<PAGE>
Templeton Institutional Funds, Inc.
TIFI Foreign Equity Series
--------------------------------------------------------
ANNUAL REPORT
December 31, 1995
[LOGO OF TEMPLETON APPEARS HERE]
<PAGE>
-------------------------------------------------------------
Mutual funds, annuities, and other investment products:
. are not FDIC insured;
. are not deposits or obligations of, or guaranteed by,
any financial institution;
. are subject to investment risks, including possible
loss of the principal amount invested.
-------------------------------------------------------------
<PAGE>
December 31, 1995
Dear Shareholder...
1994 was a difficult year for US and Non-US equities and bonds. Money
market instruments, however, generally offered good relative returns given an
uncertain investment environment. Interest rates were rising, many emerging
markets were being affected by adverse political and economic developments,
including the Mexican monetary crisis and there were signs of a global economic
slowdown. It was a year that also witnessed the demise of several over-leveraged
US hedge funds.
At the beginning of 1995, given difficulties experienced in 1994, many
investors were maintaining conservative portfolios. Our view, however, was more
optimistic than the market consensus given our longer-term, five-year investment
horizon. In last year's annual report, we viewed the market's pessimism as a
buying opportunity for patient, fundamental investors. Our optimism had improved
because the number of names on our bargain (buy) list had grown since the
beginning of 1994 because many share prices had fallen significantly, yet their
underlying long-term fundamentals, based on our analysis, remained relatively
unchanged.
It is therefore not surprising, given reasonable fundamentals and a
reversal in the direction of interest rates, that performance for many financial
markets (including many global stock markets) improved in 1995. Furthermore,
performance results of many overseas stock markets, stated in US dollar terms,
were enhanced by stronger local currencies. The Templeton
- --------------------------------------------------------------------------------
Total Returns as of 12/31/95
<TABLE>
One-Year Three-Year Cumulative
Average Average Since
Annual/1,2/ Annual/1,2/ Inception/1,3/
(10/18/90)
<S> <C> <C> <C>
TIFI Foreign Equity Series 13.00 14.93 76.69
MSCI EAFE Index 11.56 17.04 50.10
</TABLE>
/1/ Past expense reductions by the Fund's manager increased the Fund's total
returns.
/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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[PHOTO OF JAMES CHANEY APPEARS HERE]
JAMES CHANEY IS A PORTFOLIO MANAGER AND RESEARCH ANALYST. HE CURRENTLY MANAGES
THE TEMPLETON INSTITUTIONAL GROWTH AND FOREIGN EQUITY MUTUAL FUNDS, TWO VARIABLE
ANNUITY PRODUCTS AND SEVERAL CORPORATE AND PUBLIC FUND SEPARATE ACCOUNTS. MR.
CHANEY'S GLOBAL RESEARCH RESPONSIBILITIES INCLUDE MERCHANDISING, REGIONAL BANKS
AND ENVIRONMENTAL COMPANIES.
PRIOR TO JOINING THE TEMPLETON ORGANIZATION IN 1991, MR. CHANEY SPENT SIX YEARS
WITH GE INVESTMENTS, WHERE HE WAS VICE PRESIDENT OF INTERNATIONAL EQUITIES. IN
THAT CAPACITY, HE HAD NUMEROUS RESEARCH RESPONSIBILITIES AND ALSO MANAGED
SEVERAL SEPARATE ACCOUNTS AND A START-UP MUTUAL FUND WHICH WAS A LIPPER-LISTED
TOP QUARTILE PERFORMER. HE ALSO HAS ANOTHER SEVEN YEARS EXPERIENCE AS AN
INTERNATIONAL CONSULTING ENGINEER AND PROJECT MANAGER FOR CAMP, DRESSER & MCKEE,
INC. AND AMERICAN BRITISH CONSULTANTS.
MR. CHANEY RECEIVED A M.B.A. WITH HONORS FROM COLUMBIA UNIVERSITY, WHERE HE WAS
A MEMBER OF THE BETA GAMMA SIGMA HONOR SOCIETY. HE RECEIVED HIS M.S. IN
ENGINEERING FROM NORTHEASTERN UNIVERSITY AND HIS B.S. IN ENGINEERING FROM THE
UNIVERSITY OF MASSACHUSETTS-AMHERST. MR. CHANEY IS A LICENSED AND REGISTERED
ENGINEER.
