N-CSRS 1 tgfsemi_ncsr206.txt TEMP GROWTH FUND SEMIANNUAL RPT 2/28/06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-04892 ---------- TEMPLETON GROWTH FUND, INC. ------------------------------ (Exact name of registrant as specified in charter) 500 EAST BROWARD BLVD., FORT LAUDERDALE, FL 33394-3091 -------------------------------------------------------- (Address of principal executive offices) (Zip code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (954) 527-7500 --------------- Date of fiscal year end: 8/31 ---- Date of reporting period: 2/28/06 ------- ITEM 1. REPORTS TO STOCKHOLDERS [GRAPHIC OMITTED] FEBRUARY 28, 2006 -------------------------------------------------------------------------------- SEMI ANNUAL REPORT AND SHAREHOLDER LETTER | GLOBAL -------------------------------------------------------------------------------- WANT TO RECEIVE [GRAPHIC OMITTED] THIS DOCUMENT FASTER VIA EMAIL? TEMPLETON GROWTH FUND, INC. 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 semiannual report Contents SHAREHOLDER LETTER ........................................................ 1 SEMIANNUAL REPORT Templeton Growth Fund, Inc. ............................................... 4 Performance Summary ....................................................... 9 Your Fund's Expenses ...................................................... 13 Financial Highlights and Statement of Investments ......................... 15 Financial Statements ...................................................... 25 Notes to Financial Statements ............................................. 29 Shareholder Information ................................................... 38 -------------------------------------------------------------------------------- Semiannual Report Templeton Growth Fund, Inc. YOUR FUND'S GOAL AND MAIN INVESTMENTS: Templeton Growth Fund seeks long-term capital growth. Under normal market conditions, the Fund invests primarily in the equity securities of companies located anywhere in the world, including emerging markets. -------------------------------------------------------------------------------- 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 semiannual report for Templeton Growth Fund covers the period ended February 28, 2006. PERFORMANCE OVERVIEW Templeton Growth Fund - Class A posted a +7.82% cumulative total return for the six months under review. The Fund underperformed its benchmark, the Morgan Stanley Capital International (MSCI) World Index, which posted a +10.50% total return for the same period. 1 Please note that index performance information is provided for reference and that we do not attempt to track the index, but rather undertake investments on the basis of fundamental research. In line with our long-term investment strategy, we are pleased with our long-term results. For the 10-year period ended February 28, 2006, Templeton Growth Fund - Class A delivered a +176.96% cumulative total return, compared with the MSCI World Index's +109.42% cumulative total return for the same period. 1 You can find more performance data in the Performance Summary beginning on page 9. ECONOMIC AND MARKET OVERVIEW The global economy overcame fears of derailment generated by higher energy costs and advanced at a fair pace over the six-month period ended February 28, 2006. In the fourth quarter of 2005, gross domestic product grew at annualized rates of 5.5% in Japan, 1.6% in the U.S. and 1.2% in the euro zone. 2 Based on more recent economic indicators, the economic expansion probably accelerated in the first two months of this year. 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. 2. Sources: Economic and Social Research Institute (Japan); U.S. Bureau of Economic Analysis; Eurostat. 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 20. 4 | Semiannual Report Excluding the volatile energy and food sectors, inflation was relatively subdued worldwide and monetary policy remained fairly accommodative. The U.S. Federal Reserve Board raised the short-term federal funds target rate in four quarter-point increments, bringing it to 4.50%. The European Central Bank (ECB) made one increase that brought short-term rates to 2.25%, after keeping rates at historically low levels for more than two and a half years. Even after these increases, both rates remained at levels considered supportive of further economic growth. Strong demand for oil sustained high prices during most of the reporting period, while prices for other commodities such as industrial metals were also high, led by copper, whose contract price rose 29% over the six-month period. 3 This contributed to economic growth in countries such as Australia and Canada, and emerging markets in Asia and Latin America that are tied to mining and industrial commodities. In this environment, global equity markets performed strongly, particularly outside the U.S. The six-month total return for the MSCI Europe, Australasia, Far East (EAFE) Index was +15.23%, calculated in U.S. dollars. 4 By comparison the total return for the MSCI USA Index was +6.20%. 5 The performance of non-U.S. equity markets would have been stronger had the dollar not appreciated in value versus other major currencies. For the reporting period, the dollar rose against the British pound (+2.70%), the euro (+3.16%), the yen (+4.22%) and the Swiss franc (+4.22%). 6 However, the dollar declined versus some other currencies. For example, the dollar fell against the Brazilian real (-9.72%), the South Korean won (-6.68%), the Canadian dollar (-4.22%) and the Mexican peso (-3.27%). 6 In terms of global sector performance, as measured by the MSCI World Index, materials and financial stocks provided the strongest total returns, while energy and consumer staples provided the lowest positive returns. The telecommunication services sector was the only sector that had negative returns for the period. 3. Source: New York Mercantile Exchange. 4. 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. 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. 6. Source: IDC/ExShare via FactSet Research Systems. GEOGRAPHIC BREAKDOWN Based on Total Net Assets as of 2/28/06 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR GRAPH IN THE PRINTED MATERIAL] Europe 40.5% North America 32.5% Asia 15.6% Latin America 0.8% Middle East & Africa 0.6% Australia & New Zealand 0.4% Short-Term Investments & Other Net Assets 9.6% Semiannual Report | 5 TOP 10 COUNTRIES Based on Equity Securities 2/28/06 -------------------------------------------------------------------------------- % OF TOTAL NET ASSETS U.S. 29.4% -------------------------------------------------------------------------------- U.K. 15.6% -------------------------------------------------------------------------------- Japan 10.1% -------------------------------------------------------------------------------- Germany 5.5% -------------------------------------------------------------------------------- Netherlands 5.2% -------------------------------------------------------------------------------- Switzerland 4.9% -------------------------------------------------------------------------------- France 3.8% -------------------------------------------------------------------------------- South Korea 3.6% -------------------------------------------------------------------------------- Bermuda 2.0% -------------------------------------------------------------------------------- Hong Kong 2.0% -------------------------------------------------------------------------------- INVESTMENT STRATEGY Our investment strategy employs a bottom-up, value-oriented, long-term approach. We focus on the market price of a company's securities relative to our evaluation of the company's long-term earnings, asset value and cash flow potential. As we look worldwide, we consider specific companies, rather than sectors or countries, while doing in-depth research to construct a bargain list from which we buy. Before we make a purchase, we look at the company's potential for earnings and growth over a five-year horizon. MANAGER'S DISCUSSION Our bottom-up investment strategy frequently results in a portfolio that has a very different geographic and industry mix than that of the Fund's benchmark, the MSCI World Index. The Fund's exposure to South Korea, not represented in the benchmark, helped performance, as did stock selection in and overweighted exposure to Germany. Of the top 10 individual holdings that benefited performance, 5 were from Japan. In particular, Japanese bank Mitsubishi UFJ Financial Group and digital camera and medical products company Olympus significantly outperformed the MSCI World Index for the period. Stock selection in the computers and peripherals sector boosted performance relative to the index, notably Seagate Technology, which appreciated in value 61%. Despite the Fund's positive return, there were several detractors from performance relative to the benchmark index. For example, the Fund's overweighting and stock selection in the U.K. hindered performance. U.K.