.3%
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Textiles, Apparel & Luxury Goods 4.6%
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Electrical Equipment 4.1%
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Communications Equipment 4.1%
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Auto Components 3.6%
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Paper & Forest Products 3.6%
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Health Care Providers & Services 3.5%
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separation of mineral sands and titanium. The company also produces ilmenite and
other titaniferous concentrates, zircon and synthetic rutile, and it explores
for coal. Iluka is the market leader in zircon, which experienced a sharp supply
deficit and enjoyed strong prices during the period. Zircon prices increased
from $450 per ton at the beginning of 2004 to $650 per ton by period-end.
Iluka's management team anticipated zircon prices as high as $750 per ton within
the next year. In this environment, the company's shares appreciated
significantly. In addition, the shares also rose in value following the actions
of Kolsen, a consortium associated with Buka Minerals, which built a 7.2%
holding in Iluka that contributed to speculation about a takeover bid. We sold
our Iluka holdings by period-end, realizing profits for the Fund, as the stock's
strong performance eliminated the discount to intrinsic value that we had
previously identified.
Novar also aided Fund performance. The British company offers building security
systems, aluminum products and security printing services. It appeared
attractive to us because of its relatively low valuation coupled with strong
market positions for many of its products. We also were attracted to the
company's relatively high dividend yield. Novar performed well during the period
as Honeywell International, a large, American multinational corporation, agreed
to purchase Novar to expand into building products. Due to the sharp price
increase in Novar's stock during the period, we sold our position.
Some Fund holdings did not perform well during the Fund's fiscal year. One
example is Fountain Set Holdings, which manufactures and supplies cotton knitted
fabrics in Asia. The company's products are supplied to garment manufacturers
who then produce apparel for some of the world's most popular brands. Fountain
Set shares were under pressure during the period largely as a result of surging
cotton prices, which account for a significant portion of knitted fabrics'
manufacturing costs. The company was unable to pass on the entire price increase
to its customers, which contributed to profit margin pressure. Based on our
long-term strategy, we believed Fountain Set's shares were undervalued because
cotton prices were expected to ultimately weaken. In addition, the company
possesses vertically integrated fabric-manufacturing facilities, which allow for
fine-quality fabric production at competitive prices. Economies of scale and the
large capital requirements for manufacturing knitted fabrics also create
significant barriers to entry and add to Fountain Set's attractiveness in our
opinion.
Also hindering performance was Taiwan's AcBel Polytech, a manufacturer of
standard and custom switching power supplies and power system products. The
company's products include low voltage switching regulators, direct current
converters and power supplies for personal computers, web services and
telecommunications. Despite being in a historically stable business, the company
experienced disappointing results due to an unfavorable product mix. We believed
that the issues pressuring the company were temporary, and that AcBel's
longer-term fundamentals remained solid. Moreover, the stock's
6 | Annual Report
dividend yield and relatively low price-to-earnings ratio based on forward
earnings at period-end offered compelling value, in our opinion.
Ngai Lik Industrial Holding was another detractor from Fund performance during
the period. The Hong Kong consumer electronics company manufactures miniature
hi-fi systems, CD and DVD players, and digital cameras. Its low priced,
value-for-money products are designed and developed in-house and sold directly
under customers' private labels. The company's shares were under pressure as a
result of pricing pressures from the company's top customer, Wal-Mart; a weaker
consumer spending outlook; profit margin pressure from higher energy prices; and
uncertainty over an intended change in its product mix to concentrate on low
plastic-content MP3 and portable DVD players. We believed the company's shares
represented value as Ngai Lik had solid growth prospects not reflected in its
low valuation of six times price-to-earnings ratio and 0.7 times price-to-book
value at period-end.
Thank you for your continued participation in Templeton Foreign Smaller
Companies Fund. We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Tucker Scott
Tucker Scott, CFA
[PHOTO OMITTED] /s/ Cynthia Sweeting
Cynthia Sweeting, CFA
Portfolio Management Team
Templeton Foreign Smaller Companies Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
TOP 10 EQUITY HOLDINGS
10/31/05
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COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
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D-Link Corp. 4.1%
COMMUNICATIONS EQUIPMENT, TAIWAN
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Daegu Bank Co. Ltd. 2.9%
COMMERCIAL BANKS, SOUTH KOREA
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Bank of Pusan 2.8%
COMMERCIAL BANKS, SOUTH KOREA
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Halla Climate Control Co. Ltd. 2.8%
AUTO COMPONENTS, SOUTH KOREA
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Housing Development Finance Corp. Ltd. 2.6%
THRIFTS & MORTGAGE FINANCE, INDIA
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Vestas Wind Systems AS, ord. & 144A 2.4%
ELECTRICAL EQUIPMENT, DENMARK
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Sohgo Security Services Co. Ltd. 1.9%
COMMERCIAL SERVICES & SUPPLIES, JAPAN
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Gujarat Ambuja Cements Ltd. 1.9%
CONSTRUCTION MATERIALS, INDIA
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Tata Motors Ltd. 1.8%
MACHINERY, INDIA
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Giant Manufacturing Co. 1.8%
LEISURE EQUIPMENT & PRODUCTS, TAIWAN
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Annual Report | 7
PERFORMANCE SUMMARY AS OF 10/31/05
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
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CLASS A (SYMBOL: FINEX) CHANGE 10/31/05 10/31/04
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Net Asset Value (NAV) +$0.20 $19.60 $19.40
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DISTRIBUTIONS (11/1/04-10/31/05)
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Dividend Income $0.2357
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Short-Term Capital Gain $0.2795
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Long-Term Capital Gain $2.1587
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TOTAL $2.6739
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CLASS B (SYMBOL: N/A) CHANGE 10/31/05 10/31/04
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Net Asset Value (NAV) +$0.14 $19.21 $19.07
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DISTRIBUTIONS (11/1/04-10/31/05)
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Dividend Income $0.0964
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Short-Term Capital Gain $0.2795
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Long-Term Capital Gain $2.1587
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TOTAL $2.5346
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CLASS C (SYMBOL: FCFSX) CHANGE 10/31/05 10/31/04
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Net Asset Value (NAV) +$0.13 $19.25 $19.12
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DISTRIBUTIONS (11/1/04-10/31/05)
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Dividend Income $0.1052
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Short-Term Capital Gain $0.2795
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Long-Term Capital Gain $2.1587
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TOTAL $2.5434
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ADVISOR CLASS (SYMBOL: FTFAX) CHANGE 10/31/05 10/31/04
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Net Asset Value (NAV) +$0.21 $19.67 $19.46
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DISTRIBUTIONS (11/1/04-10/31/05)
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Dividend Income $0.2816
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Short-Term Capital Gain $0.2795
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Long-Term Capital Gain $2.1587
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TOTAL $2.7198
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Templeton Foreign Smaller Companies Fund paid distributions derived from
long-term capital gains totaling $2.1587 per share in December 2004 and October
2005. The Fund designates such distributions as capital gain dividends per
Internal Revenue Code Section 852 (b)(3)(C).
8 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
PERFORMANCE
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER;
CLASS C: 1% CDSC IN FIRST YEAR ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES
CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE
MAXIMUM SALES CHARGES.
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SINCE CHANGES
IN INVESTMENT
POLICIES
CLASS A 1-YEAR 5-YEAR 10-YEAR (10/1/96)(5)
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Cumulative Total Return(1) +15.00% +67.21% +140.38% +107.55%
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Average Annual Total Return(2) +8.41% +9.52% +8.52% +7.66%
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Value of $10,000 Investment(3) $10,841 $15,759 $22,651 $19,556
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Avg. Ann. Total Return (9/30/05)(4) +16.73% +9.40% +8.73% +8.36%
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INCEPTION
CLASS B 1-YEAR 5-YEAR (1/1/99)
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Cumulative Total Return(1) +14.10% +60.64% +87.74%
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Average Annual Total Return(2) +10.10% +9.67% +9.66%
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Value of $10,000 Investment(3) $11,010 $15,864 $18,774
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Avg. Ann. Total Return (9/30/05)(4) +18.94% +9.55% +10.64%
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INCEPTION
CLASS C 1-YEAR 5-YEAR (7/1/98)
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Cumulative Total Return(1) +14.12% +60.64% +66.30%
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Average Annual Total Return(2) +13.12% +9.94% +7.18%
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Value of $10,000 Investment(3) $11,312 $16,064 $16,630
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Avg. Ann. Total Return (9/30/05)(4) +21.93% +9.81% +8.04%
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SINCE CHANGES
IN INVESTMENT
POLICIES
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR (10/1/96)(5)
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Cumulative Total Return(1) +15.26% +69.26% +147.27% +113.97%
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Average Annual Total Return(2) +15.26% +11.10% +9.48% +8.73%
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Value of $10,000 Investment(3) $11,526 $16,926 $24,727 $21,397
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Avg. Ann. Total Return (9/30/05)(4) +24.19% +10.98% +9.69% +8.71%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
PERFORMANCE SUMMARY (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS A 10/31/05
- -----------------------------------------
1-Year +8.41%
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5-Year +9.52%
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10-Year +8.52%
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CLASS A (11/1/95-10/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON FOREIGN SMALLER MSCI EAFE S&P/CITIGROUP GLOBAL EQUITY
COMPANIES FUND - CLASS A INDEX(7) EX-U.S. < $2 BILLION INDEX(7)
------------------------ --------- -----------------------------
11/1/1995 $ 9,423 $10,000 $10,000
11/30/1995 $ 9,466 $10,281 $10,134
12/31/1995 $ 9,567 $10,698 $10,516
1/31/1996 $ 9,910 $10,744 $10,853
2/29/1996 $10,183 $10,783 $10,962
3/31/1996 $10,339 $11,015 $11,193
4/30/1996 $10,651 $11,338 $11,779
5/31/1996 $10,807 $11,132 $11,659
6/30/1996 $10,842 $11,197 $11,642
7/31/1996 $10,496 $10,873 $11,160
8/31/1996 $10,756 $10,899 $11,308
9/30/1996 $10,890 $11,192 $11,413
10/31/1996 $11,165 $11,080 $11,400
11/30/1996 $11,472 $11,524 $11,637
12/31/1996 $11,880 $11,378 $11,433
1/31/1997 $11,981 $10,983 $11,404
2/28/1997 $12,158 $11,165 $11,661
3/31/1997 $12,226 $11,208 $11,432
4/30/1997 $12,099 $11,270 $11,257
5/31/1997 $12,487 $12,006 $11,876
6/30/1997 $12,951 $12,671 $12,154
7/31/1997 $13,078 $12,879 $12,007
8/31/1997 $13,154 $11,920 $11,348
9/30/1997 $13,773 $12,590 $11,432
10/31/1997 $12,756 $11,625 $10,722
11/30/1997 $12,392 $11,509 $10,037
12/31/1997 $12,225 $11,612 $ 9,753
1/31/1998 $11,910 $12,146 $ 9,941
2/28/1998 $12,883 $12,928 $10,739
3/31/1998 $13,459 $13,329 $11,167
4/30/1998 $13,630 $13,438 $11,208
5/31/1998 $13,414 $13,376 $11,000
6/30/1998 $12,825 $13,480 $10,490
7/31/1998 $12,653 $13,620 $10,276
8/31/1998 $10,972 $11,935 $ 8,754
9/30/1998 $10,692 $11,572 $ 8,720
10/31/1998 $11,153 $12,782 $ 9,420
11/30/1998 $11,523 $13,440 $ 9,763
12/31/1998 $11,428 $13,973 $ 9,883
1/31/1999 $11,162 $13,935 $ 9,745
2/28/1999 $11,088 $13,606 $ 9,596
3/31/1999 $11,704 $14,178 $10,294
4/30/1999 $12,843 $14,755 $11,202
5/31/1999 $12,659 $13,999 $10,972
6/30/1999 $13,327 $14,548 $11,665
7/31/1999 $13,641 $14,984 $11,940
8/31/1999 $13,779 $15,042 $12,147
9/30/1999 $13,383 $15,196 $12,019
10/31/1999 $13,318 $15,769 $11,942
11/30/1999 $13,484 $16,320 $12,227
12/31/1999 $14,316 $17,788 $12,884
1/31/2000 $14,130 $16,661 $12,903
2/29/2000 $14,148 $17,113 $13,229
3/31/2000 $14,923 $17,779 $13,292
4/30/2000 $14,456 $16,847 $12,329
5/31/2000 $14,438 $16,439 $12,114
6/30/2000 $15,190 $17,085 $12,857
7/31/2000 $15,077 $16,372 $12,351
8/31/2000 $15,200 $16,518 $12,720
9/30/2000 $14,345 $15,717 $12,065
10/31/2000 $13,546 $15,349 $11,175
11/30/2000 $13,321 $14,776 $10,780
12/31/2000 $13,851 $15,305 $11,044
1/31/2001 $14,529 $15,298 $11,408
2/28/2001 $14,025 $14,152 $11,108
3/31/2001 $12,852 $13,215 $10,338
4/30/2001 $13,541 $14,142 $10,918
5/31/2001 $14,180 $13,654 $11,017
6/30/2001 $13,740 $13,101 $10,708
7/31/2001 $13,466 $12,863 $10,273
8/31/2001 $13,086 $12,540 $10,287
9/30/2001 $11,359 $11,273 $ 9,002
10/31/2001 $11,612 $11,561 $ 9,331
11/30/2001 $12,354 $11,988 $ 9,782
12/31/2001 $12,918 $12,060 $ 9,968
1/31/2002 $13,067 $11,420 $ 9,922
2/28/2002 $13,334 $11,500 $10,060
3/31/2002 $14,246 $12,128 $10,649
4/30/2002 $14,702 $12,216 $10,903
5/31/2002 $15,119 $12,382 $11,196
6/30/2002 $14,337 $11,894 $10,711
7/31/2002 $13,195 $10,720 $ 9,992
8/31/2002 $12,857 $10,699 $ 9,920
9/30/2002 $11,774 $ 9,552 $ 9,061
10/31/2002 $12,191 $10,066 $ 9,135
11/30/2002 $12,569 $10,525 $ 9,469
12/31/2002 $12,457 $10,171 $ 9,426
1/31/2003 $12,077 $ 9,748 $ 9,434
2/28/2003 $11,676 $ 9,525 $ 9,333
3/31/2003 $11,486 $ 9,345 $ 9,218
4/30/2003 $12,597 $10,271 $ 9,889
5/31/2003 $13,617 $10,903 $10,739
6/30/2003 $14,107 $11,173 $11,287
7/31/2003 $14,809 $11,445 $11,716
8/31/2003 $15,602 $11,724 $12,449
9/30/2003 $16,013 $12,087 $13,077
10/31/2003 $17,067 $12,841 $14,037
11/30/2003 $17,388 $13,129 $14,102
12/31/2003 $18,269 $14,155 $15,007
1/31/2004 $18,895 $14,356 $15,592
2/29/2004 $19,501 $14,690 $16,158
3/31/2004 $19,410 $14,779 $16,785
4/30/2004 $18,744 $14,457 $16,092
5/31/2004 $18,663 $14,519 $15,860
6/30/2004 $19,178 $14,843 $16,449
7/31/2004 $18,701 $14,364 $15,896
8/31/2004 $18,701 $14,430 $16,114
9/30/2004 $19,249 $14,810 $16,726
10/31/2004 $19,696 $15,316 $17,233
11/30/2004 $21,066 $16,366 $18,586
12/31/2004 $21,889 $17,085 $19,508
1/31/2005 $21,795 $16,773 $19,734
2/28/2005 $22,657 $17,501 $20,657
3/31/2005 $22,179 $17,068 $20,151
4/30/2005 $21,338 $16,686 $19,591
5/31/2005 $21,619 $16,712 $19,675
6/30/2005 $22,209 $16,940 $20,216
7/31/2005 $23,084 $17,461 $21,100
8/31/2005 $23,084 $17,907 $21,600
9/30/2005 $23,844 $18,708 $22,650
10/31/2005 $22,651 $18,163 $21,857
