<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
TIFI----------------------------------------------------------------------------
ANNUAL REPORT
[LOGO OF TEMPLETON APPEARS HERE]
December 31, 1994
<PAGE>
December 31, 1994
Shareholder...
Looking back to the beginning of 1994, investor's expectations were
high. Historical returns from equity markets were well above average, the
economic base worldwide was growing, people were being put back to work and
money poured into stock mutual funds. In fact, net purchases of foreign equities
by U. S. investors for the year ending 1993 were more than twice the entire
amount invested in the 1980's.
Yet, 1994 was a humbling experience because many financial markets
were adversely affected by recent adverse global events which included, for
example, rising interest rates and the Mexican monetary crisis. The impact of
these events was further exacerbated by distressed selling by highly-leveraged
hedge funds. Again, in hindsight, our research lists had proven to be good
leading indicators for market trends. In January 1994, our Source of Funds List
(sell list) with 150 names was almost twice the size of our Bargain List (buy
list), which at 80 names had shrunk to its lowest level in 10 years.
Within this environment, the Templeton Institutional Funds, Inc.
Foreign Equity Series (the "Fund") under performed its benchmark index this year
as did most Funds with international investment mandates. It returned -3.0% for
the fourth quarter and 0.24% for the year ending December 31, 1994, compared to
the unmanaged Morgan Stanley Capital International Europe, Australia and the Far
East ("MSCI EAFE") index returns of -1.0% and 8.1%, respectively. Since
inception on October 18, 1990, the Fund has provided a 11.2% average annual
return against the MSCI EAFE index return of 7.3%. A majority of the performance
difference versus the index for 1994 was due to the under weighting of Japanese
shares in the Fund of 2.5% against a 45.8% weighting in the MSCI EAFE index.
Nevertheless, we anticipate remaining underweighted in Japan because Japanese
shares, in most industry sectors, remain overvalued based on our investment
criteria.
Additionally, the Fund continued to grow with total assets of $1.1
billion at the end of 1994 compared to $408 million as of
- --------------------------------------------------------------------------------
Total Returns as of 12/31/94
<TABLE>
<CAPTION>
One-Year Three-Year Cumulative
Average Average Since
Annual/1/ Annual/1/ Inception/2/
<S> <C> <C> <C>
TIFI Foreign Equity Series 0.24 9.85 56.40
MSCI EAFE Index 8.06 8.19 34.55
</TABLE>
/1/ Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/2/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
continued...
[PHOTO OF JAMES CHANEY APPEARS HERE]
JAMES CHANEY IS A PORTFOLIO MANAGER AND RESEARCH ANALYST. HE CURRENTLY MANAGES
THE TEMPLETON INSTITUTIONAL GROWTH AND FOREIGN EQUITY MUTUAL FUNDS, TWO VARIABLE
ANNUITY PRODUCTS AND SEVERAL CORPORATE AND PUBLIC FUND SEPARATE ACCOUNTS. MR.
CHANEY'S GLOBAL RESEARCH RESPONSIBILITIES INCLUDE MERCHANDISING, REGIONAL BANKS
AND ENVIRONMENTAL COMPANIES.
PRIOR TO JOINING THE TEMPLETON ORGANIZATION IN 1991, MR. CHANEY SPENT SIX YEARS
WITH GE INVESTMENTS, WHERE HE WAS VICE PRESIDENT OF INTERNATIONAL EQUITIES. IN
THAT CAPACITY, HE HAD NUMEROUS RESEARCH RESPONSIBILITIES AND ALSO MANAGED
SEVERAL SEPARATE ACCOUNTS AND A START-UP MUTUAL FUND WHICH WAS A LIPPER-LISTED
TOP QUARTILE PERFORMER. HE ALSO HAS ANOTHER SEVEN YEARS EXPERIENCE AS AN
INTERNATIONAL CONSULTING ENGINEER AND PROJECT MANAGER FOR CAMP, DRESSER & MCKEE,
INC. AND AMERICAN BRITISH CONSULTANTS.
MR. CHANEY RECEIVED A M.B.A. WITH HONORS FROM COLUMBIA UNIVERSITY, WHERE HE WAS
A MEMBER OF THE BETA GAMMA SIGMA HONOR SOCIETY. HE RECEIVED HIS M.S. IN
ENGINEERING FROM NORTHEASTERN UNIVERSITY AND HIS B.S. IN ENGINEERING FROM THE
UNIVERSITY OF MASSACHUSETTS-AMHERST. MR. CHANEY IS A LICENSED AND REGISTERED
ENGINEER.