-based Vodafone Group delivered lower-than-expected earnings and announced lowered earnings forecasts. In addition, stock selection in the U.S. and France hurt relative performance. In France, a recent investment in France Telecom declined in value as short-term earnings expectations were revised downward. During the six months under review, the Fund invested in a range of new positions, as well as added to several existing holdings. U.S. exposure increased and ended the period at 29.4% of total net assets, up from a relatively low 24.6% at the beginning of the period. New U.S. holdings included positions in Microsoft and Tyco International. Microsoft has a strong cash generating business with its Windows(R) and Office(R) products. The company had excess cash on its balance sheet, which was being returned to shareholders through share buybacks and dividends. Industrial conglomerate Tyco announced a plan to split into three constituent parts -- electronics, health care, and fire 6 | Semiannual Report and security. Elsewhere in the U.S., we added cable operator Comcast to the portfolio. Consistent with our investment strategy, we sought to take advantage of widespread pessimism regarding the cable industry's long-term outlook, and bought shares of a company with attractive growth prospects and a strong cash position. Elsewhere in the media sector, we added to holdings in satellite operator DIRECTV Group, advertising agency Interpublic Group of Cos., and media conglomerate News Corp. We also initiated a position in Time Warner, a leading global media and entertainment company. The global media industry has significantly underperformed the overall MSCI World Index in the past five years. Largely as a result, we found what we believed were a number of attractive opportunities to apply our investment strategy and invest during times of pessimism. Outside the U.S., we initiated positions in HSBC Holdings and Peugeot. U.K.-based HSBC is a globally diversified bank with particular strengths in consumer finance. The company had what we believed were a strong balance sheet, a high return on equity (a measure of profitability) and an attractive dividend yield. Peugeot, a leading French automotive manufacturer, had a relatively young model range and strong balance sheet, and it conducted a share buyback program. The Fund increased its weighting in German automotive manufacturer Bayerische Motoren Werke (BMW), which shares many of Peugeot's attributes. On the other hand, we sold our position in Volkswagen on news that Porsche was taking a 20% stake in the company. We also sold holdings in some other industries. We sold most of our position in Noble Corp., a U.S. oil services company, following price appreciation during the period largely due to high oil prices. The company enjoyed rising daily use rates for its fleet of drilling rigs, but in our assessment traded at a relatively expensive valuation. The Fund also sold the remainder of its Cadbury Schweppes position, a U.K.-based confectioner. The company experienced stock price appreciation the past few years largely due to the successful integration of gum manufacturer Halls. It is also important to recognize the effect of currency movements on the Fund's performance. For the six months ended February 28, 2006, the U.S. dollar appreciated in value relative to most non-U.S. currencies. In general, if the value of the U.S. dollar goes up compared with a foreign currency, an investment traded in that foreign currency will go down in value because it will be worth fewer U.S. dollars. This can have a negative effect on Fund performance. Conversely, when the U.S. dollar weakens in relation to a foreign currency, an investment traded in that foreign currency will increase in value, TOP 10 EQUITY HOLDINGS 2/28/06 -------------------------------------------------------------------------------- COMPANY % OF TOTAL SECTOR/INDUSTRY, COUNTRY NET ASSETS -------------------------------------------------------------------------------- Tyco International Ltd. 2.2% INDUSTRIAL CONGLOMERATES, U.S. -------------------------------------------------------------------------------- News Corp., A 2.0% MEDIA, U.S. -------------------------------------------------------------------------------- Royal Bank of Scotland Group PLC 1.9% COMMERCIAL BANKS, U.K. -------------------------------------------------------------------------------- Siemens AG 1.9% INDUSTRIAL CONGLOMERATES, GERMANY -------------------------------------------------------------------------------- Merck & Co. Inc. 1.8% PHARMACEUTICALS, U.S. -------------------------------------------------------------------------------- Royal Dutch Shell PLC, B, ord. & ADR 1.7% OIL, GAS & CONSUMABLE FUELS, U.K. -------------------------------------------------------------------------------- GlaxoSmithKline PLC 1.7% PHARMACEUTICALS, U.K. -------------------------------------------------------------------------------- Pfizer Inc. 1.6% PHARMACEUTICALS, U.S. -------------------------------------------------------------------------------- Nestle SA 1.6% FOOD PRODUCTS, SWITZERLAND -------------------------------------------------------------------------------- Bayerische Motoren Werke AG 1.6% AUTOMOBILES, GERMANY -------------------------------------------------------------------------------- Semiannual Report | 7 which can contribute to Fund performance. The Fund's performance was negatively affected by the portfolio's primary investment in securities with non-U.S. currency exposure due to the U.S. dollar's increase in value during the period. Thank you for investing in Templeton Growth Fund. We welcome your comments and look forward to serving your future investment needs. [PHOTO OMITTED] /s/ Murdo Murchison Murdo Murchison, CFA Portfolio Manager Templeton Growth Fund, Inc. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF FEBRUARY 28, 2006, 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 INVESTMENT MANAGER 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 | Semiannual Report Performance Summary as of 2/28/06 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 does 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: TEPLX) CHANGE 2/28/06 8/31/05 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.05 $23.81 $23.86 -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/05-2/28/06) -------------------------------------------------------------------------------- Dividend Income $0.4109 -------------------------------------------------------------------------------- Short-Term Capital Gain $0.0712 -------------------------------------------------------------------------------- Long-Term Capital Gain $1.2482 -------------------------------------------------------------------------------- TOTAL $1.7303 -------------------------------------------------------------------------------- CLASS B (SYMBOL: TMGBX) CHANGE 2/28/06 8/31/05 -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.02 $23.39 $23.37 -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/05-2/28/06) -------------------------------------------------------------------------------- Dividend Income $0.2368 -------------------------------------------------------------------------------- Short-Term Capital Gain $0.0712 -------------------------------------------------------------------------------- Long-Term Capital Gain $1.2482 -------------------------------------------------------------------------------- TOTAL $1.5562 -------------------------------------------------------------------------------- CLASS C (SYMBOL: TEGTX) CHANGE 2/28/06 8/31/05 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.01 $23.27 $23.28 -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/05-2/28/06) -------------------------------------------------------------------------------- Dividend Income $0.2529 -------------------------------------------------------------------------------- Short-Term Capital Gain $0.0712 -------------------------------------------------------------------------------- Long-Term Capital Gain $1.2482 -------------------------------------------------------------------------------- TOTAL $1.5723 -------------------------------------------------------------------------------- CLASS R (SYMBOL: TEGRX) CHANGE 2/28/06 8/31/05 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.06 $23.62 $23.68 -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/05-2/28/06) -------------------------------------------------------------------------------- Dividend Income $0.3732 -------------------------------------------------------------------------------- Short-Term Capital Gain $0.0712 -------------------------------------------------------------------------------- Long-Term Capital Gain $1.2482 -------------------------------------------------------------------------------- TOTAL $1.6926 -------------------------------------------------------------------------------- Semiannual Report | 9 Performance Summary (CONTINUED) PRICE AND DISTRIBUTION INFORMATION (CONTINUED) -------------------------------------------------------------------------------- ADVISOR CLASS (SYMBOL: TGADX) CHANGE 2/28/06 8/31/05 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.07 $23.83 $23.90 -------------------------------------------------------------------------------- DISTRIBUTIONS (9/1/05-2/28/06) -------------------------------------------------------------------------------- Dividend Income $0.4665 -------------------------------------------------------------------------------- Short-Term Capital Gain $0.0712 -------------------------------------------------------------------------------- Long-Term Capital Gain $1.2482 -------------------------------------------------------------------------------- TOTAL $1.7859 -------------------------------------------------------------------------------- 10 | Semiannual 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; CLASS R: 1% CDSC FOR FIRST 18 MONTHS ONLY. CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES.
