As filed with the Securities and Exchange Commission on January 23, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. [ ] Post-Effective Amendment No.
TEMPLETON INSTITUTIONAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (813) 823-8712
700 Central Avenue
ST. PETERSBURG, FLORIDA 33701-3628
(Address of Principal Executive Offices) (Zip Code)
Thomas M. Mistele, Esq.
700 Central Avenue
ST. PETERSBURG, FLORIDA 33701
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of
securities under the Securities Act of 1933 pursuant to Section 24(f) under the
Investment Company Act of 1940; accordingly, no fee is payable herewith. A Rule
24f-2 Notice for the Registrant's most recent fiscal year ended December 31,
1994 was filed with the Commission on February 28, 1995.
It is proposed that this filing become effective on
FEBRUARY 22, 1996 pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
CROSS REFERENCE SHEET FOR
TEMPLETON INSTITUTIONAL FUNDS, INC.
Item of Part A Location in
OF FORM N-14 PROSPECTUS
1 ................................ Cross Reference Sheet;
Cover Page
2 ................................ Table of Contents
3 ................................ Synopsis; Comparison of
Investment Objectives,
Policies and Restrictions
4 ................................ Reasons for and Purpose of
the Reorganization;
Information About the
Reorganization; Comparative
Information on Shareholder
Rights
5 ................................ Information About the Funds
6 ................................ Information About the Funds
7 ................................ Voting Information
8 ................................ Synopsis
9 ................................ Inapplicable
Item of Part B Location in Statement
OF FORM N-14 OF ADDITIONAL INFORMATION
10 ................................ Cover Page
11 ................................ Cover Page
12 ................................ Statement of Additional
Information of Templeton
Institutional Funds, Inc.
dated May 1, 1995
13 ................................ Inapplicable
14 ................................ Statement of Additional
Information of Templeton
Institutional Funds, Inc.,
Foreign Equity Series dated
May 1, 1995 as amended
September 29, 1995; Annual
Report of Templeton
Institutional Funds,
Inc., Foreign Equity Series
for the fiscal year ended
December 31, 1994;
Semi-Annual Report for the
period ended June 30, 1995;
Annual Report of Templeton
Institutional Funds, Inc.,
Foreign Equity (South
Africa Free) Series for the
<PAGE>
fiscal year ended December
31, 1994; Semi-Annual
Report for the period ended
June 30, 1995.
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
700 CENTRAL AVENUE
ST. PETERSBURG, FLORIDA 33701
----------, 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 they judge
to be in the best interests of its 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.
IT IS VERY IMPORTANT THAT YOU VOTE AND THAT YOUR VOTING INSTRUCTIONS BE RECEIVED
NO LATER THAN JANUARY 28, 1996.
Sincerely,
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.
- ----------, 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>
ACQUISITION OF THE ASSETS OF
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY (SOUTH AFRICA FREE) SERIES
BY AND IN EXCHANGE FOR SHARES OF
TEMPLETON INSTITUTIONAL FUNDS, INC.
FOREIGN EQUITY SERIES
PROXY STATEMENT/PROSPECTUS
--------------, 199
TABLE OF CONTENTS
PAGE
1. Synopis................................................
2. Reasons for and Purposes of the
Reorganization.....................................
3. Comparison of Investment Objectives, Policies
and Restrictions...................................
4. Information about the reorganization...................
5. Comparative Information on Shareholder
Rights.............................................
6. Information about the Funds............................
Voting Information.........................................
Exhibit A - Agreement and Plan of Reorganizaiton
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this day of , 199 , 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;
<PAGE>
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.
<PAGE>
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 cancelled 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
<PAGE>
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 , 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
<PAGE>
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
<PAGE>
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.
<PAGE>
IN WITNESS WHEREOF, each party hereto 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>
STATEMENT OF ADDITIONAL INFORMATION
ACQUISITION OF THE ASSETS OF
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
700 Central Avenue
St. Petersburg, Florida 33701
Telephone (800)/DIAL BEN
BY AND IN EXCHANGE FOR SHARES OF
Templeton Institutional Funds, Inc.
Foreign Equity Series
700 Central Avenue
St. Petersburg, Florida 33701
Telephone (800)/DIAL BEN
This Statement of Additional Information, relating specifically to the
proposed acquisition of all of the assets of Foreign Equity (South Africa Free)
series (the "Acquired Fund") by the Foreign Equity Series (the "Acquiring
Fund"), in exchange for shares of the Acquired Fund, consists of this cover page
and the following described documents, each of which is attached hereto and
incorporated by reference herein:
(1) The Statement of Additional Information of Templeton
Institutional Funds, Inc. dated May 1, 1995 as amended
September 29, 1995.
(2) Annual Report of the Acquired Fund for the fiscal year ended
December 31, 1994 and Semi-Annual Report of the Acquired Fund
for the period ended June 30, 1995.
(3) Annual Report of the Acquiring Fund for the fiscal year ended
December 31, 1994 and Semi-Annual Report of the Acquiring Fund
for the period ended June 30, 1995.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated , 1995 relating to the above referenced matter may be
obtained from the Acquired Fund or the Acquiring Fund. This Statement of
Additional Information relates to, and should be read in conjunction with, such
Proxy Statement/Prospectus.
The date of this Statement of Additional Information is , 1995.
<PAGE>
<PAGE>
TEMPLETON INSTITUTIONAL FUNDS, INC.
THISSTATEMENT OF ADDITIONAL INFORMATION DATED MAY
1, 1995, AS AMENDED SEPTEMBER 29, 1995, IS NOT A
PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS OF TEMPLETON INSTITUTIONAL FUNDS, INC.
DATED MAY 1, 1995, AS AMENDED FROM TIME TO TIME,
WHICH MAY BE OBTAINED WITHOUT CHARGE UPON REQUEST
TO THE PRINCIPAL UNDERWRITER,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.,
700 CENTRAL AVENUE, P.O. BOX 33030,
ST. PETERSBURG, FLORIDA 33733-8030
TOLL FREE TELEPHONE: 800/DIAL BEN
TABLE OF CONTENTS
General Information and History.................... 1
Investment Objectives and
Policies......................................... 1
-Investment Policies.............................. 1
-Repurchase Agreements............................ 2
-Debt Securities................................. 2
-Futures Contracts................................ 4
-Options on Securities or Indices................. 5
-Foreign Currency Hedging Transactions............ 7
-Investment Restrictions.......................... 8
-Risk Factors.....................................10
-Trading Policies.................................15
-Personal Securities Transactions.................15
Management of the Company..........................16
Director Compensation..............................22
Principal Shareholders.............................23
Investment Management and Other
Services........................................ 25
-Investment Management Agreements.................25
-Management Fees..................................27
-The Investment Managers..........................28
-Business Manager.................................28
-Custodian and Transfer Agent.....................30
-Legal Counsel....................................30
-Independent Accountants..........................31
-Reports to Shareholders..........................31
Brokerage Allocation...............................31
Purchase, Redemption and
Pricing of Shares................................34
-Ownership and Authority Disputes.................35
Tax Status.........................................35
Principal Underwriter..............................41
Description of Shares..............................42
Performance Information............................42
Financial Statements...............................46
GENERAL INFORMATION AND HISTORY
Templeton Institutional Funds, Inc. (the "Company") was organized as a
Maryland corporation on July 6, 1990, and is registered under the Investment
Company Act of 1940 (the "1940 Act") as an open-end management investment
company. The Company currently offers five series of Shares: Growth Series,
Foreign Equity Series, Emerging Markets Series, Global Fixed Income Series and
Foreign Equity (South Africa Free) Series (collectively, the "Funds").
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES. The Funds' Investment Objectives and Policies are
described in the Prospectus under the heading "Investment Objectives and
Policies." Each Fund may invest a portion of its assets, and may invest without
limit for defensive purposes, in commercial paper which, at the date of
investment, must be rated A-1 by Standard & Poor's Corporation ("S&P") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or, if not rated, be
issued by a company which at the date of investment has an outstanding debt
issue rated AAA or AA by S&P or Aaa or Aa by Moody's.
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which
the buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Each Fund's
investment manager (Templeton Investment Counsel, Inc. ("TICI") in the case of
Growth Series, Foreign Equity Series and Foreign Equity (South Africa Free)
Series; Templeton Investment Management (Singapore) Pte Ltd., ("Templeton
(Singapore)") in the case of Emerging Markets Series; and the Templeton Global
Bond Managers division of TICI ("TGBM") in the case of Global Fixed Income
Series) (collectively, the "Investment Managers") will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agree-ments may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon a
Fund's ability to dispose of the underlying securities. A Fund will enter into
repurchase agreements only with parties who meet creditworthiness standards
approved by the Company's Directors, I.E., banks or broker-dealers which have
been determined by a Fund's Investment Manager to present no serious risk of
becoming involved in bankruptcy proceedings within the time frame contemplated
by the repurchase transaction.
DEBT SECURITIES. Each of the Funds may invest a portion of its assets
in debt securities, including bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers' acceptances. Debt securities
purchased by a Fund may be rated as low as C by S&P or Moody's or, if unrated,
of comparable quality as determined by the Fund's Investment Manager. As an
operating policy, which may be changed by the Board of Directors without
Shareholder approval, each Fund will limit its investment in debt securities
rated lower than BBB by S&P or Baa by Moody's to 5% of its total assets. The
Board may consider a change in this operating policy if, in its judgment,
economic conditions change such that a higher level of investment in high risk,
lower quality debt securities would be consistent with the interests of the
Funds and their Shareholders. Commercial paper purchased by the Funds will meet
the credit quality criteria set forth under "Investment Policies" above.
The market value of debt securities generally varies in response to
changes in interest rates and the financial condition of each issuer. During
periods of declining interest rates, the value of debt securities generally
increases. Conversely, during periods of rising interest rates, the value of
such securities generally declines. These changes in market value will be
reflected in the Funds' net asset value.
- 2 -
<PAGE>
Although they may offer higher yields than do higher rated securities,
low rated and unrated debt securities generally involve greater volatility of
price and risk of principal and income, including the possibility of default by,
or bankruptcy of, the issuers of the securities. In addition, the markets in
which low rated and unrated debt securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets for particular securities may diminish a Fund's ability to sell the
securities at fair value either to meet redemption requests or to respond to a
specific economic event such as a deterioration in the creditworthiness of the
issuer. Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for a Fund to obtain accurate market
quotations for the purposes of valuing the Fund's portfolio. Market quotations
are generally available on many low rated or unrated securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated debt
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of low rated debt securities may be more complex
than for issuers of higher rated securities, and the ability of a Fund to
achieve its investment objective may, to the extent of investment in low rated
debt securities, be more dependent upon such creditworthi-ness analysis than
would be the case if the Fund were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
securities. The prices of low rated debt securities have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in low rated debt securities prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. If the issuer of
low rated debt securities defaults, a Fund may incur additional expenses to seek
recovery.
The Funds may accrue and report interest on high yield bonds structured
as zero coupon bonds or pay-in-kind securities as income even though it receives
no corresponding cash payment until a later time, generally the security's
maturity date. In order to qualify for beneficial tax treatment, a Fund must
distribute substantially all of its net investment income to
- 3 -
<PAGE>
shareholders on an annual basis (see "Tax Status"). Thus, a Fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or leverage itself by borrowing cash, so that it may satisfy the
distribution requirement.
Congressional legislation, which requires federally insured savings and
loan associations to divest their investments in low rated debt securities, may
have a material adverse effect on a Fund's net asset value and investment
practices.
FUTURES CONTRACTS. The Funds may purchase and sell financial futures
contracts. Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations are
closed out before the settlement date. The closing of a contractual obligation
is accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contracts by their terms call for cash
settlements.
The Funds may also buy and sell index futures contracts with respect to
any stock index traded on a recognized stock exchange or board of trade. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. The
stock index futures contract specifies that no delivery of the actual stocks
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract.
At the time a Fund purchases a futures contract, an amount of cash,
U.S. Government securities, or other highly liquid debt securities equal to the
market value of the futures contract will be deposited in a segregated account
with the Fund's Custodian. When writing a futures contract, a Fund will maintain
with its Custodian liquid assets that, when added to the amounts deposited with
a futures commission merchant or broker as margin, are equal to the market value
of the instruments underlying the contract. Alternatively, a Fund may "cover"
its position by owning the instruments underlying the contract (or, in the case
of an index futures contract, a portfolio with a volatility substantially
similar to that of the index on which the futures contract is based), or holding
a call option permitting the Fund to purchase the same futures contract at a
price no higher than the price of the contract written by the Fund (or at a
higher price if the difference is maintained in liquid assets with the Fund's
Custodian).
- 4 -
<PAGE>
OPTIONS ON SECURITIES OR INDICES. The Funds may write (I.E., sell)
covered put and call options and purchase put and call options on securities or
securities indices that are traded on United States and foreign exchanges or in
the over-the-counter markets.
An option on a security is a contract that gives the purchaser of the
option, in return for the premium paid, the right to buy a specified security
(in the case of a call option) or to sell a specified security (in the case of a
put option) from or to the writer of the option at a designated price during the
term of the option. An option on a securities index gives the purchaser of the
option, in return for the premium paid, the right to receive from the seller
cash equal to the difference between the closing price of the index and the
exercise price of the option.
A Fund may write a call or put option only if the option is "covered."
A call option on a security written by a Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its Custodian)
upon conversion or exchange of other securities held in its portfolio. A call
option on a security is also covered if a Fund holds a call on the same security
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Fund in cash or high grade U.S. Government
securities in a segregated account with its Custodian. A put option on a
security written by a Fund is "covered" if the Fund maintains cash or
fixed-income securities with a value equal to the exercise price in a segregated
account with its Custodian, or else holds a put on the same security and in the
same principal amount as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put written.
A Fund will cover call options on stock indices that it writes by
owning securities whose price changes, in the opinion of the Fund's Investment
Manager, are expected to be similar to those of the index, or in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. Nevertheless, where a Fund
covers a call option on a stock index through ownership of securities, such
securities may not match the composition of the index. In that event, a Fund
will not be fully covered and could be subject to risk of loss in the event of
adverse changes in the value of the index. A Fund will cover put options on
stock
- 5 -
<PAGE>
indices that it writes by segregating assets equal to the option's exercise
price, or in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
A Fund will receive a premium from writing a put or call option, which
increases the Fund's gross income in the event the option expires unexercised or
is closed out at a profit. If the value of a security or an index on which a
Fund has written a call option falls or remains the same, the Fund will realize
a profit in the form of the premium received (less transaction costs) that could
offset all or a portion of any decline in the value of the portfolio securities
being hedged. If the value of the underlying security or index rises, however, a
Fund will realize a loss in its call option position, which will reduce the
benefit of any unrealized appreciation in the Fund's investments. By writing a
put option, a Fund assumes the risk of a decline in the underlying security or
index. To the extent that the price changes of the portfolio securities being
hedged correlate with changes in the value of the underlying security or index,
writing covered put options on indices or securities will increase a Fund's
losses in the event of a market decline, although such losses will be offset in
part by the premium received for writing the option.
A Fund may also purchase put options to hedge its investments against a
decline in value. By purchasing a put option, a Fund will seek to offset a
decline in the value of the portfolio securities being hedged through
appreciation of the put option. If the value of a Fund's investments does not
decline as anticipated, or if the value of the option does not increase, the
Fund's loss will be limited to the premium paid for the option plus related
transaction costs. The success of this strategy will depend, in part, on the
accuracy of the correlation between the changes in value of the underlying
security or index and the changes in value of a Fund's security holdings being
hedged.
A Fund may purchase call options on individual securities to hedge
against an increase in the price of securities that the Fund anticipates
purchasing in the future. Similarly, a Fund may purchase call options on a
securities index to attempt to reduce the risk of missing a broad market
advance, or an advance in an industry or market segment, at a time when the Fund
holds uninvested cash or short-term debt securities awaiting investment. When
purchasing call options, a Fund will bear the risk of losing all or a portion of
the premium paid if the value of the underlying security or index does not rise.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. Trading could
- 6 -
<PAGE>
be interrupted, for example, because of supply and demand imbalances arising
from a lack of either buyers or sellers, or the options exchange could suspend
trading after the price has risen or fallen more than the maximum specified by
the exchange. Although a Fund may be able to offset to some extent any adverse
effects of being unable to liquidate an option position, the Fund may experience
losses in some cases as a result of such inability.
FOREIGN CURRENCY HEDGING TRANSACTIONS. In order to hedge against
foreign currency exchange rate risks, the Funds may enter into forward foreign
currency exchange contracts and foreign currency futures contracts, as well as
purchase put or call options on foreign currencies, as described below. The
Funds may also conduct their foreign currency exchange transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market.
A Fund may enter into forward foreign currency exchange contracts
("forward contracts") to attempt to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies. A
forward contract is an obligation to purchase or sell a specific currency for an
agreed price at a future date which is individually negotiated and privately
traded by currency traders and their customers. A Fund may enter into a forward
contract, for example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when a Fund believes
that a foreign currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency, or when a Fund believes that
the U.S. dollar may suffer a substantial decline against a foreign currency, it
may enter into a forward contract to buy that foreign currency for a fixed
dollar amount. This second investment practice is generally referred to as
"cross-hedging." Because in connection with a Fund's forward foreign currency
transactions an amount of the Fund's assets equal to the amount of the purchase
will be held aside or segregated to be used to pay for the commitment, a Fund
will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked-to-market on a daily
basis. While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC"), the CFTC may in the future assert authority
to regulate forward contracts. In such event, a Fund's ability to utilize
forward contracts in the manner set forth above may be restricted.
- 7 -
<PAGE>
Forward contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for a Fund
than if it had not engaged in such contracts.
The Funds may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar value of
foreign portfolio securities and against increases in the dollar cost of foreign
securities to be acquired. As is the case with other kinds of options, however,
the writing of an option on foreign currency will constitute only a partial
hedge, up to the amount of the premium received, and a Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against fluctuation in exchange rates, although, in the event
of rate movements adverse to a Fund's position, the Fund may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by a Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
The Funds may enter into exchange-traded contracts for the purchase or
sale for future delivery of foreign currencies ("foreign currency futures").
This investment technique will be used only to hedge against anticipated future
changes in exchange rates which otherwise might adversely affect the value of a
Fund's portfolio securities or adversely affect the prices of securities that a
Fund intends to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of a Fund's Investment Manager to
forecast currency exchange rate movements correctly. Should exchange rates move
in an unexpected manner, a Fund may not achieve the anticipated benefits of
foreign currency futures or may realize losses.
INVESTMENT RESTRICTIONS. Each Fund has imposed upon itself certain
Investment Restrictions set forth below, which, together with its Investment
Objective are fundamental policies. No changes in a Fund's Investment Objective
or these Investment Restrictions can be made without the approval of the Fund's
Shareholders. For this purpose, the provisions of the 1940 Act require the
affirmative vote of the lesser of either (A) 67% or more of the Shares of a Fund
present at a Shareholder's meeting at which more than 50% of the outstanding
Shares are present or represented by proxy or (B) more than 50% of the
outstanding Shares of the Fund.
- 8 -
<PAGE>
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 the Company 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; provided, however,
that this restriction does not apply to the Global
Fixed Income Series.
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).
- 9 -
<PAGE>
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" as to transactions in the same
securities for a Fund and/or other mutual funds with the same
or affiliated advisers.)
In addition, the Company has undertaken with a state securities
commission, as a non-fundamental policy which may be changed without shareholder
approval, to limit the investment by each Series in illiquid and restricted
securities (excluding securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933) to no more than 15% of the Series' net assets at the
time of purchase.
Whenever any Investment Policy or Investment Restriction states a
maximum percentage of a Fund's assets which may be invested in any security or
other property, it is intended that such maximum percentage limitation be
determined immediately after and as a result of a Fund's acquisition of such
security or property. Assets are calculated as described in the Prospectus under
the heading "Purchase of Shares." If a Fund receives from an issuer of
securities held by the Fund subscription rights to purchase securities of that
issuer, and if the Fund exercises such subscription rights at a time when the
Fund's portfolio holdings of securities of that issuer would otherwise exceed
the limits set forth in Investment Restrictions 3 or 9 above, it will not
constitute a violation if, prior to receipt of securities upon exercise of such
rights, and after announcement of such rights, the Fund has sold at least as
many securities of the same class and value as it would receive on exercise of
such rights.
RISK FACTORS. Each Fund has the right to purchase
securities in any foreign country, developed or developing.
Investors should consider carefully the substantial risks
- 10 -
<PAGE>
involved in securities of companies and governments of foreign nations, which
are in addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign
companies comparable to the reports and ratings published 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 United States
companies. The Funds, therefore, may encounter difficulty in obtaining market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Foreign markets have substantially less volume than the New York Stock
Exchange ("NYSE"), and securities of some foreign companies are less liquid and
more volatile than securities of comparable United States companies. Commission
rates in foreign countries, which are generally fixed rather than subject to
negotiation as in the United States, are likely to be higher. In many foreign
countries there is less government supervision and regulation of stock
exchanges, brokers and listed companies than in the United States.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
These risks include (i) less social, political and economic stability; (ii) the
small current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) the absence of
developed legal structures governing private or foreign investment or allowing
for judicial redress for injury to private property; (v) the absence, until
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vi) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
In addition, many countries in which the Funds may invest have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, currency depreciation,
capital
- 11 -
<PAGE>
reinvestment, resources self-sufficiency and balance of payments
position.
Investments in Eastern European countries may involve risks of
nationalization, expropriation and confiscatory taxation. The communist
governments of a number of Eastern European countries expropriated large amounts
of private property in the past, in many cases without adequate compensation,
and there can be no assurance that such expropriation will not occur in the
future. In the event of such expropriation, a Fund could lose a substantial
portion of any investments it has made in the affected countries. Finally, even
though certain Eastern European currencies may be convertible into U.S. dollars,
the conversion rates may be artificial to the actual market values and may be
adverse to Fund Shareholders. Further, no accounting standards exist in Eastern
European countries.
Investing in Russian companies involves a high degree of risk and
special considerations not typically associated with investing in the United
States securities markets, and should be considered highly speculative. Such
risks include: (1) delays in settling portfolio transactions and risk of loss
arising out of Russia's system of share registration and custody; (2) the risk
that it may be impossible or more difficult than in other countries to obtain
and/or enforce a judgment; (3) pervasiveness of corruption and crime in the
Russian economic system; (4) currency exchange rate volatility and the lack of
available currency hedging instruments; (5) higher rates of inflation (including
the risk of social unrest associated with periods of hyper-inflation); (6)
controls on foreign investment and local practices disfavoring foreign investors
and limitations on repatriation of invested capital, profits and dividends, and
on a Fund's ability to exchange local currencies for U.S. dollars; (7) the risk
that the government of Russia or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the dissolution of the Soviet Union and could follow radically different
political and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, or a return to the centrally planned
economy that existed prior to the dissolution of the Soviet Union; (8) the
financial condition of Russian companies, including large amounts of
inter-company debt which may create a payments crisis on a national scale; (9)
dependency on exports and the corresponding importance of international trade;
(10) the risk that the Russian tax system will not be reformed to prevent
inconsistent, retroactive and/or exorbitant taxation; and (11) possible
difficulty in identifying a purchaser of securities held by a Fund due to the
underdeveloped nature of the securities markets.
- 12 -
<PAGE>
There is little historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision and it is possible for the Fund to lose
its registration through fraud, negligence or even mere oversight. While each
Fund will endeavor to ensure that its interest continues to be appropriately
recorded either itself or through a custodian or other agent inspecting the
share register and by obtaining extracts of share registers through regular
confirmations, these extracts have no legal enforceability and it is possible
that subsequent illegal amendment or other fraudulent act may deprive the Fund
of its ownership rights or improperly dilute its interests. In addition, while
applicable Russian regulations impose liability on registrars for losses
resulting from their errors, it may be difficult for a Fund to enforce any
rights it may have against the registrar or issuer of the securities in the
event of loss of share registration. Furthermore, although a Russian public
enterprise with more than 1,000 shareholders is required by law to contract out
the maintenance of its shareholder register to an independent entity that meets
certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. This practice may prevent a Fund from
investing in the securities of certain Russian companies deemed suitable by the
Investment Manager. Further, this also could cause a delay in the sale of
Russian company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.
Each Fund endeavors to buy and sell foreign currencies on as favorable
a basis as practicable. Some price spread in currency exchange (to cover service
charges) will be incurred, particu-larly when a Fund changes investments from
one country to another or when proceeds of the sale of Shares in U.S. dollars
are used
- 13 -
<PAGE>
for the purchase of securities in foreign countries. Also, some countries may
adopt policies which would prevent a Fund from transferring cash out of the
country or withhold portions of interest and dividends at the source. There is
the possibility of cessation of trading on national exchanges, expropriation,
nationalization or confiscatory taxation, withholding and other foreign taxes on
income or other amounts, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), default in foreign
government securities, political or social instability, or diplomatic
developments which could affect investments in securities of issuers in foreign
nations.
The Funds may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations, by exchange control regulations and by indigenous economic
and political developments. Some countries in which the Funds may invest may
also have fixed or managed currencies that are not free-floating against the
U.S. dollar. Further, certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which a Fund's portfolio
securities are denominated may have a detrimental impact on that Fund. Through
the flexible policy of the Funds, the Investment Managers endeavor to avoid
unfavorable consequences and to take advantage of favorable developments in
particular nations where from time to time they place the investments of the
Funds.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Directors consider at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Funds' assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Directors also consider the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Custodian and Transfer Agent"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of a Fund's Investment
Manager, any losses resulting from the holding of a Fund's portfolio securities
in foreign countries and/or with
- 14 -
<PAGE>
securities depositories will be at the risk of the Shareholders. No assurance
can be given that the Directors' appraisal of the risks will always be correct
or that such exchange control restrictions or political acts of foreign
governments will not occur.
A Fund's ability to reduce or eliminate its futures and related options
positions will depend upon the liquidity of the secondary markets for such
futures and options. The Funds intend to purchase or sell futures and related
options only on exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. Use of stock index
futures and related options for hedging may involve risks because of imperfect
correlations between movements in the prices of the futures or related options
and movements in the prices of the securities being hedged. Successful use of
futures and related options by a Fund for hedging purposes also depends upon the
ability of that Fund's Investment Manager's to predict correctly movements in
the direction of the market, as to which no assurance can be given.
TRADING POLICIES. The Investment Managers and their affiliated
companies serve as investment advisers to other investment companies and private
clients. Accordingly, the respective portfolios of certain of these funds and
clients may contain many or some of the same securities. When certain funds or
clients are engaged simultaneously in the purchase or sale of the same security,
the trades may be aggregated for execution and then allocated in a manner
designed to be equitable to each party. The larger size of the transaction may
affect the price of the security and/or the quantity which may be bought or sold
for each party. If the transaction is large enough, brokerage commissions in
certain countries may be negotiated below those otherwise chargeable.
Sale or purchase of securities, without payment of brokerage
commissions, fees (except customary transfer fees) or other remuneration in
connection therewith, may be effected between any of these funds, or between
funds and private clients, under procedures adopted by the Company's Board of
Directors pursuant to Rule 17a-7 under the 1940 Act.
PERSONAL SECURITIES TRANSACTIONS. Access persons of the Franklin
Templeton Group, as defined in SEC Rule 17(j) under the 1940 Act, who are
employees of Franklin Resources, Inc. or their subsidiaries, are permitted to
engage in personal securities transaction subject to the following general
restrictions and procedures: (1) The trade must receive advance clearance from a
Compliance Officer and must be completed within 24 hours after 1
- 15 -
<PAGE>
this clearance; (2) Copies of all brokerage confirmations must be sent to the
Compliance Officer and within 10 days after the end of each calendar quarter, a
report of all securities transactions must be provided to the Compliance
Officer; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also inform the Compliance Officer (or
other designated personnel) if they own a security that is being considered for
a fund or other client transaction or if they are recommending a security in
which they have an ownership interest for purchase or sale by a fund or other
client.