- --------------------------------------------------------------------------------
continued...
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
- --------------------------------------------------------------------------------
Industry Diversification on 12/31/95
(% of Total Portfolio)
Banking 15.5%
Utilities Electrical & Gas 8.6%
Telecommunications 6.7%
Insurance 5.4%
Multi-industry 4.5%
Chemicals 4.3%
Energy Sources 3.5%
Forest products & Paper 3.3%
Financial Services 3.1%
Geographic Distribution on 12/31/95
(% of Equity Assets)
[PIE CHART APPEARS HERE]
Asia 17.1%
Australia/New Zealand 8.0%
Latin America/Caribbean 4.5%
Europe 66.3%
North America 4.1%
- --------------------------------------------------------------------------------
Institutional Funds, Inc. Foreign Equity Series (the "Fund") remains unhedged
and was also a beneficiary of this approach. Some markets, however, continued to
be disappointing, particularly the emerging markets. Additionally, within most
global stock markets, results varied amongst industry sectors and individual
stocks, given mixed earnings results.
The two most interesting developments in 1995 were the exceptional
performance gains of the US stock market and the recent weakening of the
Japanese Yen, which generally remains uncorrelated to movements of other major
currencies. Interestingly, despite strong US stock markets and foreign exchange
volatility concerns, US institutional and retail investor contributions into
global and international stock funds remained strong.
Within this environment, the Fund outperformed the unmanaged Morgan
Stanley Capital International Europe Australia and Far East Index ("MSCI EAFE")
for 1995 returning 13.0% against the index return of 11.6%. The Fund also
returned 1.6% versus the MSCI EAFE return of 4.1% for the quarter ending
December 31, 1995. Since its inception on October 18, 1990, the Fund has
provided an 11.6% average annual return against the MSCI EAFE index return of
8.1%.
The 1995 performance relative to the benchmark index is primarily
attributable to several key factors. Most importantly, the portfolio remained
underweighted in the Japanese market which under performed the index despite a
strong fourth quarter. Performance was also enhanced by maintaining share
positions in the United Kingdom, Hong Kong, Sweden and Spain. Alternatively,
many of the Fund's emerging markets holdings continued to underperform the
index.
Portfolio turnover in 1995 remained low, with geographic and industry
weightings fluctuating throughout the year due to share price appreciation,
depreciation, and buying and selling of shares. Overall, on a geographic
perspective, the Fund's Continental European weighting has increased, while its
Far Eastern emerging markets and United Kingdom weightings have fallen. The
Fund's Japanese weighting has also increased, but is anticipated to remain
significantly underweighted relative to the MSCI EAFE index. Valuations of most
Japanese shares remain expensive based on our valuation criteria. We have been
fortunate, however, to discover several new Japanese shares which are now held
in the Fund. These opportunities may benefit from recent regulatory changes. For
example, Japanese companies are now permitted to repurchase shares, a
shareholder value enhancing alternative which was previously prohibited.
Additionally, the Fund continued to grow, with total assets of $1.8
billion at the end of 1995 compared to $1.1 billion as of the end of 1994. The
Fund's share price, as measured by net asset value, was $14.04 at December 31,
1995, compared to $12.86 at December 31, 1994.Shareholders received $0.305 per
share in dividend income and $0.165 per share in long-term capital gains in
1995.
<PAGE>
................................................................................
We are now entering the second half of the 1990's and are probably
somewhere near or beyond the mid-point of the current global economic cycle.
Most financial markets have been good performers over the past five years and
are typically valued above historical averages. These results are often
attributed to low sustainable inflation, economic liberalization of emerging
nations and the spread of democracy and capitalism into former communist
countries. Are these assumptions reasonable and more importantly, will 1996
offer good or poor investment returns, particularly in the international
markets? We do not really know, nor does anyone else.
We believe, however, that our overall level of optimism for long-term
prospects of international shares remains unchanged. For example, the number of
international investment opportunities on our bargain list is about equal to
those in January 1995. These stocks today, on an absolute basis, are typically
being priced in global markets at levels similar to last year's valuations. Many
of these stocks are also viewed as being more attractive than US peers, which
seems logical given the recent appreciation of the US stock market. The source
of funds (sell) list is also about the same size as last year. Throughout 1995,
the general composition of these lists did not change significantly, except in
the emerging markets arena, where the number of shares on the bargain list
increased in the first half of the year, and subsequently fell in the second
half due to long-term earnings revisions and/or share price changes.