----------------------------------------------------------------------------------------------------------- CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR ----------------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +7.82% +10.18% +58.79% +176.96% ----------------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +1.64% +3.85% +8.40% + 10.07% ----------------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,164 $10,385 $14,968 $26,104 ----------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/06) 4 +7.25% +9.81% + 10.13% ----------------------------------------------------------------------------------------------------------- CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99) ----------------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +7.41% +9.38% +52.99% +99.73% ----------------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +3.41% +5.38% +8.59% +10.14% ----------------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,341 $10,538 $15,099 $19,973 ----------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/06) 4 +8.98% +10.02% +10.26% ----------------------------------------------------------------------------------------------------------- CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR ----------------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +7.43% +9.36% +52.97% +156.82% ----------------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +6.43% +8.36% +8.87% +9.89% ----------------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,643 $10,836 $15,297 $25,682 ----------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/06) 4 +11.98% +10.28% +9.95% ----------------------------------------------------------------------------------------------------------- CLASS R 6-MONTH 1-YEAR 3-YEAR INCEPTION (1/1/02) ----------------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +7.66% +9.89% +82.89% +55.70% ----------------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +6.66% +8.89% +22.29% +11.24% ----------------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,666 $10,889 $18,289 $15,570 ----------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/06) 4 +12.51% +23.95% +11.44% ----------------------------------------------------------------------------------------------------------- ADVISOR CLASS 5 6-MONTH 1-YEAR 5-YEAR 10-YEAR ----------------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +7.99% + 10.48% +60.80% +185.89% ----------------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +7.99% + 10.48% +9.97% +11.08% ----------------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,799 $11,048 $16,080 $28,589 ----------------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (3/31/06) 4 +14.10% +11.39% +11.14% -----------------------------------------------------------------------------------------------------------
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. Semiannual Report | 11 Performance Summary (CONTINUED) ENDNOTES SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY FLUCTUATIONS, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS. INVESTMENTS IN DEVELOPING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THESE MARKETS' SMALLER SIZE AND LESSER LIQUIDITY. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. 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. CLASS R: Shares are available to certain eligible investors as described in the prospectus. 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. Six-month return has not been annualized. 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 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 +146.45% and +10.35%. 12 | Semiannual 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. Semiannual 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 9/1/05 VALUE 2/28/06 PERIOD* 9/1/05-2/28/06 ----------------------------------------------------------------------------------------------------------------- Actual $1,000 $1,078.20 $5.41 ----------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,019.59 $5.26 ----------------------------------------------------------------------------------------------------------------- CLASS B ----------------------------------------------------------------------------------------------------------------- Actual $1,000 $1,074.10 $9.21 ----------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,015.92 $8.95 ----------------------------------------------------------------------------------------------------------------- CLASS C ----------------------------------------------------------------------------------------------------------------- Actual $1,000 $1,074.30 $9.21 ----------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,015.92 $8.95 ----------------------------------------------------------------------------------------------------------------- CLASS R ----------------------------------------------------------------------------------------------------------------- Actual $1,000 $1,076.60 $6.74 ----------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,018.30 $6.56 ----------------------------------------------------------------------------------------------------------------- ADVISOR CLASS ----------------------------------------------------------------------------------------------------------------- Actual $1,000 $1,079.90 $4.13 ----------------------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.83 $4.01 -----------------------------------------------------------------------------------------------------------------
* Expenses are equal to the annualized expense ratio for each class (A: 1.05%; B: 1.79%; C: 1.79%; R: 1.31%; and Advisor: 0.80%), multiplied by the average account value over the period, multiplied by 181/365 to reflect the one-half year period. 14 | Semiannual Report Templeton Growth Fund, Inc. FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, CLASS A (UNAUDITED) 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ............................. $ 23.86 $ 21.03 $ 18.54 $ 17.10 $ 18.11 $ 19.67 ------------------------------------------------------------------------------------------- Income from investment operations: Net investment income a ............ 0.10 0.36 0.36 0.34 0.33 0.39 Net realized and unrealized gains (losses) .................... 1.58 3.66 2.58 1.46 (0.88) (0.16) ------------------------------------------------------------------------------------------- Total from investment operations .... 1.68 4.02 2.94 1.80 (0.55) 0.23 ------------------------------------------------------------------------------------------- Less distributions from: Net investment income .............. (0.41) (0.41) (0.45) (0.36) (0.40) (0.37) Net realized gains ................. (1.32) (0.78) -- -- (0.06) (1.42) ------------------------------------------------------------------------------------------- Total distributions ................. (1.73) (1.19) (0.45) (0.36) (0.46) (1.79) ------------------------------------------------------------------------------------------- Redemption fees ..................... -- c -- c -- c -- c -- -- ------------------------------------------------------------------------------------------- Net asset value, end of period ...... $ 23.81 $ 23.86 $ 21.03 $ 18.54 $ 17.10 $ 18.11 =========================================================================================== Total return b ...................... 7.82% 19.72% 16.14% 10.90% (3.01)% 1.62% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ... $22,599,094 $20,786,173 $15,771,174 $13,021,261 $11,689,389 $12,092,917 Ratios to average net assets: Expenses ........................... 1.05% d,e 1.06% e 1.10% e 1.13% 1.10% 1.15% Net investment income .............. 0.88% d 1.61% 1.75% 2.05% 1.85% 2.11% Portfolio turnover rate ............. 19.03% 19.95% 24.58% 32.12% 55.63% 24.29%
a Based on average daily shares outstanding. b Total return does not reflect sales commissions or the contingent deferred sales charges, and is not annualized for periods less than one year. c Amount is less than $0.01 per share. d Annualized. e Benefit of expense reduction is less than 0.01%. Semiannual Report | See notes to financial statements. | 15 Templeton Growth Fund, Inc. FINANCIAL HIGHLIGHTS (CONTINUED)