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS B 10/31/05
- -----------------------------------------
1-Year +10.10%
- -----------------------------------------
5-Year +9.67%
- -----------------------------------------
Since Inception (1/1/99) +9.66%
- -----------------------------------------
CLASS B (1/1/99-10/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON FOREIGN SMALLER MSCI EAFE S&P/CITIGROUP GLOBAL EQUITY
COMPANIES FUND - CLASS B INDEX(7) EX-U.S. < $2 BILLION INDEX(7)
------------------------ --------- ----------------------------
1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $ 9,767 $ 9,973 $ 9,861
2/28/1999 $ 9,703 $ 9,737 $ 9,710
3/31/1999 $10,233 $10,146 $10,416
4/30/1999 $11,198 $10,560 $11,335
5/31/1999 $11,037 $10,018 $11,102
6/30/1999 $11,613 $10,411 $11,804
7/31/1999 $11,880 $10,723 $12,081
8/31/1999 $12,001 $10,764 $12,292
9/30/1999 $11,646 $10,875 $12,161
10/31/1999 $11,581 $11,285 $12,084
11/30/1999 $11,718 $11,679 $12,372
12/31/1999 $12,426 $12,730 $13,037
1/31/2000 $12,263 $11,923 $13,056
2/29/2000 $12,271 $12,246 $13,387
3/31/2000 $12,932 $12,724 $13,450
4/30/2000 $12,516 $12,056 $12,476
5/31/2000 $12,492 $11,764 $12,257
6/30/2000 $13,136 $12,227 $13,010
7/31/2000 $13,029 $11,717 $12,497
8/31/2000 $13,127 $11,821 $12,871
9/30/2000 $12,383 $11,248 $12,208
10/31/2000 $11,687 $10,984 $11,307
11/30/2000 $11,482 $10,575 $10,908
12/31/2000 $11,934 $10,953 $11,175
1/31/2001 $12,514 $10,948 $11,543
2/28/2001 $12,069 $10,128 $11,240
3/31/2001 $11,060 $ 9,457 $10,461
4/30/2001 $11,640 $10,121 $11,047
5/31/2001 $12,178 $ 9,771 $11,148
6/30/2001 $11,789 $ 9,375 $10,835
7/31/2001 $11,552 $ 9,206 $10,395
8/31/2001 $11,206 $ 8,974 $10,409
9/30/2001 $ 9,720 $ 8,067 $ 9,109
10/31/2001 $ 9,939 $ 8,274 $ 9,442
11/30/2001 $10,556 $ 8,579 $ 9,898
12/31/2001 $11,025 $ 8,630 $10,087
1/31/2002 $11,153 $ 8,172 $10,039
2/28/2002 $11,375 $ 8,230 $10,180
3/31/2002 $12,143 $ 8,679 $10,775
4/30/2002 $12,519 $ 8,742 $11,033
5/31/2002 $12,877 $ 8,861 $11,329
6/30/2002 $12,199 $ 8,512 $10,838
7/31/2002 $11,225 $ 7,672 $10,111
8/31/2002 $10,926 $ 7,656 $10,038
9/30/2002 $ 9,995 $ 6,836 $ 9,169
10/31/2002 $10,345 $ 7,204 $ 9,244
11/30/2002 $10,662 $ 7,532 $ 9,581
12/31/2002 $10,552 $ 7,279 $ 9,538
1/31/2003 $10,227 $ 6,976 $ 9,546
2/28/2003 $ 9,884 $ 6,816 $ 9,444
3/31/2003 $ 9,712 $ 6,687 $ 9,328
4/30/2003 $10,638 $ 7,351 $10,007
5/31/2003 $11,495 $ 7,803 $10,866
6/30/2003 $11,904 $ 7,996 $11,422
7/31/2003 $12,487 $ 8,191 $11,856
8/31/2003 $13,147 $ 8,390 $12,597
9/30/2003 $13,482 $ 8,650 $13,233
10/31/2003 $14,365 $ 9,190 $14,204
11/30/2003 $14,622 $ 9,396 $14,269
12/31/2003 $15,354 $10,130 $15,185
1/31/2004 $15,870 $10,274 $15,778
2/29/2004 $16,370 $10,513 $16,350
3/31/2004 $16,284 $10,576 $16,985
4/30/2004 $15,724 $10,346 $16,283
5/31/2004 $15,638 $10,391 $16,049
6/30/2004 $16,065 $10,623 $16,644
7/31/2004 $15,651 $10,279 $16,085
8/31/2004 $15,642 $10,327 $16,305
9/30/2004 $16,091 $10,598 $16,925
10/31/2004 $16,453 $10,961 $17,438
11/30/2004 $17,592 $11,712 $18,807
12/31/2004 $18,260 $12,227 $19,739
1/31/2005 $18,172 $12,003 $19,968
2/28/2005 $18,884 $12,525 $20,903
3/31/2005 $18,471 $12,215 $20,391
4/30/2005 $17,758 $11,941 $19,824
5/31/2005 $17,978 $11,960 $19,909
6/30/2005 $18,463 $12,123 $20,457
7/31/2005 $19,176 $12,496 $21,351
8/31/2005 $19,167 $12,815 $21,857
9/30/2005 $19,783 $13,388 $22,919
10/31/2005 $18,774 $12,998 $22,117
10 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
CLASS C (7/1/98-10/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON FOREIGN SMALLER MSCI EAFE S&P/CITIGROUP GLOBAL EQUITY
COMPANIES FUND - CLASS C INDEX(7) EX-U.S. < $2 BILLION INDEX(7)
------------------------- --------- -----------------------------
7/1/1998 $10,000 $10,000 $10,000
7/31/1998 $ 9,838 $10,104 $ 9,796
8/31/1998 $ 8,524 $ 8,854 $ 8,345
9/30/1998 $ 8,306 $ 8,585 $ 8,313
10/31/1998 $ 8,658 $ 9,482 $ 8,979
11/30/1998 $ 8,939 $ 9,970 $ 9,307
12/31/1998 $ 8,868 $10,366 $ 9,421
1/31/1999 $ 8,655 $10,338 $ 9,290
2/28/1999 $ 8,591 $10,094 $ 9,148
3/31/1999 $ 9,054 $10,518 $ 9,813
4/30/1999 $ 9,930 $10,946 $10,678
5/31/1999 $ 9,780 $10,385 $10,459
6/30/1999 $10,292 $10,792 $11,120
7/31/1999 $10,528 $11,116 $11,381
8/31/1999 $10,635 $11,159 $11,580
9/30/1999 $10,321 $11,273 $11,457
10/31/1999 $10,256 $11,698 $11,383
11/30/1999 $10,385 $12,107 $11,656
12/31/1999 $11,018 $13,196 $12,281
1/31/2000 $10,867 $12,360 $12,300
2/29/2000 $10,874 $12,695 $12,611
3/31/2000 $11,464 $13,189 $12,670
4/30/2000 $11,090 $12,498 $11,753
5/31/2000 $11,068 $12,195 $11,547
6/30/2000 $11,639 $12,675 $12,256
7/31/2000 $11,545 $12,146 $11,773
8/31/2000 $11,632 $12,254 $12,125
9/30/2000 $10,974 $11,659 $11,501
10/31/2000 $10,353 $11,386 $10,652
11/30/2000 $10,165 $10,962 $10,276
12/31/2000 $10,557 $11,354 $10,528
1/31/2001 $11,069 $11,349 $10,874
2/28/2001 $10,683 $10,499 $10,588
3/31/2001 $ 9,786 $ 9,804 $ 9,855
4/30/2001 $10,298 $10,491 $10,407
5/31/2001 $10,780 $10,129 $10,502
6/30/2001 $10,434 $ 9,719 $10,207
7/31/2001 $10,226 $ 9,543 $ 9,793
8/31/2001 $ 9,928 $ 9,303 $ 9,806
9/30/2001 $ 8,617 $ 8,363 $ 8,581
10/31/2001 $ 8,803 $ 8,577 $ 8,895
11/30/2001 $ 9,354 $ 8,893 $ 9,324
12/31/2001 $ 9,772 $ 8,946 $ 9,502
1/31/2002 $ 9,885 $ 8,472 $ 9,458
2/28/2002 $10,081 $ 8,532 $ 9,590
3/31/2002 $10,767 $ 8,997 $10,151
4/30/2002 $11,106 $ 9,062 $10,394
5/31/2002 $11,415 $ 9,185 $10,672
6/30/2002 $10,817 $ 8,823 $10,210
7/31/2002 $ 9,949 $ 7,953 $ 9,525
8/31/2002 $ 9,685 $ 7,937 $ 9,457
9/30/2002 $ 8,870 $ 7,086 $ 8,638
10/31/2002 $ 9,180 $ 7,468 $ 8,708
11/30/2002 $ 9,459 $ 7,808 $ 9,026
12/31/2002 $ 9,360 $ 7,546 $ 8,986
1/31/2003 $ 9,072 $ 7,231 $ 8,993
2/28/2003 $ 8,769 $ 7,066 $ 8,897
3/31/2003 $ 8,618 $ 6,932 $ 8,787
4/30/2003 $ 9,421 $ 7,620 $ 9,427
5/31/2003 $10,185 $ 8,089 $10,237
6/30/2003 $10,548 $ 8,289 $10,760
7/31/2003 $11,063 $ 8,491 $11,169
8/31/2003 $11,647 $ 8,697 $11,867
9/30/2003 $11,942 $ 8,967 $12,466
10/31/2003 $12,723 $ 9,526 $13,381
11/30/2003 $12,950 $ 9,740 $13,443
12/31/2003 $13,601 $10,501 $14,306
1/31/2004 $14,057 $10,650 $14,863
2/29/2004 $14,498 $10,898 $15,403
3/31/2004 $14,429 $10,963 $16,001
4/30/2004 $13,928 $10,725 $15,340
5/31/2004 $13,852 $10,771 $15,119
6/30/2004 $14,230 $11,012 $15,680
7/31/2004 $13,864 $10,656 $15,153
8/31/2004 $13,856 $10,705 $15,361
9/30/2004 $14,253 $10,987 $15,944
10/31/2004 $14,573 $11,362 $16,427
11/30/2004 $15,579 $12,141 $17,717
12/31/2004 $16,175 $12,674 $18,596
1/31/2005 $16,097 $12,443 $18,811
2/28/2005 $16,726 $12,983 $19,692
3/31/2005 $16,361 $12,662 $19,209
4/30/2005 $15,732 $12,379 $18,675
5/31/2005 $15,926 $12,398 $18,756
6/30/2005 $16,355 $12,567 $19,271
7/31/2005 $16,984 $12,953 $20,114
8/31/2005 $16,976 $13,284 $20,590
9/30/2005 $17,521 $13,879 $21,591
10/31/2005 $16,630 $13,474 $20,835
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
CLASS C 10/31/05
- -----------------------------------------
1-Year +13.12%
- -----------------------------------------
5-Year +9.94%
- -----------------------------------------
Since Inception (7/1/98) +7.18%
- -----------------------------------------
ADVISOR CLASS (11/1/95-10/31/05)(6)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON FOREIGN SMALLER
COMPANIES FUND - MSCI EAFE S&P/Citigroup Global Equity
ADVISOR CLASS INDEX(7) EX-U.S. < $2 BILLION INDEX(7)
------------------------- --------- -----------------------------
11/1/1995 $10,000 $10,000 $10,000
11/30/1995 $10,045 $10,281 $10,134
12/31/1995 $10,153 $10,698 $10,516
1/31/1996 $10,517 $10,744 $10,853
2/29/1996 $10,806 $10,783 $10,962
3/31/1996 $10,972 $11,015 $11,193
4/30/1996 $11,303 $11,338 $11,779
5/31/1996 $11,468 $11,132 $11,659
6/30/1996 $11,506 $11,197 $11,642
7/31/1996 $11,139 $10,873 $11,160
8/31/1996 $11,414 $10,899 $11,308
9/30/1996 $11,556 $11,192 $11,413
10/31/1996 $11,849 $11,080 $11,400
11/30/1996 $12,175 $11,524 $11,637
12/31/1996 $12,607 $11,378 $11,433
1/31/1997 $12,805 $10,983 $11,404
2/28/1997 $12,993 $11,165 $11,661
3/31/1997 $13,075 $11,208 $11,432
4/30/1997 $12,931 $11,270 $11,257
5/31/1997 $13,354 $12,006 $11,876
6/30/1997 $13,859 $12,671 $12,154
7/31/1997 $14,004 $12,879 $12,007
8/31/1997 $14,086 $11,920 $11,348
9/30/1997 $14,766 $12,590 $11,432
10/31/1997 $13,669 $11,625 $10,722
11/30/1997 $13,279 $11,509 $10,037
12/31/1997 $13,095 $11,612 $ 9,753
1/31/1998 $12,757 $12,146 $ 9,941
2/28/1998 $13,799 $12,928 $10,739
3/31/1998 $14,425 $13,329 $11,167
4/30/1998 $14,609 $13,438 $11,208
5/31/1998 $14,387 $13,376 $11,000
6/30/1998 $13,746 $13,480 $10,490
7/31/1998 $13,570 $13,620 $10,276
8/31/1998 $11,769 $11,935 $ 8,754
9/30/1998 $11,479 $11,572 $ 8,720
10/31/1998 $11,963 $12,782 $ 9,420
11/30/1998 $12,370 $13,440 $ 9,763
12/31/1998 $12,267 $13,973 $ 9,883
1/31/1999 $11,990 $13,935 $ 9,745
2/28/1999 $11,912 $13,606 $ 9,596
3/31/1999 $12,572 $14,178 $10,294
4/30/1999 $13,795 $14,755 $11,202
5/31/1999 $13,597 $13,999 $10,972
6/30/1999 $14,321 $14,548 $11,665
7/31/1999 $14,668 $14,984 $11,940
8/31/1999 $14,816 $15,042 $12,147
9/30/1999 $14,390 $15,196 $12,019
10/31/1999 $14,321 $15,769 $11,942
11/30/1999 $14,509 $16,320 $12,227
12/31/1999 $15,397 $17,788 $12,884
1/31/2000 $15,206 $16,661 $12,903
2/29/2000 $15,226 $17,113 $13,229
3/31/2000 $16,070 $17,779 $13,292
4/30/2000 $15,568 $16,847 $12,329
5/31/2000 $15,548 $16,439 $12,114
6/30/2000 $16,357 $17,085 $12,857
7/31/2000 $16,236 $16,372 $12,351
8/31/2000 $16,377 $16,518 $12,720
9/30/2000 $15,458 $15,717 $12,065
10/31/2000 $14,609 $15,349 $11,175
11/30/2000 $14,356 $14,776 $10,780
12/31/2000 $14,929 $15,305 $11,044
1/31/2001 $15,660 $15,298 $11,408
2/28/2001 $15,117 $14,152 $11,108
3/31/2001 $13,863 $13,215 $10,338
4/30/2001 $14,606 $14,142 $10,918
5/31/2001 $15,294 $13,654 $11,017
6/30/2001 $14,820 $13,101 $10,708
7/31/2001 $14,536 $12,863 $10,273
8/31/2001 $14,125 $12,540 $10,287
9/30/2001 $12,262 $11,273 $ 9,002
10/31/2001 $12,546 $11,561 $ 9,331
11/30/2001 $13,336 $11,988 $ 9,782
12/31/2001 $13,945 $12,060 $ 9,968
1/31/2002 $14,116 $11,420 $ 9,922
2/28/2002 $14,416 $11,500 $10,060
3/31/2002 $15,401 $12,128 $10,649
4/30/2002 $15,895 $12,216 $10,903
5/31/2002 $16,355 $12,382 $11,196
6/30/2002 $15,514 $11,894 $10,711
7/31/2002 $14,278 $10,720 $ 9,992
8/31/2002 $13,913 $10,699 $ 9,920
9/30/2002 $12,753 $ 9,552 $ 9,061
10/31/2002 $13,204 $10,066 $ 9,135
11/30/2002 $13,612 $10,525 $ 9,469
12/31/2002 $13,483 $10,171 $ 9,426
1/31/2003 $13,082 $ 9,748 $ 9,434
2/28/2003 $12,659 $ 9,525 $ 9,333
3/31/2003 $12,453 $ 9,345 $ 9,218
4/30/2003 $13,656 $10,271 $ 9,889
5/31/2003 $14,773 $10,903 $10,739
6/30/2003 $15,306 $11,173 $11,287
7/31/2003 $16,067 $11,445 $11,716
8/31/2003 $16,926 $11,724 $12,449
9/30/2003 $17,382 $12,087 $13,077
10/31/2003 $18,534 $12,841 $14,037
11/30/2003 $18,883 $13,129 $14,102
12/31/2003 $19,841 $14,155 $15,007
1/31/2004 $20,521 $14,356 $15,592
2/29/2004 $21,190 $14,690 $16,158
3/31/2004 $21,091 $14,779 $16,785
4/30/2004 $20,389 $14,457 $16,092
5/31/2004 $20,302 $14,519 $15,860
6/30/2004 $20,878 $14,843 $16,449
7/31/2004 $20,360 $14,364 $15,896
8/31/2004 $20,360 $14,430 $16,114
9/30/2004 $20,955 $14,810 $16,726
10/31/2004 $21,451 $15,316 $17,233
11/30/2004 $22,950 $16,366 $18,586
12/31/2004 $23,846 $17,085 $19,508
1/31/2005 $23,745 $16,773 $19,734
2/28/2005 $24,692 $17,501 $20,657
3/31/2005 $24,174 $17,068 $20,151
4/30/2005 $23,271 $16,686 $19,591
5/31/2005 $23,576 $16,712 $19,675
6/30/2005 $24,221 $16,940 $20,216
7/31/2005 $25,185 $17,461 $21,100
8/31/2005 $25,196 $17,907 $21,600
9/30/2005 $26,024 $18,708 $22,650
10/31/2005 $24,727 $18,163 $21,857
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------
ADVISOR CLASS(6) 10/31/05
- -----------------------------------------
1-Year +15.26%
- -----------------------------------------
5-Year +11.10%
- -----------------------------------------
10-Year +9.48%
- -----------------------------------------
Annual Report | 11
PERFORMANCE SUMMARY (CONTINUED)
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
FLUCTUATIONS, ECONOMIC INSTABILITY, AND REGULATORY AND POLITICAL DEVELOPMENTS.
INVESTMENTS IN EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME
FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND
LESSER LIQUIDITY. IN ADDITION, SMALLER-COMPANY STOCKS HAVE HISTORICALLY
EXHIBITED GREATER PRICE VOLATILITY THAN LARGER-COMPANY STOCKS, PARTICULARLY OVER
THE SHORT TERM. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN
INVESTMENT RISKS.
CLASS A: Prior to 1/1/97, these shares were offered at a lower initial
sales charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(2) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes any current,
applicable, maximum sales charge.
(3) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include any current, applicable,
maximum sales charge.
(4) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(5) Effective 10/1/96, the Fund's name was changed from Franklin International
Equity Fund to Templeton Foreign Smaller Companies Fund, and the Fund,
which until that date invested predominantly in large capitalization
foreign equity securities, shifted its emphasis to smaller capitalization
foreign equity securities.
(6) Effective 1/2/97, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 1/2/97, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 1/1/97, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 1/2/97
(commencement of sales), the cumulative and average annual total returns
of Advisor Class shares were +96.13% and +7.92%.
(7) Source: Standard & Poor's Micropal. The S&P/Citigroup Global ex-U.S. less
than $2 Billion Index is a free float-adjusted, market
capitalization-weighted index designed to measure the performance of
global developed market equity securities excluding the U.S., with market
capitalizations less than $2 billion. The MSCI EAFE Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets excluding the U.S.
and Canada.
12 | Annual Report
YOUR FUND'S EXPENSES
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 13
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/30/05 VALUE 10/31/05 PERIOD* 4/30/05 - 10/31/05
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,061.50 $ 7.90
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.54 $ 7.73
- ------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,057.20 $11.77
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,013.76 $11.52
- ------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,057.10 $11.77
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,013.76 $11.52
- ------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,062.50 $ 6.60
- ------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.80 $ 6.48
- ------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A: 1.52%;
B: 2.27%; C: 2.27%; and Advisor: 1.27%), multiplied by the average account value
over the period, multiplied by 184/365 to reflect the one-half year period.
14 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS
TEMPLETON FOREIGN SMALLER COMPANIES FUND
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2005 2004 2003 2002 2001
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 19.40 $ 17.01 $ 12.27 $ 11.91 $ 14.42
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................... 0.27 0.20 0.13 0.15 0.21
Net realized and unrealized gains (losses) . 2.61 2.40 4.74 0.45 (2.18)
---------------------------------------------------------------------
Total from investment operations ............ 2.88 2.60 4.87 0.60 (1.97)
---------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (0.24) (0.21) (0.13) (0.24) (0.45)
Net realized gains ......................... (2.44) -- -- -- (0.09)
---------------------------------------------------------------------
Total distributions ......................... (2.68) (0.21) (0.13) (0.24) (0.54)
---------------------------------------------------------------------
Redemption fees ............................. --(c) --(c) -- -- --
---------------------------------------------------------------------
Net asset value, end of year ................ $ 19.60 $ 19.40 $ 17.01 $ 12.27 $ 11.91
=====================================================================
Total return(b) ............................. 15.00% 15.40% 39.99% 4.98% (14.28)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 288,564 $ 474,742 $ 350,507 $ 71,070 $ 60,579
Ratios to average net assets:
Expenses ................................... 1.57% 1.63% 1.52% 1.63% 1.67%
Net investment income ...................... 1.27% 1.06% 0.91% 1.15% 1.50%
Portfolio turnover rate ..................... 36.91%(d) 14.22% 6.37% 27.23% 28.93%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge.
(c) Amount is less than $0.01 per share.
(d) Excludes the value of portfolio securities delivered as a result of
in-kind redemptions. (Note 8).
