<PAGE>
Templeton Institutional Funds, Inc.
Growth 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.
Growth Series (the "Fund") under performed its benchmark index this year as did
most funds with global investment mandates. It returned-4.5% for the fourth
quarter and -1.3% for the year ending December 31, 1994, compared to the
unmanaged Morgan Stanley Capital International ("MSCI") World index returns of -
0.6% and 5.6%. Since inception on May 3, 1993, the Fund has provided a 10.7%
average annual return against the MSCI World index return of 8.4%. A majority of
the performance difference versus the index for 1994 was due to the under
weighting of Japanese shares in the Fund of 2.7% against a 28.0% weighting in
the MSCI World index. Nevertheless, we anticipate remaining underweighted in
Japan because Japanese shares, in most industry sectors, remain overvalued based
on our investment criteria.
- --------------------------------------------------------------------------------
TOTAL RETURNS AS OF 12/31/94
<TABLE>
<CAPTION>
One-Year Cumulative
Average Annual/1/ Since Inception/2/
<S> <C> <C>
TIFI Growth Series -1.32 18.46
MSCI World Index 5.58 14.26
</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. Growth Series
letter continued................................................................
Additionally, the Fund continued to grow with total assets of $194
million at the end of 1994 compared to $184 million as of the end of 1993. The
Fund's share price, as measured by net asset value, was $10.94 at December 31,
1994, compared to $11.80 at December 31, 1993. Shareholders received $0.20 per
share in dividend income and $0.50 per share 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.
The U.S. weighting should remain relatively unchanged.
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.
<TABLE>
<CAPTION>
Industry Diversification on 12/31/94
(% of Total Portfolio)
<S> <C>
Banking 17.3%
Merchandising 7.1%
Insurance 7.0%
Utilities-Electrical & Gas 6.9%
Telecommunications 6.1%
Financial Services 4.5%
Forest Products & Paper 4.1%
Business & Public Services 3.9%
Multi-Industry 3.7%
Energy Sources 3.6%
</TABLE>
GEOGRAPHIC DISTRIBUTION ON 12/31/94
(% of Total Equity)
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------- --------------
<S> <C>
Europe 47.7%
North America 30.0%
Asia 12.7%
Australia/New Zealand 5.0%
Latin America/Caribbean 4.6%
</TABLE>
<PAGE>
................................................................................
We also continue to maintain investments in the emerging markets
despite poor performance in 1994. It is important to note that the 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
<TABLE>
<CAPTION>
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<S> <C>
Hitachi Ltd. 1.5%
Svenska Handelsbanken, A 1.4%
Astra AB, A 1.3%
Bayer AG 1.3%
Banque Nationale De
Paris (BNP) 1.2%
Sony Corp. 1.2%
Pioneer International Ltd. 1.1%
Barclays PLC 1.1%
Deutsche Bank AG 1.1%
Stet (Sta Finanziaria Telefonica
Torino) SPA, di Risp 1.1%
</TABLE>
FUND ASSET ALLOCATION ON 12/31/04
[PIE CHART APPEARS HERE SHOWING
ASSET ALLOCATION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------- --------------
<S> <C>
Short Term & Other 5%
Equity* 95%
</TABLE>
*Equity includes convertible and preferred stocks
<PAGE>
Templeton Institutional Funds, Inc. Growth Series
letter continued................................................................
- --------------------------------------------------------------------------------
Templeton Growth Fund
Total Return Index Comparison
$5,000,000 Investment: 05/03/93 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI GROWTH SERIES, MSCI WORLD
INDEX AND THE CPI INDEX]
<TABLE>
<CAPTION>
05/03/93 12/31/94
<S> <C> <C>
TIFI GROWTH SERIES $5,000,000 $5,922,790
MSCI $5,000,000 $5,712,856
CPI INDEX $5,000,000 $5,201,618
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (05/03/93)
<S> <C> <C>
Average Annual Total Return/1/ -1.32% 10.73%
Cumulative Total Return/2/ -1.32% 18.46%
</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.
- --------------------------------------------------------------------------------
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
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.
Vice President
Templeton Investment Counsel, Inc.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 800-362-6243.