---------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, CLASS B (UNAUDITED) 2005 2004 2003 2002 2001 ---------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ......... $ 23.37 $ 20.64 $ 18.24 $ 16.85 $ 17.87 $ 19.45 ------------------------------------------------------------------------------- Income from investment operations: Net investment income a ..................... 0.02 0.19 0.21 0.22 0.20 0.25 Net realized and unrealized gains (losses) .. 1.56 3.59 2.54 1.43 (0.87) (0.16) ------------------------------------------------------------------------------- Total from investment operations ............. 1.58 3.78 2.75 1.65 (0.67) 0.09 ------------------------------------------------------------------------------- Less distributions from: Net investment income ....................... (0.24) (0.27) (0.35) (0.26) (0.29) (0.25) Net realized gains .......................... (1.32) (0.78) -- -- (0.06) (1.42) ------------------------------------------------------------------------------- Total distributions .......................... (1.56) (1.05) (0.35) (0.26) (0.35) (1.67) ------------------------------------------------------------------------------- Redemption fees .............................. -- c -- c -- c -- c -- -- ------------------------------------------------------------------------------- Net asset value, end of period ............... $ 23.39 $ 23.37 $ 20.64 $ 18.24 $ 16.85 $ 17.87 =============================================================================== Total return b ............................... 7.41% 18.84% 15.27% 10.08% (3.74)% 0.91% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ............ $575,469 $557,670 $433,467 $278,340 $166,015 $ 93,301 Ratios to average net assets: Expenses .................................... 1.79% d,e 1.81% e 1.85% e 1.88% 1.85% 1.89% Net investment income ....................... 0.14% d 0.86% 1.00% 1.30% 1.10% 1.40% Portfolio turnover rate ...................... 19.03% 19.95% 24.58% 32.12% 55.63% 24.29%
a Based on average daily shares outstanding. b Total return does not reflect the contingent deferred sales charges, and is not annualized for periods less than one year. c Amount is less than $0.01 per share. d Annualized. e Benefit of expense reduction is less than 0.01%. 16 | See notes to financial statements. | Semiannual Report Templeton Growth Fund, Inc. FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, CLASS C (UNAUDITED) 2005 2004 2003 2002 2001 --------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ... $ 23.28 $ 20.56 $ 18.15 $ 16.74 $ 17.73 $ 19.28 -------------------------------------------------------------------------------------- Income from investment operations: Net investment income a ............... 0.01 0.19 0.20 0.21 0.20 0.25 Net realized and unrealized gains (losses) ....................... 1.55 3.57 2.54 1.44 (0.86) (0.16) -------------------------------------------------------------------------------------- Total from investment operations ....... 1.56 3.76 2.74 1.65 (0.66) 0.09 -------------------------------------------------------------------------------------- Less distributions from: Net investment income ................. (0.25) (0.26) (0.33) (0.24) (0.27) (0.22) Net realized gains .................... (1.32) (0.78) -- -- (0.06) (1.42) -------------------------------------------------------------------------------------- Total distributions .................... (1.57) (1.04) (0.33) (0.24) (0.33) (1.64) -------------------------------------------------------------------------------------- Redemption fees ........................ -- c -- c -- c -- c -- -- -------------------------------------------------------------------------------------- Net asset value, end of period ......... $ 23.27 $ 23.28 $ 20.56 $ 18.15 $ 16.74 $ 17.73 ====================================================================================== Total return b ......................... 7.43% 18.77% 15.30% 10.08% (3.73)% 0.90% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ...... $2,198,280 $1,965,909 $1,394,289 $1,064,405 $897,064 $906,390 Ratios to average net assets: Expenses .............................. 1.79% d,e 1.81% e 1.85% e 1.88% 1.84% 1.89% Net investment income ................. 0.14% d 0.86% 1.00% 1.30% 1.11% 1.37% Portfolio turnover rate ................ 19.03% 19.95% 24.58% 32.12% 55.63% 24.29%
a Based on average daily shares outstanding. b Total return does not reflect the contingent deferred sales charges, and is not annualized for periods less than one year. c Amount is less than $0.01 per share. d Annualized. e Benefit of expense reduction is less than 0.01%. Semiannual Report | See notes to financial statements. | 17 Templeton Growth Fund, Inc. FINANCIAL HIGHLIGHTS (CONTINUED)
----------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, CLASS R (UNAUDITED) 2005 2004 2003 2002f ----------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ....... $ 23.68 $ 20.90 $ 18.44 $ 17.07 $ 18.06 -------------------------------------------------------------------- Income from investment operations: Net investment income a ................... 0.06 0.32 0.33 0.32 0.32 Net realized and unrealized gains (losses) ........................... 1.57 3.62 2.56 1.42 (1.31) -------------------------------------------------------------------- Total from investment operations ........... 1.63 3.94 2.89 1.74 (0.99) -------------------------------------------------------------------- Less distributions from: Net investment income ..................... (0.37) (0.38) (0.43) (0.37) -- Net realized gains ........................ (1.32) (0.78) -- -- -- -------------------------------------------------------------------- Total distributions ........................ (1.69) (1.16) (0.43) (0.37) -- -------------------------------------------------------------------- Redemption fees ............................ -- c -- c -- c -- c -- -------------------------------------------------------------------- Net asset value, end of period ............. $ 23.62 $ 23.68 $ 20.90 $ 18.44 $ 17.07 ==================================================================== Total return b ............................. 7.66% 19.44% 15.85% 10.58% (5.48)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .......... $368,273 $123,139 $ 57,951 $ 28,584 $ 5,394 Ratios to average net assets: Expenses .................................. 1.31% d,e 1.31% e 1.35% e 1.39% 1.35% d Net investment income ..................... 0.62% d 1.36% 1.50% 1.79% 1.60% d Portfolio turnover rate .................... 19.03% 19.95% 24.58% 32.12% 55.63%
a Based on average daily shares outstanding. b Total return does not reflect the contingent deferred sales charges, and is not annualized for periods less than one year. c Amount is less than $0.01 per share. d Annualized. e Benefit of expense reduction is less than 0.01%. f For the period January 2, 2002 (effective date) to August 31, 2002. 18 | See notes to financial statements. | Semiannual Report Templeton Growth Fund, Inc. FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------------- SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED AUGUST 31, ADVISOR CLASS (UNAUDITED) 2005 2004 2003 2002 2001 -------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .... $ 23.90 $ 21.07 $ 18.57 $ 17.13 $ 18.15 $ 19.71 ------------------------------------------------------------------------------------ Income from investment operations: Net investment income a ................ 0.13 0.45 0.48 0.38 0.37 0.43 Net realized and unrealized gains (losses) ........................ 1.59 3.63 2.52 1.46 (0.88) (0.15) ------------------------------------------------------------------------------------ Total from investment operations ........ 1.72 4.08 3.00 1.84 (0.51) 0.28 ------------------------------------------------------------------------------------ Less distributions from: Net investment income .................. (0.47) (0.47) (0.50) (0.40) (0.45) (0.42) Net realized gains ..................... (1.32) (0.78) -- -- (0.06) (1.42) ------------------------------------------------------------------------------------ Total distributions ..................... (1.79) (1.25) (0.50) (0.40) (0.51) (1.84) ------------------------------------------------------------------------------------ Redemption fees ......................... -- c -- c -- c -- c -- -- ------------------------------------------------------------------------------------ Net asset value, end of period .......... $ 23.83 $ 23.90 $ 21.07 $ 18.57 $ 17.13 $ 18.15 ==================================================================================== Total return b .......................... 7.99% 19.97% 16.43% 11.19% (2.80)% 1.90% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ....... $3,251,806 $2,549,202 $911,764 $137,776 $98,999 $84,975 Ratios to average net assets: Expenses ............................... 0.80% d,e 0.81% e 0.85% e 0.88% 0.85% 0.90% Net investment income .................. 1.13% d 1.86% 2.00% 2.30% 2.10% 2.36% Portfolio turnover rate ................. 19.03% 19.95% 24.58% 32.12% 55.63% 24.29%
