TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
700 CENTRAL AVENUE
ST. PETERSBURG, FLORIDA 33701
January 26, 1996
Dear Shareholder:
The Board of Directors of Templeton Institutional Funds, Inc., Foreign
Equity (South Africa Free) Series (the "Fund") has recently reviewed and
unanimously endorsed a proposal for reorganization of the Fund which the Board
judges to be in the best interests of the Fund's shareholders. This proposal
calls for combining the assets of the Fund with another fund which has similar
investment objectives, policies and restrictions.
We have, therefore, called a Special Meeting of Shareholders to be held
on January 29, 1996 to consider this transaction. WE STRONGLY INVITE YOUR
PARTICIPATION BY ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR PROXY AS SOON AS
POSSIBLE.
As a result of this transaction, your Fund would be combined with
Templeton Institutional Funds, Inc., Foreign Equity Series ("Foreign Equity"),
another mutual fund managed by Templeton Investment Counsel, Inc., and you would
become a shareholder of Foreign Equity, receiving shares of Foreign Equity
having an aggregate net asset value equal to the aggregate net asset value of
your investment in the Fund. No sales charge will be imposed in the transaction
and the closing of the transaction will be conditioned upon receiving an opinion
of counsel to the effect that the proposed transaction will qualify as a
tax-free reorganization for Federal income tax purposes.
Detailed information about the proposed transaction and the reasons for
it are contained in the enclosed materials. PLEASE EXERCISE YOUR RIGHT TO VOTE
BY COMPLETING, DATING AND SIGNING THE ENCLOSED BLUE PROXY CARD. A SELF-
ADDRESSED, FEDERAL EXPRESS ENVELOPE HAS BEEN ENCLOSED FOR YOUR CONVENIENCE.
ALSO, YOU MAY WANT TO SEND YOUR PROXY CARD VIA FACSIMILE TO JOHN K. CARTER,
ASSOCIATE COUNSEL, FRANKLIN TEMPLETON DISTRIBUTORS, INC., 813/823-5253. IT IS
VERY IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED
NO LATER THAN JANUARY 28, 1996.
Sincerely,
/s/THOMAS M. MISTELE
Thomas M. Mistele
Secretary
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.,
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
700 CENTRAL AVENUE
ST. PETERSBURG, FLORIDA 33701
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JANUARY 29, 1996
To the shareholders of
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Templeton Institutional Funds, Inc., Foreign Equity (South Africa Free) Series
(the "Fund"), will be held at the offices of the Fund at 700 Central Avenue, St.
Petersburg, Florida 33701, at 9:00 A.M. (local time), on January 29, 1996 for
the following purposes:
1. To consider and vote on an Agreement and Plan of Reorganization
providing for the acquisition of all or substantially all of the assets of the
Fund by Templeton Institutional Funds, Inc., Foreign Equity Series, ("Foreign
Equity"), in exchange for shares of Foreign Equity and the assumption by Foreign
Equity of certain identified liabilities of the Fund, and for the distribution
of such Foreign Equity shares to shareholders of the Fund and the subsequent
termination and dissolution of the Fund; and
2. To transact such other business as may properly come before
the meeting, or any adjournment or adjournments thereof.
The Board of Directors of the Fund has fixed the close of business on
January 15, 1996 as the record date for determination of shareholders entitled
to notice of, and to vote at, the meeting.
EACH SHAREHOLDER WHO DOES NOT EXPECT TO ATTEND THE MEETING IN PERSON IS
REQUESTED TO DATE, FILL IN, SIGN AND RETURN PROMPTLY THE ENCLOSED FORM OF PROXY
IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
THOMAS M. MISTELE
Secretary
YOUR PROMPT ATTENTION TO THE ENCLOSED FORM OF PROXY WILL HELP TO AVOID
THE EXPENSE OF FURTHER SOLICITATION.
January 26, 1996
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
700 CENTRAL AVENUE
ST. PETERSBURG, FLORIDA 33701
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
Templeton Institutional Funds, Inc., Foreign Equity (South Africa Free) Series
(the "Fund"), in connection with a proposed reorganization (the
"Reorganization") in which all or substantially all of the assets of the Fund
would be acquired by Templeton Institutional Funds, Inc., Foreign Equity Series
("Foreign Equity"), in exchange for shares of Foreign Equity and the assumption
of certain identified liabilities of the Fund. The shares of Foreign Equity
thereby received would then be distributed to shareholders of the Fund, and the
Fund would be completely liquidated. As a result of the Reorganization, each
shareholder of the Fund would receive that number of full and fractional shares
of Foreign Equity having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares of the Fund held as of the close of
business on the closing date of the Reorganization. No sales charge will be
imposed on the transaction.
FOREIGN EQUITY SERIES is a series of Templeton Institutional Funds,
Inc. (the "Company"), an open-end management investment company organized as a
Maryland corporation. The principal investment objective of Foreign Equity is
long-term capital growth, which it seeks to achieve primarily through a flexible
policy of investing in equity securities and debt obligations of companies and
governments outside the United States. There can be no assurance that the
investment objective of Foreign Equity will be achieved.
The investment objective, policies and restrictions of Foreign Equity
(and consequently, the risks of investing in it) are identical to those of the
Fund, except that the Fund does not invest in the companies or government of
South Africa. For a comparative discussion of these differences, see "Comparison
of Investment Objectives, Policies and Restrictions" in this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus, which should be retained for future
reference, sets forth concisely certain information about Foreign Equity that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies and restrictions of the Fund
and Foreign Equity, the portfolio managers of the Fund and Foreign Equity, and
the risks of investing in either, see the prospectus for the Fund and for
Foreign Equity, dated May 1, 1995, which is included herewith and incorporated
herein by reference. A Statement of Additional Information dated January 22,
1996 containing additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Proxy Statement/Prospectus. A copy of such
Statement is available upon request and without charge by writing to the Fund at
the address above or by calling the Fund at 1-800-321-8563
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
1. SYNOPSIS
The following is a summary of certain information contained in this
Proxy Statement/Prospectus. This summary is qualified by reference to the more
complete information contained elsewhere in this Proxy Statement/Prospectus, the
prospectus of the Fund and Foreign Equity, and the Agreement and Plan of
Reorganization attached to this Proxy Statement/Prospectus as Exhibit A.
THE PROPOSED REORGANIZATION. The Board of Directors of the Company,
including the Directors who are not "interested persons" of the Company (the
"Independent Directors"), as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), has unanimously approved an Agreement and Plan of
Reorganization (the "Plan") providing for the acquisition of all or
substantially all of the assets of the Fund by Foreign Equity, in exchange for
shares of Foreign Equity and the assumption by Foreign Equity of certain
identified liabilities of the Fund. See "Information About the Reorganization."