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
Letter continued................................................................
INDUSTRY DIVERSIFICATION ON 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 14.6%
Utilities-Electrical & Gas 7.2%
Telecommunications 6.2%
Insurance 6.2%
Forest Products & Paper 6.1%
Chemicals 4.8%
Multi-Industry 3.8%
Financial Services 3.8%
Food & Household Products 3.6%
Metals & Mining 3.4%
</TABLE>
Geographic Distribution on 12/31/94
(% of Total Equity)
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION ON 12/31/94]
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Asia 14.9%
Europe 65.2
Australia/New Zealand 8.1
Latin America/Caribbean 6.7
North America 5.1
</TABLE>
the end of 1993. The Fund's share price, as measured by net asset value, was
$12.86 at December 31, 1994, compared to $13.32 at December 31, 1993.
Shareholders received $0.19 per share in dividend income and $0.31 per share in
capital gains for 1994.
Fortunately, many of these recent adverse events can be viewed as cyclical and
not secular. Bad news and overall market pessimism may therefore provide buying
opportunities for patient, fundamental investors. Many companies today, for
example, continue to register good earnings growth as our global economy
expands. What will 1995 hold for investors? We do not really know, nor does
anyone else, and although many claim to hold great insight into potential
outcomes, over the short-term no one has been consistently correct. However, our
level of optimism has improved. The primary reason is the number of new names
that now appear on our Bargain List. With so much confusion, fear and
uncertainty worldwide, many share prices have fallen dramatically. Our analysts
work daily to uncover specific stock ideas which they anticipate will perform
well regardless of the direction of the overall market. Our Bargain List with
170 names is now twice as large as our Source of Funds List and is at the higher
end of our historical range of 100 to 200 names. The largest additions to our
Bargain List have been in the market sectors that are well represented in your
Fund. Currently, the Fund is well diversified with a majority of its investments
in 1) natural resources oriented shares, 2) selective industrial cyclicals that
continue to offer value, 3) consumer durables shares that include automobile
manufacturers, 4) utilities in strong growth economies and 5) undervalued
financials with strong fundamentals.
Your Fund's geographical weightings are considered less important than
share selection. However, these weightings can influence portfolio performance,
particularly during periods when sudden and dramatic macro economic or political
changes result in abnormal market volatility. These periods, however, are often
temporary, but can provide longer-term investors with good investment
opportunities. Needless to say, because of our long term perspective, your
Fund's weightings are not expected to change significantly unless these
oftentimes unexpected anomalies do develop. Our Bargain List currently indicates
that international shares, in general, are marginally undervalued compared to
U.S. shares after being considered fairly valued at the beginning of last year.
It is also our anticipation that Europe will continue to be
overweighted with a good exposure to Scandinavia and Spain. Central Europe,
particularly the former Iron Curtain countries, are looking more interesting. We
also remain committed to investments in Australia and New Zealand and the Fund's
Canadian holdings which, in our opinion, are undervalued.
We also continue to maintain investments in the emerging markets
despite poor performance in 1994. It is important to note that the
2
<PAGE>
................................................................................
magnitude of this performance isn't surprising. In the United States, a normal
bear market reduces prices by 20%, lasts 13 months and takes 21 months to get
back to the point you were before the bear market began. Normal bear markets in
emerging countries do not tend to last as long as bear markets in the United
States, but normally suffer decreases in price of 30 - 40%. Hong Kong is a prime
example. Over the last 10 years, despite an increase over 480% in the Hang Seng
stock index from 1365 in January of 1985 to 8000 in January of 1995, there have
been four corrections of more than 30%, including a decline of 45% in 1987, and
a drop of 29% in 1994. We had reduced certain investments in Hong Kong over a
year ago. Now after a 29% correction, valuations of some companies obviously
appear more attractive on the basis of our value criteria which is long-term
oriented.
In Mexico, the market has also fallen dramatically. Mexico certainly
has problems that need to be resolved, but at some point share prices will be
fully discounted and undervalued. The ongoing currency devaluation, for example,
benefits export companies that do not have large foreign debt positions.