MANAGEMENT OF THE COMPANY
The name, address, principal occupation during the past five years and
other information with respect to each of the Directors and principal executive
officers of the Company is as follows:
NAME, ADDRESS AND
OFFICES WITH COMPANY
PRINCIPAL OCCUPATION
DURING THE PAST FIVE YEARS
HARRIS J. ASHTON
Metro Center
1 Station Place
Stamford, Connecticut
Director
Chairman of the Board, president
and chief executive officer of
General Host Corporation (nursery
and craft centers); and a
director of RBC Holdings (U.S.A.)
Inc. (a bank holding company) and
Bar-S Foods. Age 63.
NICHOLAS F. BRADY*
102 East Dover Street
Easton, Maryland
Director Chairman of Templeton Emerging Markets Investment Trust PLC; chairman
of Templeton Latin America Investment Trust PLC; chairman of Darby Overseas
Investments, Ltd. (an investment firm) (1994-present); director of the Amerada
Hess Corporation, Capital Cities/ABC, Inc., Christiana Companies, and the H.J.
Heinz Company; Secretary of the United States Department of the Treasury
(1988-January 1993); and chairman of the board of Dillion, Read & Co. Inc.
(investment banking) prior thereto. Age 65.
- 16 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING THE PAST FIVE YEARS
FRANK J. CROTHERS
P.O. Box N-3238
Nassau, Bahamas
Director President and chief executive officer of Atlantic Equipment & Power
Ltd; vice chairman of Caribbean Utilities Co., Ltd.; president of Provo Power
Corporation; and a director of various other business and nonprofit
organizations. Age 51.
S. JOSEPH FORTUNATO
12 Brannick Drive
Madison, New Jersey
Director
Member of the law firm of Pitney,
Hardin, Kipp & Szuch; and a
director of General Host
Corporation. Age 63.
JOHN Wm. GALBRAITH
360 Central Avenue
Suite 1300
St. Petersburg, Florida
Director
President of Galbraith
Properties, Inc. (personal
investment company); director of
Gulfwest Banks, Inc. (bank
holding company) (1995-present)
and Mercantile Bank (1991-
present); vice chairman of
Templeton, Galbraith & Hansberger
Ltd. (1986-1992); and chairman of
Templeton Funds Management, Inc.
(1974-1991). Age 74.
ANDREW H. HINES, JR.
150 2nd Avenue N.
St. Petersburg, Florida
Director Consultant for the Triangle Consulting Group; chairman of the board
and chief executive officer of Florida Progress Corporation (1982-February 1990)
and director of various of its subsidiaries; chairman and director of Precise
Power Corporation; executive-in-residence of Eckerd College (1991-present); and
a director of Checkers Drive-In Restaurants, Inc. Age72.
- 17 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING THE PAST FIVE YEARS
CHARLES B. JOHNSON*
777 Mariners Island Blvd.
San Mateo, California
Chairman of the Board
and Vice President
President, chief executive officer, and director of Franklin Resources, Inc.;
chairman of the board and director of Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; director of Franklin Administrative Services,
Inc., General Host Corporation, and Templeton Global Investors, Inc.; and
officer and director, trustee or managing general partner, as the case may be,
of most other subsidiaries of Franklin and of 55 of the investment companies in
the Franklin Templeton Group.
Age 62.
BETTY P. KRAHMER
2201 Kentmere Parkway
Wilmington, DE
Trustee
Director or trustee of various civic associations; formerly, economic analyst,
U.S.
Government. Age 66.
GORDON S. MACKLIN
8212 Burning Tree Road
Bethesda, Maryland
Director
Chairman of White River
Corporation (information
services); director of Fund
America Enterprises Holdings,
Inc., Lockheed Martin
Corporation, MCI Communications Corporation, Fusion Systems Corporation,
Infovest Corporation, and Medimmune, Inc.; and formerly held the following
positions: chairman of Hambrecht and Quist Group; director of H&Q Healthcare
Investors; and president of the National Association of Securities Dealers, Inc.
Age 67.
- 18 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING THE PAST FIVE YEARS
FRED R. MILLSAPS
2665 N.E. 37th Drive
Fort Lauderdale, Florida
Director
Manager of personal investments (1978-present); chairman and chief executive
officer of Landmark Banking Corporation (1969-1978); financial vice president of
Florida Power and Light (1965-1969); vice president of The Federal Reserve Bank
of Atlanta (1958-1965); and a director of various business and nonprofit
organizations. Age 66.
CONSTANTINE DEAN TSERETOPOULOS
Lyford Cay Hospital
P.O. Box N-7776
Nassau, Bahamas
Director Physician, Lyford Cay Hospital (July 1987-present); Cardiology
Fellow, University of Maryland (July 1985-July 1987); Internal Medicine Intern,
Greater Baltimore Medical Center (July 1982-July 1985). Age 41.
DONALD F. REED
4 King Street West
Toronto, Ontario
Canada
President Executive vice president of Templeton Worldwide, Inc.; president of
Templeton Investment Counsel, Inc.; president and chief executive officer of
Templeton Management Limited; co-founder and director of International Society
of Financial Analysts; chairman of Canadian Council of Financial Analysts;
formerly, president and director, Reed Monahan Nicolishen Investment Counsel
(1982-1989).
Age 50.
MARK G. HOLOWESKO
Lyford Cay
Nassau, Bahamas
Vice President President, chief executive officer and director of Templeton,
Galbraith & Hansberger Ltd.; director of global equity research for Templeton
Worldwide, Inc.; president or vice president of the Templeton Funds; formerly,
investment administrator with Roy West Trust Corporation (Bahamas) Limited
(1984-1985). Age35.
- 19 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING THE PAST FIVE YEARS
MARTIN L. FLANAGAN
777 Mariners Island Blvd.
San Mateo, California
Vice President Senior vice president, treasurer and chief financial officer of
Franklin Resources, Inc.; director and executive vice president of Templeton
Investment Counsel, Inc.; director, president and chief executive officer of
Templeton Global Investors, Inc.; director or trustee and president or vice
president of the Templeton Funds; accountant with Arthur Andersen & Company
(1982-1983); and a member of the International Society of Financial Analysts and
the American Institute of Certified Public Accountants. Age 35.
DANIEL L. JACOBS
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Executive vice president and director of Templeton Investment
Counsel, Inc.; director of Templeton Global Investors, Inc.; and president or
vice president of certain of the Templeton Funds. Age 43.
JAMES E. CHANEY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president, Portfolio Management/Research of Templeton
Investment Counsel, Inc.; formerly, vice president of equities, GE Investments
(1987- 1991); consulting engineer and project manager, Camp, Dresser & McKee,
Inc. (January 1985-July 1985) and American British Consultants (1983-1984). Age
39.
- 20 -
<PAGE>
NAME, ADDRESS AND PRINCIPAL OCCUPATION
OFFICES WITH COMPANY DURING THE PAST FIVE YEARS
J. MARK MOBIUS
Two Exchange Square
Hong Kong
Vice President Managing director of Templeton Investment Management (Hong
Kong) Limited; portfolio manager for various Templeton advisory affiliates;
president of International Investment Trust Company Limited (investment manager
of Taiwan R.O.C. Fund) (1986-1987); and a director of Vickers de Costa, Hong
Kong (1983-1986). Age 59.
THOMAS LATTA
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president of the Templeton Global Bond Managers division
of Templeton Investment Counsel, Inc.; vice president of various Templeton
Funds; formerly, portfolio manager, Forester & Hairston (1988-1991); and
investment adviser, Merrill Lynch, Pierce, Fenner & Smith Inc. (1981-1988). Age
35.
JOHN R. KAY
500 East Broward Blvd.
Fort Lauderdale, Florida
Vice President Vice president of the Templeton Funds; vice president and
treasurer of Templeton Global Investors, Inc. and Templeton Worldwide, Inc.;
assistant vice president of Franklin Templeton Distributors, Inc.; formerly,
vice president and controller of the Keystone Group, Inc. Age 55.
THOMAS M. MISTELE
700 Central Avenue
St. Petersburg, Florida
Secretary
Senior vice president of Templeton Global Investors, Inc.; vice president of
Franklin Templeton Distributors, Inc.; secretary of the Templeton Funds;
formerly, attorney, Dechert Price & Rhoads (1985-1988) and Freehill, Hollingdale
& Page (1988); and judicial clerk, U.S. District Court (Eastern District of
Virginia) (1984-1985). Age 42.
- 21 -
<PAGE>
JAMES R. BAIO
500 East Broward Blvd.
Fort Lauderdale, Florida
Treasurer Certified public accountant; treasurer of the Templeton Funds;
senior vice president of Templeton Worldwide, Inc., Templeton Global Investors,
Inc., and Templeton Funds Trust Company; formerly, senior tax manager with Ernst
& Young (certified public accountants) (1977-1989). Age 41.
JACK L. COLLINS
700 Central Avenue
St. Petersburg, Florida
Assistant Treasurer Assistant treasurer of the Templeton Funds; assistant vice
president of Franklin Templeton Distributors, Inc.; formerly, partner with Grant
Thornton (international certified public accountants). Age 66.
JEFFREY L. STEELE
1500 K Street, N.W.
Washington, D.C.
Assistant Secretary
Partner, Dechert Price & Rhoads.
Age 50.
- ------------------------
* These are Directors who are "interested persons" of the
Company as that term is defined in the 1940 Act. Mr. Brady
and Franklin Resources, Inc. are limited partners of Darby
Overseas Partners, L.P. ("Darby Overseas"). Mr. Brady
established Darby Overseas in February, 1994, and is
Chairman and a shareholder of the corporate general partner
of Darby Overseas. In addition, Darby Overseas and
Templeton, Galbraith & Hansberger, Ltd. are limited partner
of Darby Emerging Markets Fund, L.P.
There are no family relationships between any of the Directors.
DIRECTOR COMPENSATION
All of the Company's officers and Directors also hold positions with
other investment companies in the Franklin Templeton Group. No compensation is
paid by the Company to any officer or director who is an officer, director or
employee of the Investment Managers or their affiliates. Each Templeton Fund
pays its independent directors and trustees and Mr. Brady an
- 22 -
<PAGE>
annual retainer and/or fees for attendance at Board and Committee meetings, the
amount of which is based on the level of assets in each fund. Accordingly, the
Company currently pays the independent Directors and Mr. Brady an annual
retainer of $6000.00 and a fee of $500.00 per meeting attended of the Board and
its Committees. The independent Directors and Mr. Brady are reimbursed for any
expenses incurred in attending meetings, paid pro rata by each Franklin
Templeton Fund in which they serve. No pension or retirement benefits are
accrued as part of Company expenses.
The following table shows the total compensation paid to the
Directors by the Company and by all investment companies in the
Franklin Templeton Group:
<TABLE>
<CAPTION>
NUMBER OF TOTAL COMPENSATION
NAME AGGREGATE FRANKLIN TEMPLETON FROM ALL FUNDS IN
OF COMPENSATION FUND BOARDS ON WHICH FRANKLIN TEMPLETON
DIRECTOR FROM THE COMPANY* DIRECTOR SERVES GROUP*
- -------- ----------------- -------------------- -------------
<S> <C> <C> <C>
Harris J. Ashton $3,500 54 $319,925
Nicholas F. Brady 3,500 23 86,125
Frank J. Crothers 4,000 4 12,850
S. Joseph Fortunato 3,500 56 336,065
John Wm. Galbraith 0 22 0
Andrew H. Hines, Jr. 3,300 23 106,125
Betty P. Krahmer 0 23 75,275
Gordon S. Macklin 3,500 51 303,695
Fred R. Millsaps 3,300 23 106,125
Constantine Dean Tseretopoulos 4,000 4 12,850
</TABLE>
- ---------------
* For the fiscal year ended December 31, 1994.
PRINCIPAL SHAREHOLDERS
As of March 31, 1995, there were 17,837,898 Shares of Growth Series
outstanding, of which no Shares were owned beneficially, directly or indirectly,
by Directors or officers of the Company. As of March 31, 1995, there were
95,750,540 Shares of Foreign Equity Series outstanding, of which no Shares were
owned beneficially, directly or indirectly, by the Directors or officers of the
Company. As of March 31, 1995, there were 55,341,061 Shares of Emerging Markets
Series outstanding, of which no Shares were owned beneficially, directly or
indirectly, by the Directors or officers of the Company. As of March 31, 1995,
there were 12,398 Shares of Global Fixed Income Series
- 23 -
<PAGE>
outstanding, of which no Shares were owned beneficially, directly or indirectly,
by the Directors or officers of the Company. As of March 31, 1995, there were
4,652,327 Shares of Foreign Equity (South Africa Free) Series outstanding, of
which no Shares were owned beneficially, directly or indirectly, by the
Directors or officers of the Company.
Set forth below is information regarding persons who owned 5% or more
of the outstanding Shares of Foreign Equity Series as of March 31, 1995: CC
Penco, 200 Barrister Bldg., 155 E. Market Street, Indianapolis, IN 46204-3294,
owned 7,184,330 Shares (7% of the outstanding Shares). As of March 31, 1995, the
following persons owned 5% or more of the outstanding Shares of Growth Series:
Princeton Theological Seminary, P.O. Box 821, Princeton, New Jersey 08542-0803,
owned 13,280,212 Shares (74% of the outstanding Shares) and Peter Norton, on
behalf of the Norton Family Trust, 225 Arizona Avenue, Santa Monica, California
90401- 1210, owned 1,064,250 Shares (5% of the outstanding Shares). As of March
31, 1995, the following persons owned 5% or more of the outstanding Shares of
Emerging Markets Series: Northern Trust Company, on behalf of Utah Retirement
Systems, P.O. Box 92956, Chicago, Illinois 60675, owned 5,255,585 Shares (9% of
the outstanding Shares); The Regents of the University of California, 300
Lakeside Drive, 17th Floor, Oakland, California, owned 3,956,917 Shares (6% of
outstanding Shares); New York State Common Retirement Fund, Alfred E. Smith
State Office Building, Sixth Floor, Albany, New York 12236, owned 8,746,042
Shares (15% of the outstanding Shares); and Bankers Trust Company, on behalf of
American National Can Master Retirement Trust, P.O. Box 1742, Church Street
Station, New York, New York 10008, owned 3,055,375 Shares (5% of the outstanding
Shares). As of March 31, 1995, the following persons owned 5% or more of the
outstanding Shares of Global Fixed Income Series: Templeton Global Investors,
Inc., 500 East Broward Blvd., Fort Lauderdale, Florida 33394-3091, owned 12,398
Shares (100% of the outstanding Shares). As of March 31, 1995, the following
persons owned 5% or more of outstanding Shares of Foreign Equity (South Africa
Free) Series: Mott Children's Health Center, 806 Tuuri Place, Flint, Michigan
48503, owned 1,208,826 Shares (25% of the outstanding Shares); Northern Trust
Company, F/B/O Dallas Museum of Art, P.O. Box 92956, Chicago, IL 60675-2956,
owned 650,546 Shares (13% of the outstanding Shares); Wachovia Bank of North
Carolina, on behalf of Atlanta Gas Light Company Retirement Plan, 301 North Main
Street, Winston-Salem, North Carolina 27150, owned 1,008,793 Shares (21% of the
outstanding Shares); Lutheran Charities Foundation, 709 S. Laclede Station Road,
St. Louis, MO 63119 owned 436,789 Shares (9% of the outstanding Shares); The
Childrens Hospital Foundation, 1129 East 17th Avenue, Denver, CO 80218 owned
803,497 Shares (17% of the outstanding Shares); and Promedica Health Care
Foundation, 2142 North Cove Boulevard,
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<PAGE>
Toledo, OH 43606, owned 335,105 Shares (7% of the outstanding Shares).
INVESTMENT MANAGEMENT AND OTHER SERVICES
INVESTMENT MANAGEMENT AGREEMENTS. The Investment Manager of Growth
Series, Foreign Equity Series and Foreign Equity (South Africa Free) Series is
Templeton Investment Counsel, Inc., a Florida corporation with offices at
Broward Financial Centre, Fort Lauderdale, Florida 33394-3091. The Investment
Management Agreement between TICI and the Company on behalf of Foreign Equity
Series, dated October 30, 1992, and amended and restated on February 25, 1994,
was approved by Templeton Funds Management, Inc. ("TFM"), as sole Shareholder of
that Fund, on October 30, 1992, and was last approved by the Board of Directors
at a meeting held on February 24, 1995, to run through April 30, 1996. The
Investment Management Agreement between TICI and the Company on behalf of Growth
Series and Foreign Equity (South Africa Free) Series, dated May 3, 1993, was
approved by Templeton Global Investors, Inc. ("TGI"), as sole Shareholder of
each of those Funds, on April 30, 1993, and amended and restated on February 25,
1994, and was last approved by the Board of Directors at a meeting held on
February 24, 1995, to run through April 30, 1996.
The Investment Manager of Emerging Markets Series is the Hong Kong
office of Templeton Investment Management (Singapore) Pte Ltd., a Singapore
corporation at 20 Raffles Place, Ocean Tower, Singapore. On September 29, 1995,
the Investment Manager assumed the investment management duties of Templeton
Investment Management (Hong Kong) Limited, a Hong Kong company, with respect to
the Emerging Markets Series under the Investment Management Agreement. The
Investment Management Agreement between Templeton (Singapore) and the Company on
behalf of Emerging Markets Series, dated May 3, 1993, and amended and restated
on February 25, 1994, was approved by TGI as sole shareholder of Emerging
Markets Series on April 30, 1993, and was last approved by the Board of
Directors on February 24, 1995 to run through April 30, 1996.
The Investment Manager of Global Fixed Income Series is TICI through
its Templeton Global Bond Managers division. The Investment Management Agreement
between TGBM and the Company on behalf of Global Fixed Income Series, dated May
3, 1993, and amended and restated on February 25, 1994 was approved by TGI, as
sole Shareholder of Global Fixed Income Series, on April 30, 1993, and was last
approved by the Board of Directors on February 24, 1995 to run through April 30,
1996.
Each of the Investment Management Agreements will continue from year to
year after its initial term, subject to approval annually by the Board of
Directors or by vote of a majority of
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<PAGE>
the outstanding Shares of each Fund (as defined in the 1940 Act) and also, in
either event, with the approval of a majority of those Directors who are not
parties to the Agreement or interested persons of any such party in person at a
meeting called for the purpose of voting on such approval.
Each Investment Management Agreement requires a Fund's Investment
Manager to manage the investment and reinvestment of each Fund's assets. In so
doing, without cost to the Funds, the Investment Managers may receive certain
research services described below. The Investment Managers are not required to
furnish any personnel, overhead items or facilities for the Fund, including
daily pricing or trading desk facilities.
Each Investment Management Agreement provides that a Fund's Investment
Manager will select brokers and dealers for execution of the Fund's portfolio
transactions consistent with the Fund's brokerage policy (see "Brokerage
Allocation"). Although the services provided by broker-dealers in accordance
with the brokerage policy incidentally may help reduce the expenses of or
otherwise benefit the Investment Managers and other investment advisory clients
of the Investment Managers and of their affiliates, as well as the Funds, the
value of such services is indeterminable, and the Investment Managers' fees are
not reduced by any offset arrangement by reason thereof.
When the Investment Manager of a Fund determines to buy or sell the
same securities for the Fund that the Investment Manager or certain of its
affiliates have selected for one or more of the Investment Manager's other
clients or for clients of its affiliates, the orders for all such securities
trades may be placed for execution by methods determined by the Investment
Manager, with approval by the Board of Directors, to be impartial and fair, in
order to seek good results for all parties (see "Investment Objectives and
Policies -- Trading Policies"). Records of securities transactions of persons
who know when orders are placed by the Funds are available for inspection at
least four times annually by the compliance officer of the Company so that the
non-interested Directors (as defined in the 1940 Act) can be satisfied that the
procedures are generally fair and equitable for all parties.
Each Investment Management Agreement further provides that a Fund's
Investment Manager shall have no liability for any error of judgment, mistake of
law, or any loss arising out of any investment or other act or omission in the
performance by the Investment Manager of its duties under the Investment
Management Agreement or for any loss or damage resulting from the imposition by
any government of exchange control restrictions which might affect the liquidity
of the Fund's assets, or from acts or
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<PAGE>
omissions of custodians or securities depositories, or from any wars or
political acts of any foreign governments to which such assets might be exposed,
except for any liability, loss or damage resulting from willful misfeasance, bad
faith or gross negligence on the Investment Manager's part or reckless disregard
of its duties under the Investment Management Agreement. Each Investment
Management Agreement will terminate automatically in the event of its
assignment, and may be terminated by the Company on behalf of a Fund at any time
without payment of any penalty on 60 days' written notice, with the approval of
a majority of the Directors of the Company in office at the time or by vote of a
majority of the outstanding Shares of the affected Fund (as defined in the 1940
Act).
MANAGEMENT FEES. Growth Series, Foreign Equity Series and Foreign
Equity (South Africa Free) Series each pays TICI a monthly fee equal on an
annual basis to 0.70% of its average daily net assets during the year. During
the fiscal years ended December 31, 1994, 1993 and 1992, TICI (and, prior to
October 30, 1992, Templeton, Galbraith & Hansberger Ltd., the previous
investment manager of Foreign Equity Series) received from Foreign Equity Series
fees of $5,740,479, $1,000,116 and $7,796, respectively. During the fiscal year
ended December 31, 1994 and for the period from May 3, 1993 (commencement of
operations) to December 31, 1993, TICI received from Growth Series fees of
$1,365,883 and $573,848, respectively. During the fiscal year ended December 31,
1994 and for the period from May 3, 1993 (commencement of operations) to
December 31, 1994, TICI received from Foreign Equity (South Africa Free) Series
fees of $485,980 and $404,511, respectively. Emerging Markets Series pays
Templeton (Singapore) a monthly fee equal on an annual basis to 1.25% of its
average daily net assets during the year. This fee is higher than advisory fees
paid by most other U.S. investment companies, primarily because investing in
equity securities of companies in emerging markets, which are not widely
followed by professional analysts, requires Templeton (Singapore) to invest
additional time and incur added expense in developing specialized resources,
including research facilities. During the fiscal year ended December 31, 1994
and during the period from May 3, 1993 (commencement of operations) to December
31, 1993, Templeton Investment Management (Hong Kong) Limited, the Fund's
previous investment manager, received from Emerging Markets Series fees of
$6,669,935 and $1,578,353, respectively. Global Fixed Income Series pays TGBM a
monthly fee equal on an annual basis to 0.55% of its average daily net assets
during the year. During the fiscal year ended December 31, 1994 and during the
period from May 3, 1993 (commencement of operations) to December 31, 1993, TGBM
received from Global Fixed Income Series fees of $2,453 and $1,974,
respectively. Each of the Investment Managers will comply with any applicable
state regulations which may require it
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to make reimbursements to a Fund in the event that the Fund's aggregate
operating expenses, including the management fee, but generally excluding
interest, taxes, brokerage commissions and extraordinary expenses, are in excess
of specific applicable limitations. The strictest rule currently applicable to
the Funds is 2.5% of the first $30,000,000 of net assets, 2% of the next
$70,000,000 of net assets and 1.5% of the remainder.
THE INVESTMENT MANAGERS. The Investment Managers are
indirect wholly owned subsidiaries of Franklin Resources, Inc.
("Franklin"), a publicly traded company whose shares are listed
on the NYSE. Charles B. Johnson (a Director and officer of the
Company), Rupert H. Johnson, Jr. and R. Martin Wiskemann are
principal shareholders of Franklin and own, respectively,
approximately 20%, 16% and 9.2% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers.
BUSINESS MANAGER. Templeton Global Investors, Inc. performs
certain administrative functions for the Company including:
o providing office space, telephone, office equipment and
supplies for the Company;
o paying all compensation of the Company's officers;
o authorizing expenditures and approving bills for
payment on behalf of the Company;
o supervising preparation of annual and semiannual reports to
Shareholders, notices of dividends, capital gains
distributions and tax credits, and attending to routine
correspondence and other communications with individual
Shareholders;
o daily pricing of the Funds' investment portfolios and
preparing and supervising publication of daily quotations of
the bid and asked prices of the Funds' Shares, earnings
reports and other financial data;
o providing trading desk facilities for the Funds;
o monitoring relationships with organizations serving the
Company, including custodians, transfer agents and
printers;
o supervising compliance by the Company with recordkeeping
requirements under the 1940 Act and regulations thereunder and
with state regulatory requirements, maintaining books and
records for the
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<PAGE>
Funds (other than those maintained by the custodian and
transfer agent); and preparing and filing tax reports other
than the Funds' income tax returns; and
o providing executive, clerical and secretarial help
needed to carry out these responsibilities.
For its services, the Business Manager receives a monthly fee equal on
an annual basis to 0.15% of the first $200,000,000 of the combined average daily
net assets of the Funds, reduced to 0.135% annually of such net assets in excess
of $200,000,000, further reduced to 0.1% annually of such net assets in excess
of $700,000,000, and further reduced to 0.075% annually of such net assets in
excess of $1,200,000,000. Since the Business Manager's fee covers services often
provided by investment advisers to other funds, the Funds' combined expenses for
advisory and administrative services (except those of Global Fixed Income
Series) are higher than those of most other investment companies. During the
fiscal years ended December 31, 1994, 1993 and 1992, the Business Manager (and,
prior to April 1, 1993, Templeton Funds Management, Inc., the Company's previous
business manager) received fees of $912,500, $201,527 and $1,671, respectively
for business management services to Foreign Equity Series. During the fiscal
year ended December 31, 1994 and for the period of May 3, 1993 (commencement of
operations) to December 31, 1993, the Business Manager received fees of $216,577
and $114,812, respectively, for business management services to Growth Series.
For the fiscal year ended December 31, 1994 and for the period of May 3, 1993
(commencement of operations) to December 31, 1993, the Business Manager received
fees of $589,648 and $176,839, respectively, for business management services to
Emerging Markets Series. For the fiscal year ended December 31, 1994 and for the
period of May 3, 1993 (commencement of operations) to December 31, 1993, the
Business Manager received $495 and $503, respectively for business management
services to Global Fixed Income Series. For the fiscal year ended December 31,
1994 and for the period of May 3, 1993 (commencement of operations) to December
31, 1993, the Business Manager received $77,383 and $81,019, respectively, for
business management services to Foreign Equity (South Africa Free) Series.
The Business Manager has voluntarily agreed to limit the total expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses) of
each Fund to an annual rate of 1% (1.6% for Emerging Markets Series) of the
Fund's average net assets until December 31, 1995. As long as this temporary
expense limitation continues, it may lower each Fund's expenses and increase its
total return. The expense limitation may be terminated or revised at any time
after December 31, 1995, at
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<PAGE>
which time each Fund's expenses may increase and its total return may be
reduced, depending on the total assets of the Fund.
The Business Manager is relieved of liability to the Company and to the
Funds for any act or omission in the course of its performance under the
Business Management Agreement in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties and obligations. The
Business Management Agreement may be terminated by the Company at any time on 60
days' written notice without payment of penalty, provided that such termination
by the Company shall be directed or approved by vote of a majority of the
Directors of the Company in office at the time or by vote of a majority of the
outstanding voting securities of the Funds (as defined in the 1940 Act), and
shall terminate automatically and immediately in the event of its assignment.
The Business Manager is an indirect wholly owned subsidiary of
Franklin.
CUSTODIAN AND TRANSFER AGENT. The Chase Manhattan Bank, N.A. serves as
Custodian of the Funds' assets, which are maintained at the Custodian's
principal office, MetroTech Center, Brooklyn, New York 11245, and at the offices
of its branches and agencies throughout the world. The Custodian has entered
into agreements with foreign sub-custodians approved by the Directors pursuant
to Rule 17f-5 under the 1940 Act. The Custodian, its branches and sub-custodians
generally do not hold certificates for the securities in their custody, but
instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the Custodian is based on a
schedule of charges agreed on from time to time.
Franklin Templeton Investor Services, Inc. serves as the Funds'
Transfer Agent. Services performed by the Transfer Agent include processing
purchase, transfer and redemption orders; making dividend payments, capital
gains distributions and reinvestments; and handling all routine communications
with Shareholders. The Transfer Agent receives from each Fund an annual fee of
$13.74 per Shareholder account ($14.77 per Shareholder Account for Global Fixed
Income Series) plus out-of-pocket expenses, such fee to be adjusted each year to
reflect changes in the Department of Labor Consumer Price Index.
