<PAGE>
Templeton Institutional Funds, Inc.
TIFI
Foreign Equity
(South Africa Free) Series
ANNUAL REPORT
[LOGO OF TEMPLETON
APPEARS HERE] December 31, 1994
<PAGE>
December 31, 1994
Dear 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 (South Africa Free) Series (the "Fund") under performed its benchmark
index this year as did most funds with international investment mandates. It
returned -4.0% for the fourth quarter and -1.94% for the year ending December
31, 1994, compared to the unmanaged Morgan Stanley Capital International Europe,
Australia and the Far East excluding South Africa Investment ("MSCI EAFE ex
SAI") index returns of -1.9% and 8.5%. Since inception on May 3, 1993, the Fund
has provided a 15.1% average annual return against the MSCI EAFE ex SAI index
return of 8.6%. A majority of the performance difference versus the index for
1994 was due to no holdings in Japanese shares in the Fund 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.
The Fund also had total assets of $40 million at the end of 1994 compared
to $93 million as of the end of 1993, with the majority
Total Returns as of 12/31/94
<TABLE>
<CAPTION>
One-Year Cumulative
Average Annual/1/ Since Inception/2/
<S> <C> <C>
TIFI Foreign Equity (SAF) Series -1.94 26.36
EAFE ex SAI Index 8.51 14.75
</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 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 (SAF) Series
letter continued..............................................................
Industry Diversification on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 18.1%
Utilities Electrical & Gas 9.6%
Telecommunications 7.7%
Financial Services 7.3%
Food & Household Products 7.2%
Business & Public Services 6.8%
Insurance 6.2%
Forest Products & Paper 4.9%
Merchandising 4.7%
Multi-Industry 4.2%
</TABLE>
Templeton Institutional Fund
Geographic Distribution on 12/31/94
Based on % of Total Equity
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------------ --------
<S> <C>
Europe 65.3%
Asia 15.6%
Latin America/Caribbean 7.1%
Australia/New Zealand 7.4%
North America 4.6%
</TABLE>
of the decrease in assets a result of exchanges to the Foreign Equity Series as
many investors removed their South Africa Free mandates. The Fund's share price,
as measured by net asset value, was $8.13 at December 31, 1994, compared to
$12.50 at December 31, 1993. Shareholders received $0.215 per share in dividend
income and $3.93 per share in capital gains in 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 magnitude of this
performance isn't surprising. In the United States, a
<PAGE>
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 markets
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 it's 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 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.
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Burton Group PLC 1.8%
South Whales Electricity 1.8%
TSB Group PLC 1.7%
Vetropack AG 1.7%
Aegon NV 1.7%
British Gas PLC 1.7%
International Nederlanden Group 1.7%
Barclays PLC 1.7%
Svenska Handelsbanken 1.6%
Astra AB, A 1.6%
</TABLE>
Templeton Institutional Fund
Fund Asset Allocation on 12/31/94
[PIE CHART APPEARS HERE SHOWING
FUND ASSET ALLOCATION ON 12/31/94]
<TABLE>
<S> <C>
Equity 90%
Short Term & Other 10%
</TABLE>
*Equity includes convertible and preferred stocks
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity (SAF) Series
letter continued................................................................
Templeton Institutional Fund
Total Return Index Comparison/1/
$5,000,000 Investment: 05/03/93 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI FOREIGN EQUITY (SAF)
SERIES, EAFE EX SAI INDEX AND THE CPI INDEX]
<TABLE>
<CAPTION>
4/93 12/94
--------- ---------
<S> <C> <C>
TIFI Foreign Equity (SAF) Series 5,000,000 6,317,965
EAFE ex SAI Index 5,000,000 5,737,467
CPI Index 5,000,000 5,201,618
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (5/03/93)
<S> <C> <C>
Average Annual Total Return/2/ -1.94% 15.12%
Cumulative Total Return/3/ -1.94% 26.36%
</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.
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,
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
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.