Our natural resources investments include energy, forest products and
base metals companies. Many commodities have limited new supply, sell at prices
below replacement cost, and should benefit from growing demand. Emerging market
demand for commodities is particularly notable. For example, China's and India's
population, on average, consume one barrel of oil per person each year, 1/10 the
level of other emerging market countries such as Taiwan and 1/30 the level of
North America.
Financial stocks and companies, perceived to be influenced by rising
interest rates, have also fallen dramatically over the last 12 months. In
essence, all stocks are influenced by levels of interest rates, yet some are
perceived to be more sensitive than others. Our performance in 1994 was not
helped by our financial exposure. Nevertheless, share prices for many of these
securities may already reflect the likelihood of further rate increases and are
undervalued, thus offering longer-term investment opportunity.
Your Fund, consistent with its long-term investment focus has not
engaged in currency hedging. Foreign exchange fluctuations can affect
performance in the short-term. However, we continue to believe that proper share
selection on a long-term basis can mitigate this risk, a conclusion that has
historically proven correct.
In many ways, 1995 should be much like 1994 with the "madness of
crowds" guiding market behavior. Fortunately, market volatility can create
opportunity, especially for fundamental investors with long-term perspectives.
We hope you will also take comfort in the fact that we continue to vigorously
research, check and double check each individual security purchased for your
Fund. Virtually all securities we purchase have a detailed written analysis
which looks back five years over the company's development and 3-5 years into
the future. Each share we purchase is tracked by at least one of three dozen
analysts and followed closely in our database which
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Stet (Sta Finanziaria Telefonica
Torino) SPA, di Risp 1.4%
Svenska Handelsbanken, A 1.4%
Cartiere Burgo SPA 1.4%
Hitachi Ltd. 1.3%
Deutsche Bank AG 1.3%
VEBA AG 1.3%
Astra AB, A 1.3%
Sony Corp. 1.3%
Rhone-Poulenc SA, A 1.2%
Volvo AB, A 1.2%
</TABLE>
Fund Asset Allocation on 12/31/94
[PIE CHART APPEARS HERE SHOWING
FUND ASSET ALLOCATION ON 12/31/94]
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Short Term & Other 11.4%
Equity* 88.6
</TABLE>
* Equity includes convertible and preferred stocks
3
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
Letter continued................................................................
- --------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 10/18/90 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI FOREIGN EQUITY SERIES, MSCI
EAFE INDEX AND CPI INDEX]
<TABLE>
<CAPTION>
10/18/90 12/31/94
-------- --------
<S> <C> <C>
TIFI FOREIGN EQUITY SERIES $5,000,000 $7,819,895
MSCI EAFE INDEX 5,000,000 6,727,424
CPI INDEX 5,000,000 5,624,411
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (10/18/90)
<S> <C> <C>
Average Annual Total Return/2/ 0.24% 11.23%
Cumulative Total Return/3/ 0.24% 56.40%
</TABLE>
/1/ The Fund's manager is waiving a portion of its management fees, which
reduces operating expenses. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any
time.
/2/ Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/3/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
contains over 200 data items on each company. We also hope you will take comfort
in the fact that we are trying to purchase securities that are fundamentally
inexpensive.
Finally, we take great comfort and pride in our staff. So many of our
professionals have given up large parts of their personal lives to contribute
their talents and work towards our effort of trying to deliver superior
performance. We realize your expectations are high. We respect the confidence
you have shown in our organization by placing your assets in our care and we are
dedicated to the tasks at hand. We thank you for your continued relationship
with the Templeton organization.
Sincerely,
/s/ Donald F. Reed
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
/s/ James E. Chaney
James E. Chaney, P.E.
Senior Vice President
Templeton Investment Counsel, Inc.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 800-362-6243.