Annual Report | See notes to financial statements. | 15
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND (CONTINUED)
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2005 2004 2003 2002 2001
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 19.07 $ 16.75 $ 12.11 $ 11.77 $ 14.28
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................... 0.12 0.08 0.07 0.03 0.10
Net realized and unrealized gains (losses) . 2.56 2.35 4.62 0.46 (2.17)
---------------------------------------------------------------------
Total from investment operations ............ 2.68 2.43 4.69 0.49 (2.07)
---------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (0.10) (0.11) (0.05) (0.15) (0.35)
Net realized gains ......................... (2.44) -- -- -- (0.09)
---------------------------------------------------------------------
Total distributions ......................... (2.54) (0.11) (0.05) (0.15) (0.44)
---------------------------------------------------------------------
Redemption fees ............................. --(c) --(c) -- -- --
---------------------------------------------------------------------
Net asset value, end of year ................ $ 19.21 $ 19.07 $ 16.75 $ 12.11 $ 11.77
=====================================================================
Total return(b) ............................. 14.10% 14.54% 38.85% 4.09% (14.95)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 7,576 $ 6,539 $ 3,352 $ 1,691 $ 550
Ratios to average net assets:
Expenses ................................... 2.32% 2.38% 2.27% 2.38% 2.46%
Net investment income ...................... 0.52% 0.31% 0.16% 0.40% 0.74%
Portfolio turnover rate ..................... 36.91%(d) 14.22% 6.37% 27.23% 28.93%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge.
(c) Amount is less than $0.01 per share.
(d) Excludes the value of portfolio securities delivered as a result of
in-kind redemptions. (Note 8).
16 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND (CONTINUED)
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS C 2005 2004 2003 2002 2001
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 19.12 $ 16.79 $ 12.17 $ 11.82 $ 14.33
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................... 0.13 0.06 0.06 0.05 0.09
Net realized and unrealized gains (losses) . 2.55 2.37 4.62 0.47 (2.17)
---------------------------------------------------------------------
Total from investment operations ............ 2.68 2.43 4.68 0.52 (2.08)
---------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (0.11) (0.10) (0.06) (0.17) (0.34)
Net realized gains ......................... (2.44) -- -- -- (0.09)
---------------------------------------------------------------------
Total distributions ......................... (2.55) (0.10) (0.06) (0.17) (0.43)
---------------------------------------------------------------------
Redemption fees ............................. --(c) --(c) -- -- --
---------------------------------------------------------------------
Net asset value, end of year ................ $ 19.25 $ 19.12 $ 16.79 $ 12.17 $ 11.82
=====================================================================
Total return(b) ............................. 14.12% 14.54% 38.60% 4.28% (14.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 23,519 $ 16,579 $ 10,673 $ 3,904 $ 1,135
Ratios to average net assets:
Expenses ................................... 2.32% 2.38% 2.28% 2.31% 2.46%
Net investment income ...................... 0.52% 0.31% 0.15% 0.47% 0.69%
Portfolio turnover rate ..................... 36.91%(d) 14.22% 6.37% 27.23% 28.93%
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge.
(c) Amount is less than $0.01 per share.
(d) Excludes the value of portfolio securities delivered as a result of
in-kind redemptions. (Note 8).
Annual Report | See notes to financial statements. | 17
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND (CONTINUED)
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
ADVISOR CLASS 2005 2004 2003 2002 2001
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 19.46 $ 17.04 $ 12.29 $ 11.92 $ 14.45
---------------------------------------------------------------------
Income from investment operations:
Net investment income(a) ................... 0.36 0.21 0.20 0.20 0.23
Net realized and unrealized gains (losses) . 2.57 2.46 4.70 0.44 (2.19)
---------------------------------------------------------------------
Total from investment operations ............ 2.93 2.67 4.90 0.64 (1.96)
---------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (0.28) (0.25) (0.15) (0.27) (0.48)
Net realized gains ......................... (2.44) -- -- -- (0.09)
---------------------------------------------------------------------
Total distributions ......................... (2.72) (0.25) (0.15) (0.27) (0.57)
---------------------------------------------------------------------
Redemption fees ............................. --(b) --(b) -- -- --
---------------------------------------------------------------------
Net asset value, end of year ................ $ 19.67 $ 19.46 $ 17.04 $ 12.29 $ 11.92
=====================================================================
Total return ................................ 15.26% 15.73% 40.37% 5.24% (14.11)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 31,695 $ 16,195 $ 25,482 $ 16,937 $ 5,059
Ratios to average net assets:
Expenses ................................... 1.32% 1.38% 1.27% 1.35% 1.46%
Net investment income ...................... 1.52% 1.31% 1.16% 1.43% 1.67%
Portfolio turnover rate ..................... 36.91%(c) 14.22% 6.37% 27.23% 28.93%
(a) Based on average daily shares outstanding.
(b) Amount is less than $0.01 per share.
(c) Excludes the value of portfolio securities delivered as a result of
in-kind redemptions. (Note 8).
18 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005
- -----------------------------------------------------------------------------------------------------------------------------
TEMPLETON FOREIGN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 98.8%
AUSTRALIA 3.4%
Billabong International Ltd. ............. Textiles Apparel & Luxury Goods 242,184 $ 2,344,283
Downer EDI Ltd. .......................... Commercial Services & Supplies 1,070,938 4,870,777
PaperlinX Ltd. ........................... Paper & Forest Products 2,106,673 4,853,758
-------------
12,068,818
-------------
AUSTRIA 0.4%
Wienerberger AG .......................... Building Products 39,887 1,542,023
-------------
BELGIUM 1.3%
Barco NV ................................. Electronic Equipment & Instruments 63,220 4,535,743
-------------
BRAZIL 0.6%
(a),(b)Lojas Renner SA, 144A .................... Multiline Retail 84,900 2,262,190
-------------
CANADA 11.7%
CAE Inc. ................................. Aerospace & Defense 790,527 5,393,531
Domtar Inc. .............................. Paper & Forest Products 515,600 2,169,156
(a)GSI Cos. Inc. ............................ Electronic Equipment & Instruments 416,230 3,593,809
Laurentian Bank of Canada ................ Commercial Banks 145,108 3,727,962
Legacy Hotels ............................ Real Estate 369,270 2,203,710
Linamar Corp. ............................ Auto Components 242,179 3,023,778
MDS Inc. ................................. Health Care Providers & Services 322,319 5,183,951
North West Company Fund .................. Diversified Financial Services 228,398 5,479,155
(a)Open Text Corp. .......................... Internet Software & Services 252,256 3,437,865
Quebecor World Inc. ...................... Commercial Services & Supplies 144,924 2,143,160
Transcontinental Inc., A ................. Commercial Services & Supplies 171,652 3,071,675
Transcontinental Inc., B ................. Commercial Services & Supplies 99,451 1,728,301
-------------
41,156,053
-------------
CHINA 5.3%
BYD Co. Ltd., H .......................... Electrical Equipment 12,929 18,179
China Oilfield Services Ltd. ............. Energy Equipment & Services 9,354,293 3,439,012
(a)China Pharmaceutical Group Ltd. .......... Pharmaceuticals 4,538,911 761,155
China Power International Development Ltd. Independent Power Producers & Energy Traders 779,691 261,501
China Resources Power Co. Ltd. ........... Independent Power Producers & Energy Traders 4,724,883 2,834,144
Chitaly Holdings Ltd. .................... Household Durables 18,896 9,933
(b)Chitaly Holdings Ltd., 144A .............. Household Durables 3,550,375 1,866,292
People's Food Holdings Ltd. .............. Food Products 8,213,101 4,170,071
TCL Multimedia Technology Holdings Ltd. .. Household Durables 12,755,356 1,892,205
Travelsky Technology Ltd., H ............. IT Services 1,886,075 1,617,925
Weiqiao Textile Co. Ltd. ................. Textiles Apparel & Luxury Goods 1,297,578 1,573,400
-------------
18,443,817
-------------
DENMARK 2.4%
(a)Vestas Wind Systems AS ................... Electrical Equipment 332,480 7,195,670
(a),(b)Vestas Wind Systems AS, 144A ............. Electrical Equipment 61,995 1,341,721
-------------
8,537,391
-------------
FINLAND 3.9%
Amer Sports Corp. Ltd. ................... Leisure Equipment & Products 210,286 3,829,111
Huhtamaki OYJ ............................ Containers & Packaging 165,337 2,614,235
KCI Konecranes International PLC ......... Machinery 11,987 520,893
Annual Report | 19
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
TEMPLETON FOREIGN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
FINLAND (CONT.)
Metso OYJ ................................ Machinery 149,410 $ 3,886,594
Orion OYJ, B ............................. Pharmaceuticals 130,181 2,830,836
-------------
13,681,669
-------------
GERMANY 2.3%
Celesio AG ............................... Health Care Providers & Services 25,514 2,158,077
(a)Jenoptik AG .............................. Semiconductors & Semiconductor Equipment 240,855 2,127,909
Vossloh AG ............................... Machinery 78,536 3,828,889
-------------
8,114,875
-------------
HONG KONG 5.7%
Asia Satellite Telecommunications Holdings
Ltd .................................... Diversified Telecommunication Services 1,012,902 1,705,123
Dah Sing Financial Holdings Ltd. ......... Commercial Banks 385,669 2,343,222
Fountain Set Holdings Ltd. ............... Textiles Apparel & Luxury Goods 6,048,566 2,340,731
Giordano International Ltd. .............. Specialty Retail 4,719,910 2,709,390
Hung Hing Printing Group Ltd. ............ Containers & Packaging 1,400,260 830,892
Lerado Group Holdings Co. Ltd. ........... Leisure Equipment & Products 9,098,706 586,850
Ngai Lik Industrial Holding Ltd. ......... Household Durables 7,809,818 866,398
Techtronic Industries Co. Ltd. ........... Household Durables 1,221,250 3,001,079
Texwinca Holdings Ltd. ................... Textiles Apparel & Luxury Goods 3,200,808 2,167,688
Wing Lung Bank Ltd. ...................... Commercial Banks 1 7
Yue Yuen Industrial Holdings Ltd. ........ Textiles Apparel & Luxury Goods 1,394,045 3,515,616
-------------
20,066,996
-------------
INDIA 7.3%
Gujarat Ambuja Cements Ltd. .............. Construction Materials 4,224,600 6,509,840
Housing Development Finance Corp. Ltd. ... Thrifts & Mortgage Finance 424,276 9,115,297
Satyam Computers Services Ltd. ........... IT Services 271,595 3,652,703
Tata Motors Ltd. ......................... Machinery 609,547 6,397,065
-------------
25,674,905
-------------
INDONESIA 1.0%
PT Astra International TBK ............... Automobiles 3,890,744 3,574,603
-------------
JAPAN 5.9%
Hokuetsu Paper Mills Ltd. ................ Paper & Forest Products 473,384 2,432,303
Japan Airport Terminal Co. Ltd. .......... Transportation Infrastructure 262,549 2,630,340
Meitec Corp. ............................. Commercial Services & Supplies 145,248 4,679,985
Sohgo Security Services Co. Ltd. ......... Commercial Services & Supplies 397,901 6,547,067
Tenma Corp. .............................. Household Durables 160,214 2,698,109
Tokyo Individualized Educational Institute
Inc. ................................... Diversified Consumer Services 179,757 1,868,849
-------------
20,856,653
-------------
LUXEMBOURG 0.3%
(a)Thiel Logistik AG ........................ IT Services 240,287 924,624
-------------
MEXICO 0.7%
Grupo Aeroportuario del Sureste SA de CV,
ADR .................................... Transportation Infrastructure 75,947 2,468,278
-------------
20 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
TEMPLETON FOREIGN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
NETHERLANDS 6.5%
Aalberts Industries NV ................... Industrial Conglomerates 71,154 $ 3,461,316
Arcadis NV ............................... Construction & Engineering 113,216 3,459,453
(a)Draka Holding NV ......................... Electrical Equipment 96,368 1,420,914
Oce NV ................................... Office Electronics 159,071 2,276,801
OPG Groep NV ............................. Health Care Providers & Services 72,525 5,068,578
SBM Offshore NV .......................... Energy Equipment & Services 22,078 1,707,062
Vedior NV ................................ Commercial Services & Supplies 406,802 5,432,479
-------------
22,826,603
-------------
NORWAY 0.7%
Prosafe ASA .............................. Energy Equipment & Services 72,122 2,494,075
-------------
PHILIPPINES 0.9%
Philippine Long Distance Telephone Co..... Diversified Telecommunication Services 99,038 3,020,551
-------------
RUSSIA 0.6%
(a),(b)Pyaterochka Holding NV, GDR, 144A ........ Food & Staples Retailing 101,942 1,985,830
-------------
SINGAPORE 2.0%
Huan Hsin Holdings Ltd. .................. Electronic Equipment & Instruments 2,700,075 836,899
OSIM International Ltd. .................. Specialty Retail 2,010,686 1,839,983
Venture Corp. Ltd. ....................... Electronic Equipment & Instruments 567,862 4,190,740
-------------
6,867,622
-------------
SOUTH KOREA 9.9%
Bank of Pusan ............................ Commercial Banks 952,285 9,896,832
Dae Duck Electronics Co. Ltd. ............ Electronic Equipment & Instruments 599,863 4,987,367
Daegu Bank Co. Ltd. ...................... Commercial Banks 869,125 10,364,565
Halla Climate Control Co. Ltd. ........... Auto Components 1,006,500 9,689,008
-------------
34,937,772
-------------
SWEDEN 1.6%
D. Carnegie & Co. AB ..................... Capital Markets 468,165 5,701,480
-------------
SWITZERLAND 4.1%
Gurit Heberlein AG, Br ................... Chemicals 3,009 2,801,350
(a)Kuoni Reisen Holding AG, B ............... Hotels, Restaurants & Leisure 5,430 2,043,175
SIG Holding AG ........................... Machinery 14,560 3,592,133
Verwaltungs-und Privat-Bank AG ........... Capital Markets 16,882 2,665,338
Vontobel Holding AG ...................... Capital Markets 111,658 3,135,901
-------------
14,237,897
-------------
TAIWAN 10.8%
AcBel Polytech Inc. ...................... Electrical Equipment 9,991,608 4,556,327
D-Link Corp. ............................. Communications Equipment 13,355,600 14,449,675
Fu Sheng Industrial Co. Ltd. ............. Industrial Conglomerates 4,505,760 4,653,282
Giant Manufacturing Co. .................. Leisure Equipment & Products 3,690,000 6,158,890
KYE Systems Corp. ........................ Computers & Peripherals 4,276,917 2,906,389
Taiwan Fu Hsing .......................... Building Products 4,874,980 5,252,538
-------------
37,977,101
-------------
Annual Report | 21
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------
TEMPLETON FOREIGN SMALLER COMPANIES FUND INDUSTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
THAILAND 2.7%
BEC World Public Co. Ltd., fgn ........... Media 5,415,366 $ 2,018,479
Glow Energy Public Co. Ltd., fgn ......... Independent Power Producers & Energy Traders 1,554,209 827,031
(b)Glow Energy Public Co. Ltd., fgn., 144A .. Independent Power Producers & Energy Traders 3,863,345 2,055,777
(a)Total Access Communication Public Co. Ltd. Wireless Telecommunication Services 1,431,090 4,522,244
-------------
9,423,531
-------------
UNITED KINGDOM 6.8%
(a)Avis Europe PLC .......................... Road & Rail 1,010,952 1,194,778
Bodycote International PLC ............... Machinery 1,426,616 5,721,114
Burberry Group PLC ....................... Textiles Apparel & Luxury Goods 228,736 1,553,121
(a)Cambridge Antibody Technology Group PLC .. Biotechnology 222,143 2,645,028
DS Smith PLC ............................. Containers & Packaging 888,142 2,146,448
(a)Electrocomponents PLC .................... Electronic Equipment & Instruments 119,938 484,169
Game Group PLC ........................... Specialty Retail 2,441,433 3,706,673
John Wood Group .......................... Energy Equipment & Services 950,519 3,248,055
Yule Catto & Company PLC ................. Chemicals 707,977 3,140,018
-------------
23,839,404
-------------
TOTAL COMMON STOCKS (COST $255,619,365) .. 347,220,504
-------------
PREFERRED STOCKS 1.7%
BRAZIL 0.9%
Aracruz Celulose SA, ADR, pfd ............ Paper & Forest Products 79,842 3,057,949
-------------
GERMANY 0.8%
Hugo Boss AG, pfd ........................ Textiles Apparel & Luxury Goods 83,366 2,751,218
-------------
TOTAL PREFERRED STOCKS (COST $2,661,714) . 5,809,167
-------------
TOTAL INVESTMENTS
(COST $258,281,079) 100.5% ............. 353,029,671
OTHER ASSETS, LESS LIABILITIES (0.5)% .... (1,676,385)
-------------
NET ASSETS 100.0% ........................ $ 351,353,286
=============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
GDR - Global Depository Receipt
(a) Non-income producing.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At October 31, 2005,
the value of these securities was $9,511,810, representing 2.71% of net
assets.
