<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
TIFI----------------------------------------------------------------------------
ANNUAL REPORT
[LOGO OF TEMPLETON APPEARS HERE]
December 31, 1994
<PAGE>
December 31, 1994
Shareholder...
As an emerging markets investor, 1994 was a challenging year, especially
following 1993 when rarely in history had so many markets performed as well.
With general expectations raised, the volatile markets experienced in 1994 have
brought investors back to the reality that emerging markets commitments must be
viewed over the long term. Strong performance in markets such as Brazil 67%,
Peru 48% and Chile 46% in 1994 were balanced by corrections in Poland -42%,
China -48%, Mexico -39% and Turkey -40%.
It is important to note that the correction in certain emerging market
stocks this year has been normal. Normal bear markets in many emerging markets
do not tend to last as long as in developed markets and are normally more
severe, sometimes reducing prices 30 to 40%. The Hong Kong market is a prime
example of this phenomena. Despite an increase of over 480% in the Hang Seng
stock index over the last decade from 1365 in January of 1985 to 8000 in January
of 1995, there have been four corrections of more than 30%. Going forward,
clients should expect similar volatility.
- --------------------------------------------------------------------------------
Total Returns as of 12/31/94
<TABLE>
<CAPTION>
One-Year Cumulative
Average Annual/1/ Since Inception/2/
<S> <C> <C>
TIFI Emerging Markets Series -11.39 17.79
IFC Investable Index -12.17 44.68
</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.
- --------------------------------------------------------------------------------
Performance over the year was volatile, reflecting the correction in
certain emerging markets stocks during 1994. Within this environment, the
Templeton Institutional Funds, Inc. Emerging Markets Series (the "Fund")
returned -10.2% for the quarter ended December 31, 1994, and -11.4% for the year
compared to the IFC Investable index return of -17.0% for the quarter and -12.2%
for the year. Since inception on May 3, 1993, the Emerging Markets Series has
posted an average annual return of 10.4% versus the IFC Investable index which
posted an average annual return of 24.9%, over the same period.
The asset size of the Fund was $583 million at year end, an increase
from $422 million at the end of 1993. The Fund's share price, in terms of net
asset value, was $11.21 on December 31, 1994, compared to $13.22 at
December 31, 1993. Distributions by the Fund for 1994 totaled $0.355 per share
in capital gains and $0.17 per share in dividend income.
continued....
[PHOTO OF MARK MOBIUS APPEARS HERE]
MARK MOBIUS JOINED TEMPLETON IN 1987 AS MANAGING DIRECTOR OF ITS FAR EAST
DIVISION IN HONG KONG, WITH RESPONSIBILITY FOR SUPPORTING THE TEMPLETON GROUP'S
RESEARCH EXPERTISE, PRINCIPALLY IN EMERGING MARKETS COUNTRIES. IN THIS CAPACITY,
HE DIRECTS THE ANALYSTS BASED IN HONG KONG, SINGAPORE AND MANAGES OUR EMERGING
MARKETS PORTFOLIOS. DR. MOBIUS HAS SPENT OVER TWENTY YEARS WORKING IN ASIA, AND
HAS EXTENSIVE EXPERIENCE IN ECONOMIC RESEARCH AND ANALYSIS.
PRIOR TO JOINING TEMPLETON, FROM 1983 TO 1986 HE WAS PRESIDENT OF INTERNATIONAL
INVESTMENT TRUST COMPANY LTD. IN TAIPEI, TAIWAN - THAT COUNTRY'S FIRST AND
LARGEST INVESTMENT MANAGEMENT FIRM. BEFORE THAT, HE SERVED AS A DIRECTOR AT
VICKERS DA COSTA, AN INTERNATIONAL SECURITIES FIRM. INITIALLY, HE STARTED IN
THAT FIRM'S HONG KONG OFFICE IN 1980, AND THEN MOVED TO TAIWAN IN 1983 TO OPEN
THAT FIRM'S OFFICE THERE AND TO DIRECT OPERATIONS IN INDIA, INDONESIA, THAILAND,
THE PHILIPPINES, AND KOREA. BEFORE JOINING VICKERS, DR. MOBIUS OPERATED HIS OWN
CONSULTING FIRM IN HONG KONG FOR TEN YEARS, AND WAS A RESEARCH SCIENTIST FOR
MONSANTO OVERSEAS ENTERPRISES COMPANY IN HONG KONG AND THE AMERICAN INSTITUTE
FOR RESEARCH IN KOREA AND THAILAND.
DR. MOBIUS HOLDS BACHELORS AND MASTERS DEGREES FROM BOSTON UNIVERSITY, AND
RECEIVED HIS PH.D. IN ECONOMICS AND POLITICAL SCIENCE IN 1964 FROM THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY. HE ALSO STUDIED AT THE UNIVERSITY OF
WISCONSIN, UNIVERSITY OF NEW MEXICO, AND KYOTO UNIVERSITY IN JAPAN.
<PAGE>
Templeton Institutional Funds, Inc. Emerging Markets Series
letter continued................................................................
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>
Asia 47.9%
Latin America/Caribbean 31.8%
Europe 18.1%
Mid-East/Africa 2.2%
</TABLE>
Fund Asset Allocation on 12/31/94
[PIE CHART APPEARS HERE SHOWING
FUND ASSET ALLOCATION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
----------------------- ----------------
<S> <C>
Equity* 73%
Short Term & Other 27%
</TABLE>
* Equity includes convertible and preferred stocks
Currently, we believe that Hong Kong will continue to consolidate and
that we will continue to find bargain stocks there because of the uncertainty
relating to 1997 and the general fear of new share issues going into the market
from China. In addition, Hong Kong as well as China, have shown strong growth in
the factors influencing a country's GDP. The number of new workers entering the
labor force is growing dramatically as capitalism, entrepreneurship and foreign
investment expand. Productivity per worker is rising, mainly due to workers
shifting from state run to privately managed corporations. Price levels are also
rising although some would claim almost too fast. These factors should have a
positive impact on longer-term trends in GDP and ultimately on the underlying
share prices.
Share prices in Mexico have fallen considerably with the devaluation
of the peso. This currency correction was not unexpected and we have continued
to purchase Mexican shares on a selective basis. The Mexican market has fallen
because of the lack of confidence by international investors and it provides us
with a good opportunity to pick up stocks at much lower levels. In the case of
Telmex, the fact that a significant portion of the company's earnings are dollar
denominated means that the impact of the devaluation is minimal in terms of
their actual business. Therefore, we see this as an opportunity to pick up more
shares as Telmex is basically an undervalued utility.
There is an ongoing risk of devaluations in a number of other Latin
American countries, but the timing and the extent of those corrections are
impossible to determine. A number of countries' currencies undergo continual and
gradual adjustments versus the U.S. dollar. During 1994, Brazil's currency
actually revalued against the U.S. dollar, but we doubt that revaluation will
continue. In the case of Argentina, with the currency pegged to the U.S. dollar,
it will be difficult but essential that the government maintain the peg. Chile
has revalued slightly against the U.S. dollar while Colombia had a slight
devaluation and Venezuela a large devaluation. As you know, we do not hedge
currencies, yet long-term projected currency movements are factored into the
long-term valuations of the individual company share price.
Looking forward, we hope to establish positions in a number of new
emerging markets including Kenya, the Ivory Coast, Jordan, Russia, Kazakstan,
Peru and Bolivia. The timing of these investments is unclear at this time, but
we are working in that direction. To assist in covering these countries and our
current emerging markets, we have established research staffs and offices in
Russia and India as well as added two research analysts in our Singapore office.