The net asset value of the shares issued in the exchange will equal the net
asset value of the Fund's shares then outstanding. In connection with the
Reorganization, shares of Foreign Equity will be distributed to shareholders of
the Fund, and the Fund will be completely liquidated. As a result of the
proposed transactions (the "Reorganization"), each shareholder of the Fund will
cease to be a shareholder of the Fund and will receive that number of full and
fractional shares of Foreign Equity having an aggregate net asset value equal to
the aggregate net asset value of such shareholder's shares of the Fund as of the
close of business on the closing date of the Reorganization. No sales charge
will be imposed in connection with the issuance of shares of Foreign Equity to
the shareholders pursuant to the Reorganization. For the reasons set forth below
under "Reasons for and Purposes of the Reorganization," the Board of Directors
of the Company, including all of the Independent Directors, has unanimously
concluded that the Reorganization would be in the best interests of the Fund and
its shareholders and that the interests of existing shareholders of the Fund
will not be diluted as a result of the transactions contemplated by the
Reorganization, and therefore has submitted the Reorganization for approval by
shareholders of the Fund at a Special Meeting of Shareholders to be held on
January 29, 1996 (the "Meeting"). See "Voting Information." The Board of
Directors recommends approval of the Plan effecting the Reorganization.
Approval of the Reorganization with respect to the Fund requires the
vote of a majority of the Fund's outstanding shares.
EXPENSES OF THE TRANSACTION. The expenses relating to the transaction
will be borne by Templeton Investment Counsel, Inc., the investment adviser for
the Fund and Foreign Equity.
TAX CONSEQUENCES. As a condition to closing, the Fund and Foreign
Equity will obtain an opinion of counsel, based on certain facts, assumptions
and representations made by the Fund and Foreign Equity, to the effect that the
Reorganization will qualify as a tax-free reorganization for Federal income
tax purposes. See "Information About the Reorganization."
DIVIDEND POLICY. Both the Fund and Foreign Equity usually pay
dividends and capital gain distributions (if any) in February and (if necessary
in December of each year.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. While the investment
objectives, policies and restrictions of the Fund and Foreign Equity (and
consequently, the attendant risk of investing in either the Fund or Foreign
Equity) are substantially the same, there are certain differences between the
Fund and Foreign Equity, which are outlined herein. See "Comparison of
Investment Objectives, Policies and Restrictions."
The investment objective of the Fund is long-term capital growth, which
it seeks to achieve through a flexible policy of investing in stocks and debt
obligations of companies and governments outside both the United States and
South Africa. Its investment policies are identical to those of Foreign Equity,
except that the Fund's portfolio includes none of the following securities: (1)
any obligation or security of any South African corporation, or any South
African government owned corporation, or of the South African government; (2)
any obligation or security of any international/global company with direct
investment, defined as holding 10% or more of the equity, in an active South
African company, or employees in South Africa; and (3) any obligation or
security of any international/global company that has contracts or licensing,
distribution, franchising, technological or trademark agreements with companies
in South Africa. Subject to these restrictions, the Fund invests at least 65% of
its total assets in equity securities, and may also invest up to 35% of its
total assets in debt securities.
The investment objective of Foreign Equity is identical to that of the
Fund, i.e., long-term capital growth, which it seeks to achieve through a
flexible policy of investing in equity securities and debt obligations of
companies and governments outside the U.S., except that Foreign Equity is not
subject to the restrictions regarding South Africa applicable to the Fund. Like
the Fund, Foreign Equity will invest at least 65% of its total assets in equity
securities, and may also invest up to 35% of its total assets in debt securities
when, in the judgment of the Investment Manager, the capital appreciation
available through such investment outweighs the potential for capital growth
through investment in stocks. The Investment Manager attempts to identify those
companies in various countries and industries where economic and political
factors, including currency movements, are likely to produce above-average
opportunities for capital appreciation.
INVESTMENT MANAGER AND DISTRIBUTOR. Templeton Investment Counsel, Inc.
("TICI"), a Florida corporation located at Broward Financial Centre, Fort
Lauderdale, Florida 33394, serves as the investment manager of both the Fund and
Foreign Equity. TICI is an indirect wholly owned subsidiary of Franklin
Resources, Inc. ("Franklin"), a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16% respectively, of Franklin's outstanding shares.
Through its subsidiaries, Franklin is engaged in various aspects of the
financial services industry. TICI and its affiliates serve as advisers for a
wide variety of public investment mutual funds and private clients in many
nations.
The lead portfolio manager for the Fund and Foreign Equity is James E.
Chaney, Senior Vice President of TICI. 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 accounts, including a mutual
fund. He also has another seven years' experience as an international consulting
engineer and project manager for Camp, Dresser & McKee, Inc. and American
British Consultants. Lauretta A. Reeves, Vice President of TICI, and Gary R.
Clemons, Vice President of TICI, exercise secondary portfolio management
responsibilities with respect to the Fund and Foreign Equity. Ms. Reeves joined
the Templeton organization in 1987 as an equity trader and moved into the
research group in 1989. Prior to joining the Templeton organization, Ms. Reeves
was manager of equity trading for the First Equity Corporation of Florida, a
regional brokerage firm. Previously, she worked in similar trading positions
with two other brokerage houses. Prior to joining TICI in 1993, Mr. Clemons was
a research analyst for Templeton Quantitative Advisors, Inc., in New York. At
Templeton Quantitative Advisors, Inc., he was also responsible for management of
a small capitalization fund.
Franklin Templeton Distributors, Inc. ("FTD"), which is located at 700
Central Avenue, St. Petersburg, Florida 33701, serves as the principal
underwriter and distributor of the shares of both the Fund and Foreign
Equity. FTD is a wholly owned subsidiary of Franklin.
FEES AND EXPENSES. Both the Fund and Foreign Equity currently pay an
investment management fee to TICI equal on an annual basis to 0.70% of their
average daily net assets.
Both the Fund and Foreign Equity utilize Templeton Global Investors,
Inc. ("TGI") as their business manager. As business manager, TGI provides each
fund with certain administrative facilities and services, including payment of
salaries of officers, preparation and maintenance of books and records,
preparation of tax returns and financial reports, monitoring compliance with
regulatory requirements and monitoring tax deferred retirement plans. For its
services, TGI receives from each fund a fee equivalent to 0.15% of the average
daily net assets of each fund during the year, reduced to 0.135% of such assets
in excess of $200 million, to 0.10% of such assets in excess of $700 million and
to 0.075% of such assets in excess of $1,200 million.
The following table compares the fees and expenses of the Fund and
Foreign Equity, and shows the estimated fees and expenses on a pro forma basis
giving the effect to the proposed reorganization. The table is based on the net
asset, fee and expense levels of the Fund and Foreign Equity as of December 31,
1995.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Foreign Equity
THE FUND FOREIGN EQUITY PRO FORMA
<S> <C> <C> <C>
Management Fees 0.70% 0.70% 0.70%
Other Expenses (audit, legal,
business management,
transfer agent and custodian)
(after expense reimbursement) 0.30% 0.18% 0.19%
Total Fund operating expenses
(after expense reimbursement) 1.00% 0.88% 0.89%
</TABLE>
EXAMPLE:
The Example below shows the cumulative expenses attributable to a
$1,000 investment in shares of the Fund, shares of Foreign Equity and shares of
the pro forma combined Fund for the periods specified.