22 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
----------------
TEMPLETON
FOREIGN SMALLER
COMPANIES FUND
----------------
Assets:
Investments in securities:
Cost .................................................................. $ 258,281,079
================
Value ................................................................. $ 353,029,671
Foreign Currency, at value (cost $972,696) ............................. 907,104
Receivables:
Investment securities sold ............................................ 3,135,999
Capital shares sold ................................................... 3,348,099
Dividends ............................................................. 726,825
----------------
Total assets ...................................................... 361,147,698
----------------
Liabilities:
Payables:
Investment securities purchased ....................................... 75,095
Capital shares redeemed ............................................... 2,340,496
Affiliates ............................................................ 1,094,578
Distributions to shareholders .......................................... 4,467
Funds advanced by custodian ............................................ 6,174,992
Accrued expenses and other liabilities ................................. 104,784
----------------
Total liabilities ................................................. 9,794,412
----------------
Net assets, at value ............................................ $ 351,353,286
================
Net assets consist of:
Paid-in capital ........................................................ $ 251,058,182
Undistributed net investment income .................................... 1,626,747
Net unrealized appreciation (depreciation) ............................. 94,661,427
Accumulated net realized gain (loss) ................................... 4,006,930
----------------
Net assets, at value ............................................ $ 351,353,286
================
Annual Report | See notes to financial statements. | 23
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 2005
----------------
TEMPLETON
FOREIGN SMALLER
COMPANIES FUND
----------------
CLASS A:
Net assets, at value .................................................... $ 288,563,596
================
Shares outstanding ...................................................... 14,722,826
================
Net asset value per share(a) ............................................ $ 19.60
================
Maximum offering price per share (net asset value
per share / 94.25%) .................................................... $ 20.80
================
CLASS B:
Net assets, at value .................................................... $ 7,575,841
================
Shares outstanding ...................................................... 394,449
================
Net asset value and maximum offering price per share(a) ................. $ 19.21
================
CLASS C:
Net assets, at value .................................................... $ 23,518,526
================
Shares outstanding ...................................................... 1,221,515
================
Net asset value and maximum offering price per share(a) ................. $ 19.25
================
ADVISOR CLASS:
Net assets, at value .................................................... $ 31,695,323
================
Shares outstanding ...................................................... 1,611,150
================
Net asset value and maximum offering price per share(a) ................. $ 19.67
================
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
24 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended October 31, 2005
----------------
TEMPLETON
FOREIGN SMALLER
COMPANIES FUND
----------------
Investment income:
Dividends (net of foreign taxes of $1,910,238) ......................... $ 16,731,969
Interest (net of foreign taxes of $831) ................................ 1,533,096
Other income (Note 9) .................................................. 2,654
----------------
Total investment income ........................................... 18,267,719
----------------
Expenses:
Management fees (Note 3a) .............................................. 5,417,510
Distribution fees (Note 3c)
Class A ............................................................... 1,458,902
Class B ............................................................... 76,799
Class C ............................................................... 213,589
Transfer agent fees (Note 3e) .......................................... 2,477,095
Custodian fees (Note 4) ................................................ 324,155
Reports to shareholders ................................................ 86,227
Registration and filing fees ........................................... 66,358
Professional fees ...................................................... 77,418
Trustees' fees and expenses ............................................ 16,002
Other .................................................................. 18,546
----------------
Total expenses .................................................... 10,232,601
Expense reductions (Note 4) ....................................... (2,537)
----------------
Net expenses .................................................... 10,230,064
----------------
Net investment income ......................................... 8,037,655
----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments (net of foreign taxes of $460,875)
(Including gain from redemption in-kind of $29,143,476) (Note 8) ..... 101,711,965
Foreign currency transactions ......................................... 358,593
----------------
Net realized gain (loss) ........................................ 102,070,558
----------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................... (32,062,591)
Translation of assets and liabilities denominated in foreign currencies (122,504)
----------------
Net change in unrealized appreciation (depreciation) ............ (32,185,095)
----------------
Net realized and unrealized gain (loss) ................................. 69,885,463
----------------
Net increase (decrease) in net assets resulting from operations ......... $ 77,923,118
================
Annual Report | See notes to financial statements. | 25
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------------
TEMPLETON FOREIGN
SMALLER COMPANIES FUND
-------------------------------
YEAR ENDED OCTOBER 31,
2005 2004
-------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 8,037,655 $ 4,719,132
Net realized gain (loss) from investments and foreign currency transactions ....... 102,070,558 12,382,452
Net change in unrealized appreciation (depreciation) on investments, translation of
assets and liabilities denominated in foreign currencies and deferred taxes ...... (32,185,095) 45,271,594
-------------------------------
Net increase (decrease) in net assets resulting from operations ............... 77,923,118 62,373,178
-------------------------------
Distributions to shareholders from:
Net investment income:
Class A .......................................................................... (6,145,981) (4,542,443)
Class B .......................................................................... (33,765) (27,988)
Class C .......................................................................... (95,819) (75,613)
Advisor Class .................................................................... (315,995) (284,452)
Net realized gains:
Class A .......................................................................... (69,938,465) --
Class B .......................................................................... (865,927) --
Class C .......................................................................... (2,643,922) --
Advisor Class .................................................................... (3,412,582) --
-------------------------------
Total distributions to shareholders ................................................ (83,452,456) (4,930,496)
-------------------------------
Capital share transactions: (Note 2)
Class A .......................................................................... (186,867,412) 72,543,642
Class B .......................................................................... 1,610,365 2,593,089
Class C .......................................................................... 9,161,301 4,263,043
Advisor Class .................................................................... 18,916,065 (12,810,014)
-------------------------------
Total capital share transactions ................................................... (157,179,681) 66,589,760
-------------------------------
Redemption fees .................................................................... 6,981 8,176
-------------------------------
Net increase (decrease) in net assets ......................................... (162,702,038) 124,040,618
Net assets:
Beginning of year .................................................................. 514,055,324 390,014,706
-------------------------------
End of year ........................................................................ $ 351,353,286 $ 514,055,324
===============================
Undistributed net investment income included in net assets:
End of year ...................................................................... $ 1,626,747 $ 282,937
===============================
26 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
TEMPLETON FOREIGN SMALLER COMPANIES FUND
1. ORGANIZATION AND SIGNIGICANT ACCOUNTING POLICIES
Franklin Templeton International Trust (the Trust) is registered under the
Investment Company Act of 1940 as an open-end investment company, consisting of
two separate series. The Templeton Foreign Smaller Companies Fund (the Fund)
included in this report is diversified. The financial statements of the
remaining fund in the series are presented separately.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
Annual Report | 27
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
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 on the
Statement of Operations.
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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
28 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
continue to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
Foreign securities held by the Fund may be subject to foreign taxation. Foreign
taxes, if any, are recorded based on the tax regulations and rates that exist in
the foreign markets in which the Fund invests.
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.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with generally accepted accounting principles. These differences may
be permanent or temporary. Permanent differences are reclassified among capital
accounts to reflect their tax character. These reclassifications have no impact
on net assets or the results of operations. Temporary differences are not
reclassified, as they will reverse in subsequent periods.
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 based on the
ratio of net assets of each Fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
Annual Report | 29
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
G. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date (30 days or less prior to June 1, 2004 and 90 days
or less prior to January 1, 2004). The redemption fee is 2% of the amount
redeemed. Such fees are retained by the Fund and accounted for as an addition to
paid-in capital.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Trust that have not yet occurred. However, based on experience, the
Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers four classes of shares: Class A, Class B, Class C and Advisor
Class. Effective March 1, 2005, Class B shares are only offered to existing
Class B shareholders in the form of reinvested distributions and certain
exchanges from other Franklin Templeton Class B shares. Each class of shares
differs by its initial sales load, contingent deferred sales charges,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
At October 31, 2005, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
30 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2005 2004
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
CLASS A SHARES:
Shares sold ................................... 9,336,592 $ 198,298,148 8,864,953 $ 164,975,024
Shares issued in reinvestment of
distributions ................................ 3,724,327 73,218,626 244,905 4,378,229
Redemptions in-kind (Note 8) .................. (12,898,114) (250,481,378) -- --
Shares redeemed ............................... (9,905,897) (207,902,808) (5,250,157) (96,809,611)
------------------------------------------------------------------
Net increase (decrease) ....................... (9,743,092) $(186,867,412) 3,859,701 $ 72,543,642
==================================================================
CLASS B SHARES:
Shares sold ................................... 76,131 $ 1,575,715 200,218 $ 3,651,684
Shares issued in reinvestment of
distributions ................................ 42,982 827,048 1,465 25,928
Shares redeemed ............................... (67,516) (792,398) (58,981) (1,084,523)
------------------------------------------------------------------
Net increase (decrease) ....................... 51,597 $ 1,610,365 142,702 $ 2,593,089
==================================================================
CLASS C SHARES:
Shares sold ................................... 448,961 $ 9,424,574 432,238 $ 7,955,047
Shares issued in reinvestment of
distributions ................................ 118,028 2,274,674 3,551 63,000
Shares redeemed ............................... (212,380) (2,537,947) (204,564) (3,755,004)
------------------------------------------------------------------
Net increase (decrease) ....................... 354,609 $ 9,161,301 231,225 $ 4,263,043
==================================================================
ADVISOR CLASS SHARES:
Shares sold ................................... 1,603,696 $ 34,135,755 742,304 $ 13,948,481
Shares issued in reinvestment of
distributions ................................ 66,276 1,308,071 4,362 77,951
Shares redeemed ............................... (890,944) (16,527,761) (1,409,543) (26,836,446)
------------------------------------------------------------------
Net increase (decrease) ....................... 779,028 $ 18,916,065 (662,877) $ (12,810,014)
==================================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- -----------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- -----------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Templeton Investment Counsel, LLC (TIC) Investment manager
Franklin Templeton Investments (Asia) Limited (Investments Asia) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
Annual Report | 31
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund as follows:
- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
1.000% Up to and including $100 million
0.900% Over $100 million, up to and including $250 million
0.800% Over $250 million, up to and including $500 million
0.750% In excess of $500 million
Under a subadvisory agreement, TIC, an affiliate of Advisers, provides
subadvisory services to the Fund and receives from Advisers fees based on the
average daily net assets of the Fund. Under an agreement with TIC, Investments
Asia provided subadvisory services to TIC and received from TIC fees based on
the average daily net assets of the Fund. The agreement between TIC and
Investments Asia terminated on July 14, 2005.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund
reimburses Distributors up to 0.25% per year of Class A's average daily net
assets for costs incurred in connection with the sale and distribution of the
Fund's shares. Under the Class A reimbursement distribution plan, costs
exceeding the maximum for the current plan year cannot be reimbursed in
subsequent periods.
Under the Fund's compensation distribution plans, the Fund pays Distributors for
costs incurred in connection with the sale and distribution of the Fund's shares
up to a certain percentage per year of its average daily net assets of each
class as follows:
Class B ......................... 1.00%
Class C ......................... 1.00%
32 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:
Net sales charges received(a) ....................... $75,659
Contingent deferred sales charges retained .......... $21,551
(a) Net of commissions paid to unaffiliated brokers/dealers.
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $2,477,095, of which $1,262,692 was
retained by Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended October 31, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
The tax character of distributions paid during the years ended October 31, 2005
and 2004, was as follows:
--------------------------
2005 2004
--------------------------
Distributions paid from:
Ordinary income ................. $15,032,956 $ 4,930,496
Long term capital gain .......... 68,419,500 --
--------------------------
$83,452,456 $ 4,930,496
==========================
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions, passive foreign
investment company shares, and foreign taxes paid on net realized gains.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, and foreign taxes paid on net realized gains.
Annual Report | 33
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
5. INCOME TAXES (CONTINUED)
At October 31, 2005, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
Cost of investments ........................................ $ 265,280,068
==============
Unrealized appreciation .................................... $ 103,069,896
Unrealized depreciation .................................... (15,320,293)
--------------
Net unrealized appreciation (depreciation) ................. $ 87,749,603
==============
Undistributed ordinary income .............................. $ 9,629,712
Undistributed long term capital gains ...................... 3,007,417
--------------
Distributable earnings ..................................... $ 12,637,129
==============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended October 31, 2005, aggregated $269,917,151 and $205,629,004,
respectively. Sales of investments excludes $250,481,378 of redemption in-kind
transactions.
7. RISK OF INVESTING IN FOREIGN SECURITIES
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
8. REDEMPTION IN-KIND
During the year ended October 31, 2005, the Fund realized $29,143,476 of net
gains resulting from in-kind redemptions in which a shareholder exchanged fund
shares for securities held by the Fund rather than for cash. Because such gains
are not taxable to the Fund, and are not distributed to shareholders, they have
been reclassified from accumulated net realized gains to paid-in capital.
34 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
9. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities relating to certain practices in the mutual
fund industry, including late trading, market timing and marketing support
payments to securities dealers who sell fund shares, Franklin Resources, Inc.
and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop a plan for distribution of the
respective settlement monies. The CAGO approved the distribution plan under the
CAGO Settlement and, in accordance with the terms and conditions of that
settlement, the monies were disbursed to the relevant funds and are recorded as
other income in the current period. The SEC has not yet approved the
distribution plan pertaining to the December 13, 2004 SEC Order. When approved,
disbursements of settlement monies will be made promptly to the relevant funds,
in accordance with the terms and conditions of that order. The IDC continues to
develop the plan of distribution under the August 2, 2004 SEC Order that
resolved the SEC's market timing investigation.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commisions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Funds, it is
committed to making the Funds or its shareholders whole, as appropriate.
Annual Report | 35
FRANKLIN TEMPLETON INTERNATIONAL TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON FOREIGN SMALLER COMPANIES
FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Foreign Smaller
Companies Fund (the "Fund") at October 31, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 12, 2005
36 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (UNAUDITED)
TEMPLETON FOREIGN SMALLER COMPANIES FUND
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $66,507,553 as a
capital gain dividend for the fiscal year ended October 31, 2005.
Under Section 854(b)(2) of the Code, the Fund designates the maximum amount
allowable but no less than $11,198,561 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
October 31, 2005. In January 2006, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2005. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
At October 31, 2005, more than 50% of the 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 shown in the tables
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on December 15, 2005, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.
The following tables provide a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund, to Class A, Class B, Class C and Advisor Class shareholders of record.
RECORD DATE:12/15/2005
- -----------------------------------------------------------------------------------------------------------------
CLASS A
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Australia ........................................... $ 0.0046 $ 0.0539 $ 0.0521
Austria ............................................. 0.0009 0.0038 0.0038
Belgium ............................................. 0.0014 0.0058 0.0058
Brazil .............................................. 0.0015 0.0080 0.0000
Canada .............................................. 0.0149 0.0617 0.0302
Cayman Islands ...................................... 0.0000 0.0001 0.0000
China ............................................... 0.0000 0.0446 0.0000
Denmark ............................................. 0.0007 0.0029 0.0029
Finland ............................................. 0.0084 0.0347 0.0347
Germany ............................................. 0.0039 0.0151 0.0055
Hong Kong ........................................... 0.0000 0.0591 0.0000
India ............................................... 0.0259 0.0204 0.0146
Indonesia ........................................... 0.0026 0.0107 0.0107
Japan ............................................... 0.0025 0.0217 0.0217
Mexico .............................................. 0.0000 0.0047 0.0047
Netherlands ......................................... 0.0113 0.0467 0.0466
Norway .............................................. 0.0016 0.0065 0.0065
Philippines ......................................... 0.0018 0.0045 0.0045
Singapore ........................................... 0.0000 0.0181 0.0000
Annual Report | 37
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
CLASS A
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
South Korea ......................................... 0.0100 0.0374 0.0374
Spain ............................................... 0.0004 0.0017 0.0017
Sweden .............................................. 0.0057 0.0235 0.0235
Switzerland ......................................... 0.0031 0.0273 0.0273
Taiwan .............................................. 0.0297 0.0806 0.0000
Thailand ............................................ 0.0017 0.0105 0.0105
United Kingdom ...................................... 0.0000 0.0455 0.0455
--------------------------------------------------
TOTAL ............................................... $ 0.1326 $ 0.6495 $ 0.3902
==================================================
- -----------------------------------------------------------------------------------------------------------------
CLASS B
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Australia ........................................... $ 0.0046 $ 0.0485 $ 0.0469
Austria ............................................. 0.0009 0.0034 0.0034
Belgium ............................................. 0.0014 0.0052 0.0052
Brazil .............................................. 0.0015 0.0072 0.0000
Canada .............................................. 0.0149 0.0555 0.0272
Cayman Islands ...................................... 0.0000 0.0001 0.0000
China ............................................... 0.0000 0.0402 0.0000
Denmark ............................................. 0.0007 0.0026 0.0026
Finland ............................................. 0.0084 0.0313 0.0313
Germany ............................................. 0.0039 0.0136 0.0049
Hong Kong ........................................... 0.0000 0.0532 0.0000
India ............................................... 0.0259 0.0184 0.0132
Indonesia ........................................... 0.0026 0.0096 0.0096
Japan ............................................... 0.0025 0.0195 0.0195
Mexico .............................................. 0.0000 0.0043 0.0043
Netherlands ......................................... 0.0113 0.0420 0.0419
Norway .............................................. 0.0016 0.0058 0.0058
Philippines ......................................... 0.0018 0.0040 0.0040
Singapore ........................................... 0.0000 0.0163 0.0000
South Korea ......................................... 0.0100 0.0337 0.0337
Spain ............................................... 0.0004 0.0015 0.0015
Sweden .............................................. 0.0057 0.0212 0.0212
Switzerland ......................................... 0.0031 0.0246 0.0246
Taiwan .............................................. 0.0297 0.0726 0.0000
Thailand ............................................ 0.0017 0.0094 0.0094
United Kingdom ...................................... 0.0000 0.0410 0.0410
--------------------------------------------------
TOTAL ............................................... $ 0.1326 $ 0.5847 $ 0.3512
==================================================
38 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
CLASS C
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Australia ........................................... $ 0.0046 $ 0.0496 $ 0.0479
Austria ............................................. 0.0009 0.0035 0.0035
Belgium ............................................. 0.0014 0.0053 0.0053
Brazil .............................................. 0.0015 0.0074 0.0000
Canada .............................................. 0.0149 0.0569 0.0278
Cayman Islands ...................................... 0.0000 0.0001 0.0000
China ............................................... 0.0000 0.0411 0.0000
Denmark ............................................. 0.0007 0.0027 0.0027
Finland ............................................. 0.0084 0.0320 0.0320
Germany ............................................. 0.0039 0.0139 0.0050
Hong Kong ........................................... 0.0000 0.0545 0.0000
India ............................................... 0.0259 0.0188 0.0135
Indonesia ........................................... 0.0026 0.0098 0.0098
Japan ............................................... 0.0025 0.0200 0.0200
Mexico .............................................. 0.0000 0.0044 0.0044
Netherlands ......................................... 0.0113 0.0430 0.0429
Norway .............................................. 0.0016 0.0060 0.0060
Philippines ......................................... 0.0018 0.0041 0.0041
Singapore ........................................... 0.0000 0.0167 0.0000
South Korea ......................................... 0.0100 0.0345 0.0345
Spain ............................................... 0.0004 0.0015 0.0015
Sweden .............................................. 0.0057 0.0217 0.0217
Switzerland ......................................... 0.0031 0.0252 0.0252
Taiwan .............................................. 0.0297 0.0743 0.0000
Thailand ............................................ 0.0017 0.0096 0.0096
United Kingdom ...................................... 0.0000 0.0420 0.0420
--------------------------------------------------
TOTAL ............................................... $ 0.1326 $ 0.5986 $ 0.3594
==================================================
- -----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Australia ........................................... $ 0.0046 $ 0.0596 $ 0.0576
Austria ............................................. 0.0009 0.0042 0.0042
Belgium ............................................. 0.0014 0.0064 0.0064
Brazil .............................................. 0.0015 0.0089 0.0000
Canada .............................................. 0.0149 0.0683 0.0334
Cayman Islands ...................................... 0.0000 0.0001 0.0000
China ............................................... 0.0000 0.0494 0.0000
Denmark ............................................. 0.0007 0.0032 0.0032
Finland ............................................. 0.0084 0.0384 0.0384
Germany ............................................. 0.0039 0.0167 0.0060
Hong Kong ........................................... 0.0000 0.0654 0.0000
India ............................................... 0.0259 0.0226 0.0162
Indonesia ........................................... 0.0026 0.0118 0.0118
Japan ............................................... 0.0025 0.0240 0.0240
Mexico .............................................. 0.0000 0.0053 0.0053
Netherlands ......................................... 0.0113 0.0517 0.0516
Norway .............................................. 0.0016 0.0072 0.0072
Philippines ......................................... 0.0018 0.0050 0.0050
Singapore ........................................... 0.0000 0.0200 0.0000
South Korea ......................................... 0.0100 0.0414 0.0414
Annual Report | 39
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (UNAUDITED) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Spain ............................................... 0.0004 0.0018 0.0018
Sweden .............................................. 0.0057 0.0260 0.0260
Switzerland ......................................... 0.0031 0.0302 0.0302
Taiwan .............................................. 0.0297 0.0893 0.0000
Thailand ............................................ 0.0017 0.0116 0.0116
United Kingdom ...................................... 0.0000 0.0504 0.0504
--------------------------------------------------
TOTAL ............................................... $ 0.1326 $ 0.7189 $ 0.4317
==================================================
Foreign Tax Paid per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate), or as a tax
deduction.
Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income.
Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund.(1)
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2005. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2005 individual income
tax returns.
(1). Qualified dividends are taxed at a maximum rate of 15% (5% for those in
the 10% and 15% income tax bracket). In determining the amount of foreign
tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may
be required to the foreign tax credit limitation calculation to reflect
the rate differential applicable to such dividend income. The rules
however permit certain individuals to elect not to apply the rate
differential adjustments for capital gains and/or dividends for any
taxable year. Please consult your tax advisor and the instructions to Form
1116 for more information.
