TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
FOR THE YEAR ENDED
DECEMBER 31, 1995
<PAGE>
----------------------
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
This report must be
preceded or
accompanied by the
prospectus of the
Templeton
Institutional Funds,
Inc. Like any
investment in
securities, the value
of The Fund's
portfolio will be
subject to the risk of
loss from market,
currency, economic,
political and other
factors, as well as
investment decisions
by the investment
manager which will not
always be profitable
or wise. The Fund and
its investors are not
protected from such
losses by the
investment manager.
Therefore, investors
who cannot accept this
risk should not invest
in shares of the Fund.
---------------------
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.
ZT459 A 12/95
<PAGE>
December 31, 1996
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
Institutional Funds, Inc. Foreign Equity (South Africa Free) Series (the
TOTAL RETURNS AS OF 12/31/95
One-Year Cumulative
Average Since
Annual 1,2 Inception 1,3
(05/03/93)
TIFI Foreign Equity (SAF) Series 13.27 43.31
MSCI EAFE ex SAI 7.72 26.61
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 (SAF) SERIES
letter continued
INDUSTRY DIVERSIFICATION ON 12/31/95
(% of Total Portfolio)
Utilities Electrical & Gas 10.3%
Financial Services 7.9%
Telecommunications 7.4%
Multi-industry 6.0%
Food & Household Products 5.7%
Insurance 5.3%
Business & Public Services 4.6%
Energy Sources 4.3%
Forest Products & Paper 3.5%
[PIE CHART APPEARS HERE}
GEOGRAPHIC DISTRIBUTION ON 12/31/95
( of Equity Assets)
Europe 58.5%
North America 4.7%
Asia 20.4%
Australia/New Zealand 8.9%
Latin America/Caribbean 7.5%
"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 (excluding South
Africa Involvement) Index ("MSCI EAFE ex SAI") for 1995, returning 13.4% against
the index return of 7.7%. The Fund also returned 2.7% versus the MSCI EAFE ex
SAI return of 4.5% for the quarter ending December 31, 1995. Since its inception
on May 3, 1993, the Fund has provided a 14.5% average annual return against the
MSCI EAFE ex SAI index return of 8.3%.
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 underperformed 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 through 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's assets decreased to $16 million at the end of
1995, compared to $40 million as of the end of 1994. With a number of
shareholders removing South Africa investment restrictions in 1995, many
transferred to the Fund's sister product, the Foreign Equity Series. The Fund's
share price, as measured by net asset value,
<PAGE>
10 LARGEST POSITIONS ON 12/31/95
(% of Total Portfolio)
U.S. Treasury Note,
8.875% 2/15/96 2.6%
Electricidad de Caracas 1.9%
Ing Groep NV 1.7%
Iberdrola SA 1.7%
Canadian Imperial Bank
of Commerce 1.6%
Svenska Handelsbanken 1.6%
Societe General de Surveillance
Holdings 1.6%
Banco Bilbao Vizcaya 1.6%
Vetropack AG 1.5%
Aegon NV 1.5%
[PIE CHART APPEARS HERE]
FUND ASSET ALLOCATION ON 12/31/95
Short-term & other 11.7%
Equity* 88.3%
*Equity includes convertible and preferred stocks
was $6.81 at December 31, 1995, compared to $8.13 at December 31, 1994.
Shareholders received $0.57 per share in dividend income and $1.73 per share in
capital gains in 1995.
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 remain 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
increase 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
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC. FOREIGN EQUITY (SAF) SERIES
letter continued
[GRAPH APPEARS HERE]
Total Return Index Comparison1
$5,000,000 Investment: 05/03/93 - 12/31/95
INCEPT
(Millions) 12/95
TIFI Foreign Equity (SAF) Series $5 $7,165,500
MSCI EAFE Ex SAI Index $5 $6,180,378
CPI Index $5 $5,325,203
Period ended December 31, 1995
Since
Inception
One-Year (05/03/93)
Average Annual Total Return 1,2 13.27% 14.48%
Cumulative Total Return 1,3 13.27% 43.31%
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.
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.