<PAGE>
1 YEAR 3 YEAR 5 YEAR 10 YEAR
------ ------ ------ -------
the Fund $10 $32 $55 $122
Foreign Equity 9 28 49 108
Pro Forma Combined Fund 9 28 49 110
(i.e., shares of Foreign
Equity received in the
Reorganization)
The purpose of the foregoing tables are designed to assist the investor
in understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. The Example above assumes reinvestment of all
dividends and distributions and utilities a 5% annual rate of return as mandated
by Commission regulations. THE EXAMPLE IS NOT TO BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
TGI voluntarily agreed to limit the total expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) of the Fund and of
Foreign Equity to an annual rate of 1.0% of the fund's average net assets until
December 31, 1995. During the fiscal year ended December 31, 1995, this expense
limitation resulted in a reduction in expenses for the Fund. If this policy were
not in effect, the Fund's Total Operating Expenses would be 1.12% and you would
pay the following expenses on a $1,000 investment in the Fund, assuming a 5%
annual rate of return and redemption at the end of each time period: $11 for one
year, $36 for three years, $62 for five years and $136 for ten years. The
expense limitation had no effect on the expenses of Foreign Equity. As long as
this temporary expense limitation continues, it may lower each fund's expenses.
PURCHASE, REDEMPTION AND EXCHANGE PROCEDURES. Shares of the Fund and of
Foreign Equity may be purchased at net asset value without a sales charge
through any broker that has a dealer agreement with FTD, or directly from FTD,
upon receipt by FTD of an Institutional Account Application Form and payment.
Shares of Foreign Equity and the Fund may be redeemed through a registered
securities representative, by mail, by telephone, or by Federal Funds wire in
accordance with procedures described in the fund's prospectus.
Shares of each fund may be exchanged for shares of any of the other
series of Templeton Institutional Funds, Inc. ("TIFI"), or into other funds in
the Franklin Templeton Group (except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, Templeton Variable Products Series Fund,
Franklin Valuemark Funds, and Franklin Government Securities Trust).
For both the Fund and Foreign Equity, there is no minimum initial or
subsequent investment for any employee stock, bonus, pension or profit-sharing
plan that meets the requirements for qualification under Section 401 of the Code
including salary reduction plans qualified under Section 401(k) of the Code,
subject to minimum requirements with respect to number of employees or amount of
purchase, which may be established by FTD. Currently, those criteria require
that the employer establishing the plan have 200 or more employee participants
or that the amount invested or to be invested during the subsequent 13-month
period in any of the Franklin Templeton Group must total at least $1 million.
Shares may be purchased by trust companies and bank trust departments for funds
over which they exercise exclusive discretionary investment authority and which
are held in a fiduciary, agency, advisory, custodial or similar capacity. Trust
companies and bank trust departments making such purchases may be required to
register as dealers pursuant to state law. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be established by
FTD. Currently, those criteria require that the amount invested or to be
invested during the subsequent 13-month period in the Franklin Templeton Group
total at least $1 million. The minimum initial investment for all other
investors is $5 million ($25 for subsequent investments). The cost or current
value (whichever is higher) of an investor's shares of other funds in the
Franklin Templeton Group will be included for purposes of determining compliance
with the minimum investment amount, provided that at least $1 million is
invested in Templeton Institutional Funds, Inc.
RISK FACTORS AND SPECIAL CONSIDERATIONS. Because the investment
objectives, policies and restrictions of the Fund and Foreign Equity are nearly
identical, the risks of investing in the Fund are similar to the risks of
investing in Foreign Equity. However, there are differences between the funds,
and the risks of investing in either the Fund or Foreign Equity vary to the
degree that their investment objectives, policies and restrictions vary.
Both the Fund and Foreign Equity are permitted to purchase securities
in any foreign country, developed or undeveloped, except that the Fund does not
invest in South African securities. There are various risks associated with
investing in foreign securities which are in addition to the usual risks
inherent in domestic investments. These risks are often heightened for
investments in developing markets, including certain Eastern European countries.
There is the possibility of expropriation, nationalization or confiscatory
taxation, taxation of income earned in foreign nations (including withholding
taxes) or other taxes imposed with respect to investments in foreign nations,
foreign transfer currency from a given country), foreign investment controls on
daily stock market movements, default in foreign government securities,
political or social instability or diplomatic developments which could affect
investments in securities of issuers in foreign nations. Some countries may
withhold portions of interest and dividends at the source. In addition, in many
countries there is less publicly available information about issuers than is
available in reports about companies in the United States. Foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to U.S. companies. Either fund may encounter difficulties or be
unable to vote proxies, exercise shareholder rights, pursue legal remedies and
obtain judgments in foreign courts. Commission rates in foreign countries, which
are sometimes fixed rather than subject to negotiation as in the United States,
are likely to be higher.
Prior governmental approval of foreign investments may be required
under certain circumstances in some developing countries and the extent of
foreign investment in domestic companies may be subject to limitation in other
developing countries. Foreign ownership limitations also may be imposed by the
charters of individual companies in developing countries to prevent, among other
concerns, violation of foreign investment limitations.
Repatriation of investment income, capital, and proceeds of sales by
foreign investors may require governmental registration and/or approval in some
developing countries. Either of the funds could be adversely effected by delays
in or a refusal to grant any required governmental registration or approval for
such repatriation.
For a further discussion of the investment objectives, policies,
restrictions and risk factors applicable to the Fund and Foreign Equity, see
"Comparison of Investment Objectives, Policies and Restrictions" herein and the
discussions under "General Description" and "Risk Factors" in the accompanying
prospectus of Foreign Equity.
2. REASONS FOR AND PURPOSES OF THE REORGANIZATION
The Reorganization has been recommended by the Board of Directors of
the Company as a means of combining similar investment companies with similar
investment objectives and policies in order to attempt to achieve enhanced
investment performance as well as certain economies of scale and attendant
savings in costs to the funds and their shareholders. Achievement of these goals
cannot, of course, be assured.
In determining whether to recommend approval of the Reorganization to
shareholders of the Fund, the Board of Directors considered, among other
factors: the ongoing relevancy of certain of the Fund's investment restrictions;
fees and expense ratios of both the Fund and Foreign Equity; the terms and
conditions of the Reorganization and whether the Reorganization would result in
dilution of shareholder interests; the compatibility of the funds' investment
objectives, policies, restrictions and portfolios; the respective performance
histories of the Fund and Foreign Equity; service features available to
shareholders in the respective funds; the costs incurred by the funds as a
result of the Reorganization; and the tax consequences of the Reorganization.
The Board of Directors also reviewed historical information regarding
sales and redemptions of shares of the Fund and of Foreign Equity. It was noted
that recent dramatic changes to the political, social, and economic climate of
South Africa, specifically the dismantling of the Apartheid system and the
resulting potential economic growth opportunities, are eliminating many of the
concerns that originally motivated the Fund's South African investment
restrictions. In addition, the Fund has experienced a consistent pattern of net
redemptions of its shares, resulting in a declining level of Fund assets. The
Board of Directors considered the negative impact of the net redemptions on the
Fund's portfolio management, particularly the increased likelihood of having to
dispose of portfolio securities for other than investment considerations, and
the attendant costs.