We are also in the interviewing process for research staff in Brazil, South
Africa and Vietnam.
We are still holding a fair amount of cash and have seen prices
retreat sufficiently to invest more of the cash. However, a large backlog of new
issues in a number of emerging market countries should keep share prices
depressed for a while. We want to remind you that there are times when "cash is
king" despite our policy of being as fully invested as
2
<PAGE>
................................................................................
possible. We never make a conscious effort to have a certain amount of cash in
our portfolio since that decision is dictated by conditions in the market and
the degree to which we can find bargains.
One other point that we would like you to keep in mind is that we are
not index investors. We provide you with these indices for reporting purposes,
but we feel that they have some shortcomings and are not appropriate as short-
term benchmarks. We feel that emerging markets investors should not be guided by
indices and should not feel that over or under performance to an index is
crucial. The focus should be on total returns over the long-term. That is the
focus of our research in emerging markets.
Generally, we continue to feel optimistic about emerging markets, but
we must warn investors that these markets could experience a few years of under
performance relative to our past performance in emerging markets and investors
must be prepared for this possibility. We have no idea when this under
performance will take place and to what extent it will occur, if it occurs at
all. However, if we are psychologically prepared for it, we can take advantage
of the situation rather than panicking. We thank you for your confidence in our
long-term investment process and we value your continuing investment with the
Templeton organization.
Sincerely,
/s/ Donald F. Reed
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
/s/ J. Mark Mobius
J. Mark Mobius, Ph.D.
Managing Director
Templeton Investment Management (Hong Kong) Ltd.
- --------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 05/03/93 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI EMERGING MARKETS SERIES, IFC
INVESTABLE COMP AND MSCI WORLD INDEX]
<TABLE>
<CAPTION>
5/03/93 12/31/94
--------- ----------
<S> <C> <C>
TIFI Emerging Markets Series $5,000,000 $7,233,725
IFC Investable Comp $5,000,000 $5,889,300
MSCI World Index $5,000,000 $5,712,856
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (05/03/93)
<S> <C> <C>
Average Annual Total Return/2/ -11.39% 10.35%
Cumulative Total Return/3/ -11.39% 17.79%
</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.
- --------------------------------------------------------------------------------
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 800-362-6243.
3
<PAGE>
Templeton Institutional Funds, Inc. Emerging Markets Series
country focus.....................................................
The following was written by the Fund's portfolio manager, Dr. J. Mark Mobius,
after a recent trip with his emerging markets research team to Czech Republic.
Country
-------------------------------------------------------------------------
FOCUS
PRAGUE, Czech Republic - I've just completed another visit to this
exciting emerging market and am impressed by how far the Czech Republic has
progressed since its creation on the first day of January 1993. But it's not the
past that really excites me - it's the future.
We at Templeton didn't start buying Czech equities when the Prague
Stock Exchange (PSE) opened in June 1993. But now that it has a track record, we
expect to gradually step up our investments here as new bargains present
themselves. Many factors should enlarge this market's equity base in the near
term. Gross Domestic Product (GDP) growth, falling inflation, low unemployment,
a highly skilled but low-cost labor market, and a strategic location near
Western European export markets, combine to provide unique opportunities for
investors.
How can I say all that when there is still considerable uncertainty
about the economic prospects for Eastern Europe overall? First, there is no
denying the commitment of Prime Minister Vaclav Klaus' government to build a
free-market economy and become a key trading partner of the Organization of
Economic Cooperation and Development (OECD) countries as soon as possible. The
Czechs have not followed the lead of nearby major foreign investment targets
Poland and Hungary in re-electing former Communists because bringing back the
"old guard" has generally posed major political obstacles to continued
privatization and capital market development.
The Czechs have a self-generated mass privatization program that the
World Bank and many other expert observers consider a model for other transition
economies. In its "first wave," ending in December 1992, $10.7 billion worth of
formerly state-owned enterprises were sold off. The "second wave," now winding
up, should dispose of about another $5 billion in assets. That means a transfer
of about 80% of the economy into private hands in only two years - a rate that
is remarkable in the former Communist world.
Even more amazing is the fact that as recently as 1989, the former
Czechoslovakia had the largest state sector of any Warsaw Pact country. Ninety-
seven percent of its economy was controlled by government central planners -
more than in the Soviet Union itself! Mere ownership transfer is not necessarily
the same as true privatization, of course, and just
4
<PAGE>
................................................................................
selling off old Communist albatrosses without proper restructuring doesn't
necessarily spell good news to foreign investors. But the deeper you look at the
Czech program, the better it seems.
Czechoslovakia was the wealthiest state to emerge from the Austro-
Hungarian Empire after World War I. Its potential was stifled, however, by the
Soviets' near-total nationalization of the economy in the late 1940s. Despite a
well-educated, highly skilled work force, Czechoslovakian annual economic growth
was more than 30 percent below the OECD average by the 1980s. Also, despite the
national consensus to rejoin the West following the November 1989 "Velvet
Revolution," breaking away from a collapsing communist economic union was not
easy. GDP shrank in 1990, 1991, and 1992, and inflation ran high.
However, the national commitment to building a free market system
never wavered. The political leaders were determined to move state assets back
into private hands as fast as possible, in most cases even before the
restructuring of state-owned enterprises. They decided that in all but the
highest-profile cases market forces - not government bureaucrats - should decide
how the enterprises should be overhauled, and that revenue maximization was in
general not as high a priority as efficiency enhancement and reductions in the
drain on the budget. Privatization takes many forms around the world, but more
than a few analysts have seen the wisdom in the Czech approach.
May 1992 saw the launch of the first wave of mass privatization, with
1,491 companies targeted to be sold immediately. All citizens 18 years of age
and older could participate in this unprecedented auction by buying a 1,000
"point" voucher book for a (Koruna) 1,000 ($35) fee. That covered the
government's administrative expenses in running the program, and was equal to
about the average weekly wage rate.
The government made no attempt to set advance prices for the
enterprises. This was done purely through market forces, during five rounds of
bidding held during the following 14 months. Out of an eligible population of
10.5 million, 8.5 million people took part, creating an abundant base of public
shareholders. Most people's "points" (70% by some estimates) were voluntarily
pooled into new Investment Privatization Funds (IPFs) set up primarily by local
financial institutions rather than converted directly into shares. Prior to the
launch of the auction program in early 1992, I was invited to a dinner honoring
Prime Minister Klaus at the boardroom of a prominent Wall Street bank. The
urbane and loquacious bankers did not hide their skepticism about the Czech
government's ability to carry out such a complex and massive program. However,
Klaus was adamant and stated his determination to carry out the privatization
process that way since he was convinced it offered the most equitable
distribution method.
These voucher funds quickly began to operate essentially like mutual
funds or unit trusts in the West, with far greater buying power than that of
individual small investors. After April 1992, the government placed restrictions
against owning more than 20% of the shares of any one
<TABLE>
<CAPTION>
Industry Diversification on 12/31/94
(% of Total Portfolio)
<S> <C>
Banking 23.0%
Telecommunications 11.1%
Real Estate 8.3%
Multi-Industry 8.0%
Utilities Electrical & Gas 7.1%
Food & Household Products 6.4%
Building Materials & Components 4.2%
Metals & Mining 3.8%
Textiles & Apparel 3.5%
Chemicals 3.1%
</TABLE>
<TABLE>
<CAPTION>
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<S> <C>
Telmex-Telefonos de
Mexico SA, L, ADR 3.0%
Eletrobras-Centrais Eletricas
Brasileiras SA, B, pfd. 2.6%
Telebras-Telecomunicacoes
Brasileiras SA 2.2%
Banco Comercial
Portugues SA 2.0%
Philippine Long Distance
Telephone Co. 1.8%
Cheung Kong Holdings Ltd. 1.8%
Alpha Credit Bank 1.8%
Investimentos Itau
SA, (ITAUSA) 1.5%
Vale do Rio Doce 1.5%
HSBC Holdings PLC 1.2%
</TABLE>
5
<PAGE>
Templeton Institutional Funds, Inc. Emerging Markets Series
country focus continued.........................................................
enterprise, or having any one enterprise take up more than 10% of the
portfolios. Prices were set through a laissez faire five-round bidding process
over eight months in 1992, during which time an active secondary market emerged.