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.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 1-800-362-6243.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
MAY 3, 1993
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
--------------------------- OPERATIONS) TO
1995 1994 DECEMBER 31, 1993
---------------- ---------------- ------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.13 $12.50 $10.00
---------- ----------- ---------
Income from investment operations:
Net investment income .62 .32 .10
Net realized and unrealized gain (loss) .36 (.55) 2.77
---------- ------------ ----------
Total from investment operations .98 (.23) 2.87
---------- ------------ ----------
Distributions:
Dividends from net investment income (.57) (.21) (.06)
Distributions from net realized gains (1.73) (3.93) (.31)
---------------- ---------------- ----------------
Total distributions (2.30) (4.14) (.37)
---------------- ---------------- ----------------
Change in net asset value (1.32) (4.37) 2.50
---------------- ---------------- ----------------
Net asset value, end of year $6.81 $8.13 $12.50
================ ================ ================
TOTAL RETURN * 13.27% (1.94)% 28.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $17,445 $39,576 $93,006
Ratio of expenses to average net assets 1.05% 1.05% 1.01%**
Ratio of expenses, net of reimbursement,
to average net assets 1.00% 1.00% 1.00%**
Ratio of net investment income to average
net assets 3.04% 2.04% 1.58%**
Portfolio turnover rate 66.65% 34.26% 82.52%
</TABLE>
*Not annualized in periods of less than one year.
**Annualized.
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
- -------------------------------------------------------------------------------
Investment Portfolio, December 31, 1995
<TABLE>
<CAPTION>
Industry Issue Country Shares Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
COMMON STOCKS: 81.1%
- -----------------------------------------------------------------------------------------------------------
Banking:13.6%
Argentaria Corporacion Bancaria de Espana SA, ADR Sp. 11,000 $221,375
Australia & New Zealand Banking Group Ltd. Aus. 56,000 262,635
Banco Bilbao Vizcaya Sp. 7,500 270,198
Banco de Andalucia Sp. 800 116,735
Banco Portugues de Investimento SA Port. 6,600 78,887
Barclays PLC U.K. 12,000 137,719
Canadian Imperial Bank of Commerce Can. 9,500 282,707
Daegu Bank Co. Ltd. Kor. 5,500 84,427
HSBC Holdings PLC H.K. 17,391 263,142
* Komercni Banka AS Csk. 1,000 53,814
* Komercni Banka AS, GDR, 144A Csk. 2,000 36,400
National Bank of Canada Can. 20,900 170,320
* Sparbanken Sverige AB, A Swe. 9,550 121,488
Svenska Handelsbanken, A Swe. 13,500 280,469
----------------
2,380,316
- -----------------------------------------------------------------------------------------------------------
Building Materials & Components: 1.1%
Pioneer International Ltd. Aus. 74,000 190,852
- -----------------------------------------------------------------------------------------------------------
Business & Public Services: 4.4%
Esselte AB, A Swe. 16,500 248,402
Societe Generale de Surveillance Holdings Ltd., br. Swtz. 140 277,937
* Welsh Water PLC U.K. 20,333 244,725
----------------
771,064
- -----------------------------------------------------------------------------------------------------------
Chemicals: 0.7%
European Vinyls Corp. EVC International NV Neth. 4,600 119,730
- -----------------------------------------------------------------------------------------------------------
Construction & Housing: 1.6%
Daito Trust Construction Co. Ltd. Jpn. 17,000 200,804
Kyudenko Corp. Jpn. 6,000 79,005
----------------
279,809
- -----------------------------------------------------------------------------------------------------------
Electronic Components & Instruments: 1.0%
BICC U.K. 42,000 180,022
- -----------------------------------------------------------------------------------------------------------
Energy Sources: 4.3%
* MOL Magyar Olay - Es Gazipari RT, GDS 144A Hun. 9,483 77,049
Repsol SA Sp. 6,300 206,451
Saga Petroleum AS, A Nor. 16,000 213,448
Societe Elf Aquitane SA Fr. 3,503 258,093
----------------
755,041
- -----------------------------------------------------------------------------------------------------------
Financial Services: 6.5%
* Capital Portugal Fund Port. 2,300 194,772
Chile Fund Inc. Chil. 4,100 106,600
* Creditanstalt Cesky Investicni Fond Csk. 2,456 56,735
* India Fund, B Ind. 65,000 103,972
Korea International Trust Kor. 2 104,000
Singapore Fund Sing. 13,634 182,355
Thai Fund Inc. Thai. 10,852 242,814