In reaching the decision to recommend that the shareholders of the Fund
vote to approve the Reorganization, the Board of Directors concluded that the
participation of the Fund in the Reorganization is in the best interests of the
shareholders of the Fund and would not result in the dilution of shareholders'
interests. Their conclusion was based on a number of factors, including the
following: The Reorganization would permit the shareholders of the Fund to
pursue substantially the same investment goals in a larger fund. A larger fund
should enhance the ability of TICI to effect portfolio transactions on more
favorable terms and give TICI greater investment flexibility and the ability to
select a larger number of portfolio securities for the combined funds, with the
attendant ability to spread investment risks among a larger number of portfolio
securities. Higher aggregate net assets may enable the combined entities to
obtain the benefits of economies of scale, permitting the reduction or
elimination of certain duplicate costs and expenses which may result in lower
overall expense ratios through the spreading of both fixed and variable costs of
fund operations over a larger asset base. In this regard, it was noted that the
Fund and Foreign Equity have essentially identical management arrangements,
including portfolio management personnel of TICI. As a general rule, economies
can be expected to be realized primarily with respect to fixed expenses, such as
costs of printing and fees for professional services. However, expenses that are
based on the value of assets or the number of shareholder accounts, such as
investment management fees and transfer agent fees, would be largely unaffected
by the Reorganization.
3. COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
Although the investment objectives, policies and restrictions of the
Fund and Foreign Equity are similar, there are certain differences between them.
These differences are outlined below. There can be no assurance that either the
Fund or Foreign Equity will achieve its stated investment objective.
INVESTMENT OBJECTIVES AND PRIMARY INVESTMENTS
The investment objective of both the Fund and Foreign Equity is
long-term capital growth, which they seek to achieve through a flexible policy
of investing in equity securities and debt obligations of companies and
governments outside the United States. Both the Fund and Foreign Equity will
invest at least 65% of their total assets in equity securities, including common
stock, preferred stock, securities convertible into common or preferred stock,
and warrants or rights to subscribe to or purchase such securities. Both funds
may also invest up to 35% of their total assets in debt securities when, in the
judgment of TICI, the capital appreciation available through such investments
outweighs the potential for capital growth through investment in stocks. In
selecting securities for both funds, TICI attempts to identify those companies
in various countries and industries where economic and political factors,
including currency movements, are likely to produce above-average opportunities
for capital appreciation.
The Fund's investment policies are identical to those of Foreign
Equity, except that its portfolio may include none of the following securities:
(1) any obligation or security of any South African corporation, or any South
African government owned corporation, or of the South African government; (2)
any obligation or security of any international/global company with direct
investment, defined as holding 10% or more of the equity, in an active South
African company, or employees in South Africa; and (3) any obligation or
security of any international/global company that has contracts or licensing,
distribution, franchising, technological or trademark agreements with companies
in South Africa.
Both the Fund and Foreign Equity may invest no more than 5% of their
total assets in securities issued by any one company or government, exclusive of
U.S. Government securities. Although either the Fund or Foreign Equity may
invest up to 25% of its assets in a single industry, neither has the present
intention of doing so. Both the Fund and Foreign Equity may, whenever in the
judgment of their Investment Manager market or economic conditions warrant,
adopt a temporary defensive position and may invest without limit in money
market securities denominated in U.S. dollars or in the currency of any foreign
country, except that in such circumstances, the Fund will not invest in South
African investments.
Both the Fund and Foreign Equity are authorized to use various
investment techniques, including the following: temporary investments of up to
100% of total assets in various money market securities, for defensive purposes;
debt securities, including bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers' acceptances; repurchase
agreements; borrowing of up to one-third of the value of either funds' total
assets from banks to increase the funds' holdings of portfolio securities; loans
of portfolio securities with an aggregate market value of up to one-third of the
funds' total assets, such loans being made to broker-dealers; options on
securities indices, in order to hedge against market shifts, to generate income
to offset operating expenses and/or to hedge a portion of the funds' portfolio
investments; forward foreign currency contracts and options on foreign
currencies, on a spot basis or through entering into forward contracts to
purchase or sell foreign currencies; futures contracts for hedging purposes
only; closed-end investment companies; and depositary receipts. For a further
discussion of these authorized investment techniques, see the funds' prospectus.
INVESTMENT RESTRICTIONS
Each fund is subject to the following investment restrictions which are
fundamental policies that may not be changed or revoked by either fund without
the prior approval of their respective shareholders:
Each Fund will not:
1. Invest in real estate or mortgages on real estate (although a
fund may invest in marketable securities secured by real
estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests
therein); invest in other open-end investment companies except
as permitted by the 1940 Act; invest in interests (other than
debentures or equity stock interests) in oil, gas or other
mineral exploration or development programs; or purchase or
sell commodity contracts (except futures contracts as
described in the Prospectus).
2. Purchase or retain securities of any company in which
Directors or officers of TIFI or of the fund's Investment
Manager, individually owning more than 1/2 of 1% of the
securities of such company, in the aggregate own more than
5% of the securities of such company.
3. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if, as a
result, as to 75% of the fund's total assets (i) more than 5%
of the fund's total assets would then be invested in
securities of any single issuer, or (ii) the fund would then
own more than 10% of the voting securities of any single
issuer.
4. Act as an underwriter; issue senior securities except as
set forth in investment restriction 6 below; or purchase on
margin or sell short (but a fund may make margin payments in
connection with options on securities or securities indices
and foreign currencies; futures contracts and related options;
and forward contracts and related options).
5. Loan money apart from the purchase of a portion of an issue
of publicly distributed bonds, debentures, notes and other
evidences of indebtedness, although a fund may buy from a bank
or broker-dealer United States government obligations with a
simultaneous agreement by the seller to repurchase them within
no more than seven days at the original purchase price plus
accrued interest and loan its portfolio securities.
6. Borrow money, except that a fund may borrow money from
banks in an amount not exceeding 33-1/3% of the value of its
total assets (including the amount borrowed).
7. Invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years.
8. Invest more than 5% of its total assets in warrants,
whether or not listed on the New York or American Stock
Exchange, including no more than 2% of its total assets which
may be invested in warrants that are not listed on those
exchanges. Warrants acquired by the fund in units or
attached to securities are not included in this Restriction.
9. Invest more than 25% of its total assets in a single
industry.
10. Participate on a joint or a joint and several basis in
any trading account in securities. (See "Investment
Objectives and Policies -- Trading Policies" in the funds'
SAI as to transactions in the same securities for a fund
and/or other mutual funds with the same or affiliated
advisers.)
PORTFOLIO TRANSACTIONS AND BROKERAGE
The investment manager for both funds, TICI, is responsible for
selecting members of securities exchanges, brokers and dealers (such members,
brokers and dealers being hereinafter referred to as "brokers") for the
execution of each fund's portfolio transactions and, when applicable, the
negotiation of commissions in connection therewith. It is not the duty of either
fund's investment manager, nor does it have any obligation, to provide a trading
desk for the fund's portfolio transactions. All decisions and placements are
made in accordance with the following principles: Purchase and sale orders are
usually placed with brokers who are selected by TICI as able to achieve "best
execution" of such orders. "Best execution" means prompt and reliable execution
at the most favorable securities price, taking into account the other provisions
hereinafter set forth. The determination of what may constitute best execution
and price in the execution of a securities transaction by a broker involves a
number of considerations, including, without limitation, the overall direct net
economic result to the funds (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large block is
involved, availability of the broker to stand ready to execute possibly
difficult transactions in the future, and the financial strength and stability
of the broker. Such considerations are judgmental, and are weighed by the
investment manager in determining the overall reasonableness of brokerage
commissions.