LEGAL COUNSEL. Dechert Price & Rhoads, Washington, D.C., is
legal counsel for the Company.
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<PAGE>
INDEPENDENT ACCOUNTANTS. The firm of McGladrey & Pullen, LLP, 555 Fifth
Avenue, New York, New York 10017, serves as independent accountants for the
Company. In addition to reporting annually on the financial statements of the
Funds, the accountants review certain filings of the Funds with the Securities
and Exchange Commission ("SEC") and prepare the Company's Federal and state
corporation tax returns.
REPORTS TO SHAREHOLDERS. The Company's fiscal year ends on December 31.
Shareholders will be provided at least semiannually with reports showing the
portfolios of the Funds and other information, including an annual report with
financial statements audited by independent accountants. Shareholders who would
like to receive an interim quarterly report may phone the Fund Information
Department at 1-800/DIAL BEN.
BROKERAGE ALLOCATION
The Investment Management Agreement for each Fund provides that the
Fund's Investment Manager 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 the Fund's portfolio
transactions and, when applicable, the negotiation of commissions in connection
therewith. It is not the duty of a 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:
1. Purchase and sale orders will usually be placed with
brokers who are selected by the Investment Managers 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 Managers in determining the
overall reasonableness of brokerage commissions.
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<PAGE>
2. In selecting brokers for portfolio transactions, each Fund's
Investment Manager takes into account its past experience as
to brokers qualified to achieve "best execution," including
brokers who specialize in any foreign securities held by the
Fund.
3. The Investment Managers are 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 (the "1934 Act"), for the Funds and/or other
accounts, if any, for which the Investment Managers
exercise investment discretion (as defined in Section
3(a)(35) of the 1934 Act) and, as to transactions as to
which fixed minimum commission rates are not
applicable, to cause a Fund to pay a commission for
effecting a securities transaction in excess of the
amount another broker would have charged for effecting
that transaction, if the Investment Manager for that
Fund determines in good faith that such amount of
commission is reasonable in relation to the value of
the brokerage and research services provided by such
broker, viewed in terms of either that particular
transaction or the Investment Manager's overall
responsibilities with respect to the Fund and the other
accounts, if any, as to which it exercises investment
discretion. In reaching such determination, the
Investment Managers are not required to place or
attempt to place a specific dollar value on the
research or execution services of a broker or on the
portion of any commission reflecting either of said
services. In demonstrating that such determinations
were made in good faith, the Investment Manager of a
Fund shall be prepared to show that all commissions
were allocated and paid for purposes contemplated by
the Fund's brokerage policy; that commissions were paid
only for products or services which provide lawful and
appropriate assistance to the Investment Manager in the
performance of its investment decision-making
responsibilities; and that the commissions paid were
within a reasonable range. The determination that
commissions were within a reasonable range shall be
based on any available information as to the level of
commissions known to be charged by other brokers on
comparable transactions, but there shall be taken into
account the Company's policies that (i) obtaining a low
commission is deemed secondary to obtaining a favorable
securities price, since it is recognized that usually
it is more beneficial to the Funds to obtain a
favorable price than to pay the lowest commission; and
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<PAGE>
(ii) the quality, comprehensiveness and frequency of research
studies which are provided for the Funds and the Investment
Managers are useful to the Investment Managers in performing
advisory services under their Investment Management Agreements
with the Company. Research services provided by brokers to the
Investment Managers are considered to be in addition to, and
not in lieu of, services required to be performed by the
Investment Managers under their Agreements. Research furnished
by brokers through whom the Funds effect securities
transactions may be used by the Investment Managers for any of
their accounts, and not all such research may be used by the
Investment Managers 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 the Funds' portfolios.
4. Purchases and sales of portfolio securities within the United
States other than on a securities exchange shall be executed
with primary market makers acting as principal except where,
in the judgment of a Fund's Investment Manager, better prices
and execution may be obtained on a commission basis or from
other sources.
5. Sales of the Funds' Shares (which shall be deemed to
include also shares of other investment companies
registered under the 1940 Act which have either the
same investment adviser or an investment adviser
affiliated with any Fund's Investment Manager) made by
a broker are one factor among others to be taken into
account in deciding to allocate portfolio transactions
(including agency transactions, principal transactions,
purchases in underwritings or tenders in response to
tender offers) for the account of a Fund to that
broker; provided that the broker shall furnish "best
execution" as defined in paragraph 1 above, and that
such allocation shall be within the scope of the Fund's
policies as stated above; and provided further, that in
every allocation made to a broker in which the sale of
Shares is taken into account there shall be no increase
in the amount of the commissions or other compensation
paid to such broker beyond a reasonable commission or
other compensation determined, as set forth in
paragraph 3 above, on the basis of best execution alone
or best execution plus research services, without
taking account of or placing any value upon such sale
of Shares.
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<PAGE>
Insofar as known to management, no Director or Officer of the Company,
nor the Investment Managers or the Principal Underwriter or any person
affiliated with any of them, has any material direct or indirect interest in any
broker employed by or on behalf of a Fund. Franklin Templeton Distributors,
Inc., the Principal Underwriter for the Funds, is a registered broker-dealer,
but has never executed any purchase or sale transactions for a Fund's portfolio
or participated in commissions on any such transactions, and has no intention of
doing so in the future.
During the fiscal years ended December 31, 1994, 1993 and 1992, Foreign
Equity Series paid brokerage commissions of $1,856,075, $1,220,225, and $0,
respectively. During the fiscal year ended December 31, 1994 and for the period
from May 3, 1993 (commencement of operations) to December 31, 1993, Growth
Series paid brokerage commissions of $196,751 and $324,895, respectively. For
the fiscal year ended December 31, 1994 and for the period from May 3, 1993
(commencement of operations) to December 31, 1993, Emerging Markets Series paid
brokerage commissions of $1,442,148 and $1,111,391, respectively. For the fiscal
year ended December 31, 1994 and for the period from May 3, 1993 (commencement
of operations) to December 31, 1993, Global Fixed Income Series paid brokerage
commissions of $ 0 and $0, respectively. For the fiscal year ended December 31,
1994 and for the period May 3, 1993 (commencement of operations) to December 31,
1993, Foreign Equity (South Africa Free) Series paid brokerage commissions of
$129,880 and $208,358, respectively. There is no fixed method used in
determining which broker-dealers receive which order or how many orders.
PURCHASE, REDEMPTION AND PRICING OF SHARES
The Prospectus describes the manner in which the Funds'
Shares may be purchased and redeemed. See "How to Buy Shares of
the Funds," "How to Sell Shares of the Funds" and "Exchange
Privilege."
Net asset value per Share is determined as of the scheduled closing
time of the NYSE (generally 4:00 p.m., New York time), every Monday through
Friday (exclusive of national business holidays). The Company's offices will be
closed, and net asset value will not be calculated, on those days on which the
NYSE is closed, which currently are: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed well
before the close of business in New York on each day on which the
NYSE is open. Trading of European or Far Eastern securities
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<PAGE>
generally, or in a particular country or countries, may not take place on every
New York business day. Furthermore, trading takes place in various foreign
markets on days which are not business days in New York and on which each Fund's
net asset value is not calculated. The Funds calculate net asset value per
Share, and therefore effect sales and redemptions of their Shares, as of the
close of the NYSE once on each day on which that Exchange is open. Such
calculation does not take place contemporaneously with the determination of the
prices of many of the portfolio securities used in such calculation, and if
events occur which materially affect the value of those foreign securities, they
will be valued at fair market value as determined by the management and approved
in good faith by the Board of Directors.
The Board of Directors may establish procedures under which the Company
may suspend the determination of net asset value for the whole or any part of
any period during which (1) the NYSE is closed other than for customary weekend
and holiday closings, (2) trading on the NYSE is restricted, (3) an emergency
exists as a result of which disposal of securities owned by a Fund is not
reasonably practicable or it is not reasonably practicable for a Fund fairly to
determine the value of its net assets, or (4) for such other period as the SEC
may by order permit for the protection of the holders of a Fund's Shares.
OWNERSHIP AND AUTHORITY DISPUTES. In the event of disputes involving
multiple claims of ownership or authority to control a Shareholder's account,
each Fund has the right (but has no obligation) to: (1) freeze the account and
require the written agreement of all persons deemed by the Fund to have a
potential property interest in the account, prior to executing instructions
regarding the account; or (2) interplead disputed funds or accounts with a court
of competent jurisdiction. Moreover, the Fund may surrender ownership of all or
a portion of an account to the Internal Revenue Service ("IRS") in response to a
Notice of Levy.
TAX STATUS
Each Fund intends normally to pay a dividend at least once annually
representing substantially all of its net investment income and to distribute at
least annually any net realized capital gains. By so doing and meeting certain
diversification of assets and other requirements of the Internal Revenue Code of
1986, as amended (the "Code"), each Fund intends to qualify as a regulated
investment company under the Code. The status of a Fund as a regulated
investment company does not involve government supervision of management or of
its investment practices or policies. As a regulated investment company, a Fund
generally will be relieved of liability for United States Federal
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<PAGE>
income tax on that portion of its net investment income and net realized capital
gains which it distributes to its Shareholders. Amounts not distributed on a
timely basis in accordance with a calendar year distribution requirement also
are subject to a nondeductible 4% excise tax. To prevent application of the
excise tax, the Funds intend to make distributions in accordance with the
calendar year distribution requirement.
Dividends of net investment income and of short-term capital gains (the
excess of net short-term capital gains over net long-term capital losses) are
taxable to Shareholders as ordinary income. Distributions from the Funds are not
expected to qualify for the corporate dividends-received deduction.
Distributions of net long-term capital gains (the excess of net long-term
capital gains over net short-term capital losses) designated by a Fund as
capital gain dividends are taxable to Shareholders as long-term capital gains,
regardless of the length of time the Fund's Shares have been held by a
Shareholder, and are not eligible for the dividends-received deduction.
Generally, dividends and distribu-tions are taxable to Shareholders, whether or
not reinvested in Shares of a Fund. Any distributions that are not from a Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to Shareholders or, in some cases, as capital gain.
Shareholders will be notified annually as to the Federal tax status of dividends
and distributions they receive and any tax withheld thereon.
Income received by a Fund from sources within a foreign country may be
subject to withholding taxes and other taxes imposed by that country. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes.
If, at the close of any fiscal year, more than 50% of the value of a
Fund's total assets is invested in securities of foreign corporations (as to
which no assurance can be given), the Fund generally may elect pursuant to
Section 853 of the Code to pass through to its Shareholders the foreign income
and similar taxes paid by the Fund in order to enable such Shareholders to take
a credit (or deduction) for foreign income taxes paid by the Fund. In that case,
a Shareholder must include in his gross income on his Federal income tax return
both dividends received by him from the Fund and the amount which the Fund
advises him is his pro rata portion of foreign income taxes paid with respect
to, or withheld from, dividends, interest, or other income of the Fund from its
foreign investments. The Shareholder may then subtract from his Federal income
tax the amount of such taxes withheld, or else treat such foreign taxes as an
itemized deduction from his gross income; however, the above-described tax
credit and deduction are subject to certain limitations. Foreign taxes may not
be deducted in computing alternative taxable income
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<PAGE>
and may at most offset (as a credit) 90% of the alternative minimum tax. The
foregoing is only a general description of the foreign tax credit. Because
application of the credit depends on the particular circumstances of each
Shareholder, Shareholders are advised to contact their own tax advisers.
The Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to Shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which a Fund held the PFIC shares. A Fund itself
will be subject to tax on the portion, if any, of an excess distribution that is
so allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election may be available
that would involve marking to market each Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized. If this
election were made, tax at the fund level under the PFIC rules would generally
be eliminated, but the Funds could, in limited circumstances, incur
nondeductible interest charges. Each Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC
- 37 -
<PAGE>
stock, as well as subject a Fund itself to tax on certain income from PFIC
stock, the amount that must be distributed to Shareholders, and which will be
taxed to Shareholders as ordinary income or long-term capital gain, may be
increased or decreased substantially as compared to a fund that did not invest
in PFIC stock.
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its Shareholders as ordinary
income. For example, fluctuations in exchange rates may increase the amount of
income that a Fund must distribute in order to qualify for treatment as a
regulated investment company and to prevent application of an excise tax on
undistributed income. Alternatively, fluctuations in exchange rates may decrease
or eliminate income available for distribution. If section 988 losses exceed
other net investment income during a taxable year, a Fund generally would not be
able to make ordinary dividend distributions, or distributions made before the
losses were realized would be recharacterized as return of capital to
Shareholders for Federal income tax purposes, rather than as an ordinary
dividend, reducing each Shareholder's basis in his Fund Shares, or as a capital
gain.
Certain options, futures contracts and forward contracts in which the
Funds may invest are "section 1256 contracts." Gains or losses on section 1256
contracts generally are considered 60% long-term and 40% short-term capital
gains or losses ("60/40"); however, foreign currency gains or losses (as
discussed above) arising from certain section 1256 contracts may be treated as
ordinary income or loss. Also, section 1256 contracts held by a Fund at the end
of each taxable year (and, in some cases, for purposes of the 4% excise tax, on
October 31 of each year) are "marked-to-market" with the result that unrealized
gains or losses are treated as though they were realized.
The hedging transactions undertaken by the Funds may result
in "straddles" for Federal income tax purposes. The straddle
- 38 -
<PAGE>
rules may affect the character of gains (or losses) realized by a Fund. In
addition, losses realized by a Fund on positions that are part of a straddle may
be deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences to the Funds of hedging transactions are
not entirely clear. The hedging transactions may increase the amount of
short-term capital gain realized by the Funds which is taxed as ordinary income
when distributed to Shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections(s) made. The rules applicable under certain of the elections
may operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Shareholders, and which will be taxed to Shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Global Fixed Income Series intends to account for such transactions in a manner
deemed by it to be appropriate, the Internal Revenue Service might not
necessarily accept such treatment. If it did not, the status of the Global Fixed
Income Series as a regulated investment company might be affected. The Global
Fixed Income Series intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for the Global Fixed
Income Series to qualify as a regulated investment company may limit the extent
to which it will be able to engage in swap agreements.
Certain requirements that must be met under the Code in order for each
Fund to qualify as a regulated investment company may limit the extent to which
a Fund will be able to engage in transactions in options, futures, forward
contracts and swap agreements.
- 39 -
<PAGE>
Some of the debt securities that may be acquired by the Funds may be
subject to the special rules for obligations issued or acquired at a discount.
Generally, under these rules, the amount of the discount is treated as ordinary
income and, depending upon the circumstances, the discount is included in income
(i) over the term of the debt security, even though payment of the discount is
not received until a later time, usually when the debt security matures, or (ii)
upon the disposition of, and any partial payment of principal on, the debt
security.
A Fund generally will be required to distribute dividends to
Shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund or by borrowing.
Upon the sale or exchange of his Shares, a Shareholder generally will
realize a taxable gain or loss depending upon his basis in the Shares. Such gain
or loss will be treated as capital gain or loss if the Shares are capital assets
in the Shareholder's hands, and will be long-term if the Shareholder's holding
period for the Shares is more than one year and generally otherwise will be
short-term. Any loss realized on a sale or exchange of a Fund's Shares will be
disallowed to the extent that the Shares disposed of are replaced (including
replacement through the reinvesting of dividends and capital gain distributions
in the Fund) within a period of 61 days beginning 30 days before and ending 30
days after the disposition of the Shares. In such a case, the basis of the
Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a Shareholder on the sale of Fund Shares held by the Shareholder for
six months or less will be treated for Federal income tax purposes as a
long-term capital loss to the extent of any distributions of long-term capital
gains (designated by the Fund as capital gain dividends) received by the
Shareholder with respect to such Shares.
Each Fund generally will be required to withhold Federal income tax at
a rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to Shareholders if (1) the Shareholder
fails to furnish the Fund with the Shareholder's correct taxpayer identification
number or social security number and to make such certifications as the Fund may
require, (2) the IRS notifies the Shareholder or the Fund that the Shareholder
has failed to report properly certain interest and dividend income to the IRS
and to respond to notices to that effect, or (3) when required to do so, the
Shareholder fails to certify that he is not subject to backup withholding.
- 40 -
<PAGE>
Any amounts withheld may be credited against the Shareholder's Federal income
tax liability.
Ordinary dividends and taxable capital gain distributions declared in
October, November or December with a record date in such month and paid during
the following January will be treated as having been paid by a Fund and received
by Shareholders on December 31 of the calendar year in which declared, rather
than the calendar year in which the dividends are actually received.
Distributions from the Funds and dispositions of Fund Shares also may
be subject to state and local taxes. Non-U.S. Shareholders may be subject to
U.S. tax rules that differ significantly from those summarized above.
Shareholders are advised to consult their own tax advisers for details with
respect to the particular tax consequences to them of an investment in the
Funds.
PRINCIPAL UNDERWRITER
Franklin Templeton Distributors, Inc. ("FTD" or the
"Principal Underwriter"), 700 Central Avenue, P.O. Box 33030, St.
Petersburg, Florida 33733-8030, toll free telephone (800) 237-
0738, is the Principal Underwriter of the Funds' Shares. FTD is
an indirect wholly owned subsidiary of Franklin.
The Distribution Agreement provides that the Principal Underwriter will
use its best efforts to maintain a broad and continuous distribution of the
Funds' Shares among bona fide investors and may sign selling contracts with
responsible dealers, as well as sell to individual investors. The Shares are
sold only at net asset value next determined after receipt of the purchase order
by FTD.
The Distribution Agreement provides that the Funds shall pay the costs
and expenses incident to registering and qualifying their Shares for sale under
the Securities Act of 1933 and under the applicable Blue Sky laws of the
jurisdictions in which the Principal Underwriter desires to distribute such
Shares, and for preparing, printing and distributing prospectuses and reports to
Shareholders. The Principal Underwriter pays the cost of printing additional
copies of prospectuses and reports to Shareholders used for selling purposes.
(The Funds pays costs of preparation, set-up and initial supply of the
prospectus for existing Shareholders.)
The Distribution Agreement is subject to renewal from year to year in
accordance with the provisions of the 1940 Act and terminates automatically in
the event of its assignment. The Distribution Agreement may be terminated
without penalty by
- 41 -
<PAGE>
either party upon 60 days' written notice to the other, provided termination by
the Company on behalf of a Fund shall be approved by the Board of Directors or a
majority (as defined in the 1940 Act) of the Shareholders of that Fund. The
Principal Underwriter is relieved of liability for any act or omission in the
course of its performance of the Distribution Agreement, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations.
FTD is the principal underwriter for the other Templeton Funds.
DESCRIPTION OF SHARES
The Shares have non-cumulative voting rights so that the holders of a
plurality of the Shares voting for the election of Directors at a meeting at
which 50% of the outstanding Shares are present can elect all the Directors and
in such event, the holders of the remaining Shares voting for the election of
Directors will not be able to elect any person or persons to the Board of
Directors.
The Company's Bylaws provide that the President or Secretary of the
Company will call a special meeting of Shareholders at the request in writing by
Shareholders owning 10% of the capital stock of the Company issued and
outstanding at the time of the call. In addition, the Company is required to
assist Shareholder communication in connection with the calling of Shareholder
meetings to consider removal of a Director.
PERFORMANCE INFORMATION
Each Fund may, from time to time, include its total return in
advertisements or reports to Shareholders or prospective investors. Quotations
of average annual total return for a Fund will be expressed in terms of the
average annual compounded rate of return for periods in excess of one year or
the total return for periods less than one year of a hypothetical investment in
the Fund over periods of one, five or ten years (up to the life of the Fund)
calculated pursuant to the following formula: P (1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return for
periods of one year or more or the total return for periods of less than one
year, n = the number of years, and ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The average annual total return of Foreign Equity Series for the one
and three year periods ended December 31, 1994 and for the period
- 42 -
<PAGE>
from commencement of operations on October 18, 1990 to December 31, 1994 was
.24%, 9.85% and 11.23%, respectively. The average annual total return of Growth
Series, for the one year period ending December 31, 1994 and for the period from
commencement of operations on May 3, 1993 to December 31, 1994 was -1.32% and
10.73%, respectively. The average annual total return of the Emerging Markets
Series for the one year period ending December 31, 1994 and for the period from
commencement of operations on May 3, 1993 to December 31, 1994 was -11.39% and
10.35%, respectively. The average annual total return for the Global Fixed
Income Series for the one year period ending December 31, 1994 and for the
period from commencement of operations on May 3, 1993 to December 31, 1994 was
- -2.97% and - 1.02%, respectively. The average annual total return of the Foreign
Equity (South Africa Free) Series for the one year period ending December 31,
1994 and for the period from commencement of operations on May 3, 1993 to
December 31, 1994 was -1.94% and 15.12%, respectively.
Performance information for the Funds may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, or other unmanaged indices, so that investors may compare a
Fund's results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities market in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications, or persons who rank mutual funds on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Fund. Unmanaged indices may
assume the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for a Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information for a Fund should be
considered in light of the Fund's Investment Objective and Policies,
characteristics and quality of the portfolio and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
From time to time, the Company and the Investment Managers may also
refer to the following information:
(1) The Investment Managers' and their affiliates' market
share of international equities managed in mutual funds
- 43 -
<PAGE>
prepared or published by Strategic Insight or a similar
statistical organization.
(2) The performance of U.S. equity and debt markets
relative to foreign markets prepared or published by
Morgan Stanley Capital International or a similar
financial organization.
(3) The capitalization of U.S. and foreign stock markets as
prepared or published by the International Finance
Corporation, Morgan Stanley Capital International or a similar
financial organization.
(4) The geographic distribution of a Fund's portfolio.
(5) The gross national product and populations, including age
characteristics, literacy rates, foreign investment
improvements due to a liberalization of securities laws and a
reduction of foreign exchange controls, and improving
communication technology, of various countries as published by
various statistical organizations.
(6) To assist investors in understanding the different
returns and risk characteristics of various
investments, a Fund may show historical returns of
various investments and published indices (E.G.,
Ibbotson Associates, Inc. Charts and Morgan Stanley
EAFE - Index).
(7) The major industries located in various jurisdictions
as published by the Morgan Stanley Index.
(8) Rankings by DALBAR Surveys, Inc. with respect to mutual
fund shareholder services.
(9) Allegorical stories illustrating the importance of
persistent long-term investing.
(10) The Fund's portfolio turnover rate and its ranking
relative to industry standards as published by Lipper
Analytical Services, Inc. or Morningstar, Inc.
(11) A description of the Templeton organization's investment
management philosophy and approach, including its worldwide
search for undervalued or "bargain" securities and its
diversification by industry, nation and type of stocks or
other securities.
- 44 -
<PAGE>
(12) Quotations from the Templeton organization's founder, Sir John
Templeton,* advocating the virtues of diversification and
long-term investing, including the following:
o "Never follow the crowd. Superior performance is
possible only if you invest differently from the
crowd."
o "Diversify by company, by industry and by
country."
o "Always maintain a long-term perspective."
o "Invest for maximum total real return."
o "Invest - don't trade or speculate."
o "Remain flexible and open-minded about types of
investment."
o "Buy low."
o "When buying stocks, search for bargains among
quality stocks."
o "Buy value, not market trends or the economic
outlook."
o "Diversify. In stocks and bonds, as in much else,
there is safety in numbers."
o "Do your homework or hire wise experts to help
you."
o "Aggressively monitor your investments."
o "Don't panic."
o "Learn from your mistakes."
o "Outperforming the market is a difficult task."
- --------
* Sir John Templeton sold the Templeton organization to
Franklin Resources, Inc. in October, 1992 and resigned from
the Fund's Board on April 16, 1995. He is no longer
involved with the investment management process.
- 45 -
<PAGE>
o "An investor who has all the answers doesn't even
understand all the questions."
o "There's no free lunch."
o "And now the last principle: Do not be fearful or
negative too often."
In addition, the Company and the Investment Managers may also refer to
the number of Shareholders in a Fund or the aggregate number of shareholders of
the Franklin Templeton Funds or the dollar amount of fund and private account
assets under management in advertising materials.
FINANCIAL STATEMENTS
The financial statements contained in each Fund's Annual Report to
Shareholders dated December 31, 1994 are incorporated herein by reference.
- 46 -
<PAGE>
ZTIFI SAI 09/95
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
TIFI----------------------------------------------------------------------------
ANNUAL REPORT
[LOGO OF TEMPLETON APPEARS HERE]
December 31, 1994
<PAGE>
December 31, 1994
Shareholder...
Looking back to the beginning of 1994, investor's expectations were
high. Historical returns from equity markets were well above average, the
economic base worldwide was growing, people were being put back to work and
money poured into stock mutual funds. In fact, net purchases of foreign equities
by U. S. investors for the year ending 1993 were more than twice the entire
amount invested in the 1980's.
Yet, 1994 was a humbling experience because many financial markets
were adversely affected by recent adverse global events which included, for
example, rising interest rates and the Mexican monetary crisis. The impact of
these events was further exacerbated by distressed selling by highly-leveraged
hedge funds. Again, in hindsight, our research lists had proven to be good
leading indicators for market trends. In January 1994, our Source of Funds List
(sell list) with 150 names was almost twice the size of our Bargain List (buy
list), which at 80 names had shrunk to its lowest level in 10 years.
Within this environment, the Templeton Institutional Funds, Inc.
Foreign Equity Series (the "Fund") under performed its benchmark index this year
as did most Funds with international investment mandates. It returned -3.0% for
the fourth quarter and 0.24% for the year ending December 31, 1994, compared to
the unmanaged Morgan Stanley Capital International Europe, Australia and the Far
East ("MSCI EAFE") index returns of -1.0% and 8.1%, respectively. Since
inception on October 18, 1990, the Fund has provided a 11.2% average annual
return against the MSCI EAFE index return of 7.3%. A majority of the performance
difference versus the index for 1994 was due to the under weighting of Japanese
shares in the Fund of 2.5% against a 45.8% weighting in the MSCI EAFE index.
Nevertheless, we anticipate remaining underweighted in Japan because Japanese
shares, in most industry sectors, remain overvalued based on our investment
criteria.
Additionally, the Fund continued to grow with total assets of $1.1
billion at the end of 1994 compared to $408 million as of
- --------------------------------------------------------------------------------
Total Returns as of 12/31/94
<TABLE>
<CAPTION>
One-Year Three-Year Cumulative
Average Average Since
Annual/1/ Annual/1/ Inception/2/
<S> <C> <C> <C>
TIFI Foreign Equity Series 0.24 9.85 56.40
MSCI EAFE Index 8.06 8.19 34.55
</TABLE>
/1/ Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/2/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
continued...
[PHOTO 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.
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
Letter continued................................................................
INDUSTRY DIVERSIFICATION ON 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 14.6%
Utilities-Electrical & Gas 7.2%
Telecommunications 6.2%
Insurance 6.2%
Forest Products & Paper 6.1%
Chemicals 4.8%
Multi-Industry 3.8%
Financial Services 3.8%
Food & Household Products 3.6%
Metals & Mining 3.4%
</TABLE>
Geographic Distribution on 12/31/94
(% of Total Equity)
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION ON 12/31/94]
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Asia 14.9%
Europe 65.2
Australia/New Zealand 8.1
Latin America/Caribbean 6.7
North America 5.1
</TABLE>
the end of 1993. The Fund's share price, as measured by net asset value, was
$12.86 at December 31, 1994, compared to $13.32 at December 31, 1993.
Shareholders received $0.19 per share in dividend income and $0.31 per share in
capital gains for 1994.