* Turkish Growth Fund Tur. 14,000 145,250
----------------
1,136,498
- -----------------------------------------------------------------------------------------------------------
Food & Household Products: 5.7%
Albert Fisher Group PLC U.K. 274,000 204,249
Cafe de Coral Holdings Ltd. H.K. 864,000 196,656
Hillsdown Holdings PLC U.K. 86,169 226,155
PT Japfa Comfeed Indonesia, fgn. Indo. 69,000 33,949
Vetropack AG Swtz. 90 271,131
Vitro SA Mex. 39,000 $60,661
----------------
992,801
- -----------------------------------------------------------------------------------------------------------
Forest Products & Paper: 3.5%
Carter Holt Harvey Ltd. N.Z. 89,000 192,006
Metsa Serla OY, B Fin. 2,500 76,957
PT Barito Pacific Timber, fgn. Indo. 72,000 52,744
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 55,482 50,957
Stora Kopparbergs Bergslags AB, B Swe. 19,500 233,385
----------------
606,049
- -----------------------------------------------------------------------------------------------------------
Health & Personal Care: 2.7%
Ares-Serono SA, B Swtz. 320 224,707
Hafslund Nycomed SA, B Nor. 10,000 253,390
----------------
478,097
- -----------------------------------------------------------------------------------------------------------
Insurance: 5.3%
Aegon NV Neth. 6,000 265,901
Ing Groep NV Neth. 4,500 301,105
London Insurance Group Inc. Can. 8,900 180,099
* Zuerich Versicherung, new Swtz. 600 179,454
----------------
926,559
- -----------------------------------------------------------------------------------------------------------
Machinery & Engineering: 1.8%
Hitachi Koki Co. Ltd. Jpn. 9,000 81,561
VA Technologie AG, br., 144A Aust. 1,800 228,266
----------------
309,827
- -----------------------------------------------------------------------------------------------------------
Merchandising: 1.3%
Koninklijke Bijenkorf Beheer NV (KBB) Neth. 2,000 132,326
Kwik Save Group PLC U.K. 11,000 86,098
----------------
218,424
- -----------------------------------------------------------------------------------------------------------
Metals & Mining: 3.1%
* Inmet Mining Corp. Can. 9,500 69,589
Renison Goldfields Consolidated Ltd. Aus. 48,459 241,315
* Union Miniere NPV Bel. 3,400 227,013
----------------
537,917
- -----------------------------------------------------------------------------------------------------------
Multi-Industry: 6.0%
Amer Group Ltd., A Fin. 10,000 155,981
* BTR PLC, A Aus. 28,215 137,778
Hutchison Whampoa Ltd. H.K. 42,500 258,875
Jardine Matheson Holdings Ltd. H.K. 31,877 218,357
Swire Pacific Ltd., A H.K. 29,000 225,024
* Waste Management International PLC, ADR U.K. 4,000 43,000
----------------
1,039,015
- -----------------------------------------------------------------------------------------------------------
Real Estate: 1.2%
Bail Investissement Fr. 1,250 212,375
- -----------------------------------------------------------------------------------------------------------
Telecommunications: 4.4%
Compania de Telecomunicaciones de Chile SA, ADR Chil. 1,250 103,594
Philippine Long Distance Telephone Co., GDR, 144A Phil. 5,500 171,188
* SPT Telecom AS Csk. 400 37,801
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp Itl. 107,000 218,008
Telefonica de Espana SA Sp. 17,000 235,449
----------------
766,040
- -----------------------------------------------------------------------------------------------------------
Transportation: 1.1%
Brambles Industries Ltd. Aus. 16,500 183,955
- -----------------------------------------------------------------------------------------------------------
Utilities Electrical & Gas: 10.3%
British Gas PLC U.K. 55,500 218,925
* CEZ Csk. 3,400 122,913
Electricidad de Caracas Venz. 483,233 330,221
Endesa-Empresa Nacional de Electricidad SA Sp. 3,400 192,564
Evn Energie-Versorgung Niederoesterreich AG Aust. 1,450 198,965
Gesa-Gas y Electricidad SA Sp. 2,350 131,546
Iberdrola SA Sp. 32,500 297,403
* National Grid Holdings PLC U.K. 15,974 $49,615
Shandong Huaneng Power Chn. 17,000 114,750
South Wales Electricity U.K. 9,900 144,060
----------------
1,800,962
- -----------------------------------------------------------------------------------------------------------
Wholesale & International Trade: 1.5%
Brierley Investments Ltd. N.Z. 320,000 253,131
----------------
----------------
Total Common Stocks: (cost $13,128,411) 14,138,484
- -----------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 2.3%
Nacional Financiera SA, conv. pfd. Mx. 5,815 191,895
Telebras-Telecomunicacoes Brasileiras SA, pfd., ADR Braz. 3,500 165,813