The emerging markets have no doubt been volatile and will continue to
be so going forward. We will, however, continue to maintain investments in the
emerging markets arena, despite poor performance in 1994 and 1995. We continue
to identify investment opportunities in Far Eastern markets and in Eastern
European markets like the Czech Republic. India also deserves further
investigation.
In Europe, economic turmoil due to Maastricht compliance concerns may
also continue to provide us with investment opportunities in France and Italy.
Alternatively, many shares in Scandinavia and the United Kingdom are viewed as
being less attractive than last year.
Our best ideas generally remain focused on several themes. More
specifically, many of our potential bargains are shares of companies that are
considered special situations. These companies are typically focused on
restructuring, turnaround and/or consolidation activities. Other recommendations
include shares which offer strong cash flow and stable earnings.
1996 should be much like every year, one filled with potential
opportunities. In searching for opportunities, we continue to vigorously
research each individual security purchased for the Fund. In addition, we try to
purchase securities that we believe are fundamentally inexpensive. There are, of
course, general risks involved with international investing related to market,
currency, economic, political and other factors. These risks are discussed in
the Fund's prospectus.
- --------------------------------------------------------------------------------
10 Largest Positions on 12/31/95
(% of Total Portfolio)
Svenska Handelsbanken 1.5%
Iberdrola SA 1.5%
Banco Bibao Vizcaya SA 1.5%
Societe General de Surveillance
Holdings Ltd. 1.5%
Rhone-Poulenc SA 1.4%
Banque Nationale de Paris (BNP) 1.4%
Stet Spa Sta Finanziaria Telefonica
Torino 1.4%
Societe Elf Aquitaine SA 1.4%
Sony Corp 1.4%
Telefonica de Espana SA 1.3%
- --------------------------------------------------------------------------------
Fund Asset Allocation on 12/31/95
[PIE CHART APPEARS HERE]
Equity 86.4%
Short-term & Other 13.6%
*Equity includes convertible and preferred stocks
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
We realize your expectations are high. We respect the confidence you
have shown in our organization by placing your assets in our care and we are
dedicated to the tasks at hand. We thank you for your continued relationship
with the Templeton organization.
Sincerely,
/s/ Donald F. Reed
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
/s/ James E. Chaney
James E. Chaney, P.E.
Senior Vice President
Templeton Investment Counsel, Inc.
- --------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 10/18/90 - 12/31/95
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI FOREIGN EQUITY SERIES,
MSCI EAFE INDEX AND CPI INDEX]
<TABLE>
<CAPTION>
INCEPT
(Millions) 12/95
-------- -----
<S> <C> <C>
TIFI $5 $8,834,000
MSCI $5 $7,504,769
CPI $5 $5,752,249
</TABLE>
Period ended December 31, 1995
<TABLE>
<CAPTION>
Since
Inception
One-Year (10/18/90)
<S> <C> <C>
Average Annual Total Return/1,2/ 13.00% 11.56%
Cumulative Total Return/2,3/ 13.00% 76.69%
</TABLE>
/1/ Past expense reductions by the Fund's manager increased the Fund's total
returns.
/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 1-800-362-6243.