40 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1991 140 Director, Bar-S Foods (meat
One Franklin Parkway packing company).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1991 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 136 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed
foods and allied products) , RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad), and White Mountains
Insurance Group, Ltd. (holding
company).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1991 114 Director, The California Center
One Franklin Parkway for Land Recycling (redevelopment).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 41
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Trustee Since 1992 140 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known
as MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding
company) (1987-2004); and Spacehab,
Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and
President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 140 None
One Franklin Parkway Chairman of 1991 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice
President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 124 None
One Franklin Parkway President and 1991, President
San Mateo, CA 94403-1906 Chief Executive since 1993 and
Officer- Chief Executive
Investment Officer-Investment
Management Management
since 2002
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and
officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of
the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
42 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) Vice President Since 1993 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer-Finance
and
Administration
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources,
Inc.; officer of 47 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer
and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer of 33 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Chief Legal Counsel, Atlas Advisers, Inc. (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 43
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (1937) Vice President- Since 2002 Not Applicable Not Applicable
600 Fifth Avenue AML
Rockefeller Center Compliance
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, Franklin Templeton
Institutional Suisse S.A., Arch Chemicals, Inc. and Lingnan Foundation; and officer and/or director, as the case may be, of some of
the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
44 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
** We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment adviser or
affiliated investment advisers.
** Charles B. Johnson and Rupert H. Johnson are considered to be interested
persons of the Trust under the federal securities laws due to their
positions as officers and directors and major shareholders of Franklin
Resources, Inc. (Resources), which is the parent company of the Trust's
adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 45
FRANKLIN TEMPLETON INTERNATIONAL TRUST
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
46 | Annual Report
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LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
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GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II(1)
VALUE
Franklin Balance Sheet Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
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SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
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Allocation Fund
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TARGET FUNDS
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Franklin Templeton Growth Target Fund
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INCOME
Franklin Adjustable U.S. Government
Securities Fund(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
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Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(3) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
(4) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/05 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
[ ] WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
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ANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON FOREIGN
SMALLER COMPANIES FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
SUB-ADVISORS
Templeton Investment Counsel, LLC
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors. The Fund and its investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund. The prospectus
contains this and other information; please read it carefully before investing.
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
identified by the presence of a regular beeping tone.
191 A2005 12/05
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
OCTOBER 31, 2005
- --------------------------------------------------------------------------------
A series of Franklin Templeton
International Trust
- --------------------------------------------------------------------------------
ANNUAL REPORT AND SHAREHOLDER LETTER GLOBAL
- --------------------------------------------------------------------------------
WANT TO RECEIVE
THIS DOCUMENT
TEMPLETON FASTER VIA EMAIL?
GLOBAL LONG-SHORT FUND
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
- --------------------------------------------------------------------------------
[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
Franklin o TEMPLETON o Mutual Series
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.
- --------------------------------------------------------------------------------
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Not part of the annual report
CONTENTS
SHAREHOLDER LETTER ........................................................ 1
ANNUAL REPORT
Templeton Global Long-Short Fund .......................................... 3
Performance Summary ....................................................... 9
Your Fund's Expenses ...................................................... 12
Financial Highlights and Statement of Investments ........................ 14
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 24
Report of Independent Registered Public Accounting Firm ................... 34
Tax Designation ........................................................... 35
Board Members and Officers ................................................ 38
Shareholder Information ................................................... 43
- --------------------------------------------------------------------------------
ANNUAL REPORT
TEMPLETON GLOBAL LONG-SHORT FUND
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Global Long-Short Fund seeks
long-term capital appreciation in up and down (bull and bear) markets with less
volatility than the overall global stock market through a combination of long
and short positions of companies located throughout the world.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Templeton Global Long-Short Fund covers the fiscal year
ended October 31, 2005.
PERFORMANCE OVERVIEW
Templeton Global Long-Short Fund - Class A posted a +2.37% cumulative total
return for the year under review. The Fund underperformed its benchmark, the
Morgan Stanley Capital International (MSCI) World Index (the Index), which
posted a +13.82% total return for the same period.(1) Since inception on July
31, 2001, the Fund's Class A shares posted a cumulative total return of +14.76%
compared with +21.83% for the Index.(1) The Fund's relative volatility, as
measured by the annualized standard deviation of monthly returns, was low at
just 6.27% since inception. You can find the Fund's long-term performance data
in the Performance Summary beginning on page 9.
ECONOMIC AND MARKET OVERVIEW
The global economic recovery continued in the 12-month period ended October 31,
2005. U.S. gross domestic product (GDP) expanded throughout 2005 despite
sustained high oil prices and recent hurricane damage in the U.S. Gulf States.
Apart from western Europe, foreign growth appeared to be beating the
expectations of a slowdown. China's industrial production and GDP expanded, and
Japan's economic outlook appeared brighter. The reelection of
(1) Source: Standard & Poor's Micropal. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets. The index is
unmanaged and includes reinvested dividends. One cannot invest directly in
an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 17.
Annual Report | 3
Prime Minister Junichiro Koizumi gave investors confidence about pending
structural reforms, such as the privatization of Japan's postal system, which
also serves as a savings bank and insurance company. However, many observers
were skeptical about the possibility for sustained economic growth, given the
country's recent history of periodically alternating good and bad results.
Oil prices remained a major concern for the global economy as they climbed
higher, amid concerns about long-term supply limitations in the face of strong
growth in global demand, especially from China and India. In continental Europe,
consumer and business sentiment was weak for a number of reasons. This region
continued to face political and economic integration issues. Unemployment in
Germany and France remained at or above 10%.(2) Largely in consideration of
these factors, the European Central Bank lowered its 2005 GDP growth estimate
for the 12-nation euro zone. In the political arena, France and the Netherlands
defeated a referendum to adopt a European constitution, raising some uncertainty
about the European Union's political future. Germany's parliamentary election
was highly contested, with both incumbent Chancellor Gerhard Schroder and
challenger Angela Merkel from the Christian Democratic Party failing to produce
a clear majority in what was Germany's closest election since World War II.
Ultimately, Angela Merkel became Germany's chancellor.
Despite the predominantly weak outlook for the European economy, many European
equity markets performed well. For the 12-month period, European equity markets
returned +23.24%, as measured by the MSCI Europe Index, using the local
currencies of this index's constituents.(3) The MSCI Pacific Index, which
includes Japan, returned +30.83% in local currencies over the same period.(4)
U.S. markets, as measured by the MSCI USA Index, returned +9.44%.(5) A strong
recovery in corporate profitability was a major catalyst for global equity
markets' robust performance.
(2) Sources: Deutsche Bundesbank (Germany); INSEE National Statistics Office
(France). Unemployment data for France as of 9/30/05.
(3) Source: Standard & Poor's Micropal. The MSCI Europe Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in Europe.
(4) Source: Standard & Poor's Micropal. The MSCI Pacific Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in the Pacific region.
(5) Source: Standard & Poor's Micropal. The MSCI USA Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in the U.S.
4 | Annual Report
EQUITY EXPOSURE
10/31/05
- --------------------------------------------------------------------------------
% OF TOTAL # OF
NET ASSETS POSITIONS
- --------------------------------------------------------------------------------
Long Equity Securities 92.4% 76
- --------------------------------------------------------------------------------
Short Equity Securities -16.1% 18
- --------------------------------------------------------------------------------
NET EQUITY EXPOSURE 76.3%(LONG)
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
Our investment philosophy is that a combination of long and short equity
positions can reduce overall volatility and has the potential to provide
positive returns in either up or down markets. We apply a bottom-up,
value-oriented, long-term approach, focusing on the market price of a company's
securities relative to our evaluation of its long-term earnings, asset value and
cash flow potential. We also consider a company's price/earnings ratio, profit
margins and liquidation value. For our long positions, we seek stock from
companies we believe have strong fundamentals or valuable assets that we think
are overlooked by the market. Among our short positions, our strategy is to
short the stocks of companies we believe are overvalued by the market where we
see the potential for share price decline.
MANAGER'S DISCUSSION
On October 31, 2005, the Fund's overall exposure as a percent of total net
assets was 92.4% long and 16.1% short, for a 76.3% net long exposure and gross
equity exposure of 108.5%. For the year under review, the most notable positive
contributors to returns were long positions from the industrials and information
technology (IT) sectors.(6) The main laggards included long positions in the
consumer staples and consumer discretionary sectors.(7)
In the industrials sector, the Fund's 2.1% long exposure to BAE Systems
represented the largest positive contributor to returns for the period. The
defense company is an industry leader in Europe, and also has a strong
competitive position in the U.S., particularly in the electronic defense
business. BAE significantly reduced risk on problematic contracts and at
period-end faced limited
PORTFOLIO BREAKDOWN
10/31/05
- ----------------------------------------------
% OF TOTAL
NET ASSETS
- ----------------------------------------------
Long Positions 92.4%
- ----------------------------------------------
Short Positions -16.1%
- ----------------------------------------------
Short-Term Investments 3.0%
- ----------------------------------------------
Other Assets, Less Liabilities 20.7%*
- ----------------------------------------------
* Includes the market value of the short positions.
(6) The industrials sector comprises aerospace and defense, airlines,
commercial services and supplies, and industrial conglomerates in the SOI.
The IT sector comprises communications equipment, computers and
peripherals, IT services, semiconductors and semiconductor equipment, and
software in the SOI.
(7) The consumer staples sector comprises beverages, food and staples
retailing, and food products in the SOI. The consumer discretionary sector
comprises auto components; automobiles; hotels, restaurants and leisure;
household durables; leisure equipment and products; media; multiline
retail; and specialty retail in the SOI.
Annual Report | 5
SECTOR/INDUSTRY BREAKDOWN
Based on Total Net Assets as of 10/31/05
- --------------------------------------------------------------------------------
NET EQUITY
LONG % SHORT % EXPOSURE %
- --------------------------------------------------------------------------------
Media 7.8% 0.0% 7.8%
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 6.9% 0.0% 6.9%
- --------------------------------------------------------------------------------
Commercial Banks 6.6% 0.0% 6.6%
- --------------------------------------------------------------------------------
Insurance 5.3% 0.0% 5.3%
- --------------------------------------------------------------------------------
Pharmaceuticals 5.1% 0.0% 5.1%
- --------------------------------------------------------------------------------
Paper & Forest Products 4.9% 0.0% 4.9%
- --------------------------------------------------------------------------------
Diversified Telecommunication Services 4.8% -0.7% 4.1%
- --------------------------------------------------------------------------------
Aerospace & Defense 4.8% -1.1% 3.7%
- --------------------------------------------------------------------------------
Software 4.3% -0.7% 3.6%
- --------------------------------------------------------------------------------
Commercial Services & Supplies 3.3% 0.0% 3.3%
- --------------------------------------------------------------------------------
Wireless Telecommunication Services 3.0% 0.0% 3.0%
- --------------------------------------------------------------------------------
Leisure Equipment & Products 2.7% 0.0% 2.7%
- --------------------------------------------------------------------------------
IT Services 2.7% 0.0% 2.7%
- --------------------------------------------------------------------------------
Energy Equipment & Services 2.6% 0.0% 2.6%
- --------------------------------------------------------------------------------
Industrial Conglomerates 2.6% 0.0% 2.6%
- --------------------------------------------------------------------------------
Real Estate 2.6% 0.0% 2.6%
- --------------------------------------------------------------------------------
Household Durables 2.4% 0.0% 2.4%
- --------------------------------------------------------------------------------
Capital Markets 2.3% 0.0% 2.3%
- --------------------------------------------------------------------------------
Health Care Equipment & Supplies 1.9% 0.0% 1.9%
- --------------------------------------------------------------------------------
Communications Equipment 1.7% 0.0% 1.7%
- --------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment 1.5% 0.0% 1.5%
- --------------------------------------------------------------------------------
Auto Components 1.4% 0.0% 1.4%
- --------------------------------------------------------------------------------
Metals & Mining 1.9% -0.6% 1.3%
- --------------------------------------------------------------------------------
Gas Utilities 1.1% 0.0% 1.1%
- --------------------------------------------------------------------------------
Automobiles 1.0% 0.0% 1.0%
- --------------------------------------------------------------------------------
Health Care Providers & Services 0.9% 0.0% 0.9%
- --------------------------------------------------------------------------------
Computers & Peripherals 0.9% 0.0% 0.9%
- --------------------------------------------------------------------------------
Specialty Retail 0.9% 0.0% 0.9%
- --------------------------------------------------------------------------------
Airlines 1.1% -0.5% 0.6%
- --------------------------------------------------------------------------------
Food & Staples Retailing 1.2% -0.6% 0.6%
- --------------------------------------------------------------------------------
Hotels, Restaurants & Leisure 1.0% -1.2% -0.2%
- --------------------------------------------------------------------------------
Multiline Retail 0.0% -0.5% -0.5%
- --------------------------------------------------------------------------------
Diversified Financial Services 1.2% -1.8% -0.6%
- --------------------------------------------------------------------------------
Chemicals 0.0% -1.0% -1.0%
- --------------------------------------------------------------------------------
Food Products 0.0% -1.3% -1.3%
- --------------------------------------------------------------------------------
Beverages 0.0% -2.3% -2.3%
- --------------------------------------------------------------------------------
Thrifts & Mortgage Finance 0.0% -3.8% -3.8%
- --------------------------------------------------------------------------------
6 | Annual Report
exposure to future cost overruns as a result of renegotiations with the U.K.
government. At the same time, other defense programs began to move into more
profitable production phases, and the company has the potential to benefit from
new export orders in the future. In addition, BAE's 20% stake in Airbus
benefited from the pickup in commercial aerospace deliveries.
The Fund's long exposure to India-based Satyam Computers Services in the IT
sector posted positive returns and aided performance. Satyam, an IT services
company, reported better-than-expected second-quarter results attributed to
higher orders for business software installation and customization. Its share
price rose on revised full-year earnings forecasts. During the period Satyam won
a multimillion dollar contract from another Europe-based organization, and
continued to thrive on increased European business.
The Fund's only real estate holding within the financials sector, Cheung Kong
Holdings, contributed to positive performance for the year under review. The
company benefited from surging real estate prices in Hong Kong, where it is a
large residential property developer. Improving fundamentals at its Hutchison
Whampoa subsidiary, which operates in areas including ports, telecommunications
and retail, also helped Cheung Kong.
In the consumer staples sector, the Fund's exposure to American Italian Pasta, a
U.S.-based food products company, detracted from performance during the period.
Despite having a leading market share in U.S. pasta manufacturing, intense price
competition and cost pressures led management to substantially lower the
company's profit forecasts. Management also delayed its regulatory filing of the
third fiscal quarter's financial statement to allow for completion of an
internal review of accounting procedures. We subsequently sold our position due
to the company's poor financial transparency.
In the consumer discretionary sector, the Fund's holding in Compass Group, a
U.K. commercial services company, dampened performance for the period. The
company announced that annual profit would not meet analysts' expectations due
to rising costs, which cannot be passed on to customers in the current
competitive environment. Despite these concerns, we remained optimistic about
Compass Group's prospects, given what we consider the company's sound strategic
direction. We looked at recent weakness as an opportunity to add to our Compass
position.
Another detractor in the consumer discretionary sector was Sharper Image, a U.S.
specialty retailer. The company's share price declined in December 2004 after
news that fiscal year profits were expected to fall because of merchandise
shortages and higher shipping costs. In the latter half of the reporting period,
the share price dropped further as higher energy and interest costs weakened
TOP 10 LONG POSITIONS
10/31/05
- --------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- --------------------------------------------------------
Muenchener
Rueckversicherungs-Gesellschaft 2.6%
INSURANCE, GERMANY
- --------------------------------------------------------
Cheung Kong Holdings Ltd. 2.6%
REAL ESTATE, HONG KONG
- --------------------------------------------------------
GlaxoSmithKline PLC 2.1%
PHARMACEUTICALS, U.K.
- --------------------------------------------------------
BP PLC 2.1%
OIL, GAS & CONSUMABLE FUELS, U.K.
- --------------------------------------------------------
BAE Systems PLC 2.1%
AEROSPACE & DEFENSE, U.K.
- --------------------------------------------------------
Eni SpA 2.1%
OIL, GAS & CONSUMABLE FUELS, ITALY
- --------------------------------------------------------
British Sky Broadcasting Group PLC 2.1%
MEDIA, U.K.
- --------------------------------------------------------
Vodafone Group PLC 2.1%
WIRELESS TELECOMMUNICATION
SERVICES, U.K.
- --------------------------------------------------------
Royal Dutch Shell PLC, B 1.9%
OIL, GAS & CONSUMABLE FUELS, U.K.
- --------------------------------------------------------
Sohgo Security Services Co. Ltd. 1.9%
COMMERCIAL SERVICES & SUPPLIES, JAPAN
- --------------------------------------------------------
Annual Report | 7
GEOGRAPHIC DISTRIBUTION
Based on Total Net Assets as of 10/31/05
- --------------------------------------------------------------------------------
NET EQUITY
REGION LONG % SHORT % EXPOSURE %
- --------------------------------------------------------------------------------
Europe 37.7% -7.0% 30.7%
- --------------------------------------------------------------------------------
Asia 29.3% -0.5% 28.8%
- --------------------------------------------------------------------------------
North America 21.7% -7.5% 14.2%
- --------------------------------------------------------------------------------
Middle East & Africa 1.4% 0.0% 1.4%
- --------------------------------------------------------------------------------
Australia & New Zealand 2.3% -1.1% 1.2%
- --------------------------------------------------------------------------------
U.S. consumer spending. We remained confident with our exposure to Sharper Image
based on our analysis of its sound corporate fundamentals, strong brand
recognition, healthy balance sheet and consistent track record of creating
innovative products.
Thank you for your continued participation in Templeton Global Long-Short Fund.
We look forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Dale A. Winner, CFA
Dale A. Winner, CFA
Portfolio Manager
Templeton Global Long-Short Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF OCTOBER 31, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
8 | Annual Report
PERFORMANCE SUMMARY AS OF 10/31/05
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
CLASS A (SYMBOL: TLSAX) CHANGE 10/31/05 10/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.15 $11.36 $11.21
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-10/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.1157
- --------------------------------------------------------------------------------
CLASS B (SYMBOL: TLSBX) CHANGE 10/31/05 10/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.16 $11.14 $10.98
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-10/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.0229
- --------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: N/A) CHANGE 10/31/05 10/31/04
- --------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.15 $11.37 $11.22
- --------------------------------------------------------------------------------
DISTRIBUTIONS (11/1/04-10/31/05)
- --------------------------------------------------------------------------------
Dividend Income $0.1584
- --------------------------------------------------------------------------------
PERFORMANCE(1)
CLASS A: 5.75% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES
CHARGE DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER.
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
- ---------------------------------------------------------------------------------------------
CLASS A 1-YEAR 3-YEAR INCEPTION (7/31/01)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return(2) +2.37% +12.84% +14.76%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return(3) -3.48% +2.08% +1.86%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 9,652 $10,636 $10,816
- ---------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/05)(5) +0.25% +3.15% +2.65%
- ---------------------------------------------------------------------------------------------
CLASS B 1-YEAR 3-YEAR INCEPTION (7/31/01)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return(2) +1.76% +10.62% +11.73%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return(3) -2.24% +2.48% +2.21%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $ 9,776 $10,762 $10,973
- ---------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/05)(5) +1.72% +3.60% +3.03%
- ---------------------------------------------------------------------------------------------
ADVISOR CLASS(6) 1-YEAR 3-YEAR INCEPTION (7/31/01)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return(2) +2.75% +13.36% +15.29%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return(3) +2.75% +4.27% +3.40%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment(4) $10,275 $11,336 $11,529
- ---------------------------------------------------------------------------------------------
Avg. Ann. Total Return (9/30/05)(5) +6.87% +5.36% +4.23%
- ---------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN.
FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT
FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 9
PERFORMANCE SUMMARY (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT(1)
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS A 10/31/05
- ---------------------------------------
1-Year -3.48%
- ---------------------------------------
3-Year +2.08%
- ---------------------------------------
Since Inception (7/31/01) +1.86%
- ---------------------------------------
CLASS A (7/31/01-10/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON GLOBAL
LONG-SHORT FUND MSCI WORLD
CLASS A INDEX(7)
---------------- ----------
07/31/01 $ 9,425 $ 10,000
08/31/01 $ 9,397 $ 9,522
09/30/01 $ 9,604 $ 8,684
10/31/01 $ 9,557 $ 8,851
11/30/01 $ 9,623 $ 9,376
12/31/01 $ 9,595 $ 9,436
01/31/02 $ 9,538 $ 9,152
02/28/02 $ 9,566 $ 9,074
03/31/02 $ 10,038 $ 9,477
04/30/02 $ 10,179 $ 9,158
05/31/02 $ 10,245 $ 9,180
06/30/02 $ 9,906 $ 8,625
07/31/02 $ 9,632 $ 7,899
08/31/02 $ 9,661 $ 7,915
09/30/02 $ 9,576 $ 7,046
10/31/02 $ 9,585 $ 7,568
11/30/02 $ 9,661 $ 7,977
12/31/02 $ 9,482 $ 7,592
01/31/03 $ 9,255 $ 7,363
02/28/03 $ 9,199 $ 7,237
03/31/03 $ 9,057 $ 7,217
04/30/03 $ 8,982 $ 7,862
05/31/03 $ 9,180 $ 8,315
06/30/03 $ 9,293 $ 8,462
07/31/03 $ 9,510 $ 8,635
08/31/03 $ 9,680 $ 8,824
09/30/03 $ 9,661 $ 8,880
10/31/03 $ 10,085 $ 9,409
11/30/03 $ 10,104 $ 9,554
12/31/03 $ 10,490 $ 10,156
01/31/04 $ 10,613 $ 10,321
02/29/04 $ 10,763 $ 10,498
03/31/04 $ 10,792 $ 10,432
04/30/04 $ 10,537 $ 10,224
05/31/04 $ 10,518 $ 10,324
06/30/04 $ 10,509 $ 10,541
07/31/04 $ 10,254 $ 10,199
08/31/04 $ 10,273 $ 10,248
09/30/04 $ 10,481 $ 10,445
10/31/04 $ 10,566 $ 10,704
11/30/04 $ 10,886 $ 11,271
12/31/04 $ 10,977 $ 11,704
01/31/05 $ 10,844 $ 11,443
02/28/05 $ 11,082 $ 11,811
03/31/05 $ 10,987 $ 11,587
04/30/05 $ 10,749 $ 11,342
05/31/05 $ 10,720 $ 11,552
06/30/05 $ 10,815 $ 11,657
07/31/05 $ 11,053 $ 12,067
08/31/05 $ 11,044 $ 12,163
09/30/05 $ 11,148 $ 12,483
10/31/05 $ 10,816 $ 12,183
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
CLASS B 10/31/05
- ---------------------------------------
1-Year -2.24%
- ---------------------------------------
3-Year +2.48%
- ---------------------------------------
Since Inception (7/31/01) +2.21%
- ---------------------------------------
CLASS B (7/31/01-10/31/05)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON GLOBAL
LONG-SHORT FUND MSCI WORLD
CLASS B INDEX(7)
---------------- ----------
07/31/01 $ 10,000 $ 10,000
08/31/01 $ 9,970 $ 9,522
09/30/01 $ 10,190 $ 8,684
10/31/01 $ 10,140 $ 8,851
11/30/01 $ 10,210 $ 9,376
12/31/01 $ 10,170 $ 9,436
01/31/02 $ 10,100 $ 9,152
02/28/02 $ 10,130 $ 9,074
03/31/02 $ 10,620 $ 9,477
04/30/02 $ 10,770 $ 9,158
05/31/02 $ 10,830 $ 9,180
06/30/02 $ 10,460 $ 8,625
07/31/02 $ 10,170 $ 7,899
08/31/02 $ 10,200 $ 7,915
09/30/02 $ 10,090 $ 7,046
10/31/02 $ 10,100 $ 7,568
11/30/02 $ 10,180 $ 7,977
12/31/02 $ 9,980 $ 7,592
01/31/03 $ 9,740 $ 7,363
02/28/03 $ 9,680 $ 7,237
03/31/03 $ 9,510 $ 7,217
04/30/03 $ 9,430 $ 7,862
05/31/03 $ 9,630 $ 8,315
06/30/03 $ 9,740 $ 8,462
07/31/03 $ 9,970 $ 8,635
08/31/03 $ 10,140 $ 8,824
09/30/03 $ 10,110 $ 8,880
10/31/03 $ 10,560 $ 9,409
11/30/03 $ 10,570 $ 9,554
12/31/03 $ 10,970 $ 10,156
01/31/04 $ 11,080 $ 10,321
02/29/04 $ 11,240 $ 10,498
03/31/04 $ 11,260 $ 10,432
04/30/04 $ 10,980 $ 10,224
05/31/04 $ 10,970 $ 10,324
06/30/04 $ 10,950 $ 10,541
07/31/04 $ 10,670 $ 10,199
08/31/04 $ 10,690 $ 10,248
09/30/04 $ 10,900 $ 10,445
10/31/04 $ 10,980 $ 10,704
11/30/04 $ 11,310 $ 11,271
12/31/04 $ 11,393 $ 11,704
01/31/05 $ 11,253 $ 11,443
02/28/05 $ 11,493 $ 11,811
03/31/05 $ 11,393 $ 11,587
04/30/05 $ 11,143 $ 11,342
05/31/05 $ 11,103 $ 11,552
06/30/05 $ 11,193 $ 11,657
07/31/05 $ 11,433 $ 12,067
08/31/05 $ 11,413 $ 12,163
09/30/05 $ 11,524 $ 12,483
10/31/05 $ 10,973 $ 12,183
10 | Annual Report
PERFORMANCE SUMMARY (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- ---------------------------------------
ADVISOR CLASS(6) 10/31/05
- ---------------------------------------
1-Year +2.75%
- ---------------------------------------
3-Year +4.27%
- ---------------------------------------
Since Inception (7/31/01) +3.40%
- ---------------------------------------
ADVISOR CLASS (7/13/01-10/31/05)(6)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
TEMPLETON GLOBAL
LONG-SHORT FUND MSCI WORLD
ADVISOR CLASS INDEX(7)
---------------- ----------
07/31/01 $ 10,000 $ 10,000
08/31/01 $ 9,970 $ 9,522
09/30/01 $ 10,190 $ 8,684
10/31/01 $ 10,140 $ 8,851
11/30/01 $ 10,210 $ 9,376
12/31/01 $ 10,180 $ 9,436
01/31/02 $ 10,120 $ 9,152
02/28/02 $ 10,150 $ 9,074
03/31/02 $ 10,650 $ 9,477
04/30/02 $ 10,800 $ 9,158
05/31/02 $ 10,870 $ 9,180
06/30/02 $ 10,510 $ 8,625
07/31/02 $ 10,220 $ 7,899
08/31/02 $ 10,250 $ 7,915
09/30/02 $ 10,160 $ 7,046
10/31/02 $ 10,170 $ 7,568
11/30/02 $ 10,250 $ 7,977
12/31/02 $ 10,060 $ 7,592
01/31/03 $ 9,820 $ 7,363
02/28/03 $ 9,760 $ 7,237
03/31/03 $ 9,610 $ 7,217
04/30/03 $ 9,530 $ 7,862
05/31/03 $ 9,740 $ 8,315
06/30/03 $ 9,860 $ 8,462
07/31/03 $ 10,090 $ 8,635
08/31/03 $ 10,270 $ 8,824
09/30/03 $ 10,250 $ 8,880
10/31/03 $ 10,700 $ 9,409
11/30/03 $ 10,720 $ 9,554
12/31/03 $ 11,130 $ 10,156
01/31/04 $ 11,260 $ 10,321
02/29/04 $ 11,420 $ 10,498
03/31/04 $ 11,450 $ 10,432
04/30/04 $ 11,180 $ 10,224
05/31/04 $ 11,160 $ 10,324
06/30/04 $ 11,150 $ 10,541
07/31/04 $ 10,880 $ 10,199
08/31/04 $ 10,900 $ 10,248
09/30/04 $ 11,120 $ 10,445
10/31/04 $ 11,220 $ 10,704
11/30/04 $ 11,570 $ 11,271
12/31/04 $ 11,661 $ 11,704
01/31/05 $ 11,529 $ 11,443
02/28/05 $ 11,772 $ 11,811
03/31/05 $ 11,691 $ 11,587
04/30/05 $ 11,438 $ 11,342
05/31/05 $ 11,407 $ 11,552
06/30/05 $ 11,509 $ 11,657
07/31/05 $ 11,772 $ 12,067
08/31/05 $ 11,772 $ 12,163
09/30/05 $ 11,884 $ 12,483
10/31/05 $ 11,529 $ 12,183
ENDNOTES
THE FUND'S INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH THE FUND'S
LONG-SHORT INVESTMENT STRATEGY, MARKET CONDITIONS, CURRENCY EXCHANGE RATES AND
THE ECONOMIC, SOCIAL AND POLITICAL CLIMATES OF THE COUNTRIES WHERE THE FUND
INVESTS. INVESTMENTS IN DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO
THE SAME FACTORS. ALTHOUGH THE FUND INTENDS TO REDUCE RISK BY HAVING BOTH LONG
AND SHORT POSITIONS, IT IS POSSIBLE THE FUND'S LONG POSITIONS WILL DECLINE IN
VALUE AT THE SAME TIME THE VALUE OF STOCKS SOLD SHORT INCREASES, THEREBY
INCREASING THE POTENTIAL FOR LOSS. ALSO, THE FUND MAY NOT ALWAYS BE ABLE TO
COVER A SHORT POSITION AT A PARTICULAR TIME OR AT AN ACCEPTABLE PRICE. THE
FUND'S PROSPECTUS ALSO CONTAINS A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1) Past expense reductions by the Fund's manager increased the Fund's total
returns. If the manager had not taken this action, the Fund's total
returns would have been lower.
(2) Cumulative total return represents the change in value of an investment
over the periods indicated and does not include a sales charge.
(3) Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes any applicable
maximum sales charge.
(4) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include any applicable maximum
sales charge.
(5) In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
(6) Effective 8/2/04, the Fund began offering Advisor Class shares, which do
not have sales charges or a Rule 12b-1 plan. Performance quotations for
this class reflect the following methods of calculation: (a) For periods
prior to 8/2/04, a restated figure is used based upon the Fund's Class A
performance, excluding the effect of Class A's maximum initial sales
charge, but reflecting the effect of the Class A Rule 12b-1 fees; and (b)
for periods after 8/1/04, actual Advisor Class performance is used
reflecting all charges and fees applicable to that class. Since 8/2/04
(commencement of sales), the cumulative and average annual total returns
of Advisor Class shares were +5.87% and +4.68%.
(7) Source: Standard & Poor's Micropal. The MSCI World Index is a free
float-adjusted, market capitalization-weighted index designed to measure
equity market performance in global developed markets.
Annual Report | 11
YOUR FUND'S EXPENSES
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table below provides
actual account values and expenses. The "Ending Account Value" is derived from
the Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period, by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
12 | Annual Report
YOUR FUND'S EXPENSES (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/30/05 VALUE 10/31/05 PERIOD* 4/30/05-10/31/05
- --------------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,006.20 $ 7.89
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.34 $ 7.93
- --------------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,002.70 $ 11.51
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,013.71 $ 11.57
- --------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,008.00 $ 6.53
- --------------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.70 $ 6.56
- --------------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A:
1.56%; B: 2.28%; and Advisor: 1.29%), multiplied by the average account
value over the period, multiplied by 184/365 to reflect the one-half year
period.
Annual Report | 13
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS
TEMPLETON GLOBAL LONG-SHORT FUND
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS A 2005 2004 2003 2002 2001(d)
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 11.21 $ 10.70 $ 10.17 $ 10.14 $ 10.00
------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a)........................ 0.12 0.11 (0.05) (0.02) (0.01)
Net realized and unrealized gains (losses) ............ 0.15 0.40 0.58 0.05 0.15
------------------------------------------------------------------
Total from investment operations ....................... 0.27 0.51 0.53 0.03 0.14
------------------------------------------------------------------
Less distributions from net investment income........... (0.12) -- -- -- --
------------------------------------------------------------------
Redemption fees ........................................ --(c) --(c) -- -- --
------------------------------------------------------------------
Net asset value, end of year ........................... $ 11.36 $ 11.21 $ 10.70 $ 10.17 $ 10.14
==================================================================
Total return(b) ........................................ 2.37% 4.77% 5.21% 0.30% 1.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $92,835 $113,850 $93,194 $109,790 $32,235
Ratios to average net assets:*
Expenses .............................................. 1.58% 1.52% 2.87% 2.83% 5.26%(e)
Expenses net of waiver and payments by affiliate ...... 1.58% 1.33% 2.87% 2.59% 2.38%(e)
Net investment income (loss) .......................... 1.09% 0.98% (0.50)% (0.21)% (0.45)%(e)
Portfolio turnover rate ................................ 111.52% 200.64% 471.22% 572.56% 249.61%
Portfolio turnover rate excluding short sales .......... 71.34% 74.62% 175.68% 196.67% 15.76%
*Ratios to average net assets, excluding dividend
expense on securities sold short:
Expenses .............................................. 1.23% 1.30% 2.46% 2.63% 5.25%(e)
Expenses net of waiver and payments by affiliate ...... 1.23% 1.11% 2.46% 2.39% 2.37%(e)
(a) Based on average daily shares outstanding.
(b) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) For the period July 31, 2001 (commencement of operations) to October 31,
2001.
(e) Annualized.
14 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND (CONTINUED)
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
CLASS B 2005 2004 2003 2002 2001(d)
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 10.98 $ 10.55 $ 10.10 $ 10.13 $ 10.00
------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(a) ....................... 0.04 0.03 (0.12) (0.09) --(e)
Net realized and unrealized gains (losses) ............ 0.14 0.40 0.57 0.06 0.13
------------------------------------------------------------------
Total from investment operations ....................... 0.18 0.43 0.45 (0.03) 0.13
------------------------------------------------------------------
Less distributions from net investment income........... (0.02) -- -- -- --
------------------------------------------------------------------
Redemption fees ........................................ --(c) --(c) -- -- --
------------------------------------------------------------------
Net asset value, end of year ........................... $ 11.14 $ 10.98 $ 10.55 $ 10.10 $ 10.13
==================================================================
Total return(b) ........................................ 1.76% 4.08% 4.55% (0.30)% 1.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $36,590 $ 44,202 $46,270 $50,190 $10,489
Ratios to average net assets:*
Expenses .............................................. 2.28% 2.19% 3.57% 3.49% 5.55%(f)
Expenses net of waiver and payments by affiliate ...... 2.28% 2.00% 3.57% 3.25% 2.67%(f)
Net investment income (loss) .......................... 0.39% 0.31% (1.20)% (0.87)% (0.13)%(f)
Portfolio tunrnover rate ............................... 111.52% 200.64% 471.22% 572.56% 249.61%
Portfolio turnover rate excluding short sales .......... 71.34% 74.62% 175.68% 196.67% 15.76%
*Ratios to average net assets, excluding dividend
expense on securities sold short:
Expenses .............................................. 1.93% 1.97% 3.16% 3.29% 5.54%(f)
Expenses net of waiver and payments by affiliate ...... 1.93% 1.78% 3.16% 3.05% 2.66%(f)
(a) Based on average daily shares outstanding.
(b) Total return does not reflect the contingent deferred sales charge, and is
not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) For the period July 31, 2001 (commencement of operations) to October 31,
2001.
(e) Actual net investment loss per share was $(0.003).
(f) Annualized.
Annual Report | See notes to financial statements. | 15
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL HIGHLIGHTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND (CONTINUED)
-------------------------
YEAR ENDED OCTOBER 31,
ADVISOR CLASS 2005 2004(d)
-------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year..................................................... $ 11.22 $ 10.89
-------------------------
Income from investment operations:
Net investment income(a) ............................................................. 0.19 0.03
Net realized and unrealized gains (losses)............................................ 0.12 0.30
-------------------------
Total from investment operations ...................................................... 0.31 0.33
-------------------------
Less distributions from net investment income.......................................... (0.16) --
-------------------------
Redemption fees ....................................................................... --(c) --(c)
-------------------------
Net asset value, end of year .......................................................... $ 11.37 $ 11.22
=========================
Total return(b) ....................................................................... 2.75% 3.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................................................... $ 3,096 $ 366
Ratios to average net assets:*
Expenses ............................................................................. 1.28% 1.20%(e)
Expenses net of waiver and payments by affiliate ..................................... 1.28% 1.01%(e)
Net investment income ................................................................ 1.39% 1.30%(e)
Portfolio turnover rate ............................................................... 111.52% 200.64%
Portfolio turnover rate excluding short sales ......................................... 71.34% 74.62%
*Ratios to average net assets, excluding dividend expense on securities sold short:
Expenses ............................................................................. 0.93% 0.98%(e)
Expenses net of waiver and payments by affiliate ..................................... 0.93% 0.79%(e)
(a) Based on average daily shares outstanding.
(b) Total return is not annualized for periods less than one year.
(c) Amount is less than $0.01 per share.
(d) For the period August 2, 2004 (effective date) to October 31, 2004.
(e) Annualized.