Though the "velvet divorce" that would separate the Czech and Slovak Republics
on January 1, 1993, posed certain political complications for a while, many
crucial foundations for sound capital market development had been set by this
time. When it comes to creating supply for market, and building a large class of
shareholders whose actions could improve corporate governance and performance,
the Czechs appear to have done more than any other Central or Eastern European
country.
When the Prague Stock Exchange opened for trading in June of 1993,
about 20 large companies were ready for listing. The largest were CEZ, the state
power utility in which the state retained majority ownership, the major banks
and the largest insurance company. Until that time, foreigners had
[MAP APPEARS HERE]
relatively few direct ways of buying into the privatization program, and it
wasn't until August 1993 that they were able to buy on the PSE. Many jumped at
the chance, attracted perhaps by the fact that the nearby Warsaw Stock Exchange
in Poland was in the process of becoming the world's best performer for the
year.
The inflow of foreign funds drove the Prague market capitalization up
to $15 billion by the end of 1993, reaching $25 billion by early March when it
was affected by the worldwide correction in securities markets. Prior to this
correction, the Price/Earnings ratios of the largest companies had hit 22 on
average, and bargains were becoming scarce. For the time being, it seems to have
settled in at about $12 billion.
Growth seems likely, as 861 companies are scheduled to be sold off
during the current second wave of privatizations. Some, such as
6
<PAGE>
................................................................................
SPT Telecom (the state-owned telephone company), the water utilities, the gas
utility, and some breweries, pharmaceutical houses and refineries, may choose to
list on the PSE. The government may also use the local market to gradually
dilute its holding in CEZ, which has earned a strong enough credit rating to
enable it to tap the Eurobond markets. The Mexican government did something
similar with Telmex, building the international reputation of both the firm and
the stock exchange in the process. While many political decisions still depend
on the details of the privatization of SPT Telecom, this could provide much new
capital when shares are offered to international buyers. The large banks may
choose to launch capital increases on the market, and many more companies may
soon be able to meet one of the PSE's key listing requirements - having three
years of audited financial statements.
Rapid development of the Registration Place System, an over-the-
counter market for unlisted securities, has been especially helpful in
facilitating trades by small shareholders. This nationwide electronic network
has generally seen larger daily trading volume than the PSE. Unlike Poland and
Hungary, if you look only at listed equities, you see just a small part of true
market capitalization.
Of course in a situation as new as this, not everything is perfect.
Regulation and corporate information are still not fully developed, and many of
the privatized enterprises have not yet received the capitalization they need.
But GDP seems likely to grow by up to five percent this year. And with close
access to a
[MAP APPEARS HERE]
reviving German company and an Austria that may soon join the European Union -
to say nothing of the overall benefits that will come if the Czech Republic and
other countries in the region are allowed into the European Union - things look
good. As the decade goes on, we see prospects continuing to improve for Czech
companies, and look forward to taking advantage of them.
7
<PAGE>
Templeton Institutional Funds, Inc. Emerging Markets Series
spotlight.......................................................................
Below are descriptions of three emerging markets companies' shares held in the
TIFI Emerging Markets Series.
Spotlight
-----------------------------------------------------------------------
ON
CURRENT
HOLDINGS
Cheung Kong (Holdings) Limited - Incorporated in 1971 and listed in 1972,
Cheung Kong has over the years successfully diversified from property
development into one of the largest conglomerates in Hong Kong. The major
shareholder, Li Ka Shing, is regarded by the local business community as one
of the most successful businessmen in Hong Kong. Together with its 40%-owned
associated company, Hutchison Whampoa, Cheung Kong's activities permeate a
wide spectrum of the Hong Kong economy. Hutchison operates container
terminals in Hong Kong (in Kwai Chung) and the U.K. (Felixstowe Port),
cellular and paging services in Hong Kong and the U.K., as well as
supermarkets (Park N Shops) and drug stores (Watsons). Hutchison also owns
49% of Husky Oil in Canada. Cheung Kong has a 17 million sq. ft. development
landbank in Hong Kong. Currently, the major property development projects
are: (1) Kingswood Villas: Located in Tin Shui Wai, this is the largest
private residential development in the New Territories. It involves the
construction of 58 residential blocks and one commercial block, equivalent to
a gross floor area of 11.4 million sq. ft. and 800,000 sq. ft. of residential
and commercial space, respectively. The project has been partly pre-sold and
completion is phased between 1991 and 1997; (2) Laguna City: This development
involves 38 residential blocks, equivalent to 6.5 million sq. ft. and one
161,000 sq. ft. commercial centre. Mostly pre-sold, this development is
scheduled for completion in late 1995; (3) South Horizons: This project,
scheduled for completion in late 1995, involves the development of a gross floor
area of 8.2 million sq. ft. and 300,000 sq. ft. of residential and commercial
space, respectively. In addition, Cheung Kong has interests in numerous projects
in China, including commercial real estate developments, government-supported
housing projects and power stations. Cheung Kong also owns Green Island Cement
which is the largest cement producer in Hong Kong.
Goldlion Holdings Limited - Goldlion is a Hong Kong company established as a
necktie producer by its current Chairman, Tsang Hin Chi, in 1968. Today,
Goldlion sells garments (40% of sales), neckties (27%), leather products
(20%), menswear accessories (5%) and other accessories (8%). The majority of
raw materials are sourced from OECD countries, especially Italy and Germany,
to ensure high quality levels. More than one-third of goods
8
<PAGE>
................................................................................
sold are manufactured at the company's production facilities located in China
and Hong Kong. Goldlion's product designs are handled in Germany by its
Dusseldorf office. Most of its existing retail outlets are owned by franchisees.
Goldlion has chosen this route in order to avoid the substantial start-up cash
outflows and management responsibilities associated with retail ownership. China
sales represent 61% of Goldlion's total turnover, with the remainder accounted
for by Hong Kong (26%), Singapore (8%), and other Asian countries (5%). In
China, Goldlion is a leader in terms of brand awareness and retail network.
Goldlion entered China in the early 1980s and is believed to be the first
foreign tie company in the country. Goldlion is an accomplished mid to high end
distributor of quality goods. It has achieved higher brand awareness than its
competitors through heavier advertising, a more extensive retail network, and a
longer history of operations. Goldlion heavily advertises its brands on numerous
TV channels in China. The company has more than 660 franchised retail outlets in
cities throughout China. The plan is to increase the number of retail outlets to
1,000 by the end of 1996. In December 1994, Goldlion opened a joint-venture
department store in Shenyang, China, in which the Goldlion counter supports the
local Goldlion retail operations and acts as a wholesale centre for the
Northeastern part of China.