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1995 1994 1993+ 1992+ 1991
---------- ---------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 12.86 $ 13.32 $ 10.05 $ 10.63 $10.16
---------- ---------- -------- ------- ------
Income from investment
operations:
Net investment income .31 .20 .23 .27 .31
Net realized and unrealized
gain (loss) 1.35 (.16) 3.19 (.41) 1.30
---------- ---------- -------- ------- ------
Total from investment
operations 1.66 .04 3.42 (.14) 1.61
---------- ---------- -------- ------- ------
Distributions:
Dividends from net
investment income (.31) (.19) (.09) (.24) (.44)
Distributions from net
realized gains (.17) (.31) (.06) (.20) (.70)
---------- ---------- -------- ------- ------
Total distributions (.48) (.50) (.15) (.44) (1.14)
---------- ---------- -------- ------- ------
Change in net asset value 1.18 (.46) 3.27 (.58) .47
---------- ---------- -------- ------- ------
Net asset value, end of year $ 14.04 $ 12.86 $ 13.32 $ 10.05 $10.63
========== ========== ======== ======= ======
TOTAL RETURN 13.00% .24% 34.03% (1.33)% 16.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year
(000) $1,817,883 $1,093,227 $407,970 $ 566 $1,181
Ratio of expenses to average
net assets .88% .95% 1.03% 8.82% 9.15%
Ratio of expenses, net of
reimbursement, to average
net assets .88% .95% 1.00% 1.00% 1.00%
Ratio of net investment
income to average net
assets 2.70% 2.03% 1.73% 2.38% 2.47%
Portfolio turnover rate 20.87% 7.90% 42.79% 8.45% 76.16%
</TABLE>
+BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Fund, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 79.7%
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Appliances & Household Durables: 1.3%
Sony Corp. Jpn. 409,700 $ 24,553,836
- -----------------------------------------------------------------------------------------------------------------
Automobiles: 2.2%
Bayerische Motorenwerke (BMW) Ger. 15,662 8,081,922
Regie Nationale des Usines Renault SA Fr. 368,900 10,621,789
Volvo AB, B Swe. 1,074,750 22,004,833
-------------
40,708,544
- -----------------------------------------------------------------------------------------------------------------
Banking: 13.3%
Argentaria Corporacion Bancaria de Espana SA, ADR Sp. 787,000 15,838,375
Australia & New Zealand Banking Group Ltd. Aus. 3,070,161 14,398,796
Banco Bilbao Vizcaya Sp. 744,080 26,806,509
*Banco di Sardegna SPA, di Risp Itl. 516,480 3,570,565
Banque Nationale de Paris, ADR, 144A Fr. 555,000 25,035,634
Barclays PLC U.K. 1,157,188 13,280,562
Canadian Imperial Bank of Commerce Can. 684,300 20,363,834
Daegu Bank Co. Ltd. Kor. 516,910 7,934,727
*Daegu Bank Co. Ltd., new Kor. 2,530 37,206
Deutsche Bank AG Ger. 379,900 18,040,647
HSBC Holdings PLC H.K. 1,253,339 18,964,198
*Komercni Banka AS Csk. 130,500 7,022,707
*Komercni Banka AS, GDR, 144A Csk. 321,500 5,851,300
National Bank of Canada Can. 777,500 6,336,071
National Bank of Greece SA Gr. 47,210 2,406,398
*Philippine National Bank Phil. 431,604 4,771,832
PT Panin Bank, fgn. Indo. 4,191,500 3,757,960
Sparbanken Sverige AB, A, 144A Swe. 374,320 4,761,803
Stadshypotek AB, A Swe. 490,000 9,811,139
Svenska Handelsbanken, A Swe. 1,351,150 28,070,772
Westpac Banking Corp. Aus. 1,000,970 4,434,075
-------------
241,495,110
- -----------------------------------------------------------------------------------------------------------------
Broadcasting & Publishing: 0.5%
News Corp. Ltd. Aus. 1,209,915 6,456,765
Sing Tao Holdings Ltd. H.K. 6,201,400 2,405,975
-------------
8,862,740
- -----------------------------------------------------------------------------------------------------------------
Building Materials & Components: 1.1%
Byucksan Development Co. Ltd. Kor. 3,587 59,880
Pioneer International Ltd. Aus. 6,273,612 16,180,159
*Unione Cementi Marchino Emiliane (Unicem), di Risp Itl. 1,168,200 2,964,172
-------------
19,204,211
- -----------------------------------------------------------------------------------------------------------------
Business & Public Services: 3.0%
Ecco SA Fr. 76,624 11,594,524
*+Esselte AB, B Swe. 869,400 13,023,101
Societe Generale de Surveillance Holdings Ltd., br. Swtz. 13,005 25,818,336
*Waste Management International PLC U.K. 958,600 5,061,560
-------------
55,497,521
- -----------------------------------------------------------------------------------------------------------------