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) 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 $ 12.50 $ 10.00
------- -------
Income from investment operations:
Net investment income .32 .10
Net realized and unrealized gain (loss) (.55) 2.77
------- -------
Total from investment operations (.23) 2.87
------- -------
Distributions:
Dividends from net investment income (.21) (.06)
Distributions from net realized gains (3.93) (.31)
------- -------
Total distributions (4.14) (.37)
------- -------
Change in net asset value (4.37) 2.50
------- -------
Net asset value, end of year $ 8.13 $ 12.50
======= =======
TOTAL RETURN * (1.94)% 28.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $39,576 $93,006
Ratio of expenses to average net assets 1.05% 1.01%**
Ratio of expenses, net of reimbursement,
to average net assets 1.00% 1.00%**
Ratio of net investment income to average
net assets 2.04% 1.58%**
Portfolio turnover rate 34.26% 82.52%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 88.0%
- -------------------------------------------------------------------------------
Automobiles: 1.6%
Consorcio G Grupo Dina SA de CV, ADR Mex. 14,000 $ 133,000
Volvo AB, B Swe. 26,500 499,290
-----------
632,290
- -------------------------------------------------------------------------------
Banking: 18.1%
Argentaria Corporacion Bancaria de
Espana SA, ADR Sp. 25,000 446,875
Australia & New Zealand Banking
Group Ltd. Aus. 170,000 560,117
Banco Bilbao Vizcaya Sp. 18,500 458,898
Banco de Andalucia Sp. 2,750 307,123
Banco Portugues de Investimento SA Port. 24,000 358,822
Banque Nationale de Paris, ADR Fr. 13,500 627,750
Barclays PLC U.K. 69,000 659,040
Canadian Imperial Bank of Commerce Can. 22,000 531,278
HSBC Holdings PLC H.K. 41,500 447,851
National Bank of Canada Can. 73,500 497,772
National Bank of Greece SA Gr. 8,300 386,135
Svenska Handelsbanken, A Swe. 49,000 646,251
TSB Group PLC U.K. 185,000 678,721
Westpac Banking Corp. Aus. 165,000 556,434
-----------
7,163,067
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.5%
Vereniging Nederlandse Uitgevers Vb
(VNU) Neth. 5,500 570,943
- -------------------------------------------------------------------------------
Building Materials & Components: 1.4%
Pioneer International Ltd. Aus. 230,000 570,582
- -------------------------------------------------------------------------------
Business & Public Services: 6.5%
Attwoods PLC U.K. 295,000 538,835
Ecco SA Fr. 3,199 379,735
Esselte AB, A Swe. 37,000 480,516
Societe Generale de Surveillance
Holdings Ltd., br. Swtz. 405 559,858
Welsh Water PLC U.K. 60,000 619,544
-----------
2,578,488
- -------------------------------------------------------------------------------
Chemicals: 0.6%
*European Vinyls Corp. EVC
International NV Neth. 5,695 252,287
- -------------------------------------------------------------------------------
Data Processing & Reproduction: 0.4%
*Newbridge Networks Corp. Can. 4,400 168,989
- -------------------------------------------------------------------------------
Energy Sources: 3.7%
Repsol SA Sp. 15,000 406,838
Saga Petroleum AS, A Nor. 44,000 478,226
Societe Elf Aquitane SA Fr. 8,300 584,155
-----------
1,469,219
- -------------------------------------------------------------------------------
Financial Services: 5.9%
*Capital Portugal Fund Port. 4,400 358,268
*Creditanstalt Investment
Privatisation Fund PLC Csk. 90 2,625
India Fund, B Ind. 160,000 414,281
Korea International Trust Kor. 7 409,500
Singapore Fund Sing. 22,000 327,250
Thai Fund Inc. Thai. 21,334 477,348
*Turkish Growth Fund Tur. 32,000 328,000
-----------
2,317,272
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------
Food & Household Products: 7.0%
Albert Fisher Group PLC U.K. 785,000 $ 583,365
Cafe de Coral Group Ltd. H.K. 1,465,000 359,742
Hillsdown Holdings PLC U.K. 220,000 616,102
PT Japfa Comfeed Indonesia, fgn. Indo. 130,000 155,255
Vetropack AG, br. Swtz. 177 675,908
Vitro SA Mex. 80,000 367,200
-----------
2,757,572
- -----------------------------------------------------------------------------
Forest Products & Paper: 4.6%
Carter Holt Harvey Ltd. N.Z. 222,000 454,764
Metsa Serla OY, B Fin. 11,500 504,897
PT Barito Pacific Timber, fgn. Indo. 75,000 118,574
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 80,000 149,226
Stora Kopparbergs Bergslags AB, B Swe. 10,000 602,916
-----------
1,830,377
- -----------------------------------------------------------------------------
Health & Personal Care: 2.8%
Ares-Serono SA, B Swtz. 830 455,776
Astra AB, A Swe. 25,000 645,982
-----------
1,101,758
- -----------------------------------------------------------------------------
Insurance: 6.0%