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 11.80 $ 10.00
-------- --------
Income from investment operations:
Net investment income .20 .06
Net realized and unrealized gain (loss) (.36) 1.94
-------- --------
Total from investment operations (.16) 2.00
-------- --------
Distributions:
Dividends from net investment income (.20) (.05)
Distributions from net realized gains (.50) (.15)
-------- --------
Total distributions (.70) (.20)
-------- --------
Change in net asset value (.86) 1.80
-------- --------
Net asset value, end of year $ 10.94 $ 11.80
======== ========
TOTAL RETURN * (1.32)% 20.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $194,059 $184,013
Ratio of expenses to average net assets 0.95% 1.00%**
Ratio of net investment income to average
net assets 1.69% 1.19%**
Portfolio turnover rate 17.23% 17.32%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 91.8%
- -------------------------------------------------------------------------------
Aerospace & Military Technical Systems:
1.4%
Boeing Co. U.S. 29,500 $ 1,379,125
British Aerospace PLC U.K. 196,753 1,315,935
------------
2,695,060
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.2%
Sony Corp. Jpn. 41,000 2,326,971
- -------------------------------------------------------------------------------
Automobiles: 2.3%
Consorcio G Grupo Dina SA
de CV, ADR Mex. 40,000 380,000
Ford Motor Co. U.S. 46,000 1,288,000
*Regie Nationale des Usines
Renault SA Fr. 28,500 941,818
Volvo AB, B Swe. 92,500 1,742,805
------------
4,352,623
- -------------------------------------------------------------------------------
Banking: 17.1%
Argentaria Corporacion
Bancaria de Espana SA, ADR Sp. 92,250 1,648,969
Australia & New Zealand
Banking Group Ltd. Aus. 571,150 1,881,827
Banco Bilbao Vizcaya Sp. 64,000 1,587,540
Banco de Andalucia Sp. 12,750 1,423,932
Banco di Sardegna SPA, di
Risp Itl. 64,000 444,488
Banco Portugues de
Investimento SA Port. 93,891 1,403,757
BankAmerica Corp. U.S. 24,000 948,000
Banque Nationale de Paris Fr. 8,000 367,721
Banque Nationale de Paris,
ADR Fr. 43,300 2,013,450
Barclays PLC U.K. 221,533 2,115,928
Canadian Imperial Bank of
Commerce Can. 55,000 1,328,195
Chemical Banking Corp. U.S. 28,100 1,008,088
Deutsche Bank AG Ger. 4,450 2,064,759
First Chicago Corp. U.S. 22,000 1,050,500
HSBC Holdings PLC H.K. 112,494 1,213,990
Mercantile Bancorporation U.S. 38,250 1,195,313
National Bank of Canada Can. 176,000 1,191,944
National Bank of Greece SA Gr. 7,250 337,287
National Westminster Bank
PLC U.K. 208,277 1,674,871
PT Panin Bank, fgn. Indo. 639,500 916,481
Svenska Handelsbanken, A Swe. 201,000 2,650,948
TR Financial Corp. U.S. 91,500 1,200,938
TSB Group PLC U.K. 420,000 1,540,881
Westpac Banking Corp. Aus. 574,244 1,936,539
------------
33,146,346
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.1%
News Corp. Ltd. Aus. 225,707 883,643
Vereniging Nederlandse
Uitgevers VB (VNU) Neth. 12,500 1,297,598
------------
2,181,241
- -------------------------------------------------------------------------------
Building Materials & Components: 1.8%
*Owens Corning Fiberglas
Corp. U.S. 35,900 1,148,800
Pioneer International Ltd. Aus. 875,000 2,170,694
*Uralita SA Sp. 18,400 179,631
------------
3,499,125
- -------------------------------------------------------------------------------
Business & Public Services: 3.9%
Attwoods PLC U.K. 670,000 1,223,795
Esselte AB, A Swe. 93,000 1,207,784
*Novacare Inc. U.S. 82,500 598,125
Societe Generale de
Surveillance Holdings
Ltd., br. Swtz. 1,080 1,492,955
Welsh Water PLC U.K. 140,000 1,445,602
WMX Technologies Inc. U.S. 58,000 1,522,500
------------
7,490,761
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------
Chemicals: 3.6%
Akzo Nobel NV Neth. 10,700 $ 1,235,255
Bayer AG Ger. 10,500 2,432,563
*European Vinyls Corp.