National Bank of Greece S.A. - National Bank of Greece is indirectly
controlled by the Greek government through public entities. The bank has been
involved in the economic life of Greece for one and a half centuries. It was
founded in 1841 and was the country's first bank. It was the note-issuing
bank until 1928. Ever since its foundation, the bank has been one of the
mainstays of the Greek economy and has risen to the leadership of the
country's banking system, with a notable presence in the world's foremost
financial centres. Its head office is in Athens and provides a full range of
banking services. At present, the assets of National Bank of Greece amount to
about 60% of the total assets of Greek commercial banks. The bank is also the
largest in terms of market share (about 40% in loans and 50% in deposits).
The bank's infrastructure includes: (1) the most extensive network of
branches (about 500) in Greece and a considerable number of branches and
affiliated banks abroad; (2) experienced personnel, with a high level of
professional qualifications and educational background; (3) a decentralized
administrative system; (4) a direct on-line linkage with almost its entire
network, providing the fastest possible service to its numerous customers;
(5) automatic telecommunications links with international money markets; (6)
a modern dealing room providing customers with fast service in foreign
exchange transactions; and (7) advanced information technology and data
processing systems, and a broad range of modern equipment. National Bank of
Greece has interests in industrial companies and properties. The bank also
has subsidiaries involved in leasing, investment management and insurance.
The bank's long experience, its close ties with manufacturing and trading
firms, and its extensive infrastructure are major advantages, enabling it to
provide multifaceted banking services throughout the country, in the fields
of both retail and corporate banking.
9
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 13.22 $ 10.00
-------- --------
Income from investment operations:
Net investment income .17 .04
Net realized and unrealized gain (loss) (1.65) 3.25
-------- --------
Total from investment operations (1.48) 3.29
-------- --------
Distributions:
Dividends from net investment income (.17) (.04)
Distributions from net realized gains (.36) (.03)
-------- --------
Total distributions (.53) (.07)
-------- --------
Change in net asset value for the period (2.01) 3.22
-------- --------
Net asset value, end of period $ 11.21 $ 13.22
======== ========
TOTAL RETURN * (11.39)% 32.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $582,878 $422,433
Ratio of expenses to average net assets 1.66% 1.60%**
Ratio of expenses, net of reimbursement,
to average net assets 1.60% 1.60%**
Ratio of net investment income to average
net assets 1.59% 0.91%**
Portfolio turnover rate 12.51% 9.42%
</TABLE>
*NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES: 73.1%
- -----------------------------------------------------------------------------------------
Argentina: 2.4%
- -----------------------------------------------------------------------------------------
Banco Frances del Rio
de la Plata SA Banking 120,000 $ 791,960
**Comercial de Plata SA Multi-Industry 419,000 1,068,397
Compania Naviera Perez
Companc SA, B Energy Sources 666,535 2,745,987
**Industrias
Petroquimicas Koppers Chemicals 1,070,293 4,473,601
**Molinos Rio de Plata
SA, B Food & Household Products 264,633 1,469,963
Sevel Argentina SA, C Automobiles 415,021 1,556,251
YPF Sociedad Anonima,
ADR Energy Sources 46,000 983,250
Zanella Hermanos SA Automobiles 974,137 1,129,942
------------
14,219,351
- -----------------------------------------------------------------------------------------
Bolivia: 0.3%
Compania Boliviana de
Energia Electricas SA Utilities-Electrical & Gas 68,700 1,562,925
- -----------------------------------------------------------------------------------------
Brazil: 13.0%
Banco Bradesco SA Banking 552,006,592 4,242,695
Banco Bradesco SA, pfd. Banking 75,787,819 644,241
Banco do Brasil SA Banking 46,034,500 815,251
Banco do Brazil SA,
pfd. Banking 125,399,390 2,472,456
Banespa-Banco do Estado
de
Sao Paulo SA, pfd. Banking 292,091,680 4,172,738
Brasmotor SA, pfd. Multi-Industry 1,456,090 589,656
**Cia Mesbla SA, pfd. Merchandising 21,520,000 3,861,913
Copene-Petroquimica de
Nordeste SA, A, pfd. Chemicals 600,000 523,495
Duratex SA, pfd. Forest Products & Paper 6,492,000 417,726
Eletrobras-Centrais
Eletricas Brasileiras
SA, B, pfd. Utilities-Electrical & Gas 43,660,106 15,154,748
Itausa-Investimentos
Itau SA, pfd. Multi-Industry 15,133,804 8,933,769
Light SA Utilities Electrical & Gas 6,937,900 2,506,490
Mannesmann SA Machinery & Engineering 348,510 154,710
Mannesmann SA, pfd. Machinery & Engineering 300,000 141,677
Marcopolo SA, B, pfd. Automobiles 5,243,800 1,671,577
Petrobras-Petroleo
Brasileiro SA, pfd. Energy Sources 27,855,666 3,518,628
**Refripar-Refrigeracao
Parana Sa, pfd. Appliances & Household Durables 334,170,161 1,104,695
**Telebras-
Telecomunicacoes
Brasileiras SA Telecommunications 161,940,583 6,978,549
**Telebras-
Telecomunicacoes
Brasileiras SA, pfd. Telecommunications 129,824,359 5,809,142
**Telebras-
Telecomunicacoes
Brasileiras SA, pfd.,
new Telecommunications 2,959,609 131,697
Telecomunicacoes do Rio
de
Janeiro SA, pfd. Telecommunications 7,265,544 420,321
Telecomunicacoes de Sao
Paulo SA Telecommunications 3,069,501 503,732
Telecomunicacoes de Sao
Paulo SA, pfd. Telecommunications 4,827 687
Unibanco-Uniao de
Bancos
Brasileiros SA, pfd. Banking 57,766,584 1,711,855
Vale de Rio Doce, pfd. Metals & Mining 45,181,000 8,641,466
**Varig SA, pfd. Transportation 165,500 547,107
------------
75,671,021
- -----------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Chile: 0.1%
Antofagasta Holdings
PLC Metals & Mining 150,000 $ 739,228
- -----------------------------------------------------------------------------------------
China: 2.0%
China First Pencil Co. Recreation, Other Consumer
Ltd., B Goods 507,000 171,366
China Southern Glass
Co. Ltd., B Multi-Industry 150,000 147,334
Guangzhou Shipyard
International
Co. Ltd., H Machinery & Engineering 1,204,000 431,806
**Luoyang Glass Co.
Ltd., H Misc Materials & Commodities 241,000 91,884
Shandong Huaneng Power Utilities-Electrical & Gas 79,000 760,375
Shanghai Chlor-Alkali
Chemical
Co. Ltd., B Chemicals 2,962,000 799,740
Shanghai Erfangji
Textile Machinery
Co. Ltd., B Machinery & Engineering 2,940,000 588,000
**Shanghai Forever Recreation, Other Consumer
Bicycle Co. Ltd., B Goods 1,145,000 238,160
**Shanghai Industrial
Sewing
Machine Corp. Machinery & Engineering 930,000 372,000
Shanghai Jinqiao Export
Processing Zone
Development, B Real Estate 1,255,300 878,710
Shanghai Lian Hua Fibre
Corp., B Textiles & Apparel 938,800 356,744
**Shanghai Lujiaxui
Finance &
Trade Zone
Development Stock Co.
Ltd., B Real Estate 200,000 162,000
**Shanghai Narcissus
Electric Appliances
Co. Ltd., B Appliances & Household Durables 160,000 36,480
**Shanghai Outer
Gaoqiao Free Trade
Zone Development Co.,
B Real Estate 375,910 221,787
Shanghai Pechemical Co.