Fortunately, many of these recent adverse events can be viewed as cyclical and
not secular. Bad news and overall market pessimism may therefore provide buying
opportunities for patient, fundamental investors. Many companies today, for
example, continue to register good earnings growth as our global economy
expands. What will 1995 hold for investors? We do not really know, nor does
anyone else, and although many claim to hold great insight into potential
outcomes, over the short-term no one has been consistently correct. However, our
level of optimism has improved. The primary reason is the number of new names
that now appear on our Bargain List. With so much confusion, fear and
uncertainty worldwide, many share prices have fallen dramatically. Our analysts
work daily to uncover specific stock ideas which they anticipate will perform
well regardless of the direction of the overall market. Our Bargain List with
170 names is now twice as large as our Source of Funds List and is at the higher
end of our historical range of 100 to 200 names. The largest additions to our
Bargain List have been in the market sectors that are well represented in your
Fund. Currently, the Fund is well diversified with a majority of its investments
in 1) natural resources oriented shares, 2) selective industrial cyclicals that
continue to offer value, 3) consumer durables shares that include automobile
manufacturers, 4) utilities in strong growth economies and 5) undervalued
financials with strong fundamentals.
Your Fund's geographical weightings are considered less important than
share selection. However, these weightings can influence portfolio performance,
particularly during periods when sudden and dramatic macro economic or political
changes result in abnormal market volatility. These periods, however, are often
temporary, but can provide longer-term investors with good investment
opportunities. Needless to say, because of our long term perspective, your
Fund's weightings are not expected to change significantly unless these
oftentimes unexpected anomalies do develop. Our Bargain List currently indicates
that international shares, in general, are marginally undervalued compared to
U.S. shares after being considered fairly valued at the beginning of last year.
It is also our anticipation that Europe will continue to be
overweighted with a good exposure to Scandinavia and Spain. Central Europe,
particularly the former Iron Curtain countries, are looking more interesting. We
also remain committed to investments in Australia and New Zealand and the Fund's
Canadian holdings which, in our opinion, are undervalued.
We also continue to maintain investments in the emerging markets
despite poor performance in 1994. It is important to note that the
2
<PAGE>
................................................................................
magnitude of this performance isn't surprising. In the United States, a normal
bear market reduces prices by 20%, lasts 13 months and takes 21 months to get
back to the point you were before the bear market began. Normal bear markets in
emerging countries do not tend to last as long as bear markets in the United
States, but normally suffer decreases in price of 30 - 40%. Hong Kong is a prime
example. Over the last 10 years, despite an increase over 480% in the Hang Seng
stock index from 1365 in January of 1985 to 8000 in January of 1995, there have
been four corrections of more than 30%, including a decline of 45% in 1987, and
a drop of 29% in 1994. We had reduced certain investments in Hong Kong over a
year ago. Now after a 29% correction, valuations of some companies obviously
appear more attractive on the basis of our value criteria which is long-term
oriented.
In Mexico, the market has also fallen dramatically. Mexico certainly
has problems that need to be resolved, but at some point share prices will be
fully discounted and undervalued. The ongoing currency devaluation, for example,
benefits export companies that do not have large foreign debt positions.
Our natural resources investments include energy, forest products and
base metals companies. Many commodities have limited new supply, sell at prices
below replacement cost, and should benefit from growing demand. Emerging market
demand for commodities is particularly notable. For example, China's and India's
population, on average, consume one barrel of oil per person each year, 1/10 the
level of other emerging market countries such as Taiwan and 1/30 the level of
North America.
Financial stocks and companies, perceived to be influenced by rising
interest rates, have also fallen dramatically over the last 12 months. In
essence, all stocks are influenced by levels of interest rates, yet some are
perceived to be more sensitive than others. Our performance in 1994 was not
helped by our financial exposure. Nevertheless, share prices for many of these
securities may already reflect the likelihood of further rate increases and are
undervalued, thus offering longer-term investment opportunity.
Your Fund, consistent with its long-term investment focus has not
engaged in currency hedging. Foreign exchange fluctuations can affect
performance in the short-term. However, we continue to believe that proper share
selection on a long-term basis can mitigate this risk, a conclusion that has
historically proven correct.
In many ways, 1995 should be much like 1994 with the "madness of
crowds" guiding market behavior. Fortunately, market volatility can create
opportunity, especially for fundamental investors with long-term perspectives.
We hope you will also take comfort in the fact that we continue to vigorously
research, check and double check each individual security purchased for your
Fund. Virtually all securities we purchase have a detailed written analysis
which looks back five years over the company's development and 3-5 years into
the future. Each share we purchase is tracked by at least one of three dozen
analysts and followed closely in our database which
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Stet (Sta Finanziaria Telefonica
Torino) SPA, di Risp 1.4%
Svenska Handelsbanken, A 1.4%
Cartiere Burgo SPA 1.4%
Hitachi Ltd. 1.3%
Deutsche Bank AG 1.3%
VEBA AG 1.3%
Astra AB, A 1.3%
Sony Corp. 1.3%
Rhone-Poulenc SA, A 1.2%
Volvo AB, A 1.2%
</TABLE>
Fund Asset Allocation on 12/31/94
[PIE CHART APPEARS HERE SHOWING
FUND ASSET ALLOCATION ON 12/31/94]
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C>
Short Term & Other 11.4%
Equity* 88.6
</TABLE>
* Equity includes convertible and preferred stocks
3
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
Letter continued................................................................
- --------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 10/18/90 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI FOREIGN EQUITY SERIES, MSCI
EAFE INDEX AND CPI INDEX]
<TABLE>
<CAPTION>
10/18/90 12/31/94
-------- --------
<S> <C> <C>
TIFI FOREIGN EQUITY SERIES $5,000,000 $7,819,895
MSCI EAFE INDEX 5,000,000 6,727,424
CPI INDEX 5,000,000 5,624,411
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (10/18/90)
<S> <C> <C>
Average Annual Total Return/2/ 0.24% 11.23%
Cumulative Total Return/3/ 0.24% 56.40%
</TABLE>
/1/ The Fund's manager is waiving a portion of its management fees, which
reduces operating expenses. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any
time.
/2/ Average annual total return figures represent the average annual increase in
value of an investment over the specified periods. The calculations assume
reinvestment of dividends and capital gains distributions.
/3/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
contains over 200 data items on each company. We also hope you will take comfort
in the fact that we are trying to purchase securities that are fundamentally
inexpensive.
Finally, we take great comfort and pride in our staff. So many of our
professionals have given up large parts of their personal lives to contribute
their talents and work towards our effort of trying to deliver superior
performance. We realize your expectations are high. We respect the confidence
you have shown in our organization by placing your assets in our care and we are
dedicated to the tasks at hand. We thank you for your continued relationship
with the Templeton organization.
Sincerely,
/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 800-362-6243.
4
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
OCTOBER 18, 1990
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
------------------------------------- OPERATIONS) TO
1994 1993+ 1992+ 1991 DECEMBER 31, 1990
---------- -------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $ 13.32 $ 10.05 $ 10.63 $10.16 $10.00
---------- -------- ------- ------ ------
Income from investment
operations:
Net investment income .20 .23 .27 .31 .12
Net realized and
unrealized gain
(loss) (.16) 3.19 (.41) 1.30 .04
---------- -------- ------- ------ ------
Total from investment
operations .04 3.42 (.14) 1.61 .16
---------- -------- ------- ------ ------
Distributions:
Dividends from net in-
vestment income (.19) (.09) (.24) (.44) --
Distributions from net
realized gains (.31) (.06) (.20) (.70) --
---------- -------- ------- ------ ------
Total distributions (.50) (.15) (.44) (1.14) --
---------- -------- ------- ------ ------
Change in net asset
value (.46) 3.27 (.58) .47 .16
---------- -------- ------- ------ ------
Net asset value, end of
period $ 12.86 $ 13.32 $ 10.05 $10.63 $10.16
========== ======== ======= ====== ======
TOTAL RETURN * 0.24% 34.03% (1.33)% 16.13% 1.60%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of pe-
riod (000) $1,093,227 $407,970 $ 566 $1,181 $1,015
Ratio of expenses to
average net assets 0.95% 1.03% 8.82% 9.15% 9.24%**
Ratio of expenses, net
of reimbursement,
to average net assets 0.95% 1.00% 1.00% 1.00% 1.00%**
Ratio of net investment
income to
average net assets 2.03% 1.73% 2.38% 2.47% 5.77%**
Portfolio turnover rate 7.90% 42.79% 8.45% 76.16% --
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 84.8%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.2%
Sony Corp. Jpn. 239,700 $ 13,604,269
- -------------------------------------------------------------------------------
Automobiles: 2.9%
Autoliv AB Swe. 245,000 9,429,988
Bayerische Motorenwerke AG
(BMW) Ger. 12,962 6,415,755
Consorcio G Grupo Dina SA de
CV, ADR Mex. 310,000 2,945,000
Volvo AB, B Swe. 711,000 13,396,047
------------
32,186,790
- -------------------------------------------------------------------------------
Banking: 13.1%
ABN AMRO Holding NV Neth. 3,854 133,876
Australia & New Zealand
Banking Group Ltd. Aus. 2,692,161 8,870,142
Banco Bilbao Vizcaya Sp. 531,800 13,191,468
Banco di Sardegna SPA, di
Risp Itl. 358,450 2,489,482
Banco Popular Espanol Sp. 33,725 4,009,848
Banco Portugues de
Investimento SA Port. 58,612 876,303
Bank of Montreal Can. 210,000 3,911,068
Bankinter SA Sp. 68,000 5,615,651
Banque Nationale de Paris
NV, ADR Fr. 277,500 12,903,750
Barclays Bank PLC U.K. 1,169,188 11,167,265
Canadian Imperial Bank of
Commerce Can. 347,800 8,399,020
Daegu Bank Co. Ltd. Kor. 11,600 170,653
Deutsche Bank AG Ger. 29,890 13,868,682
Grupo Financiero Banamex
Accival SA, C Mex. 822,900 2,419,326
HSBC Holdings PLC H.K. 605,806 6,537,616
National Bank of Canada Can. 714,000 4,835,502
National Bank of Greece SA Gr. 38,910 1,810,182
National Westminster Bank
PLC U.K. 949,948 7,639,057
Philippine National Bank Phil. 293,394 4,148,399
PT Panin Bank, fgn. Indo. 616,000 882,803
Stadshypotek AB, A Swe. 465,000 6,132,790
Svenska Handelsbanken, A Swe. 1,115,650 14,714,079
Westpac Banking Corp. Aus. 2,397,370 8,084,719
------------
142,811,681
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.9%
News Corp. Ltd. Aus. 1,655,915 6,482,910
Sing Tao Holdings Ltd. H.K. 4,701,400 2,946,920
Vereniging Nederlandse
Uitgevers VB (VNU) Neth. 4,000 415,231
------------
9,845,061
- -------------------------------------------------------------------------------
Building Materials & Components: 2.3%
Byucksan Development Co.
Ltd. Kor. 74,197 1,684,371
Cie de Saint Gobain Fr. 77,213 8,876,387
Pioneer International Ltd. Aus. 4,836,612 11,998,634
Unione Cementi Marchino
Emiliane Itl. 103,030 663,788
Unione Cementi Marchino
Emiliane, di Risp Itl. 408,000 1,383,477
------------
24,606,657
- -------------------------------------------------------------------------------
Business & Public Services: 2.6%
Attwoods PLC U.K. 2,156,900 3,939,705
Ecco SA Fr. 76,975 9,137,268
Esselte AB, B Swe. 367,400 4,672,507
Societe Generale de Surveil-
lance Holdings Ltd. Swtz. 7,955 10,996,716
------------
28,746,196
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Chemicals: 4.8%
Akzo Nobel NV Neth. 97,064 $ 11,205,499
Bayer AG Ger. 52,225 12,099,106
*European Vinyls Corp. EVC
International NV Neth. 125,965 5,580,223
Rhone-Poulenc SA, A Fr. 577,920 13,406,532
Solvay SA Bel. 20,912 9,926,790
------------
52,218,150
- ------------------------------------------------------------------------------
Data Processing & Reproduction: 0.6%
*Newbridge Networks Corp. Can. 175,400 6,736,535
- ------------------------------------------------------------------------------
Electrical & Electronics: 3.0%
BBC Brown Boveri AG, br. Swtz. 13,586 11,693,911
Gold Peak Industries (Hold-
ings) Ltd. H.K. 6,080,000 2,396,640
Hitachi Ltd. Jpn. 1,409,000 13,998,001
Philips Electronics NV Neth. 150,000 4,441,500
------------
32,530,052
- ------------------------------------------------------------------------------
Electronic Components & Instruments: 1.1%
BICC U.K. 2,190,000 12,300,291
- ------------------------------------------------------------------------------
Energy Equipment & Services: 0.5%
Koninklijke Pakhoed NV Neth. 198,599 5,262,719
- ------------------------------------------------------------------------------
Energy Sources: 2.8%
Repsol SA Sp. 481,400 13,056,775
Saga Petroleum AS, A Nor. 421,500 4,581,183
Societe Nationale Elf
Aquitane Fr. 185,772 13,074,648
------------
30,712,606
- ------------------------------------------------------------------------------
Financial Services: 3.6%
*Capital Portugal Fund Port. 20,050 1,632,564
Chile Fund Inc. Chil. 130,000 5,996,250
Govett & Co. Ltd. U.K. 1,192,500 6,641,791
*India Fund, B Ind. 4,335,898 11,226,746
Korea International Trust Kor. 67 3,919,500
*Singapore Fund Sing. 78,000 1,160,250
Thai Fund Inc. Thai. 394,574 8,828,593
------------
39,405,694
- ------------------------------------------------------------------------------
Food & Household Products: 3.6%
Albert Fisher Group PLC U.K. 11,923,845 8,861,082
Dairy Farm International
Holdings Ltd. H.K. 4,491,157 4,817,655
Hellenic Bottling Co. SA Gr. 123,030 4,355,498
Hillsdown Holdings PLC U.K. 3,988,570 11,169,843
Vetropack AG, br. Swtz. 505 1,928,438
Vitro SA Mex. 1,829,700 8,398,323
------------
39,530,839
- ------------------------------------------------------------------------------
Forest Products & Paper: 5.1%
Cartiere Burgo SPA Itl. 2,138,760 14,174,889
*Cartiere Burgo SPA, wts. Itl. 397,920 63,294
Fletcher Challenge Ltd.,
N.Z. N.Z. 3,500,000 8,222,747
Fletcher Forestry, N.Z. N.Z. 1,850,000 2,214,604
Metsa Serla OY, B Fin. 219,500 9,636,947
PT Barito Pacific Timber,
fgn. Indo. 2,705,000 4,276,558
PT Inti Indorayon Utama,
fgn. Indo. 486,000 1,260,328
Stora Kopparbergs Bergslags
AB, B Swe. 198,500 11,967,889
Unipapel SA Sp. 168,000 3,931,168
------------
55,748,424
- ------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Health & Personal Care: 2.8%
Ares-Serono SA, B Swtz. 2,935 $ 1,611,689
Astra AB, A Swe. 528,500 13,656,055
Hafslund Nycomed SA, B Nor. 425,000 8,861,368
Medeva PLC U.K. 2,564,171 6,539,001
------------
30,668,113
- -------------------------------------------------------------------------------
Insurance: 6.2%
Ace Limited Bmu. 296,500 6,930,688
Aegon NV Neth. 172,506 11,030,685
GIO Austrailia Holdings Ltd. Aus. 4,936,000 9,375,228
International Nederlanden
Group Neth. 241,241 11,395,681
London Insurance Group Inc. Can. 454,900 7,458,706
Swiss Reinsurance Co. Swtz. 16,550 9,972,849
Zuerich Versicherung, br. Swtz. 12,320 11,714,515
------------
67,878,352
- -------------------------------------------------------------------------------
Leisure & Tourism: 0.5%
+*Grupo Posadas SA GDR, L Mex. 212,000 3,256,320
*Queens Moat Houses PLC U.K. 1,308,500 0
Reisebuero Kuoni AG, partn.
ctf. Swtz. 1,310 1,690,839
------------
4,947,159
- -------------------------------------------------------------------------------
Machinery & Engineering: 0.6%
VA Technologie AG, br. Aust. 67,170 6,761,647
- -------------------------------------------------------------------------------
Merchandising: 2.7%
Burton Group PLC U.K. 11,017,000 11,763,670
Koninklijke Bijenkorf Beheer
(KBB) NV Neth. 133,936 7,561,339
Kwik Save Group PLC U.K. 1,131,510 9,736,389
------------
29,061,398
- -------------------------------------------------------------------------------
Metals & Mining: 3.4%
Alcan Aluminum Ltd. Can. 302,500 7,682,454
ARBED SA Lux. 21,595 3,245,020
Comalco Ltd. Aus. 2,490,000 9,651,836
*Elkem AS, A Nor. 124,100 1,605,730
*Metall Mining Corp. Can. 405,000 3,464,623
*Union Miniere NPV Bel. 143,270 11,147,226
------------
36,796,889
- -------------------------------------------------------------------------------
Multi-Industry: 3.8%
Amer Group Ltd., A Fin. 304,600 5,272,121
CNT Group Ltd. H.K. 2,320,000 158,914
Fotex First Hungarian-Ameri-
can Photo-Service Hun. 850,000 2,571,625
Hutchison Whampoa Ltd. H.K. 2,329,000 9,421,351
Jardine Matheson Holdings
Ltd. H.K. 894,366 6,386,264
Jardine Strategic Holdings
Ltd. H.K. 2,739,500 8,992,995
Swire Pacific Ltd., A H.K. 1,418,500 8,836,407
------------
41,639,677
- -------------------------------------------------------------------------------
Real Estate: 2.6%
Bail Investissement Fr. 35,000 5,996,068
*Hang Lung Development Co.
Ltd. H.K. 4,121,000 5,858,611
*Hang Lung Development Co.
Ltd., wts. H.K. 412,100 61,782
New World Development Co.
Ltd. H.K. 1,665,282 4,444,339
Taylor Woodrow PLC U.K. 5,922,560 11,813,987
------------
28,174,787
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------------------------------------
Telecommunications: 4.7%
Compania de Telefonos de Chile SA, ADR Chil. 71,450 $ 5,626,688
STET (Sta Finanziaria Telefonica Torino) SPA, di Risp Itl. 6,246,000 14,806,332
Telefonica de Argentina SA, B, ADR Arg. 151,450 8,026,850
Telefonica de Espana SA Sp. 1,062,800 12,555,776
Telefonos de Mexico SA, L, ADR Mex. 252,100 10,336,100
--------------
51,351,746
- -------------------------------------------------------------------------------------------------------------
Transportation: 1.2%
British Airways PLC U.K. 948,750 5,299,035
Cathay Pacific Airways Ltd. H.K. 2,839,000 4,127,787
Singapore Airlines Ltd., fgn. Sing. 381,200 3,504,686
--------------
12,931,508
- -------------------------------------------------------------------------------------------------------------
Utilities Electrical & Gas: 7.2%
*CEZ Csk. 77,944 3,793,981
Compania Sevillana de Electricidad Sp. 2,232,000 10,547,419
Electricidad de Caracas Venz. 5,062,877 6,141,435
Endesa-Empresa Nacional de Electricidad SA Sp. 97,500 3,970,370
Evn Energie-Versorgung Niederoesterreich AG Aust. 56,150 7,294,481
Gesa-Gas y Electricidad SA Sp. 600 25,436
Iberdrola SA Sp. 2,065,142 12,739,945
Shandong Huaneng Power Chn. 272,000 2,618,000
South Wales Electricity U.K. 805,000 11,259,270
Thames Water Group PLC U.K. 896,600 6,789,236
VEBA AG Ger. 39,600 13,717,914
--------------
78,897,487
- -------------------------------------------------------------------------------------------------------------
Wholesale & International Trade: 1.0%
Brierley Investments Ltd. N.Z. 15,241,819 11,025,494
--------------
TOTAL COMMON STOCKS (cost $927,595,296) 926,380,221
- -------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS: 3.0%
- -------------------------------------------------------------------------------------------------------------
ABN Amro Holdings NV, conv., pfd. Neth. 313,488 10,438,163
Concessioni e Costruzioni Autostrade SPA, B, pfd. Itl. 2,030,000 2,571,917
News Corp. Ltd., conv., pfd. Aus. 827,957 2,849,911
Philippine Long Distance Telephone Co., conv., pfd. Phil. 173,500 5,552,000
Telebras-Telecomunicacoes Brasileiras SA, pfd. Braz. 250,000 11,250,000
--------------
TOTAL PREFERRED STOCKS (cost $30,657,425) 32,661,991
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY **
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS: 0.8%
- -------------------------------------------------------------------------------------------------------------
C.S. Holding Finance BV, 4.875%, conv., 11/19/02 U.S. 5,115,000 6,470,475
PIV Investment Finance (Cayman) Ltd.,
4.50%, conv., 12/1/00 U.S. 3,770,000 2,563,600
--------------
TOTAL BONDS (cost $9,762,546) 9,034,075
- -------------------------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 11.2% (cost $122,507,974)
- -------------------------------------------------------------------------------------------------------------
U.S. Treasury Bills, 4.75% to 5.45% with
maturities to 2/23/95 U.S. 123,068,000 122,584,168
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $1,090,523,241) 1,090,660,455
OTHER ASSETS, LESS LIABILITIES: 0.2% 2,566,352
--------------
TOTAL NET ASSETS: 100.0% $1,093,226,807
==============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
+SEE NOTE 5.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$1,090,523,241) $1,090,660,455
Receivables:
Investment securities sold 3,343,328
Capital shares sold 9,045,577
Dividends and interest 4,710,900
--------------
Total assets 1,107,760,260
--------------
Liabilities:
Payables:
Investment securities purchased 12,016,758
Capital shares redeemed 846,651
Accrued expenses 1,670,044
--------------
Total liabilities 14,533,453
--------------
Net assets, at value $1,093,226,807
==============
Net assets consist of:
Undistributed net investment income $ 1,866,114
Unrealized appreciation on investments 137,214
Distribution in excess of net realized gain (3,067,138)
Net capital paid in on shares of capital stock 1,094,290,617
--------------
Net assets, at value $1,093,226,807
==============
Shares outstanding 85,023,429
==============
Net asset value per share ($1,093,226,807 / 85,023,429) $ 12.86
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $1,890,660 foreign
taxes withheld)
Dividends $ 19,242,960
Interest 5,194,308
------------
Total income $ 24,437,268
Expenses:
Management fees (Note 3) 5,740,479
Administrative fees (Note 3) 912,500
Transfer agent fees (Note 3) 14,657
Custodian fees 604,500
Reports to shareholders 47,000
Audit fees 37,449
Legal fees 14,800
Registration and filing fees 399,000
Directors' fees and expenses 7,300
Other 27,312
------------
Total expenses 7,804,997
------------
Net investment income 16,632,271
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 10,979,449
Foreign currency transactions (1,620,722)
------------
9,358,727
Net unrealized depreciation on investments (41,946,256)
------------
Net realized and unrealized loss (32,587,529)
------------
Net decrease in net assets resulting from opera-
tions $(15,955,258)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
-------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 16,632,271 $ 2,478,998
Net realized gain from security and foreign
currency transactions 9,358,727 8,154,954
Net unrealized appreciation (depreciation) (41,946,256) 42,073,840
-------------- ------------
Net increase (decrease) in net assets result-
ing from operations (15,955,258) 52,707,792
Distributions to shareholders:
From net investment income (15,267,921) (1,984,431)
From net realized gain (19,111,004) (1,469,815)
Capital share transactions (Note 2) 735,590,480 358,150,790
-------------- ------------
Net increase in net assets 685,256,297 407,404,336
Net assets:
Beginning of year 407,970,510 566,174
-------------- ------------
End of year $1,093,226,807 $407,970,510
============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<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. 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 Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation. Pur-
chases and sales of portfolio securities and income items denominated in for-
eign 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 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 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, which
are determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1994, there were 520 million shares of $.01 par value capital
stock authorized of which 160 million have been classified as Fund shares.
Transactions in the Fund's shares for the years ended December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 55,873,309 $756,177,777 31,377,769 $367,642,741
Shares issued in rein-
vestment of distribu-
tions 2,173,387 28,197,368 217,409 2,824,712
Shares redeemed (3,642,203) (48,784,665) (1,032,567) (12,316,663)
---------- ------------ ---------- ------------
Net increase 54,404,493 $735,590,480 30,562,611 $358,150,790
========== ============ ========== ============
</TABLE>
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investors Serv-
ices, Inc. (FTIS), the Company's investment manager, administrative manager,
principal underwriter and transfer agent, respectively. 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 mil-
lion, 0.10% of the next $500 million and 0.075% per annum of such average net
assets in excess of $1.2 billion. TGII has voluntarily agreed to limit the to-
tal expenses of the Fund to an annual rate of 1% of the Fund's average net as-
sets through year ended December 31, 1994. For the year ended December 31,
1994, no such reimbursement was necessary. For the year ended December 31,
1994, FTD did not receive any commissions from the sale of the Fund's shares
and FTIS received fees of $14,657.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Funds, which firm received fees of $14,800 year ended December 31,
1994.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (cont.)
- -------------------------------------------------------------------------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1994 were $684,952,068 and $55,166,347, respectively.
The cost of securities for federal income tax purposes is $1,091,582,952. Re-
alized gains and losses are reported on an identified cost basis.
At December 31, 1994, the aggregate gross unrealized appreciation and depreci-
ation of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 62,446,646
Unrealized depreciation (63,369,143)
------------
Net unrealized depreciation $ (922,497)
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the out-
standing voting securities. Investments in "affiliated companies" as of Decem-
ber 31, 1994 amounted to $3,256,320.
6. DISTRIBUTIONS
Income distributions and capital gain distributions are determined in accor-
dance with income tax regulations which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing treat-
ments for passive foreign investment companies ("PFIC") held by the Fund. As a
result, the amount distributed from capital gains includes $1,059,711 ($0.01
per share) attributable to the PFIC mark to market rules which is included in
unrealized appreciation under generally accepted accounting principles.
14
<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, including
the investment portfolio, of the Foreign Equity Series of Templeton Institu-
tional Funds, Inc. as of December 31, 1994, and the related statement of opera-
tions 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 four years in the period then ended and for the period from October 18,
1990 (commencement of operations) to December 31, 1990. These financial state-
ments and financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Foreign Equity Series of Templeton Institutional Funds, Inc. as of December 31,
1994, the results of its operations, the changes in its net assets and the fi-
nancial highlights for the periods indicated, in conformity with generally ac-
cepted accounting principles.
[SIGNATURE OF MCGLADREY & PULLEN, LLP APPEARS HERE]
New York, New York
February 3, 1995
15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This report must be preceded or accompanied by the prospectus of the Templeton
Institutional Funds, Inc.
Investors should be aware that the value of investments made for the Fund may go
up as well as down and that the Investment Manager may make errors in selecting
the securities for the Fund's portfolio. Like any investment in securities, the
Fund's portfolio will be subject to the risk of loss from market, currency,
economic, political, and other factors. The Fund and Fund investors are not
protected from such losses by the Investment Manager. Therefore, investors who
cannot accept the risk of such losses should not invest in shares of the Fund.
The Fund is not FDIC insured, is not an obligation of, nor guaranteed by any
bank or financial institution, and involves investment risks, including possible
loss of principal.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Account Service: 800-684-4001
Fund Information: 800-362-6243
[RECYCLING LOGO APPEARS HERE]
TL454 A 12/94
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
TIFI ------------------------------------------------------------------
SEMI-ANNUAL REPORT
June 30, 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 1oss of the
principal amount invested.
- --------------------------------------------------------------------------------
<PAGE>
June 30, 1995
Dear Shareholder...
While problems in Latin America cast a bearish pall over the
world's equity markets in early 1995, second quarter results had a much more
bullish feel to them. The combination of falling interest rates, better than
anticipated earnings performance and improving flows of assets into mutual funds
proved potent for most of the world's stock markets, but most notably for US
stocks. Of the various categories of mutual funds tracked by Lipper, only
emerging market and Japanese oriented funds turned in a negative performance in
1995's first half while many other categories were able to attain double digit
advances. Within this environment, the Templeton Institutional Funds, Inc.
Foreign Equity Series (the "Fund") returned 7.7%, 6.7% and 9.0% for the quarter,
six month and one year periods ending June 30, 1995, compared to the MSCI EAFE
(Europe, Australia and Far East) Index returns of 0.8%, 2.8% and 2.0%,
respectively. The Fund has returned 11.5% annualized since its inception on
October 18, 1990, compared to the MSCI EAFE Index annualized return of 7.1%.