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 Annualized. e Benefit of expense reduction is less than 0.01%. Semiannual Report | See notes to financial statements. | 19 Templeton Growth Fund, Inc. STATEMENT OF INVESTMENTS, FEBRUARY 28, 2006 (UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES/WARRANTS VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS(CONTINUED)AND WARRANTS 89.5% BERMUDA 2.0% Accenture Ltd., A .......................... IT Services 4,492,900 $ 146,738,114 ACE Ltd. ................................... Insurance 3,700,000 206,201,000 XL Capital Ltd., A ......................... Insurance 3,418,300 230,906,165 --------------- 583,845,279 --------------- CANADA 1.0% BCE Inc. ................................... Diversified Telecommunication Services 12,325,460 299,647,219 --------------- FINLAND 1.9% Stora Enso OYJ, R (EUR/FIM Traded) ......... Paper & Forest Products 19,000,000 271,379,933 Stora Enso OYJ, R (SEK Traded) ............. Paper & Forest Products 145,997 2,075,629 UPM-Kymmene OYJ ............................ Paper & Forest Products 13,000,000 275,886,637 --------------- 549,342,199 --------------- FRANCE 3.8% Accor SA ................................... Hotels, Restaurants & Leisure 6,100,000 366,908,960 France Telecom SA .......................... Diversified Telecommunication Services 15,500,000 337,257,703 Peugeot SA ................................. Automobiles 1,942,372 113,311,747 Sanofi-Aventis ............................. Pharmaceuticals 3,399,998 289,430,427 --------------- 1,106,908,837 --------------- GERMANY 5.0% Bayerische Motoren Werke AG ................ Automobiles 9,508,896 456,880,324 E.ON AG .................................... Electric Utilities 2,051,805 227,502,589 Muenchener Rueckversicherungs- Gesellschaft AG ........................... Insurance 1,620,000 220,049,519 Siemens AG ................................. Industrial Conglomerates 6,000,000 551,606,360 --------------- 1,456,038,792 --------------- HONG KONG 2.0% Cheung Kong (Holdings) Ltd. ................ Real Estate 30,000,800 316,715,823 Hong Kong Electric Holdings Ltd. ........... Electric Utilities 37,000,000 170,979,447 Swire Pacific Ltd., A ...................... Real Estate 9,190,000 88,192,821 Swire Pacific Ltd., B ...................... Real Estate 2,359,500 4,303,576 --------------- 580,191,667 --------------- ITALY 1.1% Eni SpA .................................... Oil, Gas & Consumable Fuels 9,000,000 257,096,778 Unicredito Italiano SpA .................... Commercial Banks 8,834,000 64,299,912 --------------- 321,396,690 --------------- JAPAN 10.1% Fuji Photo Film Co. Ltd. ................... Leisure Equipment & Products 8,000,000 259,145,683 Hitachi Ltd. ............................... Electronic Equipment & Instruments 41,504,000 294,344,439 KDDI Corp. ................................. Wireless Telecommunication Services 55,000 284,585,151 Konica Minolta Holdings Ltd. ............... Office Electronics 20,000,000 252,235,132 Mitsubishi UFJ Financial Group Inc. ........ Commercial Banks 26,046 393,732,994 Nintendo Co. Ltd. .......................... Software 2,000,000 298,190,299
20 | Semiannual Report Templeton Growth Fund, Inc. STATEMENT OF INVESTMENTS, FEBRUARY 28, 2006 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES/WARRANTS VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) JAPAN (CONTINUED) Nomura Holdings Inc. ....................... Capital Markets 12,000,067 $ 232,714,123 Olympus Corp. .............................. Health Care Equipment & Supplies 10,000,125 291,110,623 Sony Corp. ................................. Household Durables 7,300,000 348,715,069 Takeda Pharmaceutical Co. Ltd. ............. Pharmaceuticals 4,700,000 263,896,687 --------------- 2,918,670,200 --------------- MEXICO 0.8% Telefonos de Mexico SA de CV (Telmex), L, ADR .......................... Diversified Telecommunication Services 10,863,300 243,229,287 --------------- NETHERLANDS 5.2% Akzo Nobel NV .............................. Chemicals 5,500,000 279,344,162 Koninklijke Philips Electronics NV ......... Household Durables 9,000,000 293,150,417 Reed Elsevier NV ........................... Media 26,075,600 352,545,095 Unilever NV ................................ Food Products 3,600,000 250,014,814 VNU NV ..................................... Media 9,000,000 291,648,182 Wolters Kluwer NV .......................... Media 1,250,000 27,451,555 --------------- 1,494,154,225 --------------- SOUTH AFRICA 0.6% a Sappi Ltd. ................................. Paper & Forest Products 14,000,000 177,169,246 --------------- SOUTH KOREA 3.6% Kookmin Bank ............................... Commercial Banks 4,000,000 307,312,050 KT Corp., ADR .............................. Diversified Telecommunication Services 13,140,600 268,331,052 Samsung Electronics Co. Ltd. ............... Semiconductors & Semiconductor Equipment 260,000 183,954,686 SK Telecom Co. Ltd. ........................ Wireless Telecommunication Services 600,000 125,128,733 SK Telecom Co. Ltd., ADR ................... Wireless Telecommunication Services 7,000,000 169,050,000 --------------- 1,053,776,521 --------------- SPAIN 1.6% Banco Santander Central Hispano SA ......... Commercial Banks 15,818,640 231,032,215 Repsol YPF SA .............................. Oil, Gas & Consumable Fuels 8,300,000 231,954,612 --------------- 462,986,827 --------------- SWEDEN 0.9% Svenska Cellulosa AB, B .................... Paper & Forest Products 5,859,549 245,841,739 --------------- SWITZERLAND 4.9% Lonza Group AG ............................. Chemicals 70,850 4,598,931 Nestle SA .................................. Food Products 1,600,000 470,498,552 Novartis AG ................................ Pharmaceuticals 4,000,000 215,276,719 Swiss Reinsurance Co. ...................... Insurance 4,267,827 304,031,432 b Syngenta AG ................................ Chemicals 1,000,000 141,180,058 b Syngenta AG, wts., 5/23/06 ................. Chemicals 1,000,000 620,761 UBS AG ..................................... Capital Markets 2,700,000 286,712,913 --------------- 1,422,919,366 ---------------
Semiannual Report | 21 Templeton Growth Fund, Inc. STATEMENT OF INVESTMENTS, FEBRUARY 28, 2006 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES/WARRANTS VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) UNITED KINGDOM 15.6% Aviva PLC .................................. Insurance 2,321,200 $ 32,127,803 BAE Systems PLC ............................ Aerospace & Defense 27,000,000 198,931,942 BP PLC ..................................... Oil, Gas & Consumable Fuels 39,500,003 436,545,129 British Sky Broadcasting Group PLC ......... Media 35,000,000 310,063,676 Compass Group PLC .......................... Hotels, Restaurants & Leisure 68,389,574 260,640,051 GlaxoSmithKline PLC ........................ Pharmaceuticals 19,000,000 481,962,627 HSBC Holdings PLC .......................... Commercial Banks 5,304,000 91,340,419 National Grid PLC .......................... Electric Utilities 25,097,959 264,388,698 Pearson PLC ................................ Media 22,000,000 273,627,905 Rentokil Initial PLC ....................... Commercial Services & Supplies 70,000,000 193,406,055 b Rolls-Royce Group PLC ...................... Aerospace & Defense 20,000,000 153,935,432 Royal Bank of Scotland Group PLC ........... Commercial Banks 16,520,000 553,232,188 Royal Dutch Shell PLC, B ................... Oil, Gas & Consumable Fuels 14,891,630 469,180,591 Royal Dutch Shell PLC, B, ADR .............. Oil, Gas & Consumable Fuels 258,599 16,299,495 Shire PLC .................................. Pharmaceuticals 8,000,000 125,042,935 Smiths Group PLC ........................... Industrial Conglomerates 12,000,000 197,668,883 Standard Chartered PLC ..................... Commercial Banks 5,314,800 136,399,740 Vodafone Group PLC ......................... Wireless Telecommunication Services 170,000,000 325,062,513 --------------- 4,519,856,082 --------------- UNITED STATES 29.4% Abbott Laboratories ........................ Pharmaceuticals 4,567,650 201,798,777 American International Group Inc. .......... Insurance 6,350,000 421,386,000 Bank of New York Co. Inc. .................. Capital Markets 10,000,000 342,400,000 Bristol-Myers Squibb Co. ................... Pharmaceuticals 12,000,000 277,200,000 b Cadence Design Systems Inc. ................ Software 10,000,000 177,500,000 b Comcast Corp., A ........................... Media 8,000,000 214,000,000 b DIRECTV Group Inc. ......................... Media 20,000,000 315,200,000 DTE Energy Co. ............................. Multi-Utilities 6,354,100 275,132,530 Eastman Kodak Co. .......................... Leisure Equipment & Products 1,618,400 45,396,120 El Paso Corp. .............................. Oil, Gas & Consumable Fuels 28,000,000 366,240,000 Electronic Data Systems Corp. .............. IT Services 12,000,000 320,400,000 Florida East Coast Industries Inc. ......... Road & Rail 470,546 23,922,559 H&R Block Inc. ............................. Diversified Consumer Services 13,000,000 289,900,000 H.J. Heinz Co. ............................. Food Products 6,500,000 246,155,000 HCA Inc. ................................... Health Care Providers & Services 5,000,000 239,500,000 International Paper Co. .................... Paper & Forest Products 10,000,000 327,700,000 a,b Interpublic Group of Cos. Inc. ............. Media 30,000,000 310,800,000 a Maxtor Corp. ............................... Computers & Peripherals 8,354,260 80,200,896 Merck & Co. Inc. ........................... Pharmaceuticals 15,000,000 522,900,000 Microsoft Corp. ............................ Software 4,296,640 115,579,616 News Corp., A .............................. Media 36,500,000 594,220,000 Noble Corp. ................................ Energy Equipment & Services 43,900 3,244,649 Pfizer Inc. ................................ Pharmaceuticals 18,000,000 471,420,000 Raytheon Co. ............................... Aerospace & Defense 7,500,000 325,500,000 b Seagate Technology ......................... Computers & Peripherals 14,198,400 377,251,488 St. Joe Co. ................................ Real Estate 1,415,700 84,842,901 a,b Tenet Healthcare Corp. ..................... Health Care Providers & Services 35,000,000 276,150,000