Ltd., H Chemicals 2,670,000 759,160
**Shanghai Phoenix Recreation, Other Consumer
Bicycle Co. Ltd., B Goods 472,000 243,080
**Shanghai Rubber Belt
Co. Ltd., B Industrial Components 41,000 6,150
**Shanghai Steel Tube
Co. Ltd., B Machinery & Engineering 2,052,400 568,515
Shanghai Tyre & Rubber
Co. Ltd., B Industrial Components 1,106,000 420,280
Shanghai Vacuum
Electron Devices
Co. Ltd., B Appliances & Household Durables 438,000 90,228
Shanghai Wingsung
Stationery Recreation, Other Consumer
Co. Ltd., B Goods 180,000 81,000
Shanghai Yaohua
Pilkington Glass, B Building Materials & Components 1,924,000 1,885,520
Shenzhen China Bicycles
Co. (Holdings) Ltd., Recreation, Other Consumer
B Goods 1,562,500 686,591
Shenzhen Gintian
Industrial Co. Ltd.,
B Multi-Industry 625,067 278,705
Shenzhen Huafa
Electronics Co. Ltd.,
B Appliances & Household Durables 50,000 11,632
Shenzhen Properties &
Resources
Develop.(Group) Ltd.,
B Real Estate 1,041,600 397,121
Shenzhen Tellus
Machinery &
Electronics Co. Ltd.,
B Multi-Industry 38,000 12,573
Shenzhen Vanke Co.
Ltd., B Real Estate 462,000 217,939
Tsann Kuen Enterprise
Co. Ltd., B Electrical & Electronics 1,520,000 756,317
**Zhuhai Sez Lizhu
Pharmaceutical, B Chemicals 440,800 227,877
------------
11,899,074
- -----------------------------------------------------------------------------------------
Colombia: 0.1%
Promigas SA Multi-Industry 29,134 80,577
- -----------------------------------------------------------------------------------------
Czech Republic: 0.5%
**CEZ, GDR Utilities-Electrical & Gas 44,000 2,024,000
**CEZ, GDS Utilities-Electrical & Gas 26,000 1,196,000
------------
3,220,000
- -----------------------------------------------------------------------------------------
France: 0.2%
Compagnie Financiere
Ottomane SA Banking 38,000 1,278,200
- -----------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Greece: 5.4%
Alpha Credit Bank Banking 239,753 $ 10,305,085
Alpha Leasing SA Financial Services 86,280 2,192,037
Delta Dairy SA, pfd. Food & Household Products 65,040 1,159,397
Elais Oleaginous Co. Food & Household Products 30,600 1,860,725
Ergo Bank SA Banking 119,220 4,913,294
Etba Leasing Financial Services 93,940 1,897,580
Fourlis Brothers Corp.
SA Appliances & Household Durables 115,450 1,442,524
Hellas Can-Container
Manufacturers Food & Household Products 92,580 1,578,988
Hellenic Bottling Co.
SA Food & Household Products 24,080 852,478
National Bank of Greece
SA Banking 46,150 2,147,003
Titan Cement Co., SA Building Materials & Components 57,310 1,682,780
X. Benrubi & Son SA Food & Household Products 182,470 1,120,963
------------
31,152,854
- -----------------------------------------------------------------------------------------
Hong Kong: 11.3%
C.P. Pokphand Co. Ltd. Food & Household Products 4,794,000 1,121,440
Cheung Kong Holdings
Ltd. Real Estate 2,559,000 10,417,900
China Overseas Land &
Investment Ltd. Real Estate 2,000,000 367,044
CNT Group Ltd. Multi-Industry 21,987,000 1,506,056
Cross Harbour Tunnel
Co. Ltd. Transportation 799,010 1,533,480
Dairy Farm
International
Holdings Ltd. Food & Household Products 1,356,270 1,454,868
Dickson Concepts
(International) Ltd. Merchandising 938,000 612,200
East Asiatic Co. Ltd. Wholesale & International Trade 1,684,000 261,170
Fortei Holdings Ltd. Merchandising 4,514,000 355,869
**Fu Hui Jewellery Co. Recreation, Other Consumer
Ltd. Goods 3,000,000 178,352
Goldlion Holdings Ltd. Textiles & Apparel 2,921,000 694,622
Great Wall Electronic
International Ltd. Electrical & Electronics 802,000 63,227
Hang Lung Development
Co. Ltd. Real Estate 4,486,000 6,377,512
**Hang Lung Development
Co. Ltd., wts. Real Estate 418,600 62,756
Hongkong Electric
Holdings Ltd. Utilities-Electrical & Gas 376,000 1,027,774
HSBC Holdings PLC Banking 668,028 7,209,091
IMC Holdings Ltd. Transportation 145,000 131,179
Jardine International
Motor
Holdings Ltd. Automobiles 1,280,000 1,348,239
Jardine Matheson
Holdings Ltd. Multi-Industry 12,349 88,179
Jardine Strategic
Holdings Ltd. Multi-Industry 578,000 1,897,409
**JCG Holdings Ltd. Banking 636,000 330,843
Joyce Boutique Holdings
Ltd. Merchandising 5,474,000 1,351,256
K Wah International
Holdings Ltd. Building Materials & Components 10,499,581 2,198,297
Lai Sun Development Co.
Ltd. Real Estate 11,120,000 1,379,670
Lai Sun Garment
International Ltd. Multi-Industry 1,122,000 1,355,826
Laws International
Holdings Ltd. Textiles & Apparel 3,128,000 533,630
Leefung-Asco Printers
Holdings Ltd. Broadcasting & Publishing 470,000 69,855
Ming Pao Enterprise
Corp. Ltd. Broadcasting & Publishing 1,940,000 1,165,880
New World Development
Co. Ltd. Real Estate 2,070,313 5,525,294
Peregrine Investments
Holdings Ltd. Financial Services 630,000 740,937
Semi-Tech Co. Ltd. Appliances & Household Durables 870,500 1,468,178
Stelux Holdings Ltd. Multi-Industry 5,141,881 1,528,443
Sun Hung Kai & Co. Ltd. Financial Services 5,346,000 2,141,855
Sun Hung Kai Properties
Ltd. Real Estate 884,000 5,278,294
Tian An China
Investments Co. Ltd. Real Estate 1,856,000 371,800
Tungtex (Holdings) Co.
Ltd. Textiles & Apparel 2,972,000 345,693
Vitasoy International
Holdings Ltd. Food & Household Products 400,000 138,288
Wheelock & Co. Ltd. Multi-Industry 534,000 886,837
Wing Shan International
Ltd. Utilities-Electrical & Gas 544,000 79,447
Wo Kee Hong Holdings
Ltd. Merchandising 3,530,000 812,071
Yaohan Hongkong Corp.
Ltd. Merchandising 4,702,000 638,074
Yue Yuen Industrial Recreation, Other Consumer
Holdings Ltd. Goods 4,211,000 832,676
------------
65,881,511
- -----------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Hungary: 0.2%
**Chinoin
Pharmaceutical &
Chemical Works Co.