4
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
OCTOBER 18, 1990
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
------------------------------------- OPERATIONS) TO
1994 1993+ 1992+ 1991 DECEMBER 31, 1990
---------- -------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $ 13.32 $ 10.05 $ 10.63 $10.16 $10.00
---------- -------- ------- ------ ------
Income from investment
operations:
Net investment income .20 .23 .27 .31 .12
Net realized and
unrealized gain
(loss) (.16) 3.19 (.41) 1.30 .04
---------- -------- ------- ------ ------
Total from investment
operations .04 3.42 (.14) 1.61 .16
---------- -------- ------- ------ ------
Distributions:
Dividends from net in-
vestment income (.19) (.09) (.24) (.44) --
Distributions from net
realized gains (.31) (.06) (.20) (.70) --
---------- -------- ------- ------ ------
Total distributions (.50) (.15) (.44) (1.14) --
---------- -------- ------- ------ ------
Change in net asset
value (.46) 3.27 (.58) .47 .16
---------- -------- ------- ------ ------
Net asset value, end of
period $ 12.86 $ 13.32 $ 10.05 $10.63 $10.16
========== ======== ======= ====== ======
TOTAL RETURN * 0.24% 34.03% (1.33)% 16.13% 1.60%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of pe-
riod (000) $1,093,227 $407,970 $ 566 $1,181 $1,015
Ratio of expenses to
average net assets 0.95% 1.03% 8.82% 9.15% 9.24%**
Ratio of expenses, net
of reimbursement,
to average net assets 0.95% 1.00% 1.00% 1.00% 1.00%**
Ratio of net investment
income to
average net assets 2.03% 1.73% 2.38% 2.47% 5.77%**
Portfolio turnover rate 7.90% 42.79% 8.45% 76.16% --
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 84.8%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.2%
Sony Corp. Jpn. 239,700 $ 13,604,269
- -------------------------------------------------------------------------------
Automobiles: 2.9%
Autoliv AB Swe. 245,000 9,429,988
Bayerische Motorenwerke AG
(BMW) Ger. 12,962 6,415,755
Consorcio G Grupo Dina SA de
CV, ADR Mex. 310,000 2,945,000
Volvo AB, B Swe. 711,000 13,396,047
------------
32,186,790
- -------------------------------------------------------------------------------
Banking: 13.1%
ABN AMRO Holding NV Neth. 3,854 133,876
Australia & New Zealand
Banking Group Ltd. Aus. 2,692,161 8,870,142
Banco Bilbao Vizcaya Sp. 531,800 13,191,468
Banco di Sardegna SPA, di
Risp Itl. 358,450 2,489,482
Banco Popular Espanol Sp. 33,725 4,009,848
Banco Portugues de
Investimento SA Port. 58,612 876,303
Bank of Montreal Can. 210,000 3,911,068
Bankinter SA Sp. 68,000 5,615,651
Banque Nationale de Paris
NV, ADR Fr. 277,500 12,903,750
Barclays Bank PLC U.K. 1,169,188 11,167,265
Canadian Imperial Bank of
Commerce Can. 347,800 8,399,020
Daegu Bank Co. Ltd. Kor. 11,600 170,653
Deutsche Bank AG Ger. 29,890 13,868,682
Grupo Financiero Banamex
Accival SA, C Mex. 822,900 2,419,326
HSBC Holdings PLC H.K. 605,806 6,537,616
National Bank of Canada Can. 714,000 4,835,502
National Bank of Greece SA Gr. 38,910 1,810,182
National Westminster Bank
PLC U.K. 949,948 7,639,057
Philippine National Bank Phil. 293,394 4,148,399
PT Panin Bank, fgn. Indo. 616,000 882,803
Stadshypotek AB, A Swe. 465,000 6,132,790
Svenska Handelsbanken, A Swe. 1,115,650 14,714,079
Westpac Banking Corp. Aus. 2,397,370 8,084,719
------------
142,811,681
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.9%
News Corp. Ltd. Aus. 1,655,915 6,482,910
Sing Tao Holdings Ltd. H.K. 4,701,400 2,946,920
Vereniging Nederlandse
Uitgevers VB (VNU) Neth. 4,000 415,231
------------
9,845,061
- -------------------------------------------------------------------------------
Building Materials & Components: 2.3%
Byucksan Development Co.