Aegon NV Neth. 10,500 671,410
International Nederlanden Group Neth. 14,000 661,328
London Insurance Group Inc. Can. 27,500 450,900
Zuerich Versicherung, br. Swtz. 625 594,283
-----------
2,377,921
- -----------------------------------------------------------------------------
Machinery & Engineering: 0.9%
VA Technologie AG, br. Aust. 3,450 347,293
- -----------------------------------------------------------------------------
Merchandising: 4.6%
Burton Group PLC U.K. 670,000 715,408
Koninklijke Bijenkorf Beheer (KBB)
NV Neth. 9,500 536,321
Kwik Save Group PLC U.K. 64,000 550,705
-----------
1,802,434
- -----------------------------------------------------------------------------
Metals & Mining: 1.7%
*Elkem AS, A Nor. 23,000 297,596
*Union Miniere NPV Bel. 5,050 392,919
-----------
690,515
- -----------------------------------------------------------------------------
Multi-Industry: 4.0%
Amer Group Ltd., A Fin. 18,000 311,550
Hutchison Whampoa Ltd. H.K. 106,000 428,795
Jardine Matheson Holdings Ltd. H.K. 60,000 428,433
Swire Pacific Ltd., A H.K. 69,000 429,829
-----------
1,598,607
- -----------------------------------------------------------------------------
Telecommunications: 5.5%
Compania de Telefonos de Chile SA,
ADR Chil. 5,050 397,688
STET (Sta Finanziaria Telefonica
Torino) SPA, di Risp Itl. 260,000 616,338
Telefonica de Argentina SA, B, ADR Arg. 6,450 341,850
Telefonica de Espana SA Sp. 34,500 407,578
Telmex-Telefonos de Mexico SA, L,
ADR Mex. 9,700 397,700
-----------
2,161,154
- -----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Transportation: 0.7%
Singapore Airlines Ltd., fgn. Sing. 29,000 $ 266,621
- ------------------------------------------------------------------------------
Utilities-Electrical & Gas: 9.2%
British Gas PLC U.K. 135,000 662,137
*CEZ Csk. 1,000 48,676
Electricidad de Caracas Venz. 467,037 566,531
Endesa-Empresa Nacional de
Electricidad SA Sp. 11,000 447,939
Evn Energie-Versorgung Aust. 3,700 480,669
Gesa-Gas y Electricidad SA Sp. 6,900 292,513
Iberdrola SA Sp. 74,000 456,509
South Wales Electricity U.K. 50,000 699,334
-----------
3,654,308
- ------------------------------------------------------------------------------
Wholesale & International Trade: 1.3%
Brierley Investments Ltd. N.Z. 705,000 509,977
-----------
TOTAL COMMON STOCKS (cost $33,696,247) 34,821,674
- ------------------------------------------------------------------------------
PREFERRED STOCKS: 2.0%
Philippine Long Distance
Telephone Co., conv., Pfd. Phil. 12,500 400,000
Telebras-Telecomunicacoes
Brasileiras SA, ADR Braz. 8,300 373,500
-----------
Total Preferred Stocks (cost
$636,389) 773,500
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BOND: 1.2% (cost $366,375)
- ------------------------------------------------------------------------------
PIV Investment Finance
(Cayman) Ltd., 4.5%, conv.,
12/1/00 U.S. $ 710,000 482,800
- ------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 5.2% (cost $2,069,248)
- ------------------------------------------------------------------------------
U.S. Treasury Bills, 4.75% to
5.47% with maturities to
2/16/95 U.S. 2,074,000 2,070,506
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.4% (cost $36,768,259) 38,148,480
OTHER ASSETS, LESS LIABILITIES: 3.6% 1,427,999
-----------
TOTAL NET ASSETS: 100.0% $39,576,479
===========
</TABLE>
*NON-INCOME PRODUCING
**CURRENCY IN COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost $36,768,259) $38,148,480
Cash 10,660
Receivables:
Investment securities sold 609,942
Fund Shares sold 500,000
Dividends and interest 439,915
Unamortized organization costs 4,818
-----------
Total assets 39,713,815
-----------
Liabilities:
Payables for investment securities purchased 3,305
Accrued expenses 134,031
-----------
Total liabilities 137,336
-----------
Net assets, at value $39,576,479
===========
Net assets consist of:
Undistributed net investment income $ 703,936
Unrealized appreciation on investments 1,380,221
Accumulated net realized gain 588,682
Net capital paid in on shares of capital stock 36,903,640
-----------
Net assets, at value $39,576,479
===========
Shares outstanding 4,869,622
===========
Net asset value per share ($39,576,479 / 4,869,622) $ 8.13
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $208,670 foreign taxes
withheld)
Dividends $ 1,843,580
Interest 251,045
------------
Total income $ 2,094,625
Expenses:
Management fees (Note 3 ) 485,980
Administrative fees (Note 3) 77,383
Custodian fees 36,000
Reports to shareholders 28,100
Audit fees 25,900
Legal fees 8,300
Registration and filing fees 46,750
Directors' fees and expenses 7,000
Amortization of organization costs 1,365
Other 6,470