22 | Semiannual Report Templeton Growth Fund, Inc. STATEMENT OF INVESTMENTS, FEBRUARY 28, 2006 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------ INDUSTRY SHARES/WARRANTS VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS (CONTINUED) UNITED STATES (CONTINUED) Time Warner Inc. ........................... Media 14,000,000 $ 242,340,000 Torchmark Corp. ............................ Insurance 1,853,700 101,341,779 Tyco International Ltd. .................... Industrial Conglomerates 24,500,000 631,855,000 a Willis Group Holdings Ltd. ................. Insurance 9,000,000 309,960,000 --------------- 8,531,437,315 --------------- TOTAL COMMON STOCKS AND WARRANTS (COST $20,729,385,619) ................... 25,967,411,491 --------------- -------------------- PRINCIPAL AMOUNT d -------------------- BONDS & NOTES 0.9% AUSTRALIA 0.4% New South Wales Treasury Corp., 6.50%, 5/01/06 ........................... 149,000,000 AUD 110,800,947 --------------- GERMANY 0.5% Government of Germany, 4.50%, 8/18/06 ...... 125,000,000 EUR 150,230,945 --------------- TOTAL BONDS & NOTES (COST $191,367,021) ...................... 261,031,892 --------------- SHORT TERM INVESTMENTS 11.0% GERMANY 0.3% Dresdner Bank AG, Time Deposit, 2.27%, 3/01/06 .................................. 88,878,745 EUR 88,878,745 --------------- UNITED KINGDOM 0.4% Royal Bank Of Canada, Time Deposit, 2.33%, 3/01/06 ........................... 109,664,521 EUR 109,664,521 --------------- UNITED STATES 10.3% c U.S. Treasury Bills, 3/02/06 - 6/15/06 ..... 3,002,871,000 2,984,949,461 --------------- TOTAL SHORT TERM INVESTMENTS (COST $3,183,817,301) .................... 3,183,492,727 ---------------
Semiannual Report | 23 Templeton Growth Fund, Inc. STATEMENT OF INVESTMENTS, FEBRUARY 28, 2006 (UNAUDITED) (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------ VALUE ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS (COST $24,104,569,941) 101.4% $29,411,936,110 OTHER ASSETS, LESS LIABILITIES (1.4)% (419,014,314) --------------- NET ASSETS 100.0% .......................... $28,992,921,796 ===============
CURRENCY ABBREVIATIONS AUD - Australian Dollar EUR - Euro FIM - Finnish Markka SEK - Swedish Krona SELECTED PORTFOLIO ABBREVIATIONS ADR - American Depository Receipt a See Note 8 regarding holdings of 5% voting securities. b Non-income producing. c The security is traded on a discount basis with no stated coupon rate. d The principal amount is stated in U.S. dollars unless otherwise indicated. 24 | See notes to financial statements. | Semiannual Report Templeton Growth Fund, Inc. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (unaudited) Assets: Investments in securities: Cost - Unaffiliated issuers ................................ $22,968,043,026 Cost - Non-controlled affiliated issuers (Note 8) .......... 1,136,526,915 --------------- Total cost of investments .................................. $24,104,569,941 =============== Value - Unaffiliated issuers ............................... $28,337,856,864 Value - Non-controlled affiliated issuers (Note 8) ......... 1,074,079,246 --------------- Total value of investments ................................. 29,411,936,110 Cash ........................................................ 564 Foreign currency, at value (cost $12,505) ................... 12,491 Receivables: Investment securities sold ................................. 17,413,383 Capital shares sold ........................................ 47,933,215 Dividends and interest ..................................... 65,106,764 --------------- Total assets ............................................ 29,542,402,527 --------------- Liabilities: Payables: Investment securities purchased ............................ 494,506,966 Capital shares redeemed .................................... 28,399,422 Affiliates ................................................. 24,589,397 Accrued expenses and other liabilities ...................... 1,984,946 --------------- Total liabilities ....................................... 549,480,731 --------------- Net assets, at value ................................. $28,992,921,796 =============== Net assets consist of: Paid-in capital ............................................. $22,832,077,845 Undistributed net investment income ......................... 26,030,606 Net unrealized appreciation (depreciation) .................. 5,306,884,650 Accumulated net realized gain (loss) ........................ 827,928,695 --------------- Net assets, at value ................................. $28,992,921,796 =============== Semiannual Report | See notes to financial statements. | 25 Templeton Growth Fund, Inc. FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) February 28, 2006 (unaudited) CLASS A: Net assets, at value $22,599,094,378 =============== Shares outstanding .......................................................... 949,192,885 =============== Net asset value per share a ................................................. $ 23.81 =============== Maximum offering price per share (net asset value per share / 94.25%) ....... $ 25.26 =============== CLASS B: Net assets, at value $ 575,468,789 =============== Shares outstanding .......................................................... 24,603,329 =============== Net asset value and maximum offering price per share a ...................... $ 23.39 =============== CLASS C: Net assets, at value $ 2,198,279,599 =============== Shares outstanding .......................................................... 94,460,100 =============== Net asset value and maximum offering price per share a ...................... $ 23.27 =============== CLASS R: Net assets, at value $ 368,273,270 =============== Shares outstanding .......................................................... 15,590,564 =============== Net asset value and maximum offering price per share a ...................... $ 23.62 =============== ADVISOR CLASS: Net assets, at value $ 3,251,805,760 =============== Shares outstanding .......................................................... 136,468,167 =============== Net asset value and maximum offering price per share a ...................... $ 23.83 ===============
a Redemption price is equal to net asset value less contingent deferred sales charges, if applicable, and redemption fees retained by the Fund. 26 | See notes to financial statements. | Semiannual Report Templeton Growth Fund, Inc. FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended February 28, 2006 (unaudited) Investment income: Dividends (net of foreign taxes of $10,811,055) Unaffiliated issuers ......................................................... $ 201,671,096 Non-controlled affiliated issuers (Note 8) ................................... 7,854,668 Interest ...................................................................... 50,582,016 Other Income .................................................................. 25,474 -------------- Total investment income ................................................ 260,133,254 -------------- Expenses: Management fees (Note 3a) ..................................................... 77,679,904 Administrative fees (Note 3b) ................................................. 10,392,163 Distribution fees (Note 3c) Class A ...................................................................... 26,506,369 Class B ...................................................................... 2,760,054 Class C ...................................................................... 10,176,535 Class R ...................................................................... 385,327 Transfer agent fees (Note 3e) ................................................. 15,260,545 Custodian fees (Note 4) ....................................................... 3,009,900 Reports to shareholders ....................................................... 395,156 Registration and filing fees .................................................. 237,438 Professional fees ............................................................. 147,483 Directors' fees and expenses .................................................. 139,267 Other ......................................................................... 346,228 -------------- Total expenses ......................................................... 147,436,369 Expense reductions (Note 4) ............................................ (74,512) -------------- Net expenses ........................................................ 147,361,857 -------------- Net investment income ............................................ 112,771,397 -------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Investments Unaffiliated issuers ....................................................... 1,337,509,006 Non-controlled affiliated issuers (Note 8) ................................. 78,288,091 Foreign currency transactions ................................................ (4,170,958) -------------- Net realized gain (loss) ............................................... 1,411,626,139 -------------- Net change in unrealized appreciation (depreciation) on: Investments .................................................................. 507,894,907 Translation of assets and liabilities denominated in foreign currencies ...... (318,885) -------------- Net change in unrealized appreciation (depreciation) ................... 507,576,022 -------------- Net realized and unrealized gain (loss) ........................................ 1,919,202,161 -------------- Net increase (decrease) in net assets resulting from operations ................ $2,031,973,558 ==============