Welsh Water PLC, pfd. U.K. 21,000 35,548
----------------
Total Preferred Stocks (cost $335,377) 393,256
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal in
Local Currency**
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS: 4.9%
Cia de Inversiones en Telecomunicaciones SA, 7.00%, 3/3/98 U.S. 2,880 167,040
PIV Investment Finance (Cayman) Ltd., 4.50%, conv., 12/1/00U.S. 290,000 242,150
U.S. Treasury Note, 8.875%, 2/15/96 U.S. 450,000 451,899
----------------
Total Bonds (cost $835,094) 861,089
- -----------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 8.1% (cost $1,421,130)
U.S. Treasury Bills, 4.65% to 5.28%, with
maturities to 3/14/96 U.S. 1,430,000 1,421,777
- -----------------------------------------------------------------------------------------------------------
Total Investments: 96.4% (cost $15,720,012) 16,814,606
Other Assets, less liabilities: 3.6% 631,131
================
Net Assets: 100.0% $17,445,737
================
----------------
</TABLE>
* Non-income producing.
** Principal amount in currency of countries indicated.
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<S> <C>
Assets:
Investments in securities, at value
(identified cost $15,720,012) $16,814,606
Cash 195,573
Receivables:
Investment securities sold 268,649
Dividends and interest 242,810
Unamortized organization costs 3,395
------------
Total assets 17,525,033
------------
Liabilities:
Payables for investment securities purchased 11,875
Accrued expenses 67,421
------------
Total liabilities 79,296
-------------
Net assets, at value $17,445,737
=============
Net assets consist of:
Unrealized appreciation on investments $1,055,965
Distribution in excess of net realized gain (140,280)
Net capital paid in on shares of
capital stock 16,530,052
-------------
Net assets, at value $17,445,737
==============
Shares outstanding 2,562,747
==============
Net asset value per share
($17,445,737 / 2,562,747) $6.81
==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
FINANCIAL STATEMENTS (CONT.)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<S> <C> <C>
Investment income: (net of $147,724 foreign taxes withheld)
Dividends $1,079,106
Interest 329,613
---------------
Total income $1,408,719
Expenses:
Management fees (Note 4 ) 243,952
Administrative fees (Note 4) 34,346
Custodian fees 48,867
Reports to shareholders 2,300
Audit fees 14,373
Registration and filing fees 17,130
Directors' fees and expenses 1,900
Amortization of organization costs 1,424
Other 1,995
----------------
Total expenses 366,287
Less expenses reimbursed (Note 4) (17,998)
---------------
Total expenses less reimbursement 348,289
-------------
Net investment income 1,060,430
Realized and unrealized gain (loss): Net realized gain (loss) on:
Investments 3,511,376
Foreign currency transactions (11,277)
--------------
3,500,099
--------------
Net unrealized depreciation on:
Investments (285,627)
Foreign currency translations of other assets and liabilities (38,629)
--------------
(324,256)
--------------
Net realized and unrealized gain 3,175,843
-------------
Net increase in net assets resulting from operations $4,236,273
==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
FINANCIAL STATEMENTS (CONT.)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------- -------------
<S> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $1,060,430 $1,405,482
Net realized gain on investments and foreign currency transactions 3,500,099 11,933,455
Net unrealized depreciation (324,256) (14,496,288)
-------------- --------------
Net increase (decrease) in net assets resulting from operations 4,236,273 (1,157,351)
Distributions to shareholders:
From net investment income (1,304,156) (978,249)
From net realized capital gain (4,691,584) (20,207,441)
Capital share transactions (Note 3) (20,371,275) (31,086,005)
--------------- --------------
Net decrease in net assets (22,130,742) (53,429,046)
Net assets:
Beginning of year 39,576,479 93,005,525
---------------- --------------
End of year $17,445,737 $39,576,479
================ ==============
</TABLE>
See Notes to Financial Statements.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
- -----------------------------------------------------------------------------
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity (South Africa Free) Series (the Fund) is a separate series of
Templeton Institutional Funds, Inc. (the Company) which is an open-end,
diversified management investment company registered under the Investment
Company Act of 1940. The following summarizes the Fund's significant accounting
policies.