------------
Total expenses 723,248
Less expenses reimbursed (34,105)
------------
Total expenses less reimbursement (Note 3) 689,143
-----------
Net investment income 1,405,482
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 12,029,002
Foreign currency transactions (95,547)
------------
11,933,455
Net unrealized depreciation on investments (14,496,288)
------------
Net realized and unrealized loss (2,562,833)
-----------
Net decrease in net assets resulting from opera-
tions $(1,157,351)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) 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 $ 1,405,482 $ 917,221
Net realized gain from security and for-
eign currency transactions 11,933,455 11,959,117
Net unrealized appreciation (deprecia-
tion) (14,496,288) 15,876,509
------------ -----------
Net increase (decrease) in net assets
resulting from operations (1,157,351) 28,752,847
Distributions to shareholders:
From net investment income (978,249) (640,518)
From net realized capital gain (Note 5) (20,207,441) (3,096,449)
Capital share transactions (Note 2) (31,086,005) 67,889,645
------------ -----------
Net increase (decrease) in net assets (53,429,046) 92,905,525
Net assets:
Beginning of period 93,005,525 100,000
------------ -----------
End of year $ 39,576,479 $93,005,525
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity (South Africa Free) Series (the Fund) is a separate series of
Templeton Institutional Funds, Inc. (the Company) which is an open-end, diver-
sified management investment company registered under the Investment Company
Act of 1940. The following summarizes the Fund's significant accounting poli-
cies.
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 rates.
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 30 million have been classified as Fund
shares. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 436,822 $ 5,000,491 11,192,377 $114,646,741
Shares issued in rein-
vestment of distribu-
tions 1,647,939 15,467,056 218,067 2,647,379
Shares redeemed (4,657,485) (51,553,552) (3,978,098) (49,404,475)
---------- ------------ ---------- ------------
Net (decrease) increase (2,572,724) $(31,086,005) 7,432,346 $ 67,889,645
========== ============ ========== ============
</TABLE>
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) 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 Investor Servic-
es, Inc. (FTIS), the Fund's investment manager, administrative manager, princi-
pal underwriter and transfer agent, respectively. The Fund pays monthly an in-
vestment management fee to TICI equal, on an annual basis, to 0.70% of the av-
erage 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 December 31, 1994. The amount of reimbursement for the year
ended December 31, 1994 is set forth in the Statement of Operations. 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 Funds, which firm received fees of $8,300 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 $21,647,849 and $60,713,364, respec-
tively. The cost of securities for federal income tax purposes is $37,581,798.
Realized gains and losses are reported on an identified cost basis.
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 $ 2,946,860
Unrealized depreciation (2,380,178)
-----------
Net unrealized appreciation $ 566,682
===========
</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 $174,129 ($0.04 per
share) attributable to the PFIC mark to market rules which is included in
unrealized appreciation under generally accepted accounting principles.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Independent Auditor's Report
- -------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Foreign Equity (South Africa Free) Series
We have audited the accompanying statement of assets and liabilities, includ-
ing the investment portfolio, of the Foreign Equity (South Africa Free) Series
of Templeton Institutional Funds, Inc. as of December 31, 1994, and the re-
lated statement of operations for year then ended, and, statement of changes
in net assets and the financial 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 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
highlights 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 state-
ment 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 (South Africa Free) 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 con-
formity with generally accepted accounting principles.
[SIGNATURE OF MCGLADREY & PULLEN, LLP APPEARS HERE]
New York, New York
February 3, 1995
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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
[RECYCLED PAPER LOGO
APPEARS HERE]
TL459 A 12/94