In selecting brokers for portfolio transactions, TICI takes into
account its past experience as to brokers qualified to achieve "best execution,"
including brokers who specialize in any securities held by a fund.
TICI is authorized to allocate brokerage business to brokers who have
provided brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934, for each fund and/or other
accounts, if any, for which it exercises investment discretion. Research
services provided by brokers to TICI are considered to be in addition to, and
not in lieu of, services required to be performed by TICI under its agreement
with each fund. Research furnished by brokers through whom a fund effects
securities transactions may be used by TICI for any of its accounts, and not all
such research may be used by TICI for the funds. When execution of portfolio
transactions is allocated to brokers trading on exchanges with fixed brokerage
commission rates, account may be taken of various services provided by the
broker, including quotations outside the United States for daily pricing of
foreign securities held in a fund's portfolio.
Purchases and sales of portfolio securities within the United States
other than on a securities exchange are executed with primary market makers
acting as principal, except where, in the judgment of TICI, better prices and
execution may be obtained on a commission basis or from other sources. Sales of
a fund's shares made by a broker are one factor, among others, to be taken into
account in deciding to allocate portfolio transactions for the account of a fund
to that broker; provided that the broker shall furnish best execution.
FEES
A table comparing the operating expenses of the Fund and Foreign Equity
is provided in the Synopsis to this Proxy Statement/Prospectus.
4. INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the proposed Plan is
qualified in its entirety by reference to the Plan attached to this Proxy
Statement/Prospectus as Exhibit A. The Plan provides that Foreign Equity will
acquire all or substantially all of the assets of the Fund in exchange for
shares of Foreign Equity and the assumption by Foreign Equity of certain
identified liabilities of the Fund on January 29, 1996 (the "Closing Date"), or
such later date as provided for pursuant to the Plan. Foreign Equity will not
assume any liabilities or obligations of the Fund, other than those reflected in
an unaudited statement of assets and liabilities of the Fund as of the normal
close of business of the New York Stock Exchange (currently 4:30 p.m., New York
City time) on the Closing Date (the "Valuation Date"). The number of full and
fractional shares of Foreign Equity to be issued to shareholders of the Fund
will be determined on the basis of the relative net asset values per share and
aggregate net assets of Foreign Equity and the Fund computed as of the close of
business on the New York Stock Exchange on the Valuation Date. The net asset
value per share for both Foreign Equity and the Fund will be determined by
dividing their respective assets, less liabilities, by the total number of their
respective outstanding shares. Portfolio securities of both Foreign Equity and
the Fund will be valued in accordance with the valuation practices of Foreign
Equity as described under "Net Asset Value" in its current prospectus.
The Board of Directors of the Company has determined that the interests
of existing shareholders of the Fund and of Foreign Equity will not be diluted
as a result of the transactions contemplated by the Reorganization, and that
participation in the Reorganization is in the best interests of shareholders of
the Fund and Foreign Equity, respectively.
Prior to the Closing Date, the Fund will endeavor to discharge all of
its known liabilities and obligations. The liabilities assumed are expected to
relate generally to expenses incurred in the ordinary course of the Fund's
operations, such as accounts payable relating to custodian and transfer agency
fees, legal and accounting fees, and expenses of state securities registration
of the Fund's shares. Foreign Equity will assume all liabilities, expenses,
costs, charges and reserves reflected on an unaudited statement of assets and
liabilities of the Fund as of the close of the New York Stock Exchange on the
Valuation Date prepared by TGI as business manager of the Fund in accordance
with generally accepted accounting principles consistently applied from the
prior audited period. Foreign Equity will assume only those liabilities of the
Fund reflected in that unaudited statement of assets and liabilities and will
not assume any other liabilities.
As of or prior to the Closing Date, the Fund contemplates declaring and
paying a dividend or dividends which are intended to have the effect of
distributing to the Fund's shareholders all of the Fund's net income which has
not been distributed previously.
Immediately after the Closing, the Fund will distribute pro rata to its
shareholders of record as of the close of business on the Valuation Date the
full and fractional shares of Foreign Equity received by the Fund, and the Fund
will then terminate. Such distribution will be accomplished by the establishment
of accounts on the share records of Foreign Equity in the name of Fund
shareholders, each representing the respective pro rata number of full and
fractional shares of Foreign Equity due such shareholders. After the Closing
Date, any outstanding certificates representing shares of the Fund will
represent shares of Foreign Equity distributed to the record holders of the
Fund. Share certificates of the Fund will, upon presentation to the Transfer
Agent of Foreign Equity, be exchanged for shares of Foreign Equity. Certificates
for Foreign Equity shares will be issued only upon written request.
The consummation of the Plan is subject to the conditions set forth
therein. The Plan may be terminated at any time prior to the Closing Date,
before or after approval by shareholders of the Fund, by resolution of the Board
of Directors of the Company, if circumstances should develop that, in the
opinion of the Board, make proceeding with the Reorganization inadvisable.
Approval of the Plan will require the affirmative vote of the holders
of a majority of the outstanding voting securities of the Fund. If the
Reorganization is not approved by the shareholders of the Fund, the Board of
Directors of the Company will consider other possible courses of action,
including operating the Fund as it presently operates.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS APPROVAL
OF THE PLAN.
DESCRIPTION OF SHARES OF FOREIGN EQUITY. Full and fractional shares of
common stock of Foreign Equity will be issued to shareholders of the Fund in
accordance with the procedures under the Plan as described above. Each share
will be fully paid and non-assessable when issued and transferable without
restriction, and will have no preemptive or conversion rights. See "Comparative
Information on Shareholder Rights" for additional information with respect to
the shares of Foreign Equity.
FEDERAL INCOME TAX CONSEQUENCES. The Reorganization is intended to
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"),
with no gain or loss recognized as a consequence of the Reorganization by
Foreign Equity, the Fund, or the shareholders of the Fund. As a condition to the
closing of the Reorganization, the Fund and Foreign Equity have received an
opinion from the law firm of Dechert Price & Rhoads to that effect. That opinion
will be based in part upon representations made by the Fund and Foreign Equity
and certain facts and assumptions.
Shareholders of the Fund should consult their tax advisers regarding
the effect, if any, of the proposed Reorganization in light of their individual
circumstances. SINCE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME
TAX CONSEQUENCES OF THE REORGANIZATION, SHAREHOLDERS OF THE FUND SHOULD ALSO
CONSULT THEIR TAX ADVISERS AS TO STATE, LOCAL, AND OTHER TAX CONSEQUENCES, IF
ANY, OF THE REORGANIZATION.