Ltd. Health & Personal Care 1,000 $ 424,216
Fotex First Hungarian-
American
Photo-Service Multi-Industry 183,000 553,656
Ibusz Leisure & Tourism 38,280 386,046
------------
1,363,918
- -----------------------------------------------------------------------------------------
Indonesia: 3.4%
PT Anwar Sierad, fgn. Food & Household Products 220,000 200,182
PT Aqua Golden
Mississippi, fgn. Beverages & Tobacco 138,000 172,657
PT Astra International,
fgn. Multi-Industry 4,500 8,599
PT Bank International
Indonesia, fgn. Financial Services 88,800 282,803
PT Bank PDFCI, fgn. Financial Services 211,000 175,193
PT BBL Dharmala
Finance, fgn. Financial Services 416,500 739,013
PT Branta Mulia, fgn. Industrial Components 349,200 506,404
PT Charoen Pokphand
Indonesia, fgn. Food & Household Products 94,000 384,895
PT Duta Pertiwi
Nusantura, fgn. Chemicals 59,813 16,327
PT Eratex Djaja, fgn. Textiles & Apparel 328,000 141,765
PT Ficorinvest Bank,
fgn. Financial Services 140,000 79,618
PT Gajah Surya Multi
Finance, fgn. Financial Services 1,294,000 699,101
PT Ganda Wangsa Utama,
fgn. Textiles & Apparel 463,600 210,919
PT Hadtex Indosyntec,
fgn. Textiles & Apparel 1,417,500 822,253
PT Hotel Prapatan, fgn. Leisure & Tourism 32,500 20,701
PT Intan Wijaya
Chemical Industry,
fgn. Chemicals 141,000 64,149
PT Inter-Pacific Bank,
fgn. Financial Services 589,500 643,676
PT Jakarta
International Hotel &
Development, fgn. Real Estate 302,500 392,232
PT Japfa Comfeed
Indonesia, fgn. Food & Household Products 1,661,000 1,983,678
PT Metrodata
Electronic, fgn. Electrical & Electronics 45,000 38,899
**PT Multibreeder
Adirama, fgn. Food & Household Products 138,500 234,719
PT Multipolar Corp.,
fgn. Electrical & Electronics 141,000 104,242
PT Polysindo Eka
Perkasa, fgn. Textiles & Apparel 2,078,000 3,923,430
PT Pudjiadi & Sons
Estates Ltd., fgn. Leisure & Tourism 22,400 39,745
**PT Pudjiadi Prestige
Ltd., fgn. Real Estate 425,000 372,213
+PT Sarasa Nugraha,
fgn. Textiles & Apparel 2,890,000 3,287,079
PT Summarecon Agung,
fgn. Real Estate 854,138 919,810
PT Ultra Jaya Milk,
fgn. Food & Household Products 1,800 1,703
PT Unggul Indah Corp.,
fgn. Chemicals 2,670,000 3,188,694
------------
19,654,699
- -----------------------------------------------------------------------------------------
Israel: 0.5%
**Bank Hapoalim BM Banking 267,348 387,332
Clal Industries Ltd. Multi-Industry 99,978 595,300
**Discount Investment
Corp. Multi-Industry 20,733 1,394,389
**The First
International Bank of
Israel Banking 1,977 223,249
------------
2,600,270
- -----------------------------------------------------------------------------------------
Korea (South): 0.6%
Central Investment &
Finance Corp. Financial Services 56,251 1,548,062
Dae Yu Co. Textiles & Apparel 3,480 112,543
**Dae Yu Co. Ltd., rts. Textiles & Apparel 835 7,148
Daehan Synthetic Fiber
Co. Ltd. Textiles & Apparel 3,000 463,792
Hae In Corp. Ltd. Merchandising 3,500 222,384
Hankook Cosmetics Co.
Ltd. Health & Personal Care 10,940 489,768
Samseong Publishing Co.
Ltd. Business & Public Services 10,550 357,242
Yuhwa Corp. Textiles & Apparel 4,440 247,762
------------
3,448,701
- -----------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Malaysia: 3.1%
Federal Flour Mills
Bhd. Food & Household Products 766,000 $ 2,099,863
Malayawata Steel Bhd. Metals & Mining 41,000 74,181
Malayawata Steel Bhd.,
fgn. Metals & Mining 1,098,000 1,986,591
Malaysian International
Shipping Corp. Bhd.,
fgn. Transportation 1,943,333 5,555,643
Oriental Holdings Bhd. Automobiles 150,000 775,406
Oriental Holdings Bhd.,
fgn. Automobiles 607,000 3,137,811
Perlis Plantations Bhd. Multi-Industry 120,400 396,068
Perlis Plantations
Bhd., fgn. Multi-Industry 727,000 2,391,541
Shangri-La Hotels Bhd. Leisure & Tourism 1,547,000 1,914,439
------------
18,331,543
- -----------------------------------------------------------------------------------------
Mexico: 6.1%
Cemex SA, B Building Materials & Components 561,875 2,927,369
DESC Sociedad de
Fomento
Industrial SA, A Multi-Industry 104,000 454,480
DESC Sociedad de
Fomento
Industrial SA, B Multi-Industry 409,544 1,965,811
DESC Sociedad de
Fomento
Industrial SA, C Multi-Industry 113,000 630,540
Grupo Financiero
Banamex
Accival SA, B Banking 62,000 182,280
Grupo Financiero
Banamex
Accival SA, C Banking 320,000 940,800
Grupo Financiero
Bancomer SA, C Banking 1,659,934 896,364
Grupo Financiero Serfin
SA, B Banking 373,000 708,700
Grupo Industrial Alfa
SA, A Multi-Industry 459,262 4,408,915
Telmex-Telefonos de
Mexico
SA, L, ADR Telecommunications 423,500 17,363,500
**Tubos de Acero de
Mexico SA Metals & Mining 245,025 1,168,769
Vitro SA Food & Household Products 812,000 3,727,080
------------
35,374,608
- -----------------------------------------------------------------------------------------
Pakistan: 0.2%
**Bank of Punjab Banking 277,800 496,568
**Union Bank Ltd. Banking 341,000 387,888
------------
884,456
- -----------------------------------------------------------------------------------------
Philippines: 3.7%
Citytrust Banking Corp. Banking 13,000 612,705
Philex Minning Corp., B Metals & Mining 6,594,610 1,081,084
Philippine Long
Distance Telephone
Co. Telecommunications 189,905 10,468,513
Philippine National
Bank Banking 155,400 2,197,258
RFM Corp. Food & Household Products 3,793,500 6,141,117
Sime Darby Pilipinas
Inc. Industrial Components 535,500 1,338,750
------------
21,839,427
- -----------------------------------------------------------------------------------------
Portugal: 6.8%
Banco Chemical Portugal Banking 37,370 388,232
Banco Comercial
Portugues SA Banking 580,114 7,592,733
Banco Espirito Santo e
Comercial de Lisboa Banking 349,600 6,775,535
Banco Portugues de
Investimento SA Banking 367,300 5,491,472
Banco Portugues de
Atlantico SA Banking 259,400 3,284,123
**Banco Portugues de
Atlantico SA, new Banking 17,140 202,764
Banco Totta & Acores SA Banking 143,451 3,213,476
BCP Bank & Trust Co.
Ltd., 8.75%, conv.,
5/21/02 Corporate Bond 3,000,000* 3,797,864
</TABLE>
15
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Portugal (cont.)
Cel-Cat Fabrica
Nacional de
Conductores Electronic Components &
Electricos SA Instruments 9,522 $ 205,515
+Compta-Equipamentos e
Servicos de
Informatica SA Business & Public Services 62,700 722,005
Espirito Santo
Financial Holding
SA, ADR Banking 242,420 3,242,368
Portuguesa Radio
Marconi SA Telecommunications 54,340 1,856,696
Portuguesa Radio
Marconi SA, br. Telecommunications 89,700 3,070,526
------------
39,843,309
- -----------------------------------------------------------------------------------------
Singapore: 1.5%
Acma Ltd. Electrical & Electronics 60,000 196,775
**Acma Ltd., fgn. Electrical & Electronics 45,000 147,581
Chemical Industries
(Far East) Ltd. Chemicals 589,000 1,770,031
First Capital Corp.