EVC International NV Neth. 18,785 832,171
Rhone-Poulenc SA, A Fr. 73,000 1,693,447
Union Carbide Corp. U.S. 25,000 734,375
------------
6,927,811
- ---------------------------------------------------------------------------------
Data Processing & Reproduction: 0.7%
International Business
Machines Corp. (IBM) U.S. 19,000 1,396,500
- ---------------------------------------------------------------------------------
Electrical & Electronics: 3.1%
Asea AB, A Swe. 26,125 1,909,128
Hitachi Ltd. Jpn. 285,000 2,831,391
Philips Electronics NV Neth. 42,000 1,243,620
------------
5,984,139
- ---------------------------------------------------------------------------------
Energy Equipment & Services: 0.7%
International Recovery
Corp. U.S. 84,000 1,281,000
- ---------------------------------------------------------------------------------
Energy Sources: 3.6%
Phillips Petroleum Co. U.S. 23,500 769,625
Repsol SA Sp. 60,500 1,640,912
Saga Petroleum AS, A Nor. 130,000 1,412,939
Societe Elf Aquitane SA Fr. 28,578 2,011,322
USX-Marathon Group Inc. U.S. 70,000 1,146,250
------------
6,981,048
- ---------------------------------------------------------------------------------
Financial Services: 4.4%
*Capital Portugal Fund Port. 5,300 431,550
*Creditanstalt
Investment
Privatisation Fund PLC Csk. 335 9,772
Dean Witter Discover &
Co. U.S. 35,842 1,214,148
Federal National
Mortgage Assn. U.S. 16,400 1,195,150
*Glendale Federal Bank
FSB U.S. 105,000 1,010,625
India Fund, B Ind. 688,964 1,783,903
Korea International
Trust Kor. 33 1,930,500
*Turkish Growth Fund Tur. 100,000 1,025,000
------------
8,600,648
- ---------------------------------------------------------------------------------
Food & Household Products: 2.8%
Albert Fisher Group PLC U.K. 2,029,447 1,508,162
Dairy Farm International
Holdings Ltd. H.K. 995,929 1,068,331
Hillsdown Holdings PLC U.K. 617,985 1,730,644
Vitro SA Mex. 229,500 1,053,405
Vitro SA, ADR Mex. 8,600 120,400
------------
5,480,942
- ---------------------------------------------------------------------------------
Forest Products & Paper: 4.1%
Carter Holt Harvey Ltd. N.Z. 450,000 921,818
Georgia-Pacific Corp. U.S. 25,000 1,787,500
International Paper Co. U.S. 18,000 1,356,750
Metsa Serla OY, B Fin. 29,000 1,273,219
PT Barito Pacific
Timber, fgn. Indo. 260,000 411,056
Scott Paper Co. U.S. 16,000 1,106,000
Stora Kopparbergs
Bergslags AB, B Swe. 18,000 1,085,249
------------
7,941,592
- ---------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Institutional Funds, Inc.
Growth 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: 2.3%
Astra AB, A Swe. 97,000 $ 2,506,409
Bristol Myers Squibb Co. U.S. 17,500 1,012,813
Hafslund Nycomed SA, B Nor. 20,400 425,345
Recordati Industria Chimica
e Farmaceutica SPA, di
Risp Itl. 220,000 592,725
------------
4,537,292
- -------------------------------------------------------------------------------
Industrial Components: 0.6%
Goodyear Tire & Rubber Co. U.S. 34,000 1,143,250
- -------------------------------------------------------------------------------
Insurance: 6.9%
Aegon NV Neth. 23,528 1,504,469
Aetna Life & Casualty Co. U.S. 21,300 1,003,763
American International
Group Inc. U.S. 11,500 1,127,000
Capital RE Corp. U.S. 55,400 1,516,575
CIGNA Corp. U.S. 15,000 954,375
International Nederlanden
Group Neth. 23,062 1,089,397
Kemper Corp. U.S. 26,000 984,750
London Insurance Group Inc. Can. 79,000 1,295,313
Presidential Life Corp. U.S. 206,400 1,083,600
Swiss Reinsurance Co.,
partn. ctf. Swtz. 2,531 1,525,153
Zuerich Versicherungs-
Gesellschaft. Swtz. 1,450 1,378,738
------------
13,463,133
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.5%
*VA Technologie AG, br. Aust. 10,000 1,006,647
- -------------------------------------------------------------------------------
Merchandising: 7.0%
Burton Group PLC U.K. 1,820,000 1,943,349
Dayton-Hudson Corp. U.S. 18,500 1,308,875
Home Depot Inc. U.S. 27,000 1,242,000
K Mart Corp. U.S. 82,000 1,066,000
Koninklijke Bijenkorf
Beheer NV (KBB) Neth. 18,900 1,066,997
Kwik Save Group PLC U.K. 185,000 1,591,883
Limited Inc. U.S. 59,500 1,078,438
Sears Roebuck & Co. U.S. 22,500 1,035,000
*Waban Inc. U.S. 82,000 1,455,500
Wessel & Vett AS, C Den. 30,000 1,775,352
------------
13,563,394
- -------------------------------------------------------------------------------
Metals & Mining: 2.9%
Alcan Aluminum Ltd. Can. 44,000 1,117,448
Aluminum Co. of America U.S. 17,300 1,498,613
*Elkem AS, A Nor. 35,000 452,865
Reynolds Metals Co. U.S. 25,500 1,249,500
*Union Miniere NPV Bel. 18,000 1,400,503
------------
5,718,929
- -------------------------------------------------------------------------------
Multi-Industry: 3.7%
Amer Group Ltd., A Fin. 77,000 1,332,742
Hutchison Whampoa Ltd. H.K. 365,000 1,476,511
Jardine Matheson Holdings
Ltd. H.K. 212,440 1,516,938
Jardine Strategic Holdings
Ltd. H.K. 405,000 1,329,499