Semiannual Report | See notes to financial statements. | 27 Templeton Growth Fund, Inc. FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------ SIX MONTHS ENDED FEBRUARY 28, 2006 YEAR ENDED (UNAUDITED) AUGUST 31, 2005 ------------------------------------ Increase (decrease) in net assets: Operations: Net investment income ............................................................ $ 112,771,397 $ 351,531,648 Net realized gain (loss) from investments and foreign currency transactions ...... 1,411,626,139 1,369,927,172 Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ........ 507,576,022 2,165,857,145 ------------------------------------ Net increase (decrease) in net assets resulting from operations ............ 2,031,973,558 3,887,315,965 ------------------------------------ Distributions to shareholders from: Net investment income: Class A ........................................................................ (364,078,746) (315,892,462) Class B ........................................................................ (5,612,027) (5,991,689) Class C ........................................................................ (21,758,494) (18,445,114) Class R ........................................................................ (2,142,953) (1,133,785) Advisor Class .................................................................. (53,652,411) (24,583,076) Net realized gains: Class A ........................................................................ (1,182,936,124) (599,992,172) Class B ........................................................................ (31,606,483) (17,379,944) Class C ........................................................................ (115,554,917) (54,801,683) Class R ........................................................................ (7,764,925) (2,389,825) Advisor Class .................................................................. (155,085,846) (42,556,319) ------------------------------------ Total distributions to shareholders ............................................... (1,940,192,926) (1,083,166,069) ------------------------------------ Capital share transactions: (Note 2) Class A ........................................................................ 1,752,838,475 2,695,206,102 Class B ........................................................................ 15,286,218 60,798,204 Class C ........................................................................ 222,464,464 365,302,304 Class R ........................................................................ 244,365,048 54,697,709 Advisor Class .................................................................. 684,071,417 1,433,232,545 ------------------------------------ Total capital share transactions .................................................. 2,919,025,622 4,609,236,864 ------------------------------------ Redemption fees ................................................................... 22,932 60,619 ------------------------------------ Net increase (decrease) in net assets .................................... 3,010,829,186 7,413,447,379 Net assets: Beginning of period ............................................................... 25,982,092,610 18,568,645,231 ------------------------------------ End of period ..................................................................... $28,992,921,796 $25,982,092,610 ==================================== Undistributed net investment income included in net assets: End of period ..................................................................... $ 26,030,606 $ 360,503,840 ====================================
28 | See notes to financial statements. | Semiannual Report Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Templeton Growth Fund, Inc. (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company. The Fund offers five classes of shares: Class A, Class B, Class C, Class R, 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. 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. 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. Corporate debt and government securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund may utilize independent pricing services, quotations from bond dealers, and information with respect to bond and note transactions, to assist in determining a current market value for each security. The Fund's pricing services may use valuation models or matrix pricing which considers information with respect to comparable bond and note transactions, quotations from bond dealers, or by reference to other securities that are considered comparable in such characteristics as rating, interest rate and maturity date, option adjusted spread models, prepayment projections, interest rate spreads and yield curves, to determine current value. 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 Semiannual Report | 29 Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. SECURITY VALUATION (CONTINUED) 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 Directors. B. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, 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 Directors. 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. 30 | Semiannual Report Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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. Amortization of premium and accretion of discount on debt securities are included in interest income. 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 accounting principles generally accepted in the United States. 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 may 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. 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). 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. Semiannual Report | 31 Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and directors are indemnified by the Fund against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 2. CAPITAL STOCK At February 28, 2006, there were 1.9 billion shares authorized ($.01 par value). Transactions in the Fund's shares were as follows:
---------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2006 AUGUST 31, 2005 ---------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------- CLASS A SHARES: Shares sold ........................ 92,150,127 $ 2,153,137,159 166,510,153 $ 3,769,562,678 Shares issued in reinvestment of distributions .................. 60,045,368 1,335,844,122 36,405,103 779,606,003 Shares issued on merger (Note 9) .......................... -- -- 32,147,751 726,223,861 Shares redeemed .................... (74,263,896) (1,736,142,806) (113,625,221) (2,580,186,440) ---------------------------------------------------------------------- Net increase (decrease) ............ 77,931,599 $ 1,752,838,475 121,437,786 $ 2,695,206,102 ====================================================================== CLASS B SHARES: Shares sold ........................ 523,222 $ 11,913,019 3,907,329 $ 85,406,593 Shares issued in reinvestment of distributions .................. 1,566,103 34,247,537 1,024,375 21,602,620 Shares redeemed .................... (1,343,631) (30,874,338) (2,071,505) (46,211,009) ---------------------------------------------------------------------- Net increase (decrease) ............ 745,694 $ 15,286,218 2,860,199 $ 60,798,204 ====================================================================== CLASS C SHARES: Shares sold ........................ 9,722,815 $ 221,735,146 22,347,548 $ 495,830,093 Shares issued in reinvestment of distributions .................. 5,487,476 119,417,567 3,070,897 64,499,805 Shares redeemed .................... (5,189,195) (118,688,249) (8,798,910) (195,027,594) ---------------------------------------------------------------------- Net increase (decrease) ............ 10,021,096 $ 222,464,464 16,619,535 $ 365,302,304 ======================================================================