Ltd. Kor. 74,197 1,684,371
Cie de Saint Gobain Fr. 77,213 8,876,387
Pioneer International Ltd. Aus. 4,836,612 11,998,634
Unione Cementi Marchino
Emiliane Itl. 103,030 663,788
Unione Cementi Marchino
Emiliane, di Risp Itl. 408,000 1,383,477
------------
24,606,657
- -------------------------------------------------------------------------------
Business & Public Services: 2.6%
Attwoods PLC U.K. 2,156,900 3,939,705
Ecco SA Fr. 76,975 9,137,268
Esselte AB, B Swe. 367,400 4,672,507
Societe Generale de Surveil-
lance Holdings Ltd. Swtz. 7,955 10,996,716
------------
28,746,196
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Chemicals: 4.8%
Akzo Nobel NV Neth. 97,064 $ 11,205,499
Bayer AG Ger. 52,225 12,099,106
*European Vinyls Corp. EVC
International NV Neth. 125,965 5,580,223
Rhone-Poulenc SA, A Fr. 577,920 13,406,532
Solvay SA Bel. 20,912 9,926,790
------------
52,218,150
- ------------------------------------------------------------------------------
Data Processing & Reproduction: 0.6%
*Newbridge Networks Corp. Can. 175,400 6,736,535
- ------------------------------------------------------------------------------
Electrical & Electronics: 3.0%
BBC Brown Boveri AG, br. Swtz. 13,586 11,693,911
Gold Peak Industries (Hold-
ings) Ltd. H.K. 6,080,000 2,396,640
Hitachi Ltd. Jpn. 1,409,000 13,998,001
Philips Electronics NV Neth. 150,000 4,441,500
------------
32,530,052
- ------------------------------------------------------------------------------
Electronic Components & Instruments: 1.1%
BICC U.K. 2,190,000 12,300,291
- ------------------------------------------------------------------------------
Energy Equipment & Services: 0.5%
Koninklijke Pakhoed NV Neth. 198,599 5,262,719
- ------------------------------------------------------------------------------
Energy Sources: 2.8%
Repsol SA Sp. 481,400 13,056,775
Saga Petroleum AS, A Nor. 421,500 4,581,183
Societe Nationale Elf
Aquitane Fr. 185,772 13,074,648
------------
30,712,606
- ------------------------------------------------------------------------------
Financial Services: 3.6%
*Capital Portugal Fund Port. 20,050 1,632,564
Chile Fund Inc. Chil. 130,000 5,996,250
Govett & Co. Ltd. U.K. 1,192,500 6,641,791
*India Fund, B Ind. 4,335,898 11,226,746
Korea International Trust Kor. 67 3,919,500
*Singapore Fund Sing. 78,000 1,160,250
Thai Fund Inc. Thai. 394,574 8,828,593
------------
39,405,694
- ------------------------------------------------------------------------------
Food & Household Products: 3.6%
Albert Fisher Group PLC U.K. 11,923,845 8,861,082
Dairy Farm International
Holdings Ltd. H.K. 4,491,157 4,817,655
Hellenic Bottling Co. SA Gr. 123,030 4,355,498
Hillsdown Holdings PLC U.K. 3,988,570 11,169,843
Vetropack AG, br. Swtz. 505 1,928,438
Vitro SA Mex. 1,829,700 8,398,323
------------
39,530,839
- ------------------------------------------------------------------------------
Forest Products & Paper: 5.1%
Cartiere Burgo SPA Itl. 2,138,760 14,174,889
*Cartiere Burgo SPA, wts. Itl. 397,920 63,294
Fletcher Challenge Ltd.,
N.Z. N.Z. 3,500,000 8,222,747
Fletcher Forestry, N.Z. N.Z. 1,850,000 2,214,604
Metsa Serla OY, B Fin. 219,500 9,636,947
PT Barito Pacific Timber,
fgn. Indo. 2,705,000 4,276,558
PT Inti Indorayon Utama,
fgn. Indo. 486,000 1,260,328
Stora Kopparbergs Bergslags
AB, B Swe. 198,500 11,967,889
Unipapel SA Sp. 168,000 3,931,168
------------
55,748,424
- ------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Health & Personal Care: 2.8%
Ares-Serono SA, B Swtz. 2,935 $ 1,611,689
Astra AB, A Swe. 528,500 13,656,055
Hafslund Nycomed SA, B Nor. 425,000 8,861,368
Medeva PLC U.K. 2,564,171 6,539,001
------------
30,668,113
- -------------------------------------------------------------------------------
Insurance: 6.2%
Ace Limited Bmu. 296,500 6,930,688
Aegon NV Neth. 172,506 11,030,685
GIO Austrailia Holdings Ltd. Aus. 4,936,000 9,375,228
International Nederlanden
Group Neth. 241,241 11,395,681
London Insurance Group Inc. Can. 454,900 7,458,706
Swiss Reinsurance Co. Swtz. 16,550 9,972,849
Zuerich Versicherung, br. Swtz. 12,320 11,714,515
------------
67,878,352
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.5%
+*Grupo Posadas SA GDR, L Mex. 212,000 3,256,320
*Queens Moat Houses PLC U.K. 1,308,500 0
Reisebuero Kuoni AG, partn.