A. SECURITIES VALUATION:
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 exchange
on which the securities are traded. Over-the-counter securities and listed
securities for which no sale is reported are valued at the mean between the last
current bid and asked prices. Securities for which market quotations are not
readily available are valued at fair value as determined by management and
approved in good faith by the Board of Directors.
B. FOREIGN CURRENCY TRANSACTIONS:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign currencies
are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customarily
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 of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the amounts
of dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities at the end of the
fiscal period, resulting from changes in the exchange rates.
C. INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all its
taxable income to its shareholders. Therefore, no provision has been made for
federal income taxes.
D. UNAMORTIZED ORGANIZATION COSTS:
Organization costs are being amortized on a straight line basis over a five year
period.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
TEMPLETON FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
E. SECURITY TRANSACTIONS, INVESTMENT INCOME DISTRIBUTIONS, AND EXPENSES:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign
securities is recorded as soon as information is available to the Fund. Interest
income 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 net assets of the Fund were acquired by the Templeton
Institutional Fund, Inc. Foreign Equity Series pursuant to a plan of
reorganization approved by the Funds shareholders. The merger was accomplished
by a tax free exchange of shares of the Fund for shares of the Templeton
Institutional Fund, Inc. Foreign Equity Series.
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 of which 30 million have been classified as Fund shares.
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,506,152 $12,070,904 436,822 $5,000,491
Shares issued in reinvestment of
distributions 1,191,896 8,688,115 1,647,939 15,467,056
Shares redeemed (5,004,923) (41,130,294) (4,657,485) (51,553,552)
----------------- ----------------
Net decrease (2,306,875) ($20,371,275) (2,572,724) ($31,086,005)
- -------------------------------------------- ================= ================ ==================== ==================
</TABLE>
4. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
- -----------------------------------------------------------------------------
TEMPLETON FOREIGN EQUITY (SOUTH AFRICA FREE) 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 1.00% of the Fund's
average net assets through December 31, 1995. The amount of reimbursement for
the year ended December 31, 1995 is set forth in the Statement of Operations.
For the year ended December 31, 1995, FTD and FTIS received no amounts with
respect to the Fund.
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the year
ended December 31, 1995 aggregated $20,744,914 and $44,538,218, respectively.
The cost of securities for federal income tax purposes is $16,200,954. Realized
gains and losses are reported on an identified cost basis.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities, based on cost for federal income tax
purposes, was as follows:
Unrealized appreciation $1,651,721
Unrealized depreciation ( 1,038,069)
------------
Net unrealized appreciation $ 613,652
===========
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
- ----------------------------------------------------------------------------
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc. - Foreign Equity (South Africa Free) Series
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Foreign Equity (South Africa Free) Series of
Templeton Institutional Funds, Inc. as of December 31, 1995, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the two years in the period then ended and the period May
3, 1993 (commencement of operations) to December 31, 1993. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Foreign Equity (South Africa Free) 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