Swire Pacific Ltd., A H.K. 245,000 1,526,204
------------
7,181,894
- -------------------------------------------------------------------------------
Real Estate: 1.1%
American Health Properties
Inc. U.S. 44,900 886,775
*Catellus Development Corp. U.S. 220,000 1,292,500
------------
2,179,275
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------
Telecommunications: 4.5%
Alcatel Alsthom SA Fr. 12,750 $ 1,088,560
Compania de Telefonos de
Chile SA, ADR Chil. 17,500 1,378,125
STET (Sta Finanziaria
Telefonica Torino) SPA,
di Risp Itl. 850,000 2,014,951
Telefonica de Argentina
SA, B, ADR Arg. 24,000 1,272,000
Telefonica de Espana SA Sp. 142,500 1,683,476
Telefonos de Mexico SA,
L, ADR Mex. 33,000 1,353,000
------------
8,790,112
- ---------------------------------------------------------------------------------
Textiles & Apparel: 0.7%
*Fruit of the Loom Inc.,
A U.S. 47,000 1,269,000
- ---------------------------------------------------------------------------------
Transportation: 2.3%
Anangel-American
Shipholdings Ltd., ADR Gr. 35,000 529,375
*OMI Corp. U.S. 171,300 1,134,863
Singapore Airlines Ltd.,
fgn. Sing. 110,000 1,011,321
*Stolt Nielsen SA U.S. 53,500 1,103,438
*USAir Group Inc. U.S. 172,000 752,500
------------
4,531,497
- ---------------------------------------------------------------------------------
Utilities Electrical & Gas: 6.9%
British Gas PLC U.K. 344,000 1,687,224
*CEZ Csk. 5,000 243,379
Electricidad de Caracas Venz. 1,119,166 1,357,584
Endesa-Empresa Nacional
de Electricidad SA Sp. 30,000 1,221,652
Evn Energie-Versorgung
Niederoesterreich AG Aust. 15,500 2,013,614
Hongkong Electric
Holdings Ltd. H.K. 440,000 1,202,714
Iberdrola SA Sp. 285,000 1,758,177
South Wales Electricity U.K. 133,000 1,860,227
VEBA AG Ger. 5,700 1,974,548
------------
13,319,119
- ---------------------------------------------------------------------------------
Wholesale & International Trade: 0.6%
Brierley Investments
Ltd. N.Z. 1,541,689 1,115,213
------------
TOTAL COMMON STOCKS (cost $169,667,084) 178,104,562
- ---------------------------------------------------------------------------------
PREFERRED STOCKS: 2.1%
- ---------------------------------------------------------------------------------
Kaufman & Broad Home
Corp., B, conv., pfd. U.S. 55,200 738,300
News Corp. Ltd. Aus. 112,853 388,451
Philippine Long Distance
Telephone Co., conv.,
pfd. Phil. 47,000 1,504,000
Telebras-
Telecomunicacoes
Brasileiras SA, ADR Braz. 33,000 1,485,000
------------
TOTAL PREFERRED STOCKS (cost $2,793,229) 4,115,751
- ---------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 1.1%
- ---------------------------------------------------------------------------------
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 605,000 765,325
PIV Investment Finance
(Cayman) Ltd., 4.50%,
conv., 12/1/00 U.S. 600,000 408,000
Softe SA, 4.25%, conv.,
7/30/98 Itl. 1,470,000,000 944,806
------------
TOTAL BONDS (cost $2,193,578) 2,118,131
- ---------------------------------------------------------------------------------
SHORT TERM OBLIGATION: 3.8% (cost $7,307,342)
- ---------------------------------------------------------------------------------
U.S. Treasury Bills,
4.87% to 5.45% with
maturities to 2/23/95 U.S. 7,330,000 7,311,814
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.8% (cost $181,961,233) 191,650,258
OTHER ASSETS, LESS LIABILITIES: 1.2% 2,408,621
------------
TOTAL NET ASSETS: 100.0% $194,058,879
============
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY OF COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$181,961,233) $ 191,650,258
Receivables:
Capital shares sold 91,695
Investment securities sold 2,239,150
Dividends and interest 684,716
Unamortized organization costs 4,830
--------------
Total assets 194,670,649
--------------
Liabilities:
Payables for investment securities purchased 275,114
Accrued expenses 336,656
--------------
Total liabilities 611,770
--------------
Net assets, at value $ 194,058,879
==============
Net assets consist of:
Unrealized appreciation on investments $ 9,689,025
Distribution in excess of net realized gain (262,640)
Net capital paid in on shares of capital stock 184,632,494
--------------
Net assets, at value $ 194,058,879
==============
Shares outstanding 17,740,337
==============
Net asset value per share ($194,058,879 / 17,740,337) $ 10.94
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $412,801 foreign taxes
withheld)
Dividends $ 4,658,791
Interest 496,649
-----------
Total income $ 5,155,440
Expenses:
Management fees (Note 3 ) 1,365,883
Administrative fees (Note 3) 216,577
Custodian fees 103,700
Reports to shareholders 34,500
Audit fees 20,750
Legal fees 6,921
Registration and filing fees 86,500
Directors' fees and expenses 6,500
Amortization of organization costs 1,380
Other 10,990
-----------
Total expenses 1,853,701
-----------
Net investment income 3,301,739