ctf. Swtz. 1,310 1,690,839
------------
4,947,159
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.6%
VA Technologie AG, br. Aust. 67,170 6,761,647
- -------------------------------------------------------------------------------
Merchandising: 2.7%
Burton Group PLC U.K. 11,017,000 11,763,670
Koninklijke Bijenkorf Beheer
(KBB) NV Neth. 133,936 7,561,339
Kwik Save Group PLC U.K. 1,131,510 9,736,389
------------
29,061,398
- -------------------------------------------------------------------------------
Metals & Mining: 3.4%
Alcan Aluminum Ltd. Can. 302,500 7,682,454
ARBED SA Lux. 21,595 3,245,020
Comalco Ltd. Aus. 2,490,000 9,651,836
*Elkem AS, A Nor. 124,100 1,605,730
*Metall Mining Corp. Can. 405,000 3,464,623
*Union Miniere NPV Bel. 143,270 11,147,226
------------
36,796,889
- -------------------------------------------------------------------------------
Multi-Industry: 3.8%
Amer Group Ltd., A Fin. 304,600 5,272,121
CNT Group Ltd. H.K. 2,320,000 158,914
Fotex First Hungarian-Ameri-
can Photo-Service Hun. 850,000 2,571,625
Hutchison Whampoa Ltd. H.K. 2,329,000 9,421,351
Jardine Matheson Holdings
Ltd. H.K. 894,366 6,386,264
Jardine Strategic Holdings
Ltd. H.K. 2,739,500 8,992,995
Swire Pacific Ltd., A H.K. 1,418,500 8,836,407
------------
41,639,677
- -------------------------------------------------------------------------------
Real Estate: 2.6%
Bail Investissement Fr. 35,000 5,996,068
*Hang Lung Development Co.
Ltd. H.K. 4,121,000 5,858,611
*Hang Lung Development Co.
Ltd., wts. H.K. 412,100 61,782
New World Development Co.
Ltd. H.K. 1,665,282 4,444,339
Taylor Woodrow PLC U.K. 5,922,560 11,813,987
------------
28,174,787
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------
Telecommunications: 4.7%
Compania de Telefonos de Chile SA, ADR Chil. 71,450 $ 5,626,688
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp Itl. 6,246,000 14,806,332
Telefonica de Argentina SA, B, ADR Arg. 151,450 8,026,850
Telefonica de Espana SA Sp. 1,062,800 12,555,776
Telefonos de Mexico SA, L, ADR Mex. 252,100 10,336,100
--------------
51,351,746
- -------------------------------------------------------------------------------------------------------------
Transportation: 1.2%
British Airways PLC U.K. 948,750 5,299,035
Cathay Pacific Airways Ltd. H.K. 2,839,000 4,127,787
Singapore Airlines Ltd., fgn. Sing. 381,200 3,504,686
--------------
12,931,508
- -------------------------------------------------------------------------------------------------------------
Utilities Electrical & Gas: 7.2%
*CEZ Csk. 77,944 3,793,981
Compania Sevillana de Electricidad Sp. 2,232,000 10,547,419
Electricidad de Caracas Venz. 5,062,877 6,141,435
Endesa-Empresa Nacional de Electricidad SA Sp. 97,500 3,970,370
Evn Energie-Versorgung Niederoesterreich AG Aust. 56,150 7,294,481
Gesa-Gas y Electricidad SA Sp. 600 25,436
Iberdrola SA Sp. 2,065,142 12,739,945
Shandong Huaneng Power Chn. 272,000 2,618,000
South Wales Electricity U.K. 805,000 11,259,270
Thames Water Group PLC U.K. 896,600 6,789,236
VEBA AG Ger. 39,600 13,717,914
--------------
78,897,487
- -------------------------------------------------------------------------------------------------------------
Wholesale & International Trade: 1.0%
Brierley Investments Ltd. N.Z. 15,241,819 11,025,494
--------------
TOTAL COMMON STOCKS (cost $927,595,296) 926,380,221
- -------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 3.0%
- -------------------------------------------------------------------------------------------------------------
ABN Amro Holdings NV, conv., pfd. Neth. 313,488 10,438,163
Concessioni e Costruzioni Autostrade SPA, B, pfd. Itl. 2,030,000 2,571,917
News Corp. Ltd., conv., pfd. Aus. 827,957 2,849,911
Philippine Long Distance Telephone Co., conv., pfd. Phil. 173,500 5,552,000
Telebras-Telecomunicacoes Brasileiras SA, pfd. Braz. 250,000 11,250,000
--------------
TOTAL PREFERRED STOCKS (cost $30,657,425) 32,661,991
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY **
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS: 0.8%
- -------------------------------------------------------------------------------------------------------------
C.S. Holding Finance BV, 4.875%, conv., 11/19/02 U.S. 5,115,000 6,470,475
PIV Investment Finance (Cayman) Ltd.,
4.50%, conv., 12/1/00 U.S. 3,770,000 2,563,600
--------------
TOTAL BONDS (cost $9,762,546) 9,034,075
- -------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 11.2% (cost $122,507,974)
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.75% to 5.45% with