European stocks generally moved higher with returns to dollar
based investors being even better due to the positive impact of the rather sharp
decline in the US currency's value. Asian stock markets outside of Japan also
mostly improved with Hong Kong leading the rebound from last year's dismal
returns. Overall, however, US stocks have been the equity of choice so far in
1995 as the US market achieved the best returns when measured in local currency
terms and the third best, after Finland and Switzerland, when measured in
dollars. The MSCI EAFE Index, however, rose just 2.8% due largely to Japan's
negative influence on the index while the MSCI World Index rose 9.4% due to the
large positive impact of the US weighting in that index.
- --------------------------------------------------------------------------------
Total Returns as of 6/30/95
<TABLE>
<CAPTION>
One-Year Three-Year Cumulative
Average Average Since
Annual/1/ Annual/1/ Inception/2/
<S> <C> <C> <C>
TIFI Foreign Equity Series 9.01 8.23 66.92
MSCI EAFE Index 1.95 13.02 38.27
</TABLE>
/1/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/2/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
continued...
[PHOTO APPEARS HERE]
James Chaney is a portfolio manager and research analyst. He currently manages
the Templeton Institutional Growth and Foreign Equity Mutual Funds, two variable
annuity products and several corporate and public fund separate accounts. Mr.
Chaney's global research responsibilities include merchandising, regional banks
and environmental companies.
Prior to joining the Templeton organization in 1991, Mr. Chaney spent six years
with GE Investments, where he was vice president of international equities. In
that capacity, he had numerous research responsibilities and also managed
several separate accounts and a start-up mutual fund which was a Lipper-listed
top quartile performer. He also has another seven years experience as an
international consulting engineer and project manager for Camp, Dresser & McKee,
Inc. and American British Consultants.
Mr. Chaney received a M.B.A. with Honors from Columbia University, where he was
a member of the Beta Gamma Sigma Honor Society. He received his M.S. in
Engineering from Northeastern University and his B.S. in Engineering from the
University of Massachusetts-Amherst. Mr. Chaney is a licensed and registered
engineer.
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
One of the most intriguing aspects of the markets' behavior lately
has been the extreme divergence in the performance of the world's two largest
stock markets and their associated currencies. During the first half of 1995,
the US market, as measured by the S&P 500, rose 20.1% while Japan's Nikkei 500
Index declined 26.4% in local currency. Conversely, the two nation's currencies
have moved in the opposite direction with the yen rising 17.3% versus the dollar
for the six months ended June 30th. The major European markets seem to be taking
the middle ground with token appreciation in the equity markets and slightly
more subdued currency strength versus the dollar. These short-term trends in
equity prices and exchange rate values at least partly, and perhaps largely,
reflect the consequences of the fundamental economic policy differences that
have been in place for many years in these nations.
These policies can be briefly summarized as follows: The US's
primary goal has been maintaining economic growth and employment as close to
potential as possible without igniting serious bouts of inflation and with an
unhealthy emphasis on domestic consumption versus savings. Japan has tried to
successfully achieve economic growth and employment via encouraging savings,
investment and unusually rapid export growth while discouraging imports and
domestic demand. Germany's (and therefore much of central Europe's) most
prominent goal has long been to limit inflation at the expense of optimal
economic growth and employment as well as to encourage savings, investment and
growth in the export sector. The incompatibility of the policies of the three
most influential economic regions in the world has thus far worked itself out in
each nation's respective current account and ultimately in their exchange rates
as we have seen so clearly again recently. Japan and Germany, as of the end of
1993, had built their net foreign asset positions to 14% and 12% of their
respective GNP's and the US, after thirteen years of current account deficits,
is a net debtor to the rest of the world to the tune of over 10% of its GNP.
These different models of capitalism have been clashing for over
twenty years and given the increasingly integrated world economy, the emergence
of the world's developing economies as an economic force and the current state
of each nation's economy, it is unlikely that the current policies can remain
unaltered over the next twenty years. The changes that ultimately occur will
undoubtedly have a material impact on the magnitude, and perhaps direction, of
equity price movements both inside and outside the nation's involved. The US
will have the least impetus for change given the small share of international
trade in its economy. The high value of the deutschemark will crimp Germany's
export ability, thereby reducing its economic growth somewhat and leading to
greater investment overseas, but major changes in the German model of capitalism
do not appear imminent.
Japan, on the other hand, will remain a victim of its own enormous
export success as its major customer, the US, continues to badger them to change
their economic model to incorporate greater imports and
- --------------------------------------------------------------------------------
Industry Diversification on 6/30/95
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 12.5%
Utilities Electrical & Gas 7.6%
Telecommunications 6.3%
Insurance 5.6%
Multi-Industry 5.2%
Forest Products & Paper 4.9%
Chemicals 4.6%
Metals & Mining 4.1%
Financial Services 3.5%
Health & Personal Care 3.4%
</TABLE>
- --------------------------------------------------------------------------------
Geographic Distribution on 6/30/95
(% of Equity Assets)
Europe 66.1%
Latin America/Caribbean 4.6%
[PIE CHART APPEARS HERE] North America 4.6%
Asia 15.6%
Australia/New Zealand 9.1%
2
<PAGE>
................................................................................
fewer exports. While Japan has largely resisted such changes in the past, Adam
Smith's proverbial "invisible hand" has become somewhat more visible in the
strength of the yen which has begun to bring about some alterations in the
Japanese model of capitalism, primarily low economic growth, reduced
productivity, increased offshore investments, reductions in cross holdings and
less stable employment prospects. The value of the yen versus the dollar will
greatly influence the future pace of change in the Japanese economy. In the
absence of additional significant yen strength, the transition of the Japanese
economy to one that is at least somewhat more complementary with its major
trading partners will likely be slow due to the potentially heavy costs of
changes such as unemployment, greater fiscal deficits and lower corporate
earnings. Entering this period with an over built manufacturing base, a weakened
financial sector and an equity market that is unable to attract or allocate
capital in an efficient manner will not ease this transition. Japan's strong
national balance sheet, however, should help the country weather whatever
difficult times may arise.
It is also worth noting that we have often found that, as the
difficulties that Japanese companies are facing multiply, this often translates
into greater opportunities for US, European and emerging market firms. While we
at Templeton are often attracted to markets like Japan's that have declined
greatly in value, in this case we still find it very difficult to identify many
stocks that are selling at extremely low multiples of what we believe could be
earned five years from now. Given the changes that could occur and the market's
expected negative reaction to such changes, Templeton's team of 34 analysts
located in 7 offices worldwide will be diligently and continuously reviewing the
long term earnings potential of Japanese companies in their assigned industries
in relation to share prices so as to identify bargains as they arise.
Weaker share prices in the emerging markets is also attracting our
analysts' attention. Many of these nations embraced capitalism with such an
initial vigor that substantial flows of portfolio investment were attracted from
developed world investors leading to stunning advances in equity prices. Lately,
these nations and investors alike have found that the transition to capitalism
was more complicated than initially anticipated and this reality has been
reflected in sharply declining share prices in places like Mexico, Argentina,
Brazil, Eastern Europe, Russia, India and China. The recent volatility of these
markets is, in large measure, a reflection of the increased reliance on fast
moving foreign portfolio investments to finance growth versus the historic use
of more stable bank loans and a likely increased future focus on foreign direct
investments. Nevertheless, portfolio investment will remain a very important
source of capital for the emerging markets and, in most of these nations, the
needed economic adaptations to return economic growth to a more balanced and
sustainable level will be forthcoming with greater rapidity then we expect in
Japan. As a result of this and much lower current valuation levels, we have been
able to increasingly
- --------------------------------------------------------------------------------
10 Largest Positions on 6/30/95
(% of Total Portfolio)
<TABLE>
<S> <C>
Svenska Handelsbanken 1.6%
Iberdrola SA 1.5%
Banco Bilbao Vizcaya SA 1.4%
Repsol SA 1.4%
Volvo AB 1.4%
BBC Brown Boveri & Cie 1.4%
Telefonica de Espana SA 1.3%
Hafslund Nycomed AS 1.3%
Zuerich Versicherung 1.3%
Stet (Sta Finanziaria Telefonica
Torino) Spa, di Risp 1.3%
</TABLE>
- --------------------------------------------------------------------------------
Fund Asset Allocation on 6/30/95
Equity* 86.1%
[PIE CHART APPEARS HERE] Short Term & Other 13.9%
*Equity includes convertible and preferred stocks
3
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
identify shares selling at inordinately low multiples of long-term earnings
power. While the road to western levels of prosperity will, in all probability,
remain long and quite bumpy for these developing markets, the course seems to
have been set firmly in the direction towards greater corporate and individual
earnings power. Only the speed at which these nations proceed down the path to
the benefits of capitalism seems in doubt at this time and this will vary from
nation to nation with spectacular accidents occurring from time to time. Our
analysts will strive to apply our time-tested investment disciplines in order to
identify those emerging market equities that may provide the most worthwhile
returns for your portfolio.
Turning briefly to those markets that have performed better in
1995, we are finding fewer bargains - particularly in the US. While we at
Templeton have never claimed any expertise in the area of short-term economic
prognostication, it is readily apparent to us that we are not at the bottom of a
recession with only upside surprises awaiting us. Economic activity has clearly
begun to slow but, with no obvious imbalances in the economy, a long period of
decline does not seem likely. Because of the good performance of both the US
bond and equity markets, however, risk has clearly increased. Still, valuations
are not yet so extended as to cause a dramatic increase in the number of stocks
qualifying for our Source of Funds List. With the financial system in good
health, corporate balance sheets improving, stock prices relatively high,
interest rates low and the dollar weak, investment bankers have begun to stir.
New issuance activity is strong and mergers and acquisition activity is
prevalent with US companies potentially the target of European based firms. This
coupled with continued healthy inflows into mutual funds could support the US
market for some time.
It is also becoming more difficult to identify bargains in Europe,
particularly in the hard currency countries (i.e. Germany, France, Switzerland
and the Netherlands). Again, however, valuations have not become so extended
that our Source of Funds List has become cluttered with European names.
Moreover, consensus expectations appear to be less optimistic in Europe
suggesting that there is still the possibility of favorable developments
surprising these markets.
Partly because many Asian currencies are indirectly tied to the
value of the depressed dollar, we are still able to find many bargain-priced
stocks in this region. Earnings continue to expand and valuations generally
remain reasonable. Due to Japan's and China's economic problems, interest in the
area remains somewhat subdued and expectations relatively low. Economic growth
remains at very high levels and could continue unabated in most countries for
the foreseeable future. The long-term outlook for share prices in this region
remains favorable.
The long-term outlook for global equity investment remains
positive in our view. The acceptance of capitalism by almost all nations,
increasingly free trade, technological advancements and the reduced probability
of warfare on a large scale all point towards better economic growth
Total Return Index Comparison/1/
$5,000,000 Investment: 10/18/90 - 06/30/95
[Graph appears here showing comparison between TIFI Foreign Equity Series,
MSCI EAFE Index and CPI Index]
Period ended June 30, 1995
<TABLE>
<CAPTION>
Since
Inception
One-Year (10/18/90)
<S> <C> <C>
Average Annual Total Return/2/ 9.01% 11.52%
Cumulative Total Return/3/ 9.01% 66.92%
</TABLE>
/1/ The Fund's manager is waiving a portion of its management fees, which
reduces operating expenses. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any
time.
/2/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/3/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
4
<PAGE>
................................................................................
and thus corporate earnings. While the supply of equities is growing, due partly
to privatizations in both developed and developing countries, savings should
also rise dramatically over the longer term due to demographic changes and the
pressing need for governments and individuals to address the issue of pensions
and health care. A study using 1993 data by the Investment Company Institute
indicates that mutual fund assets outside the US already equal those in the US
and that the total is over $4 trillion. This number should grow rapidly,
particularly outside the US where demand for mutual funds and pension management
has only just begun to catch on. As
<TABLE>
<CAPTION>
Regional Fund Management (US$b)
Total Total Funds
Pension Mutual Funds as % of per
Country Funds Funds Insurance Per Capita Capita GDP
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hong Kong 13 27 4 7,251 30%
India 40 13 17 75 27%
Indonesia 7 0.67 1 42 5%
Korea 26* 173** 75 6,073 62%
Malaysia 35 N/A 7 2,086 50%
Philippines 3 0.19 0.32 51 4%
Singapore 35 20 10 22,772 85%
Taiwan 6 9 27 1,998 21%
Thailand 4 10 2 321 12%
US 5,000 1,600 2,000 28,667 106%
</TABLE>
*End-1993
**Investments Trust Cos and Bank Trust Accounts
Source: Peregrine regional estimates
we noted this time last year, if the top five most populous emerging market
nations (China, India, Indonesia, Brazil and Pakistan) can accumulate an
additional $400 per capita in mutual fund and pension assets over the next ten
years, this alone will create a new pool of $1 trillion in savings. Also, most
observers believe that the developed countries will increase the level of
foreign assets held over the next five to ten years. The Regional Fund
Management table above, produced by Peregrine, compares the size of pension,
mutual fund and insurance assets in various Asian countries with
5
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
that of the US and highlights the potential for growth in this area alone. With
long-term earnings growth at least as good as that experienced in the past and
the potential for rapid growth in savings, global equities should remain the
asset class of choice for long-term investors.
Current market conditions present a challenge to our analytical
team to uncover unusually inexpensive shares. Nevertheless, you can be confident
that we will continue to implement, in a disciplined fashion, the investment
methodologies that have served our clients so well for so long. Finding
outstanding values by carefully studying the fundamental position of individual
companies, translating our observations into long-term earnings projections,
determining which shares are valued most attractively based on these projections
and patiently waiting until other investors come to admire the positive traits
we have already identified will remain the hallmark of the Templeton research
team. Our investment style requires fortitude and resolve to remain focused on
long-term opportunities in the face of short-term problems that depress share
prices to the level that qualify them as true Templeton bargains. Our staff of
investment professionals continues to grow and the resources dedicated to
helping them produce the highest quality investment research have also expanded.
While we are generally pleased with our results thus far in 1995, we intend to
intensify our bargain-hunting efforts with the goal of producing even better
long-term investment returns for our clients. It has been our pleasure to serve
as your investment counselor and we highly value your continued relationship
with the Templeton organization. Please feel free to contact us with any
questions or comments you might have.
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.
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS OCTOBER 18, 1990
ENDED YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
JUNE 30, 1995 ------------------------------------- OPERATIONS) TO
(UNAUDITED) 1994 1993+ 1992+ 1991 DECEMBER 31, 1990
------------- ---------- -------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.86 $ 13.32 $ 10.05 $10.63 $10.16 $10.00
---------- ---------- -------- ------ ------ ------
Income from investment
operations:
Net investment income .21 .20 .23 .27 .31 .12
Net realized and
unrealized gain (loss) .66 (.16) 3.19 (.41) 1.30 .04
---------- ---------- -------- ------ ------ ------
Total from investment
operations .87 .04 3.42 (.14) 1.61 .16
---------- ---------- -------- ------ ------ ------
Distributions:
Dividends from net
investment income (.01) (.19) (.09) (.24) (.44) --
Distributions from net
realized gains -- (.31) (.06) (.20) (.70) --
---------- ---------- -------- ------ ------ ------
Total distributions (.01) (.50) (.15) (.44) (1.14) --
---------- ---------- -------- ------ ------ ------
Change in net asset
value .86 (.46) 3.27 (.58) .47 .16
---------- ---------- -------- ------ ------ ------
Net asset value, end of
period $ 13.72 $ 12.86 $ 13.32 $10.05 $10.63 $10.16
========== ========== ======== ====== ====== ======
TOTAL RETURN* 6.73% 0.24% 34.03% (1.33)% 16.13% 1.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000) $1,446,494 $1,093,227 $407,970 $ 566 $1,181 $1,015
Ratio of expenses to
average net assets 0.91%** 0.95% 1.03% 8.82% 9.15% 9.24%**
Ratio of expenses, net
of reimbursement, to
average net assets 0.91%** 0.95% 1.00% 1.00% 1.00% 1.00%**
Ratio of net investment
income to average net
assets 3.53%** 2.03% 1.73% 2.38% 2.47% 5.77%**
Portfolio turnover rate 11.49% 7.90% 42.79% 8.45% 76.16% 0.00%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
+BASED ON AVERAGE WEIGHTED SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS: 78.7%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.2%
Sony Corp. Jpn. 368,700 $ 17,698,992
- -------------------------------------------------------------------------------
Automobiles: 2.4%
Bayerische Motorenwerke (BMW) Ger. 15,662 8,595,414
Regie Nationale des Usines Renault
SA Fr. 192,100 6,018,902
Volvo AB, B Swe. 1,024,000 19,495,780
--------------
34,110,096
- -------------------------------------------------------------------------------
Banking: 10.8%
ABN AMRO NV Neth. 408 15,746
Australia & New Zealand Banking
Group Ltd. Aus. 3,005,161 10,679,625
Banco Bilbao Vizcaya Sp. 689,900 19,906,712
Banco di Sardegna SPA, di Risp Itl. 391,650 2,537,198
Banco Portugues de Investimento SA Port. 74,112 1,294,300
Banque Nationale de Paris, ADR Fr. 343,400 16,563,896
Barclays Bank PLC U.K. 1,143,188 12,278,370
Canadian Imperial Bank of Commerce Can. 462,800 11,117,307
Daegu Bank Co. Ltd. Kor. 11,600 139,062
*Daegu Bank Co. Ltd., new Kor. 2,530 28,662
Deutsche Bank AG Ger. 349,900 17,026,949
HSBC Holdings PLC H.K. 887,806 11,387,571
National Bank of Canada Can. 753,500 6,170,610
National Bank of Greece SA Gr. 47,210 2,578,450
National Westminster Bank PLC U.K. 322,948 2,803,644
*PT Panin Bank Ord. rts. Indo. 801,400 269,892
Philippine National Bank Phil. 341,604 3,979,138
PT Panin Bank, fgn. Indo. 3,205,600 3,814,477
Sparbanken Sverige AB Ord., A Swe. 13,100 109,848
Stadshypotek AB, A Swe. 490,000 7,274,627
Svenska Handelsbanken, A Swe. 1,508,150 22,493,921
Westpac Banking Corp. Aus. 974,370 3,531,932
--------------
156,001,937
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 0.8%
News Corp. Ltd. Aus. 1,669,915 9,329,001
Sing Tao Holdings Ltd. H.K. 4,701,400 2,582,252
--------------
11,911,253
- -------------------------------------------------------------------------------
Building Materials & Components: 1.3%
Byucksan Development Co. Ltd. Kor. 74,197 1,389,512
Pioneer International Ltd. Aus. 6,182,612 15,380,069
Unione Cementi Marchino Emiliane,
di Risp Itl. 893,200 2,567,285
--------------
19,336,866
- -------------------------------------------------------------------------------
Business & Public Services: 2.7%
Ecco SA Fr. 86,774 13,611,959
Esselte AB, B Swe. 569,400 7,083,647
Societe Generale de Surveillance
Holdings Ltd., br. Swtz. 10,150 17,629,179
--------------
38,324,785
- -------------------------------------------------------------------------------
Chemicals: 4.6%
Akzo Nobel NV Neth. 121,564 14,529,624
Bayer AG Ger. 58,375 14,507,222
*European Vinyls Corp. EVC
International NV Neth. 162,965 7,593,464
Rhone-Poulenc SA, A Fr. 734,520 16,548,938
Solvay SA Bel. 23,212 12,729,635
--------------
65,908,883
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------------
Data Processing & Reproduction: 0.6%
*Newbridge Networks
Corp. Can. 233,400 $ 8,197,671
- -----------------------------------------------------------------------------------
Electrical & Electronics: 2.6%
BBC Brown Boveri Ltd.,
br. Swtz. 18,806 19,467,436
Gold Peak Industries
(Holdings) Ltd. H.K. 6,080,000 2,592,985
Hitachi Ltd. Jpn. 1,527,000 15,218,671
--------------
37,279,092
- -----------------------------------------------------------------------------------
Electronic Components & Instruments: 1.0%
BICC U.K. 2,965,000 14,001,638
- -----------------------------------------------------------------------------------
Energy Equipment & Services: 0.5%
Koninklijke Pakhoed NV Neth. 223,599 6,840,008
- -----------------------------------------------------------------------------------
Energy Sources: 3.2%
Repsol SA Sp. 620,000 19,502,167
Saga Petroleum AS, A Nor. 681,500 9,677,256
Societe Nationale Elf
Aquitane Fr. 222,872 16,469,902
--------------
45,649,325
- -----------------------------------------------------------------------------------
Financial Services: 3.1%
*Capital Portugal Fund Port. 29,550 2,884,306
Chile Fund Inc. Chil. 154,000 8,277,500
Govett & Co. Ltd. U.K. 1,192,500 5,214,213
*India Fund, B Ind. 5,407,698 10,188,927
Korea International
Trust Kor. 73 3,686,500
*Singapore Fund Sing. 78,000 1,228,500
Thai Fund Inc. Thai. 501,774 13,297,011
--------------
44,776,957
- -----------------------------------------------------------------------------------
Food & Household Products: 2.7%
Albert Fisher Group PLC U.K. 14,859,845 10,750,368
Hellenic Bottling Co. SA Gr. 184,545 5,482,835
Hillsdown Holdings PLC U.K. 4,944,018 14,149,798
Vetropack AG Swtz. 565 1,889,058
Vitro SA Mex. 2,484,240 7,067,166
--------------
39,339,225
- -----------------------------------------------------------------------------------
Forest Products & Paper: 4.8%
Cartiere Burgo SPA Itl. 2,218,760 14,643,477
Fletcher Challenge Ltd.,
N.Z. N.Z. 5,465,000 15,345,274
Fletcher Forestry, N.Z. N.Z. 2,975,000 3,918,216
Metsa Serla OY, B Fin. 242,000 10,764,368
PT Barito Pacific
Timber, fgn. Indo. 3,185,000 4,576,560
PT Inti Indorayon Utama,
fgn. Indo. 334,500 690,930
Stora Kopparbergs
Bergslags AB, B Swe. 1,145,000 15,503,602
Unipapel SA Sp. 180,000 4,844,582
--------------
70,287,009
- -----------------------------------------------------------------------------------
Health & Personal Care: 3.3%
Ares-Serono SA, B Swtz. 3,265 1,913,916
Astra AB, A Swe. 572,000 17,652,380
Hafslund Nycomed SA, B Nor. 822,600 19,023,126
Medeva PLC U.K. 2,499,171 9,934,218
--------------
48,523,640
- -----------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------------
Insurance: 5.6%
Ace Ltd. Bmu. 311,500 $ 9,033,500
Aegon NV Neth. 485,265 16,786,192
GIO Austrailia Holdings
Ltd. Aus. 5,881,000 10,909,628
International
Nederlanden Group Neth. 310,491 17,172,687
London Insurance Group
Inc. Can. 470,900 8,783,848
Zuerich Versicherung,
br. Swtz. 14,855 18,667,117
--------------
81,352,972
- ------------------------------------------------------------------------------------
Leisure & Tourism: 0.1%
Kuoni Reisen Holding AG,
B Swtz. 1,375 2,209,075
- ------------------------------------------------------------------------------------
Machinery & Engineering: 1.0%
VA Technologie AG, br. Aust. 114,900 14,380,195
- ------------------------------------------------------------------------------------
Merchandising: 2.3%
Burton Group PLC U.K. 6,734,500 8,860,762
Koninklijke Bijenkorf
Beheer (KBB) NV Neth. 116,726 8,376,851
Kwik Save Group PLC U.K. 1,581,910 16,323,909
--------------
33,561,522
- ------------------------------------------------------------------------------------
Metals & Mining: 4.1%
Alcan Aluminum Ltd. Can. 327,000 9,878,435
Arbed SA Lux. 21,775 3,138,490
Bohler Uddeholm AG Aust. 80,000 5,535,934
Comalco Ltd. Aus. 3,004,800 10,870,552
*Elkem AS, A Nor. 810,100 11,306,167
*Inmet Mining Corp. Can. 445,500 3,242,948
*Union Miniere NPV Bel. 239,170 15,596,581
--------------
59,569,107
- ------------------------------------------------------------------------------------
Multi-Industry: 4.8%
Amer Group Ltd., A Fin. 502,200 9,135,184
BTR Nylex Ltd. Aus. 5,474,400 10,466,634
Dairy Farm International
Holdings Ltd. H.K. 5,054,157 4,346,575
Fotex First Hungarian-
American Photo-Service Hun. 2,000,000 2,926,078
Hutchison Whampoa Ltd. H.K. 3,027,500 14,633,164
Jardine Matheson
Holdings Ltd. H.K. 1,382,866 10,164,065
Jardine Strategic
Holdings Ltd. H.K. 345,688 1,113,114
*Jardine Strategic
Holdings Ltd., wts. H.K. 345,688 152,103
Swire Pacific Ltd., A H.K. 2,132,500 16,260,113
--------------
69,197,030
- ------------------------------------------------------------------------------------
Real Estate: 2.4%
Bail Investissement Fr. 42,226 7,746,692
*Hang Lung Development
Co. Ltd. H.K. 4,121,000 6,550,738
New World Development
Co. Ltd. H.K. 1,815,177 6,040,581
Taylor Woodrow PLC U.K. 7,652,560 13,992,724
--------------
34,330,735
- ------------------------------------------------------------------------------------
Telecommunications: 3.5%
Alcatel Alsthom SA Fr. 84,000 7,563,246
*Compania de
Telecomunicaciones de
Chile SA, ADR Chil. 71,650 5,830,519
STET (Sta Finanziaria
Telefonica Torino)
SPA, di Risp Itl. 8,376,000 18,561,574
Telefonica de Espana SA Sp. 1,480,000 19,061,300
--------------
51,016,639
- ------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Transportation: 0.8%
Brambles Industries Ltd. Aus. 345,000 $ 3,271,095
Cathay Pacific Airways Ltd. H.K. 2,839,000 4,145,972
Singapore Airlines Ltd.,
fgn. Sing. 417,200 3,851,077
--------------
11,268,144
- -------------------------------------------------------------------------------
Utilities Electrical & Gas: 7.5%
*CEZ Csk. 217,337 7,903,164
Electricidad de Caracas Venz. 7,020,522 6,241,051
Endesa-Empresa Nacional de
Electricidad SA Sp. 296,000 14,613,664
Evn Energie-Versorgung
Niederoesterreich AG Aust. 67,600 9,445,955
Iberdrola SA Sp. 2,808,142 21,143,656
Shandong Huaneng Power Chn. 585,000 4,460,625
South Wales Electricity U.K. 1,311,000 14,528,914
Thames Water Group PLC U.K. 1,765,000 13,358,243
VEBA AG Ger. 44,950 17,648,482
--------------
109,343,754
- -------------------------------------------------------------------------------
Wholesale & International Trade: 1.0%
Brierley Investments Ltd. N.Z. 19,467,819 14,707,231
--------------
TOTAL COMMON STOCKS (cost
$1,071,152,827) 1,139,123,781
- -------------------------------------------------------------------------------
PREFERRED STOCKS: 5.0%
- -------------------------------------------------------------------------------
ABN Amro NV, conv., pfd. Neth. 366,788 13,350,657
Cia de Inversiones en
Telecomunicaciones SA,
pfd. Arg. 183,975 9,290,738
Concessioni e Costruzioni
Autostrade SPA, B, pfd. Itl. 2,130,000 2,375,707
Jardine Strategic Holdings
Ltd., conv., pfd. H.K. 9,938,000 10,981,490
Nacional Financiera SA, reg
S conv., pfd. Mex. 146,522 4,597,128
Nacional Financiera SA,
reg. 42 conv., pfd. Mex. 165,400 5,189,425
News Corp. Ltd., conv.,
pfd. Aus. 955,957 4,728,962
Philippine Long Distance
Telephone Co., conv.,
pfd. Phil. 279,200 11,517,000
Telebras-Telecomunicacoes
Brasileiras SA, pfd. Braz. 294,500 9,700,094
--------------
TOTAL PREFERRED STOCKS (cost
$69,387,576) 71,731,201
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.4%
- -------------------------------------------------------------------------------
British Airways, DEB,
9.75%, 6/15/05 U.K. 2,387,800 6,991,596
C.S. Holding Finance BV,
4.875%, conv., 11/19/02 U.S. 7,615,000 10,775,225
PIV Investment Finance
(Cayman) Ltd.,
4.5%, conv., 12/1/00 U.S. 6,710,000 5,401,550
U.S. Treasury Note, 8.875%,
2/15/96 U.S. 11,000,000 11,202,840
--------------
TOTAL BONDS (cost $33,213,206) 34,371,211
- -------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 13.7% (cost
$197,457,029)
- -------------------------------------------------------------------------------
U S Treasury Bills, 5.26%
to 5.63% with
maturities to 8/24/95 U.S. 198,381,000 197,588,791
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost
$1,371,210,637) 1,442,814,984
OTHER ASSETS, LESS LIABILITIES: 0.2% 3,679,416
--------------
TOTAL NET ASSETS: 100.0% $1,446,494,400
==============
</TABLE>
*NON-INCOME PRODUCING.