CAPITALIZATION. The following table, which is unaudited, shows the
capitalization of the Fund and Foreign Equity as of December 31, 1995, as well
as the pro forma combined capitalization of both funds assuming the
Reorganization had been completed as of that date.
<TABLE>
<CAPTION>
Pro Forma
Foreign The for
EQUITY FUND REORGANIZATION
<S> <C> <C> <C>
Net assets $1,817,883,307 $17,445,458 $1,835,328,765
Net asset value
per share $14.04 $6.81 $14.04
Shares outstanding 129,496,379 2,562,747 130,738,933
</TABLE>
The Reorganization is being accounted for by Foreign Equity by the
method used for a tax-free reorganization of an investment company. Under this
method (sometimes referred to as a "pooling without restatement"), the aggregate
net asset value of the Foreign Equity shares issued will equal the aggregate net
asset value of the Fund.
APPRAISAL RIGHTS. There are no appraisal rights under Maryland law for
a shareholder of an open-end investment company registered under the 1940 Act if
the value placed on the shareholders' stock that is subject to the transaction
is its net asset value. In any event, the staff of the Securities and Exchange
Commission has taken the position that any rights to appraisal arising under
state law are superseded by the provisions of Rule 22c-1 under the 1940 Act,
which generally requires that shares of a registered open-end investment company
be valued at their next determined net asset value. A shareholder of the Fund
may redeem his shares at net asset value prior to the date of the
Reorganization.
5. COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
GENERAL. The Fund and Foreign Equity are governed by the Company's
Articles of Incorporation, its By-Laws, and applicable Maryland law.
As a result of the Reorganization, shareholders of the Fund will
continue to have substantially similar voting rights and rights upon dissolution
as they currently have with respect to the Fund. As shareholders of Foreign
Equity, Fund shareholders will continue to have one vote for each share of stock
for which they are record owners, together with pro-rata voting rights for any
fractional shares held. The Company is not required to hold annual meetings
unless specifically required to do so under applicable law or regulation. If at
any time, less than a majority of the directors of the Company then in office
shall consist of directors elected by stockholders, a meeting of shareholders
shall be called for the purpose of electing directors. A special meeting of the
shareholders will be called at the request of shareholders owning 10% of the
Company's capital stock, provided the shareholders calling such special meeting
have committed to paying the reasonably estimated cost of preparing for and
holding such meeting.
6. INFORMATION ABOUT THE FUNDS
TEMPLETON INSTITUTIONAL FUNDS, INC., FOREIGN EQUITY (SOUTH AFRICA FREE)
SERIES. Information concerning the operation and management of the Fund is
included in the prospectus dated May 1, 1995. Additional information is included
in the statement of additional information dated May 1, 1995, as amended
September 29, 1995, which has been filed with the Securities and Exchange
Commission. A copy of that Statement is available upon request and without
charge by calling 1-800-321-8563. Reports and other information filed by the
Fund, including charter documents, can be inspected and copied at the Public
Reference Facilities maintained by the Securities and Exchange Commission,
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Atlanta
Regional Office of the Securities and Exchange Commission, 1375 Peachtree
Street, N.E., Suite 788, Atlanta, Georgia 30367. Copies of such material can
also be obtained from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington, D.C.
20549 at prescribed rates.
TEMPLETON INSTITUTIONAL FUNDS, INC., FOREIGN EQUITY SERIES Information
about Foreign Equity in the current prospectus dated May 1, 1995, is included
herewith and incorporated by reference herein. Additional information is
included in the Statement of Additional Information dated May 1, 1995, as
amended September 29, 1995. That statement of additional information has been
filed with the Securities and Exchange Commission and is available upon request
and without charge by calling Foreign Equity at 1-800-321-8563. Reports and
other information filed by Foreign Equity, including charter documents, can be
inspected and copied at the Public Reference Facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Atlanta Regional Office of the Securities and Exchange
Commission, 1375 Peachtree Street, N.E., Suite 788, Atlanta, Georgia 30367.
Copies of such material can also be obtained from the Public Reference Branch,
Office of Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C.
20549 at prescribed rates.
CERTAIN AFFILIATIONS
Templeton Investment Counsel, Inc., the investment manager for both the
Fund and Foreign Equity, and Templeton Global Investors, Inc., the business
manager for both the Fund and Foreign Equity, are indirect wholly owned
subsidiaries of Franklin. Franklin is a publicly traded company whose shares are
listed on the New York Stock Exchange. Charles B. Johnson and Rupert H. Johnson,
Jr. are principal shareholders of Franklin and own, respectively, approximately
20.1% and 16.0% of its outstanding shares. As of August 31, 1995, Franklin,
through its various subsidiaries, provided investment management and related
services to registered investment companies and other accounts having over $129
billion in assets.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of the Fund contained in the Fund's annual
report to shareholders for the fiscal year ended December 31, 1994, included in
the Statement of Additional Information to this Proxy/Prospectus, and
incorporated by reference herein, have been included and incorporated herein in
reliance on the report of McGladrey & Pullen, LLP, independent certified public
accountants. The financial statements of Foreign Equity contained in Foreign
Equity's annual report to shareholders for the fiscal year ended December 31,
1994, included in the Statement of Additional Information to this
Proxy/Prospectus, and incorporated by referenced herein, have been included and
incorporated herein in reliance on the report of McGladrey & Pullen, LLP,
independent certified public accountants. The financial statements of the Fund
and Foreign Equity contained in Semi-Annual Reports to Shareholders for the six
month period ended June 30, 1995 are included in the Statement of Additional
Information to this Proxy/Prospectus and incorporated by reference herein.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Foreign
Equity will be passed upon by Dechert Price & Rhoads, 1500 K Street, N.W.,
Washington, D.C. 20005, which firm will also render an opinion as to certain
Federal income tax consequences of the Reorganization.
THE BOARD OF DIRECTORS OF THE FUND, INCLUDING THE INDEPENDENT
DIRECTORS, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN OF REORGANIZATION, AND
ANY UNMARKED PROXIES WILL BE SO VOTED.
SHAREHOLDER PROPOSALS FOR SUBSEQUENT MEETINGS
The Fund does not, as a general matter, hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals to be
considered at a subsequent meeting of shareholders should send such proposals to
the principal executive offices of the Fund, located at 700 Central Avenue, St.
Petersburg, Florida 33701. It is suggested that proposals be submitted by
certified mail, return receipt requested.
OTHER BUSINESS
The Directors of the Fund know of no other business to be brought
before the Meeting. However, if any other matters properly come before the
Meeting, proxies will be voted in accordance with the judgment of the Directors.
If you cannot attend the Meeting in person, please complete and sign
the enclosed proxy and return it in the envelope provided so that the Meeting
may be held and action taken on the matters described herein with the greatest
possible number of shares participating.
VOTING INFORMATION
Proxies from the shareholders of the Fund are being solicited by the
Board of Directors of the Company for the Special Meeting to be held on January
29, 1996, at the Fund's offices at 700 Central Avenue, St. Petersburg, Florida
33701 at 9:00 A.M. (local time), or at such later time made necessary by
adjournment. A proxy may be revoked at any time at or before the meeting by oral
or written notice to the Secretary of the Fund. Unless revoked, all valid
proxies will be voted in accordance with the specifications thereon or, in the
absence of such specifications, for approval of the Plan and the Reorganization.