maturities to 2/23/95 U.S. 123,068,000 122,584,168
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $1,090,523,241) 1,090,660,455
OTHER ASSETS, LESS LIABILITIES: 0.2% 2,566,352
--------------
TOTAL NET ASSETS: 100.0% $1,093,226,807
==============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$1,090,523,241) $1,090,660,455
Receivables:
Investment securities sold 3,343,328
Capital shares sold 9,045,577
Dividends and interest 4,710,900
--------------
Total assets 1,107,760,260
--------------
Liabilities:
Payables:
Investment securities purchased 12,016,758
Capital shares redeemed 846,651
Accrued expenses 1,670,044
--------------
Total liabilities 14,533,453
--------------
Net assets, at value $1,093,226,807
==============
Net assets consist of:
Undistributed net investment income $ 1,866,114
Unrealized appreciation on investments 137,214
Distribution in excess of net realized gain (3,067,138)
Net capital paid in on shares of capital stock 1,094,290,617
--------------
Net assets, at value $1,093,226,807
==============
Shares outstanding 85,023,429
==============
Net asset value per share ($1,093,226,807 / 85,023,429) $ 12.86
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $1,890,660 foreign
taxes withheld)
Dividends $ 19,242,960
Interest 5,194,308
------------
Total income $ 24,437,268
Expenses:
Management fees (Note 3) 5,740,479
Administrative fees (Note 3) 912,500
Transfer agent fees (Note 3) 14,657
Custodian fees 604,500
Reports to shareholders 47,000
Audit fees 37,449
Legal fees 14,800
Registration and filing fees 399,000
Directors' fees and expenses 7,300
Other 27,312
------------
Total expenses 7,804,997
------------
Net investment income 16,632,271
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 10,979,449
Foreign currency transactions (1,620,722)
------------
9,358,727
Net unrealized depreciation on investments (41,946,256)
------------
Net realized and unrealized loss (32,587,529)
------------
Net decrease in net assets resulting from opera-
tions $(15,955,258)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 16,632,271 $ 2,478,998
Net realized gain from security and foreign
currency transactions 9,358,727 8,154,954
Net unrealized appreciation (depreciation) (41,946,256) 42,073,840
-------------- ------------
Net increase (decrease) in net assets result-
ing from operations (15,955,258) 52,707,792
Distributions to shareholders:
From net investment income (15,267,921) (1,984,431)
From net realized gain (19,111,004) (1,469,815)
Capital share transactions (Note 2) 735,590,480 358,150,790
-------------- ------------
Net increase in net assets 685,256,297 407,404,336
Net assets:
Beginning of year 407,970,510 566,174
-------------- ------------
End of year $1,093,226,807 $407,970,510
============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity Series (the Fund) is a separate series of Templeton Institu-
tional Funds, Inc. (the Company) which is registered under the Investment Com-
pany Act of 1940 as an open-end, diversified management investment company. The
following summarizes the Fund's significant accounting policies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation. Pur-
chases and sales of portfolio securities and income items denominated in for-
eign currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. When the Fund purchases or sells foreign securities it
customarily enters into foreign exchange contracts to minimize foreign exchange
risk between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and ma-
turities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities trans-
actions, the differences between the amounts of dividends, interest, and for-
eign withholding taxes recorded on the Fund's books, and the U.S. dollar equiv-
alent of the amounts actually received or paid. Net unrealized foreign exchange
gains and losses arise from changes in the value of assets and liabilities
other than investments in securities at the end of the fiscal period, resulting
from changes in the exchange rate.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
d. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on ex-dividend date. Certain dividend income on foreign securities
is recorded as soon as information is available to the Fund. Interest income
and estimated expenses are accrued daily. Distributions to shareholders, which
are determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1994, there were 520 million shares of $.01 par value capital
stock authorized of which 160 million have been classified as Fund shares.