Chemicals: 4.3%
Akzo Nobel NV Neth. 121,564 14,082,940
Bayer AG Ger. 79,778 21,184,382
European Vinyls Corp. EVC International NV Neth. 176,040 4,582,029
Rhone-Poulenc SA, A Fr. 1,195,020 25,598,856
Solvay SA Bel. 23,317 12,656,781
-------------
78,104,988
</TABLE>
6
<PAGE>
Templeton Institutional Fund, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1995 (cont.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Construction & Housing: 1.3%
Daito Trust Construction Co. Ltd. Jpn. 1,310,000 $ 15,473,689
Kyudenko Corp. Jpn. 679,000 8,940,698
--------------
24,414,387
- ----------------------------------------------------------------------------------------------------
Data Processing & Reproduction: 0.5%
*Newbridge Networks Corp. Can. 237,900 9,846,061
- ----------------------------------------------------------------------------------------------------
Electrical & Electronics: 3.3%
Alcatel Alsthom SA Fr. 159,000 13,708,352
BBC Brown Boveri Ltd., br. Swtz. 18,806 21,846,589
Hitachi Ltd. Jpn. 2,352,000 23,682,819
--------------
59,237,760
- ----------------------------------------------------------------------------------------------------
Electronic Components & Instruments: 1.1%
BICC U.K. 4,470,000 19,159,523
- ----------------------------------------------------------------------------------------------------
Energy Equipment & Services: 0.8%
Koninklijke Pakhoed NV Neth. 518,599 14,275,149
- ----------------------------------------------------------------------------------------------------
Energy Sources: 3.5%
*MOL Magyar Olay-Es Gazipari RT, GDS 144A Hun. 750,259 6,095,854
Repsol SA Sp. 732,700 24,010,573
Saga Petroleum AS, A Nor. 700,500 9,345,013
Societe Elf Aquitaine SA, ADR Fr. 1 37
Societe Elf Aquitane SA Fr. 337,155 24,840,826
--------------
64,292,303
- ----------------------------------------------------------------------------------------------------
Financial Services: 2.6%
Axa SA Fr. 140,000 9,434,348
*Capital Portugal Fund Port. 31,050 2,629,422
Chile Fund Inc. Chil. 337,000 8,762,000
*India Fund, B Ind. 4,032,698 6,450,613
Korea International Trust Kor. 70 3,640,000
London Pacific Group Ltd. U.K. 1,212,080 4,348,218
Thai Fund Inc. Thai. 423,613 9,478,341
Thailand International Fund Thai. 80 2,420,000
--------------
47,162,942
- ----------------------------------------------------------------------------------------------------
Food & Household Products: 2.0%
Albert Fisher Group PLC U.K. 19,152,945 14,277,261
Hillsdown Holdings PLC U.K. 5,622,658 14,756,945
*+Vetropack AG Swtz. 1,070 3,223,450
Vitro SA Mex. 2,568,800 3,995,541
--------------
36,253,197
- ----------------------------------------------------------------------------------------------------
Forest Products & Paper: 3.3%
Cartiere Burgo SPA Itl. 2,218,760 11,051,541
Fletcher Challenge Ltd. N.Z. 5,465,000 12,611,758
Fletcher Challenge Ltd. Forestry Division N.Z. 3,845,408 5,480,368
Metsa Serla OY, B Fin. 245,300 7,550,987
PT Barito Pacific Timber, fgn. Indo. 3,730,000 2,732,451
Stora Kopparbergs Bergslags AB, B Swe. 1,168,000 13,979,179
*+Unipapel SA Sp. 309,693 5,821,105
--------------
59,227,389
</TABLE>
7
<PAGE>
Templeton Institutional Fund, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1995 (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health & Personal Care: 2.7%
Astra AB, A Swe. 534,500 $ 21,323,834
Hafslund Nycomed SA, B Nor. 839,790 21,279,471
Medeva PLC U.K. 1,739,171 7,238,443
--------------
49,841,748
- ---------------------------------------------------------------------------------------------------------
Insurance: 5.4%
Ace Ltd. Bmu. 336,500 13,375,875
Aegon NV Neth. 523,215 23,187,232
GIO Austrailia Holdings Ltd. Aus. 6,498,797 15,118,649
Ing Groep NV Neth. 332,741 22,264,425
London Insurance Group Inc. Can. 503,200 10,182,691
*Zuerich Versicherung, new Swtz. 43,775 13,092,653
--------------
97,221,525
- ---------------------------------------------------------------------------------------------------------
Leisure & Tourism: 0.4%
Kuoni Reisen Holding AG, B Swtz. 3,975 6,375,163
- ---------------------------------------------------------------------------------------------------------
Machinery & Engineering: 1.0%
Hitachi Koki Co. Ltd. Jpn. 185,000 1,676,526