Approval of the Plan and the Reorganization will require the affirmative vote of
the holders of a majority of the Fund's outstanding voting securities. For
purposes of determining the presence of a quorum for transacting business at the
Special Meeting, abstentions and broker "non-votes" will be treated as shares
that are present but which have not been voted. For this reason abstention and
broker "non-votes" will have the effect of a "no" vote for purposes of obtaining
approval of the Plan of Reorganization.
Proxies are to be solicited by mail. Additional solicitations may be
made by telephone, telegraph or personal contact by officers, employees or
agents of Templeton Investment Counsel, Inc. and its affiliates.
Shareholders of the Fund of record at the close of business on January
15, 1996 ("Record Date") will be entitled to vote at the Special Meeting or any
adjournment thereof. The holders of more than 50% of the shares of the Fund
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the meeting. Shareholders are
entitled to one vote for each share held and fractional votes for fractional
shares held. As of January 15, 1996, as shown on the books of the Fund, there
were issued and outstanding 2,562,747 shares of common stock of the Fund. As of
January 15, 1996, as shown on the books of Foreign Equity, there were issued and
outstanding 131,228,144 shares of common stock.
In the event that a quorum is present at the meeting but sufficient
votes to approve the Plan are not received, the persons named as proxies may
propose one or more adjournments of the meeting to permit further solicitation
of proxies. Any such adjournment will require the affirmative vote of a majority
of those shares represented at the meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the Plan in favor of such an adjournment and will vote
those proxies which they are required to vote AGAINST the Plan against any such
adjournment.
The votes of the shareholders of Foreign are not being solicited, since
their approval or consent is not necessary for the Reorganization to take place.
As of January 15, 1996, the officers and Directors of the Company as a group
beneficially owned less than 1% of the outstanding shares of Foreign Equity and,
to the best of the knowledge of Foreign Equity, no person owned of record or
beneficially 5% or more of Foreign Equity outstanding shares. As of January 15,
1996, the officers and Directors of the Company as a group beneficially owned
less than 1% of the outstanding shares of the Fund and, to the best of the
knowledge of the Fund, no person of record or beneficially owned 5% or more of
the outstanding shares of the Fund.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of January, 1996, by Templeton Institutional Funds, Inc. (the
"Company"), a Maryland corporation with its principal place of business at 700
Central Avenue, St. Petersburg, Florida 33701 on behalf of each of Foreign
Equity Series (the "Acquiring Fund"), and Foreign Equity (South Africa Free)
Series (the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all or
substantially all of the assets of the Acquired Fund to the Acquiring Fund in
exchange solely for shares of common stock, ($0.01 par value per share), of the
Acquiring Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring
Fund of certain identified liabilities of the Acquired Fund, and the
distribution of the Acquiring Fund Shares to the shareholders of the Acquired
Fund in complete liquidation of the Acquired Fund as provided herein, all upon
the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, the Acquired Fund and the Acquiring Fund are series of the
Company, which is an open-end, registered investment company of the management
type and the Acquired Fund owns securities which generally are assets of the
character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Directors of the Company has determined that the
exchange of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of certain identified liabilities of
the Acquired Fund by the Acquiring Fund is in the best interests of the
Acquiring Fund and its Shareholders and that the interests of the existing
shareholders of the Acquiring Fund would not be diluted as a result of this
transaction;
WHEREAS, the Board of Directors of the Company has determined that the
exchange of all or substantially all of the assets of the Acquired Fund for
Acquiring Fund Shares and the assumption of certain identified liabilities of
the Acquired Fund by the Acquiring Fund is in the best interests of the Acquired
Fund and its shareholders and that the interests of the existing shareholders of
the Acquired Fund would not be diluted as a result of this transaction;
WHEREAS, the purpose of the Reorganization is to combine the assets of
the Acquiring Fund with those of the Acquired Fund in an attempt to achieve
greater operating economies and increased portfolio diversification;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN
EXCHANGE FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF CERTAIN IDENTIFIED
ACQUIRED FUND LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the Acquired Fund
agrees to transfer all of the Acquired Fund's assets as set forth in paragraph
1.2 to the Acquiring Fund and the Acquiring Fund agrees in exchange therefor (i)
to deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined by dividing the value of the
Acquired Fund's net assets computed in the manner and as of the time and date
set forth in paragraph 2.1 by the net asset value of one Acquiring Fund Share
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Acquired Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing").
1.2 The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all property, including, without limitation, all cash,
securities, commodities and futures interests and dividends or interest
receivable which are owned by the Acquired Fund and any deferred or prepaid
expenses shown as an asset on the books of the Acquired Fund on the closing date
provided in paragraph 3.1 (the "Closing Date").
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund shall
assume all liabilities, expenses, costs, charges and reserves (expected to
include expenses incurred in the ordinary course of the Acquired Fund's
operations, such as accounts payable relating to custodian and transfer agency
fees, legal and audit fees, and expenses of state securities registration of the
Acquired Fund's shares) reflected on an unaudited statement of assets and
liabilities of the Acquired Fund prepared by Templeton Global Investors, Inc.,
the business manager of the Acquired Fund and the Acquiring Fund, as of the
Valuation Date (as defined in paragraph 2.1) in accordance with generally
accepted accounting principles consistently applied from the prior audited
period. The Acquiring Fund shall assume only those liabilities of the Acquired
Fund reflected on that unaudited statement of assets and liabilities and shall
not assume any other liabilities.
1.4 Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Fund will distribute pro rata to the Acquired Fund's
shareholders of record, determined as of immediately after the close of business
on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares received by the Acquired Fund pursuant to paragraph 1.1 and will
completely liquidate. Such distribution and liquidation will be accomplished by
the transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
the Acquired Fund shares owned by such shareholders as of immediately after the
close of business on the Closing Date. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired Fund,
although share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as determined
in accordance with paragraph 2.3. The Acquiring Fund will not issue certificates
representing the Acquiring Fund Shares in connection with such exchange except
upon request by a shareholder of the Acquired Fund.
1.5 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
2. VALUATION
2.1 The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
normal close of business of the New York Stock Exchange on the Closing Date
(such time and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Company's Articles of Incorporation and
then-current prospectus or statement of additional information.
2.2 The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of immediately after the close of business of
the New York Stock Exchange on the Valuation Date, using the valuation
procedures set forth in the Company's Articles of Incorporation and then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's assets shall be
determined by dividing the value of the net assets of the Acquired Fund
determined using the same valuation procedures referred to in paragraph 2.1 by
the net asset value of an Acquiring Fund Share determined in accordance with
paragraph 2.2.
2.4 All computations of value with respect to the Acquiring Fund shall
be made by Templeton Global Investors, Inc.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date Shall be January 29, 1996 or such later date as
the parties may agree in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the Closing Date unless otherwise agreed to by the parties. The
close of business on the Closing Date shall be as of 4:00 p.m. New York time.