16 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005
- -------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL LONG-SHORT FUND INDUSTRY SHARES/CONTRACTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND OPTIONS 92.4%
AUSTRALIA 2.3%
Alumina Ltd. ............................. Metals & Mining 350,620 $ 1,518,608
Qantas Airways Ltd. ...................... Airlines 577,852 1,478,336
------------
2,996,944
------------
CANADA 2.7%
CAE Inc. ................................. Aerospace & Defense 334,383 2,281,396
MDS Inc. ................................. Health Care Providers & Services 77,733 1,250,203
------------
3,531,599
------------
FINLAND 3.0%
Stora Enso OYJ, R ........................ Paper & Forest Products 152,890 1,955,570
UPM-Kymmene Corp. ........................ Paper & Forest Products 103,980 2,010,546
------------
3,966,116
------------
FRANCE 1.0%
France Telecom SA ........................ Diversified Telecommunication Services 51,190 1,330,375
------------
GERMANY 4.6%
Bayerische Motoren Werke AG .............. Automobiles 29,620 1,288,552
Muenchener Rueckversicherungs-Gesellschaft Insurance 29,570 3,470,275
Siemens AG ............................... Industrial Conglomerates 18,500 1,373,639
------------
6,132,466
------------
HONG KONG 3.7%
Bank of East Asia Ltd. ................... Commercial Banks 507,600 1,483,090
Cheung Kong Holdings Ltd. ................ Real Estate 329,720 3,430,264
------------
4,913,354
------------
INDIA 1.3%
Satyam Computers Services Ltd. ........... IT Services 131,200 1,764,519
------------
ISRAEL 0.9%
(a)Check Point Software Technologies Ltd. ... Software 52,986 1,184,767
------------
ITALY 3.1%
Eni SpA .................................. Oil, Gas & Consumable Fuels 103,098 2,763,451
Unicredito Italiano SpA .................. Commercial Banks 247,410 1,381,338
------------
4,144,789
------------
JAPAN 8.7%
Fuji Photo Film Co. Ltd. ................. Leisure Equipment & Products 67,200 2,119,036
Nikkei 225, Index, 12/09/05 .............. Diversified Financial Services 112 81,798
Nomura Holdings Inc. ..................... Capital Markets 67,600 1,025,747
Olympus Corp. ............................ Health Care Equipment & Supplies 112,000 2,477,983
Sohgo Security Services Co. Ltd. ......... Commercial Services & Supplies 151,700 2,496,073
Sony Corp. ............................... Household Durables 53,100 1,715,479
Takeda Pharmaceutical Co. Ltd. ........... Pharmaceuticals 29,430 1,608,238
------------
11,524,354
------------
NETHERLANDS 1.4%
VNU NV ................................... Media 57,600 1,831,849
------------
Annual Report | 17
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL LONG-SHORT FUND INDUSTRY SHARES/CONTRACTS VALUE
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND OPTIONS (CONT.)
NORWAY 3.5%
Norske Skogindustrier ASA, A ............. Paper & Forest Products 123,529 $ 1,760,924
(a)Petroleum Geo-Services AS ................ Energy Equipment & Services 32,290 818,863
Telenor ASA .............................. Diversified Telecommunication Services 204,790 1,998,673
(b)Telenor ASA, 144A ........................ Diversified Telecommunication Services 1,810 17,665
------------
4,596,125
------------
PORTUGAL 0.5%
Portugal Telecom SGPS SA ................. Diversified Telecommunication Services 73,970 668,585
------------
SINGAPORE 0.8%
DBS Group Holdings Ltd. .................. Commercial Banks 118,000 1,065,887
------------
SOUTH AFRICA 0.5%
Sappi Ltd., ADR .......................... Paper & Forest Products 74,280 726,458
------------
SOUTH KOREA 9.2%
Halla Climate Control Co. Ltd. ........... Auto Components 191,620 1,844,618
Hana Bank ................................ Commercial Banks 42,550 1,528,376
(b)Hana Bank, 144A ....................... Commercial Banks 16,520 593,391
Korea Kospi 200 Index, Nov. 145 Puts,
11/10/05 ............................... Diversified Financial Services 983 111,106
KT Corp., ADR ............................ Diversified Telecommunication Services 61,204 1,318,946
LG Electronics Inc. ...................... Household Durables 23,230 1,506,390
Samsung Electronics Co. Ltd. ............. Semiconductors & Semiconductor Equipment 3,870 2,046,207
Shinhan Financial Group Co. Ltd. ......... Commercial Banks 60,350 2,011,667
SK Telecom Co. Ltd. ...................... Wireless Telecommunication Services 7,210 1,294,899
------------
12,255,600
------------
SPAIN 0.8%
Repsol YPF SA ............................ Oil, Gas & Consumable Fuels 37,310 1,110,981
------------
SWEDEN 1.4%
Securitas AB, B .......................... Commercial Services & Supplies 122,310 1,858,079
------------
TAIWAN 5.0%
Chunghwa Telecom Co. Ltd., ADR ........... Diversified Telecommunication Services 58,370 1,010,968
Compal Electronics Inc., GDR, Reg S ...... Computers & Peripherals 245,069 1,171,430
D-Link Corp. ............................. Communications Equipment 2,030,600 2,196,943
Giant Manufacturing Co. .................. Leisure Equipment & Products 899,000 1,500,499
Mega Financial Holdings Co. Ltd. ......... Commercial Banks 1,116,000 730,108
------------
6,609,948
------------
THAILAND 0.6%
BEC World Public Co. Ltd., fgn. .......... Media 1,990,900 742,072
------------
UNITED KINGDOM 18.4%
BAE Systems PLC .......................... Aerospace & Defense 475,524 2,782,590
BHP Billiton PLC ......................... Metals & Mining 71,160 1,046,360
Boots Group PLC .......................... Food & Staples Retailing 142,356 1,553,868
(c)BP PLC ................................... Oil, Gas & Consumable Fuels 253,175 2,797,118
(c)British Sky Broadcasting Group PLC ....... Media 304,179 2,746,659
Compass Group PLC ........................ Hotels, Restaurants & Leisure 397,520 1,337,266
(c)GlaxoSmithKline PLC ...................... Pharmaceuticals 109,033 2,835,862
18 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL LONG-SHORT FUND INDUSTRY SHARES/CONTRACTS VALUE
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND OPTIONS (CONT.)
UNITED KINGDOM (CONT.)
Pearson PLC .............................. Media 167,599 $ 1,863,530
Royal Dutch Shell PLC, B ................. Oil, Gas & Consumable Fuels 77,631 2,531,804
Smiths Group PLC ......................... Industrial Conglomerates 130,820 2,113,549
Vodafone Group PLC ....................... Wireless Telecommunication Services 1,035,137 2,717,051
-------------
24,325,657
-------------
UNITED STATES 19.0%
(c)American International Group Inc. ........ Insurance 33,090 2,144,232
(a),(c)BEA Systems Inc. ......................... Software 199,670 1,761,089
(a),(c)BMC Software Inc. ........................ Software 67,408 1,320,523
(c)Bristol-Myers Squibb Co. ................. Pharmaceuticals 57,580 1,218,969
(a),(c)Cadence Design Systems Inc. .............. Software 88,070 1,409,120
(a),(c)Convergys Corp. .......................... IT Services 107,510 1,747,037
(a),(c)DIRECTV Group Inc. ....................... Media 172,290 2,449,964
(c)El Paso Corp. ............................ Gas Utilities 125,200 1,484,872
(a),(c)Input/Output Inc. ........................ Energy Equipment & Services 190,300 1,461,504
JPMorgan Chase & Co. ..................... Diversified Financial Services 36,940 1,352,743
(c)Merck & Co. Inc. ......................... Pharmaceuticals 39,110 1,103,684
(c)Merrill Lynch & Co. Inc. ................. Capital Markets 31,250 2,023,125
(c)News Corp., A ............................ Media 45,850 653,362
Raytheon Co. ............................. Aerospace & Defense 36,520 1,349,414
(a),(c)Seitel Inc. .............................. Energy Equipment & Services 722,600 1,134,482
(a),(c)Sharper Image Corp. ...................... Specialty Retail 110,390 1,124,874
(c)Torchmark Corp. .......................... Insurance 26,720 1,411,617
-------------
25,150,611
-------------
TOTAL COMMON STOCKS AND OPTIONS
(COST $108,949,351)....................... 122,431,135
-------------
----------------
PRINCIPAL AMOUNT
----------------
SHORT TERM INVESTMENT (COST $4,000,000) 3.0%
UNITED STATES 3.0%
Deutsche Bank AG, Time Deposit, 4.02%,
11/01/05 ............................... $ 4,000,000 4,000,000
-------------
TOTAL INVESTMENTS (COST $112,949,351) 95.4% 126,431,135
SECURITIES SOLD SHORT (16.1)%............ (21,287,075)
OTHER ASSETS, LESS LIABILITIES 20.7% ..... 27,377,224
-------------
NET ASSETS 100.0%......................... $132,521,284
=============
----------------
SHARES
----------------
(d)SECURITIES SOLD SHORT 16.1%
AUSTRALIA 1.1%
Coles Myer Ltd. .......................... Food & Staples Retailing 101,090 758,472
Foster's Group Ltd. ...................... Beverages 172,550 748,640
-------------
1,507,112
-------------
Annual Report | 19
FRANKLIN TEMPLETON INTERNATIONAL TRUST
STATEMENT OF INVESTMENTS, OCTOBER 31, 2005 (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
TEMPLETON GLOBAL LONG-SHORT FUND INDUSTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
SECURITIES SOLD SHORT (CONT.)
DENMARK 1.0%
Danisco AS ............................... Food Products 20,820 $ 1,329,214
------------
GERMANY 1.1%
Lanxess AG ............................... Chemicals 48,030 1,396,797
------------
HONG KONG 0.5%
Cathay Pacific Airways Ltd. .............. Airlines 401,000 628,490
------------
NETHERLANDS 1.7%
Heineken NV .............................. Beverages 71,760 2,273,575
------------
SWITZERLAND 0.7%
Swisscom AG .............................. Diversified Telecommunication Services 2,770 912,266
------------
UNITED KINGDOM 2.5%
Northern Rock PLC ........................ Thrifts & Mortgage Finance 159,780 2,247,614
Rio Tinto PLC ............................ Metals & Mining 19,400 739,865
Tate & Lyle PLC .......................... Food Products 40,950 336,054
------------
3,323,533
------------
UNITED STATES 7.5%
Dillard's Inc., A ........................ Multiline Retail 32,810 679,495
Energy Select Sector SPDR Fund ........... Diversified Financial Services 21,497 1,049,484
Golden West Financial Corp. .............. Thrifts & Mortgage Finance 29,280 1,719,614
MGM Mirage Inc. .......................... Hotels, Restaurants & Leisure 42,380 1,583,741
Northrop Grumman Corp. ................... Aerospace & Defense 27,000 1,448,550
Oracle Corp. ............................. Software 77,450 982,066
S&P 500 Depository Receipt ............... Diversified Financial Services 11,372 1,366,118
Washington Mutual Inc. ................... Thrifts & Mortgage Finance 27,450 1,087,020
------------
9,916,088
------------
TOTAL SECURITIES SOLD SHORT (PROCEEDS $21,515,862) $ 21,287,075
============
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
GDR - Global Depository Receipt
SPDR - S&P Depository Receipt
(a) Non-income producing.
(b) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be sold in transactions exempt from registration only to
qualified institutional buyers or in a public offering registered under
the Securities Act of 1933. These securities have been deemed liquid under
guidelines approved by the Fund's Board of Trustees. At October 31, 2005,
the value of these securities was $611,056, representing 0.46% of net
assets.
(c) See Note 1(e) regarding securities segregated with broker for securities
sold short.
(d) See Note 1(e) regarding securities sold short.
20 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2005
-----------------
TEMPLETON GLOBAL
LONG-SHORT FUND
-----------------
Assets:
Investments in securities:
Cost........................................................................................ $ 112,949,351
=================
Value....................................................................................... $ 126,431,135
Cash......................................................................................... 1,702,101
Foreign currency, at value (cost $180,111)................................................... 134,616
Receivables:
Capital shares sold......................................................................... 216,165
Dividends and interest...................................................................... 245,832
Cash on deposit with brokers for securities sold short....................................... 25,978,484
-----------------
Total assets............................................................................ $ 154,708,333
-----------------
Liabilities:
Payables:
Investment securities purchased............................................................. 253,444
Capital shares redeemed..................................................................... 453,537
Affiliates.................................................................................. 152,213
Securities sold short, at value (proceeds $21,515,862)....................................... 21,287,075
Accrued expenses and other liabilities....................................................... 40,780
-----------------
Total liabilities....................................................................... 22,187,049
-----------------
Net assets, at value.................................................................. $ 132,521,284
=================
Net assets consist of:
Paid-in capital.............................................................................. $ 118,641,488
Undistributed net investment income.......................................................... 1,218,760
Net unrealized appreciation (depreciation)................................................... 13,668,611
Accumulated net realized gain (loss)......................................................... (1,007,575)
-----------------
Net assets, at value.................................................................. $ 132,521,284
=================
CLASS A:
Net assets, at value......................................................................... $ 92,835,167
=================
Shares outstanding........................................................................... 8,170,733
=================
Net asset value per share(a)................................................................. $ 11.36
=================
Maximum offering price per share (net asset value per share / 94.25%)........................ $ 12.05
=================
CLASS B:
Net assets, at value......................................................................... $ 36,589,863
=================
Shares outstanding........................................................................... 3,283,194
=================
Net asset value and maximum offering price per share(a)...................................... $ 11.14
=================
ADVISOR CLASS:
Net assets, at value......................................................................... $ 3,096,254
=================
Shares outstanding........................................................................... 272,304
=================
Net asset value and maximum offering price per share(a)...................................... $ 11.37
=================
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable, and redemption fees retained by the Fund.
Annual Report | See notes to financial statements. | 21
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended October 31, 2005
-----------------
TEMPLETON GLOBAL
LONG-SHORT FUND
-----------------
Investment income:
Dividends (net of foreign taxes of $244,104)................................................. $ 2,830,550
Interest..................................................................................... 1,275,148
Other income (Note 8)........................................................................ 124
-----------------
Total investment income................................................................. 4,105,822
-----------------
Expenses:
Management fees (Note 3a).................................................................... 770,204
Administrative fees (Note 3b)................................................................ 308,235
Distribution fees (Note 3c)
Class A..................................................................................... 320,164
Class B..................................................................................... 419,231
Transfer agent fees (Note 3e)................................................................ 175,600
Custodian fees (Note 4)...................................................................... 42,913
Reports to shareholders...................................................................... 35,000
Registration and filing fees................................................................. 44,002
Professional fees............................................................................ 49,052
Trustees' fees and expenses.................................................................. 4,600
Dividends on securities sold short........................................................... 541,369
Other........................................................................................ 4,800
-----------------
Total expenses.......................................................................... 2,715,170
Expense reductions (Note 4)............................................................. (4,419)
-----------------
Net expenses.......................................................................... 2,710,751
-----------------
Net investment income............................................................... 1,395,071
-----------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments................................................................................. 6,370,420
Foreign currency transactions............................................................... (144,201)
Securities sold short....................................................................... (6,329,493)
-----------------
Net realized gain (loss)................................................................ (103,274)
-----------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................. 2,697,721
Translation of assets and liabilities denominated in foreign currencies..................... (60,198)
-----------------
Net change in unrealized appreciation (depreciation).................................... 2,637,523
-----------------
Net realized and unrealized gain (loss)....................................................... 2,534,249
-----------------
Net increase (decrease) in net assets resulting from operations............................... $ 3,929,320
=================
22 | See notes to financial statements. | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------
TEMPLETON GLOBAL LONG-SHORT FUND
---------------------------------
YEAR ENDED OCTOBER 31,
2005 2004
---------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................................................................... $ 1,395,071 $ 1,195,445
Net realized gain (loss) from investments, foreign currency transactions
and securities sold short ................................................................ (103,274) 8,581,882
Net change in unrealized appreciation (depreciation) on investments, translation of assets
and liabilities denominated in foreign currencies and deferred taxes ...................... 2,637,523 (3,711,391)
---------------------------------
Net increase (decrease) in net assets resulting from operations ........................ 3,929,320 6,065,936
---------------------------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................................... (1,109,636) --
Class B ................................................................................... (90,589) --
Advisor Class.............................................................................. (9,649) --
---------------------------------
Total distributions to shareholders.......................................................... (1,209,874) --
---------------------------------
Capital share transactions: (Note 2)
Class A ................................................................................... (22,915,300) 16,387,405
Class B ................................................................................... (8,361,905) (3,863,454)
Advisor Class ............................................................................. 2,660,724 364,067
---------------------------------
Total capital share transactions ............................................................ (28,616,481) 12,888,018
---------------------------------
Redemption fees ............................................................................. 384 17
---------------------------------
Net increase (decrease) in net assets .................................................. (25,896,651) 18,953,971
Net assets:
Beginning of year ........................................................................... 158,417,935 139,463,964
---------------------------------
End of year ................................................................................. $ 132,521,284 $ 158,417,935
=================================
Undistributed net investment income included in net assets:
End of year ................................................................................. $ 1,218,760 $ 1,172,640
=================================
Annual Report | See notes to financial statements. | 23
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS
TEMPLETON GLOBAL LONG-SHORT FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Templeton International Trust (the Trust) is registered under the
Investment Company Act of 1940 as an open-end investment company, consisting of
two separate series. The Templeton Global Long-Short Fund (the Fund) included in
this report is diversified. The financial statements of the remaining fund in
the series are presented separately.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Short-term investments are valued at cost.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
24 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
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 on the
Statement of Operations.
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 denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
Annual Report | 25
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. OPTIONS
The Fund may purchase or write options. Options are contracts entitling the
holder to purchase or sell a specified number of shares or units of a particular
security at a specified price. Options purchased are recorded as investments;
options written (sold) are recorded as liabilities. Upon closing of an option,
other than by exercise, which results in a cash settlement, the difference
between the premium (original option value) and the settlement proceeds is
realized as a gain or loss. When securities are acquired or delivered upon
exercise of an option, the acquisition cost or sale proceeds are adjusted by the
amount of the premium. When an option is closed, the difference between the
premium and the cost to close the position is realized as a gain or loss. When
an option expires, the premium is realized as a gain for options written or as a
loss for options purchased. The risks include the possibility there may be an
illiquid options market or the inability of the counterparties to fulfill their
obligations under the contract. Writing options involves, to varying degrees,
elements of market risk in excess of the amount recognized in the Statement of
Assets and Liabilities.
E. SECURITIES SOLD SHORT
The Fund is engaged in selling securities short, which obligates the Fund to
replace a borrowed security with the same security at current market value. The
Fund incurs a loss if the price of the security increases between the date of
the short sale and the date on which the Fund replaces the borrowed security.
The Fund realizes a gain if the price of the security declines between those
dates. Gains are limited to the price at which the Fund sold the security short,
while losses are potentially unlimited in size.
The Fund is required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains the
proceeds of the short sale and the Fund must maintain a deposit with broker
consisting of cash and securities having a value equal to a specified percentage
of the value of the securities sold short. The Fund is obligated to pay the
counter party any dividends or interest due on securities sold short. Such
dividends and interest are recorded as an expense to the Fund.
F. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
continue to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
26 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. INCOME TAXES (CONTINUED)
Foreign securities held by the Fund may be subject to foreign taxation. Foreign
taxes, if any, are recorded based on the tax regulations and rates that exist in
the foreign markets in which the Fund invests.
G. 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.
Interest income and estimated expenses are accrued daily. Dividend income is
recorded on the ex-dividend date except that certain dividends from foreign
securities are recognized as soon as the Fund is notified of the ex-dividend
date. Distributions to shareholders are recorded on the ex-dividend date and are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with generally accepted accounting principles. These differences may
be permanent or temporary. Permanent differences are reclassified among capital
accounts to reflect their tax character. These reclassifications have no impact
on net assets or the results of operations. Temporary differences are not
reclassified, as they will reverse in subsequent periods.
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 based on the
ratio of net assets of each Fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
H. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
Annual Report | 27
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any Fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the Fund and accounted for as an addition to paid-in
capital.
J. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Trust that have not yet occurred. However, based on experience, the
Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
The Fund offers three classes of shares: Class A, Class B and Advisor Class.