**PRINCIPAL AMOUNT IN CURRENCY OF COUNTRY INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost
$1,371,210,637) $1,442,814,984
Cash 39,930
Receivables:
Investment securities sold 5,139,302
Capital shares sold 2,989,236
Dividends and interest 8,873,819
--------------
Total assets 1,459,857,271
--------------
Liabilities:
Payables:
Investment securities purchased 10,711,856
Capital shares redeemed 749,124
Accrued expenses 1,901,891
--------------
Total liabilities 13,362,871
--------------
Net assets, at value $1,446,494,400
==============
Net assets consist of:
Undistributed net investment income $ 23,467,123
Unrealized appreciation on investments 71,604,347
Accumulated net realized loss (8,474,289)
Net capital paid in on shares of capital stock 1,359,897,219
--------------
Net assets, at value $1,446,494,400
==============
Shares outstanding 105,459,635
==============
Net asset value per share ($1,446,494,400 / 105,459,635) $ 13.72
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $3,059,478 foreign taxes
withheld)
Dividends $22,289,632
Interest 5,460,789
-----------
Total income $27,750,421
Expenses:
Management fees (Note 3) 4,372,216
Administrative fees (Note 3) 658,813
Transfer agent fees (Note 3) 9,500
Custodian fees 360,000
Reports to shareholders 51,000
Audit fees 12,500
Legal fees 6,000
Registration and filing fees 90,000
Directors' fees and expenses 35,000
Other 92,839
-----------
Total expenses 5,687,868
-----------
Net investment income 22,062,553
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments (5,001,085)
Foreign currency transactions (406,066)
-----------
(5,407,151)
Net unrealized appreciation on investments 71,467,133
-----------
Net realized and unrealized gain 66,059,982
-----------
Net increase in net assets resulting from operations $88,122,535
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 22,062,553 $ 16,632,271
Net realized gain (loss) from security and
foreign currency transactions (5,407,151) 9,358,727
Net unrealized appreciation (depreciation) 71,467,133 (41,946,256)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations 88,122,535 (15,955,258)
Distributions to shareholders:
From net investment income (461,544) (15,267,921)
From net realized gain -- (19,111,004)
Capital share transactions (Note 2) 265,606,602 735,590,480
-------------- --------------
Net increase in net assets 353,267,593 685,256,297
Net assets:
Beginning of period 1,093,226,807 407,970,510
-------------- --------------
End of period $1,446,494,400 $1,093,226,807
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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. 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 Trustees.
b. Foreign Currency TranslAtions:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation. Pur-
chases and sales of portfolio securities and income items denominated in for-
eign 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 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 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. Distribution to shareholders, which
are determined in accordance with income tax regulations, are recorded on the
ex-dividend date.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At June 30, 1995, there were 520 million shares of $.01 par value capital stock
authorized of which 160 million have been classified as Fund shares. Transac-
tions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 25,832,024 $335,935,373 55,873,309 $756,177,777
Shares issued in
reinvestment of
distributions 64,335 820,895 2,173,387 28,197,368
Shares redeemed (5,460,153) (71,149,666) (3,642,203) (48,784,665)
---------- ------------ ---------- ------------
Net increase 20,436,206 $265,606,602 54,404,493 $735,590,480
========== ============ ========== ============
</TABLE>
15
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity Series
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Company's investment manager, administrative manager,
principal underwriter and transfer agent, respectively. 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 mil-
lion, 0.10% of the next $500 million and 0.075% per annum of such average net
assets in excess of $1.2 billion. TGII has voluntarily agreed to limit the to-
tal expenses of the Fund to an annual rate of 1% of the Fund's average net as-
sets through December 31, 1995. For the six months ended June 30, 1995, no such
reimbursement was necessary. For the six months ended June 30, 1995, FTD did
not receive any commissions from the sale of the Fund's shares and FTIS re-
ceived fees of $9,500.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Funds, which firm received fees of $6,000 for the six months ended June
30, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1995 were $336,966,196 and $126,264,086, respectively.
The cost of securities for federal income tax purposes is $1,372,631,704. Real-
ized gains and losses are reported on an identified cost basis.
At June 30, 1995, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $122,548,216
Unrealized depreciation (52,364,936)
------------
Net unrealized appreciation $ 70,183,280
============
</TABLE>
5. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The Investment Company Act of 1940 defines "affiliated companies" as invest-
ments in portfolio companies in which the Fund owns 5% or more of the outstand-
ing voting securities. There were no investments in "affiliated companies" as
of June 30, 1995. For the six months ended June 30, 1995, net realized loss
from disposition of "affiliated companies" were $2,194,853.
16
<PAGE>
Templeton Institutional Funds, Inc.
Special Meeting of Shareholders, May 4, 1995
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on May 4, 1995. The purpose of the
meeting was to elect twelve directors of the Fund. At the meeting, the follow-
ing persons were elected by the shareholders to serve as directors of the Fund:
John Wm. Galbraith, Charles B. Johnson, Nicholas F. Brady, Betty P. Krahmer,
Constantine D. Tseretopoulos, Frank J. Crothers, Fred R. Millsaps, S. Joseph
Fortunato, Harris J. Ashton, Andrew H. Hines, Jr., John G. Bennett, Jr., and
Gordon S. Macklin.
The results of the voting at the Special Meeting are as follows:
1. Election of twelve (12) Directors:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED AGAINST % ABSTAIN SHARES
---------- ----------- ------ ------- --- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
John Wm. Galbraith* 92,515,630 53.41% 99.98% 0 0 15,858 0.01%
Charles B. Johnson 92,515,630 53.41 99.98 0 0 15,858 0.01
Nicholas F. Brady 92,515,630 53.41 99.98 0 0 15,858 0.01
Betty P. Krahmer 92,515,630 53.41 99.98 0 0 15,858 0.01
Constantine D.
Tseretopoulos 92,515,630 53.41 99.98 0 0 15,858 0.01
Frank J. Crothers 92,515,630 53.41 99.98 0 0 15,858 0.01
Fred R. Millsaps 92,515,630 53.41 99.98 0 0 15,858 0.01
S. Joseph Fortunato 92,515,630 53.41 99.98 0 0 15,858 0.01
Harris J. Ashton 92,515,630 53.41 99.98 0 0 15,858 0.01
Andrew H. Hines Jr. 92,515,630 53.41 99.98 0 0 15,858 0.01
John G. Bennett Jr.** 92,515,630 53.41 99.98 0 0 15,858 0.01
Gordon S. Macklin 92,515,630 53.41 99.98 0 0 15,858 0.01
</TABLE>
* AFTER HIS NOMINATION AND THE MAILING OF THE PROXY FOR THE SPECIAL MEETING,
SIR JOHN TEMPLETON STEPPED DOWN AS CHAIRMAN AND DIRECTOR OF THE U.S.
REGISTERED TEMPLETON FUNDS, EFFECTIVE APRIL 16, 1995, AND DECLINED TO STAND
FOR RE-ELECTION. CONSEQUENTLY, PURSUANT TO DISCRETIONARY AUTHORITY GRANTED
IN THE PROXIES, THE PROXY HOLDERS CAST THE PROXIES FOR JOHN WM. GALBRAITH,
FORMER VICE CHARIMAN OF TEMPLETON, GALBRAITH & HANSBERGER LTD.
** SUBSEQUENT TO THE SPECIAL MEETING, MR. JOHN G. BENNETT, JR., RESIGNED FROM
ALL OF THE TEMPLETON FUNDS, EFFECTIVE MAY 19, 1995.
17
<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
Account Service: 1-800-684-4001
Fund Information: 1-800-362-6243
ZT454 S 08/95
- --------------------------------------------------------------------------------
<PAGE>
Templeton Institutional Funds, Inc.
TIFI
Foreign Equity
(South Africa Free) Series
ANNUAL REPORT
[LOGO OF TEMPLETON
APPEARS HERE] December 31, 1994
<PAGE>
December 31, 1994
Dear Shareholder...
Looking back to the beginning of 1994, investor's expectations were high.
Historical returns from equity markets were well above average, the economic
base worldwide was growing, people were being put back to work and money poured
into stock mutual funds. In fact, net purchases of foreign equities by U.S.
investors for the year ending 1993 were more than twice the entire amount
invested in the 1980's.
Yet, 1994 was a humbling experience because many financial markets were
adversely affected by recent adverse global events which included, for example,
rising interest rates and the Mexican monetary crisis. The impact of these
events was further exacerbated by distressed selling by highly-leveraged hedge
funds. Again, in hindsight, our research lists had proven to be good leading
indicators for market trends. In January 1994, our Source of Funds List (sell
list) with 150 names was almost twice the size of our Bargain List (buy list),
which at 80 names had shrunk to its lowest level in 10 years.
Within this environment, the Templeton Institutional Funds, Inc. Foreign
Equity (South Africa Free) Series (the "Fund") under performed its benchmark
index this year as did most funds with international investment mandates. It
returned -4.0% for the fourth quarter and -1.94% for the year ending December
31, 1994, compared to the unmanaged Morgan Stanley Capital International Europe,
Australia and the Far East excluding South Africa Investment ("MSCI EAFE ex
SAI") index returns of -1.9% and 8.5%. Since inception on May 3, 1993, the Fund
has provided a 15.1% average annual return against the MSCI EAFE ex SAI index
return of 8.6%. A majority of the performance difference versus the index for
1994 was due to no holdings in Japanese shares in the Fund against a 45.8%
weighting in the MSCI EAFE index. Nevertheless, we anticipate remaining
underweighted in Japan because Japanese shares, in most industry sectors, remain
overvalued based on our investment criteria.
The Fund also had total assets of $40 million at the end of 1994 compared
to $93 million as of the end of 1993, with the majority
Total Returns as of 12/31/94
<TABLE>
<CAPTION>
One-Year Cumulative
Average Annual/1/ Since Inception/2/
<S> <C> <C>
TIFI Foreign Equity (SAF) Series -1.94 26.36
EAFE ex SAI Index 8.51 14.75
</TABLE>
/1/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/2/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
continued...
[PHOTO APPEARS HERE]
JAMES CHANEY IS A PORTFOLIO MANAGER AND RESEARCH ANALYST. HE CURRENTLY MANAGES
THE TEMPLETON INSTITUTIONAL GROWTH AND FOREIGN EQUITY MUTUAL FUNDS, TWO VARIABLE
ANNUITY PRODUCTS AND SEVERAL CORPORATE AND PUBLIC FUND SEPARATE ACCOUNTS. MR.
CHANEY'S GLOBAL RESEARCH RESPONSIBILITIES INCLUDE MERCHANDISING, REGIONAL BANKS
AND ENVIRONMENTAL COMPANIES.
PRIOR TO JOINING THE TEMPLETON ORGANIZATION IN 1991, MR. CHANEY SPENT SIX YEARS
WITH GE INVESTMENTS, WHERE HE WAS VICE PRESIDENT OF INTERNATIONAL EQUITIES. IN
THAT CAPACITY, HE HAD NUMEROUS RESEARCH RESPONSIBILITIES AND ALSO MANAGED
SEVERAL SEPARATE ACCOUNTS AND A START-UP MUTUAL FUND WHICH WAS A LIPPER-LISTED
TOP QUARTILE PERFORMER. HE ALSO HAS ANOTHER SEVEN YEARS EXPERIENCE AS AN
INTERNATIONAL CONSULTING ENGINEER AND PROJECT MANAGER FOR CAMP, DRESSER & MCKEE,
INC. AND AMERICAN BRITISH CONSULTANTS.
MR. CHANEY RECEIVED A M.B.A. WITH HONORS FROM COLUMBIA UNIVERSITY, WHERE HE WAS
A MEMBER OF THE BETA GAMMA SIGMA HONOR SOCIETY. HE RECEIVED HIS M.S. IN
ENGINEERING FROM NORTHEASTERN UNIVERSITY AND HIS B.S. IN ENGINEERING FROM THE
UNIVERSITY OF MASSACHUSETTS-AMHERST. MR. CHANEY IS A LICENSED AND REGISTERED
ENGINEER.
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity (SAF) Series
letter continued..............................................................
Industry Diversification on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Banking 18.1%
Utilities Electrical & Gas 9.6%
Telecommunications 7.7%
Financial Services 7.3%
Food & Household Products 7.2%
Business & Public Services 6.8%
Insurance 6.2%
Forest Products & Paper 4.9%
Merchandising 4.7%
Multi-Industry 4.2%
</TABLE>
Templeton Institutional Fund
Geographic Distribution on 12/31/94
Based on % of Total Equity
[PIE CHART APPEARS HERE SHOWING
GEOGRAPHIC DISTRIBUTION OF THE FUND]
<TABLE>
<CAPTION>
Description Amount
------------------------ --------
<S> <C>
Europe 65.3%
Asia 15.6%
Latin America/Caribbean 7.1%
Australia/New Zealand 7.4%
North America 4.6%
</TABLE>
of the decrease in assets a result of exchanges to the Foreign Equity Series as
many investors removed their South Africa Free mandates. The Fund's share price,
as measured by net asset value, was $8.13 at December 31, 1994, compared to
$12.50 at December 31, 1993. Shareholders received $0.215 per share in dividend
income and $3.93 per share in capital gains in 1994.
Fortunately, many of these recent adverse events can be viewed as cyclical
and not secular. Bad news and overall market pessimism may therefore provide
buying opportunities for patient, fundamental investors. Many companies today,
for example, continue to register good earnings growth as our global economy
expands. What will 1995 hold for investors? We do not really know, nor does
anyone else, and although many claim to hold great insight into potential
outcomes, over the short-term no one has been consistently correct. However,
our level of optimism has improved. The primary reason is the number of new
names that now appear on our Bargain List. With so much confusion, fear and
uncertainty worldwide, many share prices have fallen dramatically. Our analysts
work daily to uncover specific stock ideas which they anticipate will perform
well regardless of the direction of the overall market. Our Bargain List with
170 names is now twice as large as our Source of Funds List and is at the higher
end of our historical range of 100 to 200 names. The largest additions to our
Bargain List have been in the market sectors that are well represented in your
Fund. Currently, the Fund is well diversified with a majority of its investments
in 1) natural resources oriented shares, 2) selective industrial cyclicals
that continue to offer value, 3) consumer durables shares that include
automobile manufacturers, 4) utilities in strong growth economies and 5)
undervalued financials with strong fundamentals.
Your Fund's geographical weightings are considered less important than
share selection. However, these weightings can influence portfolio performance,
particularly during periods when sudden and dramatic macro economic or political
changes result in abnormal market volatility. These periods, however, are often
temporary, but can provide longer-term investors with good investment
opportunities. Needless to say, because of our long-term perspective, your
Fund's weightings are not expected to change significantly unless these
oftentimes unexpected anomalies do develop. Our Bargain List currently indicates
that international shares, in general, are marginally undervalued compared to
U.S. shares after being considered fairly valued at the beginning of last year.
It is also our anticipation that Europe will continue to be overweighted
with a good exposure to Scandinavia and Spain. Central Europe, particularly the
former Iron Curtain countries, are looking more interesting. We also remain
committed to investments in Australia and New Zealand and the Fund's Canadian
holdings which, in our opinion, are undervalued.
We also continue to maintain investments in the emerging markets despite
poor performance in 1994. It is important to note that the magnitude of this
performance isn't surprising. In the United States, a
<PAGE>
normal bear market reduces prices by 20%, lasts 13 months and takes 21 months to
get back to the point you were before the bear market began. Normal bear markets
in emerging countries do not tend to last as long as bear markets in the United
States, but normally suffer decreases in price of 30 - 40%. Hong Kong is a prime
example. Over the last 10 years, despite an increase over 480% in the Hang Seng
stock index from 1365 in January of 1985 to 8000 in January of 1995, there have
been four corrections of more than 30%, including a decline of 45% in 1987, and
a drop of 29% in 1994. We had reduced certain investments in Hong Kong over a
year ago. Now after a 29% correction, valuations of some companies obviously
appear more attractive on the basis of our value criteria which is long-term
oriented.
In Mexico, the market has also fallen dramatically. Mexico certainly has
problems that need to be resolved, but at some point share prices will be fully
discounted and undervalued. The ongoing currency devaluation, for example,
benefits export companies that do not have large foreign debt positions.
Our natural resources investments include energy, forest products and base
metals companies. Many commodities have limited new supply, sell at prices below
replacement cost, and should benefit from growing demand. Emerging markets
demand for commodities is particularly notable. For example, China's and India's
population, on average, consume one barrel of oil per person each year, 1/10 the
level of other emerging market countries such as Taiwan and 1/30 the level of
North America.
Financial stocks and companies, perceived to be influenced by rising
interest rates, have also fallen dramatically over the last 12 months. In
essence, all stocks are influenced by levels of interest rates, yet some are
perceived to be more sensitive than others. Our performance in 1994 was not
helped by our financial exposure. Nevertheless, share prices for many of these
securities may already reflect the likelihood of further rate increases and are
undervalued, thus offering longer-term investment opportunity.
Your Fund, consistent with it's long-term investment focus, has not
engaged in currency hedging. Foreign exchange fluctuations can affect
performance in the short-term. However, we continue to believe that proper share
selection on a long-term basis can mitigate this risk, a conclusion that has
historically proven correct.
In many ways, 1995 should be much like 1994 with the "madness of crowds"
guiding market behavior. Fortunately, market volatility can create opportunity,
especially for fundamental investors with long-term perspectives. We hope you
will also take comfort in the fact that we continue to vigorously research,
check and double check each individual security purchased for your Fund.
Virtually all securities we purchase have a detailed written analysis which
looks back five years over the company's development and 3-5 years into the
future. Each share we purchase is tracked by at least one of three dozen
analysts and followed closely in our database which contains over 200 data items
on each company. We also hope you will take comfort in the fact that we are
trying to purchase securities that are fundamentally inexpensive.
10 Largest Positions on 12/31/94
(% of Total Portfolio)
<TABLE>
<S> <C>
Burton Group PLC 1.8%
South Whales Electricity 1.8%
TSB Group PLC 1.7%
Vetropack AG 1.7%
Aegon NV 1.7%
British Gas PLC 1.7%
International Nederlanden Group 1.7%
Barclays PLC 1.7%
Svenska Handelsbanken 1.6%
Astra AB, A 1.6%
</TABLE>
Templeton Institutional Fund
Fund Asset Allocation on 12/31/94
[PIE CHART APPEARS HERE SHOWING
FUND ASSET ALLOCATION ON 12/31/94]
<TABLE>
<S> <C>
Equity 90%
Short Term & Other 10%
</TABLE>
*Equity includes convertible and preferred stocks
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity (SAF) Series
letter continued................................................................
Templeton Institutional Fund
Total Return Index Comparison/1/
$5,000,000 Investment: 05/03/93 - 12/31/94
[GRAPH APPEARS HERE SHOWING COMPARISON BETWEEN TIFI FOREIGN EQUITY (SAF)
SERIES, EAFE EX SAI INDEX AND THE CPI INDEX]
<TABLE>
<CAPTION>
4/93 12/94
--------- ---------
<S> <C> <C>
TIFI Foreign Equity (SAF) Series 5,000,000 6,317,965
EAFE ex SAI Index 5,000,000 5,737,467
CPI Index 5,000,000 5,201,618
</TABLE>
Periods ended December 31, 1994
<TABLE>
<CAPTION>
Since
Inception
One-Year (5/03/93)
<S> <C> <C>
Average Annual Total Return/2/ -1.94% 15.12%
Cumulative Total Return/3/ -1.94% 26.36%
</TABLE>
/1/ The Fund's manager is waiving a portion of its management fees, which
reduces operating expenses. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any
time.
/2/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/3/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
Finally, we take great comfort and pride in our staff. So many of our
professionals have given up large parts of their personal lives to contribute
their talents and work towards our effort of trying to deliver superior
performance. We realize your expectations are high. We respect the confidence
you have shown in our organization by placing your assets in our care and we are
dedicated to the tasks at hand. We thank you for your continued relationship
with the Templeton organization.
Sincerely,
Donald F. Reed, C.F.A., C.I.C.
President
Templeton Institutional Funds, Inc.
James E. Chaney, P.E.
Senior Vice President
Templeton Investment Counsel, Inc.
For more complete portfolio information, call Templeton Fund Information,
toll-free, at 800-362-6243.
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period $ 12.50 $ 10.00
------- -------
Income from investment operations:
Net investment income .32 .10
Net realized and unrealized gain (loss) (.55) 2.77
------- -------
Total from investment operations (.23) 2.87
------- -------
Distributions:
Dividends from net investment income (.21) (.06)
Distributions from net realized gains (3.93) (.31)
------- -------
Total distributions (4.14) (.37)
------- -------
Change in net asset value (4.37) 2.50
------- -------
Net asset value, end of year $ 8.13 $ 12.50
======= =======
TOTAL RETURN * (1.94)% 28.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $39,576 $93,006
Ratio of expenses to average net assets 1.05% 1.01%**
Ratio of expenses, net of reimbursement,
to average net assets 1.00% 1.00%**
Ratio of net investment income to average
net assets 2.04% 1.58%**
Portfolio turnover rate 34.26% 82.52%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 88.0%
- -------------------------------------------------------------------------------
Automobiles: 1.6%
Consorcio G Grupo Dina SA de CV, ADR Mex. 14,000 $ 133,000
Volvo AB, B Swe. 26,500 499,290
-----------
632,290
- -------------------------------------------------------------------------------
Banking: 18.1%
Argentaria Corporacion Bancaria de
Espana SA, ADR Sp. 25,000 446,875
Australia & New Zealand Banking
Group Ltd. Aus. 170,000 560,117
Banco Bilbao Vizcaya Sp. 18,500 458,898
Banco de Andalucia Sp. 2,750 307,123
Banco Portugues de Investimento SA Port. 24,000 358,822
Banque Nationale de Paris, ADR Fr. 13,500 627,750
Barclays PLC U.K. 69,000 659,040
Canadian Imperial Bank of Commerce Can. 22,000 531,278
HSBC Holdings PLC H.K. 41,500 447,851
National Bank of Canada Can. 73,500 497,772
National Bank of Greece SA Gr. 8,300 386,135
Svenska Handelsbanken, A Swe. 49,000 646,251
TSB Group PLC U.K. 185,000 678,721
Westpac Banking Corp. Aus. 165,000 556,434
-----------
7,163,067
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.5%
Vereniging Nederlandse Uitgevers Vb
(VNU) Neth. 5,500 570,943
- -------------------------------------------------------------------------------
Building Materials & Components: 1.4%
Pioneer International Ltd. Aus. 230,000 570,582
- -------------------------------------------------------------------------------
Business & Public Services: 6.5%
Attwoods PLC U.K. 295,000 538,835
Ecco SA Fr. 3,199 379,735
Esselte AB, A Swe. 37,000 480,516
Societe Generale de Surveillance
Holdings Ltd., br. Swtz. 405 559,858
Welsh Water PLC U.K. 60,000 619,544
-----------
2,578,488
- -------------------------------------------------------------------------------
Chemicals: 0.6%
*European Vinyls Corp. EVC
International NV Neth. 5,695 252,287
- -------------------------------------------------------------------------------
Data Processing & Reproduction: 0.4%
*Newbridge Networks Corp. Can. 4,400 168,989
- -------------------------------------------------------------------------------
Energy Sources: 3.7%
Repsol SA Sp. 15,000 406,838
Saga Petroleum AS, A Nor. 44,000 478,226
Societe Elf Aquitane SA Fr. 8,300 584,155
-----------
1,469,219
- -------------------------------------------------------------------------------
Financial Services: 5.9%
*Capital Portugal Fund Port. 4,400 358,268
*Creditanstalt Investment
Privatisation Fund PLC Csk. 90 2,625
India Fund, B Ind. 160,000 414,281
Korea International Trust Kor. 7 409,500
Singapore Fund Sing. 22,000 327,250
Thai Fund Inc. Thai. 21,334 477,348
*Turkish Growth Fund Tur. 32,000 328,000
-----------
2,317,272
- -------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------
Food & Household Products: 7.0%
Albert Fisher Group PLC U.K. 785,000 $ 583,365
Cafe de Coral Group Ltd. H.K. 1,465,000 359,742
Hillsdown Holdings PLC U.K. 220,000 616,102
PT Japfa Comfeed Indonesia, fgn. Indo. 130,000 155,255
Vetropack AG, br. Swtz. 177 675,908
Vitro SA Mex. 80,000 367,200
-----------
2,757,572
- -----------------------------------------------------------------------------
Forest Products & Paper: 4.6%
Carter Holt Harvey Ltd. N.Z. 222,000 454,764
Metsa Serla OY, B Fin. 11,500 504,897
PT Barito Pacific Timber, fgn. Indo. 75,000 118,574
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 80,000 149,226
Stora Kopparbergs Bergslags AB, B Swe. 10,000 602,916
-----------
1,830,377
- -----------------------------------------------------------------------------
Health & Personal Care: 2.8%
Ares-Serono SA, B Swtz. 830 455,776
Astra AB, A Swe. 25,000 645,982
-----------
1,101,758
- -----------------------------------------------------------------------------
Insurance: 6.0%
Aegon NV Neth. 10,500 671,410
International Nederlanden Group Neth. 14,000 661,328
London Insurance Group Inc. Can. 27,500 450,900
Zuerich Versicherung, br. Swtz. 625 594,283
-----------
2,377,921
- -----------------------------------------------------------------------------
Machinery & Engineering: 0.9%
VA Technologie AG, br. Aust. 3,450 347,293
- -----------------------------------------------------------------------------
Merchandising: 4.6%
Burton Group PLC U.K. 670,000 715,408
Koninklijke Bijenkorf Beheer (KBB)
NV Neth. 9,500 536,321
Kwik Save Group PLC U.K. 64,000 550,705
-----------
1,802,434
- -----------------------------------------------------------------------------
Metals & Mining: 1.7%
*Elkem AS, A Nor. 23,000 297,596
*Union Miniere NPV Bel. 5,050 392,919
-----------
690,515
- -----------------------------------------------------------------------------
Multi-Industry: 4.0%
Amer Group Ltd., A Fin. 18,000 311,550
Hutchison Whampoa Ltd. H.K. 106,000 428,795
Jardine Matheson Holdings Ltd. H.K. 60,000 428,433
Swire Pacific Ltd., A H.K. 69,000 429,829
-----------
1,598,607
- -----------------------------------------------------------------------------
Telecommunications: 5.5%
Compania de Telefonos de Chile SA,
ADR Chil. 5,050 397,688
STET (Sta Finanziaria Telefonica
Torino) SPA, di Risp Itl. 260,000 616,338
Telefonica de Argentina SA, B, ADR Arg. 6,450 341,850
Telefonica de Espana SA Sp. 34,500 407,578
Telmex-Telefonos de Mexico SA, L,
ADR Mex. 9,700 397,700
-----------
2,161,154
- -----------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, December 31, 1994 (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- ------------------------------------------------------------------------------
Transportation: 0.7%
Singapore Airlines Ltd., fgn. Sing. 29,000 $ 266,621
- ------------------------------------------------------------------------------
Utilities-Electrical & Gas: 9.2%
British Gas PLC U.K. 135,000 662,137
*CEZ Csk. 1,000 48,676
Electricidad de Caracas Venz. 467,037 566,531
Endesa-Empresa Nacional de
Electricidad SA Sp. 11,000 447,939
Evn Energie-Versorgung Aust. 3,700 480,669
Gesa-Gas y Electricidad SA Sp. 6,900 292,513
Iberdrola SA Sp. 74,000 456,509
South Wales Electricity U.K. 50,000 699,334
-----------
3,654,308
- ------------------------------------------------------------------------------
Wholesale & International Trade: 1.3%
Brierley Investments Ltd. N.Z. 705,000 509,977
-----------
TOTAL COMMON STOCKS (cost $33,696,247) 34,821,674
- ------------------------------------------------------------------------------
PREFERRED STOCKS: 2.0%
Philippine Long Distance
Telephone Co., conv., Pfd. Phil. 12,500 400,000
Telebras-Telecomunicacoes
Brasileiras SA, ADR Braz. 8,300 373,500
-----------
Total Preferred Stocks (cost
$636,389) 773,500
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BOND: 1.2% (cost $366,375)
- ------------------------------------------------------------------------------
PIV Investment Finance
(Cayman) Ltd., 4.5%, conv.,
12/1/00 U.S. $ 710,000 482,800
- ------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 5.2% (cost $2,069,248)
- ------------------------------------------------------------------------------
U.S. Treasury Bills, 4.75% to
5.47% with maturities to
2/16/95 U.S. 2,074,000 2,070,506
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS: 96.4% (cost $36,768,259) 38,148,480
OTHER ASSETS, LESS LIABILITIES: 3.6% 1,427,999
-----------
TOTAL NET ASSETS: 100.0% $39,576,479
===========
</TABLE>
*NON-INCOME PRODUCING
**CURRENCY IN COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost $36,768,259) $38,148,480
Cash 10,660
Receivables:
Investment securities sold 609,942
Fund Shares sold 500,000
Dividends and interest 439,915
Unamortized organization costs 4,818
-----------
Total assets 39,713,815
-----------
Liabilities:
Payables for investment securities purchased 3,305
Accrued expenses 134,031
-----------
Total liabilities 137,336
-----------
Net assets, at value $39,576,479
===========
Net assets consist of:
Undistributed net investment income $ 703,936
Unrealized appreciation on investments 1,380,221
Accumulated net realized gain 588,682
Net capital paid in on shares of capital stock 36,903,640
-----------
Net assets, at value $39,576,479
===========
Shares outstanding 4,869,622
===========
Net asset value per share ($39,576,479 / 4,869,622) $ 8.13
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment income: (net of $208,670 foreign taxes
withheld)
Dividends $ 1,843,580
Interest 251,045
------------
Total income $ 2,094,625
Expenses:
Management fees (Note 3 ) 485,980
Administrative fees (Note 3) 77,383
Custodian fees 36,000
Reports to shareholders 28,100
Audit fees 25,900
Legal fees 8,300
Registration and filing fees 46,750
Directors' fees and expenses 7,000
Amortization of organization costs 1,365
Other 6,470
------------
Total expenses 723,248
Less expenses reimbursed (34,105)
------------
Total expenses less reimbursement (Note 3) 689,143
-----------
Net investment income 1,405,482
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 12,029,002
Foreign currency transactions (95,547)
------------
11,933,455
Net unrealized depreciation on investments (14,496,288)
------------
Net realized and unrealized loss (2,562,833)
-----------
Net decrease in net assets resulting from opera-
tions $(1,157,351)
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 1,405,482 $ 917,221
Net realized gain from security and for-
eign currency transactions 11,933,455 11,959,117
Net unrealized appreciation (deprecia-
tion) (14,496,288) 15,876,509
------------ -----------
Net increase (decrease) in net assets
resulting from operations (1,157,351) 28,752,847
Distributions to shareholders:
From net investment income (978,249) (640,518)
From net realized capital gain (Note 5) (20,207,441) (3,096,449)
Capital share transactions (Note 2) (31,086,005) 67,889,645
------------ -----------
Net increase (decrease) in net assets (53,429,046) 92,905,525
Net assets:
Beginning of period 93,005,525 100,000
------------ -----------
End of year $ 39,576,479 $93,005,525
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity (South Africa Free) Series (the Fund) is a separate series of
Templeton Institutional Funds, Inc. (the Company) which is an open-end, diver-
sified management investment company registered under the Investment Company
Act of 1940. The following summarizes the Fund's significant accounting poli-
cies.
A. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
B. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from invest-
ments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities at
the end of the fiscal period, resulting from changes in the exchange rates.
C. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Reve-
nue Code applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no provision has been made
for federal income taxes.
D. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over a five
year period.
E. Security Transactions, Investment Income, Distributions, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to sharehold-
ers, which are determined in accordance with income tax regulations, are re-
corded on the ex-dividend date.
2. TRANSACTIONS IN SHARES OF CAPITAL STOCK
At December 31, 1994, there were 520 million shares of capital stock autho-
rized ($0.01 par value) of which 30 million have been classified as Fund
shares. Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 3, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 436,822 $ 5,000,491 11,192,377 $114,646,741
Shares issued in rein-
vestment of distribu-
tions 1,647,939 15,467,056 218,067 2,647,379
Shares redeemed (4,657,485) (51,553,552) (3,978,098) (49,404,475)
---------- ------------ ---------- ------------
Net (decrease) increase (2,572,724) $(31,086,005) 7,432,346 $ 67,889,645
========== ============ ========== ============
</TABLE>
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Fund's investment manager, administrative manager, princi-
pal underwriter and transfer agent, respectively. The Fund pays monthly an in-
vestment management fee to TICI equal, on an annual basis, to 0.70% of the av-
erage daily net assets of the Fund. The Fund pays TGII monthly its allocated
share of an administrative fee of 0.15% per annum on the first $200 million of
the Company's aggregate average daily net assets, 0.135% of the next $500 mil-
lion, 0.10% of the next $500 million and 0.075% per annum of such average net
assets in excess of $1.2 billion. TGII has voluntarily agreed to limit the to-
tal expenses of the Fund to an annual rate of 1.00% of the Fund's average net
assets through December 31, 1994. The amount of reimbursement for the year
ended December 31, 1994 is set forth in the Statement of Operations. For the
year ended December 31, 1994, FTD and FTIS received no amounts with respect to
the Fund.
An officer of the Fund is a partner of Dechert Price & Rhoads, legal counsel
for the Funds, which firm received fees of $8,300 for the year ended December
31, 1994.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1994 aggregated $21,647,849 and $60,713,364, respec-
tively. The cost of securities for federal income tax purposes is $37,581,798.
Realized gains and losses are reported on an identified cost basis.
At December 31, 1994, the aggregate gross unrealized appreciation and deprecia-
tion of portfolio securities, based on cost for federal income tax purposes,
was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 2,946,860
Unrealized depreciation (2,380,178)
-----------
Net unrealized appreciation $ 566,682
===========
</TABLE>
5. DISTRIBUTIONS
Income distributions and capital gain distributions are determined in accor-
dance with income tax regulations which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing treat-
ments for passive foreign investment companies ("PFIC") held by the Fund. As a
result, the amount distributed from capital gains includes $174,129 ($0.04 per
share) attributable to the PFIC mark to market rules which is included in
unrealized appreciation under generally accepted accounting principles.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Independent Auditor's Report
- -------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Institutional Funds, Inc.--Foreign Equity (South Africa Free) Series
We have audited the accompanying statement of assets and liabilities, includ-
ing the investment portfolio, of the Foreign Equity (South Africa Free) Series
of Templeton Institutional Funds, Inc. as of December 31, 1994, and the re-
lated statement of operations for year then ended, and, statement of changes
in net assets and the financial highlights for the year then ended and for the
period from May 3, 1993 (commencement of operations) to December 31, 1993.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Foreign Equity (South Africa Free) Series of Templeton Institutional Funds,
Inc. as of December 31, 1994, the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in con-
formity with generally accepted accounting principles.
[SIGNATURE OF MCGLADREY & PULLEN, LLP APPEARS HERE]
New York, New York
February 3, 1995
14
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This report must be preceded or accompanied by the prospectus of the
Templeton Institutional Funds, Inc.
Investors should be aware that the value of investments made for the Fund may
go up as well as down and that the Investment Manager may make errors in
selecting the securities for the Fund's portfolio. Like any investment in
securities, the Fund's portfolio will be subject to the risk of loss from
market, currency, economic, political, and other factors. The Fund and Fund
investors are not protected from such losses by the Investment Manager.
Therefore, investors who cannot accept the risk of such losses should not
invest in shares of the Fund.
The Fund is not FDIC insured, is not an obligation of, nor guaranteed by any
bank or financial institution, and involves investment risks, including
possible loss of principal.
Principal Underwriter:
FRANKLIN TEMPLETON
DISTRIBUTORS, INC.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Account Service: 800-684-4001
Fund Information: 800-362-6243
[RECYCLED PAPER LOGO
APPEARS HERE]
TL459 A 12/94
<PAGE>
Templeton Institutional Funds, Inc.
TIFI Foreign Equity
(South Africa Free) Series
------------------------------------------------------------------
SEMI-ANNUAL REPORT
June 30, 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 1oss of the
principal amount invested.
- --------------------------------------------------------------------------------
<PAGE>
June 30, 1995
Dear Shareholder...
While problems in Latin America cast a bearish pall over the
world's equity markets in early 1995, second quarter results had a much more
bullish feel to them. The combination of falling interest rates, better than
anticipated earnings performance and improving flows of assets into mutual funds
proved potent for most of the world's stock markets, but most notably for US
stocks. Of the various categories of mutual funds tracked by Lipper, only
emerging market and Japanese oriented funds turned in a negative performance in
1995's first half while many other categories were able to attain double digit
advances. Within this environment, the Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series (the "Fund") returned 8.8%, 7.8% and
10.9% for the quarter, six month and one year periods ending June 30, 1995,
compared to the MSCI EAFE ex SAI (Europe, Australia & Far East ex South Africa
Involvement) Index returns of (1.0%), (0.3%) and (2.9%), respectively. The Fund
has returned 15.4% annualized since its inception on May 3, 1993, compared to
the MSCI EAFE ex SAI Index annualized return of 6.4%.
European stocks generally moved higher with returns to dollar
based investors being even better due to the positive impact of the rather sharp
decline in the US currency's value. Asian stock markets outside of Japan also
mostly improved with Hong Kong leading the rebound from last year's dismal
returns. Overall, however, US stocks have been the equity of choice so far in
1995 as the US market achieved the best returns when measured in local currency
terms and the third best, after Finland and Switzerland, when measured in
dollars. The MSCI EAFE Index, however, rose just 2.8% due largely to Japan's
negative influence on the index while the MSCI World Index rose 9.4% due to the
large positive impact of the US weighting in that index.
- --------------------------------------------------------------------------------
Total Returns as of 6/30/95
<TABLE>
<CAPTION>
One-Year Cumulative
Average Since
Annual/1/ Inception/2/
<S> <C> <C>
TIFI Foreign Equity (SAF) Series 10.94 36.25
MSCI EAFE Index -2.89 14.40
</TABLE>
/1/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/2/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
continued...
[PHOTO APPEARS HERE]
James Chaney is a portfolio manager and research analyst. He currently manages
the Templeton Institutional Growth and Foreign Equity Mutual Funds, two variable
annuity products and several corporate and public fund separate accounts. Mr.
Chaney's global research responsibilities include merchandising, regional banks
and environmental companies.
Prior to joining the Templeton organization in 1991, Mr. Chaney spent six years
with GE Investments, where he was vice president of international equities. In
that capacity, he had numerous research responsibilities and also managed
several separate accounts and a start-up mutual fund which was a Lipper-listed
top quartile performer. He also has another seven years experience as an
international consulting engineer and project manager for Camp, Dresser & McKee,
Inc. and American British Consultants.
Mr. Chaney received a M.B.A. with Honors from Columbia University, where he was
a member of the Beta Gamma Sigma Honor Society. He received his M.S. in
Engineering from Northeastern University and his B.S. in Engineering from the
University of Massachusetts-Amherst. Mr. Chaney is a licensed and registered
engineer.
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity (SAF) Series
letter continued................................................................
One of the most intriguing aspects of the markets' behavior lately
has been the extreme divergence in the performance of the world's two largest
stock markets and their associated currencies. During the first half of 1995,
the US market, as measured by the S&P 500, rose 20.1% while Japan's Nikkei 500
Index declined 26.4% in local currency. Conversely, the two nation's currencies
have moved in the opposite direction with the yen rising 17.3% versus the dollar
for the six months ended June 30th. The major European markets seem to be taking
the middle ground with token appreciation in the equity markets and slightly
more subdued currency strength versus the dollar. These short-term trends in
equity prices and exchange rate values at least partly, and perhaps largely,
reflect the consequences of the fundamental economic policy differences that
have been in place for many years in these nations.
These policies can be briefly summarized as follows: The US's
primary goal has been maintaining economic growth and employment as close to
potential as possible without igniting serious bouts of inflation and with an
unhealthy emphasis on domestic consumption versus savings. Japan has tried to
successfully achieve economic growth and employment via encouraging savings,
investment and unusually rapid export growth while discouraging imports and
domestic demand. Germany's (and therefore much of central Europe's) most
prominent goal has long been to limit inflation at the expense of optimal
economic growth and employment as well as to encourage savings, investment and
growth in the export sector. The incompatibility of the policies of the three
most influential economic regions in the world has thus far worked itself out in
each nation's respective current account and ultimately in their exchange rates
as we have seen so clearly again recently. Japan and Germany, as of the end of
1993, had built their net foreign asset positions to 14% and 12% of their
respective GNP's and the US, after thirteen years of current account deficits,
is a net debtor to the rest of the world to the tune of over 10% of its GNP.
These different models of capitalism have been clashing for over
twenty years and given the increasingly integrated world economy, the emergence
of the world's developing economies as an economic force and the current state
of each nation's economy, it is unlikely that the current policies can remain
unaltered over the next twenty years. The changes that ultimately occur will
undoubtedly have a material impact on the magnitude, and perhaps direction, of
equity price movements both inside and outside the nation's involved. The US
will have the least impetus for change given the small share of international
trade in its economy. The high value of the deutschemark will crimp Germany's
export ability, thereby reducing its economic growth somewhat and leading to
greater investment overseas, but major changes in the German model of capitalism
do not appear imminent.
Japan, on the other hand, will remain a victim of its own enormous
export success as its major customer, the US, continues to badger them to change
their economic model to incorporate greater imports and
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Industry Diversification on 6/30/95
(% of Total Portfolio)
<S> <C>
Banking 11.9%
Utilities Electrical & Gas 10.8%
Financial Services 9.0%
Telecommunications 7.6%
Food & Household Products 5.9%
Multi-Industry 5.8%
Insurance 5.8%
Forest Products & Paper 4.8%
Business & Public Services 4.5%
Energy Sources 4.2%
</TABLE>
- --------------------------------------------------------------------------------
Geographic Distribution on 6/30/95
(% of Equity Assets)
Europe 57.7%
Latin America/Caribbean 6.8%
[PIE CHART APPEARS HERE] North America 6.3%
Asia 19.7%
Australia/New Zealand 9.5%
2
<PAGE>
................................................................................
fewer exports. While Japan has largely resisted such changes in the past, Adam
Smith's proverbial "invisible hand" has become somewhat more visible in the
strength of the yen which has begun to bring about some alterations in the
Japanese model of capitalism, primarily low economic growth, reduced
productivity, increased offshore investments, reductions in cross holdings and
less stable employment prospects. The value of the yen versus the dollar will
greatly influence the future pace of change in the Japanese economy. In the
absence of additional significant yen strength, the transition of the Japanese
economy to one that is at least somewhat more complementary with its major
trading partners will likely be slow due to the potentially heavy costs of
changes such as unemployment, greater fiscal deficits and lower corporate
earnings. Entering this period with an over built manufacturing base, a weakened
financial sector and an equity market that is unable to attract or allocate
capital in an efficient manner will not ease this transition. Japan's strong
national balance sheet, however, should help the country weather whatever
difficult times may arise.
It is also worth noting that we have often found that, as the
difficulties that Japanese companies are facing multiply, this often translates
into greater opportunities for US, European and emerging market firms. While we
at Templeton are often attracted to markets like Japan's that have declined
greatly in value, in this case we still find it very difficult to identify many
stocks that are selling at extremely low multiples of what we believe could be
earned five years from now. Given the changes that could occur and the market's
expected negative reaction to such changes, Templeton's team of 34 analysts
located in 7 offices worldwide will be diligently and continuously reviewing the
long term earnings potential of Japanese companies in their assigned industries
in relation to share prices so as to identify bargains as they arise.
Weaker share prices in the emerging markets is also attracting our
analyst's attention. Many of these nations embraced capitalism with such an
initial vigor that substantial flows of portfolio investment were attracted from
developed world investors leading to stunning advances in equity prices. Lately,
these nations and investors alike have found that the transition to capitalism
was more complicated than initially anticipated and this reality has been
reflected in sharply declining share prices in places like Mexico, Argentina,
Brazil, Eastern Europe, Russia, India and China. The recent volatility of these
markets is, in large measure, a reflection of the increased reliance on fast
moving foreign portfolio investments to finance growth versus the historic use
of more stable bank loans and a likely increased future focus on foreign direct
investments. Nevertheless, portfolio investment will remain a very important
source of capital for the emerging markets and, in most of these nations, the
needed economic adaptations to return economic growth to a more balanced and
sustainable level will be forthcoming with greater rapidity then we expect in
Japan. As a result of this and much lower current valuation levels, we have been
able to increasingly
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Largest Positions on 6/30/95
(% of Total Portfolio)
<S> <C>
Svenska Handelsbanken, A 1.8%
Zuerich Versicherung, br. 1.7%
Kwik Save Group PLC 1.7%
Electricidad de Caracas 1.7%
Stora Kopparbergs Bergslags AB, B 1.7%
Welsh Water PLC 1.6%
Societe Generale de Surveillance
Holdings Ltd., br. 1.6%
Thai Fund Inc. 1.6%
Aegon NV 1.6%
Hillsdown Holdings PLC 1.6%
</TABLE>
- --------------------------------------------------------------------------------
Fund Asset Allocation on 6/30/95
Equity* 90.5%
[PIE CHART APPEARS HERE] Short Term & Other 9.5%
*Equity includes convertible and preferred stocks
3
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity (SAF) Series
letter continued................................................................
identify shares selling at inordinately low multiples of long-term earnings
power. While the road to western levels of prosperity will, in all probability,
remain long and quite bumpy for these developing markets, the course seems to
have been set firmly in the direction towards greater corporate and individual
earnings power. Only the speed at which these nations proceed down the path to
the benefits of capitalism seems in doubt at this time and this will vary from
nation to nation with spectacular accidents occurring from time to time. Our
analysts will strive to apply our time-tested investment disciplines in order to
identify those emerging market equities that may provide the most worthwhile
returns for your portfolio.
Turning briefly to those markets that have performed better in
1995, we are finding fewer bargains - particularly in the US. While we at
Templeton have never claimed any expertise in the area of short-term economic
prognostication, it is readily apparent to us that we are not at the bottom of a
recession with only upside surprises awaiting us. Economic activity has clearly
begun to slow but, with no obvious imbalances in the economy, a long period of
decline does not seem likely. Because of the good performance of both the US
bond and equity markets, however, risk has clearly increased. Still, valuations
are not yet so extended as to cause a dramatic increase in the number of stocks
qualifying for our Source of Funds List. With the financial system in good
health, corporate balance sheets improving, stock prices relatively high,
interest rates low and the dollar weak, investment bankers have begun to stir.
New issuance activity is strong and mergers and acquisition activity is
prevalent with US companies potentially the target of European based firms. This
coupled with continued healthy inflows into mutual funds could support the US
market for some time.
It is also becoming more difficult to identify bargains in Europe,
particularly in the hard currency countries (i.e. Germany, France, Switzerland
and the Netherlands). Again, however, valuations have not become so extended
that our Source of Funds List has become cluttered with European names.
Moreover, consensus expectations appear to be less optimistic in Europe
suggesting that there is still the possibility of favorable developments
surprising these markets.
Partly because many Asian currencies are indirectly tied to the
value of the depressed dollar, we are still able to find many bargain-priced
stocks in this region. Earnings continue to expand and valuations generally
remain reasonable. Due to Japan's and China's economic problems, interest in the
area remains somewhat subdued and expectations relatively low. Economic growth
remains at very high levels and could continue unabated in most countries for
the foreseeable future. The long-term outlook for share prices in this region
remains favorable.
The long-term outlook for global equity investment remains
positive in our view. The acceptance of capitalism by almost all nations,
increasingly free trade, technological advancements and the reduced probability
of warfare on a large scale all point towards better economic growth
- --------------------------------------------------------------------------------
Total Return Index Comparison/1/
$5,000,000 Investment: 05/03/93 - 06/30/95
[Graph appears here showing comparison between TIFI Foreign Equity
(SAF) Series, MSCI EAFE Index ex SAI Index and CPI Index]
Period ended June 30, 1995
<TABLE>
<CAPTION>
Since
Inception
One-Year (05/03/93)
<S> <C> <C>
Average Annual Total Return/2/ 10.94% 15.42%
Cumulative Total Return/3/ 10.94% 36.25%
</TABLE>
/1/ The Fund's manager is waiving a portion of its management fees, which
reduces operating expenses. Without these reductions, the Fund's total
return would have been lower. The fee waiver may be discontinued at any
time.
/2/ Average annual total return figures represent the average annual increase
in value of an investment over the specified periods. The calculations
assume reinvestment of dividends and capital gains distributions.
/3/ The cumulative return shows the change in value of an investment over the
period(s) indicated. The calculations assume reinvestment of dividends and
capital gains distributions.
Investment return and principal value fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost. Past
performance cannot guarantee future results.
- --------------------------------------------------------------------------------
4
<PAGE>
................................................................................
and thus corporate earnings. While the supply of equities is growing, due partly
to privatizations in both developed and developing countries, savings should
also rise dramatically over the longer term due to demographic changes and the
pressing need for governments and individuals to address the issue of pensions
and health care. A study using 1993 data by the Investment Company Institute
indicates that mutual fund assets outside the US already equal those in the US
and that the total is over $4 trillion. This number should grow rapidly,
particularly outside the US where demand for mutual funds and pension management
has only just begun to catch on. As
<TABLE>
<CAPTION>
Regional Fund Management (US$b)
Total Total Funds
Pension Mutual Funds as % of per
Country Funds Funds Insurance Per Capita Capita GDP
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hong Kong 13 27 4 7,251 30%
India 40 13 17 75 27%
Indonesia 7 0.67 1 42 5%
Korea 26* 173** 75 6,073 62%
Malaysia 35 N/A 7 2,086 50%
Philippines 3 0.19 0.32 51 4%
Singapore 35 20 10 22,772 85%
Taiwan 6 9 27 1,998 21%
Thailand 4 10 2 321 12%
US 5,000 1,600 2,000 28,667 106%
</TABLE>
*End-1993
**Investments Trust Cos and Bank Trust Accounts
Source: Peregrine regional estimates
we noted this time last year, if the top five most populous emerging market
nations (China, India, Indonesia, Brazil and Pakistan) can accumulate an
additional $400 per capita in mutual fund and pension assets over the next ten
years, this alone will create a new pool of $1 trillion in savings. Also, most
observers believe that the developed countries will increase the level of
foreign assets held over the next five to ten years. The Regional Fund
Management table above, produced by Peregrine, compares the size of pension,
mutual fund and insurance assets in various Asian countries with
5
<PAGE>
Templeton Institutional Funds, Inc. Foreign Equity Series
letter continued................................................................
that of the US and highlights the potential for growth in this
area alone. With long-term earnings growth at least as good as
that experienced in the past and the potential for rapid growth in
savings, global equities should remain the asset class of choice
for long-term investors.
Current market conditions present a challenge to our
analytical team to uncover unusually inexpensive shares.
Nevertheless, you can be confident that we will continue to
implement, in a disciplined fashion, the investment methodologies
that have served our clients so well for so long. Finding
outstanding values by carefully studying the fundamental position
of individual companies, translating our observations into long-
term earnings projections, determining which shares are valued
most attractively based on these projections and patiently waiting
until other investors come to admire the positive traits we have
already identified will remain the hallmark of the Templeton
research team. Our investment style requires fortitude and resolve
to remain focused on long-term opportunities in the face of short-
term problems that depress share prices to the level that qualify
them as true Templeton bargains. Our staff of investment
professionals continues to grow and the resources dedicated to
helping them produce the highest quality investment research have
also expanded. While we are generally pleased with our results
thus far in 1995, we intend to intensify our bargain-hunting
efforts with the goal of producing even better long-term
investment returns for our clients. It has been our pleasure to
serve as your investment counselor and we highly value your
continued relationship with the Templeton organization. Please
feel free to contact us with any questions or comments you might
have.
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.
6
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS MAY 3, 1993
ENDED (COMMENCEMENT OF
JUNE 30, 1995 YEAR ENDED OPERATIONS) TO
(UNAUDITED) DECEMBER 31, 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 .17 .32 .10
Net realized and unrealized
gain (loss) .44 (.55) 2.77
------- ------- -------
Total from investment
operations .61 (.23) 2.87
------- ------- -------
Distributions:
Dividends from net
investment income (.04) (.21) (.06)
Distributions from net
realized gains (.31) (3.93) (.31)
------- ------- -------
Total distributions (.35) (4.14) (.37)
------- ------- -------
Change in net asset value .26 (4.37) 2.50
------- ------- -------
Net asset value, end of
period $ 8.39 $ 8.13 $ 12.50
======= ======= =======
TOTAL RETURN * 7.83% (1.94)% 28.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000) $33,476 $39,576 $93,006
Ratio of expenses to average
net assets 1.14%** 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 3.22%** 2.04% 1.58%**
Portfolio turnover rate 48.51% 34.26% 82.52%
</TABLE>
*NOT ANNUALIZED IN PERIODS OF LESS THAN ONE YEAR.
**ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, June 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS: 83.6%
- -------------------------------------------------------------------------------
Appliances & Household Durables: 1.4%
Sony Corp. Jpn. 10,000 $ 480,038
- -------------------------------------------------------------------------------
Automobiles: 1.0%
Regie Nationale des Usines Renault SA Fr. 10,300 322,721
- -------------------------------------------------------------------------------
Banking: 11.9%
Argentaria Corporacion Bancaria de
Espana SA, ADR Sp. 21,500 395,063
Australia & New Zealand Banking Group
Ltd. Aus. 121,000 430,005
Banco Bilbao Vizcaya Sp. 16,200 467,443
Banco de Andalucia Sp. 1,750 226,976
Banco Portugues de Investimento SA Port. 14,400 251,483
Barclays PLC U.K. 26,000 279,252
Canadian Imperial Bank of Commerce Can. 19,500 468,426
HSBC Holdings PLC H.K. 35,500 455,346
National Bank of Canada Can. 45,000 368,517
Sparbanken Sverige AB Ord A Swe. 700 5,870
Svenska Handelsbanken, A Swe. 39,500 589,139
TSB Group PLC U.K. 9,500 36,554
-----------
3,974,074
- -------------------------------------------------------------------------------
Broadcasting & Publishing: 1.3%
News Corp. Ltd. Aus. 87,000 430,375
- -------------------------------------------------------------------------------
Building Materials & Components: 1.3%
Pioneer International Ltd. Aus. 180,000 447,774
- -------------------------------------------------------------------------------
Business & Public Services: 4.5%
Esselte AB, A Swe. 34,000 425,315
Societe Generale de Surveillance
Holdings Ltd., br. Swtz. 315 547,112
Welsh Water PLC U.K. 52,000 549,823
-----------
1,522,250
- -------------------------------------------------------------------------------
Chemicals: 1.1%
*European Vinyls Corp. EVC
International NV Neth. 8,295 386,511
- -------------------------------------------------------------------------------
Data Processing & Reproduction: 0.5%
*Newbridge Networks Corp. Can. 4,500 158,053
- -------------------------------------------------------------------------------
Energy Sources: 4.2%
Repsol SA Sp. 14,000 440,371
Saga Petroleum AS, A Nor. 35,000 496,998
Societe Elf Aquitane SA Fr. 6,400 472,950
-----------
1,410,319
- -------------------------------------------------------------------------------
Financial Services: 7.6%
*Capital Portugal Fund Port. 4,900 478,278
*Chile Fund Inc. Chil. 2,300 123,625
Creditanstalt Investment
Privatisation Fund PLC Csk. 2,984 80,805
India Fund, B Ind. 140,500 264,723
Korea International Trust Kor. 7 353,500
Singapore Fund Sing. 22,000 346,500
Thai Fund Inc. Thai. 20,234 536,201
*Turkish Growth Fund Tur. 28,000 367,500
-----------
2,551,132
- -------------------------------------------------------------------------------
Food & Household Products: 5.9%
Albert Fisher Group PLC U.K. 594,000 429,730
Cafe de Coral Holdings Ltd. H.K. 1,596,000 398,082
Hillsdown Holdings PLC U.K. 183,169 524,230
PT Japfa Comfeed Indonesia, fgn. Indo. 95,000 66,120
</TABLE>
8
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -------------------------------------------------------------------------------
Food & Household Products (cont.)