Ltd., fgn. Real Estate 55,000 184,906
Hai Sun Hup Group Ltd. Transportation 176,000 176,302
Hinds Hotels
International Ltd. Leisure & Tourism 268,000 332,816
**Hotel Properties
Ltd., fgn. Leisure & Tourism 57,000 103,636
Inchcape Bhd., fgn. Wholesale & International Trade 132,000 498,113
Isetan (Singapore)
Ltd., fgn. Merchandising 61,000 136,439
Jaya Holdings Ltd. Transportation 1,881,000 1,755,170
Jaya Holdings Ltd.,
3.5%, conv., 9/7/97 Corporate Bond 376,200* 197,457
Jaya Holdings Ltd.,
3.00%,
conv., 8/31/98 Corporate Bond 80,400* 121,358
**Jaya Holdings Ltd.,
wts. Transportation 62,700 37,857
**Osprey Maritime Ltd. Transportation 132,000 289,080
Prima Ltd. Food & Household Products 105,000 367,410
Singapore Bus Service
Ltd., fgn. Transportation 249,600 1,969,400
TIBS Holdings Ltd. Transportation 100,000 307,376
Wing Tai Holdings Ltd.,
fgn. Real Estate 58,000 102,669
------------
8,694,376
- -----------------------------------------------------------------------------------------
South Africa: 1.2%
Amalgamated Bank of
South Africa Banking 673,680 1,919,128
Engen Ltd. Energy Sources 186,291 1,738,472
First National Bank
Holdings Ltd. Banking 220,300 1,325,479
Nedcor Ltd. Banking 131,000 1,395,414
Rembrandt Group Ltd. Multi-Industry 53,000 364,440
------------
6,742,933
- -----------------------------------------------------------------------------------------
Sri Lanka: 0.2%
Associated Motorways
Ltd. Automobiles 100,512 203,070
**Ceylon Holiday Recreation, Other Consumer
Resorts Ltd. Goods 185,000 447,400
Hayleys Ltd. Multi-Industry 22,800 88,222
**Kelani Tyres Ltd. Industrial Components 700 578
Lanka Walltile Ltd. Multi-Industry 34,000 57,557
United Motor Lanka Ltd. Automobiles 112,000 85,772
------------
882,599
- -----------------------------------------------------------------------------------------
Thailand: 2.7%
American Standard
Sanitaryware
Public Co. Ltd., fgn Health & Personal Care 33,000 446,923
Asia Fibre Public Co.
Ltd. Textiles & Apparel 229,000 177,873
Asia Fibre Public Co.
Ltd., fgn. Textiles & Apparel 440,500 342,153
Ayudhya Insurance
Public Co. Ltd., fgn. Insurance 136,900 1,063,354
Bangkok Bank Public Co.
Ltd. Banking 336,000 2,757,060
Bangkok Land Co. Ltd.,
fgn. Real Estate 572,000 1,424,019
Bank of Ayudhya Ltd. Banking 66,000 252,380
Bank of Ayudhya Ltd.,
fgn. Banking 174,400 718,996
</TABLE>
16
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Thailand (cont.)
Chareon Pokphand
Feedmill Public Co.
Ltd., fgn. Food & Household Products 66,000 $ 446,923
Charoen Pokphand
Feedmill Public
Co. Ltd. Food & Household Products 71,000 444,015
Hua Thai Manufacturing
Public Co. Ltd. Textiles & Apparel 51,000 113,762
Karat Sanitaryware
Public Co. Ltd. Building Materials & Components 20,000 76,877
Karat Sanitaryware
Public Co. Ltd., fgn. Building Materials & Components 98,000 378,650
**Kian Gwan (Thailand)
Public Co.
Ltd., fgn. Real Estate 74,000 280,024
**Royal Ceramic
Industry Public Co.
Ltd. Building Materials & Components 4,700 5,991
Royal Ceramic Industry
Public Co.
Ltd., fgn. Building Materials & Components 202,000 257,479
Saha Pathanapibul Co
Ltd., fgn. Health & Personal Care 551,000 1,448,556
Saha Union Public Co.
Ltd., fgn. Textiles & Apparel 1,130,300 1,339,431
Siam City Cement, fgn. Building Materials & Components 26,000 443,258
Thai Asahi Glass Public
Co. Ltd. Building Materials & Components 94,910 260,856
Thai Asahi Glass Public
Co. Ltd., fgn. Building Materials & Components 32,000 87,951
Thai Farmers Bank
Public Co. Ltd. Banking 200,600 1,382,346
Thai Rayon Public Co.
Ltd. Textiles & Apparel 12,000 111,850
Thai Rayon Public Co.
Ltd., fgn. Textiles & Apparel 36,660 347,544
Thai Wacoal Public Co.
Ltd., fgn. Textiles & Apparel 157,700 1,279,126
------------
15,887,397
- -----------------------------------------------------------------------------------------
Turkey: 6.3%
Akbank AS Banking 17,299,780 4,657,633
**Akbank AS, new Banking 4,324,945 1,108,960
**Akbank AS, rts. Banking 17,299,780 998,064
Akcimento Ticaret AS Building Materials & Components 782,000 1,243,179
**Aksigorta AS Insurance 5,370,000 1,074,000
Alcatel Teletas
Endustri Tic AS Telecommunications 1,687,000 627,218
**Anadolu Anonim Turk
Sigorta Sirketi Insurance 770,000 108,590
Arcelik AS Appliances & Household Durables 17,447,678 4,473,764
Bagfas Bandirma Gubre
Fabrikalari AS Chemicals 3,162,000 656,723
Bekoteknik AS Appliances & Household Durables 6,750,124 1,159,637
**Borusan AS Industrial Components 857,000 615,282
Celik Halat ve Sanayii
ve Ticaret AS Building Materials & Components 749,000 113,310
**Cimentas Izmir
Cimento Fabrikasi AS Building Materials & Components 3,703,000 2,563,615
Cimsa Cimento Sanayi ve
Ticaret AS Building Materials & Components 404,000 1,025,538
Cukurova Elektrik AS Utilities-Electrical & Gas 8,351,000 2,141,282
**Dardanel Onentas Food & Household Products 445,000 616,154
Eregli Demir ve Celik
Fabrikalari AS Metals & Mining 17,055,225 1,530,597
Finans Bank AS, br. Banking 5,274,750 500,425
**Finansbank, new Banking 2,260,604 153,605
Izocam Ticaret ve
Sanayii AS, br. Building Materials & Components 856,214 186,611
Kartonsan Karton
Sanayii AS, br. Forest Products & Paper 4,555,000 2,160,705
Koc Holding AS Multi-Industry 2,014,576 1,472,190
Koc Yatirim ve Sanayii
Mamullesi Pazarlanca
AS Multi-Industry 711,994 547,688
**Kordsa Kord Bezi
Sanayi ve Ticaret AS Industrial Components 193,600 75,703
Marshall Boya ve Vernik
Sanayii AS Industrial Components 2,538,060 527,136
**Metas Izmir Metalurji
Fabrikalari AS Metals & Mining 9,697,000 919,972
Otosan Otomobil Sanayii
AS Automobiles 4,481,000 1,103,015
Peg Profilo Elektrikli
Gerecler
Sanayii AS Appliances & Household Durables 435,682 51,947
**Petkim Petrokimya
Holding AS Chemicals 1,162,500 536,538
Tekstil Bankasi
Tekstilbank AS, br. Banking 378,580 37,373
Tofas Turk Otomobil
Fabrikasi AS Automobiles 182,000 154,000
Miscellaneous Materials &
**Trakya Cam Sanayii AS Commodities 1,301,200 313,623
</TABLE>
17
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/PRINCIPAL IN
COUNTRY / ISSUE INDUSTRY LOCAL CURRENCY VALUE
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
LONG TERM SECURITIES (CONT.)