*Tampella AB (OY) Fin. 1,725,000 2,179,481
VA Technologie AG, br., 144A Aust. 116,750 14,805,568
--------------
18,661,575
- ---------------------------------------------------------------------------------------------------------
Merchandising: 1.1%
Dairy Farm International Holdings Ltd. H.K. 5,149,463 4,737,506
Koninklijke Bijenkorf Beheer NV (KBB) Neth. 97,436 6,446,674
Kwik Save Group PLC U.K. 1,080,910 8,460,347
--------------
19,644,527
- ---------------------------------------------------------------------------------------------------------
Metals & Mining: 1.9%
*Bohler Uddeholm AG, 144A Aust. 80,450 6,137,267
Elkem AS Nor. 810,100 9,208,443
*Inmet Mining Corp. Can. 452,000 3,310,991
*Union Miniere NPV Bel. 242,770 16,209,414
--------------
34,866,115
- ---------------------------------------------------------------------------------------------------------
Multi-Industry: 4.5%
Amer Group Ltd., A Fin. 613,500 9,569,422
*BTR PLC, A Aus. 1,622,565 7,926,427
*+Fotex First Hungarian-American Photo-Service Hun. 3,330,000 1,930,004
Hutchison Whampoa Ltd. H.K. 3,107,000 18,925,276
Jardine Matheson Holdings Ltd. H.K. 2,000,694 13,704,754
Jardine Strategic Holdings Ltd. H.K. 4,280,324 13,097,791
*Jardine Strategic Holdings Ltd., wts. H.K. 345,688 110,620
Swire Pacific Ltd., A H.K. 2,166,000 16,806,983
--------------
82,071,277
- ---------------------------------------------------------------------------------------------------------
Real Estate: 2.7%
Bail Investissement Fr. 73,500 12,487,645
Hang Lung Development Co. Ltd. H.K. 4,645,200 7,389,067
New World Development Co. Ltd. H.K. 2,655,177 11,571,867
Taylor Woodrow PLC U.K. 10,053,810 18,345,799
--------------
49,794,378
</TABLE>
8
<PAGE>
Templeton Institutional Fund, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1995 (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Telecommunications: 4.1%
Compania de Telecomunicaciones de Chile SA, ADR Chil. 72,500 $ 6,008,437
Philippine Long Distance Telephone Co., GDR, 144A Phil. 451,700 14,059,162
*SPT Telecom AS Csk. 65,500 6,189,905
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp Itl. 12,198,000 24,852,969
Telefonica de Espana SA Sp. 1,738,785 24,082,101
--------------
75,192,574
- ---------------------------------------------------------------------------------------------------------------------
Transportation: 2.0%
Brambles Industries Ltd. Aus. 392,500 4,375,892
Cathay Pacific Airways Ltd. H.K. 5,603,550 8,551,166
Qantas Airways Ltd., ADR, 144A Aus. 772,500 12,891,094
Singapore Airlines Ltd., fgn. Sing. 417,200 3,893,277
Unitor AS Nor. 515,000 7,073,617
--------------
36,785,046
- ---------------------------------------------------------------------------------------------------------------------
Utilities Electrical & Gas: 8.6%
British Gas PLC U.K. 3,355,650 13,236,661
*CEZ Csk. 313,039 11,316,643
Electricidad de Caracas Venz. 8,761,612 5,987,317
Endesa-Empresa Nacional de Electricidad SA Sp. 313,000 17,727,205
Evn Energie-Versorgung Niederoesterreich AG Aust. 99,709 13,681,772
Iberdrola SA Sp. 2,940,142 26,904,844
National Grid Holdings PLC U.K. 904,584 2,809,616
Shandong Huaneng Power Chn. 1,001,240 6,758,370
South Wales Electricity U.K. 953,200 13,870,487
Thames Water Group PLC U.K. 2,335,000 20,379,395
VEBA AG Ger. 544,500 23,313,204
--------------
155,985,514
- ---------------------------------------------------------------------------------------------------------------------
Wholesale & International Trade: 1.2%
Brierley Investments Ltd. N.Z. 26,409,099 20,890,543
--------------
TOTAL COMMON STOCKS: (cost $1,347,505,085) 1,449,625,646
- ---------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 3.3%
- ---------------------------------------------------------------------------------------------------------------------
ABN Amro NV, conv., pfd. Neth. 501,188 21,522,835
Concessioni e Costruzioni Autostrade SPA, B, pfd. Itl. 4,955,000 5,422,188
Nacional Financiera SA, 11.25%, conv., 5/15/98, pfd. Mex. 389,307 12,847,131
News Corp. Ltd., conv., pfd. Aus. 955,957 4,469,147
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR Braz. 320,250 15,171,844
--------------
TOTAL PREFERRED STOCKS (cost $50,357,609) 59,433,145
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Institutional Fund, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1995 (cont.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL IN