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 7,993,699
Foreign currency transactions (158,733)
-----------
7,834,966
Net unrealized depreciation on investments (14,142,808)
-----------
Net realized and unrealized loss (6,307,842)
-----------
Net decrease in net assets resulting from opera-
tions $(3,006,103)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 3,301,739 $ 975,887
Net realized gain from security and for-
eign currency transactions 7,834,966 2,511,936
Net unrealized appreciation (deprecia-
tion) (14,142,808) 23,831,833
------------ ------------
Net increase (decrease) in net assets
resulting from operations (3,006,103) 27,319,656
Distributions to shareholders:
From net investment income (3,458,409) (819,217)
From net realized capital gain (8,353,991) (2,255,551)
Capital share transactions (Note 2) 24,864,875 159,667,619
------------ ------------
Net increase in net assets 10,046,372 183,912,507
Net assets:
Beginning of period 184,012,507 100,000
------------ ------------
End of period $194,058,879 $184,012,507
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Growth Series (the Fund) is a separate series of Templeton Institutional
Funds, Inc. (the Company) which is an open-end, diversified management invest-
ment company registered under the Investment Company Act of 1940. The follow-
ing 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. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into 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 invest-
ments.
Reported net 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, the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities at
the end of the fiscal period, resulting from changes in the exchange rate.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Reve-
nue Code applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no provision has been made
for federal income taxes.
d. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over a five
year period.
e. Security Transactions, Investment Income, Distributions, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to sharehold-
ers, which are determined in accordance with income tax regulations, are re-
corded on the ex-dividend date.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1994, there were 520 million shares of capital stock autho-
rized ($0.01 par value) of which 120 million shares have been classified as
Fund shares. Transactions in the Fund's shares are as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 3, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS ) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,772,408 $21,324,831 15,593,367 $159,538,142
Shares issued on rein-
vestment of distribu-
tions 1,064,536 11,760,196 265,745 3,072,007
Shares redeemed (697,333) (8,220,152) (268,386) (2,942,530)
--------- ----------- ---------- ------------
Net increase 2,139,611 $24,864,875 15,590,726 $159,667,619
========= =========== ========== ============
</TABLE>
13
<PAGE>
Templeton Institutional Funds, Inc.
Growth Series
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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 Fund's investment manager, administrative manager, prin-
cipal 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 1.00% of the Fund's average net
assets 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 and FTIS received no amounts with respect to the Fund.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Company, which received fees of $6,921 for the year ended December 31,
1994.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1994, aggregated $51,079,135 and $31,620,901, respec-
tively. The cost of securities for federal tax purposes aggregated
$183,773,558. Realized gains and losses are reported on an identified cost ba-
sis.
At December 31, 1994, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 19,198,201
Unrealized depreciation (11,321,501)
------------
Net unrealized appreciation $ 7,876,700
============
</TABLE>
5. 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 $432,369 ($0.03 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.
Growth Series
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Growth Series
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Growth Series of Templeton Institutional
Funds, Inc. as of December 31, 1994, and the related statement of operations
for the year then ended, and the statement of changes in net assets and finan-
cial highlights for the year then ended and for the period from May 3, 1993
(commencement of operations) to December 31, 1993. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and fi-
nancial 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
Growth Series of Templeton Institutional Funds, Inc. as of December 31, 1994,
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted ac-
counting 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]