- -----------------------------------------------------------------------------------------
Turkey (cont.)
Turk Demir Dokum, br. Appliances & Household Durables 4,071,201 $ 751,606
Turkiye Garanti Bankasi
AS Banking 8,502,319 2,136,480
Vakif Finansal Kiralama
AS Financial Services 3,581,250 348,942
------------
36,691,105
- -----------------------------------------------------------------------------------------
Venezuela: 1.3%
Banco Venezolano de
Credito Banking 8,447 313,322
Ceramica Carabobo CA, B Building Materials & Components 1,093,333 1,090,593
Consolidada Carabobo, A Building Materials & Components 2,388,000 272,316
Consolidada Carabobo, B Building Materials & Components 3,314,000 373,759
Electricidad de Caracas Utilities-Electrical & Gas 3,206,081 3,889,081
Fabrica Nacional de
Cementos CA Building Materials & Components 285,995 35,839
HL Boulton & Co. SA Multi-Industry 12,712,011 461,965
Manufacturera de
Aparatos
Domesticos SA Appliances & Household Durables 140,614 246,691
Siderurgica Venezolana
Sivensa
Saica Svs Metals & Mining 88,719 24,414
Vencemos de Cementos SA Building Materials & Components 615,830 894,420
------------
7,602,400
------------
TOTAL LONG TERM SECURITIES (cost $444,741,360) 425,546,482
- -----------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 26.6% (cost $155,263,619)
- -----------------------------------------------------------------------------------------
U.S. Treasury Bills,
4.80% to 5.42% with
maturities to 2/23/95 U.S. $155,790,000 155,333,434
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.7% (cost $600,004,979) 580,879,916
OTHER ASSETS, LESS LIABILITIES: 0.3% 1,998,366
------------
TOTAL NET ASSETS: 100.0% $582,878,282
============
</TABLE>
*PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
**NON-INCOME PRODUCING.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities,
at value (identified
cost $600,004,979) $580,879,916
Cash 508,049
Receivables:
Investment securities
sold 386,397
Capital shares sold 3,828,730
Dividends and interest 1,204,558
Unamortized organization
costs 9,848
------------
Total assets 586,817,498
------------
Liabilities:
Payables:
Investment securities
purchased 1,335,141
Capital shares redeemed 652,670
Dividend payable 34,307
Accrued expenses 1,917,098
------------
Total liabilities 3,939,216
------------
Net assets, at value $582,878,282
============
Net assets consist of:
Unrealized depreciation on
investments $(19,125,063)
Accumulated net realized
gain 949,674
Net capital paid in on
shares of capital stock 601,053,671
------------
Net assets, at value $582,878,282
============
Shares outstanding 51,997,882
============
Net asset value per share
($582,878,282 / 51,997,882) $ 11.21
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $685,145 foreign taxes
withheld)
Dividends $ 10,698,056
Interest 6,321,408
------------
Total income $ 17,019,464
Expenses:
Management fees (Note 3 ) 6,669,935
Administrative fees (Note 3) 589,648
Transfer agent fees (Note 3) 6,800
Custodian fees 1,181,000
Reports to shareholders 42,500
Audit fees 41,800
Legal fees 8,500
Registration and filing fees 272,000
Directors' fees and expenses 7,250
Amortization of organization costs 1,400
Other 17,681
------------
Total expenses 8,838,514
Less expenses reimbursed (Note 3) (299,354)
------------
Total expenses less reimbursement 8,539,160
------------
Net investment income 8,480,304
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 13,959,184
Foreign currency transactions (461,310)
------------
13,497,874
Net unrealized depreciation on investments (88,281,405)
------------
Net realized and unrealized loss (74,783,531)
------------
Net decrease in net assets resulting from opera-
tions $(66,303,227)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets 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 $ 8,480,304 $ 1,153,154
Net realized gain from security and for-
eign currency transactions 13,497,874 5,061,668
Net unrealized appreciation (deprecia-
tion) (88,281,405) 69,156,342
------------ ------------
Net increase (decrease) in net assets
resulting from operations (66,303,227) 75,371,164
Distributions to shareholders:
From net investment income (8,480,304) (1,153,154)
From net realized gain (16,581,020) (1,028,848)
Capital share transactions (Note 2) 251,809,430 349,144,241
------------ ------------
Net increase in net assets 160,444,879 422,333,403
Net assets:
Beginning of period 422,433,403 100,000
------------ ------------
End of period $582,878,282 $422,433,403
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Emerging Markets Series (the Fund) is a separate series of Templeton Institu-
tional Funds, Inc. (the Company) which is an open-end, diversified management
investment company registered under the Investment Company Act of 1940. 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 Transactions:
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.
The Brazilian government has exercised and may continue to exercise substan-
tial influence over exchange of their currency. Under current Brazilian law,
whenever there occurs a serious imbalance, Brazil's National Monetary Council
may, for a limited period, impose restrictions on foreign capital remittances
abroad. Exchange control regulations may restrict repatriation of investment
income, capital, or the proceeds of securities sales by foreign investors.
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 200 million shares 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 21,165,430 $266,579,142 31,834,192 $347,780,154
Shares issued on
reinvestment of
distributions 1,798,076 21,032,117 138,334 1,751,372
Shares redeemed (2,916,467) (35,801,829) (31,683) (387,285)
---------- ------------ ---------- ------------
Net increase 20,047,039 $251,809,430 31,940,843 $349,144,241
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton
Investment Management (Hong Kong) Limited (TIML), Templeton Global Investors,
Inc. (TGII), Franklin Templeton Distributors, Inc. (FTD), and Franklin Temple-
ton Investors Services, Inc. (FTIS), the Fund's investment manager, adminis-
trative manager, principal underwriter and transfer agent, respectively. The
Fund pays monthly an investment management fee to TIML equal, on an annual ba-
sis, to 1.25% of the
22
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
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 1.60% of the Fund's average net
assets through December 31, 1994. The amount of reimbursement is set forth in
the Statement of Operations. 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 $6,800.
An officer of the Company is a partner of Dechert Price & Rhoads, legal counsel
for the Company, which received fees of $8,500 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 $254,472,255 and $47,466,458, respec-
tively. The cost of securities for federal income tax purposes is the same as
that shown in the investment portfolio. 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 $ 52,338,772
Unrealized depreciation (71,463,835)
------------
Net unrealized depreciation $(19,125,063)
============
</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 outstand-
ing voting securities. Investments in "affiliated companies" at December 31,
1994 amounted to $4,009,084. For the year ended December 31, 1994, dividend in-
come from affiliated companies was $89,465.
23
<PAGE>
Templeton Institutional Funds, Inc.
Emerging Markets Series
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Emerging Markets Series
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Emerging Markets Series of Templeton Institu-
tional Funds, Inc. as of December 31, 1994, and the related statement of opera-
tions for the year then ended, and the statements of changes in net assets and
financial highlights for the year then ended and for the period from May 3,
1993 (commencement of operations to December 31, 1993. 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
Emerging Markets 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 accounting principles.
[SIGNATURE OF MCGLADREY & PULLEN, LLP APPEARS HERE]
New York, New York
February 3, 1995
24
<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]