The Closing shall be held at the offices of the Company, St. Petersburg, Florida
or at such other place and time as the parties shall mutually agree.
3.2 The Chase Manhattan Bank, N.A., as custodian for the Acquiring Fund
(the "Custodian"), shall deliver at the Closing a certificate of an authorized
officer stating that: (a) the Acquired Fund's portfolio securities, cash, and
any other assets shall have been delivered in proper form to the Acquired Fund;
and (b) all necessary taxes including without limitation all applicable federal
and state stock transfer stamps, if any, shall have been paid, or provision for
payment shall have been made, in conjunction with the delivery of portfolio
securities.
3.3 Franklin Templeton Investor Services, Inc. (the "Transfer Agent")
on behalf of the Acquired Fund shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Acquired Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a confirmation evidencing
the Acquiring Fund Shares to be credited on the Closing Date to the Acquired
Fund or provide evidence satisfactory to the Acquired Fund that such Acquiring
Fund Shares have been credited to the Acquired Fund's account on the books of
the Acquiring Fund. At the Closing each party shall deliver to the other such
bills of sale, checks, assignments, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing Date, it
being understood that such ordinary course of business will include the
declaration and payment of customary dividends and distributions, and any other
distributions that may be advisable.
4.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
4.3 The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
5.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of the Company's Articles of
Incorporation and By-Laws and certified copies of the resolutions evidencing
such approval shall have been delivered to the Acquiring Fund;
5.2 On the Closing Date, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein;
5.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
5.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
5.5 The parties shall have received the opinion of Messrs. Dechert
Price & Rhoads addressed to the Company substantially to the effect that the
transaction contemplated by this Agreement constitutes a tax-free reorganization
for Federal income tax purposes. The delivery of such opinion is conditioned
upon receipt by Dechert Price & Rhoads of representations it shall request of
the parties.
6. BROKERAGE FEES AND EXPENSES
6.1. The Acquiring Fund and the Acquired Fund each represents and
warrants to the other that it has no obligations to pay any brokers or finders
fees in connection with the transactions provided for herein.
6.2 Each party to this Agreement shall bear its own expenses in
connection with carrying out the terms of this Agreement.
7. TERMINATION
This Agreement and the transaction contemplated hereby may be
terminated and abandoned by either party by resolution of the Company's Board of
Directors at any time prior to the Closing Date, if circumstances should develop
that, in the opinion of such Board, make proceeding with the Agreement
inadvisable.
8. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner
as may be agreed upon in writing by the authorized officers of the Company;
provided, however, that following the meeting of the Acquired Fund Shareholders
called by the Acquired Fund pursuant to paragraph 4.2 of this Agreement, no such
amendment may have the effect of changing the provisions for determining the
number of the Acquiring Fund shares to be issued to the Acquired Fund
Shareholders under this Agreement to the detriment of such shareholders without
their further approval.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its President or Vice President and its seal to be affixed thereto
and attested by its Secretary or Assistant Secretary.
Attest: TEMPLETON INSTITUTIONAL FUNDS,
INC. ON BEHALF OF FOREIGN
EQUITY SERIES
By:
Secretary
Attest: TEMPLETON INSTITUTIONAL FUNDS,
INC. ON BEHALF OF FOREIGN EQUITY
(SOUTH AFRICA FREE)SERIES
By:
Secretary
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
SPECIAL MEETING OF SHAREHOLDERS, JANUARY 29, 1996
PLEASE VOTE PROMPTLY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints THOMAS M. MISTELE, JAMES R. BAIO, and
JOHN R. KAY, and each of them, with full power of substitution, as proxies to
vote for and in the name, place and stead of the undersigned at the Special
Meeting of Shareholders of Templeton Institutional Funds, Inc., Foreign Equity
(South Africa Free) Series (the "Fund") to be held at 700 Central Avenue, St.
Petersburg, Florida 33701-3628, on Monday, January 29, 1996, and at any
adjournment thereof, according to the number of votes and as fully as if
personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER (OR NOT
VOTED) AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED IN
FAVOR OF ITEM 1, AND WITHIN THE DISCRETION OF THE PROXYHOLDERS AS TO ITEM 2.
,1996
Signature(s) Date
PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR HEREON. IF
MORE THAN ONE OWNER IS REGISTERED AS SUCH, ALL MUST SIGN. IF SIGNING AS
ATTORNEY, EXECUTOR, TRUSTEE OR ANY OTHER REPRESENTATIVE CAPACITY, OR AS A
CORPORATE OFFICER, PLEASE GIVE FULL TITLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2:
Item 1-Approval of an Agreement and Plan of Reorganization providing for the
acquisition of all of the assets of the Fund by Templeton Institutional Funds,
Inc. Foreign Equity Series ("Foreign Equity") in exchange for shares of Foreign
Equity, the distribution of such Foreign Equity shares to shareholders of the
Fund, and the subsequent dissolution of the Fund.
FOR AGAINST ABSTAIN
- - -
|-| |-| |-|
Item 2-In their discretion, the Proxyholders are authorized to vote upon such
other matters which may legally come before the Meeting or any adjournments
thereof.
FOR AGAINST ABSTAIN
- - -
|-| |-| |-|
P [ ]
R
O
X
Y [ ]
January__, 1996
Mr. __________________
Promedica Health Care Foundation
One Harbour Place
Suite 100
Portsmouth, NH 03801
Dear Mr. ______:
In support of Templeton's efforts to provide you with superior investment
management, the Board of Directors of Templeton Institutional Funds, Inc.,
Foreign Equity (South Africa Free) Series (the "Fund"), has recently approved a
proposal for the reorganization of the Fund. This proposal involves combining
the assets of the Fund with the assets of the Templeton Institutional Funds,
Inc., Foreign Equity Series, which has similar investment objectives (except for
the South Africa restriction), and is also managed by James E. Chaney. The
Foreign Equity (South Africa Free) Series would subsequently be liquidated in
response to the favorable changes to the political, social, and economic climate
of South Africa. The attached proxy statement/prospectus will provide you with
detailed information about the proposed transaction, as well as the benefits of
investing in a larger fund. In addition, a final version of the proxy
statement/prospectus will be forwarded to you after the U.S. Securities and
Exchange Commission renders its comments. A meeting of shareholders is scheduled
for January 29, 1995, as described in the attached notice.
As a result of these favorable changes in South Africa, many clients have
changed their investment restrictions and, subsequently, requested transfers
from the Fund to the Templeton Institutional Funds, Inc., Foreign Equity Series.
Therefore, the Fund has experienced a consistent pattern of net redemptions,
resulting in a declining level of Fund assets. In the best interest of remaining
shareholders, it was concluded by the Board of Directors that the reorganization
be proposed. This transaction will permit shareholders of the Fund to pursue
substantially the same investment goals, at a lower overall expense to the
shareholders.
We look forward to working with you in years to come, and our commitment to
providing you with exceptional management and service remains our first
priority. If you have any questions regarding this transaction or any other
issues regarding the portfolio, please feel free to contact us. Thank you very
much for your consideration.
Sincerely,
C. Reed Hutchens
Vice President
Director of Client Service