INDUSTRY ISSUE COUNTRY LOCAL CURRENCY** VALUE
- -----------------------------------------------------------------------------------------------------------------------------
BONDS: 3.4%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Airways, DEB, 9.75%, 6/15/05 U.K. 1,237,800 $ 3,891,262
C.S. Holding Finance BV, 4.875%, conv., 11/19/02 U.S. 11,385,000 17,988,300
Cia de Inversiones en Telecomunicaciones SA, 7.00%, 3/3/98 U.S. 309,675 17,961,150
Jardine Strategic Holdings Ltd., 7.50%, conv., 5/7/49 U.S. 501,000 546,090
PIV Investment Finance (Cayman) Ltd., 4.50%, conv., 12/1/00 U.S. 11,720,000 9,786,200
U.S. Treasury Note, 8.875%, 2/15/96 U.S. 11,000,000 11,046,420
--------------
TOTAL BONDS (cost $56,123,978) 61,219,422
- -----------------------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 13.4% (cost $244,139,711)
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.25% to 5.40%, with maturities to 3/22/96 U.S. 245,188,000 244,257,970
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $1,698,126,383) 1,814,536,183
OTHER ASSETS, LESS LIABILITIES: 0.2% 3,347,124
--------------
TOTAL NET ASSETS: 100.0% $1,817,883,307
==============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRIES INDICATED.
+SEE NOTE 6.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (identified cost
$1,698,126,383) $1,814,536,183
Cash 549,606
Receivables:
Investment securities sold 14,475,664
Capital shares sold 20,535,578
Dividends and interest 6,753,669
--------------
Total assets 1,856,850,700
--------------
Liabilities:
Payables:
Investment securities purchased 35,095,917
Capital shares redeemed 2,151,586
Accrued expenses 1,719,890
--------------
Total liabilities 38,967,393
--------------
Net assets, at value $1,817,883,307
==============
Net assets consist of:
Undistributed net investment income $ 756,912
Unrealized appreciation on investments 116,409,800
Accumulated net realized gain 2,369,773
Net capital paid in on shares of capital stock 1,698,346,822
--------------
Net assets, at value $1,817,883,307
==============
Shares outstanding 129,496,379
==============
Net asset value per share
($1,817,883,307 / 129,496,379) $ 14.04
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment income:
(net of $5,100,021 foreign taxes withheld)
Dividends $ 38,686,823
Interest 12,077,778
------------
Total income $ 50,764,601
Expenses:
Management fees (Note 4) 9,916,869
Administrative fees (Note 4) 1,412,755
Transfer agent fees (Note 4) 16,500
Custodian fees 758,000
Reports to shareholders 60,573
Audit fees 53,000
Legal fees (Note 4) 8,000
Registration and filing fees 179,550
Directors' fees and expenses 53,000
Other 56,688
------------
Total expenses 12,514,935
------------
Net investment income 38,249,666
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 25,138,417
Foreign currency transactions (731,041)
------------
24,407,376
Net unrealized appreciation on investments 116,272,586
------------
Net realized and unrealized gain 140,679,962
------------
Net increase in net assets resulting from
operations $178,929,628
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 38,249,666 $ 16,632,271
Net realized gain on investments and for-
eign currency transactions 24,407,376 9,358,727
Net unrealized appreciation (depreciation) 116,272,586 (41,946,256)
-------------- --------------
Net increase (decrease) in net assets re-
sulting from operations 178,929,628 (15,955,258)
Distributions to shareholders:
From net investment income (37,739,736) (15,267,921)
From net realized gain (20,589,597) (19,111,004)
Capital share transactions (Note 3) 604,056,205 735,590,480
-------------- --------------
Net increase in net assets 724,656,500 685,256,297
Net assets:
Beginning of year 1,093,226,807 407,970,510
-------------- --------------
End of year $1,817,883,307 $1,093,226,807
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity Series (the Fund) is a separate series of Templeton Institu-
tional Funds, Inc. (the Company) which is registered under the Investment Com-
pany Act of 1940 as an open-end, diversified management investment company, ac-
counting policies. 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. dollar is 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 investments.