Effective March 1, 2005, Class B shares are only offered to existing Class B
shareholders in the form of reinvested distributions and certain exchanges from
other Franklin Templeton Class B shares. Each class of shares differs by its
initial sales load, contingent deferred sales charges, distribution fees, voting
rights on matters affecting a single class and its exchange privilege.
At October 31, 2005, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
2005 2004
----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------
CLASS A SHARES:
Shares sold ....................... 2,195,069 $ 25,187,745 4,203,049 $ 46,950,944
Shares issued in reinvestment of
distributions ................... 63,184 716,502 -- --
Shares redeemed ................... (4,243,025) (48,819,547) (2,756,426) (30,563,539)
----------------------------------------------------------
Net increase (decrease) ........... (1,984,772) $(22,915,300) 1,446,623 $ 16,387,405
==========================================================
CLASS B SHARES:
Shares sold ....................... 213,275 $ 2,420,042 476,397 $ 5,249,356
Shares issued in reinvestment of
distributions .................... 6,210 69,551 -- --
Shares redeemed ................... (960,658) (10,851,498) (835,885) (9,112,810)
----------------------------------------------------------
Net increase (decrease) ........... (741,173) $ (8,361,905) (359,488) $ (3,863,454)
==========================================================
28 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
---------------------------------------------------------
YEAR ENDED OCTOBER 31,
2005 2004(a)
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
ADVISOR CLASS:
Shares sold ....................... 877,306 $ 10,050,282 32,626 $ 364,067
Shares issued in reinvestment of
distributions .................... 55 621 -- --
Shares redeemed ................... (637,683) (7,390,179) -- --
---------------------------------------------------------
Net increase (decrease) ........... 239,678 $ 2,660,724 32,626 $ 364,067
=========================================================
(a) For the period August 2, 2004 (commencement of operations) to October 31,
2004.
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers and/or directors of the following
subsidiaries:
- ----------------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- ----------------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Templeton Global Advisors Limited (TGAL) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
Annual Report | 29
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Fund pays Advisers an investment management fee comprised of a "base fee"
and a "performance adjustment". The base fee is calculated at the beginning of
each month using an annual rate of 1.50% of the prior month's average daily net
assets. The performance adjustment is calculated at the beginning of each month
based on how much the Fund's total return exceeded or lagged its benchmark, the
Morgan Stanley Capital International World Index, (the "Fund performance
differential"), over the preceding twelve-month period (the performance period).
A performance adjustment is applicable if the Fund performance differential
exceeds 2.00%, either upwards (an increase to the base fee) or downwards (a
decrease to the base fee). The performance adjustment rate is equal to 0.01% for
each additional 0.05% that the Fund performance differential exceeds 2.00%. The
performance adjustment amount is determined by multiplying the performance
adjustment rate by the average daily net assets of the performance period. The
performance adjustment rate may not exceed 1.00% annualized, either upwards or
downwards. At the end of each month, an annualized investment management fee
ratio is calculated (total investment management fees divided by fiscal year to
date average daily net assets). In accordance with the Investment Management
Agreement, the investment management fee ratio may not exceed 2.50% or fall
below 0.50% for the fiscal year. For the period, the total annualized management
fee rate, including the performance adjustment, was 0.50% of average daily net
assets.
Under a subadvisory agreement, TGAL, an affiliate of Advisers, provides
subadvisory services to the Fund and receives from Advisers fees based on the
average daily net assets of the Fund.
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services of 0.20% per year of the
average daily net assets of the Fund.
C. DISTRIBUTION FEES
The Fund's Board of Trustees has adopted distribution plans for each share
class, with the exception of Advisor class shares, pursuant to Rule 12b-1 under
the 1940 Act. Under the Fund's compensation distribution plans, the Fund pays
Distributors for costs incurred in connection with the sale and distribution of
the Fund's shares up to a certain percentage per year of its average daily net
assets of each class as follows:
Class A .................................................. 0.35%
Class B .................................................. 1.00%
30 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:
Net sales charges received(a) ......................... $ 32,155
Contingent deferred sales charges retained ............ $171,246
(a) Net of commissions paid to unaffiliated broker/dealers.
E. TRANSFER AGENT FEES
The Fund paid transfer agent fees of $175,600, of which $106,046 was retained by
Investor Services.
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended October 31, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At October 31, 2005, the Fund had tax basis capital losses which may be carried
over to offset future capital gains, if any. At October 31, 2005, the capital
loss carryforwards were as follows:
Capital loss carryovers expiring in:
2011 ..................................... $878,062
2013 ..................................... 83,596
========
$961,658
========
The tax character of distributions paid during the years ended October 31, 2005
and 2004, was as follows:
------------------------
2005 2004
------------------------
Distributions paid from:
Ordinary income....................... $1,209,874 $--
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions,
dividends on securities sold short, and amortization of organization costs.
Annual Report | 31
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
5. INCOME TAXES (CONTINUED)
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, and dividends on securities sold short.
At October 31, 2005, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments ..................................... $112,995,268
=============
Unrealized appreciation ................................. $ 17,618,722
Unrealized depreciation ................................. (4,182,855)
-------------
Net unrealized appreciation (depreciation)............... $ 13,435,867
-------------
Distributable earnings - undistributed ordinary income .. $ 1,219,724
=============
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments and securities sold short (excluding short
term securities) for the year ended October 31, 2005, aggregated $111,625,732
and $84,991,376, respectively.
7. RISK OF INVESTING IN FOREIGN SECURITIES
Investing in foreign securities may include certain risks and considerations not
typically associated with investing in U.S. securities, such as fluctuating
currency values and changing local and regional economic, political and social
conditions, which may result in greater market volatility. In addition, certain
foreign securities may not be as liquid as U.S. securities.
8. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
32 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TEMPLETON GLOBAL LONG-SHORT FUND
8. REGULATORY MATTERS (CONTINUED)
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop a plan for distribution of the
respective settlement monies. The CAGO approved the distribution plan under the
CAGO Settlement and, in accordance with the terms and conditions of that
settlement, the monies were disbursed to the relevant funds and are recorded as
other income in the current period. The SEC has not yet approved the
distribution plan pertaining to the December 13, 2004 SEC Order. When approved,
disbursements of settlement monies will be made promptly to the relevant funds,
in accordance with the terms and conditions of that order. The IDC continues to
develop the plan of distribution under the August 2, 2004 SEC Order that
resolved the SEC's market timing investigation.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
Annual Report | 33
FRANKLIN TEMPLETON INTERNATIONAL TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF TEMPLETON GLOBAL LONG-SHORT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Templeton Global Long-Short
Fund (the "Fund") at October 31, 2005, the results of its operations for the
year then ended, the changes in its 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 accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund' s 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
December 12, 2005
34 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (UNAUDITED)
TEMPLETON GLOBAL LONG-SHORT FUND
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund designates
the maximum amount allowable but no less than $2,529,125 as qualified dividends
for purposes of the maximum rate under Section 1(h)(11) of the Code for the
fiscal year ended October 31, 2005. In January 2006, shareholders will receive
Form 1099-DIV which will include their share of qualified dividends distributed
during the calendar year 2005. Shareholders are advised to check with their tax
advisors for information on the treatment of these amounts on their individual
income tax returns.
Under Section 854 (b)(2) of the Code, the Fund designates 30.03% of the ordinary
income dividends as income qualifying for the dividends received deduction for
the fiscal year ended October 31, 2005.
At October 31, 2005, more than 50% of the 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 shown in the tables
below, the Fund designates to shareholders the foreign source income and foreign
taxes paid, pursuant to Section 853 of the Code. This designation will allow
shareholders of record on December 15, 2005, to treat their proportionate share
of foreign taxes paid by the Fund as having been paid directly by them. The
shareholder shall consider these amounts as foreign taxes paid in the tax year
in which they receive the Fund distribution.
The following tables provide a detailed analysis, by country, of foreign tax
paid, foreign source income, and foreign qualified dividends as designated by
the Fund, to Class A, Class B and Advisor Class shareholders of record.
Record Date: 12/15/2005
- -------------------------------------------------------------------------------------------------------------
CLASS A
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------------------------------
Australia .............................................. $0.0000 $0.0055 $0.0055
Canada ................................................. 0.0007 0.0022 0.0022
China .................................................. 0.0000 0.0006 0.0000
Finland ................................................ 0.0004 0.0013 0.0013
France ................................................. 0.0000 0.0002 0.0002
Hong Kong .............................................. 0.0000 0.0075 0.0000
India .................................................. 0.0000 0.0011 0.0011
Italy .................................................. 0.0022 0.0066 0.0066
Japan .................................................. 0.0009 0.0056 0.0056
Mexico ................................................. 0.0000 0.0012 0.0012
Netherlands ............................................ 0.0007 0.0019 0.0019
Norway ................................................. 0.0007 0.0021 0.0021
Portugal ............................................... 0.0005 0.0018 0.0018
Singapore .............................................. 0.0004 0.0013 0.0000
South Africa ........................................... 0.0000 0.0007 0.0007
South Korea ............................................ 0.0065 0.0173 0.0160
Spain .................................................. 0.0003 0.0009 0.0009
Annual Report | 35
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
CLASS A
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------------------------------
Sweden.................................................. 0.0006 0.0016 0.0016
Switzerland............................................. 0.0005 0.0016 0.0016
Taiwan.................................................. 0.0067 0.0139 0.0034
Thailand................................................ 0.0001 0.0003 0.0003
United Kingdom.......................................... 0.0000 0.0302 0.0302
-------------------------------------------------
TOTAL................................................... $0.0212 $0.1054 $0.0842
=================================================
- -------------------------------------------------------------------------------------------------------------
CLASS B
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------------------------------
Australia............................................... $0.0000 $0.0025 $0.0025
Canada.................................................. 0.0007 0.0010 0.0010
China................................................... 0.0000 0.0003 0.0000
Finland................................................. 0.0004 0.0006 0.0006
France.................................................. 0.0000 0.0001 0.0001
Hong Kong............................................... 0.0000 0.0034 0.0000
India................................................... 0.0000 0.0005 0.0005
Italy................................................... 0.0022 0.0030 0.0030
Japan................................................... 0.0009 0.0025 0.0025
Mexico.................................................. 0.0000 0.0005 0.0005
Netherlands............................................. 0.0007 0.0009 0.0009
Norway.................................................. 0.0007 0.0009 0.0009
Portugal................................................ 0.0005 0.0008 0.0008
Singapore............................................... 0.0004 0.0006 0.0000
South Africa............................................ 0.0000 0.0003 0.0003
South Korea............................................. 0.0065 0.0078 0.0072
Spain................................................... 0.0003 0.0004 0.0004
Sweden.................................................. 0.0006 0.0007 0.0007
Switzerland............................................. 0.0005 0.0007 0.0007
Taiwan.................................................. 0.0067 0.0062 0.0015
Thailand................................................ 0.0001 0.0001 0.0001
United Kingdom.......................................... 0.0000 0.0135 0.0135
-------------------------------------------------
TOTAL................................................... $0.0212 $0.0473 $0.0377
=================================================
- -------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------------------------------
Australia............................................... $0.0000 $0.0068 $0.0068
Canada.................................................. 0.0007 0.0027 0.0027
China................................................... 0.0000 0.0008 0.0000
Finland................................................. 0.0004 0.0016 0.0016
France.................................................. 0.0000 0.0002 0.0002
Hong Kong............................................... 0.0000 0.0093 0.0000
India................................................... 0.0000 0.0013 0.0013
Italy................................................... 0.0022 0.0082 0.0082
Japan................................................... 0.0009 0.0069 0.0069
Mexico.................................................. 0.0000 0.0015 0.0015
Netherlands............................................. 0.0007 0.0024 0.0024
36 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
TAX DESIGNATION (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
FOREIGN TAX FOREIGN FOREIGN
PAID SOURCE INCOME QUALIFIED DIVIDENDS
COUNTRY PER SHARE PER SHARE PER SHARE
- -------------------------------------------------------------------------------------------------------------
Norway.................................................. 0.0007 0.0026 0.0026
Portugal................................................ 0.0005 0.0022 0.0022
Singapore............................................... 0.0004 0.0016 0.0000
South Africa............................................ 0.0000 0.0009 0.0009
South Korea............................................. 0.0065 0.0214 0.0198
Spain................................................... 0.0003 0.0011 0.0011
Sweden.................................................. 0.0006 0.0020 0.0020
Switzerland............................................. 0.0005 0.0020 0.0020
Taiwan.................................................. 0.0067 0.0172 0.0042
Thailand................................................ 0.0001 0.0004 0.0004
United Kingdom.......................................... 0.0000 0.0374 0.0374
-------------------------------------------------
TOTAL................................................... $0.0212 $0.1305 $0.1042
=================================================
Foreign Tax Paid per Share (Column 1) is the amount per share available to you,
as a tax credit (assuming you held your shares in the Fund for a minimum of 16
days during the 31-day period beginning 15 days before the ex-dividend date of
the Fund's distribution to which the foreign taxes relate) or as a tax
deduction.
Foreign Source Income per Share (Column 2) is the amount per share of income
dividends paid to you that is attributable to foreign securities held by the
Fund, plus any foreign taxes withheld on these dividends. The amounts reported
include foreign source qualified dividends that have not been adjusted for the
rate differential applicable to such dividend income.(1)
Foreign Qualified Dividends per Share (Column 3) is the amount per share of
foreign source qualified dividends the Fund paid to you, plus any foreign taxes
withheld on these dividends. These amounts represent the portion of the Foreign
Source Income reported to you in column 2 that were derived from qualified
foreign securities held by the Fund.(1)
In January 2006, shareholders will receive Form 1099-DIV which will include
their share of taxes paid and foreign source income distributed during the
calendar year 2005. The Foreign Source Income reported on Form 1099-DIV has not
been adjusted for the rate differential on foreign source qualified dividend
income. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their 2005 individual income
tax returns.
(1) Qualified dividends are taxed at a maximum rate of 15% (5% for those in
the 10% and 15% income tax bracket). In determining the amount of foreign
tax credit that may be applied against the U.S. tax liability of
individuals receiving foreign source qualified dividends, adjustments may
be required to the foreign tax credit limitation calculation to reflect
the rate differential applicable to such dividend income. The rules
however permit certain individuals to elect not to apply the rate
differential adjustments for capital gains and/or dividends for any
taxable year. Please consult your tax advisor and the instructions to Form
1116 for more information.
Annual Report | 37
FRANKLIN TEMPLETON INTERNATIONAL TRUST
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Trust, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1991 140 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1991 141 None
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 136 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc. (manufac-
ture and distribution of titanium),
Canadian National Railway (railroad),
and White Mountains Insurance
Group, Ltd. (holding company).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1991 114 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
38 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Trustee Since 1992 140 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding
company) (1987-2004); and
Spacehab, Inc. (aerospace services)
(1994-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and
President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee and Trustee since 140 None
One Franklin Parkway Chairman of 1991 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice
President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies
in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 124 None
One Franklin Parkway President and 1991, President
San Mateo, CA 94403-1906 Chief Executive since 1993 and
Officer- Chief Executive
Investment Officer-Investment
Management Management
since 2002
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer
and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 39
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) Vice President Since 1993 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the case
may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Since 2004 Not Applicable Not Applicable
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief Executive
Fort Lauderdale, FL 33394-3091 Officer-Finance
and
Administration
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources,
Inc.; officer of 47 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer
and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
40 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Secretary Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; officer of 33 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Chief Legal Counsel, Atlas Advisers, Inc. (until 2000).
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment
Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment companies in
Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior
Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission
(1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until
1979).
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL O. MAGDOL (1937) Vice President- Since 2002 Not Applicable Not Applicable
600 Fifth Avenue AML
Rockefeller Center Compliance
New York, NY 10020-2302
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; Director, Franklin Templeton Institutional
Suisse S.A., Arch Chemicals, Inc. and Lingnan Foundation; and officer and/or director, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 41
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
** We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment adviser or
affiliated investment advisers.
** Charles B. Johnson and Rupert H. Johnson are considered to be interested
persons of the Trust under the federal securities laws due to their
positions as officers and directors and major shareholders of Franklin
Resources, Inc. (Resources), which is the parent company of the Trust's
adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
42 | Annual Report
FRANKLIN TEMPLETON INTERNATIONAL TRUST
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust has established Proxy Voting Policies and Procedures ("Policies") that
the Trust uses to determine how to vote proxies relating to portfolio
securities. Shareholders may view the Trust's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Trust's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
Annual Report | 43
This page intentionally left blank.
LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II(1)
VALUE
Franklin Balance Sheet Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME(5)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(6)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(7)
Colorado
Connecticut
Florida(7)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(6)
Michigan(6)
Minnesota(6)
Missouri
New Jersey
New York(7)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust(8)
(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(3) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
(4) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(6) Portfolio of insured municipal securities.
(7) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
(8) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/05 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
/_/ WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
TEMPLETON GLOBAL
LONG-SHORT FUND
INVESTMENT MANAGER
Franklin Advisers, Inc.
SUB-ADVISOR
Templeton Global Advisors Limited
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. Like any investment in securities, the value of
the Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political and other factors. The Fund and its investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept this risk should not invest in shares of the Fund. The prospectus
contains this and other information; please read it carefully before investing.
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
identified by the presence of a regular beeping tone.
467 A2005 12/05
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the
principal accountant in connection with statutory and regulatory filings or
engagements were $59,746 for the fiscal year ended October 31, 2005 and
$58,362 for the fiscal year ended October 31, 2004.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of Item 4.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control
with the investment adviser that provides ongoing services to the registrant
that are reasonably related to the performance of the audit of their
financial statements were $0 for the fiscal year ended October 31, 2005 and
$48,579 for the fiscal year ended October 31, 2004. The services for which
these fees were paid included attestation services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance,
tax advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $19,591 for the fiscal year
ended October 31, 2005 and $0 for the fiscal year ended October 31, 2004.
The services for which these fees were paid included tax compliance and
advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended October 31,
2005 and $408 for the fiscal year ended October 31, 2004. The services for
which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser
and any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not
reported in paragraphs (a)-(c) of Item 4 were $4,500 for the fiscal year
ended October 31, 2005 and $159,592 for the fiscal year ended October 31,
2004. The services for which these fees were paid included review of
materials provided to the fund Board in connection with the investment
management contract renewal process and the review of the ICI transfer agent
survey.
(e) (1) The registrant's audit committee is directly responsible for
approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to
any entity that controls, is controlled by or is under common control with
the registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a
designated member or members of the committee; provided the policies and
procedures are detailed as to the particular service and the committee is
informed of each service and such policies and procedures do not include
delegation of audit committee responsibilities, as contemplated under the
Securities Exchange Act of 1934, to management; subject, in the case of (ii)
through (iv), to any waivers, exceptions or exemptions that may be available
under applicable law or rules.
(e) (2) None of the services provided to the registrant described in
paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for
services rendered by the principal accountant to the registrant and the
registrant's investment adviser and any entity controlling, controlled by or
under common control with the investment adviser that provides ongoing
services to the registrant were $24,091 for the fiscal year ended October 31,
2005 and $208,579 for the fiscal year ended October 31, 2004.
(h) The registrant's audit committee of the board of trustees has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(b) Changes in Internal Controls. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN TEMPLETON INTERNATIONAL TRUST
By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 19, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date December 19, 2005
By /s/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date December 19, 2005