Transactions in the Fund's shares for the years ended December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 55,873,309 $756,177,777 31,377,769 $367,642,741
Shares issued in rein-
vestment of distribu-
tions 2,173,387 28,197,368 217,409 2,824,712
Shares redeemed (3,642,203) (48,784,665) (1,032,567) (12,316,663)
---------- ------------ ---------- ------------
Net increase 54,404,493 $735,590,480 30,562,611 $358,150,790
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investors Serv-
ices, Inc. (FTIS), the Company's investment manager, administrative manager,
principal underwriter and transfer agent, respectively. The Fund pays monthly
an investment management fee to TICI equal, on an annual basis, to 0.70% of the
average daily net assets of the Fund. The Fund pays TGII monthly its allocated
share of an administrative fee of 0.15% per annum on the first $200 million of
the Company's aggregate average daily net assets, 0.135% of the next $500 mil-
lion, 0.10% of the next $500 million and 0.075% per annum of such average net
assets in excess of $1.2 billion. TGII has voluntarily agreed to limit the to-
tal expenses of the Fund to an annual rate of 1% of the Fund's average net as-
sets through year ended December 31, 1994. For the year ended December 31,
1994, no such reimbursement was necessary. For the year ended December 31,
1994, FTD did not receive any commissions from the sale of the Fund's shares
and FTIS received fees of $14,657.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Funds, which firm received fees of $14,800 year ended December 31,
1994.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (cont.)
- -------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1994 were $684,952,068 and $55,166,347, respectively.
The cost of securities for federal income tax purposes is $1,091,582,952. Re-
alized gains and losses are reported on an identified cost basis.
At December 31, 1994, the aggregate gross unrealized appreciation and depreci-
ation of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 62,446,646
Unrealized depreciation (63,369,143)
------------
Net unrealized depreciation $ (922,497)
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the out-
standing voting securities. Investments in "affiliated companies" as of Decem-
ber 31, 1994 amounted to $3,256,320.
6. DISTRIBUTIONS
Income distributions and capital gain distributions are determined in accor-
dance with income tax regulations which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing treat-
ments for passive foreign investment companies ("PFIC") held by the Fund. As a
result, the amount distributed from capital gains includes $1,059,711 ($0.01
per share) attributable to the PFIC mark to market rules which is included in
unrealized appreciation under generally accepted accounting principles.
14
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Foreign Equity Series
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Foreign Equity Series of Templeton Institu-
tional Funds, Inc. as of December 31, 1994, and the related statement of opera-
tions for the year then ended, the statement of changes in net assets for each
of the two years in the period then ended and the financial highlights for each
of the four years in the period then ended and for the period from October 18,
1990 (commencement of operations) to December 31, 1990. These financial state-
ments and financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Foreign Equity Series of Templeton Institutional Funds, Inc. as of December 31,
1994, the results of its operations, the changes in its net assets and the fi-
nancial highlights for the periods indicated, in conformity with generally ac-
cepted accounting principles.
[SIGNATURE OF MCGLADREY & PULLEN, LLP APPEARS HERE]
New York, New York
February 3, 1995
15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This report must be preceded or accompanied by the prospectus of the Templeton
Institutional Funds, Inc.
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
the securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
The Fund is not FDIC insured, is not an obligation of, nor guaranteed by any
bank or financial institution, and involves investment risks, including possible
loss of principal.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Account Service: 800-684-4001
Fund Information: 800-362-6243
[RECYCLING LOGO APPEARS HERE]
TL454 A 12/94