Reported net realized foreign exchange gains or losses arise from sales and ma-
turities of short-term securities, sales of foreign currencies, currency gains
or losses realized between the trade and settlement dates on securities trans-
actions, the differences between the amounts of dividends, interest, and for-
eign withholding taxes recorded on the Fund's books, and the U.S. dollar equiv-
alent of the amounts actually received or paid. Net unrealized foreign exchange
gains and losses arise from changes in the value of assets and liabilities
other than investments in securities at the end of the fiscal period, resulting
from changes in the exchange rate.
C. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
D. Security Transactions, Investment Income, Distributions and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign securi-
ties is recorded as soon as information is available to the Fund. Interest in-
come and estimated expenses are accrued daily. Distributions to shareholders
are determined in accordance with income tax regulations, which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for passive foreign investment companies held by the
Fund. Distributions are recorded on the ex-dividend date.
2. MERGER OF TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY (SOUTH AFRICA
FREE) SERIES
On January 29, 1996, the Fund acquired all of the net assets of the Company's
Foreign Equity (South Africa Free) Series pursuant to a plan of reorganization
approved by Foreign Equity (South Africa Free) Series shareholders. The merger
was accomplished by a tax free exchange of shares of the Fund (valued at
$17,800,619) for the net assets of the Foreign Equity (South Africa Free) Se-
ries which aggregated, $17,800,619 including $1,500,235 of unrealized apprecia-
tion. The combined net assets of the Fund immediately after the merger were
$1,911,308,133.
3. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1995, there were 700 million shares of the Company's ($0.01 par
value) capital stock authorized of which 320 million have been classified as
Fund shares. Transactions in the Fund's shares for the years ended December 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 54,841,050 $ 746,123,192 55,873,309 $756,177,777
Shares issued in rein-
vestment of distribu-
tions 3,679,491 50,240,082 2,173,387 28,197,368
Shares redeemed (14,047,591) (192,307,069) (3,642,203) (48,784,665)
----------- ------------- ---------- ------------
Net increase 44,472,950 $ 604,056,205 54,404,493 $735,590,480
=========== ============= ========== ============
</TABLE>
4. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Company's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
14
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
The Fund pays monthly an investment management fee to TICI equal, on an annual
basis, to 0.70% of the average daily net assets of the Fund. The Fund pays TGII
monthly its allocated share of an administrative fee of 0.15% per annum on the
first $200 million of the Company's aggregate average daily net assets, 0.135%
of the next $500 million, 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 total expenses of the Fund to an annual rate of 1% of the
Fund's average net assets through the year ended December 31, 1995. For the
year ended December 31, 1995, no such reimbursement was necessary under the
agreement. For the year ended December 31, 1995, FTD did not receive any com-
missions from the sale of the Fund's shares and FTIS received fees of $16,500.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Funds, which firm received fees of $8,000 for the year ended December
31, 1995.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1995 were $718,356,584 and $257,722,264, respectively.
The cost of securities for federal income tax purposes is $1,702,918,588. Real-
ized gains and losses are reported on an identified cost basis.
At December 31, 1995, 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 $198,132,419
Unrealized depreciation (86,514,825)
------------
Net unrealized appreciation $111,617,594
============
</TABLE>
6. 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" as of December 31,
1995 amounted to $23,997,660. For the year ended December 31, 1995 net realized
loss from disposition of affiliated company was $2,194,854.
15
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Independent Auditor's Report
- -------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Foreign Equity Series
We have audited the accompanying statement of assets and liabilities, includ-
ing the investment portfolio, of the Foreign Equity Series of Templeton Insti-
tutional Funds, Inc. as of December 31, 1995, and the related statement of op-
erations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights
for each of the five years in the period then ended. These financial state-
ments and financial highlights are the responsibility of the Fund's manage-
ment. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Foreign Equity Series of Templeton Institutional Funds, Inc. as of December
31, 1995, 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.
/s/ McGladrey & Pullen, LLP
New York, New York
January 31, 1996
16
<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.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Institutional Services: 1-800-321-8563
Fund Information: 1-800-362-6243
ZT454 A 12/95 [RECYCLED PAPER LOGO]
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