32 | Semiannual Report Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. CAPITAL STOCK (CONTINUED)
-------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED FEBRUARY 28, 2006 AUGUST 31, 2005 -------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- CLASS R SHARES: Shares sold ........................ 10,576,150 $ 249,238,393 3,195,510 $ 72,262,686 Shares issued in reinvestment of distributions .................. 439,664 9,713,651 163,147 3,474,315 Shares redeemed .................... (626,208) (14,586,996) (930,932) (21,039,292) -------------------------------------------------------------------- Net increase (decrease) ............ 10,389,606 $ 244,365,048 2,427,725 $ 54,697,709 ==================================================================== ADVISOR CLASS SHARES: Shares sold ........................ 27,224,644 $ 632,054,717 62,844,325 $1,425,501,693 Shares issued in reinvestment of distributions .................. 8,810,724 196,210,725 3,032,942 65,074,912 Shares redeemed .................... (6,209,323) (144,194,025) (2,505,214) (57,344,060) -------------------------------------------------------------------- Net increase (decrease) ............ 29,826,045 $ 684,071,417 63,372,053 $1,433,232,545 ====================================================================
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 directors of the Fund are also officers and/or directors of the following subsidiaries:
------------------------------------------------------------------------------------------- SUBSIDIARY AFFILIATION ------------------------------------------------------------------------------------------- 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
A. MANAGEMENT FEES The Fund pays an investment management fee to TGAL based on the average daily net assets of the Fund as follows: -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS -------------------------------------------------------------------------------- 0.630% Up to and including $1 billion 0.615% Over $1 billion, up to and including $5 billion 0.600% Over $5 billion, up to and including $10 billion 0.580% Over $10 billion, up to and including $15 billion 0.560% Over $15 billion, up to and including $20 billion 0.540% In excess of $20 billion Semiannual Report | 33 Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) B. ADMINISTRATIVE FEES The Fund pays an administrative fee to FT Services based on the average daily net assets of the Fund as follows: -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS -------------------------------------------------------------------------------- 0.150% Up to and including $200 million 0.135% Over $200 million, up to and including $700 million 0.100% Over $700 million, up to and including $1.2 billion 0.075% In excess of $1.2 billion B. DISTRIBUTION FEES The Fund's Board of Directors 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. Prior to November 1, 2005, Class A distribution costs exceeding the maximum for the current plan year could be reimbursed in subsequent periods. Effective November 1, 2005, the Class A reimbursement distribution plan was amended to discontinue the reimbursement of excess plan year costs 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% Class R ............................................ 0.50% C. 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 period: Net sales charges received a ....................... $3,996,303 Contingent deferred sales charges retained ......... $ 487,157 a Net of commissions paid to unaffiliated broker/dealers. D. TRANSFER AGENT FEES The Fund paid transfer agent fees of $15,260,545, of which $9,754,575 was retained by Investor Services. 34 | Semiannual Report Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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 period ended February 28, 2006, the custodian fees were reduced as noted in the Statement of Operations. 5. INCOME TAXES Net investment income differs for financial statement and tax purposes primarily due to differing treatments of foreign currency transactions, bond discounts and premiums, and merger expenses. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions, and bond discounts and premiums. At February 28, 2006, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows: Cost of investments ....................................... $24,139,395,079 =============== Unrealized appreciation ................................... $ 5,751,534,633 Unrealized depreciation ................................... (478,993,602) --------------- Net unrealized appreciation (depreciation) ................ $ 5,272,541,031 =============== 6. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short term securities) for the period ended February 28, 2006, aggregated $4,706,153,316 and $4,894,935,369, respectively. 7. CONCENTRATION OF RISK 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. Semiannual Report | 35 Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 8. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The Investment Company Act of 1940 defines "affiliated companies" to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" for the period ended February 28, 2006 were as shown below.
------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF NUMBER OF SHARES HELD SHARES HELD VALUE AT BEGINNING GROSS GROSS AT END AT END OF INVESTMENT REALIZED CAPITAL NAME OF ISSUER OF PERIOD ADDITIONS REDUCTIONS OF PERIOD PERIOD INCOME GAIN (LOSS) ------------------------------------------------------------------------------------------------------------------------------------ NON-CONTROLLED AFFILIATES AmerisourceBergen Corp. ... 4,500,000 -- 4,500,000 -- $ -- $ -- $ 94,051,103 Interpublic Group of Cos. Inc. ................ 8,036,800 21,963,200 -- 30,000,000 310,800,000 -- -- Maxtor Corp. .............. 12,761,960 -- 4,407,700 8,354,260 -- a -- (15,763,012) Sappi Ltd. ................ 14,000,000 -- -- 14,000,000 177,169,246 4,199,668 -- Tenet Healthcare Corp. .... 27,430,070 7,569,930 -- 35,000,000 276,150,000 -- -- Willis Group Holdings Ltd. 8,375,200 624,800 -- 9,000,000 309,960,000 3,655,000 -- -------------------------------------------- TOTAL AFFILIATED SECURITIES (3.70% of Net Assets) $1,074,079,246 $7,854,668 $ 78,288,091 ============================================
a As of February 28, 2006, no longer an affiliate 9. MERGER On May 20, 2005, the Fund acquired the net assets of Templeton Capital Accumulator Fund ("TCA Fund") pursuant to a plan of reorganization approved by TCA Fund's shareholders. The merger was accomplished by a tax-free exchange of 32,147,751 shares of the Fund (valued at $22.59) for the net assets of the TCA Fund which aggregated $726,226,861, including $101,976,718 of unrealized appreciation. The combined net assets of the Fund immediately after the merger were $24,020,113,056. 10. 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 36 | Semiannual Report Templeton Growth Fund, Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 10. REGULATORY MATTERS (CONTINUED) 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 in March, 2005. 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 has also prepared and submitted to the SEC for its approval a 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 their shareholders whole, as appropriate. Semiannual Report | 37 Templeton Growth Fund, Inc. SHAREHOLDER INFORMATION PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund'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 Fund'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 Fund 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. 38 | Semiannual Report This page intentionally left blank. 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 semiannual report [LOGO](R) FRANKLIN TEMPLETON One Franklin Parkway INVESTMENTS San Mateo, CA 94403-1906 o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. SEMIANNUAL REPORT AND SHAREHOLDER LETTER TEMPLETON GROWTH FUND, INC. INVESTMENT MANAGER 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. 101 S2006 04/06 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 experts are David W. Niemiec and Frank A. Olson, they are "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A 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 COMPANIES AND AFFILIATED PURCHASES. N/A ITEM 10. SUBMISSION OF MATTERS OF 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 Directors 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. TEMPLETON GROWTH FUND, INC. By /s/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration Date April 24, 2006 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 Chief Executive Officer - Finance and Administration Date April 24, 2006 By /s/GALEN G. VETTER Chief Financial Officer Date April 24, 2006