Vetropack AG, br. Swtz. 107 $ 357,751
Vitro SA Mex. 71,880 204,484
-----------
1,980,397
- -------------------------------------------------------------------------------
Forest Products & Paper: 4.8%
Carter Holt Harvey Ltd. N.Z. 194,000 474,699
Metsa Serla OY, B Fin. 5,800 257,989
PT Barito Pacific Timber, fgn. Indo. 117,000 168,118
PT Pabrik Kertas Tjiwi Kimia, fgn. Indo. 58,000 116,547
Stora Kopparbergs Bergslags AB, B Swe. 42,500 575,461
-----------
1,592,814
- -------------------------------------------------------------------------------
Health & Personal Care: 2.4%
Ares-Serono SA, B Swtz. 670 392,749
Hafslund Nycomed SA, B Nor. 18,350 424,355
-----------
817,104
- -------------------------------------------------------------------------------
Insurance: 5.8%
Aegon NV Neth. 15,450 534,443
International Nederlanden Group Neth. 9,250 511,601
London Insurance Group Inc. Can. 16,500 307,780
Zuerich Versicherung, br. Swtz. 460 578,046
-----------
1,931,870
- -------------------------------------------------------------------------------
Machinery & Engineering: 1.4%
VA Technologie AG, br. Aust. 3,650 456,812
- -------------------------------------------------------------------------------
Merchandising: 3.5%
Burton Group PLC U.K. 161,000 211,832
Koninklijke Bijenkorf Beheer (KBB) NV Neth. 5,155 369,949
Kwik Save Group PLC U.K. 56,000 577,870
-----------
1,159,651
- -------------------------------------------------------------------------------
Metals & Mining: 2.2%
Renison Goldfields Consolidated Ltd. Aus. 60,000 189,771
*Inmet Mining Corp. Can. 21,000 152,866
*Union Miniere NPV Bel. 6,000 391,268
-----------
733,905
- -------------------------------------------------------------------------------
Multi-Industry: 5.8%
Amer Group Ltd., A Fin. 19,500 354,711
BTR Nylex Ltd. Aus. 126,000 240,902
Hutchison Whampoa Ltd. H.K. 92,000 444,674
Jardine Matheson Holdings Ltd. H.K. 56,700 416,745
Swire Pacific Ltd., A H.K. 60,000 457,494
Waste Management International PLC,
ADR U.K. 2,300 21,850
-----------
1,936,376
- -------------------------------------------------------------------------------
Real Estate: 0.8%
Bail Investissement Fr. 1,450 266,014
- -------------------------------------------------------------------------------
Telecommunications: 3.4%
Compania de Telecomunicaciones de
Chile SA, ADR Chil. 2,700 219,712
STET (Sta Finanziaria Telefonica
Torino) SPA, di Risp Itl. 229,000 507,474
Telefonica de Espana SA Sp. 33,000 425,015
-----------
1,152,201
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Investment Portfolio, June 30, 1995 (unaudited) (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY ISSUE COUNTRY SHARES VALUE
<C> <S> <C> <C> <C>
- -----------------------------------------------------------------------------
COMMON STOCKS (CONT.)
- -----------------------------------------------------------------------------
Transportation: 0.6%
Brambles Industries Ltd. Aus. 20,000 $ 189,629
- -----------------------------------------------------------------------------
Utilities Electrical & Gas: 10.8%
British Gas PLC U.K. 109,000 501,733
*CEZ Csk. 6,150 223,636
Electricidad de Caracas Venz. 647,623 575,718
Endesa-Empresa Nacional de
Electricidad SA Sp. 9,500 469,020
Evn Energie-Versorgung Aust. 3,200 447,146
Gesa-Gas y Electricidad SA Sp. 5,000 240,660
Iberdrola SA Sp. 65,000 489,412
Shandong Huaneng Power Chn. 24,300 185,288
South Wales Electricity U.K. 44,000 487,622
-----------
3,620,235
- -----------------------------------------------------------------------------
Wholesale & International Trade: 1.4%
Brierley Investments Ltd. N.Z. 621,000 469,143
-----------
TOTAL COMMON STOCKS (cost $26,367,833) 27,989,398
- -----------------------------------------------------------------------------
PREFERRED STOCKS: 4.2%
- -----------------------------------------------------------------------------
Cia de Inversiones en
Telecomunicaciones SA, conv.
pfd. Arg. 4,730 238,865
Nacional Financiera SA, reg.
42, conv., pfd. Mex. 12,900 404,738
Nacional Financiera SA, reg.
S, conv., pfd. Mex. 1,200 37,650
Philippine Long Distance
Telephone Co., conv., pfd. Phil. 11,000 453,750
Telebras-Telecomunicacoes
Brasileiras SA, ADR Braz. 7,750 255,266
-----------
TOTAL PREFERRED STOCKS (cost
$1,322,323) 1,390,269
- -----------------------------------------------------------------------------
<CAPTION>
PRINCIPAL IN
LOCAL CURRENCY**
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BONDS: 2.7%
- -----------------------------------------------------------------------------
PIV Investment Finance
(Cayman) Ltd.,
4.50%, conv., 12/1/00 U.S. 560,000 450,800
U.S. Treasury Note, 8.875%,
2/15/96 U.S. 450,000 458,298
-----------
TOTAL BONDS (cost $904,685) 909,098
- -----------------------------------------------------------------------------
SHORT TERM OBLIGATIONS: 8.4% (cost $2,811,549)
- -----------------------------------------------------------------------------
U S Treasury Bills, 5.26% to
5.62% with
maturities to 8/24/95 U.S. 2,837,000 2,823,295
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS: 98.9% (cost
$31,406,390) 33,112,060
OTHER ASSETS, LESS LIABILITIES: 1.1% 364,103
-----------
TOTAL NET ASSETS: 100.0% $33,476,163
===========
</TABLE>
*NON-INCOME PRODUCING.
**CURRENCY IN COUNTRIES INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (unaudited)
<TABLE>
<S> <C>
Assets:
Investment in securities, at value (identified cost $31,406,390) $33,112,060
Receivables:
Investment securities sold 162,066
Dividends and interest 390,502
Administrative fee reimbursement 17,283
Unamortized organization costs 4,143
-----------
Total assets 33,686,054
-----------
Liabilities:
Payables for investment securities purchased 128,533
Accrued expenses 81,358
-----------
Total liabilities 209,891
-----------
Net assets, at value $33,476,163
===========
Net assets consist of:
Undistributed net investment income $ 1,096,301
Unrealized appreciation on investments 1,705,670
Accumulated net realized gain 614,030
Net capital paid in on shares of capital stock 30,060,162
-----------
Net assets, at value $33,476,163
===========
Shares outstanding 3,989,017
===========
Net asset value per share ($33,476,163 / 3,989,017) $ 8.39
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
for the six months ended June 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
Investment income: (net of $85,996 foreign taxes
withheld)
Dividends $ 620,311
Interest 211,048
----------
Total income $ 831,359
Expenses:
Management fees (Note 3 ) 139,003
Administrative fees (Note 3) 20,612
Custodian fees 36,368
Reports to shareholders 6,500
Audit fees 8,500
Registration and filing fees 11,000
Directors' fees and expenses 2,500
Amortization of organization costs 674
Other 932
----------
Total expenses 226,089
Less expenses reimbursed (33,382)
----------
Total expenses less reimbursement (Note 3) 192,707
----------
Net investment income 638,652
Realized and unrealized gain (loss):
Net realized gain (loss) on:
Investments 1,924,072
Foreign currency transactions (20,788)
----------
1,903,284
Net unrealized appreciation on investments 325,449
----------
Net realized and unrealized gain 2,228,733
----------
Net increase in net assets resulting from operations $2,867,385
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
------------- -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 638,652 $ 1,405,482
Net realized gain from security and foreign
currency transactions 1,903,284 11,933,455
Net unrealized appreciation (depreciation) 325,449 (14,496,288)
----------- ------------
Net increase (decrease) net assets resulting
from operations 2,867,385 (1,157,351)
Distributions to shareholders:
From net investment income (246,287) (978,249)
From net realized capital gain (1,877,936) (20,207,441)
Capital share transactions (Note 2) (6,843,478) (31,086,005)
----------- ------------
Net decrease in net assets (6,100,316) (53,429,046)
Net assets:
Beginning of period 39,576,479 93,005,525
----------- ------------
End of period $33,476,163 $ 39,576,479
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Notes to Financial Statements (unaudited)
- -------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Foreign Equity (South Africa Free) Series (the Fund) is a separate series of
Templeton Institutional Funds, Inc. (the Company) which is an open-end, diver-
sified management investment company registered under the Investment Company
Act of 1940. The following summarizes the Fund's significant accounting poli-
cies.
a. Securities Valuations:
Securities listed or traded on a recognized national or foreign stock exchange
or NASDAQ are valued at the last reported sales prices on the principal ex-
change on which the securities are traded. Over-the-counter securities and
listed securities for which no sale is reported are valued at the mean between
the last current bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
and approved in good faith by the Board of Directors.
b. Foreign Currency Translations:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the rate of exchange of
such currencies against U.S. dollars on the date of valuation. Purchases and
sales of portfolio securities and income items denominated in foreign curren-
cies are translated into U.S. dollar amounts on the respective dates of such
transactions. When the Fund purchases or sells foreign securities it customar-
ily enters into foreign exchange contracts to minimize foreign exchange risk
between the trade date and the settlement date of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss from invest-
ments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the differences between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books, and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities at
the end of the fiscal period, resulting from changes in the exchange rates.
c. Income Taxes:
It is the Fund's policy to comply with the requirements of the Internal Reve-
nue Code applicable to regulated investment companies and to distribute all
its taxable income to its shareholders. Therefore, no provision has been made
for federal income taxes.
d. Unamortized Organization Costs:
Organization costs are being amortized on a straight line basis over a five
year period.
e. Security Transactions, Investment Income Distributions, and Expenses:
Security transactions are accounted for on a trade date basis. Dividend income
is recorded on the ex-dividend date. Certain dividend income on foreign secu-
rities is recorded as soon as information is available to the Fund. Interest
income and estimated expenses are accrued daily. Distributions to sharehold-
ers, which are determined in accordance with income tax regulations, are re-
corded on the ex-dividend date.
2. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At June 30, 1995, there were 520 million shares of capital stock authorized
($0.01 par value) of which 30 million have been classified as Fund shares.
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold 1,309,806 $10,347,413 436,822 $ 5,000,491
Shares issued in
reinvestment of
distributions 609,657 4,818,994 1,647,939 15,467,056
Shares redeemed (2,800,068) (22,009,885) (4,657,485) (51,553,552)
---------- ----------- ---------- ------------
Net decrease (880,605) $(6,843,478) (2,572,724) $(31,086,005)
========== =========== ========== ============
</TABLE>
14
<PAGE>
Templeton Institutional Funds, Inc.
Foreign Equity (South Africa Free) Series
Notes to Financial Statements (unaudited) (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Company are also directors or officers of Templeton In-
vestment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII), Frank-
lin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor Servic-
es, Inc. (FTIS), the Fund's investment manager, administrative manager, princi-
pal underwriter and transfer agent, respectively. The Fund pays monthly an in-
vestment management fee to TICI equal, on an annual basis, to 0.70% of the av-
erage daily net assets of the Fund. The Fund pays TGII monthly its allocated
share of an administrative fee of 0.15% per annum on the first $200 million of
the Company's aggregate average daily net assets, 0.135% of the next $500 mil-
lion, 0.10% of the next $500 million and 0.075% per annum of such average net
assets in excess of $1.2 billion. TGII has voluntarily agreed to limit the to-
tal expenses of the Fund to an annual rate of 1.00% of the Fund's average net
assets through December 31, 1995. The amount of reimbursement for the six
months ended June 30, 1995 is set forth in the Statement of Operations. For the
six months ended June 30, 1995, FTD and FTIS received no amounts with respect
to the Fund.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the six
months ended June 30, 1995 aggregated $17,038,626 and $25,080,899, respective-
ly. The cost of securities for federal income tax purposes is $31,322,662. Re-
alized gains and losses are reported on an identified cost basis.
At June 30, 1995, the aggregate gross unrealized appreciation and depreciation
of portfolio securities, based on cost for federal income tax purposes, was as
follows:
<TABLE>
<S> <C>
Unrealized appreciation $ 3,049,383
Unrealized depreciation (1,259,985)
-----------
Net unrealized appreciation $ 1,789,398
===========
</TABLE>
15
<PAGE>
Templeton Institutional Funds, Inc.
Special Meeting of Shareholders, May 4, 1995
- --------------------------------------------------------------------------------
A Special Meeting of Shareholders of the Fund was held at the Fund's offices,
700 Central Avenue, St. Petersburg, Florida, on May 4, 1995. The purpose of the
meeting was to elect twelve directors of the Fund. At the meeting, the follow-
ing persons were elected by the shareholders to serve as directors of the Fund:
John Wm. Galbraith, Charles B. Johnson, Nicholas F. Brady, Betty P. Krahmer,
Constantine D. Tseretopoulos, Frank J. Crothers, Fred R. Millsaps, S. Joseph
Fortunato, Harris J. Ashton, Andrew H. Hines, Jr., John G. Bennett, Jr., and
Gordon S. Macklin.
The results of the voting at the Special Meeting are as follows:
1. Election of twelve (12) Directors:
<TABLE>
<CAPTION>
% OF % OF % OF
OUTSTANDING SHARES OUTSTANDING
FOR SHARES VOTED AGAINST % ABSTAIN SHARES
---------- ----------- ------ ------- --- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
John Wm. Galbraith* 92,515,630 53.41% 99.98% 0 0 15,858 0.01%
Charles B. Johnson 92,515,630 53.41 99.98 0 0 15,858 0.01
Nicholas F. Brady 92,515,630 53.41 99.98 0 0 15,858 0.01
Betty P. Krahmer 92,515,630 53.41 99.98 0 0 15,858 0.01
Constantine D.
Tseretopoulos 92,515,630 53.41 99.98 0 0 15,858 0.01
Frank J. Crothers 92,515,630 53.41 99.98 0 0 15,858 0.01
Fred R. Millsaps 92,515,630 53.41 99.98 0 0 15,858 0.01
S. Joseph Fortunato 92,515,630 53.41 99.98 0 0 15,858 0.01
Harris J. Ashton 92,515,630 53.41 99.98 0 0 15,858 0.01
Andrew H. Hines Jr. 92,515,630 53.41 99.98 0 0 15,858 0.01
John G. Bennett Jr.** 92,515,630 53.41 99.98 0 0 15,858 0.01
Gordon S. Macklin 92,515,630 53.41 99.98 0 0 15,858 0.01
</TABLE>
* AFTER HIS NOMINATION AND THE MAILING OF THE PROXY FOR THE SPECIAL MEETING,
SIR JOHN TEMPLETON STEPPED DOWN AS CHAIRMAN AND DIRECTOR OF THE U.S.
REGISTERED TEMPLETON FUNDS, EFFECTIVE APRIL 16, 1995, AND DECLINED TO STAND
FOR RE-ELECTION. CONSEQUENTLY, PURSUANT TO DISCRETIONARY AUTHORITY GRANTED
IN THE PROXIES, THE PROXY HOLDERS CAST THE PROXIES FOR JOHN WM. GALBRAITH,
FORMER VICE CHARIMAN OF TEMPLETON, GALBRAITH & HANSBERGER LTD.
** SUBSEQUENT TO THE SPECIAL MEETING, MR. JOHN G. BENNETT, JR., RESIGNED FROM
ALL OF THE TEMPLETON FUNDS, EFFECTIVE MAY 19, 1995.
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
Account Service: 1-800-684-4001
Fund Information: 1-800-362-6243
[RECYCLING LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
ZT459 S 08/95
<PAGE>
PART C
OTHER INFORMATION
Item 15. INDEMNIFICATION
The information required by this item is incorporated by
reference to the Registrant's Bylaws, filed as Exhibit (2) to Registrant's
Registration Statement on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940 (File No. 33-35779).
Item 16. EXHIBITS
(1) Articles of Incorporation.1/
(2) By-laws.1/
(3) Not applicable.
(4) Agreement and Plan of Reorganization.2/
(5) Specimen copy of share certificate for Registrant's
Shares of common stock.1/
(6) Form of Investment Advisory Agreement between
Templeton Investment Counsel, Inc. and the
Registrant.1/
(7) Form of Underwriting Agreement between Franklin
Templeton Distributors, Inc. and the Registrant.1/
(8) Not applicable.
(9) Custodian Agreement between the Registrant and
Chase Manhattan Bank.1/
(10) Not applicable.
- --------
1/ Previously filed with Registration Statement No. 33-35779 and
incorporated by reference herein.
2/ Filed herewith as Exhibit "A" to the Proxy Statement/Prospectus.
= Part C-1 =
<PAGE>
(11) Opinion of Dechert Price & Rhoads as to legality
of the securities being offered (including consent
of such firm).
(12) Opinion of Dechert Price & Rhoads as to tax
consequences (including consent of such firm).
(13) Not applicable.
(14) Consent of McGladrey & Pullen, LLP.
(15) Not applicable.
(16) Power of Attorney.3/
(17) Form of Proxy.
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any
public reoffering of the securities registered
through the use of a prospectus which is part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1933, as
amended, the reoffering prospectus will contain the
information called for by the applicable registration
form for reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every
prospectus that is filed under paragraph (1) above
will be filed as part of an amendment to the
registration statement and will not be used until the
amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be
deemed to be a new registration statement for the
securities offered therein, and the
- --------
3/ Powers of Attorney are contained in Post-Effective Amendment No. 4
to Registration Statement No. 33-35779 filed on March 25, 1993,
Post-Effective Amendment No. 5 to the Registration Statement filed
on November 4, 1993, Post-Effective Amendment No. 7 to the
Registration Statement filed on March 2, 1994, and herewith.
= Part C-2 =
<PAGE>
offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
= Part C-3 =
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of St. Petersburg,
Florida on the 23rd day of January, 1996.
TEMPLETON INSTITUTIONAL FUNDS, INC.
By: Donald F. Reed, President*
*By: /s/ THOMAS M. MISTELE
Thomas M. Mistele, attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Charles B. Johnson* Director January 23, 1996
Constantine Dean Director January 23, 1996
Tseretopoulos*
Frank J. Crothers* Director January 23, 1996
Harris J. Ashton Director January 23, 1996
S. Joseph Fortunato* Director January 23, 1996
Fred R. Millsaps* Director January 23, 1996
Gordon S. Macklin* Director January 23, 1996
<PAGE>
Andrew H. Hines, Jr.* Director January 23, 1996
John Wm. Galbraith* Director January 23, 1996
Nicholas F. Brady* Director January 23, 1996
Donald F. Reed* President January 23, 1996
(Chief Executive
Officer)
James R. Baio* Treasurer (Chief January 23, 1996
Financial and
Accounting Officer)
</TABLE>
*By: /s/ THOMAS M. MISTELE
Thomas M. Mistele, as attorney-in-fact**
** Powers of Attorney are contained in Post-Effective Amendment
No. 4 to Registration Statement No. 33-35779 filed on March
25, 1993, Post-Effective Amendment No. 5 to the Registration
Statement filed on November 4, 1993, Post-Effective Amendment
No. 7 to the Registration Statement filed on March 2, 1994,
and herewith.
<PAGE>
INDEX TO EXHIBITS
(11) Opinion of Dechert Price & Rhoads as to the legality of the securities
being offered (including consent of such firm).
(12) Opinion of Dechert Price & Rhoads as to tax consequences
(including consent of such firm).
(14) Consent of McGladrey & Pullen, LLP.
(16) Power of Attorney.
(17) Form of Proxy.
Dechert Price & Rhoads 1500 K
Street, N.W.
Washington, D.C. 20005-1208
December 21, 1995
Board of Directors
Templeton Institutional Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Ladies and Gentlemen:
You have requested our opinion regarding certain Federal income tax
consequences to Templeton Foreign Equity (South Africa Free) Series (the
"Fund"), a series of Templeton Institutional Funds, Inc. (the "Company"), to
Templeton Foreign Equity Series ("Foreign Equity Series"), also a series of the
Company, and to the holders of the shares of common stock of the Fund, in
connection with the proposed transfer of substantially all of the properties of
the Fund to Foreign Equity Series, in exchange solely for shares of common stock
of Foreign Equity Series ("Foreign Equity Series Shares") and the assumption by
Foreign Equity Series of certain liabilities of the Fund followed by the
distribution of such Foreign Equity Series Shares received by the Fund in
complete liquidation and termination of the Fund, all pursuant to the Agreement
and Plan of Reorganization (the "Agreement") to be executed by the Company on
behalf of the Fund and Foreign Equity Series and included as an exhibit to Form
N- 14.
For purposes of this opinion, we have examined and rely upon (1) the
Agreement, (2) the Form N-14, dated December 21, 1995, and filed by the Company
on said date with the Securities and Exchange Commission, and (3) such other
documents and instruments as we have deemed necessary or appropriate for
purposes of rendering this opinion. We assume that the transaction that is the
subject of this letter (the "Reorganization") will be carried out in accordance
with the terms of the Agreement and as described in the documents we have
examined.
This opinion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), United States Treasury regulations, judicial decisions,
and administrative rulings and pronouncements of the Internal Revenue Service,
all as in effect on the date hereof. This opinion is conditioned upon (a) the
Reorganization taking place in the manner described in the Agreement and the
Form N-14 to which reference is made above, and (b) there being no change in the
Code, United States Treasury regulations, judicial decisions, or administrative
<PAGE>
rulings and pronouncements of the Internal Revenue Service between the date
hereof and the closing date of the Reorganization.
This opinion is further conditioned upon our receiving such executed
letters of representation from the Company as we shall request. This opinion
shall be effective only at such time as we receive those letters and confirm our
opinion in writing on the closing date of the Reorganization and, in the absence
of such confirmation, will be deemed to have been withdrawn.
Based upon the foregoing, it is our opinion that, for Federal income
tax purposes:
(1) The acquisition by Foreign Equity Series of substantially all of
the properties of the Fund in exchange solely for Foreign Equity Series Shares
and the assumption by Foreign Equity Series of certain liabilities of the Fund
followed by the distribution of Foreign Equity Series Shares to the shareholders
of the Fund in exchange for their Fund shares in complete liquidation and
termination of the Fund, will constitute a reorganization within the meaning of
Section 368 of the Code. The Fund and Foreign Equity Series will each be "a
party to a reorganization" within the meaning of Section 368(b) of the Code.
(2) The Fund will recognize no gain or loss upon transferring its
properties to Foreign Equity Series in exchange solely for Foreign Equity Series
Shares and the assumption by Foreign Equity Series of certain liabilities of the
Fund or upon distributing to its shareholders the Foreign Equity Series Shares
received by the Fund in the transaction pursuant to the Agreement.
(3) Foreign Equity Series will recognize no gain or loss upon receiving
the properties of the Fund in exchange for Foreign Equity Series Shares and the
assumption by Foreign Equity Series of certain liabilities of the Fund.
(4) The aggregate adjusted basis to Foreign Equity Series of the
properties of the Fund will be the same as the aggregate adjusted basis of those
properties in the hands of the Fund immediately before the exchange.
(5) Foreign Equity Series' holding periods with respect to the
properties of the Fund that Foreign Equity Series acquires in the transaction
will include the respective periods for which those properties were held by the
Fund (except where investment activities of Foreign Equity Series have the
effect of reducing or eliminating a holding period with respect to an asset).
<PAGE>
(6) The shareholders of the Fund will recognize no gain or loss upon
receiving Foreign Equity Series Shares solely in exchange for Fund shares.
(7) The aggregate basis of the Foreign Equity Series Shares received by
a shareholder of the Fund in the transaction will be the same as the aggregate
basis of the Fund shares surrendered by the shareholder in exchange therefor.
(8) A Fund shareholder's holding period for the Foreign Equity Series
Shares received by the shareholder in the transaction will include the holding
period during which the shareholder held the Fund shares surrendered in exchange
therefor, provided that the shareholder held such shares as a capital asset on
the date of Reorganization.
We express no opinion as to the tax consequences of the Reorganization
except as expressly set forth above, or as to any transaction except those
consummated in accordance with the Agreement and the representations to be made
to us.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form N-14 to be filed by the Company with the
Securities and Exchange Commission.
Very truly yours,
Dechert Price & Rhoads
<PAGE>
DECHERT PRICE & RHOADS
1500 K STREET, N.W.
WASHINGTON, D.C. 20005-1208
December 21, 1995
Templeton Institutional Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Dear Sirs:
We have acted as counsel to Templeton Institutional Funds,
Inc., a Maryland corporation (the "Company"), and we have a general familiarity
with the Company's business operations, practices and procedures. You have asked
for our opinion regarding the issuance of shares of common stock by Foreign
Equity Series, a series of shares of the Company (the "Fund") in connection with
the acquisition by the Fund of the assets of Foreign Equity (South Africa Free)
Series, also a series of shares of the Company, which will be registered on a
Form N-14 Registration Statement (the "Registration Statement") to be filed by
the Company with the Securities and Exchange Commission.
We have examined originals or certified copies, or copies
otherwise identified to our satisfaction as being true copies, of various
corporate records of the Company and such other instruments, documents and
records as we have deemed necessary in order to render this opinion. We have
assumed the genuineness of all signatures, the authenticity of all documents
examined by us and the correctness of all statements of fact contained in those
documents.
On the basis of the foregoing, we are of the opinion that the
shares of common stock of the Fund being registered under the Securities Act of
1933 in the Registration Statement will be legally and validly issued, fully
paid and non-assessable, upon transfer of the assets for the above referenced
fund pursuant to the terms of the Agreement and Plan of Reorganization included
in the Registration Statement.
We have hereby consent to the filing of this opinion with and
as part of the Registration Statement.
Very truly yours,
Dechert Price & Rhoads
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports dated February 3, 1995, on the
financial statements of Templeton Institutional Funds, Inc., Foreign Equity
(South Africa Free) Series and Foreign Equity Series referred to therein, in the
Registration Statement on Form N-14 of Templeton Institutional Funds, Inc., File
No. 33-35779 being filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm in the
Prospectus/Proxy Statement under the caption "Financial Statements
and Experts".
/s/ MCGLADREY & PULLEN, LLP
New York, New York
December 21, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, being a duly
elected Director of Templeton Institutional Funds, Inc. (the "Company"),
constitutes and appoints Allan S. Mostoff, Jeffrey L. Steele, William J.
Kotapish and Thomas M. Mistele, and each of them, his true and lawful
attorney-in-fact and agents with full power of substitution and resubstitution
for him in his name, place and stead, in any and all capacities, to sign the
Company's registration statement and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and act and thing requisite and necessary to be done, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and conforming all that said attorneys-in-fact and agents, or any of the, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 31, 1995
John Wm. Galbraith
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
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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
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